The implication is explosive, and clear: no one, especially big market players, can rely any longer on old-hat product development strategies to stay successful in their market. Distinctiveness of products and services is increasingly short-lived, as technologies rapidly and continuously level the playing field, pushing firms to compete on cost. 

In response, forward-looking firms have tried to stay competitive by turning their products into services or adding a service to a product, whether in the public or private sector. One such firm is Adobe which went from selling one-off software products to subscription-based access to their software. Becoming service oriented is no small challenge, especially for firms organised to compete on the basis of product leadership. Superior service leadership generates value through offering a differentiated customer experience at the point of delivery. This is no mean feat: unlike products, services cannot be standardised and scaled easily because multiple different combinations of products and services are required to satisfy the often capricious preferences of individual consumers. Whilst intuitively appealing, and potentially a source of enduring advantage, service leadership is significantly more complex to manage than product leadership.

Unlike traditional vertically integrated organisations, working with delivery partners is essential to creating service-oriented offerings. Few firms possess the in-house resources needed to manage the challenges of satisfying consumer demands for integration and personalisation of the services they receive. In response, service-oriented offerings are made possible by the formation of ‘eco-systems’ for service delivery. This is made up of partners that form a horizontal value chain based on demand, rather than supply. Notionally, the eco-system model should function as a system of ‘open innovation’, with the potential to develop new, nuanced combinations of product and service, which no one firm alone can match - no matter how big or diversified.

But we believe the ‘open’ logic needs to be taken to beyond mere product and service innovation. These same technological developments are reshaping how services themselves are delivered. Familiar examples included the rise of Internet based trading platforms. In our research, we have tried to extend the ‘open’ logic to encompass the entire value chain, including up-stream service innovation and down-stream service delivery. 

We refer to pioneering organisations that conform to this broader definition of architecture as ‘Open Organisations’. These develop and share delivery methodologies with partners across their entire service eco-system. This creates commercial advantage because it enables them to connect with delivery partners and use shared functional and technical architectures. In turn this allows for the recombination of services at the component level, whatever the nature of customer preference or need.

The shift from product to service orientation, and the associated reorganisation of the architecture along horizontal lines, has massive implications for how we manage people, knowledge, systems and performance. Here too, developing shared methodologies for talent development across eco-systems is important: for instance, because ‘Open Organisations' require the ability to partner and share skills that they have never had to possess before. 

For example, service-leading businesses with which we work manage talent strategically at the eco-system level. They invest in complementary skill and competency development across partner firms, and not simply within the vertically organised functions of the one firm. 

The free flow of knowledge between partners is essential too, as the whole 'open' eco-system becomes more enriched and valuable than the mere sum of its parts. An 'open' eco-system’s ability to absorb new information and convert this into strategic action is exponentially greater than that of any one single, vertically integrated bureaucracy. However, participating organisations need to be able to align their respective incentives to ensure that individual partners choose combining, connecting and co-ordinating over pursuing individual interests. 

Dr Jonathan Trevor and Dr Mark Thompson are lecturers at Judge Business School, University of Cambridge

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.