Development of a two-way framework for the product-service system business model: Focusing on convergence perspective

Development of a two-way framework for the product-service system business model: Focusing on convergence perspective | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Article Development of a two-way framework for the product-service system business model: Focusing on convergence perspective Hongbum Kim, Bong-Goon Seo, Joon Kim This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-6242333/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract The convergence of manufacturing and services, commonly referred to as product-service systems (PSS), represents a transformative strategy for businesses aiming to stay competitive and respond to evolving market dynamics. This study addresses the limitations of traditional unidirectional perspectives, such as servitization and productization, by proposing a two-dimensional framework for PSS business models. Using direction (servitization vs. productization) and procedure (internalization vs. externalization) as the key axes, the study categorizes PSS strategies into a two-by-two matrix, providing a comprehensive and practical tool for business model innovation. An inductive approach, grounded in business model cases, highlights the bidirectional nature of manufacturing-service convergence and emphasizes the importance of strategic procedures in internal and external resource integration. This framework offers insights for small and medium-sized enterprises and policymakers aiming to leverage PSS for growth engines and business sustainability. This study contributes to the broader PSS literature and establishes a robust foundation for business applications. Business and commerce/Business and management Business and commerce/Economics Business and commerce/Information systems and information technology Product-service system Business model Convergence of manufacturing and service 1. Introduction The manufacturing industry has received less attention within the broader economy compared to previous decades (Haraguchi et al., 2017; Schettkat & Yocarini, 2006). However, it still plays an important role as a value-creating industry. To maintain competitiveness, governments are implementing many policy supports, such as subsidies and tax deductions, attracting manufacturing infrastructure, and creating job opportunities. For example, the United States, one of the most developed countries, continues to emphasize the significance of manufacturing and has implemented several policies, including the Inflation Reduction Act and the CHIPS and Science Act (Luo & Van Assche, 2023; Suárez-Cuesta & Latorre, 2024). In addition to government-oriented initiatives aimed at addressing the fundamental challenges of manufacturing, such as low added value and sustainability concerns, firms are making significant efforts to enhance their competitiveness. One notable example is the product-service system (PSS), a strategic convergence of the manufacturing and service business activities that creates new value propositions and provides them to customers. For example, major manufacturers such as Samsung and Apple have strategically diversified the service sector, effectively dividing the smartphone market into two de facto standards (Jang et al., 2021; Kim et al., 2016). This phenomenon is known as servitization of manufacturing. However, a similar process also needs to be noted: the productization of services. This refers to the process by which the service sector introduces manufacturing principles to improve the quality and efficiency of services and eventually produces a service-based product (Jaakkola, 2011). For example, Google’s growth has been fueled by various web-based services such as search engines and email, but it has also produced its own smartphones, named Nexus and Pixel, directly to promote the Android mobile operating system (Benkler, 2016). This illustrates that the convergence of the manufacturing and service business activities has a two-way relationship, with both sectors benefiting from convergence. Previous studies have mainly examined the convergence of manufacturing and services from a unidirectional perspective, namely servitization or productization, and have focused on adding services to manufacturing (Khanra et al., 2021; Li et al., 2024), which may lead to bias in identifying the underlying drivers of convergence. This unidirectional perspective has limitations in explaining various forms of manufacturing and service convergence business models. Moreover, because there is a lack of a comprehensive review of the drivers of PSS, small- and medium-sized enterprises (SME) that find it challenging to find new growth engines lack a robust, easy-to-use, and intuitive framework for planning new business models. To address these gaps, this study proposes a new framework for PSS business models using two criteria: the direction and procedure of convergence. Rather than a literature basis, this study adopts an inductive approach that seeks to classify real-world business models and proposes a matrix-shaped framework. This newly suggested framework can be applied as a useful tool for firms, particularly SMEs, to identify new sources of growth, create new value, and develop innovative business models. Additionally, from a policy perspective, it can be used as a significant tool in contexts in which new industrial and technological policies are challenging. The remainder of this paper is organized as follows. Section 2 reviews the existing literature on servitization, productization, and related PSS frameworks. Section 3 explains the methodology used in this study. Section 4 constructs and suggests the PSS business model framework. Section 5 briefly discusses the proposed framework and Section 6 concludes the study. 2. Literature Review 2.1. Servitization and productization Servitization and productization are two complementary strategic approaches that highlight the evolving interaction between the manufacturing and service business activities (Jaakkola, 2011; Kowalkowski et al., 2017). These strategies have become increasingly significant as companies adapt to economic and cultural changes and aim to meet customer demand (Leoni, 2015). By adopting these approaches, firms can enhance their competitiveness and operational efficiency while responding to market demands, technological advancements, and customer needs (Baines et al., 2009; Gomes et al., 2021). Vandermerwe and Rada (1988) describe servitization as the integration of products, services, support, self-service, and knowledge into customer-centered offerings. Building on this, Baines et al. (2009) emphasized that servitization involves a shift from selling products to providing integrated product-service systems (PSS), where the focus is on delivering value through combined offerings that meet customer needs more comprehensively. This shift represents a move from product-centric operations to service-focused models that prioritize long-term customer engagement and relationship building (Kowalkowski et al., 2017). Through this process, firms provide solutions such as maintenance, operational support, and predictive analytics, ultimately aiming to create sustainable competitive advantages (Oliva & Kallenberg, 2003). Additionally, servitization helps diversify revenue streams by transitioning from one-time sales models to recurring revenue models, thus reducing dependence on cyclical product demand (Baines et al., 2017). The use of data-driven insights gathered through service interactions allows firms to optimize product performance, predict maintenance needs, and improve customer satisfaction, thereby creating long-term competitive advantages (Kohtamäki et al., 2019). Moreover, adopting servitization allows firms to better leverage emerging digital technologies such as IoT and big data, enabling advanced services such as predictive maintenance and real-time performance monitoring (Coreynen et al., 2017). Examples of servitization include Apple's iPod, which introduced the iTunes ecosystem to seamlessly integrate music purchases, downloads, and management; and Amazon's Kindle, which combines e-reader hardware with a digital marketplace for books (Jang et al., 2021). Rolls-Royce’s "Power by the Hour" is another notable example. Instead of selling jet engines as standalone products, the company offers a usage-based service, in which customers pay for engine uptime and maintenance based on their actual usage (Smith, 2013). This approach reduces customers' initial investments and provides Rolls-Royce with continuous revenue through long-term service agreements, thereby creating a more stable and sustainable business model (Neely, 2008). These cases demonstrate how servitization combines technological innovation with customer engagement to create value. Various definitions of productization have been presented in previous studies. Valminen and Toivonen (2012) defined productization as the process of making service offerings more “product-like” by systematizing their components, thereby clarifying the nature of the service as a commercially valuable commodity. Similarly, Elia et al. (2019) emphasize that the primary objective of productization is to enhance customer satisfaction and the perceived value of offerings. According to Valtakoski and Järvi (2016), productization involves a knowledge transformation process encompassing two dimensions: transitioning from tacit to explicit and systematized knowledge, and from individual employee knowledge to organizational knowledge. Wirtz et al. (2021) highlight that the core of productization lies in addressing the challenges inherent in services, such as intangibility and complexity, by making it easier to standardize, formalize, systematize, repeat, customize, modularize, and bundle. In essence, productization transforms intangible services into more "product-like" solutions, such as software or methodologies, by enhancing their structure and systematization. Servitization and productization are complementary strategies that enable firms to create value based on their goals and resources. Servitization focuses on customization and building long-term customer relationships by integrating services into product-based models and standardizing intangible services to improve scalability and consistency (Baines et al., 2009; Wirtz et al., 2021) Although servitization has been widely studied and recognized as a transformative strategy, research on productization remains limited. Most existing studies define its characteristics, but have not sufficiently explored its relationship with servitization or developed comprehensive frameworks using real-world cases (Elia et al., 2019; Jaakkola, 2011; Leoni, 2015; Valtakoski & Järvi, 2016). Such frameworks could help firms strategically combine these approaches to strengthen their competitiveness, adapt to dynamic market conditions, and gain insights into effectively leveraging emerging technologies. 2.2. Frameworks for PSS and convergence The convergence of manufacturing and service has emerged as a critical driver for firms seeking to enhance value creation and secure long-term growth. This phenomenon, also referred to as a product-service system, involves the integration of service elements into traditional product-oriented business activities and the expansion of service firms into the manufacturing domain (Baines et al., 2009). This convergence enables firms to offer more comprehensive solutions, leveraging the strengths of both manufacturing efficiency and service customization to meet evolving customer needs (Neely, 2008). This convergence is gaining prominence in response to changing market demand, technological advancements, and the increasing complexity of global supply chains. In particular, firms are moving beyond the conventional model of selling standalone products or services and adopting integrated solutions that blur the lines between the two domains (Visnjic et al., 2016). For example, companies are now combining physical products with service offerings such as maintenance, remote monitoring, or customer support to create PSSs (Kuijken et al., 2017; Moro et al., 2022; Reim et al., 2015). Traditionally, PSS frameworks have conceptualized service as an extension of manufacturing, where services are added to enhance the value of physical products (Baines et al., 2009; 2017). These models emphasize the shift from selling products to offering integrated solutions that combine products and services (Neely, 2008). However, these approaches are somewhat limited in scope as they primarily focus on how manufacturing firms incorporate services and often overlook the more complex bidirectional interactions between manufacturing and services across business activities. Another significant body of literature examines the role of services in supporting manufacturing activities. This includes areas such as R&D, logistics, and after-sales services, all of which play critical roles in improving manufacturing efficiency and driving innovation (Cusumano et al., 2015). For example, R&D services enable manufacturing firms to enhance their product development processes and gain a competitive advantage (Miles, 2005). However, frameworks that focus on these support services often do not capture the broader potential for deeper integration of manufacturing and services. Additionally, recent studies have examined how service firms increasingly enter the manufacturing domain through backward integration (Oliva & Kallenberg, 2003). For instance, companies in sectors such as IT or telecommunications have developed manufacturing capabilities to support their service offerings (Vendrell‐Herrero et al., 2014). This type of convergence highlights how service providers, driven by the need for quality control and customization, integrate manufacturing processes to complement their service portfolios. Despite the importance of this trend, these perspectives often overlook the diversity of convergence pathways and focus narrowly on the unidirectional flow from services to manufacturing. In summary, while existing PSS frameworks provide valuable foundations, they often lack the depth needed to address the complex strategic decisions involved in balancing internal and external capabilities. As firms continue to evolve and adapt to rapidly changing markets, a more comprehensive framework that captures both the direction of convergence and procedures employed is required. To address these limitations, this study proposes a new framework for PSS that accounts for the bidirectional flow between manufacturing and services, as well as the different procedures firms use to integrate these capabilities. By exploring both the direction of convergence and the convergence procedure, this framework offers a holistic perspective on how firms can achieve competitive advantage through convergence. 3. Methodology This study employed an inductive approach to construct a framework suitable for configuring PSS business models that is practically useful and easy to use in diverse domains. This approach is based on Yin’s (2018) guidelines for multiple case studies. Existing studies, such as those by Bosch-Rekveldt et al. (2011) and Gupta et al. (2022), have demonstrated that it can provide an excellent procedure for comparing different classification criteria. The inductive approach is primarily a qualitative methodology, which is useful because it provides a more instructive understanding of the explanatory nature of specific phenomena (Kim et al., 2015; Kong et al., 2025; Shin et al., 2019). First, several concepts and cases of PSS were initially identified through a review of the literature and business articles, which were subsequently organized into various classifications by the authors. Government publications, technical reports, papers published by research institutes, media (including newspapers), and domestic and global PSS cases of major companies were comprehensively reviewed. By doing so, a tendency to categorize distinctive cases, and thus the following two axes, was used to construct a two-way framework: First, the direction of convergence was based on literature. It can be classified into two types: servitization, which adds services to products from the perspective of manufacturing, and productization, which newly implements services from the perspective of service providers. This opposite direction could be an important axis for classifying PSS-associated business model. Second, the procedure of convergence was based on a review of the PSS market and related business models. A firm with sufficient capabilities may initiate a new business model that integrates products and services. This can be referred to as in-house business development and internalization. In contrast, if a firm lacks the necessary capabilities due to its size or lack of internal resources, it may opt for a collaborative approach, engaging in business model development with an external resource, referred to as outsourcing, as well as externalization. These two axes, organized in two-by-two matrix, can be used as a framework for categorizing PSS business models, which many firms can easily understand and apply to their business model strategies. Table 1 briefly presents the framework, and Section 4 describes the framework in detail using several business cases. Table 1. A simple framework for PSS business model Direction Procedure Servitization Productization Internalization Externalization 4. Results: Development of PSS business model framework This case study is designed to explain the various types of PSS in the radical changes of business models arising from the emergence of innovative technologies. Our study design considered that the directions ( from manufacturing firm vs. from service firm) of PSS would have a significant role to organize the various types of convergences, and how to expand its value propositions ( internalization vs. externalization ) could be essential as well (Eggert et al., 2017; Gomes et al., 2021; Kaňovská & Tomášková, 2018; Kowalkowski et al., 2017; Kuijken et al., 2017). The first type, a representative one in PSS, is (1) in-house servitization of manufacturing firm , which refers to a manufacturing company expanding its intrinsic value proposition to services such as maintenance services, know-how-based consulting services, and value-added services. For example, in the case of maintenance services, BMW launched the BMW ServiceCare+, which enables autonomous vehicle management by informing the automotive parts replacement cycle and related service notifications through a BMW Plus application. LG Electronics expanded its after-sales service to LG Care-Ship, which provides cleaning and disinfection services for home appliances such as air purifiers, refrigerators, and washing machines. Boeing also conducted an EDGE service that monitors and predicts their aviation electronic components so that they can generate additional profit streams by expanding their value proposition from manufacturing parts to service areas. In another case, a manufacturing firm takes advantage of its know-how for servitization (Vandermerwe & Rada, 1988; Wang et al., 2023). IBM is a well-known example of this case in which the company was completely transformed into a business consulting firm in accordance with its data-intensive core competencies in manufacturing processes. Similarly, GE, which was once famous as a home appliance manufacturing company, developed a Digital Factory based on its manufacturing know-how and succeeded in converting it into a solution sales business model. Epson, which produces advanced process robots along with computer peripherals, such as multifunction printers and projectors, also launched new smart glass services using augmented reality (AR) and a 5G-based aviation maintenance system, which effectively conjugates their core competencies for the management of manufacturing processes into this new servitization model. Other examples include manufacturing firms transferring their product-based capabilities to content-oriented service areas (Kohtamäki et al., 2021). For example, Apple has expanded its business from manufacturing electronic products such as smartphones and tablets to content services such as App Store-based Apple TV and Over-the-top (OTT; streaming TV) and has successfully altered its core competency to a service firm from a manufacturer. In addition, a firm can diversify its revenue model by offering customers different user experiences related to its products (Shiratori et al., 2021). For example, Hyundai Motor Company launched the Wheelping platform by combining a new SUV with a car camping service, providing a new user experience in the automotive space, and generating additional service revenue while promoting its products. The second type is (2) in-house productization of service firm , in which a service firm expands its business areas into manufacturing through mergers and acquisitions (M&A), joint ventures, and so on (Xing et al., 2017). For instance, SK Networks, which once focused on IT service-acquired manufacturers of home appliances (e.g., Dongyang Magic), expanded their business portfolios in conjunction with rental services such as water purifiers, dishwashers, and induction cookers. Coway, based on its experience in door-to-door sales of learning materials, also moved into product areas such as water purifiers and mattresses and recently expanded into the SleepCare consulting service by providing professional education and certifications to door-to-door salespeople. This portfolio expansion extends online businesses to virtual reality (VR) and offline reality (Gebauer et al., 2021; Lee et al., 2019). For example, Facebook acquired Oculus, a VR device manufacturer, to expand its online social media into VR; Microsoft also launched HoloLens and released the Baraboo project, which provides mixed reality (MR) that outputs scanned 3D images of real objects on a real screen and allows them to be easily manipulated. Additionally. Google acquired Nest, a thermostat manufacturer, and launched Nest Thermosta, an offline smart home energy-saving service. Amazon entered smart home services by acquiring a manufacturing startup Ring, a manufacturer of smart home appliances that focuses on video doorbells. The search engine company Baidu also entered the offline electric vehicle manufacturing business activity by establishing Baidu Automobile as a joint venture with electric vehicle manufacturer Geely. Amazon is internalizing its manufacturing capabilities by acquiring Kiva Systems, a manufacturer of autonomous robots, and building automated systems in its logistics warehouses. The third type is the (3) servitization by outsourcing , in which a manufacturing company collaborates with software development firms during the servitization process (Eggert et al., 2017; Fontagné & Harrison, 2017). For example, in collaboration with Code Design, Weltech developed a smart logistics kiosk service that received parcels, measured their volume and weight, calculated their price, and provided a one-stop delivery service. Artisan and Ocean collaborated with SusungTech and launched a water-sport photo solution that has intelligent algorithms to improve image quality underwater and diving computer functions that can communicate with smartphones. SuperBin can launch a deep learning-based autonomous waste recognition and sorting service by outsourcing embedded development to NTN Technology. DaLim can also enhance the safety service of LNG high-pressure gas equipment manufacturers by utilizing the CAE analysis design software from Midas IT, which specializes in structural analyses. Manufacturing firms present convergence services by outsourcing the core processes of servitization. The fourth type is an area where service firms develop products necessary to advance service models (Bullinger et al., 2003; Vendrell-Herrero et al., 2017), the so-called (4) productization by outsourcing . A factoryless manufacturer is a representative example (Bernard & Fort, 2015; Coyle & Nguyen, 2022). For instance, Amazon is exclusively associated with Kindle which can be used for e-book subscriptions and operates a flat-rate reading service. Socar, which provides a car-sharing service, outsourced the production of control equipment through PowerNavi, enabling remote vehicle management and maintenance from a central location. Some service firms also present new service models in this way. For instance, the American insurance company John Hancock introduced discount-insurance premium service models by outsourcing the production of wearable devices (i.e., Fitbit) that could monitor the user’s heart rate, breathing, and amount of exercise. DeepScent, which provides personalized scent consulting services, launched an olfactory-based digital therapy service by developing a fragrance device in collaboration with Aonics. SNC Lab, which has IT-based knowledge services such as web accessibility and UI/UX consulting, has also advanced to manufacturing sectors such as IoT-based parking prevention bollards and IoT convergence benches through collaboration with manufacturing companies. Finally, another distinguishable case refers to a manufacturing platform (Fontagné & Harrison, 2017; Mohajeri, 2015; Tian et al., 2022) that connects manufacturing supply and demand and provides services such as design, planning, prototyping, and performance testing. For example, Quirky’s invention platform in the United Kingdom presented a service model in which the platform’s participants proposed and adopted ideas that could be commercialized through community curation. This platform distributes profits by manufacturing and selling these ideas to associated manufacturers. Similarly, AteamVentures provides a platform service called CAPA, which is a manufacturing-matching platform service that connects various manufacturers to demand and manage operations. This can be seen as a more evolved service model that is not applicable to the framework that structures existing servitization cases. Thus, servitization seems to evolve and develop continuously in accordance with the business environment (de la Torre et al., 2022; Gebauer et al., 2021; Gomes et al., 2021; Vandermerwe & Rada, 1988). Based on our analysis and the aforementioned business cases, Table 2 summarizes the two-by-two framework of the PSS business model. Table 2. A two-by-two framework for PSS business model. Direction Procedure Servitization (Manufacturing → Service) Productization (Service → Manufacturing) Internalization (In-house development) (1) In-house servitization of manufacturing firm ∙ Maintenance service (BMW, ServiceCare+ LG Care-Ship, Boing EDGE) ∙ Know-how based service (IBM, GE DT factory, Epson AR Smart glass) ∙ Value-added service (Apple TV, Hyundai Motors Wheelping) (2) In-house productization of service firm ∙ Utilization of service capability (SK Magic, Coway) ∙ Business expansion of online service firms (Facebook Meta Quest, Google Nest Thermosta, Amazon Ring, Baidu Car) Externalization (Development by outsourcing) (3) Servitization by outsourcing ∙ Outsourcing the service development (Weltech, Artisan and Ocean, SuperBin, DaLim) (4) Productization by outsourcing ∙ Advanced business model (Amazon, Socar) ∙ New business model (John Hancock, DeepScent, SNC Lab.) ∙ Manufacturing Platform (Quirky, CAPA) 5. Discussion Several issues can be discussed as follows: First, types (1) and (2) have many well-known business cases, and the firms are relatively large; otherwise, types (3) and (4) are in opposite directions. Outsourcing is perceived as an instrumental alternative to strategic decision making for servitization or productization; thus, there has been relatively little research on this subject. In addition, type (2) largely comprises the absorption of external core competencies, such as M&As and joint ventures. This is a strategic industrial decision in terms of development costs (Benedettini & Kowalkowski, 2022). For example, when online firms such as Google, Amazon, and Facebook enter the manufacturing sector, they tend to merge external resources rather than develop new products. This framework can also be considered in conjunction with business model pivoting based on a firm’s core competencies. Pivoting is a term mainly used in start-up and SMEs research, referring to a strategy of quickly exploring the possibility of success (i.e., lean strategy of Collis (2016)) by shifting the business model to other areas based on the company's core competencies, such as technology, people, patents, and material resources (Hacklin et al., 2018; Hirvikoski, 2014; Sadeghiani et al., 2024; Snihur & Clarysse, 2022). Applying this to the framework, types (3) and (4) have a relatively narrow scope of pivoting in conjunction with the scope of business transformation limited to neighboring business activities, while types (1) and (2) have a wider pivoting capability. Indeed, in-house development utilizes a firm’s internal core competencies; thus, the scope of pivoting can be broader, and outsourcing has an inevitable limit in pivoting because of cost-constrained decisions to use external resources (Eisenmann et al., 2011; Norbäck et al., 2024). However, as in John Hancock’s case, outsourcing cannot become an unconditional limiting factor in pivoting. 6. Conclusion Both the government and private sector are making various efforts to identify new growth engines. Among various initiatives and strategies, the convergence of products and services, PSS, has received considerable attention. However, the scope of PSS has been relatively restricted, primarily because of the narrow perspective. Consequently, its application has been limited to the development of new business models, particularly for SMEs. Thus, this study proposes a new framework that can identify PSS business using two criteria–direction and procedure–with convergence as the central concept. The direction of convergence is categorized into servitization and productization, and the procedure of convergence is internalization and externalization. To do so, this study proposes a two-by-two framework supported by an inductive approach based on various cases released in the market. The framework was organized so that it could be easily applied from a business perspective. This study extends the current PSS literature, which mainly uses limited criteria, by presenting a PSS framework. Again, the two-by-two framework can be examined through the direction and procedure of convergence. In particular, it establishes a more solid foundation by comprehensively analyzing and inductively presenting various business cases that may appear in various areas. From a practical viewpoint, this study establishes a comprehensible and readily implementable framework that even SMEs and relatively early stage business organizations can easily understand and apply to their own cases. Given the rise of convergence as an inevitable trend, and the expected complexity of upcoming businesses, the framework can serve as a powerful instrument that makes it easy to understand, plan, and facilitate businesses. Although this study constructs a framework based on extensive business cases, its application is limited by the inherent limitations of the qualitative approach, particularly the absence of concrete figures or evidence. Consequently, further studies should incorporate empirical analyses focusing on the key factors or attributes commonly found in major businesses for each type to examine and suggest more specific strategies. Additionally, this study proposes a framework based on past cases. As cutting-edge technologies, such as generative AI, have rapidly evolved in recent years, PSS is expected to undergo significant changes in its direction or procedure for various convergences. 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Building smarter cities together: Government-to-government partnerships in the development of smart cities. Cities, 156 , 105532. Kowalkowski, C., Gebauer, H., Kamp, B., & Parry, G. (2017). Servitization and deservitization: Overview, concepts, and definitions. Industrial Marketing Management , 60 , 4-10. Kuijken, B., Gemser, G., & Wijnberg, N. M. (2017). Effective product-service systems: A value-based framework. Industrial Marketing Management , 60 , 33-41. Lee, J., Kim, J., & Choi, J. Y. (2019). The adoption of virtual reality devices: The technology acceptance model integrating enjoyment, social interaction, and strength of the social ties. Telematics and Informatics , 39 , 37-48. Leoni, L. (2015). Servitization and Productization: two faces of the same coin. The 25th Annual RESER Conference on Innovative Services in the 21st Century . Copenhagen, Denmark. Li, H., Zhao, J., Cao, Y., Su, L., Zhao, Z., & Zhang, Y. (2024). 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Introduction","content":"\u003cp\u003eThe manufacturing industry has received less attention within the broader economy compared to previous decades (Haraguchi et al., 2017; Schettkat \u0026amp; Yocarini, 2006). However, it still plays an important role as a value-creating industry. To maintain competitiveness, governments are implementing many policy supports, such as subsidies and tax deductions, attracting manufacturing infrastructure, and creating job opportunities. For example, the United States, one of the most developed countries, continues to emphasize the significance of manufacturing and has implemented several policies, including the Inflation Reduction Act and the CHIPS and Science Act (Luo \u0026amp; Van Assche, 2023; Suárez-Cuesta \u0026amp; Latorre, 2024).\u003c/p\u003e\n\u003cp\u003eIn addition to government-oriented initiatives aimed at addressing the fundamental challenges of manufacturing, such as low added value and sustainability concerns, firms are making significant efforts to enhance their competitiveness. One notable example is the product-service system (PSS), a strategic convergence of the manufacturing and service business activities that creates new value propositions and provides them to customers. For example, major manufacturers such as Samsung and Apple have strategically diversified the service sector, effectively dividing the smartphone market into two de facto standards (Jang et al., 2021; Kim et al., 2016). This phenomenon is known as servitization of manufacturing.\u003c/p\u003e\n\u003cp\u003eHowever, a similar process also needs to be noted: the productization of services. This refers to the process by which the service sector introduces manufacturing principles to improve the quality and efficiency of services and eventually produces a service-based product (Jaakkola, 2011). For example, Google’s growth has been fueled by various web-based services such as search engines and email, but it has also produced its own smartphones, named Nexus and Pixel, directly to promote the Android mobile operating system (Benkler, 2016). This illustrates that the convergence of the manufacturing and service business activities has a two-way relationship, with both sectors benefiting from convergence.\u003c/p\u003e\n\u003cp\u003ePrevious studies have mainly examined the convergence of manufacturing and services from a unidirectional perspective, namely servitization or productization, and have focused on adding services to manufacturing (Khanra et al., 2021; Li et al., 2024), which may lead to bias in identifying the underlying drivers of convergence. This unidirectional perspective has limitations in explaining various forms of manufacturing and service convergence business models. Moreover, because there is a lack of a comprehensive review of the drivers of PSS, small- and medium-sized enterprises (SME) that find it challenging to find new growth engines lack a robust, easy-to-use, and intuitive framework for planning new business models.\u003c/p\u003e\n\u003cp\u003eTo address these gaps, this study proposes a new framework for PSS business models using two criteria: the direction and procedure of convergence. Rather than a literature basis, this study adopts an inductive approach that seeks to classify real-world business models and proposes a matrix-shaped framework. This newly suggested framework can be applied as a useful tool for firms, particularly SMEs, to identify new sources of growth, create new value, and develop innovative business models. Additionally, from a policy perspective, it can be used as a significant tool in contexts in which new industrial and technological policies are challenging.\u003c/p\u003e\n\u003cp\u003eThe remainder of this paper is organized as follows. Section 2 reviews the existing literature on servitization, productization, and related PSS frameworks. Section 3 explains the methodology used in this study. Section 4 constructs and suggests the PSS business model framework. Section 5 briefly discusses the proposed framework and Section 6 concludes the study.\u003c/p\u003e"},{"header":"2. Literature Review","content":"\u003cp\u003e2.1. Servitization and productization\u003c/p\u003e\n\u003cp\u003eServitization and productization are two complementary strategic approaches that highlight the evolving interaction between the manufacturing and service business activities (Jaakkola, 2011; Kowalkowski et al., 2017). These strategies have become increasingly significant as companies adapt to economic and cultural changes and aim to meet customer demand (Leoni, 2015). By adopting these approaches, firms can enhance their competitiveness and operational efficiency while responding to market demands, technological advancements, and customer needs (Baines et al., 2009; Gomes et al., 2021).\u003c/p\u003e\n\u003cp\u003eVandermerwe and Rada (1988) describe servitization as the integration of products, services, support, self-service, and knowledge into customer-centered offerings. Building on this, Baines et al. (2009) emphasized that servitization involves a shift from selling products to providing integrated product-service systems (PSS), where the focus is on delivering value through combined offerings that meet customer needs more comprehensively. This shift represents a move from product-centric operations to service-focused models that prioritize long-term customer engagement and relationship building (Kowalkowski et al., 2017). Through this process, firms provide solutions such as maintenance, operational support, and predictive analytics, ultimately aiming to create sustainable competitive advantages (Oliva \u0026amp; Kallenberg, 2003). Additionally, servitization helps diversify revenue streams by transitioning from one-time sales models to recurring revenue models, thus reducing dependence on cyclical product demand (Baines et al., 2017). The use of data-driven insights gathered through service interactions allows firms to optimize product performance, predict maintenance needs, and improve customer satisfaction, thereby creating long-term competitive advantages (Kohtamäki et al., 2019). Moreover, adopting servitization allows firms to better leverage emerging digital technologies such as IoT and big data, enabling advanced services such as predictive maintenance and real-time performance monitoring (Coreynen et al., 2017).\u003c/p\u003e\n\u003cp\u003eExamples of servitization include Apple's iPod, which introduced the iTunes ecosystem to seamlessly integrate music purchases, downloads, and management; and Amazon's Kindle, which combines e-reader hardware with a digital marketplace for books (Jang et al., 2021). Rolls-Royce’s \"Power by the Hour\" is another notable example. Instead of selling jet engines as standalone products, the company offers a usage-based service, in which customers pay for engine uptime and maintenance based on their actual usage (Smith, 2013). This approach reduces customers' initial investments and provides Rolls-Royce with continuous revenue through long-term service agreements, thereby creating a more stable and sustainable business model (Neely, 2008). These cases demonstrate how servitization combines technological innovation with customer engagement to create value.\u003c/p\u003e\n\u003cp\u003eVarious definitions of productization have been presented in previous studies. Valminen and Toivonen (2012) defined productization as the process of making service offerings more “product-like” by systematizing their components, thereby clarifying the nature of the service as a commercially valuable commodity. Similarly, Elia et al. (2019) emphasize that the primary objective of productization is to enhance customer satisfaction and the perceived value of offerings. According to Valtakoski and Järvi (2016), productization involves a knowledge transformation process encompassing two dimensions: transitioning from tacit to explicit and systematized knowledge, and from individual employee knowledge to organizational knowledge. Wirtz et al. (2021) highlight that the core of productization lies in addressing the challenges inherent in services, such as intangibility and complexity, by making it easier to standardize, formalize, systematize, repeat, customize, modularize, and bundle. In essence, productization transforms intangible services into more \"product-like\" solutions, such as software or methodologies, by enhancing their structure and systematization.\u003c/p\u003e\n\u003cp\u003eServitization and productization are complementary strategies that enable firms to create value based on their goals and resources. Servitization focuses on customization and building long-term customer relationships by integrating services into product-based models and standardizing intangible services to improve scalability and consistency (Baines et al., 2009; Wirtz et al., 2021) Although servitization has been widely studied and recognized as a transformative strategy, research on productization remains limited. Most existing studies define its characteristics, but have not sufficiently explored its relationship with servitization or developed comprehensive frameworks using real-world cases (Elia et al., 2019; Jaakkola, 2011; Leoni, 2015; Valtakoski \u0026amp; Järvi, 2016). Such frameworks could help firms strategically combine these approaches to strengthen their competitiveness, adapt to dynamic market conditions, and gain insights into effectively leveraging emerging technologies.\u003c/p\u003e\n\u003cp\u003e2.2. Frameworks for PSS and convergence\u003c/p\u003e\n\u003cp\u003eThe convergence of manufacturing and service has emerged as a critical driver for firms seeking to enhance value creation and secure long-term growth. This phenomenon, also referred to as a product-service system, involves the integration of service elements into traditional product-oriented business activities and the expansion of service firms into the manufacturing domain (Baines et al., 2009). This convergence enables firms to offer more comprehensive solutions, leveraging the strengths of both manufacturing efficiency and service customization to meet evolving customer needs (Neely, 2008).\u003c/p\u003e\n\u003cp\u003eThis convergence is gaining prominence in response to changing market demand, technological advancements, and the increasing complexity of global supply chains. In particular, firms are moving beyond the conventional model of selling standalone products or services and adopting integrated solutions that blur the lines between the two domains (Visnjic et al., 2016). For example, companies are now combining physical products with service offerings such as maintenance, remote monitoring, or customer support to create PSSs (Kuijken et al., 2017; Moro et al., 2022; Reim et al., 2015).\u003c/p\u003e\n\u003cp\u003eTraditionally, PSS frameworks have conceptualized service as an extension of manufacturing, where services are added to enhance the value of physical products (Baines et al., 2009; 2017). These models emphasize the shift from selling products to offering integrated solutions that combine products and services (Neely, 2008). However, these approaches are somewhat limited in scope as they primarily focus on how manufacturing firms incorporate services and often overlook the more complex bidirectional interactions between manufacturing and services across business activities.\u003c/p\u003e\n\u003cp\u003eAnother significant body of literature examines the role of services in supporting manufacturing activities. This includes areas such as R\u0026amp;D, logistics, and after-sales services, all of which play critical roles in improving manufacturing efficiency and driving innovation (Cusumano et al., 2015). For example, R\u0026amp;D services enable manufacturing firms to enhance their product development processes and gain a competitive advantage (Miles, 2005). However, frameworks that focus on these support services often do not capture the broader potential for deeper integration of manufacturing and services.\u003c/p\u003e\n\u003cp\u003eAdditionally, recent studies have examined how service firms increasingly enter the manufacturing domain through backward integration (Oliva \u0026amp; Kallenberg, 2003). For instance, companies in sectors such as IT or telecommunications have developed manufacturing capabilities to support their service offerings (Vendrell‐Herrero et al., 2014). This type of convergence highlights how service providers, driven by the need for quality control and customization, integrate manufacturing processes to complement their service portfolios. Despite the importance of this trend, these perspectives often overlook the diversity of convergence pathways and focus narrowly on the unidirectional flow from services to manufacturing.\u003c/p\u003e\n\u003cp\u003eIn summary, while existing PSS frameworks provide valuable foundations, they often lack the depth needed to address the complex strategic decisions involved in balancing internal and external capabilities. As firms continue to evolve and adapt to rapidly changing markets, a more comprehensive framework that captures both the direction of convergence and procedures employed is required. To address these limitations, this study proposes a new framework for PSS that accounts for the bidirectional flow between manufacturing and services, as well as the different procedures firms use to integrate these capabilities. By exploring both the direction of convergence and the convergence procedure, this framework offers a holistic perspective on how firms can achieve competitive advantage through convergence.\u003c/p\u003e"},{"header":"3. Methodology","content":"\u003cp\u003eThis study employed an inductive approach to construct a framework suitable for configuring PSS business models that is practically useful and easy to use in diverse domains. This approach is based on Yin\u0026rsquo;s (2018) guidelines for multiple case studies. Existing studies, such as those by Bosch-Rekveldt et al. (2011) and Gupta et al. (2022), have demonstrated that it can provide an excellent procedure for comparing different classification criteria. The inductive approach is primarily a qualitative methodology, which is useful because it provides a more instructive understanding of the explanatory nature of specific phenomena (Kim et al., 2015; Kong et al., 2025; Shin et al., 2019). First, several concepts and cases of PSS were initially identified through a review of the literature and business articles, which were subsequently organized into various classifications by the authors. Government publications, technical reports, papers published by research institutes, media (including newspapers), and domestic and global PSS cases of major companies were comprehensively reviewed. By doing so, a tendency to categorize distinctive cases, and thus the following two axes, was used to construct a two-way framework:\u003c/p\u003e\n\u003cp\u003eFirst, the direction of convergence was based on literature. It can be classified into two types: servitization, which adds services to products from the perspective of manufacturing, and productization, which newly implements services from the perspective of service providers. This opposite direction could be an important axis for classifying PSS-associated business model. Second, the procedure of convergence was based on a review of the PSS market and related business models. A firm with sufficient capabilities may initiate a new business model that integrates products and services. This can be referred to as in-house business development and internalization. In contrast, if a firm lacks the necessary capabilities due to its size or lack of internal resources, it may opt for a collaborative approach, engaging in business model development with an external resource, referred to as outsourcing, as well as externalization.\u003c/p\u003e\n\u003cp\u003eThese two axes, organized in two-by-two matrix, can be used as a framework for categorizing PSS business models, which many firms can easily understand and apply to their business model strategies. Table 1 briefly presents the framework, and Section 4 describes the framework in detail using several business cases.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eTable 1.\u003c/strong\u003e A simple framework for PSS business model\u003c/p\u003e\n\u003ctable border=\"1\" cellspacing=\"0\" cellpadding=\"0\" width=\"605\" class=\"fr-table-selection-hover\"\u003e\n \u003ctbody\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 202px;\"\u003e\n \u003cp\u003e\u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp;Direction\u003c/p\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003cp\u003eProcedure\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 202px;\"\u003e\n \u003cp\u003eServitization\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 202px;\"\u003e\n \u003cp\u003eProductization\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 202px;\"\u003e\n \u003cp\u003eInternalization\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 202px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 202px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 202px;\"\u003e\n \u003cp\u003eExternalization\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 202px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 202px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003c/tbody\u003e\n\u003c/table\u003e"},{"header":"4. Results: Development of PSS business model framework ","content":"\u003cp\u003eThis case study is designed to explain the various types of PSS in the radical changes of business models arising from the emergence of innovative technologies. Our study design considered that the directions (\u003cem\u003efrom\u003c/em\u003e \u003cem\u003emanufacturing firm\u0026nbsp;\u003c/em\u003evs.\u003cem\u003e\u0026nbsp;from service firm)\u0026nbsp;\u003c/em\u003eof PSS would have a significant role to organize the various types of convergences, and how to expand its value propositions (\u003cem\u003einternalization\u003c/em\u003e vs. \u003cem\u003eexternalization\u003c/em\u003e) could be essential as well (Eggert et al., 2017; Gomes et al., 2021; Kaňovsk\u0026aacute; \u0026amp; Tom\u0026aacute;\u0026scaron;kov\u0026aacute;, 2018; Kowalkowski et al., 2017; Kuijken et al., 2017).\u003c/p\u003e\n\u003cp\u003eThe first type, a representative one in PSS, is \u003cem\u003e(1)\u003c/em\u003e \u003cem\u003ein-house servitization of manufacturing firm\u003c/em\u003e, which refers to a manufacturing company expanding its intrinsic value proposition to services such as maintenance services, know-how-based consulting services, and value-added services. For example, in the case of maintenance services, BMW launched the BMW ServiceCare+, which enables autonomous vehicle management by informing the automotive parts replacement cycle and related service notifications through a BMW Plus application. LG Electronics expanded its after-sales service to LG Care-Ship, which provides cleaning and disinfection services for home appliances such as air purifiers, refrigerators, and washing machines. Boeing also conducted an EDGE service that monitors and predicts their aviation electronic components so that they can generate additional profit streams by expanding their value proposition from manufacturing parts to service areas.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eIn another case, a manufacturing firm takes advantage of its know-how for servitization (Vandermerwe \u0026amp; Rada, 1988; Wang et al., 2023). IBM is a well-known example of this case in which the company was completely transformed into a business consulting firm in accordance with its data-intensive core competencies in manufacturing processes. Similarly, GE, which was once famous as a home appliance manufacturing company, developed a Digital Factory based on its manufacturing know-how and succeeded in converting it into a solution sales business model. Epson, which produces advanced process robots along with computer peripherals, such as multifunction printers and projectors, also launched new smart glass services using augmented reality (AR) and a 5G-based aviation maintenance system, which effectively conjugates their core competencies for the management of manufacturing processes into this new servitization model.\u003c/p\u003e\n\u003cp\u003eOther examples include manufacturing firms transferring their product-based capabilities to content-oriented service areas (Kohtam\u0026auml;ki et al., 2021). For example, Apple has expanded its business from manufacturing electronic products such as smartphones and tablets to content services such as App Store-based Apple TV and Over-the-top (OTT; streaming TV) and has successfully altered its core competency to a service firm from a manufacturer. In addition, a firm can diversify its revenue model by offering customers different user experiences related to its products (Shiratori et al., 2021). For example, Hyundai Motor Company launched the Wheelping platform by combining a new SUV with a car camping service, providing a new user experience in the automotive space, and generating additional service revenue while promoting its products.\u003c/p\u003e\n\u003cp\u003eThe second type is \u003cem\u003e(2) in-house productization of service firm\u003c/em\u003e, in which a service firm expands its business areas into manufacturing through mergers and acquisitions (M\u0026amp;A), joint ventures, and so on (Xing et al., 2017). For instance, SK Networks, which\u0026nbsp;once focused on IT service-acquired manufacturers of home appliances (e.g., Dongyang Magic), expanded their business portfolios in conjunction with rental services such as water purifiers, dishwashers, and induction cookers. Coway, based on its experience in door-to-door sales of learning materials, also moved into product areas such as water purifiers and mattresses and recently expanded into the SleepCare consulting service by providing professional education and certifications to door-to-door salespeople.\u003c/p\u003e\n\u003cp\u003eThis portfolio expansion extends online businesses to virtual reality (VR) and offline reality (Gebauer et al., 2021; Lee et al., 2019). For example, Facebook acquired Oculus, a VR device manufacturer, to expand its online social media into VR; Microsoft also launched HoloLens and released the Baraboo project, which provides mixed reality (MR) that outputs scanned 3D images of real objects on a real screen and allows them to be easily manipulated. Additionally. Google acquired Nest, a thermostat manufacturer, and launched Nest Thermosta, an offline smart home energy-saving service. Amazon entered smart home services by acquiring a manufacturing startup Ring, a manufacturer of smart home appliances that focuses on video doorbells. The search engine company Baidu also entered the offline electric vehicle manufacturing business activity by establishing Baidu Automobile as a joint venture with electric vehicle manufacturer Geely. Amazon is internalizing its manufacturing capabilities by acquiring Kiva Systems, a manufacturer of autonomous robots, and building automated systems in its logistics warehouses.\u003c/p\u003e\n\u003cp\u003eThe third type is the \u003cem\u003e(3) servitization by outsourcing\u003c/em\u003e, in which a manufacturing company collaborates with software development firms during the servitization process (Eggert et al., 2017; Fontagn\u0026eacute; \u0026amp; Harrison, 2017). For example, in collaboration with Code Design, Weltech developed a smart logistics kiosk service that received parcels, measured their volume and weight, calculated their price, and provided a one-stop delivery service. Artisan and Ocean collaborated with SusungTech and launched a water-sport photo solution that has intelligent algorithms to improve image quality underwater and diving computer functions that can communicate with smartphones. SuperBin can launch a deep learning-based autonomous waste recognition and sorting service by outsourcing embedded development to NTN Technology. DaLim can also enhance the safety service of LNG high-pressure gas equipment manufacturers by utilizing the CAE analysis design software from Midas IT, which specializes in structural analyses. Manufacturing firms present convergence services by outsourcing the core processes of servitization.\u003c/p\u003e\n\u003cp\u003eThe fourth type is an area where service firms develop products necessary to advance service models (Bullinger et al., 2003; Vendrell-Herrero et al., 2017), the so-called \u003cem\u003e(4) productization by outsourcing\u003c/em\u003e. A factoryless manufacturer is a representative example (Bernard \u0026amp; Fort, 2015; Coyle \u0026amp; Nguyen, 2022). For instance, Amazon is exclusively associated with Kindle which can be used for e-book subscriptions and operates a flat-rate reading service. Socar, which provides a car-sharing service, outsourced the production of control equipment through PowerNavi, enabling remote vehicle management and maintenance from a central location.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eSome service firms also present new service models in this way. For instance, the American insurance company John Hancock introduced discount-insurance premium service models by outsourcing the production of wearable devices (i.e., Fitbit) that could monitor the user\u0026rsquo;s heart rate, breathing, and amount of exercise. DeepScent, which provides personalized scent consulting services, launched an olfactory-based digital therapy service by developing a fragrance device in collaboration with Aonics. SNC Lab, which has IT-based knowledge services such as web accessibility and UI/UX consulting, has also advanced to manufacturing sectors such as IoT-based parking prevention bollards and IoT convergence benches through collaboration with manufacturing companies.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eFinally, another distinguishable case refers to a manufacturing platform (Fontagn\u0026eacute; \u0026amp; Harrison, 2017; Mohajeri, 2015; Tian et al., 2022) that connects manufacturing supply and demand and provides services such as design, planning, prototyping, and performance testing. For example, Quirky\u0026rsquo;s invention platform in the United Kingdom presented a service model in which the platform\u0026rsquo;s participants proposed and adopted ideas that could be commercialized through community curation. This platform distributes profits by manufacturing and selling these ideas to associated manufacturers. Similarly, AteamVentures provides a platform service called CAPA, which is a manufacturing-matching platform service that connects various manufacturers to demand and manage operations. This can be seen as a more evolved service model that is not applicable to the framework that structures existing servitization cases. Thus, servitization seems to evolve and develop continuously in accordance with the business environment (de la Torre et al., 2022; Gebauer et al., 2021; Gomes et al., 2021; Vandermerwe \u0026amp; Rada, 1988). Based on our analysis and the aforementioned business cases, Table 2 summarizes the two-by-two framework of the PSS business model.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eTable 2.\u003c/strong\u003e A two-by-two framework for PSS business model.\u003c/p\u003e\n\u003ctable border=\"1\" cellspacing=\"0\" cellpadding=\"0\" width=\"605\" class=\"fr-table-selection-hover\"\u003e\n \u003ctbody\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 123px;\"\u003e\n \u003cp\u003e\u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; Direction\u003c/p\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003cp\u003eProcedure\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 241px;\"\u003e\n \u003cp\u003eServitization\u003c/p\u003e\n \u003cp\u003e(Manufacturing \u0026rarr; Service)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 241px;\"\u003e\n \u003cp\u003eProductization\u003c/p\u003e\n \u003cp\u003e(Service \u0026rarr; Manufacturing)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 123px;\"\u003e\n \u003cp\u003eInternalization\u003c/p\u003e\n \u003cp\u003e(In-house development)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 241px;\"\u003e\n \u003cp\u003e\u003cem\u003e(1) In-house servitization of manufacturing firm\u003c/em\u003e\u003c/p\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003cp\u003e∙\u0026nbsp;Maintenance service\u003c/p\u003e\n \u003cp\u003e(BMW, ServiceCare+ LG Care-Ship, Boing EDGE)\u003c/p\u003e\n \u003cp\u003e∙\u0026nbsp;Know-how based service\u003c/p\u003e\n \u003cp\u003e(IBM, GE DT factory, Epson AR Smart glass)\u003c/p\u003e\n \u003cp\u003e∙\u0026nbsp;Value-added service\u003c/p\u003e\n \u003cp\u003e(Apple TV, Hyundai Motors Wheelping)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 241px;\"\u003e\n \u003cp\u003e\u003cem\u003e(2) In-house productization of service firm\u003c/em\u003e\u003c/p\u003e\n \u003cp\u003e\u003cem\u003e\u0026nbsp;\u003c/em\u003e\u003c/p\u003e\n \u003cp\u003e∙\u0026nbsp;Utilization of service capability (SK Magic, Coway)\u003c/p\u003e\n \u003cp\u003e∙\u0026nbsp;Business expansion of online service firms\u003c/p\u003e\n \u003cp\u003e(Facebook Meta Quest, Google Nest Thermosta, Amazon Ring, Baidu Car)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 123px;\"\u003e\n \u003cp\u003eExternalization\u003c/p\u003e\n \u003cp\u003e(Development by outsourcing)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 241px;\"\u003e\n \u003cp\u003e\u003cem\u003e(3) Servitization by outsourcing\u003c/em\u003e\u003c/p\u003e\n \u003cp\u003e\u003cem\u003e\u0026nbsp;\u003c/em\u003e\u003c/p\u003e\n \u003cp\u003e∙\u0026nbsp;Outsourcing the service development\u003c/p\u003e\n \u003cp\u003e(Weltech, Artisan and Ocean, SuperBin, DaLim)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 241px;\"\u003e\n \u003cp\u003e\u003cem\u003e(4) Productization by outsourcing\u003c/em\u003e\u003c/p\u003e\n \u003cp\u003e\u003cem\u003e\u0026nbsp;\u003c/em\u003e\u003c/p\u003e\n \u003cp\u003e∙\u0026nbsp;Advanced business model\u003cbr\u003e\u0026nbsp;(Amazon, Socar)\u003c/p\u003e\n \u003cp\u003e∙\u0026nbsp;New business model\u003cbr\u003e\u0026nbsp;(John Hancock, DeepScent, SNC Lab.)\u003c/p\u003e\n \u003cp\u003e∙\u0026nbsp;Manufacturing Platform\u003cbr\u003e\u0026nbsp;(Quirky, CAPA)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003c/tbody\u003e\n\u003c/table\u003e"},{"header":"5. Discussion","content":"\u003cp\u003eSeveral issues can be discussed as follows: First, types\u0026nbsp;(1) and (2)\u0026nbsp;have many well-known business cases, and the\u0026nbsp;firms are relatively large; otherwise,\u0026nbsp;types\u0026nbsp;(3) and (4)\u0026nbsp;are in opposite directions. Outsourcing is perceived as an instrumental alternative to strategic decision making for servitization or productization; thus, there has been relatively little research on this subject. In addition,\u0026nbsp;type (2) largely comprises the absorption of external core competencies, such as M\u0026amp;As and\u0026nbsp;joint ventures. This is a\u0026nbsp;strategic industrial\u0026nbsp;decision in terms of development costs (Benedettini\u0026nbsp;\u0026amp; Kowalkowski, 2022). For example, when online firms such as Google, Amazon, and Facebook enter the manufacturing sector, they tend to merge external resources rather than develop new products.\u003c/p\u003e\n\u003cp\u003eThis framework can also be considered in conjunction with business model pivoting based on a firm’s core competencies. Pivoting is a term mainly used in start-up and SMEs research, referring to a strategy of quickly exploring the possibility of success (i.e., lean strategy of Collis (2016)) by shifting the business model to other areas based on the company's core competencies, such as technology, people, patents, and material resources (Hacklin et al., 2018; Hirvikoski, 2014; Sadeghiani et al., 2024; Snihur \u0026amp; Clarysse, 2022). Applying this to the framework, types (3) and (4) have a relatively narrow scope of pivoting in conjunction with the scope of business transformation limited to neighboring business activities, while types (1) and (2) have a wider pivoting capability. Indeed, in-house development utilizes a firm’s internal core competencies; thus, the scope of pivoting can be broader, and outsourcing has an inevitable limit in pivoting because of cost-constrained decisions to use external resources (Eisenmann et al., 2011; Norbäck et al., 2024). However, as in John Hancock’s case, outsourcing cannot become an unconditional limiting factor in pivoting.\u003c/p\u003e"},{"header":"6. Conclusion","content":"\u003cp\u003eBoth the government and private sector are making various efforts to identify new growth engines. Among various initiatives and strategies, the convergence of products and services, PSS, has received considerable attention. However, the scope of PSS has been relatively restricted, primarily because of the narrow perspective. Consequently, its application has been limited to the development of new business models, particularly for SMEs. Thus, this study proposes a new framework that can identify PSS business using two criteria–direction and procedure–with convergence as the central concept. The direction of convergence is categorized into servitization and productization, and the procedure of convergence is internalization and externalization. To do so, this study proposes a two-by-two framework supported by an inductive approach based on various cases released in the market. The framework was organized so that it could be easily applied from a business perspective.\u003c/p\u003e\n\u003cp\u003eThis study extends the current PSS literature, which mainly uses limited criteria, by presenting a PSS framework. Again, the two-by-two framework can be examined through the direction and procedure of convergence. In particular, it establishes a more solid foundation by comprehensively analyzing and inductively presenting various business cases that may appear in various areas. From a practical viewpoint, this study establishes a comprehensible and readily implementable framework that even SMEs and relatively early stage business organizations can easily understand and apply to their own cases. Given the rise of convergence as an inevitable trend, and the expected complexity of upcoming businesses, the framework can serve as a powerful instrument that makes it easy to understand, plan, and facilitate businesses.\u003c/p\u003e\n\u003cp\u003eAlthough this study constructs a framework based on extensive business cases, its application is limited by the inherent limitations of the qualitative approach, particularly the absence of concrete figures or evidence. Consequently, further studies should incorporate empirical analyses focusing on the key factors or attributes commonly found in major businesses for each type to examine and suggest more specific strategies. Additionally, this study proposes a framework based on past cases. As cutting-edge technologies, such as generative AI, have rapidly evolved in recent years, PSS is expected to undergo significant changes in its direction or procedure for various convergences. Industrial and social contributions can be made by conducting research on distinctive PSS frameworks that reflect these trends.\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\n\u003cli\u003eBaines, T., Ziaee Bigdeli, A., Bustinza, O. F., Shi, V. G., Baldwin, J., \u0026amp; Ridgway, K. (2017). Servitization: Revisiting the state-of-the-art and research priorities. \u003cem\u003eInternational Journal of Operations \u0026amp; Production Management\u003c/em\u003e,\u003cem\u003e 37\u003c/em\u003e(2), 256-278.\u003c/li\u003e\n\u003cli\u003eBaines, T. S., Lightfoot, H. W., Benedettini, O., \u0026amp; Kay, J. M. (2009). 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Sage Publication.\u003c/li\u003e\n\u003c/ol\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":true,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Product-service system, Business model, Convergence of manufacturing and service","lastPublishedDoi":"10.21203/rs.3.rs-6242333/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-6242333/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThe convergence of manufacturing and services, commonly referred to as product-service systems (PSS), represents a transformative strategy for businesses aiming to stay competitive and respond to evolving market dynamics. This study addresses the limitations of traditional unidirectional perspectives, such as servitization and productization, by proposing a two-dimensional framework for PSS business models. Using direction (servitization vs. productization) and procedure (internalization vs. externalization) as the key axes, the study categorizes PSS strategies into a two-by-two matrix, providing a comprehensive and practical tool for business model innovation. An inductive approach, grounded in business model cases, highlights the bidirectional nature of manufacturing-service convergence and emphasizes the importance of strategic procedures in internal and external resource integration. This framework offers insights for small and medium-sized enterprises and policymakers aiming to leverage PSS for growth engines and business sustainability. This study contributes to the broader PSS literature and establishes a robust foundation for business applications.\u0026nbsp;\u003c/p\u003e","manuscriptTitle":"Development of a two-way framework for the product-service system business model: Focusing on convergence perspective","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-06-05 16:29:34","doi":"10.21203/rs.3.rs-6242333/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"999b33c5-8a39-4269-bb74-26833fc0abab","owner":[],"postedDate":"June 5th, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[{"id":49528426,"name":"Business and commerce/Business and management"},{"id":49528427,"name":"Business and commerce/Economics"},{"id":49528428,"name":"Business and commerce/Information systems and information technology"}],"tags":[],"updatedAt":"2025-07-03T16:08:49+00:00","versionOfRecord":[],"versionCreatedAt":"2025-06-05 16:29:34","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-6242333","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-6242333","identity":"rs-6242333","version":["v1"]},"buildId":"8U1c8b4HqxoKbykW_rLl7","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}