Beyond Co-Creation: Think About Co-Evolution

In the world of service many people talk about the co-creation of value - the idea that customers and providers work together to create value in service. Take, for example, a restaurant. As a patron you and your companions (assuming you are not eating alone) help create the experience. You engage in conversation. You banter with the waiters. You compare and often share your food. In a more complex business-to-business setting, the provider of the service is often dependent on customer inputs. When maintaining complex engineered equipment, for example, customer feedback - what's working, what's not - is an essential input to the maintenance diagnosis process.

I have spent the last couple of days at the launch meeting of the NEMODE - New Economic Models in the Digital Economy - network. One of the most interesting themes to emerge for me was the idea of the co-evolution of business models, rather than the co-creation of value. An apposite example is provided by eBay. When eBay was first launched it was created as a market place for selling cheap, second-hand goods. The idea was that you could go to your garage, find an old set of tools, put them on eBay - a form of electronic car boot sale - and sell them, rather than trash them.

Over the years eBay has evolved - it has become a virtual market place. People use it to sell everything - from second hand garage items to new cars. Some use eBay as virtual store, selling their goods online. What has happened over the years is the users of eBay have found ways of using the platform that were never originally envisaged. As the users have innovated their use of the platform, eBay has responded and innovated its business model.

Co-evolution doesn't rest there - it is not just the interaction of customers and providers. You also have to consider the broader eco-system. Take, for example, Apple. Through the Apps store and through Apps themselves, Apple have created a platform that allows others to offer services (Apps) to customers. The three parties involved - Apps developers, Apple and the customers - are jointly co-evolving the business model. This raises an interesting question - how good are you are co-evolving your business model with your customers? Have you created a platform that allows the customers to find new ways of creating value? And if so, are you capable of spotting these customer innovations and incorporating them into your business model to allow the next round of co-evolution?

Managing Performance in Turbulent Times: Analytics and Insight

Can management systems cope with the rapid pace of change in Society today? We believe they can but it does require new ways of looking at problems and putting in place systems that can adapt to those fast moving environments. 

If you think about what has happened through political turbulence and also economic turbulence in recent years, and the rate at which technology is developing then you can see that the World is moving incredibly quickly. What we need to do is to have systems in place that are able to cope with and be updated rapidly to manage those changes. If we get the systems right and organisations adapt and change appropriately then profitability will increase and that can only be good for the recovering UK economy.

We began our research by thinking about what are the most turbulent environments which organisations are operating in, where are the really challenging environments? That led us to think of the rate at which some of the hi-tech firms are changing.

The question we wanted to ask is: ‘If it takes you a long time to design a measurement system normally, and if you think measurement systems are central to the way you manage organisations, how are these hi-tech firms that operate in very fast moving environments actually coping by deploying and developing their measurement systems?’ 

We know that it is not as easy to forecast what is going to happen in the future, and coupled with that most organisations these days are also creating vast amounts of data almost as a by-product of their existing operational processes. So there is more synergy between the new businesses like Facebook and Google and the traditional businesses than you might at first think. 

We found a number of practices that seemed to be in operation in those fast moving organisations but at the heart there were two cycles they used: a performance management cycle and an execution cycle.

It is important to look for the connection between the two cycles. We want managers to ask: ‘How do we know we are doing the right projects to drive performance in this business?’ ‘How do we make sure we are executing those projects quickly and how do we know when to step back and change the portfolio of projects and look for new things to do?’

What the PMTE (Performance Management for Turbulent Environments) framework does is that it gives you a method and a system to think about the way you are approaching performance management in your organisation. There is a lot more to making an organisation successful than simply getting a measurement system right, but it is an important element.

The key to successful working are the five enabling foundations that happened in all the organisations we looked at:

Strategic intelligence is about scanning externally for ideas and capturing that intelligence. Continuous conversations are about continually exploring and thinking about that information across the organisation.  If you get that right you get accelerated learning, where you actually start to learn faster about what is working and what is not working.

But you need a framework that gives organisational alignment to allow those continuous conversations and accelerated learning to take place across the organisation. However, you are not going to do that unless you have engaged leadership that actually legitimises it inside the organisation and allows people to use performance data to drive improved performance.  

We need to make sure performance measurement systems are as dynamic as possible in organisations and that they really help you to learn fast.

The faster you can get round that process then the faster you can learn and the more likely you are to survive in turbulent times. Robust systems are the key to today’s rapidly moving turbulent times. 

More on this can be found in this book by Andy Neely and Ed Barrows. or here for a Podcast Interview with Andy Neely

How good are your choice architects?

Service design seems to be getting more topical - especially the behavioural consequences of service design. Richard Thaler and Cass Sunstein wrote a fascinating book a few years ago called "Nudge". The core thesis of the book was that during design "choice architects" make design choices that "nudge" people in particular directions. Take a trivial example - handles on doors. When a door has a handle on it rather than a flat plat the subtle signal is pull to open the door. Ask yourself, how often do you walk up to a door with a handle on it and try to push it open? More controversially, nudges can be included in some ethically challenging decisions. In the UK we still have an opt in system for organ donation. People have to choose to donate their organs after death. Recent debates have focussed on whether we should have an opt out system - assuming that people will donate organs after death unless they have explicitly stated otherwise. This simple system design choice would have a profound impact on the levels of organ donations.

How many organisations actively think about the nudges they are introducing when designing services? How many organisations train their service designers as choice architects - encouraging them to think about the behavioural implications of seemingly trivial design choices? My guess is not many. Test it yourself. When you next experience a service, look for those nudges and see how many really nudge you in the right direction.

Andy Neely

Innovation Festivals: A Source of Ideas

Last weekend was the global service jam - billed as 48 hours to change the world. Teams from 40 countries created 350 new service ideas across the course of a weekend - all themed on Hidden Treasure. Its an interesting concept - 48 hours to form - first a team (bear in mind participants have not necessarily met before and therefore can hardly be called a team at the start) - and second a new service idea. And the idea has to be documented and demonstrated. What a great way of engaging people in innovation.


I saw a linked piece in the UK's Guardian travel supplement recently. This time focusing on the innovation festivals that are sprouting up all over the world. Clearly the best known innovation event is TED (Technology, Entertainment and Design), but TED has sprouted a load of local TEDx events (independently organised TED events). I liked the Guardian article because it introduced a range of other innovation festivals, including Wisdom 2.0 in California, South by South West in Austin Texas, The Do lectures in Wales, 99% Conference in New York, Future Everything in Manchester, Likeminds in Devon, Vivid Sydney in Australia, North by North East in Toronto Canada and the unsubtly named World Domination Summit in Portland.


Its fascinating that social media, coupled with networking events are bringing people together simply to enjoy one another's company as they create new service ideas. Where does that leave service deign in organisations? If you have armies of volunteers offering their time and thoughts freely to one another, how do organisations compete with the collective wisdom of the crowd? In fact one could ask whether organisations should compete - maybe the time for open service innovation is upon us.

Andy Neely

How Companies Learn Your Secrets: The Power and Pitfalls of Analytics

One of the most popular stories in last week’s New York Times was provocatively entitled – how companies learn your secrets. Drawing on material for a new book by author and journalist, Charles Duhigg, the article explores behavioural science and analytics in retailing. The highlight of the article is the story of a father who comes to a Target store complaining that Target is sending his high-school daughter vouchers for discounts on baby products. “Why are you sending my daughter these vouchers”, he screams. “Are you trying to encourage her to get pregnant”? A few days later the father calls the store manager to apologise – it turns out his teenage daughter is pregnant after all, she just hadn’t got round to telling her father yet!

How did Target get to know that the girl was pregnant before she’d even told her dad? Simple, through customer analytics – by looking at people’s shopping habits Target and many other retailers can make intimate predictions about people’s lives. Start buying lots of meals for one and the retailers will assume a relationship breakup. Stop buying eggs and the store might assume you’ve got your own chickens! Pregnancy is particularly important because it is such a major life change that it brings many other opportunities for the store. Most of us are creatures of habit. We buy the same toothpaste, soap and deodorant year after year – simply through habit. Research suggests that pregnancy is one of the best times to break old habits and form new ones. Target’s research suggests that an increase in sales of unscented lotions and vitamins is linked to pregnancy. Couple these two facts and the implications are profound. Target can predict who is and who is not pregnant, send those who are likely to be pregnant coupons and vouchers to use and try - in the process - to create new shopping habits for individual customers.

This brave new world, where big brother is watching, offers opportunities, but there are also significant risks for the organisations involved. Privacy concerns and reputational damage can be significant. Just look at the comments on the New York Times article – there are a lot people who are worried about the power of analytics and the potential for abuse of the data. Clearly organisations can see the benefits of analytics, but they also have to weight up the risks and put in place some very carefully considered governance mechanisms to avoid headlines like “how companies learn your secrets”.

Andy Neely and Ed Barrows

Is Servitization for You?

Andy Neely, Director Cambridge Service Alliance

There’s much talk of the servitization of manufacturing – supplementing products with services. The most recent data suggests that some 70% of economic activity lies in the service sector. Yet this figure ignores the significant proportion of service within the traditional manufacturing sector. Capital intense manufacturing firms, like BAE Systems and Rolls Royce, now generate over 50% of their revenues from service and support. Others, such as the oil majors have vertically integrated, offering downstream retail services, as well as upstream extraction operations. The shift to services seems inexorable and pervades many walks of life, but is it for you?

In answering this question there are some basic issues to consider. The first is quite simply are you selling a product that people want or need to own? Some products are consumed during use – think of food or fireworks. Your customer has to take ownership of these products, as they are used during the consumption process and have no resale value after they have been used. Other products are aspirational – products that customers don't need to own, but that they choose to own because of the value the product confers. We don’t need expensive cars to take us from A to B, or expensive watches to tell the time, but some people choose to spend their money on these luxury purchases because of the status ownership of the product confers.

Clearly there is scope to offer services associated with both consumed products and aspirational products. Restaurants are service and they use food as an input. Suppliers can offer to automatically restock restaurant supplies, an inventory management service, associated with food stocks. Some businesses choose to rent or lease aspirational products – luxury cars and even designer watches. In fact it is almost impossible to define a product that cannot be accompanied by a service. The question is where does the value lie. And can the service be delivered efficiently enough to generate a decent return.

For more detail on the shift to services see the Cambridge Service Alliance report – The Servitization of Manufacturing: Further Evidence