New capabilities, resources and assets

Capabilities, resources, and assets are essential parts of the transition as these are the building blocks for operating the changed business. Penttinen (2007) states that service orientation requires the acquisition of new capabilities, resources, and assets. The terms capabilities, resources, assets, and competencies are used by many researchers. Capabilities and competencies are commonly used, and sometimes it seems that these are used as synonyms even though there are slight differences between them. Day (1994) defines capabilities as “complex bundles of skills and accumulated knowledge, exercised through organizational pro-cesses, that enable firms to coordinate activities and make use of their assets” (p.

38). He specifies that different business activities that are enabled by capabilities typically are, for example, product development and service delivery. Compe-tencies are developed through capabilities and can described as “well-defined routines that are combined with firm-specific assets to enable distinctive func-tions to be carried out”, which are mostly static by its nature (Day, 1994, p. 38).

In other words, the end result of development is competence which consist of skills and knowledge that are utilized to perform specific tasks (Vargo & Lusch, 2004).

Resources are also important for companies, and traditionally resources has been considered as natural resources or goods, which are used in producing value (Vargo & Lusch, 2004). They suggest that due to the market shift toward service-dominant logic primary resources for value creation are knowledge and

skills. Resources are critical for companies because value is created through the integration of resources and competencies, in which different resources are uti-lized, for example, people, information, technology (Vargo et al., 2008). Besides capabilities, competencies, and resources, assets are essential for companies to produce value. Day (1994) describes assets as accumulated resource endowments of a company, for example, equipment, systems, and brand equity. Assets alone do not produce value as Day explains that assets can be used for the advantage of a company through capabilities. When moving from product-dominant focus to services, the required physical assets are quite different (Huikkola et al., 2016).

The transition requires new assets as well as new resources, and capabilities or competencies.

The transition forces companies to seek new capabilities or competencies.

In the research of Penttinen and Palmer (2007), they found out that many nies cannot cope with the transition on their own, and they suggest that compa-nies need to acquire new competencies. Another option is to develop capabilities if acquisition is out of the question. Salonen (2011) discuss how both of the com-panies in her case study developed new capabilities as these comcom-panies transi-tioned to offering integrated solutions, and she describe this development project as a tremendous process for these companies. Service-related capabilities are es-sential for companies who are transitioning towards service orientation, and these capabilities can be developed, hired, or acquired, for example, through mergers and acquisitions of smaller specialized companies (Huikkola et al., 2016).

They note that companies usually acquire new capabilities and also continuously develop existing capabilities at the same time.

Usually, companies develop new capabilities as a result of the transition as Baines et al. (2009b) discuss that the actual transition process is “the innovation of a manufacturer’s capabilities and processes” (p. 14). The importance of capa-bility development grows when companies move further towards services on the product-service continuum. The more a company transitions towards service ori-entation and customer centricity the more significant capabilities must be devel-oped (Oliva & Kallenberg, 2003). Service orientation creates a demand for com-panies to obtain capabilities that are necessary for the changed business. Some of the capabilities are more vital than others. New capabilities for sales force are critical for companies who change their orientation to services (Salonen, 2011;

Ulaga & Loveland, 2014). Ulaga and Loveland (2014) discuss that sales force has a pivotal role in servitization, and the problems with aligning the sales force of a company to service and customer orientation can create major challenges for ser-vitization. Many researchers have discussed that manufacturing companies do not usually have capabilities for selling services and solutions, so therefore sales-people need to develop new skills and mindset (Huikkola et al., 2016). The de-velopment of specific sales capabilities is a tremendous challenge for companies (Ulaga & Reinartz, 2011). Capable and specialized people are the key to service growth and customer satisfaction, so new people and resources must be acquired to meet the capability requirements (Zhang & Banerji, 2017).

Resources are equally important as capabilities and competencies. When the core offering changes due to servitization, companies should consider that they have the right resources and competencies for delivering the new value proposition (Smith, Maull & Ng, 2014). Companies that changes due to servitiza-tion have existing resources and they are in demand for new ones, so companies should carefully consider how to proceed. Huikkola et al. (2016) emphasize that resource realignment is vital for companies to create value through the service-orientated business model. They specify further that resource realignment con-sists of different activities that enable the creation of new customer-orientated capabilities through changed resources which can include, for example, technol-ogies, IT systems, finance, and delivery. According to Huikkola et al. (2016), re-source realignment can include “the creation of new rere-sources, the leveraging of existing resources in new ways, and the release of resources that are no longer relevant” (p. 37). It is sensible to modify the existing resources to meet the new demands, and companies also have less burden to bear and more space for new resources when they release the irrelevant resources.

Usually manufacturing companies do not have all the necessary resources and competencies as their existing resources and competencies are product ori-entated. Therefore, new resources and competencies are required for new offer-ings that have been created as the result of a servitization (Lerch & Gotsch, 2015).

There are few options in acquiring new resources. Companies can obtain new resources, for example, technologies, competencies, and market knowledge, through creating or building new resources by themselves, or acquiring re-sources from outside of the company (Huikkola et al., 2016). They specify that it is difficult to create new resources or modify the old resources because specific capabilities are needed, such as learning and development, which can be utilized to gain or create new knowledge, skills, processes, and way of thinking.

One specific resource is particularly important when companies are moving towards services and innovating new services. Huikkola et al. (2016) discuss that companies in their study required technologies as a new resource to transition from products to services and to provide specific services. In this case, technolo-gies proved to be important, but other researchers have discussed the signifi-cance of technologies. Penttinen (2007) emphasizes the role of technology as he stated that information technology innovation is essential when companies tran-sition from products to services. Barrett et al. (2015) also discuss the importance of information communications technology (ICT) in service innovation, and they bring up that new competencies are combined with new resources, such as ICT, to enable innovations even further as well as creating value in novel ways. nologies can have a significant impact on services and service innovation. Tech-nologies enable better customer experiences in new smarter services, and simul-taneously customer relationships shift to more dynamic (Grenha Teixeira et al., 2017). Services can be enhanced through different new technologies as services can utilize different technologies, for example, service-related technologies can improve service productivity, and remote sensing technologies can improve the value in-use (Huikkola et al., 2016). When different technologies are a part of the

service innovation and the transition from products to services, complexity in-creases and new challenges emerge. However, need for new resources and com-petencies might be affected by the company size. When digital elements are part of servitization, big companies will more probably succeed in the transition be-cause they have presumably the required resources and competencies (Lerch &

Gotsch, 2015).