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Tuesday, 20 December 2011

social CRM: some thoughts

So there's been some buzz for awhile about social CRM. I must admit not to have read everything. Just bits and bobs over time but Michael Brito's blogpost about thought leadership in Social CRM (here) caught my attention. It made me aware that I have been doing so many seminars and talks on my research that I've forgotten the stuff I used to be teaching i.e. Marketing and how I've not really integrated the latest of my work with the bog standard stuff that used to be out there. I recently did one about the 4Ps (here), but thought maybe I should now tackle social CRM, and blog some of my thoughts about this changing landscape.

So CRM is some kind of systematic way of interacting with the customer but social CRM is more than that - its about engaging the customer in 'conversations' supported by a technology platform e.g. through facebook, twitter etc.

So here's what I'm thinking. First, your customer really hasn't changed much. If he has been using your product all these years, he probably is still doing the same thing. Except that suddenly, with twitter, facebook etc. your customer now has a voice. And you can hear them. And just because you can hear them, you suddenly decide its a good idea to have a conversation with them.

The real meaning of conversation, is what Milton Wright would say "an art or creation that two persons can give life to, or play with". In other words, conversations are usually interesting. Herein lies the problem with Social CRM. It's not. I mean, how can a conversation be interesting when the point of it is (as some sites have proposed) 'to assist firms to become more social, gain intelligence or harness customers as a resource'? That sounds really like having a conversation at a bar with an egoistical self centred self serving 'friend' you just met whose interest in you is all about how you can help him. ugh.

OKOK, not all social CRM are like that but if you trawl through the internet and ask about the examples of excellent social CRM, they generally fall into 5 categories. Here are the first 4: (1) feedback (2) damage control (3) promotion (4) brand identity. But guess what. It means that social CRM is just another marketing channel because those 4 are exactly a channel where firms connect and communicate with their customers - about the FIRMS, not about their customers. Nothing new there - certainly nothing new that SOCIAL CRM is contributing to thats not already available in OTHER CRM strategies. It's the usual firm-centric engagement.

What is really interesting would be the 5th example of excellent social CRM. That is around personalisation. This is where I think social CRM can really make a difference both to firms and to customers that is distinct from traditional CRM and marketing.

The idea of personalisation is that the firm can get personal with their customers, and start to socialise with them, building relationships. So let me tell you about how I am social. It's to do with my friends, my activities, my interests, my life. You want to get social with me? you've got to GET me. No, its not about pulling the conversation to what you want to talk about. its about what I want to talk about as well. its about my value creating context around your product, not yours. What do i mean? Well, let's say the department of motor vehicles wants to get social with me (why, I have no idea). Now, to the department, my car is 'transportation', which is around their categories of transportation i.e. bus, car, rail, planes. that's the government's value context. My car? my car is not in the 'transportation' value context. My car is in 'go work-go supermarket-fetch child' context. So if you want to get social with me about my car, you'll have to get social with me about what my car enables me as a resource in my micro context. So I think the biggest problem with firms when they want to embark on Social CRM is that the content around my context for social conversations may not be their you can't blame organisations. they've just been brought up badly. ;p

There is a second aspect of social CRM that has also intrigued me about personalisation.

The firm is a macro system. I am a micro system. So conversations between me and 'the firm' is a bit odd. Its like me having a conversation with a crowd and expecting the crowd to have a single voice i.e. that person interacting with me. i mean, how does that work? I suppose that could work functionally like if I wanted to ask Mcdonalds how many countries they are in, or if I want to know the ingredients in my shampoo, I can tweet and ask and the 'disembodied voice' that tweets back is just responding to a query. But personalisation in social CRM is about conversations - that means its more than functional. It has social and emotional dimensions. I was at my garden centre recently and checked in on foursquare and said that I was having tea and scones. I got a tweet back from the garden centre to say 'mm... i would love scones right now and hoped i enjoyed it' or something like that which is rather personal and nice in a way but I didn't know if I was getting personal with my garden centre or with this person whom I don't really know. So how do I negotiate attribution in these social messages? are they my garden centre talking? or someone whose messages I do not attribute to my garden centre? Interestingly, I tweeted back about the banana scone not being very good and the 'garden centre' replied to say 'thanks for the tip'. clearly, I was NOT talking to my garden centre. So what does 'personalisation' mean in this case?

My thoughts are that social CRM raises a major issue for the firm. How is the macro-level firm formed from its (micro-level) employees? social conversations are held at a micro level, The paradox of social CRM is that successful micro social conversations may run contrary to the firm's 'so-called' macro culture and identity but if employees talk too much like how mr mcdonalds or mr ikea would speak, i guarantee you it would be a very boring conversation. Social CRM is an excellent an opportunity for firms to evaluate how their culture and identity are formed by their employees and if its their employees talking personally through social channels, it should also be them talking as well. The part is the whole. I get this feeling that a successful social CRM would probably happen when that happens. But I also suspect that command and control organisation types would hate it.

Sunday, 18 December 2011

Jobs of the Future

I have just read Stiglitz article in the Vanity Fair:

The link to the article is here

The phrase that I thought I'll blog about is:

"We have to transition out of manufacturing and into services that people want—into productive activities that increase living standards, not those that increase risk and inequality."

Nicely said, Professor Stiglitz but a little too simplistic. As someone who works in value, new business models and service systems, I would of course agree with you that the future is in services and I am pleased you are highlighting this. However, I suspect that the way you think about services might not the way I think about services and I do take issue with the way you have oversimplified it. Let me elaborate.

I argue that this 'investing in services' is more complicated you think. You intimate that the solution is to throw a lot of money into investing in skills for services when I don't think anyone can even specify what those skills are. Services behave as 'wholes' and to say that investing in skills for services might as well be saying that we should in invest in skills for the economy - it doesn't mean a thing. There is also the fallacy of composition when you decide to say 'services' because these 'wholes' (service systems) don't behave like reductionistic manufacturing systems. What is good for a part is not necessarily good for a whole (I could stand up in a theatre to get a better view but that won't work if everyone stands up) - jobs where performance is held at an aggregated systemic level and working in the interfaces are a whole lot harder to specify, given that legacy institutional structures have not been designed to work in that manner. And service systems are evolving as well. Future of services include manufacturing, as the future of manufacturing is also embedded in services, so future 'services' are a hybrid of things (manufacturing) and activities (services). What jobs? What skill sets? I am a big fan of simplification, but not to the extent that promotes false hopes and misunderstandings. Your article makes policy makers think there is a simple fix-it, or that manufacturing is somehow different from services. Bad manufacturing IS different from services but excellent manufacturers (such as Apple) would see much more convergence between the two. Therefore, while I commend your emphasis on activities to improve society's well being, suggesting 'investment in services' creates a false dichotomy and allow economists and policy makers to opt out of dealing with complexity, interfaces, boundaries and interactions between manufacturing and services, and endorsing the fundamental flaw of atomistic, reductionistic economic science that got us into this mess to begin with.

PS on article

Economics need to move towards complex systems science, a body of theory and science of connections, as opposed to conventional economic theory, which is concerned with static elements and states. Its not much of a point to say that markets will be efficient in the end. The current business and economic environment, with all its upheavals, is in need of a greater understanding of evolution, transition, and its ascent/descent to order, disorder, or chaos. We are in urgent need of a new economic systems science.

-- Posted from my iPhone

Sunday, 4 December 2011

The 4Ps in marketing - revisited

I've been hearing a lot about how the 4Ps are dead, and how the 4Ps are alive and well so I thought I'll blog my version of 4Ps and join the debate.

The 4Ps are alive and well. But perhaps not the way we think about it. In a sense, 4Ps have always been rather firm centric - its about the price the FIRM charges, the place the FIRM sells its offerings, the product that the FIRM offers, the promotion that the FIRM has to undertake. So I thought I'll have some fun and turn things on its head..... in a co-creation sense of course. (if you need to understand value co-creation, check here).

1. Price
Yes, there is still money to be charged, but increasingly, 'price' is no longer a consequence of a sequential activity. Its not what I get for what I pay for anymore. I mean, how do pay for google, or facebook? or how do I really 'pay' for getting the nutritional attributes of food in the supermarket when i scan the barcode and read it off an app? There is money floating around somewhere but increasingly, the revenue is being distributed, just as value creation is distributed within the system. Also, it's not what the 'price' we give firms now, it's what we get back, as SDLogic will always say, we are resource integrators, we integrate resources and money is just another resource. But I actually argue further - that we are getting multiple outcomes for one 'price' - e.g. paying for broadband and a computer and then getting so many different types of outcome from social networking, surfing the net etc. so I would argue that the monetary system is becoming less and less relevant in achieving outcomes through systemic collaboration and distributed intelligence and information. My favourite theory is that money, because it is so generic a resource, is increasingly 'devalued' - so an outcome for outcome exchange (I walk your dog, you cook me a meal) has greater 'goodness' or 'value' than if it went through a market which is why as technology increases efficiency matching needs from connectivity, money may be increasingly irrelevant for societal happiness. Very far fetched, I know, but as a business economist, its currently my pet theory. I'll model it if I just had some time :(

2. Promotion
oo.... let's get a little creative here. Companies still promote - a lot. The ads on google, proximity marketing through foursquare; groupons etc. they are all there - just using a lot of technology. But there is a subtlety that many have not noticed. Instead of taking their products as given and 'promoting' their offerings, companies are starting to change their offerings too.... drug companies realise they are not just about medicine, there is nutrition, well being etc. so they are co-creating value in constellations that are not just about the physical, but about their meanings. From music (bands), to perfumes, firms are dematerialising their 'products' (see blog post on dematerialisation), co-creating value through identity, culture and families. the new world of promotion is not just about firms influencing customers, but customers influencing firms' offerings' design, and customers influencing customers through social networks and creating systems of shared values.

3. Place
You know where I am going with this from the previous promotion bit. Place is not just physical space of course, but virtual space. and its not about channels of purchase, its about channels of influences, experiences, meanings, symbols, and again, the firm dematerialising the product so that it can be in multiple 'places' in different forms, creating new and interesting business models. this is beyond plurality in channels or buying channels. this is the firm being the true organiser of value co-creation, and understanding what resource or information is needed for different channels.

4. Product
I am starting to sound like a broken record. but to quote previous posts, technology liberates us world from the constraints of time (when things can be done), place (where things can be done), actor (who can do what) and constellation (with whom it can be done). The PRODUCT, in ALL of that, can be better designed to allow when it can be used, where it can be used, who uses it, and with whom it is shared with. Requirements of the future is looking at technologies from quantum information to artificial intelligence, composite materials that are light to nano technology that create multiple forms of use value, we will start making things that connect better, that can be mobilised differently, can be sent differently and can be used across time and space.

So that's my quick take on the Marketing 4Ps.

And I can't wait for the future. Oh wait. it's here. :D

Monday, 28 November 2011

Dematerialisation and Density: New Business Models

So I spent my last post on things in context which will now lead me to talk about how we create value in context. This is quite a complex post so bear with me.

Value is created through interactions, through acting on someone or something. We integrate resources available to us, available in context and available through the thing. These resources available in context allow us to enact out the value creating practices. These practices could be to realise what the thing is for (e.g. watch TV) or even to manipulate the thing itself and modifying it, not physically, but in terms of altering its function to what it can afford (enable) in context. A simple example would be to put a few books under the overhead projector to get it to project at the appropriate location (functional affordance) so the individual harnesses the book's material agency to achieve his outcomes. Another more complex example is the social and subtle battle between managers to locate the photocopying machine as far away as possible from their offices not because of noise etc. but the lowered social status associated with the office being closest to the photocopying machine (we've all been there before?)... you can read all about sociomateriality from Wanda Orlikowski's work.

So back to the point. We can harness the thing and people around us for resources to be integrated to create value but what is the value? In my earlier posts, I talked about emotional, practical and logical dimensions of value but value, to me, is some form of 'goodness'. We co-create value in use because it's good for us and we are better off because of it right? But being good for us may not just be functionally good, it could be some emotional good. So let me give you a very concrete example around a project we are in the middle of. This project can be seen here (EPSRC Co-production of Physical Products and Value Co-creation - Scalability in the Wild). The topic..... CHOCOLATE .......the BBC coverage of our work is here, the Telegraph coverage is here. Essentially, Exeter engineers have developed a chocolate 3-D printer which allows design and printing of chocolates as gifts. This is great. My job - what's the business model?

The answer is tricky because business model has to think about demand (i.e. what is the need fulfilled) as well as supply (how do we scale that fulfilment). The 3D printer isn't very scalable so if suddenly a million people wanted chocolates printed in their own customized way, there is no way that printer can do that. Also, chocolate is a complex product - hedonistic in many ways.

So what did we do? Before I tell you that, let me give you description of the thinking behind our chocolate project and explain dematerialization and density.

Dematerialization and density are the concepts introduced by Normann (2001) to illustrate the possibilities and opportunities to rethink the logic of value creation through reconfiguring value constellations. Technological development liberates us from constraints of time, place, actor and constellation in terms of value creation. We can separate information in terms of activities from physical world and assets and allow it to be easily moved about. This is one mechanism referred to as ‘liquification’. We can also separate activities from the well-defined existing time/space/actor units and assets (unbundleability) and then relink these activities, new time/space/actor units and assets (rebundleability) to create new value configuration. This is another mechanism of ‘dematerialization’ termed as ‘unbundeability’. Thus, dematerialization refers to the two mechanisms (liquification and unbundleability) to further promote rebundleability to create new densities (Normann, 2001). ‘Density’ is described as the best combination of resources mobilised for a particular context such as a particular customer at a given time and place. (summary above thanks to my postdoc Susan Wakenshaw. Tks Susan!)

With that description, here is what we did.

We went and conducted a series of interviews about what is so good about chocolate (consumption practices, ethnographical study). We found 10 major practices of chocolate and we also deconstructed the meaning and value of chocolate in these practices. Then we separated out the physical from the information. What does that mean? Out of the 10 practices, only 3 really needed the actual physical chocolate. The other 7 were practices that didn't really require the physical chocolate as a resource e.g. nostalgia, sharing - they required emotional, past memories to co-create some of the meanings but not the actual physical chocolate.

What we did next. We then separated the information of the chocolate (the 7) and are now creating a new website as a chocolate co-creation platform for individuals to co-create the meaning of chocolate. In other words, we are translating the physical practices of chocolate into virtual practices of chocolate. However, there are still 3 that need the physical so we have to ensure that the platform that enacts the 7 physical-to-virtual practices (pvp) interact with the 3 physical practices by having the chocolates designed and printed out on 3D and sent/eaten. But the business model has to make sure that the 7 pvps platform can be fully scalable while rationing demand for the 3 physical value practices (not so scalable). Not going to give you the gory details but it's really interesting for me who works in understanding value and using it to derive new business models. It is also interesting as we start moving towards greater connectivity and technology how we need to understand value creating systems and what value is created where, with whom and how, and more generic frameworks around it. We also have to think about recreating contexts, and resources that can be enabled in context by the platform. Fun stuff!

By the way, I need a whole community of beta testers so keep in touch on twitter and we'll let you know when it's up!

Monday, 21 November 2011

Dematerialisation & Density: The Value of Things in context

We hear it all the time and I've certainly said it again and again. Value comes from use, value is in context but why is it we still hear firms talking about value as the money they get for their things, and we still hear how they firms 'add value' as though the things in themselves have value?

So I really want to blog it to set things right. It's also the first of a series of blogposts around Dematerialisation and Density because it leads up to my current research projects. So let's start.

THINGS HAVE NO VALUE IN THEMSELVES. repeat after me. ok. then you go back to business and start talking about getting more value from the things, keeping the factories open, keeping the jobs coming in and you have forgotten what you said. so let me join the dots for you.

THINGS HAVE VALUE BECAUSE YOU IMAGINE IT'S USE. so basically, its not the thing you value, its what you THINK the thing is going to do in your life. that iPad has no value, you are imagining reading a book, checking emails... you are attaching the use of the thing in the context of living your life that is of value.

so.....WHEN YOU IMAGINE ITS USE, YOU IMAGINE THE CONTEXT. so not only do you think about what the thing is doing in your life, you had an imagined scope of where and how and when the thing is used for (the context). that's why you think the thing is good. you are really thinking thing-in-context is good, which you believe means the same thing (wrong)

YOU IMAGINE THE CONTEXT IS CONSTANT BECAUSE THE THING IS CONSTANT. yup, so when you buy an iPad, the iPad doesn't change its form, get moody, or become a different iPad at different times so you believe the context of use can stay the same when you buy the iPad, you are thinking about lying in bed, reading. when you're thinking of buying that apple, you are thinking about eating it in the next hour, the toaster and the warm toast etc. etc. etc. so when you're buying something, you're actually evaluating the value of the THING thinking that it is a  THING-IN-CONTEXT

here's the bad news, firms don't manufacture context. they manufacture things.
and the good  news? YOU 'manufacture' the context. and then magically, they come together and it is good.

that's co-creation for you.

but CONTEXT changes. context comes with contextual resources for you to be able to use, experience the thing. From simple contextual resources such as light to read, quietness to talk on the phone, to more complex 'emotional states' that lend resources such as mood (to enjoy a glass of wine), or composite combinational resources created by you and your environment, CONTEXT is not a simple concept. And context exist in layers as well - from a micro to a meso to a macro level (see Chandler and Vargo, 2011, Marketing Theory). Also, context is not external to you. YOU are part of the context. So is the thing. So the value creating system is YOU(ACTIVITY)-THING-ENVIRONMENT - that's context. change one, change all. change the 'goodness' created. change the value of the thing.

so what do firms mean when they talk about 'adding value'? well, ahem, they just assume you will do your part right? just like you thought the thing was constant and you decide to  manufacture all sorts of contexts to use the thing, the firm thinks YOU are constant and they decide to make better stuff (we hope). and they call that adding value because they want you to pay more NOT because they are giving you more 'goodness' (how can they do that, when they dont control the context?). what firms DON'T often get is when they change the thing, they often change the context that you need to 'manufacture' as well. example. mobile phones morphing into life-enabling-thing.

why does this matter? The world of connectivity is starting to enable different contexts, we can now 'see' context better, measure better (you see me talk a lot about context in my research into systems and how we are collecting 'verbs' etc. as measurement of contexts, I have an EPSRC research project on contextual invariances in energy consumption and business model). also, you see the rise of data analytics because the visibility of experience and consumption is giving rise to a new strategic lever for changes in behaviours and society - strategies surrounding CONTEXT. you also see things and contexts interacting at design stages.

so... for all those who really want to know what is value, how it's created and why people buy at higher or lower prices etc...........IT'S THE CONTEXT S****D.....

lol, i've always wanted to say that. next blog post (soon i hope).... more on contextual value...I will soon come to dematerialisation but these are a series of blog posts that would lead up to it.

Monday, 15 August 2011

Complicated vs Complex Outcomes

I've been asked some questions on complex outcomes so I thought I'll blog it. Question: whats the difference between complicated and complex outcomes/systems and what's the difference between performance and outcome-based contracts?

Some of you who are systems-inclined/educated people would know the answer to this. Here are a few examples of complicated outcomes:

1. Getting your baggage from London to Sydney
2. Designing and constructing a village/township
3. Brain surgery
4. Putting a man on the moon

Here are some examples of complex outcomes

1. Giving you a good experience from London to Sydney (customer experience)
2. Designing and creating a community
3. Health
4. Bringing up a child

Whats the same? Both complicated and complex outcomes have multiple components and entities. They also have many moving parts that interact. But the key differences between the 2 are (1) no 'mission control' (non-determinism) and (2) emergence

Let me elaborate on this. In brain surgery, the doctor is in charge. in putting the man on the moon, Houston is in charge. in getting the village/township up and ready, the town planner/architect is in charge. These are complicated outcomes but there they could be determined with good algorithms, calculations, specifications, implementation - and there is a command and control structure. In complex outcomes, there is no mission control. These outcomes are achieved because they are co-created, collaborative, interactive outcomes that emerged from the system. Yet, very often, these are the outcomes we want - customer experience, communities (think facebook), nationhood, a family.

Traditional science and engineering has taught us to reduce everything and then put them together to get the outcomes we want. That's good if we want complicated outcomes. Not so good if you want complex outcomes because in complex outcomes, the entities are autonomous (think of the recalcitrant child, or the villagers), and the outcomes we want require collaboration and co-creation without any explicit control mechanisms. We would like our children to co-create a family, we want the villagers to co-create the community but we dont have rights, controls or powers over their co-creation resources.

Moving to the commercial world, that's the essential difference between performance and outcome-based contracts. Performance is complicated. I can get the performance of a supply chain of an aircraft by putting together people (who follow processes), processes, assets, etc. and I can determine that performance by ensuring everything works smoothly so that the plane is available and 'fly-able'. However, I can't get the outcome - flight from london to singapore without the help of the pilot, the engine, the avionics - usually provided by different firms or even the passengers (who may be late); so the availability or 'fly-ability' of the plane is a complicated (performance) but the flight from london to singapore by a plane is complex (outcome).

Does that mean we cannot design for complex outcomes?

Ah, now we go into my world. This is the world I inhabit. Value creating Socio-technical systems for complicated performance and complex outcomes. There is interaction between the two of course and often you can't really tell between what is complicated and what is complex. Achieving complex outcomes may sometimes lead to achieving good complicated performance. And sometimes not. Sometimes achieving good complex outcomes could result in greater complication in 'output' performance or even reduced 'output' performance - think NHS whose targets are hugely 'performance' and not outcomes (don't get me started on metrics.... sigh). What this means is that sometimes complicated performances are aligned with complex outcomes. Sometimes they are not because complicated performances could result in perverse behaviours leading to poor complex outcomes. Example? Easy. Imagine measuring a doctor's performance based on how many people he treats. Worse metric in the world (but many healthcare people already know that). It incentivises the doctor to 'treat' and count the numbers treated rather than maintain good health and well being in the community (which of course reduces the number of people being treated). you get my meaning.

So the first thing to do with any system is to check what is complicated and what is complex. What is the value or outcome each actor/entity wish to get from the system, how do they co-create it and how is each actor/entity's co-creation aligned to the system outcomes. Is the system outcome complicated (deterministic) or complex (emergent)? how are the complicated performances aligned with the complex outcomes? How do they interact? What are the resources to co-create the complex? or complicated? are they human or material (stuff)? who are the 'actors' or 'entities' that integrate these resources that co-create that outcome? That is the heart of where my current work sits. And why SDLogic (Vargo & Lusch 2004, 2008) is a useful lens for such environments. Some of my current research into contexting, enabling platforms have actually made some advances so watch this space.

Oh, dont forget the very human tendency when we talk about outcome to only like to talk about the 'outcomes' we can control. It took me ages in a national library project to get them understand that their true outcome is their contribution and alignment towards achieving the nation's literacy (which they don't control). they preferred to talk about their outcomes as book browsing, lending etc (which they do control).

Increasingly, we see governments, firms, institutions trying their best to 'engineer' or 'specify' so that complex outcomes could be achieved. to them, i say - 'which part of emergence did you not get?' We have spent the last 100 years doing complicated rather well. We can pat our backs on putting the man on the moon, doing brain surgeries etc. We are now moving to a world where complex outcomes matter and this is a new capability. This capability uses different words. We can determine complicated outcomes. We can only enable complex outcomes. We can specify complicated systems. We can only intervene in complex systems. Often, the best way to think about whether a system is complex or complicated is to ask - 'what is the outcome'; 'is it achievable through a command and control structure' and if the latter is no, then it's usually complex.

What has happened in the last 50 years is that we've been trying to use deterministic tools to achieve emergent outcomes, essentially because those are the only tools we have learnt (systems thinkers are still a minority unfortunately). We treat complex systems like complicated systems. we try to design, specify, impose, dictate when we should be designing, enabling, intervening, stablising. The former is a different skill set and have a different set of tools from the latter. And before you think that we can treat all the world as complex, we need to factor in the fact that we have built 100 years of complicated legacy systems, often with some measure of success. The politics and boundaries of complicated legacy systems sitting within complex system/outcomes cannot be ignored. We do not have a clean slate to design systems for complex outcomes.

Yet, if we want communities (think about the London riots and how important the sense of community and engagement is as an outcome), nations, experiences, families, we have to be much much better at achieving complex outcomes, both in its understanding (research) and in its implementation (practice). Where do we start? Fund my research. ;p

Wednesday, 6 July 2011

The 5 Myths of Servitization

It's been some time since I've blogged so I thought I'd better start before I get rusty.

Topic of the day. Servitization. I hate the term but for the life of me, I can't find anything else so I'm going to use it. Basically, this term comes from equipment manufacturing (economists would refer to this as production of durable goods) and the move towards more 'added-value services' (another term I detest) to achieve customer outcomes better. So .... the literature says that firms add value by selling consultancy, integration, education, blah de blah... so this is the phenomenon called 'servitization'. In fact, some firms are earning more revenues from selling such 'services' than they are selling the equipment itself so this means more revenue. Some studies have shown that servitizing is difficult and while revenues may be high, profitability is low and some studies have shown that servitizing is so difficult that many have failed. I thought I'll pen down some of my thoughts on this.

Myth no. 1

Servitization is an extension of your company's offering so who better to do it than the original manufacturer right? wrong. that's like saying i can't reach the pears at the top of the tree so I should grow my arm longer. Buy a pole, dummy. Achieving customer outcomes cannot be more different an organisational capability than the organisational capability to make equipment. The value of the former is achieving benefits for the customer through co-creation. The value of the latter is the transfer of equipment ownership. two. completely. different. value. and which would require different sets of resources, capabilities, flexibilities, you-name-ities. So the pole maker could possibly have a better chance of achieving outcomes (getting the pears) than you because your own set of resources (arms) would limit you. ok, maybe not the best analogy in the world but you get it right?

Myth no. 2

Servitization is about solutioning. Remember that your customer has been doing this job long before you tried to do it for them. They've realised your value proposition (equipment) through internal processes, internal education, usage policies etc. Except that nowadays you try to take over some bits of what they have done, call it a solution and sell it back to them. It could work. Strategic outsourcing has earned IBM billions so don't knock it but just make sure you can do it better and cheaper and don't moan about how hard it is. The part that some firms have become smarter at is understanding that it's not solutioning but co-creating because customers often have resources that are more appropriate than yours and collaboration for outcomes could work better (more profitably) than you taking over their job.

Myth no. 3

Service revenues and equipment revenues are different. There is a popular belief that firms should focus on service revenues and less on equipment orderbooks. Actually, equipment have become so d**n complicated that you need a rocket scientist on the customer end just to realise its use-value. To 'help' customers, firms selling complex equipment must therefore provide service. Therein lies one of the greatest moral hazards of the technology surge. Firms can make equipment that are impossible to use (in the name of great technology) then sell all the 'solutions' to ensure the customer can only get the full benefits if they help them. brilliant strategy. Of course, this is not all bad. After all, we have achieved some huge breakthroughs in technology. What it does mean, though, is that service and equipment revenues and resources dynamically interact - the specification of one necessitates the respecification of the other. For equipment customers, the next time an equipment salesman comes calling, check your resources to realise the equipment's use and before you are completely sold on equipment advances, calculate the cost of realising that use value internally. That's the hidden cost. Working with defence, I am reminded of the story told to me that 20 years ago, anyone can drive a tank. Today, you need an engineering degree (and we wonder why our defence budget keeps going up and up?).

Myth no. 4

Servitization is 'wrapping services around the equipment'. We've written on this actually (see Maull, Smith and Ng, 2011; Ng and Briscoe 2011). What we found is that when you wish to co-create value to achieve customer benefits/outcomes better, you cannot believe that your equipment is a sacred cow. I mean seriously - remember the value of the equipment is a transfer of ownership and the value of the combined service and equipment is achieving outcomes. Now if you want to achieve outcomes, sometimes, the way you have designed the equipment actually gets in the way. I'll give you an example. Say you are manufacturing an engine. You manufacture it in such a way that you can hand it over to the customer who will install it on their plane. You then provide service and support for the maintenance of the engine. Simple right? Then you find that the engine requires more maintenance and repair than normal and the costs of service goes up. It turns out that certain monitoring devices within the engine (e.g. device to monitor the health of engine component parts) are not coping very well with the heat within the engine. In fact, if what you really want is an outcome of consistent and reliable engine use, you would redesign the engine such that these devices are on the plane and not in the engine but the plane doesn't belong to you. So the design of an engine for transfer ownership is not the same design of an engine to achieve outcomes. So its not so straight forward that you can 'wrap' service around equipment. What you 'wrap' is dependent on the equipment itself. You could have much more cost effective service if you designed the equipment for outcomes (see Myth no. 5 below).

Myth no. 5

Servitization is not profitable because it requires more human resources and capability and that is just not scalable or easily replicable. Here, too, our research has given some insights and this is related to myth no. 4. Remember the example I gave about the engine? What it means that maybe (and this is just a maybe) that the reason why your service is not very profitable or scalable or replicable is because you designed the equipment wrong, resulting in the need for more skilled human resource that may be less scalable or replicable. This is what Icall the paradox of servitization. The increase scalability, replicability and profitability of the service may not rest in the service but on the equipment around which the service supports. Equipment which are better platforms for co-creation (think iPhone) and which are able to absorb greater customer variety of use, either through modularity or clever engineering design, require not only lower skills and knowledge from your service employees but also less of such resources. In other words, the equipment itself could require redesign for more scalable and efficient service activities. This would eventually translate to greater margins and if you could by some miracle, actually make it easier for customer resources to realise the use value of the equipment as well, you could get better prices and higher demand as well. Now THAT would be the right way to 'servitize'.

One of the reasons why an SDLogic (Vargo and Lusch, 2004, 2008) approach is so useful for 'servitization' (there's that word again) is that it allows one to see the system as a competency for outcomes, whether achieved through equipment or the firm's people or the customer. Service is competencies for competencies and an SDLogic lens allows one to see the equipment competency, the human competency and the customer competency in a way that can help us make better decisions on where the competencies could be material (equipment) or human or even from the customer depending on variety absorption, scalability, replicability etc. Also, through this lens, bringing in external entities (other equipment or team integration or outsourced partner) in a multi-actor network is now framed as a outcome competency decision as well as a marginal revenue/marginal cost decision for a set of outcomes for all stakeholders. Making all competencies endogenous (i.e. up for change/amendments) instead of assuming a piece of material equipment is sacred, is the way forward to better design of the service system. There's more work to be done!

Sunday, 9 January 2011

A primer on viable systems model

I've had requests to do a quick primer on viable systems so I thought I'll pen this here, as well as elaborating a little on my earlier post. Since this blog is about value-based service systems I think I need to explain systems a bit better. Earlier, I have explained systems thinking but now I will explain viable systems because it is foundational to value-based service systems.

So here's the primer, my style. Viable systems came from Stafford Beer (1960s) and like all the great systems thinkers out there, Beer was a real genius even when he was not sober. Actually, I kind of see the pattern here - geniuses tend to drink. which of course is my excuse for drinking. next time you see me with too much to drink remember i'm practicing at being a genius ;p

More about Beer here

Beer spent a lot of time studying systems, the interconnectedness of it all so here's a summary:

A viable system “is a system with an identity and purpose which is, in principle, capable of surviving its appointed time, whether definite or indefinite” (Leonard in Beer, 1994:347). Basically, if you think about ANY system, it is able to sustain itself and be 'viable' because there are 5 systems.

system 1: the core transformation (the purpose of the entire system)
system 2: regulation/tactical - interface between system 3 and 1
system 3: operations planning, control/audit - this system sets the rules, resources, rights, responsibilities – interface between 4/5 and 1/2
system 4: management (and R&D), strategy, environment scanning (for adaptability)
system 5: policy: usually board of directors (decisions on what the entity of the system is, balance demands from all parts, steer the organisation)

So if you think of the human body as a viable system, then (taken from Jon Walker - brilliant website on VSM in layman terms click here):

SYSTEM 1: All the muscles and organs. The parts that actually DO something. The basic activities of the system. The KEY TRANSFORMATION (in my world, the value proposition)
SYSTEM 2: The sympathetic nervous system which monitors the muscles and organs and ensures that their interaction are kept stable.
SYSTEM 3: The Base Brain which oversees the entire complex of muscles and organs and optimises the internal environment.
SYSTEM 4: The Mid Brain. The connection to the outside world through the senses. Future planning. Projections. Forecasting.
SYSTEM 5: Higher brain functions. Formulation of Policy decisions. Identity.

You must realise now that the reason we die (i.e. become non-viable) is because one system fails. That is a key point. ALL viable systems MUST have ALL 5 systems to REMAIN VIABLE (this is a strong statement as my good friend Roger would say).

It's a very good way to think about the firm. What cybernetics and VSM does NOT tell you, however, is where to draw the boundaries.

So my natural biasness will draw the boundary on value - not just any value mind you - the value that is co-created with the customer to achieve customer benefits (hey, this is a value-based service system blog -what do you expect?). So here comes the immediate problem. At the narrowest of system boundaries, the firm produces something and the system's purpose is to have a high quality 'thing'; and if you broaden that boundary a little, the customer is in the system co-creating value with the firm and the system's purpose is to achieve customer outcomes. An example would be helpful so let's say I manufacture helicopters. I could have been viable all this while coz I make good helicopters. I know the customer uses it and co-creates value but it's not really my problem because the contextual use of the helicopter isn't going to hugely affect how I design and manufacture the helicopter because as a firm, I've become a viable entity just making helicopters. So although value co-creation happens, I have drawn a boundary such that my 'environment' (what is exogenous) is the customer, the contextual uses. Customer inputs into my system is usually through predesigned feedback mechanisms. The resources that inform the key transformation (i.e. manufacturing the helicopter) and the metasystem that manages, control and guide the policy of the firm are all surrounding this key transformation - manufacturing.

So let's say competitive forces have come in and it's no longer enough to make helicopters. The customer wants to make sure these helicopters are 'usable' and any failure of the helicopter has to be immediately rectified. The firm now has to say - my core transformation is no longer making helicopters, it's to repair them when they're faulty. The firm still doesn't have to understand value co-creation and can still treat the customer as 'environment' because the value is 'pulled' by the customer on the basis of need.

Now let's say it becomes more competitive and the customer now wants to buy availability of the helicopter, not the thing itself. The system immediately demands a redrawing of boundaries - because if availability is the value proposition of the firm, what is it the firm is DOING? making stuff is one thing, but delivering a value proposition of availability means understanding the contextual variety of use, making sure there are parts on standby on shelves to minimise possible down time, even redesigning the helicopter so that it might be easier to change parts, or cater to greater variety of contextual use without downtime. this would immediately imply that the resources for the core transformations before and after the new boundaries are different, as is the metasystem that controls and manages it. This is a serious threat to viability because the firm may not be equipped to deal with changes in resources and the metasystem. More importantly, 'the environment' is now the context and the customer has moved into the system boundary of the firm (previously both customer and context is 'the environment'). This means the customer is a recursion in the system as well as a transformation through which the firm needs to deploy a different set of resources.

Now let's take the most extreme - the helicopter is being purchased for its outcomes i.e. what they do e.g. how many soldiers or supplies it ferries. oh - oh, the firm now has to redefine what is 'environment' and what is in the system. if the firm is committing to outcomes, every possible context is now within the firm's boundaries. the firm has to think about redesigning the helicopter and supporting activities in the system for every possible use. that hypervariety is going to be a real challenge and can quite easily threaten the viability of the system. Here's another example of changing the core transformation:

customer paying for an airtanker ( refuelling their jets themselves vs customer paying for 1000gallons of fuel per minute from the provider (with increased price if the time spent decrease). For the provider? very. different. system. with very. different. resources. and very. different. management. of the system. Viability? No one really talks about it. It's like 'sure, if you can manufacture an air tanker, it's easy-peasy asking you to provide 1000 gallons of fuel in mid-air'. And when the firm don't do it well, marketing people say its not being customer-centric enough, it needs to change to co-create value etc. etc. but they don't really tell you how. Someone once told me it's easier to get a manufacturer of mobile phones to make tractors than for them to co-create mobile phone outcomes. Some manufacturers have become seriously unviable trying. I'm sure you know who I'm talking about.

My colleague once asked me if I had any sagely advice to give to Nokia. In my most 'sage-like' way ;p I said 'try not to think of yourselves as a mobile phone. try to think of yourselves as being a 'life-enabling-platform'. Of course, that's hard. because they have always been a viable firm as a phone manufacturer. now you're asking them to be something else. Apple had it good (resource and viability-wise). it was never a phone.

So that's my simple primer. Yes VSM doesn't give enough understanding of interactions, emergence and co-creation but it's a great start to develop the thinking and the research in a systemic way. So much of our own research (and solutions) are reductionistic. We do research in marketing, or strategy or CRM or something or another and pretend that the insights we have developed are able to apply without some efffect elsewhere (marketing solve marketing problems etc. etc.) but if we are to be truly systems researchers and systems practitioners, we cannot provide solutions and insights without saying something about the systemic effects of our insights. That is the challenge of systems researchers. The VSM helps us stay true to systems thinking and help us say something about the narrow bits of knowledge we give to firms and we can show where the knowledge we propose would sit within the VSM of the firm. As someone who believes in the power of service dominant logic to improve organisational effectiveness to co-create value with the customer, I am compelled to use SDLogic in tandem with VSM because it helps me sympathise with the challenge of transitioning from Goods dominant logic (due to the systemic and viability disruption it create). Yet, the mere visualisation of such disruption through VSM helps firms understand that disruption and allows researchers and consultants alike to develop paths towards effectiveness. That has to be better than just badgering the firm to death about customer centricity.