Digital service innovation for smarter production: Servitized-AI progress towards smart products

This paper investigates if the simultaneous integration of servitization and AI-intensive strategies lead manufacturers to develop products with more advanced analytically ‘smart’ capabilities. The proliferation of smart products, equipped with sensors and connectivity, has significantly enhanced value creation through remote monitoring, control, optimization, and autonomy. While the potential of digital technologies from these products is well-recognized, true smart capabilities require more than mere data collection; they necessitate AI-augmented Digital Service Innovation (DSI). This study posits that integrating AI with digital servitization enables manufacturers to develop advanced smart products. Utilizing a unique dataset from 576 Spanish manufacturing firms for 2023, the study employs an ordered probit model with sample selection to assess the impact of servitization and AI-intensive strategies on smart product development. Findings reveal that while both servitization and AI-intensive strategies contribute to the development of analytically smarter products, only the combined implementation significantly advances a product's smart capabilities. This research underscores the critical role of DSI in the progression of smart products through monitoring, control, optimization, and autonomy stages. • Findings reveal that while both servitization and AI-intensive strategies contribute to the development of analytically smarter products, • Their combined implementation advances a product's smart capabilities significantly more. • This finding underscores the critical role of DSI in the progression of smart products through monitoring, control, optimization, and autonomy stages. • The result of the study supports the nested character of this smart product capabilities scale. • The study innovates by introducing the importance of the technification of products as an output measure. • Such findings align with the structurational model in considering value from technology as the result of holistic coherence between technology, strategy, service, and offer.