Barriers and opportunities of digital servitization for SMEs: the effect of smart Product-Service System business models

Abstract

Digital servitization enables SMEs to propose smart Product-Service Systems (PSS) integrating products and services. Limited discussion of this contemporary and challenging phenomena stimulated our in-depth literature review, which identified four key themes common to both barriers and opportunities: digital strategy, ecosystem network, internal and operational organization, and human capabilities. Industry expert focus group enabled enriching and refining these themes across smart PSS business models. Digital servitization was found to mostly benefit the SME’s digital strategy and ecosystem network and is hindered by insufficient human capabilities and underdeveloped ecosystem networks. Opportunities and barriers vary as the smart PSS business model evolves.

Introduction

To face the increased competition and bring more value to their customers, industrial companies are developing servitization strategies by positioning themselves no longer as sellers of products or services but as providers of solutions integrating products and services. These integrated solutions, known as Product-Service Systems (PSS), can cover a wide variety of value propositions. They may range from a product-oriented offer that combines the product with an additional service such as maintenance or repair, to a more complex offer oriented on usage to guarantee user satisfaction and where the service replaces the product (Baines et al. 2017; Tukker 2004). The trend toward this strategy concurs with the increasing adoption of digital technologies and the digitalization of businesses (Gobble 2018; Rha and Lee 2022). Indeed, digitalization improves the servitization effectiveness by allowing novel pricing frameworks and solutions (Shen et al. 2021). As such, the most successful companies combine the convergent servitization and digitalization schemes and engage in a digital servitization strategy (Paschou et al. 2020). Digital servitization thus refers to the creation of new services and/or the enhancement of existing services by using digital technologies to implement digital business models, produce knowledge from data, advance the operational performance and improve competitiveness (Paschou et al. 2020).

Digital servitization enables increasing the company’s revenues and profits by obtaining a competitive advantage and delivering tailored services to the clients (Landscheidt et al. 2018; Lerch and Gotsch 2015; Vendrell-Herrero et al. 2017). Thanks to digital servitization, the PSS solutions are becoming more complex by incorporating digital technologies to endow products, services, or product-service interfaces with intelligence (Holmstrom and Partanen 2014). These new solutions, referred to as smart PSS represent “an IT-driven value co-creation business strategy consisting of various stakeholders as the players, intelligent systems as the infrastructure, smart, connected products as the media and tools, and their generated e-services as the key values delivered that continuously strives to meet individual customer needs in a sustainable manner.” (Zheng et al. 2018, p. 660). Smart PSS induce innovation opportunities for companies (Carlborg et al. 2014) and expand value creation for their clients (Kans and Ingwald 2016; Pagoropoulos et al. 2017). In addition, they support sustainability through longer product lifecycle, increased resource and energy efficiency, enhanced product usage, reduced carbon emissions and reduced wasted materials (Paiola et al. 2021). In fact, digital technologies like Internet of Things, cloud platforms, and big data enable sustainable smart PSS business models as companies can design and implement more efficient service-oriented and digitalized value propositions (Bouncken et al. 2021; Gaiardelli et al. 2021).

Several researchers have explored the barriers and opportunities of digitalization for businesses, including small and medium-sized enterprises (SMEs) (Confente et al. 2015; Ghobakhloo and Ching 2019; Molinillo and Japutra 2017; Müller 2019; Thun et al. 2019; Weiss et al. 2016; Zangiacomi et al. 2018). However, little research addresses the barriers and opportunities related to digital servitization of SMEs. These elements differ from digitalization to digital servitization, especially in the context of SMEs, for many reasons. Indeed, smart PSS are specific as they lead to a restructuring of the value chain and value creation mechanisms in firms (Zighan and Abualqumboz 2022). For SMEs particularly, the digital servitization strategy requires specific skills, as well as a particular adaptation of the structure and strategic vision of the SME (Kolagar et al. 2021). For example, Blockchain can be a key building block in proposing new business models based on pay-per use fees (Balistri et al. 2020). Also, this technology can help overcome trust issues between industrial SMEs and other actors regarding the sharing of key information required for digital servitization (Vatankhach Barenji et al. 2020). However, integrating blockchain requests the SME to have a mature platform with a credible architecture and a strong internal pool of knowledge (Bracci et al. 2021). Another example is digital twins that are becoming crucial for smart manufacturing by helping to directly conduct validation and tests and quickly locate malfunctions (Juarez et al. 2021). They require expertise to implement cybersecurity protocols and govern data, often lacking in industrial SMEs (Yasin et al. 2021).

Hence, it appears that SMEs, despite contributing to 85% of employability in Europe, remain at disadvantage as they face particular challenges in their value creation for customers through smart PSS offerings (Ferreira et al. 2019; Verhoef et al. 2019). Accordingly, this research first aims to investigate the barriers and opportunities specific to SME digital servitization in contrast with the often-examined SME digitalization. Because of the convergence between both concepts of servitization and digitalization, we conducted an indepth literature review on barriers and opportunities of SME digitalization given the lack of studies that addressed them in the particular case of SME digital servitization. We concluded that these barriers and opportunities convey two facets of four distinct categories. We complemented these theoretical insights with a focus group involving nine SME managers and used the four themes as a starting point to analyze the empirical corpus. Consequently, we identified new barriers and opportunities specific to SME digital servitization. Second, considering the diversity of Smart PSS business models proposed by an SME, we delved into the collected data to unveil the relationships between the SMEs’ barriers and opportunities of their digital servitization and the evolutionary nature of smart PSS. This article is structured as follows. Section 2 is devoted to our theoretical foundations while Sect. 3 explains our research methodology. Our results are presented in Sect. 4 and discussed in Sect. 5. Finally, this article concludes with its main contributions, limitations, and future research avenues.

Theoretical foundations

Digital servitization and smart PSS

The Product-Service system (PSS) is commonly agreed as a way of value creation for customers in the context of servitization, particularly in industry services (Baines and Lightfoot 2013). With the advent of digital technologies, digitalization, in addition to servitization, now reflect the two most important trends affecting manufacturing companies due to their profound impact on business competition (Frank et al. 2019a). Indeed, to generate positive financial performances, manufacturing companies need to combine advanced digital services and smart products to ensure value capture from digitalization (Kohtamäki et al. 2020; Sandvik et al. 2021). Digitalization enhances the strategic and operational effectiveness of servitization by enabling new innovative services, business models and pricing frameworks (Kohtamäki et al. 2019; Shen et al. 2021). Accordingly, firms pursue a digital servitization strategy conveying the inherent relationship and the convergence of servitization and digitalization (Frank et al. 2019a; Kohtamäki et al. 2019; Paschou et al. 2020). Digital servitization is considered as a transition process from pure products and add-on services to smart product-services systems (Kohtamäki et al. 2019; Paschou et al. 2020). In this study, as suggested by Kohtamäki et al. (2020, p. 4), digital servitization is “viewed as the use of digital technologies to create and appropriate value from product-service of offerings and thus digital servitization is understood as the interplay between digitalization and servitization”.

Digital servitization enables firms to evolve conventional PSS into a new concept called Smart PSS (Valencia et al. 2015). It is an IT-driven value co-creation business strategy relying on advanced intelligent systems and connected products to meet the customers’ needs in a sustainable manner (Zheng et al. 2018). The evolution to smart PSS stemming from digital servitization is supported by advanced digital technologies such as Internet of Things (IoT), data analytics, and cloud computing (Chowdhury et al. 2018). Connected objects can accumulate massive data about various individual and industrial activities, whose analysis with machine learning and other statistical techniques is changing the PSS business model towards Smart PSS (Watanabe et al. 2020). Also, cloud computing enables the encapsulation of manufacturing resources to form on-demand services that meet customer demands in a pay-per-use way (Zheng et al. 2018). In addition, thanks to the combination of sensors and cloud computing, products can be monitored to provide data about product usage which is required for service processing (Porter and Heppelmann 2014). The planning of the cloud-based resources and of their associated data supported by data mining is, itself, considered as a product-driven service that changes the user experience (Marilungo et al. 2017). Moreover, the use of artificial intelligence can provide richer and more reliable data and analytics for decision making in the predictive maintenance (Ardolino et al. 2018). Hence, smart PSS are sustainable for industrial firms because they help create a stronger long-term relationship, based on end value for the client, and are a way to differentiate on the market (Paiola et al. 2021).

Business models of smart PSS

Firms can propose a variety of PSS business models depending on the way the service is attached to the product. Tukker (2004) suggested a categorization of PSS into product-oriented, use-oriented and result-oriented types. Baines and Lightfoot (2013) proposed to differentiate between base services such as products and spare parts, intermediate services such as maintenance and condition monitoring, and advanced services in the form of contracts where the manufacturer takes responsibility for the performance of its products over an extended period. Thanks to digital servitization, the different types of PSS business models convert from product-oriented to integrated solutions comprising bundles of products and services with digital and smart capabilities, which can create, deliver, and capture value (Paschou et al. 2020). In fact, companies can compete with various smart PSS business models from basic to complex ones, according to the nature of the digital services’ integration within the value proposition (Martinez et al. 2017). To explain the different forms of smart PSS, we rely in this research on the widely recognized taxonomy of Cusumano et al. (2015) that distinguishes between three types of services according to their level complementary or substitution with the product. This taxonomy has proven to be an appropriate lens for analyzing servitization strategies of firms with the advent of digital technologies (Bresciani et al. 2021; Frank et al. 2019b).

Complementary services fall into Smoothing and Adapting services. Smoothing services do not alter the product functionalities significantly and involve an unambiguous exchange between the firm and the client. The service is loosely coupled with the product and could be provided by the product firm or an independent service provider (Ardolino et al. 2018). Smoothing PSS business models include for instance maintenance, repairs, support, and technical assistance (Cusumano et al. 2015). An example of the evolution towards smart smoothing PSS is General Motor’s OnStar product, which delivers remote diagnostics systems, subscription-based communications, turn-by-turn navigation, in-vehicle security, and emergency services (Fitzgerald 2016). General Motors integrated cloud computing and data processing to its OnStar to provide real-time data to the manufacturing division, that will be used to enhance the vehicle’s performance, and to propose supplementary customized services.

Adapting services expand the functionalities of the product and aim to develop new uses of the product for the benefit of the client. Training and consulting that introduce novel usages for the customers as well as the integration of the core product with other solutions are examples of these services (Frank et al. 2019b). The knowledge required to provide adapting services is tightly coupled with the product because the service tailors the product to the specific needs of each client, which requires a deeper relationship with the client (Cusumano et al. 2015). ABB, a European robot manufacturer, provides an illustration to such adapting smart PSS (Krueger et al. 2015). The company changed its focus from developing and selling robots to the monitoring and optimization of the customer’s shop floor with data analytics and connected objects. Another example is underlined in the study of Ayala et al. (2017) who examined the case of a German dental care equipment manufacturer that was faced with a strong barrier to enter the Brazilian market because of different customer properties. In Brazil, the equipment users are not dentists as is the case in Germany, but rather radiology technicians operating in image diagnosis centers. Accordingly, the firm provided a software service in the form of an additional package through a license of use, which makes the equipment more user-friendly for the Brazilian users and adapts it to their habits.

Substituting services replace the purchase of products. The client pays for the use of the product and is, therefore, no longer responsible for its repair or maintenance. Examples are telephone and printing equipment rental and pay-per-use (Cusumano et al. 2015). Substituting services differ from complementary services in that the customer buys a service instead of a product, not a product with services. This business model is well depicted in the case of ShareNow, a digital car-sharing service offered by the multinational automaker Stellantis, the car manufacturer of Alfa Romeo, Fiat, Peugeot, and other vehicles’ brands (Share Now 2022). Stellantis possesses several smart cars parked in different locations within central European cities such as Paris, Berlin, Hamburg, Madrid, etc. Instead of buying the car, the customer pays per its use. Using electronic identification, GPS and other smart features, the drivers can locate the nearest available car, access it, and proceed to payment. This car-sharing scheme allows customers to pay for very short distances and durations. After his journey, the driver can park the car in any place in the city. He gets a bonus every time he charges a car that has less than a 60% battery level.

In conclusion, the smart PSS business models can focus on complementary digital services that support the products, or on more advanced servitized solutions that provide digital customization of the product, or even on the offering of pay-per-use or pay-per-results services (Frank et al. 2019b).

Barriers and opportunities of digitalization for SMEs

Digital technologies enable SMEs to become agile and responsive to market demands (Björkdahl 2020; Kumar et al. 2020). In particular, digital technologies drive servitization since their use allows manufacturing companies to mitigate the challenges and risks associated with servitization while successfully reaping the benefits (Ardolino et al. 2018; Shen et al. 2021). SMEs pursue digital servitization by transforming their capabilities and offerings to create, deliver and capture service value (Kolagar et al. 2021), and accordingly provide high quality outputs to customers (Dutta et al. 2021). Indeed, quality is a major focus of SMEs’ digital servitization as it represents the objective measure of their promises to customers (Ji et al. 2019). These firms are increasingly investing in digitalized quality management systems to monitor the design, planning, manufacturing, and services functions (Dutta et al. 2021). For example, SMEs can exploit data-centric insights to define and implement corrective actions timely (Radej et al. 2017). Also, preventive maintenance and remote monitoring services help SMEs to support customers globally and generate service revenue streams (Tronvoll et al. 2020). Digital servitization constitutes a challenging strategy due to PSS multidimensionality that complicates its design and evaluation, and to the complexity of digital technologies within the new paradigm of Industry 4.0 (Gaiardelli et al. 2021; Mourtzis et al. 2018).

While there is a growing interest in the digital transformation of SMEs in prior studies, little research has examined the barriers and opportunities for digital servitization of these companies (Frank et al. 2019a; Nambisan 2013; Pagoropoulos et al. 2017). In this respect and due to the interplay between servitization and digitalization in digital servitization, we explore in literature the barriers and opportunities of SME digitalization and use these findings as a starting point to analyze the barriers and opportunities of digital servitization for SMEs. In this research, we chose to investigate simultaneously and at the same level both the opportunities and barriers of digital servitization instead of focussing on a single aspect of the phenomenon. In fact, the change management literature emphasizes that the ability to detect both business opportunities and challenges separates SMEs struggling to survive from those that thrive and create added value for consumers and society (Hossain et al. 2001; Ufua et al. 2020). It is important for companies to be knowledgeable of challenges in addition to potential opportunities in order to implement the appropriate preventing actions and transform barriers into business opportunities (Witmer and Mellinger 2016). A systematic literature review was performed to examine academic knowledge about these barriers and opportunities. We relied on the reference scientific database of “Web of Science” to explore articles published in peer-reviewed journals and renowned conferences in the Information Systems’ field. We covered English language journal articles, book chapters, and conference proceedings published since 2005, as this year marks the first scientific work on the digital transformation of companies (Zhu et al. 2006). For the keyword protocol, inclusion and exclusion criteria were defined to evaluate the relevance of the studies for the research question (Anand et al. 2021). We used the terms (“SME” OR “Small Business”), AND (“digitalization” OR “digital transformation”), AND either (“barrier” OR “challenge” OR “obstacle” OR “impediment”) or with (“opportunity” OR “occasion”) to explore the title, abstract and keywords of the available publications. After removing the duplicates, 183 matching studies were identified. We subsequently evaluated the relevance of these studies to our research question by reading their titles, abstracts, and keywords, which resulted in selecting 101 publications, then by browsing the full texts of the remaining articles, therefore keeping a total of 68 studies.

We introduce below our analysis of the literature corpus, which shows that barriers and opportunities for SME digitalization are considered as the two faces of the same coin. Indeed, they both fall into four main themes namely: digital strategy, internal and operational organization, ecosystem network, and human capabilities. First, according to Lipsmeier et al. (2020, p.175) “a digital strategy describes the overall vision of a company in the context of digitalization, including the strategic measures to achieve it. It defines concrete, short-, medium- and long-term digitalization goals and initiatives in the context of products, services and value creation as well as for the organization and culture of a company”. Then, the internal and operational organization gathers all the tasks and processes that guides the firm’s value chain (Ajitabh and Momaya 2004) for instance development, production, marketing, distribution, planning and administration (Sanchez and Heene 2004). Regarding the ecosystem network, it represents the firm’s deliberate and selective connection and maintenance with different external actors such as customers, suppliers, policy-makers, etc. (Xiang and Jiang 2022). Finally, human capabilities are “the skills, knowledge, and personal values/beliefs of the people who perform tasks in the work environment” (Brache 2003, p. 62). Table 1, which represents our conceptual framework, summarizes the key barriers and opportunities identified in prior studies associated with these four themes. These elements are detailed in the paragraphs hereafter.

Table 1.

Opportunities and barriers to SME digitalization in literature

Opportunities	Themes	Barriers
Financial profit: Reduced operating costs (Levy et al. 2005) and marketing costs through the use of social media (Ainin et al. 2015)	Digital strategy	Lack of a digital funding strategy: Shortage of financial sources (Erol et al. 2016) and high risk on IT investments (Grant et al. 2014)
Business model innovation: Value creation, capture and offer (Müller et al. 2018)		Lack of strategic digital vision: Insufficient time spent on planning the strategy (Levy et al. 2005) and inability to accurately decide on technologies to implement (Ackx 2014)
External leadership: Gaining a competitive advantage through responsiveness to market intelligence (Hortoványi 2017)		Reluctance to innovate the business model: Uncertainty of a service-oriented business model that may not meet market needs (Marcon et al. 2019)
Effective management of operations: Data processing to improve productivity and reduce waste (Kilimis et al. 2019)	Internal and operational organization	Basic operations management: Lack of time and clear processes to implementing digital technologies into the organizational structure (Marcon et al. 2019)
Optimization of supply chain management: By reducing transports and scoring environmental benefits (Li and Found 2017)		Rigidity in work practices: Compartmentalized organization that slows communication (McKinsey and Company 2016)
Complex and predictive decision making: Faster and more accurate (Szalavetz 2018)		Reluctance to assimilate digital technologies: For their implementation, maintenance and support (Zangiacomi et al. 2018)
Cooperation enabler: Understanding clients' needs and proposing customized PSS (Paschou et al. 2018)	Ecosystem network	Lack of proximity to customers: Ambiguous customer needs and hazy value propositions (Klein et al. 2018)
Closer relationship with customers: Reducing costs and delays of goods’ transport (Li and Found 2017)		Client reluctance to change: To openly share information and system access with providers (Horváth and Szabó 2019)
Empowering digital reputation: To expand networks and conquer new markets (Joensuu-Salo et al. 2018)		Lack of digital reputation: Risks of brand dilution (Molinillo and Japutra 2017)
Better system connectivity: With partners to avoid inconsistencies in data exchange (Achargui et al. 2017)		Weak collaborative value network: Lack of standardized IT tools and procedures (Horváth and Szabó 2019)
Community identity enabler: Grasp community feelings in real-time (Valencia et al. 2015)		Fear of losing intellectual property: Data breaches through the cloud (Marcon et al. 2019)
Business networking dynamics: With regional and governmental institutions for mutual services (Zangiacomi et al. 2018)		Institutional frameworks and policies: Not conducive to SME digitalization (Grant et al. 2014)
New learning dynamics: Supporting R&D (Lee and Falahat 2019)	Human capabilities	Lack of digital expertise: Specialized language and integration with traditional skills (Peillon and Dubruc 2019)
People-oriented organization: Focus on employees more easily during the transformation (Peltier et al. 2012)		Lack of digital culture: Lack of integration into individual routines (Horváth and Szabó 2019) and groundless fear of machines (Marcon et al. 2019)
Promote collaborative work: Through easier and structured information sharing (Hardwig et al. 2019)		Rigidity and inflexibility of mindset: Lack of openness to new ways and requirements of working (Hardwig et al. 2019)

Barriers to SME digitalization

First, numerous authors tackle the difficulties that SMEs encounter in terms of digital strategy. In this sense, the deficiency in financial resources for digital investment is a major difficulty for SMEs (Erol et al. 2016; Horváth and Szabó 2019; Kiel et al. 2017; PwC 2014). SMEs are often financially limited and do not have available technical structures to adopt new technologies (Mittal et al. 2018). In addition to implementation costs that could be prohibitive, an immediate return on investment is a distinctive condition of prosperity for SMEs, but one that is difficult to measure in advance in the case of digital technologies (Levy et al. 2005; Marcon et al. 2019). The digital strategy is also risky for SMEs because technology investments are highly disruptive for organization structure (Grant et al. 2014). Oni and Papazafeiropoulou (2014) pointed out that the lack of understanding of technology and its application in the business over the long term is the main strategic barrier to its effective adoption by SMEs. Indeed, these firms are often not able to choose the right combination of technologies to meet the constraints of solution complexity (Ackx 2014; Medini et al. 2019). In addition, Lall et al. (2017) highlighted the weak ability of SMEs to make the right strategic technology investment decisions because they focus more on day-to-day operations and omit the long-term vision (Marcon et al. 2019). This is a management barrier when the time spent on planning a strategic vision is insufficient. Business model innovation is another strategic barrier for SMEs due to the uncertainty of the organization’s and market’s acceptance of the proposed servitization (Marcon et al. 2019). The new business model may not be responsive to customer needs and weak internal leadership towards the digital strategy may be a burden (Zangiacomi et al. 2018).

Second, digital transformation can be challenging for the internal and operational organization of SMEs for many reasons. The major barrier is the management of basic current operations. Marcon et al. (2019) expose the difficulties encountered by SMEs in using digital technologies and implementing them into the current structure. There is a need for operational clear processes on the transformation path and often the lack of convenient tools and resources are major issues. Implementation of digital transformation is time-consuming. Furthermore, when technology is partially implemented (Kilimis et al. 2019), a period of transition is required to standardize procedures for the operation organization. In addition, it is often difficult for SMEs to adjust their core operations including resource allocation (Peillon and Dubruc 2019) and cope with the complexity of new products and production trends with the advent of digital technologies (Dachs et al. 2013). The basic operation is not the only barrier concerning the internal organization. There can also be rigidity in working practice during a digital transformation. According to a study by McKinsey and Company in 2016, digital transformation of the industry is increasing the demand for fast communication. This means that the structure will be highly coordinated across organizational units and thus the organization will be restructured. Besides, reluctance to assimilate digital technologies may take place (Marcon et al. 2019; Zangiacomi et al. 2018). The difficulty lies in the implementation effort but also in the maintenance and support of digital technologies. As these technologies are evolving very fast, the tools implemented could become quickly obsolete, and thus be a costly financial and structural burden.

Third, digital technology not only changes the strategy and structure of the firm, but also affects partners, customers, and more generally the firm’s ecosystem network. The main obstacle for SMEs is the lack of understanding and proximity to customers (Marcon et al. 2019). According to Klein et al. (2018), challenges come from the ambiguous customer needs, hazy value propositions and difficulties conveying benefits to customers. It is necessary to address this managerial barrier to develop a more service-oriented offering (Raja et al. 2017). The provider also needs deeper insights to develop a solution to sell to the client, but the access to the information needed is complicated. Customers are highly reluctant regarding data security. They fear data manipulation from the provider (Cimini et al. 2017; Horváth and Szabó 2019; Kiel et al. 2017; Marcon et al. 2019; McKinsey and Company 2016), privacy breach, and unsecured access to production and corporate systems (Klein et al. 2018). In addition, while digital technology provides a firm with an opportunity to communicate about its value and develop a digital reputation, SMEs often fail to make such use of digital technology as they are subject to brand risks including dilution and change of mechanisms (Molinillo and Japutra 2017).

Moreover, although digital technologies allow firms to build a collaborative value network, Mittal et al. (2018) underlined that SMEs have weaker network connection and are much more dependent compared to larger firms. This is mainly due to incompatible information technologies and underdeveloped information sharing (Chen et al. 2008; Horváth and Szabó 2019) and data security standards across SMEs (Marcon et al. 2019). However, it is costly for SMEs to develop a more robust IT structure that would additionally allow them to overcome the fear of losing intellectual property by digital technology through the cloud (Marcon et al. 2019). Finally, the SME ecosystem is also composed of institutional and governmental structures that play a major role in the adoption of new technologies (Weber and Studer 2016). They govern copyright issues, tax and jurisdictional concerns that affect decision making regarding digital technology adoption. This regulatory framework could be considered a barrier when it is not conducive to the digital transformation of SMEs (Grant et al. 2014).

Fourth, firms need particular human capabilities to reap the benefits of digital transformation. In this sense, the lack of skills and knowledge of digital technologies is a major barrier for SMEs (Marcon et al. 2019; Zangiacomi et al. 2018). These technologies require specialized skills and language, as well as arranging teams according to these new skills (Nylén and Holmström 2015). It is often difficult for SME employees to integrate new digital skills with their traditional existing competencies (Peillon and Dubruc 2019; Zangiacomi et al. 2018). Management may face challenges for such change conduct (Bauer et al. 2015; Gioia et al. 2013) including ensuring that their staff develops the right learning skills and routines around digital technologies and establishing a digital culture conducive to change of structure (Horváth and Szabó 2019; Kiel et al. 2017; Vey et al. 2017; von Leipzig et al. 2017). Indeed, with the future trends of Industry 4.0, many employees fear that machines may eventually replace humans in their jobs (Marcon et al. 2019). Another human aspect that could be a potential barrier for SMEs is the presence of a rigid and inflexible mindset (Medini et al. 2019; Thun et al. 2019; Zangiacomi et al. 2018). For example, Hardwig et al. (2019) found that employees who have been through digital transformation noted that work is not only more condensed, but also requires more self-organization. As digital technologies enable working from any interface, people are more often asked to be available at any time. This results in blurred boundaries between private and working time, which might be a brake for people to accept change and would hence inhibit the digital transformation in SMEs.

Opportunities of SME digitalization

Although SMEs may face several barriers to digitalization that make them reluctant to embrace the transformation, digitalization is also a way for SMEs to gain competitive advantage and improve themselves. According to Confente et al. (2015, p. 316), “SMEs have an important advantage in this transformation process because they are innovative, flexible and able to create new products and services rapidly, even though they have few resources”.

First, numerous authors underlined the positive impacts of digitalization on the digital strategy for SMEs. In this sense, in terms of financial profit, digital technologies allow the firm to gain benefits by reducing operating sales and purchasing costs (Levy et al. 2005). Financial performance of SMEs is also influenced positively by social media that lower market costs and improve the firm’s relationship with clients (Ainin et al. 2015). The technologies of the Industry 4.0 influence value creation, value capture and value offer, which increase the financial profit expectation for SMEs (Müller et al. 2018). In fact, Autio and Thomas (2016) argue that these digital technologies encourage co-creation thanks to easier access to information, exchange of products and efficiency supported by big data. In addition, digitalization is recognized as a major opportunity of business model innovation for SMEs. Innovation can be embedded in the offering of the SME and hence, support its servitization to provide clients with services of improved quality (Coreynen et al. 2017; Frank et al. 2019b; Levy et al. 2005). Moreover, digitalization contributes to external leadership and helps SMEs gain competitive advantages (Hortoványi 2017). Digitalization enables adjusting market orientation, enhancing market intelligence, accelerating the SME’s response to market possibilities (Kohli 2017) and facilitates the internationalization of firms (Lee and Falahat 2019).

Second, digitalization contributes to improving the internal and operational organization of SMEs. The major opportunity for these firms in becoming digital is efficient operations management in terms of communication, updating, synchronizing machines, and processing data in real-time, which consequently improves productivity, quality and waste-reducing (Kilimis et al. 2019; Paritala et al. 2016). Automatization is also enabled thanks to digital technologies, e.g., robots and artificial intelligence (McKinsey and Company 2016), therefore enhancing the SME’s productivity, efficiency, safety and convenience. Such efficient operations help following the clients’ orders in real-time and reducing delays of order execution (Kilimis et al. 2019). Furthermore, according to Li and Found (2017), digital technologies allow for an optimization of the SME’s supply-chain while scoring environmental benefits for example by reducing transport costs. Synchronization of the supply-chain is also improved thanks to data processing and communication. Data are furthermore crucial for faster and more accurate decision-making (Achargui and Zaouia 2017; Cimini et al. 2017; Szalavetz 2018).

Third, the digitalization of SMEs influences their ecosystem network. It enables more cooperation, especially connecting the SME with clients to better understand their requirements and meet their demands (Medini et al. 2019). Indeed, digital technologies help SMEs develop a deeper relationship with clients to assimilate their specific needs and provide them with customized and ergonomic products and services (Paschou et al. 2018). This deeper relationship is also depicted in the physical proximity with clients supported by digital technologies, which reduces the costs and delays of goods’ transport (Li and Found 2017). In addition, finding new clients is empowered by digital reputation, because social media provide SMEs with opportunities to improve their brand image and expand their networks (Joensuu-Salo et al. 2018). Moreover, digital technologies help SMEs build a digital ecosystem i.e., an artificial system with shared digital technology as a driver of environmental turbulence, a network of firms connected thanks to a shared interest to innovate in their product or service (Lenkenhoff et al. 2018). In fact, thanks to digital technologies, SMEs may integrate their systems with their partners to create better connectivity, avoid inconsistencies in data exchange and increase productivity (Achargui and Zaouia 2017). Such digital ecosystem fosters the direct connection of clients with the SME thereby helping them develop a feeling of community and share accurate information in real-time through social media (Valencia et al. 2015). Finally, building a digital ecosystem enables SMEs to structure their exchanges with research centers and regional associations to share skills and mutual services (Zangiacomi et al. 2018), and with the government to get easy access to financial aids and clusters, which would boost innovation (Tan et al. 2009).

Fourth, digitalization enhances the human capabilities of SMEs. Digital technologies enable new dynamics of learning, which fosters digital adoption for R&D processes (Lee and Falahat 2019; Zangiacomi et al. 2018). Also, Peltier et al. (2012) demonstrated that a people-focused organization has a higher probability of ERP adoption. Therefore, CEOs would benefit from putting people first during the change. Furthermore, digital transformation induces new collaborative work. Collaborative applications help employees access information more quickly and easily, and assist structured knowledge sharing (Hardwig et al. 2019). As such, new knowledge is generated and relevant information required for operational tasks is speedily exchanged (Achargui and Zaouia 2017).

Research methodology

In this research, we aim to understand the barriers and opportunities of digital servitization for SMEs, and the extent to which these elements depend on the business model of smart PSS provided to the client. In this respect, we rely on a qualitative approach to collect data from managers in charge of the development and the marketing of smart PSS in their SMEs and analyze it. Such approach reflects how reality is socially constructed and allows a better understanding thanks to concrete experience. Figure 1 summarizes the research design. We detail below the methodology adopted for this exploratory research (Ahmed and Asraf 2018).

Fig. 1.

Summary of the research methodology

Data collection

We adopted a qualitative approach through a focus group composed of senior executives from SMEs operating in different sectors. A focus group aims to create discussions around a topic by drawing on the views of expert participants (Asbury 1995; McDonald 1994). It encourages their engagement through structured activities and collaborative interactions supported by open-ended, neutral questions (Rosenthal 2016). To identify the group participants, we performed purposeful sampling based on several criteria and accordingly selected nine experienced senior managers of SMEs in a range of industries in France. These representatives were chosen as they had an extensive experience in digital servitization and a deep understanding of their respective companies’ sectors (Table 2). Their combined nine experiences about the topic and the diversity of the SMEs were deemed relevant and sufficient to provide constructive and complete answers to our research question. In fact, we mostly focused on Sales’ managers because they are in charge of delivering and marketing the servitized offer (Pereira et al. 2019). Furthermore, in the case of SMEs in Industry 4.0, sales’ managers are intensely involved in the design of the digital service to reduce the uncertainty and complexity of the solution based on their knowledge about customers and digital market trends, and to gain confidence in the solution they are proposing (Luotola et al. 2017). To cover a wider perspective on the investigated topic, we also made sure to include in our sample experienced R&D and IT managers considering their substantial role in the digital offer’s design.

Table 2.

Characteristics of the focus group participants

Participant characteristics				SME characteristics
Label	Function	Educational background	Working experience (years)	Activity	Location	Offer
A	Sales manager	Product Development Engineering	25	Software	Claix	Collaborative tool to manage industrial performance as a waste tracking system
B	R&D director	Energy engineering	11	Energy	Lyon	Data tracking solutions for using alternative energy sources and improving existing related technologies
C	Director	Business administration	21	Chemicals	Chêne-en-Semine	Chemical products for the treatment and maintenance of natural stone (marble and granite), accompanied with a digital training service
D	Digital manufacturing manager	Mechanical engineering	20	Mechanical	Cran-Gevrier	Mechanical bearings (bearings, linear guides, seals, vehicle parts, etc.) supplemented with an app that provides technical information and assembly guidance
E	Analytical manager	Industrial engineering	5	Capital goods (Industrial machinery)	Grenoble	Industrial manufacturing of vacuum pump solutions and analysis of their usage data to improve the industrial performance
F	IT manager	Computer science	14	Capital goods (Quality management)	Annecy	Leak detectors in turbo molecular pumps, leakage control systems
G	Sales coordinator	Marketing and sales	17	Metallurgy	Annecy	Stainless steel and alloy long products (bars, machine wires and drawn wire) with an e-service that helps optimize the product cutting in real-time
H	Sales manager	Business administration	5	Software	Saint-Etienne	Applications built around a smartphone to explore the capabilities of the geolocation integrated circuit
I	Sales director	Marketing and sales	16	Plastics engineering	Oyonnax	Smart molds for injection of plastic parts, composites, and molding tools

On June 29, 2020, after the easing of strict measures for work and travel due to the covid-19 pandemic, we organized in Grenoble, France a face-to-face focus group involving these SME managers. The event took place during the whole day and lasted for 6 h, half of them in the morning and the other half in the afternoon. The participants were introduced to the objectives of the research project. We discussed the state of digital transformation of SMEs in France. We also explained the PSS typology of Cusumano et al. (2015) through several examples. Participants therefore understood that the research focus was on the digital properties of the offer proposed to customers, and not on the digital capabilities of the company. The participant from company “I” then presented in detail his journey in terms of digital servitization and the changes induced regarding the business model. This presentation stimulated the other participants who asked questions and easily engaged in the interactions facilitated by the moderator.

These interactions were initiated by an activity in which participants were asked to indicate the current type of services their company delivers to their customers, by locating their business on a graph representing the typology of servitization adopted in this research (Cusumano et al. 2015): Smooth, adapt, or substitute. Next, we gathered feedback from participants regarding the barriers and opportunities of digital servitization. Sticky notes were provided to each participant with different color codes for barriers and opportunities. Two charts were used to collect the ideas that correspond to barriers, and those associated with opportunities. Participants reflected individually and then were asked to position their identified barriers and opportunities in the two charts. They explained their ideas when sharing them with the rest of the group, which made it possible to formulate the barrier or opportunity appropriately based on the shared idea. Once all the experts had shared their ideas and placed their sticky notes on the boards, we conducted a consolidation exercise with them to bring together similar or related ideas. Finally, using a voting mobile app, we collected the participants’ perception regarding the importance of the identified opportunities and barriers. Each participant was asked to rank the barriers and opportunities of digital servitization from the highest important to the lowest. Participants were debriefed on the results, and a short discussion of the ranking was conducted. This approach allows to extract immediate intermediary meaning from the participants rather than relying solely on the researchers to identify themes after later analysis. The extracted meanings enable instant focused, theme-based discussion of participant ideas (King 2006).

Data analysis

Data were collected in two ways: the experiences of participants and their votes. For the experiences, the focus group interactions were recorded and fully transcribed to facilitate the analysis and to allow for comparison with the literature (Rosenthal 2016). We also took pictures of the ideas proposed in the sticky notes to refine the analysis. We followed a thematic coding approach to analyze this corpus as it can provide a detailed and rich data, and delineate patterns within qualitative datasets (Braun and Clarke 2006). This method was appropriate to our research objective to identify barriers and opportunities and describe how they relate to the themes deduced from literature. We consulted extant studies to form an initial grid composed of the four categories namely digital strategy, internal and operational organization, ecosystem network and human capabilities and their sub-themes that will be used during the subsequent coding process. Then, we followed an iterative process as recommended by Miles et al. (2014), which relied on going back and forth between the empirical findings and the theoretical insights.

A first step of the iterative thematic analysis consisted in immersing ourselves in the data by reading the transcripts and listening to the recording. Therefore, we could pick up on articulated feedback of the participants as well as on verbal nuances to appreciate their emphasis on different topics, which supports the accuracy of the analysis (Braun and Clarke 2006). As we read the transcriptions, we searched for meanings to generate ideas and highlighted the associated verbatims. During this familiarization step, we labelled the verbatims with codes associated with barriers and opportunities emerging from the empirical corpus. Next, we compared the coded barriers and opportunities with the ones formulated by the participants during the focus group and converged towards a unique clear expression of the identified themes. This combination of the researchers’ and the participants interpretations ensures internal homogeneity and external heterogeneity (Patton 1990). Finally, we grouped the first-order codes into second-order categories and confronted them with the four categories and their associated sub-themes that we extracted from the literature. To increase reliability, the analysis was conducted by two researchers. Disagreements were resolved through the iterative steps guided by the digital servitization literature (Miles et al. 2014). At each cycle, the researchers reviewed each other’s suggestions to change, move, and/or remove codes, until converging on a single data structure.

For the votes, we assigned a number of points based on the topic’s place in the ranking to reflect its importance (Saarikoski et al. 2016). The last proposition wins two points and the other propositions receive one point more than the one below them. This helps balance the scores while not neglecting the topics ranked in the last positions (Marcon et al. 2019). The total number of points for a proposition was the sum of all points it received from all participants. Hence, we had a ranking of the barriers and opportunities from the highest to the lowest impactful proposition. Furthermore, we used the PSS positioning provided by the participants to classify the resulting opportunities and barriers as well as their ranks according to the service types.

Findings

Barriers to SME digital servitization

14 barriers to digital servitization of SMEs were identified as summarized in Table 3.

Table 3.

Barriers’ results from the focus group

Themes	Barriers	Points	Ranking	Emergent barrier
Human capabilities	Lack of digital culture	88	1
Human capabilities	Lack of skills on digital technologies	86	2
Ecosystem network	Fear of data sharing with the client (right of use)—Data security issues	82	3	X
Ecosystem network	Lack of client digital maturity	78	4
Digital strategy	Product/service mismatch	76	5
Internal and operational organization	Silo organization	72	6	X
Digital strategy	Difficulty in designing and choosing a solution	55	7
Digital strategy	Difficulty to adjust the Business model (removal of intermediaries, etc.)	53	8
Internal and operational organization	Difficulty to align with digital technologies’ breakthroughs	52	9
Digital strategy	Difficulty to account for development costs	48	10
Digital strategy	Risky IT investments	43	11
Internal and operational organization	A challenge to integrate digital features into existing offerings and processes	39	12
Digital strategy	Need for fast return on investments	32	13
Human capabilities	Employees’ lack of understanding of the potential of digital servitization	29	14	X

Within each of the four themes stemming from our literature review, we specify the barriers that newly resulted from our empirical study. These emerging barriers concern all themes except that of digital strategy. Although several slightly important barriers are associated with this latter theme, it gathers an important number of challenges underlined by the group participants (6/14). The most critical barriers are related to human capabilities and ecosystem network. We provide below verbatim citations illustrating the most insightful outcomes of the focus group regarding the barriers to SME digital servitization.

The three main barriers highlighted during the focus group are related to the themes of human capabilities and ecosystem network. On the human capabilities’ side, the first most impactful barrier according to the participants is the lack of digital culture, while the second is the lack of digital expertise. In this respect, participant D explained that his company has long focused only on the manufacturing aspect and is recently integrating digital solutions. The firm is developing a novel solution consisting of a digital application that provides 3D views and technical assembly videos regarding mechanical transmission bearings. He insisted that, because digital technologies are evolving rapidly, his organization had to adapt its culture and acquire new skills:

We need human skills which speak both the new digital language, but also understand the very old mechanical language; and that is a difficulty because we need translators (Participant D).

The third most important barrier belongs to the ecosystem network theme and concerns the security of data. Participant B related the case of a client that possessed the capabilities to use the proposed energy instrument and its associated novel data tracking system to come up with a new competing invention. When the issue was raised, participant B noted that the customer expressed reluctance to discuss the matter which created a tense relationship between both firms. The participant stressed that clients need to change their behavior regarding the new digital ways of sharing information:

If through your instrumentation and the data you have, your customer can make a new invention, do you have the right to that invention, do you have the right of co-ownership? The issue should be openly discussed and formalized to enable a trustworthy and constructive partnership (Participant B).

Regarding the least impactful barriers, an unexpected result was the low ranking (10th/14) of financial barriers by the group participants. These digital strategy challenges are considered as a major concern in the SME digitalization literature. The expert G explained that his company was engaging in an advanced digital solution that provides the client with real-time back-office guidance on the optimal wire cutting. He underlined that they faced the difficulty of bearing new development and transformation costs for these digital servitization purposes:

I specifically mention development costs. When the idea emerged, we knew that we did not have enough money to develop skills and resources internally for this servitization process. (Participant G).

Another barrier of less importance (12th/14) identified following our empirical study is associated with the internal organization theme and concerns the integration into existing offerings and firm’s processes of digital features. Participant C related that his firm wanted to integrate a new solution to train the customers on the use of chemical products for stone treatment. Such solution required a transformation of the company’s information system which was rather dedicated to manufacturing bricks:

We already have a basic offer. The structures and tools of the organization did not directly lend themselves to the digital servitization of this offer for technical and operational reasons. (Participant C).

Finally, the 14th and last barrier in this ranking corresponds to dematerialization, that the participants argued to be a human problem related to lack of flexibility and rigidity of mindsets. In the case of participant I, his firm was proposing a new plastics’ injection mode consisting of a dematerialized smart mold. This servitization led to a completely new solution in addition to the original molding instrument that the company was producing. As the servitization did not affect the product itself, some employees found it difficult to embrace the induced change on the system and the practices:

There are still people who are not ready to experience this dematerialization that does not affect the product. They have difficulty in understanding the process and embracing the change in the organization (Participant I).

Opportunities of digital servitization for SMEs

The focus group participants identified and ranked 14 different opportunities for digital servitization of SMEs as shown in Table 4. All participants recognized the importance and opportunities of digital transformation globally:

We are at a key moment in digital but also in economic transformation. So it’s happening now and we need to be there anyway. (Participant H).

Table 4.

Opportunities’ results from the focus group

Themes	Opportunities	Points	Ranking	Emergent opportunity
Digital strategy	Increase in the offer value	84	1
Ecosystem network	Proximal relationship with clients	83	2
Digital strategy	Diversification (in terms of sector and market)	74	3	X
Ecosystem network	Customer loyalty through service	71	4	X
Digital strategy	Differentiation from competitors	67	5	X
Ecosystem network	Reinforcing the image of the firm (CSR, brand, partners)	66	6
Digital strategy	Increase in revenue	63	7
Internal and operational organization	Process improvement thanks to internal communication	60	8
Ecosystem network	Ecosystem development	55	9
Digital strategy	Profit and lower cost per use	50	10	X
Ecosystem network	Ease of use by clients	47	11
Internal and operational organization	Optimization of the production chain	44	12
Digital strategy	Data selling	41	13	X
Internal and operational organization	Standardization of processes	28	14

Within each of the four themes resulting from our literature review on SME digitalization, we specify the opportunities that newly emerged from our empirical study. Most of these emerging opportunities concern the theme of digital strategy. Also, the most important and highly frequent opportunities of digital servitization for SMEs are associated with this theme of digital strategy and that of ecosystem network. In contrast, digital servitization barely promotes the internal and operational organization of SMEs while it does not induce any benefits with respect to the theme of human capabilities. These insights are detailed below.

The opportunity that received the most points is related to the theme of digital strategy and concerns the increase of the offer value. This element is also associated with opportunities for diversification (3rd/14) and differentiation from competitors (5th/14) that belong to the same category of digital strategy. For instance, participant A came up with a cutting-edge digital solution to monitor the industrial performance in the form of a waste management system. Such offer enabled the SME to address customers from new sectors and to differentiate itself from the usual performance management editors:

Thanks to digital servitization, it is possible to conquer new markets with highly valuable diverse and customized offers and establish our position as leaders and precursors. (Participant A).

The second theme of opportunities that was considerably appraised by the group participants is that of ecosystem network. It includes the proximal relationship with customers enabled by digital servitization (2nd/14) and their loyalty through services (4th/14). Participant G underlined that the new digital means of communication facilitated the assistance of customers in wire cutting, which enabled the SME to get closer to the customer and to establish a relationship of partnership with the latter:

In addition to making our solutions reliable and efficient, the new services helped us build customer loyalty. Today, customers want to meet their specifications and then, whether it’s supplier A or B, they don’t care. That’s why loyalty through service is important to build strategic partnerships and become the preferred supplier. If we focus only on cost and product performance, the differences are barely incremental that we lose our competitive advantage. (Participant G).

Continuing the theme of ecosystem network, the participants placed in the 6th position the empowering of the SME digital reputation through communication, innovation, and partnerships. For instance, participant F adopted a CSR approach to select and collaborate with suppliers in order to develop a digital leakage detection solution. Such approach improved the company’s reputation and enabled it to enrich its ecosystem:

We needed to surround ourselves with new partners for development in the manufacturing of sensors. The selected certified suppliers were a great source of wealth and branding opportunities. (Participant F)

Similar to the findings on barriers, financial opportunities were not identified as a primary benefit of digital servitization. Participants ranked in the 7th/14 position revenue growth resulting from the implementation a new business model for digital servitization. Within this theme of digital strategy, they also ranked the benefits related to the costs per use convenience as the 10th/14 most important opportunity. In this respect, participant B explained that their priority was to improve their energy solutions using data and digital technologies, rather than:

achieving substantial financial benefits. Our service aimed at monitoring usage and performing preventive maintenance. The cost for use convenience could not be optimized enough. (Participant B).

Another digital strategy related opportunity that was hotly debated among participants but ultimately ranked second to last is associated with data selling. Participant E’s firm was manufacturing vacuum pump solutions and proposed an accompanying service to exploit their usage data in order to help customers improve their whole value chain. The company achieved two benefits related to data sales:

Selling data is a growth relay as an additional revenue channel to equipment sales. It also increased the sale of diagnostic applications and their instrumentation to support decision making and performance management. (Participant E).

Finally, the group participants underlined a slightly important (12th/14) but quite interesting opportunity of digital servitization with respect to the internal and operational organization theme. The assembly guidance service offered by the SME of participant D helped the company optimize its production chain:

Digital servitization goes hand in hand with the optimization of the production chain. It allowed us to gain productivity and make the production tool profitable independently of the offer. (Participant D).

Matching barriers and opportunities with the types of smart PSS

We matched the rankings of barriers and opportunities provided by each participant with the type of PSS offered by his company. The ranking points were aggregated to form Fig. 2. The percentage of each bar was calculated from the points awarded by the participants. This graph compares the themes of barriers and opportunities within each service typology, and mutually between the three smart PSS types.

Fig. 2.

Mapping of barriers and opportunities according to the smart PSS Business Model

Figure 2 shows that, for all PSS types, the least important themes of opportunities stemming from SME digital servitization are internal and operational organization and the theme of human capabilities. In addition, for this latter theme we note that, regardless of the type of service, digital servitization does not bring any opportunities for SMEs in terms of human capabilities. The most important opportunities’ category corresponds to the ecosystem network for smoothing services and to digital strategy when moving forward to adaptation and substitution services.

Regarding the barriers to digital servitization, we note that the smoothing PSS type does not involve any challenges with respect to human capabilities, while this theme represents the most critical barrier when moving towards the other two types of servitization. In addition, barriers associated with internal and operational organization are at their highest for smoothing PSS and decrease as we move through adapting to substituting services. Finally, the digital strategy barriers depict a percentage that is almost equivalent across the three PSS types.

Discussion

Opportunities of digital servitization for SMEs: highlighting digital strategy and ecosystem network

In the discussion with the focus group participants, the most important themes of opportunities associated with digital servitization for SMEs emerged. Results show that the highly impactful and most recurrent opportunities are linked to digital strategy and ecosystem network. This finding suggests that the benefits of digital servitization for SMEs are mostly perceived at an external level (Digital strategy and ecosystem network) rather than at an internal level (Human capabilities and internal and operational organization). It seems that, compared to large firms, SMEs particularly need and can use products, services, and data to develop ecosystem capabilities and implement disruptive orientation of their strategy. On the one hand, SMEs benefit from digital servitization to strengthen their networks of partnerships with clients, suppliers, and governmental institutions (Joensuu-Salo et al. 2018; Lindhult et al. 2018) and influence the positions of several players in their ecosystem (Paiola et al. 2021). On the other hand, when an SME succeeds in assimilating digital technologies, the resulting value proposition and strategic vision enables the firm to achieve a competitive advantage and ultimately optimize its costs sustainably (Kohli 2017).

Another important result of this research is the identification of digital servitization opportunities for SMEs not investigated in prior studies. These new opportunities are mostly associated with the theme of digital strategy. First, while literature frequently emphasizes that a smart PSS offer can generate financial profit for SMEs (Eller et al. 2020), our study particularly shows that this profit may result from the selling of data as an additional channel to hardware sales, and from the sales of diagnostic applications. The latter corresponds to the generation of data with applications linked to the equipment and used for statistical purposes or for decision-making. Second, the group participants highlighted opportunities for SMEs in terms of market leadership (Hortoványi 2017). They insisted that digital servitization allows them to strengthen their leadership position, or even develop a competitive advantage by being the precursors of a servitization offer in a market and by differentiating their diversified offers from competitors.

Finally, this study uncovered a new opportunity of digital servitization associated with the theme of ecosystem network. The focus group emphasized that digital technologies have the potential to strengthen the customers’ loyalty through services, in addition to making the service reliable and efficient. This approach to retain clients is particularly important for SMEs to generate profit because, although digital servitization enables the reduction of costs per use convenience and the improvement of product performance, these enhancements are mainly incremental and would not enable an SME to achieve a competitive advantage as underlined by the participating experts.

Barriers to SME digital servitization: issues of human capabilities and ecosystem network

The voting and ranking exercise during the focus group unveiled that the most critical barriers to SME digital servitization are related to the themes of human capabilities and ecosystem network. In fact, for human capabilities, technologies of Industry 4.0 require a digital culture and advanced expertise to reap their benefits for value creation and process optimization. These changes are generally difficult for SMEs that need to shift the often rigid and traditional mindset of their employees (Horváth and Szabó 2019). Our research particularly noted that the dematerialization feature strongly tied to digital PSS can aggravate internal reluctance to change when the digitalization is not directly perceived at the level of the product. This employees’ reluctance is not only due to a lack of openness, but also to a poor understanding of the offer and the change process.

For the ecosystem network, the lack of client digital maturity is a key issue for SME digital servitization, for example regarding use of their data and corporate systems by the providing SME (Klein et al. 2018). Another difficulty related to ecosystem network that newly emerged from our empirical study is associated with the SME’s apprehension of sharing data with the clients. The group participants emphasized that SMEs generally do not master issues related to co-ownership and use of a client invention resulting from the data they provided to the latter.

We also identified new barriers related to the theme of internal and operational organization. Participants particularly highlighted challenges regarding rigid work practices, as employees get stuck in a compartmentalized organization. It seems quite complicated to move the organization from a hierarchical structure to a new flexible structure conducive to digital servitization.

Finally, although we could not identify any new barrier associated with digital strategy, we note that the focus group participants listed an important number of barriers related to this theme, thereby underlining its criticality for SME digital servitization. The cited difficulties are related to the use of digital technologies to design a PSS that efficiently matches products with services (Medini et al. 2019), and the definition of the right business model that would ensure an immediate return on IT investments (Marcon et al. 2019).

The contingent effect of smart PSS business model on opportunities and barriers to SME digital servitization

As explained in Sect.  4.3, we matched the types of smart PSS offered by the participating SMEs with the digital servitization opportunities and barriers highlighted by the representatives of these companies. As such from a theoretical standpoint, we expand to the digitalization stream prior studies that emphasized the necessity to take into consideration the servitization peculiarities while designing business models (Annarelli et al. 2020; Kuula et al. 2018; Reim et al. 2015). We particularly show how the barriers and opportunities evolve as SMEs engage more in digital servitization. To provide SMEs with practical guidance on designing specific smart PSS considering the opportunities they are targeting and the barriers they are capable to bear, we summarized the matching results in Fig. 3 and detailed their implications below.

Fig. 3.

Framework of opportunities and barriers through the SME digital servitization path

First, for the human capabilities’ theme, results show that, compared to large firms (Adam 2018), digital servitization does not engender any opportunities for SMEs regardless of the PSS type. Accordingly, top management of SMEs should make more efforts to enable their teams to become digitally literate and to make them aware of the potential of digital technologies for their productivity and their evolution within the company. Investment in digital education would facilitate the transformation of processes induced by digital servitization, enhance the employees’ understanding of the offer and support their adherence to the subsequent organizational changes. In contrast to this absence of benefits regarding human capabilities, we note that this theme represents the most important barrier for SME digital servitization but only for the adapting and substituting PSS types as this category of barriers is non-existent for smoothing PSS. It seems that as the SME moves beyond smoothing towards adapting and substituting with services, it needs to implement a profound change in the firm’s knowledge base. Therefore, SMEs adopting these servitization approaches should be particularly attentive to the reluctance of employees to adapt their tasks and update their skills in line with the advent of digital technologies. Top management must ensure that employees embrace the induced change by offering clear opportunities of learning and evolution.

Second, the ecosystem network is the most important opportunity and barrier for smoothing services. This can be accounted for by the fact that, for this type of PSS, building a network is very complex and time-consuming at the beginning. But once the SME has developed an initial number of partners to create its PSS, it is easier to expand its network through existing partners to further improve its smoothing service and move forward to adapting and substituting smart PSS (Baines and Lightfoot 2013). In fact, we observe in Fig. 3 that opportunities of digital servitization for the theme of ecosystem network decrease as the PSS evolve towards the substitution type. Finally, the ecosystem is not an obstacle for adaptive PSS, since the company must mostly rely on its internal human capabilities to adapt its offering, as highlighted in the previous paragraph.

Third, we observe that digital servitization represents little or no opportunity in terms of internal and operational organization for the three types of PSS. Indeed, this strategic orientation can lead to structural heaviness, at least during the first phases of transformation (Koldewey et al. 2020). In addition, the internal and operational organization represents a major barrier for the smoothing typology, that decreases for the adapting type, to finally become non-existent for the substitution offer. In fact, participants stressed that for smoothing and adapting PSS, digital servitization does not only transform the cost structure, but also the operational time, the fields of competence and the organizational practices. For the substitution type, the organizational structure must have undergone a profound change through digital technologies long before the company decides to move towards a substitution offer.

Finally, with respect to digital strategy, our results show that this is an equivalent and fairly considerable concern for the three types of smart PSS. Moreover, it is important to note that the more the SME moves towards more servitization, i.e., from smoothing to substitution, the more opportunities it gains for its digital strategy. This suggests that the increasing involvement of an SME in a digital servitization approach brings more strategic benefits (Van Looy 2021). According to the focus group participants, these benefits can be in the form of financial profit, more disruptive innovation, and a significant competitive advantage.

Conclusions

Nowadays, digitalization is recognized as a novel and important industrial trend aimed at improving business performance in terms of productivity, cost reduction and innovativeness. While some SMEs have embraced this transformation with the advent of Industry 4.0, many are still struggling to take the first step. This is particularly the case for the transformation towards a digital servitization of the offer. Literature has often highlighted the barriers and opportunities of digital transformation in general for SMEs, but few studies focused on the specific case of digital servitization. Indeed, this strategy requires specific skills, as well as a specific adaptation of the structure and strategic vision of the SME.

The objective of this research was therefore to help pave the path of SME digital servitization by unveiling the opportunities of this strategy and the barriers that SMEs should manage to capitalize on its advantages. We additionally uncovered the influence of PSS typology with respect to these barriers and opportunities in order to better guide the SMEs in their digital servitization. Following a literature review on SME digitalization, we identified four categories that simultaneously reflect barriers and opportunities, namely digital strategy, ecosystem network, internal and operational organization, and human capabilities. This analysis of the extant theoretical corpus also underlined the key barriers and opportunities to SME digitalization within each theme. This categorization allowed us to better analyze the results of the focus group in order to identify the topics of digital transformation that apply to servitization and reveal elements specific to this strategic approach. As such, we noticed that digital servitization mostly benefits the SME’s digital strategy and ecosystem network; and is highly hindered by challenges related to human capabilities and ecosystem network.

To better analyze these results in light of the participants’ backgrounds and provide SMEs with guidance to decide on their digital servitization path, we matched the focus group findings with the types of smart PSS proposed by the participating SMEs. As depicted in Fig. 3, we demonstrated that the more an SME engages in servitization, the more are the benefits it will gain with regards to digital strategy and the least it will face challenges associated with its internal and operational organization. Also, most efforts for building an ecosystem network and its subsequent benefits are perceived at the initiation of the servitization path. As for human capabilities, digital servitization does not induce any benefits and poses acute challenges as the SME increasingly engages in a servitization path. Based on these findings, SMEs may carry out a digital servitization strategy more efficiently, being aware of the benefits and barriers expected for each type of smart PSS.

Limitations and future work

These results should be considered with caution for several reasons. Our findings stem from one focus group with French SMEs which, although provided strong inferences supported by the literature and combined a multitude of experts, might hinder the generalizability to specific industrial contexts. Considering the characteristics of the focus group SMEs and respondents, the results of this study are particularly relevant to manufacturing SMEs operating in traditional industries, that aspire to develop smart PSS solutions and to improve their strategic and operational processes of digital servitization. In this respect, future research can assess the degree to which our findings stand for SMEs embedded in creative sectors such as videogames and multimedia, and located in different socioeconomic contexts.

This study opens path to different research perspectives on digital servitization. Further qualitative case studies or additional focus groups is needed to strengthen our findings and to examine in depth the links between the types of smart PSS and the opportunities and barriers to digital servitization of SMEs. Understanding the framework could lead to a more detailed guide for practitioners to explore a whole digital transformation. In addition, a quantitative study could highlight direct and mediating impacts between the different categories of barriers and opportunities, and the success of the digital servitization strategy by an SME. It would also be interesting to explore the role in shaping the evolutionary path and the contingency effect of PSS type but also of other variables. These constructs can characterize the internal and sectorial contexts of the SME and relate to the nature and combination of digital technologies utilized for servitization, especially with the advent of ABCD (i.e. artificial intelligence, blockchain, cloud computing, big data analytics) technologies.

Author contributions

Conceptualization: M-AL-D, JM, ML; Formal analysis: LB, JM; Methodology: LB, JM; Investigation: M-AL-D, ML; Data curation: LB, ML; Validation: LB, JM; Visualization: LB; Supervision: M-AL-D; Writing/Original Draft: M-AL-D, ML; Writing/Review & Editing: LB.

Funding

The authors did not receive support from any organization for the submitted work.

Materials availability

Qualitative interviews can be provided upon request.

Declarations

Competing interests

The authors have no relevant financial or non-financial interests to disclose.

Ethical approval

The authors approve the publishing ethics of the journal.