Answers to research questions

The research analysis results and answers described above to the selected two research questions are summarized below:

4.7.1 RQ1: What methods and tools can be used to create sustainable competitive advantage and enablers for the industrial service business?

Based on the findings and conclusions of this survey, an SCA process chart has been constructed for how to create SCA competences, see Figure 43. The SCA process is called the Smart Service – toolbox, including four sub-processes: (A) Profitable Growth plan, (B) Market analysis, Customer Proximity plan, (C) Critical Competence Resource plan and (D) Service Business Development plan. These sub-processes are presented in Figure 44 and the contents and action proposals are described below.

Figure 43. The new sustainable competitive advantage (SCA) process chart for an industrial service company – Smart Service - toolbox (created by Aappo Kontu).

Figure 44. Contents of Smart Service – toolbox SCA sub-processes (created by Aappo Kontu).

A. Profitable Growth plan

All service companies apply strategy processes (two-five-year framework);

financial/operational monthly follow-up reporting is used, as well as the BSC.

However, over the past five to ten years, strategy implementation and execution has been very weak, and strategy targets have generally not been achieved — profit targets in particular have not been met. Moreover, business plans have generally been unrealistic. Have the companies made deep business environment and market analyses connected to their business capabilities and resources? Strategy shaping and adaption are needed (e.g. Ritakallio & Vuori 2016, Sivusuo 2019, Day 1990). Does the management place effective pressure and requirements on the organization, including incentives? Section 2.2.5 presented tools for strategy execution. Drucker introduced advice for better business execution: deeply analyse the market that the company is operating in, measure innovative performance, measure productivity, and increase liquidity and cash flow (Drucker 1992:264–

266). Wider business execution programmes connected to strategies and operating plans have been introduced by Kaplan and Norton (2008:8), which are clear and informative when implemented. If the profitability is below target, a sense of urgency for recovery has to be established – a fast reaction (Kotter 1996:21).

B. Market analysis, Customer Proximity plan

Porter recommended analysing business and industry environment changes actively and keeping close contacts with key customers and co-creating joint processes utilizing win-win analysis (Porter 1980). The business environment analysis tools that are used today are rather limited and simple — mainly SWOT.

More advanced tools are recommended, such as PESTEL, the five competitive forces, and value chain (see section 2.3). Shifts in the role of the customer from isolation to connection, from unaware to informed and from passive to active have been introduced (Prahalad & Ramaswamy 2004:2). Value must be co-created with customers and assessed according to ‘value in use’ (Vargo & Lusch 2004:1–17). To create unique value with the customer, what constitutes a personalized co-creation experience must be appreciated (Prahalad & Ramaswamy 2004:115–116, Reeves, Haanaes&Sinha 2015:6-15)). Service companies do not know their customers’ value chain processes and vice versa (see RQ2 comments in section 4.7.2).

C. Critical competence resource plan

None of the surveyed service companies conduct systematic critical resource analysis. Service company success is very much based on available competences, which companies must develop, create and sustain (Grant 1991:115). A critical competence plan can be constructed using SWOT and value chain analyses, defining company VRIO resources, and following and protecting them. Using VRIO analysis, deeper information regarding resource heterogeneity and resource immobility can be gained compared to competitors (Barney 2007:138). Appendix

5 describes a reference process and provides an example of a critical competence analysis that applies value chain and VRIO tests and plans in one surveyed service company.

SCA is created when companies assemble difficult-to-imitate combinations of capabilities into bundles, controlling critical capabilities and bundling capabilities for enduring advantage. The capability can walk out of the door with employees (Baghai, Coley&White 1999:100). This is a big risk in the surveyed industry. SCA is sustained as long as the resources and capabilities are durable and not imitable (Grant 2008:140). Companies must build structures and mechanisms to engage employees with the company (Heyman and Barrera: 2010). As a basis for CA, it is recommended that greater focus is placed on intangible assets than on tangible assets (Prahalad&Hamel: 1990:82). Empowering employees has also been recommended (Grönroos 2007:402). These are also essential in this type of service business.

D. Service Business Development plan

If a service company wants to get out of the cost leadership (Porter 1985)/Red Ocean (Kim & Marrborgne 2017) strategies – more recently jointly termed ‘cost battle’ – environment, transforming towards a ‘smart service’ environment, it should invest in service development and build a differentiation business model, in co-creation with customers. Service companies must prepare a service development plan and program for differentiation. The required resources, both human and financial, must be allocated. Extended value chain innovations are proposed, whereby more actors, such as customers, subcontractors and even competitors, are connected to the process (Sundbo & Toivonen 2001:87–88). User experience should be integrated into innovation practices, as well as employee experience (through listening, understanding and dialogue) (Sundbo&Toivonen 2011:350). Technology and innovation have the power to influence industry structure and CA. Companies must evaluate whether they want to be technological leaders and utilize the first mover’s advantages (Porter 1985:176). Market boundaries can be reconstructed with new service innovations (Chan&Mauborgne 2005:49–77).

Service companies, as well as customers, have many digitalization plans and on-going projects. Most of these are replacing detailed manual processes, such as power line route surveys, AMR, detail engineering, some procurement and billing processes, work process monitoring and managing systems.

Thus far, the surveyed service businesses have not created new service platforms and ecosystems that challenge the existing service market. The researcher

proposes that there is a new business potential to jump into ‘smart service’ by reshaping and networking processes and partners in the total service value chain, from material vendors, subcontractors and service providers to the end customer, including new earning models. Some examples have been developed as a reference in the building industry. The first mover can create profitable CA, and it can be SCA if development work continues.

4.7.2 RQ2: Is there a conflict between service providers and customers in terms of sustainable business targets, and can a win-win position be found?

According to the survey results, there are minor conflicts in sustainable business targets but not in quality and operational targets. There are also some conflicts in financial targets, which the parties saw as normal market business positions. Some comments were given regarding the importance of profitability on both sides, but the parties have not analysed this jointly. All surveyed customers were very satisfied with service outsourcing and cost savings.

The service providers were not unsatisfied with insourcing, which created growth at the beginning of the transformation. However, profit growth later declined.

They have not investigated the root cause for this or a means of removing themselves from continuous fierce competition. Total service process value chain analysis has not been applied (see section 2.3.3, Figure 22). There is great potential to create added value for all involved partners — in this case, network companies and service providers, as well as subcontractors. This is recommended, and parties are interested in this approach.

Currently, wider networking activities and cooperation with connected partners are not ready, as well as constructing business platforms in the service industry, and there are competence deficiencies (see the description in section 2.2.9). This requires more references and risk takers to become forerunners. Neither the service industry nor the customers are ready for this. However, the researcher considers that there is great potential to reshape this business and move from ‘cost battles’ to ‘smart service’.