Identify digital transformation theories mentioned in the article

SMR JOURNAL OF SERVICE B 20280 MANAGEMENT RESEARCH SMR . Journal of Service Management Research . Issue 02/2018 EDITORS Digital Transformation in Service Management Martin Matzner, Marion Buttgen, Haluk Demirkan, Martin Benkenstein Jim Spohrer, Steven Alter, Albrecht Fritzsche, Irene Manfred Bruhn C. L. Ng, Julia M. Jonas, Veronica Martinez, Kathrin M. Moslein and Andy Neely Marion Buttgen Christiane Hipp Mixed Effects of Company-Initiated Customer Engagement on Customer Loyalty: Martin Matzner The Contingency Role of Service Category Friedemann W. Involvement Nerdinger Lena Steinhoff, Carina Witte and Andreas Eggert How to Manage Person-Role Conflicts: Differential Effects of Transformational Leadership Dimensions and the Moderating Role of Individual Cultural Orientation Veronika L. Selzer, Jan H. Schumann, Marion Buttgen, Zelal Ates, Marcin Komor and Julian Volz The Impact of Psychological Ownership on Value in Use and Relational Outcomes Michael Kleinaltenkamp, Franziska Storck, Patrick Gumprecht and Jingshu Li Volume 2 2/2018 C.H.BECK . Vahlen . Munich www.journal-smr.de 2650201802Digital Transformation in Service Management By Martin Matzner, Marion Buttgen, Haluk Demirkan, Jim Spohrer, Steven Alter, Albrecht Fritzsche, Irene C. L. Ng, Julia M. Jonas, Veronica Martinez, Kathrin M. Moslein, and Andy Neely Martin Matzner is Professor of Digi- Marion Buttgen is Professor of Cor- Haluk Demirkan is Milgard En- Jim Spohrer is Director of Cognitive tal Industrial Service Systems at porate Management at University dowed Professor of Service In nova- Opentech Group (COG) at IBM Re- FAU Erlangen-Nurnberg, Lange Gas- of Hohenheim, Institute of Marke tion & Business Analytics, Milgard search - Almaden, 650 Harry Road, se 20, 90403, Nurnberg, Germany, ing & Management (570B) School of Business, University of San Jose, CA 95120, USA, E-Mail: martin.matzner@fau.de SchwerzstraBe 42, 70599 Stuttgart, Washington - Tacoma. 1900 Com- E-Mail: spohrer@us.ibm.com * Corresponding Author. Germany, merce Street, Box 358420; Tacoma, E-Mail: buettgen@uni-hohenheim Washington 98402-3100, USA, de E-Mail: haluk@uw.edu Steven Alter is Professor Emeritus Albrecht Fritzsche is a senior re- Irene C. L. Ng is Professor of Mar- Julia M. Jonas is postdoctoral of Information Systems at the Uni- search fellow at the Institute of keting and Service Systems and Di researcher at the Institute of Infor- versity of San Francisco, 2130 Ful- Information Systems at FAU Erlan- rector of the International Institute mation Systems at FAU Erlangen- ton Street, San Francisco, CA 94117, gen-Nurnberg, Lange Gasse 20, of Product and Service Innovation Nurnberg, Lange Gasse 20 USA, E-Mail: alter@ usfca.edu 90403 Nurnberg, Germany, at the University of Warwick, Cov- 90403 Nurnberg, Germany, E-Mail: albrecht.fritzsche@fau.de entry CV4 7AL, UK, E-Mail: julia.jonas@fau.de. E-Mail: irene.ng@warwick.ac.uk Veronica Martinez is Senior Kathrin M. Moslein is Professor of Andy Neely is Pro-Vice-Chancellor: Research Associate, Cambridge Innovation & Value Creation and Enterprise and Business Relations Service Alliance, Institute for Manu- Vice President at FAU Erlangen- at University of Cambridge, Old facturing, 17 Charles Babbage Nurnberg and a research professor Schools, Trinity Lane, Cambridge, Road, Cambridge, CB3 OFS, UK at HHL Leipzig Graduate School of CB2 1TN, UK, E-Mail: vm338@cam.ac.uk Management. FAU, Lange Gasse 20, E-Mail: andy.neely@admin.cam 90403 Nurnberg, Germany, .ac.uk E-Mail: kathrin.moeslein@fau.de SMR . Journal of Service Management Research . Volume 2 . 02/2018 . P. 3-21 3Matzner et al., Digital Transformation in Service Management open research areas related to a better understanding of The digital transformation of single companies and this phenomenon. of entire service businesses is an omnipresent topic - not only in the academic discourse but also in the Martin Matzner and Marion Buttgen (both are editors of current public debate. The topic is often ap- this journal) provide the first commentary which unfolds proached phenomenologically. We invited a group their viewpoint on what the digital transformation of ser- of well-renown scholars from different academic vice is and in how far the digital transformation impacts fields to share with us personal observations and service management. Steven Alter shares his observations interpretations of the digital transformation in ser- on service systems that are derived from work systems vice management in the form of individual com- theory. He argues why this perspective provides an im- mentaries that go beyond. The commentaries we portant opportunity to advance the understanding of the received are based on different theoretical perspec- operational impact and the service management chal- tives. They include motivations of why digital trans- lenges that are associated with digital transformation. Ha- formation makes service management research luk Demirkan and Jim Spohrer stress the role played by digi- (smr) more relevant, they depict implications for tal, smart machines in digital transformation. They ob- service companies, and they outline research needs. serve that the transitioning to service based on smart de- This article conflates the submitted commentaries, vices is underway for organizations, and specific ap- and it is the first SMR special research paper - a proaches are required now to customize the organiza- paper type that will be continued in future issues to tion's strategy and culture. Albrecht Fritzsche and Irene Ng explore topics in a similar fashion that are likely to explain how the service science approach offers a unique have a significant influence on the development of perspective on digital transformation, which is according smr . to the authors because this approach turns its attention to- wards "the construct which will determine future indus- try". Julia M. Jonas, Veronica Martinez, Kathrin M. Moslein, Introduction and Andy Neely consider the research concept of co-crea- tion in living labs. In the digital era, digital services be- Computing capabilities increased exponentially in power come subjects of living labs. Furthermore, digital transfor- and relatively decreased in cost over several decades mation helps create more and better interactions between (Moore 1974), which led to today's broad spectrum of IT- the involved organizational entities and the living lab based automation of work in companies, public adminis- platform and/ or co-creators. trations, and private households. Over the last at least six- ty years, various job profiles, comprehensive management ields, and entire research disciplines emerged and sus- Viewpoints on the Transformation Process tained that are concerned with the practical improvement and with the academic investigation of the interplay of IT By Martin Matzner and Marion Buttgen and how tasks are executed in organizations and / or the Digitalization and the digital transformation are terms that interplay of IT and their human users (Hirschheim and received huge consideration in the course of business, in Klein 2012; Heinrich 2012). discussions of the general public, and in the academic Given this long-term nature of the trend towards in- discourse (Brennen and Kreiss 2016). The attributed eco- creased IT-based automation (Mertens et al. 2017) and nomic impact of digitalization is for instance underlined from the viewpoint of the editors of this journal, the atten- by the Digital Transformation of Industries project tion that digitalization or a digital transformation of different launched by the World Economic Forum which investi- businesses (Matt et al. 2015) receive as topics in the second gates how the digital transformation of various indus- part of this decade is astonishing. The SMR editors there- tries will progress (World Economic Forum 2018). Politi- fore strongly believe that the topic requires a more thor- cians and governments have also started to emphasize ough review than it finds expression in the current public the importance of digitalization. In Germany, the 2018 debates. coalition agreement of the newly formed government lists the topic as a dedicated item ("Offensive on educa- This "special" research paper, therefore, intends to offer tion, research and digitalization") (Koalitionsvertrag in-depth reflections brought together through commen- 2018, in German). In such political agendas, the topic is taries of respected scholars on the subject of digital trans- handled as an abstract political goal ("get economy or formation in service management. The authors either work in society or workforce/ pupils prepared for the digital age the field of service management, service science or infor- ..") with infrastructure questions ("broadband expan- mation systems. The commentaries provide the authors' sion") and educational needs discussed as required po- perspectives on, for instance, open research questions and litical measures. 4 SMR . Journal of Service Management Research . Issue 02 . 02. Quarter 2018Matzner et al., Digital Transformation in Service Management The general public is complaining that experts emphasized on the future earnings of the technology companies exist that the topic is huge, complex and multifaceted, but apart in the financial market (irrespective of any methodologi from abstract statements they failed in precisely formulat- cal problems of classifying brands' value correctly). ing what digitalization is about (Brost et al. 2018). Accord- ingly, the topic is discussed phenomenologically - both in Core technological developments: Beyond the pure ongoing public debate and in the academic discourse. Certain cases increase in computational processing power we men- are repeatedly mentioned as examples to indicate sup- tioned above, certain fundamental technological develop- posed, abstract game-changing effects of digitalization on ments could be observed in the recent years. Outstanding businesses including the recent case of Amazon Go. among them, all humans participate today in a global IT network that connects all of them. The Internet of Things Amazon opened a grocery store to the public that works will soon use the same infrastructure to network virtually without a checkout-line in early 2018 (Wingfield 2018), all physical items as "smart" objects to human users and which has been made possible by using (digital) technolo other objects (Oriwoh et al. 2013). Evans (2012) called the gies such as computer vision and machine learning. An resulting infrastructure an "Internet of Everything" that obvious consequence, in this case, is that a store without links smart objects, humans, and data via connected digi- checkout lines renders cashiers redundant. Although Am- tal processes to deliver value. azon claims that people do not lose their jobs but merely change roles, in other cases job losses caused by digitaliza- Against the background of these observations, we now tion are conceivable. While Amazon Go certainly marks a would like to attempt unfolding our viewpoint on what significant change concerning the way people buy grocer- digitalization is and how it impacts service management. les it is not as innovative as it might seem based on the ex- We shared some reflections in this journal's first issue arti- cessive media coverage. There are other examples of re- cle on future "Topics for Service Management Research" tailers, such as Metro AG, which discussed similar plans (Benkenstein et al. 2017), including the fundamental ob- and decided to partially remove checkout lanes in their servation that digitalization impacts the nature of service shops starting from the early 2000s (Retail Info System management's core subject matter - the services. We, 2003 ). therefore, start with our thoughts on the digital transfor- mation of services before we discuss these developments' Beyond anecdotal evidence, the following three observa- impact on service management and service management tions could indicate a disruptive change that exceeds a research. pure ongoing trend of increased IT-based automation: in- creased management awareness, financial markets expec- The digital transformation of services tations, and core technological developments. In Benkenstein et al. (2017) we explained the digital trans- Management awareness: In these days, the large corpora- formation of services by reusing Porter's and Heppel tions set up dedicated management board positions, cre- mann's (2014) metaphor of three waves of IT transforma- ate and expand specific departments and initiate strategy- tion: Wave 1 relates to using IT as instrument to automate development processes related to digital transformation single activities; wave 2 refers to IT implementing and re- on a large scale. Volkswagen AG is, for example, going to placing increasing chains of processes and to the availabil create a new executive board position for "digital and IT ity of digital infrastructures to coordinate activities and to topics" while Deutsche Bahn AG has already appointed a cooperate; wave 3 was the digitalization of the product new board member responsible for these topics (Deutsche and / or service itself. Bahn 2018; Freitag 2017). According to Kawohl & Schnei- der (2017), 40% of the companies listed in the German The Business & Information Systems Engineering journal re- DAX index have already instituted CDOs or comparable cently published a catchword on robo-advisory (Jung et positions whereby job content, responsibility, and accep al. 2018), a topic whose genesis provides a good illustra- tance of job holders within the organizations frequently tion of the three waves.' The service robo-advisory is a digi- still need to be clarified and ensured. The future will tell talized "wave-3" service that comprises the levels custom- us if the mentioned measures were phenomena of misallo- er assessment and customer portfolio management, which are cation of resources in consequence of an unjustified hype both executed by computer programs. The first level re- (Mertens et al. 2017) or not. fers to online forms to find out about the current financial situation, the risk strategies, etc. of a certain customer; the Financial markets expectations: According to Forbes (2017), second level is the automatic setup and potentially the on- among the world's 25 most valuable brands there are 10 going maintenance of the portfolio according to data re- brands classified as belonging to the area "technology". ceived from the assessment. These 10 brands sum up to a brand volume of 649.20 bn E, while the other 15 brands are valued at 498.80 bn E as per "Catchwords" describe emerging technologies and impor- this data. The quintessence is that impressive expectations tant phenomena for the BISE community. SMR . Journal of Service Management Research . Issue 02 . 02. Quarter 2018 5Matzner et al., Digital Transformation in Service Management The catchword sees robo-advisory as a second step of dig- Of the leading technological developments in the recent de- italization in financial advisory. The proliferation of online cade, artificial intelligence (Al) is probably the most power- banking and brokerage platforms was a previous large ful source of innovation and will strongly influence ser- "wave-2"-type) change. Before that "traditional adviso- vice management in the future (Rust and Huang 2014). ry" was in place that already used IT as an instrument to Characterized by the self-learning abilities of machines assist in certain activities. Robo-advisory therefore repre- which exhibit aspects of human intelligence, AI will affect sents what we in line with Beverungen et al. (2017a, p. service management in two main ways. First, it provides 784) call a digital service and which they define - in varia- opportunities to increase the effectiveness and efficiency tion of Vargo's and Lusch's (2007) definition of service - as of service provision and customer interaction (Lariviere et the application of "digital competencies [..] for the benefit al. 2017; Marinova et al. 2017; Rust and Huang 2012), such of another entity or the entity itself". as by using Al applications for medical diagnoses or intel- An important promotor for new digital services is digitally ligent chatbots to support customer interactions. Second, connected objects constituting the Internet of Things. Digital- and as a consequence, AI threatens human service jobs in ly connected objects become smart devices if they incorpo a wide range of industries, from bus drivers and call cen- rate "technologies for sensing, actuation, coordination, com- ter agents to financial analysts and even lawyers and doc- munication, control, etc." (National Science Foundation tors (Huang and Rust 2018). Robotics represents another 2016, p. 2). Then smart devices facilitate smart service sys- multifaceted technological field that is gaining relevance tems (Beverungen et al. 2017a)." In these systems, smart ob- for service management (Colby et al. 2016), though so far ects allow to monitor, optimize, or remote control smart de- mainly as a device to support or replace mechanical, re- vices or smart devices can autonomously adapt to their envi- petitive work that does not require highly skilled knowl- ronment (Beverungen et al. 2017b). A smart service is delive edge workers. Because such service work is not very at- ered to or via an intelligent object that is able to sense its own tractive to most employees, and those who perform it of- condition and its surroundings and thus allows for real-time ten suffer physical or psychological ill health effects, this data collection, continuous communication and interactive option nevertheless provides considerable potential for re- feedback (Wunderlich et al. 2015). The devices will provide organizing work and achieving productivity gains. In ad- companies with data on the products' uses which allows de- dition, advanced robots are gaining enhanced senses, dex- veloping new data-based services, and smart devices will al- terity, and functionalities, enabling them to perform a bro- so develop into platforms to deliver services from the dis- ader scope of manual tasks and thereby changing the na- tance (Beverungen et al. 2017b) such as a smart heating con- ture of work across various service industries and occupa- trol which allows the user to optimize its operation via an tions (Frey and Osborne 2017). In the growing area of el- App and based on sensors. Another example is ambient as- derly care, Caize et al. (2018) e.g. show that - from a recipi sisted living, where a house or a person is equipped with sen- ent's point of view - socially assistive robots might fulfill a sors and actors monitoring the person's activity (Wunderlich larger variety of supporting functions, such as safeguard- et al. 2015). The manufacturer can deliver assistance in opti- ing, social contact, and cognitive support. In the recent mization as a service but also monitor its entire installed base past though, hardly any technology has gained as much from the distance and use aggregated data to gain product attention and notoriety as blockchain technology also re- insights and to create new services. ferred to as distributed ledger technology (DLT). Al- though mainly associated with cryptocurrency like bitco- The digital transformation of service management in, blockchain technology has even greater potential to disrupt business and commerce (Zamani and Giaglis On the basis of reflections about what the digitalization of 2017), due to its core mechanics. It replaces a central serv- services means and how an ongoing disruptive change of er's signature with a consensus mechanism based on the (service) economy is indicated by managerial aware- proof of work (Pilkington 2016) or similar consensus algo- ness, financial expectations, and core technological devel- rithm, without any mediation by financial institutions that opments, we provide a framework for analyzing the im- serve as trusted parties (Zamani and Giaglis 2017). In pact of digital transformation on service management. many cases, service provision entails decentralized trans- Within this framework, we identify three important tech- actions, with multiple actors spanning service networks nologies that affect service management, from both a mac- (Tax et al. 2013), such as e-commerce platforms, access- ro-perspective (i.e., the transformation of service indus- based services, logistics, or healthcare systems. Because tries and business models) and a micro-perspective (i.e., blockchain technology ensures that each transaction is fulfilling service tasks and jobs) protected through a digital signature, sent to the public Notably, Jung et al. (2018) call robo-advisory a smart service al- key of the receiver from the privately held key of the send- though it does not include smart objects. Instead they charac- er, it can enhance the safety and efficiency of service trans- terize smart service as a result of increased IT-based automa- actions and reduce the transaction costs for all parties in- tion using algorithms and intelligent software. volved. This might cause a disintermediation effect, by 6 SMR . Journal of Service Management Research . Issue 02 . 02. Quarter 2018Matzner et al., Digital Transformation in Service Management which existing intermediaries such as banks or notary ser- ings that replace software products. The development to- vices will be driven out of value chains (Zamani and Giag- ward an Internet of Things (loT) also allows companies to lis 2017). At the same time, cyber-mediation might arise, offer novel services, such as remote control and predictive with new intermediaries entering the market and acting maintenance solutions (Beverungen et al. 2017b). Some as DLT service providers (Manning et al., 2016). traditionally product-based industries already have expe On a macro-level, digital transformation affects service rienced a far-reaching shift in their business models due to management because so many service industries are fac- digitalization (Brax and Jonsson 2009; Ng and Waken- ing disruptive changes to their entire business. New play- shaw 2017; Wunderlich et al. 2015). For example, using ers - often IT companies - emerge in traditional service IoT technology including big data, self-steering tractors, markets and threaten established service providers (e.g., drones, and satellite imagery, the agricultural industry has Amazon and Alibaba in retail, Uber, and Google in mobil- altered its business models, toward precision agriculture ity, Airbnb in hospitality) (Perren and Kozinet 2018). With solutions. Yet companies still face the notable challenge of their digital business models and vast market coverage, deriving profitable new business models that rely on they function as game changers, both in established mar- smart service provision (Reinartz and Ulaga 2008). kets and beyond traditional market boundaries. In several On a micro- or company level, digitalization affects service cases, they have successfully built new forms of competi- management related to performing single tasks and whole tive power, creating a hub economy with one or a few domi- jobs, including the necessary leadership during digital nant players. Companies rapidly develop network orches- transformations. According to Huang and Rust's (2018) trating skills, with a goal of creating an ecosystem that theory of Al job replacement, service tasks require four connects customers to a range of services, other custom- types of intelligence, to varying degrees: mechanical, ana- ers, and/ or other providers (Lariviere et al. 2017). Iansiti lytical, intuitive, and empathetic. They anticipate that "AI and Lakhani (2017, p. 87) refer to this development as the job replacement occurs fundamentally at the task level, "digital domino effect," to describe a process in which rather than the job level, and for 'lower' (easier for AD) in- more and more markets tip and the many players that tra- telligence tasks first" (Huang and Rust 2018, p. 1). This ditionally competed in separate industries get reduced to prediction implies three key outcomes: First, tasks with in- just a few hub firms that capture growing shares of the creasing levels of intelligence will be replaced by AI over overall economic value created (lansiti and Lakhani 2017). time, such that the more tasks can be replaced by Al, the Prominent examples of this digital domino effect emerge fewer human workers will be needed. Second, different from the music business (which has tipped to Apple, kinds of services will benefit to varying extents from AI; Google, and Spotify), the computer and software market for example, services based mainly on human interaction losing ground to the cloud services provided by Amazon, will be more difficult for Al to replace. Third, Al applica- Microsoft, Google, and Alibaba), home entertainment tions in service provision might drive competitive advan- dominated by Amazon, Apple, Google, and Netflix), and tages, in that firms that employ a cost leadership strategy the e-commerce market (with Amazon and Alibaba gain- will use more AI replacement, whereas firms with a quali- ing considerable worldwide market share) (lansiti and ty leadership strategy will use more human labor and less Lakhani 2017). As these examples show, due to digital Al (Huang and Rust 2018). Based on estimates using a connectivity and network effects, formerly separate ser- Gaussian process classifier, Frey and Osborne (2017) come rice industries increasingly conflate, with the same few to similar results in that jobs that are characterized by players dominating this digital hub economy. In the fu- originality, persuasion, negotiation or assisting and caring ure, a single app conceivably might be the digital hub of a for others exhibit a lower probability of computerization. whole economy; e.g. in China, most people already man- Human interaction also might grow more important, for age most aspects of their lives through WeChat (Chan, both employee-customer and supervisor-employee rela- 2015). This far-reaching development will affect the direct- tionships, in which case the job replacement effect might y involved companies but also will have severe conse- be mitigated by a kind of counterrevolution. Giebelhau- quences for the entire market structure, the competitive sen et al. (2014) show that infusing technology into service forces within these "new markets" (including providers encounters leads to less favorable evaluations when those on different levels of the service network), and consumers. interpersonal exchanges are marked by employee rapport. Digitalization also drives servitization, which refers to the Accordingly, it probably will be beneficial to replace tasks transformation process of shifting from a product-centric with no need for human interaction by Al or service ro- to a service-centric business model (Vandermerwe and bots. Then the remaining employee resources can be used Rada 1988). This transformation is often enhanced by to a higher degree to build rapport and empathy with cus- technological developments that enable companies to of- tomers, augmented by AI only where appropriate and ap- fer additional services or substitute their products with plicable. Likewise, supervisors can focus more on their ro- services, such as cloud-based "software as a service" offer- les as coaches and mentors, instead of decision makers SMR . Journal of Service Management Research . Issue 02 . 02. Quarter 2018 7Matzner et al., Digital Transformation in Service Management and instructors - roles that can be performed more easily (Demirkan et al. 2016). Today smart machines are becom- by Al. As Chui et al. (2015) show, a significant percentage ing like humans by recognizing voices, processing natural of the tasks assigned to even senior managers can be auto- language, learning, and interacting with the physical mated, though leadership in the sense of leading people world through their vision, smell, touch and other senses, probably cannot be replaced by AI. mobility and motor control. In some cases, they do a much faster and better job than humans at recognizing patterns, performing rule-based analysis on very large amounts of Service Transformation Enabled by Digital: data, and solving both structured and unstructured prob- Smart Machines lems By Haluk Demirkan and Jim Spohrer When we look at almost all innovative solutions, we see that they are about increasing employees' productivity Introduction and customers' satisfaction with new services, reduction Escalating costs, mergers and acquisitions, new regula- in the cost of backstage and frontstage service activities tions, rapidly changing technology, increasing competi- and augmenting people. We call this move to agility tion, heightened customer expectations, higher turnover, through innovation as "service transformation enabled by all mean that organizations must become more responsive digital - not digital transformation". This is primarily about value co-creation with customers through more ser- to changing demands, innovative and efficient. For large vices, and also value-creation with internal stakeholders businesses failures can drag on for many years and some- times decades before the final death knell sounds. Howev- through service capabilities. In the last two decades, ser- er, other business failures occur more suddenly, like driv- vice systems and networks have used digital technologies ing off a cliff (e.g. Motorola, Lehman Bros, Firestone, RCA, to scale up and accelerate the realization of value from Kodak, Lucent, Yahoo and Kmart). knowledge with new service offerings. This turbulence in today's business world requires organi- Despite the multitudes of publications that can be found zations to be able to reallocate their available resources on service-dominant logic (Vargo and Lusch 2004), ser- and/ or acquire additional resources as their priorities and vice-oriented technologies (Arsanjani 2004; Demirkan and demands change (Fowler et al. 2000). To compete in the Goul 2006; Demirkan et al. 2009; Spohrer et al. 2007) and marketplace and maintain relevancy, companies need to service science (Bitner and Brown 2006; Chesbrough and Spohrer 2006; Vargo and Lusch 2004), several questions innovate constantly. For the past decade, many organiza- tions have focused on traditional product innovation are still left open. What will be the implications of service methods to address the challenges of globalization and transformation enabled by digital for institutions and workers economic transformation. Most of them are still clinging to what we call the invention model, centered on struc- tured, bricks-and-mortar product development processes Implications for Institution and Workers and platforms. Today, if a customer is buying a product, The economy today is moving into a new era, under- that customer wants to "hire" a product to do a job - a ser- pinned by cyber-infrastructure, a new architecture of com- vice. puting as well as both the new business models and insti- Influenced by the emerging field of service science, ser- utional infrastructures they enable. Those changes are vice capabilities have gained attention in the past few driven by the convergence of a number of historic devel- years, offering approaches to developing more flexible opments: business processes that co-create value with customers Network Ubiquity. Global inter- and intra- connectedness (Prahalad and Krishnan 2008). For example, Macy's Lucy create countless opportunities for collaboration. In rough- who assists shoppers in stores, and Lowe's LoweBot ser- ly a decade, the Internet - the most visible evidence of an vice customers as retail service robot. None of these increasingly networked world - has reached over a billion would have been possible without growing knowledge of people. It is linking people, businesses and institutions, as digital technologies (e.g. mobile, IoT, cloud, big data, cog- well as trillions of devices. It is facilitating and transform- nitive computing, artificial intelligence, intelligence aug- ing transactions of all kinds - from commerce, govern- mentation) design, execution, storage, transmission and ment services, education and health care, to entertain- reuse is creating opportunities to configure IT into service ment, conversation and public discourse. relationships that create new value by reducing costs, in- New Business Models. The simultaneous emergence of the creasing efficiency and improving outcomes. networked world, technology and open standards is en- There is no doubt that computers are increasingly capable abling entirely new business designs that were not feasi- of doing things that humans could once do exclusively ble before. Companies can now be far more flexible and 8 SMR . Journal of Service Management Research . Issue 02 . 02. Quarter 2018Matzner et at, Digital "transformation in Service Management responsive to changes in the economy, buyer behavior, supply, distribution geopolitical. That is because their business operations can be integrated horizontally, from the point of contact with customers through the extended supply chain, and be resourced horizontally, from the point of technology resources to human resources. The Changing Nature of Innovation; Open, Rapid, Collaborae ve The most important innovation occurring today is in the changing nature of innovation, itself. It happens much faster today and it diffuses more rapidly into our every- day lives globally; it is far more open as a way of breaking out of 'silos' and breaking through boundaries and collab- orative for sensing, seizing and managing new levels of socioeconomic transformation, based on opportunity sharing within and between multidisciplinary, multisec- tor, multicultural researchers, practitioners and policy makers (Swink 2006). The changing nature of workers. Today, more people are changing companies; more people are working as inde pendent contractors; more graduates are becoming entre- preneurs; more people are changing organizational roles. The changing nature of workers will inevitably require corresponding workforces, who are \"cathedral builders\Matzner et al., Digital Transformation in Service Management Service Transformation Enabled by Digital: Smart Machines. tion and delivery and improvement in customer-per- Now, we are at an urge of another transformation. Some ceived service quality (Tab. 2). people call this "digital transformation." We call it "ser- vice transformation that is being enabled by digital and The overall goal of any transformation, including service mostly smart machines." According to many studies, digi- transformation, is to increase the productivity and creativ- tal transformation is revolution of business and organiza- ity (decision making, connectivity, innovation, and aug- tional activities, processes and models to leverage the uti- mentation) of individuals and organizations. Transforma- lization of a mix of digital technologies (Demirkan et al. tion will let organizations address market needs much 2016). When we review some of the most successful digi- more quickly than used to be possible, enabling higher tal transformations (Tab. 3), we see that "service" is on the levels of collaboration for sharing information much fast- core of all. er. Smart machines - cognitive computing - is transdisci- plinary in nature and focuses on computing methodolo- This revolution provides the means to improve the effi- gies and systems that can implement autonomous compu- ciency, effectiveness, sustainability, and innovativeness of tational intelligence to various applications such as expert product and service offerings through the design and pro- systems, robotics, autonomous vehicles, medical diagnos- visioning of new types of service offerings, the design and tics, machine vision, translation, employee performance delivery of outcome-targeted customer experiences, re- evaluations, planning and scheduling, marketing analyt- ductions in the cost of backstage and front-stage service ics, remote maintenance monitoring, and others too nu- activities, the integration of customers into service crea- merous to mention here (Spohrer and Banavar 2015). Cognitive assistants like IBM Watson, Apple Siri, Microsoft Cortana, Amazon Alexa, Google Now and Facebook M are becoming part of our daily lives by performing tasks for us American Express is a financial institution with lots of smart data usage. American Express built a machine-learning mobile phone application to provide customized recommendations for restaurant choices Putting IBM Watson To The Test For Cancer Care. By being a complement to an oncologist, not a replacement, IBM Watson is accelerating patient DNA analysis and helping to personalize treatment options for cancer patients Lucy automates labor-intensive tasks and converts data assets into a quickly-searchable source of insights-freeing marketers to focus on complex, higher-level functions. Lucy is a cognitive problem solver Gluru organize online documents, calendars, emails and other data and have Al pre-sent you with new insights and actionable information x.ai coordinate schedules as a personal scheduler by using AI CrystalKnows help you know the best way to communicate with others RecordedFuture leverages natural language processing at massive scale in real time to collect and understand more than 700,000 web sources LegalRobot automates legal document review in ways that can serve people and businesses Spotify suggests weekly new music based on the user's preferences and behavior Lowe's LoweBot is able to able to answer simple questions to customers, freeing up time for employees to focus on more important projects IBM's cognitive call centers improve customer satisfaction and agent retention Cafe X opens in San Francisco, bringing robots to the coffee shop Amazon Go becomes the first checkout free grocery store Robot suits started to help individuals to achieve a perfect golf swing Microsoft demonstrates an app that helps the blind see Smart prosthetic arm and hand with sense of touch Wearable robotic glove restores independence for stroke victims Google's driverless cars and trucks Tab. 2: Sample list of service many more... transformation enabled by digital 10 SMR . Journal of Service Management Research . Issue 02 . 02. Quarter 2018Matzner et at, Digital liransformation in Service Management Companies that achieve the right balance between hu- mans and machines may become more creative, as well as more efficient, while those that replace too many process es, existing technologies, and people with cognitive com- puting will risk their unique cultures, their customer rela tionships, and their business models. Conclusions Today, business and societal organizations continually try to innovate and work on projects to improve efficiency, quality and speed of their operations, through new service offerings and networks that adapt their resource base to changing needs In other words, they attempt to manipu late what are perceived of as the controllable variables within their service systems with digital technologies (De- mirkan and Spohrer 2014). In many cases, each of these experiments with strategies to catalyze their local innova- tion economies, they are often working in isolation from one another. They often discover that these manipulations do not achieve desired outcomes and / or create unwanted sideeffects 7 mainly because their service environment is much more complex than they anticipated. Changes to the scale of service delivery may impact service quality in un anticipated ways, the introduction of a new service may create demand for different or even more services and ser- vice innovations may unintentionally shift the market from a product to a service quality focus rather than out- come. Unanticipated consequences result in unnecessary costs, lack of responsiveness and missed opportunities for social innovation and value. Reduced fragmentation and complexity, improved efficiency and higher levels of agili ty in service systems can only be achieved when multiple, complex trade-offs are carefully balanced (7115.3). 80, we think that maybe it's time to rethink services transforma tion from new organizational and technical vantage points. Systematize Customize Cost Effectiveness Consistency Variance Standardized Differentiated Independent Interdependent Available Convenient Speed Accuracy Secure Open Stable Dynamic Progression Scaling 'llzb. 3: Examples of dem Challenges A system view of service management and digital transformation By Steven Alter The intersection between service management and digital transformation Abstract discussions of digital transformation as an um- brella term for digitization and automation typically clari- fy little unless underlying ideas are defined. A similar is- sue applies to service management because different Ob- servers have quite different ideas about the meaning of service and service management. This brief commentary applies work system theory as the core of actionable ideas about service management and digital transformation. It presents ideas from series of pa- pers related to service and service systems (Alter 2008; 2012; 2017a; 2017b). Overall, it tries to go beyond hype about digital transformation by summarizing practical ideas that can be used in service management in a world that relies increasingly on digitization and automation. Basic definitions Describing the intersection between service management and digital transformation requires a series of definitions, including three among a larger set of portrayals of service (Alter 2012; 2017a) that are useful in different manage- ment settings (Tab. 4). Service systems Other than service improvisations consistent with the first portrayal of service, services are performed by service sys tems. Concepts for summarizing and analyzing service systems are provided by a subset of general system theory called work system theory (WST) plus extensions of WST. (Alter 2013; 2017a; 2017b). WST consists of three compo- nents, #1, the definition of work system, #2, the work sys- tem framework (W SF nine elements of a basic under- standing of a work system) and #3, the work system life cycle model (1N SLC 7 model of how work systems evolve through iterations involving planned and unplanned change). Graphical representations of the WSF and WSLC are not included here due to space limitations. Definition of work system (or service system). Every ser- vice system is a work system, i.e., a system in which hu- man participants and/or machines perform work (pro- cesses and activities) using information, technology, and other resources to produce specific product/ services for specific internal and / or external customers. Work system framework. A basic understanding of a work system (a service system) requires attention to the WSF's nine elements: #1, customers of the service system SMR -Journal of Service Management Research- Issue 02 -02. Quarter 2018 ll Matzner et at, Digital "transformation in Service Management Digitization A societal trend and/or a localized change involving increasing application of computerized devices that capture, transmit, store, retrieve, manipulate, or display information. Automation A societal trend and/or a localized change involving increasing application of computers and other machines in performing work, sometimes with people using machines and sometimes with machines performing complete activities or functions. Automation may involve people using machines in new ways and may involve machines performing work activities that never were done before, sometimes because those work activities could not be done by people. Automation may or may not prove benecial for people whose work is affected. Digital Transformation In business and society and within enterprises, increasing application of digitization and/or automation that has important impacts on structure or characteristics of individual work, internal processes, communication, infrastructures, business ecosystems, and product/ services for internal and/ or external customers. Denitions and Portrayals of Service Service as acts for the benet of others. Service is activities or groups of activities performed to produce or facilitate benefits for others. (Alter 2017a). This portrayal can be applied when trying to create or improve almost any system in an organization because almost any systematic activity in an organization can be viewed as a service for internal ancUor external customers. Service as outcomes. A service is an outcome provided for internal arid/or external customers. This portrayal supports the use of service catalogs produced by IT groups and by other organizations that need to rationalize and communicate the range of services (such as funds transfer or Internet) that they provide for their customers. Service as exchange or value ctr-creation. Service is an exchange of value, and hence is co-created. This is the basic idea of service dominant logic (Vargo and Lusch 2004; 2008; 2016). Tab. 4: Denitions of digitization, automation, digital transformation, and service (who receive and benefit from the service system's prod- uct/services; #2, the product/services that are produced; #3, processes and activities within the service system; #4, participants who perform activities within the system (who may include customers); #5, information used or produced by the system; #6, technologies used by the sys- tem; #7, surrounding environment (including culture, practices, organizational politics, competitive issues, etc.); #8, infrastructure shared with other service systems, and #9, strategies. The term product/service is used because distinguishing strictly between products and services is much less useful in practice than continuous design di mensions based on characteristics often associated with products versus services. Examples of those dimensions include tangible versus intangible, commodity versus cus tomized, produced vs. coproduced, durable versus per- ishable, transactional Versus relational, Value transferred versus value co-created, and so on. Work system life cycle model. A basic understanding of how a work system (a service system) evolves over time calls for attention to iterations involving four phases: #1, operation and maintenance of an existing version of the system; #2, initiation of a defined project; #3, development of resources needed for implementation in the organiza- tion (including acquiring or updating software); #4, im- plementation of the new version of the system in the orga nization. Planned change is represented by the cycle from initiation to development, implementation, and operation of a new version. Unplanned change such as adaptations, workarounds, and experimentation occurs primarily dur- ing operation and maintenance. A service system view of how digital transformation challenges service management Service management (SM) is fundamentally about design ing, improving, and operating service systems. A service system lens helps in Visualizing operational impacts and SM challenges related to increasing digitization and auto mation within firms, between firms and their customers, and within product / service offerings. This section uses el ements of the WSF and WSLC to identify SM challenges that are exacerbated by digital transformation. Comments organized around the nine elements of the WSF focus mostly on service systems in operation. Comments orga- nized around the four elements of the WSLC focus mostly on planning and implementation. Overall, using the WSF and WSLC as lenses affords more actionable SM insights than abstract discussions of the nature of digital transfor mation. Customers. Digital transformation applies equally to the operation of service systems and to their internal and ex ternal customers. Product/services increasingly need to fit the Value creating practices of internal and external cus- tomers. The primary SM challenge here is the lack of visi- bility concerning customer practices, especially for exter- nal customers. Productlservices. Customerfacing innovation constitutes an SM challenge both in product/ services and in commu- nication and collaboration with customers (a type of ser vice). Both areas call for fitting the form, content, and de livery of product/ services with whatever is most useful and convenient for customers. 12 SMR - Journal of Service Management Research - Issue 02 - 02. Quarter 2018 Matzner et at, Digital ansformation in Service Management Processes and activities. The long history of IS develop- ment is replete with software that fits poorly with current or proposed processes and activities. The SM challenge starts with making sure that service processes and activi- ties take full advantage of available digitization and auto mation capabilities that may be ignored, purposely by- passed, or otherwise not integrated into business process- es. The challenge is especially difficult for semistructured or unstructured processes or activities whose substantial interpretive exibility provides little oversight about whether old work patterns persist without attaining bene fits from ITenabled innovations Participants Many managers and service system partici pants are fully aware of the lack of skills and attitudes need ed to take full advantage of computerized capabilities Both managers and participants may be frightened about person- al obsolescence and about being bypassed by a new genera- tion of digital natives who can use computers to do the same work more efficiently and effectively. The training and involvement challenges start with basic digital literacy and ability to use computerized tools appropriately. Deeper is- sues concern understanding why lT-enabled service sys- tems were designed to operate in certain ways and recog nizing conditions under which workarounds may be benefi- cial and necessary or may be detrimental (Alter 2014). Information. Capabilities related to accessing, using, and protecting information become more important and more complex with increasing degrees of digitization. The SM challenge of protecting digitized information in service systems is obvious from widely publicized examples of information theft including email records. Access and use of digitized information is less challenging in highly struc tured service systems where information usage is gov- erned by formal scripts or activity patterns. The benefits from information availability are realized less often in less structured service systems whose participants require in- formation literacy and insight. Technologies. An obvious SM challenge involves what to do when technologies go down or operate incorrectly due to bugs, design flaws, or sabotage. Another challenge in volves assuring whole hearted use of technologies that seem far less friendly and powerful than technologies in users' pockets or in their home computers. Environment. Service systems that fit poorly with sur rounding organizational culture, practices, demographics, and technological trends may still operate, but usually are less successful than comparable service systems that fit with their environment. Thus, identifying and reconciling misfits related to digitization and / or automation proves to be an important SM challenge. Infrastructure. Even a highly localized infrastructure fail- ure can have major consequences, such as widely reported lT problems that disrupted operations at United and Delta Airlines in 2017. A key SM challenge is the lack of control because essential enterprise and ecosystem infrastructure is typically owned by other organizations and shared with other service systems. Strategies. A service system lens is useful in the area of service strategy because it encourages going beyond bland generalizations. For example, a service strategy may rely on using big data to optimize customer experi ences. That will work only if use of big data is integrated into service systems that are staffed adequately and are supported with appropriate technologies. WSLC Operation and maintenance. The nine WSF ele- ments mentioned above provide a lens for understanding service system operation. The WSLC includes the possibil- ity of unplanned change through adaptations and worka- rounds, many of which are directly related to digital as sets and/or activities that use digital assets. The SM chal- lenge is to make sure that adaptations and workarounds are not detrimental, either internally or to customers. WSLC Initiation. Visualizing realistic possibilities for digitalization and automation initiatives can prove chal lenging because it is often difficult to imagine fundamen tal changes in service systems while also taking into ac- count the above issues concerning each WSF element. WSLC Development. An SM challenge here is to assure that the technology developed or acquired fits with opera- tional plans and goals for the service system being sup- ported. This may require direct involvement of service system participants in the development effort, from initial specifications to testing. WSLC Implementation. An SM challenge here is to make sure that the implementation effort identifies and addresses both problems and opportunities that may not have been anticipated. Another challenge is to assure that the previous Version ofthe service system continues to op- erate effectively while the next version is being imple mented. Implications for service management As with business process engineering and big data, digital transformation is a term that tries to crystallize important ideas but is fundamentally vague and open to different in terpretations. The range of interpretations (about society? about new types of commerce or competition? about tech- nology? about digital literacy?) blurs its relationship with service management. This commentary indicated how a work system/ service system lens can help in visualizing the operational mean ing of digital transformation and identifying related SM challenges. A longer commentary would present the is SMR -Journal of Service Management Research- Issue 02 -02. Quarter 2018 13 Matzner et al., Digital Transformation in Service Management sues in much more depth. Both within and across enter- and decision making takes place, and where innovation prises, digital transformation occurs through the imple- can be driven by resource integration and operational mentation of new or improved service systems. Ideas in alignment (Brettel et al. 2014; Lee et al. 2014; Lusch and the WSF and WSLC help in visualizing those transforma- Nambisan 2015) and the overall generation of new busi- tions regardless of which portrayal of service is used ness models (Porter and Heppelmann 2014). The actual Ideas in this commentary imply several research possibili development of new physical artefacts plays a secondary ties. One approach superimposes a service system lens on role in this context. Yoo et al. (2010; 2012) accordingly de- top of the digital transformation literature to see which scribe the digital transformation as a change of mediation system-related topics have been considered and which which goes way beyond the introduction of new devices have been underplayed or ignored. Another approach to support human action. Quite in the contrary, it rede- uses the underlying ideas to develop research instruments ines the structure of socio-technical systems: the bound- for describing service management as a service system in aries of existing subsystems disappear, material instantia- its own right and assessing service management in the tions of objects and processes lose importance, and new presence of digital transformation. Yet another approach streams of value creation become possible which are ex- applies this lens in action research case studies that ob- pected to revolutionize industry (Kagermann et al. 2013; serve how digital transformation strategies or aspirations Rajkumar et al. 2010). unfold in practice. The main point is that a service system Revolutions require a common language for the revolu- lens bypasses hype by focusing on operational and action- tionaries to express their goals and align their activities. In able SM topics and challenges related to describing and the context of information technology, different languages managing digital transformations. can be found in the respective programming codes and standards for modelling objects and their interaction. Concepts like cyber-physical systems and the internet of The language of the revolution things can also be considered as means of articulation of By Albrecht Fritzsche and Irene C. L. Ng design possibilities on a higher level. This, however, is not enough to grasp the programmatic content of the digital While conceptual and empirical papers contribute to the transformation that turns it into a new industrial revolu- advancement of scientific research in a given field of tion, because it cannot give an appropriately abstract and study, commentaries give us an opportunity to reflect on conceptual account of how they scaffold into the knowl- its general meaning and express programmatic ideas edge of information systems in business and society. The about its further development. This is particularly impor digital transformation is characterized by what Kuhn tant when it comes to a highly dynamic field such as ser- (1962) and Feyerabend (1962) call incommensurability: It vice research. We therefore use the following pages to dis- goes along with a new understanding of industry, which cuss service research from a wider perspective and ex- cannot be expressed using existing grammars and vocab- plore its role in the digital transformation of economy and ularies. The digital transformation requires a new lan- society. In particular, we examine the contribution of ser- guage, because it forces us to attribute meaning to indus- vice-dominant logic to the formation of a new grammar trial operation in radically different ways. Its new "digital and vocabulary for innovation, which is desperately need- language" should allow us to capture future technical de- ed to facilitate radically new solutions designs and appli- signs together with the sociocultural and economic struc- cation schemes. As an illustration, we use recent advance- tures in which they unfold effects in their entire disruptive ments in the creation of digital data boxes. enormity. Service ecosystems research within service- dominant logic is in the comfortable position of having Learning to speak "digital" such a language at its disposal. It therefore can play a key In the course of the ongoing digital transformation, new role in the upcoming revolution and provide the neces- design principles and constructs like cyber-physical sys- sary orientation for all the protagonists of this process to tems (Lee 2008) or the internet of things (Atzori et al. 2010) join forces in the development of new ideas and solutions. have received increasing attention. They mark a general Based on the seminal works by Vargo and Lusch (2004; change of perspective in the treatment of information sys- 2008), Service-dominant logic (S-D logic) has turned to a tems and enable a new type of digital innovation, in broader definition of service as a general synonym for the which the design of systems architectures takes a much application of a competency. It has evolved a wider under- more prominent role (Fichman et al. 2014). So far, digital standing of value, phenomenologically created in experi- data processing was considered as a mechanism to sup- ence or use, depending on the given context where co-cre- port human action and decision making. Cyber-physical ation happens. Service-dominant logic makes it possible systems and the internet of things go one step further by to address any contributing entity to value creation as a defining a formal-symbolic environment in which action competency that becomes a resource in context, no matter 14 SMR . Journal of Service Management Research . Issue 02 . 02. Quarter 2018Matzner et al., Digital liransformation in Service Management if it is an artificially constructed device, a human actor or a part of nature. The notion of service ecosystems allows the discussion of the dynamics between the contributors to value creation and the distinction of different substruc- tures, institutions which control and regulate their interac tion, and markets as mechanisms of exchange. Vargo and Lusch (2016) advanced the argument for a systems ap- proach by considering system entities as 'actors' and be cause actors become stakeholders in the system's viability and progress, they therefore reinforce the structures with in the system to drive further cocreation and service ex changes, creating network effects The connectivity be tween actors in the service system goes beyond formal connectivity but also includes social norms, beliefs and other \"human devised rules\" (Vargo and Lusch 2016). It is such institutional arrangements, and often rearrange- ments, that make a service system resilient, adaptive and selfadjusting, therefore evolving the conceptualization of service system to service ecosystem. Orientation for engineering What makes the language of service ecosystems in 5-D log- ic so important in the context of the digital transformation is its focus on value creation and the conditions under which it proceeds Value-in-context is differentiated from valueinexchange (Vargo and Lusch 2004; 2008) as being the super set of mutual value creation, and systemic archi- tectures are considered as key to the viability of a system as a Whole, as well as its management and control (Maglio et al. 2009; Spohrer et al. 2007). Similar to the classic Marxist theory on use value, exchange value and the role of ma chinery (Marx 1887), this perspective turns the attention to the further implications of value creation beyond industry boundaries. Service ecosystems work is therefore able to in- form the design and operations of systems whose bound- aries may not be function, firm, or even industry based; and the broadening of the perspective (see Vargo and Lusch 2016) can inform directions in which future develop ments should proceed and assess the progress, especially when bringing in the amorphous nature of data and digital (see also Ng and Wakenshaw 2017; Smith et al. 2014