Business Model Innovation Through Service Design: How Customer-Centric Methods Transform Business Models

Hilti needed 15 years. In 1999, a customer of the Liechtenstein toolmaker didn’t ask for a better rotary hammer — they asked for a “holistic tool management system that increases productivity.”¹ This customer need — not owning tools, but securing productivity — led to Fleet Management: a service model where construction companies receive an optimized tool fleet for a monthly flat fee, including repairs, theft protection, and data-driven fleet optimization.

The business model changed fundamentally: from one-time sales to subscriptions, from product ownership to service access, from transactional to relationship-based customer interaction. But the decisive question wasn’t “Which business model do we want?” — it was “What does the customer actually need, and how do we design the service delivery?”

This is precisely where the bridge between business model innovation and service design lies: BMI without customer understanding is a strategy paper. Service design without a business model perspective is a prototype without a revenue model. Together, they form the methodology that turns customer problems into viable business models.

The Core Problem: BMI Without Service Design

Business model innovation, as practiced in most companies, is a strategy exercise: fill in the canvas, calculate the financial model, build the board deck. What’s missing:

1. In-depth customer perspective: Not market research (“67% of customers want more digital services”), but genuine understanding of the customer situation through observation, interviews, and co-creation
2. The service delivery system: Even a brilliant business model fails if the backstage processes aren’t designed — the internal handoffs, IT systems, and employee competencies that support the service
3. Iterative validation: A business model on a canvas is a hypothesis. Service design provides the methods to test this hypothesis with real customers before millions are invested

The numbers are sobering: only 10 percent of innovation activities in German companies focus on business models.² And of those that attempt BMI, most fail at exactly the problems that service design addresses: lack of customer centricity, dominant logic, and the exploitation trap.

The Theoretical Bridge: Service-Dominant Logic

Why are BMI and service design not two separate disciplines that can be optionally combined — but two sides of the same coin?

The answer comes from the Service-Dominant Logic (S-D Logic) by Vargo and Lusch (2004): it’s not the product itself that creates value, but the service it enables. Value is not produced by the company and “delivered” to the customer, but co-created together with the customer.³

The implication for business model innovation: if value emerges through co-creation, then designing the co-creation process (= service design) is designing the business model. A business model that describes how value is “delivered” misses the point. A business model that describes how value is co-created requires service design as its methodology.

Alexander Osterwalder himself confirmed this connection: he wrote the foreword to Stickdorn and Schneider’s This is Service Design Thinking (2010) and explicitly positioned the Business Model Canvas as a service design tool in This is Service Design Doing (2018).⁴

Where Service Design Enters Business Model Development

The connection isn’t abstract. Every block of the Business Model Canvas has a direct interface with service design methods:

BMC Block	SD Method That Fills It	How
Customer Segments	Personas, User Research, Stakeholder Maps	Ethnographic research uncovers real segments (vs. assumed ones)
Value Propositions	Value Proposition Canvas, Jobs-to-be-Done	Customer jobs, pains, and gains from field research
Channels	Customer Journey Mapping	Reveals actual touchpoints and channel preferences
Customer Relationships	Service Blueprint, Co-Creation Workshops	Maps frontstage/backstage interactions
Key Activities	Service Blueprint (Backstage Layer)	Makes invisible internal activities visible
Key Resources	Blueprint + Stakeholder Map	Identifies required capabilities and systems
Key Partners	Ecosystem Map, Service Ecology Map	Shows which partners enable the service
Revenue Streams	Service Prototyping, Willingness-to-Pay Tests	Tests pricing models with real users
Cost Structure	Blueprint (Resource Layer)	Makes the true costs of service delivery visible

The insight from SI Labs’ practice: the original BMC template was developed for product companies. For services, at least five of the nine building blocks work fundamentally differently.⁵ Service design provides the methods to fill these blocks in a service-appropriate way.

The Value Proposition Canvas as a Bridge

The Value Proposition Canvas is the natural handoff point between service design and BMI. It zooms into the two BMC blocks where service design contributes most strongly: customer segments and value propositions.

The left side (Customer Profile) is filled through user research. The right side (Value Map) through service design. Connecting both creates the foundation for a customer-centric business model — not a theoretical one.

Three Integration Patterns in Practice

Research and case study analysis reveal three typical integration patterns:

Pattern 1: Service-Design-First (Discovery Mode)

Starting point: Service design research (ethnography, journey mapping, blueprinting) uncovers unmet needs. A new business model emerges from these insights.

When appropriate: When it’s unclear which problem should be solved. When the existing business model is stagnating and new growth areas are being sought.

Example: Hilti — a customer asked for “managed productivity,” not a better tool. The insight from the customer relationship led to the Fleet Management business model.

Pattern 2: BMI-First (Validation Mode)

Starting point: A new business model is hypothesized (new revenue stream, new channel, platform model). Service design validates and shapes the service delivery.

When appropriate: When the business model hypothesis is clear, but feasibility from the customer’s perspective is not. When a new pricing strategy or channel needs testing.

Example: An insurance company hypothesizes a usage-based model (pay-how-you-drive). Service prototyping tests whether customers experience the necessary transparency and control.

Pattern 3: Parallel (Co-Design Mode)

Starting point: Service design and BMI run in parallel. Customer insights from SD continuously update the BMC. Business model constraints from BMI shape SD decisions.

When appropriate: For complex transformations, platform models, and ecosystem innovations where service experience and business model are mutually dependent.

Example: Mobility-as-a-Service platforms, where customer experience and business model evolve simultaneously.

DACH Case Studies

Hilti Fleet Management (Liechtenstein/Global)

Initial situation: Premium tool manufacturer with transactional product sales.

SD contribution: Deep customer understanding revealed that construction companies don’t need better tools — they need a reliably available, optimized tool fleet. This insight didn’t come from market research, but from long-standing customer relationships and attentive listening.

Business model shift: From one-time sales to 3-5-year subscriptions, from product ownership to service access, from transactional to relationship-based revenue structure. The business model required an entirely new backstage process: logistics, maintenance, data analytics, and fleet optimization.

Lesson: The transformation took over 15 years and required a cultural and sales shift: the traditional sales force had to evolve from product sellers to productivity solution advisors.¹

TRUMPF / AXOOM (Baden-Wuerttemberg)

Initial situation: Global market leader in machine tools and laser technology. Classic Mittelstand business model: mechanical engineering plus service.

SD contribution: The insight that manufacturing customers don’t want to optimize individual machines, but achieve “connected, optimized production.” AXOOM was founded as an IoT platform for data-driven manufacturing services: predictive maintenance, digital twins, and production optimization.

Business model shift: From discrete machine sales to platform plus recurring service revenue, from hardware to hardware plus software plus data.

Lesson: AXOOM was reintegrated into TRUMPF in 2019 — not because the platform idea was wrong, but because the organizational separation created too much friction. The service delivery system (the backstage organization) wasn’t designed for integration with the core business. Exactly the problem that a service blueprint would have made visible.⁶

Zurich Insurance (Switzerland/Global)

Initial situation: Traditional insurer with a product-centric portfolio.

SD contribution: Under CCO Conny Kalcher, Zurich defined 33 customer experience standards based on human-centered design, personas, and journey mapping. Nearly all of the 1,000 field representatives in Switzerland were transitioned to paperless processes. Internal service journeys were redesigned end-to-end.⁷

Business model shift: From product-centric (selling policies) to service-centric (risk management, prevention, digital ecosystems). The Zurich eXchange API marketplace opens the insurance infrastructure to third-party providers — a platform model that wouldn’t be possible without service design at the customer interface.

Lesson: Even in a highly regulated industry, SD methods can drive fundamental business model shifts — when they are anchored at the C-level.

When Do You Need Both?

Situation	SD Only	BMI Only	Both
Existing business model is stable, service needs improvement	Yes	No	No
Purely structural/financial question (which pricing model?)	No	Yes	No
Shift from product to service (servitization)	No	No	Yes
New market or new customer segments	No	No	Yes
Response to disruption	No	No	Yes
Platform or ecosystem innovation	No	No	Yes

The rule of thumb: as soon as a business model describes how a service creates value (not a physical product), you need service design as a design methodology — not as an optional add-on.

The Difference Between Service Design and Business Model Design

Dimension	Service Design	Business Model Design
Core question	”How should this service work and feel?"	"How does this organization create, deliver, and capture value?”
Unit of analysis	Service experience (touchpoints, journeys, frontstage/backstage)	Value architecture (9 BMC blocks)
Methods	Ethnography, journey maps, blueprints, prototypes	BMC, VPC, financial modeling, scenario planning
Output	A designed service system	A viable business model
Blind spot	Can design a great experience without a viable business model	Can design a viable model that fails at delivery

The conclusion: Neither alone is sufficient. A well-designed service without a business model is a cost center. A well-designed business model without a designed service is a PowerPoint slide. The bridge is integration.

Conclusion: The VPC as the Handoff Point

If you’re facing the question of how to connect business model innovation and service design, start with the Value Proposition Canvas:

1. Fill the left side with SD methods: User research for customer jobs, journey mapping for pains, co-creation for gains
2. Iterate the right side: Which services address these jobs, pains, and gains?
3. Embed the VPC in the BMC context: Which business model supports this value proposition?
4. Design the backstage: Service blueprint for the delivery system
5. Test: Service prototyping with real customers

The VPC isn’t a compromise between BMI and SD. It’s the point where both disciplines converge — and where the best customer-centric business models are born.

Footnotes

1. Strategyzer (2023). Lessons from Hilti on what it takes to shift from a product to a service business model. See also IMD Case Study: Hilti Fleet Management. ↩ ↩²

2. IFH Koeln. Relevance of business model innovation still often underestimated. ↩

3. Vargo, S.L. & Lusch, R.F. (2004). Evolving to a New Dominant Logic for Marketing. Journal of Marketing, 68(1), 1—17. ↩

4. Stickdorn, M. et al. (2018). This Is Service Design Doing. O’Reilly Media. The BMC is positioned as an SD method in the chapter “Prototyping Ecosystems and Business Value.” ↩

5. Osterwalder, A. & Pigneur, Y. (2010). Business Model Generation. John Wiley & Sons. ↩

6. TRUMPF Press Release (2019). Integration of AXOOM into the TRUMPF Group. ↩

7. Zurich Insurance Group. Innovation & Technology Strategy. See also CXNetwork interview with Conny Kalcher. ↩