Blog: Pathways to service system smartness: Should firms embrace the customer?2022-11-10
Firms are investing heavily in boosting the smartness of their service systems. Think of McDonalds who developed a smart application to send customers convenient location-specific deals; or Google who is devoting considerable funds into creating ever-smarter homes where customers gain control over a wide array of home devices. This is smartness; service systems that are enabled by physical products with digital components such as Internet of things connectors, actuators, and artificial intelligence.
Smart service systems have four characteristics:
• Awareness – capturing information about themselves and their environment
• Connectivity – linking to various actors involved in the service delivery
• Actuation – an ability to decide and act autonomously without customer intervention
• Dynamism – an ability to learn and adapt over time
Firms expend considerable effort manipulating these traits, yet how do they incorporate the complex needs of customers into such smartness decisions? The whole point of smartness is that customers are involved and can control the way they create value with the service offering. However, this co-creation relationship engenders both benefits and risks for customers. For example, there are dichotomies around the collection of personal data. This can give rise to privacy and data security concerns. Yet this data also enables personalized services to better meet their needs.
This directs firms’ attention to the types of benefits (or indeed risks) that smartness offers for customers – namely the value package. Communicating the value that results from smartness is a key strategic decision. This fueled the first question guiding a research study completed recently – how do firms communicate the value of smartness configurations through value propositions?
And what drives such decisions? What sort of logic underpins firm’s decisions around how they align resources with such customer value propositions? The research draws on value creation logic to offer explanations here. This logic reflects a firm’s taken-for-granted meaning around committing resources to create customer value through its offerings. In other words, it directs and facilitates decision-making and subsequent actions. In this study we were interested in exploring the way firms’ value creation logics drive decisions related to smartness and the customer.
To address these aims the research team carried out a two-year multiple case study of 14 firms offering smart service systems. These ranged from smart trackers and bikes to smart healthcare systems and museums.
By unravelling the array and combination of smartness configurations, customer value propositions and value creation logics across the cases, the study’s findings show four pathways to service system smartness:
Here firms really restrict smartness characteristics, even if seemingly contrary to customers’ desires or requests. For example, the smart museum, in one of the cases, tracks customers’ walking routes with ultra-wide band technology, rather than more advanced technologies or cameras (hence limiting the awareness characteristic). The museum also deliberately chooses not to connect to a smart phone application (limited connectivity). A cautious pathway stresses the welfare implications of smart service systems. These smartness decisions are underpinned by a protective logic. Here firms reason that customers want the supplying firm to use the smart system in non-harmful ways, preserving customers’ well-being and broader societal benefits.
A tailored pathway means configuring smartness according to customer requests. For example, customers decide which actions they want automated. ‘Hybrid’ value propositions within this pathway reflect a wide range of values from utilitarian/distinct to transformative/meaningful and are underpinned by an emancipatory logic. Here the firm believes that customers want to participate and have input. Such a pathway is typical of firms scaling up, serving different types of customers, allowing firms to tailor smartness to specific customer needs.
On this pathway firms are on full power across all the smartness characteristics. There are no restrictions or options. Take, for example, a smart prestige oven which has by default a camera (unlimited awareness), wi-fi connectivity to apps and other home appliances (unlimited connectivity), automatic food recognition and temperature control (unlimited actuation) and the capability to recognize an increasing array of dishes (unlimited dynamism). Firms here offer distinct value propositions stressing utilitarian value to the customer, underpinned by an excellence logic whereby firms believe customer value is only realized when smart service systems excel.
The fourth pathway mixes optional, limited and unlimited styles of configuring smartness characteristics. Firms here combine distinct and meaningful value propositions, such as emphasizing the convenience of the smart solution as well as its ability to safeguard customer privacy. Such a mixed configuration and corresponding dual value proposition stems from a synergetic logic. Firms believe that customer want to mutually co-create value with their smart system. Customer information gleaned through early-stage surveys or focus groups is combined with the firm’s own aims and capabilities. Together this amalgamation of external and internal knowledge supports smartness decisions.
In all, this study shows how firms configure the characteristics of smartness, even allowing customers to participate in the design of the final smart service system. It is noteworthy too that firms anticipate unintended and harmful consequences of service system smartness and are encouraged to communicate well-being value to their customers.
The study findings can help guide managers towards positioning their firms in relation to these smartness pathways. By firstly unpicking their foundational value creation logic they can subsequently pursue an appropriate pathway. Or firms may choose to move along multiple pathways to attract different customer segments. Indeed, managers may mix and match elements from the different pathways in their search for service systems smartness.
Visiting Professor, Service Research Center (CTF), Karlstad University
For full details of the study and its findings please see: Henkens, B., Verleye, K., Larivière, B., and Perks, H. 2022 (Forthcoming). Pathways to Service System Smartness for Firms. Journal of Service Research.