How AI Capabilities Enable Business Model Innovation

Journal of Business Research 134 (2021) 574–587
Contents lists available at ScienceDirect
Journal of Business Research

journal homepage: www.elsevier.com/locate/jbusres
How AI capabilities enable business model innovation: Scaling AI through

co-evolutionary processes and feedback loops
David Sjödin a, b, *, Vinit Parida a, b, f, Maximilian Palmié c, Joakim Wincent d, e
a
Entrepreneurship & Innovation, Luleå University of Technology, SE-971 87 Luleå, Sweden
b
University of South Eastern Norway, USN Business School, Norway
c
Business Management Innovation Institute of Technology Management, St Gallen University, CH-9000 St. Gallen, Switzerland
d
Entrepreneurship and Management at Hanken School of Economics, FI-00101 Helsinki, Finland
e
Entrepreneurship and Innovation at University of St.Gallen Global Center Entrepreneurship and Innovation, Institute of Technology Management, CH-9000 St. Gallen,
Switzerland
f
Department of Management, University of Vaasa, Finland
A R T I C L E I N F O A B S T R A C T
Keywords: Artificial intelligence (AI) is predicted to radically transform the ways manufacturing firms create, deliver, and
Artificial intelligence capture value. However, many manufacturers struggle to successfully assimilate AI capabilities into their busi
Digital servitization ness models and operations at scale. In this paper, we explore how manufacturing firms can develop AI capa
Digital transformation
bilities and innovate their business models to scale AI in digital servitization. We present empirical insights from
Digitalization
a case study of six leading manufacturers engaged in AI. The findings reveal three sets of critical AI capabilities:
Business model innovation
Platform data pipeline, algorithm development, and AI democratization. To scale these capabilities, firms need to innovate
their business models by focusing on agile customer co-creation, data-driven delivery operations, and scalable
ecosystem integration. We combine these insights into a co-evolutionary framework for scaling AI through
business model innovation underscoring the mechanisms and feedback loops. We offer insights into how man
ufacturers can scale AI, with important implications for management.
1. Introduction progressively create, deliver, and capture increased service value arising
from a broad range of enabling digital technologies such as the Internet
We need to transform our value offerings towards optimization of cus of Things (IoT), big data, artificial intelligence (AI), and cloud
tomers processes. To enable this, we are increasingly investing in capa computing” (Sjödin et al., 2020a). A central proposition of digital ser
bilities for machine learning, AI, and deep learning, and I think we are vitization is that digital technologies such as AI afford radical opportu
also quite far ahead in implementing these within our operations. The nities for servitization to create and capture value from new revenue
final component is scaling the business models. So, I think those three are streams and to enable differentiation from competitors by assuming
actually the most critical things to get on board for the future. [Head of greater responsibility for supporting customer outcomes (Kohtamäki,
digital customer support center, Solutioncorp] Parida, Oghazi, Gebauer, & Baines, 2019). For example, investment in
AI technologies has enabled providers such as GE, Siemens, and ABB to
The proliferation of artificial intelligence (AI) technologies holds out offer enhanced digital customer services such as fleet management and
the prospect of enabling radical changes in products, services, innova site optimization by monitoring, analyzing, controlling, and automating
tion processes, business models, and the very nature of business activ the performance of connected equipment (Iansiti & Lakhani, 2020;
ities in industrial ecosystems that embrace the logic of digital Porter & Heppelmann, 2014). Yet, succeeding with such offerings is far
servitization (Iansiti & Lakhani, 2020; Sjödin, Parida, Kohtamäki, & from automatic, and many firms, in setting up business models, fail to
Wincent, 2020a; Sklyar, Kowalkowski, Tronvoll, & Sörhammar, 2019). realize increased value creation and capture from AI (Linde, Sjödin,
Digital servitization is the “transformation in processes, capabilities, and Parida, & Gebauer, 2020).
offerings within industrial firms and their associate ecosystems to
* Corresponding author.
E-mail addresses: [email protected] (D. Sjödin), [email protected] (V. Parida), [email protected] (M. Palmié), [email protected]
(J. Wincent).
https://doi.org/10.1016/j.jbusres.2021.05.009
Received 22 June 2020; Received in revised form 25 April 2021; Accepted 5 May 2021
Available online 12 June 2021
0148-2963/© 2021 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
D. Sjödin et al. Journal of Business Research 134 (2021) 574–587
Although AI technology can provide the foundation for successful leverage new ways of creating, delivering, and capturing value to drive
digital servitization and business model innovation, simply spending competitiveness (Iansiti & Lakhani, 2020; Majchrzak & Markus, 2013;
money on digital infrastructure, technologies, and data is not enough. Nambisan, Wright, & Feldman, 2019). For example, firms with higher AI
New routines, skills, operational processes, and business models are capability might be better suited to expand the value space (Jovanovic,
required in making use of AI technology to create value for customers. Sjödin, & Parida, 2021) by using automated insights from the analysis of
For example, many firms have discovered that AI algorithms do not industrial data to develop data-driven work approaches and co-create
produce definitive answers but offer tentative solutions (e.g., customer interaction (Sjödin, Parida, Jovanovic, & Visnjic, 2020b).
probability-based predictions), which need human interpretation, However, a key challenge is scaling AI services beyond initial proof of
justification, and action to create concrete, valuable outcomes (Tar concept to larger customer segments though AI business models and
afdar, Beath, & Ross, 2019; von Krogh, 2018). Thus, industrial business- demonstrated offerings (Burström, Parida, Lahti, & Wincent, 2021).
to-business (B2B) providers must engage in a large-scale organizational There is, therefore, a need to better understand the principles that
transformation to develop AI capabilities and infuse them into the underly AI-enabled business model innovation whereby AI capabilities
business model if they are to maintain competitiveness in the era of are assimilated into business activities relating to value creation, de
digital servitization and to benefit generally from digitalization and AI livery, and capture to ensure scalable growth.
(Iansiti & Lakhani, 2020; Porter & Heppelmann, 2014). This trans The objective of this article is to explore how manufacturing firms can
formation extends beyond back-end R&D to include front-line services develop AI capabilities and business model innovation to scale AI in digital
and sales and extended ecosystem partnerships (Kamalaldin, Linde, servitization. We build on in-depth case studies of six leading industrial
Sjödin, & Parida, 2020). However, most large manufacturing firms have companies engaged in digital servitization that have developed and in
failed to scale AI beyond initial proofs of concepts (Björkdahl, 2020; tegrated competitive AI solutions into their operations.
Brock & Von Wangenheim, 2019) because of the prevailing problems of The findings reveal three sets of critical AI capabilities: data pipeline,
integrating AI into their value creation, delivery, and capture activities algorithm development, and AI democratization. To incorporate these
and aligning with customers and extended ecosystems (Wuest, Weimer, capabilities into their businesses, manufacturers need to transform their
Irgens, & Thoben, 2016; Parida, Sjödin, & Reim, 2019). In this domain, business models by focusing on the key principles relating to agile
we see several research gaps. customer co-creation, data-driven delivery operations, and scalable
First, there is a need to further understanding on how AI capabilities can ecosystem integration. We combine these insights into a framework for
be developed in manufacturing firms. More specifically, there is a need to scaling AI underscoring the need for joint investments in AI capabilities
advance knowledge of the bundles of interrelated yet distinct routines development and AI-driven business model innovation. The framework
that make up successful AI implementation in manufacturing firms illustrates the interdependences and feedback loops between these AI
(Parida et al., 2019; Björkdahl, 2020). Indeed, in two large-scale, global capabilities and business models, showing that firms must develop
top management surveys, the lack of AI capabilities was identified as the routines for each capability and leverage their affordances within the
primary AI implementation challenge (Brock & Von Wangenheim, business model to successfully realize the full value potential of AI in
2019). Moreover, such capability gaps are “not always obvious” digital servitization and enable scaling. Our study has broad implica
(Davenport & Ronanki, 2018, p. 8) and “organizations often have tions for management research relating to AI (e.g., Iansiti & Lakhani,
trouble assessing their [… AI] capabilities in a candid way” (Desouza, 2020; Brock & Von Wangenheim, 2019), digital servitization (Gebauer
Dawson, & Chenok, 2020, p. 209). Accordingly, the high expectations et al., 2020; Kohtamäki et al., 2019; Sjödin et al., 2020b) and business
that executives place on AI often exceed the capabilities of their com model innovation (Foss & Saebi, 2017).
panies, and few business leaders are well prepared to address the gaps
between current and desired AI capabilities (Barro & Davenport, 2018). 2. Theoretical background
The importance of data competencies and analytics capabilities is often
highlighted (Parida et al., 2019; Björkdahl, 2020), but there is a lack of 2.1. Artificial intelligence enabling business model innovation and digital
understanding of the micro-foundational routines and activities that servitization
underly successful implementation at larger scale. Hence, several
scholars have recently called for further research to overcome this gap in AI is typically described as the most advanced form of digitalization
our knowledge (Bailey, Faraj, Hinds, von Krogh, & Leonardi, 2019; (e.g., Parida et al., 2019; Kohtamäki et al., 2019). Digitalization involves
Hadjimichael & Tsoukas, 2019; Merendino et al., 2018; von Krogh, the use of digital technology such as sensors, connectivity, and analytics
2018). In particular, there is a need for further understanding of the to provide new value-creating and revenue-generating opportunities
routines, accumulated knowledge, and interdependent action by mul (Parida et al., 2019); it is a process that is having a profound impact on
tiple organizational actors that provide the foundation for large-scale AI manufacturing industries (Ardolino et al., 2018; Jovanovic et al., 2021).
implementation and use. A key consideration is that digitalization typically goes hand in hand
Second, there is a need to advance understanding of the principles on with adopting a servitization strategy for industrial manufacturers
how AI can be productively used to drive business model innovation on a (Parida, Sjödin, Lenka, & Wincent, 2015). The emerging literature on
larger scale. Indeed, implementation of AI holds the potential to develop digital servitization captures this trend (Kohtamäki et al., 2019; Sjödin
organization-wide business model innovation processes for industrial et al., 2020b; Vendrell-Herrero, Bustinza, Parry, & Georgantzis, 2017).
manufacturers – namely, “designed, novel, non-trivial changes to the We follow Sjödin et al. (2020b) in defining digital servitization as the
key elements of a business model and/or the architecture linking these transformation in processes, capabilities, offerings, and business models
elements” (Foss & Saebi, 2017, p. 201). This new business model calls in industrial firms and their associated ecosystems to progressively
for a revised logic concerning the underlying principles of how AI create, deliver, and capture increased service value arising from a broad
technology is incorporated into value offerings and how it interacts with range of enabling digital technologies (such as AI).
the work of individuals, organizational functions, and the diverse pro We, therefore, consider digital servitization as an organizational
cesses across the business to ensure value delivery, capture, and transformation process for business model innovation (Sjödin et al., 2020b;
competitiveness (Iansiti & Lakhani, 2020). For example, AI holds the Foss & Saebi, 2017) where AI (capabilities) can serve as the key enabler.
potential to provide multiple business model benefits for customers such For example, advancements in AI are currently enabling companies to
as cutting costs, enhancing the quality of services, increasing coordi move from product-centric models to more advanced digitally enabled
nation and productivity, and boosting delivery efficiencies (Davenport business models (i.e., platform or outcome-based) with higher value-
& Ronanki, 2018; Iansiti & Lakhani, 2020). By expanding the scale, generating potential (Paiola & Gebauer, 2020; Gebauer et al., 2020;
scope, and learning opportunities, AI-driven business models can Kohtamäki et al., 2019). We argue that AI, as the most advanced form of
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digitalization, will fundamentally change firms’ value propositions and seeks to deepen our understanding of such AI capabilities. Adopting the
alter how (i.e., through processes and capabilities) a company creates, established conceptualization of capabilities as a bundle of interrelated
delivers, and captures value through co-creation with customers to meet yet distinct routines allows us to provide deep insights into AI capabil
their evolving needs (Iansiti & Lakhani, 2020; Lenka, Parida, & Wincent, ities by disentangling AI capabilities into specific and identifiable rou
2017; Sjödin et al., 2020a). tines. Furthermore, it enables us to outline possible pathways to
Indeed, AI offers vast affordances to industrial manufacturers capability building (Peng et al., 2008).
engaged in digital servitization in the shape of added value and
competitive advantage (Autio, Nambisan, Thomas, & Wright, 2018; 2.3. AI-driven business model innovation
Brock & Von Wangenheim, 2019; Nambisan et al., 2019). AI is “a sys
tem’s ability to interpret external data correctly, to learn from such data, In addition, there is a need to understand how industrial manufac
and to use those learnings to achieve specific goals and tasks through turers can transform and innovate business models by placing AI capa
flexible adaptation” (Kaplan & Haenlein, 2019, p. 17). The ability to bilities at the core of their business processes (Iansiti & Lakhani, 2020).
learn and operate in ways that appear intentional makes AI “intelligent” A business mode describes the “design or architecture of the value cre
and sets it apart from previous generations of information technology ation, delivery, and capture mechanisms” (Teece, 2010, p. 172) of a
(Bailey et al., 2019; Huang, Rust, & Maksimovic, 2019). These AI firm. Although some preliminary suggestions exist (e.g., Parida et al.,
affordances can have profound implications for digital servitization as 2019; Björkdahl, 2020), the development of theory on the topic of AI
AI creates a foundation for decision support through valuable insights and business model innovation in digital servitization has been given
and results that are collected from large and complex data sets and scant treatment. Our study, therefore, investigates how manufacturing
compressed into a manageable form (Iansiti & Lakhani, 2020; Parida firms go about incorporating AI into the value-creation, value-delivery,
et al., 2019). and value-capture mechanisms. Indeed, profiting from a digital capa
bility such as AI “is not so much a technology challenge as it is a chal
2.2. Understanding AI capabilities lenge to harness knowledge to create the organizational knowing to
continually optimize the value that can be derived from digital tech
Research has only just begun to explore the implications of AI for nologies” (Lyytinen, Sørensen, & Tilson, 2017, p. 237).
managers and firms (Liu, Chang, Forrest, & Yang, 2020; Paschen, Wil Value creation relates to the creation of offerings and value proposi
son, & Ferreira, 2020; Phan, Wright, & Lee, 2017). Initial research has tions for customers. In the digital servitization context, this would relate
been carried out on AI-driven business models (Garbuio & Lin, 2019), to AI-enabled services designed to optimize the use and maintenance of
organizational decision-making involving AI (Shrestha, Ben-Menahem, products (or fleets of products) in customer operations. A critical
& Von Krogh, 2019), and the ways in which firms can foster trust in assessment is the value to customers as researchers. For example, Sjödin
AI (Hengstler, Enkel, & Duelli, 2016). The practice-oriented manage et al. (2020b) emphasize that any value offers created on digital tech
ment literature repeatedly describes practices and steps that managers nologies must be (co-)created in agile and customizable manner from
can take to integrate AI into their firms (Brock & Von Wangenheim, the standpoint of customer need. There is, thus, a need to systematically
2019; Davenport & Ronanki, 2018; Fountaine, McCarthy, & Saleh, assess AI applications and the potential value that they bring for
2019; Ransbotham, Kiron, Gerbert, & Reeves, 2017; Tarafdar et al., customer and end-user (Linde et al., 2020; Sjödin, Parida, & Lindström,
2019). Overall, there is a strong consensus that the effects of AI go 2017). Indeed, the application of AI may enable providers to create
beyond incremental process improvement and include fundamentally value closer to the customer’s operations since providers can use data
new ways of operating and growing a business. Yet, there is a lack of from a fleet of equipment to identify areas for improvement in the
research on how industrial manufacturers can leverage AI in the form of customer’s ongoing operational processes – for instance, optimization of
new capabilities and make the transformation to AI-enabled business equipment and condition-based maintenance (Kohtamäki et al., 2019).
models (Brock & Von Wangenheim, 2019; Iansiti & Lakhani, 2020). Value delivery relates to the setting up of operational processes and
Indeed, surveys has identified the lack of AI capabilities as the top AI- activities to deliver the value promised. For manufacturer engaged in
implementation challenge (Brock & Von Wangenheim, 2019). It, digital servitization, it could relate to using AI capabilities to improve
therefore, seems a fruitful undertaking to investigate the nature of such the work processes of front-line and back-line service staff, and tech
organizational capabilities in greater depth. Organizational capabilities nological support systems. For example, AI capabilities can play an
are frequently defined and operationalized as bundles of interrelated yet important role in monitoring product flows, process flows, and main
distinct routines (e.g., Amit & Schoemaker, 1993; Henderson & Cock tenance processes (Jovanovic et al., 2021). Yet, since full-scale AI
burn, 1994; Hult, Ketchen, & Nichols, 2003; Peng, Schroeder, & Shah, implementation is still rare among industrial manufacturers, there is a
2008; Hamel & Prahalad, 1990). They rely on skills, accumulated need to understand the principles required to leverage AI within the core
knowledge, and interdependent action by multiple actors to make use of processes of the business model. For example, Iansiti and Lakhani (2020)
organizational resources (Day, 1994). Consequently, organizational underline the importance of transforming operating models to increase
capabilities are intangible and socially complex resources, which are the scale, scope, and learning opportunities from AI within the organi
hard to imitate and, hence, are a source of sustainable competitive zation. Yet, many firms fail to fully consider the value delivery dimen
advantage for firms (Barney, 1991). While scholars broadly agree on the sion (Linde et al., 2020). The organization must work as an entity,
relevance of AI capabilities, the literature fails to provide a solid un collaborating with other companies and suppliers to adapt to emerging
derstanding of what AI capabilities actually are. For example, the opportunities uncovered by AI capabilities (Sjödin et al., 2020b; Skylar
managerial guidelines of Brock and Von Wangenheim (2019) and Tar et al., 2019; Kamalaldin et al., 2020).
afdar et al. (2019) mention some capabilities that are relevant for the Value capture relates to elements such as cost structures, potential
purpose of integrating AI into a firm. However, these scholars adopt a revenue streams, and revenue-model and financial viabilities. In the case
rather broad perspective, asserting that the integration of AI requires of digital servitization, AI implementation may indeed provide sub
strategic (business) capabilities in addition to data science and techno stantial new revenue sources from AI-enabled services but there is also
logical capabilities. Consequently, the depth of insight provided by these the potentially high cost of maintaining AI infrastructures.
articles is limited, particularly since depicting these capabilities was not To summarize, the development of AI capabilities holds significant
their sole or even primary purpose. To date, scholars and practitioners potential to drive business model innovation and new sources of revenue
have no clear understanding of the capabilities and underlying routines and competitiveness for manufacturers in digital servitization. Yet,
that firms require to reap the potential of AI (Barro & Davenport, 2018; many challenges and uncertainties face this transformation head on,
Davenport & Ronanki, 2018; Desouza et al., 2020). The current study with only meagre research insights in place to guide the path forward.
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Accordingly, this study seeks to explore how manufacturing firms can Table 1
develop AI capabilities and business model innovation to scale AI in Case study firms and informants.
digital servitization. In the sections that follow, the methods, findings, Focal firm, key Case description Informants from focal
and contributions of this research are described. products (turnover, firm and ecosystem actors
employees) (# interviews)
3. Method Solutioncorp Comprehensive efforts to Solutioncorp: 11 – 4
Control system and drive AI capability contract & account
3.1. Research approach and case selection mechanical application in process managers, 4 business
equipment industry customer development managers, 3
(SEK 32,400 M / segments. Strategy to digitalization & automation
This paper presents an exploratory multiple case study of industrial 7,800) connect existing assets and managers.
firms and their digital partners to investigate what AI capabilities firms visualize whole operations Ecosystem: customers (2),
need in order to advance digital servitization and how firms can leverage using digital tools. Examples AI/analytics provider (1)
include fault detection in
their affordances for business model innovation. Case studies enable
pulp and paper mills as well
multiple observations of complex organizational processes (Eisenhardt as optimization solutions for
& Graebner, 2007; Eisenhardt, 1989) and are particularly useful for various equipment such as
developing new insights into theoretically novel phenomena (Edmond mine hoists.
son & McManus, 2007) such as the development and deployment of AI Conglocorp Large-scale AI Conglocorp: 3 – 2
Mining equipment transformation of business automation manager, 1
capabilities. (SEK 100,000 M / focusing on digitalization in sales manager.
Our sample comprised globally active Swedish B2B providers and 41,000) mining industry through Ecosystem: AI and analytics
their digital partners engaged in digital servitization. Provider cases investing in AI, automation, provider (3).
from four industries (manufacturing, shipping, construction, and min and connectivity. Examples
include AI-enabled
ing) were selected to enhance the generalizability of our findings. This
automation of underground
case selection offered an opportunity to contrast various industrial loading, predictive
perspectives on organizational processes. Building on recommendations maintenance, and mine
by Glaser and Strauss (1967), we used theoretical sampling to select optimization services.
cases that would illustrate how companies deploy AI (Eisenhardt & Rockcorp Effort leveraging use data Rockcorp: 5 – head of
Mining equipment and AI to drive new business digital business
Graebner, 2007). (SEK 31,000 M / opportunities for mining development, 2
Several factors underpinned the selection of these cases at the time 13,000) industry customers. digitalization and
the study was initiated. First, the providers were actively working with Examples include AI- automation managers, 2
AI-enabled digital service offerings (e.g., site optimization) and had enabled digital business development
transformation services and managers.
several successful collaborations with customers. For example, Sol
automation of drilling Ecosystem: position system
utioncorp had a solid record of delivering AI-enabled digital services systems. provider (3).
that have optimized machine operation by up to 25%. Second, these Shipcorp AI initiative with the goal of Shipcorp 8: ecosystem
firms had been developing AI capabilities for some time, with notable Ship control systems providing solutions manager, digital
development of routines and processes and incorporation into business (66,400 M, 7,600) leveraging data from ship transformation manager,
control system by sharing it head of research
models. This background meant that we could learn from the experi
for AI, analytics and support collaboration, 3 global
ences of leading companies. For example, Shipcorp described a autonomous operations. product manager, business
comprehensive approach of applying AI to develop new digital services. Examples of applications development manager,
Third, we selected cases where we had established good contacts with include fuel optimization, customer success manager.
predictive maintenance, and Ecosystem: Digital service
stakeholders within the firms. These positive contacts enabled us to
route optimization. provider (5)
collect detailed descriptions of their AI capability development and Constructcorp An AI initiative toward Constructcorp: 5 – 2
business model innovation, and obtain in-depth information about the Heavy construction delivering digitally enabled product planning
capabilities and how they were deployed. equipment site optimization services managers, 2 machine
(SEK 66,500 M / for the construction services managers, 1
14,000) industry. Key focus lies on technology manager.
3.2. Data collection the customer’s core Ecosystem: global
business, maximum uptime distributers (2).
Data were gathered primarily through individual, in-depth in potential, and effective cost
terviews with participants from providers and digital partners that were control. Examples include
site optimization, load
active in digital servitization. In total, we conducted 42 interviews with
optimization, and driver
key informants. The informants were selected because they were assistance.
actively involved in developing and deploying AI capabilities to drive Truckcorp AI initiative toward Truckcorp: 3 – business
business model innovation. Interviewees were identified by snowball Heavy trucks and optimizing sustainability development manager,
sampling, where key informants were asked to recommend people who transport solutions and operations of a fleet of digital research manager,
(SEK 152,000 M./ connected trucks. Examples digitalization manager.
played an active role in AI. We interviewed various participants exer 38,600) include fleet managements Ecosystem: N/A
cising different organizational functions to capture a multifaceted view systems, fuel efficiency, and
of the process. The interviewees included digital business developers, driver assistance
R&D managers, platform managers, project managers, product man functionalities.
agers, and service delivery staff. Table 1 summarizes the cases and the
positions of the interviewees within each company.
are critical to enable AI business model innovation? How can business models
The respondents were asked open-ended questions with the support
for AI be scaled? and How are different ecosystem roles involved in the
of an interview guide. The guide was developed based on themes about
process? Follow-up questions were used to clarify points and gain further
AI, digital servitization, business model innovation principles, and
details, which enabled additional exploration of relevant cases. The in
business model innovation outcomes. For example, respondents were
terviews took approximately 60–120 min each and were held face to
asked to consider questions relating to broad themes such as: How do you
face or via online conference calls. All interviews were recorded and
develop AI in your organizations? What are examples of AI implementation?
transcribed, and the transcripts provided the basis for the data analysis.
How are these leveraged within your service operations? Which AI activities
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We triangulated our data by applying multiple data collection correspondence and follow-up discussions with selected informants.
techniques, including multiple interviews and a review of documents The next step involved the generation of aggregate dimensions that
(Jick, 1979). We performed document studies, reviewing company re represented a higher level of abstraction in the coding. Here, we used
ports, agreements, published material, and project documents to vali insights from the literature to form theoretically sound dimensions
date and provide context to our respondents’ views, thus enabling relating to capabilities and business model innovation. Thus, the
empirical triangulation. To increase reliability and enhance trans aggregate dimensions built on the first-order categories and second-
parency as well as the possibility of replication, a case study protocol order themes to present a theoretically and practically grounded cate
was constructed along with a case study database. The database gorization. Fig. 1 shows the entire data structure that resulted from the
included case study notes, documents, and analysis. data analysis.
As a final step, we theorized about the logic and linkages across
aggregate dimensions, second-order themes, and first-order categories.
3.3. Data analysis Because we sought to understand how AI capabilities are developed and
applied in business models and how companies manage these processes,
As with Clark, Gioia, Ketchen, and Thomas (2010), we followed an we contrasted lines of insight from the cases. This practice of comparing
interpretive research approach, which “gives voice in the interpretation cases allowed us to further refine our data structure and generate an
of events in a first-order analysis to the people actually experiencing overall model. The initial results of the study were presented to three key
those events” (Clark et al., 2010, p. 403). The data analysis was based on informants from case companies to validate the results through discus
a thematic analysis approach, which offers techniques to identify pat sion. Further adaptations were made where relevant.
terns in large, complex data sets (Braun & Clarke, 2006). Moreover,
thematic analysis offers a means of effectively and accurately identifying 4. Findings
links within analytical themes. Through a series of iterations and com
parisons, themes and overarching dimensions can be identified so that Building on empirical data from case companies, we identify and
an empirically grounded model can be developed. Consequently, we conceptualize the underlying capabilities associated with AI in a digital
followed a three-step process similar to that described in the literature servitization context. To untangle these capabilities, we specifically
(Braun & Clarke, 2006; Gioia, Corley, & Hamilton, 2013). focus on various advanced digital servitization initiatives where AI has
The first step in our data analysis was an in-depth analysis of the raw played a pivotal role. We present our findings in two parts, one relating
data (i.e., the interview transcripts). This analysis consisted of reading to AI capabilities, and the other dealing with the principles underpin
every interview several times, highlighting phrases and passages related ning AI business model innovation for digital servitization. Following
to the overarching research purpose of understanding how AI capabil presentation of the findings, we outline the resulting framework and
ities are developed and applied within the business model. By coding the elaborate on how developing AI capabilities and making the trans
common words, phrases, terms, and labels mentioned by respondents, formation to an AI business model for digital servitization can enable
we identified first-order categories of codes that reflect the views of the scaling of AI with greater depth and breadth across ecosystems.
respondents in their own words.
The second step of the analysis was to further examine the first-order
categories to detect links and patterns among them. This iterative pro 4.1. AI capabilities
cess yielded second-order themes that represent theoretically distinct
concepts created by combining first-order categories. These themes Our analysis uncovers three interrelated AI capabilities that manu
relate to key AI routines and business model innovation principles. In facturers must develop to truly profit from digital servitization: data
accordance with validity considerations raised in the literature, the pipeline capabilities, algorithm development capabilities, and AI democrati
themes were further refined using insights from the literature and data zation capabilities.
from interviews and secondary sources, such as internal documents,
presentations, and newspapers (Kumar, Stern, & Anderson, 1993). We 4.1.1. Data pipeline capabilities
performed this step in the data analysis together, which allowed us to Data pipeline capabilities lay the foundation for AI capabilities in that
thoroughly discuss the data structure. Internal validity tests were con they enable firms to sense the industrial environment by capturing data
ducted to ensure greater accuracy in the emergent themes through email and insights from multiple sources and presenting what they have
Fig. 1. Data structure.
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gleaned in a structured way. Access to vast data sets is often referred to vessel system data. When we do such data integration, suddenly we can
as the fuel that enables the AI algorithm to create its insights. Informants find more accurate models for route optimization.
emphasized that the amount and quality of data fed into AI will directly
Yet, obtaining and transferring large data sets in a secure manner can
correlate with the output. The goal is to secure a data pipeline by
be difficult. For example, some of our firms noted that, in specific seg
creating routines for gathering, cleaning, integrating, validating, and
ments, the customers would not allow them to transfer operational data
transferring data in a systematic, secure, sustainable, and scalable way.
beyond the customers’ systems and across national boundaries given
As noted by many informants, this is easier said than done, and securing
their security concerns. It is, therefore, important to systematically
the data pipeline proved to be a key challenge they had to overcome in
assess data security aspects to secure customer buy in. For example,
their AI journey.
several of the studied firms had created dedicated data security teams to
An important first step in achieving this goal is to develop routines
manage sensitive customer data and to secure control of how the data is
and resources for quality data integration from industrial equipment as
handled.
sets and sensors. Thus, data must be made simple and accessible in a
Several informants highlighted the importance of routines for data
secure manner. As our informants recounted, in recent years, the po
warehouse management to provide integration of data from different
tential insights emerging from data have increased substantially as
sources and to enable search interface to make it easy to query details of
manufacturers have started to install advanced sensors (e.g., load mea
the data landscape. The function of such data warehouses is to provide a
surement, hydraulic assessment) in their equipment coupled with so
repository and a platform for structuring, integrating, and filtering data.
phisticated tools for positioning and situational awareness as well as
Informants noted that, as the volume of collected data grows exponen
connectivity. It is important to have processes in place to ensure that
tially, structured databases and platforms are a vital precondition for
these vast data sets are structured in a way that is possible to use. A vital
enabling advanced analytics. Putting data in a centralized data ware
aspect of this routine is focusing on cleaning (i.e., deleting erroneous
house makes it more efficient for engineers or the AI software to exploit
data) and organizing the data to create a trusted analytics foundation. As
the data so that improvements can be identified. A critical process in
the volume of collected data is growing rapidly, major investment is
data warehouse establishment is development and maintenance of an
being poured into data integration by labeling, structuring, and corre
accurate data catalogue including the location of data, explicit guide
lating data that previously resided in silos. A digital lead from Sol
lines for what to do with the data, how to protect the data, and standards
utioncorp described the importance of integrating internal and external
for when and how to store the data for use and reuse by multiple parties.
data in a secure manner:
This provides opportunities for creating a data knowledge bank. For
It is necessary to understand that you have a lot in place already because example, informants felt it useful to develop knowledge glossaries to
there is a lot of data to act on if you can access it securely. So, we do not define the terms used in the databases. These, it was affirmed, would
see that there is a lack of information, but the challenge is rather in col facilitate interaction with each other, with external stakeholders, and
lecting this data, to consolidate it and create a common worldview so that between digital systems. This activity would allow assets (e.g., machines
we can make it useful. And to do this, you need the right toolbox in order and data sources) to be linked to the relevant glossary terms, making it
to get this collection, structuring, analysis, and feedback loop going. easier to find relevant data in the data warehouse catalogue. A business
development manager from Truckcorp described the role of handling
A second component relates to secure data sharing. All equipment
the data in this way:
providers agreed that expanding the scope of available data by inte
grating data from different sources, such as OEMs, customer systems, Data has become the vehicle that takes us from problem to solution, and
and third parties, was highly relevant in the context of AI-based solu the data lake, processing, and data science team have worked with us to
tions. One informant from Shipcorp reported that there are more than build a “map” that can turn this into a reality. The ability to tap into data,
2,000 sensors per ship that funnel the data to their cloud-based digital trends, and insights is truly powerful and promises to be the foundation for
platform. It is also critical to ensure consistent connectivity and real- our sustainability mission long into the future.
time data flow to monitor various aspects of machine performance
remotely in real time. Indeed, a large portion of securing the data
4.1.2. Algorithm development capabilities
pipeline is connecting existing assets and equipment to create compre
Algorithm development capabilities enable the creation of basic
hensive data sets for AI to work with. An automation manager from
cognitive functions of AI through the development of algorithms that
Conglocorp stressed the importance of reliable and structured data flow
predict the future state or actions of the business. These capabilities are
for AI:
typically the focus of much AI discussion in manufacturing firms, yet few
We need to ensure that we have a very good and consistent flow of reliable have in-depth knowledge of the underlying routines required.
data from our machines to ensure that we can make sense of the opera A crucial step for AI capability is building routines for contextualized
tional environment. Connectivity is critical for many of our artificial in AI development. AI algorithms holds transformative potential to identify
telligence applications; this enables us to have real-time data, and and solve abstract and complex problems. However, developing skills in
connectivity also provides vital data inputs in terms of positioning. algorithm development is not easy for traditional manufacturing firms.
All of our case-study firms had secured partnerships with IT companies
Another important consideration is combining data from multiple
to obtain access to leading AI platforms and algorithms. Yet, this po
internal and external sources. By way of illustration, third party sources,
tential can be wasted if it is not executed with an underlying under
external data, sensors, and publicly available traffic and weather data
standing of the business context. For example, many firms described
can be added on to internal databases and systems (e.g., ERP, CRM) to
initiatives that tried to outsource algorithm development to global IT
complement the customer equipment data of a provider. Several firms
leaders, but this had failed because their side lacked the insights to
described the benefits of combining internal (e.g., vibrations in ma
provide contextualization and operational knowledge in the industrial
chine) and external data (e.g., road maintenance maps) to build more
domain. Indeed, leveraging business knowledge in the age of AI requires
sophisticated models. Similarly, a digitalization manager from Shipcorp
routines and competencies to define the scope and focus of algorithms
remarked:
internally. The first task is to specify and prioritize – a desired outcome
We have a lot of data that can be used for AI model development, but we that can be achieved by building a predictive model (e.g., reduce un
have learned that digital solutions become more customer value adding planned stops by 15%). As described by many informants, this domain-
when we can include data beyond analysis of specific vessel operations. specific insight into needs and operational knowledge (e.g., failure rates
Think about historical weather data from third parties combined with our and equipment configurations) is what allows industrial providers to
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profit from AI. A crucial aspect is to build routines for value identification so that
Because AI systems are “trained” rather than programmed, they high-value application use cases for AI are revealed in both internal and
often require huge amounts of labeled data to perform complex tasks customer processes. To truly deliver groundbreaking value from AI,
accurately. A crucial aspect is being able to creatively identify the data companies must work actively to utilize business and technical compe
needed from existing data catalogues as well as external data sources to tencies to identify valuable and concrete (e.g., where and for whom) use
build an effective predictive model. For instance, interpreting customer cases. By creating routines for experimentation involving different
inputs on their key bottlenecks can give vital insights into needed data competencies, firms focus on identifying and prioritizing specific prob
parameters such as production load, standstills, and common failure lems that AI can solve through detailed assessment of customer journeys,
modes. Therefore, understanding the key performance indicators (KPIs) business processes, and value chains. For example, Solutioncorp
being addressed by the new models (e.g., downtime and maintenance described holding sessions involving customer service staff, key ac
costs) provides the metrics required to determine whether existing data counts managers, and digital developers to assess customer service data
structures may be used. Thus, it is critical to involve staff with a clear so that priority areas for AI development could be identified. An
industrial understanding of the application domain to set up and train important consideration in use-case experimentation is instilling pro
the AI models. A business development manager at an AI and analytics cedures for rapid trials of “learn fast and fail fast” to create a culture of
provider who partnered with many of the case firms (e.g., Conglocorp, AI experimentation. Several companies described methods that they
Solutioncorp) described this need from an outside-in perspective: were applying to identify and test use cases, specify AI requirements,
and assess their impact and strategic fit in a quick and iterative fashion.
It doesn’t make sense that each of these equipment manufacturers should
A frontline digital manager from Solutioncorp described a collaborative
also make their own algorithms. But they still need to have knowledge
approach of working with frontline personnel and customers to experi
about AI. You need some data scientist, but what you really need is your
ment with AI use cases:
domain knowledge. You need to have engineers who know your equip
ment setup… They need to basically make sure that they have resources to Together we work with new [AI] technology in a whole new way. The
support and the knowledge, and treat it as any other R&D project close contact with customers and [Solutioncorp] colleagues around the
[following a structured process]. country is very important in order to quickly find new solutions that help
our customers take the next step… Our strong R & D culture is a great
Another vital aspect concerns routines for operational AI validation
asset to us. We have set up the AI lab that helps us to continuously develop
and reconfiguration. Crucially, the real power of an AI model is in its
our services and to build the solutions of the future together with our
learning ability and its potential to generate novel insights through
customers.”
machine learning. Thus, the ability to improve algorithms depends on
the ability to feed in high quality data to allow the algorithm to learn A key issue is to build routines for collaborative application develop
from real-life applications, but it is also vital to have experienced staff ment using cross-functional teams to develop solutions for specific
training the algorithm. The informants specifically mentioned that application areas. Dedicated teams of application developers, data sci
having the help of dedicated staff to interpret algorithm results sustains entists, data engineers, business developers, and business-unit experts
self-reinforcing learning, re-programmability, and the accuracy of the should work in tandem with each other to leverage the data pipeline and
AI’s simulating ability. For example, when setting up models, it is algorithm development, with a focus on improving specific business and
important to accommodate experimentation where hypotheses on new operational outcomes. Through collaboration, such teams can envision,
algorithms are tested to ensure that their results and suggestions have build, deploy, and operationalize an end-to-end AI development process
the intended effect (i.e., are valid) based on real-life data situations. For in a much more rapid fashion. As informants noted, focusing on target
instance, Constructcorp mentioned programming AI to avoid driving application areas – where solutions would be critical – creates the
wheel loaders over potholes, lessening the aging and deterioration of required urgency to ensure that development is not just focused on proof
tires. This algorithm could distinguish potholes from other road de of concepts but also proof of value. A digital manager from Solutioncorp
formations, substantially increasing a tire’s lifespan and reducing remarked “if there is no one screaming for a problem to be solved, we
maintenance costs. This improvement revealed additional hidden needs, probably should not do it.” The implication was that, without agency
such as road maintenance tracking and situational awareness, which and commitment, most AI solutions would fail before full scale impe
allowed new AI services to be developed. The ability to analyze the data mentation. Indeed, the key is to integrate the output of AI models into
at high speed and accumulate knowledge allows the provider to program frontline workflows and processes by securing commitment from cross-
new machines with the data and insights from all other preceding ma functional competencies ranging from digital leads and data scientists to
chines. An automation manager from Conglocorp described this process key account managers, sales representatives, and service delivery staff.
of training algorithms using real-life data: A digital lead from Solutioncorp remarked:
The AI system can learn from a really skilled operator how he [or she] fills Digitization and AI enables a completely different kind of teamwork,
the bucket. We have been working a lot with this bucket filling system and where you can twist and turn the information in a team with different
how to train the algorithms and, over time, this will be a key competence skills and get this overview so that you can solve the problem together in a
for us … We are learning over time, and our autonomous systems are new way, because what it comes down to is really that AI technology is
becoming more competitive. great and all, but if we do not work together and expand the applications
and capacity for collaboration, then we still won’t be able to solve the
challenges in the industry.
4.1.3. AI democratization capabilities
AI democratization capabilities focus on making AI accessible to the To enable AI democratization, companies must invest in routines for
entire organization and demonstrating its potential. The objective is to democratizing AI affordances so that the action potential of AI analytics is
engage the workforce in identifying and experimenting with valuable user friendly, understandable, and customized for each user group (e.g.,
applications of AI to create data-driven insights so that organizational key account managers, service managers, and staff). A key to this is
activities are enhanced. To achieve true benefits for the business, tech illuminating the possible uses of AI in target application areas and
nical capabilities are not enough. Firms need to develop in-house skills clarifying how AI can or should be used in design and education. This is a
in democratizing AI to ensure that their insights are used in the orga critical factor for building transparency and trust in AI among em
nizational behavior of employees and processes, enabling their com ployees. Informants noted that individuals are less prone to trust an AI
panies to create AI value for customers in diverse application areas. application if they cannot comprehend how it operates or appreciate the
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insight it gives. This task requires a combination of basic training and needs. As initial AI investments are proven, trust builds for further
the right support tools, such as intuitive dashboards, recommendation development, and the scope of the solution and customer engagement
engines, and mobile apps. One critical component relating to AI expands over time. To achieve this, the frontline must help customers
democratization concerns the development of processes to consolidate identify and define their problems, prioritize and assist in creating a
business-relevant AI insights through data visualization, so that the in transformation roadmap, and provide support throughout the imple
sights that flow from AI are capable of being understood by non-experts. mentation phase. Similarly, a manager for the customer success team at
For example, several firms mentioned investing in data visualization Shipcorp described their approach to working with customers:
tools such as analytics dashboards for various staff members. These
We need to be very customer focused in our solution development. Every
dashboards can make transparent those hidden insights that inform
customer will have problems and specific needs that our applications
decisions and actions. A straightforward initial step could provide
could address, and we need to adapt to that. To be successful, we need to
different individuals with access to simpler applications, readily un
work together with customers in defining the appropriate use cases and
derstood information, and basic recommendations. By starting with
together build a roadmap for how to realize value for their operations.
simpler, understandable applications, individuals are encouraged to use
the data and AI-driven insights to improve their work approaches. Thus, Informants maintained that the logic of such a co-creation approach
facilitating easy access to AI-based insights is a vital component in means that the manufacturer becomes the customer’s partner rather
developing trust and a culture of experimentation. That is to say, than supplier, which creates an interactive relationship based on
business-unit experts are democratized to work with data-engineering increased transparency and mutual exchange. Similarly, a head of dig
and data-science teams within the organization. A digitalization man ital business development at Conglocorp explained the changed logic in
ager at Rockcorp described the importance of data visualization for these terms:
enhancing the application of AI:
We have to be much more open to the market. It’s no longer possible to
We are using a dashboard to show how much value our machines are have the development process shrouded in secrecy. We must start talking
really creating by aggregating insights from our AI analytics. We can about challenges, not just about solutions.
compare our customers to each other to show how they can do better.
When you can visualize it like this, it really allows our internal organi Another important aspect for value creation and innovation is to
zation and the customer to understand the value AI can bring and do intentionally apply a modular AI solution architecture. By leveraging
benchmarking with their industrial peers. modularity, the complexity of solution development can be reduced, and
the scope for adding novel functionalities (i.e. new micro-services) in
step with emerging needs is expanded. To achieve this, informants
stated that the AI technology must be flexible to be re-used in new
4.2. AI-enabled business model innovation principles application areas, and development teams should prioritize this from the
start. Specifically, informants stressed the importance of having algo
A key insight from our respondents was the need to define principles rithms and systems that can be reconfigured to adapt to varying user
to guide the organizational transformation needed to develop AI busi needs and contexts and that can trigger new solution applications
ness models in digital servitization. This represents an important step in beyond the initial purpose intended. Informants emphasized the
explaining the effective utilization of AI capabilities. For example, al importance of having a systematic way of evaluating AI solutions as part
gorithm development capabilities can generate valuable insights and of a modular architecture so that new modules are integrated seamlessly
predictions from customer data but, if these capabilities are not lever into a larger portfolio of integratable offerings. This approach also fa
aged within actual business operations and concrete customer offerings, cilitates efficiency and re-usability. A digital business manager at
the value may be lost. The data reveals three key principles that are Rockcorp described this principle:
central to AI business model innovation: agile customer co-creation (value
creation), data-driven delivery operations (value delivery), and scalable You need to build your AI solutions to be more modular so it can be easy
ecosystem integration (value capture). As demarcated before each princi to reconfigure by the people internally and in the ecosystem.
ple has a center of gravity towards one of the business model elements of
Finally, re-combinatory innovation commercialization is critical to
value creation, delivery and capture.
ensure that solutions are scaled. Over time, the agile co-creation
approach will lead to the development of a comprehensive portfolio of
4.2.1. Agile customer co-creation
AI services, enabling the provider to configure customized and poten
Agile customer co-creation focuses on value creation through devel
tially more complex solutions using discrete AI-service modules. Re
oping processes capable of rapidly broadening the scope of what the
spondents frequently mentioned how a successful AI solution that was
company can do with AI to support its customers while reducing
developed and implemented with one customer often resulted in novel
complexity through a modular approach. This is a crucial part of setting
business opportunities. For example, Rockcorp described how an AI-
up value creation processes to ensure the scalability and profit potential
enabled traffic management system can also be used to create a map
of AI.
of an underground mine so that problem areas can be identified. This
A key element is a customer-centric co-creation approach to speed up
helps to create novel AI-solution combinations by re-configuring exist
development and to deliver proof of value for AI solutions. The focus is
ing service applications across customer segments. Hence, companies
on supporting customer success (i.e., KPIs) by iteratively co-creating AI-
must harness flexibility and responsiveness in agile solution develop
enabled service solutions for their most pressing operational needs. In
ment to successfully introduce new functionalities. A digital lead from
formants noted that the inherent uncertainty of AI development means
Solutioncorp described the company’s approach:
that agility is required, with small beginnings (i.e., micro-services) on a
discrete use case with a clear value proposition that is subsequently We are starting to build a more comprehensive portfolio of AI service
refined and implemented in collaboration with the customer to applications building on our work in our different business units. The
demonstrate proof of value. For example, a strategy manager from goals are to be able to transfer these across industries and segments and be
Constructcorp explained that an agile co-creative approach entails a able to create new solution combinations. Certainly, there are always
different logic of development with an earlier launch of AI micro- adaptations required but, when we have this goal from the start, it also
services before they are fully developed and tested, allowing users forces us to be more modular and flexible in how we configure our
quicker access to the services, and granting them a collaborative role in applications.
the final development of a solution that more precisely fits the user’s
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4.2.2. Data-driven delivery operations loops to support valuable interactions with customers and increase ef
Data-driven delivery operations focus on transforming value delivery ficiencies in service delivery:
processes to use data and insights from AI in operational and strategic
AI will have profound implications for how we can service our customers.
decisions so that continuous improvement, learning, and innovation is
Particularly for smaller customers in remote locations who lack own skills
achieved. An important function of data-driven learning is that it is
in operational analytics. We can cost effectively support their sites
disintermediated because it does not always require direct interaction
remotely and optimize operations… The opportunities for increasing ef
with the customer. Thus, both front-line service technicians and back-
ficiency of use are great, and we can also get an understanding of their
line engineers and support staff can hold key roles in ensuring profit
operations to drive new service development and refine our internal
able value delivery. Many firms had set up remote data monitoring
processes.
centers to enable real-time support of customer and internal service
operations. There are also vast opportunities for securing a customer experience
A key use of such centers is data-driven customer engagement, which feedback loop. The active use and monitoring of AI solutions provide
ensures online support and monitoring of customers operations around many valuable insights for further development of AI capabilities and
the clock. A head of digital business development at Conglocorp offerings. Informants stressed that AI services must be tested and
described the mindset shift involved in working more closely with the improved in operational environments to create an explorative feedback
customer to utilize data insights: loop for ways to refine the underlying algorithms and data sources
powering the AI. Such feedback loops serve to identify new opportu
Instead of delivering pure figures into customer systems, we undertake to
nities for the development of next-generation AI services and processes.
contribute more directly to their productivity. This means closer collab
For example, Conglogcorp explained that dedicated AI monitoring
oration and greater responsibility, which may be felt to be a big step to
provided the ability to produce ever more accurate and sophisticated
take. But it’s the right way to go.
customer-behavior models and to tailor applications accordingly.
The benefit of such centers is that a few skilled engineers can monitor Indeed, the implementation of AI creates powerful opportunities for
the performance of whole fleets of customer machines and provide learning and improvement, which promote the development of new and
concrete suggestions for improvements based on evaluating the AI’s innovative AI services. By actively monitoring the AI predictions and
recommendations in real time. This means that customers can be offered comparing them to real-life events and contextualized knowledge from
increasingly detailed and appropriate advice on how certain operations front-line staff, the interests of ongoing training and AI model refine
can be performed more efficiently and how their machines can be used ment are also served. A digital manager at Shipcorp underlined the
optimally in specific situations. Data monitoring centers play an importance of the AI feedback loop for innovation and competitiveness:
important role in coordinating value delivery and AI usage among
The more we work with our data and algorithms to support our customers
remote monitoring centers, internal front-line staff, and customers. For
business the more we learn. We are uncovering hidden needs and patterns
example, a customer may be called up to check the status of the
within operations to address in the future, and we are uncovering new
equipment when an anomaly is detected (i.e., increased vibration), spare
application areas. But we are also uncovering limits to our current ca
parts may be ordered well in advance of actual breakdowns, and service
pabilities and improvement possibilities. This feedback loop will be critical
staff may receive detailed instructions on where to focus maintenance
for us to be a leading digitalization partner in the future.
based on analyzed process data. A head of digital business development
at Rockcorp described how they support customers with AI applications
in their operations: 4.2.3. Scalable ecosystem integration
Scalable ecosystem integration focuses on value capture by stimulating
We have implemented specialized centers for digitalization, AI, and
the ability of business units, customers, and ecosystem actors to co-
automation in strategic locations across the globe to help improve
produce new outputs and capture value from the AI in a more rapid
customer processes and boost productivity…. Customers utilizing this
and scalable manner. Our informants noted that ecosystems are playing
service for their projects can now turn their focus to other areas of the
an increasingly prevalent role as scaling catalysts as firms pursue a
business with the knowledge that [our] team of experts are carefully
digital servitization strategy based on AI.
monitoring progress on site and offering solutions in real time.”
To ensure scalability of AI efforts, informants stressed the impor
Another affordance of AI is optimized service delivery focusing on tance of value enablement partnerships to rapidly scale AI solutions and
continuous improvement of the internal service delivery processes for infrastructure. Of prime importance is the creation of dedicated part
front-line staff. As the informants explained, companies must embed nerships to provide access to back-end AI competencies that will support
analytics-based decision making in their customer-facing processes (e.g., the ongoing development of the business and its scalability. For
sales and service). Data monitoring centers exercise a critical role in example, leading global IT firms, such as Microsoft and IBM, were often
supporting the transformation of existing workflows and ensuring that integrated into the backbone of the business model by providing basic
front-line workers embrace analytics as an essential tool to challenge cloud infrastructure and algorithm support. Such partnerships provides
established thinking and augment their judgment. For example, Con the ability to handle the increasing volume of data generated by a
glocorp had leveraged its data and AI capabilities to implement routines rapidly growing number of users. This type of partnership is seen as a
for proactively identifying maintenance needs before a costly break critical enabler. For example, Conglocorp had exploited such partner
down and for making time savings in their service processes. The ben ships to build a comprehensive AI-enabled service portfolio by
efits of such data-driven learning is continuous improvement by leveraging their partners’ leading back-end AI expertise and their own
focusing on refining operational service routines. As our informants organization-wide in-depth contextual insights and access to operational
noted, the learning process is accelerated when AI services are quickly data in the mining context. The benefit of this approach is the scalability
implemented and monitored by a dedicated team that support existing where infrastructure costs can follow user adoption in a nonlinear way.
service staff so that new routines for value delivery can evolve through A digital lead from Solutioncorp recounted:
combinations of robust data and AI insights, operational experience, and
“Our partnership with Microsoft has been a vital enabler for us to be able
learning by doing. This provides a path to progressively develop AI-
to scale up our AI initiatives across broader customer segments. They
service delivery processes, AI-enabled support tools, and procedural
provide a backbone of infrastructure and easily configurable software
knowledge within the front-line organization. A portfolio manager from
tools to allow us to quickly ramp up and explore new solution areas. If we
Constructcorp described how data-driven learning can provide feedback
would have taken on this role ourselves, we would probably have drowned
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in the cost and lengthy time frame to get such an infrastructure up and powerful its base for learning, which further promotes the need for
running. scaling AI across broader ecosystems and customers. This allows
external actors to create new value propositions, driving revenue gen
A second important domain for value realization is leveraging value
eration without any corresponding cost increases. Informants also
expansion partnerships. This includes leveraging ecosystem partnerships
highlighted the potential of re-configuring AI solutions by using appli
with SMEs, startups, and OEMs to expand the scope of potential value
cations from multiple ecosystem actors. A partnership program manager
creation and capture. For example, smaller firms and startups can often
at Shipcorp explained the innovation potential of the ecosystem:
serve as vital partners when scaling AI initiatives. These firms often have
more specialized and/or industry specific expertise that can augment I think the key for us is to get this ecosystem up to scale. The more users
internal AI capabilities and catalyze AI business model innovation and and complementary app providers we have leveraging our platform and
organizational transformation. A head of digital business at Rockcorp machine learning algorithms, the more we will gain. A main source of
remarked how such a partnership had been vital in transforming its revenue is of course their usage of our platform, but I believe a lot of the
business model: future value will come from the solutions they build on top by recombining
applications for new types of use.
I think the partnership with [Specialized AI SME] has been vital in
instigating our transformation. They have filled important gaps in our
service portfolio to advance our market presence… But also helped us in
thinking how we could run the business more agile and scalable. It is clear 4.3. A co-evolutionary framework for scaling AI capabilities through
that we can’t do everything alone, and we need to open up to integrate the business model innovation
ecosystem.
This section brings together our key findings to present a co-
In this respect, it is important to prioritize open solution configura evolutionary framework for scaling AI capabilities through business
tion. This means focusing from the start on the degree of ease with which model innovation (see Fig. 2). Indeed, as our informants indicated, AI is
AI modules can be reconfigured to create new solutions for the entire on the verge of reshaping the strategies, offerings, operating models, and
ecosystem, including customers, delivery network actors, and partners. business models of manufacturing firms as they strive to provide more
A core element is to allow open APIs and SDKs for extended ecosystems. advanced digital services for their customers. Still, firms struggles to
For example, Shipcorp had focused efforts on reducing transaction costs scale AI to unlock this potential. Our results suggest that companies that
on their AI platform by allowing users and or complementors to excel at connecting business routines, aggregating and structuring the
customize application interfaces by building on their AI algorithms and data flowing between them, and extracting the value of the data through
structured data. Similarly, a head of digital business at Rockcorp analytics and AI applications in their business operations and ecosys
described their open approach: tems will be at an advantage. However, profiting from AI is not easy, and
manufacturers need to simultaneously prioritize capability develop
We want to be open and OEM agnostic in developing our solutions. This
ment, innovate their business models, and organize for scalability. For
increases our profit potential by offering analytics services not only on our
instance, if the last mile of democratizing AI is not completed (i.e.,
equipment but also other OEMs. On the other hand, we also gain benefits
engaging the required organizational resources and establishing proper
from an open ecosystem which can develop additional solutions to com
routines to monitor AI), AI solutions will never be delivered at scale and
plement our offerings.
the potential value of AI may be wasted. Our framework is designed to
Indeed, once an AI algorithm or data pipeline is developed, it can address these operational and scaling challenges by capturing the in
often be scaled across users with very low marginal costs and network sights and knowledge from leading manufacturers at the start of their AI
effects. In addition, the more users connected to an algorithm, the more journeys. We illustrate this iterative and co-evolutionary process with
reference to three overall, yet interdependent steps.
Fig. 2. A co-evolutionary framework for scaling AI capabilities through business model innovation.
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Develop interdependent AI capabilities. As a first foundational step, integration. Scaling towards service operations includes the breadth and
manufacturers should engage in the development of interdependent AI depth of uptake of AI as a supportive tool in servicing customers which is
capabilities – namely, data pipeline capabilities, algorithm development enabled by data driven delivery operation and scalable ecosystem
capabilities, and AI democratization capabilities. Without possessing these integration. Our findings suggest that the inherent feedback loops of
capabilities, organizations lack the necessary foundations to identify, building AI capabilities and following AI specific business model inno
assess, and exploit AI-related business opportunities. However, it is vation principles allows firms to achieve these scaling benefits.
important to recognize that significant investment in this process is
needed if appropriate routines, infrastructure, and activities are to be 5. Discussion
developed. Securing the data pipeline is foundational to get AI to work,
and defining contextualized algorithms building on internal expertise 5.1. Theoretical contributions
holds the core value-creating potential. Yet, without involving the or
ganization in democratizing AI to allow for internal experimentation, This study has sought to explore how manufacturing firms can
most AI initiatives will fail to scale and reach their potential. It is develop AI capabilities and business model innovation principles to
important, therefore, to highlight the interdependent and synergistic scale AI in digital servitization. Due to the recent development of AI as a
effects of different AI capabilities and the feeback loops among them. competitive driver in manufacturing, this field of research is still nascent
Indeed, possessing higher levels of certain capabilities is not always and in need of further development (Bailey et al., 2019; Iansiti &
beneficial if others are absent, implying a tradeoff between the costs and Lakhani, 2020; Parida et al., 2019; von Krogh, 2018). Our findings
benefits of AI capability development. provide empirical insights into the intermediate development steps to
Ensure scalability through AI-driven business model innovation ward AI-driven business model innovation by leading manufacturers
principles. Capabilities are not sufficient on their own. Firms need to engaged in digital servitization. We provide an in-depth characterization
actively transform and innovate their business models to leverage the of AI capabilities and key principles for business model innovation as a
application of AI by considering the underlying processes, organizations means to assimilate AI into business practice. We further elaborate on
structures, and usage of AI technology in business activities. We find the feedback loops and mechanism which enable scaling of AI business
that, at its core, a scalable transformation of the AI business model is models. More specifically, the study makes three theoretical contribu
driven by three fundamental principles: agile customer co-creation, data- tions to the AI, digital servitization, and business model innovation
driven delivery operations, and scalable ecosystem integration. First, agility literature.
and customer focus in defining AI use cases is key to getting AI opera First, we contribute with an in-depth characterization of what AI capa
tional for paying customers and providing the incentives and feedback bilities are and their micro-foundational routines and practices. This is an
loops required for organizational transformation. Embracing a modular important first step toward understanding AI capabilities in industrial
approach to AI solutions ensures that the focus is placed on scaling manufacturers engaged in digital servitization. Indeed, many scholars
different combinations of AI-enabled services across customer segments. have emphasized the importance of developing organizational capabil
Second, we find that profitable value delivery requires dedicated in ities to profit from AI and digitalization (e.g., Barro & Davenport, 2018;
vestments in real-time monitoring of AI solutions. The active monitoring Brock & Von Wangenheim, 2019; Iansiti & Lakhani, 2020; Shrestha
and use of AI is key to creating a data-driven culture where the benefits et al., 2019; von Krogh, 2018; Sjödin et al., 2020b). However, the
of AI capabilities are exploited for the purpose of optimizing both management literature sheds little light on what these capabilities
customer-facing and internal processes. Finally, the ecosystem is key in actually are (Brock & Von Wangenheim, 2019; Tarafdar et al., 2019) and
making the application of AI scalable, both in creating a scalable how industrial firms develop them (Iansiti & Lakhani, 2020; Parida
infrastructure for AI and in providing trust and inspiration for the et al., 2019). To overcome this crucial knowledge gap, we conducted the
transformation. Our informants underlined the importance of openness first in-depth analysis and identification of AI capabilities for industrial
and the need to harness generativity to let ecosystems drive the firms in a business-to-business setting. We conceptualize three sets of
recombination and innovation of internal AI resources. Our findings interdependent AI capabilities for industrial manufacturers: data pipe
suggest that these principles has synergistic benefits creating feedback line capabilities, algorithm development capabilities, and AI democra
loops and learning both within the business model innovation process (i. tization capabilities. Studies such as ours can make a contribution to the
e. between elements) and also feeding back to AI capability development rapidly emerging frameworks and literature on digital servitization and
such as motivating further algorithm development or investments in the the ways in which AI can offer valuable digital opportunities for servi
data pipeline. tization to create and capture new value (Autio et al., 2018; Kohtamäki
Leverage scaling mechanisms for AI-driven business model inno et al., 2019). In particular, our conceptualization of AI democratization
vation. The firms we studied argued that co-evolution of AI capabilities capabilities is particularly relevant in coming to understand the appli
and AI business-model innovation principles reinforces the potential to cation of AI in modern business organizations through collaborative
scale AI-enabled business models and offerings beyond individual use application development and democratization of AI affordances. This
cases to broader customer segments while simultaneously increasing the study encourages scholars to specifically focus on the application of AI
scope of offerings. We envision this as an iterative process and co- as a foundational element in the next generation of digital servitization
evolutionary process where capabilities, offerings, operational pro and expansion of digital service business (Gebauer et al., 2020; Koh
cesses, partnerships, and business models for AI co-evolve over time and tamäki et al., 2019; Sjödin et al., 2020b). Such a view has been largely
build on each other. In our conceptualization, scalability refers to the lacking.
provider’s ability to expand its initial AI solution and scope so that it can Second, we contribute to the literature on AI and digital servitization
reach a larger market space and achieve economies of scale internally by uncovering key principles for AI-driven business model innovation in
and externally. This includes increasing the number of customers or digital servitization. While recent research by Iansiti and Lakhani (2020)
users as well as the rate of adoption in internal processes and expanding has placed strong emphasis on the business model as a vehicle for
its portfolio of offerings and revenues from AI. Scaling towards customers ensuring AI application in firms, there are still many knowledge gaps,
includes both breadth of AI services offered to multiple customer seg particularly in the industrial domain. Iansiti and Lakhani (2020) provide
ments and the depth of AI service value offered to a particular customer specific, in-depth examples of how AI has been applied in the business
or site which is enabled by agile customer co-creation and data driven and operation models of leading B2C firms, such as Ant Financials,
delivery operations. Scaling of offerings includes the breadth of diverse AI Amazon, and Google, although less so in the industrial domain.
offerings and the depth of increasingly complex AI service solutions Accordingly, our analysis of six leading industrial companies provides
which is enabled by agile-customer co-creation and scalable ecosystem the first empirical evidence of how companies incorporate and scale AI
584
capabilities into their business models by identifying key transformation further research. First, we studied industrial firms engaged in AI-based
principles. In our framework, we highlight three underlining principles digital servitization to better understand and define AI capabilities
for AI business models related to agile customer co-creation, data-driven and business model innovation principles. Arguably, AI capabilities are
delivery operations, and scalable ecosystem integration. We argue that likely to be less context dependent than traditional capabilities (Iansiti &
these principles form the initial key steps for a traditional manufacturing Lakhani, 2020), but we cannot judge the generalizability of the present
firm to capitalize on its AI capabilities and offer diverse digital serviti findings without further research. In particular, business model inno
zation business models. In particular, we illustrate intermediate steps in vation principles may vary between B2B and B2C. The case firms are all
scaling AI from initial proofs of concept towards broader business model large, well known, and internationally diversified industrial manufac
adoption which is regarded as a key problem area (Parida et al., 2019) turers. We encourage scholars to examine our findings in other contexts
This approach broadly responds to previous calls for research to develop and to extend or modify them as appropriate.
a greater understanding of AI capabilities and business model linkages Second, we believe that opportunities exist to move beyond our
for value creation (Bailey et al., 2019; Colbert, Yee, & George, 2016; empirical focus on digital servitization and examine the capabilities and
Hadjimichael & Tsoukas, 2019; von Krogh, 2018). principles that support the successful use of AI for other applications
Third, we contribute to the literature on (digital) business model such as the introduction of AI into vehicles, retail stores, or digital
innovation by illustrating how the scaling of AI-driven business model shopping platforms and address alternative ways for companies to use AI
innovation is supported through interdependencies, feedback loops and co- capabilities. It will be interesting to see whether, to what extent, and
evolutionary processes. These findings are nested within and between how firms working on these applications need different AI capabilities
the processes of development of AI capabilities and key principles for AI from the ones presented in this study.
business model innovation. While this underlying logic is suggested in Finally, we believe that further research should study the identified
the literature on AI (Brock & Von Wangenheim, 2019; Iansiti & Lakhani, capabilities (e.g., AI democratization) and business model innovation
2020; Jovanovic et al., 2021) and business model innovation (Gebauer principles in greater detail and extend our framework to include related
et al., 2020; Sjödin et al., 2020b), more insights are needed. Our paper capabilities and business models that allow companies to exploit the
offers initial insights into these feedback loops and how value is created, identified capabilities fully. For example, ecosystems are becoming
delivered, and captured through the application of AI capabilities to increasingly important in the era of AI, and future research could devote
drive business model innovation. In particular, this study illuminates the increased attention to ecosystem orchestration, governance, partnering,
logics and mechanisms that help explain the linkages between the and new types of shared revenue models for AI (Jovanovic et al., 2021;
business model shift toward digital servitization, AI capabilities, busi Kamalaldin, Sjödin, Hullova, & Parida, 2021; Sjödin, Parida, & Koh
ness model transformation, and business model innovation. Yet, these tamäki, 2019). In addition, the role of AI capabilities in driving the
processes and linkages are ripe for further research and detailed transition to autonomous solutions (Thomson, Kamalaldin, Sjödin, &
investigation. Parida, 2021), smart cities (Linde et al., 2020) and a more sustainable
and circular economy appears promising (e.g., circular business
5.2. Managerial contributions models). It seems likely that AI capabilities will play an even more
prominent role in the future, and the present article is merely a first step
AI is the engine that drives digitalization, and the companies that can toward an understanding worthy of their importance.
execute AI capabilities in scale within their business model are those
that will prosper in the future. In today’s world, every firm is working on Declaration of Competing Interest
AI-driven transformation in some shape or form. However, the charm of
AI fades within a short while, when organization/s realize that they have The authors declare that they have no known competing financial
not been able to scale AI across business processes to meet profit ex interests or personal relationships that could have appeared to influence
pectations. Indeed, in AI, “the gap between ambition and execution is the work reported in this paper.
large at most companies” (Ransbotham et al., 2017, p. 1). A McKinsey
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journals such as Industrial Marketing Management, Strategic Entrepreneurship Journal, Long
(2018). Big data, big decisions: The impact of big data on board level decision-
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586
Joakim Wincent (Ph.D. from Luleå University of Technology, Sweden), is Professor in organizations. Previous articles by him have been published in journals such as the
Entrepreneurship and Management at Hanken School of Economics, Finland, and a pro Academy of Management Review, Strategic Management Journal, Harvard Business Review,
fessor in Entrepreneurship and Innovation at University of St.Gallen. His current research Journal of Management Studies, Journal of Business Venturing, Entrepreneurship Theory and
interests include technology, artificial intelligence, management, and innovation in Practice and others.
587

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Journal of Business Research 134 (2021) 574–587

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How AI capabilities enable business model innovation: Scaling AI through

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