Exploring the Journey to Services

Do you know what your service journey looks like?

By Veronica Martinez, Chander Velu and Andy Neely

Many organisations when exploring their transition to Services ask themselves the question: ‘what does a service journey look like?’  At the Cambridge Service Alliance, this question also emerged when our Industry Partners met to discuss ‘the shift to services’ – among them Presidents, Vice Presidents and Directors of Caterpillar, Zoetis, GEA, IBM, BAE Systems and Pearson. Interestingly, around the table, none of the firms could articulate the lessons from their own service journeys in a comprehensive manner. This is not an uncommon issue in organisations embarking on the journey to provide services.

So, we setup an interdisciplinary team of academic and industrial partners to explore the Journey to Services. The concept itself is not new but certainly largely unexplored. Through 7 years of an in-depth study of three comparable firms and countless sets of workshops and interviews with other firms (for academic details please read our journal paper), we jointly discovered what a service journey looks like:

The Five Key Lessons You Need to Know about the Service Journey are:

1. The service journey in industrial manufacturers is neither logical nor structured but much more emergent and intuitive in nature.
2. Similar steps, different journeys. Some organisations followed similar steps but the sequence of these were different. Often the sequence of steps in the service journey is described as a ‘back and forth’ sequence – or trial and error. Exploited by choices, the typical examples include: the services are ready to be sold, but the sales training and/or incentives for selling services are missing. Services are offered to customers, customers buy them, but the accounting systems are set to manage product transactions and not service contracts. Services are designed, as products, consequently the service experience is missed and gradually the services fail.
3. The evolution and coexistence of different services. Typically, in the first three years of the service journey, organisations incrementally evolve by offering basic to intermediate services. After the fourth year, organisations follow ‘the continuous evolution of the basic and intermediate services and the emergence of complex services’. Then, the coexistence of basic, intermediate and complex services varies across the service continuum.
4. The pace of change. Once organisations embark in the service journey, they are in continuous ‘change’ (flux) as opposed to punctuated interventions of change. This is the continuous granular change at different functional levels throughout the organisation.
5. Service Strategy: Seven associated stages of the service strategy model should be considered by organisations to manage their service journeys.

From our perspective, we think the understanding of the service journey has evolved significantly over the last years. This is the first framework that longitudinally maps the journey to services. Firms which have used the framework express more confidence in managing the transition process and are more prepared to handle the issues that they confront. In future, organisations urgently need to focus on the dynamic evolution of their service journeys, particularly on the proactive management of individual lifecycles of their services. As Joseph Schumpeter expressed – the importance to focus on the ‘creative destruction’ within their processes of transformation.

Read our monthly paper,  journal paper ‘Exploring the journey to services’ or listen to our podcast.

Paper:

Martinez V., Neely A., Velu C, Leinster-Evans S. and Bisessar D. (2017). ‘Exploring the journey to services’. International Journal of Production Economics. (In Press) 

Looking at the future of business models for global manufacturing companies as they make the switch to services in an age of digital disruption

September 2016

Professor Andy Neely answers some key questions about the Cambridge Service Alliance business partners and its recent research. [PODCAST interview available here]

• Who are your partners in industry and how have you been working with them on that all important ‘shift to services’ for manufacturing industries?

We have a variety of partners in industry. Our two founding partners are BAE systems and IBM and we also work with Caterpillar, Rolls-Royce, Pearson and Zoetis. Zoetis is an animal health company which used to be part of Pfizer. It is interested in services because it wants to build links with its end customers. Caterpillar is a big construction and mining Equipment Company and it is interested in services because it wants to maintain links with its customers over the 30 year life of the product. It is important for its business model.

• What kind of changes are manufacturing firms making to ensure they are in tune with their customers’ needs in what is an increasingly technologically driven global market place?

The changes manufacturing firms are making are really varied. Caterpillar has traditionally made most of its money on spare parts and servicing equipment but increasingly its customers are saying ‘we want to work with you to contract for outcome or capability’. It is no longer about just making sure the equipment works, its customers want help to minimize the cost per ton of earth extracted in a quarry.  These days the manufacturing firm is helping its customers to deliver the outcome the customer wants. In some cases, it is helping the customer deliver the outcome the customer’s customer wants. It is all about helping your customer do a better job.

•  How is technology changing how manufacturing firms operate?

Technology is fundamentally changing how manufacturing firms operate. What you see is more and more devices getting connected to the internet. The data coming back from those devices and machines is then being used to work out what is going on.

For example if Caterpillar has the GPS position of a truck, and you know the weight of the material and the weight of the bed of the truck, then you can tell when the truck has been filled at the rock face. If the truck doesn’t start to move straight away you are losing production time, and if it sits at the rock face for a minute once it has been filled, that would be a minute of lost production and in a quarry and it is a big deal. If you can use the data to improve the efficiency of the operation, you can in turn minimize the cost per ton.

• The Cambridge Service Alliance puts emphasis on knowing what your end customers’ needs are. Why is that and can you give us an example?

We talk a lot about getting inside the minds of your customer, or the customer’s customer. The reason we use that language is because most organizations have to think about how to provide for their customers. You can use the equipment to allow your customer to do a better job to service their customer. If you understand what the customer’s customer wants then you can think about changing the design of your equipment or service to help ensure your immediate customer does a better job. If they are more successful and their business grows then yours does too, it is in your interest.  Technology helps this relationship in all sorts of ways by monitoring the equipment so you can now see remotely what is happening and you can track where assets are in the world.

We have also been doing some work on customer analytics. We are looking at both quantitative and qualitative data, things like customers’ comments, to understand what those comments actually mean and say. You can then see what advice they are giving you about improving your organization. Lots of firms use a Net Promoters Score as a measure of customer loyalty, and that is really the difference between the number of customers who say they would promote your business and recommend it to friends versus the numbers who say they wouldn’t. But that is just a numerical number. If you look at the customer survey forms, often you get statements from customers where they might say there is something wrong, like the technician turned up late in scruffy overalls. We have been working on a methodology of taking those sentences, deconstructing them and understanding the statements in them to better inform firms about how they can deliver a better quality of service to their customers.

• Your CSA members are some of the largest companies operating in the world today, how do they begin to make change happen?

We believe that detail matters when it comes to making change in a large global company. We have a research project which is looking at unmasking the important hidden detail in making services work. You have to understand the detail but you also have to understand the bigger picture about how to make that change and make that shift to services.

In another research project we have completed recently we have looked at the Seven Critical Success Factors or CSFs for making the shift to services. Number one in that list is the readiness of the organization. Is it ready and are its customers ready to make that change? Unless you get both sides in place there is no way you will make the shift to services.

• How important is this interface of academics and managers working together in the CSA?

The Cambridge Service Alliance really does three things for our partners:

1. We provide an environment where there is an interface between academics and industry managers. We have deliberately chosen non-competing firms as partners, and we have very open and honest conversations about the way you might design your organization, the business model you use, how you design contracts for services and so on. The reality is that firms learn an enormous amount from each other.
2. We also hold events and forums where we can communicate ideas to the partners and the wider public. This year we are running a Service Week conference on how you successfully grow your service business in the digital economy.
3.  As well as the broader knowledge exchange we also carry out individual research projects that are designed to unpack and explore topics that matter to the partners in the Service Alliance. Caterpillar has been very involved in a programme called: ‘Across the Table’. A major part of it was about looking at the future of its customer service needs and how Caterpillar might meet them. We had direct input into the change programme in that organization. We are keen for our partners to pick up and adopt these results.  With BAE Systems we have been talking a lot about eco-systems in order to understand the Defense eco-system and how that is changing. For each individual firm in the Service Alliance there are specific projects we are working on with topics that are of general interest and also producing results that are directly relevant to that firm.

• Is the CSA helping to map the future out for others too in the manufacturing sector?

Yes. If I go back five years or so and I talked about servitization people would say they had never heard of that, it was relatively small scale. Now more and more organizations are talking about the importance of servitization and what it might mean for the future of their business and how they have to change their business model and what role technology might play. There is a general take up of the ideas to try and influence the way manufacturing firms think.   

• Is the link between products, services, technology and the need to innovate creating better products and services? 

One of the changes you see is a shift from supply chains to network partners. Increasingly it is not a question of how to configure the supply chain but these days firms need to think about who they want to partner with and what skills and capabilities they bring together to deliver a particular outcome. Often you can find that people are collaborating on one contract but competing on another. BAE systems in Portsmouth works very closely with Babcock to run the naval base but just down the road they compete on other contracts. You end up with very complicated organizational relationships. Learning when and how to partner and also when and how you are going to compete is crucial if you want to get the balance right.    

•  Are new collaborations and partnerships developing?

We see a lot of new collaborations and partnerships amongst all sorts of organizations, not just old rivals. One of the interesting things is the way that barriers between different sectors of the economy are changing. If you look at the IOT (Internet of Things) we can see that more and more devices are getting connected to the internet, and that the data that comes off those is giving real insight into how your products and services operate. New technology is playing a key part in this shift to services.

You then have to ask who else to involve? AT&T and GE have said they want to work together; Siemens is working with Atos; IBM is also working in this area. You have equipment manufacturers a software consultancy firm, a broader consultancy firm, and a telephone company all competing for the IOT space. Some of these organizations are coming together and building new capability, and some are finding they have new competitors too, like Google or Amazon. The small start-up Trackunit, which monitors the stress and strain put on assets, has been taken over by Goldman Sachs, an investment bank now working in asset management. There are some interesting dynamics at work.  

• How helpful has it been to identify seven Critical Success Factors or CSFs in the switch to services. You have called it a road map?

We looked at Pearson, Zoetis, and Greer, and we mapped out the steps they had gone on as they changed their business models in the switch to services. We then built a framework with these Seven Critical Success Factors, CSFs. The full report is on our website http://cambridgeservicealliance.eng.cam.ac.uk/news/SevenCSFBriefing

We mentioned the readiness of an organization and how outcome focused it is. There are issues around how you get the right mindset in an organization, and it is also about people and how you get them ready, not just technology and data. There are issues about processes and design, but sometimes there is not enough focus on designing services. The CSFs really do outline a road map for thinking about the steps you need to go through if you are going to transform your business.

• When others talk about manufacturing they wistfully harp back to the past and production lines but are the criteria by which we measure the success of firms and the sector changing? 

It is still important to optimize what goes on inside a factory.  People get quite excited about the digital economy and they say it is all going to be virtual but you still need your iPhone to access your laptop, so we are still going to make things. You still have to optimize the factory but that is a relatively small part of the overall ecosystem you are operating in. We are now looking beyond the boundary of the factory to optimize the end to end enterprise. Productivity still matters and organizations need to make sure the things they are doing are as efficient as possible to ensure they are not wasting resources, whether that is material or the time of people.

The data allows you to identify where you might improve productivity. It is still a valid measure for part of the agenda but you also have to think about the outcomes that you are delivering for the customer. Productivity can be more an efficiency type measure, to see if you are using your assets well, but you also have to think about effectiveness, and if you are doing the right things with those assets. Balancing both efficiency and effectiveness is central in manufacturing these days.

• In today’s fast moving world what is your ultimate goal at the Cambridge Service Alliance? 

People always say the pace of change is fast, if you go back to when there were buggy whips it still probably felt quite fast in those days so I think that at any point in time there is lots of change going on in the World. One of the challenges for leaders of organizations is to understand what change is both happening today and what change is coming in the future. You then have to think of the best way to respond and configure your organization to respond to that change. The boundary of your organization is undoubtedly changing; it is much more about networks and collaborations. People get too excited about some of these changes; things like the IOT or Industry 4.0 are not going to change the World in the next six months. These things take a long time to do. Undoubtedly the direction of travel is more connected devices, more data coming off them, and making smarter decisions. You do need to think about how you optimize systems rather than individual machines or individual supply chains so undoubtedly that is the way the World is going but there is a lot of work to do to get there.

Firms are spending a lot of time trying to get data from different devices, and they then have to try to reconcile that data, so there is an enormous amount of effort that needs to go into some of these things. I think it is a fascinating time to be involved in this because in many ways the foundations of what some have termed a new fourth industrial revolution are being laid now and being involved in that is just a wonderful privilege.    

• Is it best to be the first or the last in the sector to make a new innovation or change, presumably you can learn a lot from the success and failures of others? 

Organisations have to take different views and think about where they want to position themselves. It is rarely about being the first or the last to make a change or innovation because incremental change in all sorts of organization is going on at the same time. As one organisation pushes forward with one type of innovation another organization will be pushing forward with a slightly different kind of innovation. You can’t afford to fall too far behind because if you do you will end up losing your place in the market, However, organizations can’t afford to stay still, they have to constantly think about how to adapt to the changing World and the changing circumstances. You need that continuous process of innovation going on, it is not about first or last it is about what is the right innovation for us in the evolution of our organisation at this point in time.

If you look at Uber in the taxi business, or some of the low cost airlines, or if you think about what is happening in newspapers with all of the online content, or with Google and Amazon and Facebook, these are organisations that are babies really but they have grown up incredibly rapidly and changed the way organisations work. It would be very dangerous to sit there and say ‘it’s OK we will be safe and immune from these changes’, because you have to watch what is going on.

In October our Alliance conference is discussing: Growing your Service Business in an age of digital disruption. Uber is going to speak about the way they are growing and how they expand. Trackunit which is now part of Goldman Sachs is going to talk about developing technology and why they are getting involved in the asset monitoring business. Siemens is going to discuss the digital factory, and the whole industrial internet Industry 4.0 and how that is changing the Siemens business model. These are all themes around platforms, services, data and the way the World is changing.

In research you need to be a specialist but as you drill down into a specific area you find there is enormous breath to that area and a lot of the changes that are going on in the world influence the way we think about things.

On Tuesday 11 October the Alliance will be holding its Industry conference on ‘Growing your service business in an age ofdigital disruption’ at the Moller Centre, Cambridge, UK. 

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.

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.

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 which 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 ecosystems 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 makes 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 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 taken to recharge batteries. Today's fast-charging technology allow a 100-mile electric 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 severly 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 do 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 - 105km² versus London with 1,570km² - 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, it’s clear that firms struggle to survive.