GAINING STRATEGIC BALANCE BETWEEN INIMITABILITY AND LEGITIMACY IN GENERATING INNOVATIVE BUSINESS MODEL

Abstract

This work analyses a case of Japanese construction equipment company as a successful introduction of new business model as servitization process in traditional manufacturing industry. Servitization is defined as a phenomenon in which services are occupying a larger part of the added value in customer offerings (Vandermerwe & Rada, 1988). Servitization in the manufacturing company often requires radical business model transition. Business model must be contrived which can be characterized by several design themes and design elements (Zott & Amit, 2009). The design themes capture the common threads that orchestrate and connect the focal firm’s transactions with external parties. These contribute for customer’s profit to deliver efficiency, lock-in, reciprocity, and novelty. The design elements involve transactional content, structure (activity links), and governance with other stakeholders. Novel business models refer to new ways of conducting economic exchanges among various stakeholders that could lead to inimitability. Less strategic similarity through servitization design could increase differentiation and inimitability. However, novel business model innovation also requires more strategic similarity as legitimacy for its diffusion and social acceptance. Low legitimacy diminishes the ability of a firm to acquire resources from potential exchange partners in the business model. Legitimacy challenges occur because the firm’s servitization strategies reject the conventional wisdom that is incorporated in the industry consensus. As a result, adopting novel design themes and elements needs to balance between inimitability and legitimacy and generate moderately novel configurations of design elements (Deephouse, 1999, Snihur & Zott, 2013). Prior research findings on servitization emphasized on mainly efficiency as a design theme and product-service system’s contents as a design element, based on static empirical studies. As the methodology, we adopt more holistic and dynamic view of servitization phenomenon in this paper. Our research focuses on the issue of strategic balance in a Japanese company in terms of design themes and elements of servitization business model.