MIT Sloan School of Management 50 Memorial Drive, E52-538 Cambridge, MA 02142-1347 USA 617-253-2574 firstname.lastname@example.org
Fernando F. Suarez
Boston University School of Management 595 Commonwealth Ave., Room 546-F Boston, Massachusetts 02215, USA 617-358-3572 email@example.com
MIT Sloan School of Management 50 Memorial Drive, E52-511 Cambridge, MA 02142-1347 USA 617-253-6680 firstname.lastname@example.org
March 8, 2007
Product, Process, and Service
Product, Process, and Service: A New Industry Lifecycle Model
Existing models of industry lifecycle evolution tend to focus on changes in products and processes and largely overlook the importance of services. Sales of services, however, are becoming increasingly significant in the revenues of many industrial and high-technology firms either because of industry evolution or strategic decisions or both. In this paper, we extend lifecycle theory by explicitly incorporating the role of services at different stages in the potential evolution of an industry. Building on the literature in service management and industry evolution, we provide theoretical support for our propositions regarding the potential role of services in the early, mature, and post-discontinuity phases of an industry lifecycle.
Keywords: industry lifecycles, services, maturity, business models
Product, Process, and Service
One of the main tenets of how firms and industries evolve is that, as some businesses mature, the basis of competition shifts from product innovation to process innovation (Utterback and Abernathy 1975; Utterback and Suarez 1993; Utterback 1994; Klepper 1996, 1997; Adner and Levinthal 2001). For example, the model initially
proposed by Utterback and Abernathy in 1975, holds that, early after the birth of a new industry, firms compete based upon product differentiation, investing heavily in developing new product features and determining what consumers want. But, as the market matures and customer needs become more defined, firms may shift their focus to competing on cost and economies of scale, investing more heavily in manufacturing and other processes in order to make production operations more specialized and efficient. This product-process lifecycle model does not hold for all industries or firms; it seems to apply more to manufacturing settings where “dominant designs” or product standards emerge, and where competition then shifts to price (Utterback 1994). Sometimes a technological discontinuity interrupts this maturation process and the cycle starts over again (Tushman and Anderson 1986). In addition, as we have seen in industries such as automobiles, some firms may focus on process innovation as a source of competitive advantage (for example, Toyota) while other firms choose a different strategy and continue to focus on design innovation (for example, BMW). Nonetheless, this stylized lifecycle model has become an important framework in management literature to help us think about what strategies and investments companies should
emphasize at different periods in their evolution and in different competitive environments (Porter 1980, Oster 1994). Based on recent research, we argue in this paper that the product-process lifecycle model is incomplete in that we see an increasing number of firms in many industries that seem to move on to an additional, third phase: a period where their emphasis, as indicated by the major source of revenues or profits or both, shifts to services. Figure 1 reflects our proposal; we have added a services curve (dotted line) to the well-known productsprocess curves originally proposed by Utterback and Abernathy (1975). Much of the evidence to support our claim comes from studies conducted after the original industry lifecycle theory was proposed in an area of research known as “service management”. Several authors in this...