Short answer
When designing outcome-based service models, ensure that the processes for delivering customer benefits are intrinsically linked to the financial models that ensure business profitability.
- Field
- Innovation & Design
- Source
- Journal of Product Innovation Management (2019)
- Method
- Case Study
- Sample
- 6 cases
- Evidence
- Strong effect
Successfully transitioning to outcome-based service models in industrial manufacturing depends on a synchronized approach to how value is generated and how financial benefits are secured throughout the customer engagement lifecycle. This innovation & design research insight is drawn from a 2019 study published in Journal of Product Innovation Management. Using Case study with 6 cases, researchers explored how this design variable affects real-world outcomes. The key design takeaway: When designing outcome-based service models, ensure that the processes for delivering customer benefits are intrinsically linked to the financial models that ensure business profitability.
Outcome-Based Service Models Require Aligned Value Creation and Capture Processes
Successfully transitioning to outcome-based service models in industrial manufacturing depends on a synchronized approach to how value is generated and how financial benefits are secured throughout the customer engagement lifecycle.
Journal of Product Innovation Management · 2019
Key Findings
- 01Success in outcome-based business model innovation hinges on three collaborative process phases: value proposition definition, value provision design, and value-in-use delivery.
- 02Alignment between value creation and value capture activities is crucial in each phase: agreeing on value distribution (value proposition), defining the profit formula (value provision), and regulating incentives (value-in-use).
Application
Design takeaway
When designing outcome-based service models, ensure that the processes for delivering customer benefits are intrinsically linked to the financial models that ensure business profitability.
How to apply
Map out the customer journey for an outcome-based service, identifying key touchpoints. For each touchpoint, define how value is created for the customer and how the business will capture value (e.g., through performance metrics, subscription fees, shared savings).
Project actions
- 01Clearly define the 'outcome' you are promising to the customer.
- 02Develop a clear 'profit formula' that links your revenue to the achievement of that outcome.
Method & Evidence
Variables
Strengths & Limitations
Strengths
- +Provides a process-oriented view of business model innovation.
- +Integrates both customer value creation and business value capture perspectives.
Limitations
The case study approach might not capture all nuances of different organizational cultures or market dynamics that influence business model innovation.
Reliability & validity
The study's reliance on case studies may limit generalizability, but the in-depth analysis of successful and unsuccessful transitions provides rich qualitative data. Triangulation of data within cases would enhance validity.
Think critically
To what extent can a business truly achieve perfect alignment between value creation and value capture, and what are the potential trade-offs involved?
Design Principles
"Value Creation and Capture Alignment: Design service offerings such that the mechanisms for delivering customer value are directly and synergistically linked to the mechanisms for capturing business value."
This research highlights a critical challenge for businesses moving beyond traditional product sales. It emphasizes that simply offering a service isn't enough; designers and strategists must meticulously align the mechanisms for creating customer value with the strategies for capturing business value at each stage of the customer interaction.
What This Means for Your Design
When companies try to sell services based on results (like 'pay for performance') instead of just products, they need to make sure they are really good at both creating value for the customer and making money themselves, all at the same time.
How to use in your project
- 1.Use the findings to justify the importance of aligning value creation and capture in your proposed business model.
- 2.Refer to the three process phases (value proposition definition, value provision design, value-in-use delivery) as a framework for your own design process.
Add to My Project
Quick Cite
Paragraph starter
This research by Sjödin et al. (2019) emphasizes that successful innovation in outcome-based service models requires a deliberate alignment of value creation and value capture processes across distinct phases: value proposition definition, value provision design, and value-in-use delivery. This suggests that any design project aiming to implement such a model must not only focus on delivering customer benefits but also on establishing a robust financial framework that ensures business viability through synchronized value capture mechanisms.
Source
Journal of Product Innovation Management
Value Creation and Value Capture Alignment in Business Model Innovation: A Process View on Outcome‐Based Business Models
journal · 2019
View sourceQuestions About This Research
- What does the research say about outcome-based service models require aligned value creation and capture processes?
- When designing outcome-based service models, ensure that the processes for delivering customer benefits are intrinsically linked to the financial models that ensure business profitability. Evidence: Journal of Product Innovation Management (2019).
- Why does "Outcome-Based Service Models Require Aligned Value Creation and Capture Processes" matter for design?
- This research highlights a critical challenge for businesses moving beyond traditional product sales. It emphasizes that simply offering a service isn't enough; designers and strategists must meticulously align the mechanisms for creating customer value with the strategies for capturing business value at each stage of the customer interaction.
- How can designers apply this research?
- When designing outcome-based service models, ensure that the processes for delivering customer benefits are intrinsically linked to the financial models that ensure business profitability.
- What were the main findings?
- Success in outcome-based business model innovation hinges on three collaborative process phases: value proposition definition, value provision design, and value-in-use delivery.. Alignment between value creation and value capture activities is crucial in each phase: agreeing on value distribution (value proposition), defining the profit formula (value provision), and regulating incentives (value-in-use).
- What research method was used?
- Case Study with 6 cases.
- How strong is the evidence?
- Evidence strength is rated Strong effect, based on a 2019 journal from Journal of Product Innovation Management.
- What should I do differently in my next project?
- Map out the customer journey for an outcome-based service, identifying key touchpoints. For each touchpoint, define how value is created for the customer and how the business will capture value (e.g., through performance metrics, subscription fees, shared savings).
- What are the limitations?
- The study is based on a limited number of cases, and the findings may not be generalizable to all industrial sectors or types of outcome-based models.