GE, The Industrial Internet and the Battle to Come

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.

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.

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?

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.

Creating Great Service Experiences: United (not even close) versus BA (great, eventually)

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.

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.

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".

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.

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?

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.

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.

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.

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.

Is servitization for everyone?

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.

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.

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!

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.

The Big Data Revolution: What Happened to Data Quality?

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.

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?

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 Cambridge Service Alliance - 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.

Innovating Your Service Business Model: The Capabilities to Succeed

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.

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.

The first set of capabilities are concerned with the ecosystem - 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).

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.

It is not just the ecosystem perspective that matters. The second theme that we saw in our research was the importance of innovating the value proposition - 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.

Beyond the value proposition, the third category of capabilities centred on the value delivery system. 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.

Finally, we shift to capabilities concerned with accountability spread. 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.

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.