Delivering advanced service propositions can be daunting as they stretch beyond core capabilities
1. Ecosystem Thinking to deliver complex new service offerings
In todays connected world, we think less about products and more about solutions and outcomes. Relationship, network and ecosystems are increasingly replacing traditional transaction and supplier thinking. Companies who see the opportunity to develop the Intermediate and Advanced services that support the Servitization business models, must integrate their value proposition more deeply into their customer’s processes. This often means developing new capabilities, technologies and relationships, which can be a daunting prospect for many businesses.
This challenge often means the integration of a number of new technologies to create an end-to-end solution. Companies have had to work with new stakeholders to combine their knowledge into an integrated system, which is flexible enough to be applied in different use cases.
Traditionally companies have used a ‘top down approach’ where they buy in technology and services to add to their own capabilities and so deliver the solution. This works well where the supplier deliverables are all relatively independent. In other words the performance and activity of one supplier has minimal impact on others in the supply chain. But as companies strive for ever better performance, so they find that the suppliers become interlinked, in particular through the transfer of data. What we see is that there is an increasing inter-dependence between the suppliers in delivering the end solution.
We recently worked with a company looking to deliver a platform for small and medium sized equipment manufactures to develop remote services during which we developed an Ecosystem Development Model. This model has been very useful in breaking down the complexity of ecosystem development and understanding its iterative nature. We identified 4 key steps that the business had to move through:
- Building Blocks
However due to the inter-dependent nature of the stakeholders, one must constantly re-assess the relationship between each step; circling around the model until a robust solution is developed.
2. An example of where ecosystems can be used
The methodology was developed with a UK SME, MAC Solutions (www.mac-solutions.co.uk). MAC Solutions is a £2M+ UK supplier of industrial router solutions. Together with one of its key supplier eWON (www.ewon.biz), the company identified an opportunity to supply a remote service solution to SME equipment manufacturers. This went beyond the router hardware / cloud technologies currently supplied, and would involve the integration of historians, alarm management, analytics, and data management. MAC Solutions realised that they did not have all the expertise within these businesses and that they would need to develop an ecosystem of expert partners to deliver their vision.
The complex problem MAC were trying to solve was how could OEM equipment manufacturers and Asset Users turn data generated by machines into profit. This business problem has many buzzwords associated with it such as Internet of Things(IoT), Smarter Connected Products and Machine to Machine (M2M) technologies. The goal of MAC solutions was to create a solution for SME manufacturers that cuts through the hyperbole and provide them with the capability to enable ‘Remote Services’. Key, is understanding how to turn data into profits through increasing revenues and customer loyalty, or reducing costs.
The different actors required in delivering this goal are shown in figure 1. They cover both the key technology aspect of the ecosystem such as the hardware, software and Telco providers. It includes the role of the Integrator who interfaces with the customer to pull together the technologies. In addition a consulting partner is included, as the successful adoption of the solution requires a change in mind-set towards Service Thinking. This is the ability to deeply understand how a your customers make money. To then offer services and solutions that leverage your companies inherent know-how and technology to make a difference to your customer’s bottom line.
Figure 1: Overview of the Remote Services Ecosystem
3. The Ecosystem Development Model
In the overview of the Ecosystem Development model shown in figure 2, it can be seen that many of the building blocks and activities are inter-dependent. This is because developing an ecosystem is not a sequential process. Insights from a later activity will drive a review of initial assumptions. An activity might be missed because it is not thought to be a priority, or simply because expertise is not available. It is this interdependence between partners, which creates an uncertain risk profile for such projects. Understanding and managing this risk is one of the key challenges to be overcome. When they work, ecosystems allow firms to create value that a single firm could not create alone. But most examples involve larger enterprises that have access to significant resources.
At the start of it’s ecosystems development, MAC’s managers acted as most managers would. They used their intuition and management experience to understand the priorities and actions through which they would need to move. However, it quickly became clear that the dynamic nature of the ecosystem design, made it difficult to navigate based on intuition alone. There are simply too many interdependent parameters that impact the business relationships. This is a key point for any business to appreciate. The traditional customer/supplier relationships cannot deliver an Advanced Service solution, where customer’s and partners are much more interdependent. It was the realisation that a new way of thinking is required, which led to the emergence of this development model as a thinking framework.
The second aspect of the development model is that the content does not represent new business thinking. Instead it organises traditional management tools into a logical framework and helps business leaders see where their gaps exist. Its value is to ground their thinking when dealing with the reality of conflicting priorities found in business life.
Figure 2 Ecosystem Development Model
The development of an ecosystem covers four key activities:
- Analysis: The basic business analysis that should be completed to gain a deep insight into the markets, customer value and the current business context.
- Building Blocks: Define the basic elements of the business, so that a clear vision, mission and strategy can start to evolve.
- Execution: The key components for executing and implementing the ecosystem. In other words developing the Value Delivery Model and the detailed Business Plan to drive the allocation of resources and actions.
- Resilience: Develop mechanisms for ensuring that the business plan is resilient in terms of business risk and partner/customer fit.
The objective is to undertake research and analysis that turns ideas into real value propositions. In the case of MAC solutions, the ecosystem concept originated with its hardware supplier eWON, who is market leader with over 120,000 assets connected through its router/M2M solution. The question for MAC was how to participate in this concept, and its own role within the ecosystem as a reseller and integrator of the technology. (Refer to figure 1). Clearly they had to understand the market and the opportunity through five distinct pieces of analysis:
- Market Trends & Segmentation: They gained insight into the impact M2M technology could have on the growth strategy of equipment OEM’s through Remote Services and Asset Users. This allowed some very clear target segments to be defined.
- Customer Business Value Creation Chain: They aimed to understand the chain of activities and value in moving from the technology to the different use cases. For example from Internet technology to Security to Storage to Analytics to Value Use case such as ‘Warranty reduction’. Immediately one can see the interactive nature between this piece of thinking and identifying target segments based on the value the ecosystem can deliver.
- Map the Current Ecosystem and External factors: They mapped out the current ecosystem of supply partners, and in particular the relationship between them. Combining this with the external factors that influenced the current ecosystem, MAC could understand the gaps in any future constellation of partners.
- Value Chain Analysis: They mapped out the current value chain, identifying the value added activities. MAC assessed the percentage of the total solution cost of each activity and the power of each partner in terms of their ability to be substituted. This exercise brought significant insight into MAC’s relationship vis a vis other partners, thus creating a vision of MAC’s role in the ecosystem.
- Growth Analysis: They started the process of evaluating the potential for customers to innovate their business model based on remote services and data. However minimal time was spent on a detailed growth analysis, as there was every indication that this is a significant revenue opportunity, and time was better spent in determining the segmentation and potential solutions.
3.2. Building Blocks
The objective of the Building Block Activity was to take a growing understanding of the market potential, and develop some tangible ideas regarding the value proposition of the ecosystem and the solutions. One can appreciate that as solutions began to be defined, this had an impact on the Analysis activity. Four basic areas of understanding were developed:
- Business Opportunity: Essentially this was the problem to be defined, and whether there would be a demand for the solution. For example the MAC problem to be defined was ‘How to turn data into Intelligence and then into profit
- Value Proposition: A high level proposition for the Ecosystem itself was definedProvides Asset manufacturers and Asset User’s with ‘off the shelf’ and ‘compatible tools’ that allows them to create a remote monitoring solutions infrastructure for their equipment/assets, at a fraction of the cost of developing themselvesIn addition a detailed value proposition for each target segment was defined, because they have quite different needs.
- Product Service Solution: Based on the value discussion, a potential product service solution was developed. At this stage, the focus was mainly around technology and finding partners who were interested and compatible.
- Ecosystem Roles and Accountability: A clear understanding of roles and responsibilities is very important in developing a successful ecosystem. For MAC, we mapped these roles & responsibilities against the potential partners using a RACI model (i.e. Responsibility, Accountability, Consulted and Informed). In effect creating a Statement of Works for each member. In total including the client, there are currently eight partners in this ecosystem.
The goal was to develop a detailed Business Plan and Value Delivery model, which would be used to drive the deployment of the ecosystem.
- Detailed business plan: The detailed business plan is the mechanism by which a company makes decisions on resources allocation. It normally lays out the business arguments for the proposal, including forecast revenues, profitability, resource needs and timing. Decision makers discuss this plan and allocate resources.
- Value Delivery Model: The value delivery model enables the business plan to be developed as it details how the value proposition is delivered to the customer. This is particularly important for an Ecosystem where one works with 3rd Essentially it involves having a good grasp of the following elements:
- Sales Model: How will the proposition be sold and marketed?
- Delivery Model: What are the process flow, management practices, KPI’s, people competencies and Tools?
- People: How will you develop the competencies you need?
- Customer Experience: What is the customer experience you want to deliver?
- Organisation & Partnerships: How do you organise for the service and how do you manage partnerships?
- Revenue-Sharing mechanisms: How is value shared between each of the members of the ecosystem?
- Pricing Scheme: What is the pricing strategy for the end service?
- Procurement: What is the procurement strategy for the different elements needed to deliver the product service system?
The problem with following a model is that real life can be very different. In particular for services prototyping and trying out ideas is very important. In this particular case study which involved an SME, a detailed business plan was not developed and neither has much time been spend on defining customer experience or on procurement. Instead a very pragmatic approach has been taken in using a pilot sales project to drive the commercial and organisational detail. Piloting was felt to be important because this is a very fast moving space with new data delivery mechanisms being created such as the cloud and collaborative platforms.
As with any partnership, an ecosystem has to have a natural built in resilience if it is to survive and prosper. A methodology was used in which different elements of the Ecosystem Business Model could be mapped against that of key suppliers. This allows the ecosystem leader to identify divergences between itself and its partners.
Figure 4: Partner Fit
4. Concluding Thoughts
It is the inter-dependence between suppliers & partners that distinguishes a true ecosystem from a traditional supply chain. But inter-dependence dramatically increases the complexity of relationships and the ability to successfully deliver the intended solution. Having a pragmatic framework has proven very useful in providing a roadmap that can guide a company through the complexity of developing advanced services.
What is also clear that it is also not necessary to complete all aspects of the roadmap before moving forward with the solution. Often piloting the service is an extremely important part of developing different aspects of the framework and key to developing new service propositions. So clearly completion of certain elements of the framework can be postponed and completed at a later stage of the project. There are no fixed rules about what must be completed and it comes down to the context of the business situation and the experience of the decision makers. A general principal is that the upfront customer analysis is important to at least ensure that the direction and broad principals of the business are correct.
For managers looking to develop advanced services that go beyond their core competencies there are two key takeaways to consider:
- Appreciate that when building partnerships that are more interdependent, they require a more intimate understanding of the customer value chain. This is turn requires them to ‘consider traditional questions in a somewhat non traditional way’
- The use of Pilot programmes is a very pragmatic and easy to understand approach that a company can take to test and understand some key questions. When done in the context of the developed framework, risk can be reduced.
Written by Nick Frank, Managing Partner at Si2
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