business model innovation in a mature...

Department of Technology Management and Economics Division of Entrepreneurship and Strategy CHALMERS UNIVERSITY OF TECHNOLOGY Göteborg, Sverige 2016 Report No. E 2016:095

Business Model Innovation in a Mature Industry A Case Study at Parker Hannifin SCS Master of Science Thesis in the Management and Economics of Innovation Programme ELIN GLANSÉN SOFIE NIELSEN

MASTER’S THESIS E 2016:095

Business Model Innovation in a Mature Industry A Case Study at Parker Hannifin SCS

ELIN GLANSÉN SOFIE NIELSEN

Tutor, Chalmers: Sara Fallahi Tutor, company: Michael Hagberg

Department of Technology Management and Economics Division of Entrepreneurship and Strategy

CHALMERS UNIVERSITY OF TECHNOLOGY Göteborg, Sweden 2016

Business Model Innovation in a Mature Industry A Case Study at Parker Hannifin SCS

ELIN GLANSÉN & SOFIE NIELSEN © ELIN GLANSÉN & SOFIE NIELSEN, 2016. Master’s Thesis E 2016:095

Department of Technology Management and Economics Division of Entrepreneurship and Strategy Chalmers University of Technology SE-412 96 Göteborg, Sweden Telephone: + 46 (0)31-772 1000 Chalmers Reproservice Göteborg, Sweden 2016

I

AbstractChangesintheenvironment,drivenbyglobalizationandtechnologydevelopment,givegroundto instability and uncertainty within industries. Consequently, stable business models arechallenged by disruption of previous industry boundaries and competition. While closeinnovationbecomeprogressivelyambiguous,firmsgrowfurtherdependentonexternalsourcesfor innovation. Furthermore, translated to original equipment manufacturers, actors aresubjectedtodevelopments in technology,customerbehaviorandtoughmarketsentiments. Inresponsetothechangingdynamics,actorsarefoundtoinvestinbusinessmodelchangetoadaptto the new environment. In turn, the pressure is transferred onto suppliers, where ParkerHannifinSCSmustengageinsimilarinvestmentsandalignwithprevailingchanges,nottofacetheriskofbusinessmodelobsolesceorincompatibilitywithitscustomers.Yet,asthebusinessmodel is an interdependent system, an alteration in one dimension will require accordinglyadjustmentintheremainderparts.

Theaimofthisthesisistounderstandhowacompanywithinamatureindustryproactivelycanengage to innovate the businessmodel. To fulfill this purpose, the research is designed as aqualitative case study, with focus on how the focal company should organize to take on aproactiveapproachtoinnovatetheirbusinessmodel.

This thesis presents a process purposed to provide a structure for how a mature firm canapproach proactive businessmodel innovation. The process comprises 4 phases Assessment,Analysis, Alignment and Adaptability, including detailed sub-steps. The aim is to proactivelyexploreexternalsourcesof innovation,ratherthanawaitingtriggers,hencespur ideationthatcanenablebreak-outsfromindustryrecipes.

AnalyzingtheprocessapplicationatParkerHannifinSCS,itisfoundthataformalprocesswithsupport and incentive to question habitual methods should be provided from the internalorganization.Furthermore,across-functionalteamoutsideofhierarchalstructurecaneasethedecisionmakingandinformationflow,whilecreativitycouldbenefitfromadistinctmixtureofparticipantsintermsofteamcomposition,withbothwellexperiencedandnewemployedwithdiverse backgrounds. Continually, the project team should be appointed so that competencywithineachbusinessmodeldimensioniscovered,concerningthetotalsystemofvaluecreation,propositionandcapture.Still, it isessential thateachmember isopentochallengeandadjustaccustomedapproaches.

It is essential thatSCSsecure financial capacity to invest in the innovationprocessand to tryvariousbusinessmodels.Astheprocesscirculatearoundcollaborativebusinessdevelopment,itrequires top management support for a culture and organizational mindset that is open tocollaborations. Further, to comprehend the necessity of such mindset in order to improveprobabilityofsuccesswiththepossibilitytoachievesuperiorvaluecreationthroughthevaluechain, thus increasemarket share and strengthen competitivepositioning towards competingactors.

Key words: Business Model, Business Model Innovation, Proactive Business Model Innovation,BusinessModelInnovationProcess,OpenInnovation,AnalogicalReasoning.

II

AcknowledgementsFirstandprimary,wewanttothankthecasecompany,ParkerHannifinSalesCompanySweden,withallemployeesastheyalwaysfoundtimetohelpas,andcontributedwithvaluableknowledgeand information. They not only made this thesis possible but also contributed to a fun andrewardingexperienceinsomanyways.Wewanttoexpressourappreciationtothewholeglobalsales team,who have kindlywelcomed us to be part of the group. Special thanks to the keyaccountmanagers forbringingusalongtocustomermeetings,engaging in interviewsandtheextraeffortspenttoincludeusinactivitiesanddiscussionsthatcouldbetothebenefitofthisproject.Also,thankyoutointervieweesatrespectiveOEMwho,withapositiveattitude,foundthe time formultiple interviewsessionsand for theopenandhelpful input.Wewould like todirect a special thankyou toMichaelHagberg, our supervisor atParkerHannifin SCS, for thecommitment,supportandvaluableadvicethroughoutthework.

Furthermore, we want to extend our gratitude to Sara Fallahi, our supervisor at ChalmersUniversity of Technology, for the engagement, guidance and positive attitude that made thisthesisapleasuretowrite.

WealsowanttopayattentionandexpressappreciationtotheexaminerJoakimBjörkdahl.

Manythanks!

ElinGlansén SofieNielsen

ChalmersUniversityofTechnology

Gothenburg,Sweden2016

III

TableofContent

1. Introduction........................................................................................................................................11.1. Background...............................................................................................................................................11.2. ProblemFormulation................................................................................................................................11.3. PurposeandResearchQuestion...............................................................................................................21.4. Limitations.................................................................................................................................................21.5. Disposition................................................................................................................................................31.6. Listofabbreviations..................................................................................................................................4

2. LiteratureReview...............................................................................................................................52.1. BusinessModelandBusinessModelComponents...................................................................................52.2. Businessmodelinnovation.......................................................................................................................8

2.2.1. Analogicalreasoning......................................................................................................................102.2.2. OpenInnovation.............................................................................................................................11

3. Methodology....................................................................................................................................133.1. ResearchStrategyandDesign.................................................................................................................133.2. ResearchMethod....................................................................................................................................13

3.2.1. Literaturereview............................................................................................................................143.2.2. SecondaryData..............................................................................................................................143.2.3. PrimaryData..................................................................................................................................15

3.3. ResearchProcess.....................................................................................................................................18

4. AnalyticalFramework:BusinessModelInnovationProcess...........................................................204.1. Phase1:Assessment...............................................................................................................................204.2. Phase2:Analysis.....................................................................................................................................214.3. Phase3:Alignment.................................................................................................................................234.4. Phase4:Adaptability...............................................................................................................................24

5. CaseSettings.....................................................................................................................................255.1. ParkerHannifinSCSBusinessModel.......................................................................................................25

5.1.1. Valuecreation................................................................................................................................255.1.2. Valueproposition...........................................................................................................................275.1.3. ValueCapture.................................................................................................................................28

5.2. Strategies................................................................................................................................................285.3. Descriptionofprioritizedcustomers.......................................................................................................29

6. AnalysisandDiscussion:TheBusinessModelInnovationProcess.................................................316.1. Phase1:Assessment...............................................................................................................................316.2. Phase2:Analysis.....................................................................................................................................386.3. Phase3:Alignment.................................................................................................................................436.4. Phase4:Adaptability...............................................................................................................................47

7. Discussion:Fromreactivetoproactive............................................................................................50

8.Conclusion.............................................................................................................................................53

9. References........................................................................................................................................55

10. Appendices.......................................................................................................................................59

IV

ListofFigures

Figure1:Anoverviewofthereportdisposition....................................................................................3

Figure2:Anoverviewofthebusinessmodelanditsdimensions.........................................................5

Figure3:Keytheoreticalconcepts......................................................................................................14

Figure4:Visualizationofthehowthecross-analysistowardscustomersisperformed....................18

Figure5:Anoverviewoftheresearchprocess...................................................................................19

Figure6:Anillustrationofthefirstphaseandrespectivesub-stepsinthebusinessmodelinnovationprocess.........................................................................................................................................20

Figure 7: An illustration of the second phase and respective sub-steps in the business modelinnovationprocess.......................................................................................................................21

Figure8:Anillustrationofthethirdphaseandrespectivesub-stepsinthebusinessmodelinnovationprocess.........................................................................................................................................23

Figure9:Anillustrationoftheforthphaseandrespectivesub-stepsinthebusinessmodelinnovationprocess.........................................................................................................................................24

Figure10:AnoverviewofthegeneralproductandinformationflowinParkerHannifinSCS’ssupplychain.............................................................................................................................................25

Figure11:Overviewofhowinformationinparallelisgatheredformacro,mesoandmicrolevel....33

V

ListofTables

Table1:AnoverviewofthedisaggregatedBusinessModeldimensionValueCreation.......................6

Table2:AnoverviewofthedisaggregatedBusinessModeldimensionValueProposition..................7

Table3:AnoverviewofthedisaggregatedBusinessModeldimensionValueCapture........................8

Table4:Aspecificationofthecasecompanyinvolvementandaimoftheinterviewsconductedineachphase............................................................................................................................................15

Table5:Aspecificationofthepurposeandintervieweesinthefirstinterviewsession.....................16

Table6:Aspecificationofthepurposeandintervieweesinthesecondinterviewsession................17

Table7:Aspecificationofthepurposeandintervieweesinthethirdinterviewsession....................18

Table8:Aspecificationofthepurposeandintervieweesofthefourthsession.................................18

1

1. IntroductionThis section presents the background, problem formulation, purpose and scope for the thesis.Further,anoverviewofthereportdispositionisprovided.

1.1. BackgroundToday,stablebusinessmodelsareexposedtochallengingenvironmentsintermsoftechnological,sociological,politicalandeconomicfactors,drivenbyglobalizationandtechnologydevelopment.Theresultisindustryinstabilityanduncertainty,aswellasdisruptiontotraditionalboundariesandnatureofcompetition(Voelpeletal.2004),whichleavestheconventionalapproachofclosedinnovationlessreliant.Asaresult,firmsbecomesincreasinglydependentonexternalsourcesforinnovation,suchascollaborationsdownthevaluechain(Saebi&Foss2015).

Directing focus on manufacturing firms, the concept of business model innovation becomeprogressivelyimperativeformanufacturingfirmsasglobalizationhasresultedinmanufacturingcommodification,whereitischallengingtochargeapremiumforhighqualityproducts,aswellofderiveprofitfrommanufacturingcompetencies.Thelossofcompetitiveadvantagepreviouslyfoundineithermanufacturingprocessesorproductofferingrequirefirmstoreconsidercurrentbusinessmodels (Afuah2014),aspartalsoduetotheshorter lifecycletocommoditizationoftechnologies less dependable to stipulate the aspired level of profit (Chesbrough 2007). Inrelation,Afuah(2014)reportofthealteredbusinessmodeldominancewherefirmstoagreaterextentoutsource,investinexternalcollaborations,addservicesandbundleofferingsoradjustthe revenue model, thus drifting from the previous product-oriented focus on research anddevelopmentandchargeperunittocustomers.

Connectingtoresearchfocusedonbusinessmodelinnovationasasourceforrenewal,scholarsshare the view that it is key to firm performance (Zott et al. 2011). Continually, academicpublicationsoftenhighlightthesuccessthathavefollowedforcorporationswhohaveinnovatedtheirbusinessmodels,suchasseenforDell, IKEAandWal-Mart(Voelpeletal.2004;Euchner2014;Chesbrough2007).Similarly,disruptionoftraditionalindustries,alternativelythecreationofnewthroughbusinessmodelinnovationcanincreasinglybeidentifiedamongmanyofthefirmswhoinrecentyearsqualifiedforthefortune500list(Voelpeletal.2004).

Moreover,toshedlightontheimportanceofbusinessmodels,itisarguedthatagiveninnovationcreatesvaluefirstwhenitpassesthroughthesystemofactivities,wheredissimilarmodelswillproducedifferenteconomicresults.Hence,financialoutcomefromalesserofferingthatpassesthroughasuperiorbusinessmodelcanbegreaterthan if theoppositeweretrue(Chesbrough2010).Onthatnote,implementinganapproachforvaluecreation,propositionandcapturethatdeviatefromthedominantindustrymodelcanderivecompetitiveadvantagemoresustainablethanthat fromother formsof innovations.Theadditionalsustainabilitystemfromthesystemcomplexity where the totality comprised by interconnected elements is difficult to imitate,althoughcompetingfirmscanreplicateafewelements(Afuah2014).

1.2. ProblemFormulationAsofcurrent,ParkerHannifinSCS,attempttomovefromaprimarilyproductfocused,todevelopamoreserviceandcustomercentricapproach.Duringfiscalyear16,ParkerHannifinreportedastrategyrenewalthatinpartfocusonclosecollaborationswithkeycustomersaswellasdirectfurtherefforttotheaftermarket.Thesefocusareashaverecentlyalsobeenrecognizedforgaining

2

in importance among its customers. The previous lack of aftermarket focus, for both ParkerHannifinasasupplierandOriginalEquipmentManufacturers(OEM),hasresultedinlowcapturerate of market share, where the majority part of high revenue potential consumables isstandardizedandeasilyattained,oftenbyactorsnotresponsibleforthefirst-fit.

In relation, heavymachinery producing firms have shifted from a traditional production andproduct oriented focus towards greater investments into service offer development andaftermarketpotential.Theadjustmentisaresultofastagnatinggrowthinequipmentsalesandlower differentiation levels of products, where companies attempt to establish a balancedrevenuestreambyexpandingoralteringthecustomervalueofferingtomaintainprofitability.

Prevailingtechnologydevelopment,changeincustomerbehaviorandtoughmarketsentimentsgivehighpressurefromend-customersonOEM,whichisfurtherdirectedontotheirsuppliers.Theproblemisthatasahighlydiversified,productandsystemscentricsupplier,ParkerHannifinischallengedasOEM'sinvestinbusinessmodeladjustmentsinresponsetochangesinmarketdynamics.Toremaincompetitiveandavoidbusinessmodelobsolesceorincompatibilitywithitscustomers, Parker Hannifin invests in close customer collaborations to identify and act oncustomerorientedsolutionsinordertoalignwiththeprevailingchangesandenhancethevaluethatcreateditscustomersbycontributingtotheirgrowth.However,asthebusinessmodelisaninterdependent system, the necessary development of traditional approached found in forexamplerelationships,revenuemodelsandcustomervaluepropositionwillhaveadirectimpactonremainingbusinessmodelelementsthathencealsorequireadjustment.

1.3. PurposeandResearchQuestionThepurposeofthisthesisistounderstandhowacompanywithinamatureindustryproactivelycanengagetoinnovatethebusinessmodel.

Theresearchquestionthatwillguidethisthesistofulfillabovepurposeis:

RQ: How should Parker Hannifin SCS as an incumbent within amature industry organize toproactivelyinnovatetheirbusinessmodel?

1.4. LimitationsDuetotimeandresourceconstraints,thethesisislimitedtoprimarilyfocusonearlyphaseforbusinessmodel innovation.Hence, itwillnotattendtosubjectssuchaswhentoscale,howtomanage processes in parallel, change management or implementing methods in detail.Furthermore, per request from the focal company the research will focus on a collaborativeapproachwith largeOEMs, thus no attentionwill be given to characteristics of the customersegmentthatcomprisesahighquantityofsmallcustomers.Inpart,sincethemanagementandapproach to that segment differ from that of OEMs. Yet alsowith consideration given to thestrategic intent to grow key and high potential customers. In turn, this project scopewill bedelimitedintermsoforganizationalscope,whererecommendationswillbeprovidedexclusivelytoParkerHannifinSalesCompanySweden.

3

1.5. DispositionThis thesis initiates with a literature review, see figure 1, which describes the research thatprovidesafoundationfortheanalyticalframework.Thesectioncoversresearchrelatedtothesubjects of business model and business model innovation as well as concepts within openinnovation and analogical reasoning. The methodology chapter explain how the study wasperformed and includes the chosen research strategy, design, method and process, alsoincorporating a discussion on validity, reliability and generalizability. The third chapter,analyticalframework,describesthedevelopedprocessforproactivebusinessmodelinnovationprocess.Further,casesettingsarepresentedtoprovidethereaderwithanunderstandingofthefocalcompany,aswellasselectedOEMsforwhichthisstudydeparts.Intheanalysischapter,thepreviouspresentedprocessisappliedtoanalyzetheempiricalfindings,followedbyadiscussionaroundthefindings,tobeabletodrawonaconclusionandanswertheresearchquestion.

Figure1:Anoverviewofthereportdisposition

4

1.6. ListofabbreviationsFY:FiscalYear

MRS:AtlasCopcoMiningandRockExcavationService

OEM:OriginalEquipmentManufacturer

RFQ:RequestforQuote

R&D:ResearchandDevelopment

SCS:ParkerHannifinSalesCompanySweden

5

2. LiteratureReviewThis chapterwill present key literature that provided a basis for the research. In order to set acommonunderstandingforbusinessmodelinnovation,wefirstdefineanddescribetheconceptsofinnovationandbusinessmodel.Further,businessmodelinnovationisdescribed,complementedwithanalogical reasoning and open innovation as an approach to innovation opportunitiesidentification.

2.1. BusinessModelandBusinessModelComponentsThebusinessmodelcontrolsandcreatesthevalueofanewtechnologybybringingit intothemarket,hence,thevalueofanideaortechnologywithresultingmarketsuccessisdependentonthebusinessmodel(Vanhaverbeke&Chesbrough2014).Traditionalthebusinessmodelhasbeendefinedashowfirmscreateandcapturevalue(Afuah2014;Zottetal.2011;Chesbrough2007;Björkdahl&Holmén2013).However,intheresentworkbyClauss(2016),basedonanextensivereview within business model literature, the author distinguish value creation from valueproposition and thus separates customers focus from how value is created. To established ashared understanding throughout this report, a business model will follow the definition byClauss(2016),asystembuiltonthreemaindimensions;valuecreation,valuepropositionandvalue capture, see figure 2. Value Creation concerns how and with what value is createdthroughoutthevaluechain.Further,thevaluepropositionreferstohowandwhatthecustomerisoffered.Thevaluecaptureexplainshowthecompanyattainsustainableperformance,profitandderive revenue from thepropositionedvalue.Furthermore, eachaggregate consistsof anarray of activities, referred to as sub-constructs. From a value chain perspective, the valuecreationdimensionencompassvalueproviders, forexamplesuppliersandadditionalexternalcontributors,whilevaluepropositiontakethevaluereceivers,namelycustomers,intoaccount(Clauss2016).

Figure2:Anoverviewofthebusinessmodelanditsdimensions

BusinessModel

ValueCreation ValueProposition ValueCapture

6

Theabovepresenteddimensionsareclassifiedintothefirstorderofthebusinessesmodel.Thedimensionsareindisaggregatedinto10sub-constructsonasecondorder,whichisbrokendowninto a third order of 71 building blocks. Moreover, the third order comprise categories orcomponents, with the original terminology by the references, used in all papers publishedbetweenyear2002and2014reviewedbyClauss(2016). Continually,a lowlevelchangewillimpact theaggregate levels,whereasa firstorderreconfigurationdoesnotnecessarily impacteverysub-constructandbuildingblockonthesecondandthirdorder.Thisisfurthersupportedby Andries&Debackere (2013),who argue that low complexity adjustments to the businessmodel can provide an improvement within a separate dimension, as the change in eitherperformance or function is small,while larger complexity require accordingly readjustments.Similarly, it is common to find a principal change to one of the dimensions,with subsequentadjustmentoftheremainingtwo(Clauss2016).

Value Creation is disaggregated into four sub-constructs; new capabilities, technologies andequipment,processesandstructures,andpartnerships(Clauss2016),seetable1.

1storder

ValueCreation

2ndorder

Capabilities Processesandstructures Partnerships Technologiesandequipment

3rdorder

Corecompetency6

Capabilities1

Keyactivities2

Leadershipcapabilities4

Information9

People9

(Resourcesand)competences12

Activitysystemgovernance3

Activitysystemstructure3

Internalandexternalstructuresandprocesses4

Internalandexternalorganization12

Norms9

Organization5

Processes5,9

Resourcevelocity9

Rulesandmetrics9

Valueconfiguration6

Customerinformation7

(Internal)andexternal)organization12

Keypartners2

Networking5

Partnernetwork6

Partnerships/alliances9

Suppliers7

Supplychain5

Valuechaintocreate(anddistribute)value8

Valuenetwork11

Keyresources9,2

Resources10

Technology9,11

Equipment9

Resources(andcompetences12

Table1:AnoverviewofthedisaggregatedBusinessModeldimensionValueCreation(Source:Clauss2016)

1(Afuah2014)2(Osterwalderetal.2005)3(Zott&Amit2010)4(Voelpeletal.2004)5(Sawhneyetal.2006)6(Osterwalderetal.2005)7(Shaferetal.2005)8(Chesbrough2010)9(Johnsonetal.2008)10(Huarng2013)11(Koenetal.2011)12(Demil&Lecocq2010)

7

Newcapabilities,attainedthroughtraining,learningsandintegratedknowledge,arerequiredtoactonexternalopportunitiesandmakeaccordinglyadjustmentstoresources,capabilitiesandstructures. The ability for opportunity exploitation and internet reconfigurations demandsorganizational and managerial activities. New technology and equipment concerns thetechnologythatachangerequires,forexamplepaymentsystemsintheeventofrevenuemodelconfiguration.Newprocessesandstructureslinksactivitiesandiscloselyrelatedtothebusinessmodelefficiency.Newpartnersareregardedasexternalresources,whichareoftenrequiredforcomplexchanges(Clauss2016).

ValuePropositionisdisaggregatedintofoursub-constructsof newofferings,customersegmentsandmarkets,channelsandcustomerrelationships(Clauss2016),seetable2.

1storder

Valueproposition

2ndorder

Offerings Customersegments/markets

Channels Customerrelationships

3rdorder

Activitysystemcontent3

Platform5

Product/serviceflows7

Solutions5

Customerbenefits13

Technologiestobeembeddedintoproductsandservices13

Value10

(New)productsandservices14

Valueisgenerated14

Jobtobedone9

Output7

Offering7,5,9

(Newtarget)markets13

Positioning16

(Target)customer6,7,9

(Market/customer)7segments8,21

Presence5

(Distribution)channels69

Valuedeliveryandlinkages15

Valuechainto(createand)distributevalue8

Customerengagement15

Customerexperience5

Customerrelationship6,7,2

Brand(ing)7,5,9

Marketingandsaleslogic16

Table2:AnoverviewofthedisaggregatedBusinessModeldimensionValueProposition(source:Clauss2016)

Newofferingsbelong tooneof the reconfigurations that ismostnoticeable, and refer tonewservicesandproductstocustomers.Newcustomersandmarketsconcernscustomertargetingandmarketsegmentation,basedontheirwillingnesstopayforafirm’sofferings,whichintermsof innovationmeans redefinitionofexistingornewmarketentry.Newchannels refer tohowvalueisdeliveredtothecustomer.Customerrelationshipsisabouttheabilitytomaintaincurrentandformnewcustomerrelationships,whichinparticularinmaturemarketsorhighsubstitution 13(Teece2010)14(Achtenhagenetal.2013)15(Baden-Fuller&Mangematin2013)(Baden-Fuller&Haefliger2013)16(Matzleretal.2013)

8

aresourceofinnovationasitprovidesinformationonneedsandchangesthatcansparkchanges(Clauss2016).

Value capture is disaggregated into two sub-constructs of new revenue models and coststructures(Clauss2016),seetable3.

1storder Valuecapture

2ndorder Revenuemodels Coststructures

3rdorder Revenuemodel6,9,1

Revenuestreams2,13

Revenue/pricing7,10

Revenuemechanisms8

Profitformula9,16

Monetization15

Estimationof(coststructure)andprofitpotential8

Volumeandstructureofrevenues12

Cost(structure)6,9,2,10

Estimationofcoststructure(andprofitpotential)8

Financialhurdle11

Margin(model)9,12

Volumeandstructureofcosts12

Table3:AnoverviewofthedisaggregatedBusinessModeldimensionValueCapture(source:Clauss2016).

New revenuemodels regard the firms’ encouragement toward customers tomonetize on thevalue proposition,more specifically; when, how long and bywhom. Further, complementarysourcesofrevenuethroughforexampleservicecontractsandcrosssellingcanincreaserevenuemodel stability.New cost structure regards all costs related to operating thebusinessmodel,whichshouldbealignedwithcorporatestrategy(Clauss2016).

Not included in above described dimensions are external factors and strategies, which someauthorsargueshouldbeincludedwithinthebusinessmodel.However,thevastmajoritychosetodistinguishthesefactorsfromthebusinessmodel,althoughacommonlysharedviewisthatitinstead shouldbe regardedas separate still reasoned relevant for businessmodel innovation(Clauss2016).

2.2. BusinessmodelinnovationThenumberofcontrastingdefinitionsonwhatconstitutesabusinessmodelincreasecomplexityindistinguishingwhatseparatesabusinessmodelinnovationfromothermodesofinnovations,ormerely improvements (Björkdahl&Holmén 2013). In addition to the previously providedbusinessmodeldefinition, it isequally important todefinewhatrepresentsan innovation.Aninnovation ishereonafterdefinedaswhendiverging fromthestandardanddoingsomethingdifferently (Afuah 2014). When combined, the definitions rationalize that business modelinnovationisadifferentwayofcreatingandcapturingvalue(Afuah2014).However,thenotionbusinessmodel innovation can give two distinct interpretations; either as a process or as anoutcome (Taran et al. 2015). Taran et al. (2015) argue that the process follow a envisionedoutcome,where a clear appreciation of desired resultwill improve quality of process design,managementandorganization(Taranetal.2015).

9

AccordingtoAfuah(2014),thefirststeptowardsbusinessmodelinnovationforfirmsthathaveabusinessmodel,istouncovertheexisting.Further,itisimportanttocontinuouslyconsiderhowto innovate,asexternalenvironment isunderconstantchangeandthusaffectbusinessmodelefficiency(Chesbrough2007).Inrelation,Giesenetal.(2010)addresstheimportanceofhavingtherightmodelthatfitintoboththeexternalandinternalenvironment,wherebothexternalandinternal change drive need for businessmodel innovation (Giesen et al. 2010). Furthermore,introduces the critical factors;aligned, analytical andadaptable for successfulbusinessmodelinnovation.

Moreover, Björkdahl & Holmén (2013), argue that the existing business model remainscompetitiveuntilobsolesce,wheretheresultisanabsenceinthesignalingandsenseofurgencythattriggerchanges.Further,previoussuccessinexistingbusinessmodelcreateslock-in,wherechangesmadearesimilartothosebyotheractors(Björkdahl&Holmén2013).Inaddition,formaturefirmsthereisatendencythatexternalinformationthatdonotcomplytocurrentlogicisdismissed.Insteadthesearchisguidedbywhatcanfitintotheexistingmodel,whichiswhyfirmsmustinvestininnovatingthebusinessmodelbeforeitbecomeinadequate(Chesbrough2010).

Afuah(2014)discussthecommonmistaketooverlooktheimpactaninnovationinonedimensionwillhaveonremainingelements.Asuggestedapproachistodistinguishbothelementsinneedofchangeandelementsaffected,withinternalmodificationsandrequiredredesign(Afuah2014).Inlinewiththisview,thepreviousdescriptionoftheconceptualizationbyClauss(2016)allowsfor aggregate analysis of thedrivers and impact frombusinessmodel innovation, andarguedempiricalusefulwhen theaim tounderstandamicroperspectiveand thesystemofactivitiescomprisedbymodificationsandeffects.Inaddition,thecomprehensivenessensuresthatfocusgoesbeyondthemostvisualandevidentdimensions,forexampleproductdevelopment,andcan“stimulateideasforbusinessmodelinnovationincertainareas”(Clauss2016,p.16).

Moreover, in terms of business model implementation, Johnson et al. (2008) argue for acomparison between new and existing model and determine upon implementation, whileCasadesus-Masanell & Tarziján (2012) write that it is possible to attain success in parallelbusiness model. Here, one must evaluate whether the models are complementary orcontradictory,byconsideringcompatibilitybetweenresourcesandcapabilitiesfromrespectivemodel, aswell as similarities in the use of physical assets. Further,Markides&Oyon (2010)providecomplementaryinsightthatprimaryattentionshouldbedirectedtoactivitiesthatcanandshouldnotbeperformedtogether,ratherthanonoperatingseparatemodels. Markides&Charitou(2004)addtoparallelbusinessmodelwiththatoneshouldfocusonalevelofintegrationthatallowforsynergyeffectsbetweenmodels.

Continually,Chesbrough(2007)arguethatonecanfirstattemptamodelinsmallscaletoexplorepotential,andifsuccessfulfastscaleintobroaderapplicationwithinthefirm.Theauthorfurtherarguethatitispossibleformultiplemodelstoco-existwithindifferentsegments,butthatthereisanemergingchallengeofinternalcompetitionbetweenthenewandexistingmodel.

Moreover,businessmodelscalabilitycanbedefinedas“achievementofamarginalincomegreaterthanor equal to themarginal cost or an increase of any size that ensures that average incomeexceedsaveragecostwithinsomedefinedmargins.”(Björkdahl&Holmén,2013,p.222).However,Björkdahl & Holmén (2013) argue that it is difficult to design a businessmodel so that it isscalable,withconsiderationtothelackingstandardizedapproachtopredefinehowtoidentifyandanalyzetheexactfactorsthatmakeabusinessmodelscalable.

10

2.2.1. AnalogicalreasoningThere are many examples where startups have constructed novel business models throughimitations adapted from other industries, referred to as cross-industry imitation. The sameapproachhasbeensuccessfullyappliedbyincumbents.OneexampleisNespresso’spricingmodelfor coffee capsules, influenced by Gillette’s razor blade strategy, resulting in increasedprofitabilityandgrowth(Mezger&Enkel2013).Mezger&Enkel(2013)arguethatexaminingbusinessmodeldesignsbeyondindustryboardersisadvantageousastheoftenexistentindustryrecipe for business model design constitutes a barrier. The authors explain cross-industryimitationasanapproachtoproblem-solving,whereatargetindustryimitatesandadaptsexistingprinciples, for example knowledge, processes and technology, used in source industries.Furthermore,Mezger&Enkel(2013)discusscross-industryimitationasearlystepinbusinessmodelinnovationwheresuccessfulimitationrequirescapabilities,suchasexplorative,sensing,combinativeandadaptation,whichinturnrequiresastrategicintentforopenness,broadbaseknowledge,learningprocessesandcross-domainknowledge.

Anapproachtoinnovatethebusinessmodelisanalogicalreasoning,definedas“theapplicationofstructuredknowledgefromafamiliardomaintoanoveldomain”(Martinsetal.2015,p.106).For an individual, analogical reasoning is a natural process for the sense making of newinformation.Theconceptisarguedsuitableforbusinessmodelinnovationasitutilizesexistingknowledge beyond industry boundaries as a source of innovation and provides a systematicprocess(Martinsetal.2015).AccordingtoMezger&Enkel(2013),analogicalproblemsolving,aswellascross-industryimitationaremethodsacknowledgedfor itsapplicationandbenefits,such as potential disruptive solutions, risk reduction and time for development, in complexstrategic decisions and product development. Further, the recognized benefits are arguedapplicablealsowhenusedforbusinessmodelinnovationpurposes(Mezger&Enkel2013).

Mezger&Enkel(2013)describeathreestepprocessforanalogicalthinkinginbusinessmodelinnovation; abstraction, analogy identification and adaptation. The starting point are well-definedproblemstowhichoneaspiretoidentifyasolution.First,theabstractionstepfocusonproblembreakdownaimedtoidentifyabstractreferencepointstoexpandfeasiblesolutionspace.Byspecifyingabstractelements,itispossibletobreakfreefromtiestoaspecificindustryandproduct, and the search for solutions can stretch across industry boarders. The second step,analogyidentification,focusontwoparts;solutionsearchandevaluation.Here,thetargetshouldbeconsideredagainsthowandwhyagivenmodelissuccessfulinthesourceindustry.Inthefinalstep,adaptation, thepotentialandrequiredrequirements shouldbeunderstood todetermineleveloftransfer;“(1)directtransfer,(2)transferofstructureorfunctionalprinciples,and(3)useofanalogyasideastimulus.”(Mezger&Enkel2013).

Although any business model dimension can trigger an innovation, an innovation processtypically initiates with the value proposition. The reason is the dimension centricity as thebusinessmodelisorganizedaroundacommercialopportunity.Anovelvaluepropositioncanbecreatedfromcustomerengagementaimedtorealizeneedsaswellaswillingnesstopay,whereafterremainderdimensionsshouldaligntoimprovethedeliveredvalue(Mezger&Enkel2013).

Similarly,Hargadon(2015)arguethattherearethreekeydecisionsthatrequirealignmentwhendeveloping a new businessmodel. First,what the customerwant, disregarding benefits fromcurrent offering, with focus on customer problem and possibility to assist simplification ofremove. The second decision regard what the firm can deliver, with current and required

11

capabilitiesandthepossibilitytocontrolactivities,alternativelyenterthirdpartycollaborations.Thethirddecisionregardshowtomonetizethevalueproposition(Hargadon2015).

2.2.2. OpenInnovationAcompanythatworkwithopeninnovationcanandshouldusebothexternalandinternalideasfor technology advancement, product-, process- and service development (Vanhaverbeke &Chesbrough2014).Huangetal.(2013)arguesthatafreeflowofideas,bothwithinandbetweencompanies,occurswhentheinvolvedactorsareopenforchangesintheirbusinessmodel,alsoemphasizing the point of allowing for various types of sources for innovation. Similarly,Vanhaverbeke&Chesbrough(2014)arguethatwithoutopeninnovation,abusinessmodelcanbeseenasstatic.Hence,itisessentialthatacompanywhowantstohaveanopenapproachtoinnovation do notwork in isolation, yet rather realize the importance of collaborationswithdifferent types of partners to gain external ideas and resources (Dahlander& Gann 2010). Acompany that is open and allow external sources for innovation, through collaborationswithexternalorganizations,willchangetheoriginalbusinessmodelwhilesavingtimeandloweringcost(Huangetal.2013).

AccordingtoHuangetal.(2013)companies’needtoconstantlylookfornewinnovativewaystodo business, in order to reach and maintain a market position in a highly competitiveenvironment. This can be achieved through external collaborations, by utilizing accessibleinformation for strategic renewal that favor innovation. Furthermore, speed up innovationactivities,withthepurposeofgeneratingahighervalue.

Chesbrough& Bogers (2014, p.4) define and conceptualize open innovation as “a distributedinnovationprocessthatinvolvespurposivelymanagedknowledgeflowsacrosstheorganizationalboundary". The authors highlight involvement and utilization of research and developmentspilloversanddifferentiatebetweeninside-outandoutside-in,whichcanbeusedincombinationor in separate. Outside-in consider how a company can accelerate internal innovation byleveragingexternalknowledgeandtechnology,arguedoftenlinkedtoR&Dactivities.Incontrast,inside-out focuses on providing internal knowledge to external actors in order to spreadinnovationintothemarket.Dependentontype,therearedifferentmethods,processesortoolsthat can be used to attain external sources for innovation. Continually, it may be beneficialbecome involved where there are user interest, for example using network or communities(Chesbrough & Bogers 2014). Overall, open innovation clearly contributes to changes in thebusinessmodelandfavorbusinessmodelinnovation(Huangetal.2013;Chesbrough&Bogers2014).

The open innovation approach does not in itself produce value for the firm, but is ratherdependent on the businessmodel, whichwill shape the value of an idea.Moreover, it is thebusinessmodel thatset therequirements forsystemsrelevancetowardstheknowledge inputfrom external sources. Further, Vanhaverbeke & Chesbrough (2014) explain the differencebetweenopeninnovationandopenbusinessmodelinnovation.Thefirstisexplainedasamethodusedto innovateabusinessmodelthoughanewanddynamicapproachtovaluecreationandcapture,whilethesecondemphasizethatthebusinessmodelitselfcanbeinnovated,generatenewwaysofrealizingvaluebythefirmsinnovationactivities.

Continually,openbusinessmodelsareexplainedbytheconceptdivisionoflabor,wherethereisaninnovativelabor.Thecreatorofanideaisoneparty,whocaneitherproduceanddistributetheofferorselltheideatoanotherparty,whichinturnbringtheideatothemarket.Thismakes

12

the actors value chain partners and improves the distributed company’s business, both byresearch and development productivity and increase number of innovations, where the ideacreatorrelyonexistingtransactions.Anactorthathasanopenbusinessmodelusethedivisionof labor tocreateandcapturemorevalue.Here,value isenhancedbyutilizingexternal ideas,while at the same timemore value is captured by for example entering new businesses andleveragingkeyrecourses.Further,theauthorsarguethatanopenbusinessmodelwillstrengthenthe financial performance by decreasing cost for innovation and at the same time increaserevenue,forexamplethroughlicensingagreement(Vanhaverbeke&Chesbrough2014).

AccordingtoVanhaverbeke&Chesbrough´s(2014)abovedescriptionofavaluechainpartnerwithregardtoopenbusinessmodels, itcouldbeasupplier,asBrem&Tidd(2012)explainintheirchapterofsupplierinnovation(Brem&Tidd2012),whoresearchedbothquantitativeandqualitativepublicationsonsupplierinnovationandsupplierinvolvementinopeninnovation.Asaresult,theauthorsdifferentiatebetweentopicsbasedonitscontextualinterdependencies;first,the importance of supplier innovation is associated with the understanding around supplierinnovation. Second, the requirements of supplier innovation concerning how the supplier iscompatible with customer expectations, for successful collaboration between actors. Third,managingsupplierinnovationcorrespondstothemanagementaroundcollaborativeinnovationandthereliabilityofsuppliers.Lastly,supplier innovationoutcomeexpressesthebenefitwithwhichtheinnovationcontributes(Brem&Tidd2012).

Thetopicoftheimportanceofsuppliersismostlyrelatedtohowknowledgeoutsidethecompanyiscreatedandpushedintothecompany’sinnovationprocess,wheretheimportanceofinvolvingandsharingknowledgewithexternalpartiesisvalidatedbymanyscholars.Akeysourcefornewproductdevelopmentprojectsarenetworksofalliances,however,somearguethatthecompany’sgeographiclocationfurtheraffectshowafirmworkwithaswellasperceivesnetworks.Asupplierwithaninterestincustomercollaborationwithregardstofuturedevelopmentprojectsneedstostrategicallymarketlevelofcooperativeness,seeminglymoreimportantthantheactualtechnicalknowledgecontributions(Brem&Tidd2012).

The second topic advocates that both actors need support of senior management, it is thusessentialthatthereisasuitableconnectionbetweentheactors’cultureonhowtocooperatewithregardtosupplierinnovation,thebasisfortechnicalstandards,aswellasastrategicfit.Further,in early supplier involvement one should consider the level of integration concerning therelationship and information shared between supplier and customer (Brem & Tidd 2012).Moreover, the supplier involvement usually depend on “coordinated design, execution, andevaluationofstrategic long-termprocessesandoperationalshort-termprocesses”(Brem&Tidd2012,p.81).

13

3. MethodologyThischapterdescribestheresearchstrategyanddesign,methodsfordatacollectionaswellasanoutline of the research process. In addition, a discussion concerning validity, reliability andgeneralizabilityisincorporatedintorespectivepart.

3.1. ResearchStrategyandDesignEasterby-Smithetal.(2012)arguethatitiscommonthataqualitativestudyisperformedwhenaresearcheraimtodeepentheunderstandingofproblems,aswellasgenerateideas,withinaparticulararea,wheretheproductisrichandinformative(Easterby-Smithetal.2012).Inlinewith thisview, thismaster’s thesiswasperformedasaqualitativecasestudy.Thequalitativeresearchstrategywasarguedsuitablewithconsiderationtakentothepurposeofunderstandinghowthefocalcompanycanorganizeforproactivebusinessmodelinnovation,whichrequirerichandcasespecific information.Furthermore, theselectedcasestudyresearchdesign,with twoembedded cases, is rationalized by the possibility for in-depth analysis gained from a smallsample,aswellasthemultiplemethodsfordatagathering,butalsocrossandwithincaseanalysis(Easterby-Smithetal.2012).

Qualitativecasestudiesoftenfacecritiqueoflackinggeneralizabilitytothegeneralpopulation,andthatthehighvolumeofcollecteddataopenupforresearchersinterpretation(Easterby-Smithetal.2012).Inresponsetothiscritiqueandtostrengthenvalidityofresults,thethesisfollowedsuggestionfromYin(2002)that“allcasestudiesshouldhaveacleardesignproducedbeforeanydata is collected” (Easterby-Smith et al. 2012, p.55), with a pre-structure in terms of keyquestions, unit of analysis and approach to data interpretation, prior to project initiation(Easterby-Smithetal.2012).However,inlinewiththeviewofRogerStake,researchersfocusonattaining a rich picture above validity, where the results may or may not be generalizable(Easterby-Smithetal.2012p.55). Furthermore, theanalytical frameworkfor thisstudy, thatpresent a process for businessmodel innovation, is argued generalizable for cases of similarcharacteristics (Easterby-Smith et al. 2012). However, the process replicability into anothercontextualenvironmentwilldependonthelevelofsimilaritiestothefocalcompany,andthussubjective to the reader interpretation. Nonetheless, the data was triangulated through theinclusionofmorethanonecaseformultipleperspectives,aswellascomplementaryinformationfromforexampleannualreports,whichisarguedtostrengthenthevalidity.

3.2. ResearchMethodThemethodsfordatacollection,dividedintoliteraturereview,secondaryandprimarydata,willbedescribedinthispart.Thedatahasbeengatheredfromiterativereviewofbothempiricalandscientificinformationthroughouttheresearchprocess.

The sampling method was of a strategic nature, where companies were selected based onrelevance to the researchpurpose,what according toBryman&Bell (2003) is referred to aspurposivelysampling.Theselectionconsistsofthefocalcompany’sprioritizedcustomers,whohaverelationalsimilaritiesintermsofsizeandgeographicpresence,wherealsobothOEMsareconsidered to have significant future potential in terms of close collaborations to approachmutualgrowthinsalesandrevenue.

Furthermore,theauthorscooperatedineachstepthroughoutthisthesis,presentforreviewing,reconcilingandsynchronizingallwork,whichiswhytheinternalreliabilityisarguedhigh.

14

3.2.1. LiteraturereviewAniterativeliteraturereviewonexistingtheoryfollowedthroughoutthethesis.Publicationsonthe concepts of business model innovation, business model, analogical thinking and openinnovationwascoveredtocreateaninitialanalyticalframework,inordertoprovideabasisforproceedingempiricalanalysis.

First, the concept of business model innovation was broken down and defined into thecomponentsofinnovationandbusinessmodel,toensurethattheunderpinningdefinitionsareclear to the reader. Followed by a review and elaborate description of the business modeldimensions,businessmodelinnovation,analogicalthinkingandopeninnovation,seefigure3.

Figure3:Keytheoreticalconcepts

Withregardtothebusinessmodelconcept,theresearchersdiscoveredthatauniformviewondefinition and included elements in the business model dimensions greatly varied amongscholars. This, in part,was the rational for selecting thebusinessmodel conceptualizationbyClauss(2016),whichhasbeengeneratedbasedonanextensivereviewofrecentpublicationsonthesubjectmatter.Further,thethreeleveldimensionswasconcludedsuitablealsofortheuseintheuncoveringanexistingbusinessmodel,aswellasfortheanalysisofdynamicrelationineventofdimensionalchange.

Tobenoted,complementaryliteraturewithinindustrylifecycleandservice-drivendesignwasaddedduringanalysistobeabletoexplainthespecificcasesituation.Thetheorywasfoundusefulasitbroughtintheadditionalperspectivestocomplementwhatcouldnotberationalizedbythefoundationalliteratureofbusinessmodelinnovation,fromwhichtheprocessdeparted.

The main source used for data collection was data portal searches on Google Scholar andChalmerslibrary.Additionalprint-outmaterialinformofacademicpapersandbookssectionswereprovidedbythesupervisoratChalmersUniversityofTechnology.

3.2.2. SecondaryDataSecondaryempiricaldatawasgatheredforboththefocalcompanyandrespectivecustomerinmultiple iterations during the research process, both as stand-alone information and tocomplementprimarydata.

BusinessModel

Innovation

OpenInnovation

Innovation

BusinessModel

Analogicalreasoning

15

Theempiricaldatawasgatheredwiththepurposetounderstandthemacroenvironment, theindustry, theorganizationandoperations. The informationwasgathered inacombinationoffocalcompanyandcustomers’involvement,whereinternalmaterialwasdistributed.Additionalinformationwascollected fromonlinesearches,where themajorityconsistedofmanagementreports,annualreportsandhomepagesofrespectivecase.

3.2.3. PrimaryDataQualitativeinterviewswereconductedatmultipleoccasionsandweretheprincipalmethodfordatacollection,seetable4.AccordingtoEasterby-Smithetal.(2012)qualitativedataisgatheredwhentheresearcherwishtounderstandperspectives,andthebasisforthoseperspectives,whichwasaprerequisitetofulfilthepurposeofthisthesis.

Table4:Aspecificationofthecasecompanyinvolvementandaimoftheinterviewsconductedineachphase

Tobenoted,allempiricaldatapresentedinthecasesettingschapter,ifnototherwisestated,wasattainedfromtheinterviews.

Initial interviews in session one consisted of unstructured and explorative interviews,whichwere conductedduring theprojectplanning.The formatwas informalwith littlepreparation,aimedtoformanunderstandingforthefocalcompany,aswellasthecustomers.Includedwereabroadspectraofpositionsatthefocalcompanytoattainaholisticperspective,yet,predominantlyaccountmanagers, insidesalesrepresentatives,productspecialists,marketingrepresentativesandaftermarketdevelopment,seetable5.Theresearchersalsoattendedinternalandexternalmeetings, to gain a base knowledge about the focal company’s and observe actions againstcustomersotherthanthoseincludedinthisstudy.

INTERVIEWSESSION

AIM CASEINVOLVEMENT

1 Holisticunderstandingofthefocalcompanyandthediverseindustriesinwhichtheyareactive.Generalunderstandingoftheaftermarket.

Focalcompany

2 Thebusinessmodels,challenges,opportunities,strategiesandgoals.

Focalcompanyandrespectiveembeddedcase

3 Completetheviewaspiredforinprecedingstep.Digdeeperortocovernewlydevelopedquestions.Iterationbacktothecompanytoconfirminformationgathered.

Focalcompany

4 Confirmpreviousgatheredinformation,aswellasassessrequiredbusinessmodelreconfigurationstocreatealignment.

Respectiveembeddedcase

16

Table5:Aspecificationofthepurposeandintervieweesinthefirstinterviewsession

The information gathering for the business model innovation process started with in-depthinterviewswith both employees at the focal company and embedded companies, see table 6,continuedwitha follow-upsessionanditerationforthefocalcompanyandaccountmanagersresponsiblefortheembeddedcompanies,seetable7andthelaststepwasaniteration,seetable8.Theiterationaimedtoconfirmpreviousgatheredinformation,frombothParkerHannifinSCSandrespectivecustomer,toincreasethereliabilityandvalidityofthestudy.

Nine in-depth, semi-structured interviews were performed with employees from differentpositionsatthefocalcompany,toobtainaholisticviewofParkerHannifinSCS´scurrentbusinessmodel, see table 6. Furthermore, four in-depth, semi-structured interviews was the primarymethodforinformationgatheringfromcustomers.In-depthinterviewswereusedtolearnviews,perceptions and opinions from interviewees to be able to reveal novel aspect of problems(Easterby-Smithetal.2012).Aninterviewtemplatewithopen-endedquestions,seeappendix1and2,wereused for first round interviews.According toBryman&Bell (2003), thismethodallows forcomparisonsbetween interviewees,whereresearchercanattainelaborateanswersfrom thepossibilityof asking followupquestions (Bryman&Bell2003).Thequestionsweregivenapriorityfromhightolow,andresearchersusedwhatEasterby-Smithetal.(2012)refertoasatopicguide,whichprovidea loosestructurethatallowsdeviationandre-sequence,yetcovers the predetermined topics while at the same time producing rich data. Moreover, theinterviewscanbedividedintothreepartsfortheOEMcompanies;first,generalquestionswereasked to get to know the companies and understand the current situation. Second, theresearchersengagedinin-depthinterviewstocomprehendwherethecustomerareheadingandfinally,openquestionsconcerningthefutureandwillingnesstocollaboratewithsuppliers.

PHASE1:UNSTRUCTUREDANDINFORMALINTERVIEWSCOMPANY:PARKERHANNIFIN

PURPOSE DATE POSITION

INTRODUCTIONTOPARKERHANNIFINSCS

151218 SalesManagerGlobalAccount&GroupSalesLeaderHydraulics

151218 HRManager

AFTERMARKETINTRODUCTION

160128 KeyAccountManager1

160215 KeyAccountManager2

160126;160128;160204 AccountManager–BusinessDeveloperAftermarket

160204 MarketingManager 160310 OperationsManager

160211 SalesDevelopment 160211 EMEAServiceManger

160229;160418 SalesEngineer

INTRODUCTIONTORESPECTIVEEMBEDDEDCASES

160125;160128;160222 GlobalAccountManager1(forAtlasCopco)

160121;160210;160211 GlobalAccountManager2(forHiab)

17

Further,thefirstroundinterviewswerealsoheldattheplaceofOEMs,connectedtoEasterby-Smith et al. (2012) discussion on that such approach presents a neutral environmentwhereintervieweesmay feelmoreatease toopenlydisclose theirviews. Thegeneralstructureandselectedquestionswereprovidedtotheintervieweeinadvance,forpreparatorypurposeandtomaketherespondent(s)comfortableinwhattoexpect.Thefollow-upsessionwasconductedtodigdeeperintopreviousdiscussions,alternativelytocovernewlydevelopedquestions.Hence,theseinquiriesvariedbetweensamples,yetwerebasedontheinitialtemplate.Theformatforthis session was via phone, with the addition of brief email correspondence in the event ofnecessaryconfirmationofprovidedinformation.

Both researchers were present during all interviews to avoid subjectivity and researcher’sinterpretation,whereonewasresponsiblefornotetaking,whiletheotherwasinchargeoftheinterview.Inaddition,allinterviewswererecordedandtranscribed,tobeabletodirectallfocusonthe interview,withthepossibilityto laterreviewthediscussionandensurethatnodetailswere overlooked. To avoid to limit interviewee responses due to the recording, researcherscarefullyaskedpermissionandmadeclearthattherecordingcanatanytimebeturnedoffincaseofsensitivecontent(Easterby-Smithetal.2012).

Easterby-Smithetal.(2012)discusstheimportanceoftrustandmotivationwhenconductingin-depthinterviews.Theresearchersthusclarifiedthepotentiallong-termbenefitofengagingintheproject,attheinitialinterviewwiththecustomers,astheresultsaimtocontributetotheirgrowthandprofitability.

Table6:Aspecificationofthepurposeandintervieweesinthesecondinterviewsession

SESSION2:SEMI-STRUCTUREDINTERVIEWSPURPOSE:IN-DEPTH

COMPANY DATE POSITION

PARKERHANNIFINSCS 160406 InsideSales160310;160425 SalesManager&GroupSalesLeader

Hydraulics160412 CustomerServiceManager160414 SupplyChainManager160414 AccountManager160414 KeyAccountManager2160419 MarketingCommunications160419 MarketingCommunications160425 OperationsManager

ATLASCOPCOMRS

160323 GlobalLeadBuyer160323 CommodityManager–Strategic

Purchasing160323 Marketing

HIAB

160211;160324 DirectorSourcingServices160211 VPProduct

160211 ProductManager160211 ProductManagerServices160211 SourcingDirector160422 DealerDevelopmentManager

18

Table7:Aspecificationofthepurposeandintervieweesinthethirdinterviewsession.

Table8:Aspecificationofthepurposeandintervieweesofthefourthsession.

3.3. ResearchProcessTheprojectprocess,seefigure3,wasdividedintofoursteps.First,researchersreviewedpreviouspublications related to business model innovation and open innovation, to understand theconcepts behind,what is businessmodel andhow to innovate the businessmodel.Moreover, aprocessforbusinessmodelinnovationwasdevelopediniterationbetweenkeyliteraturerelatedto businessmodel innovation, open innovation and the case characteristics. In specifics,withregardstoadiscussiononscalabilityduringbusinessmodelinnovationitisacknowledgedthatvolumeandprofitcontributionsbyrespectiveOEMisofsuchsignificancethatitisworthwhiletoattendindividualfocustoeachcustomer.

Second, the analytical framework was applied to understand how the focal company shouldorganizetoinnovatetheirbusinessmodel,departingfromtheexistingbusinessmodelandthecurrent situation of selected customers’. Further, the process further incorporates a cross-analysis,wherethefocalcompanyismatchedagainsttheircustomersorindustries,tofindnewinnovationsources,seefigure4.

Figure4:Visualizationofthehowthecross-analysistowardscustomersisperformed.

SESSION3:ITERATIONPURPOSE:NEWINFORMATION&CONFIRMINFORMATION

COMPANY Date Position Organizationalunit

PARKERHANNIFINSCS

Throughouttheresearchperiod

SalesManagerGlobalAccount&GroupSalesLeaderHydraulics

GlobalFluidPower


GlobalAccountManager1(AtlasCopcoMRS)

Mobile


GlobalAccountManager2(Hiab)

Mobile

SESSION4:ITERATIONPURPOSE:CONFIRMINFORMATION

COMPANY Position Organizationalunit

ATLASCOPCOMRS CommodityManagerStrategicPurchasing

MiningandRockExcavationService

HIAB DirectorSourcing HiabServices

19

Third,analysisanddiscussionprimarilydepartfromthetheoryusedtodeveloptheanalyticalframework, aswell as a selection of the gathered empirical data,while additional supportingliteraturewasincludedasneeded.Partsoftheinformationderivedfrominterviewsarediscussedand analyzed in further depth, as considered more relevant in order answer the researchquestions and fulfil the purpose of this thesis. Hence, certain data used to enhance theunderstanding of business models, strategies, external environment and the collaborationbetweenSCSandrespectivecustomerhasbeenleftout.Thus,thegeneratedprocessisexecutedandanalyzedbasedonhowSCSoperate,andrecommendationscannotthereofbeguaranteedtoberelevanttootherunitsintheorganization.

Thelaststepinthisresearchproviderecommendationsonhowtosuccessfullyusethebusinessmodelinnovationprocess.

Figure5:Anoverviewoftheresearchprocess

Analyticalframeworkgenenerated fromliteraturereview

ExecutionoftheAnalyticalframework

Analysisanddiscussionof process execution

Conclusion

20

4. AnalyticalFramework:BusinessModelInnovationProcessThedevelopedprocessispurposedtoprovideastructureforhowamaturefirmcanapproachproactivebusinessmodelinnovationtobreakfreefromindustryrecipes(Mezger&Enkel2013).Buildingonbusinessmodelinnovationliterature,intermsofhowthiscanbeaplannedprocess,the aim is toproactively explore external change. Further, continuouslywork to innovate thebusinessmodelratherthanawaitingtriggers(Voelpeletal.2004).

Theprocess comprises4phases;Assessment,Analysis,Alignment andAdaptability, includingdetailedsub-steps,withlabelinginspiredbyGiesenetal.(2010).Thefirsttwophases,assessmentandanalysis,focustocreateanawarenessandspurideationfrommultiplesources;macroleveltrends, market developments, the existing business model set-up as well as the dynamicsbetween the focal company’s business model and strategy to that of its customers. Also, byexpandingthesearchacrossfirmboundariesintoleadingindustriesandfirms.Further,thethirdphase focus on attaining efficiency from an innovation opportunity through attentivereadjustmentofbusinessmodelelements,aswellasnecessaryreconfigurationstoalignwiththeexternalenvironment.Moreover,thefourthandfinalphasefocusonpilotingandimplementation,with the ability to operate the new businessmodel in parallel to the existing, aswell as thescalabilityofanewbusinessmodel.

Theillustrationspresentedbelowarepurposedtoprovidethereaderwithaclearstructureandshouldnotbeinterpretedaspurelylinear.Hence,inlinewiththeviewofBuchereretal.(2012),who argue that BMI seemingly is chaotic and iterative, one should allow for iteration bothbetweenandwithinphases.Continually,examplesofmechanismsthatmayrequireiterationaremisalignment in termsofexternal fitresulting fromecosystemchange, internalresourcesandbetweennewandexistingmodelincaseofimplementation(BjörkdahlandHolmén2013).

4.1. Phase1:Assessment

Figure6:Anillustrationofthefirstphaseandrespectivesub-stepsinthebusinessmodelinnovationprocess.

Thefirstphase,assessment,dividedintoexternalandinternalinfluences,ispurposedtocreateaholistic understanding of the current situation, incorporating a macro, meso and microperspective. Inaccordancewithopen innovation literatureandtheviewofDahlander&Gann(2010),itisessentialthatafirmsdonotworkinisolation,butrathertakeonanopenapproachtoattainexternalideasandresources.Further,theincorporationofexternalfactorsissupportedbytheviewfrommanyscholarswhoarguedofitsimpactonbusinessmodelinnovation,sinceexogenous influencesdetermine theviabilityandefficiencyofagivenbusinessmodel (Clauss2016),whythisphasestructureapurposivescreeningoftheexternalenvironment.

21

Theaimisthustofurtheruseassessedinformationinordertoidentifysourcesofinnovationinthe external environment. Yet also, in linewith the view by Babatunde & Adebisi (2012), tounderstand factors that affect the business by continuous scanning, to make accordingadjustmentstostrategicinitiatives.Inaddition,Huangetal.(2013)arguethatincludingexternalsourcesandpartnerscanhave thebenefitof timeandcostsaving forbusinessmodelchange,where the involvement of customers has the potential to contribute such benefits. Further,considering a supplier context, the input to the assessment phase should include customersperspective,inlinewithopeninnovationliteraturethatemphasizereceivingandsharingexternalknowledgeforinnovation(Chesbrough&Bogers2014).

Micro.Incontrasttostart-ups,maturefirmshaveanexistingbusinessmodelthatwillbethebasisforwhattoinnovate,whereasitmustfirstbeuncovered(Afuah2014).Itisthusessentialtohavean in detail understanding of the existingmodel (Clauss 2016), namely howvalue is created,propositioned and captured. Further, using the dimensions presented by Clauss (2016) forassessment,argueduseful foramicroperspective,andthesubconstructstoenableadetailedanalysisofthedriversandeffectofaninnovationtothebusinessmodel.Further,strategiesarealsoincluded,arguedimportantforbusinessmodelinnovation(Clauss2016).

Macro.Toinducefurtherstructureintothemacroassessment,themacroeconomicenvironmentis based on the PEST framework. Although the tool and output usually is used in strategicplanning(MindTools2004),itisalsoarguedviabletoassessthecurrentsituation.Inthissub-step, aPESTanalysis canguide the information search to capture essential inputonpolitical,technological, economic and social factors. As such, it will simplify themacro assessment bydirectingtheusertoessentialinformation,whichinturncanimprovemanagementandqualityofgathereddata.

Meso.Formesoassessment,itisimportanttohaveanopenapproachinordertocomprehendthedynamics and developmentwithin a given industry (Dahlander& Gann 2010). Here, the fiveforcesframeworkisusedinordertostructuretheanalysisofindustrydynamics,aswellasallowfor comparisons between industries. The framework assures that key perspectives of rivalry,bargainingpowerofsuppliersandbuyers,andthreatofnewentrantsandsubstitutesaretakenintoconsideration.Hence,itallowsforanoverviewoftheindustryandthenatureofcompetition(Porter2008).

4.2. Phase2:Analysis

Figure7:Anillustrationofthesecondphaseandrespectivesub-stepsinthebusinessmodelinnovationprocess

22

Thesecondphase,analysis,includesthreesub-steps;internal/externalfit,firmcompatibilityandcross industry imitation, purposed to analyze and uncover sources of innovation within theexternalenvironment.First,macroandmesolevelisanalyzedtoexplorethechangeinindustrydynamicsasaresultofmacrolevelfactors.Thisstep,justasproceedingsub-steps,canuncoverboth alignment andmisalignment,which in turn can trigger innovation. The second sub-stepinvolveacross-companyanalysiswherethestrategicintentandbusinessmodelareanalyzedinregards of alignments and misalignments, with respective customers. Further, Voelpel et al.(2004)clearlypresentsthenecessityofalignmenttotheexternalenvironment,whendescribingthe identified differentiators between so called new and old economy. Where informationdigitalization, virtual economic transactions, reliance on intangible assets, disintermediation,industryconvergenceandchangeinthetraditionalorganization,andvaluechainstructurewereamongthemostprominent.Thesewilltriggerarequiredchangetosustaininthemarketplace.Emphasisisputonthenecessityforacompanytopersistentlydifferentiate,reinventorcreatenewmodelsinsteadofoptimizingexisting.

Inlinewiththepurposetorevealexternalsourcesforinnovation,onemustbeopenforbusinessmodelchangestoshareandabsorbexternalideas(Huangetal.2013).Tohaveanopenapproach(Vanhaverbeke&Chesbrough2014),andalignwithactorsoutside theboundariesof the firm(Giesenetal.2010),areessentialforaclosecooperation.Moreover,collaboratingwithexternalactorscanallowasuppliertoutilizeexistingassetsandcapabilitiesinanewway(Giesenetal.2010)whileatthesametimepresentasourceforinnovation.ThisisinlinewithBrem&Tidd(2012)argumentsregardingtheimportanceasharedviewonhowtoinnovatethroughexternalcollaborationsalongthevaluechain.Furthermore,thissub-stepisinparttoberegardedasanideapoolforinnovation,whereasopportunitiesandchallengeswillreflectonwhattoinnovate.

Continually,thefirmneedcapabilitiestoactonexternalopportunitiesandinnovatethebusinessmodel,where training,knowledge integrationandcontinuous learningare capabilitybuilding(Clauss2016),whichcanbefurthercompletedbytheutilizationofexternalactors(Huangetal.2013).Continually,tobeabletocreateexternalconsistencyGiesenetal.(2010)arguethattheremustbeanalignmentbetweenfirmsbusinessmodelsandorganizationalabilityofconductingbusinessmodelinnovation.

For analysis of firm compatibility, the aim is to understand compatibility between currentbusiness model dynamics between the supplier and customers. Moreover, a supplier andcustomer that aim toapproach innovation in collaborationneed tobe compatible in termsofsupporting senior management, culture of how to innovate with another actor, technicalstandardsandstrategies(Brem&Tidd2012),andshouldthusbeconsideredinthisstep.

Continually, analogical reasoning is in this phase be used as a process for systematic andattentional engagement, to address inertia and innovate without being forced from externalchange(Martinsetal.2015).Onewayofattaininganideaforanewbusinessmodelisthroughcross-industry search and using Mezger & Enkel's (2013) three step process of abstraction,analogyidentificationandadaptation.Further,thisapproachenabletodivergefromVoelpeletal.(2004)discussionon”rundifferently”insteadof”runningharderandharder”,andreducetheriskthatrationalityandestablishedprinciplescanresultinoverlookingexternaldevelopments,wherefirmsonlychangewhenforced.

23

Moreover,thecross-industryimitationisusedforsystematicapproachtoaddressthechallengesandopportunities,where specific challengesandopportunitiesareabstracted toopenawidesolution space and allow for cross-industry search for existing solutions. This benchmarkingapproachisaccordingtoMezger&Enkel(2013)suitabletouseinordertoattainaninnovativebusinessmodel.Further,imitationfromotherindustriesandutilizationofexcisingprinciplesisusedtosolvethecurrentproblemsidentifiedforthisstudy,wherethesearchforbusinessmodeldesign beyond the industry in which the firm is active (Mezger & Enkel 2013), enables thesuppliertoutilizeexistinginformationspanningacrossindustryboundaries(Martinsetal.2015).

4.3. Phase3:Alignment

Figure8:Anillustrationofthethirdphaseandrespectivesub-stepsinthebusinessmodelinnovationprocess

Thethirdphase,alignment,focusesonsolutionsreplicabilityandrequiredadjustmentstofitthenew contextual environment of the supplier. The aim is to organize the directly imitated,alternatively redesigned opportunities into complete solutions. Further, to classify theseopportunitiesintothebusinessmodelcomponents;valuecreation,valuepropositionandvaluecapture,andbreakdownthecomponentintosub-contractstoidentifytheimpactandrequiredchangeswithinrespectivecomponent.

Whatfollowsisanexternalalignmentthataimtoevaluatecompatibilityandrequiredadjustmentto OEM business model, to achieve optimal dynamic efficiency and created value. Here, theinternal and external fit between the innovated business model and that of the customer isevaluatedthoughaniteration.Further,adoptinganopeninnovationperspectivetogetfeedbackonalignmentwithappointedareasforchange(Vanhaverbeke&Chesbrough2014),whilealsotosignaltheattentiongiventothespecificcustomerwhichwillstrengthentherelationshipbetweenactors. The aim is to align the businessmodel to ensure compatibility, also to get input fromexternalactors to increasevaluecreationandsuccesspotential (Vanhaverbeke&Chesbrough2014).ThiscorrespondtoGeisenetal.(2010),whoarguethatonehastoconsidertheimportanceofhavingtherightbusinessmodeltofitintotheexternalenvironment.

Withregardstoperformanceenhancementitiscrucialtocomprehendthelinkagesfoundwithintheinbusinessmodel,toensurenochangesprovidenegativeoutcome.However,therecanstillexistimprovementfromseparatedimensionadjustmentsforlowcomplexity,withnoadditionalrequired adjustments as the found performance or function difference is small (Andries &Debackere2013).

24

4.4. Phase4:Adaptability

Figure9:Anillustrationoftheforthphaseandrespectivesub-stepsinthebusinessmodelinnovationprocess.

Thefourthandfinalphase,adaptability,focusontheimplementationofthenewbusinessmodel,thustheadaptabilityofthenewmodelwithregardstotheexisting,whilefurtherincorporatingadiscussiononscalability.Theoutputisaninnovatedbusinessmodelthatiscompatiblewithandbasedonavaluechainperspective.

Johnsonetal.(2008)argueforacomparisonbetweennewandexistingmodeltodetermineuponimplementation,whereCasadesus-Masanell&Tarziján(2012)arguethatitispossibletoattainsuccessinparallelbusinessmodels.Still,onemustevaluatecompatibilitybetweenresourcesandcapabilities from respective model, activities that can be performed in union, as well assimilarities in the utilization of physical assets. The synergy effects between models shoulddeterminelevelofintegration.

Thisphasealsoconcernstheextenttowhichthebusinessmodelisscalableintoothermarketsorcustomersegments(Björkdahl&Holmén2013),withthepotentialincreaseinrevenuewithoutsubsequentincreaseincost.Theextentandwhattoscaleshouldfollowtheimplementation,asrespective OEM contribute with sufficient revenue potential to motivate separate models isnecessary.

Furthermore, in terms of replacing the existing model, Voelpel et al. (2004) discuss thecompetitiveadvantagethatcanbeachievedfromproactiverestructuring,wherehealsoaddressthe notion of creative destruction,where onemust bewilling to allow for the destruction orcannibalizationofactivities,systemsandsimilar(Voelpeletal.2004).

25

5. CaseSettingsThischapteraimtogiveanunderstandingofthecurrentcasesituationanddescribesthebusinessmodels,strategicinitiativesandtheselectedcustomersforthisstudy.Theinformationisattainedfrominterviewswithcompanyemployees,ifnototherwisespecified.

Parker Hannifin Corporation, established in 1918, is a diversified supplier with a productportfolio of over 900 000 parts, within nine core technologies; aerospace, climate control,electromechanical,filtration,fluidandgashandling,hydraulics,pneumatics,processcontrolandsealing and shielding. Parker Hannifin is active in 50 countries with 55 000 employees andreportedsalesofBSEK13duringfiscalyear2015(ParkerHannifin2016a).Thecompanyholdsaleadingpositioninmotionandcontroltechnologiesandconsistof81decentralizeddivisionswithownperformanceresponsibilities(ParkerHannifin2016c).

ParkerHannifinSalesCompanySweden,adecentralizedunitwithinParkerHannifinCorporation,hasbeenactiveinSwedenforapproximately40years(ParkerHannifin2016d)andhasintotal167employeeswithofficeslocatedinBorås,MalmöandSpånga.Thecompanyisprimarilyactivein the industries for transportation, construction equipment, forestry equipment, materialhandling equipment, mining equipment, marine equipment, process industry, industrialequipmentandlifescience.Moreover,thesalescompanyisresponsibleforOEMsanddistributerssituatedinSweden,withabusinessenvironmentcharacterizedbyglobalandfiercecompetition,matureandcompetitiveindustries.Inresponse,ParkerHannifinSCSrecognizesopportunitiesinindustrialOEM,distributionandmaintenanceandrepairoperations.

Figure10:AnoverviewofthegeneralproductandinformationflowinParkerHannifinSCS’ssupplychain

5.1. ParkerHannifinSCSBusinessModelThispartwillpresenttheresearchersinterpretationofParkerHannifinSCSbusinessmodel,dividedinto threedimensions;valuecreation,valuepropositionandvaluecapture. Inaddition, strategicintentisalsodescribed.

5.1.1. ValuecreationSCSisahierarchalorganizational,wheremostemployeeshavebeenworkingattheorganizationforthemajoritypartoftheircareer.Theareaofcompetenceincludesbothsystemsandproducts,withcorestrengthinhydraulics,sincethecompanywasacquiredbyParkerHannifincorporationasahydraulicssupplier.Nevertheless,collaborationswiththeexternalParkerdivisionsenableaccess to expert competence from both manufacturing units and other sales companies.Furthermore, SCShas growna large customerbase from the extensive experiencewithin theindustryforhydraulicsandautomation.

In terms of internal and external information flow, SCS uses an intranet portal to shareinformationonforexamplequalitymanagementsystemwithstandardworksandprocessflows.

26

Inaddition,multipleportalslinkedtoexternalParkerHannifinunitsareaccessibleandfacilitatesanarrayofrequestsandinquirieswithinthecorporategroup,suchasspecialtransportandnewproduct requests. Information on price or part specific changes are often shared permail toselectedfunctionswithinSCS,suchascustomerservice.

TheERPsystemismodularizedandhasbeenextendedtomostacquireddivisions,whichenableSCStoaccessinformationfromsome,yetnotallParker.Althoughthetransparencyleveldiffers,as do the degree of collaboration, it is for some divisions possible to view inventory levels,expectedreplenishmentsandsimilar.

There are several alternative set-ups for how SCS receive and process orders. The preferredmethodisthroughEDI,wheretheorderisperautomaticupdatedinthesystemanddistributedtoresponsiblemanufacturingunit.Analternativeset-up is throughsocalledPhast,which isasemi-automatedprocessbuilttoimitateEDI.Traditionalchannelsofmailandphonearealsousedtoreceiveorders,whereaftertheyaremanuallyenteredtothesystem.

In case of requested value added services, SCS consolidate shipments from multiplemanufacturingunits,toavoidpartialshipment,alternativelyprocuremultiplecomponentsandassemble toone item.Theprocurement function is thenresponsible forsourcingcomponentsfromrespectivedivisionaswellasproductionplanning.Alternatively,purchasesaremadeondrop-shipfromrespectivemanufacturingunit,oradistributioncenter,withdirectshipmenttothecustomer,oralternativeprovidedaddress.

Matrices and performance are monitored to enhance customer satisfaction, such as deliveryperformanceandoldestorder.Inaddition,leantoolsareusedforstandardizationandefficiency.Furthercentralactivitiestocreatevalueincludethoseofcustomerservice,projectmanagement,sales,productsupport,marketing,leaninitiatives,businessdevelopment,procurementforvalueadding services, as well as organizing vale adding services for customized assembly andpackagingsolutions.

SCS engage in partnerships to increase total created value. Within the external organization,collaboration initiatives with manufacturing units focus on cost reduction and pricingimprovements. In general, themanufacturing unit is arguedmore knowledgeable in terms ofpricingandthussupplyarecommendedprice toSCS,which isusedasabasis inpartpricing,whereSCS reportbackpotentialdiscrepancies in themarket. Ingeneral, divisionsaccept lowmargindealstoscaleproductionandachieveafavorablecoststructure,latertoaddhighvolumedealson-top,whichinturnimpacttherecommendedprice.Further,theexternalParkernetworkand distribution channel is used for local availability, to access expert competence, exchangeproductandapplicationknowledge,aswellasbestpractices.Additionalcollaborationsinvolveexpertiseforcustomerspecificprojects.

Parker Hannifin resellers provides an external distribution network that consist of certifiedParkerStoresdistributers, approximately3000 locationsspreadacross theglobe. Inaddition,around100HoseDoctors,acomplementtoParkerStorewithcertifiedactorswhoaremobileandperformon-siteservice.Distributersareusedforsuperiorreach,toenablehighqualityserviceforsmallercustomersaswellasenhancebrandrecognitionfromamarketingperspective.

27

5.1.2. ValuepropositionInadditiontothestandardproductsentiment,SCSoffervalueaddingservicessuchascustomizedpartassemblysolutions,wheremultiplesub-componentsarecomprisedandsoldasoneitemtosavetimeforthecustomer,orasalogisticsolutionswithcompletedeliveriesinsteadofmultiplepartial shipments. Customized solutions, such as branding and customer specific componentsolutionscanalsobeofferedpercustomerdemand.Intermsofservices,thecompanyassistwithdesign, technical solutions, commercial packaging, complete systems solutions andsupplementary consultancy services. Additional offering solutions include on-site container,parfit,globalcore,renovationsandParkerTrackingsystem(PTS).Thelatterisasolutiontotagcomponentsfortraceabilitytoalocationorasset,abletonotifyreplacementorinspections.

In terms of customer benefits, the size and financial strength means that the company isprofessional in itsoperationsand toagreaterextentable towithstandeconomicvolatility. Inturn,SCScanbeflexibletowardscustomerswithregardtotermsofpayment.Also,ethical,safetyandenvironmentalfactorsistakenintoconsideration,whereproductsarecertifiedinaccordancewitharangeof industrystandards,suchas thequalitystandard ISO9001.Thebenefitcanbetranslated into a sense of security in investing in long-term collaborations. Also, all parts areoriginal productions by Parker Hannifin, which gives process- and production control andreduces intermediaries, hence, provides a lower total cost. Continually, the high qualitycharacteristicscanalsobeofsignalingvaluethatcanbeusedbycustomerinmarketingandsaleslogic.Additionalvaluefromcollaborationswithintheorganizationistheaccesstoinnovationsfromalldivisions,withinalltechnologies,aswellasabroaddistributionnetwork,bothnationaland international, which gives access to local resellers for technical support, repairs andmaintenance(ParkerHannifin2016e).

Inaddition,thecustomerissupportedbyacustomerservicerepresentativeaswellasanaccountmanager.Assuch,SCS isable toprovidesuperiorcustomerserviceas theresponsiblecontactpersons will learn the customers’ business and can provide a personalized experience inaccordance with needs and processes. Moreover, SCS focus on quality service and products,where delivery performance is key to maintain customers and create further businessopportunities. SCS recently initiated a collaborative approach to thebusinessplan,where thecompanyattainfeedbackonfocusareas,performanceandthecompanyingeneral,tosetabaseformutualgrowththroughactivitiesthatwillbenefitthecustomer.

ThediversityinproductofferingmakeitpossibleforcustomerstosourcemultipleproductsfromSCSandreducethesupplierbase,withtheadministrativebenefitsintermsofonecommunicationpath, synergies inpricenegotiationsandmeetings,aswellas the financialbenefit in termsoflowercostforadministrativerelatedtask,procurementandtimespentonsupplierrelationshipmanagement. Furthermore, SCS operate in threemainmarkets;mobile, industry andmarine.Within these markets, key customer segments are mining, construction, material handling,forestry,generalindustrialmachinery,carsandlighttrucks,heavytrucksandtrailers.Intermsof target customers within respective segment, customers are classified into key, grow andregular.

In terms of sales channel, sales are either direct or through a distributer.When indirect, allbusinessdiscussionsand transactionsgo through thecertifieddistributionnetworkofParkerStoreandHoseDoctor.AlthoughthedistributersareconsideredachannelthroughwhichSCSreachitscustomers,itcanalsobeviewedasacustomersegmentinitself,wherethebenefitisthe

28

supportfromSCS,aswellasthesizeandreputationofthecompany.Inaddition,SCShasitsownonlinewebsitewherecustomerscanengageindirectcontactwithsupportfunctionthroughemailorchatforum.

Additional approaches to strengthen customer relationship include entering long-termagreements with acceptance of financial responsibility, projects to increase efficiency andproductivityof customer’sproductswithParkercomponents,aswellasusingasales forceoftechniciansandengineerswhererepresentativesspeakthecustomer’s languageandestablishtrust.

5.1.3. ValueCaptureTheprimaryprofitfromsalesgoestothemanufacturingunitandthesalescompanyreceiveapercentageratetocovercosts.

Product sales contribute to over 90% of total revenue, and as such constitutes the primaryrevenuestream.Thepoorcontributionfromservicesareexplainedbythechoicetoconsolidatethecostofforexampleconsultancy,validationandfutureserviceintoproductpricing.

In turn, the set-up of product sales varies between reoccurring sales based on part specificcontractualagreementsbasedonvolume,give lowermarginsdue to lowercost,projectswithone-timepayment,tohighmargintocoverhighcost.Onepricingstrategyforstandardproductsis list price with customer specific discount rate per product group, alternatively customerspecificagreements.Acommonpricingstrategyfortheaftermarketistoincreasepricingofpartsafterendofline-production,inaccordancewithacostincreaselogic.Additionalstrategiesincluderazorblade,where a part is subsidized for line-production,while charging a premium for theconsumableontheaftermarket.

Furthermore,SCShaveacostorientedprofitmodel,wheremetrics fromtopmanagementarestrictonagivenmaximumcostoversales.CostofpersonnelisthelargestcomponentinSCScoststructure,contributingto80-90%oftotalcost.Thisincludesalaries,travelexpenses,overheadandother.Further,generalcostalsoincludesforexamplefacilityandmarketing.

5.2. StrategiesDuetoitssuccess,thewinstrategyhasbeenusedasaframeworksincefirstintroducedin2001.With the vision “engineering your success” (Parker Hannifin 2016b, p.4), Parker HannifinCorporationhavefourgoals;engagedpeople,premiercustomerservice,profitablegrowthandfinancial performance, with multiple supporting strategies for respective focus area (ParkerHannifin2016b).

During 2016, agility though restructuring and simplification initiatives is emphasized. Thecompanywillfocusonreductioninbureaucracyandrevenuecomplexity,consolidatedivisionsandorganizationalstructureandprocessoptimization(ParkerHannifin2016b).

For the goal engaged people, strategies focus on environmental, health and safety,entrepreneurialandhighperformanceteamsandleaders.Measuresincludesengagementsurvey,zeroaccidents,80%inhighperformanceteams, inclusiveenvironmentandspeedwithinwinstrategy(ParkerHannifin2016b).

29

For the goal premier customer experience, strategies focus on quality solutions on time,eBusinessleadershipandeaseofdoingbusiness.Measuresincludesplus98%on-timedeliveries,sixsigmaquality,eBusinessconversionrateincrease,best-in-classleadtimesandquotespeed,over30 likelihoods to recommendandcustomerdashboards.Moreover, “greater emphasisonbuildinganonlineexperiencethatcreatesadestinationpointforthemotionandcontrolindustry”(ParkerHannifin2016b,p.5).Continually,theeBusinessstrategywillpresentnovelopportunitiesfor Parker Hannifin’s customers in terms of enhanced understanding for Parker Hannifin’scapabilitiesaswellasservicesandproductsinlinewithcustomerneeds,accesstoself-service,onlineorderregistrationaswellasproductsupport(ParkerHannifin2016b).

For the goal profitable growth, strategies focus on organic, acquisition and services, marketdriveninnovation,systemsolutions,strongdistribution,growshareandengineeringexpertise.Measuresincludesnewproductsandsystemssalesincrease,growdistributionandserviceswith50/50distributionandOEM, firstor secondplace ineachgroup,plus20%market shareand“organicgrowth150bpsgreaterthanthemarket”(ParkerHannifin2016b,p.5).

Forthegoalfinancialperformance,strategiesfocusonsimplification,leanenterprise,strategicsupply chain and value pricing. Measures includes 17% ROIC, 21.4% RONA, 17% operatingincome,yearoveryeargrowthinEPD,EBIT,cashflowanddivisionnetearningsandtopquartilediversifiedindustrial(ParkerHannifin2016b).

Astrategyfocusedonservice,enabledbyinternetofthings,ParkerHannifinaimtogrowusageofonlinesolutionsacrossthetechnologyplatform,purposedtocontributevaluetocustomersinformofprocessoptimizationandimprovementsinsafetyanduptime.Newservicerevenueswillbe created through implementing internet of things and other service solutions across theinstalledbaseofproducts(ParkerHannifin2016b).

5.3. DescriptionofprioritizedcustomersAtlas CopcoMRS, part of Atlas Copco Group, and Hiab, part of Cargotec, are two prioritizedcustomers,bothwithalongsupplierrelationshiptoSCS.

AtlasCopcoMRS,MiningandRockExcavationService,isoneoffivedecentralizeddivisionswithinMining and Rock Excavation, responsible for service delivery, sales, support, marketing, andaftermarketforthewholebusinessarea.Further,thedivisionprovidevaluefortheircustomers,where the main market is mining, through a complete offering of services and consumablesrelatedtominingandrockexcavation(AtlasCopco2016c).

Withregardtothevaluechain,MRSsourcefrombothlocalandglobalsuppliers.Also,theyengageinlong-termcollaborationstoimproveefficiencyandenablemutualgrowth,wherekeypartnersareselectedbasedonquality,deliveries,technicalcompetenceandoverallcosts.

Hiabisaleadingproviderofglobalon-roadloadhandlingequipmentandservices.Continually,currentproductofferingcarryfiveproductlines;taillifts,demountables,forestrycranes,truckmountedforkliftsandloadercranes,withadditionalofferingofservicesandsparepartsusedinon-roadtransportanddelivery(Cargotec2016).

ThemajorityofHiabscustomerbaseissituatedinEMEAandspanfromsmallentrepreneurstolarge internationalorganizations,suchassingle truckowners,vehiclerentalcompanies, truckmanufacturers, transportation companies, fleet operators, municipalities and governments(Cargotec2016).

30

Fromavaluechainperspective,theselection,developmentandmanagementofkeysuppliersaimimprove competitive advantage and productivity (Hiab 2016b). Expected supplier qualitiesinclude financial viability, high ethical standards, competitive pricing, certifications, cost andcycletimereductionprogramaswellastechnologicaland/orserviceadvantageovercompetitors(Hiab2016c).Moreover,suppliersareselectedbasedonquality,reliability,deliveryandprice,wherelaw,regulationandhumanrightscompliancearemandatory.However,forsourcingHiabconsiders organizational conflict of interest, performance history, reputation, personnelexperience,marketniche,corecapabilities,dependability,responsiveness,teamwork,geographiclocation,customerproximity,product/serviceofferingandresourceavailability(Hiab2016a).

31

6. AnalysisandDiscussion:TheBusinessModelInnovationProcessSinceSCSisastrategicsuppliertoMRSandHiab,thereisadependencybetweenactorsasthebusinessmodels tosomedegreeare integrated.Thus,achangemadeatSCScanbearguedtoimpact the OEMs, in line with Afuah (2014) argument that a change affects the completedynamics.Continually,thesameapplyforachangeinthebusinessmodelofHiabandMRS,whichhighlightstheimportancetoalignwiththeexternalenvironment(Giesenetal.2010),asSCSwillbeimpactedbythechallenges,opportunitiesandcompetitivepositioningoftheircustomers.

Moreover, business model innovation is required when the existing model is renderedinappropriate, due to either change in, or newlypresented customer requirements that leavebehindunmetneeds(Mezger&Enkel2013).ThisgoesinlinewiththefindingsforSCS,wherechangesinindustrydynamicsfollowfromkeymacrolevelfactorsandOEMsarefoundadjustingtothenewclimate,byforexampledirectingfocustowardsservicesandtheaftermarket.ThesechangesserveasanexternaltriggerwhereSCSmustreactandreadjusttothenewcontext,orriskinefficienciesthatinturnmaytransformintobusinessmodelobsolesce.Moreover,extensiveliteraturewithinbusinessmodelinnovationaddressthemanylargecorporationswhofailedtoadjustduring industry transformations,aspreviouscompetitiveadvantagesbecameoutdated.Put in the light of SCS, previous competitive advantage of high quality products is renderedobsoletebyindustrymaturityandcommoditization,whichdeterioratemarginsinacompetitiveclimatewithlowercustomerloyalty.

Furthermore, as SCS are active in a mature industry a new business model presents theopportunity for competitive advantages (Clauss 2016). However, engaging to innovate thebusiness model can be time consuming and expensive (Chesbrough 2007), as it is time andresourcedemanding.However,thealternativecostofbusinessmodelobsolesceandinabilitytocontinuetooperateinthemarketismuchhigher.Tonotembarkonthedecliningphaseofthelifecycle(Smith2010),customers’relationshipinmaturemarketsareinparticularconsideredasa source for innovation, as information on external changes from customers trigger businessmodelchange(Clauss2016).

This chapter is covers theprocess application to SCSandanalyzes requirements for the focalcompany to implement a proactive approach to business model innovation, by drawing onexperiences to address challenges andbenefits of how the process function in the contextualenvironment. Further, we expand on respective phase; assessment, analysis, alignment andadaptability,with inherent sub-steps, all purposed to reveal potential sources for innovation.Examplesfrompracticeareincludedtoprovidethereaderwithaclearpictureofhowthephasesandsub-stepscanturnout.However,theprovidedexamplesshouldmerelytobeconsideredasinspirational.

6.1. Phase1:AssessmentInthisphaseweestablishedabaseknowledgeonexternalandinternalinfluencesforSCS’s,whichinturnwilllaythefoundationforremainingphases.Furthermore,toensurethatSCSdevelopinfavortothedirectionofMRSandHiab,weassessthemacroandmesoenvironmentrelevanttotheaftermarketforminingandmaterialshandlingequipment,businessmodelsandstrategiesforHiabandMRS.

32

Externalinfluences.Intermsofunderstandingtheinformationrequiredfromexternalinfluences,weobservedthataccountmanagementfrequentmentionedkeymacro-economicfactorsinthecontext of specific customers during briefings and interviews. However, no information wasaccessible and shared within the organization, SCS does not have information on keymacrodevelopmentsnormarketanalysismaterial,withinneithertheinternalnoraccessiblefromtheexternalorganization.Someintervieweescounteredthatsuchinformationhadpreviouslybeentheresponsibilityofapplicationexperts.However,sincethereorganizationthereisnoappointedresponsibility, meaning that it is up to respective account manager to keep updated ondevelopmentsrelevanttotheircustomers’situation.ThisindicatesthatSCShavethenecessarycompetencytoassesstheinformationrequiredinthisphase.Itisarguedimportanttolookintoeachmarketanddevelopmentasitwillpresentdifferentresult,aswellasincreasetheprobabilitytospottrendsbetweenmultiplemarkets.Toeasecomplexityininformationgathering,thephaseshouldfocusonprioritizedOEMsratherthanthecompletecustomerbase.Still,SCSmusthavetheresourcesandcapabilitiestoabsorbandderiveessentialinformation,aswellasutilizethegathered data to identify opportunities, problems and trends presented by the externalenvironmentthatrequireaction.

Moreover,as theresponsibility fallsuponeachaccountmanager, the information is toa largeextent attained from the concernedOEM.However, as the accountmanagers areprimarily incontact with the sourcing departments, with limited involvement from functions such asmarketing, the value chain between SCS and the end-customer become extensive. Fromobservation,thistypeofinformationsharedatmeetingsisnotdiscussedin-depthasitreachesthe SCS organization, but rather mentioned in brief. Hence, to attain a further validatedunderstandingoftheholisticindustryandmacrodevelopments,itisrecommendedtonotsolelyrelyontheinformationattainedfromtheOEM.However,thatwouldincreaseresourcesandtimespentbyeachaccountmanagertostayuptodateontheexternalenvironment,inrespecttotheircustomerbase,asnoformalanalysiscoverageisaccessiblefromtheorganization.

Furtherreactionsfromrespondentsonthematterincludeditwasfoundstrangethatnomarketanalysis were available within the organization, taken for granted to be done by accountmanagers.Thisindicatesthatitispossiblethatemployeesdonotsensethenecessityofrealizinginformation on the external environment as essential input to activities. Also, that externalinformationlackinperceptionasakeysourcetoidentifyopportunities,challengesandtrends.Continually, the lack of incentive among employees require management involvement tocommunicate the necessity of formalizing such a process, which in turn will lower thedependencyontheexperienceslevelofanindividualandtheriskthatessentialinformation,nowfoundastacitintheexperiencesofemployeeswithintheorganization.Further,tolowertheriskthatitisnotpassedonbeyondtheindividual,teamorfunction.

Moreover,somearguedthatitispossibletoattainanalysismaterialfromtheparentcompany,although no such information was successfully retrieved. Thus, the company should seek toleverage the resources and material that can be attained from the external organization, tomaximizetheuseofresourcesspentoneachsub-step.However,toeliminatetheproblemofnotknowing what and where required information can be accessed, one should appointaccountability to someone responsible to establish necessary points of contacts to attain andcontinuouslyupdatetheinformationmaterialprovided,sothat it iseasilyaccessedwithintheorganization.

33

In terms of the macro and meso assessment, considering the little pre-knowledge when theprocesswasinitiated,itwasrationaltofirstunderstandMRSandHiab,theindustryforminingaswellasmaterialshandlingequipment,lattertoengageinthesearchforhigherlevelfactors.Itwasthusrealizedthatalevelofpre-conditionalknowledgeoftheindustriesandoperationsofselectedOEMsisrequiredtoguidethesearchforrelevantinformationandattainaqualitativemacroassessment.Hence,thestructureofinformationgatheringwasinpracticeperformedinparallelratherthaninlinearsequence,seefigure4.

Figure11:Overviewofhowinformationinparallelisgatheredformacro,mesoandmicrolevel

It was both difficult and time consuming to efficiently gather, manage and derive what wasessentialinformationforeachcase.ThecomplexitycamefromtheglobalbusinessmodelsofMRSand Hiab, thus for simplicity in this research, macro assessment was kept on a global level,disregardingofnationspecifictrends,seeexample1.Further,themesoassessmentandfiveforcesframework for the aftermarket also required an initial understandingof the industryoriginalequipment,asitisstronglycorrelatedwiththeaftermarketperformance.

To be noted, as this phase easily can grow in complexitywith the level of attained data, theattention should be on deriving quality rather than quantity. Still, that does not mean thatexcessiveorlackofdatashouldbedismissedwithoutfirstenteringadiscussiononthepotentialimpact.Toexemplify,althoughnoclearsubstitutewasfoundforminingequipmentspareparts,conversingonthesubjectrevealedself-solutionsasapotentialthreattoMRS,andthusalsoSCS.

WearguethatSCScanengage inasearchthat issimilartotheoneperformedduringprocesstesting,seeexample1and2,wherethemacroassessmentwasextendedto includecompetingactors,toseepatternsandkeydevelopmentswithinthemarket.Thisway,thefocusstretchedbeyondtheOEMtounderstandthecompleteindustry,ratherthanthesingleOEM.However,forSCSthePESTframeworkshouldbeappliedspecificpereachgeographicmarket,aspoliticalandsocialfactorswillvarybetweencountries.Moreover,wearguethatSCScankeepefficiencyinthisstep by first focusing on prioritized OEMs and key markets, where additional markets andcustomers can be given further consideration during the adaptability phase. Also, through aparallel and iterative search onmacro level, where key factors are identified as relevant forrespective OEM on a continuous basis as discovered. Further through applying purposedframeworkstoguidetheinformationsearchandsimplifythephasestructuring.Inaddition,forSCSwell-experiencedparticipantsmayhaveagreaterabsorptivecapabilityofwhichthephasewillbenefitfromsuchinvolvementandcouldincreasethequalityofoutcome.

Aftermarketformining

equipment

Macroenvironment

AtlasCopcoMRS

Aftermarketformaterialshandlingequipment

MacroenvironmentHiab

34

Example1:Keymacrofactorsrelevantfortheindustriesofminingandmaterialshandlingequipment.

In summary, current macrodevelopment presents a ratherpositiveoutlookforHiab,whilethesituation ismore challenging forAtlasCopcoMRS.

Source: (Atlas Copco 2015; Atlas Copco 2016c; Sandvik 2015; Atlas Copco 2016a;Komatsu2015;JoyGlobal2016;AtlasCopco2016b)

35

Scholarsemphasizeoftheimportanceoffirstunderstandingtheexistingbusinessmodelforthecompanythatattempttoinnovate(Clauss2016).Here,wearguethatitisequallyimportanttounderstandthebusinessmodelsofMRSandHiab,astheyareintegratedintothebusinessmodelofSCS.Tobeabletomakethisassessment,thechallengeagainsurroundsthepointofcontactbetweenSCSandOEMs.Aspreviouslynoted,accountmanagersareprimarilyincontactwiththesourcingdepartments,itwasdifficulttoincludethenecessaryperspectivestouncoverHiab’sandMRSbusinessmodel.Werecognizedthatwiththecurrentprocessesandcustomercontactpointsbetween SCS and respectiveOEM, the type of information shared between firms is primarilyrestricted to what can be attained from the sourcing function and perspective. For example,positive developments that proceeded the interview sessionswith OEM are initiatives to formeetingsbetweenotherfunctions,toincreasetransparencybetweenfirms.Thisclearlyindicatesaneedtoextendcollaborationbeyondexistingcustomarymeetingswithinsourcingandaccountmanagement, to allow for better information flow and the ability to improve collaborationbetweenOEMandSCS.Translatedintothiscontext,westruggledtoattainaholisticperspective

Example2:Industrydynamicswithintheaftermarketforminingequipment

ThreatofSubstitutes

• Self-servicesolutions

BargainingPowerofSuppliers

• AtlasCopcoleadingpositioninmultiple markets gives thebasis for economy of scalewith the possibility tonegotiate favorable termswithcomponentsuppliers.

• Supplier concentration ratefor standardized spare partsand consumables is high,including specialized,diversified, local and globalactors

• Play suppliers against eachotherinbiddingprocesses

IndustryRivalry

• Largenumberofmultinational,niche,regionalandlocalplayers

• Newspecializedmarket• Firmsaredirectinggreater

attentiontowardsaftermarketpotential

• Highrevenuepotentialfromstandardizedparts

• Lowdifferentiationinsparepartcharacteristicsgiveslowswitchingcostsandcustomerloyalty

• Frequentparticipationincompetitivebidding

BargainingPowerofBuyers

• Customer-specific part giveshigh switching costs, whilestandard products are easilyaccessible and have lowswitchingcosts.Forwhichthelattergivesthebuyergreaterpower and ability to pushdownprices,

• Costofmachineryconstitutesa significant fraction of totalcoststructure

• Industry consolidation giveslargesizedplayers

ThreatofNewEntrants

• High revenue potential comes fromstandardized parts that are less capitalandknowledgeintensivetoproduce

• Lowswitchingcosts• Lowcustomerloyalty• Economyofscale• Large number of customers spread

acrosstheglobe•

36

ofhowOEMareorganized,supportedbyClauss(2016)argumentthatfewemployeesunderstandthetotalityofacompany’soperations.ThismeansthatSCSmayencounterthesameproblemoflimitedtheviewoverOEMsbusinessmodels.Still,theuseoffirstorderdimensionsallowedforanaggregateanalysis.Inadditiontothebusinessmodel,richdataisrequiredonrespectiveOEMsspecific challenges, strategiesandgoalswith regard to theaftermarket,whichdemandSCS toengageindeepinterviewswithpersonnelinvariouspositionsfordiverseperspectives.

ArecentinitiativefromSCSistoprepareandpresentedtheannualbusinessplanforinputondirectionandcurrentbusiness.Althoughthisisregardedasastepintherightdirection,earlierinvolvementandco-development,wheretheplaninsteadisbasedonmutual input latertobeformalized by SCS, can enhance quality of outcome. Furthermore, equal attention should bedirected to attain feedback on current collaborations from the perspective of the customer,purposedtosetasharedplanforcontinuedfocusareas,aswellasthestrategicaimandchallengesandopportunities.

ManywithintheSCSorganizationarguethatOEMshavestrongrequirements,eitherimplicitorexplicitstated,onallsuppliermeetings for thepresentationof feasiblecontributions.Onecanobserveapotentialconflictbetweenperceptions,whereSCS feelscompliedtoprovide instantcontributions,whileMRSandHiabratherexpressedappreciationoverthesupplierengagement.Here,OEMsareappreciativeofopenconversationspurposedtodebateandidentifyaftermarketgrowthandcaptureratepossibilities.ThisalignwithBrem&Tidd(2012)viewthatit ismoreimportanttosignalawillingnessandthelengthtowhichasupplierispreparedtocollaborate,insteadofsimplyfocusonpresentingavailabletechnology.Thechangeincustomerbehaviorcanbearguedasaresultofengagingincloserrelationshipswithfewersuppliers.

Internalinfluences.ItisessentialthatSCSunderstandtheexistingbusinessmodelandlinkages(Clauss 2016) so that changes are considered along with the effect they have on remainingdimensions.While the first order dimensionswere used in the assessment ofOEMsbusinessmodels,amoredetailviewof theSCSwasrequired, thereforethesecondlevelsub-constructswereusedtoallowforanin-depthunderstandingofwhatcompriserespectivedimension.Thismadeiteasiertouncoversystemconnectivityaswellas,inproceedingphases,engageindetailanalysisofdysfunctionalelementsinrelationtotheexternalenvironment.Further,asindividualemployeeswereunawareoftheinter-dimensionaldynamics,theprocesswillrequireadiverseteam to understand the potential effect and required adjustments for successful innovation.Further,tounderstandthatasmallerchangewithinsecondlevelgivealargereffectinthesystem,seeexample3describinganewofferingthatcanfavorfromthisunderstanding.

37

Further,initialassessmentshouldbeobjective(Chesbrough2007),andcaninitselftriggerideasfor smaller improvements. Even though we focused on objective appraisal to first fullycomprehend the dynamics within the business model, it is possible that the same activityperformed by SCS would be more subjective. Also, they may struggle to take the variety ofperspectivesfrommultiplefunctionsintoconsideration,whichwereneededtoattainaholisticperspective.Inpart,astheintervieweesdidnotsharethesameperspectiveonallbusinessmodeldimensions,theassessmentneedtobeopentoincludeallperspectives.Toconclude,asweareexternalobserversitmayhavebeenmoreeasyforustokeepobjectiveduringtheassessmentthanitisforSCS,whichneedtobeconsidered.

However,althougharangeofinterviewswereheldtoattaindifferentperspectiveandcreateathoroughunderstandingofhowtheexistingbusinessmodelisorganized,itwasdifficulttoattainacommonpictureofthebusinessmodel.Moreover,alignedwiththeargumentbyChesbrough(2007)thatfewareawareofallaspectsofhowcompanycreateandcapturevalue,werecognizedthat interviewees had varied and to some degree limited understanding of activities beyondhis/herown function.Further, itwascommonthatemployeesduring interviewschosenot toanswerquestionsthatdidnotdirectlyconcerntheirfunction,andinsteadreferredtothepersonthey believed to be responsible. In addition, we also found contrasting views on the sameactivities.However,managementexpressedconcernthattheinputvariedbetweenpositionsandfunctions,andthatthemajorityoffeedbackshouldbeconsistentregardlessofrespondent.Eventhough,managersatSCScanbearguedtohaveabetterholisticunderstanding,astheygetinputduringforexamplestopmanagementmeeting,theirunderstandingdoesnotnecessarilyreachalllowerlevelsinthehierarchy.

Managementisrecommendedtoopenupforacross-functionaldiscussiononhowthecurrentbusinessisorganizedtoshedlightoninterdependenciesbetweenfunctionandactivities,whichin turn may put things into perspective and increase awareness within the company. Thecontrasting understanding was primarily found for the processes and collaboration with theexternalorganization,whichindicatesthatthecomplexityincollaborationstructurelowerthepotentialvaluethatcanbeattained.Further,thatSCSmaynotsuccessfullyutilizingtheresourcesandcapabilitiesfoundintheexternalParkernetwork.Onecanarguethatavarietyofemployeesshouldbeengageindiscussionswhilesettingtheframeforthebusinessmodelbeforestartingtoinnovate, in order to spread the holistic view of the organization. This can give ground torecognizeimprovementandinefficienciesacrossfunctionsaswell.

Example3:Understandingthebusinessmodeldynamicsfornovelserviceofferings

SCSbeginto introduceachangewithin thevaluepropositiondimension,byextendingitsoffering with a service add-on, Parker Tracking System solution. Thus, the system ofactivitiesinremainingdimensionsmustbeadjustedaccordingly.Inordertodoso,SCSmustbe able to question and diverge from old logic that was created when the businessenvironmentwasvastdifferent.Also,beabletochallengethedynamicsamongrespectivedimensiontoachieveefficiencyandcreategreatestpossiblevalue.Continually,inlinewiththeargumentbyNeuandBrown(2005),thesuccesswilldependonwhatdegreemanagerscan utilize existing, or access new, resources and capabilities to deal with the changedconditionswithregardstoservicebusiness.

38

6.2. Phase2:AnalysisInthisphaseweanalyzedthecontextualrelationshipbetweenSCSandtheexternalenvironment,based on the information gathered during assessment. Further, each sub-step is evaluated inrelationtoHiabandMRS,purposedtofindsourcesforinnovation.Noteworthy,theintroducedanalogicalreasoningconceptisusedinordertomakesenseoftheassesseddataandinanaturalway of approaching problems and opportunities, that will help SCS to identify relationalsimilaritiesanddifferencesinordertoaddressnewideas.

Previous discussions have attended to the necessity to gather information from the externalenvironment.However,itisequallyimportanttounderstandthedevelopmentsandtheeffectitwillhavebothonSCSandOEMs.Forexample,understandingthatformalizedglobalpurchasingorganizationsandseparateaftermarketfunctionsarenotjustfoundforHiabandMRS,butratherindicatelargertrends,itispossibletoappreciatethatSCSoughttoalignaccordingly,thusdirectattention to the product lifecycle and diverge from the mindset where production andaftermarket are treated as separates. These realizations can set the stage for attentiveadjustmentsthatbenefitbothSCSanditscustomer.

Furthermore,inlinewiththeargumentonbusinesstobusinessservicedevelopmentbyNeuandBrown(2005),thatsuppliersneedtohavestrategiesandorganizationalcapabilitiesthatfitintotheexternalenvironment,itisimportanttoensurethatthebusinessmodeldevelopmentinwhichSCSengageisinlinewiththecustomers,andthussotheexternalenvironment.AlthoughSCSdoaddressserviceinthewinstrategy,whichfavorsforamoreservice-drivenbusinessmodel,wehavenotfoundinitiativesthathavesignificanteffectonthecurrentbusinessmodel,otherthanintroducinganewpositionfocusedonaftermarketdevelopmentintotheorganization.Therecentfocussignalsastepintherightdirection,yetrequireamoreholisticperspectiveandengagementwithinthewholeorganization.Nonetheless,thebusinessmodelisstilltomorethan90percentdrivenbyproductsales,whichhastobechangedinordertogetamoreservicedrivenapproachandaligntocustomerservicefocus.

Themacroenvironmentshouldbeexaminedastohowitaffectstheindustrydynamicswithintheaftermarketforminingandmaterialhandling,seeexample5.Also,howtheMRSandHiabrespondto the development presented in external environment. Here, the essence is about fullyappreciatinghowthemacrofactorsimpacttheindustryandhowthechangetranslatestoMRSandHiab,andthusalsoSCS.Inturn,tomakesuchconnections,SCSmusthavethecompetencesto grasp the dynamic relationship betweenmacro, industry and the firm.With considerationgiventotheextensiveexperienceandthehighereducationalbackgroundfoundatthemajorityof employees,withaccountmanagerswhoareaccustomed touse tools suchas SWOTduringbusiness plan development, indicates that SCS possess such capabilities. Further, the closecollaborations between SCS and prioritized OEMs allow for a deeper understanding of thecustomer context, in particular within the hydraulics area. However, the capabilitiesmay bespreadacrossfunctionandcouldfavorfrominteraction,whereaformalprocesscanenhancethequalityofmadeconnectionsthroughdiverseperspectives.Still,eventhoughonecanreasonforamoreabsorptivequalitythankstoanunderstandingforthetechnical,systemsandapplicationcomplexity,itmayalsoleadtothatfactors,suchasbehavioraltrends,notinstantlyrecognizedasrelevantpotentiallycanbedisregarded.

39

Atthetimeoftheinformationgatheringfortheexternalinfluencesintheassessmentphase,theanalysis naturally occurred in parallel. However, itwas still necessary to engage in a deeperdiscussion to allow for connections that were not per automatic discovered. As for SCS, thisindicates that the current structure, where each account manager has the individualresponsibilitytocreatehis/herunderstandingforexternalenvironment,missoutonconnectionsnotdirectlyinferred.

Example5-Macro-economicimpactontheaftermarketforminingequipment

Theprevailingtoughmacro-economicconditionshasresultedinachallengingindustryforminingindustry.Supplyrestrictionsanddrasticreductionincommodityprices,particularlythatofmetalandore,negativelyimpactminingcompanies’profitability,resultinginindustryconsolidation.Serviceandminingequipmentinvestmentsaredirectlyaffected,withlimitedinvestmentinnewmachinery,strongfocusonproductivityandcostreduction.Tomaintaincompetitivepositioninginminingorminingequipment, firmsapproachoverallefficiencyandpricecompetitions,ascostofmachineryconstitutesasignificantfractionoftotalcoststructure (Atlas Copco 2016a). Moreover, loyalty deteriorate as large customers buildsophisticated procurement departments, in part as a consequence from industryconsolidation,whereAtlasCopcotoalargerextentarebenchmarkedbasedonprice.

Atlas Copcoreported of continued stable demand for spareparts and servicesduringFY2015(AtlasCopco2016a),whereOEM’sdirectattentiontoservicesandtheaftermarkettolevelrevenuestreams.Inaddition,OEMsexercisebuyingpowerontosuppliersandtransfersthesamepressuredownthevaluechain.Further,thetrendofsupplierbasereductiongivesopportunities for larger order volumes and thus increases supplier pressure for strongbusinesscases,wherelossofsharewillhavegreaterimpactonthetotalrevenuestreamforsuppliers.

Further,digitalizationmakesiteasiertoenterthemarket,inparticularforsalesofstandardparts.Traditionalhighmarginsandpreviousadvantagesofstrongdistributionnetworksaswell as economies of scale and scope are challenged by new entrants that diverge fromtraditionalindustrypracticesandoperatingthroughecommerceplatforms.Continually,ICTdevelopmentsenableinformationaccessibility,wherethecustomermoreeasilycanlocatealternatives, and cost reduction through operational efficiency with favorable coststructures. In addition, customer behavior change and to a greater extent demand forinformationavailabilitywithinstantresponseanddelivery,wherethereisanunwillingnesstowaitforanything.

OEMsapproach thegeneral lowcapturerate through lock-ininitiatives, suchasbrandingandincreasedfocusonserviceofferings.Infavorofsuppliers,customizedproductscreatelock-in and must be procured through single supplier, where branding initiatives andadditional value adding activities increase customer-supplier dependencies. Continually,onecanreasonthatthesedevelopments,complementedwiththe trendofclosersupplierand OEM relationships,will smoothen the bargaining power between supplier and OEM,whilestrengtheningthepoweragainstcustomersandnewentrants.

40

Wewouldrecommendtocontinuouslyupdateinformationontheexternalperspective,inorderto notice change in customer behavior and the impact it has on SCS. Moreover, utilizing theexternalenvironmentwithanopenapproachtofindinnovationsourcesfurtherenableSCStofindnewwaysofdoingbusiness,sharingresourcesandcreatelock-ins.ItisimportantforSCStounderstand the importanceofcooperate, shareresourcesandcapabilities,both theirownbutalsotogetherwiththecustomer.Equallyimportantistomakethecustomerwillingbothengageand investresources intocollaborativework towardsbusinessmodel innovation,which favorfromincreasedtransparencyinapproachthanwhatisfoundtoday.Toexemplifycustomarysaleslogic, in a business case for a patented filter solution with substantial potential to increaseaftermarketcapturerateonfilterelements,ahighmarginconsumablepricedwiththerazorbladestrategy,withintheaftermarket,salesargumentsincludedthelong-termrevenuepotentialforOEMasthereplacementpartisnotpossibletopurchasefromacompetingactor.Forthesolutionto function, complete filtersmust first be installed in production. Again, this exemplifies thedifficultytodivergeformoldlogic,wherepartsarepricedbasedoncost,thussoldtothecustomerataslighthigherpricethanthestandardoption,puttingsoleemphasisonthebenefittotheOEM.Thisrequiremanagementsupporttoestablishanetworkperspectivewheredivergingfromself-interests and showwillingness tomakemutual short-term sacrifice for long-term benefit. Asproduction scale in line with number of units out on the market, aftermarket will increaseaccordingly and after several years reach a cost structure that is equal to or probably lowercompared to that of the standard option. Similarly, as the patented solution is determined toensure90percentcapturerate,asubstantialincrease,SCSwillincreasesalesaccordinglyaswellascreatealock-infortheOEM.Thelackoftransparencyinbusinesscaseslikethesewillcreatedistrustandharnesstherelationship.Instead,managementatSCSmustspeakinfavorofactingin a way that serves both interest for successful long-term relationships and decrease thepossibilitytobeinvitedtocompetitivebiddings,butratherbeinquiredasthefirstconsideredoption,wherethecustomerisawareofthetransparency.

Connected toFriedrichvondenEichenet al. (2015,p.33) “Openness is alwaysamatter of thegeneralattitudewithinacompanyandthevaluessetandexemplifiedbytopmanagement”.Here,empirical findings on thematter show a strongwillingness frommanagement to understandexternaldevelopments,withaneagernesstoactonrevealedopportunities,wherethediscussioncurrently surround how to approach the changes seen at their customer. This provides highsignalingvalueforlowerhierarchallevels,favoringbusinessmodeldevelopments.

Asforthefirmcompatibility,SCSshouldoverseethebusinessmodelandthestrategicintenttosee if it is either aligned, alternatively supportive of those announced by MRS and Hiabrespectively,seeexample6.TheimportanceisthatSCSunderstandthecustomers’businessmodeland strategies, in order towork in the same direction. Further, the compatibilitywill set thefoundationforsuccessfulcollaborativerelationshiptowardsinnovation,whichissupportedbytheBrem&Tidd(2012).WearguethatSCSshouldengageindiscussionwithrespectiveOEM,tohaveanopenconversationabouttheperspectivesonthecurrentrelationshipbetweenbusinessmodels, with elements that function well or should be improved to increase efficiency andcombinedvaluecreation.Furthermore,SCSisurgedtotakeonabothinside-outandoutside-inapproachtoopeninnovation(Chesbrough&Bogers2014),whereanexampleofinside-outgoesin linewith customers demand, as per below quote. The quote concerns a software solutionintroducedintoSCSsoffering,andacustomerrespondent’sviewonhowasuppliercancontributetoOEMdevelopment.

41

“Ibelieveasuppliercanproposenewconcepts,aswithParkerTrackingSystemforexample,becausefromourperspectiveitisnotpossibletocomeupwithsuchathing,butyoucanifyouarejustsittingonthecomponent.“

AftermarketgainattractionatOEMs,wherethefunctionwillhavetheabilitytoimpactwhatisincludedalready inproductionandproductdesign.Thiscreatestheopportunity forParkertofocus on both units and assist to establish a solution as early as possible to increase profitpotential throughout the lifecycle, thus possibly pull strings to include aftermarket functionswhen not already involved. For examples, initiatives to increase capture rate which requireproduction involvement for initial instalment. Arguably, these initiatives will have a positiveeffectonprofit, as long-termrevenuepotential is found in theaftermarket. Itwillalsohavea

positive effect on customer relationship, especially when the customers have decentralizedorganization for service and aftermarket, such as MRS, or as experiences are increasinglyexchangedanddocumentedwithinnewglobalpurchasingorganization.

In linewith the argument Smith (2010) for howmature firms can find inspiration for novelsolutions to industry problems, cross industry search is a suitablemethod for SCS to induceinspirationonhowtoapproachproblemsandopportunitiesrevealedatassessment.Thus,thisapproachisrecommendedasitcanenableSCStodifferentiatethemselvesfromotheractors,byidentifying solutions that not are widely used in the industry. Yet, in order to do so, it isrecommendedtofollowthelogicbyMezger&Enkel(2013),andbreakdownidentifiedproblemsintoaconceptthatisnotboundtoproductorindustrycharacteristics,seeexample7.

Example6:Strategiccompatibility

TherecentfocusoneBusiness, internetof thingsandservicescorrespond tobothOEMsinvestment in connected machinery, where SCS can provide support in terms of partconnectivity.Also,webprocessdevelopments,aimedatprocessoptimizationandcustomerexperience improvements, is beneficial for information exchange between firms as itcontributeswithbetterinformationaccessibilityandcommunicationinformofforexampleRFQ, chat and orders. However, the strategy of eBusiness leadership from SCS can bediscussedaspotentiallydivergingfromOEMspointsofinterest,whereOEMshavethesamestrategic intent, thus potentially inferring direct competition between supplier andcustomer. Similarly, the strategy deployed to grow the distribution channel can bediscussedasbothpositive,complementingthestrategicfocusofincreasedlocalpresenceofMRSandHiab,yetalsopotentiallynegativewhereSCStoagreaterextentinvestindirectcompetitionthoughitsowndistributionchannel.

42

AlthoughthesearchstretchintounfamiliarcontextsbeyondSCSanditscustomers,itcantriggerassociationthroughrecognizedsimilaritiesbetweenthesourcedomainandthatofSCS,basedonthe logic of selective attention, which in turn be used to change accustomed activities andstructures.Continually,amethodforstructuredideationisrequiredtobeabletocontinuouslywork for businessmodel innovation, where the benefit in using cross-industry search is theability to go beyond best practices and identify potential disruptive approaches from otherindustries,whiletheprobabilitytooverlookkeytrendsoutsideindustryissignificantlyreduced.However,itrequiresanopennesstomovebeyondcurrentfocusonforexampleleanphilosophy,aswellastheabilitytofocusonsolutionsthataredevelopedexternallytoSCSortheindustry.Similarly,duringinterviewsitwasexpressedaninterestinhowotheractorsworkwithspecificactivities,suchase-commerce,indicatingawillingnesstoextendthesearchtonewdomains.

Moreover,SCSshouldthenbeabletoaccessandcaptivateexternalinformation(Mezger&Enkel2013)aswellastoapproachacontextthatatfirstsightmayseemunconventional,stillabletorecognize attributes that in part or complete can reapplied (Martins et al. 2015). Here theimportanceofrealizingtheabstractsandteamdiversityonceagaincomesintoplay,wheretheremaybyaneedforknowledgebaseexpansiononanindividual,teamandorganizationalleveltoincorporateadditionalcompetenceareas,whichbecomesadiscussionforHumanResources,astheanaloguesuncoveredarefoundedintheexperienceandknowledgeofparticipants.Further,diversityisnotlimitedtoexperiencewithinSCS,insteadexperiencepriortotheiremploymentshouldalsobeconsidered.Assuch,SCScan improve theability toaccessexternalknowledge,wherethebroaderunderstandingofthecontext,namelyproduct,marketandotherelements,isequallyimportanttobeabletomanagetheinformationwithreapplicationinthetargetcontext.Anadditionaldifficultyistolimitnumberofsourceconceptsandprocessinformationgatheredinspirationforevaluation.Byiteratingbetweensearchforsourcesandevaluationthereof,whichtoagreatextentoccurinparallel,itispossibletoefficientlymanagetheinformationandstructurethe search. Further, the search often went into other’s solution possibilities as well, addresssimilar challenges/opportunities.This in turn canbearguedasan inspiration to combine thedifferent solutions into one,where to adjust the ideas of different industries into the specificcontext.

Example7:Problemabstractionfor3Dincrossindustryimitationsearch

TheglobalbusinessmodelofrespectiveOEMischallengingnear-customerpresenceanddistributionresponsivenessinareasoflimitedreach,inparticularfornon-stockeditemssuchas largesteelstructuresinthecaseofHiab.Infurtherdetail,MRS’sproductspecificDCsimpactdistributiontime,whileHiabexperiencelimitedreachinmarketexpansion,inparticularsoin theUS. Inaddition,complexsourcingroutesfollowsasconsumablesaredirectlysourcedfromsuppliers.Challengeswereabstractedinto‘flexibledistributionandlead-time’,whichinspiredananalogytoUnilever.Throughimplementing3Dprinting,alsoreferredtoasadditivemanufacturing,thefirmhaveacceleratedproductdevelopmentandprototypingthrough,thusspeedingtime-to-market(Stratasy2015).

43

In the first sub-step, innovation applicability, the sourced concepts from previous step, crossindustryimitation,mustbeevaluatedforreplicabilitythroughcarefulconsiderationtoSCSandexternal transfer. Further, one has to determine the elements that make the source conceptsuccessfulinitsnaturaldomaintoreallyunderstandwhattoincorporate.Also,havetheabilitytomodifytheconceptsothatitwillfitintothecontextofSCS,whichrequirecapabilitytodetectsimilaritiesbetweenanalogytotarget.

6.3. Phase3:AlignmentInthirdphase,alignment,weevaluatetheapplicabilitytotheinternalandexternalcontextofSCS,aswell as thenecessarybusinessmodel realignments for implementationof the inspirationalsolutionsfrompreviousstep.

Afterhavingtoucheduponhowtofindsourcesforinnovation,SCSmustevaluatehowtoderiveoptimalbenefitfromincorporatingthesourceintotheirbusinessmodel.Also,forSCStobeabletoinnovatetheirbusinessmodelatall,theymustbeabletochange.ConnectingtoSmith(2010),financial strength, strategic decisions and leadership are essential for mature companies toenablegrowthandincreasemarketshare(Smith2010).However,inrecentstrategicdecisionsSCSwerefasttoreacttobelowbudgetsalesandadjusttothebusinessclimatebyintroducingshort-weeks to reduce cost of human resources, the primary cost element. This type ofmanagement action indicates that priorities are driven by cost and short-term results,disregardingofthelong-termeffect,forexampleinthiscasealowercustomerservicelevelwithnegativeeffectoncustomerrelations.AccordingtoSmith(2010),thechangeisargueddependentontheabilityandwillingnesstochangenew-orexistingresources,alternativelyacquireexternaltechnologiesandentities.Inrelation,althoughSCSarguetobefinanciallystrong,thecompanyshouldalsobewillingtochangeandinvestresourcesintolong-termprospects,divergingfromthecurrentcostdrivenlogic.AsstatedbyChesbrough(2007,p.17)“Ifthissoundsexpensiveandtime-consuming,itis.Butthebetterperspectiveistoevaluatethecostofcompetinginthemarketwithanobsoletebusinessmodel,againstothercompanieswhomadetheinvestmentsandtooktheriskstoinnovateasuperiorbusinessmodel.Seenthisway,investinginbusinessmodelinnovationismoney well spent.”. Furthermore, in line with Smiths (2010) argument that eventual lack ofshareholder support can restraint theability and freedom to change,minding that theparentcompany is listed on the stock exchange, additional attention fromSCS should be directed tomarketingcommunicationsefforts.

As found, current new development and adjustments within one of the business modeldimensions’focusoneitherOEMsordistributers.Theorganizationalmentalitybecomesthattheonewillhavetoadapttotheother,disregardingoftheinefficienciesorfrictionthatiscreatedbetweenchannelsandcustomers.Relatingbacktopreviousremarksonthebusinessmodelasasystemofactivities,itisessentialthatSCStounderstandtheaffectagivenchangewillhaveonrespectivedimension,sothatthetotalbusinessmodeldynamicscanbeoptimized.Also,followingearlier discussion on restricted cross-functional view during business model assessment, tocreate an internal alignment, SCS have to consider engaging in a broader organizationaldiscussionandopenofforfeedbackthatincorporatediverseperspectives.Justasforuncoveringtheexistingbusinessmodelduringassessment,SCScanstructurethediscussion,workshoporsimilar,aroundthesecond levelsub-constructsasameanstoreasonaround impactandspurcreativityforoptimalbusinessmodeldesign.

44

Itisalsoessentialtobeabletoprioritizepotentialinnovations.WithnoformalizedprocessforprojectmanagementandselectionatSCS,theriskofprematuredismissalincreases.Inparticularconsidering the argument by Chesbrough (2010), that information that diverge from existinglogicisdismissed.AlthoughtheprocessisnowunderdevelopmentatSCS,additionalparameterstotakeintoaccountthecharacteristicsforbusinessmodelinnovation,otherthanstandardsalesdrivenprojects,canbenefit theabilitytoabsorbandactonnovel ideasandsolutions.Also, toensurethatprioritizationsareleveledbetweenshortandlongtermperspective.

Achallengeintheseeminglystrongrootedproductcentricity,foundatbothSCSandtheexternalorganization,whereanarguedoutdatedlogicisdeployedbetweeninthecollaborationbetweendecentralizedParkerunits.Forexample, inregardorpricingofparts,themanufacturingunitsprovideSCSwith recommendedprices,whichareoften followedalthough theyargue tohaveauthorities to decide otherwise. As found during interviews, the reasoning followed thatmanufacturingunitsareperceivedasmorecompetentsinceresponsibleforproduction,whereafter SCS inform concerned unit in the event of considerablemarket discrepancies. The logicimpliesanorganizationculturemoreclosedthanopenwithregardstocustomercollaborations,whereweinsteadwouldargueforSCSasprimeresponsibleforpricing,asthecompanyreceivefeedbackfrombothcustomerandmarket.Also,beingtheoneindirectcustomercontactwithaview over all active business deals, thus further able to recognize and realize long-termpossibilities,withaperspectiveontotalbenefitratherthansinglecontractualagreements.Also,amindsetwhereparkerunitsareviewedaspartnersandcooperatetothemutualbenefit,overisolatedprofitabilitygains,forwhichSCSmustworktoalignincentives.

Intheeventofabusinessmodelchange,itisnotjustthedimensionsthatrequirerealignment,butalsothegeneralsentimentwithintheorganization.Wearguethatthiswillrequireattentiveinfluence over employee mindset for adjusting everyday activities. To exemplify potentialmisalignmentsinincentivesifnotattendedto,asfoundwithregardtocustomerserviceatSCS,thereisapossibilitythattheemployeemindsetisinfluencedbytheemphasisofsubstantialcoststhatariseintheeventoflinestop,whichmayresultinmattersconnectedtoOEMsproductionunitstreatedwithhigherurgency.However,theaftermarketfunctionsemphasesthenecessityofhighperformanceoncost,delivery-,andresponsetime,allcriticalfortheirsuccess.IftheOEMforanyreasondonotperformonthese factors, there is theriskof immediate impactonend-customer,forexamplethroughhighcostofstandstill.Asaresult,itislikelythattheend-customerchooseadifferentsupplier,whereinturntheOEMrisklossofsalesandevenpermanentlossofthe customer. From a long-term perspective, this cost can be argued higher than that ofproduction standstill, and should thus be communicated to be of equal urgency. Further, thegeneral over-representation of discussions related to production between accountmanagers,mayunconsciouslyinfluenceemployeestoputgreaterfocusonjustthat.Here,itisessentialthatmanagementincentivizeandcommunicatethenecessityofdirectingfocustowardsaftermarketand services. Connecting to Smith (2010)who argue that a change requires that the firm toencourage,recognizeandrewardinputfromallorganizationallevels,andthathumanresourcesareutilizedwithregardtoexperienceandexpertise.

ToactonaninnovationopportunitySCSmustconsiderwhatresourcesandcapabilitiesthatareavailable within the organization, alternatively what can be accessed from customers, theexternal organization or other bases, and what have to be acquired as new. Significantopportunitiesintermsofaccesstocomplementaryresourcesandcapabilitiesarepresentedintheexternalorganization.

45

Similarly,wehavefoundtheexistingcollaborativerelationshipstobelimited,whereotherunitsmostly are cooperated with for product expertise on development projects and similar. Forexample,globalreachanddistributionthroughtheexternalorganizationshouldbeleveragedtorespondtoOEMschallengesintermsoflimitedreach.EventhoughSCSemphasestheaccesstothese resources, they do not fully leverage the potential. Thus, the company must carefullyevaluatewhatandhowthecompletevaluechaincanbeutilizedtoincreasetotalcreatedvalue.Arguable,closecollaborationsforastrongvaluenetworkisasourceofcompetitiveadvantagewithsuperiorityinvaluecreation.However,itisfoundthatthereisadifficultyandlimitationtotheknowledgeofwhatandwhereresourcesnecessaryisaccessible,andcouldthusbenefitfromcoordination activities. Furthermore, SCS should to a greater extent leverage partnership inexternalorganizationforresourcesandcapabilities.Forexample,toleveragethenewpositionsthatfocusoninternetofthings,servicesandsimilar,furtheruseoffinancialstabilitytoenableforopportunitytotrynewmodels.Hence,employamindsetthataimtococreate,co-developandperformasanetworktodeliverhighestpossiblecustomervalue.Inadditiontotheexternalorganization, SCS should continuously search for partners that can assist in business modeldevelopment.

SCS’s hierarchal organizational structure require management support that understand thenecessity of innovation and having decisionmaking on right level. As been observed, a largequotationtoacustomerneedbeacceptedonahigherlevelinthehierarchy.Furthermore,thismay impactwhich ideas that successfullyare implemented.A suggestion is thatdecisionsaretakenonthesamelevelastheideaisgenerated,whichissupportedbyNeu&Brown(2005)whoarguesthatisappropriatedduetomangersatalowerlevelarecloseranddobetterunderstandthe real situation and what strategies to use. However, the authors talk of understandingcustomersneedforservice,whichinturncanbeconnectedtoSCSeffortsonchange.Inordertomake a successful transition, from a predominantly product-oriented company to expand theserviceofferings,Neu&Brown(2005)arguethatstrategieshavetogoalignedwiththechange.Further,organizationalcapabilitiessuchasmanagementpotentialanddecision-makingabilitiesneedtobeontherightlevel.AsSCSisacomplexdecentralizedorganizationonehastoconsiderthefactonlettingdecisionmakingbeacceptedonalowerlevelinthehierarchy.Furthermore,theexternalenvironmenthas tobealignedwith thenewserviceofferings, found in thevalueproposition(Neu&Brown2005).

Furthermore, SCS should considerwhich and how activitiesmust be adjusted accordingly, asaftermarketandservicerevenuebecomeincreasinglyimportantandgrowinpriorityatOEMs.Here,neglectingtoaltertheseactivitieswillhaveanegativeeffectonthepartnerrelationship.Forexample,SCScouldadaptsimilarprioritiesasitscustomersandalignwiththeaftermarketdevelopmentfocus,whichalsoshouldbereflectedinofferingdevelopment.Thereispotentialtoinitiate consolidation of sourced parts to reduce the high number of purchased items,whichwould be to the benefit of both actors through increased scale and more simple planningenvironment. This will give a favorable cost structure and the possibility to offer morecompetitivepricestotheend-customer.Further,aclearindicatoroftheremainingproductionfocus is razorblade pricing strategies, where the price for production parts are substantiallyreduced,whereasconsumablestotheaftermarketarepricedhigher.ThiswaspreviouslyviableasOEMssimplypricedaccordinglyandwerestillabletoattainhighmargins.However,astheperceivedvalueofaproductisthesameregardlessofproductioncostfortheend-customer,thiscanhaveanegativeeffectontherelationshiptoOEMs.

46

Example8:3DAlignment1(2)

Theanalogiesfoundin thecrossindustryimitationsearchmustbeevaluatedtodetermineapplicabilityintothecontextinwhichSCSoperate.Thefocusisnowdirectedtotheelementsthatmake theconcept successful inthesourcecontext, aswellasconsideration tocontextdependentstructuresthatisseparateinthecaseofSCS.

In the 3DprintingusedbyUniliver, theclosesimilaritiesenable directability to associatebenefitpotentialbetweenthesearchandtargetcontext.Thesourceisreasonedapplicabletoaddressmultiplechallenges,bothintheeventofreach,on-demanddeliveryincaseofbreakdown,andinparticulartoproduceobsoleteparts.Theuseof3Dprintingisarguedtohaveahighnumberoffeasibleareasofapplication.

Theabilitytoconsolidatemultiplecomponentsintoonecomplexpartcanhaveapositiveeffectonbothinventorylevels,withlessneedtostorehighnumberofitems,andtransportation.Ifusedindevelopmentproject,eithercollaborativeorinternal, thecompanycanspeeduptheprocessanddecrease time-to-market, thuspossibly improve innovationpaceand increasecustomersatisfactionintermsoffastactionandhighlevelofefficiencythatsavetimeandcostforallinvolvedparties.Further,dependingonuse,3Dprintingmaybemoreenvironmentalfriendly, with lighter and fewer parts to transport, efficient and less energy consumingprinting process compared to traditional manufacturing, and less waste in form of scrapmaterial. On that note, the use can possibly be of benefit for parker in termsof signalingenvironmental awareness and innovative in their approach, the relationship to customerswhoemphasizeenvironmentalx,aswellasforthegeneralpublic.Continually,theSCSwillbeable tooffercustompartswithexactfittoa lowercost. Substantialbenefitcanbefoundininventory reductions, in particular in terms of low frequency parts currently stocked tomaintainahighserviceleveltocustomers,withregardstoinventorylevelsatbothParkeranditscustomersordistributers.Moreover,ondemandsparepartsintheeventofbreakdowncanincreasecustomersatisfactionlevelsandloyalty.Itcanfurtherbeusedtoproduceandassistwithatemporarysolutionincaseofdeliverydelays.

Intermsofmaterialsanditemsizes,useisrecommendedforitemswhereneededmaterialsisaccessibleandmanageableforcurrenttechnology.Considerationmustalsobegiventoitemsize and production feasibility. However, potential benefit may also be found in partialproduceditemsthatcanupkeepproductivityinequipmentwhileawaitingsparepartdelivery.

Theaffectandrequiredalternationstothesystemofactivitiesdependonthetypeofsolution.For example, on-demand spare parts can be priced according to requested delivery time.Whileitcouldalsobeconsideredaserviceaddon,wherepartispricedthesame,inlinewiththefunctionit fulfills for thecustomer.IfSCSweretostart insmall scalefore.g.Hiab,oneshouldfirstconsidercustomerwillingnesstopayandOEMrequirementforoptimalbenefit.Forexample,viablechannelstousecouldbeParkerdistributersintheUSwhereHiablackreach.Further,totracksalesofHiabparts throughthedistributionchannelfromdata logsmonitoring with marginal pricing to customer. In terms of customer relationshipmanagement,itisimportantthatHiabwouldnottofeelthreatenbyverticalintegration.

47

6.4. Phase4:AdaptabilityInfourthphase,adaptability,weanalyzeSCSabilitytoimplementanewbusinessmodel,amatterthatbefallsrevealingandevaluatinganinnovationopportunity.Thisiskeynottobecomecaughtintoapureideationprocess,asthebenefitfromaninnovationwillderiveafterimplementationratherthantheideaitself.

Currentactionstobusinessmodeldevelopmentincludesfocusonefficiencyandleanprinciples,whereconnectedtotheargumentbyAndries&Debackere(2013),changesareincrementalandoflowcomplexity,andcanthusbeexecutedinfurtherisolateddimensions.However,adifferentapproachwillberequiredfor largerchanges,which inturnmayresult in innovation.RelatingbacktothatmanagementatSCShaveaholisticperspectiveoncurrentoperationsandtheprimaryresponsibilityforbusinessdevelopment,thedecisionshouldarguablybeuptotopmanagement.Further,astheyhaveindicatedanawarenessofthenecessityaswellaswillingnesstoactonnewopportunities,asexpressed“feelthenecessityoftakingonaproactiveapproach,priortodirectivefromParker,butdonotknowhowtodoit”,investingresourcesintoaftermarketdevelopment,tofindnowsolutions,whilealsofurtherengagingwithuniversities.

Johnsonetal.(2008)arguethatcoremodelsprevailthroughmetrics,rulesandnormswithinagiven organization. For example, as found at SCS strong focus on cost against sales from topmanagement indicate barriers for newmodels. Both for piloting and scalability, thismust beconsideredsothatfirst,anopportunityisnotdisregardedsolelyasaresultofcontrastingexistingstructuresandsecond,thatamodelisconsideredforscalealthoughitmayrequirealterationstoorcannibalizationoncurrentlogic.

Further,implementationcaneitherreplaceexcitingbusinessmodelorexecutemultiplemodelsinparallel.Thedecisionshouldbedependentonthecharacteristicsofagivenopportunityandifitcomplementswithsynergieseffectsorcontradictsexisting.

Continuationofexample8:3DAdaptability2(2)

SCS should leverage resources found in the external organization and partner withmanufacturingunitsandParkerStores to increasereach.However,thiswouldrequire tooverlooktheexistingorganizationalstructure,wherethecurrentprofittoalargedegreeiscaptured by manufacturing firms. Management should promote the mutual benefit ofcooperation.Also,asParkerHannifinfocusongrowingthedistributionchannel,introducing3DprintingatselecteddistributorscouldincreaseservicelevelandpossiblebothHiabandSCSretentionrate.Intermsofprocesses,itwouldrequireanewprocurementprocessfordifferenttypeofrawmaterial.PossibilitiesarefoundinvolumeconsolidationsfortheParkergroup, togain scaleand thepossibility reach favorable supplier termswith lowercostofmaterial.

Interestingly,thesolutionpresentstheopportunityforanewrevenuestreamthroughsalesofdrawings,withhighmarginpotential. For example, throughaeasy to findportalwithsubscriptionmodelforrecurrentrevenueforsoftwareaccess,orlowfeeforpersingleuse.

48

Also,mustdeterminethelevelofgeneralizabilityincustomercharacteristics,oftowhatdegreeitcanbeadaptedgoingintoothermarkets.Connectingbacktopreviousexampleson3Dprinting,seeexample8,scalabilityisargueddependentinitemcharacteristicsaswellasthematerialandfunctionofpart.However,furtherconsiderationmustbegiventothewantsandneedsofOEMsin respective segment, where willingness to pay, feasibility and perceived threat of verticalintegrationareafewkeyfactors.

Onecanalsodiscusstherisktodisregardadoption,asresearch indicate increasedusagewithpossiblenewidentifiedapplicationareas.Still,withconsiderationtothescaleandstructureofSCS, it is recommended to start in small scale to trackbenefits,which in turn canbeused indiscussion with the external organization. A potential concern is the risk for prematurelydismissal,asthecompanyismanagedonacostpersalesapproach.

Intermsofscalability,SCSmusthaveprocess,technology,staffandcustomerfeedbacktoassessfeasibilityofbusinessmodels.Still,SCSmustconsiderhowtoenableanemergentmodeltoexistininterdependencesuntilitislargeenoughtoscaleforgreaterprofitability.However,atacertainpointintimeitispossiblethatthefirmwillhavetoallowcannibalizationonpreviousbusinessnottoinhibitthetransformation.Thiswilltoagreatextentbecomeadiscussiononorganizationalculture,seeexample9.Oneshoulddiscusscriteria’sforwhentoscale,aswellastowhatextent.Furthermore, additional support needed in order to make an idea feasible to SCS, could forexampleneedsupportivedataandmanagement.Still,thecompanyisurgedtotrynewmodelsthoughiteration,whereonehavetoconsiderhowtodividebusinessmodeluntilthedecisiontoup-scale.ConsideringthelevelofdiversificationofSCS,onehastoconsiderthepossibilitytohavedifferentbusinessmodelsindifferentsegments,alignedwithseparatecustomer’sneeds.

Continually,Buchereret al. (2012)argue that implementation canbeginwithaunitor targetmarket,wherepiloting is central to thebusinessmodel innovationprocess and canentail forexampleageographicselectionorcustomer.ThisindicatethatprioritizedOEMsthuspresentsasuitablestarttoSCSsorganizationalimplementation,tocontinuetomonitorthesuccessandlaterscale if indicationofsuccessful.Asstrategic focus isdirectedtoclosercollaborations, thiswillallow to attain feedback from customer as well as ability to monitor success. Also, duringinterviewsandobservations,OEMswere foundcurious to the collaborationbetweenSCSandotherlargeactors,whereifsuccessfulandtrailinonesegment,morecustomersarelikelytogetattracted.Thatis,thenewmodelcanserveasanalternativetocustomersduringpilot,whileinordertoscaleonemustalsoconsidertheelementstobeadaptedtonewcustomersegmentsandgeographicalmarkets,forexamplechannels,informationanddistributionflow.

Whenexecutingparallelbusinessmodels,itenablesSCStogobacktoapreviousprovenmodelifthe new is confirmed unsuccessful. However, if bothmodels are shown valuable in separatesegments,which according to interviews is probable for SCSwith consideration given to thedifferent characteristics inmarkets and customer segment, the aimbecomesnot to replace abusinessmodel, but rather to operate in parallel. For example, SCSmust still consider to theapproachtothedistributionchanneldistributers,whichrequiresdifferentwayofoperatingtoefficientlyaddressneedsorsegmentscontrastedtoOEMs.Furthermore,inthecaseofSCS,thiscould require a structure of executing businessmodels in parallel, andwill further favor thepossibilitytointroduceanewfunctionresponsiblefornewsupplementaryactivitiesandreduceinternalcompetitionorinefficiencies.

If one instead addresses the possibility of a radical businessmodel innovation, it is likely tocontradicttheexisting,andshouldthenreplacethecurrent.Thedifficultyfoundtoactonsuchradical change is the resistancewithin theorganization and control fromParkerCooperation

49

though performancemeasures. Nonetheless, here SCSmust bewilling to cannibalize existingbusiness model, as it may turn current competence invaluable with a requirement of new.However,thismayalsoconcernwhenactingoninnovativesolutionsthatcreatetensionbetweenthetwochannels,e.g.iftheOEMsegmentcannibalizeondistribution.Thedifficultyisreasonedtoemergenottoresultininternalcompetition,wheresegmentsandchannelsaremanagedbyseparateteams,ornewpricingstrategiescreatingfrictiontowardstheexternalmanufacturingunits.

Example9:Organizationalculture

WithregardtocustomerserviceatSCS,thereisapossibilitythattheemployeemindsetisinfluencedbytheemphasisofsubstantialcoststhatariseintheeventoflinestop,whichmayresultinmattersconnectedtoOEMsproductionunitstreatedwithhigherurgency.However,theaftermarketfunctionsemphasesthenecessityofhighperformanceoncost,delivery-,andresponsetime,allcriticalfortheirsuccess.IftheOEMforanyreasondonotperformonthesefactors,thereis theriskof immediateimpactonend-customer, forexample throughhighcostofstandstill.Asaresult,itislikelythattheend-customerchooseadifferentsupplier,whereinturntheOEMrisklossofsalesandevenpermanentlossofthecustomer.Fromalong-termperspective,thiscostcanbearguedhigherthanthatofproductionstandstill,andshould thus be communicated to be of equal urgency. Further, the general over-representation of discussions related to production between account managers, mayunconsciously influence employees to put greater focus on just that. It is essential thatmanagement incentivize and communicate the necessity of directing focus towardsaftermarketandservices.

50

7. Discussion:Fromreactivetoproactive.Onecandiscusstheprosandconsofaformalstructuredprocesstoapproachproactivebusinessmodelinnovation,wheretherequiredinvestmentinproposedprocesscanbecomeconsiderabledependingontheoutcome.However,theorganizationcanchoosetostructureaselectionofsub-steps,whileothersleftwithfurtherflexibilitytoallowforiteration.Here,theideationtorevealopportunitiesismoreeasilystructuredthanproceedingsteps,yetweargueforthenecessitytocontrolthatpresentedopportunitiesareactedupon,whichfavorcontinuedformalizationaswell.Thiswithconsiderationtothefindingsthatcurrentlyaccountmanagersareprimarilyresponsibleforbusinessdevelopment,however,struggletopursuethenecessaryactivitiesasconstraintbytime,resourcesandperformancemeasures.Aproactiveprocess,mayhelptoreleasethepressureon this task, while at the same time ensure that the development process attain focus, asmanagementexpresseddifficultyinknowinghowtoapproachbusinessmodelchange.

Asofcurrent,SCShaveprocessesforbothoperationalefficiencyandproductdevelopment,yetthereisnoprocessforbusinessmodeldevelopment.Interestingly,theoutcomeandefficiencyoftwofirstprocessesarehighlydependentonthelatter.Asaresult,thebusinessmodellayoutsideofanyappointedresponsibility,lefttoevolvewithnofurtherconsiderationastohow.Asfoundin analysis, changes in the external environment without accordingly readjustment of SCSbusinessmodelhasresultedininefficiencies.Inpart,onecandiscussthechangesseenwithinorsurrounding close collaborative partners, for example MRS and Hiab, where previous logicstructureofsystemofactivitiesbecome increasingly incompatible.SCSshifting focusontothecurrentbusinessmodel,fromavaluenetworkperspective,theorganizationofdimensionsandsub-constructscanbearguedtodis-optimizethecompletedynamicsresultingininferiortotalcreatedvalue.Sincethestrategicrenewal,considerablefocuscentersaroundtheproduct.AsthestrategyispusheddownfromtheParkerorganization,weobservedthatsomeemployeesfailedtorealizehowtheincreasedservicefocustranslatetoSCS,butalsototheiractivities.Further,onecanarguethat targetsaimedtoestablishnewormoredurablesourcesofrevenuewouldtoagreaterextentalignwiththepurposeofachievingaservicedrivenbusinessmodel,tobecomelessreliableonthecurrentone-timetransactionsthatdominatetherevenuemodel,yetthisisnotfound among the articulated strategic aims, nor in the sales and collaboration approachwithcustomers.

Nonetheless,thenewintroducedfocusareasinWinstrategysignaltopmanagementawarenessofrequiredadjustmentstoachangingclimate.Still,onecanreasonoftheprobableorganizationalinertiawheredeep-rootedstructuresinhibittheabilitytochange,seeexample9.Thus,tobreakfree from industry recipes, specifically an accustomed industry logic of value creation,propositionandcapture,SCSshouldintroduceastructuretobeabletospotsourcesofinnovationanddeployaproactiveratherthanreactiveapproach.

Furthermore, SCS should act on the opportunity of new technology, for example in linewithdiscussions in 3D printers and data analytics. Further, continue to make internal processimprovementsandattemptinnovativesolutionswhereaccustomedprocessesareaddressedandchanged as needed. Also, to a greater extent introduce offerings that focus on services andcollectionofproducts,suchascustomizedsolutionsforlogistics,delivery,brandingandkits,aswellasincreasecaptureratethroughlock-ininitiatives.

The literature reviewonbusinessmodel innovationpredominantly focusedon the context ofbusiness-to-consumer.Onthatnote,therearedifferentiatingfactorswithinthecontextforSCSthatneedadditionalconsideration.Beingasalescompany the firm ismuchdependenton the

51

external Parker organization, for which it facilitates a value flow between customer andmanufacturingunit.Moreover,additionalconsiderationmustbegiventothevaluecreatedfortheend-customer,aswellasunderstandingthemarketinwhichtheOEMsareactive,wheresalesdecline or inclinewill directly be reflected on theOEMspurchasing volumes from SCS. Thus,applyinganopenperspectivetoinnovationwiththeviewofacollaborativeinitiativetoenhancetotalvaluecreationwithinthenetwork, is imperative.OfparticularimportanceinthiscontextbetweenSCSasasupplier to thetwocustomers,wherethecompatibility inregardofculture,business, strategy, approach to and perspective on innovation is key for a collaborativerelationship (Brem & Tidd 2012). Further, as SCS have established close and long-termpartnershipswitha levelofbusinessmodel integration to thatofprioritizedOEMs, theyhaveincreasedtheirpotentialtocreategreatervalue.Moreover,itpresentstheopportunitytoutilizeresources and capabilities from both actors for mutual development, which is reasoned toimprove thequalityofoutcome, forexampleby reducingorpreferably removing informationasymmetries.Inaddition,isolateddevelopmentcaninsteadresultinfurtherincompatibility.Toexemplify, inability to maintain or reintegrate with OEM business model, in the event ofinnovative process implementation, would have severe consequence on the relationship andability to efficiently collaborate on future business possibilities. Instead, attention should bedirected to the customer as well as end-customer to potentially acknowledge unaddressedchallengesandopportunities(Chesbrough2007),keepingaholisticvaluechainperspectiveoninnovation.

Theprocessdevelopedinthisthesisoutlinedfourphaseswithdetailedsub-steps,toprovideastructureforhowSCScanapproachbusinessmodelinnovationthroughaproactivemethodofsystematiciteration.ItisessentialthatSCSsecurefinancialresourcestoinvestproactivity,andtobeable to tryvariousbusinessmodels. Inaddition,whenevaluating thesuccessofagivenmodel consideration should be given to both short- and long-term viability and profitabilitypotential,while the innovationprocess shouldbe adapted to respective customer foroptimalbusinessmodelintegration.

Astheprocesscirculatearoundcollaborativebusinessdevelopment,itrequirestopmanagementsupport for a culture and organizational mindset that is open to collaborations. Further, tocomprehendthenecessityofsuchmindsetinordertoimproveprobabilityofsuccesswiththepossibilitytoachievesuperiorvaluecreationthroughthevaluechain,thusincreasemarketshareandstrengthencompetitivepositioningtowardscompetingactors.

Similar, in establishing a formal process with appointed ownership for accountability andcontinued development, additional support and incentive to question customary approachesshouldbeprovidedfromtheinternalorganization,aswasoftheessencethroughoutthisthesis.In addition, using a cross-functional set-up, broken out from the otherwise strong hierarchalstructure,canavoiddevelopment tobe inhibitedbytraditionalmindsetandcomplexdecisionmakingflow.Further,creativitycouldbenefitfromadiversemixtureofparticipants,bothwellexperiencedandnewemployedwithdiversebackgrounds.Here,SCSmustconsidertheeffectofcommonlyfoundextensiveemploymentperiodwithineitherthesameposition,orasinthecasewheremanyhavespenttheirwholeworklifewithintheorganization.Assuch,thechallengeistwofold.First,theriskoflosingcompetencyasemployeesretire.Second,theriskofbeinglockedintoone logic,whichhaspreviouslyprovedsuccessful,hencepossibly lessprone toapproachinnovativesolutions.Assuch, thecompanyshouldassesscompetencerequirementsand trainemployeestohavecapabilitiesneededtoinnovatethebusinessmodel.Also,itispossiblethata

52

projectbasedstructurewithdecompositionafteracertainperiodoftimecanfavorthequalityofoutcome tough including new perspectives. However, for such a process it is important thatlessonslearntarestillabsorbedwithintheorganization.

As business model innovation concerns the total system of value creation, proposition andcapture, a project team or discussions should be appointed accordingly so that competencywithin each business model dimension is covered. The composition should includerepresentatives from a range of corporate functions within SCS, for example from customerservice,supplychain,accountmanager,applicationexpert,andsimilar.Still, it isessentialthateachmemberisopentochallengeandadjustaccustomedapproaches.

AsSCScontinuouslyexecuteand learnfromthecompleteprocess,ableto identifyandexploitsourcesof innovation to the existingbusinessmodel, the companywill continue tobuild andstrengthen capabilities in regards to businessmodel innovation, in turn argued to become acompetitiveadvantageofsorts.Additionalbenefits includestrengthencustomerrelationships,where customer business model integration creates lock-ins, thus strengthen SCS positioncompared to competing actors, while there is also the signaling value found in engaging indiscussionspurposed toenhancecreatedandpropositionedvalue.Moreover, throughgreatertransparencyandacollaborateapproachtobusinessdevelopment.

Asforcustomerrelationships,emphasisoninnovativenessinprocessdevelopment,forexamplethroughhighlightingtheproactiveapproachtobusinessmodelinnovation,canbeasourceforincreased retention. Further, initiating business area spanning collaborations will allow forbroadernetworkandsupplierrecognition,whichcanincreasecross-salesopportunitiesaswellasbeingselected,oratleastinvitedtocompetitivebiddings.Also,SCSshouldcontinuetoexploitcustomerneeds,byactingonproblemandopportunitiestodevelopnovelofferingsthataimtosolve needs other than what can be accessed through competing actors, thus creating adifferentiator.

Toensurethattheprocessisprotectedandcontinuouslyengagedin,SCSisurgedtosetaformalstructure.Furthermore,performancemeasures,suchaspurelydrivenbysalesorcost,riskthatlittletimeandresourceswillbeinvestedindevelopmentpurposes,whichrequiresaccordinglyincentivestoworkwithit.Asofcurrent,accountmanagershavetheprimaryresponsibilityforbusiness development towards customers. However, it's difficult to get them to pursue thedevelopment activities as they work towards budgets and sales targets, which provides adiverging incentive. Instead, one recommendations could be for SCS to appoint processownership in a function,project orparallel in theday todaywork,dependingon investmentcommitment,whereweareoftheopinionthatlittleisbetterthannoneandthatthiscouldhelptoprotecttheprocess.

Intermsoftimespentonthephasesintheprocess,theresearchby(Buchereretal.2012)showthatthetimespentonanalysis,correspondingtothefirstandsecondphaseinthisthesis,varydependingonifitisdrivenbyanopportunityorpressure.Inthefirstitcantakeuptoseveralyearstorevealandfindasuitableinnovation,wherethelatteritismuchfaster.Hence,asSCShaveexpressedtobesubjecttoexternalpressure,bothresultingfromchangesatthecustomerandcompetingactors,andargueforthenecessitytoadjusttocustomerchanges, indicatethatexternaltriggureswillshortenthetimetoimplementation.

53

8.ConclusionThisthesiswaspurposedtounderstandhowacompanywithinamatureindustryproactivelycanengagetoinnovatethebusinessmodel.

Business model change is required in order to respond to exogenous change and adjust bytransitioningfromaproduct-orientedbusinessmodeltoafartherservicedriven.Asasupplieractiveinamatureindustry,withcurrentpredominantlyfocusonproductrelatedinnovationsandoperationalefficiency,SCSmustattendtobusinessmodelinnovationasthecompetitiveclimateintensifies.

Whenshiftingfocusonwhatdrivesthebusinessmodel,fromproducttoservice,itisessentialtocreate a structure for how to uncover and accordingly adjust how the existing business isorganized, where it become essential to understand the dynamics that prevail betweendimensions.Assuch,SCSneedtounderstandtohowtoadjustthebusinessmodel,consideringbothinternalandexternalfactorstoattainviability.Tobeabletodothat,aformalprocesscanassisttostructuretheworkonhowtoapproachtoinnovatethebusinessmodel,thusmovefroma reactive to proactive pursuit of business model development. This address the researchquestionof“HowshouldParkerHannifinSCSasanincumbentwithinamatureindustryproactivelyorganizetoinnovatetheirbusinessmodel?”.

ThisthesissuggeststhatSCScanorganizeforproactiveandattentiveactivitiestoinnovatethebusinessmodelbyusingastructuredinnovationprocess.Theprocessthathasbeendeveloped,executedandreflecteduponduringthisstudywasdesignedbasedonthespecificcasecontextandconsistoffourphases;Assessment,Analysis,AlignmentandAdaptability.

Toproactivelyengagetoinnovatethebusinessmodel,SCSneedtobuildoracquirethenecessaryresources and capabilities to successfully execute all process steps.Notable requirements fordoing so are competencies and resources for uncovering and absorbing relevant informationfromtheexternalenvironmenttorevealsourcesofinnovation.Theideationprocessfavorfromtheinvolvementofdiverseperspectivesfromamixtureoffunctions,bothforcreativitypurposesbutalso tocomprehendalignmentsormisalignments found in theexistingbusinessmodelorexternalenvironment,withregardstothestrategiesandbusinessmodelsofcustomers,aswellaslargertrends.

Continually, a trial and error approach is necessary to find a valid business model, wheresystematiciterationisrecommendedtocontinuealsoaftertheidentificationandimplementationofasuccessfulbusinessmodel,asabusinessmodelisdeemedunsustainableastheeverchangingexternalenvironmentdeterminesbothefficiencyandviability.Thus,continuedprocessiterationwillfavorbusinessmodelalignmenttothecustomersandincreasevaluecreation.Continually,the application of analogical reasoning, enable SCS to break out from longstanding logic andindustryrecipes,byextendingtheattentionbeyondfirmandindustryboundaries.Furthermore,touncover innovative ideasonhowtoapproachopportunitiesor threats, the firmisurgedtoutilizeexternalsourcesandimitationasinnovationsourcetoSCSexistingbusinessmodel.

Foundationalknowledgerequirementsincludeanassessmentofthecurrentbusinessmodel,inallitsdimensions,asitiskeytounderstandtherecoursesandcapabilitiesrequiredtoexecutethisprocessaswellasfromwheretheinnovationdepart.Also,consideringthecontinuouschangein external environment, SCS need grasp developments, how it translates to the firm and to

54

continuouslyupdate the informationderivedduring theassessmentphase tobeable toworkproactivelywithinnovations.

Thethesisconcludesthatthesystematiciterationwithinandbetweenprocessphasesispartofthesuccess,supplementedbyanopennessandunderstandingofthecasecontextfortheinvolvedactors aswell as the importance of sharing a viewof how to cooperate for innovation. Thus,recommendations forSCS is to test and iterate theprocessand furtherextend thenumberofincludedpartiestoincreasethepossibilityofidentifyingevenmoreinnovationsources,aswellastodiscovereventualcurrentinefficiencies.

Further,establishprotection,weareoftheopinionthatSCSneedtoformalizetheprocesswithappointed responsibility and accountability for process execution, and ensure that the rightsupport is provided from the organization. Furthermore, tomake accordingly adjustments toperformancemeasuresandincentivizeemployeeengagement.

Forfurtherresearch,itwouldbeinterestingtoexploretheprocessapplicabilitytoothercontexts.Althoughthisthesishasfocusedontheprocessdesignandapplicabilityforproactivebusinessmodelinnovation,tobreakoutoforganizationalinertia,foranincumbentsuppliertoOEMstobreakfrominertia,webelievethattheprocesscanbesuccessfullyreplicabletoothercompaniesofsimilarcharacteristics.However,itwouldalsobeofinteresttoexploreandcontrasttheprocesssuccesswhenexecutedbyamixtureoffirms,notsolelythosesimilartothefocalfirm.

55

9. References

Achtenhagen, L., Melin, L. & Naldi, L., 2013. Dynamics of business models - strategizing, critical capabilities and activities for sustained value creation. Long Range Planning, 46(6), pp.427–442.

Afuah, A., 2014. Business Model Innovation: Concepts, Analysis, and Cases Revised, ed., Routledge, 2014.

Andries, P. & Debackere, K., 2013. Business model innovation: Propositions on the appropriateness of different learning approaches. Creativity and Innovation Management, 22(4), pp.337–358.

Atlas Copco, 2015. Atlas Copco Annual Report 2014, Available at: http://www.atlascopco.com/Images/Atlas_Copco_Annual_Report_2014_tcm17-3568270.pdf.

Atlas Copco, 2016a. Atlas Copco Annual Report 2015. Available at: http://www.atlascopco.com/Images/Compressed_Air_Manual_tcm30-1249312.pdf.

Atlas Copco, 2016b. Atlas Copco in your country. Available at: http://www.atlascopco.com/us/system/splash.aspx [Accessed January 1, 2016].

Atlas Copco, 2016c. Mining and Rock Excavation Technique - Atlas Copco. Available at: http://www.atlascopcogroup.com/investor-relations/atlas-copco-for-investors/mining-and-rock-excavation-technique [Accessed February 23, 2016].

Babatunde, B.O. & Adebisi, A.O., 2012. Strategic Environmental Scanning and Organization Performance in a Competitive Business Environment. Economic Insights - Trends and Challenges, pp.24–34.

Baden-Fuller, C. & Haefliger, S., 2013. Business Models and Technological Innovation. Long Range Planning, 46(6), pp.419–426.

Baden-Fuller, C. & Mangematin, V., 2013. Business models: A challenging agenda. Strategic Organization, 11(4), pp.418–427.

Björkdahl, J. & Holmén, M., 2013. Editorial: Business model innovation – the challenges ahead. International Journal of Product Development, 18, pp.213–225.

Brem, A. & Tidd, J., 2012. Open Innovaiton and the Integration of Suppliers - Literature Review and Discussion on Supplier Innovaiton. In Perspectives on Supplier Innovation: Theories, Concepts and Empirical Insights on Open Innovation and the Integration of Suppliers. World Scientific, p. 692.

Bryman, A. & Bell, E., 2003. Business Research Methods, Oxford: Oxford University Press.

Bucherer, E., Eisert, U. & Gassmann, O., 2012. Towards Systematic Business Model Innovation: Lessons from Product Innovation Management. Creativity and Innovation Management, 21(2), pp.183–198.

Cargotec, 2016. Annual Review 2015. , p.62. Available at: http://www.iata.org/about/Documents/iata-annual-review-2015.pdf.

Casadesus-Masanell, R. & Tarziján, J., 2012. When one business model isn’t enough. Harvard Business Review, 90(1-2).

Chesbrough, H., 2007. Business model innovation: it’s not just about technology anymore. Strategy &

56

Leadership, 35(6), pp.12–17.

Chesbrough, H., 2010. Business model innovation: Opportunities and barriers. Long Range Planning, 43(2-3), pp.354–363.

Chesbrough, H. & Bogers, M., 2014. Explicating Open Innovation: Clarifying an Emerging Paradigm for Understanding Innovation Keywords. New Frontiers in Open Innovation, pp.1–37.

Clauss, T., 2016. Measuring business model innovation: conceptualization, scale development, and proof of performance. R&D Management.

Dahlander, L. & Gann, D.M., 2010. How open is innovation? Research Policy, 39(6), pp.699–709.

Demil, B. & Lecocq, X., 2010. Business model evolution: In search of dynamic consistency. Long Range Planning, 43(2-3), pp.227–246.

Easterby-Smith, M., Thorpe, R. & Jackson, P., 2012. Management Research 4th ed., London: SAGE Publication Lth.

Euchner, J., 2014. Business Model Innovation in Practice. Research Technology Management, (November-December), pp.33–39.

Friedrich von den Eichen, S., Freiling, J. & Matzler, K., 2015. Why business model innovations fail. Journal of Business Strategy, 36(6), pp.29–38.

Giesen, E. et al., 2010. When and how to innovate your business model. Strategy & Leadership, 38(4), pp.17–26.

Hargadon, A., 2015. How to discover and assess opportunities for business model innovation. Strategy & Leadership, 43(6), pp.33–37.

Hiab, 2016a. FAQ suppliers Hiab. Available at: http://www.hiab.com/contentassets/6edd380b05874e51a612158512d46977/faq_frequently-asked-questions.pdf [Accessed May 6, 2016].

Hiab, 2016b. Supplier quality manual. Available at: http://www.hiab.com/contentassets/6edd380b05874e51a612158512d46977/cargotec-supplier-quality-manual.pdf [Accessed May 6, 2016].

Hiab, 2016c. Supplier requirements. Available at: http://www.hiab.com/contentassets/6edd380b05874e51a612158512d46977/cargotec-supplier-requirements.pdf [Accessed May 6, 2016].

Huang, H.-C. et al., 2013. Overcoming organizational inertia to strengthen business model innovation. An open innovation perspective. Journal of Organizational Change Management, 26(6), pp.977–1002.

Huarng, K.H., 2013. A two-tier business model and its realization for entrepreneurship. Journal of Business Research, 66(10), pp.2102–2105.

Johnson, M.W., Christensen, C.M. & Kagermann, H., 2008. Reinventing Your Business Model. Harvard Business Review, 86(12), pp.50–59.

Joy Global, 2016. 2015 Annual Report. , p.49. Available at: http://files.shareholder.com/downloads/joyg/1590257092x0x871507/5A577AAD-DA50-4EAF-BD47-6B5C140AAE88/2015_JoyGlobal_Annual-Report.pdf [Accessed February 25, 2016].

57

Koen, P.A., Bertels, H.M.J. & Elsum, I.R., 2011. the Three Faces of Business Model Innovation: Challenges for Established Firms. Research-Technology Management, 54(3), pp.52–59.

Komatsu, 2015. Komats Report 2015. Available at: http://www.komatsu.com/CompanyInfo/ir/annual/html/2015/pdfs/komatsu-reports2015-en.pdf [Accessed February 25, 2016].

Markides, C. & Charitou, C.D., 2004. Competing with dual business models: A contingency approach. Academy Of Management Executive, 18(3), pp.22–36.

Markides, C.C. & Oyon, D., 2010. What to Do Against Disruptive Business Models (When and How to Play Two Games at Once). MIT Sloan Management Review, 51(4), pp.27–32.

Martins, L.L., Rindova, V.P. & Greenbaum, B.E., 2015. UNLOCKING THE HIDDEN VALUE OF CONCEPTS: A COGNITIVE APPROACH TO BUSINESS MODEL INNOVATION. Strategic Entrepreneurship Journal, 1(1), pp.27–47.

Matzler, K. et al., 2013. Business model innovation: coffee triumphs for Nespresso. Journal of Business Strategy, 34(2), pp.30–37.

Mezger, F. & Enkel, E., 2013. Imitation Processes and Their Application for Business Model Innovation: an Explorative Study. International Journal of Innovation Management, 17(01), p.1340005.

Mind Tools, 2004. PEST Analysis. Mind Tools Ltd., (3), pp.1–7.

Neu, W.A. & Brown, S.W., 2005. Forming Successful Business-to-Business Services in Goods-Dominant Firms. Journal of Service Research, 8(1), pp.3–17.

Osterwalder, A., Pigneur, Y. & Tucci, C.L., 2005. Communications of the Association for Information Systems Clarifying Business Models: Origins, Present, and Future of the Concept. Communications of the Association for Information Systems, 16(16), pp.1–25.

Parker Hannifin, 2016a. About Us. Available at: http://www.parker.com/portal/site/PARKER/menuitem.c17ed99692643c6315731910237ad1ca/?vgnextoid=af26724fe7a5e210VgnVCM10000048021dacRCRD&vgnextfmt=SV [Accessed April 4, 2016].

Parker Hannifin, 2016b. Annual Report 2015.

Parker Hannifin, 2016c. Division. Available at: http://www.parker.com/portal/site/PARKER/menuitem.f8ba1d72adca86ed4d1f2e9876108a0c/?vgnextoid=0f3880961f66e010VgnVCM1000000308a8c0RCRD&vgnextfmt=SV&radiobutton=division# [Accessed January 1, 2016].

Parker Hannifin, 2016d. Välkommen till Parker Sverige. Available at: http://www.parker.com/portal/site/PARKER/menuitem.70af03dcfe9bc972c1e1a762427ad1ca/?vgnextoid=ef6e6485a9247410VgnVCM100000200c1dacRCRD&vgnextfmt=SV [Accessed January 1, 2016].

Parker Hannifin, 2016e. Vårt distrubutionsnätverk. Available at: http://www.parker.com/portal/site/PARKER/menuitem.70af03dcfe9bc972c1e1a762427ad1ca/?vgnextoid=266e6485a9247410VgnVCM100000200c1dacRCRD&vgnextfmt=SV [Accessed April 30, 2016].

58

Porter, M.E., 2008. THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY. Harvard Business Review, 86(January), pp.78–94.

Saebi, T. & Foss, N.J., 2015. Business models for open innovation: Matching heterogeneous open innovation strategies with business model dimensions. European Management Journal, 33(3), pp.201–213.

Sandvik, 2015. Annual Report 2014. Available at: http://www.sandvik.com/globalassets/sandvik_ar_2014_engprintedversion.pdf [Accessed February 25, 2016].

Sawhney, M., Wolcott, R.C. & Arroniz, I., 2006. The 12 Different Ways for Companies to Innovate. Journal of Industrial Ecology, 47(3).

Shafer, S.M., Smith, H.J. & Linder, J.C., 2005. The power of business models. Business Horizons, 48, pp.199–207.

Smith, S.D., 2010. The Business Life Cycle: Avoiding Decline. Available at: http://hydrapros.com/Articles/Article6.html [Accessed June 1, 2016].

Stratasy, 2015. Consumer Goods Case Study: Unilever | Stratasys. Available at: http://www.stratasys.com/resources/case-studies/consumer-goods/unilever [Accessed May 15, 2016].

Taran, Y., Boer, H. & Lindgren, P., 2015. A Business Model Innovation Typology �. , 46(2), pp.301–331.

Teece, D.J., 2010. Business models, business strategy and innovation. Long Range Planning, 43(2-3), pp.172–194.

Vanhaverbeke, W. & Chesbrough, H., 2014. A classification of open innovation and open business models. In New Frontiers in Open Innovation. pp. 1–18.

Voelpel, S.C., Leibold, M. & Tekie, E.B., 2004. The wheel of business model reinvention: how to reshape your business model to leapfrog competitors. Journal of Change Management, 4(3), pp.259–276.

Zott, C. & Amit, R., 2010. Business model design: An activity system perspective. Long Range Planning, 43(2-3), pp.216–226.

Zott, C., Amit, R. & Massa, L., 2011. The business model: Recent developments and future research. Journal of Management, 37(4), pp.1019–1042. Available at: http://jom.sagepub.com.ezproxy.liberty.edu:2048/content/37/4/1019.

59

10. Appendices

1. InterviewQuestionnairetoSCS

2. InterviewQuestionnairetoOEMs

60

Appendix1:In-depthInterviewQuestionnairetoSCS

Organisation• PleaseexplaintheorganizationalstructureforSCS.

Challenges

• CanyoupleasetellusaboutthechallengesSCSface?

Opportunities

• Whatisyourtakeonservicedevelopment?

BusinessModel

• PleasedescribehowyouperceiveSCSoperations.• Pleasedescribeyourvalueproposition.

o WhatdoSCSofferthecustomers?o Canyoupleasetellusaboutyourmarketsegment?

• PleasedescribehowdoSCScreatevalue.o Tellusaboutyourkeyresourcesandkeyactivitiesthatfavorbusinessmodel.

• PleasedescribehowdoSCScapturevalue.o CanyoupleasedescribeSCSrevenuemodel?

• Describeyourtakeontheinterplaybetweenthecomponentsinthebusinessmodel;customervalueproposition,valuecreationandvaluecapture.

61

Appendix2:InterviewQuestionnairetoCustomers

ThefollowingquestionsarenotlimitedtoParkerHannifinsoldparts.

Organisation• Pleaseexplainyourorganizationalstructure

ChallengesNotethatbelowquestionrefertoyourtotalaftermarketandisnotlimitedtoParkerHannifinsuppliedparts.

• Canyoupleasetellusaboutthechallengeswithintheaftermarket.

OpportunitiesNote that belowquestions refers to your total aftermarket andare not limited to ParkerHannifinsuppliedparts.

• Whatopportunitiesdoyouseefortheaftermarket?

• Whatisyourtakeonaftermarketdevelopment?

CurrentsituationontheaftermarketNotethatbelowquestionrefertothetotalaftermarketandisnotlimitedtoParkerHannifinsuppliedparts.

• Pleasedescribeyourcurrentsituationwithintheaftermarket?

BusinessModelNote that belowquestions refers to your total aftermarket andare not limited to ParkerHannifinsuppliedparts.

• Pleasedescribeyourvaluepropositionfortheaftermarket?

o Whatdoyouofferyourcustomer?o Canyoupleasetellusaboutyourmarketsegment?

• Pleasedescribehowyoucreatevalue.o Tellusaboutyourkeyresourcesandkeyactivitiesthatfavorbusinessmodel?

• Pleasedescribehowyoucapturevalue.o Canyoupleasedescribeyourrevenuemodel?

• Describeyourtakeontheinterplaybetweenthecomponentsinthebusinessmodel;customervalueproposition,valuecreationandvaluecapture

Parkerasasupplier

• WhichdoyouconsidertobeParkersstrengthsandweaknesses?• Whatworkswell/poortodaywithParker?• Howcanasuppliercontributetotheaftermarketdevelopment?

Macro-economicforces• Whatarethemacro-economicforcesthatimpactyourindustry?