Thinking in Services

by A. Keller

Service orientation is about serving customers better by breaking down their needs into a hierarchy of services and re?ecting this in the organisation and information technology (IT) systems of the enterprise. In the wave of digitalisation, many companies are shifting their attention towards services; they are increasingly utilising services, amending their products to become a hybrid offering, or even transforming their products into services.  

 For example, Deutsche Bahn successfully offers the Call-a-Bike or Flinkster sharing schemes – services that extend Deutsche Bahn’s portfolio as a mobility provider. Another example is provided by Audi, a traditional car manufacturer that intends to transform tangible products into services. CEO Rupert Stadler said in an interview with Auto Motor und Sport: ‘Imagine, each of our models will have a seat that contains all of today’s available functionalities, which are cooling, heating, massage and individual adjustability. our customers could enable features on demand for a certain period of time and pay only for the service.’[1] 

Services are the major constituents of a digital company’s business portfolio and value proposition 

The transition from a product to a service company must be undertaken carefully. The ideal service is easy to use, set up and maintain. But this is not always possible. Picking up from the previous example – it is a considerable risk for Audi to build all its cars with every high-class functionality, using expensive hardware,[2] if the buyers do not then make sufficient use of these add-on functionalities. It is therefore paramount to carefully balance old and new elements of the business portfolio to mitigate such risks. 

Furthermore, it might be necessary to think two steps ahead and consider holistic customer experiences in respective ecosystems. In the case of Audi, a service approach based on hardware functionalities might not be sufficient. Audi still has to build and create the fully equipped car without the certainty that buyers are using the add-on services. Market research is mandatory in any case, but ultimately the services in the car cannot be relocated to another car. The risk of having unused services can only be mitigated if the car were not restricted to an individual owner and the car itself were a service to be used by several consumers, each with a different usage preference. 

There are services that do not contribute directly to a company’s ROI (return on investment) (at least in the traditional sense), but still give value to its consumers. These open doors into broader ecosystems where different services bring additional value when they are used collaboratively. 

From a service company’s point of view, it is essential that the overall usage of a service ecosystem has a positive ROI. In addition, it is desirable to ‘lock’ the end consumer into a vendor ecosystem. According to Osterwalder and Pigneur,[3] this is where Apple provides an example of best practice: after Apple released the iPod in 2001, the company started to create its ecosystem by combining iPod devices with its iTunes software and iTunes online store to the exclusion of other service providers. The value Apple promised with this offer was the ease with which customers could search, find, pay, access and enjoy their digital music. Based on this experience, Apple enhanced and developed its portfolio. With the iPhone, it created an even more exclusive ecosystem. Apple’s app store is the perfect platform to sell third-party (albeit pre-approved) software. On the one hand, third-party apps complement Apple’s service offerings and improve the user experience. However, on the other hand each vendor must pay licence fees,[4] meaning that Apple is earning money both from its suppliers and customers. The business model is highly scalable – i.e., Apple can attract an unbounded number of app developers who share a great part of the risk and investment. 

Lean intangible services make business models more flexible and scalable 

In the end, companies like Apple bind the customer more tightly by offering a perfectly self-complementing ecosystem of services. The key enabler for such a tailored offering is the data of the customer who is willingly sharing his personal information to achieve a much better user experience within the service ecosystem. 

Providing and consuming services can be considered at different levels. Most obviously, companies provide services to end customers. However, service thinking goes further; for example, supply chains allow companies to use services from other companies. Even within a company, one department can use services that are provided by another department. Such hierarchies of consumers and providers follow the paradigm of service orientation.[5] This is not a new concept. The IT community, for example, has discussed SOA (service-oriented architecture) for many years.[6] 

Unique services are ecosystem entry points for customers 

The modernisation of business through digitalisation ultimately requires a reconsideration of traditional business models. A major aspect of digitalisation is minimising the enterprise’s tangible assets, which is a shift in the expenditure strategy from CAPEX (capital expenditure) to OPEX (operational expenditure).[7] Consequently, many companies are diminishing their expensive assets (e.g., data centres, real estate portfolio) and themselves using services from other companies that have made the respective service a core competency.[8] For example, Amazon offers a highly mature IT infrastructure on demand with the Enterprise Cloud from Amazon Web Services,[9] making it unnecessary for most companies to invest in expensive IT infrastructure in their own data centres. 

Not surprisingly, service thinking also leads to new forms of organisation. Service-oriented enterprises are structured in units corresponding to their various internal and external service offerings, and so are their IT systems and data ownership. Loose coupling, reuse and composability of services increase the need for operational efficiency and ?exibility. 

Services lower the barriers to reaching new customers (and new markets), deepen the relationship with clients and reduce the required capital (CAPEX). Thinking in terms of offering services increases the scalability and flexibility of business models, which supports companies in the creation of tailored ecosystems and from there the achievement of competitive advantage. 

[1] Dralle, J., Alex, R.: ‘Audi-Chef Rupert Stadler im Interview - Kunde bezahlt nach Bedarf’, Auto Motor und Sport Online, 2016. 

[2] Rehberg, J.: ‘Audi: Digitale Dienste sollen H?lfte des Umsatzes ausmachen’, kfz-betrieb, 2016. 

[3] Osterwalder, A., Pigneur, Y.: ‘Business Model Generation: ein Handbuch für Vision?re, Spielver?nderer und Herausforderer’, Campus Verlag, p. 51, 2011. 

[4] Apple Inc.: ‘iTunes Legal Terms’, Apple Inc., 2016. 

[5] Allen, P.: ‘Service Orientation: Winning Strategies and Best Practices’, Cambridge University Press, 2006. 

[6] Bieberstein, N., Laird, R. G., Jones, K., Mitra, T.: ‘Executing SOA – A practical guide for the service-oriented architect’, IBM Press, 2008. 

[7] Maverick, J. B.: ‘What is the difference between CAPEX and OPEX’, Investopedia, 2016. 

[8] Allen: p. 3. 

[9] Amazon: ‘Amazon Web Services’, Amazon.com, Inc., 2016. 

About the Author 

Andreas Keller is Enterprise Architect in the CIO Department at DB Systel GmbH. He graduated in computer science in 2007 and completed an MBA in 2011. Andreas started his professional career in 2004 at EDS (Electronic Data Systems), which was acquired by HP in 2009. During this time, Andreas experienced from the inside many international companies in the automotive, aviation, communication and steel sectors due to his consultancy work. He participated in various projects in versatile roles (e.g., developer, lead architect) before he went to DB Systel GmbH in 2014. 

About 'Modelling for Digital: Best Practices for Digital Transformation in Everyday Project Life [Practitioner Edition]'

In this edition, we focus on the practitioner. We mean those colleagues, who conduct the day-to-day work in the concrete projects delivering digital capabilities. Some aspects presented here are very specific to digitalisation projects, while others are general best practices in projects and hence also apply to digitalisation projects. In digitalisation undertakings, however, speed is of the essence, and a certain explorative approach must be chosen in order to match the needs of the customers best. At the same time, security is a pervasive challenge, as is compliance.

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Digitalisation is highly relevant in our private and business lives, and it is better to face up to the changes it drives. Setting aside the sociological, cultural and macroeconomic changes driven by digitalisation in our societies, our focus here is on the microeconomic impacts on our businesses. It is probably the biggest upheaval for society and the economy in this century. 

Altogether, 'Modelling for Digital', 'Managing for Digital' and 'Digital in Action' assist you in the shaping, planning and execution of a comprehensive transformation of the status quo (and you should not settle for less). It will accompany you and your business in meeting this challenge, to open up opportunities unthinkable even just a couple of years ago. It provides the context and best practices for such initiatives from a variety of industries, businesses and viewpoints, strategic, functional, operational, technical and executional. The authors lay out a general, abstracted vision of digitalization across different industries.

About the authors of the 'Digital Cookbook' series

Dirk Krafzig spent the greatest part of his professional life working for large enterprises. As the author of the bestselling book 'Enterprise SOA – Service-Oriented Architecture Best Practices', Dirk coined the term 'SOA' and the concepts behind it in 2004. Today almost all large organisations in the world apply service orientation as the foundation of their enterprise architecture. Since 2007, Dirk has been running his own company, SOAPARK, which specialises in strategy consulting in the area of digital transformation and SOA.

Manas K. Deb is currently the Business Head of Cloud Computing at Capgemini/Europe. He is a veteran of the software industry with more than 30 years of experience including deep work in development, product management, architecture, management of transformative customer projects, and sales and marketing. During his career at TIBCO and Oracle, he focused on the whole spectrum of middleware technologies.

Martin Frick is currently COO at Generali Switzerland. He has held executive positions in large multinational corporations, BPO service companies and start-up incubators in international settings, with a focus on IT and operations in financial services. He has been responsible for large-scale business build-up initiatives and turnaround situations in large organisations, always with a strong need for pervasive change management.