tag:blogger.com,1999:blog-75535407563105703872024-03-14T00:00:44.627-07:00Andy NeelyThoughts and reflections on life at Cambridge University - covering everything from innovation and entrepreneurship to research on servitization, KPIs and operations strategy.Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.comBlogger35125tag:blogger.com,1999:blog-7553540756310570387.post-44134506848355226782017-10-22T00:17:00.004-07:002017-11-19T23:53:23.214-08:00Decoding the Cambridge Entrepreneurial Ecosystem<div dir="ltr" style="text-align: left;" trbidi="on">
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Cambridge is a fascinating place and on many measures one of
the most enterprising and entrepreneurial ecosystems in the world. The latest <a href="https://www.cam.ac.uk/system/files/uoc_innovation_in_numbers_a4_july_2017.pdf">innovation
in numbers</a> provides some useful facts and figures about both the University
and the wider Cambridge cluster. Over 60,000 people are employed in the
Cambridge cluster, which consists of over 4,700 knowledge intensive firms that
between them generate over £12 billion in total turnover. The innovation that
underpins the cluster is impressive - with 341 successful patents published per
100,000 residents (that's more than the next four cities in the UK combined).
The University employs over 11,000 people and educates around 19,000 students.
The five year survival rate of firms that are supported by Cambridge Enterprise
(the University's technology transfer company) is 64.6% - the national average
is 41.4%.</div>
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As Pro-Vice-Chancellor for Enterprise and Business Relations
I am in the privileged position of gaining a good overview of how this
enterprise ecosystem works. When I took up this new post six months ago, I was
aware of comments that the enterprise ecosystem in Cambridge is complex,
fragmented and difficult to navigate. The last six months has made me question
these comments and I would argue that there is a logic and coherence to the
enterprise ecosystem in Cambridge that is easy to explain and understand. What
makes the enterprise ecosystem work is that this structure exists, yet
constantly evolves. Let me explain.</div>
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If you want a good overview of the range of enterprise
related activities in Cambridge have a look at the <a href="https://www.enterprisenetwork.group.cam.ac.uk/">University Enterprise
Network website</a>. This site lists around 40 activities designed to support
enterprise at Cambridge. These activities fall into five broad categories
(shown in figure 1). The foundation is great people doing great projects.
People at all levels in the University are carrying out world leading research.
Students, post-docs, researchers and faculty are all involved in research
projects designed to push back the boundaries of knowledge. When these projects
produce new ideas and insights we have organisations like <a href="https://www.enterprise.cam.ac.uk/">Cambridge Enterprise</a>, designed to
help staff and students commercialise their expertise and ideas for the benefit
of the global community. Cambridge Enterprise will support staff and students
as they seek to identify how best to convert their ideas to reality. They will
provide IP protection when appropriate, help individuals undertake
consultancy for external organisations, protect and licence technologies and
invest seed funds in their new companies. As the firm grows and needs
additional finance they can approach <a href="http://www.cambridgeinnovationcapital.com/">Cambridge Innovation Capital</a>,
which can provide series A and series B funding. If neither Cambridge
Enterprise or Cambridge innovation Capital proves to be the right route, others
such as the <a href="http://www.cambridgeangels.net/">Cambridge Angels</a>, <a href="https://www.amadeuscapital.com/">Amadeus Capital Partners</a>, <a href="http://www.cambridgecapitalgroup.co.uk/">Cambridge Capital Group</a>, <a href="http://iqcapital.vc/">IQ Capital</a> or the <a href="http://www.ipgroupplc.com/">IP Group</a>, can all provide support.
Together these organisations constitute the "finance and IP"
pillar. </div>
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Organisations don't just need capital they also need space
to grow, so the second pillar is "physical space". Again there
are multiple aspects to this. When you are first thinking of your business
model you could sit in your kitchen and develop your ideas or you could take a
desk in <a href="https://www.ideaspace.cam.ac.uk/">IdeaSpace</a>. We have three
IdeaSpaces across the University - each provides space for a community of entrepreneurs
who can assist each other as they develop their ideas and business models.
Again, if the organisation is successful and starts to grow - there are
follow-on spaces around the city. <a href="http://stjohns.co.uk/">St John's
innovation Centre</a> or the <a href="http://www.cambridgesciencepark.co.uk/company-directory/bradfield-centre/">Bradfield
Centre</a> provide modular office space, that firms can use as they grow. The <a href="http://www.babraham.co.uk/">Babraham Research Campus</a> provides space
for bio-medical firms - currently there are 60 firms on the Babarahm site, with
a waiting list of 40. If the organisation continues to grow they might move to
the <a href="http://www.cambridgesciencepark.co.uk/">Cambridge Science Park</a>
and take office space there. In addition to office space, of course, there are other forms of space that matter. <a href="http://makespace.org/">Makespace</a> provide a community workshop where people can create prototypes. The local consultants, especially the technology consultants, provide prototyping and design support. <a href="https://www.cambridgeconsultants.com/">Cambridge Consultants</a> and <a href="https://www.ttp.com/">The Technology Partnership</a> have both played a crucial role in the ecosystem.</div>
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The third pillar concerns skills and capability development.
Departments and groups across the University run programmes and initiatives to
support entrepreneurs develop their organisations and their personal
capabilities. Lectures and networking is provided by <a href="https://www.jbs.cam.ac.uk/entrepreneurship/programmes/enterprise-tuesday/">Enterprise
Tuesday</a>, a scheme run by the <a href="https://www.jbs.cam.ac.uk/">Judge
Business School</a> which also runs <a href="https://www.jbs.cam.ac.uk/entrepreneurship/programmes/accelerate-cambridge/">Accelerate</a>,
a start-up accelerator programe and <a href="https://www.jbs.cam.ac.uk/entrepreneurship/programmes/ignite/">Ignite</a>,
an intensive one-week training programme for aspiring entrepreneurs and
corporate innovators to trial and prepare business ideas for the commercial
environment. The <a href="https://www.maxwell.cam.ac.uk/">Maxwell Centre</a>
runs <a href="https://www.maxwell.cam.ac.uk/programmes/impulse">Impulse</a>, a
programme designed to help entrepreneurs translate their ideas into reality. Increasingly groups are seeking to run scale-up programmes, supporting innovative businesses as they seek to grow. The Judge Business School runs a <a href="https://www.jbs.cam.ac.uk/execed/barclays/barclays-scale-up-uk-programme/">scale-up programme</a> in collaboration with Barclays, while Cambridge Network runs a <a href="https://www.cambridgenetwork.co.uk/learning/school-for-scale-ups/">school for scale-ups</a> for local industry. As
with the space pillar there are multiple other programmes across the ecosystem
that I could include.</div>
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The final element is Connected Cambridge - the fact that multiple
networks exist across Cambridge designed to bring people together. If you are
interested in the Internet of Things then you would look to <a href="https://www.cambridgewireless.co.uk/">Cambridge Wireless</a>. If you want
to connect with local businesses you would turn to the <a href="https://www.cambridgenetwork.co.uk/home/">Cambridge Network</a>. If you
wanted to support the successful long term growth of Cambridge, you would join <a href="http://www.cambridgeahead.co.uk/">Cambridge Ahead</a>. Within the
University there are multiple student societies and associations - including <a href="https://www.cue.org.uk/">CUE - Cambridge University Entrepreneurs</a>, <a href="http://www.cambridgetvc.com/">CUTEC - Cambridge University Technology and
Enterprise Club</a> and <a href="https://www.epoc.group.cam.ac.uk/">EPOC -
Entrepreneurial Post-Docs of Cambridge</a>. The point is that these and other
networks and initiatives all help bring the community together and support
people as they seek to make the right connections. In Cambridge it is
relatively easy to reach others - entrepreneurs, venture capitalists and
academics - because of the interconnected nature of the city and the
institutions it houses.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLo_Mie9cQsF2rk5YFKkhG41ARSjkPuyrGl8KQ5mTCdBUJhZWRaiolRN5v41TzYNtrLZPuflWUR9Bk8GFzQPXvUbKwmiGSYK5hAHo1a-UQyC-q-mLvoz7E3n2zcfCQc120tMNibIp5-S2F/s1600/Presentation2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="742" data-original-width="1193" height="248" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLo_Mie9cQsF2rk5YFKkhG41ARSjkPuyrGl8KQ5mTCdBUJhZWRaiolRN5v41TzYNtrLZPuflWUR9Bk8GFzQPXvUbKwmiGSYK5hAHo1a-UQyC-q-mLvoz7E3n2zcfCQc120tMNibIp5-S2F/s400/Presentation2.jpg" width="400" /></a></div>
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Figure 1: Overview of the Enterprise Ecosystem</div>
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The list I have provided is not meant to be exhaustive,
simply illustrative. But the first point is that the enterprise ecosystem works
in Cambridge because it covers all of the elements shown in figure 1. However,
there is more to the enterprise ecosystem in Cambridge than simply coverage of
these five elements. The second point is that people within the ecosystem
constantly innovate to improve the ecosystem. Whenever somebody spots a gap -
or a perceived gap - they try to fill it. We have a <a href="http://makespace.org/">Makespace</a> in Cambridge - a community workshop
where people can make and repair things. Entrepreneurs use this to create
prototypes for new products. Recently we launched a <a href="https://biomake.space/home">Biomakespace</a> - in recognition of the need
for bio-prototyping facility. The Judge Business School runs a Social Venture Incubator, designed to help people
grow social ventures and partners with Cambridge Enterprise to support social ventures through a seed fund. Each of these new initiatives was launched to fill a
perceived gap in the enterprise ecosystem, but by filling this gap the
ecosystem becomes stronger. Indeed this constant innovation in the ecosystem
means that we are forever trying to make the enterprise ecosystem in Cambridge
better. We are constantly experimenting with ways of enhancing the ways in
which we work.</div>
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The third point - beyond coherence and experimentation - is
that now the level of enterprise activity in Cambridge has become
self-propagating. The fact that so many people are involved in enterprise,
entrepreneurship and innovation encourages others to participate. In turn this
makes Cambridge "a safe place to fail" - a phrase coined by one of
our local entrepreneurs, Andy Richards. The level of activity means that even
if your first venture fails, there will always be something else for you to go
and try, so in essence the enterprise ecosystem provides a safety net for those
who chose to get involved in it. All of these factors together are what makes
Cambridge such an interesting and welcoming place for enterprise.</div>
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Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-65962501871374758912016-10-25T05:15:00.001-07:002017-10-22T03:28:10.666-07:00What might Brexit mean for UK manufacturing?<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: "Helvetica",sans-serif;">The question of how UK
manufacturing will fare post-Brexit is often presented in the somewhat
simplified terms of a transactional relationship between UK manufacturers and
EU markets. ‘Leavers’ contend that because the EU sells more goods to the UK
than the UK sells to it, we will have the upper hand in negotiations. But
that position overlooks the nature of modern manufacturing, which today relies
on complex networks of companies, scattered across the globe, all dependent on
each other to produce finished goods and services.</span><br />
<br />
<span style="font-family: "Helvetica",sans-serif;">In order to unpick how much
UK manufacturing depends on access to the EU Single Market we need to consider
the issue from three different but connected perspectives: the manufacturing
trade environment, the impact on foreign direct investment, and the importance
of manufacturing value chains and networks.</span><br />
<br />
<span style="font-family: "Helvetica",sans-serif;">In terms of trade, the UK
has run a deficit since 1998, largely caused by a deficit in traded goods.
According to the Office of National Statistics, the 2015 deficit was around
6.9% of GDP, although this is partly offset by a surplus in services, resulting
in a balance of -2.1% of GDP. Clearly the devaluation of the pound in the
immediate aftermath of the EU referendum may have a positive impact on exports
- UK exports are currently around 20% cheaper than they were pre-referendum - which
makes UK goods more affordable and appealing to international markets. However,
the impact of this devaluation is likely to be short-lived. Already there is
evidence of inflationary pressure affecting imports used by UK manufacturers.
As price increases flow through supply chains, the cost of finished goods will
also increase, offsetting competitive advantage gained through a weak pound. In
the long term, the way to address the UK’s deficit is through trade - ensuring
that we export more than we import - and for that we require access to
international markets, both in Europe and beyond.</span><br />
<br />
<span style="font-family: "Helvetica",sans-serif;">In recent years, the UK has
been very good at securing foreign direct investment, but the Japanese
Government, in its letter to the United Kingdom and European Union, challenged
any assumptions that this would continue untroubled by Brexit. The letter,
delivered just before the G20 meeting, was remarkably explicit, raising five
substantive issues that would deter future investment: uncertain trading
conditions, additional customs duties, inability to access services and make
financial transactions seamlessly across Europe, inability to access workforces
with the right skills, and the need to deal with different sets of regulations
and standards in the UK and the EU. The Japanese Government’s warning was
stark: “Japanese businesses with their European headquarters in the UK may
decide to transfer their head-office function to continental Europe if EU laws
cease to be applicable in the UK after its withdrawal”.</span><br />
<br />
<span style="font-family: "Helvetica",sans-serif;">As commentators have noted,
the Japanese letter makes it clear that the UK is not just negotiating with the
EU over Brexit, but it also has to strike a deal that satisfies the
requirements of other international trade partners. Failure to do so will
isolate the UK further from the international community and runs the risk that
future foreign direct investment will be more difficult to secure.</span><br />
<br />
<span style="font-family: "Helvetica",sans-serif;">The third issue is that of
global supply chains. Today’s manufacturers do not operate within the
boundaries of a single country. To describe a manufacturer as British –
in competition with, say, its US or German or Japanese counterparts – is
somewhat misleading. Competition in modern manufacturing takes place
between interdependent groups of firms, often from different countries, that
share knowledge and collaborate with one another to produce goods and deliver
services. Raw materials are typically sourced in one location, intermediate
inputs (such as parts and components) are produced in another and then exported
somewhere else for further processing and/or assembly into final products. And
it’s not just supply chains that function across boundaries: the
knowledge-intensive aspects of manufacturing such as R&D, design and
professional services are similarly geographically dispersed.</span><br />
<br />
<span style="font-family: "Helvetica",sans-serif;">For manufacturers to be
competitive they need access to high quality production ‘inputs’. These inputs
include not only components, systems and specialised services but also workers,
finance and even infrastructure, many of which are imported from abroad. Data
from the OECD shows that a considerable proportion of UK exports rely on UK
manufacturers first bringing in inputs from abroad, processing them and then
exporting them. In 2011 the content of UK exports that had been
previously imported was around 23%, and that figure appears to be higher than
for the other major EU manufacturing economies.</span><br />
<br />
<span style="font-family: "Helvetica",sans-serif;">Conversely, over half
(52.5%) of UK manufacturing domestic value added is driven by foreign final
demand, and a significant proportion of what the UK exports are not final
goods, but products and services that are further processed by another country
before reaching the consumer. Of the UK’s total exports of domestic value-added
in 2011, 63.7% were not final goods.</span><br />
<br />
<span style="font-family: "Helvetica",sans-serif;">So the picture complex. The
assumption that the balance of trade deficit strengthens the UK's hand in
Brexit negotiations only holds if the factories using these imports are
confined to the UK. If the tariffs on importing intermediate goods become too
high, however, there may come a tipping point where it might be more
competitive to move some activities (and factories) to the EU.</span><br />
<br />
<span style="font-family: "Helvetica",sans-serif;">While uncertainty remains
over what Brexit actually means, it is clear that the impact on manufacturing
will be significant. For manufacturing to thrive and prosper we need an
agreement with the EU that is open, transparent and enables international
trade, investment and knowledge to flow with ease. Anything less runs the risk
of damaging the long-term health of UK manufacturing.</span><br />
<br />
<span style="font-family: "Helvetica",sans-serif;">Professor Andy Neely, Head
Institute for Manufacturing, University of Cambridge.</span><br />
<span style="font-family: "Helvetica",sans-serif;">Dr. Carlos López-Gómez,
Head of Knowledge Exchange, Policy Links, Centre for Science, Technology &
Innovation Policy (CSTI), University of Cambridge.</span><br />
</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com2tag:blogger.com,1999:blog-7553540756310570387.post-72305839271602969352016-06-04T09:40:00.001-07:002016-06-04T09:40:31.072-07:00Why I'm in! Voting in the UK's referundum on the EU<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: left;">
So the UK's referendum on membership of the EU is fast approaching and I thought it about time I wrote a blog on why I'm voting for the UK to remain. The first reason is that fundamentally I am pro-Europe. I don't think the EU is perfect. There are clearly elements that need reform and there are valid questions of sovereignty, but I don't believe we have much hope of delivering meaningful reform if we exit and just shout from the sidelines. I was at a debate at the Royal Society recently on the impact of leaving the EU. The audience was overwhelmingly in favour of staying and one of the phrases that stuck in my mind was "corridor diplomacy". By leaving we'd be relegated to trying to have corridor conversations with those making decisions. It has to be better to be in the room where the discussion is taking place than standing in the corridor outside!<br /> </div>
<div style="text-align: left;">
Second, I think the economic case is clear. The Brexit campaign continually quotes £350 million a week we give to
the EU, although when pushed they acknowledge that the net contribution
is actually significantly lower. The IfS - in their report - <a href="http://www.ifs.org.uk/publications/8296" target="_blank">Brexit and the UK's Public Finances</a>
- suggest that the UK's net contribution to the EU stands at around £8
billion (0.4% of national income or around £150 million per week). If we
stopped making this contribution we could reduce public spending by £8
billion a year (or divert that money elsewhere - to the National Health Service). Just to put things in perspective, public spending is forecast to be £801
billion in 2018-2019 (the year when the money would be available), so the
net effect of an extra £8 billion is relatively small - around 1% of public spending.</div>
<div style="text-align: left;">
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<div style="text-align: left;">
More importantly, however, is the other side of the argument. What would be the effect of Brexit on the UK economy? If the economy shrinks then tax receipts would fall and this could have a far greater impact on the economy and the public finances than the "saved" £8 billion. The IfS report reviews eight different studies examining the impact of Brexit on the economy - six of which forecast a negative impact (ranging from a 1.2 to 7.9% reduction in GDP). One group - Economists for Brexit - predicts a 4% growth in GDP, while the group other predicts the possibility of a small growth. The balance of evidence is that the economy is likely to shrink in the short term at least. A 0.6% reduction in GDP would wipe out the £8 billion savings.</div>
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<div style="text-align: left;">
While the economists can argue over their forecasts, my job brings me into contact with lots of different people. Inevitably a common topic of conversation is the referendum. The vast majority of people I talk to would err on the side of remain and indeed many of them provide anecdotal evidence of adverse economic impact. Just yesterday I was talking with the manufacturing director of a FTSE 250 sized firm. They told me that the analysis they had completed suggested that their firm would take a £2 million hit on profits (around 4%) if we left the EU because of <u><b>increased</b></u> regulatory and trade burdens. Their argument was that as part of the world's largest trading block we have relatively free movement of goods and services (as well as people). Leaving the trading block will undoubtedly increase paperwork and red tape! In a separate conversation, with a Managing Director of one of the large banks, I learned that the bank had already seen a downturn in merger and acquisition activity - something they blamed on uncertainty about what will happen to the pound if we decide to exit.</div>
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<div style="text-align: left;">
Beyond economics, of course, there is then the argument about migration. Brexit will mean that we take back control of our borders! We can stop people coming to the UK! Yet European countries that agree trade deals with the EU also end up agreeing to the free movement of people! So when the Brexit campaign claim we can have a trade deal agreed with the EU immediately, that will be better than the one we have already - by being within the market - and yet we'll also be able to take back control of our borders, the argument just doesn't stack up.</div>
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The two final issues that I have been thinking about are safety and security, and sovereignty. The first of these - safety and security - is pretty clear. Part of the reason for creating the European Union was to seek to create a safer, stronger and more secure Europe. I don't see many people - on either side of the campaign - arguing that the EU has not delivered this. This leaves sovereignty - which I think is actually the strongest argument for Brexit. I can understand those who argue that we should have control over those who create laws for us. That we should be able to vote for EU representatives, but don't we do that by electing members of the European Parliament and asking them to ratify proposals from the EU on our behalf. By engaging with Brussels we gain influence - having representatives there allows us to engage in policy discussions. I can live with a little less direct control and share sovereignty with the rest of Europe, if this delivers the benefits of better and more open trade, increased safety and security and the opportunity to move, live and work freely throughout the EU.</div>
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Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com4tag:blogger.com,1999:blog-7553540756310570387.post-65802464320499714712016-01-23T01:21:00.000-08:002016-01-23T02:02:26.252-08:00Enabling the 4th industrial revolution - "industrie 4.0" or the "internet of things"?<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: inherit;"><span style="font-size: small;">I've been struck recently by the range of people talking about new digital and data developments in manufacturing. Of particular interest has been the apparent explosion of discussion about industrie 4.0 (which is extremely popular in Germany), internet plus (which is being pushed by China) and the industrial internet (being promoted by GE among others).</span></span></div>
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<span style="font-family: inherit;"><span style="font-size: small;">Managers, consultants, policy makers and academics are all getting very excited about the potential of connected devices. The basic idea is that increasingly things (of all types) will be stuffed with sensors and connected to the internet. They will stream data back to the original equipment manufacturers who in turn will use sophisticated analytics to analyse and interpret the data. There are loads of examples. Caterpillar streams data back from mining and construction equipment, using this both to monitor the health of individual machines and also to identify ways in which productivity and efficiency might be increased. Rolls Royce monitors aero engines in flight, using sensors to track vibrations in fan blades, which allows them to predict whether or not maintenance is required. In the consumer world - wearable devices (e.g. Nike's fitbit or Garmin's forerunner) track and record exercise levels with the data being uploaded to the internet for benchmarking and comparison purposes.</span></span></div>
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<span style="font-family: inherit;"><span style="font-size: small;">One thing that I find interesting is the rate at which some of these ideas are developing and the level of interest there is in them. A good way of looking at this is to explore <a href="https://www.google.co.uk/trends/" target="_blank">Google Trends</a>, which basically tracks the popularity of search terms and plots these over time. Figure 1 shows a comparison of "industrie 4.0" and the "industrial internet". It neatly shows how effective the German Government and large industrial firms (including Bosch and Siemens) have been at promoting their vision of the future - industrie 4.0 - with a rapid rise of interest in industrie 4.0 since 2012.</span></span></div>
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<span style="font-family: inherit;"><span style="font-size: small;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaVLy4waETD4CFmTVu_M-Y4OZq4xVg4buwN-2NFAqHgql8ZX_bSwgwybqxp4dJipT3EEfu6G0KrE6BnPL8aDwUjoxBSSj-VrktWXr5HiTQxeM-xRmyEZLF6tmWg5GhKfw6zTUlsDNIgqRn/s1600/Figure+1.png" imageanchor="1"><img border="0" height="215" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaVLy4waETD4CFmTVu_M-Y4OZq4xVg4buwN-2NFAqHgql8ZX_bSwgwybqxp4dJipT3EEfu6G0KrE6BnPL8aDwUjoxBSSj-VrktWXr5HiTQxeM-xRmyEZLF6tmWg5GhKfw6zTUlsDNIgqRn/s400/Figure+1.png" width="400" /></a> </span></span></div>
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<span style="font-family: inherit;"><span style="font-size: small;">Figure 1: Google Trends - Popularity of Search Terms "Industrie 4.0" and "Industrial Internet".</span></span></div>
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<span style="font-family: inherit;"><span style="font-size: small;">One could argue that industrie 4.0 is not a new vision. As Figure 1 also shows there has been interest in the industrial internet for at least a decade and indeed my colleagues at <a href="http://www.ifm.eng.cam.ac.uk/" target="_blank">Cambridge IfM</a>, most notably in <a href="http://www.ifm.eng.cam.ac.uk/research/dial/" target="_blank">DIAL</a> (the Distributed Information and Automation Laboratory led by <a href="http://www.ifm.eng.cam.ac.uk/people/dm114/" target="_blank">Professor Duncan McFarlane</a>) have been getting our students to build demonstrators and simulations of intelligent factories for years. However, the recent excitement is a testament to the growing maturity of the technology and underlying data infrastructures that will enable a wider adoption of industrie 4.0 and this excitement has driven significant Government and policy interest, as well as research and development investment.</span></span></div>
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<span style="font-family: inherit;"><span style="font-size: small;">So is industrie 4.0 the answer? Are smart factories where materials and machines seamlessly collaborate to drive productivity and efficiency the future? I think the answer is "yes" and "no". Much of the discussion about industrie 4.0 is still very internally focused - its a factory view of the world. A recent YouTube <a href="https://www.youtube.com/watch?v=HPRURtORnis" target="_blank">video</a> illustrates the point. The video talks about a vision of tomorrow - the factory of the future - where machines and materials will use wireless data infrastructures to communicate and coordinate their activities. Yet the examples I started with are ones where the product has left the factory - manufacturers are worrying about how they can track their products once they go out into the field and are used in mines and quarries, on the wings of plans, or in our houses and cars. Here I would argue there is scope for a bigger and more impactful industrial revolution. The fourth industrial revolution will not just be about what happens inside factories, but it will encompass the entire value chain. It will involve remotely monitoring products as they are used in the field. Data will be collected and streamed back to original equipment manufacturers who will use these data to assess the health of assets, to determine whether any maintenance is required, to predict potential product breakdowns and failures. They'll use the data to improve the next generation of design, learning from experience. They'll use the data to look at how the customer's operation might be optimised. By gathering data from multiple machines in a quarry its possible to build a system model of the quarry and identify where bottlenecks lie and hence how productivity can be improved.</span></span></div>
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<span style="font-family: inherit;"><span style="font-size: small;"><br /></span></span></div>
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<span style="font-family: inherit;"><span style="font-size: small;">This extended view of the fourth industrial revolution won't just be enabled by industrie 4.0, but by the "internet of things" and that's why when you add "internet of things" to the Google Trends data a rather different picture emerges. Its clear that industrie 4.0 and the industrial internet are important component parts, but the real key to driving future success in manufacturing lies beyond the factory walls and this will be enabled by the internet of things.</span></span></div>
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<span style="font-family: inherit;"><span style="font-size: small;"> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigbmXX6Ihdup8es1ANhND9j90tj2CKmCG15cOg-b14r3UDaGSJsyw75bYWSqQKdd4hRqSk0U83f0Qz8ldbDDTdr_ZI2PDcalXLlmlM6Yfj7Y18mySQTMQ630YZsRe4-v-H2rvAJWY3fBZ6/s1600/Figure+2.png" imageanchor="1"><img border="0" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigbmXX6Ihdup8es1ANhND9j90tj2CKmCG15cOg-b14r3UDaGSJsyw75bYWSqQKdd4hRqSk0U83f0Qz8ldbDDTdr_ZI2PDcalXLlmlM6Yfj7Y18mySQTMQ630YZsRe4-v-H2rvAJWY3fBZ6/s400/Figure+2.png" width="400" /></a></span></span></div>
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<span style="font-family: inherit;"><span style="font-size: small;">Figure 2: Google Trends - Popularity of Search Terms Including "Internet of Things".</span></span></div>
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Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-33251207269392197822015-09-13T00:47:00.000-07:002016-01-23T02:01:50.769-08:00Creating Customer Value Through Services<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: inherit;"><span style="font-family: inherit;"><span lang="EN-US" style="font-size: small;">In the Cambridge Service Alliance we have
long talked about the importance of focusing on outcomes - understanding deeply
and intimately what it is that your customer or even your customer’s customer
values and exploring how you can deliver this. One of the most powerful
consequences of thinking this way is that it encourages you to change the way
you think about the boundaries of your business.</span></span></span></div>
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<span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-size: small;"><br /></span></span></span></div>
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<span style="font-family: inherit;"><span style="font-family: inherit;"><span lang="EN-US" style="font-size: small;">Take, for example, Caterpillar - what is it
that their customer’s customer values? Imagine, for example a mining operation
or a quarry. Clearly the customer wants a safe working environment. Clearly
they want equipment that is reliable and productive. Clearly they want minimum
disruption to their operations and production schedules. But ultimately what
they want is to be able to extract minerals in the volumes they need at the
lowest cost. If lowest cost per tonne is what the customer wants, what can
Caterpillar do to help their customer achieve this?</span></span></span></div>
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<span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-size: small;"><br /></span></span></span></div>
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<span style="font-family: inherit;"><span style="font-family: inherit;"><span lang="EN-US" style="font-size: small;">Well the first thing is they can recognize
that the mine or quarry is a system - to achieve lowest cost per tonne you have
to optimize the system and get all of the people and equipment working in
harmony together. It is not enough for Caterpillar to be able to guarantee that
their equipment has the lowest operating cost or even lowest total lifetime
cost. Unless Caterpillar’s equipment works in harmony with the rest of the
quarry the customer won’t achieve lowest cost per tonne.</span></span></span></div>
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<span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-size: small;"><br /></span></span></span></div>
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<span style="font-family: inherit;"><span style="font-family: inherit;"><span lang="EN-US" style="font-size: small;">Working in harmony requires coordination -
coordination across mixed fleets of assets and equipment. One of the services
Caterpillar and their Dealers now offer are quarry optimization services. They
use the data coming back off their equipment to help the customer identify
production inefficiencies and lost time. Trucks, for example, have sensors in
their beds. As the truck is loaded with material, the sensors record the weight
of material in the bed of the truck. So Caterpillar knows when trucks are fully
loaded. They also track location, through GPS data, so if your data shows a
truck is fully loaded, but its GPS position is not changing then its not
moving. That’s lost time - once the truck is loaded it should be moving off up
the haul road en route to dump its load in the crusher.</span></span></span></div>
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<span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-size: small;"><br /></span></span></span></div>
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<span style="font-family: inherit;"><span style="font-family: inherit;"><span lang="EN-US" style="font-size: small;">There are loads of similar examples. Bose
thinks of itself not as a speaker manufacturer but as providing sound
distribution systems. Pharmaceutical firms are reinventing themselves as
healthcare solutions provides - seeking to find a new way to complete as the
development cost of drugs increases and more and more drugs come off patent.</span></span></span></div>
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<span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-size: small;"><br /></span></span></span></div>
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<span style="font-family: inherit;"><span style="font-family: inherit;"><span lang="EN-US" style="font-size: small;">At this year’s <a href="http://cambridgeservicealliance.eng.cam.ac.uk/ServiceWeek/ServiceWeek2015b/IndustryConf2015" target="_blank">Cambridge Service Alliance conference</a> - creating value through customer services - scheduled for the 6<sup>th</sup>
October - we’ll be hearing from three leading providers of services and solutions
- ABB, Rolls Royce and Zoetis. Each of them will be explaining how they have
managed to develop business models - often enabled by data and analytics - to
create value for customers by focusing on the outcomes their customers and
their customer’s customers really want.</span></span></span></div>
</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-2057491890156792492015-08-12T01:18:00.000-07:002015-08-12T01:18:29.249-07:00The Productivity Paradox: Is There a Measurement Problem?<div dir="ltr" style="text-align: left;" trbidi="on">
There's been much debate in recent months about the productivity paradox - put simply there's a long standing concern that technology, particularly information technology, does not seem to deliver the productivity gains that might be expected. This concern has resurfaced in the UK, with the Government raising questions about why the UK's productivity has not grown as much as other countries. In fact George Osborne recently called the UK's low productivity growth "<a href="http://www.independent.co.uk/news/uk/politics/three-charts-that-show-how-poor-productivity-is-in-the-uk--but-is-it-because-were-just-lazy-10380200.html" target="_blank">the challenge of our time</a>".<br />
<br />
This same topic came up in a recent email discussion with colleagues from <a href="http://www.issip.org/" target="_blank">ISSIP</a> - the International Society for Service Innovation Professionals. This time prompted by an article in the Wall Street Journal entitled "<a href="http://www.wsj.com/articles/silicon-valley-doesnt-believe-u-s-productivity-is-down-1437100700" target="_blank">Silicon Valley Doesn't Believe US Productivity is Down</a>". In essence the Wall Street Journal argument was that developments in technology are not captured in the Government's productivity figures - apps that help people find restaurants more quickly or hail cabs from their phones clearly improve the efficiency with which we can do things. Doing more with less is a classic definition of productivity - so these apps must be improving productivity argues the Wall Street Journal (and those it quotes - including Hal Varian, Google's Chief Economist).<br />
<br />
While I accept the argument that apps and associated technologies allow us to do more with less, I think there's a need to unpack the relationship between these developments and measures of productivity more carefully. Traditionally governments have measured labour productivity - in terms of GDP per hour worked. As technology replaces labour, GDP stays the same or increases, while labour hours go down - hence productivity increases.<br />
<br />
However, there's an interesting new phenomenon which complicates the picture. Take, for example, Uber. I'm a fan of Uber - the app is great. Its convenient. I've never had a bad service from an Uber driver. I love the fact that I can rate drivers and they can rate customers at the end of journeys. I love the fact that the cost of the ride gets charged to my credit card and the receipt automatically emailed to me. But I also love Uber because it is cheaper - I pay less for a Uber car than I do for a black cab in London. Better service, pleasant drivers, lower prices - what's not to like. Other firms have similar business models - think Amazon or Airbnb. Still others provide me a service for free - Google and TripAdvisor - don't charge me for the information they provide, instead making their money through third parties.<br />
<br />
When talking about productivity - or the lack of productivity - we need to think about the economic impact of these cheaper and/or free services. Lower prices to consumers must mean lower GDP. The efficiency gains are there, but they are not being captured in productivity gains because the benefits are being passed on to consumers in the form of lower prices, rather than captured in the official GDP statistics. Maybe a more nuanced discussion about productivity is needed - where we look at both sides of the equation - increases in value and hence GDP - and increases in efficiency reflected in lower costs to consumers.</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com3tag:blogger.com,1999:blog-7553540756310570387.post-6478999536970987512015-05-01T02:57:00.000-07:002015-05-01T03:00:25.745-07:00Servitization and Service Innovation in China: Reflections from Shanghai<div dir="ltr" style="text-align: left;" trbidi="on">
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<span lang="EN-US">I’ve just spent a week in China, visiting
the Southern China University of Technology (Guangzhou) and Ceibs, the
international business school in Shanghai. While at Ceibs I participated in the
first seminar on “Servitization and Service Innovation”. Attended by around 100
people, industrial speakers at the seminar included eCoal (an online coal
purchasing platform), HP, Sevalo (a construction and mining equipment services business)
and SKF. While Professors Marjorie Lyles (Indiana University), Chris Voss (Warwick
Business School), Xiande Zhao (Ceibs) and I delivered academic presentations.
It was a great trip, fascinating in so many ways, but I thought I might write a
short blog about some of the themes that came out for me at the seminar. These include:</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 18.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<span lang="EN-US" style="mso-bidi-font-family: Cambria; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Cambria; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span lang="EN-US">The importance of technology to
China - all the speakers talked about the way technology is changing China’s
approach to business. They talked about all the traditional topics - cloud
computing, big data, mobile, the need for better security. But they also talked
about internet plus, China’s equivalent to Germany’s industrie 4.0 and the rest
of the world’s internet of things. They recognise that as more and more devices
are connected to the net, ever greater volumes of data will be created and
these data can potentially deliver new and valuable business insights if
analysed and interpreted correctly.</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 18.0pt; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 18.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<span lang="EN-US" style="mso-bidi-font-family: Cambria; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Cambria; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;">2.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span lang="EN-US">Platforms were also a major
theme - many of the firms that spoke, including many of those in the audience, were
looking to create platforms, often to combine buying power and/or to utilize
spare capacity. eCoal, for example, has created a coal buying platform which
allows it to drive significant cost savings by pooling purchasing across
multiple organisations. HP claimed to be the world’s biggest retailer of paper.
With their print on demand services, where you pay per page rather than for the
printer, HP is forced to buy large volumes of paper. But with large volumes
comes the opportunity to negotiate discounts for bulk purchasing.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraph" style="margin-left: 18.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<span lang="EN-US" style="mso-bidi-font-family: Cambria; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Cambria; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;">3.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span lang="EN-US">One reason so many firms were interested
in platforms was the massive success of China’s three stars of eBusiness - Baidu,
Alibaba and Tencent (the Chinese refer to them as BAT). These three firms
dominate China’s discussion of eBusiness and have all successfully created
platforms, which in turn create multi-sided markets. Tencent, for example,
offers users access to free online games, sells the eyeballs to advertisers,
but also sells the players of games equipment upgrades. A dominant question
underlying many of the comments at the forum, was how do we create platforms
that will allows us to capture multiple, complementary sources of revenue for
our businesses.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraph" style="margin-left: 18.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<span lang="EN-US" style="mso-bidi-font-family: Cambria; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Cambria; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;">4.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span lang="EN-US">We also talked about challenges
of servitizing - the fact that having a strong product heritage or brand
sometimes makes it more difficult to offer services. Interestingly a number of
the speakers referred back to the roots of their organisations, obviously
product of their firm’s history, but I wondered whether history also
constrained their thinking about the future. SKF asked some fantastic questions
about servitization. How do we persuade our customers to buy solutions from us
before we have proved their value? Who buys services and solutions? Procurement
is typically not structured that way. It thinks about products and categories,
yet services and solutions often cross multiple products and categories.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraph" style="margin-left: 18.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<span lang="EN-US" style="mso-bidi-font-family: Cambria; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Cambria; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;">5.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span lang="EN-US">And finally we talked about
enablers of servitization - what would make the transition to services easier.
Through the course of the seminar I heard five key themes: (i) get inside the
mind of your customer’s customer. Understand what is value to them, so you can
better help your customer create value for their customer; (ii) to understand
you need deep relationships - ask yourself are we really close enough to our
customers; (iii) seek to balance control and collaboration in the ecosystem -
not everyone needs to control or create a ecosystem. Sometimes you have to
accept you are part of one and the best you can do is seek to influence it.
Think about creating win-win-win across the ecosystem to drive change; (iv)
learn from your experience, codify it and share it; and (v) think about
solutions - SKF has created solutions factories where they can work with
customers to solve their problems. Using your own ideas and technology
collaboratively with the customer is a great way of getting inside their minds
and building a deep relationship with them.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span lang="EN-US">One of the great privileges of life as an
academic is the opportunity to travel, to experience different countries and
cultures. I never fail to be inspired when I go somewhere different and meet
someone new. My latest trip to China was no exception.</span></div>
</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-70849001262197970172015-03-12T13:53:00.001-07:002015-03-12T13:53:42.737-07:00Watch Out for the Industrial App Economy as the Battle for the Industrial Internet Heats Up<div dir="ltr" style="text-align: left;" trbidi="on">
About six months ago I wrote a blog entitled "<a href="http://andyneely.blogspot.co.uk/2014/10/ge-internet-of-things-and-battle-to-come.html" target="_blank">GE, The Industrial Internet and the Battle to Come</a>" - in which I asked the question "will GE be the equivalent of Apple, Facebook and Google for the
industrial internet or will someone else seize this market?". Its clear the battle for the industrial interne is heating up.<br />
<br />
Last week (on 5th March) Caterpillar <a href="http://www.prnewswire.com/news-releases/caterpillar-and-uptake-to-create-analytics-solutions-300045750.html" target="_blank">announced</a>
it was extending its partnership with Uptake, a Chicago based predictive analytics
company. Uptake have been developing predictive diagnostic and fleet optimisation solutions for Caterpillar's the locomotive business. Under the new agreement Caterpillar and Uptake will "develop an end-to-end platform for predictive diagnostics to help Caterpillar customers monitor and optimise their fleets more effectively". Notably the new technology will be available for both Cat and non-Cat products.<br />
<br />
Today (12th March) Siemens <a href="http://m.siemens.com/en/press/pressreleases/pressrelease.php?detail=http://www.siemens.com/press/en/pressrelease/2015/digitalfactory/pr2015030152dfen.htm" target="_blank">announced</a> it was creating an open cloud platform for industrial customers based on the SAP HANA cloud platform. Siemens will offer Apps for predictive maintenance, asset and data energy management. They are also opening their platform so other Original Equipment Manufacturers (OEMs) or indeed Apps developers can create their own applications to
exploit the open infrastructure for data analytics.<br />
<br />
Separately I've had conversations with half a dozen different firms, from a variety of sectors, in the last couple of weeks all of which have centered around the idea of an Industrial App Economy. It seems that there's a groundswell of opinion that the future for industrial services lies in open, cloud based platforms, where developers can offer Apps to make the end users service and support experience as seamless as possible.<br />
<br />
There's an interesting question with all of these developments - namely how will the investments be monitisied? Is it through sale of the Apps? Provision of the insights that can be derived from the data? Or sales of new products and support services - as customers are tied in to particular OEMs? It'll be interesting to see how this battle evolves as other potential competitors for the industrial internet declare their hands.</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com1tag:blogger.com,1999:blog-7553540756310570387.post-75721009611727858422015-02-03T01:18:00.003-08:002015-02-03T01:24:06.845-08:00Rethinking Competition and Collaboration in Ecosystems: Who Should You Work With? <div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: left;">
<span style="font-family: inherit;"><span style="font-size: small;">One of the themes that keeps emerging in the work of the <a href="http://www.cambridgeservicealliance.org/" target="_blank">Cambridge Service Alliance</a> is the importance of the ecosystem. We define an ecosystem as the
<span lang="EN-US">wider network of firms and organisations that can
or could influence the way the focal firm creates and captures value through
the provision of its products and services. Members of this wider network might include, but
are not limited to: collaborators, regulators, clients, customers and consumers, their stakeholders,
suppliers and competitors.</span></span></span></div>
<div style="text-align: left;">
<span style="font-family: inherit;"><span style="font-size: small;"><br /></span></span></div>
<div style="text-align: left;">
<span style="font-family: inherit;"><span style="font-size: small;"><span lang="EN-US">Why does an ecosystem perspective matter? The first reason is that thinking about ecosystems encourages executives to take a broader view on the opportunities they face. This argument was first made by Moore in his Harvard Business Review article - "Predators and Prey: A New Ecology of Competition". As the boundaries between traditional industrial sectors break down organisations change the way the create value for their customers. Take a simple example - airlines. Are they in the travel business? After all their primary function is to transport people from A to B. Are they in the entertainment and catering business - they feed and entertain people while on their planes. Are they in the holiday business? Witness the emergence of BA and Virgin holidays. Are they in the telecoms business - think about in flight telecoms and wireless services. Even more extreme examples are seen in electronics and telecommunications. Phone companies now double as internet service providers. They offer on demand TV and video services. They are debating what else they can do given the cables they have running into your house. Utilities companies in general are blurring - water companies will provide gas and electricity. Gas companies will reduce the price you pay if you buy electricity from them as well. An even more radical example is provided by electric vehicles - some are exploring how they might be used as energy storage devices when not being driven. Boundaries between sectors are blurring and disappearing. As they do new opportunities emerge. Being constrained by a logic that says "we are an automotive firm" or "we are a pharmaceutical firm" simply limits innovation and creativity.</span></span></span></div>
<div style="text-align: left;">
<span style="font-family: inherit;"><span style="font-size: small;"><span lang="EN-US"><br /></span></span></span></div>
<div style="text-align: left;">
<span style="font-family: inherit;"><span style="font-size: small;"><span lang="EN-US">This theme of innovation and creativity is a second reason why ecosystem thinking is so important. Firms define often themselves in terms of their markets, customers and competitors. Yet one thing we have seen in our work is the increasingly complex nature of inter-organisational relationships. It is common to see firms competing for some contracts, while collaborating on others. IBM, for example, competes with software vendors such as Oracle and SAP, yet also installs Oracle and SAP systems when their customers want them to. BAE Systems partners with Babcock to deliver services at Portsmouth Naval Base, yet competes with Babcock for other MoD contracts. This complex and nested set of relationships raises some interesting questions. If you define another organisation solely as your competitor there's a danger you miss opportunities for innovation and collaboration. The car industry provides an excellent example. Many car manufacturers have close relationships with (or in some cases own) Dealer networks. They see the Dealer as the primary route to market and the obvious choice for all after-sales service and support. Yet there are loads of small, independent garages that offer vehicle service and support. Often customers prefer these independent garages - they are cheaper, operate with lower overheads and only use genuine original equipment spares when needed. Traditionally the automotive manufacturers have seen these independent garages as the enemy. They take work from the Dealer network, build direct relationships with the end customer and generally disrupt the industry.</span></span></span></div>
<div style="text-align: left;">
<span style="font-family: inherit;"><span style="font-size: small;"><span lang="EN-US"><br /></span></span></span></div>
<div style="text-align: left;">
<span style="font-family: inherit;"><span style="font-size: small;"><span lang="EN-US">But if you draw a broader circle and include these "annoying independent garages" in your ecosystem, you could - as an original equipment manufacturer - start to ask how might we collaborate with these independent garages? Should we offer to manage their spare parts inventories through consignment stocks? Should we provide them specialist tooling and equipment, creating a larger market for proprietary technologies? As the use of telematics and remote monitoring increases, should we - the original equipment manufacturer - sell the engine diagnostic data to independent garages to help them provide better service to their customers? Perhaps the original equipment manufacturer can create a more seamless, integrated and lower cost service for their customers by collaborating with their traditional competitors.</span></span></span></div>
<div style="text-align: left;">
<span style="font-family: inherit;"><span style="font-size: small;"><span lang="EN-US"><br /></span></span></span></div>
<div style="text-align: left;">
<span style="font-family: inherit;"><span style="font-size: small;"><span lang="EN-US">Its only when you start to challenges the assumptions that you hold about how your industry operates and where the boundaries lie that you start to think creatively about the opportunities that are open to you. Taking an ecosystem perspective and broadening your horizon is a great way of thinking about how you might innovate your business model.</span></span></span></div>
</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-15657787484531923052015-01-28T03:20:00.000-08:002016-01-23T02:03:19.095-08:00Business Model Innovation and the Evolving Market for Electric Vehicles<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: left;">
<span style="font-size: small;"><span style="font-family: inherit;">Much has been written in recent years - both about business model innovation and electric vehicles. One of the Cambridge Service Alliance PhD students, Claire Weiller, has been studying the evolving market for electric vehicles - looking at the business models adopted by Better Place in California, <a href="http://www.tepco.co.jp/en/index-e.html" target="_blank">TEPCO</a> in Japan, <a href="https://www.autolib.eu/en/" target="_blank">Autolib'</a> in Paris and <a href="http://www.moveabout.net/" target="_blank">Move About</a> in Norway. Claire's just finished her PhD thesis and I thought it was timely to create a short summary of her research insights. Of course if you want the full story you'll have to: (i) talk to Claire, (ii) read her thesis and/or (iii) have a look at the various reports available on the <a href="http://www.cambridgeservicealliance.org/" target="_blank">Cambridge Service Alliance website</a>. For the sake of efficiency, however, here's a short summary of Claire's key findings...</span></span><br />
<span style="font-size: small;"><span style="font-family: inherit;"><br /></span></span>
<span style="font-size: small;"><span style="font-family: inherit;"><b><i>There's no uniform business model for electric vehicles...</i></b></span></span><br />
<span style="font-size: small;"><span style="font-family: inherit;">The first thing that the research shows is that there is no uniform business model for electric vehicles. The different firms studied adopted different models - ranging from battery swapping (Better Place), fast charging (TEPCO) through to mobility as a service (Autolib' and Move About). Clearly there are different pros and cons to each of these business models.</span></span><br />
<span style="font-size: small;"><span style="font-family: inherit;"><br /></span></span>
<span style="font-size: small;"><span style="font-family: inherit;"><i>Battery swapping as a business model...</i></span></span><br />
<span style="font-size: small;"><span style="font-family: inherit;">The battery swapping business model is based on the premise that the cost of the battery is a significant deterrent to customers buying electric vehicles. So Better Place experimented with a model where customers bought cars, but then leased batteries from Better Place. The idea was that when the battery was running out of charge you could call into a battery swapping station and replace the discharged battery with a fully charged one in less than five minutes. Customers pay a monthly fee for the privilege of using Better Place's services, as well as a charge "per mile".</span></span><br />
<span style="font-size: small;"><span style="font-family: inherit;"><br /></span></span>
<span style="font-size: small;"><span style="font-family: inherit;">Better Place filed for bankruptcy in May 2013 despite having raised $850 million investment. The fundamental flaw in the model was th<span style="font-family: inherit;">e</span> failure to create a standard battery adopted by multiple auto manufacturers. Because the Better Place battery was not widely adopted it became impossible to efficiently manage the range of inventory - different batteries for different marks of vehicle. The battery swapping model could still work, but it requires coordination across the ecosystem, with the vehicle manufacturers agreeing a standard for batteries that would simplify the challenges of logistics and distribution.</span></span><br />
<span style="font-size: small;"><span style="font-family: inherit;"><br /></span></span>
<span style="font-size: small;"><span style="font-family: inherit;"><i>Fast charging as a business model...</i></span></span><br />
<span style="font-size: small;"><span style="font-family: inherit;">One of the barriers to consumer adoption of Electric Vehicles is the issue of range anxiety - the fear that the car won't go as far as you need it to. Couple with this is the time taken to refuel the car (or recharge the battery). If it takes too long and you have to recharge too frequently then clearly Electric Vehicles offering significantly worse performance than regular cars. To address these concerns an alternative business model is fast charging - firms like TEPCO (Tokyo Electric Power Company) are investing in technologies to speed up the time take to recharge batteries. Today's fast-charging technology allow a 100-mile electronic vehicle with 24kWh of storage to fully charge in less than 30 minutes. Even 20 minutes gives an 80% recharge. TEPCO - through its CHAdeMO fast-charging connector - have been trying to shape an international standard for fast-charging technologies. They appeared to be making good progress, but were blown off course by the Fukushima tsunami that <span style="font-family: inherit;">severely</span> damaged four of TEPCO's six nuclear reactors. The subsequent clean up costs and the decision to shut down nuclear reactors in Japan have put an enormous financial burden on TEPCO and so their efforts recently have been diverted.<i> </i></span></span><br />
<br />
<span style="font-size: small;"><span style="font-family: inherit;"><i>Mobility as a service...</i> </span></span><br />
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</style><span style="font-size: small;"><span style="font-family: inherit;">The final business model studied concerned mobility as a service. Both Move About (Norway) and Autolib' (Paris) were examples of this. Under the mobility as a service business model customers does not take ownership of the product, but instead pay for the right to use the product - through a monthly subscription fee - supplemented by a time-based usage fee. The context for both Autolib' and Move About is interesting. Autolib' is heavily supported by the Marie de Paris and focuses its service on Paris and the surrounding 63 municipalities.
<span lang="EN-US">Bolloré, an industrial conglomerate with
activities in transport, infrastructure and logistics, won the contract to support Autolib' and provides the cars, as well as the charging infrastructure. The density of Paris - 105</span><span lang="EN-US">
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-</style></span><span lang="EN-US">km<sup>2</sup></span><span lang="EN-US"> versus London with 1,570</span><span lang="EN-US">
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--></style></span><span lang="EN-US">km<sup>2</sup></span><span lang="EN-US"> - means that a car with a 250 km range covers almost 100% of daily drivers needs. Move About, based in Norway, also benefit from natural resources that make electric vehicles more appealing. In Norway's case there is a significant over-capacity in hydro-electric power. This means that spare electricity is relatively cheap and so the costs of operating electric vehicles drop significantly.</span><b><i><span lang="EN-US"> </span></i></b></span></span><br />
<br />
<span style="font-size: small;"><span style="font-family: inherit;"><b><i><span lang="EN-US">Fit between business model, ecosystem and environment is the key to success...</span></i></b><span lang="EN-US"> </span></span></span><br />
<span style="font-size: small;"><span style="font-family: inherit;"><span lang="EN-US">One of my key take aways from this research is the importance of the fit between the business model, the ecosystem and the broader natural environment. Autolib' and Move About's relative success are a function of small and dense distances for travel - e.g. Paris and its immediate surroundings - coupled with cheap (or subsidised) and plentiful energy supply. Better Place failed because it didn't engage its ecosystem partners - it could not create the standard battery. TEPCO failed because of a natural disaster which diverted attention elsewhere. Without these interesting experiments and forays into new business models we'd never learn which worked best, but without alignment between the business model, the ecosystem and the broader environment, its clear that firms struggle to survive.</span></span></span></div>
</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-28500265427571331962014-10-11T01:08:00.000-07:002014-10-11T01:13:10.588-07:00GE, The Industrial Internet and the Battle to Come<div dir="ltr" style="text-align: left;" trbidi="on">
During Cambridge Service Week this year we heard from Stefan Bungart, Leader of GE Software Europe. Stefan talked about GE's development of a new services platform - Predix. Think of the iStore, but for the industrial internet. GE's position is that it wants Predix to become an openly available platform that can host apps developed by others - apps that are used to remotely monitor and manage machines and equipment, indeed any device connected to the internet - hence the industrial internet.<br />
<br />
You could argue that Apple, Facebook and Google have largely sewn up the business to consumer internet - they are the dominant platforms. Other platforms may emerge, but they face an uphill battle to overcome the incumbent players. The industrial internet, however, is still wide open. We don't yet have any dominant players and they may never emerge. However, manufacturing firms across all sectors recognise the way the world is moving. More and more devices are being connected to the internet. These devices are feeding data back to central control hubs and the best of these are using the data to make predictions about product performance and how this can be optimized, as well as using the data to inform future generations of product design. The question - hence the battle to come - is which firms will dominate the industrial internet.<br />
<br />
GE has already declared its intent - in 2015 the Predix platform will be made publicly available. Jeff Immelt, Chairman and CEO of GE is quoted as saying "the more we can connect, monitor, and manage the world’s machines, the
more insight and visibility we can give our customers to reduce
unplanned downtime and increase predictability. By opening up Predix to
the world, companies of any size and in any industry can benefit from
the investments GE has made by eliminating the barrier to entry". What he doesn't say is what happens to the data that all of these devices generate as it passes through the GE platform. GE is reported to use 10 million sensors to monitor daily 50 million data points across $1 trillion of managed assets. The businesses order backlog is around $180 billion - a number that continues to grow as the installed base of GE assets and those that GE helps monitor increases in size. Will GE be the equivalent of Apple, Facebook and Google for the industrial internet or will someone else seize this market? Potential competitors from the software, applications and consulting industry might include IBM, Microsoft or Tata. From an industrial perspective the smart money might be on Hitachi, Samsung or Siemens. How about Apple, Google or Facebook? Can and will they make the transition to the industrial internet?<br />
<br />
The jury's out on how this opportunity will develop, but one thing is clear. The battle for the industrial internet will heat up in the next few years. The potential for innovation and greater efficiency in product and service design, as well as operation and maintenance is too great. The winners of this race will have access to unparalleled data that if used insightfully will drive significant service efficiency and innovation. Firms will still have to deliver great service - they'll have to get the basics right - but they'll do so from a rich and data-informed position that will put them ahead of the rest of the pack and so confer significant competitive advantage.</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-90779326945509079212014-08-26T17:14:00.000-07:002014-08-27T03:38:51.838-07:00Creating Great Service Experiences: United (not even close) versus BA (great, eventually)<div dir="ltr" style="text-align: left;" trbidi="on">
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One of the great things about researching services is that every interaction
I have with an organisation offers a new opportunity to observe what services they
deliver and how well they deliver them. The last 24 hours has been one long
lesson in service excellence (or the lack of it). Yesterday I had to fly from
Denver to Chicago and then on to London. The Denver to Chicago leg was with
United. The Chicago to London leg with BA. Just to give a sneak preview of
where this is going - although I left for Denver airport around 30 hours ago, I
am still in Chicago! Let me explain why and then ask what we can learn from
this experience.<br />
<br />
I arrived at Denver Airport at around 12:30pm on Monday, managed to clear
security and get to my gate area by around 12:45pm. After a quick lunch, I made
my way to the gate and was invited to board the United flight shortly after
14:00. Once everyone had got on the plane and sat down a member of cabin crew
announced "the pilots for this plane have been held up. They are not going
to be here for another hour so we are going to deplane you all. If you have
connecting flights we suggest you go to the United help desk". Having just
boarded 300 people, United then deplaned 300 people. You can imagine the queue
at United customer services - strange that they only had two people on the
desk. At one stage one of the reps left the desk and walked passed me. I said,
"excuse me" and he just said, "I have to go to the bathroom and
ran away". When he came back he walked right past me, so I said once again
"excuse me". This time he had no choice but to stop and I asked why
there were only two people on the service desk. He replied, "I don't
control staffing". I said, "So is there a manager we can talk
to". He said, "I don't know where she's at" and walked away.<br />
<br />
I never made the front of the queue to talk to customer services as we were
called away to board the plane again at around 15:30. By 15:40 I was back in my
seat and at 15:45 the cabin crew announced the pilots had arrived and were
getting the plane ready. At 16:00 the captain came on the tannoy - he was the
first (and only) person from United to apologise for the earlier mess up and
the delay. Then he said, "I've got bad news, they've closed Chicago, so we
are going to be sitting here for 50 minutes. I am going to keep you on the
plane until I get another update from Chicago and then we'll decide whether to
deplane you for a second time".<br />
<br />
Thirty minutes later and we've got a new route to Chicago, so the plane
starts moving. While we've been waiting I've been trying to get the gate agent
to get a message to British Airways saying I'm going to be pushed to catch the
flight, but the gate agent is not interested in helping me - after all British
Airways are in a different alliance to United! To make up for the delay the pilot enabled
"free TV" on the plane, but every time an announcement was made the
announcement drowned out the movies and the film didn't pause. That coupled
with the incessant advertising breaks didn't make free TV a great experience
either.<br />
<br />
We finally arrive at Chicago at 20:03 (amazingly the time that one member of
cabin crew hinted we were going to arrive about four hours earlier, when we
kept getting told that we would be there by 19:00 and then 19:30, etc) -
promise after broken promise. As soon as we arrive I turned on my phone to be greeted by a series of texts from United telling me the plane was going to be late. I knew that - I was on the plane. What a great system United flight updates is - what's the point of sending flight updates by text to passengers who are flying on planes and therefore have to have their phones turned off?<br />
<br />
On arrival at Chicago I got off the plane, made my way to terminal 5
as fast as I could to find no British Airways staff available (they'd gone
home) and although I cleared security, they BA staff had also left the lounge and shut up shop for the night. So I was
stranded at Chicago. No way of re-booking a flight - the BA call centre was
closed (I checked). No interest from United - they'd got to Chicago and now I
wasn't their problem anymore.<br />
<br />
Given the general chaos finding a hotel with a spare room was not
straightforward, but I finally found one, made my way there and went to sleep
at around 1:00am. At 4:00am I work up and called British Airways in the UK -
their first response was "sorry, you've missed your flight, but we can't
do anything. You didn't show up so we off loaded you. You'll have to buy a new
ticket". I pointed out that flew with BA a lot, had a gold card for their
frequent flier programme and could easily take my business elsewhere. At which
point the guy I was speaking to went off to talk to his boss and came back a
couple of minutes later saying "on this occasion and in recognition of
your loyalty to British Airways, we'll get you on another flight. There's no
space today (Tuesday), but we can get you out on Wednesday.<br />
<br />
So now I'm in my hotel, I've checked in for tomorrow's flight and I'm
wondering what BA and United come have done differently. Let's start with
United - it’s not just the raft of broken promises. They were compounded by the
operational chaos - not having pilots, not realising that when pilots came in
on a delayed flight they might be "illegal" and not allowed to fly
anymore. Predicting this isn't hard and then you enact your contingency plans
to get spare pilots to the airport. United just didn't seem to have any
contingency plans. It was as if they'd never encountered bad weather before -
everything was a surprise to them and they just hadn't thought about how to
manage service recovery. Having two staff to deal with 100 people trying to
rebook flights is ridiculous. As for British Airways, I was really frustrated
that nobody from the airline was in the airport to help passengers who were
bound to have missed their flights. I was really frustrated, although not
surprised, when they told me it was my problem and I'd have to book another
flight. But I was really delighted when they relented and booked the flight for
me - they've increased my loyalty to the airline. As for United - well they
claim they are great at social media - just look at the stream of complaints
they deal with daily on Twitter! The problem is I want my airlines to be good
at delivering their core service - getting me from A to B when they promise to
and when things go wrong recovering the situation fast. Maybe United should
spend a little less on social media and a little more on being brilliant at the
basics - getting their service right.<br />
<br />
A postscript - so what could have made this a fantastic customer experience? Imagine one simple thing. BA knew I was planning to catch the flight to London - I'd already checked in online and accessed my boarding pass. If you miss a plane that you've checked in for chances are something untoward had happened. How would I have felt if upon arrival at Chicago I'd received a text from BA saying - really sorry to have to inform you that we have offloaded you from the London flight because we had to leave without you. We hope everything is OK, as its unusual for you to miss flights (I have never missed a BA flight before and they know this from their records. They also have all of my contacts details on file so the text would have been easy). The final part of the message could have said - "if there's anything we can do to help please call us. That simply act of communication would have changed my mood and attitude completely. I still think British Airways did a great job in the end, but with one small additional act they could have converted me to a customer for life.</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-76335169676627372182014-05-29T08:08:00.000-07:002014-05-29T08:08:02.577-07:00Is servitization for everyone?<div dir="ltr" style="text-align: left;" trbidi="on">
One of the questions I have been asking my students recently is whether "servitization is a strategy for everyone". Effectively I ask them to take any product they wish and develop an idea for a service that is directly related to the product. The students have come up with some great ideas. One group developed a business model for renting umbrellas. Imagine having umbrella rental kiosks at busy main line stations in London. You arrive at Kings Cross, without an umbrella, only to find it is raining. Rather than buying an overpriced umbrella in a local store, you can rent one for a day and if you don't return it, you forfeit your deposit, but are then allowed to keep the umbrella. Another group developed a business model for exchanging baby products - a store where you could buy second hand cots, toys and prams (all of which had been fully refurbished and reconditioned). As your baby grows older and bigger the store would take back products you no longer needed and sell you a new set - a child's bed rather than a cot or toys for a three year old, rather than a new born baby. Any products you returned to the shop would be refurbished, reconditioned and sold on to a new set of parents. Yet other groups have suggested technologically enabled services. One team came up with the idea of machine tool manufacturers offering environmental monitoring services. This group proposed that firms should couple an energy monitoring service with the machine tools they sell. In essence the manufacturer of the machine tool would provide guidance and advice on how to reduce energy consumption of capital equipment.<br />
<br />
While the ideas themselves are interesting, one of the things that I have found most fascinating is that nobody has yet come up with a product that could not be accompanied by a service. Luxury goods - where ownership might confer status - are appealing as rental items. Why own that fantastic diamond necklace (and carry the risks and costs associated with ownership of a very valuable piece of jewellery) when you can rent whatever jewellery you want for particular events. A counter argument might be that jewellery as a gift is important. If I told my wife that I had rented our wedding ring rather than bought it for her I might get short shrift. But the jeweller who sold me the ring offers a reconditioning service, a personalisation service and could offer a consultancy service, providing advice on which product to select.<br />
<br />
Move to the other end of the scale and think about commodity products. Take something as simple as a paperclip. What service could be associated with paperclips? At first blush this appears to be a more challenging question. Paperclips are so plentiful and cheap that it is more difficult to conceive a service. But think about how many paperclips are wasted, taken off sheets of paper and dropped in the bin or put in that jar that sits on your desk and gradually fills to overflowing. What about a service centred around paperclip recycling, where unwanted paperclips (like spent batteries) are collected and returned to source. What about paperclips with RFID tags on them - paperclips that could provide location information so you would never again lose that important document in a pile of paperwork!<br />
<br />
The more I think about it, the more I feel that the world of services and solutions is endless. Some of my academic colleagues argue that products are only ever a means to deliver services. I wouldn't go quite that far, but I think it is right to say that all products can be supported or supplemented by services. I'd be interested to hear of examples of products that you think it would be difficult to support or supplement with services.</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-19934739092360090242014-03-01T04:08:00.001-08:002014-03-01T04:08:45.011-08:00The Big Data Revolution: What Happened to Data Quality?<div dir="ltr" style="text-align: left;" trbidi="on">
There's a wonderful irony in the world of Big Data Analytics. At a time when interest in Big Data appears to be growing exponentially, it appears that some are forgetting the fundamental challenges of Data Quality. A quick Google Trends analysis highlights the point. The chart below shows two trend lines extracted from Google Trends. The line in blue reflects the popularity of searches for Big Data, while the line in red shows the popularity of searches for Data Quality. It is important to note that the lines show relative popularity, not absolute volumes of search terms. In fact, Google Keywords suggests that in absolute terms searches for Big Data are about 20 times as popular as searches for Data Quality.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4PEQx9OgZo_Btr0hTaoujPD0NccXWzKaGyp2_qdV5puPl_q92lLCcNj3UIF_XlFZ97JpHkRfhY3I_S5ecEa4F_d6EtlzJGDJQDMWjzD0hEhRXVdxsSSf8SKQIKBnzv-p8SVeZYs4rk0Vi/s1600/Big+Data+versus+Data+Quality.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4PEQx9OgZo_Btr0hTaoujPD0NccXWzKaGyp2_qdV5puPl_q92lLCcNj3UIF_XlFZ97JpHkRfhY3I_S5ecEa4F_d6EtlzJGDJQDMWjzD0hEhRXVdxsSSf8SKQIKBnzv-p8SVeZYs4rk0Vi/s1600/Big+Data+versus+Data+Quality.png" height="230" width="640" /></a></div>
<br />
This raises an interesting question - what's happened to Data Quality? At a time when organisations are becoming ever more interested in using their data to create performance insights and predictions, interest the Data Quality appears to be declining. Is this because Data Quality is no longer an issue?<br />
<br />
I don't think so. On three separate occasions in the last week alone I have been involved in discussions with senior managers from some of the world's leading manufacturing and service businesses. Each time, the issue of Data Quality has come up loud and clear. These firms recognise the potential of Big Data and Analytics, but are realistic enough to know that unless they sort out their data fundamentals - unless the track the right things and make sure the raw data if accessible and of high quality, all of the Big Data Analytics in the world is not going to help them. That's why - in the <a href="http://www.cambridgeservicealliance.org/" target="_blank">Cambridge Service Alliance</a> - one of our projects this year is focusing on creating a data diagnostic - a methodology that can be used to check whether the data you have access to is appropriate and can be better used to optimise the delivery of your services and solutions. We're in the process of testing this data diagnostic at the moment and would love to hear from you if you'd be interested in being one of the pilot test sites.</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-7302108202645332412014-01-07T01:10:00.000-08:002015-02-03T00:33:49.936-08:00Innovating Your Service Business Model: The Capabilities to Succeed<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="margin: 0cm 0cm 0.0001pt; text-align: left;">
<span style="color: black;">One of the themes we have been exploring in the Cambridge Service
Alliance is the question of how organisations best innovate their service
business models. In some of our early work Ivanka Visnjic and I developed a
framework of 12 capabilities that underpin successful service business model
innovation. Since then we have been developing and iterating this framework,
creating a maturity model that firms can used to assess the maturity of their
capabilities for innovating their service business models. It seemed to me that
it would a good idea to write a series of blogs on this framework and the
twelve capabilities that underpin it - so here's the first one - explaining the
framework.<o:p></o:p></span></div>
<div style="margin: 0cm 0cm 0.0001pt; text-align: left;">
<br /></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<span style="color: black;">In essence our research suggests there are four categories of
capability that really matter when it comes to innovating the service business
model. These are: (i) the ecosystem; (ii) the value proposition; (iii) the
value delivery system and (iv) accountability spread. Let me explain these in
turn.<o:p></o:p></span></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<br /></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<span style="color: black;">The first set of capabilities are concerned with the<span class="apple-converted-space"> </span><b>ecosystem</b><span class="apple-converted-space"> </span>- increasingly competition is taking
place at the level of the ecosystem, not the individual firm. In today's
interconnected economy, what matters is the way the ecosystem is configured and
how your firm is positioned to capture value from it. Apple and HP illustrate
the point. If you ask the question - "of the $1,000 someone pays for an
Apple or HP machine, who gets the money" - you find that Apple keep
60-70%, while HP keep only 30%. Why the difference? Because Apple use their own
proprietary operating system (they don't cede money to Microsoft), they use
their own chip (they don't cede money to Intel) and they have created their own
distribution infrastructure (they don't cede money to the retailers).<o:p></o:p></span></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<br /></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<span style="color: black;">So what can HP do? It is too late for them to develop their own
operating system or get into chip manufacturing. Both technologies are too well
established, with large incumbent players and high barriers to entry. The cost
of establishing a retail infrastructure, certainly a high street retail
infrastructure, is prohibitive. But what they can do is invest in Linux. If HP
help Linux become a more dominant operating system then Linux reduces
Microsoft's power in the marketplace and hence their ability to appropriate
value, leaving more of the money on the table for HP. And in fact, it is in the
interests of all of HP's traditional competitors to increase the power of
Linux. So if HP collaborates with other laptop manufacturers, then collectively
they can try to shape the ecosystem and their ability to capture value.<o:p></o:p></span></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<br /></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<span style="color: black;">It is not just the ecosystem perspective that matters. The second
theme that we saw in our research was the importance of innovating the<span class="apple-converted-space"> </span><b>value proposition</b><span class="apple-converted-space"> </span>- really understanding what the
customer valued and the outcomes they were looking for. There's an old Theodore
Levitt quote - "customers don't want quarter inch drills, they want
quarter inch holes". We don't think this is right. Customers don't
even want quarter inch holes. When innovating your value proposition you have
to understand why the customer wants the quarter inch hole. If it is to hang a
picture, then how else might the picture be hung - you could glue it to the
wall. You could invite an artist in to paint the picture on the wall. The key
to innovating you value proposition is to understand deeply what your customers
really value.<o:p></o:p></span></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<br /></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<span style="color: black;">Beyond the value proposition, the third category of capabilities
centred on the<span class="apple-converted-space"> </span><b>value delivery
system</b>. Here we are shifting into the question of how do we configure the
resources and activities required to deliver the value proposition. What should
we do? What should we ask others to do? Many of the services firms deliver
today require networks of organisations to pool their capabilities.
Understanding the right network structure and identifying the right partners is
essential when innovating the service business model.<o:p></o:p></span></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<br /></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<span style="color: black;">Finally, we shift to capabilities concerned with<span class="apple-converted-space"> </span><b>accountability spread</b>. Here the
idea is that by taking on responsibility for the outcomes your customers want -
you increase your risk and exposure. By innovating the value delivery system -
either through technology or partnering with others - you may decrease the
control you have over the ecosystem. Hence you have increased your
accountability, but potentially reduced your control - hence you may have
increased your risk or accountability spread. Understanding the implications of
this and how the risk will therefore be managed is paramount if the service
business model is to be sustainable.<o:p></o:p></span></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<br /></div>
<div style="-webkit-text-stroke-width: 0px; margin: 0cm 0cm 0.0001pt; orphans: auto; text-align: left; widows: auto; word-spacing: 0px;">
<span style="color: black;">These four categories of capability - ecosystem, value
proposition, value delivery system and accountability spread - form the highest
level of our framework for understanding business model innovation. In future
blogs I'll unpack each of these categories in turn and explain the capabilities
that underpin them.</span></div>
</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-34934662848993083702013-11-30T05:01:00.000-08:002015-03-23T03:24:24.320-07:00What is Servitization?<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="margin: 0cm; text-align: left;">
<div class="MsoNormal">
<span lang="EN-US">I've had a couple of occasions in the last
week where I've used the word "servitization" - either in a
presentation or an article and someone has responded by saying, "so what
is servitization". Given the frequency of the question I thought it might
be worth writing a short blog to explain what servitization is and where the
idea came from.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span lang="EN-US">In essence servitization is a
transformation journey - it involves firms (often manufacturing firms)
developing the capabilities they need to provide services and solutions that
supplement their traditional product offerings. More formally, my colleagues
and I at Cranfield University defined servitization as "the innovation of
organisation’s capabilities and processes to better create mutual value through
a shift from selling product to selling Product-Service Systems". Two
other definitions accompany this: (i) the idea of a product-service system -
"an integrated product and service offering that delivers value in
use" and (ii) a "servitized organisation which designs, builds and
delivers an integrated product and service offering that delivers value in
use".<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span lang="EN-US">It is worth unpacking these definitions a
little, but before I do, let me give a couple of practical examples of
servitization. The first, and classic, example is Rolls-Royce selling
"power-by-the-hour". Instead of selling aero engines, Rolls-Royce now
contracts with many of its customers for "power-by-the-hour". In
essence the customer buys the power the aero engine delivers and Rolls-Royce
provides all of the support (including maintenance) to ensure that aero engines
can continue to deliver power. This shift in business model is important
because it means the interests of clients and providers are much more closely
aligned. In the olden days Rolls-Royce used to make money on time and materials
- basically repairing engines. Put crudely the worse the engines were, the more
maintenance they required, so the more money Rolls-Royce would make. Of course
customers don't want unreliable engines that are always in the repair shop.
They want reliable products that - in Rolls-Royce's case - allow planes to fly
safely.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span lang="EN-US">This same trend - selling solutions rather
than products - can be seen in lots of industries. In healthcare, for example,
many pharmaceutical firms are under significant pressure. The cost of
developing drugs is increasing, many of the traditional drugs are coming off
patent and so the generic manufacturers can move into the market. As a
consequence pharmaceutical firms are rethinking their business models -
defining themselves as healthcare solutions providers. Think like a patient -
most of us don't want the products that pharmaceutical firms provide. We'd
prefer not to be ill in the first place. So if someone can provide healthcare
solutions, which reduce the likelihood of illness, the interests of providers and
customers are again much more closely aligned.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span lang="EN-US">So let us return to the definitions. To
make this transformation - to sell services and solutions - requires
significant change inside many traditional manufacturers. They have to
recognise that the product is a platform to deliver a service. They have to
build solutions that deliver the outcomes their customers want and value. In
essence these solutions are often capture in product-service systems,
combinations of products and services. Customers only realise value from these
when they actually receive the service - hence the concept of value in use.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
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<span lang="EN-US">Servitization as a word has been around
since the late 1980s. The most frequently source article is cited as
Vandermerwe, S., & Rada, J (1988) "Servitization of Business: Adding
Value by Adding Services", European Management Journal, 6(4), 314–324. An
article that appeared, but has only relatively recently been getting more
attention in the broader academic literature and business press. A recent
high-profile example, is UK Government's Foresight Report on the Future of
Manufacturing - which identifies servitization as a core element in its vision
for the future of manufacturing.</span><br />
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<span lang="EN-US"><o:p><br /></o:p></span>
<span lang="EN-US"><o:p>If you'd like to know more about servitization and my latest thinking on the topic why not join me for the Cambridge Service Design Programme: <a href="http://www.cambridgeservicealliance.org/education/executive-education-courses.html" target="_blank">Making the Shift to Services</a> - scheduled for 6-7th May. It would be a pleasure to see you there.</o:p></span></div>
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Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com16tag:blogger.com,1999:blog-7553540756310570387.post-44047179785857557452013-09-10T00:51:00.000-07:002013-09-10T00:51:02.258-07:00Struggling to make the shift to services? Write your own obituary!<div dir="ltr" style="text-align: left;" trbidi="on">
It is clear that organisations across the globe are making the shift to solutions. Often the ultimate aspiration is providing the outcomes the customers (and in some some cases the customer's customers) want and need. Often this journey is described in terms of a service ladder - gradually moving from providing products to supporting the products with spares; through to remote or condition based monitoring; and finally onto contracting for capability or outcomes. While a logical flow and an inherently attractive proposition, successfully making this shift to solutions in reality is challenging. A critical issue is winning the hearts and minds of people who are used to a world of products. If you've always worked in a product or technology centred business then a commonly heard fear is "won't services cannibalise the product business" or put more directly "aren't we sowing the seeds of our own destruction - we'll kill the product business if we are too good at offering solutions".<br />
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Hearts and minds are always difficult to win, but one useful trick is to play on this fear. Recently we have been experimenting with asking organisation's to write their own obituary. The exam question we set is "write or record a short obituary for our services business. Imagine we are five years down the road and we haven't made our services business work (while all of our competitors have). What would the press be saying about us? What would they put our failure down to? Who would get the inheritance (e.g. which competitor gets our business and why)".<br />
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A simple trick, but the responses that are generated are both illuminating and in some cases humbling. Senior executives start to verbalise ideas like "ACME Inc has divested all of its remote and condition monitoring efforts and sold them to Monitoring-R-Us, a private company specialising in industrial solutions". Five themes consistently shine through these obituaries - the failure of the organisation concerned to keep pace with change; the inability to break away from the product-dominant culture; the need to get closer to customers and really understand their businesses; the reluctance to make the necessary investment - dabbling rather than committing to services and solutions; and missing the opportunity that the era of big data and sensors offers. In another blog I'll try to write more about these issues, but in the short-term if they strike a chord with you, join us in Cambridge on 1st October for the Cambridge Service Alliance conference - "<a href="http://www.cambridgeservicealliance.org/serviceweek2013/industryday.html" target="_blank">Successfully Making the Shift to Solutions</a>" - where we'll hear from organisations that are making the shift and overcoming the barriers. </div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-68736317566582333982013-08-30T04:54:00.001-07:002013-08-30T04:54:24.506-07:00Performance Planning: Why Is It Always Left to Right?<div dir="ltr" style="text-align: left;" trbidi="on">
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Language and processes matter in the world of performance management. Yet far too often we take the status quo for granted. Take, for example, the phrase "performance management". Numerous organisations are seeking to improve their performance management processes, but are they really focusing on the right issues? Performance management smacks of managing past performance - taking corrective action to ensure we hit our targets. Sure, this is important, but how much effort are organisations putting into performance planning - planning future performance, rather than managing past performance?</div>
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Some would argue that shifting your focus from performance management to performance planning is a trivial change of language, but think about the behaviours performance management provokes in your organisation. Often people get very defensive when it comes to performance management. They see the aim of the game as demonstrating to their managers that they are on top of things. They have everything under control. There's nothing to worry about. Bad news can get swept under the carpet and fundamental issues can go unresolved for years.</div>
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Contrast this rather defensive behaviour with the idea of performance planning - planning for future performance. No longer is the focus on what has happened and why it has happened. Instead performance discussions focus on where we want to be and how we are going to get there. Sure we'll still need to talk about why we are where we are, so we can understand what to do differently in the future. but the performance conversations become more constructive - no longer are they defensive, reviewing past performance. Instead they focus on the future and where we want to go.</div>
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If you start down this route then some interesting issues open up. Many measurement system design methodologies (including ones we have developed) start from the classic vision-mission-objectives approach. The methodologies ask you to think about where you want to be, how you are going to get there and how you'll track your progress. These are all eminently sensible questions, but in essence they are left to right questions. Start with the vision, define the the objectives, specify the targets, elaborate your initiatives and execute. An alternative (or complementary) approach is to plan right to left, or at least to check the validity of your performance plans by working right to left. Right to left planning involves looking at the detail and asking yourself if we deliver all of these plans and initiatives what will they add up to? Will they deliver the results we want? Right to left planning is a great way of checking the validity of your left to right plans. Checking whether you'll achieve the performance you want to.</div>
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If you want to check the robust of your approach to performance planning, just ask yourself three simple questions: (i) do we have the balance right between performance management and performance planning - or are our systems tilted either towards reviewing past performance or planning future performance; (ii) do our performance systems provoke open and constructive debate or do they drive defensive and potentially destructive behaviour - have we got the balance right between accountability and creativity in our performance systems; and (iii) how well do we validate our plans once developed - do we do the right to left sense check to establish whether all of the individual projects and activities we are going to undertake will add up to the overall plan we are setting out to achieve? If you are not confident that your performance systems are working well against any of these criteria, maybe it's time to take another look at how you approach performance planning.</div>
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Andy Neely</div>
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Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-29287314420126429662013-06-13T05:03:00.002-07:002013-06-13T05:03:45.454-07:00Trading off service experience and service efficiency<div dir="ltr" style="text-align: left;" trbidi="on">
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I have just been at the QUIS2013 conference in Karlstad, Sweden. The final session was a panel discussion with the title "Small Details: What They Are and Why They Matter". The panels, which included a mix of academics and managers, started by providing a few examples of small details and why they matter is services. Janet McColl Kennedy, a Professor from the University of Queensland, told a story about an elderly person in a care home, who when asked "what could we do to make your life better", replied "let me have a real cup of coffee in the morning". The chair of the panel (Professor Ruth Bolton from Arizona State University) countered, by saying "I'm Canadian, so for me it would have to be tea". This short exchange illustrated the importance of small details. To get the service right you have to deliver services which are personalised, contextualised and time dependent. Manfred Dasselaar, a service manager at Ericsson, built of this theme, describing the challenge of getting customers to understand how hard Finnish engineers were working on solving their queries when the customers and engineers were not co-located. He gave the example of a conference call involving Finnish engineers and their external customers. The customers were getting frustrated that they were not getting much from the engineers (they weren't communicating much, but then they were Finnish). Because the customers were not in the room they could not see that although they were not talking much, the Finnish engineers were sharing images and data on their computer screens - screens that the customers could not see. Once the customers understood how the engineers were communicating and how hard they were working on solving the problems, they became much happier. Again an illustration of how small details can influence the service experience.</div>
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So who delivers these small details and how do they make sure they are time, person and context dependent? Often the staff at the front line - often the least trained and least well paid people in the organisation, but those closest to the customers. Should we give these staff more autonomy? Should we train them and seek to create an organisational culture which allows service providers to personalise the service experience? At first blush the obvious answer is yes - this might provide a new and sustainable way of competing. But there are three issues with this first blush response. First, by personalising the service we can increase the cost and complexity of the service - we lose the efficiency gains that can be driven by standardisation and commoditisation. Second, by personalising the service we can create inconsistencies in customer experiences. If every time you are served by a different server and you get a slightly different personalised version of the service then how frustrated do you become when one server fails to do that special thing for you that the previous server did. Third, the more we use technology in services, the more we end up standardising the service. This drives efficiency, but does it deliver the best customer experience? Are automated voice systems better than talking to real people?</div>
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It seems to me there's a careful service design and delivery tradeoff to be understood here. Clearly personalising services and tailoring them to individuals in time and context can enhance the service experience, but at what cost in terms of efficiency and consistency? In designing and delivery services we need to be clear about the boundaries - where the scope for personalisation lies and where we should standardise and control. Going too far in either direction is going to result in disaster.</div>
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Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-75147284896294066282013-04-13T04:47:00.000-07:002013-04-16T00:33:43.185-07:00Beyond Servitization: What's Next?<div dir="ltr" style="text-align: left;" trbidi="on">
I received an e-mail out of the blue from the leader of a company in Taiwan who asked the very thought provoking question "what is your prediction for the next revolutionary business model after the servitization of manufacturing". Rather than reply privately I thought I'd offer some public thoughts.<br />
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The first to say is that I don't think "servitization" is a business model - instead I see servitization as a transformation journey. Servitization is concerned with building the organisational capabilities and processes required to design, deliver and innovate high-performance product-service solutions. A business model is slightly different - it defines how you create and capture value through appropriate value propositions and delivery systems that operate within a broader ecosystem. A good business model also considers the risk or accountability spread that your organisation is exposed to through this combination of value proposition, value delivery system and ecosystem evolution.<br />
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Having said this, I understand the point behind the question, namely what business model options do manufacturing firms face post servitization? I'd break my answer to this question into two parts. First, I would think about the elements of the business model and ask what scope is there for change in terms of: (i) the value proposition; (ii) the value delivery system; (iii) accountability spread; and (iv) the ecosystem. Second, I'd think about whether there may be radically different business models at the aggregate level. The answer to the second question is relatively short, so I'll start with this one and simply say "I think its unlikely that we'll see radically different generic business models". Indeed one could argue that today's seemingly different business models are a rehash of old models. Take, for example, business that make money by attracting eyeballs and selling advertising - Google, Facebook, etc. Well TVs and newspapers have been doing that for years. The medium is different, but the base business model is the same.<br />
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So let me move to the more detailed level. Here I think we will see innovation - particularly in terms of the value delivery system; the accountability spread and the ecosystem. When it comes to value propositions I think most people understand the shift to outcomes - that organisations have to think clearly about what outcomes their customers really want and how they can then deliver these outcomes, rather than products or services. Where there's scope for innovation is in the value delivery system. Increasingly technology is playing a role in allowing organisations to innovate the way they configure the resources they use to deliver their products and services. Remote asset monitoring and diagnosis - using sensors and satellite infrastructure to monitor assets in the field and then diagnose potential maintenance requirements is becoming more widespread. In the education world, remotely monitoring student progress through online courses and intervening only when students seem to be going off track, allows schools and universities to focus teacher and faculty time on those students who most need support. Remote health monitoring technologies are revolutionising medicine and healthcare. Wearable devices can monitor the vital signs of individual patients letting doctors and hospitals intervene only when necessary. In essence the first wave of business model innovation we are seeing concerns innovations in the value delivery system - looking for new ways of combining and configuring resources to ensure value is delivered to customers as efficiently as possible.<br />
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The second theme we'll see is a greater understanding of the risk and associated accountability spread. As organisations innovate their business models and take responsibility for outcomes they also take on risk. As they innovate their value delivery systems, often partnering with others, they reduce their own level of control. Both of these activities increase the risk or exposure of the contracting organisation. Too often today organisations cope with this increased risk and exposure by increasing their prices (and hence safety margins). Technology will help organisations get a better handle on the risks they really face and how these risks can be mitigated and as a consequence we'll get more sophisticated about how we price risk.<br />
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The third and final theme we'll see is greater innovation at the level of the ecosystem. Competition won't solely focus on your direct competitors. Instead firms will explore what role they should play in the broader ecosystem and how they can shape the ecosystem. Apple is one of my favourite examples here. By opening up the technology required to develop apps, Apple has encouraged a community of apps developers. If you have a large community of apps developers then you get lots of cheap apps - the individual apps end up competing on price as there's always a similar app to yours on offer. So the hardware - the iPad, iPod and Mac - becomes more valuable because it is the route to access lots of cheap Apps. When it comes to business model innovation we'll see more and more firms thinking this way - how do we shape the ecosystem to help us better create and capture value.<br />
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So back to the original question - "what is your prediction for the next revolutionary business model after the servitization of manufacturing". The short answer is that I don't believe we'll see radically new business models, but I do think we'll see radical innovations in the elements that make up business models - particularly in terms of the the value delivery systems, the accountability spread and the broader ecosystem.</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com1tag:blogger.com,1999:blog-7553540756310570387.post-60799620452332716832013-04-09T00:23:00.001-07:002013-04-09T00:23:57.251-07:00The Installed Base: How Well Do You Understand the Opportunity?<div dir="ltr" style="text-align: left;" trbidi="on">
In a previous blog I talked about the reasons why firms servitize. One important reason is the installed base - the ratio of new product sales to installed equipment. In mature industries these ratios can be significant. Figures often quoted include an installed base of 13:1 for cars, 15:1 for civilian aircraft and 22:1 for trains. That is for every new train sold, 22 are already in operation and available for service and support. Consider that trains have a working life of between twenty and thirty years and you can see why the installed base offers a significant business opportunity. Indeed in many sectors, the rule of thumb used is that a product will consume 3-4 times its original purchase value through its operating life in terms of spares and consumables. So a $1 million dollar piece of construction equipment will consume between $3-4 million in consumables and spares over its thirty year operating life.<br />
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Researchers at the Cambridge Service Alliance have recently been looking at the installed based, seeing what data we can gather to understand the size of the installed base in different sectors. Our preliminary analysis suggests that the traditionally quoted figures underplay the size of the installed base in some sectors, especially aerospace. Take, for example, US aerospace - in 1995 there were 212,000 US aircraft in operation (both military and civil). In the same year 2,441 new aircraft were shipped, giving an installed base ratio of 87:1. By 2005 there were 246,000 US aircraft in operation, with 5,426 new aircraft shipped, giving an installed base ratio of 53:1.<br />
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While both figures (87:1 and 53:1) are considerably higher than the figure traditional quoted (15:1), the reduction in the ratio is interesting. One might expect that the installed base ratio would increase over time. New products are sold at a rate that is faster than old products are retired, but in the case of aerospace, underlying market growth has a significant impact. The number of new civil aircraft sold per year, for example, effectively doubled between 1995 and 2005, and it is this market growth (in civil aircraft) that brings down the installed base ratio. Even so, an installed base ratio of 53:1 highlights the significant opportunity that exists.<br />
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The story in the automotive sector is rather different. Here we see slight growth in the installed base ratio between 2003-2008, from 13.5:1 in 2003 up to 14.7:1 in 2008. This growth is driven by an increase in the installed base of passenger vehicles, with 13 million new vehicles being registered in Europe in 2008 and 198 million in operation. A key issue in the passenger vehicle market is the rate of retirement of existing products. Given the relative maturity of this sector, new cars are often replacements for existing cars and so as new sales are secured, old cars are retired. For this reason it is unlikely that we'll see significant growth in the automotive sector in the installed base unless product life cycles increase and/or consumers decide to reduce the rate at which they replace their cars.<br />
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So this brief analysis suggests three issues to consider; (i) understanding the size and potential of the installed base matters; (ii) in some sectors the installed base ratio will not change significantly, as the market matures and product replacement becomes the predominant reason for new product sales; and (iii) significant market growth can reduce the installed base ratio, although even so the installed base can be an attractive market segment.<br />
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Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com1tag:blogger.com,1999:blog-7553540756310570387.post-32896031804267839082013-03-05T12:32:00.002-08:002016-01-30T07:36:32.720-08:00Why Servitize: Alternative Rationales<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-family: ".helvetica neueui"; font-size: 17px;">I have often thought about the reasons why firms servitize (sell services as well as products). Usually I categorise these under three broad headings - economic, strategic and environmental. The economic reasons for servitization include:</span><br />
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<span style="font-family: ".helvetica neueui"; font-size: 17px;"><b><u>1. The challenge of competing on cost</u></b> - in many developed countries firms find it difficult, if not impossible, to compete on cost alone. The reality is that their underlying costs bases are too high in comparison to lower cost economies and so they have to compete through innovation and differentiation - services valued by customers are one route of differentiation.</span><br />
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<span style="font-family: ".helvetica neueui"; font-size: 17px;"><u><b>2. The installed base argument</b></u> - in capital goods industries, where products have long-life cycles, the installed base can be significant. In 2010, for example, Boeing had 19,410 commercial planes in operation and delivered 462 new planes, giving a ratio of 42 operational planes for every new plane delivered. Providing service and support for the installed base is a significant market opportunity.</span><br />
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<span style="font-family: ".helvetica neueui"; font-size: 17px;"><b><u>3. Stability of revenues</u></b> - particularly important in recent years, in many capital goods industries product revenues can be lumpy. Significant revenue is gained when products are sold and delivered, but this doesn't happen every day. Ongoing service and support revenues provide a more stable income stream, smoothing the effect of lumpy product sale revenues.</span><br />
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<span style="font-family: ".helvetica neueui"; font-size: 17px;">In strategic terms there are four key reasons for servitization.</span><br />
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<span style="font-family: ".helvetica neueui"; font-size: 17px;"><b><u>1. Locking in customers</u></b> - a traditional business model that has been used for years. Products are sold at or slightly above cost, money is made on the provision of spares and consumables. Think razors and razor blades; printers and ink cartridges.</span><br />
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<span style="font-family: ".helvetica neueui"; font-size: 17px;"><b><u>2. Locking out competitors</u></b> - especially important in industries with a high installed base. As demand for high margin service and support grows, new entrants are attracted to the services market. Many original equipment manufacturers make strategic moves to partner with their customers and in doing so seek to lock out potential new entrants to the services market.</span><br />
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<span style="font-family: ".helvetica neueui"; font-size: 17px;"><b><u>3. Increasing differentiation</u></b> - some customers value the stability that service and support contracts offer. A fixed price can mean predictable maintenance costs and a transfer of risk from the customer to the service provider. These benefits provide a differentiation advantage to original equipment manufacturers.</span><br />
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<span style="font-family: ".helvetica neueui"; font-size: 17px;"><b><u>4. Customer demand</u></b> - the final strategic reason I often talk about is customer demand, in the sense that customers demand that their providers offer service based contracts. In public procurement, particularly the defence sector, this is becoming an increasingly important trend. Government Departments are asking to contract for capability, by the right to use the assets (ships, ground vehicles and planes), rather than taking ownership of the assets.</span><br />
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<span style="font-family: ".helvetica neueui"; font-size: 17px;">A final, and potentially increasingly important, rationale for servitization is the <b><u>environmental rationale</u></b>. Here the idea is to question whether transfer of asset ownership is neccessary. Think of car sharing schemes, such as StreetCar and ZipCar, or DVD sharing schemes, such as Netflicks. Do consumers really need to take physical ownership of assets or can we share access to them, thereby reducing the environmental impact of production.</span><br />
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<span style="font-family: ".helvetica neueui"; font-size: 17px;">While these three rationales have stood the test of time, the reasons for this blog is I came across a new strategic rationale at a recent conference - the idea of <b><u>service as a pre-sale opportunity</u></b>. Volvo Cars run an active programme with their dealers where they seek to persuade them that every service encounter is also an opportunity to build customer loyalty and hence secure a repeat purchase - hence service as a pre-sale. The data that Volvo presented are illuminating. They clearly show that, at least for Volvo Cars, repeat business is a function both of product quality and service quality. How many of your service staff see service as a pre-sale opportunity?</span><br />
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Andy Neely<br />
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Director, Cambridge Service Alliance</div>
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Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-412687646461801022013-01-11T23:20:00.004-08:002013-01-11T23:21:54.779-08:00The Great Myths of Measurement: Satisfaction is Dead<div dir="ltr" style="text-align: left;" trbidi="on">
In the late 1990s Jeffrey Gitomer wrote a book entitled - "Customer Satisfaction is Worthless, Customer Loyalty is Priceless" - a title which neatly encapsulates the second myth of measurement, "loyalty is better than satisfaction". What Gitomer and countless others seem to miss is that "loyalty" cannot and should not "supersede" satisfaction.<br />
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The way to think about this is to consider the evolution of customer measures. Years ago we used to think that complaints were a good way of tracking customer satisfaction - simply count how many times people complain and then you'll know how good your products and services are. We now know that measuring the numbers of complaints is not a particularly effective measure of customer satisfaction. There are two reasons for this - first, in some organisations it is difficult even to get a complaint registered! Second, and more commonly, people don't complain directly to their organisation, they simply tell their friends about their bad customer service experiences.<br />
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So we move from customer complaints to customer satisfaction. Here firms decide to be more proactive and go out and ask their customers what they felt. Hence the plethora of surveys and phone polls asking for your opinion about service experiences. Xerox collected data in the late 1990s that showed highly satisfied customers were much more likely to repeat purchase than customers who were merely satisfied, so again the focus shifted - this time to "how do we get highly satisfied customers that will keep buying from us". The natural evolution was to customer loyalty - how do we measure the loyalty of our customers? Do they keep coming back and buying again - delivery repeat business? Do they help grow our business by recommending it to friends and colleagues (think how popular the net promoter score has become in recent years).<br />
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The final twist comes with the introduction of customer profitability as a measure. This was prompted by work which recognised that some customer were undesirable. Bain and Co released data suggesting that 140% of bank's profits come from 20% of their customers. The other 80% actual cost the bank money. So there was a sudden flurry of activity where people were trying to work out which customers were profitable and which were not. For the unprofitable customers the choice becomes - can we reduce the cost to serve (and make them profitable) or should we fire the customers and stop dealing with them.<br />
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These different perspectives on measurement complaints to satisfaction to loyalty and profitability are often seen as a natural progression, with more mature companies measuring loyalty and profitability. This is simply wrong. And it is wrong for a very simple reason. We have to different between what the customer wants of the organisation (great service, good prices, etc) and what the organisation wants of the customer (their loyalty, a decent return by working with them, etc). Customer loyalty and profitability don't supersede customer satisfaction - they look at the issue of customer measurement through a different lens. Customer loyalty and profitable are what the organisation wants. Great service and good value for money is what the customer wants. Our measurement systems have to track both, as both perspectives matter in successful organisations.</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-80663400210037801092013-01-08T03:20:00.001-08:002013-01-08T03:23:16.521-08:00Five predictions for the future of services<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">What does the future hold for services? I was recently invited to give a talk on this topic and gazing into a crystal ball produced five predictions...</span><br />
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-size: small;">1. Services will become more automated, but automation will brings risk...<br /><span style="font-weight: normal;">Clearly technology will play an increasingly important role in services. RFID tags and barcodes on installed products will store service and parts histories - no need to search for those old service records anymore. Social media and unstructured data will be used to guide service interventions. The city of Chicago, for example, is seeking to harvest Twitter data to identify potential problems with public infrastructure. Weblogs, loyalty cards, smart phones - coupled with position location trackers - provide valuable data that can be used to tailor and customise services.</span><br /><span style="font-weight: normal;"><br /></span><span style="font-weight: normal;">Yet this increasingly interconnected world also brings new risks, particularly as organisation join data up across domains. Think of your local convenience store and the loyalty card data they collect. How happy would you be if they started selling data on your shopping habits to your health insurance providers? The automation of services will increase their efficiency, but firms will have to consider very carefully the ethical and morale implications of how they use data they can access.</span><br /><span style="font-weight: normal;"><br /></span>2. Services will become more localised and personalised...<br /><span style="font-weight: normal;">Technology is already enabling the localisation and personalisation of services. Couple these developments with environmental drivers, such as the cost of carbon, and we'll see an even great shift towards localisation and personalisation. Take 3-D printing – in the future we’ll have printers in our homes that can create incredibly complex products (things that can’t currently be manufactured). 3-D printing will revolutionise manufacturing, but it will also revolutionise the spares market – what will you do do when customers can 3-D print their own spares to order?</span><br /><br />3. Health services will be massive...<br /><span style="font-weight: normal;">The demographic changes that are afoot will have profound implications for healthcare – already pharmaceutical firms are redefining themselves as healthcare businesses. As their drugs come off patent, they are realising that they have to change their business model, reinventing themselves as healthcare solutions providers. A much more customer focussed approach - most of us don't want to take medicines, we want to be healthy in the first place. So if you can be the healthcare solutions provider that stops people getting ill you are in a powerful position. In healthcare, its not just the changing nature of the economic environment that matters. The ageing population will also stress the medical system – many countries won’t have enough capacity (beds) in hospitals for the potential demand and it is too costly to keep people in hospitals anyway. So Governments will look for alternative forms of healthcare provision, e.g. assisted living, where people remain at home and are remotely monitored, perhaps using biometric monitoring devices built into their clothing.</span><br /><span style="font-weight: normal;"><br /></span><span style="font-weight: normal;">Then there’s the question of healthcare diagnostics – IBM's Watson, the software solution that won Jeopardy, is now being put to use in healthcare, supporting doctors in patient diagnosis. And the potential for new healthcare services does not end their. Will we see organ farms – farms where people grow replacement body organs that are sold on the open market?</span></span></h2>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-size: small;">4. Everything that can be digitised will be...<br /><span style="font-weight: normal;">Digitisation is already a significant trend in some sectors - take books, music, films… When will we stop producing physical version of products that can be made available as electronic services? Will we stop producing cash – we can use electronic credits on our mobile phones – indeed M-Pesa already does! When will virtual holidays become the norm – augmented reality means we can take a Carribean cruise without leaving our house – we certainly won’t need to fly miles in an aeroplane…</span></span></h2>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-size: small;">5. We'll stop being consumers...<br /><span style="font-weight: normal;">The growing pressure on the earth’s resources will make “consumers” outlaws… We won’t be pleased to be called a consumer – instead we’ll look for ways of sharing resources and physical assets. We won’t all own our car, our own washing machine, our own lawn mower… Instead we’ll share resources across neighbourhoods. Do we really need watches? Our digital devices (whatever comes after the iPhone) can tell the time, double as a TV, etc, etc.</span></span></h2>
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Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0tag:blogger.com,1999:blog-7553540756310570387.post-42739981389019439732012-12-08T03:30:00.000-08:002012-12-08T03:30:46.623-08:00The Great Myths of Measurement: Start with Strategy<div dir="ltr" style="text-align: left;" trbidi="on">
Pick up any text or article on performance measurement and chances are you'll find the phrase "start with strategy". The underlying message being that you should align your performance measures to your organisations strategy. How else can you be sure you are executing your strategy?<br />
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This oft heard cry "start with strategy" is the first of the great myths of measurement. Organisations don't exist to execute strategies. They exist to create value. Value for their shareholders (or funders). Value for their customers. Value for the wider group of stakeholders with which they engage. If you don't create value for your staff, attracting and retaining talent is challenging. If you don't create value for your suppliers, getting great service from them is not straightforward. If you don't create value for the community in which you operate, retaining their support and goodwill is difficult.<br />
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The point is that organisations exist for a purpose and that purpose is to create value for stakeholders, so surely the first questions we should ask ourselves - when considering what to measure - are: (i) which stakeholders matter to us; (ii) what do they value; and (iii) how can we measure whether we are delivering value to them. Strategy comes later. If I am clear about what my stakeholders value then I can think about what strategies I am going to purse to create this value. So let's stop the inane calls to start with strategy and focus instead on what really matters.</div>
Andy Neelyhttp://www.blogger.com/profile/09784285095942016738noreply@blogger.com0