Certified By: Michael Cusumano, Thesis Advisor Sloan Management Review Distinguished Professor of Management

A STUDY IN PRODUCT-SERVICE SYSTEMS STRATEGIES by Mark D. Moran Bachelor of Science in General Engineering University of Illinois College of Engineering, 1993 Master of Business Administration University of Iowa Tippie College of Business, 2003 Submitted to the System Design and Management Program in Partial Fulfillment of the Requirements for the Degree of Master of Science in Engineering and Management at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY June 2011 @ 2011 Mark Moran. All rights reserved. The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document, in whole or in part in any medium now known or hereafter created. Signature of Author: _ _ Mark Moran System Design and Management Fellow January 5, 2011 Certified by: Michael Cusumano, Thesis Advisor Sloan Management Review Distinguished Professor of Management Accepted by: Pat Hale Diector,System Design and Management Program This page intentionally left blank Abstract Title: A Study in Product-Service Systems Strategies Author: Mark D. Moran Submission: Submitted to the System Design and Management Program in partial fulfillment of the requirements for the degree of Master of Science in Engineering and Management at the Massachusetts Institute of Technology. Abstract: What are examples of successful companies innovating in services to create Product- Service Systems that can command a price that exceeds the cost of capital and enhance, protect, or replace the core products? After a brief literature review and discussion of the challenges of classifying and defining services and how they are related to products, this thesis provides a series of brief case studies looking at how companies construct a services strategy that complements, strengthens, or replaces their product strategy. Service-centric offerings are categorized into three primary types: product-based (e.g. customization or repair), information- based (e.g. telematics), and value-based (e.g. financing, leasing, or utilities). The thesis focuses on positive examples, but some negative examples are also presented. Summary conclusions on the nature and elements of successful product-services strategy are also presented. Primary research tools are corporate annual reports, SEC 10-K (and other) filings, corporate websites, the Internet, and business research tools like Orvis, Hoovers, and Lexis-Nexis. The thesis studies mainly (but not exclusively) publically traded US-based companies with a strong emphasis on the automotive, heavy machinery, and information technology sectors. Thesis Advisor: Professor Michael Cusumano Sloan Management Review Distinguished Professor of Management Keywords: services, product-service strategy, product-service system, innovation, platforms, service innovation, telematics, cloud computing This page intentionally left blank Acknowledgements Nothing can survive in a vacuum. No one can exist all alone. - Neil Peart, "Turn the Page" Iron sharpens iron, and one person sharpens the wits of another. - Proverbs 27:17, NRSV As a part of the MIT SDM cohort of 2009, I am humbled and enriched by the talents and experiences of my colleagues. I have never been as overwhelmed and intimidated as I was on January 5, 2009 starting the SDM "boot camp" when we all gave our brief bio's in 51-325. My interactions with my neighbors-in- time from the 2008 and 2010 cohorts show them to be equally impressive groups. I had been told by a number of work colleagues in other executive advanced education programs that the network of relationships you develop may be the most valuable asset of those programs. The same is true here. I am thankful for the chance to learn from so many gifted and committed professors as well. Before my experiences as a part of MIT, I believed that undergraduate- or graduate-level education was about either application or theory. MIT sets the very high standard that it can and should be both. Mens et manus, indeed. I am especially thankful for the guidance of my thesis advisor, Professor Michael Cusumano. His unique combination of research interests could not have lined up better with my thesis interests and his leadership style meshes well with my needs and work style. I have also been especially impacted by the opportunities to study under Professors Oli de Weck, James Utterback, and Deborah Nightingale in my coursework. They embody not "just" the brilliance and technical excellence you expect at a place like MIT, but it is clear that they also care deeply about their students and are called to teach. To the SDM program and the Institute itself, I am indebted because they have chosen to accept the mantle of leadership in education, not just leading in content and pedagogy, but in delivery as well. A school of MIT's caliber simply does not have to make a distance-learning option available, but they do and that made it possible for me to be a part of this transformational experience. Thanks especially to Pat Hale, the SDM Program Director; and Bill Foley, who so often acts as hands and feet for those of us at a distance. The distance experience is different than on-campus, but it is never treated as less. I am aware of few (if any) employers that support continuing education and a culture of learning to the level of Deere & Company, my employer. This is the second masters degree for which they have supported me by investing both money and time. That gift of time comes in two forms: managers allowing me focus for my studies (four over the course of this degree program: Mano Mannoochahr, Alan Tillman, Jason Brantley, and Glenn Baker) and colleagues picking up the slack while I do (my team: Heather Hayes, Jeff Knutsen, Mike Mrozowicz, and Steve Nash). As a part of Deere's commitment to employee development, I was also given a mentor, Howard Gerwin (MIT SDM 1998), who went through this degree program while at Ford before coming to Deere. Howard has been a great sounding board and voice of reason not just regarding the degree program but also my professional development within Deere. As I reflect back over the last couple of years, I also think of my good friend and running partner, Bill Minard, who did lots of listening when I needed it, and kept reminding me that this journey was much like a marathon itself, and that it too required a cycle of conditioning and rest. Bill has also encouraged me as I have made choices about time management in order to "cross the line" for the degree and for the thesis. I am also thankful for my "twin brother", friend, and mentor, John Cochran, with whom I have shared most Friday morning breakfasts over the last five years. John and I journey together through all the tough stuff of life and keep stretching each other to be better students, better leaders, better fathers, better husbands, and better men of Faith. Some of the most peaceful time my family has had together in the last two years was a result of the hospitality of our good friends, Jim & Melissa Sears, who shared their cabin with us in Northern Minnesota atotal of three times over the course of this degree program. I took my last class for the degree program and wrote the last words of this thesis both while staying at "Hilltop" on the shore of Deer Lake. I only regret that MIT would not accept the thesis topic, "The Wonder that Is Jim Sears" as Jim had proposed... numerous times. While all of those factors have been necessary, they are not sufficient for my success. I am blessed with the most patient, loving, grace-giving, and supportive wife I could imagine. Without Lori's un-yielding support of my need to stretch myself, and un-questioning belief that I am capable of the task at hand, I could not endeavor on ajourney like this. Time is not a renewable resource, and in our family it is treated as a communal asset. Lori was exceptionally gracious about allowing me a massively disproportionate amount of time over the last two years to pursue this degree and work through this thesis. That is to say nothing of the practical implications on the family that were left for her to manage as a result of me spending about a fifth of my time during this two-year period living over a thousand miles from our Illinois home. Lori, the girls, and I have also been exceptionally blessed - throughout these last two years and our entire marriage - by the support of our parents: Gary & Connie Moran, and Vern & Shirley Winter. We lost my dad in 2006, and I know he would be proud of this accomplishment. My deepest thanks and love also goes to my beautiful daughters, Grace and Rose, who always understood when I needed to give time and attention to school and have cheered for me all the way through. Mark Moran January, 2011, Rock Island, Illinois About the Author Mark Moran joined Deere & Company in 1998 as an IT Infrastructure Analyst and spent his first nine years in a variety of roles of increasing managerial responsibility and technical complexity as a part of Deere's data center operations. Those roles included expanding Deere's enterprise Windows NT and UNIX environments, leading the build-out of Deere's Internet infrastructure, introducing Linux to the corporate data center, acting as a part of the core technical team for a redundant data center, and managing the capacity planning & performance team. In 2007, Mark joined Deere's Enterprise ITArchitecture team where he focused on evaluating alternative hosting strategies like Cloud Computing, and led efforts to leverage Auto-ID technologies in Deere's factories, on their products, and at their dealers. In 2009, Mark joined the Enterprise Advanced Marketing team at Deere's Moline Technology Innovation Center to continue his work with Auto-ID, focusing on developing the business case and transitioning the technologies into Deere's global operations.

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