Cambridge Service Alliance Community of Interest Meeting

April 2019

We heard from some of the world’s leading B2B and B2C firms on how digital disruption is affecting their industries, their business models and how they manage innovation. We also heard from some of the world’s leading researchers from the Universities of Cambridge and Karlstad, sharing their insights into the future of services.

Among the themes considered by our industry speakers was the challenge of bringing service delivery partners together across the ecosystem to bring about meaningful change. If, for example, all of us want to switch to electric vehicles in the near future, charging points will need to be much more widely available, utterly reliable and work for any make of vehicle. But this task is beyond the scope of a single manufacturer – it needs the collaboration of multiple stakeholders and an organisation that will orchestrate their activities.

The challenge of innovation was also touched on and how digital can be both the means and the end. For our B2C brand, innovation is being driven by the voice of the customer, using data analytics and AI to understand and act on ‘real’ customer feedback. For the B2B firm, the focus was on bringing together different parts of the business to pilot digital projects and evaluate their likely impact and scalability. We also heard a compelling talk on the future of blockchain and how it will transform the way we work and live, just as the internet has done in recent years.

Key insights from the day

Services are co-created with partners and customers – and we need to take a systems view to understand them.

Digital transformation needs to happen at the sector or ecosystem level and it will need a mobiliser or orchestrator to make it happen.

For large B2C firms finding a way to capture, analyse and act on customer feedback is going to be key to achieving competitive advantage.

Service transformation is just as important in B2B as it is in B2C and creating the right conditions for innovation is critical.

Blockchain will be as transformative as the internet.

Getting inside the mind of their customers is essential if retailers are to create better customer experiences.

Firms need to look at how their services are delivered across the digital, physical and social spaces if they are to co-create a satisfying customer experience.

Understanding value

Taking a systems perspective

Edvarsson emphasised that products, services and brands do not have intrinsic value. Their value is only ever potential: it needs to be created with others (co-created) for that potential to be realised.

Services are co-created within systems by a set of actors, using resources – such as technology – and sharing common standards and laws – the rules of the game. The value lies in what a system does for its beneficiaries, whether that’s the service provider, its delivery partners or its customers.

Using a service ecosystem lens allows us to look at things in a different way: how do organisations work together? How do you work out what’s going on both inside and outside these organisations? What are their norms, cultures and habits and how do they shape the behaviours of employees and customers? What are the asymmetries in these relationships and how do they affect the system? What is the outcome, the value for each of the actors and is it economic or something else? And what are the implications for innovation and why some scale and some don’t?

Edvarsson gave us two examples of firms which are growing rapidly. Eataly, physical and online stores in which customers can eat, shop and learn about Italian food. It started in Italy in 2007 and is now in 35 locations around the world. KidZania is a play space which allows children to role-play being responsible adults doing responsible jobs – and is one of the world’s fastest growing edutainment brands.

What is about these two firms that is fuelling their rapid growth? Two key concepts here are service innovation and the service ecosystem. Service innovation is about coming up with new and useful ways of creating value and institutionalising it. The service ecosystem is about understanding how different actors work together to co-create value through service exchange. These two concepts work in tandem: any innovation needs to be understood in the context of its ecosystem.

Digital platforms are the co-ordinating mechanisms, orchestrating the collaborations of lots of different actors. They help entrepreneurs (or intrapreneurs) make things happen – transparently – so that everyone knows the rules of the games.

Insights from research

The service innovation system: introducing the work of CTF

Professor Bo Edvarsson founded CTF Service Research Centre at Karlstad University in 1986. CTF now has more than 70 researchers across a wide range of disciplines working closely with industry to understand how service creates value and the system that underpins it.

Applying these insights

Attentional mapping is one of these techniques. In both the lab and in retail settings, Sams uses eye tracking and facial coding to understand what is attracting people’s attention and why. Emotion mapping is used to delve further into why people respond to particular stimuli. This could be monitoring movements in facial muscles as people watch adverts or asking consumers to wear wristbands that measure their arousal levels. When combined with eye-tracking this can provide very detailed data about the way customers are responding to their surroundings.

It’s not just visual stimuli, Sams is interested in. He also investigates scent and touch and how they influence responses. He described one experiment in which he tested two scents – coffee and chocolate chip cookies – to see if they caught the attention of people walking past a café. They did. Intriguingly, there was a marked difference in responses between males and females, with males more responsive to the smell of cookies and females to the smell of coffee.

The internet of things is helping Sams explore the effect if touch. If you touch a product in a shop, it deepens your bond with it and increases your chance of buying it. 600 washer-dryers in a retail setting have been fitted with sensors which map the touches these products are receiving. By introducing different textures, the researchers are seeing if they can increase touch behaviour and hence the likelihood of purchase.

The research is being used with retailers to help them understand why, for example, customers ignore particular areas in a shop and how to counteract that behaviour. But understanding customer behaviours doesn’t always produce easy answers. The researchers found that if customers were disturbed by their phone while shopping they became angry – but they also bought more goods! From a retailer’s perspective it is difficult to know how to act on that insight. No-one wants angry shoppers even if they are contributing to the bottom line.

Understanding the retail experience

Dr Poja Sams, Assistant Professor at Karlstad Business School, researches consumer decision-making and visual attention in the retail environment. With colleagues at CPF, he has developed an impressive toolkit of technologies to obtain insights into how consumers respond to their environment.

Customer experience is where competition between firms will be won or lost, and B2B firms in particular must understand that customers need to be cared for.

Zaki and colleagues have been taking a step back to understand customer experience across three spaces – the digital, the physical and the social – and how they are connected. Until now, researchers have tended to think about these dimensions of the customer experience separately but firms need to consider them holistically if they are to develop the right services for their customers and co-create a consistent and satisfying experience.

An example of this kind of approach would be in a B2B heavy asset context. In today’s world, it is likely that a technician will fix a vehicle on site. This is a highly physical and partially social activity. We are already moving to a world where using sensors and data analytics for predictive maintenance is becoming the norm and this is moving the experience further into the digital space, a process which will be further intensified with the development of digital twins.

Retail been an area of intense innovation in recent years, moving from a highly physical and social model to a highly digital one.

But there is an interesting convergence going on here as some conventional bricks-and-mortar retailers are bringing digital channels instore and some online retailers – like Amazon – are opening bricks-and-mortar shops. Whichever route they take, they recognise the need to create a highly personalised, consistent and integrated shopping experience.

Zaki and his colleagues have developed a framework for looking at firms’ levels of maturity in each of the three spaces to help them think about where they are now and where they want to be – and the steps they need to take to get there.

The future of customer experience platforms

Dr Mohamed Zaki is Deputy Director of the Cambridge Service Alliance. His research focuses on developing new machine learning methods to manage and measure customer experience and predict customer loyalty.

Workshop lead: Dr Veronica Martinez

2. Blockchain: the application of emerging technologies

If blockchain is to deliver real value, it needs to be embedded throughout a firm’s processes and that’s the challenge.

But it will, eventually, transform the way we do business, eliminating the need for ERP systems and data processing. To get to that point, however, will need a completely different mindset – one that is about collaboration and real-time transactions, with ecosystem partners working on the same data in the same place.

An easier sell may be to use blockchain as an authentication technology to prevent the trade in fake parts. The food industry is starting to recognise its potential but to make it work will need cross-sector collaboration.

WORKSHOPS

Workshop lead: Professor Stephan Henneberg

1. Digital transformation strategy

The starting point is not (only) the technology but what you can do with it – in other words the business model the technology enables.

The delegates took part in workshops to discuss four key research themes and how they could inform CSA’s research programme.

You will need a mobiliser, a player within the business ecosystem that can orchestrate all the other partners to work together, even if they are competitors.

Data integration across players is key – but also risky.

Lots of the big incumbent manufacturers have competing business models for their products and services – but in the future it may be that these business models need to be complementary.

There’s no single recipe for success in digital transformation. Each firm needs to find its own roadmap: the elements may be the same but how they are put together needs to be distinct.

Workshop lead: Professor Lars Witell

3. Digital platforms driving new business models

How can you use resources better by, for example, sharing transportation to deliver great customer experience while making money through business model innovation?

How do you move from a product-based business model to a service-based business model and now to a ‘gig economy’ business model while enhancing your brand reputation?

How do you develop a roadmap for building digitalised services and a new business model?

Workshop lead: Dr Mohamed Zaki

Where next? We need to use these insights:

4. Customer Experience Analytics

Firms often rely on Net Promoter Scores and satisfaction ratings in their efforts to measure customer satisfaction but these techniques do not produce accurate insights and may be actively misleading. Developments in AI and Natural Language Processing mean that firms can now dive into textual analysis to get much more meaningful insights.

In combination with other business metrics, such as profitability in order to fully understand the impact on the business.

To change behaviours particularly in the B2B world, when there are often multiple decision-makers or customers

To help us understand the cultural and social dimensions of the customer experience.

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Further information and insights

THE COMMUNITY