Decoding the Cambridge Entrepreneurial Ecosystem

Cambridge is a fascinating place and on many measures one of the most enterprising and entrepreneurial ecosystems in the world. The latest innovation in numbers 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%.

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.

If you want a good overview of the range of enterprise related activities in Cambridge have a look at the University Enterprise Network website. 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 Cambridge Enterprise, 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 Cambridge Innovation Capital, 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 Cambridge Angels, Amadeus Capital Partners, Cambridge Capital Group, IQ Capital or the IP Group, can all provide support. Together these organisations constitute the "finance and IP" pillar. 

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 IdeaSpace. 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. St John's innovation Centre or the Bradfield Centre provide modular office space, that firms can use as they grow. The Babraham Research Campus 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 Cambridge Science Park and take office space there. In addition to office space, of course, there are other forms of space that matter. Makespace provide a community workshop where people can create  prototypes. The local consultants, especially the technology consultants, provide prototyping and design support. Cambridge Consultants and The Technology Partnership have both played a crucial role in the ecosystem.

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 Enterprise Tuesday, a scheme run by the Judge Business School which also runs Accelerate, a start-up accelerator programe and Ignite, an intensive one-week training programme for aspiring entrepreneurs and corporate innovators to trial and prepare business ideas for the commercial environment. The Maxwell Centre runs Impulse, 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 scale-up programme in collaboration with Barclays, while Cambridge Network runs a school for scale-ups for local industry. As with the space pillar there are multiple other programmes across the ecosystem that I could include.

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 Cambridge Wireless. If you want to connect with local businesses you would turn to the Cambridge Network. If you wanted to support the successful long term growth of Cambridge, you would join Cambridge Ahead. Within the University there are multiple student societies and associations - including CUE - Cambridge University Entrepreneurs, CUTEC - Cambridge University Technology and Enterprise Club and EPOC - Entrepreneurial Post-Docs of Cambridge. 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.

Figure 1: Overview of the Enterprise Ecosystem

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 Makespace 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 Biomakespace - 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.

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.

What might Brexit mean for UK manufacturing?

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.

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.

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.

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”.

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.

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.

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.

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.

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.

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.

Professor Andy Neely, Head Institute for Manufacturing, University of Cambridge.
Dr. Carlos López-Gómez, Head of Knowledge Exchange, Policy Links, Centre for Science, Technology & Innovation Policy (CSTI), University of Cambridge.

Why I'm in! Voting in the UK's referundum on the EU

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!
 

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 - Brexit and the UK's Public Finances - 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.

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.

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 increased 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.

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.

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.

Enabling the 4th industrial revolution - "industrie 4.0" or the "internet of things"?

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).

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.

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 Google Trends, 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.

 

Figure 1: Google Trends - Popularity of Search Terms "Industrie 4.0" and "Industrial Internet".

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 Cambridge IfM, most notably in DIAL (the Distributed Information and Automation Laboratory led by Professor Duncan McFarlane) 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.

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 video 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.

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.

 

Figure 2: Google Trends - Popularity of Search Terms Including "Internet of Things".

Creating Customer Value Through Services

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.

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?

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.

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.

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.

At this year’s Cambridge Service Alliance conference - creating value through customer services - scheduled for the 6^th 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.

The Productivity Paradox: Is There a Measurement Problem?

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 "the challenge of our time".

This same topic came up in a recent email discussion with colleagues from ISSIP - the International Society for Service Innovation Professionals. This time prompted by an article in the Wall Street Journal entitled "Silicon Valley Doesn't Believe US Productivity is Down". 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).

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.

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.

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.

Servitization and Service Innovation in China: Reflections from Shanghai

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:

1.     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.

2.     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.

3.     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.

4.     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.

5.     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.

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.

Watch Out for the Industrial App Economy as the Battle for the Industrial Internet Heats Up

About six months ago I wrote a blog entitled "GE, The Industrial Internet and the Battle to Come" - 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.

Last week (on 5th March) Caterpillar announced 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.

Today (12th March) Siemens announced 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.

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.

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.

Rethinking Competition and Collaboration in Ecosystems: Who Should You Work With?

One of the themes that keeps emerging in the work of the Cambridge Service Alliance is the importance of the ecosystem. We define an ecosystem as the 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.

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.

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.

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.

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.

Business Model Innovation and the Evolving Market for Electric Vehicles

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, TEPCO in Japan, Autolib' in Paris and Move About 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 Cambridge Service Alliance website. For the sake of efficiency, however, here's a short summary of Claire's key findings...

There's no uniform business model for electric vehicles...
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.

Battery swapping as a business model...
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".

Better Place filed for bankruptcy in May 2013 despite having raised $850 million investment. The fundamental flaw in the model was the 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.

Fast charging as a business model...
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 severely 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. 

Mobility as a service... 
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. 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 km² versus London with 1,570 km² - 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. 

Fit between business model, ecosystem and environment is the key to success... 
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.

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.