Exploiting the control revolution by means of digitalization: value creation, value capture, and downstream movements

This article explains why firms move downstream to profit from the value they create for customers through improved control. Under certain circumstances, product innovations and services are dynamically interdependent in the sense of improved control creating value for the customer. Since value capture is distinct from value creation, firms may need to change their means of appropriation to profit. Empirically, the article analyses how firms can renew their product offerings by incorporating control technologies into their traditional mechanical engineering products. In contrast to a strand in the recent strategy literature that argues that manufacturing firms should move downstream to deliver complementary services, this article explains these shifts as related to increased control, economies of throughput, value creation, and value capture. The article contributes to the throughput and control technology literature by showing the importance of differentiating value creation from value capture. The increased control by means of digitalization and the discrepancy between value creation and value capture explains why many manufacturing firms will become service firms.