Internet of Things, Digital Servitization and Business Performance

The Internet of Things refers to an integrated system built of hardware and software components that is used to facilitate communication and data sharing. On the other hand, digital servitization can be defined as the transition a firm undergoes from selling standalone products to product-service systems (Pham, 2019). This study probes the influence of IoT incorporation by SMEs on their servitization culture, supply chain, growth, and sustainability aspects used to gauge business performance.

Although the use of servitization is a practical niche for most SMEs in the U.K, there is limited literature and research on the impacts of IoT on performance as a result of rapid dynamism in the business world. This study will focus on bridging the cited gap by adhering to political, social, and ethical issues such as government policies, culture, and level of market competition. On the same note, all participants will be of legal age and their data will be collected with their consent while observing anonymity. This study could be relevant to auditors when evaluating the financial position of a firm by assessing its aggressiveness in servitization engagement (Kohtamäki et al., 2022). The different tenets of this study, including methodology and data analysis techniques to be incorporated, form the basis of discussion for this paper.

Literature Scope

The incorporation of modern technology and the Internet of Things will enable SMEs to maximally capitalize on emerging trends in the global market. This would eventually result in tremendous growth and sustainability improvement. Apart from addressing the impacts of adoption of IoT in SME operational cycles, this study encompasses theoretical and philosophical concerns regarding the complexity of some production processes that trigger servitization (Formisano et al., 2019). As highlighted earlier, many SMEs are already blending their production processes with the digital market trends.

However, the scarcity of literature on the aftermath of this move on finer aspects of business performance has been overlooked. In that regard, the three research questions to be addressed have been included below;

1. Are there ways in which SMEs can theoretically explore different servitization opportunities using available Internet of Things features apart from those already in use?
2. What is the significance of the Internet of Things in key practical business aspects such as supply chain performance and innovation among SMEs?
3. What are the overall outcomes of the use of IoT engineered digital servitization on SME growth and sustainability?

The tendency of business owners to embed AI-driven systems into their production cycles has resulted in minimized human involvement. Concomitantly, the automation of basic operational tasks of a firm has always been tailored towards boosting the volume of production, thus increasing the amount of revenue accrued by it (Tudor et al., 2021). This study blends the two perspectives above and probes further into finer production aspects beyond human capital and revenue increment.

A firm’s decision to automate operations using Internet of Things resources will always affect its performance (Tronvoll, Kowalkowski & Sörhammar, 2021). IoT, as the acronym suggests, is a collection of resources that interact jointly through the internet (Ricci, Battaglia & Neirotti, 2021). This network of intelligent infrastructure offers firms the capacity to readily exchange relevant information while observing clusters of interoperable communication guidelines (Somohano-Rodríguez, Madrid-Guijarro & López-Fernández, 2022). According to (Sisti, Estensoro & Larrea, 2021), IoT can be used to link SMEs with each other and with their supply chains. Basing on the study results penned by these authors, it can be confirmed that the configurability provided by digital devices enables business stakeholders to communicate in real time, thus facilitating the top-down flow of crucial information in the SME industry.

With that in mind, it is clear that the incorporation of IoT infrastructure into production would enhance business performance, which would lead to growth. Multi-agent cloud-based software and artificial intelligence systems would help smooth inbound and outbound logistics aspects of supply chain and warehouse management (Sestino et al., 2020). Similarly, the use of digital transaction avenues by SMEs will help to eliminate barriers encountered during operation, acquisition, integration, and distribution phases of the supply chain.

The Internet of Things infrastructure is frequently decomposed into finer aspects of content, hardware configuration, network systems, and service. In this study context, “content” will include all forms of manual and automatic machinery created with hybrid technology (Naik et al., 2020). Whereas hardware configuration may be closely related to content, it differs in aspects of application and functionality (Kolagar et al., 2021). Network systems form platforms upon which users can file and retrieve content, whilst hardware configurations automatically store content in the form of image and word characters to be shared during encoding and decoding processes.

In an attempt to bridge the existing gap, gauging these perspectives from previous IoT-related literature, this study will blend all the basic concepts of IoT and digital servitization. Its hypotheses will address their major and minor impacts on overall business performance. There is a contradiction of results in the study documented by (Sisti, Estensoro & Larrea, 2021) under the title “The Interrelationship between Industry 4.0 and Servitization in Manufacturing SMEs. This further necessitates the need for more studies in this niche to demystify these confusing aspects.

This research further seeks to confirm critical but overlooked hypotheses in existing digital servitization and IoT studies, such as:

1. The IoT has heightened automation in SMEs by integrating different digital technologies through hybrid architectures.
2. New AI-driven operations and communications have improved SMEs’ ability to seize new opportunities, thus leading to wide-range production and improved economies of scale through product diversification.
3. Digital transformation by SMEs has been attributed to the improved flow of crucial information and automated departmental coordination, thus facilitating decision-making processes.

This research predominantly aligns its objectives closely with the majority of IoT frameworks and debates highlighted by previous authors. It attempts to fill the research gaps in this area by answering the three key study questions mentioned earlier. This research further explores practical concepts such as the possibility of a firm’s overall performance being gauged by the extent of use of IoT tools rather than the traditional approach where books of original entry are assessed. According to the SMEs Social Response Act 2019 (Paiola et al., 2021), most businesses, including SMEs, are expected to channel a portion of their profits to support social-based initiatives. Therefore, this will form one of the major ethical concerns relating to social responsibility that will be addressed when probing the impacts of IoT on businesses’ financial performance.

However, from a theoretical point of view, the research aims to address the changes that a firm undergoes after discovering and adopting new digital opportunities that create mutual value. The use of cloud-based software and digital printing are among the top service pioneers and should not be overlooked in IoT-related research (Paiola et al., 2022). The collection of large quantities of data from a wide sample while adhering to the prevailing legal-political environment will ensure its generalizability. Similarly, key ethnic issues such as ensuring all participants are above the legally required age and their consent is sought before being enrolled in the study will be prioritized. By portraying the Internet of things as a tool that SMEs can use to attain rapid growth and sustainability, the study will employ appropriate data collection and analysis methods that will yield the most reliable results, as discussed in the section below.

Methodology

The data collection phase in this study will rely on two sources, namely, primary data from the baseline survey and secondary subjective data from preexisting literature. The scope of the survey includes selected SMEs in ten different geospatial topographies within the U.K. (Kohtamäki et al., 2021). This survey will be facilitated by the use of open-ended mail questionnaires, a cost-effective and reliable method for servitization studies.

The main ethical dimensions prioritized in this study include upholding respondents’ anonymity, ensuring all of them are above the legal age, and data sharing to avoid conflict of interest among authors. The survey is expected to run for two weeks and reach a total of 471 SMEs, with an expected response rate of 78.5% within the first eight days (Garzoni et al., 2020). The remainder, 21.5%, is meant to cater to survey limitations such as managers in cosmopolitan regions who may be unfamiliar with the language in which the questions have been asked as well as dishonest respondents (Favoretto et al., 2022). A similar study conducted using web-based questionnaires highlighted by (Markfort et al., 2021) registered a response rate of 81.3%, making this study’s projection more reasonable and attainable. To offset potential non-response bias, the study will employ a multivariate analysis of variance that will rank non-respondents by estimating their sizes, supply chain coordination, and innovation milestones.

On the other hand, this research will account for the possibility of bias through late submission using a t-test analysis. The level of biasness will be considered negligible if p<0.08 for all the data collected from the sample highlighted in the following section. The research design and data analysis techniques highlighted above are appropriate for this study since they guarantee highly reproducible, reliable, and timely results (Kolagar et al., 2021). Similarly, the use of questionnaires is more economical compared to other methods such as in-person interviewing.

Data

The questionnaire targets responses from senior-level employees, including marketing and operational managers. SMEs situated in Coventry and Birmingham are expected to account for more than 38% of total primary firm-level objective data to be collected (Flores-García et al., 2022). The confidentiality of respondents will be assured since no one will be required to enter their business names, thus maintaining proper research ethics (Kohtamäki et al., 2022). The use of open-ended questions will ensure in-depth responses that adequately answer the three research questions highlighted previously. As recommended by (Bortoluzzi et al., 2020), a question on pre and post-servitization social responsibility undertaken by the firms will be included.

Managers will be required to highlight the duration of involvement with product-service systems. Later, standard deviations and means will be computed and compared. Figure 1 below shows part of the CU ethic form that will be applicable during the survey.

The segment that follows further highlights the need for conducting this research alongside the study objectives targeted.

Discussion

Although the literature available on IoT use by SMEs is beyond nascent levels, the existing knowledge on the aftermath of SMEs in servitization on performance is limited. Therefore, the key hypothesis (research question) for this study is to ascertain the significance of the use of IoT tools in finer aspects of business performance, including supply chain coordination and product diversification. The above hypothesis will guide research towards reaching its objectives through the provision of empirical insights on the relationship between IoT, SME’s growth and sustainability. The role of the IoT in reducing operational costs through automation and eliminating time lapses in communication will be examined based on the data collected.

Below are some of the objectives to be addressed by this research study:

1. To establish whether the incorporation of IoT is the key facilitator of the rapid innovations witnessed among SMEs in the U.K.
2. To identify any mutual relationship between supply chain management excellence and digital servitization attributed to the inception of the Internet of Things.
3. To investigate the effect of adoption of digital incentives pioneered by IoT on the overall growth of SMEs.
4. To identify the possibility of gauging SME financial performance in fiscal spans by assessing their digital servitization culture rather than the traditional journal-ledger auditing approach.

Any unforeseen changes in the hypothesis will be mitigated using the following approaches:

1. Expanding the basket of IoT resources previously considered before the change by introducing other tools to the framework as long as they guarantee reproducible results.
2. Diversification of sample size to other SMEs located outside the United Kingdom within the first week to accrue reproducibility of data. This is important because government fiscal and monetary policies differ from country to country.

In summary, this research will be relevant to SMEs seeking to explore the digital servitization avenue through the use of IoT as it explores benefits available on this post-nascent business trend.

Questionnaire on the Impact of IoT on Digital Servitization and Business Performance among SMEs

Dear Sir or Madam,

Following your confirmation to participate in the survey on the above research topic, you are required to answer the questions below and submit a completed copy via the sender’s email address. Please respond to the same email if you have any questions or need clarification on the questions.

Conditional Questions

1. How has the IoT impacted your firm’s automation process since its inception? If so, list the two main ways.
2. Has the new AI-driven operation improved your company’s ability to boost productivity? If so, what is the extent of product diversification?
3. Can the digital transformation by SMEs improve flow of crucial information and automate departmental coordination? If so, how?

General Questions

1. List at least 3 pre and post-servitization social responsibility services undertaken by your firm in the last 1 year.
2. Give any two suggestions for how your company can use Internet of Things features other than those already in use to explore new servitization opportunities.
3. What is the significance of the Internet of Things on your firm’s supply chain performance?
4. What are the overall outcomes of the use of IoT engineered digital servitization on your company’s growth and sustainability?
5. Confirm whether or not the incorporation of IoT has been the key facilitator of the rapid innovations in your company.
6. Highlight the possibility of gauging your firm’s financial performance in fiscal spans by assessing their digital servitization culture rather than the traditional journal-ledger auditing approach.

Thank you for sparing time to participate in this survey. Your data will be treated with utmost confidentiality and the survey results will be shared with you via text message within two weeks.

References

Bortoluzzi, G., Chiarvesio, M., Romanello, R., Tabacco, R., & Veglio, V. (2020). Industry 4.0 technologies and the servitization strategy: A good match? Sinergie Italian Journal of Management, 38(1), 55-72.

Favoretto, C., Mendes, G. H., Oliveira, M. G., Cauchick-Miguel, P. A., & Coreynen, W. (2022). From servitization to digital servitization: How digitalization transforms companies’ transition towards services. Industrial marketing management, 102, 104-121.

Flores-García, E., Jeong, Y., Liu, S., Wiktorsson, M., & Wang, L. (2022). Enabling industrial internet of things-based digital servitization in smart production logistics. International Journal of Production Research, 1-26. Web.

Formisano, V., Fedele, M., Cavacece, Y., & Bonab, A. (2019). IoT as a driver of servitization: A Thematic Analysis of the Emergent Literature.

Garzoni, A., De Turi, I., Secundo, G., & Del Vecchio, P. (2020). Fostering digital transformation of SMEs: a four levels approach. Management Decision. Web.

Kohtamäki, M., Baines, T., Rabetino, R., Bigdeli, A. Z., Kowalkowski, C., Oliva, R., & Parida, V. (Eds.). (2021). Palgrave Handbook of Servitization. Palgrave Macmillan.

Kohtamäki, M., Rabetino, R., Parida, V., Sjödin, D., & Henneberg, S. (2022). Managing digital servitization toward smart solutions: Framing the connections between technologies, business models, and ecosystems. Industrial Marketing Management, 105, 253-267.

Kolagar, M., Reim, W., Parida, V., & Sjödin, D. (2021). Digital servitization strategies for SME internationalization: the interplay between digital service maturity and ecosystem involvement. Journal of Service Management, 33(1), 143-162. Web.

Markfort, L., Arzt, A., Kögler, P., Jung, S., Gebauer, H., Haugk, S., & Wortmann, F. (2021). Patterns of business model innovation for advancing IoT platforms. Journal of Service Management, 33(1), 70-96.

Naik, P., Schroeder, A., Kapoor, K. K., Bigdeli, A. Z., & Baines, T. (2020). Behind the scenes of digital servitization: actualizing IoT-enabled affordances. Industrial Marketing Management, 89, 232-244.

Paiola, M. (2018). Digitalization and servitization: Opportunities and challenges for Italian SMES. Sinergie Italian Journal of Management, 36, 11-22.

Paiola, M., Agostini, L., Grandinetti, R., & Nosella, A. (2022). The process of business model innovation driven by IoT: Exploring the case of incumbent SMEs. Industrial Marketing Management, 103, 30-46.

Paiola, M., Schiavone, F., Khvatova, T., & Grandinetti, R. (2021). Prior knowledge, industry 4.0 and digital servitization. An inductive framework. Technological Forecasting and Social Change, 171, 120963.

Pham, P. H. M. (2019). Impact of IoT Technology on Digital Servitization and Business Performance of Manufacturing Firms. The University of Toledo.

Ricci, R., Battaglia, D., & Neirotti, P. (2021). External knowledge search, opportunity recognition and industry 4.0 adoptions in SMEs. International Journal of Production Economics, 240, 108234.

Sestino, A., Prete, M. I., Piper, L., & Guido, G. (2020). Internet of Things and big data as enablers for business digitalization strategies. Technovation, 98, 102173.

Sisti, E., Estensoro, M., & Larrea, M. (2021). The interrelationship between industry 4.0 and servitization in manufacturing SMEs: The Case of the Basque Country. In Digital Business Models in Industrial Ecosystems (pp. 201-215). Springer, Cham.

Somohano-Rodríguez, F. M., Madrid-Guijarro, A., & López-Fernández, J. M. (2022). Does Industry 4.0 really matter for SME innovation? Journal of Small Business Management, 60(4), 1001-1028.

Tronvoll, B., Kowalkowski, C., & Sörhammar, D. (2021). Transforming small and medium-sized enterprises (SMEs) to digitally enabled landscapes. Big Data in Small Business: Data-Driven Growth in Small and Medium-Sized Enterprises, 209.

Tudor, M., Chițu, I. B., Dovleac, L., & Brătucu, G. (2021). IoT technologies as instruments for SMEs’ innovation and sustainable growth. Sustainability, 13(11), 6357.