Service Dominant Architecture to Master Digital Transformation - Case of an Insurance Company
Prof. Dr. Markus Warg, Prof. Dr. Peter Weiß, Dr. Ronald Engel, Dr. Andreas Zolnowski
Our research addresses the key question, how companies can adopt and develop related digital capabilities systematically in order to sustain in the digital age. To answer this question, SDA operationalizes requirements and characteristics for planning, designing and building customer centric solutions to foster digital transformation (Ross et al., 2017), (Warg et al., 2016), (Weill, Woerner, 2015), (Kane et al., 2015a, 2015b). New business models emerge that embrace digital technologies used by companies to differentiate their offerings from those of competitors. Service innovations are one opportune avenue companies can follow to react on increasing competition and shrinking margins in their core business (Chesbrough, 2011, 25). Subsequently we present the problem description and chosen research approach. Then, we motivate Service-Dominant Logic (SDL) as valuable perspective on value creation to develop unique value propositions that incorporates digital technologies (Ross et al., 2017, 6). SDL inspires new thinking on value creation and can explain many of emerging digital business models, because in their core they often rely on service innovations and adopt many facets of a service strategy.
2. Problem Description and Research Approach
Today, we face dramatic change of the business world through rapid digitization and new innovative business models breaking down industry barriers (Weill, Woerner, 2015). Digital technologies are creating new opportunities but require a clear digital strategy (Ross et al., 2017). Based on a clear digital strategy decisions concerning required IT investments and new infrastructure capability are achievable. Companies have to strive for strategic agility through building required IT capabilities (Weill et al., 2002). However, what are the required IT capabilities? Moore (2011) motivates a new generation of enterprise IT systems based on interactive IT infrastructure capabilities which he summarizes as “systems of engagement” (Moore, 2011).
Many companies feel the urge to transform their existing business to strive for innovative or even to offer unique value propositions to their existing or to new customer segments. Many incumbent companies rely on outdated enterprise IT systems mostly transaction-oriented and tailored towards stability as operational backbone (Ross et al., 2017). This refers to the concept of “system of records” introduced by Moore (2011). Former IT investments in stability and automating, transaction-oriented IT systems have been a differentiator and competitive advantage in the past. However, in the era of digitization those IT investments turn out to be a major inhibitor of developing unique value propositions based on either customer engagement or new products and services incorporating di gital technologies (Ross et al., 2017).
Today, companies require integrated IT platforms of distinctive infrastructure capabilities that support business initiatives. Strategic agility is key (Weill et al., 2002), thus collaboration and increased intimacy between business and IT organisation are vital for any digital transformation endeavour.
Our research approach thus addresses the following pivotal research questions:
How can digital strategies draw from a Service-Dominant Logic (SDL) perspective and related principles to derive and build new capabilities to build unique value propositions based on service innovations?
- What are respective IT infrastructure capabilities to be derived to support business initiatives and strategic agility to design and operate service-oriented business models incorporating digital technologies?
SDL and service science supports definition of digital capabilities to drive new business initiatives and translate it as elements of a digital strategy.
Whereby, enterprise architecture (Ross, 2006) translates those elements in respective IT infrastructure capabilities based on IT systems and IT services (Weill et al., 2002).
3. Service Innovations and Digital Agility
SDL and service science literature is a valuable source to identify and derive IT infrastructure capabilities (Warg et al., 2016) to achieve digital agility (Ross et al., 2017). Drawing from foundational premises and principles of S-D logic (Vargo, Lusch, 2004, 2016), (Vargo, Akaka, 2012), (Vargo et al., 2015), (Grönroos, Voima, 2013), (Grönroos, Ravald, 2011), (Grönroos, 2008), Grönroos, 2011), SDA introduces new capabilities such as resource liquefaction, integration and density. The latter being important elements in the set of future key competences required of companies to sustain their business in the digital era. By this, SDA supports mobilizing resources and dynamic resource configurations drawing on principles as open services innovation (Chesbrough, 2011; Lusch, Nambisan, 2015) and service science (service systems) (Spohrer, Maglio, 2010).
4. Solution Design Based on Service Dominant Architecture
Enterprise architecture translates identified capabilities derived from SDL principles into “[...] a clear vision of how IT will enable business objectives” (Ross, 2006). Hence, Ross (2006) motivates to use high-level architecture graphic to capture decisions to “[...] promote shared understanding of IT capabilities in the enterprise”.
Figure 1: Service Dominant Architecture (SDA) and respective Subsystems: High-Level Architecture Graphic
Figure 1 shows an example of a high-level architecture graphic, namely Service-Dominant Architecture (SDA), to master digital transformation in the insurance business (Warg et al., 2016). SDA introduces new enterprise capabilities in the insurance company to compete digitally through a new level of customer engagement and service innovations.
Companies have to decide which digital strategy to pursue. Ross et al. (2017) proposes that digital strategies have to decide between two kinds of strategies: 1) customer engagement strategy and 2) digitized solution strategy. Companies probably have to converge both strategies and have to build required strategic agility to respond to market changes and new customer demands. Moreover, enterprise architectures should be flexible enough to incorporate easily newly emerging digital technologies to translate them into new IT capabilities.
SDA introduces service- and platform-oriented capabilities (systems of engagement) (Moore, 2011) such as connecting and interacting with various service systems to co-create value with customers and to integrate resources to support the customer process. To attain this goal, SDA motivates additional information system layers to an existing IT landscape on top of existing enterprise information and legacy systems (systems of record) (Moore, 2011).
Based on S-D logic foundational premises and principles, we suggest an assembly of interacting “purposed” subsystems (participation, interaction, system of operant resources) and a “data lake”. SDA integrates external resources via coupling with SDA-external service systems or flexible, lose coupling with resources provided through actors being part of the service ecosystem (Warg, Engel, 2016). Whereby, institutional settings and organizational structures arrange and clarify conditions, principles and mechanisms how to access and mobilize available resources.
Our solution design is an experimental design based on a real life case of an insurance company in Germany (Warg, Engel, 2016). Based on this case, we have investigated experimental user-centric solution designs based on derived requirements. The case provides further valuable insights and clear guidance to follow our action-oriented research approach. In this way, SDA as conceptual design can make a significant contribution to ongoing research on service systems engineering and action-oriented design (Böhmann et al., 2014).
5. Conclusion and Outook
This contribution introduced the Service Dominant Architecture (SDA) (Warg et al., 2016) as architectural design and core of a service-led digital strategy. Proposing an architectural vision, the SDA clarifies related high- level requirements with regard to underlying processes, structures, mechanisms as well as actors’ roles (Eloranta, Turunen, 2016, p.183; Voss, Hsuan, 2009; Parker et al., 2016; Lookegaard et al., 2016) for modular service development and delivery (Lusch, Nambisan, 2015). Based on this vision, SDA creates the missing link translating business requirements into implementable working architectures (Böhmann et al., 2014, Arthur, 2009; Spohrer, Maglio, 2010) and related technical concepts. Herewith, the SDA embraces a conceptual design of an IT platform which introduces required IT capabilities and enables service-led business initiatives to create service innovations to compete in the digital era.
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7. Author address
Peter, Weiß, Prof. Dr.
Business Informatics – Chair Digital Business
Tiefenbronner Str. 65, D-75175 Pforzheim, Germany
Andreas, Zolnowski, Dr.
University of Hamburg
Department of Informatics
Vogt-Kölln-Straße 30, D-22527 Hamburg, Germany
Markus, Warg, Prof. Dr.
Wedel University of Applied Sciences
Chair of Leadership, Finance and Risk
Feldstraße 143, D-22880 Wedel, Germany