26 November 2017

Digital Twins Disruption

How do digital twins disrupt existing service business models?

Veronica Martinez, Cambridge Service Alliance 
Digital Twins are one of the most promising technologies that will change our futures. They pair physical and digital objects and enable a real time, dynamic and interactive communication between the two objects. What makes the Digital Twins utterly amazing for industrialists and consumers is the access to real-time digital models that can be used to operate, simulate, analyse, optimise and improve systems between the asset, provider, customers and consumers.
Digital Twins connect, aggregate and analyse your data coming from diverse sources (including CAD systems, MES software, ERP, assets’ sensors and actuators, etc.) and create a well-informed, real time communication with you.
The adoption of Digital Twins is rapidly increasing with important benefits for operational excellence and business outputs, for instance:
Digital Twins enables the creation of more services business“It is Digital Twins that we've built in the installed base and then it's the applications that matter create digital services for our customers. Over $5 billion of orders only this year” (Bloomberg Government Disclosure, FNDW 24th May 2017).
Digital Twins supports Digital Worker Capabilities ”It connects with field service technicians to dispatch and provides information for operations and maintenance. Workers submit the Operations & Maintenance (O&M) information back into the system, closing a full loop from problem identification to resolution” (ENP Newswire 13th June 2017).
Digital Twins enables more informed bidding at short and long term (ENP Newswire 13th June 2017).
At the University of Cambridge, Dr. Veronica Martinez and her industry Partners from the Cambridge Service Alliance, organised a successful workshop to debate “How Digital Twins Disrupt Existing Manufacturing and Service Business Models”. The workshop took place on the 21st September at the Institute for Manufacturing. The atmosphere of this event was vibrant with the presentations and group discussions from participants such as IBM, Caterpillar, Siemens, Ocean Array Systems, JLR, BAE Systems, Atos and Perkins among others.
In this first Digital Twins workshop, we discussed and learnt from our speakers: "The value of Digital Twins - understanding revenue vs. overheads” and “What disruption digital twins will bring to our existing business models" and “How Digital Twins could be used for smart training and management purposes”.
Watch this space because the next Digital Twins Workshop is coming soon.  Read more about this project at https://www.ifm.eng.cam.ac.uk/people/vm338/

30 August 2017

From Big Data Analytics to Big Tool Stack

Are we still discussing Big Data or we should start reviewing and monitoring its different tools and platforms? Also, how organization should determine the right tool to utilize as part of its data analytics architecture?

In today’s competitive business environment, Internet of Things devices and Information Services increasingly produce large amount of data in disparate structures. Many Open source and commercial tools continue to pop up to deal with the different characteristics of Big Data. As a result, there is an abundance of tools and platforms to analyze Big Data or act as building blocks of such. Just by reviewing open source tools, we have come across 300 tools. That number is final after we applied strict filters like legitimity of the source, license type, and last commitment activity. We are not talking about Big Data anymore, we are talking about Big Tools.

To extract value from Big Data, an organization should determine the right tool to utilize as part of its data analytics architecture. The right tool would depend on the characteristic of the data to be analyzed and the domain that the organization is operating under. The organization would train its IT workforce to obtain the technical expertise to be effective with those tools. Businesses incur costs when they try to adopt these tools or change their existing source codes to run on newer versions. In other words, technical debt. In the Big Tools era, there is no standard on how these tools come together and compose a data analytics architecture. Most of these tools are unknown to business world, some of these tools even we didn’t know. To illustrate this, Apache Beam and Apache SAMOA are good examples. Latest trends in the big data domain is moving towards providing a level of abstraction to utilize popular data processing platforms. Apache Beam implements its dataflow programming model on multiple processing platforms like Apache Spark and Apache Flink. Apache SAMOA enables programmers to apply machine learning algorithms on data streams. Applications developed with SAMOA can be executed on Apache Storm and Apache Samza. Moreover, new models and tools continue to emerge at a fast pace in Big Data domain. There is no established method to track the newest developments particularly for the open source tools.

We are working towards developing an open source big data analytics architecture. We are trying to keep it as simple as possible to provide a comprehensive picture on big data analytics lifecycle. For academia, the architecture will provide the state of the art, tools that are missing, and tools that are mature enough to be used as part of a research. It will also provide the method for tracking notable new open source tools popping up in different sources. For technical people, it will help determine the tool to use for a particular implementation. Small and medium sized enterprises can provide services using some these tools addressing the gaps in a bigger architecture. For an established firm trying to develop a strategy, the architecture will provide the comprehensive picture on what fits where. Commercial big data solution providers can also benefit from this architecture. They will see the capability they lack and collaborate with a small sized enterprise to provide that capability.

Mert Gokalpand Keres Kayabay are working with Mohamed Zaki to build this architecture. We will publish a working paper soon on this topic. 

15 August 2017

Article by Katharina Greve, Cambridge Service Alliance, University of Cambridge

Co-creation is here to stay. For companies that understand the concept and execute it well, the rewards can be far greater than even the most efficient internal R&D system can deliver. By embracing co-creation, companies are able to outperform the market, develop better products and get them onto shelves faster, provide superior service, and build deeper, more loyal relationships with their customers. Co-creation is a core capability for unleashing the immense resourcefulness of outsiders. Yet, ten common co-creation myths prevent companies from seeing the potential to innovate better.

1. Co-creation should only include customers

Co-creation is a term often used to describe the process of creating value involving companies and their customers. Although this is not wrong, it is important to highlight that co-creation can also include other stakeholders such as suppliers, employees, distributors, NGOs and regulators. In fact, involving other stakeholders is essential because they directly or indirectly shape customers’ experiences. Co-creation with suppliers, for example, can be a great way of reducing costs and improving the efficiency of existing products or services. For instance, Ford’s Aligned Business Framework was launched in 2005 to empower suppliers to share information at the earliest stages of the design phase. The goal was to boost trust, transparency and supply-chain efficiency which subsequently has led to closer working relationships, earlier access to innovative supplier-sourced design features[1] and, importantly, to lower production costs.

2. Co-creators should only be the usual target audience

Asking what can be a homogeneous target audience for feedback on your product or service prototype is useful but may result in similar responses and reactions. Companies that reach beyond the usual customer segments, however, may receive diverse, unique and creative ideas that unlock value from innovative opportunities that were initially not considered. For example, a company invited people to participate in the co-creation process of a special ‘hopping mat’ for children. The hopping mat was originally designed to enter answers to mathematical questions in order to study school material more playfully. However, an elderly person put forward an idea for a further use of the mat by highlighting the physical workout that is also taking place in the process. Co-creators who are not the usual target customer can be a valuable source of fresh ideas.

3. Co-creation is only appropriate for products

Digitalisation has transformed books, music, maps, cameras and calendars into digital services. These are not just products but are a combination of both the digital artefacts themselves and the services that deliver them. This makes the co-creation activities different from those of products alone. But involving co-creators helps unlock the potential of digital services as well as products.[2]For example, a company offering customisation of shoes through its online platform was able to receive authentic customer feedback about its pricing strategy through an offline co-creation approach. Not able to capture the customer’s first impression online, the company used an open innovation space in order to co-create together with its customers. In this setting, co-creators pointed out that the company’s pricing strategy is irritating: “Shoes with laces should be more expensive than those without”.Although the production cost was not significantly different, the company decided to adjust prices in accordance with the feedback.

4. Co-creation is only suitable for large companies

Co-creation success stories are emerging across various industries, and involve both small and large firms. For example, The LEGO Group employs co-creation to successfully engage many of their adult customers in the design process of new products. Peter Espersen, head of global community co-creation at LEGO explains: “We have learned some big lessons. First, that creativity has almost no boundaries; people can do amazing things. Second, we can’t always predict what consumers want. [..] When you combine the idea of LEGO with another strong community, and a fun one, that is rocket fuel in the engine - it really works.”[3]  Small and medium-sized organisation can also exploit co-creation benefits by involving outsiders in their innovation process. For instance, a small apparel company asks its customers which of its next season clothes they would want to wear.  Based on the customers’ input, the company can decide how much to produce and how much stock it will need. This reduces inventory costs, and the products are better fitted for the customer needs. Furthermore, a more accurate forecast of supply and demand for specific items can be achieved. For small companies, this kind of approach can be the key for success, reducing uncertainty about the success of products in the market.[4] Also, co-creation allows firms to mitigate risks related to the development of new products and services. As all stakeholders contribute ideas to creating a product or service, the chances of it failing are considerably reduced.

co creation labs 2

5. Co-creation is only fit for B2C

The most publicised co-creation cases - such as giffgaff, eBay and Zipcar - are usually in a direct-to-consumer setting. B2B leaders may dismiss it as an approach that they can afford to ignore. Most B2B firms are disconnected from their end customer and hence may lack a clear understanding of their needs and wants. A company that has managed to overcome these challenges is Diehl Controls, a leading developer and manufacturer of display, control and drive systems. To familiarise future users early on with the possibilities offered by new products, Diehl Controls presented itself at the theme world ‘SMARTer Living’ in the Nuremberg-based innovation laboratory JOSEPHS®. Although Diehl operates in a B2B context, the company used this innovative platform to address end customers directly and asked for their opinions regarding their products. The results of the surveys they conducted were directly used to improve the products of Diehl Controls. In addition, its participation in this theme world led to initial contact with potential customers who are interested in smart home solutions.[5] Enabling this direct interaction with end customers helps companies experiment more easily with new product offerings and make the final product as close to the customers’ needs as possible. This is important in the B2B context as much as the B2C.

6. Co-creation is only for beneficial for the private sector

Co-creation has spread rapidly in the business sector. In the public sector, however, adoption of the co-creation approach is a fairly recent occurrence driven by rising citizen expectations[6]. In the traditional government model, a public organisation obtains resources through a budgetary allocation and then uses those resources to deliver services to stakeholders. The citizens that take advantage of these services are largely passive - they do not actively influence the design or delivery of the service. Contrary to this traditional approach, a public-sector co-creation initiative allows public sector entities to open their value chains to the stakeholders whom they serve. Stakeholders become active contributors in the co-creation of the public sector value proposition[7]. Co-creation has several benefits: it reduces public sector costs of between 20% and 60%, and increases stakeholder satisfaction, generate better outcomes[8], improve the image of the state sector in the perspective of citizens[9]. Thus, co-creation offers a real-world response to the innovation imperative that most public-sector entities face nowadays.

7. Co-creation is only relevant for the developed world

The concept of co-creation is not only relevant for developed countries, it also has an essential role in unlocking opportunities in the 'base of the pyramid' (BOP) markets. Co-creation between multinational corporations, economically disadvantaged people, potential business partners, non-profit organisations and other players is shaping products, services, business models, mindsets, business ecosystems and even whole communities in BOP markets. For multinational companies that try to enter developing countries, close collaboration and co-creation with stakeholders may be even more critical.[10] In these markets, it is important to co-create business models; successful BOP ventures “often included having the product and business model development co-evolve. Partner organizations co-designed the entry strategy, including the delivery of the product or service” [11] (p. 14). For instance, CEMEX, a retailer of cement, concrete and aggregates, learned from Mexican communities that to serve the local DIY home-building market, it would have to provide financing and construction training as well as materials.[12]

Katharina Greve Dr Veronica Martinez in co-creation lab

8. Co-creation is a stand-alone tool

Co-creation does not need to be a stand-alone tool, it can also be linked to a variety of other initiatives and approaches. For example, when an established customer community has been formed around a brand, a community app can be used to add social conversations and receive insights to support research and co-creation activities. Alternatively, companies can choose to combine internal and external innovation activities. For example, a company started to develop an app to manage personal finances better. During the first year and a half, its internal research and development efforts took place before they started involving customers in the co-creation process. Depending on the situation, companies tailor the co-creation approach to their individual needs. This way, co-creation is not a standalone approach but it is integrated into a wider innovation activity.

9. Co-creation is a final test before launching a product

Co-creation can be employed in all four phases of the new product development (NPD): ideation, product development, commercialisation and post-launch, co-creation in the early stages of the NPD can lead to more innovative ideas [13][14]. Consequently, co-creative companies do not wait until a new product is designed and launched to receive customer feedback. In fact, beta versions and prototypes are released to customers and other stakeholders for ideas and feedback which are then assessed and incorporated into the product or service. Users are even considered to have a greater ability for idea generation than the employees of a firm[15]. In this context, companies can greatly benefit from the iterative co-creation process by receiving real-time feedbackAs a result, co-creation reduces the cost of creating new products and services as well as the marketing associated with it.

10. Co-creation offers answers to questions a company asks

The term co-creation can be described as “any act of collective creativity where more than one individual is involved, resulting in something that is not known in advance”[16]. This definition should prepare companies to expect the unexpected: creative and value adding ideas may come from stakeholders not only about a certain product or service, but also about other areas in the value chain such as product packaging, areas of application, sales channels and even raw materials used. For example, a company aiming to improve the shoe shopping experience with its innovative 3D foot scanner aimed to obtain information related to the market needs and privacy of data through co-creation with customers. Although, the company gained insights on these aspects, it also received feedback concerning the material of the 3D scanner foot plate. During their trials, customers noticed that the material of the foot plate shows if someone has sweaty feet which makes the measuring experience rather embarrassing. Consequently, the company changed the material of the foot plate. This highlights that co-creation can offer answers to questions but it can also deliver unexpected insights in areas companies initially did not consider.

The Cambridge Service Alliance is a unique global alliance between leading businesses and universities. It brings together the world's leading firms and academics, all of whom are devoted to delivering today the tools, education and insights needed for the complex service solutions of tomorrow.  Its members are BAE Systems, Caterpillar Inc., IBM and the University of Cambridge's Institute for Manufacturing and Judge Business School. Find out more here.

[1]  http://www.autonews.com/article/20130805/oeM10/308059994/ ford-strengthens-bonds-with-its-elite-suppliers
[2] Chowdhury, S., 2012. Co-creation of Innovative Digital Services. In 35th Information Systems Research Seminar in Scandinavia, Sigtuna, Sweden, August 17-20, 2012 (p. 12).
[6] Alves, H., 2013. Co-creation and innovation in public services. The service industries journal33(7-8), pp.671-682.
[8] Bason, C. (2010). Leading public sector innovation: Co-creating for a better society. Bristol: The Policy Press.
[9] Vigoda-Gadot, E., Shoham, A., Schwabsky, N., & Ruvio, A. (2008). Public sector innovation for Europe: A multinational eight-country exploration of citizens’ perspectives. Public Administration, 86(2), 307–329.
[10] Nahi, T., 2012. Co-creation at the base of the pyramid. Paper for Corporate Responsibility Research Conference, University of Leeds, UK.
[11] London, T. and S.L. Hart 2004. 'Reinventing strategies for emerging markets: Beyond the transnational model', Journal of International Business Studies, 35: 350-370.
[12] Sánchez, P., J. Ricart, and M. Rodriguez. 2005. Influential factors in becoming socially embedded in low-income markets. Greener Management International 51: 19–38.
[13] Hoyer, W.D., Chandy, R., Dorotic, M., Krafft, M. and Singh, S.S., 2010. Consumer cocreation in new product development. Journal of service research13(3), pp.283-296.
[14] Witell, L., Kristensson, P., Gustafsson, A. and Löfgren, M., 2011. Idea generation: customer co-creation versus traditional market research techniques. Journal of Service Management22(2), pp.140-159.
[15] Kristensson, P., Gustafsson, A. and Archer, T., 2004. Harnessing the creative potential among users. Journal of product innovation management21(1), pp.4-14.
[16] Sanders, L. and Simons, G., 2009. A social vision for value co-creation in design. Open Source Business Resource, (December 2009).

Images from top: the living lab, JOSEPHS® - the Service Manufactory in Nuremberg; Katharina Greve and Dr Veronica Martinez participating in the co-creation process at the living lab, JOSEPHS®.

15 June 2017

A Systems Perspective on Business Model Evolution

The Case of an Agricultural Information Service Provider in India

By Chander Velu

Business models are complex activity systems that summarise the architecture and logic of a business, and defines the organisation’s value proposition and its approach to value creation and capture. The role of the business model is to act as a mechanism to enable the core value proposition to be transferred as benefits to the customer. This is especially so when new technologies provide the basis for new customer value propositions. However, often new business models need to be altered from the initial version in order to create the design that might be sustainable and profitable. We present a longitudinal and in-depth single case study of a unique, mobile-phone-based information service for farmers in India. The firm was formed by a major global blue-chip company. In particular, the case study examines how the new firm evolved its initial business model from a mobile-phone-based information service for farmers to a transactions platform for agricultural crops between buyers and sellers, and subsequently incorporating an engagement-based solutions provider business model for banks and other agricultural-related businesses.

The study builds on three themes emerging from the systems thinking literature in order to highlight the organisational capabilities that enables business model evolution. The three themes are:
  1. Balanced redundancy refers to the ability of the firm to stretch and create additional overlapping resources in order to perform experiments while running the existing business model.
  2. Requisite variety refers to the extent to which components of the system obtain a variety of information to understand the environment better.
  3. Cognitive discretion refers to the freedom to perceive and construct an idiosyncratic meaning.
We explain how these three constituent organisational capabilities enabled the new firm to innovate its business model in order to explore and develop an appropriate customer value proposition to create and capture value. The lessons from the paper would be helpful for managers as they create new business models and need to evolve them from their original design.

Read our papers:

Velu, C. (2017) A Systems Perspective on Business Model Evolution: The Case of an Agricultural Informational Service Provider in India, Long Range Planning, forthcoming.