In the second part of each interview the study investigated the reconfiguration of the firm's assets during the development of performance-oriented systems. The importance of adapting the firm's architecture as a consequence of the environment analysis is highlighted as well by 'ICT 2' who serializes: "Number one is knowing your market and knowing what the customers want. Number two is getting the architecture right [...]" The theoretical section in chapter 3 highlighted the two central elements of value creation and value appropriation. The following chapter comprises the adaption of the resources for value creation.
Reviewing the results it becomes very clear that the system development is accompanied by a major shift in perspective. Reflecting on the changing user preferences, "Energy 5"
asserts that: "[...] business owners didn’t want to own the generation assets, what they really want was the commodity delivered from the generation assets and associated environmental benefits. It really did not make sense for the business owner to invest a lot of capital in the assets that are not core to their business.[..] Ultimately, customers don’t care what the technical solution really is. They just want it to be safe, reliable, and not disruptive to their business at all [...]" The former quote reflects well on the unwanted deployment of significant resources by the user in contextual activities. The personal engagement of the users in these products or services respectively is comparatively low, as these activities are not in the core of their professional or private interest. The users are much more interested in the performance delivered by these products or services in the least complex manner. 'ICT5' illustrates this aspect in an applied example of a small 'system' based on three components: "So, if you have a [product A], in addition if you have [product B], and you have [product C] for example, you don’t want to count on three partners. For example, if you have a problem with [product B]. You don’t know if it is a connection or software application problem, whatever to call one or the other. You want to call one." This quote well illustrates that most products deliver value or performance not on their own but need complementary product or service components.
The individual management of the 'system' composition, their interconnection, as well
as their operation adds complexity and needs the deployment of even further resources.
The composition and operational management of several complementary resources to deliver a specified performance is the central aspect of performance-oriented systems, as explained by 'ICT 1': "[System name], it is a solution where we are not only providing the functionality, but we are also providing the entire solution, the entire ecosystem.
Whereby, we prevent the intention to have and implement or to deploy the operating environment, which can be the hardware, the expert, or a further partnership with another company to do that for them. So, we provide a kind of 'one-stop-shop' where you get the entire solution. The interest of that is not only that they [the users] can delegate the IT part to us, we are expert on that. So, they can focus on their business rather than trying to find the IT expert. It is not their competency." The informant vividly describes the reduction of complexity and resource deployment for the user that characterizes performance-oriented systems. The responsibility for all necessary components to deliver the performance is shifted from the user to the innovating firm.
This significant change in the industry's architecture in comparison to prior offerings is accentuated by managers across all industries. Exemplary, 'Mobility 8' states that “[…]
the mobility behavior for the moment is [that the] customer is purchasing a product and uses this product. And in future is, from our point of view, the direction that a customer does not necessarily need to purchase and buy a product. It is rather the he purchases mobility […]” This opinion is also supported by 'Chemical 2', being compliant that “[…]
you are not selling the kilos of products, you are selling the performance. And if the performance is better, your benefit is better.”
To summarize the actual change in the industry architecture in comparison to a conventional product sale, the data first illustrates that most products deliver value or performance not on their own, but need complementary product or service components.
Thus, the performance is delivered in a 'system'. In a conventional offering in the mobility industry for example, the user not only has to invest in a vehicle but also deploy resources for fuel, taxes, repair, maintenance and seasonal tires to produce 'mobility'.
Second, the individual management of the 'system', i.e. the interconnection of the independent components, as well as their daily operation adds complexity and needs the deployment of even further resources in excess of their acquisition. Exemplary, the individual system operator has to identify the cheapest gas station or the best garage etc.
The results from the research indicate that the personal involvement from the user for system composition and operation is low when the related activities are not core to his
business or lifestyle. In that case the user has a higher interest in the sole performance in the least complex manner. Performance-oriented systems explicitly meet this user demand as they integrate the composition and operational management of several complementary components to deliver a specified performance within their firm boundary. In a carsharing-system for example, the firm composes a system with suitable vehicles as well as fuel, cleaning and maintenance services etc. and manages these components during the operational phase for the user. This change can be visualized by a simple industry value chain with six generic steps (cp. depiction 18). As already discussed, in a conventional sale the user has to compose an individual system of several resources, e.g. car, maintenance, tires, etc., to produce the performance 'mobility'. Some of the resources are single physical components, e.g. tires. Others are more complex and consist of several components, e.g. the car maintenance. These elements form a module.
Albeit the value chain in reality is probably more complex, the example is limited to three levels of analysis, i.e. component, module and system level. Each level consists out of single or multiple physical components and stands for a step in the value chain, characterized by the boxes in depiction 18. The aggregation of resources towards the next level, e.g. the combination of physical components towards a module, also forms a step in the value chain which is characterized by the arrows in depiction 18. The latter combinatory steps, e.g. the combination of spare parts in a car maintenance, are often characterized as a service element. Overall, the simple value chain comprises six steps including the final production of the system-performance 'mobility'. In a conventional offering, one or probably multiple firms sell the components, or modules respectively, to the user. Their firm boundary comprises in the example step one to three in the value chain. As already described, the user's responsibility or boundary includes the last three steps of the value chain. The transfer of system composition and operation from the user to the system provider in performance-oriented systems, i.e. step four and five in the exemplary value chain, results in a redefinition of the firms boundary and therefore in a change in the industry's architecture. In some cases, even the last step of performance production is included within the system boundary but normally the user has to participate to a certain extend in this step.
Depiction 18: Simplified Value Chain in Performance-oriented Systems
The hitherto described example illustrates the downward integration along the value chain that differentiates performance-oriented systems from a conventional product sale.
In the following the difference between performance-oriented systems and conventional service offerings is described in greater detail. Interestingly, the change in architecture incorporated in performance-oriented systems is often compared by the informants to the development of a service offering, e.g. 'Mobility 9': "[...] actually, it was kind of a vision, we perceive it as kind of 'service of the future'. And I believe mobility is going towards more integrated systems, and more decentralized systems and less reliable on ownership." In many cases, the informants draw a comparison to existing service offerings in their own or other industries. Exemplary, 'Chemical 1' explains the remuneration of their system in comparison to a car rental service: "They would pay a rental charge per day per cubic metre for the duration of the time that they have it.
Similar to, like you know, hiring a car, you pay for the minute you pick up the car until the minute you return it back. If during the course of operation they lose any, you always lose a small amount during the operation, they actually pay for that." These constant comparisons have their eligibility as an absolute differentiation between the different offerings in an industry is difficult. For example in the mobility industry, a firm that provides a car rental service needs to compose and operate a system of several product
and service resources similar to a car-sharing provider. The rental firm also provides mobility to the user. But the key aspect that differentiates the examined systems, e.g.
car-sharing, from other existing offerings in the industry is the provision of the highest elasticity of resource deployment to the user. The high system elasticity, i.e. flexibility in resource use, is the result of a constant performance-orientation which affects the system architecture. For example, car-sharing systems incorporate the fuelling or the possibility to spontaneously book the vehicle through a scanner beneath the front window. These exemplary elements are not included in other system-based offerings. To clarify this aspect, all existing offerings in an industry may be organized on a scale regarding their elasticity of resource deployment for the user (cp. depiction 19). There are two extreme positions on the scale: On the left hand side is a pure product sale without any service elements that comprises a complete ownership orientation and provides the least elasticity. The user has to plan his demand for the entire lifespan of the product in advance and deploy most of his resource before acquisition, e.g. capital, knowledge and time for selection. The integration of a financing service into the product sale already increases the elasticity slightly, as the financial resources can be deployed on a fixed annual or monthly basis for example. Product leasing or product renting continue this trend of increased elasticity with decreasing planning horizons and declining fixed resource demands. Exemplary, a typical car rental period is on a weekly or daily basis and the vehicle type can be adapted to the day-by-day demand. Product sharing complements this series with the highest elasticity as provisioning and resource deployment is even more flexible. The user of a car-sharing for example can decide every hour or minute whether to use the system and its provided performance or to exit it. The performance orientation of the product(s) predominates the ownership. As there are no consistent definitions of the different notions, e.g. leasing, renting, sharing, across industries and absolute boundaries are blurred, performance-oriented systems are a relative construct. The data suggests that performance-oriented systems form the extreme point on the right hand side of the elasticity scale opposed to a pure product sale. It is a distinct position in relation to other existing system-based offerings, which incorporate hybrid characteristics, i.e. dual ownership and performance orientation. To summarize, performance-oriented systems are optimized towards performance and therefore 'bang the right corner' in terms of elasticity of resource deployment for the user.
Depiction 19: Elasticity of Resource Deployment in System Offerings
To summarize, the difference of performance-oriented systems in comparison to a conventional product sale is the downward integration along the value chain by the innovating firm. The downward integration incorporates the value steps of system composition and system operation. The result is a redefinition of the firm's boundary towards providing the performance of several joint resources instead of selling single complements. The redefinition of the boundary comprises the characteristics of an architectural innovation with the objective of value creation through value step integration. The previous findings described the changing user preferences towards a high elasticity that form a bottleneck in the respective industries. The informants indicate that the transfer of system composition and operation towards the providing firm significantly increases the elasticity for the user. Hence, the redefinition is an architectural innovation for the integration of the industry's bottleneck within the realm of the firm. In comparison to conventional service offerings, performance-oriented systems provide the benefit of the highest elasticity in the industry spectrum. These characteristic differences primarily created the notion of performance-oriented system within this work. This leads to the third finding:
Finding 3: A firm is redrawing its boundary towards offering the performance