What are the challenges and international differences of servitization for PC-as-a-Service? A single-case study in the downstream channel Sebastiaan Gunter

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What are the challenges and international differences of servitization for

PC-as-a-Service? A single-case study in the downstream channel

Sebastiaan Gunter

MSc BA Strategic Innovation Management MSc International Business & Management University of Groningen, Faculty of Business Economics

February 2017 Supervisor: W. Biemans Co-assessor: R. Drogendijk Student number: 2014998 Word count: 18.184 Abstract

The purpose of this report is to, firstly, present servitization challenges perceived by an OEM, a distributor, and a reseller in the PC-as-a-Service industry. Secondly, to find if these challenges are perceived differently across countries. An explanatory single-case study approach based on semi-structured interviews and secondary data is used. A total of 12 persons from 6 organisations were interviewed, resulting in more than 25000 words of verbatim transcripts. Data was analysed through a deductive research analysis by identifying patterns based on theory. This research identifies several servitization challenges in the PCaaS industry, however not all challenges from the literature are identified. Also, this research finds that the deployment of a worldwide Product-Service System may be influenced by transaction-specific, host-economy specific, and cultural features. This qualitative research is based on a single-case study, thereby making it difficult to generalize the findings. This research extends the servitization literature by researching a new industry and taking the downstream channel into account. This is the first study that researches if there are international differences in the servitization of a Product-Service System.

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1. Introduction

Over the past several years’ enterprise IT has changed dramatically. Devices such as smartphones and tablets forced IT to a more complex multidevice, multiplatform support structure. There has been a rise of IT outsourcing and cloud-enabled X-as-a-Service business models (Huang & Mainelli, 2016). Now a new model, called PC-as-a-Service (PCaaS) is announced by several companies such as HP and Microsoft. Through a subscription model enterprises make use of devices, such as laptops and tablets, whereby the PCaaS provider retains the asset ownership and manages the entire life cycle for its client. Where traditionally IT buyers purchased or leased their PCs and resident software, and managed this either in-house or outsourced this to another party, PCaaS wraps the entire chain in one neat package (Huang & Mainelli, 2016).

This business model innovation (Teece, 2010) and change of business offering is called ‘servitization’ (Vandermerwe & Rada, 1988). It is a process of organizational change where firms add services next to a firm’s traditional goods (Bustinza, Bigdeli, Baines, & Elliot, 2015). A special case in servitization is the concept of Product Service-Systems (PSS) (Baines et al., 2007). PSS is a marketable set of products and services that are capable of jointly fulfilling customers’ needs in an economical and sustainable manner (Goedkoop, van Halen, te Riele, & Rommens, 1999; Reim, Parida, & Örtqvist, 2015). Where servitization is the process of organisational change, PSS is the outcome, the integrated offering. Such integrated product and service offerings can lead to economic, social and environmental improvements.

However, offering such a neat PCaaS package in one by wrapping the entire chain together brings challenges. Challenges for service design, organisation strategy, organisation transformation, end-customer readiness, and network integration (Baines et al., 2007; Baines, Lightfoot, Benedettini, & Kay, 2009; Mont, 2002; Reim et al., 2015). Such challenges are company specific (internal) but also channel wide (external). Lockett et. al. (2011) found that a focal firm proposed servitization benefits are not necessarily achieved by the extended network, where Martinez et. al. (2010) indicate that a firm’s journey towards servitization can be inhibited by internal and external challenges.

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Löfberg et al., 2015; Ojala, 2016; Oliva & Kallenberg, 2003). Several questions arise, such as how does this dependency work? Must there be complementarity between these parties to achieve PSS? What are the challenges of servitization in such a channel? How do different actors view this?

This study tries to fill this research gap by including actors such as distributors and resellers. These actors are important to study because an OEM depends on them. They have direct contact with the end-customers and therefore issues such as cultural readiness, understanding of customers, and cooperation between actors are of interest (Alghisi & Saccani, 2015). When offering a product-as-a-service, the process of integration, support and cooperation between these actors is very important; the reseller has the local customer and market knowledge, the distributor has the logistics and inventory to deliver within time and the manufacturer can produce the latest technological hardware and software. With each actor having their unique advantages, integration and cooperation among the actors is essential for a full package service delivery which can result in competitive advantages (Baines et al., 2007).

Therefore, the first purpose of this paper is to identify which servitization challenges apply to the downstream supply-chain, such as of ‘PC-as-a-Service’.

Servitization scholars researched the industries of manufacturing, aerospace, automotive, lighting and printing (Baines et al., 2007; Barquet, de Oliveira, Amigo, Cunha, & Rozenfeld, 2013; Cook, Bhamra, & Lemon, 2006; Goedkoop et al., 1999; Lockett et al., 2011; Schmidt, Braun, Schenkl, & Mörtl, 2016; Wallin, Parida, & Isaksson, 2015). However, no servitization research is done in the area of PC, Laptop or Tablet devices, where it is recommended to further investigate the IT-as-a-Service industry, and further investigating relationships between firms when they are dependent on other support service providers (Ojala, 2016) (which for example, is not the case with Rolls-Royce who manufactures and delivers the engines, and also provides the additional services). Also, this PCaaS industry is emerging right now. It is forecasted that the PCaaS industry in the USA alone will increase with more than 6000% in total seats (workspaces) from 389 thousand in 2015 to more than 24 million in 2020. And with more than 5000% yearly value by 2020, from $137 million in 2015 to more than $7 billion by 2020 (Huang, Middleton, Brothers, & Mainelli, 2016). This research tries to fill that gap through a case study of a multinational technology company offering computer software, consumer electronics and personal computers and services.

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The second purpose of this paper is to find if there are international differences in such servitization challenges in a downstream supply-chain.

This brings me to the following research questions:

Research questions

What are the challenges of servitization in the downstream value-chain in the PCaaS industry? Are there international differences in these challenges? If yes, what are these?

Sub questions

- Do servitization challenges differ between channel actors? - Do servitization challenges differ between countries?

This report is structured as follows. First, a literature review is presented. Second, the methodology used to conduct this study is described. Third, the findings of the study are described. Fourth, I discuss the findings with existing literature. Fifth, I conclude with key contributions, discuss the limitations of this research and suggestions are given for future research.

2. Literature

In this literature section, most important topics regarding servitization and international aspects will be discussed. First, the concepts of servitization and product-service system will be introduced, also types of PSS and reasons for servitization are explained. Second, challenges of servitization are taken into account. Third, because this study focuses on more than one organisation, the importance of the channel is explained. Fourth, international aspects will be discussed.

2.1 Servitization and Product-Service System (PSS)

Servitization and Product-Service system (PSS) are two related topics, originating from different communities of researchers (Baines, Lightfoot, Peppard, et al., 2009). Servitization comes from the USA, followed by the UK and Western Europe, and all are from managerial and business practitioner literature, where the PSS concept originates from Northern Europe (Scandinavia and the Netherlands), where most contributions have been from academics (Baines, Lightfoot, Peppard, et al., 2009).

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supporting infrastructure that continuously strives to be competitive, satisfy customer needs and have a lower environmental impact than traditional business models” (Goedkoop et al., 1999). These two research streams have developed separately, however, the common conclusion is that manufacturing companies should focus on selling integrated solutions (PSS) (Baines, Lightfoot, Benedettini, et al., 2009). Baines et. al. (2009) therefore refined the definition of servitization to encompass PSS:

“Servitization is the innovation of an organisation’s capabilities and processes to better create mutual value through a shift from selling products to selling PSS” (Baines, Lightfoot, Peppard, et al., 2009).

The definition shows that servitization is the process towards integrated solutions, where PSS is the outcome, an integrated solution.

Both servitization and PSS literature streams identify that there are a variety of forms which can be viewed on a ‘continuum’ as shown in figure 1 (Oliva & Kallenberg, 2003; Tukker, 2004). It is a continuum where an organisation hardly offers services as add-on to their products, through to organisations that have services as their main part of value creation (Baines, Lightfoot, Benedettini, et al., 2009). Gebauer et. al. (2008) observe that organisations have to understand their opportunities and challenges on this continuum before defining their position.

Figure 1. Classifications of Product-Service Systems (Tukker, 2004).

Tukker (2004) classified PSS into three types of product-service systems along the continuum, and thereby making the continuum more tangible; Product-Oriented product-service system (POS), Use-Oriented product-service system (UOS), and Result-Use-Oriented product-service system (ROS):

• Product-oriented product-service system (POS): traditional product sales, whereby customer assumes ownership of the product while the PSS provider offers and charges for associated services. The after-sales service then ensures product functionality and durability (maintenance, repair, reuse, recycling, training and consulting).

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prefer to develop products using long-life materials and offer services to keep its products in good working condition as long as possible, since it owns them and beats the cost of their maintenance.

• Result-oriented product-service system (ROS): a manufacturer sells a result or competence rather than products. Companies offer a customized mix of services where the producer maintains ownership of the product and the customer pays only for the provision of agreed results. (e.g. printer manufacturers that charge according to the numbers of printed sheets). Reasons for product-service systems are financial opportunities, strategic opportunities and marketing opportunities (Baines, Lightfoot, Benedettini, et al., 2009; Gebauer, Krempl, & Fleisch, 2008). Financial drivers are higher profit margins as well as stable revenue streams and income. Product-service combinations tend to be less sensitive for price competition and the sales tend to be counter-cyclical and more resistant to economic cycles (Baines, Lightfoot, Benedettini, et al., 2009; Oliva & Kallenberg, 2003). Strategic opportunities consist predominantly of gaining competitive advantage. They are achieved through services which are less visible, more labour dependent and difficult to imitate (Baines, Lightfoot, Benedettini, et al., 2009; Oliva & Kallenberg, 2003). The opportunities of marketing result in more sales of products and services, achieved through customer loyalty because of long-term customer relationships (Baines, Lightfoot, Benedettini, et al., 2009; Vandermerwe & Rada, 1988).

2.2 Challenges

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information sharing and transparency risks, and a variety of regulatory frameworks in different countries (Alghisi & Saccani, 2015; Lockett et al., 2011; Mont, 2002). Besch (2005) also finds that legislation and market conditions can be challenges for the implementation of a Product-Service System. For example, legislation that may require manufacturers to take back the PSS product, or market conditions like customer willingness (Besch, 2005).

For end-customers, the most important challenge of servitization is the necessary cultural shift in ownership; for an end-customer to place value on having a need met as opposed to owning a product (Baines et al., 2007; Mont, 2002). An overview of challenges is shown Appendix 1.

Now that servitization challenges are discussed, several scholars found out how these challenges can be overcome. By taking the resource based view, dynamic capabilities can enable firms to overcome these challenges (Teece, 2007). With dynamic capabilities firms can create, extend, or modify capabilities into service-related capabilities (Gebauer et al., 2012). Dynamic capabilities consist of

sensing, seizing, and reconfiguration (Teece, 2007). The first two capabilities mean the sensing of an

opportunity (i.e. financial, strategic, and marketing) and seizing such an opportunity means developing strategies to achieve these. Reconfiguration links the dynamic and operational capabilities, where operational capabilities are modified accordingly to the new business model. Modifications in corporate culture, organisational structure, relational capability, networking capability, and sales capability (Gebauer et al., 2012; Neely, 2009; Wallin et al., 2015).

2.3 Channel

As mentioned before, a Product-Service System entails the offering of a full market package through a system of products, services, network of players and supporting infrastructure. Therefore, several stakeholders need to be involved in the servitization process to achieve competitive PSS solutions, as these can rarely be provided by a single company (Baines et al., 2007). As is mentioned by Teece (2007), customers view high-technology ‘products’ as systems, consisting of interdependent components resting on ‘platforms’. The strength of the system is complementarity. Complementarity can be described as a situation in which other assets or actors can improve the quality of a system or platform (Teece, 2007). The complementarity is achieved through a ‘platform’ where components often sit on top of each other. For example, computer operating systems need a suite of application programs to be useful. This can create ‘thin’ markets where a competitor is not able to rapidly assemble the same assets, and cannot offer the same products and/or services. This is similar to a Product-Service System (Baines et al., 2007).

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achieve a competitive Product-Service System, complementary partners must overcome the servitization challenges as mentioned before. As these challenges are not only internal for an organisation, but also external, for the channel.

2.4 International aspects

Customer loyalty, responsiveness to demand, market share growth, and greater productivity are all strategic advantages a firm achieves when delivering superior service quality (Malhotra, Ulgado, Agarwal, Shainesh, & Wu, 2005). But to achieve this superior quality it is important to identify what the customer perceives as service “quality”. Because of cultural and environmental differences, clients of services in different countries may have different perceptions of what service quality is (Malhotra et al., 2005). In research on the internationalization of customer services, Morschett et. al. (2008) found that entry mode decisions for customer services, especially after-sales services, depended on transaction-specific, firm-transaction-specific, and country-specific variables. These factors were also found by other scholars (Barkema & Drogendijk, 2007; Enright, 2009; Kostova, 1999; Kostova & Roth, 2002; Liu et al., 2011). Enright (2009) found that different sets of host-economy specific features (market size, market growth, economy development, technological and managerial capabilities, infrastructure, openness, and tax rate) and firm-specific features (firm size, international experience, and nationality of the firm) result in investments in different activities.

As a Product-Service System can result in competitive advantages, making them of strategic importance for a firm, organisations have to make sure a PSS is properly implemented in different countries. Kostova (1999) argues that the transfer of ‘strategic organisational practices’ can be seen as a practice on its own, where this transfer is important for achieving the strategic mission of a multinational firm. Strategic organizational practices can be described as “those practices believed to be of strategic importance for the firm – believed to reflect the core competencies of the firm and to provide a distinct source of competitive advantage that differentiates the firm from its competitors” (Kostova, 1999). For example, for General Electric it might be practices supporting its strategic goal of continuous organisational learning, whereas for 3M these practices might be related to the company’s innovativeness (Kostova, 1999). These transfers are influenced by country-specific factors (institutional profile), organisational factors (supportive culture and compatibility), and relational factors (commitment, trust, and degree of dependency).

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cultural values have influence on concerns about information privacy. It was found that higher levels of government involvement in the regulation of corporate privacy management is associated with preference for even stronger laws to regulate information privacy (Bellman et al., 2004). Such national differences are also found by Cho et al. (2009) and Miltgen and Peyrat-Guillard (2014).

To summarize, the above literature shows several servitization challenges to be aware of and how important the involvement of stakeholders is in order to achieve competitive PSS. Also, implementing such a PSS worldwide may be influenced by transaction-specific, host-economy specific, firm-specific and cultural factors.

Based on the literature, I will use the framework from Alghisi & Saccani (2015). The challenges found in the literature are integrated into this framework resulting in more comprehensive descriptions. I added two challenges (Besch, 2005) which are described in this literature section. Legislation is added into the category of ‘service portfolio offering’ because it influences the development of the PSS. Market

conditions is added to the category ‘company strategy’ because they influence the strategic decisions a

firm makes and may call for new business ideas or innovations (Besch, 2005).

Table 1. Categorization of challenges.

Company strategy Service portfolio offering

Company internal organisation

Service network End-customers

- Commitment and leadership - Strategic vision - Good intensive brand - Market conditions - Scalability - Critical mass - Development of service capabilities and methods - Timescale - Legislation - Cultural readiness - Actor interface capabilities - Risks - Organisational readiness - Coproduction - Integration capabilities - Communication and training - Knowledge management - Cultural readiness - Actor interface capabilities - Communication and training - Downstream competition - Sourcing decisions - Cultural readiness - Actor interface capabilities - Risks - Coproduction - Communication and training

3. Methodology

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3.1 Case Description

To study the phenomenon of servitization in the IT industry, a recently announced ‘PC-as-a-Service’ (pseudonym)1_{offering is studied. It is a program where services and support capabilities are} created and provided for this device. These services and support are delivered by different parties; the focal OEM, a distributor, and a reseller (see Figure 2). These distributors and resellers are authorized by the focal firm and already offer managed cloud services, operating system services, office productivity services and relevant ISV (independent software vendor) software. Now these services can be combined with the ‘PC-as-a-service’, thereby offering the latest technology and software into one package, as a service.

Figure 2. Channel structure

3.2 Research Design

This study used the IT PCaaS industry to investigate the challenges actors face in the supply-network as a result of servitization, and why these challenges are faced. Secondly it investigates if and why there are international differences in these challenges.

A market research of the International Data Corporation2_{(IDC) into PCaaS end-customer} behaviour shows differences between the US, UK, Germany, China and India. Also, differences are found between early adopters, intenders and resisters. For example, for the early adopters from the UK and Germany faster refresh rate is the number one reason for PCaaS, whereas in India a predictable cost model is more important. Or, the reason for resisters to stay with the current procurement model (not PCaaS) is because it has worked in the past. Except in China, were they do not want to upset their relationship with their current vendor.

This anecdotal evidence shows there are several international differences in PCaaS. However, this research will focus on the supply chain parts before the end-customer.

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Research of challenges of servitization in the supply-network within this industry and in the international differences is still immature. I try to contribute to existing theory by:

• Identifying servitization challenges in the PCaaS industry; this industry is not yet researched. • Identifying differences between an OEM, distributors and resellers regarding servitization

challenges. Differences of servitization challenges between downstream channel partners is not yet researched.

• Identifying international differences for the first two aspects. International differences in servitization challenges is not yet researched.

I adopted a qualitative case-based research methodology (Yin, 2003) based on the constructivist paradigm (Bryman & Bell, 2015). The “what”, “why” and “how” questions are suitable for such a case study research (Yin, 2011). I have made use of existing theory to formulate my research question and objectives. Yin (2003) suggests that, when I have made use of existing theory to formulate my research questions and objectives, I may also use theoretical propositions as a means to devise a framework to help me to organise and direct my data analysis. Thus, a deductive approach to qualitative analysis is used. Using a deductive analytical approach and starting my work from a theoretical perspective also has certain advantages as explained by Saunders et. al. (2007). Theory testing using case studies evaluates the explanatory power of theories and their boundaries (Løkke & Sørensen, 2014). The range of the theories’ applicability and usability is explored, thereby positioning this study in a field of increasing research that develops and refines the knowledge of the servitization field (Løkke & Sørensen, 2014).

A semi-grounded approach to data collection was used with a priori constructs for better measurements (Eisenhardt, 1989). I used an exploratory semi-structured interview protocol that focussed on determining what challenges were encountered, why these were encountered, what international differences they experienced, and why. The interview protocol can be found in Appendix 2.

In this study a single-case study is used. The single-case study is used because I got the opportunity to research the downstream channel of the focal OEM organisation to study in-depth the subject of servitization. It provided me with an opportunity to observe and analyse phenomenon that few have considered before (Saunders et al., 2007). Yin (2003) describes such a single-case study as a revelatory case, where an investigator has an opportunity to observe and analyse a phenomenon previously inaccessible to scientific investigation.

3.3 Data Collection

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by my manager, data such as white papers, presentation slides and market research slides (Table 3). A total of 10 interviews were conducted with 12 informants which lasted each between 30 minutes and one hour. This yielded more than 25,000 words of verbatim transcripts. When inviting the informants for an interview a brief explanation of the topic and research aim was provided, however no interview questions were send in advance to prevent socially desirable answers. Interviews were transcribed right after the interview, or when there was more than one interview deducted on one day, they were transcribed within one day. One interview was not recorded because the recording function was not able for me as a ‘guest’ of the Skype call, so notes were taken.

The respondents were selected through non-probability sampling. The purposive sampling strategy enabled me to use my judgement to select cases that best enabled me to answer my research questions and to meet my objectives (Saunders et al., 2007). Criteria used to select respondents were:

• At least one focal firm manager from a certain country. • At least one distributor manager from a certain country. • At least one reseller manager from a certain country.

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Table 2. Respondents information.

Actor Role Country

Focal company Partner Sales Executive USA & Canada

‘Device’ Lead France

Regional Sales Manager EMEA EMEA (Germany)

Global Account Director, WW SMB Channel Sales Germany

Partner Sales Executive The Netherlands

Reseller 1 Senior Vice President of Global Sales USA (worldwide)

Reseller 2 Manager Marketing and Communications Canada

Reseller 3 Account Manager The Netherlands

Sr. Account Manager Cloud & Enterprise Solutions The Netherlands

Distributor 1 Supervisor, Product Management Peripherals Division USA Director of Client and Mobile Solutions USA

Distributor 2 Head of Consumptional Business Europe (Germany)

Table 3. Secondary data.

Documents Description Presentation

slides

Findings of a market analysis into PCaaS.

Findings of a market analysis of business2C/professional SMB for US market. Focal company DaaS offering

PCaaS Market examples

Whitepaper Benefits of As-a-Service Models for Branch Infrastructure; key considerations to keep in mind when selecting an as-a-service partner.

Blog posts Announcements of the PC-as-a-Service offering

3.4 Data Analysis

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The primary and secondary data was analysed via a step-by-step approach. First, the interviews were transcribed and then coded. These codes were based on the challenges from the framework and categorized accordingly. Second, the next step was to summarize the relevant information from these codes per party, per category (one summary for the focal company, one summary for distributors, one summer for resellers). Third, these summaries were analysed. Fourth, the analyses per party were compared with each other. Fifth, to check for international differences, a summary was made from all the international differences that were mentioned specifically by the respondents. Sixth, to check for international differences, these summaries were analysed as well and compared per country. Seventh, in the final steps most important results were gathered. All important aspects (challenges and international differences) were compared to the existing literature and the framework.

3.5 Variables for International Aspects

The variables used to find out if there are international differences are transaction-specific features (Morschett et al., 2008), firm-specific features (Kostova & Roth, 2002), host-economy specific features (Enright, 2009), and cultural features (Bellman et al., 2004; G. Hofstede, 1993). The source, description and operationalisation of these variables are explained in table 4. I will already conclude that firm-specific features cannot be measured because I am only looking at a single firm. I chose to study a single firm with its subsidiaries, distributors and resellers which means I cannot test firm-factors in this design. Nevertheless, I am including firm-features because theory shows these can cause international differences.

Table 4. International variables.

Features Variable Description Operationalisation Source

Transaction-specific

Resource requirements

The magnitude of resources needed to perform a specific task. Activities requiring substantial resource commitment are more likely to be performed in cooperation with other companies.

Asking how the cooperation worked with channel partners. Asking whether there was a good alignment of resources put into the offering. Asking for explanations. (Morschett et al., 2008) Firm-specific Practice adoption; implementation

The implementation of the PCaaS activities. Which require leadership and commitment and management of the implementation.

Asking if executive management supported the PCaaS project

Asking if there was a product champion in place or understanding from the conversation is this was in place.

Asking for explanations.

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World Economic Forum’s Network Readiness Index; this tool assesses a countries’ preparedness to reap benefits of emerging technologies and capitalize on opportunities presented by the digital transformation and beyond. The following subindexes are used: - Environment subindex

o Laws relation to ICTs - Usage subindex

o Business

Asking questions about technological and cultural readiness against new IT-aaS offerings.

Asking questions about market demand and market readiness. And asking questions about differences in these between countries. Asking questions about resistance to IT regarding market demand and market readiness. (Baller, Dutta, & Lanvin, 2016) Culture Hofstede’s cultural value indices

A formative index of a combination of four of Hofstede’s cultural values indices, Power Distance Index (PDI),

Individualism (IND), and Masculinity

(MAS). Bellman et. al. (2004) found that PDI, IND, and MAS had a positive and significant effect on information privacy concerns across countries.

Comparing Hofstede’s cultural dimensions to the interviews. Finding what respondents from different countries said about culture and analyse these against Hofstede’s cultural dimensions. (Bellman et al., 2004; Milberg, Smith, & Burke, 2000)

3.6 Description of the Channel

The focal firm:

The focal firm is an American multinational technology company that develops, manufactures, licenses, supports and sells computer software, consumer electronics, and personal computers and services. With a revenue of over $90 billion dollars and around 118.000 full-time employees. In this case study the focus is on the servitization of the personal computers and services. The company manufactures and sells personal computers which can be described as ‘hybrid tablets’ and ‘2-in-1 detachables’ and a full-sized laptop. Last July (2016) the company announced to offer these personal computers as a service. In this PSS offer, the products are sold on a subscription basis with an ongoing package of services. The fundamental services and support areas are3_:

1. Configuration and Deployment Services – such as imaging, asset management, provisioning and integration services.

2. Enhanced Replacement and Exchange Services – such as next business day, advanced exchange and onsite replacement services.

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3. Logistics and Warehousing Services – such as customer shipping, order consolidation and kitting services.

4. Next Generation Services and Support – working alongside IT decisions makers, partners and the broader device ecosystem to conceive and create solutions, that will provide tools for businesses worldwide to enable change in their organizations and use devices as a key component in that change.

Next to these services for the hardware, the software that is running on the device can also be included in the package and thereby supported with the latest technology and support. Thereby making it an all-in-one package of the latest hardware, software and support.

Distributors

In this case, distributors are companies specialized in the distribution of IT products and services. They buy the product from the OEM. They provide a wide range of product lines, logistics capabilities and value-added services that enable technology manufacturers and resellers. They provide hundreds of thousands of products from hundreds of vendors. These products are available on a so called ‘marketplace’ where resellers can buy the products. Products ranging from hardware IT products to software applications to cloud solutions. Distributors also provide infrastructure and e-commerce portals on which resellers can build their own marketplaces and manage their own orders and offerings. These distributors are among the largest of the world. Distributor 1 (table 2) is active in more than 100 countries, has a revenue of $27 billion dollars and has more than 9000 employees. Distributor 2 (table 2) is active in Europe serving 15 European countries, it has a revenue of almost $8 billion dollars and almost 4000 employees.

Resellers

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4. Results

This section presents the results. They are presented as follows. First servitization challenges are presented per category as derived from the framework. Perceived challenges and differences between the focal company, distributors, and resellers are analysed (table 1 and 2 in Appendix 4). Second, international challenges as explained by respondents are described. Table 3 in Appendix 4 shows exactly which challenges are found for which actor and it shows exactly for which country.

In the section below, ‘servitization challenges’, the results are presented with a table where you can see for which actor the challenges are perceived as challenge or not in that specific category (“✓”

means it is perceived as a challenge, “-” means it is not perceived as a challenge). The challenges will

be presented with bullet points and citations to illustrate the most important ones.

4.1 Servitization Challenges

4.1.1 Company strategy

The challenges which fall into the category of company strategy are; commitment and leadership, strategic vision, good intensive brand and market conditions. The challenge ‘good intensive brand’ was not perceived by any respondent.

Challenge Focal company Distributors Resellers

Commitment and leadership ✓ - -

Strategic vision ✓ ✓ ✓

Market conditions - ✓ ✓

Good intensive brand - - -

• Commitment and leadership: focal company experienced challenges (especially in the Netherlands) with not having local empowerment and support to roll out the offering. This challenge was not experienced by distributors and resellers as they had top management commitment and product champions in place.

• Strategic vision: several challenges of understanding the issues associated with servitization were experienced by all parties:

o Who owns the device? Distributors, resellers or a financing companies? o PCaaS creates new revenue streams which bring new challenges.

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o Strategic questions about refurbishment and remarketing of the second-hand devices which were still unknown.

o Level of resources that are put into the development of the PCaaS business model; as it is an incubation project for the focal company not many financial resources are deployed and no extra employees are hired.

• Market conditions: the focal company experienced a specific challenge in France. The distribution model normally used by the focal company is not working in France. Not all resellers are authorized, making it impossible to reach the whole French market. This will be further explained in the international differences section.

• Good intensive brand: this was not perceived as a challenge because with other products the channel was already successful in extending into the service business (i.e. software and cloud). [Commitment and leadership] “Corp support and commitment, this is locally quite a hassle,

there’s not a plug-and-play package. In the Netherlands, there are not enough employees. And at director level they are busier with Cloud”. (Focal firm – Partner Sales Executive, the Netherlands)

[Commitment and leadership] “There was a new role created, just so that individual would

focus 100% on the operationalization of this product. … A lot of challenges that I think was rooted in communications, was solved. Because somebody was able to focus on this full time” (Reseller – Manager Marketing & Communications, Canada).

[Strategic vision] “You don’t want to invest a huge amount of resources, aka people, into

experimental business models. It’s just a challenge to have enough resources for an incubation project sometimes. People have a 100 things to do” (Focal firm – Partner Sales Executive – USA and Canada)

[Strategic vision] “We have a big expense upfront, but we are charging it monthly, so we don’t

get huge payments. We have low margins so we can’t afford the big expense upfront with this new cashflow model”. (Distributor – Director of Client and Mobile Solutions, USA)

4.1.2 Service portfolio offering

The challenges which fall into the category of service portfolio offering are; scalability, critical mass, development of service capabilities and methods, timescale, and legislation. The respondents did not perceive critical mass and timescale as a challenge.

Scalability ✓ - -

Critical mass - - -

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Timescale - - -

Legislation ✓ ✓ ✓

• Scalability: the focal company thinks it would be very complex to keep track of changes in scale-up or scale-down, and questions if the distributors and resellers are able to serve the whole spectrum of large enterprise to SME. Distributors and resellers are confident they can work the spectrum, and complexities in up- and down-scale will be just contractually defined.

• Critical mass: this was not perceived as a challenge because they already have a lot of sales in services (i.e. software and cloud).

• Development of service capabilities and methods: ‘residual value’4_{is the number one challenge} because it is the number one dependency to how compelling the offers are. Operationally, the back-end was not yet in place; an automated billing process needed to be developed (reseller 3). An important difference is seen between big and small resellers: big resellers are buying goods transactional from distributors and combining hardware and software packages themselves, where small resellers have to buy standardized packages developed by distributors.

• Timescale: this was not perceived as a challenge because they already have experience in managing multi-year partnerships and long-term risk (through software and cloud solutions). • Legislation: challenges in meeting tax laws and accounting requirements because of the change

from Capex to Opex (capital expenditure and operating expenditure) and not breaking these. And the challenge to comply to data rules for refurbishment, which was still unclear.

[Development of service capabilities and methods] “The number one most important thing in

this business model is residual value …”. (Focal company – Partner Sales Executive, USA and Canada)

[Legislation] “State-by-state issue, in which state is it owned and how does it work with tax

regulation? Because this is different in each state. And secondly, qualifications of ‘operational expenses’ can differ per country or state”. (Distributor – Director of Cloud and Mobile Solutions, USA)

4.1.3 Company internal organisation

The challenges which fall into the category of company internal organisation are; cultural readiness, actor interface capabilities, risks, organisational readiness, coproduction, integration capabilities, communication and training and knowledge management. Integration capabilities and knowledge management were not perceived as challenges.

4_{Residual value describes the future of the value after the subscription period. Offering equation = (device price}

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Cultural readiness ✓ ✓ ✓

Actor interface capabilities - ✓ ✓

Risks ✓ ✓ ✓

Organisational readiness ✓ ✓ ✓

Coproduction ✓ ✓ ✓

Integration capabilities - - -

Communication and training ✓ ✓ ✓

Knowledge management - - -

• Cultural readiness: the process from traditional transactional business to monthly solution thinking is the biggest bottleneck.

• Actor interface capabilities: for distributors, the changes in business model also cause changes in their customer understanding and their customer relationship. The reseller needed to work around offering this solution without a distributor because the distributor wasn’t ready yet (this was found in The Netherlands).

• Risks: financial risks for distributors in their new cashflow (as mentioned in section 4.1.1). An operational risk for the focal company because the product (device) is not that old yet, they don’t have the knowledge to counter some operational risks.

• Organisational readiness: change in incentive structures to force sales and business development experts to move from transactional selling to long-term customer relationship and solution selling. For the focal company, it was hard to create a supportive climate and to find people to commit because this servitization project is an incubation project.

• Coproduction: no cooperation between software sales teams and device sales teams. Difficulties in choosing the right partners, refurbishers and banks, because these relationships are not deep and familiar yet.

• Integration capabilities: all partners understand each other’s unique position in the value-chain, and see they can be complementary and thereby can enhance the value of the product and service.

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• Knowledge management: these systems are already in place (because of software and cloud experience) and are seen as an advantage within the service offering. A ‘managed service’ can be created whereby issues such as underutilization, applications, and others are addressed. [Cultural readiness] “The biggest transition will indeed be culturally, converting account

managers from transactional thinking to monthly based solutions thinking. Absolutely, that’s really a thorny issue and a bottleneck. If your transaction depends on your target and bonus, it gives really different interests” (Reseller – Sales account manager cloud & enterprise solutions, The Netherlands)

[Coproduction] “If we have a partner that can’t wipe the data, refresh the device, making it

cosmetically appealing enough by somebody as a used machine, sold as a B-stock. This reduces the residual value”. (Focal company – Partner Sales Executive, USA & Canada)

[Integration capabilities] “It’s a representation of our ability to pass on the innovations and

inventions that comes with [focal firm] who puts in millions and billions into R&D, as a reseller our job is to convey that message, products, solutions and services down to the customer level”. (Reseller – Manager Marketing & Communications, Canada).

4.1.4 Services network

The challenges which fall into the category of service network are; cultural readiness, actor interface capabilities, communication and training, downstream competition and sourcing decisions. The actor interface capabilities and sourcing decision challenge was not perceived as a challenge by any respondent.

Cultural readiness ✓ ✓ ✓

Actor interface capabilities - - -

Downstream competition ✓ - -

Sourcing decisions - - -

• Cultural readiness: all actors agree and understand its’s just new for everybody. Meaning all actors have their own cultural challenges as described in the ‘internal organisation’ section. • Actor interface capabilities: all parties view the integration and cooperation between partners

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a resellers’ website can be directly connected and integrated into the online marketplace from the distributor. A package can then be directly send from the distributor to the end-customer. • Communication and training: not all resellers are already into the subscription thinking mindset

so they still only think in transactional selling. Also, there are resellers who only sell devices or only sell software, they are missing out on opportunities of selling combinations. The focal company and distributors perceived that proper communication and training practices are needed.

• Downstream competition: suppose, that with PCaaS, the asset is not owned by the end-customer, nor by the reseller, but by the distributor (although parties are still unsure who the owner may be). The distributor therefore monthly bills the end-customer. To do this, the reseller has to give up his end-customer data to the distributor. The question is, what will happen at time of renewal? Will the distributor contact the end-customer directly or will it respect the reseller? There are several concerns about this and for distributors and resellers this was actually a strategic issue which presented itself in the beginning. However, both distributors and resellers think every partner should focus on their own unique positions and strengths. And they also understand each other’s complementarity.

• Sourcing decisions: sourcing decisions was not perceived as a challenge. A reseller did bring in a lot of expertise but just saw this as necessary.

[Downstream competition] “I don’t think a distributor wants [downstream competition], they

should focus. But bigger resellers want to do the financing themselves”. (Focal company – Partner Sales Executive, the Netherlands)

[Downstream competition] “It’s not that we can’t necessarily provide it, but the reseller can

provide it in a completely personal way. I think the personal approach is what’s best”. (Distributor – Head of consumptional business, Germany)

[Downstream competition] “We solved that through partnering with a financial institution that

helps us put all the invoices as one”. (Reseller – Manager Marketing & Communications, Canada)

4.1.5 End-customer

The challenges which fall into the category of end-customer are; cultural readiness, actor interface capabilities, risks, coproduction, and communication and training. No challenges came out of the primary data regarding actor interface capabilities and coproduction which related to end-customers, therefore these will not be mentioned.

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Actor interface capabilities - - -

Risks - - -

Coproduction - - -

• Cultural readiness: all actors perceive there are challenges regarding cultural readiness in the end-customer category. What is seen is that large enterprises are more open to the concept of PCaaS than small- and medium-sized enterprises. Next to that, concerns by end-customers about data and privacy issues are experienced within the channel as challenge to PCaaS. Also, cultural readiness challenges are seen within countries which will further be explained in the ‘international differences’ section (section 4.2).

• Risks: explained by respondents, this PCaaS offering actually takes away risks for the end-customer.

• Communication and training: getting the customer to understand the concept is challenging. However, resellers try to explain the service by showing on the spot cost reductions.

Next to these challenges data shows that end-customers are of very strategic importance to the channel. Thus, the kind of customer influences the degree of complexity of a Product-Service System and the challenges associated with servitization and PSS. Managers explained this by pointing out that the type of end-customer and their way of transaction is determining what kind of offering relevant is. Because the PCaaS is offered in combination with software and cloud it has to be integrated and able to work with the equipment, systems and infrastructure of an end-customer. For example, a firm which is big and more than 25 years old has customer data stored on ‘legacy systems’ (outdated computer systems) which has to be integrated with new software and cloud solutions and mobile devices. To work this out, a more customized solution has to be offered making the end-customer of strategic importance in how a solution is developed, scaled, communicated and offered.

[Communication and training] “It is much more educational from our standpoint. Where we

historically… now its forcing our sales teams and business development experts to go in and have conversations about ‘why are you buying this’ and ‘what are you going to be using it for …’. We can show the cost savings with that approach right on the spot”. (Reseller – Manager Marketing & Communications, Canada)

4.2 International Differences

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between respondents were compared to identify international differences. An overview of all the international differences in servitization challenges is displayed in table 3 in Appendix 4.

4.2.1 International differences and challenges perceived by respondents

This section describes the answers as given by respondents when asked what they thought would differ on an international level. Most important international differences as perceived by the interviewees are: tax and accounting regulation, cultural readiness, and market structure.

• Tax and accounting rules (legislation): all managers believe different tax laws and accounting rules are international differences to take into account. The PCaaS changes expense from Capital Expense to an Operating Expense. Regulations regarding these expenses can differ per state (US) and per country.

• Cultural readiness and technological readiness: what is seen is that in Europe, the Nordics and the Netherlands are leading to go into the cloud, where Germany and France are struggling. They believe this will be the same for hardware subscription. The French are not ‘early adopters’ and in Germany there are concerns about security and privacy of data. In the US and Canada, they feel they are ready for it. An interesting cultural difference between the US and European countries was the attractiveness for new and fresh technology for employees. In the US, secondary employee benefits like technology (laptop, phone, etc.) are very important Unique Selling Points for potential and current employees. Where apparently, there is a competitive nature for enterprises in promoting your employee benefits. The higher refresh rate of the PC-as-a-Service can therefore be a selling point to end-customers.

• Market structure: a very specific challenge is seen for France. In France, the market is very fragmented with over 12.000 different resellers, where top 10 resellers own less than 20% of the market. The rest of the countries normally shows a handful of resellers that own 80% of the market. This difference in market structure also brings an organisational challenge to the focal company because of the distribution model they use. It is a selective model where only authorized resellers can sell products. And in France, only about 10% (~1200) of the resellers is authorized. So, where normally the focal company wants their big resellers to take around 80% of the market, in France, this is not possible.

[Cultural readiness] “Yes, there are cultural differences between countries as well. It is a very

clear difference between Finland and Germany for example. General consensus for cloud services is low because of security and privacy data, etc. So there are definitely cultural differences there.” (Distributor – Head of Consumptional Business, Germany)

[Market structure] “That’s why we are not so successful in France because the distribution

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to open the channel. … This excludes a lot of potential resellers by definition, it was not the right approach” (Focal company – Devices Lead, France).

4.2.2 International difference analysed from the interviews

This section describes the international differences as analysed out of the interview data. Answers between respondents from different countries were compared to identify international differences. Most important analysed international differences are: commitment and leadership, actor interface capabilities, development of service capabilities and methods, coproduction, and market conditions.

• Commitment and leadership: in the Netherlands, at the focal company, it is felt there is no ‘real’ local commitment and not a real ‘product owner’. In other countries, this is not experienced. Regarding the focal company, USA, France and Germany have bigger offices with more employees who can more easily deal with the issues because of having more employees. Also, distributors and resellers in all countries implemented a product champion.

• Actor interface capabilities: in North America, they do not see challenges of integration, cooperation and understanding customer business needs, they think it is well aligned. However, in Germany, the distributor has to consider customer business needs on a completely different level as is experienced. In the Netherlands, the reseller has to set up an integrated and automated billing system between channel partners which is seen as a challenge.

• Development of service capabilities and methods: as already mentioned, in the Netherlands, the reseller has to set up an integrated and automated billing system. Whereas the US reseller finds more challenges in working out how the reseller actually owns the device. For the US focal company the most important challenge is residual value, which is complex to design into the offering because it depends on several issues. In Germany, at distributor level, schemes needed to be developed to understand the customer business needs.

• Coproduction: a difference between the US, Canadian and Dutch resellers is found. The US and Canadian resellers do not see challenges regarding coproduction. There has been good communication and involvement with the focal company and distributors. Where in the Netherlands, the reseller is experiencing difficulties with distributors who haven’t set-up a local offer yet, and where the reseller had to work around.

• Market conditions: this is explained in the previous section (4.2.1)

5. Discussion

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27 and PSS literature. Third, the strongest themes of international aspects will be reviewed in context of the literature.

5.1 New Framework Proposal

Based on the results I propose a new framework (Table 5) where the ‘end-customer’ category is placed at the beginning of the framework, thereby showing the strategic importance of the end-customer influencing several other categories and challenges of the framework. Secondly, I propose several challenges must be placed in other categories as this would be more logical. This is because, in contrast to theory where the focal firm is also the sole Product-Service System provider, in this case there is the focal company who is dependent on downstream channel firms to offer a Product-Service System. The proposed changes are explained below.

Table 5. New proposed framework.

End-customers Company strategy Service portfolio offering Company internal organisation Service network - Cultural readiness - Actor interface capabilities - Risks - Coproduction - Communication and training - Strategic vision - Commitment and leadership - Strategic vision - Good intensive brand - Market conditions - Scalability - Critical mass - Development of service capabilities and methods - Timescale - Legislation - Knowledge management* - Cultural readiness - Actor interface capabilities - Risks - Organisational readiness - Coproduction - Integration capabilities - Communication and training - Knowledge management - Cultural readiness - Actor interface capabilities - Coproduction* - Integration capabilities* - Communication and training - Downstream competition - Sourcing decisions

* = challenges transferred to another category. Strikethrough = challenge deleted from the category.

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28 and added to the ‘service portfolio offering’ category because, although it has to be deployed internally, the strength of such a system is represented by the advanced services and values these services add to the offering.

5.2 Servitization Challenges

In this context, the findings show mixed results. The challenges critical mass, timescale, good

intensive brand, integration capabilities, knowledge management, and sourcing decisions were not

experiences as challenges. This is logical because the ‘as-a-Service’ concept is not new, it already exists for software, cloud, music (Spotify), TV (Netflix), and others, it is only new for PC hardware. Within this channel, the organisations are already familiar and experienced in selling software- and cloud-as-a-service. Because of this, they are already integrated, understand long-term risks and management and already have a critical mass in solution selling. Most important challenges come down to communication

and training, commitment and leadership, scalability, development of service capabilities and methods, legislation, cultural readiness, organisational readiness, actor interface capabilities, risks, coproduction, and downstream competition.

5.1.1 End-customer

Results show that the type of end-customer; the size, the maturity of their IT organisation, their dependency on their IT infrastructure and their access to IT partners has major impacts on all challenges described before. Appendix 5 shows a comprehensive visualization of the type of suppliers and the competencies they need to deliver to different customer segments, thereby showing that the kind of customer influences the degree of complexity of a Product-Service System and the challenges associated with servitization and PSS.

• Communication and training: a close customer trust and understanding has to be developed (Baines, Lightfoot, Smart, & Fletcher, 2013). And to show the advantages of servitized offers, proper communication and learning practices are needed (Alghisi & Saccani, 2015). In this case study, resellers communicated the advantages of PCaaS through an educational standpoint, where conversations and discussions about ‘why’ and ‘what for’ the device will be used and showing cost savings right on the spot, thereby delivering on the problems faced by end-customers.

5.1.2 Company strategy

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29 was experienced on local levels, in the Netherlands, but also on headquarters where it could be hard to find employees willing to work on this project next to their day-to-day activities and targets. Gebauer et. al. (2008) found that such roadblocks and barriers within the organisation can be evaded by using a product champion who can concentrate on pushing the new project beyond such issues. This is exactly what happened at distributors and resellers who did have product champions in place, focusing on communication and solving roadblocks and barriers. • Good intensive brand: a strong reputation of a firm’s product in terms of quality and reliability

could make customers turn sceptical about the need of buying support services (Alghisi & Saccani, 2015). In this case the services increase the quality of the customer experience (and thereby product offering) because the customer can i.e. get a new device within 24 hours or on-site replacement services instead of having to wait till his/her own device is repaired and his/her data is backed-up in the cloud with the new offering.

5.1.3 Service portfolio offering

• Scalability: to efficiently address the needs of different customer segments, companies should understand market requirements and should develop scalable product-service offerings based on those (Alghisi & Saccani, 2015; Baines, Lightfoot, Benedettini, et al., 2009). In this case, as is mentioned in the ‘end-customer’ category, the end-customer influences how an offering is scaled to different customer segments, therefore a continuum is developed showing customized vs. standardized solutions on which different customer segments are positioned and what capabilities a reseller needs to offer those solutions (Appendix 5). The focal company explains that different end-customers need different reseller competencies, making it complex. However, resellers and distributors do not see this problem and think they are able to work the spectrum. • Development of service capabilities and methods: in contrast to Alghisi and Saccani (2015), in

this case, it is not the formalisation and standardisation of service planning and delivery procedures and processes, and the ability to measure the service delivery process that is challenging, but the development of the offering itself. The development of the precise ‘Device-as-a-Service’ solution, finding the right partners (coproduction) and understanding the risks, which influences the residual value (and thereby the value of the offering) and is therefore seen as complex and challenging.

• Knowledge management: in this case study knowledge management systems (Alghisi & Saccani, 2015) are already in place to offer advanced services or pay-per-use. Namely the ‘managed services’ through which resellers can go back to the end-customer and address issues about the service, such as underutilization, applications, and others.

5.1.4 Company internal organisation

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30 traps. By sensing and seizing opportunities, and reconfiguring operational capabilities, these traps can be evaded (organisational readiness) (Gebauer et al., 2012). By changing incentive structures and communicating and training personnel about the advantages of monthly solutions organisations tried to overcome these challenges (Alghisi & Saccani, 2015; Baines, Lightfoot, Benedettini, et al., 2009; Gebauer, Paiola, & Edvardsson, 2010).

• Actor interface capabilities: Wallin et al. (2015) found that to develop PSS innovation capabilities, firms need to identify the problem and related customer needs by maintaining customer relationships and building customer knowledge. Contrasting to the literature where the focal firm is in direct contact with the end-users, with PCaaS that is not the case. Here, it is the reseller who is in direct customer contact and thereby needs to understand the customer. However, the results show that distributors completely needed to change their end-customer understanding because they already needed to make packaged solutions to simplify the process for resellers. Where then resellers can focus on customer relationship and sales.

• Risks: literature describes financial and operational risks a firm faces when offering services. Since contracts are long-term and the revenue is long-term there can be financial risks of finding customers for a sufficiently long time, but also operational risks of having the knowledge about machines and failures over a longer period (Alghisi & Saccani, 2015; Besch, 2005). In this case, related results are found where the focal company does not have enough knowledge to know whether devices will still hold-up after some years as the device is only four years old. But also, the financial risks regarding revenue streams and investments as explained by distributors who have to invest up-front in one time but are billing monthly. This last challenge is in relation to

coproduction, distributors needed to find the right financial partners who have the financial

resources and are able to cover the financial risks.

5.1.5 Services network

• Coproduction: “customer involvement, choosing the right actors, involvement of network partners, and having the right company-client relationship” (Alghisi & Saccani, 2015; de Brentani & Ragot, 1996; Mont, 2002). Alghisi and Saccani (2015) placed the challenge within the ‘company internal organisation’ category where it actually describes connections with external partners and end-customers. Results shows that in relation to Mont (2002) the focal company has difficulties in choosing the right partners, such as refurbishers and banks, because these relationships aren’t as deep as with distributors and resellers. These actors are very important for the residual value of the device and the offering making it important to choose the right ones.

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31 this case, the organisations believe they are well integrated and no challenges are experienced. The organisations are already integrated because of their other as-a-service offerings such as Infrastructure-as-a-Service (IaaS) or Software-as-a-Service (SaaS). Also, in contrast to Martinez et al. (2010) there was no misalignment of mindset and understanding between organisations. The channel partners understood each other’s unique positions in the value-chain and see they are complementary. Teece (2007) mentions that customers view high-technology ‘products’ as systems, consisting of interdependent components which rest on platforms. The results show this as well, where resellers can make use of the marketplace platforms from distributors, where other products and services can already be bought.

• Downstream competition: Alghisi and Saccani (2015) describe that when a firm decides to offer new services, it may enter an already covered market by its direct customers or suppliers. In this case, distributors and resellers do see this as a possibility but actually do not see this happening. They view every partner should focus on their own unique strengths and thereby they understand each other’s complementary strengths. However, a separation between resellers can be seen; big resellers are combining the solutions themselves, small resellers will buy combined solutions from distributors.

5.3 International Differences

In this context, it can be confirmed that transaction-specific, host-economy specific and cultural features play a role in the international servitization of PCaaS.

Most important international differences are cultural and technological readiness and market

conditions. The findings show that the Netherlands is ready and is leading in Europe regarding Cloud

What are the challenges and international differences of servitization for PC-as-a-Service? A single-case study in the downstream channel Sebastiaan Gunter