seminar presentation in the 2011 Service Innovation series of MIoIR (MBS) MSc course

1. Manchester Institute of Innovation Research Innovation and Convergence: Digital Convergence and Servicisation Ian Miles Ian.Miles@mbs.ac.uk IME service innovation seminar 8

2. Two developments requiring new strategies and capabilities Servicisation Digital Convergence Manchester Institute of Innovation Research

3. Manchester Institute of Innovation Research Servicisation

5. White collar workforce

6. Customer orientation

7. Customisation

8. Many ways in which manufacturing and services look more alike

9. Services become “productised”, other sectors “servicised”.Manchester Institute of Innovation Research

10. Productisation of services ..either the evolution of a service to include a product or a service that becomes standardised to a degree where it is marketed as a product. For example in logistics, transport contracts can be so well defined that they turn into a service that is effectively sold as a product. www..productserviceinnovation.com Manchester Institute of Innovation Research

11. Manchester Institute of Innovation Research From Baines, Lightfoot, Benedettiniand Kay (2009): Journal of manufacturing technology management, Vol 20 No 5 2009. Servicisation: The increasing emphasis on service outputs from manufacturing and other non-service firms

12. Some very different aspects Embedded services Product services: complementary to the goods; aiding users; adding more value; support services, KIBS Servitising goods: not rental Process services: selling business processes Software, comms, content [e.g. Kindle] Aftersales, software sales, systems integration and management Pay for service, not good Testing, production, comms, marketing Manchester Institute of Innovation Research

13. Why servicise? Manchester Institute of Innovation Research The annual volume of new equipment sales compared with the size of the installed base in selected capital goods sectors (ie one car is sold for every 13 on the road).

14. Some cases: Manchester Institute of Innovation Research T.S. Baines, H.W. Lightfoot, O. Benedettini, J.M. Kay, (2009) "The servitization of manufacturing: A review of literature and reflection on future challenges", Journal of Manufacturing Technology Management, Vol. 20 Iss: 5, pp.547 - 567

15. How is it done? Andy Neely, Cambridge, sees 3 strategies: Product-focused strategies seek to capture information regarding product usage and then integrate any relevant findings so they influence the design of the next generation of products - for example maintenance processes, functionality upgrades Service-focused strategies seek to address broader customer expectations concerning for example, service availability, co-location of service engineers, customer equipment training, speed and quality of response to specific enquiries Value chain-focused strategies seek to provide integrated service solutions (such as acting as prime contractor) so that, in effect, the supplier firm takes over some part of the customer's operation Another approach Manchester Institute of Innovation Research

16. “Product” Life Cycle Manchester Institute of Innovation Research Design Manufacture Delivery Usage Support End-of-use Veronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

17. “Product”-service relations: conventional manufacturing Manchester Institute of Innovation Research Design Manufacture Delivery Usage Support End-of-use Supplier Customer Interaction: mainly transactional. Some product support Some peripheral services Veronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

18. “Product”-service relations: more service Manchester Institute of Innovation Research Design Manufacture Delivery Usage Support End-of-use Product + service delivery Veronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

19. “Product”-service relations: more service customisation Manchester Institute of Innovation Research Design Manufacture Delivery Usage Support End-of-use Customisation of product and service Veronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

20. “Product”-service relations: more service customisation Manchester Institute of Innovation Research Design Manufacture Delivery Usage Support End-of-use Product & service codesigned: total solutions Veronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

21. “Product”-service relations: not a linear model/stages theory Manchester Institute of Innovation Research Design Manufacture Delivery Usage Support End-of-use Veronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

22. “Product”-service relations: not a linear model/stages theory Manchester Institute of Innovation Research Design Manufacture Delivery Usage Support End-of-use Veronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

24. Companies with primary or secondary US SIC codes in the range 10-39 inclusive, extractive & manufacturing, and over 100 employees [n=12,521].1.Pure manufacturing PetroChina principally engaged in a broad range of petroleum & natural gas-related activities. 2.Some combination of manufacturing & service Siemens -predominantly electronics & electrical engineering, but provides wide variety of consulting, maintenance & other services. 3.Pure service The Brink's Company: security industry firm - services offered include armoured-car transportation, automated teller machine (ATM) servicing, currency & deposit processing, coin sorting & wrapping, & arranging secure air transportation of valuables. Three models

25. Neely cases Manchester Institute of Innovation Research

26. Main services offered Manchester Institute of Innovation Research

27. Some trend data Manchester Institute of Innovation Research LAY, G. 2007. ‘Towards a Comprehensive Innovation Strategy’. Quality Congress. Istanbul: Fraunhofer Institute for Systems and Innovation Research ISI, Karlsruhe

28. Servicisation is revenue model innovation; but can affect innovation more generally Knowledge about customers, product use, product failures and problems Reallocation of costs changes logic about product maintenance: Affects product design Scope for innovation in monitoring and maintenance New service innovation Manchester Institute of Innovation Research

29. Environmental argument Services = less environmental impact (?) Swedish PhD study , firm (and user) interviews: Oksana Mont (2004) Product-service systems: Panacea or myth? Lund University, The International Institute for Industrial Environmental Economics Manchester Institute of Innovation Research Drivers: Some general factors, but also market issues vary considerably across sectors; coercive market includes consumers and regulations Barriers: Limited regulatory drivers; high costs of labour; need for better awareness on part of consumers and intermediaries (and own staff) – long learning time; credibility/demonstrability to users; diminished user responsibility; possible internal conflicts (2nd hand vs new), etc.

30. Challenges for servicisers Different management and customer relations required May need understanding of new markets, and evaluation of potential of new service offering May require thorough reorientation of sales workforce New capabilities – separate organisation? Manchester Institute of Innovation Research

31. Exercise! You work for a firm that makes high-value consumer products. (cosmetics, jewellry, babyfood, petfood....) There is a potentially disruptive technology emerging which will allow consumers to make the final products at home, easily, and for much less money. This is attracting a great deal of media attention, and public response to the new offering looks positive. What do you do? Manchester Institute of Innovation Research

32. Some options We rule out suppressing or banning the technology! (Though you could try dark propaganda against it...) We do not rule out your doing deals with the supplier. We do not rule out your downsizing, but you must try to remain sustainably profitable. Could you go upmarket? Can you complement your product with other tangible elements, or with new services? Can you move away from the original product, and focus on ancillary goods and services that sill appeal to consumers (and maybe give you advantage with the new technology)? Can you do other things with your skills, plant and equipment? Can you think of other options? Manchester Institute of Innovation Research

33. The task Decide on your product and on the strategy/ies you will pursue. (5 mins+15 mins.) Consider what capabilities you will require to implement this: Types of Knowledge Workforce skills Alliances Etc (30 minutes) Decide on what the most urgent of these are, and how you will address them. (10 mins) Manchester Institute of Innovation Research

34. Manchester Institute of Innovation Research Digital Convergence Convergence What is digital convergence? Digital convergence and innovation Who does this affect? How does it affect media, IT industries, other sectors…

35. 3 sorts of convergence Manchester Institute of Innovation Research Disruptive innovation challenges, PLUS need to master new technologies. “Both market and technology-driven convergence tendencies along the value chain ...eventually imply entire industries to converge in the long term. ...the decision to integrate competences and technologies from external sources does not necessarily come as a strategic choice... Rather required to avoid negative effects of emerging shakeouts.”

36. Technology-driven case Manchester Institute of Innovation Research

37. Manchester Institute of Innovation Research Convergence For some decades commentators have addressed computer/ telecommunications “convergence” – or collision Held by many to be a defining feature of new IT, e.g. Kobiyashi “IT=C&C”… and related to common underlying technologies (microprocessors, digitalisation) But more industries and activities “converge” than just data processing and communication

38. Manchester Institute of Innovation Research Digital Convergence Historically, distinct industries dealt with print, recorded music, images, other media, telecomms, broadcasting, computer hardware, software

40. Digital cameras

41. “ ”, projection, TVs, DVDs etc.

42. DT, CD, MP3....

43. Digital display, measurement(printing) (photochemistry) (phonography, electronics…) (mechanical, electromechanical) New storage devices and displays – ebooks, CDs, MP3/4 players, etc; Web publishing

44. Manchester Institute of Innovation Research Digital Convergence Distinct industries have dealt with hardware, software, telecommunications, broadcasting, print and other media They have varying assets, capabilities and types of content - and regulatory and IP systems But now they have increasingly shared underlying technologies (microelectronics, optronics, software) All types of data and information potentially captured, processed, communicated, stored, displayed digitally via new IT

45. Manchester Institute of Innovation Research Three Uses of Information

46. Manchester Institute of Innovation Research Three Sorts of Industry (Tele)communications Publishing Media Computation

47. Manchester Institute of Innovation Research Traditional Features (Tele)communications 1 to 1 PROCESSING COMMUNICATION INTERACTION CONTENT 1 to many (Broadcast Media) Early Online Media Publishing Media Computation

48. Manchester Institute of Innovation Research A Growing Market Space…

49. … Within which the offerings of established industries expand Manchester Institute of Innovation Research == ======Increasing ===proliferation of ======= products

50. Manchester Institute of Innovation Research The Expanding Media Universe Time Communications Computation Content The three “trumpet” shapes represent telecommunications, computer, and broadcast & print media fields. Over time the product space to which they contribute, and its market size, expands, and the three fields overlap increasingly.

51. Manchester Institute of Innovation Research Early Industrial Society COMPUTATION (TELE) COMMUNICATIONS Mechanical information processing: very limited till C20th - punch cards, calculators Paper-based communication: Stationery, Post. C19th - telephone, telegraph All (but telecomms) based on PHYSICAL TRANSPORT Paper-based information products - books, newspapers, etc + live consultation & entertainment + (later) mechanical recorded media (gramophone etc) INFORMATION GOODS & SERVICES

52. Manchester Institute of Innovation Research The mid-1950s COMPUTERS TELECOMMUNICATIONS Very few, very large, valve-based electronic computers; Keyboard calculators PHYSICAL TRANSPORT plus increasing electronic delivery (telecomms, TV, radio, etc.) Telephone Telegraph TV (mainly monochrome)AM radio, LP records, valve amplifiers BROADCAST + PUBLISHED MEDIA

53. Manchester Institute of Innovation Research The mid-1970s COMPUTERS TELECOMMUNICATIONS Increasing role for electronic delivery, but little integration of media Numerous mainframe computers Pocket calculators Telephone Telegraph Telex TV (colour) AM and FM transistor radio, LP records, transistor amplifiers BROADCAST + PUBLISHED MEDIA

54. Manchester Institute of Innovation Research The Mid/late-1980s TELECOMMUNICATIONS COMPUTERS Telephone Answering Machines, Mobile phones, Pagers, Business Fax Machines Numerous Personal Computers, Home Computers and videogames, Electronic wristwatches Some integration of media, emergence of optical media, increasing digitalisation Electronic mail Bulletin boards Videotex Online databases for business & science Recorded information services Videorecorders, audio CDs, cable and satellite TV, Teletext BROADCAST + PUBLISHED MEDIA

55. Manchester Institute of Innovation Research Turn of the Century TELECOMMUNICATIONS COMPUTERS Numerous PCs, laptops. notebooks, pocket organisers, etc. Numerous home computers and videogames Digital mobile phones, Widespread use of Fax, pagers Electronic mail, SMS Mobile data comms Increasing integration of media, use of optical media, digitalisation Internet World Wide Web CD-ROM publishing Cable telephony Audiotext Videorecorders, audio CDs, digital recording cable and satellite TV BROADCAST + PUBLISHED MEDIA

56. Manchester Institute of Innovation Research c2010 COMPUTERS TELECOMMUNICATIONS Pervasive computers, in many types of device (e.g. Personal Digital Assistants, smartphones) Internet telephone VoI, Internet videotelephony Digital mobile communications in wide use - pervasive communications WiFi, Next generation of Internet & WWW, Web2.0, Video telephones and conferences Internet TV Video on Demand Interactive TV DVD-R+, interactive video MP3 and PVR, Digital Broadcast TV digital videorecording High definition TV BROADCAST + PUBLISHED MEDIA

57. Manchester Institute of Innovation Research Uncertainties Successful products/applications/triggers Design paradigms/platforms User implementation Emergence and take-off of markets, market structures Product spaces Capabilities and industrial structure Governance of content (news, porn, gambling) and property rights (intellectual property) Other governance issues (crime, security…)

58. Manchester Institute of Innovation Research Regulators UK system change OFTEL (Telecommunications Act, 1984, on “deregulation”) + Cable Authority + ITC …. OFCOM (Communications act, 2003)

59. Manchester Institute of Innovation Research 1996? Broadcasting Standards Commission 2003 networks 1990 Oftel 1984 1991 But not print media – Press Complaints Commission etc. spectrum Radiotelecommunications Agency

60. Management of digital convergence Service industries in communications and media (and software) confront or create potentially disruptive challenges – e.g. To content delivery Manufacturers in publishing and IT face scope for new services Major challenge to capabilities Manchester Institute of Innovation Research

61. Jong-SeokKim PhD Digital Covergence in South Korea Manchester Institute of Innovation Research

62. Manchester Institute of Innovation Research Jong-Seok Kim: Korean mobile phone companies Capabilities to establish large markets for music via cellphone 14.4k/sec 2nd generation, digital services – earlier 1990s generation was analogue 2.5 generation 64k /sec 3rd generation 128k – 2m /sec

63. Manchester Institute of Innovation Research

64. Manchester Institute of Innovation Research SKT’s response The Network R&D Center’: to develop core technologies to ensure the continual advancement of the next generation network, which in time will become one of the core competencies of mobile network operators. The Platform Research Center: to research, develop, and operate Internet-related services, as well as to develop/grow the Financial Enabling business, which make banking and financial transaction possible on mobile phone. In addition, to discover new sources of growth engines by creating new businesses based on existing technological platforms. Currently the Center is carrying out R&D activities on WAPbased Platforms, M-Commerce, LBSIn the year 2004, SKT placed more emphasis on the R&D of technology. In addition, a A New Business Division was established, aiming at explore new growth engines. The New Business Division deals with the formulation of new business strategies and their implementation at global levels. New managerial routines were adopted to operate efficiently and to speed up business processes. The Chief Business Officer was responsible for the Business Strategy Division, Business Division, and Customer Division (the new name for the Marketing Division). At the same time, with the continuous introduction of new convergent services, the number of transactions with content providers was escalating. Hence, a Content Business Unit was also formed, to deal with the many issues relating to content. . ...while the three firms took different measures, they watched each other and worked on some common issues

65. New knowledge to be acquired DRM and relevant systems and solutions New markets, their properties and evolving demands, incl. Attitudes to IP and preferences for payment Knowledge of competing devices Content providers, the existing music business Potential new services – ringtone, streaming, downloads, associated content and marketing Manchester Institute of Innovation Research

66. Manchester Institute of Innovation Research Convergence Example: “smart phone” and tablets converge entertainment (games, videos, music), communications (phone, VOIP, videophone), publishing (newspaper download), and much more (cameras, health apps)… Much alliance and networking across firms to achieve success in new markets. Blurring industry boundaries New convergent services Much scope for innovation in new services, improved service design New players Diversification, vertical integration (?) Requirement for new strategies, capabilities, organisation

67. Manchester Institute of Innovation Research Not just Media New categories: e.g. chematronics, mechatronics [watch this space for bio and nano categories]… Converged products: e.g. “smart house” converges consumer electronics, telecomms, utilities, construction

68. Manchester Institute of Innovation Research Key Features of New Media: INTERACTIVITY: promises and realities differential development of applications and competences on both - user and supplier sides Sometimes technically demanding – sometimes “democratic” innovation around types of content, interfaces, delivery and “display” systems CONVERGENCE and COLLISON: digitalisation blurring boundaries new modes of delivery and use of existing (types of) content repurposing and repackaging of content New types of content (eg MMORG)

69. Hacklin et al: strategic and operational issues Manchester Institute of Innovation Research

70. Manchester Institute of Innovation Research Some implications Standard classifications of creative industries may be destabilised Importance of users and intermediaries, continually challenging IP systems and assumptions – not just driven by “piracy” (though this may often predominate) Liable to be continual dialectic between established players and newcomers, established consumption and production modes and new styles. Much creativity and innovation will not be managed in any recognisable way! But much will be, as major new markets are created and accessed.

71. Manchester Institute of Innovation Research End of Presentation