111 A LONGITUDINAL STUDY OF SERVITISATION AND DYNAMIC CAPABILITIES IN SMEs Nina Löfberg, Victor Aichagui, Elisabeth Johansson, Lars Witell & Barbro Lagerholm ABSTRACT Purpose: The purpose of this study is twofold: (1) to identify servitisation routes of SMEs, and (2) to identify the microfoundations of dynamic capabilities that influence the different steps of a continuous servitisation model. Design/Methodology/Approach: In this longitudinal study, servitisation in three product-oriented small and medium sized enterprises (SMEs) have been studied. During the past year, the SMEs have developed their service businesses according to an iterative servitisation model consisting of four states; Identify, Package, Sell, and Innovate. The servitisation processes were studied through action research. Findings: Three different routes of servitisation were identified; 1) a product-oriented route, (2) a service- oriented route, and (3) a solutions-oriented route. The dynamic capabilities developed within the companies throughout their servitisation processes differed based on their business logic and influenced the result of the processes. Originality/Value: The study contributes with knowledge on how servitisation can be performed in SMEs in practice. Moreover, it combines the research fields of servitisation and dynamic capabilities which enrichens the servitisation literature with an important but sparsely researched perspective that focus on the change inherent in a servitisation process. KEYWORDS: Servitisation Model, Dynamic Capabilities, SMEs, Action Research 1. INTRODUCTION Services have become a common way of creating a competitive advantage in product-oriented firms and increasingly so during the last couple of decades (Wise and Baumgartner 1999; Baines et al. 2009). Service offerings or solutions are created through servitisation and research has argued that servitisation is the basis of service-led growth. However, how servitisation could be done in practice is sparsely researched (Ostrom et al. 2015). This paper aims to contribute to this knowledge gap by studying the microfoundations of dynamic capabilities, i.e. the organisation’s ability to structure and recombine resources in order to create a higher return and a competitive advantage (Teece 2007), that influence the servitisation process. Servitisation is in this paper seen as a continuous process of responding to market change, or to shape markets in the company’s preferable way (c.f. Eloranta and Turunen 2015), hence the importance of dynamic capabilities. Previous research argues that dynamic capabilities are important for service business success (Fischer et al. 2010) and service innovation (Kindström et al. 2013; Gebauer 2011; den Hertog 2010). However, the servitisation process is about more than just innovating new products, it is about finding structures and routines not only for service innovation, but also for selling and delivering services and continuously developing the service business and improving customer centricity. Based on the resources available and the firms’ dynamic capabilities to address, or in some cases create, a market change, companies can adopt different servitisation routes. Therefore, we argue that dynamic capabilities are important throughout the entire servitisation process, since the process inherits a continuous change (c.f. Rindova and Kotha 2001). For many product-oriented companies, servitisation is challenging and far from all manage to create profitable service businesses