servicisation and digital convergence 2011

IME - Service Innovation - 2011 BMAN62052

MIIROManchester Institute of Innovation Research

Innovation and Convergence: Digital

Convergence and Servicisation

Ian [email protected]

IME service innovation seminar 8

mailto:[email protected]


MIIRO

Two developments requiring new strategies and capabilities

Servicisation

Digital Convergence

Manchester Institute of Innovation Research



Servicisation


MIIRO Sectoral convergence

• Similar technology• White collar workforce• Customer orientation• Customisation• Many ways in which manufacturing and

services look more alike• Services become “productised”, other

sectors “servicised”.



MIIROProductisation of services

1. ..either the evolution of a service to include a product

2. or a service that becomes standardised to a degree where it is marketed as a product.

For example in logistics, transport contracts can be so well defined that they turn into a service that is effectively sold as a product. www..productserviceinnovation.com




Servicisation:The increasing emphasis on service outputs

from manufacturing and other non-service firms

From Baines, Lightfoot, Benedettini and Kay (2009): Journal of manufacturing technology management, Vol 20 No 5 2009.


MIIROSome very different aspects

Embedded services

Product services: complementary to the goods; aiding users; adding more value; support services, KIBS

Servitising goods: not rental

Process services: selling business processes

Software, comms, content [e.g. Kindle]

Aftersales, software sales, systems integration and management

Pay for service, not good

Testing, production, comms, marketing



MIIRO Why servicise?Manchester Institute of Innovation Research

The annual volume of new equipment sales compared with the size of the installed base in selected capital goods sectors (ie one car is sold for every 13 on the road).


MIIRO Some cases: Manchester Institute of Innovation Research

T.S. Baines, H.W. Lightfoot, O. Benedettini, J.M. Kay, (2009) "The servitization of manufacturing: A review of literature and reflection on future challenges", Journal of Manufacturing Technology Management, Vol. 20 Iss: 5, pp.547 - 567


MIIRO How is it done?

Andy Neely, Cambridge, sees 3 strategies:Product-focused strategies seek to capture information regarding product usage and then integrate any relevant findings so they influence the design of the next generation of products - for example maintenance processes, functionality upgrades

Service-focused strategies seek to address broader customer expectations concerning for example, service availability, co-location of service engineers, customer equipment training, speed and quality of response to specific enquiries

Value chain-focused strategies seek to provide integrated service solutions (such as acting as prime contractor) so that, in effect, the supplier firm takes over some part of the customer's operation

Another approach



MIIRO “Product” Life CycleManchester Institute of Innovation Research

Veronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology

Management, Vol. 21 Iss: 4, pp.449 - 469

Design Manufacture

Delivery Usage

Support End-of-use


MIIRO

“Product”-service relations: conventional manufacturing




Design Manufacture Delivery Usage Support End-of-use

SupplierCustomer

Interaction: mainly transactional.Some product support

Some peripheral services


MIIRO“Product”-service relations: more service





Product + service delivery


MIIRO

“Product”-service relations: more service customisation





Customisation of product and service


MIIRO

“Product”-service relations: more service customisation





Product & service codesigned: total solutions


MIIRO

“Product”-service relations: not a linear model/stages theory






MIIROLarge-scale analysis is rare


An exception: Andy Neely ‘The Servitization of Manufacturing: An Analysis of Global Trends’

• Data from OSIRIS [44,000 listed companies from around the world].

• Companies with primary or secondary US SIC codes in the range 10-39 inclusive, extractive & manufacturing, and over 100 employees [n=12,521].1.Pure manufacturing

PetroChina principally engaged in a broad range of petroleum & natural gas-related activities.2.Some combination of manufacturing & serviceSiemens -predominantly electronics & electrical engineering, but provides wide variety of consulting, maintenance & other services.3.Pure serviceThe Brink's Company: security industry firm - services offered include armoured-car transportation, automated teller machine (ATM) servicing, currency & deposit processing, coin sorting & wrapping, & arranging secure air transportation of valuables.

Three models


MIIRO Neely casesManchester Institute of Innovation Research


MIIRO Main services offeredManchester Institute of Innovation Research


MIIRO Some trend dataManchester Institute of Innovation Research

LAY, G. 2007. ‘Towards a Comprehensive Innovation Strategy’. Quality Congress. Istanbul: Fraunhofer Institute for Systems and InnovationResearch ISI, Karlsruhe


MIIRO

Servicisation is revenue model innovation; but can affect innovation more generally

Knowledge about customers, product use, product failures and problems

Reallocation of costs changes logic about product maintenance:

Affects product design

Scope for innovation in monitoring and maintenance

New service innovation



MIIRO Environmental argumentServices = less environmental impact (?)

Swedish PhD study , firm (and user) interviews: Oksana Mont (2004) Product-service systems: Panacea or myth? Lund University, The International Institute for Industrial Environmental Economics


Drivers:Some general factors, but also market issues vary considerably across sectors; coercive market includes consumers and regulations

Barriers:Limited regulatory drivers; high costs of labour; need for better awareness on part of consumers and intermediaries (and own staff) – long learning time; credibility/demonstrability to users; diminished user responsibility; possible internal conflicts (2nd hand vs new), etc.


MIIROChallenges for servicisers

Different management and customer relations required

May need understanding of new markets, and evaluation of potential of new service offering

May require thorough reorientation of sales workforce

New capabilities – separate organisation?



MIIRO Exercise!You work for a firm that makes high-value consumer products. (cosmetics, jewellry, babyfood, petfood....)

There is a potentially disruptive technology emerging which will allow consumers to make the final products at home, easily, and for much less money.

This is attracting a great deal of media attention, and public response to the new offering looks positive.

What do you do?



MIIRO Some optionsWe rule out suppressing or banning the technology! (Though you could try dark propaganda against it...)

We do not rule out your doing deals with the supplier.

We do not rule out your downsizing, but you must try to remain sustainably profitable.

Could you go upmarket?

Can you complement your product with other tangible elements, or with new services?

Can you move away from the original product, and focus on ancillary goods and services that sill appeal to consumers (and maybe give you advantage with the new technology)?

Can you do other things with your skills, plant and equipment?

Can you think of other options?



MIIRO The taskDecide on your product and on the strategy/ies you will pursue. (5 mins+15 mins.)

Consider what capabilities you will require to implement this:

Types of Knowledge

Workforce skills

Alliances

Etc (30 minutes)

Decide on what the most urgent of these are, and how you will address them. (10 mins)



MIIROManchester Institute of Innovation Research Digital Convergence

ConvergenceWhat is digital convergence?

Digital convergence and innovation

Who does this affect?

How does it affect media, IT industries, other sectors…


MIIRO 3 sorts of convergenceManchester Institute of Innovation Research

Disruptive innovation challenges, PLUS need to master new technologies.“Both market and technology-driven convergence tendencies along the value chain ...eventually imply entire industries to converge in the long term. ...the decision to integrate competences and technologies from external sources does not necessarily come as a strategic choice... Rather required to avoid negative effects of emerging shakeouts.”


MIIRO Technology-driven caseManchester Institute of Innovation Research



Convergence

For some decades commentators have addressed computer/ telecommunications “convergence” – or collision

Held by many to be a defining feature of new IT, e.g. Kobiyashi “IT=C&C”… and related to common underlying technologies (microprocessors, digitalisation)

But more industries and activities “converge” than just data processing and communication



Digital Convergence

Historically, distinct industries dealt with print, recorded music, images, other media, telecomms, broadcasting, computer hardware, software



Digitalisation

Text

Photography

Moving Images

Sound

Instruments

(photochemistry)

(phonography, electronics…)

(mechanical, electromechanical)

(printing)

New storage devices and displays – ebooks, CDs, MP3/4 players, etc; Web publishing

Analogue DigitalPublishing, broadcasting, etc

Doc. Processing Digital cameras “ ”, projection,

TVs, DVDs etc. DT, CD, MP3.... Digital display,

measurement



Digital Convergence

Distinct industries have dealt with hardware, software, telecommunications, broadcasting, print and other media

They have varying assets, capabilities and types of content - and regulatory and IP systems

But now they have increasingly shared underlying technologies (microelectronics, optronics, software)

All types of data and information potentially captured, processed, communicated, stored, displayed digitally via new IT


MIIRO

Moving over Space

Transforming, Processing

Storing over Time,

Reproducing


Three Uses of Information


MIIRO

Moving over Space


Storing over Time,

Reproducing


Three Sorts of Industry(Tele)communications

Publishing Media Computation


MIIRO

Moving over Space


Storing over Time,

Reproducing


Traditional Features(Tele)communications

Publishing Media

(Broadcast Media)

Computation

1 to 1

1 to many

Early Online Media

CONTENTINTERACTION

COMMUNICATIONPROCESSING



A Growing Market Space…

Ea rly industrial

Twentieth Century

Twenty-first century:

Increasing size of markets


MIIRO

… Within which the offerings of established industries expand


Ea rly industrial

Twentieth Centuty

Twenty-first century:

Increasing size of markets

========Increasing

=== proliferation of ======= products



The Expanding Media Universe

Communications

Computation

Content

Time

The three “trumpet” shapes represent

telecommunications, computer, and

broadcast & print media fields.

Over time the product space to which they contribute, and its market size, expands, and the three fields overlap increasingly.



Early Industrial Society

INFORMATION GOODS & SERVICES

COMPUTATION(TELE) COMMUNICATIONS

Paper-based communication: Stationery, Post.

C19th - telephone, telegraph

Mechanical information

processing: very limited till C20th -

punch cards, calculators

Paper-based information products - books, newspapers, etc + live

consultation & entertainment + (later) mechanical recorded media

(gramophone etc)

All (but telecomms) based on

PHYSICAL TRANSPORT



The mid-1950s

BROADCAST + PUBLISHED MEDIA

COMPUTERS

Telephone

Telegraph

TV (mainly monochrome)

AM radio, LP records,

valve amplifiers

Very few, very large,

valve-based electronic

computers; Keyboard

calculators

TELECOMMUNICATIONS

PHYSICAL TRANSPORT

plus increasing electronic delivery

(telecomms, TV, radio, etc.)



The mid-1970s


COMPUTERS

Telephone

Telegraph

Telex

TV (colour) AM and FM transistor radio, LP records,

transistor amplifiers

Numerous mainframe computers

Pocket calculators

TELECOMMUNICATIONS

Increasing role for

electronic delivery, but little

integration of media



Telephone Answering Machines, Mobile phones, Pagers, Business Fax Machines

Videorecorders, audio CDs,

cable and satellite TV, Teletext

Numerous Personal

Computers, Home Computers and videogames,

Electronic wristwatches

Electronic mail

Bulletin boards

Videotex Online databases

for business & science

Recorded information

services


TELECOMMUNICATIONS COMPUTERS

Some integration of media,

emergence of optical media,

increasing digitalisation

The Mid/late-1980s



Turn of the Century

Digital mobile

phones,

Widespread use of Fax,

pagers

Videorecorders, audio CDs, digital

recording cable and satellite TV

Numerous PCs, laptops.

notebooks, pocket

organisers, etc. Numerous home computers and

videogames

Electronic mail,

SMS

Mobile data comms

CD-ROM publishing

Cable telephony Audiotext

Internet

World Wide Web

COMPUTERSTELECOMMUNICATIONS


Increasing integration of media,

use of optical media,

digitalisation



Digital mobile communications in wide use - pervasive communications

MP3 and PVR, Digital Broadcast TV

digital videorecording

High definition TV

Pervasive computers, in many types of

device (e.g. Personal Digital

Assistants, smartphones)

Internet telephone VoI,

Internet videotelephony

Internet TV Video on Demand

Interactive TV

WiFi, Next generation of

Internet & WWW,

Web2.0, Video telephones

and conferences

DVD-R+, interactive

video

c2010 COMPUTERS


TELECOMMUNICATIONS



Successful products/applications/triggers

Design paradigms/platforms

User implementation

Emergence and take-off of markets, market structures

Product spaces

Capabilities and industrial structure

Governance of content (news, porn, gambling) and property rights (intellectual property)

Other governance issues (crime, security…)

Uncertainties


MIIROManchester Institute of Innovation Research Regulators

UK system change

OFTEL (Telecommunications Act, 1984, on “deregulation”) + Cable Authority + ITC ….

OFCOM (Communications act, 2003)



1990

2003

spectrumRadiotelecommunications Agency

Broadcasting Standards Commission

But not print media – Press Complaints Commission etc.

1991

networksOftel

1984

1996?


MIIROManagement of digital convergence

Service industries in communications and media (and software) confront or create potentially disruptive challenges – e.g. To content delivery

Manufacturers in publishing and IT face scope for new services

Major challenge to capabilities



MIIRO

Jong-Seok Kim PhD Digital Covergence in South Korea




Jong-Seok Kim: Korean mobile phone companies

2nd generation, digital services – earlier 1990s generation was analogue

2.5 generation

3rd generation

128k – 2m /sec

64k /sec

14.4k/sec

Capabilities to establish large markets for music via cellphone



The Network R&D Center’: to develop core technologies to ensure the continual advancement of the next generation network, which in time will become one of the core competencies of mobile network operators. The Platform Research Center: to research, develop, and operate Internet-related services, as well as to develop/grow the Financial Enabling business, which make bankingand financial transaction possible on mobile phone. In addition, to discover new sources of growth engines by creating new businesses based on existing technological platforms. Currently the Center is carrying out R&D activities on WAPbased Platforms, M-Commerce, LBSIn the year 2004, SKT placed more emphasis on the R&D of technology. In addition, aA New Business Division was established, aiming at explore new growth engines. TheNew Business Division deals with the formulation of new business strategies and theirimplementation at global levels. New managerial routines were adopted to operateefficiently and to speed up business processes. The Chief Business Officer wasresponsible for the Business Strategy Division, Business Division, and Customer Division (the new name for the Marketing Division). At the same time, with the continuous introduction of new convergent services, the number of transactions with content providers was escalating. Hence, a Content Business Unit was also formed, to deal with the many issues relating to content.

. ...while the three firms took different measures, they watched each other and worked on some common issues

SKT’s response


MIIRONew knowledge to be acquired

DRM and relevant systems and solutions

New markets, their properties and evolving demands, incl. Attitudes to IP and preferences for payment

Knowledge of competing devices

Content providers, the existing music business

Potential new services – ringtone, streaming, downloads, associated content and marketing



MIIROManchester Institute of Innovation Research Convergence

Blurring industry boundaries

New convergent services

Much scope for innovation in new services, improved service design

New players

Diversification, vertical integration (?)

Requirement for new strategies, capabilities, organisation

Example: “smart phone” and tablets converge entertainment (games, videos, music), communications (phone, VOIP, videophone), publishing (newspaper download), and much more (cameras, health apps)… Much alliance and networking across firms to achieve success in new markets.


MIIROManchester Institute of Innovation Research Not just Media

New categories:e.g. chematronics, mechatronics [watch this space

for bio and nano categories]…Converged products:

e.g. “smart house” converges consumer electronics, telecomms, utilities, construction



Key Features of New Media:

CONVERGENCE and COLLISON:

digitalisation blurring boundaries new modes of delivery and

use of existing (types of) content

repurposing and repackaging of content

New types of content (eg MMORG)

INTERACTIVITY: promises and realities

differential development of applications and

competences on both - user and supplier sides

Sometimes technically demanding – sometimes

“democratic” innovation around types of content, interfaces, delivery

and “display” systems


MIIROHacklin et al: strategic and operational issues



MIIROManchester Institute of Innovation Research Some implications

Standard classifications of creative industries may be destabilisedImportance of users and intermediaries, continually challenging IP systems and assumptions – not just driven by “piracy” (though this may often predominate)Liable to be continual dialectic between established players and newcomers, established consumption and production modes and new styles.Much creativity and innovation will not be managed in any recognisable way!But much will be, as major new markets are created and accessed.



End of Presentation