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Innovating Your Business 
Model for Service Success 
Professor Andy Neely 
Director, Cambridge Service Alliance 
9th October 2014
Services offer significant economic opportunities 
Major proportion of GDP and employment in western world… 
• Service sector accounts for over 70% of EU’s economic activity 
• Nearly 70% of EU’s workforce are employed in service sectors 
China and India are also assessing their role in the service economy
What about services in manufacturing? 
The shift to service based competitive strategies is not new: 
q Andersen and Narus – Capturing the Value of Supplementary Services, Harvard 
Business Review, 1995. 
q Wise and Baumgartner – Go Downstream: The New Imperative in Manufacturing, 
Harvard Business Review, 1999. 
But we may be at a technologically enabled tipping point… 
§ Servitization/Servicization… 
§ Product-Service Systems… 
§ Service Science… 
§ Remote Product Servicing… 
§ Intelligent Vehicle Health Management…
Service business model innovation 
John Deere iGuide system 
Uses GPS technology to 
automatically shift the steering 
pattern of the tractor to 
compensate for implement drift 
Customers design and 
complete market research 
Exploiting the internet to 
enable crowd sourcing
And the opportunities for service continue 
Yesterday’s Technology… 
Thomas Crapper (1836-1910) 
Sanitary Pioneer 
Footnote for Sir John Harington who is credited with inventing the first flush toilet in 1596!
Today’s toilet technology 
The intelligent toilet… 
Neorest toilets… 
• Lid opens automatically as you walk up… 
• The seat’s heated… 
• There’s a catalytic air purifier to remove any “unwanted odours”… 
• With a manual power override for those particularly unpleasant visits… 
• There’s a warm-water massage spray and a hot air dryer… 
• The temperature and intensity of both are controlled using a LCD panel… 
• Once you’ve finished and left the “sensor zone” the toilet automatically closes the lid 
and starts a three stage “Cyclone” flush… 
• The strength of which depends on how long you’ve been busy on the toilet and 
previous patterns of usage.
What about tomorrow’s toilet technology? 
Put simply… 
The servitization 
of manufacturing 
= adding 
services to 
products…
Servitization is a global phenomena 
60%# 
50%# 
40%# 
30%# 
20%# 
10%# 
0%# 
Spain# 
Finland# 
United#States# 
Malaysia# 
Singapore# 
Austria# 
Thailand# 
Netherlands# 
Sweden# 
South#Africa# 
Canada# 
United#Kingdom# 
Germany# 
Hong#Kong# 
Australia# 
Vietnam# 
France# 
Italy# 
Switzerland# 
Japan# 
Belgium# 
Indonesia# 
Mexico# 
Turkey# 
South#Korea# 
Taiwan# 
India# 
Russian#FederaPon# 
Brazil# 
China# 
Propor%ons(of(Manufacturing(Firms(that(have(Servi%zed((2013)(
Why is manufacturing servitizing? 
Economic 
rationale 
Strategic 
rationale 
Environmental 
rationale 
1. Manufacturing firms in developed economies cannot 
compete on the basis of cost (technological 
developments are enabling them to add innovative 
services)… 
2. The installed base argument (e.g. for every new car 
sold there are already 13 in operation, 15 to 1 for civil 
aircraft and 22 to 1 for trains)… 
3. Stability of revenues – services vs. products… 
1. Lock in customers (sell the original equipment at cost, 
make money on spares & suppliers - razor, printers)… 
2. Lock out competitors… 
3. Increase the level of differentiation (e.g. equipment 
provider offers to take customer’s risk and give 
predictable maintenance costs)… 
4. Customers demand it (e.g. contracting for capability)… 
5. Service as a pre-sale activity…
Service as Outstand ain pg rsee-rsvailcee ascattiivsiftayc tion pays off 
Based on 130 000 service customer replies World Wide in CfL (Customer for Life) 
80% 
70% 
60% 
50% 
40% 
30% 
20% 
10% 
0% 
Very Poor Poor Good Very Good Outstanding 
Service satisfaction 
Definitely Repurchase Volvo 
Car - Outstanding 
Car - Very Good 
Car - Good 
Car - Poor 
Car - Very Poor 
(Data from Volvo Cars, 2013)
Why is manufacturing servitizing? 
Economic 
rationale 
Strategic 
rationale 
Environmental 
rationale 
1. Manufacturing firms in developed economies cannot 
compete on the basis of cost (technological 
developments are enabling them to add innovative 
services)… 
2. The installed base argument (e.g. for every new car 
sold there are already 13 in operation, 15 to 1 for civil 
aircraft and 22 to 1 for trains)… 
3. Stability of revenues – services vs. products… 
1. Lock in customers (sell the original equipment at cost, 
make money on spares & suppliers - razor, printers)… 
2. Lock out competitors… 
3. Increase the level of differentiation (e.g. equipment 
provider offers to take customer’s risk and give 
predictable maintenance costs)… 
4. Customers demand it (e.g. contracting for capability)… 
5. Service as a pre-sale activity… 
1. Environmental rationale (change notions of ownership 
and resource use – e.g. Mobility cars)…
The overarching trends 
From a world of… To a world including… 
Products 
Outputs 
Transactions 
Suppliers 
Elements 
Solutions 
Outcomes 
Relationships 
Network partners 
Ecosystems 
The shift to 
services requires 
business model 
innovation
Creating value through service and support 
Outcome 
focused 
Advisory 
focused 
Aftermarket 
focused 
Product 
focused 
Product & parts Solution 
At point of sale Through life 
When is value realised? 
Where does the value lie?
Creating value through service and support 
www.caterpillar.com www.vestas.com 
Product 
focused 
www.ibm.com 
Product & parts Solution 
At point of sale Through life 
When is value realised? 
Where does the value lie?
Understanding business model innovation 
Diversity across ecosystems/ 
sectors 
Comparable companies within 
ecosystems/sectors 
Rail ecosystem • 2 train solution providers 
Defense ecosystem • 2 defense solution providers 
Utility ecosystem • Water service provider 
• Energy service provider 
Local public ecosystem (councils*) • 2 support service providers 
IT sector (multiple ecosystems**) • 2 IT solutions provider 
Professional service (multiple ecosystems) • Supply chain consultancy 
• Open innovation consultancy 
Our study sought to understand how a diverse set of 
organisations innovated their service business models.
ECOSYSTEM 
STAKEHOLDERS/ SYSTEM OF CLIENT(S) 
VALUE PROPOSITION 
ACCOUNTABILITY SPREAD 
VALUE DELIVERY 
PARTNERS 
What did we learn?
Ecosystem
Theodore Levitt was wrong… 
Customers don’t even want ¼ inch holes… 
…service 
providers have 
to understand 
the underlying 
customer need 
and provide a 
solution
Value delivery
Manage risk
The nine capabilities that underlie business 
model innovation 
ECOSYSTEM 
VALUE PROPOSITION 
Demonstrate 
value 
Understand 
client’s BM 
Demonstrate 
delivery skills 
ACCOUNTABILITY SPREAD 
Understand sources 
of risk associated 
with BMI 
Collect data to 
quantify risk 
(data resources) 
Price risk to client 
and manage risk 
with partners 
Identify partners 
and design 
governance** 
Design value 
content and 
structure* 
Coordinate multi-party 
value 
delivery 
VALUE DELIVERY 
PERFORMANCE 
(PROFITS & 
GROWTH) 
SUSTAINABILITY 
* Value delivery content are the service activities provided; structure determines ‘who does what’ 
** Value delivery governance determines organizational arrangements (e.g. contracts among partners)
Adding an ecosystem perspective 
VALUE PROPOSITION 
Demonstrate 
value 
Understand 
client’s BM 
Demonstrate 
delivery skills 
ACCOUNTABILITY SPREAD 
Understand sources 
of risk associated 
with BMI 
Collect data to 
quantify risk 
(data resources) 
Price risk to client 
and manage risk 
with partners 
Identify partners 
and design 
governance 
Design value 
content and 
structure 
Coordinate multi-party 
value 
delivery 
VALUE DELIVERY 
ECOSYSTEM 
Identifying all the 
members in the 
ecosystem 
Understand 
economics in the 
ecosystem 
Understand 
dynamics in the 
ecosystem
For more information… 
Cambridge*Service*Alliance 
From Processes to Promise: 
How complex service providers use business model innovation to 
deliver sustainable growth 
Ivanka Visnjic 
Business Models Research Lead, Cambridge Service Alliance 
Assistant Professor, ESADE Business School 
Andy Neely 
Director, Cambridge Service Alliance 
Founder members: 
Professor Andy Neely 
Director, Cambridge Service Alliance 
University of Cambridge 
17 Charles Babbage Road 
Cambridge, CB3 0FS 
adn1000@cam.ac.uk 
Web 
LinkedIn 
Newsletter 
Twitter 
Blog

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Andy Neely, Director Cambridge Serivce Alliance in conversation with Yassi Moghaddam, Executive Director, ISSIP, Innovating Your Business Model for Service Success

  • 1. Innovating Your Business Model for Service Success Professor Andy Neely Director, Cambridge Service Alliance 9th October 2014
  • 2. Services offer significant economic opportunities Major proportion of GDP and employment in western world… • Service sector accounts for over 70% of EU’s economic activity • Nearly 70% of EU’s workforce are employed in service sectors China and India are also assessing their role in the service economy
  • 3. What about services in manufacturing? The shift to service based competitive strategies is not new: q Andersen and Narus – Capturing the Value of Supplementary Services, Harvard Business Review, 1995. q Wise and Baumgartner – Go Downstream: The New Imperative in Manufacturing, Harvard Business Review, 1999. But we may be at a technologically enabled tipping point… § Servitization/Servicization… § Product-Service Systems… § Service Science… § Remote Product Servicing… § Intelligent Vehicle Health Management…
  • 4. Service business model innovation John Deere iGuide system Uses GPS technology to automatically shift the steering pattern of the tractor to compensate for implement drift Customers design and complete market research Exploiting the internet to enable crowd sourcing
  • 5. And the opportunities for service continue Yesterday’s Technology… Thomas Crapper (1836-1910) Sanitary Pioneer Footnote for Sir John Harington who is credited with inventing the first flush toilet in 1596!
  • 6. Today’s toilet technology The intelligent toilet… Neorest toilets… • Lid opens automatically as you walk up… • The seat’s heated… • There’s a catalytic air purifier to remove any “unwanted odours”… • With a manual power override for those particularly unpleasant visits… • There’s a warm-water massage spray and a hot air dryer… • The temperature and intensity of both are controlled using a LCD panel… • Once you’ve finished and left the “sensor zone” the toilet automatically closes the lid and starts a three stage “Cyclone” flush… • The strength of which depends on how long you’ve been busy on the toilet and previous patterns of usage.
  • 7. What about tomorrow’s toilet technology? Put simply… The servitization of manufacturing = adding services to products…
  • 8. Servitization is a global phenomena 60%# 50%# 40%# 30%# 20%# 10%# 0%# Spain# Finland# United#States# Malaysia# Singapore# Austria# Thailand# Netherlands# Sweden# South#Africa# Canada# United#Kingdom# Germany# Hong#Kong# Australia# Vietnam# France# Italy# Switzerland# Japan# Belgium# Indonesia# Mexico# Turkey# South#Korea# Taiwan# India# Russian#FederaPon# Brazil# China# Propor%ons(of(Manufacturing(Firms(that(have(Servi%zed((2013)(
  • 9. Why is manufacturing servitizing? Economic rationale Strategic rationale Environmental rationale 1. Manufacturing firms in developed economies cannot compete on the basis of cost (technological developments are enabling them to add innovative services)… 2. The installed base argument (e.g. for every new car sold there are already 13 in operation, 15 to 1 for civil aircraft and 22 to 1 for trains)… 3. Stability of revenues – services vs. products… 1. Lock in customers (sell the original equipment at cost, make money on spares & suppliers - razor, printers)… 2. Lock out competitors… 3. Increase the level of differentiation (e.g. equipment provider offers to take customer’s risk and give predictable maintenance costs)… 4. Customers demand it (e.g. contracting for capability)… 5. Service as a pre-sale activity…
  • 10. Service as Outstand ain pg rsee-rsvailcee ascattiivsiftayc tion pays off Based on 130 000 service customer replies World Wide in CfL (Customer for Life) 80% 70% 60% 50% 40% 30% 20% 10% 0% Very Poor Poor Good Very Good Outstanding Service satisfaction Definitely Repurchase Volvo Car - Outstanding Car - Very Good Car - Good Car - Poor Car - Very Poor (Data from Volvo Cars, 2013)
  • 11. Why is manufacturing servitizing? Economic rationale Strategic rationale Environmental rationale 1. Manufacturing firms in developed economies cannot compete on the basis of cost (technological developments are enabling them to add innovative services)… 2. The installed base argument (e.g. for every new car sold there are already 13 in operation, 15 to 1 for civil aircraft and 22 to 1 for trains)… 3. Stability of revenues – services vs. products… 1. Lock in customers (sell the original equipment at cost, make money on spares & suppliers - razor, printers)… 2. Lock out competitors… 3. Increase the level of differentiation (e.g. equipment provider offers to take customer’s risk and give predictable maintenance costs)… 4. Customers demand it (e.g. contracting for capability)… 5. Service as a pre-sale activity… 1. Environmental rationale (change notions of ownership and resource use – e.g. Mobility cars)…
  • 12. The overarching trends From a world of… To a world including… Products Outputs Transactions Suppliers Elements Solutions Outcomes Relationships Network partners Ecosystems The shift to services requires business model innovation
  • 13. Creating value through service and support Outcome focused Advisory focused Aftermarket focused Product focused Product & parts Solution At point of sale Through life When is value realised? Where does the value lie?
  • 14. Creating value through service and support www.caterpillar.com www.vestas.com Product focused www.ibm.com Product & parts Solution At point of sale Through life When is value realised? Where does the value lie?
  • 15. Understanding business model innovation Diversity across ecosystems/ sectors Comparable companies within ecosystems/sectors Rail ecosystem • 2 train solution providers Defense ecosystem • 2 defense solution providers Utility ecosystem • Water service provider • Energy service provider Local public ecosystem (councils*) • 2 support service providers IT sector (multiple ecosystems**) • 2 IT solutions provider Professional service (multiple ecosystems) • Supply chain consultancy • Open innovation consultancy Our study sought to understand how a diverse set of organisations innovated their service business models.
  • 16. ECOSYSTEM STAKEHOLDERS/ SYSTEM OF CLIENT(S) VALUE PROPOSITION ACCOUNTABILITY SPREAD VALUE DELIVERY PARTNERS What did we learn?
  • 18. Theodore Levitt was wrong… Customers don’t even want ¼ inch holes… …service providers have to understand the underlying customer need and provide a solution
  • 21. The nine capabilities that underlie business model innovation ECOSYSTEM VALUE PROPOSITION Demonstrate value Understand client’s BM Demonstrate delivery skills ACCOUNTABILITY SPREAD Understand sources of risk associated with BMI Collect data to quantify risk (data resources) Price risk to client and manage risk with partners Identify partners and design governance** Design value content and structure* Coordinate multi-party value delivery VALUE DELIVERY PERFORMANCE (PROFITS & GROWTH) SUSTAINABILITY * Value delivery content are the service activities provided; structure determines ‘who does what’ ** Value delivery governance determines organizational arrangements (e.g. contracts among partners)
  • 22. Adding an ecosystem perspective VALUE PROPOSITION Demonstrate value Understand client’s BM Demonstrate delivery skills ACCOUNTABILITY SPREAD Understand sources of risk associated with BMI Collect data to quantify risk (data resources) Price risk to client and manage risk with partners Identify partners and design governance Design value content and structure Coordinate multi-party value delivery VALUE DELIVERY ECOSYSTEM Identifying all the members in the ecosystem Understand economics in the ecosystem Understand dynamics in the ecosystem
  • 23. For more information… Cambridge*Service*Alliance From Processes to Promise: How complex service providers use business model innovation to deliver sustainable growth Ivanka Visnjic Business Models Research Lead, Cambridge Service Alliance Assistant Professor, ESADE Business School Andy Neely Director, Cambridge Service Alliance Founder members: Professor Andy Neely Director, Cambridge Service Alliance University of Cambridge 17 Charles Babbage Road Cambridge, CB3 0FS adn1000@cam.ac.uk Web LinkedIn Newsletter Twitter Blog