Ricardo Garza Treviño Industrial Project Business

83819 September 16, 2010

Including services in the business model of project-based firms

At present times, services are becoming more important to project businesses mainly due to the high
profit opportunities they make possible. As mentioned in the literature, “ the share of services in the
offerings of project-based firms is increasing” 1.

It’s necessary to understand what benefits including services in a business model brings. Wikström, K., et
al.2 mention six types of impacts of services on the business performance of a project-based firm:
Customer entry, customer value, competitive advantage, delivery efficiency, service business (service
itself as revenue) and innovation and learning.

In the lecture by Natalia Reen, it was mentioned that the justification for the implementation of services
are that competition is high and customers demand better “serving”, that services have higher margin
and that services exist during the whole life cycle of a project. The reasons complement well between
different literatures.

After reviewing the advantages, it seems convenient to add services to a company’s sales strategy. Oliva
R. and Kallenberg R.3 establish the stages that happen in the transition of a firm from a product
manufacturer into a service provider and the actions that ensured success on their analyzed companies.
These stages are:

1. Consolidating product-related services, which actions include moving all services under one
department and monitoring effectiveness and efficiency of service delivery.
2. Entering the “IB” service market, which actions include learning to value, deliver, and bill for
services, by creating a separate organization with a dedicated sales force to focus on them. Also,
it includes creating an infrastructure to respond to customer’s service demand.
3. Expanding the “IB” service offering, which happens in two stages:
a. Changing the focus from transaction- to relationship-based interactions, which include
assuming operating risks to make long-term contracts with the clients.
b. Changing the value proposition from product efficacy to product’s effectiveness with the
consumer’s process. This means to provide services over products’ whole life cycles.
4. Taking over the end-user’s operations, which means becoming a “pure service organization, one
that assumes operating risk and takes entire responsibility of the end-user’s process” 4

1
Wikström, K., et al. (2009). Services in project-based firms – Four types of business logic. International Journal of
Project Management, 27, 113-122. Obtained September. 14, 2010 from Science Direct database. Page 113.
2
Ibid, page 114.
3
Oliva R., Kallenberg R. (2003). Managing the transition from products to services. International Journal of Service
Industry Management, 14, 2, 160-172. Obtained September. 14, 2010 from http://www.emeraldinsight.com/0956-
4233.htm. Pages 165-170.
4
Ibid, page 170.
In the lecture by Natalia Reen were mentioned challenges with respect to the transition. Some of them
were: Not having experience in service business and/or earning logics, customer’s trust and how to price
knowledge. All this challenges are the reasons of the steps that need to be taken to make the transition,
as mentioned before.

Another important point concerning the topic is establishing what affects the potential to offer and
manage these services.

According to Wikström, K., et al., the “variables [that] considerably influence the potential for including
services in the firm’s business model” 5 are the complexity of the projects and the degree of “maturity”
in delivering services of the firm.

The project complexity enhances the possibility for service implementation because as projects grow
complex, “customers are more likely to involve themselves with projects that they find novel or complex
rather than with financially large projects” 6. The maturity in delivering services enables service
implementation because as maturity increases, so does customer-centric policy, and as mentioned by
Wikström, et al., in the customer’s view, solutions are just a set of relational processes between him and
the supplier7.

Lusch, et al.8, mention that competing through service is more than adding value to products and the
management to produce and distribute them, but “has to do with the entire organization viewing and
approaching both itself and the market with a service-dominant logic” 9. The complete organization of
the firm has to be service-oriented in order to make the most profit out of the business.

Davies A. and Hobday M.10 don’t mention specifically service-oriented companies, but make emphasis
on the using of Project Based Organization, in which “the project is the primary business mechanism for
coordinating and integrating all the main business functions of the firm” 11, for businesses who produce
complex products and systems.

Now, I realize the importance and the influence that services have on the actual industry and market.
I’m aware of many of the difficulties and challenges to overcome when a firm tries to go service when
being just product-oriented. I believe all of these studies are essential to understand the situation of at
least one part of the world’s economic and industrial tendencies and they can be used as guides for the
immediate future.

References:
5
Wikström, K., et al. (2009). Services in project-based firms – Four types of business logic. International Journal of
Project Management, 27, 113-122. Obtained September 14, 2010 from Science Direct database. Page 114.
6
Ibid, page 115.
7
Ibid, page 116.
8
Lusch, R. F., et al. (2007). Competing through service: Insights from service-dominant logic. Journal of Retailing,
83, 5-18. Obtained September 14, 2010 from Science Direct database.
9
Ibid, page 5.
10
Davies A., Hobday M. (2005). The Business of Projects: Managing Innovation in Complex Products and Systems.
United Kingdom: Cambridge University Press.
11
Ibid, 120.
Davies A., Hobday M. (2005). The Business of Projects: Managing Innovation in Complex Products and
Systems. United Kingdom: Cambridge University Press.

Lusch, R. F., et al. (2007). Competing through service: Insights from service-dominant logic. Journal of
Retailing, 83, 5-18. Obtained September 14, 2010 from Science Direct database.

Oliva R., Kallenberg R. (2003). Managing the transition from products to services. International Journal
of Service Industry Management, 14, 2, 160-172. Obtained September 14, 2010 from
http://www.emeraldinsight.com/0956-4233.htm.

Wikström, K., et al. (2009). Services in project-based firms – Four types of business logic. International
Journal of Project Management, 27, 113-122. Obtained September 14, 2010 from Science Direct
database.