It has been a long time since I posted any content on this blog (did a few announcements, but no substantial content).
So I thought I should come back to my roots in service systems, service science, value co-creation and explain some of the linkages and how my work is moving on. My students and colleagues constantly say to me 'I don't see you for 2 months and you've moved on'. Some say 'you've left service systems and into technology now' and 'I don't recognise your work anymore'. so I thought its best to articulate my thought processes to show there is method and consistency to this madness they have perceived.
Much of my research in this domain have given me insights into service systems, the boundaries between a material product and a service, the relationship between exchange and experienced value in context.
Service dominant logic suggest that value is always co-created in context of use and experience. Co-creation is not an option (Vargo and Lusch, 2004, 2008).
For a few years, I have repeated that again and again on the lecture circuit. Many nodded. Many agreed. It was a logic, a way of looking at the world and it gave insights and understanding. The problem is, it didn't do much more. And I wanted more.
GD logic is not only very entrenched, it is not helping with a world that is increasingly digital and where business models are being disrupted. GD logic and the firm-centric view of the world was also starting to marginalise individuals in a big way with constant incursions into our privacy, all in the name of stimulating the economy. Data business is worth £50b in the US and we're on this slippery slope starting from 'our data is creating new jobs' onto a full scale marginalization of our rights and our privacy.
SD logic could help, but it hasn't really gone beyond a logic to influence people. At worst, people didn't buy in. At best, people were influenced but didn't know how to put it into action. Part of the challenge is because SD logic stayed largely within the business domain and business schools act only on people (through teaching, professional development, MBAs). What was needed were more methods, systems, tools, stuff that could change processes, infrastructures, outputs and materials, and not just people, into an SD logic mindset. SD logic needs to create a whole new set of tools with a new design and engineering philosophy. It's a bit like when lean thinking was just a logic, a way of thinking, although practiced by Toyota. It was a logic but it didn't stay that way. It spawned methods, certification, tools, performance indicators. The kanban, 5S, value stream mapping; the lean black belt holders, etc. All these created an entire community of champions for that way of thinking. We need that for SD logic because otherwise, it isn't going to change the world. The science of service systems, grounded on value cocreation and taking an SD logic view of the world wasnt going anywhere unless we created better linkages and synthesis to the world of technology, engineering and design. And we need to articulate how an SD logic perspective could or should change what they were currently doing.
Alarmingly, papers within the domain of service science and service systems started to appropriate SD logic to justify some GD logic research, often because they did not really understand SD logic.
Moving things along meant a focus on 2 key aspects. philosophy and methods.
In my mind, an SD logic philosophy is clearly grounded on a sociological and existentialist approach rather than a psychological one. Value cocreation and resource integration is something that exists, and can only be seen, in movements, in verbs and in behaviours i.e. phenomenologically. An SD logic approach is not one that you can run a survey of attitude, behaviours or intentions. The person is embedded in his actions and practices of value creation. The focus on context means the unit of analysis is in the sociology of real life behaviours. A sociological approach makes methods a problem because we've inherited a world where we have created tools from analysing water in a bucket, not by looking at its behaviour in a river.
GD logic is compelling not only because it is entrenched for over 500 years, but also because you could measure its constructs. GDP, sales, revenues, CPI - they are all constructs of a GD logic society. What SD logic needed was better methods and new constructs.
To that end, and rather ironically, I found an ally in digital technology. Here was a world of sensors and actuators with an enthusiastic community looking for novel ways of deploying them into homes and buildings i.e. the internet-of-things. Yes, many of the firms were riding roughshod over privacy issues but could we not turn that into better visibility of behaviours, could we not turn the same technologies used on us into technologies empowering us? So I started to study digital technologies in greater detail, albeit with an SD logic eye, coinciding with my move to WMG at University of Warwick. My background in computer programming and applied physics helped, I suppose, but only to the extent of confidence in learning the material quickly. The field has moved on since the 80s. Recently, Jon Crowcroft, our HAT project partner in Cambridge insisted I read Steven Johnson's book 'Future Perfect' as well as Jaron Lanier's book 'Who owns the future'. Both books grounded on the future of digital technologies, but resonated with SD logic and empowerment.
I also found, as an ally, the thinking around new economic and business models. Here was another strand of literature largely marginalised by mainstream business literature because it was (the way I interpreted it) taking a systemic view of value proposition, value creation and value capture (ie, change one, change all) and the way the organisation had to be agile and transformed for it - which sat very nicely with SD logic. Also, being in the heart of a manufacturing community where pervasive digital technologies were starting to create a set of thinking around 'incomplete products' or personalised (and not customised) products, sat even better with the notion of indirect service, suggested by SD logic. (see a great special issue from Organisation Science by Youngjin et.al. on Organising for Innovation in the Digitized World). Customised products are firm centric. Personalised products are customer initiated and empowering. Personalised products also tend to move the product into becoming platforms to afford co-creation, which advanced the notion of symmetry in value co-creation further. Finally, with the advent of platforms, the economics of 2 or multi-sided markets completed my set of theoretical collaborators across economics, business models. manufacturing and technology - aligned to SD logic.
As my research and thinking progressed, I started to think harder into the synthesis between these domains. I found some of the connections to begin with (others could possibly do more) and that synthesis was central in my book 'Value & Worth: Creating New Markets in the Digital Economy' which is now out on Kindle and the printed version by Cambridge University Press out end of the year.
Moving that thinking on, I became convinced that the science of service systems, grounded on SD logic, could not just be a contribution but could create an impact through a carefully designed experiment that could turn the world on its head, empowering the individuals, give us some interesting constructs, methods and measurements in real lives. Thus, together with excellent colleagues in technology and economics, the HAT project was conceptualised. It took some time. We applied to the Leverhulme fund and didn't get the grant and the second outing of the HAT, together with a great team, was funded. I was thrilled. I would highly recommend following the HAT project blog site here. To come to this point was an amazing moment for me and I blogged on the HAT site here. For those who follow SD logic and service science/service systems, you can probably see how it extends the work in the 'background to research'.
I do admit, now having spent years in business, economics, engineering, technology and sociology that I struggle sometimes with the language - Some of my colleagues have accused me of introducing this new 'jargon' that I have developed that is a combination of some 5 disciplines. My approach have been pragmatic - whatever the term or language that persuades you to see the world the way I see it, is what I would use. Not very academic of me (most of my colleagues prefer to argue about definitions). I probably should care, but I don't ;p. Perhaps it might evolve into the jargon of service systems & service science? However, if I know I am speaking to an economist/sociologist/business/technology academic, I would try to use terms in their world -it just makes communicating easier. Inter-disciplinarity comes with a host of interesting issues but I might blog about it some other time.
The HAT project also brought me back into entrepreneurial activity again (a full circle, after being an academic for 15 years) because I didn't just want to create new constructs and methods as an academic, I genuinely want to turn the world inside out, creating an empowered individual and having that balanced and symmetrical view of co-creation and yet create new markets and stimulate the economy. That means the HAT has to move into deployment, becoming a world-wide-HAT so the startup company has to be formed to lead the way. I think I have become Steven Johnson's version of a peer progressive ;)
Watch this space, as well as that of the HAT!
Follow me on Twitter
Sunday, 24 March 2013
Monday, 11 March 2013
Printed rights of Value & Worth: Creating new Markets in the Digital Economy' acquired
Dear friends, I am most honoured and pleased to inform you that the PRINT version for my e-book 'value and worth: creating new markets in the digital economy' (available at http://valueandmarkets.com) will be acquired exclusively by Cambridge University Press, the oldest printing and publishing house in the world (about CUP here), for all territories and all languages. Paperback and hardback is expected September 2013. I will still retain the electronic rights as I am currently experimenting with knowledge and publishing platform business models.
I am indeed very honoured that Cambridge University Press has offered for the book to be published as one of their titles. The strong interest this book has had worldwide has reinforced my belief that academic research in service, value and business models should be made more accessible to practice and provide some guidance to an increasingly fragmented and yet connected digital economy. I look forward to seeing the print version soon.
As an aside, I am now in the company of the King James Bible...... if only it will sell just as many ;p
I am indeed very honoured that Cambridge University Press has offered for the book to be published as one of their titles. The strong interest this book has had worldwide has reinforced my belief that academic research in service, value and business models should be made more accessible to practice and provide some guidance to an increasingly fragmented and yet connected digital economy. I look forward to seeing the print version soon.
As an aside, I am now in the company of the King James Bible...... if only it will sell just as many ;p
Sunday, 13 January 2013
Release of book: Value & Worth: Creating New Markets in the Digital Economy
The release of my book on Amazon Kindle is finally here! Read all about it at:valueandworthbook.com or valueandmarkets.com
Also, remember to register for new updates on the book and follow the book on twitter at @valueandmarkets
If you have been following this blog and interested in value co-creation, outcome-based contracts, service systems, new business models, new economic models and value, this book brings it all together for the future in understanding digital technologies and the role of value and the customer!
Read the preface of the book (on the websites) to know more!
Thanks to all my twitter followers and to those who follow my research work. I hope you get a lot from it and do feedback your comments on the website!
Wednesday, 31 October 2012
New Economic Models for personal data
Excerpt from the book "Value and Worth: Creating New Markets in the Digital Economy" available in January 2013
Link to book at valueandmarkets.com
START OF EXCERPT
New Economic Models for personal data
As the digital age progresses further, more of ourselves can now be potentially commodified. I say potentially, because it depends on the firm’s ability to do so. For practices that are measurably visible and direct such as mouse clicks, button presses, it's commodification potential is obvious. Companies like google or Facebook have sophisticated algorithms to calculate how much a recommendation, a share or a like could translate to creating worth to advertisers. However, since digital connectivity also allows us to interact, we are now digitally more visible – we vote, pay, applaud, and commodification of such practices are much more a challenge. With greater digitisation into the contexts of home and buildings, the digital self in future could be seen more transparently through how we create value within digital contexts i.e. the visibility of elements (nouns), system (verbs), structures (rules), agency, affordance and outcomes in contexts (see chapter 4). We already generate much personal data through our financial transactions, tax records, health behaviours and online interactions. There is a growing concern over our ability to control what information we reveal about ourselves over the Internet, and who can access that information. The US Federal Trade Commission has provided a set of guidelines on widely-accepted concepts concerning fair information practices in electronic exchanges called the Fair Information Practice Principles. The problems is that treating data according to what is ‚good practice’ doesn’t reduce individuals reservations about its collection and use. It breeds a culture of mistrust especially when so much of what we need to do digitally results in signing ‚informed consent’ about what firms could do with our data, documents that we cannot humanly and cognitively process in terms of its implication. In addition, injustice may arise because individuals could buy and use digital offerings under conditions of inequality or necessity which suggest that such practrices are coercive, prompted by the necessities of his situation.
How should we understand our personal data in terms of privacy, vulnerability and security for ourselves on one hand and while we wish to have firms create new offerings to serve us in context on the other? How should we think of personal data as protecting us while at the same time creating new markets?
These are the conditions we often face today for online personal data privacy.
• We withhold our consent for personal data to be used because we get nothing in return.
• We do not wish to participate in online digital activities for fear of being digitally visible as we do not know who holds our data and what they would do with it.
• The firm refuses to compensate for use of personal data because it does not know yet what worth (new offerings) could be created.
• The firm owns part of our data and could do with it what they wish, as long as they anonymise it. But they cannot share it with another party so there is limited understanding of the data.
One way of thinking about personal data is start from the position that its ownership is our digital labour. Thus, by allowing it to be owned by someone else such as a firm is allowing for its exploitation, regardless of how the firm anonymises it. This does not mean that firms cannot be allowed access, merely that as a point of principle, the information has to be owned by individuals and firms only give the right to access it. The reason this principle should exist is that personal data could then be seen as our labour for commodification just as the way we see our real work in life as labour for commodification. This creates a market for digital labour of which firms could ‚buy’ and compensate individuals for. Continuing the logic, digital labour i.e. visible practices on line would then become an asset to individuals. By doing so, individuals may not be so restrained in their digital practices, since its a reduction of their assets, but may be more discerning on whom they could share them with, thereby sharing only when there is benefit to themselves. Firms could offer contextual digital offerings based on these assets they can view and compensate accordingly, to the individual as both digital labourer and as customer. Currently, our compensation for personal data is often what is commonly known as 'a free lunch'. So we may get back coupons, discounts, freebies from the commodification of our practices. By liberating personal data into a format where we could store and be accessible to firms, a market for prosumerism exchanges is created where individual choices can be respected even while markets can be created with new business models for compensation and experience.
This could be a solution because the current personal data held by several insitutions is often not shareable under data privacy acts. Thus different firms hold data that is partial, with visibility that is incomplete. This results in digital labour becoming less valuable to firms and commodification becomes a challenge since firms do not yet know how to create worth from digital labour. Access to a more complete visibility of the customer with suitable compensation to digital labour will create better offerings for individuals allow choice, and could stimulate market creation under conditions of fairness and consent.
Personal data may therefore be seen to be not just a privacy or legal issue but that about market exchanges of rights and the external effects that could be obtained from the creation of such a market. Our consent is not merely an ethical dilemma. It is a right not to 'work' and a right therefore not to be digitally visible, but if we decide to be visible we could be rewarded for that just as labour is compensated through work. When a market of personal data generation and use is created, individuals may be more willing to do digital work as a result, or at least, allow for their data to be visible and accessible. By doing so, they are accumulating a potential resource for a commodification opportunity, with the firm playing the role of developing its capability to create worth from that commodification. Without such a market, individuals may withhold consent and firms, being unable to create worth from partial personal data will not pay for it. With no incentive for participation, what economists would term as market failure results. While firms today talk about ‚big data’, data will get even bigger with greater connectivity and the internet-of-things. Fundamentally allowing firms to aggregate data so that they can serve the population through new services while recognising the rights of those who generate the data is the way forward. We will all benefit from better traffic information if we allow our individual travel data to be collected, aggregated and served back to help us with our travel plans but conversations around big data must recognise both the business and service generation from big data as well as the rights of the data generators who contribute their digital labour and a free market to allow more of this to happen is crucial.
When the economy is based on an exchange of ownership, we create unlimited value (or not) from what we buy. Traditional exchange economy for goods gave little visibility to value creation, especially for things. The economic system only measures worth and not the value created. As firms wish to appropriate more revenues from value creation and change their business models particularly in the digital economy, they may give up the ownership model, and instead, look to business models that derive revenues from use or experience e.g. Power by the hour. By not creating worth from value creating activities, the firm opens itself up to other ways of creating worth. Understanding personal data and how digital activities create value in context becomes a stimulus for new business models and new innovative offerings.
END OF EXCERPT
For more information on my book and to get latest updates (including previews and early release), please go to www.innovorsa.com and register your email.
Excerpt from the book "Value and Worth: Creating New Markets in the Digital Economy" available in January 2013
Link to book at valueandmarkets.com
START OF EXCERPT
New Economic Models for personal data
As the digital age progresses further, more of ourselves can now be potentially commodified. I say potentially, because it depends on the firm’s ability to do so. For practices that are measurably visible and direct such as mouse clicks, button presses, it's commodification potential is obvious. Companies like google or Facebook have sophisticated algorithms to calculate how much a recommendation, a share or a like could translate to creating worth to advertisers. However, since digital connectivity also allows us to interact, we are now digitally more visible – we vote, pay, applaud, and commodification of such practices are much more a challenge. With greater digitisation into the contexts of home and buildings, the digital self in future could be seen more transparently through how we create value within digital contexts i.e. the visibility of elements (nouns), system (verbs), structures (rules), agency, affordance and outcomes in contexts (see chapter 4). We already generate much personal data through our financial transactions, tax records, health behaviours and online interactions. There is a growing concern over our ability to control what information we reveal about ourselves over the Internet, and who can access that information. The US Federal Trade Commission has provided a set of guidelines on widely-accepted concepts concerning fair information practices in electronic exchanges called the Fair Information Practice Principles. The problems is that treating data according to what is ‚good practice’ doesn’t reduce individuals reservations about its collection and use. It breeds a culture of mistrust especially when so much of what we need to do digitally results in signing ‚informed consent’ about what firms could do with our data, documents that we cannot humanly and cognitively process in terms of its implication. In addition, injustice may arise because individuals could buy and use digital offerings under conditions of inequality or necessity which suggest that such practrices are coercive, prompted by the necessities of his situation.
How should we understand our personal data in terms of privacy, vulnerability and security for ourselves on one hand and while we wish to have firms create new offerings to serve us in context on the other? How should we think of personal data as protecting us while at the same time creating new markets?
These are the conditions we often face today for online personal data privacy.
• We withhold our consent for personal data to be used because we get nothing in return.
• We do not wish to participate in online digital activities for fear of being digitally visible as we do not know who holds our data and what they would do with it.
• The firm refuses to compensate for use of personal data because it does not know yet what worth (new offerings) could be created.
• The firm owns part of our data and could do with it what they wish, as long as they anonymise it. But they cannot share it with another party so there is limited understanding of the data.
One way of thinking about personal data is start from the position that its ownership is our digital labour. Thus, by allowing it to be owned by someone else such as a firm is allowing for its exploitation, regardless of how the firm anonymises it. This does not mean that firms cannot be allowed access, merely that as a point of principle, the information has to be owned by individuals and firms only give the right to access it. The reason this principle should exist is that personal data could then be seen as our labour for commodification just as the way we see our real work in life as labour for commodification. This creates a market for digital labour of which firms could ‚buy’ and compensate individuals for. Continuing the logic, digital labour i.e. visible practices on line would then become an asset to individuals. By doing so, individuals may not be so restrained in their digital practices, since its a reduction of their assets, but may be more discerning on whom they could share them with, thereby sharing only when there is benefit to themselves. Firms could offer contextual digital offerings based on these assets they can view and compensate accordingly, to the individual as both digital labourer and as customer. Currently, our compensation for personal data is often what is commonly known as 'a free lunch'. So we may get back coupons, discounts, freebies from the commodification of our practices. By liberating personal data into a format where we could store and be accessible to firms, a market for prosumerism exchanges is created where individual choices can be respected even while markets can be created with new business models for compensation and experience.
This could be a solution because the current personal data held by several insitutions is often not shareable under data privacy acts. Thus different firms hold data that is partial, with visibility that is incomplete. This results in digital labour becoming less valuable to firms and commodification becomes a challenge since firms do not yet know how to create worth from digital labour. Access to a more complete visibility of the customer with suitable compensation to digital labour will create better offerings for individuals allow choice, and could stimulate market creation under conditions of fairness and consent.
Personal data may therefore be seen to be not just a privacy or legal issue but that about market exchanges of rights and the external effects that could be obtained from the creation of such a market. Our consent is not merely an ethical dilemma. It is a right not to 'work' and a right therefore not to be digitally visible, but if we decide to be visible we could be rewarded for that just as labour is compensated through work. When a market of personal data generation and use is created, individuals may be more willing to do digital work as a result, or at least, allow for their data to be visible and accessible. By doing so, they are accumulating a potential resource for a commodification opportunity, with the firm playing the role of developing its capability to create worth from that commodification. Without such a market, individuals may withhold consent and firms, being unable to create worth from partial personal data will not pay for it. With no incentive for participation, what economists would term as market failure results. While firms today talk about ‚big data’, data will get even bigger with greater connectivity and the internet-of-things. Fundamentally allowing firms to aggregate data so that they can serve the population through new services while recognising the rights of those who generate the data is the way forward. We will all benefit from better traffic information if we allow our individual travel data to be collected, aggregated and served back to help us with our travel plans but conversations around big data must recognise both the business and service generation from big data as well as the rights of the data generators who contribute their digital labour and a free market to allow more of this to happen is crucial.
When the economy is based on an exchange of ownership, we create unlimited value (or not) from what we buy. Traditional exchange economy for goods gave little visibility to value creation, especially for things. The economic system only measures worth and not the value created. As firms wish to appropriate more revenues from value creation and change their business models particularly in the digital economy, they may give up the ownership model, and instead, look to business models that derive revenues from use or experience e.g. Power by the hour. By not creating worth from value creating activities, the firm opens itself up to other ways of creating worth. Understanding personal data and how digital activities create value in context becomes a stimulus for new business models and new innovative offerings.
END OF EXCERPT
For more information on my book and to get latest updates (including previews and early release), please go to www.innovorsa.com and register your email.
Sunday, 29 July 2012
New economic models from collapse of exchange and use in retail banking
This post was brought about because of an exchange between Wim Rampen and Arie Golshlager on twitter. The conversation is captured in Arie's post and Wim's comment at
http://ariegoldshlager.posterous.com/barclays-features-store
Essentially, Arie put up the Barclays ad on choices for retail banking and Wim commented that customisation is great but research has shown that giving too many choices stifles the customer (pointing to Sheena Iyengar's Ted talk http://www.ted.com/talks/sheena_iyengar_choosing_what_to_choose.html)
Arie asked me to comment on his post but there was so much to say that I decided to post this on my blog as well. It is also tied to my upcoming book and a recent keynote I delivered so if you are interested in more of this, sign up at the book page Value: Creating New Markets in the Digital Economy and check the keynote at service systems resource page
The problem I have with this ad is the revenue model/economic model for retail banking. To understand this, let's go back to fundamentals and evaluate what NEED a banking service is really satisfying. Keep my money safe. Give me interest for my excess at the best possible rate, give me my money whenever, wherever I want to use it securely and fast. If I don't have any, lend me some at the best possible interest rate.
What this means is that true retail banking service is a magic wallet for my money. It's with me all the time, and I can access, store, use, earn Interest (for excess), pay interest (for what I owe), but always at the convenience of being in my back pocket or handbag.
Now take a look at retail banking. It has grown into monolithic institutions, creating rules, transactions, norms, practices that we have come to accept as the 'solution' to our needs but actually makes us jump through hoops just to access money (dongles to log in) in the name of 'service'. And there is an academic term for this phenomenon. It's called an institutionalised solution. Basically, it means that we have been conditioned to think that the solution to our needs takes a certain form and that form has become 'institutionalised'. Markets are therefore formed from such institutionalised solutions (ref Steve Vargo who is researching in this area - need a cite here, Steve). So we believe that the solution to knowing the time at the bedside is a bedside clock, and managing our money is the current form of retail banking. So markets for bedside clocks and retail banking emerge because people accept that it is an acceptable solution (at that time) and it becomes 'institutionalised'.
Then technology comes along and disrupts all that because fundamentally, there could be other solutions that are way better, much easier for the consumer and in doing so, the market could potentially explode because there was so much latent need that was not satisfied with the previous institutionalised solution. Technology, in particular digitisation, can now potentially make this magic wallet come true e.g. through mobile solutions and other ways to access money. But of course, institutionalised solutions are hard to 'de-instutionalised' (reason why radical innovation is hard) so they try to modify the model to fit, by giving more choices. Often, new provisions are secondary to the 'primary solution' of retail banking; the idea that the primary solution could be wrong is unthinkable.
So why could the retail banking 'institutionalised solution' be wrong?
Well, wrong is a little harsh. It's just archaic, inefficient and rather 'inside-out' and sooner or later, it will be replaced (although one must never underestimate the longevity of entrenched institutionalised solutions)
To answer this, let's go back to the simple magic wallet again. The problem with the current retail banking model is that it is still based in an old good-dominant logic of exchange (cue SD logic music now.... Vargo & Lusch 2004, 2008). They are still thinking that revenue (and therefore service) is created at the point of exchange- which is why Barclays, and so many products are doing all these customization, that could result in too many 'choices' problem.
Why is this untenable? because the business model is now becoming too challenging to maintain.
Quite simple really. The value created by retail banking is not at the point of exchange. It's at the point of use in context. My magic wallet creates value with me at the time I need to access, look at, use my money. Making me choose the options for my magic wallet (retail banking solution) before I use it is just passing risks over to me, and in my opinion poor service.
At the keynote I mentioned that for all the choices that we have in the world for tea, coffee and cereal, the reality is that when you wake up in the morning, you only have the choice of what you bought. Retail banking is similar.
Because use contexts are complex, high variety and low visibility to the bank, they still prefer the exchange model which means the consumer has to make decisions BEFORE they use. They think the customer KNOWS what they want at choice but actually, they don't and even if they think they do, contingencies arise but these institutions are not thinking of new ways to serve use contexts, they are passing the risk on to customers at the point of exchange through choice-giving.
And they think that's good service.
What it is, truly, and why too many choices are stifling customers is because they try to use exchange to emulate possible use contexts. Customers are stifled because, in part, they cannot possibly envisage all contingencies of contexts.
All this is going to change with digitisation because it means that banking (and other offerings) could actually build contingent revenue models, better context pricing models ie collapsing exchange and use into the same time and space, with new platforms of both exchange and use, better aligning customer outcomes (and needs) to the exchange. And guess what, there is actually more money to be made when exchange and use collapse into the same space (check the music industry example at the keynote). Now that is truly a retail banking service to look forward to. The only question is - which bank will lead. Be careful, competition dynamics in contexts are very different with different players coming into the scene. Bedside clocks are fast becoming a thing of the past, replaced by your phone.
I do some work with media and content context pricing - media as an industry is digitising faster than banking because they are less monolithic and entrenched and content is fast changing with user generation etc. so the product itself is evolving because of its ability to serve use contexts. At an abstract level, you can see industries changing from seeing how media and content is changing but I don't want to include more spoilers for the book coming up so I should stop here. Do also stay in touch with the research in this area at our RCUK funded New Economic Models in the Digital Economy (NEMODE)
http://ariegoldshlager.posterous.com/barclays-features-store
Essentially, Arie put up the Barclays ad on choices for retail banking and Wim commented that customisation is great but research has shown that giving too many choices stifles the customer (pointing to Sheena Iyengar's Ted talk http://www.ted.com/talks/sheena_iyengar_choosing_what_to_choose.html)
Arie asked me to comment on his post but there was so much to say that I decided to post this on my blog as well. It is also tied to my upcoming book and a recent keynote I delivered so if you are interested in more of this, sign up at the book page Value: Creating New Markets in the Digital Economy and check the keynote at service systems resource page
The problem I have with this ad is the revenue model/economic model for retail banking. To understand this, let's go back to fundamentals and evaluate what NEED a banking service is really satisfying. Keep my money safe. Give me interest for my excess at the best possible rate, give me my money whenever, wherever I want to use it securely and fast. If I don't have any, lend me some at the best possible interest rate.
What this means is that true retail banking service is a magic wallet for my money. It's with me all the time, and I can access, store, use, earn Interest (for excess), pay interest (for what I owe), but always at the convenience of being in my back pocket or handbag.
Now take a look at retail banking. It has grown into monolithic institutions, creating rules, transactions, norms, practices that we have come to accept as the 'solution' to our needs but actually makes us jump through hoops just to access money (dongles to log in) in the name of 'service'. And there is an academic term for this phenomenon. It's called an institutionalised solution. Basically, it means that we have been conditioned to think that the solution to our needs takes a certain form and that form has become 'institutionalised'. Markets are therefore formed from such institutionalised solutions (ref Steve Vargo who is researching in this area - need a cite here, Steve). So we believe that the solution to knowing the time at the bedside is a bedside clock, and managing our money is the current form of retail banking. So markets for bedside clocks and retail banking emerge because people accept that it is an acceptable solution (at that time) and it becomes 'institutionalised'.
Then technology comes along and disrupts all that because fundamentally, there could be other solutions that are way better, much easier for the consumer and in doing so, the market could potentially explode because there was so much latent need that was not satisfied with the previous institutionalised solution. Technology, in particular digitisation, can now potentially make this magic wallet come true e.g. through mobile solutions and other ways to access money. But of course, institutionalised solutions are hard to 'de-instutionalised' (reason why radical innovation is hard) so they try to modify the model to fit, by giving more choices. Often, new provisions are secondary to the 'primary solution' of retail banking; the idea that the primary solution could be wrong is unthinkable.
So why could the retail banking 'institutionalised solution' be wrong?
Well, wrong is a little harsh. It's just archaic, inefficient and rather 'inside-out' and sooner or later, it will be replaced (although one must never underestimate the longevity of entrenched institutionalised solutions)
To answer this, let's go back to the simple magic wallet again. The problem with the current retail banking model is that it is still based in an old good-dominant logic of exchange (cue SD logic music now.... Vargo & Lusch 2004, 2008). They are still thinking that revenue (and therefore service) is created at the point of exchange- which is why Barclays, and so many products are doing all these customization, that could result in too many 'choices' problem.
Why is this untenable? because the business model is now becoming too challenging to maintain.
Quite simple really. The value created by retail banking is not at the point of exchange. It's at the point of use in context. My magic wallet creates value with me at the time I need to access, look at, use my money. Making me choose the options for my magic wallet (retail banking solution) before I use it is just passing risks over to me, and in my opinion poor service.
At the keynote I mentioned that for all the choices that we have in the world for tea, coffee and cereal, the reality is that when you wake up in the morning, you only have the choice of what you bought. Retail banking is similar.
Because use contexts are complex, high variety and low visibility to the bank, they still prefer the exchange model which means the consumer has to make decisions BEFORE they use. They think the customer KNOWS what they want at choice but actually, they don't and even if they think they do, contingencies arise but these institutions are not thinking of new ways to serve use contexts, they are passing the risk on to customers at the point of exchange through choice-giving.
And they think that's good service.
What it is, truly, and why too many choices are stifling customers is because they try to use exchange to emulate possible use contexts. Customers are stifled because, in part, they cannot possibly envisage all contingencies of contexts.
All this is going to change with digitisation because it means that banking (and other offerings) could actually build contingent revenue models, better context pricing models ie collapsing exchange and use into the same time and space, with new platforms of both exchange and use, better aligning customer outcomes (and needs) to the exchange. And guess what, there is actually more money to be made when exchange and use collapse into the same space (check the music industry example at the keynote). Now that is truly a retail banking service to look forward to. The only question is - which bank will lead. Be careful, competition dynamics in contexts are very different with different players coming into the scene. Bedside clocks are fast becoming a thing of the past, replaced by your phone.
I do some work with media and content context pricing - media as an industry is digitising faster than banking because they are less monolithic and entrenched and content is fast changing with user generation etc. so the product itself is evolving because of its ability to serve use contexts. At an abstract level, you can see industries changing from seeing how media and content is changing but I don't want to include more spoilers for the book coming up so I should stop here. Do also stay in touch with the research in this area at our RCUK funded New Economic Models in the Digital Economy (NEMODE)
Wednesday, 16 May 2012
The Future of Manufacturing and the rise of value constellations
I've had to tell this story so many times now that I think I had better blog it.
The start of the story is from the article"Siemens beats Bombardier to Thameslink train order": http://www.bbc.co.uk/news/business-13792510
To begin, here are some caveats. I do not know the people in Siemens or Bombardier who have been involved in this. Neither do I know anyone in government involved in this. I do know of a friend who is working in Bombardier (not directly related to this) and we had a conversation on it which led me to this blogpost.
I am analysing this based on what I think is a good illustration of the future of manufacturing.
So here's what I think.
We are used to wealth coming from a world of making things because we have always thought of value as exchange. I make something and then give it to you and you give me money (for more on this, check out my paper on integrative framework on value). But that world is rapidly changing as more information is being digitised and things are being connected. Exchange is increasingly less the source of wealth creation and commerce. Outcomes (some would call it solutions but I hesitate - see my blogpost on the difference between solutions and outcomes) are now being prized and as technology enabled connectivity become ubiquitous, customers are becoming more demanding. This has a massive impact on manufacturing. The manufacturing industry has always worked on a basis of exchange and ownership. The mindset and the business model is that of selling and delivering things, not the use of it. If you ask manufacturers, they still think of anything after the sale of a product as 'value-added' or something (usually a service) wrapped around the thing they make. They still don't think of fundamentally changing how things are made so that outcomes are better achieved. They have not understood that the new frontier of manufacturing is outcome, and not exchange.
How does the article above illustrates this? Well, bombardier makes trains and in the traditional way, train manufacturers make trains and give it over to the customer for them to use and operate, perhaps adding some services before, during and after the train has been manufactured as 'added value'.
But the truth of it is that trains enable an outcome of people getting from point A to point B. Think about the use of the train. By the time you get on a train, the problem is usually solved right? The real problem usually is getting on the train. So, what you really want to know is which train you should get on, how many seats are available on which carriage and where you can put your bicycle/pram and if you miss this train, which one can you get after and can you connect further south/north/east/west? So .... the train value proposition for exchange and the train value proposition for outcome, is quite different. In fact, I would argue that this actually could warrant a redesign of your train. In fact, you might want to think about how your train value proposition could be digitised/dematerialised to create resources for people away from the train so that they can get on to the train. This is where you need to get creative because new materials for manufacturing trains and new ways of configuring and digitizing the train offering could come up with new ways to enable people to use trains. As a start, there are aspects of the train such as number of seats available, luggage spaces etc. where you could put in sensors to communicate information. It also means that the entire train design may need to be remodularised so that the design could be more efficient to convey various information about the train. And this information could result in very different types of payment and economic models as well.
So this is where I think Bombardier didn't get it. Siemens, on the other hand, is much more clued into the information systems and connectivity agenda which I believe they have leveraged for the Thameslink bid. As an example, I've just done a simple screen dump of siemens rail and bombardier rail websites.
Siemens:
Siemens combines innovation with responsibility to deliver technologically advanced solutions ensuring journeys are punctual, comfortable and safe
Bombardier:
Bombardier Transportation offers one of the most comprehensive rail vehicle portfolios in the world.
From mainline to metro, light rail to locomotives, our strategy is one of continuous development that provides the most effective and cost-efficient rail solutions today and in the future
You can form your own conclusions. Remember this is just an illustration and shouldn't be seen to mean more than that but I think it does say something.
I don't think Siemens fully understand designing and manufacturing for outcomes either because, from their description, I don't think they have yet understood the role of value co-creation and co-capability, but they are probably a few steps ahead of Bombardier.
Manufacturing is changing - the Economist had a special report dedicated to it. It doesn't quite go far enough, but you can see that slowly but surely, legacy boundaries between industries are starting to crumble.
The future of manufacturing is embedded in the role of the material, social and technological in collaborating and resource integrating value constellations (i.e. value creating service systems). Some things may be half manufactured (remodularised), and finished locally or by your customers because they know their outcome use varieties better (3D printing to finish scalable material platforms?). Some things can continue to be updated technologically and digitally (like the iPad and the operating system) for the material to adapt to other contexts of use. There will be new interactions between new types of materials, the digital realm and the social use of the object the way it has never been thought of before. New economic and payment models will follow as micro payments and contextual and outcome-type revenue models begins to pervade markets because it becomes technologically possible to track and measure use outcomes. We will see convergence between industries but for us to scale, grow and be economically more progressive, we need to know why and we need to know how to do it again and again. We need lots of new knowledge, tools, frameworks and methodologies for this new world. If you haven't been thinking about going back to research, start thinking now.
Thursday, 5 January 2012
Outcome-based Contracts are NOT the same as solutioning
I've been told many times that outcome based contracts, such as flying hours, power by the hour, availability etc. are actually solutions-based contracts. (more on outcome based contracts at my previous blogpost here)
It's not.... so I thought l'll blog about the difference. Much of these insights come from my research in OBC so if you want the papers, check out my academic site
1. Diferent capability. Ability to achieve outcomes on Outcome based contracts means a capability to co-create, partner, collaborate and work together with your customer (see blogpost on value co-creation). That means you recognise that you need to keep your customers engaged and working with you and you develop your capability to do that. Solutions imply a passive customer. When you deliver 'a solution' it implies you do everything, and everything is under your control and the customer stays as a passive 'consumer'. Companies that don't really know how to collaborate, co-create and partner often prefer solutioning. Why? Because they want everything under their control. Co-creating and partnering is hard because they lose control. The ability to achieve outcomes on OBC is therefore a different capability from solutions. It's a capability of managing customer autonomy and complexity.
2. Different system. The system of solutioning is complicated. The system of achieving outcomes is complex. Complicated systems often means there is a central 'command and control' to achieve a solution. Complex means parties are autonomous and collaborating to achieve an outcome (see blog post on complicated vs complex). Complicated systems are based on reductionistic engineering science. Complex systems are based on holistic and systems science. Two completely different ways of understanding, viewing and analysing the system. Complicated systems are usually closed systems where anything outside comes into the system through designed and pre-specified conduits for inputs and outputs and predetermined 'touchpoints'. Complex systems are usually open systems where, because of autonomy, allows for a freer flow of people and information. I must stress that there are often closed complicated-type systems within complex systems so the distinction is a logical one, rather than a physical difference. We have inherited a world where often managers use reductionistic science to carve out the 'problem space' and solve it in isolation which can create more complexity from unintended consequences elsewhere in the system so its hard to tell the line between complicated and complex (there usually isn't one).
3. Paradox of solutioning is that the more you provide 'solutions' and relegate your customer to a passive role, the harder it is for you to please your customer. The logic is that an engaged customer is a happy customer because you respect their autonomy and yet able to manage the cooperation. Wanting your customer to be passive is like wanting your child to be passive and you provide everything for a child. it usually doesn't make for happy children.
4. Sometimes more expensive. Solutioning is sometimes more expensive than OBC. Why? Because to provide the 'solution' a provider need to price resources where ideally, some of these resources should not be provided by the provider but by the customer, because the customer, at the use end, has more updated information. For example, say you provide a security service for a house. If your customer wants 'incident-free' as an outcome, it goes beyond just patrolling the grounds or cctvs. It is also knowing when there may be a particular event in the house (e.g. a celebrity visit) where the event could attract security incidents. Your customer knows it but you may not. Not knowing it may make it costly for you as you need to overprovide or be overly cautious. If the customer is also responsible for the risk, the total cost of the outcome may come down. Of course, OBC could also be more expensive sometimes because of cost of cooperation/engagement. Hey, its a capability right? It's not meant to be easy.
5. Complex outcomes vs functional complicated outcomes. Some outcomes are impossible to be 'solutioned'. For example, if you may be able to provide the 'solution' of constructing a 'village' (build houses, townhall, parks, roads etc.), but you can never provide a 'community'. that can only be co-created. Similarly, many emergent properties of systems e.g. family, experience are co-created and not 'solutioned'. So if you are outsourcing a service of your firm be very careful what outcome you are outsourcing. I see firms specifying functions to be outsourced and then becoming very unhappy because they got the outcomes wrong. Its easily to think the world is about functions. Often the outcomes we want are complex outcomes and not complicated functional outcomes. Specifying only the complicated functional outcomes for outsourcing is the most common problem I encounter because it underestimates the full outcome of the 'outsourced' element and reduces it to only a function when that element was achieving more complex outcomes before it was outsourced (and when it was part of an internal division).
6. Variety. Solutions and reductionistic engineering science in systems are really useful when there isn't much variety in the system i.e. in the context of customer 'use' of your service, there aren't many anomalies e.g. the experience of a flight. In such cases, a fully systematic system could be put in place where almost every contingency have been covered. When you have a customer in an enclosed cabin, there isn't really much else s/he needs except sleep, eat, drink, entertain (which is why I always think they dont want to give us internet access). In systems where customer 'use' of a service could have high variety e.g. a resort hotel, trying to 'command and control' the experience could end up with the customer disengaged. Be careful how you try to limit variety because not only do you end up not co-creating value, you engineer a disengaged customer. 'Variety' is double edged. It means more work for you but also an opportunity to create a better experience.
So in short, outcome-based systems are not 'solutioning' systems!
-- Posted from my iPhone
It's not.... so I thought l'll blog about the difference. Much of these insights come from my research in OBC so if you want the papers, check out my academic site
1. Diferent capability. Ability to achieve outcomes on Outcome based contracts means a capability to co-create, partner, collaborate and work together with your customer (see blogpost on value co-creation). That means you recognise that you need to keep your customers engaged and working with you and you develop your capability to do that. Solutions imply a passive customer. When you deliver 'a solution' it implies you do everything, and everything is under your control and the customer stays as a passive 'consumer'. Companies that don't really know how to collaborate, co-create and partner often prefer solutioning. Why? Because they want everything under their control. Co-creating and partnering is hard because they lose control. The ability to achieve outcomes on OBC is therefore a different capability from solutions. It's a capability of managing customer autonomy and complexity.
2. Different system. The system of solutioning is complicated. The system of achieving outcomes is complex. Complicated systems often means there is a central 'command and control' to achieve a solution. Complex means parties are autonomous and collaborating to achieve an outcome (see blog post on complicated vs complex). Complicated systems are based on reductionistic engineering science. Complex systems are based on holistic and systems science. Two completely different ways of understanding, viewing and analysing the system. Complicated systems are usually closed systems where anything outside comes into the system through designed and pre-specified conduits for inputs and outputs and predetermined 'touchpoints'. Complex systems are usually open systems where, because of autonomy, allows for a freer flow of people and information. I must stress that there are often closed complicated-type systems within complex systems so the distinction is a logical one, rather than a physical difference. We have inherited a world where often managers use reductionistic science to carve out the 'problem space' and solve it in isolation which can create more complexity from unintended consequences elsewhere in the system so its hard to tell the line between complicated and complex (there usually isn't one).
3. Paradox of solutioning is that the more you provide 'solutions' and relegate your customer to a passive role, the harder it is for you to please your customer. The logic is that an engaged customer is a happy customer because you respect their autonomy and yet able to manage the cooperation. Wanting your customer to be passive is like wanting your child to be passive and you provide everything for a child. it usually doesn't make for happy children.
4. Sometimes more expensive. Solutioning is sometimes more expensive than OBC. Why? Because to provide the 'solution' a provider need to price resources where ideally, some of these resources should not be provided by the provider but by the customer, because the customer, at the use end, has more updated information. For example, say you provide a security service for a house. If your customer wants 'incident-free' as an outcome, it goes beyond just patrolling the grounds or cctvs. It is also knowing when there may be a particular event in the house (e.g. a celebrity visit) where the event could attract security incidents. Your customer knows it but you may not. Not knowing it may make it costly for you as you need to overprovide or be overly cautious. If the customer is also responsible for the risk, the total cost of the outcome may come down. Of course, OBC could also be more expensive sometimes because of cost of cooperation/engagement. Hey, its a capability right? It's not meant to be easy.
5. Complex outcomes vs functional complicated outcomes. Some outcomes are impossible to be 'solutioned'. For example, if you may be able to provide the 'solution' of constructing a 'village' (build houses, townhall, parks, roads etc.), but you can never provide a 'community'. that can only be co-created. Similarly, many emergent properties of systems e.g. family, experience are co-created and not 'solutioned'. So if you are outsourcing a service of your firm be very careful what outcome you are outsourcing. I see firms specifying functions to be outsourced and then becoming very unhappy because they got the outcomes wrong. Its easily to think the world is about functions. Often the outcomes we want are complex outcomes and not complicated functional outcomes. Specifying only the complicated functional outcomes for outsourcing is the most common problem I encounter because it underestimates the full outcome of the 'outsourced' element and reduces it to only a function when that element was achieving more complex outcomes before it was outsourced (and when it was part of an internal division).
6. Variety. Solutions and reductionistic engineering science in systems are really useful when there isn't much variety in the system i.e. in the context of customer 'use' of your service, there aren't many anomalies e.g. the experience of a flight. In such cases, a fully systematic system could be put in place where almost every contingency have been covered. When you have a customer in an enclosed cabin, there isn't really much else s/he needs except sleep, eat, drink, entertain (which is why I always think they dont want to give us internet access). In systems where customer 'use' of a service could have high variety e.g. a resort hotel, trying to 'command and control' the experience could end up with the customer disengaged. Be careful how you try to limit variety because not only do you end up not co-creating value, you engineer a disengaged customer. 'Variety' is double edged. It means more work for you but also an opportunity to create a better experience.
So in short, outcome-based systems are not 'solutioning' systems!
-- Posted from my iPhone
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