2007/04/26-28 UC Berkeley - Tekes "Innovation in Services" Conference

UC Berkeley - Tekes "Innovation in Services Conference", April 26-28, 2007, Haas School of Business, Berkeley, California

See the program at tekes.fi.

2007/04/27 08:30 Henry Chesbrough, "Welcome"

2007/07/27 08:35 Henry Chesbrough, "Welcome", Innovation in Services Conference, Berkeley, California

Event sponsors:

Institute of Management, Innovation & Organization (IMIO),
Haas School of Business, UC Berkeley
The Information School at UC Berkeley
Citizens for IT Research in the Interest of Society
California Management Review
Finnish Funding Agency for Technology and Innovation - Tekes

Welcome by Henry (Hank) Chesbrough

Co-sponsorship by Berkeley and Tekes

Had approached NSF for funding last year, but they didn't have a category

Response: won't this just create jobs in India?

Opportunity for high-wage countries

2007/04/27 08:45 David Teece, "Managing Dynamic Capabilities and Expert Talent in Today's Global Economy"

2007/04/27 08:45 David Teece, "Managing Dynamic Capabilities and Expert Talent in Today's Global Economy", Innovation in Services Conference, Berkeley, California

Intro by Henry (Hank) Chesbrough

David Teece, known for dynamic capabilities

Also own consulting business

Services sector

Will focus on professional services, which he does as a hobby

[David Teece]

What's different?

Basis of competitive advantage has changed

Not managing tangibles, managing intangibles
Competition for intermediate goods, final goods, competitive markets
Can fall into the zero profit trap
Want better than competitive return, which you could be passive investment

Aren't markets for intangibles

Know-how, capabilities
Something isn't tradable, perfect markets don't exist, so should be able to get competitive advantage

Style and genre of management is entrepreneurial management, also called dynamic capabilities

Managing down through hierarchies isn't sufficient
1. Have to sense new opportunities -- somethings that entrepreneurs do
2. Seize new opportunities
3. Reconfigure organization, because target will be different today from tomorrow.

Started in 1997 with Teece, Pisano and Shuen paper

So what does this mean about the way a company is run?

Organizations complement markets
What is it that organizations can do that markets can't?
Markets coordinate things, where there is a price system at work, meaning commodity markets
Otherwise, management has something to do: sensing, seizing and reconfiguring

Sensing means seeing where the market is in disequilibrium, or putting it into disequilibrium

Not new: Schumpeter
Putting together specialized or non-specialized asset in a combination that others don't
Kirzner: entrepreneurs re-establishing equilibria
One way to sense is to do R&D, an exploratory activity
Chesbrough's Open Innovation says that innovation doesn't have to happen inside the firm
David Merry: companies good at showing innovation are good at doing it: insourcing
In addition, have to be scanning the periphery of the organization, it's part of how organizations are alerted to new opportunities

Seizing

How do firms come to be great?
Some sense early, but then screw it up
Putting money down in a sensible away is crucial to competitive advantage
Alfred Chandler looked at 100 years of history, to separate sheep from goats.
Companies that didn't just see the opportunity, but were willing to put their money behind it, to building manufacturing, org hierarchies
Important investments must be made
Firms good at this do better

When world changes, have to reconfigure

Path dependence
More than adaptation and response, it'shaping markets
Took 25 years to learn this: economists say markets are exogenous to companies
More often, it goes the other way, that companies shape markets
e.g. Microsofts of the world shape markets, and determine the competitive
What pages of the textbook do you have to pull out to see what's happening in the global market?

Reconfiguring the business model

Took 25 years to learn this, learned it from Henry Chesbrough
e.g. Dell Computer, new business models with new business methods to back them up
In a world of open innovation, there's increasing advantage to getting the business model right

How does this play out around talent and services?

Expert talent, as in any high-end organization, is required
e.g. software, the top 5% of code writers do 90% of the creativity
U.C. Berkeley: 90% of the research comes from 10% of the people

How to manage top talent? What do they need, and what don't they need?

They want greater autonomy, which requires greater accountability
Command and control structures won't work
Role of management is to create new structures that provide greater autonomy, and then orchestrate: make individual talent more productive in teams

How do you do this where traditional management doesn't work?

Peters, 1993: Today's professional services firm is the best model for tomorrow's organization in any industry
They're built around intangibles

Look at the literati: high-end educated people, who provide a lot of the talent to create new products and services

International trade, open markets: creates more of a winner-take-all economy
They solve complex problems

Assumptions about what makes literati tick:

They're worthy of trust
They like they work (sometimes too much)
They have important non-pecunary gogals
...

Can team with highly centric, egotistical people

Compare traditional teams with virtuoso teams
Think of organizing a Broadway show: a few highly talented actors, others not so talented, all choreographed
Need to have the highly talented and talented recognized
Don't take substance over form
Satisfy highly sophisticated clients

How is this organization different from a collection of individuals?

Sometimes not, but it can be
Can bring it together, brand it
Involves building co-dependencies
Will retain people if have some individual professional freedom, and combine them with people who have complementaries
Collective brand, can achieve common goals

Leadership?

Can't run highly centralized model
Got centralized from army, church
Weren't hierarchies in business until had them in government
Arthur Andersen accounting founded in 1920s in the General Motor model
Could have done this differently

Model probably needs to be more decentralized

Open and transparent incentive system
Some metrics-driven capabilities and rewards

Contrast expert services model with industrial model

Decentralized
Persuasion
...

Service innovation requires new knowledge

It requires managing intangibles
Starting in a game where there isn't as much foundation
Talent is scarce, have to build it, can't buy it
Have to move to dynamic capabilities

[Questions]

Metric-based compensation, like to paid for what I accomplish. How well can it be assessed? e.g. lawyer that does a good case, but loses

Have to inject some market rationality
If lead partner does a bad job, not only internal sanctions, will have some external
Requiring metrics
If you don't have metrics base, then have to set up a compensation committee, then there will competition to be on that committee; and then those who aren't on the committee lobby those who are, which is really inefficiency
Oriented towards influencing
Have to avoid, it's how politicizing happens
Want them to kiss up to customer, not internal
External deficiencies easier to deal with than internal

Juniors at piece rate. At senior levels, rainmakers take out what they're worth to another firm

Being under that brand has benefits that another brand doesn't
Fundamentally a race to build brand and complementariness

Stop people from moving?

Incentives are necessary but not sufficient
Culture, values, leadership

Knowledge management. Where does trust play?

Multiple ways
Individual has to trust the organization to do the right thing
Organization has to trust individual
Individuals have to trust others, which requires norms
Building trust with heterogeneous talent is tough
It sometimes takes 10 years to get someone to trust an organization
A manager can easily under 5 to 10 years of work
Haven't done as much research into trust as would like, hard to measure

Dynamic capabilities, but where does the customer come to play? In services, co-creating of value.

Haven't thought of this
Hank Chesbrough: professional services requires integration with a customer more than others
Not just 1-800 number
Quasi-joint ventures
Opportunity to sense the marketplace, as close to customer
In seizing, desire for joint ventures
See this in computer services business, particularly hardware and software
Some relevance, haven't thought it all of the way through

Few people in an organization can be described as virtuosos. Yet 80% of the economy is services. So how to apply this idea to the larger services economy

Things that are not virtuoso are on the way to India
Virtuoso companies will stay in high-wage countries, that's where the customers are.
Not many people are virtuoso, but that's where the value is

What's a virtuoso? One company has 2 people, one driving the truck and the other supervising; the other has one person doing everything

Virtuoso needs to adapt
Non-virtuoso can be given the book and guide

Business orchestration, combined with virtuosity. Orchestration in cultures. Experience: in some cultures, time is absolute, can fix dates in advance.

Haven't thought about this
Time element is important
Virtuoso teams operate on spontaneity
On the other hand, still need to perform when the curtain comes down
In law firms, have to show up at court
Have to back off a little bit in terms of organization, virtuoso teams need some basic project management skills

Talent motivated by challenge, that could be a deadline

My organization missed 4Q last year, because didn't have the platforms in place
As an economist, figure that people with right incentives will work it out
But need project management skills
Have a revised journal article on strategic management, in Strategic Management Journal
Used to have entrepreneurial management, doesn't just mean being intrapreneurial: have to set up supplier arrangements
Work with Peter Grindley: hierarchy upside down, the job of top managers isn't just administration down, it's managing externally that is important
You wouldn't pick this up in the Haas School, where management is down rather than out sideways
COO does down
CEO does external stuff

University example. We don't have these incentive models in universities and government

We're getting them in this university, Berkeley was one of slowest to move
It has to come
It won't happen in public sector, and the public sector will continue to underperform
In organizations that need to compete -- governments don't have to compete -- it will happen

In coopetition and two-sided markets?

New paper deals with these
The way value is created, where intangibles are hard to trade, is putting specialized assets together intangibles
Markets can't put together idiosyncratic, non-tradeable assets
In dynamic capabilities, try to put a role of managers into the economic system
Economic textbooks only talk about principals and agents, not managers
Tradeable assets can orchestrate value

Contrasting market governance and hierarchical governance. Now starting towards network governance and relational governance. Inter-organizational management. Dealing with incremental value systems. More like emergence. Contingency effects.

Profound
A lot is incremental
Being best of breed or being benchmarked processes doesn't build competitive advantage where everyone has access to those process
Technical fitness versus ecological fitness
Technical fitness means doing the operations well, but they may not be what the markets need
Dynamic capabilities already assumes strong operations, but then, how to stay consonant with the external marketplace
Debate within Harvard strategy and operations people, Michael Porter: if don't have world class operations, don't have a strategy, but then Porter says necessary but not sufficient to be competitive

How to make change? Surgery? Chemotherapy?

Have to sensititize the organization to changing competitive advantage
Rethink of market strategies, and business models
Can you adapt? Organizational ecology, John Freeman says organizations can't adapt, they're type by birth date, and there's so much path dependence
Harvard Business School: managers can change the world
Truth is somewhere in between
There is a lot around strategy and class of products that are malleable
Absent changing underlying routines, can't do much
Changing business model isn't easy

[Thanks]

2007/04/27 10:10 Panel on "The Challenge of Managing Services in a Global Economy"

2007/04/27 10:10 Panel on "The Challenge of Managing Services in a Global Economy", Innovation in Services Conference, Berkeley, California

Intro by Henry Chesbrough

Innovation and management in services in a global economy

Panel

Panel Chair: AnnaLee Saxenian, dean of the information school at Berkeley, trained as a regional economist and technologies: 1994 book on "Regional Advantage" contrasting Route 128 versus Silicon Valley, relational network distributed organizational structures in Silicon Valley, compared to hierarchical
- The New Argonauts: at a global level, and the role of individuals who are argonauts
- This panel session will focus on:
- Challenges of managing services in a global economy
Wayne Dai, Chairman and CEO, Verisilicon, chip design in Silicon Valley, with manufacturing in China and Texas where they capitalize on the chip architecture
Henry Tirri, Nokia, runs systems research centres around the world, a new role: in Palo Alto, Beijing, two in Cambridge, as search networks around the world
Anssi Rantasalo, Managing Director, Kemppi Oy, manufactures electric arc welding with services

Minna:

Memory sticks in U.S. customs
Content will also be

[AnnaLee Saxenian]

Argonaut, returns with golden fleece, but keeps ties

To now, though of globalization in terms of manufacturing busineses, not services

Even the most commodity-like products must become services, to be value-added

Two questions:

Explain your company, the service aspects, and globalization
Top three challenges of managing global services

[Anssi Rantasalo, Managing Director, Kemppi Oy]

PC broke down in Frankfurt, no slides

Kemppi, family-owned business, 1949

Customers are in ship-building
160M Euro business, 15 countries, 730 people on payroll
Still family owned

Typical equipment manufacturer

Success on technology leadership, high quality, and internationality
Went international from Finland in early 1950s
Almost a global company, but not large

Globalization is putting pressure on manufacturing and technology industries

Need to innovate outside technology area
Engage company to industrial services business

Move up the value curve to transform from equipment provider to solution provider

Have always had some services, including information services
Have done some training, consultancy
Provide maintenance

Solutions: standard equipment that we manufacture, incorporating technology outside our R&D, related to open innovation

e.g. wireless information transfer systems, with network destinations
Enables customers with systems for quality and productivity control
Remote diagnoses, preventive maintenance
Software is a big part
Service, whether man-to-man or maintenance or reporting, is becoming more important

[Henry Tirri, Nokia]

Disclaimers:

Formerly life, used to speak as academic
Research person, leading research
Perspective is renewing Nokia, not focused on present
Lead innovation globally, trying to find a way to renew a giant, eating mouses
Global as a company, global markets
An adventure, won't talk about theories, although good at that

Company history

Nokia has renewed itself many times, from paper/pulp to current cellular phones
Are currently in the process of renewing again
Maybe not like before
Rubber boot company

Are a technology company

Renew Nokia, lead Nokia, look outside of core business
Handsets play only a minor role, there's another group in Nokia researching core technologies
More than better devices
Device has a role, but moving towards the service-dominant: hardware, software, services

Numbers:

Produce 13 devices per second, 1 million per day (and producing 1 million empty boxes per day is already an achievement)
Challenge: what do you do with a giant, that is in a playoff game
Large scale, optimized logistics, yet want to innovate and compete in different domains coming together
Internet companies, carriers, phone companies all want to come together
Google wants to make a phone, Apple has already done it, carriers want services, Nokia and others want to bypass carriers

What is the enabling?

Voice centric phones
Multimedia phones
Corporate-connected phone

Multiple convergences going on

Converged devices are fastest growing market

Software has become important

Symbian, S60, a necessity
PCs became popular on standard software platform
Computer scientists by training
Have been working with universities
Most challenging: these new devices as the new platform, a world of 1 billion devices
Connected, not just voice, but computing platform
Obvious: mobilizing Web 2.0, more and more sophisticated services, not just passively viewing data

Mapping, navigation, location-based services

Almost all mobile handsets from latter 2007 will have GPS built in
GPS by itself doesn't do anything, how do you use this information?
Came today from Palo Alto over Dumbarton bridge, would have liked to have total dynamic traffic module

Music

Mobile entertainment has different dimension
Working with Hollywood immersive formats

Camera:

Imaging local level, building a map of the world, sharing it as a service
Service mash-ups, services on top of services
Same game as Google plays: a platform game

Not just a device game, the value of the device comes from the services and overall interaction, whether you're a carrier, telco or device company

[Wayne Dai, Chairman and CEO, Verisilicon]

Integrated device manufacture

Digital 1.0: mainframe days,

IC fabs, with only TI and IBM continuing to invest

2.0: Separation of design from manufacturing

Taiwan took advantage of this, fabless

Now, design is expensive

Starting is $20M
If this is a good market, why isn't Broadcom doing this?
Have to do something to outsource design
Call this Digital 3.0 for midsized companies

iPod, everything is outsourced

Manufacturing is considered to be a service
Design foundry as a service
Last week, Bosch pulled out, have also outsourced

Reduce cost in electronics

Components are from China

Components are System-on-a-Chip

Core competence is not implementation
Software architecture defines markets
Software companies take most profit from components, want to do less from more
Not outsourcing China to China, from outside China to China

Support worldwide

Manufacturing, packaging, testing, with the branded name on the chip
Don't build until there's an order

New 3 C's:

Still consumers at central
Need a China strategy
Consolidation everywhere, pressure to outsource

[AnnaLee]

Relentless: moving towards customers, services

Challenges of managing?

[Anssi]

1. Creating a service culture and mindset, for both service innovation and execution

2. Need to educate the industrial market to pay for services that they used to get for free, in the capital equipment

3. Managing quality at a global level when getting together with partners, e.g. maintenance and repair, other kinds of services

Question: how manage the conflicting agenda of partners in different ecosystems?

Need to be innovative at how we train to give them capacity to do service
Building loyalty in innovative ways

[Henri]

1. Scale: interested in services which are different from a traditional growth market, since there are 1 billion device platforms readily available

Growth model is good, because can debug things on the way
One-shot model means sink or go
Achieving this requires innovation mechanisms to debug earlier
Are moving fast to living labs innovation: testing, roadmap, design

2. Ecosystem game: if one piece missing, don't have anything

Content, platform, distribution
Maybe something in between, e.g. communication channel
Assume starting to use devices as sensors, sending 100 bytes per minute x 1 billion devices, this would collapse the network
e.g. pollution sensing around the globe, but the data would congest the whole system

3. World is so heterogenous

New, when joined Nokia
Understanding different questions and challenges in India, China, North America
What is a service, what are the innovations from the consumer parts ... is like day and night
e.g. privacy: location-based service, first question in North America, what do you do with the location data; and this isn't a question in India, where no one cares about statistical advantages

[Wayne]

1. Repeatable, scalable, high-availability service

Division: integration of Texas and Silicon Valley teams with Shanghai head office

2. Business model: low margins or higher-margin IP

Can't scale

3. No-asset business, how to retain people without increasing salary, e.g. in Taiwan, help with mortgage to buy a house

Leveraging people's knowledge

[Annalee]

In China and India, wages are rising quickly, people crowding into Shanghai and Bangalore

Salaries between China and India and Silicon Valley could be at the same level in 10 years

How to maintain loyalty?

Wayne: Have to maintain distinctive IP, so customers come back

Henri: Formerly life, bayesian statistics

Partnership is the same, it's conditioned
Game: Diplomacy
e.g. want a dominant platform for Internet services, would make sense for Motorola and Nokia to work together, yet still compete on other parts
Win-win game, but the wins change
Haven't been successful, don't think IPR can lock
Always pieces needed, e.g. content
Collaborating with Yahoo, but doesn't seem like collaborating

Anssi: Industrial services, trust is important

Keep trust by maintaining promises
Have been successful in Finland, where you don't always need paper, handshake is good

AnnaLee: Taiwanese could do things on a handshake, but a lawyer then says spent hundreds of hours working on that

[Questions]

Device convergence, yet some fundamental changes. Convergence trends?

Convergence to a wireless grid: wireless access that is transparent, but WiMax, Wifi, proximity radio ...
- Abstract level, there is convergence to wireless; but at the lower level, it's not converged, it's heterogeneous, with a layer that allows us to do this
- Converged surface is an artifact
Cross-converence in multi-functionality
- Individual music players
- Don't see device convergence
Software convergence: never see this

Handling spin-offs

Henri: one of interests, what are different technology transfer modes
Core technology is a technology transfer no-brainer: protocol map, and it pops out
New innovation: how to sell it to businesses that don't understand it
Want people with an entrepreneurial mindset
- In Silicon Valley, want first year as angel, second year to sell initially, and third year with a distribution model
- Starts with assumption of spin-offs, works in Silicon Valley, okay in China, and it's difficult in Finland
- Yes, encourage this, not for everything, but it should be different technology transfer from core
Wayne: starting businesses in long distance
- Everyone can come back, but the head
Henri: when you go out, you go out, and don't have a safe haven
Wayne: people go out, and come back as customers
Anssi: more trouble in attracting talent, want to keep them
- Understand that from a global perspective, retaining talent in China is an issue

Similar, setting up; dissimilar is the virtuoso teams

Wayne: Any service needs to be replicable, scalable, high-value
Henri: Why should they?
- Renewing Nokia to become biotech, doesn't leverage history of machines sending bits
- Vision: merging physical and digital world
Anssi: Binding is challenges, they're all about people and relationships
AnnaLee: they're all customer-oriented, which isn't what you would have seen in manufacturing businesses 30 years ago
Henri: variation, not opportunity costs
- Did a chip for Intel
- Can't afford to do different for countries, China, India
- Have IP protection

2007/04/27 11:20 Stephen Pratt, "Innovation and Management in Knowledge-Intensive Business Services"

2007/04/27 11:20 Stephen Pratt, "Innovation and Management in Knowledge-Intensive Business Services", Innovation in Services Conference, Berkeley, California

Intro by AnnaLee Saxanian

Kids go to soccer together
Was at Deloitte and Booz Allen
Offered services to India
Started the first U.S-based consulting branch of an Indian company

[Stephen Pratt]

Three years ago, decided to create Infosys Consulting

Customer: great work, but paid $144M, is there a way to cut costs
Reflected, customer was right, hadn't found an innovative way to do this
Tried doing a project with onsite consulting, with developers in India
Had friend who started as Deloitte consulting in India

It worked

Workers liked it
Customer found higher quality
Higher profits

Previous firm wasn't in a position to take advantage of this, so went to do it ourselves

$200M run rate this year
Expect to double again within next 2 years
At Infosys, say, what took you so long?
3 years ago, 25,000 people, today it's 78,000 people, adding 2000 per month, at 100 people per day
Passed the market capitalization of Accenture
A great model for investors, most in U.S. and some in U.K.
Only 3% of clients are in India
70% of employees are in either India or China
Over 90% of clients are in North America or Europe

Are services companies going insane?

Einstein: Insanity is doing the same thing over and over again, and expecting different results

Consulting: innovation going down, quality going down

Model isn't working
Clients have gotten ahead of consulting firms and services firm
When a services firm falls behind its client, it's a problem
Big disruption

Inflection points for services companies: three

Early 1900s, consulting industry started by Edwin Booz

Hire retired workers to give advice to executives
Inconsistent quality

1926: James McKinsey

More like a law firm, hire people out of business school, hire them, train them
Management consultant

Worked until 1980, when technology came onto scene

McKinsey said we don't this
Created an opening for accounting firms: Arthur Anderson, Deloitte, Touche-Ross
Results in large consulting firms
Not working
Client in Chicago, consultants in New York, fly in, rent cars, take spots in client offices
Why? No competition was driving away from this
But, Dell said, we won't manufacture in Manhattan, we'll build in Penang, Malaysia

Maybe the companies need a new business model

Friedman: a flat world mindset

Fourth generation of consulting:

Good onsite consultants, working with clients, rich and high-touch, excellent communication skills
Things that don't have to be onsite can be where ever is best in the world
A fundamental disruption in the services business, especially in consulting
Feel that Infosys is leading here, with third generation companies (Accenture, IBM) following
Some will be successful, some will be left behind

Things are changing quickly, it's an exciting time

Tremendous debate about this

Charlie Rose, Allen Blinder talking anti-globalization, saying it's a net adder of jobs, but need to create a social safety nets
Companies aren't going back, they're here to stay
Impact on society, U.S. needs to step up to orchestrate the world's work force
Isolationism is a bad idea, we'll lose

What's the flat world?

1. Opening of emerging economies, India and China, with Brazil and Russia next

Hundreds of millions of people with access to market and information
Workforce is amazing: India has done well educating in sciences

2. Demographics:

U.S., Japan, Italy, rapid aging, need workers to pay pensions for retirees
In U.S., unemployment is low, but using people around the world
Demographic shift in advanced countries

3. If have people available in countries, but not way of accessing it, it's a problem

Telecommunications has become free
Skype
5 to 10 years ago, used to unplug fax machines to get a 9.6 line
Now, we're upset if we can't get 100 Megabit, upset if can't get it in a taxi in New York

4. Consumers are getting comfortable with technologies

All causing disruptions, particularly in services

Statistics:

GDP of emerging companies growing
Number of companies from emerging companies in Fortune 5009
Aging workforce in developed countries, can see China 1-child policy
Talent pool, number of engineering graduates in China high
- e.g. can't put hub in Australia, it would require hiring every engineering graduate
Age of citizens, computers going down
Cost of telecom falling

Idea of flat world came from conversation with CEO at Infosys and Tom Friedman, but also don't agree with everything that Friedman said

How to win in a flat world? Four shifts

1. Dread: mindset of Chinese coming to sell below our cost, and being afraid of that

Need to think about how can be the one causing dread
The most creative using capital
Want to be the "China price"
Leader: Toyota, doing counter-intuitive things, e.g. building manufacturing plants in the U.S., when people think that everything is moving to India
Renault: want to create a car for emerging markets, the Logan, low-cost, $5000 can be sold in India and China, successful
Renault also learned a lot about cost discipline and manufacturing, that could be applied in mature markets

2. Shift, from generating customer loyalty through goods/service so they'll stay around forever

Now, can compare prices on the Internet, almost perfect information
Demand to have the best product is extreme
Can't have loyalty customers by relying on good customer service, have to rely on innovation
e.g. InnoCentive: affiliated with one of major consumer brand companies
Have problems, but not enough problem solving people
They put the problem out to the world, and say they'll pay $75,000
Someone in Budapest comes back with the answer, and they charge the company $100,000 for the innovation

3. Shift from collecting information, more centralized databases to get a 360-degree view of the customer

People had access to more information, but so what?
From spending money to collect information, to making money
e.g. Harrah's Casinos, Total Rewards program, the frequent loser's club
Consumer perceives more value

4. Moving from the mentality of winning in the straightaway, i.e. straight line

Reality is life is more chaotic
Companies need to be designed for change, variable cost structures
If things go down, cut back, and if they go up, scale
When tolerances weren't so tight in companies, used to be able to absorb this
Now companies are changing positions in the turns, either downturn or disruption, where companies pass each other

Philosophy: battle of the skeptics versus the rebels

Skeptics: this is hooey, it will destroy America, or my kids will never get a job
Rebels: this is the future, the way we're going to make great countries is to lead this thing

Battle, even within companies

We've been doing this for 50 years, versus no, we need to do this
Corporate personalities come out
A lot of whitewater
Vote for rebels

Have to set sacred cows free (coming from an Indian company, says a lot)

Manufacturing went through this, and services is now going through this

(Will skip consulting as a case study)

Infosys 3 years ago, started at 25,000, now growing at 2,000 per month

Operating margin was 25% after tax, now 26% after tax
Most consulting firms run at 12% after tax, we're double that
From client's perspective, we can do things as good quality or better, and charge 30% less
The value of the company, from $15B to $32B, trading at 10-times-revenue

Think flat!

[Questions]

Wage rates going up in India, the differential with U.S. won't last more the 10 to 15 years.

That would be an economic miracle
If the wages in India were even close to the U.S. it would be
Hotel rooms are as expensive as Manhattan
This will happen more slowly than people think
It will be at least a decade before getting in shouting distance
It will be difference places within India and China, then Brazil and Russia
Wage differences are 6:1 or 4:1

There are skill shortages globally, everyone is competing for the same skill base

It will be educational system versus educational system
How many can IIT generate?

Clients ahead. Clients now pay for connection to someone who can do it. Social network. What's to stop the customer from going around?

Right now, clients are hiring consultants to get a result, e.g. fix inventory turns
Days of give advice and run away are numbered
Only advice firms are going away
Big market, e.g. for large oil and gas majors to see if metrics change
What's the fifth generation?
Maybe private equity, consulting professional that go in to fix the company, then the improved company would have a high value and could IPO
But we won't lead this, we'll have some else that will do this: it's risky, negative cash flow
Will see much tighter alignment between hiring someone and results

Education statistics

Number of U.S. citizens graduating is much smaller
Being an immigrant nation, think would embrace smart people moving into the country
We're putting in limits on smart people, and letting low labour in
H1-B visas down to 65,000 per year, and on the first day, got 120,000 applications
Closed applications, and decided to have lottery
For people in the U.S., their jobs are better
e.g. Deutsche Bank, doing credit analysis, found problems having skills
We say: we'll hire Ph.D.s, and let them do analysis, not only crunching numbers, but telling them what to crunch
Now, they're only limited by the creativity on site

H1-B and O1 blocks are limiting Nokia's growth in U.S., so we're doing more in Asia. We have four people in Germany, UK and Asia that can't get to Palo Alto.

Original management consulting based on law firms. Law firms are dinosaurs, how can they improve?

Will have to have some "equivalent to us" forces.
Audit firms are also dinosaurs, could do supporting analyses remotely
Career paths in law firms start at student and go through to partner
Due for disruption

An oil well in a flat world. How do you train or harness your employees?

Gave a keynote at the consulting summit
Some attributes of consulting profession that need to be retained
- We do what we say
- Critical analysis of business problems
Also, we spend a lot of time breaking down walls
- Either your technology or your business walls have to come down
- Need technology and business people to work together
Also, ego in past on background, e.g. what school
- Spend time culturally breaking down
We don't have this completely figured out

Transfer of some of work, but in the case of law firms, it's the entry level work that builds people. If you're building a pure information job, how do you train people for senior positions in the U.S.?

Two distinct disciplines: technology and business
The majority of people are near clients, here or Europe, some in Japan
Hire MBAs, and they go through the consulting professions
There are some people who transfer from Infosys Technologies to Infosys Consulting
Ideal candidate: computer science undergrad, who became an MBA
Will take a generation to find out

2007/04/27 13:40 Panel on "Innovation and Management in Services within an Industry"

2007/04/27 13:40 Panel on "Innovation and Management in Services within an Industry", Innovation in Services Conference, Berkeley, California

Panel Chair: Henry Chesbrough

Business issues in developing and deploying services innovations

Panel

David Tennenhouse, Amazon
Kaj Hedvall, Director, Senate Properties, Business Development
Suvi Anttila, President & CEO, Pöyry Forest Industry Consulting Oy

[Kaj Hedvall]

Organization is trying to the do the same as others, redefine itself

Move from leasing business to a service business
We were owner, buying things from service providers, and now we're one of the service providers

Gadde & Hakkason 2001: Move from supply chain

To network

Senate properties

11,300 properties

Would like to manage like "guided missiles"

Solutions set up as standardized elements in a modular hierarchy

You don't do services in the R&D department, you do it day to day

[Unfortunately distracted during the talk]

[David Tennenhouse,]

Ex-Amazon, now with New Venture Partners (was the AT&T New Ventures Group, literally Chapter 7), had been with Intel

Will focus on what learned at Amazon

Joined Amazon, frustration over product cycle in a large company

Intel 5 to 7 years to get a product out the door, meant research had to be 5 years before
Fear of shipping defects out the door

When did you last upgrade your Amazon software?

It's upgraded constantly
Can take a few servers offline, pushing out new features
Put beta out, let your customers tell you
Marketing people like calling it a beta, it has more hype, so everything is a beta
Don't have to fully harden everything, can put more under the covers

SOA: individual services are divided up into support

Don't have an architecture, just have support
Have lost faith in Big-A architecture
Obsolete when the roll out, if they roll out
With SOA, you don't really have an architecture
Have people with responsibility with running services
After they've launched beta, they're carrying pagers 7/24
Not software developers, we're service providers
Can dynamically create new teams
Amazon 2PL: two pizza team leader, can't define teams larger than those that can be fed by two pizzas

Organizational impact of SOA

Even if customers are internal, they're very customer-focused
Great deal of room for innovation

Think that 2PLs are a bit too small

You don't quite get enough people
Some people are fire fighters
If have 20 to 30 people, could manage two or three services
At 5 to 10 people, if someone goes wrong, hard to keep all of the skills and depth needed

Amazon: have shifted the capital

Consumers used to own computers, now the company owns the servers
Feels like Intel with its fabs
Will have software companies that look more like capitally-based companies
Not yet working its way through the industry
In the services game, you own the capital to provide those services

Partnerships are important to Amazon

Even more important to Google is anonymous partners, i.e. self-service people who sign up for web services
These partnerships are dynamic
If you have a web site and show ads, it's self-service
High leverage, it takes a lot of know-how to make it friction free
Can't hand-hold every used bookseller
Amazon does partnership with Target and others: heavy lifting

Some people who are Amazon Prime will come on every day, and buy stuff

Europeans will pile up things in a friend's house, and pick it up on the next trip to the U.S.
They're buying in the middle of the night

[Suvi Anttila, President & CEO, Pöyry Forest Industry Consulting Oy]

Started in 1958

Now 6000 people around the world, in three sectors

Will cover three areas:

Traditional engineering business
Management consulting services
Opportunities in coming years

Shrinking profitability, have to keep people occupied

From Finland to Poland

Joint venture in China
Acquired 260 engineers in Russia
Have an industry in India

Challenging, gained a lot

Engineers around the world seem to get along well
Management has more challenges

Have increased profitability

Gained new ideas
New paper machine is $2B investment, it ways thousands of tons

Need to take care of quality all of the time

Different animal: management consulting

From study works to products
Customer relationships haven't traditionally been well understood in a Finnish engineering company
Have transferred expert knowledge into marketing organization

Would like to change the company to be a little more bottom-line oriented, as well

Implementation is different

Can tell them, strategically
Different to design and make the paper

The future:

Are involved in plantation, reforestration, related to wood, in global forest
Have energy in management consulting, traditional and renewable energy
Infrastructure
All related to climate change

Made a mistake 3 years ago

Some internally said that climate change was a big thing, and we didn't pay attention

Internally, how to package knowledge and get processes to work across management

Where do we take relationship knowledge and expertise?

[Hank]

Comments on Suvi

Global
Relationships
Coproduction may mean co-innovation

Kaj:

Servicing 11000 buildings with other people
Locus of innovation is shifting
Game is not the lego bricks, because they're available throughout the world

Comments on David:

Self-service, so may not need to move so much to India
Customer end state, e.g. FedEx tracking system
Customer loyalty, why use anyone other than Amazon
Capital cost moving to service provider

[For next talk]

Future is not in products, it's in services

Products are in tangible, services are intangible
Separation between suppliers and customers, as compared to service coproduction
Knowledge content moves with a product, but in services, it's tacit

What does this mean for customer-facing activities?

Can you verify what you got?
Can you write the spec?
Haven't address intellectual property in this meeting, should address this

Business model issues

Products are big ticket items, with free service thrown in, whereas services have lower initial purchase price
Initial high margin versus long term margin
Accounting systems that track costs initially, versus ongoing annuity

In software space:

Packaged software, big ticket, compared with utility pay-as-you-go
One size fits all, creates bloatware, as opposed to pay for use
Warranty for free vs. renewals
Multi-step distribution vs. hosted online, with little or no role for traditional retail

Software as a Service:

Can tell what code customers are using
Small continuous improvements versus infrequent upgrades
Linux has been revised 40 time during Windows pro to Vista
Fixed costs become variable costs

Constrasting metrics, from Mironov 2007

The way you think changes

Human resources:

Product-based companies typically are based on functionally specialization

[Questions]

How does servicification change engineering?

David: Have seen both sides
- Intel has lots of software engineers, and ships Mac software
- Product people want to give the upgrades for free
- Amazon show agility from changing from direct selling to selling besides its partners
- Product company: your customers have an expectation

Suvi: In consulting, you have to a lot of ground work to understand the industry
- Data banks, multi-client studies, where can't really charge
- Then hope for participation when contracts come

Self service: creating an externality. Calls, menu trees. World as a whole loses?

David: Continental Airlines, large parts of call centres move back to U.S., incentives for people, e.g. choosing own hours

Lowest common denominator

Hank: Customers are heterogeneous
- Others are reassured by voice

Mary Jo Bitner did a nice study on self-service; also Womack & Jones

David: Amazon and Google cases are a little bit different because not pushing work to the client, it's enabling an economy

Cultural difference country by country, except engineers, who are a cultural group

Suvi: Has been easier to become global in a certain branch
There are other cultural challenges

Innovation

Kaj: can't say much about innovation, can tell mistakes
At a certain point, it starts to increase costs
Shouldn't have to offer the same thing to all customer
In service mode, some though would offer everything to everyone, took a year to find out not a good thing
Managers forwarding the whole package to the customer, and gave the name of the service developer -- not good
Like financial services, it's wrapping different things in a different way.

2007/04/27 15:15 Panel on "Technology Issues in Creating and Delivering Knowledge Intensive Business Services"

2007/04/27 15:15 Panel on "Technology Issues in Creating and Delivering Knowledge Intensive Business Services", Innovation in Services Conference, Berkeley, California

Panel Chair: Robert Glushko, Professor, Information School, UC Berkeley

Panelists:

Dennis Browne, Emerging Solutions Imagineering, SAP Labs
Lasse Mitronen, Vice President, Strategic Development, Kesko Oy, largest retailer in Finland

[Bob Glushko]

How customers and information service providers

School of information science

Used to be library science program
Now they get hired by Google

Knowledge intensive, buzzwords

Not constrained by physical world
Strategy: on demand, dynamic capabilities
Web services, software as a service, plug-and-play, composite applications, model-based applications, mash-up

Examples

Newt Gingrich, paper kills: lobbying for automating paper-based prescriptions, because there's a lack of drug interactions checks
Merchant of Venice problem: tracking global shipping, bananas to Helsinki

Business architecture will coevolve with knowledge-intensive businesses

IT has changed the structure of firms
Business models shifting from forecast/schedule to demand/event-driven
Business relationships can be more flexible / promiscuous

Coevolution of business models and enabling technologies

Internet bubble: challenges and opportunities created for incumbent firms

Vertically-integrated hierarchy has been exploded into business components, networks

Information supply chain

Can flow information separate from the goods, thus can reroute shipments en route

Moving from forecast to event-driven business models

Service Oriented Architecture

Avoids locking
Lots of competing standards: web services stack, using rich set of applications, to quick-and-dirty mashup technologies that have a philosophy of treating loosely cooperating entities both inside and outside the enterprise
It's not enough to get the information to the application

[Dennis Browne, Emerging Solutions Imagineering, SAP Labs]

SAP

35 years old
40,000 employees

Big beast, moving slowly

Will see speed of innovation accelerating

Had been on cycles of 2 to 3 years, now customers want a faster cycle

SAP started as a consulting business

Automating processes
SAP was one-on-one

If you don't upgrade, then the customer expects maintenance

SAP has been late to the party, want to move to be fashionably late
1 of every 2 transactions in the world today goes through SAP
10 million users on an everyday basis
How do we to go from 10 million to 250 million within those enterprises?
Thinking of customers at platforms: how can you create a trading network across enterprises
This won't come easy or quick

Last June, came on board as entrepreneur in residence

Background in ASP, hosted services

SAP has done a good job of taking care of business, but how does it keep customers happy?

Looking at everything 2.0
Event driven architectures, networks across customers
Worried about tsunami wave of data rolling over everyone
Shovelled data in, forgot about roles

Focus on customers

Focus on SAP Developer Network

Opening up innovation process
Social networking in the enterprise

[Lasse Mitronen, Vice President, Strategic Development, Kesko Oy]

Kesko is a 65-year old Finnish company, but operates in other companies

Food
VW-Auto

25 brands, almost all market leaders

Strategic emphases:

Looking for cost-efficient business models, using information on customers

20,000 suppliers, of which 200-300 are most important

Service as interaction:

Customer most important

Secondly, person performing the service task

Finally, technology in the background

[David was distracted]

[Bob]

Words: customers, users, consumers

Customer as the platform

Dennis: Across companies
Single firm might have a million profiles, but across SAP would have 100 million profiles

Technology

Dennis: Walmart is big enough to make vendors comply, e.g. be on a particular platform

SOA

Dennis: SOA at core
When SOA exposes a service, it guarantees that interface for many years
You don't get these types of guarantees from other vendors today, e.g. Flickr

Compatibility with Software as a Service

Dennis: Will see hybrids

Different types of customers

You have to care about every single actor along the way

Focus on customer-provider interface

2007/04/27 16:25 Panel on "Customer Perspectives on Services Innovations"

2007/04/27 16:25 Panel on "Customer Perspectives on Services Innovations", Innovation in Services Conference, Berkeley, California

Discussant: Stephen Ezell, Peer insight

Panel:

Jim Marsden, HP, Digital Photography
Ursal Oesterle, Swisscom Mobile, Vice-President
Jaakko Villa, CEO, Villa Academica Oy

[Stephen Ezell]

Focus on customer-provider interface

Peer Insight founded as a pure service innovation consulting organization

Formed by academic observing students going into services
Tekes study, 4 month study, innovation in four industries

Professional services, financial services, retail and distribution

1. Customers are the central reference point, not direct competitors

2. Service concepts shift boundaries

3. Information technology

Traditional value chain is being turned on head

Not starting from core competencies, they're starting from customer needs

Customer experience: cX

Zeithamel and Berry: five service attributes

Paco Underhill: job as service innovators is create unique human value

Research approaches:

Axes: Latent / explicit, micro / macro
Moving from market research to empathic research (latent micro) vs. video ethnography (latent macro)
Bank of America: keep the change, rounding, to put the dollars in a bank account
Found this via ethnography, watching a person balance a chequebook by rounding up to the dollar
Have gotten 3 million new account in 12 months

See philosophy and concepts understood, and methods and techniques exist, but a missing middle: operating models

Changing from being faith-based initiatives

[Jim Marsden, HP, Program Manager, Customer Experience Design Change Effort]

With HP 18 years, half in marketing management, most in startup businesses or those going through change

Have migrated to organization development

HP's digital photography business

Had a collection of assets: scanners, printers
Each had difference governance and measurements

Usage model for mom, picking up a camera, doing the things easily

Also a business in retail photofinishing, selling in kiosks
Want to have offerings come together to be easy
Home, Snapfish on Internet, then retail (e.g. printing)

Lewis Carbone: Customers will always have an experience

Customer experience transformation

Develop HP's brand
Deliver customer value enabling customers to easily tell life's stories
Deliver business benefits

Organization development in four tracks

Make a sustainable shift across cultures
1. Executive leadership track, working at vp level, what does it mean to be leading an experience-based business
2. Experience design track
3. Operating model
4. Organization development

Results to date:

From targeted projects, coming to market
Strategies formalized across different businesses
Expanded business models based on usage
Have product life cycle
More ethnographic research come together with market research
Move from design as people who come in late to make things pretty, to those who engage to customers and create early insights

[Jaakko Villa, CEO, Villa Academica Oy]

Have some customers come and say they have new technology, but don't know what they do with it

Went to China with ethnographers and anthropologists
Took 5 to 10 people into a room, and co-created a service

Oval Time: a place in your life

Triangle
- Linear thinking
- Disruptive thinking, e.g. service innovation
- Visionary ways of working, managing innovation
Dimensions:
- Time
- Order to chaos

Have engaged 10 CEOs

Are you using techniques balanced in the triangle?

Doing work with an Indian-based company on a web interface

Six months, with prototype with 10 CEOs, and then will expand

[Ursal Oesterle, Swisscom Mobile, Vice-President]

Swisscom is telecom company

Does a lot of scouting for best practice

Telecom used to be a simple business, just voice

Everyone wants integrated services on multiple service platforms
How to adapt to Web 2.0?

CEO started Service Champion 08: good is nowhere good enough for us

Want to be undisputed #1 in service

Execution is crucial

Customer value, but want to consist across the company

Bottom-up initiative: Future 2.0, need a disruptive step

Get a service culture throughout the business
Both internal and external

Big project, budget $2.5M

Brought service providers to Silicon Valley

Created some meeting places, whiteboards across whole room

Watering holes: where animals that usually fight, all go together
Structured meetings where someone can present for feedback
They like this, feedback, not not judgement

Work more with customers

Swisscom Mobile Labs: put Web 2.0 applications out, and the non-popular ones will die out rapidly
We can't master them all
e.g. 50 other applications that were like MySpace
Do customer observations, rapid prototyping (like Ideo Deep Dives), get customer feedback in homes
Rule: all employees have to spend 2 days per year in stores for interaction with customer

[Questions]

Some people want self-service, not experience

Less is more.
Want to understand what customers are looking for

Cases when services break down, then need empowered customers engagements, don't want to point a customer on hold

Swisscom had 20 second respond time

Incentives

Swisscom: All managers, simultaneously

Executive development, support

HP: Good support, had senior executive sponsorship
Did learning journeys: 2 days workshops, 25 VPs, created common ground understanding of the opportunity
Didn't know a lot about these spaces, what do we need to learn?
Who are the best of breed people who do this, e.g. customer relationship management, went to visit Harrah's
Balance between immediate commitments and transformation

Main findings in the Tekes report? Extent to which findings are industry-specific?

Address this offline
A lot of findings at the entrepreneurial level

2007/04/27 17:25 Jim Spohrer, "Steps Toward a Science of Service Systems"

2007/04/27 17:25 Jim Spohrer, "Steps Toward a Science of Service Systems", Innovation in Services Conference, Berkeley, California

Jim Spohrer, IBM Research

What we're thinking about service science these days

Service Innovation

High Talent
High Tech
2 people at Wikipedia enable 36,000 contibutors
eBay, 13000 employees, 724,000 people have primary or secondary source of income from eBay
Lots of platforms, like Second Life

High talent and high tech miss understanding customer intimacy and partner value networks (shared information and trust)

Credit cards are a great service innovation, lots of people had to change behaviours

Bigger: Regulatory, Institutional and Social Context changes

Think of a world without mass education

Why does IBM care?

Look at profit margins in the two service businesses (29% to 23%), compared to software (83%)
Scaling problem

We need some more shared vocabulary

Service systems ... value propositions
Service systems are designed
Service systems evolve, they're complex systems
Service systems have scale-emergent properties

Purpose of service systems ais value co-creation

Prisoner's dilemma, we'd like win-win
Has been a lot of different names: North economic institutions, Barnard's cooperation systems; Trist socio-technical systems; Englebart augmentation systems; Normann's value creation systems
Value is in the eye of the beholder; trust matters, transaction costs matter

There's a lot of relationships (Gadrey, 2002)

Working on: how to invest to get systematic improvement in services?

Think of benefits of Moore's law, which is an investment model
What if we could create a Moore's law of innovation systems

Barnard, 1930s: Cooperative Systems, hard to read, but good

Richard Normann

Universities, hospitals, call centres, data centres, cities, nations

Trying to understand service systems:

Design
Improvements
Scaling
Profits scales up in information rapidly, but it's slow in labour

IBM Service Research Agenda

Study: Designing IT-enabled B2B services

Service Research and Innovation Initiative, May 30 in Santa Clara

IBM and Oracle

Michigan Tech got NSF Funding to help develop new undergrad curriculum

[Questions]

Service systems as a way to start, because if you leave integration to the end, it's hard

Role of research in services?

IBM invests $150M per year in services research, which is 1/6 of IBM after 4 years
Lots of low-hanging fruit
Practitioners are gravitating to this profession

Biggest challenge

Trust
People don't have the knowledge and experience to do the right thing

Moving ahead the research agenda on services?

If you don't have business impact, it doesn't matter
Still publishing in too many different journals, no sense of community

Service systems, moves us away from centering on firms. But when you get to systems, how to delimit.

There are many types of service systems
Paul Seaburg, the companion of strangers

2007/04/28 08:30 Papers on "Services in the 21st Century Economy"

2007/04/28 08:30 Papers on "Services in the 21st Century Economy", Innovation in Services Conference, Berkeley, California

Discussant: Kristian Möller, Helsinki School of Economics

Papers:

“Services Innovation in the 21st Century”, by Goldhar, Braunstein and Berg
“Information Services in the US Economy”, Apte, Karmarkar, and Nath
“Creating new markets through service innovation”, by Leonard L. Berry, Venkatesh Shankar, Janet Turner Parish, Susan Cadwallander, Thomas Dotzel
“The Service Myopia: New Recipe for Client-Provider Value Creation”, by Möller, Rajala, and Westerlund

“Information Services in the US Economy”, Uday Apte, Uday Karmarkar, and Nath

Dichotomy more helpful that product / services

India just passed 200 million mobile phones
Information - material dichotomy
Machlup 1969, Porat 1977, Apte and Nath 2004

How economy splits across information and material

Follow Porat's definition, i.e. iPods are part of this economy, as they do nothing but process information
Study at level of SIC code

Similarly, split in employment across information and material

Paper to come in a few months

Product versus services, lots of issues in definitions

To blunt discussion, look at information content of services, going a different direction, and it's a dominant factor
Nature of transaction and delivery, form, production function

Industry level data from IO, SIC and NAIC codes

Some work to reconcile
Differences are mostly lag, particularly in the time it takes to get input-output tables

Double Dichotomy

x-axis: Delivery form: products, services
y-axis: End product: material, information

Bucket the data

Movement to services is well known
Split between information and non-information going up, has been going on since Machlup
Will see what happens with 2002 data this summer
Information economy is a bigger part of the economy, and information services supersector is the biggest piece
This is what management does, and all of us do
Problem in information services: services are growing because of low productivity
What happens when productivity in information services improves? Will look at employment level
Can look at SIC level, firm level, and job level
Crossing segments, e.g. Disney is in 3 sectors

Analysis with Korean partners: Choi Rhim Park

Definitions are not exactly the same in government statistics, but similar trends

Decline in share of traditional manufacturing

In physical services, there's growth in GNP, but its share is falling
These are systems-oriented large, e.g. retailing, water, electricity, construction, some of health care (that splits across information and non-information)
This means in the trend towards services, there's chunk that is not growing
1967-1982 decline in computer, then growth in 1992-1997, no explanation yet, only conjectures
What happens with service industrialization? Good analogy with industrial revolution, call it the services revolution

Not just a shift to services, but also services and information

Growth in information side

Jobs and wages, done at a different level, Bureau of Labor Statistics, month to month

Physical services sector has always been a big chunk of the economy, don't know where it's going in the future
Wholesale trade and retail trade, don't know where it's going
Splits between information and non-information aren't clear
Average wage in dollars/year, discrepancy between information and non-information
There's better job matching, leverage in information

[Questions]

Porat versus information jobs? Explains different

GNP has secondary information sectors
Have returns to capital and returns to labour
If company is highly automated, e.g. web sites, it's not going to show up on labour
Physical services used to be big for labour; was expecting to see declines in information services sector, but also saw declines in physical information sector
Goes back to Machlup criticisms: Data means that we go ahead with Porat definition

Skew because hedge fund trader makes more than a trader

Yes, different level

Medical care costs going up, where does it appear

Have to estimate splits between information and physical
Machlup and Porat both come close to 50/50, 49/51
e.g. nurse: is that information or physical work
Radiologist is mostly information work
If a person has to be near a machine, then call that physical work; radiologists from Sweden move to Spain

“Services Innovation in the 21st Century”, by Joel Goldhar, Yale Braunstein and Daniel Berg

Paper is old, when it was written, it wasn't yet 21st century

IIT, UC Berkeley, RPI

Will try to be a service product

After yesterday's talk, scrapped the more formal presentation

Think piece, to start some theory building, and be contrarian

Contrarian is above full professor; then curmudgeon; and then crank, before coming emeritus

Come from business school, am concerned about narrow slicing of the field

In teaching, need to worry more about convergence of ideas
May be more helpful to students about what services mean, as compared to factories
Convergence between human work and machine work
Strategy, structure, technology
Innovation, profitability

Game: lists of companies

Which are services, which are factory "operations"
A play? Have a script that you follow, have to be in a place where the light hits

Confusion comes from point of view:

Marketing, or operations, or strategic points of view
X-axis: Product Type - Production Point of View: tangible, information, experience
Y-axis: Product Types- Marketing point of View: relationship, durable, convenience

Think about linkages, physical versus organizational.

X-axis: Physical Links: connected, disconnected
Y-axis: Organizational Links: disconnected disconnected

	Connected Physical Links	Disconnected Physical Links
Connected Organizational Links	True service	Supply chain or distribution channel
Disconnected Organizational Links	An "experience"	"Traditional factory"

McDonalds more factory than Burger King
Barbers that wait for you versus appointments

Services that look like products, and vice-versa, starting with Levitt's productionization of services

Can't do things until you get economies of scale
Traditional factory is double decoupled; true service is double coupled
True service: customer gets involved in design, pricing

What's interesting is the ones that are half-coupled

Supply chain
Experience products, not part of it, but have to be there

Digital world to an analog world

X-axis: Intensity of information of information technology

Ideas on innovation: table of variables

Innovation and services is easy, not hard
e.g. new financial services (or are they financial products)
New financial innovations come up all of the time? Between 30 seconds and a few days
Few entry barriers, few switching costs
Easy innovation, but can't make money on this, sustainable, have to do something to make it scalable

[Questions]

Arch slide: how do you map FedEx tracking system?

It's at the top of the arch
You're not part of their organization, but more than the post office
FedEx, you're physically linked, not part of the organization

A pure service that is double connected?

Having my own masseur on my payroll
They're part of my system, I control their rewards, you have to physically be there, and they have to be available when I want it
True services are rare and expensive
Reliable babysitter had better be a family member

Doesn't scale, babysitters and masseurs

Grew up in a grocery store, 1949, technology was a telephone
Customer would phone, would deliver on bicycle or car
Had a clientele that was captive, because no other store was willing to do this

Any spot on the curve should be equally profitable

Ford Modelling will provide a digital runway, to scale up a pure service

“Market-creating service innovation”, Leonard L. Berry, Venkatesh Shankar, Janet Turner Parish, Susan Cadwallander, Thomas Dotzel

Venkatesh Shankar, Texas A&M (howdy)

This paper is already published in Sloan Management Review

Want to use it to create new ideas and extend, dialogue

Why are some new services successful, and others not?

e.g. FedEx
Not the first, but the most efficient, became a market leader, and then adjoined other spaces
Compared to dot-com services that fizzle out overnight
Why can some create new markets, and sustain them?
Looked at 100 case examples

Definition: market-creating service innovation

Exploits an idea
Fulfills a need
Perceived by csutomers as new benefit
Changes customer behaviours
e.g. Cirque du Soleil

How do MSCIs different from good innovation?

Some service people use the term product, e.g. banking, hence use "good"
Labour-intensive, interactive services means that providers get embedded into the innovation
Inseparable, e.g. Fed Ex
Co-produced: Cirque du Soleil, involvement of customers, part of the production
No tangible product

Create two dimensions

Type of benefit offered:
Core benefit: gives an underlying reason for a customer to buy, e.g. FedEx ability to transfer a package
Delivery benefit: convenience of access and experiencing core benefit, e.g. NetFlix, delivery of video as convenient
Degree of separability:
Separable: time and place of service production differ from time and place of consumption, e.g. health services, you have to be there
Non-speparate

4 types of market creating service innovation

	Core benefit	Delivery benefit
Separable	Cell 1: FedEx's Flexible Solutions	Cell 2: Google's Controllable Convenience
Non-separable	Cell 3: Starbuck's Comfortable Gain	Cell 4: Ball Memorial's Respectful Access

Cell 1: FedEx was designed to be more reliable and efficient, as other competitors weren't

Absolutely, positively
Then they came up with supply chain management, B2B
Then ground to ground
Company tried to reduce uncertainty in services
Other examples in this cell: eBay, CNN (first 24 hour challenge)

Cell 2: Google wasn't first to provide search engines, e.g. Alta Vista

Google was first for page rank, got a business model based on page search

Cell 3: Starbucks for experience, not just latte, but also CDs

Emphasis on inseparable, e.g. tables are circular because they're aren't threatening, but are closed

Cell 4: Bell Memorial's emergency room

How to best deliver service, lessening aggrevation
Atmosphere like entering a hotel lobby

Findings:

MCI

Have innovation champion
Offer superior customer benefit
Affordable
Continuous strategic innovation
Brand differentiation

MSCI

Scalable business model, e.g. H&R Block has gone on web, converting nonseparable to separable
Customer experience management, e.g. Cirque du Soleil, former Olympian,
Continuous operational innovation

Management takeaways

Make the service easy to use and convenient to access
Create a trusted brand
Know you cell
Create a culture for innovation

[Questions]

Intersection between brand and innovation

Brand building, companies had to spend

“The Service Myopia? New Recipe for Client-Provider Value Creation”, by Chris Möller, Risto Rajala, and Mika Westerlund

Helsinki School of Economics

Empirical background

More scientific title: different modes of service innovation

There's a certain amount of hype, that services are the value earners

Thinking more in terms of hybrids, instead of pure services or pure products
Emphasis on processes between provider and client may be operational, when we're talking about strategic

Think of basic contingencies influencing the three generic modes of value production, not only within services, but also in value options

		Level of determination
		High level of determination: order		Low level of determination: chaos
Value modes		Established business e.g. Dell, McAfee, Ikea Can specify activities, how to combine lego bricks	Incremental servce innovation e.g. Google, TVU Networks Both exploration and exploitation	Radical service innovation e.g. Skype, Bluetooth More exploration
	Value creation logic
	Exchange and relationship structure
	Value create

Value modes:

Not static, movement from radical to incremental to established

Modes of value co-creation

		Service provider's strategy
		Established service	Incremental service innovation	Radical service innovation
Client's strategy	Established service	1. Balanced	2. Provider-driven	3, Implausible
	Incremental service innovation	4. Client-driven	5. Balanced	6. Provider-driven
	Radical service innovation	7. Implausible	8. Client-driven	9. Balanced

What are the different types of client-provider relationships?

Try to understand the recipe


		Client-driven

Merging radical and incremental innovations ... mixing them up in the first version

Conclusions:

Value always rendered by customers, but what resources are used
Network value production
Market governance isn't enough, need to understand network and relational governance

[Questions]

Patterns on technology, talent in networks?

Not enough data, only a few cases so far
In radical service innovation, can be different drivers, e.g. Bluetooth
Want to raise the discussion in abstraction

Does the service innovation always start from the radical?

This is a highly abstract sense-making tool for what's happening in the services world
Radical service innovations are starting a lot from science

2007/04/28 10:30 Papers on "Applying Services to Business"

2007/04//28 10:30 Papers on "Applying Services to Business", Innovation in Services Conference, Berkeley, California

Discussant: Mary Jo Bitner, Arizona State University

Papers:

“Service-Logic Innovations: How to Innovate Customers, Not Products”, Michel, Brown, and Gallan
“Managing Service Ideas and Suggestions – Information Systems in Innovation Brokering”, Ahonen and Lietsala
“Service Innovation Using Design Patterns”, by Robert Glushko and Christo Sims
“Service Blueprinting: A Practical Tool for Service Innovation”, by Bitner, Ostrom, and Morgan

“Service-Logic Innovations: How to Innovate Customers, Not Products”, Stefan Michel, Stephen W. Brown, and Andrew S. Gallan

Steve Brown, Arizona State University

Premises that may be provocative

We feel that all innovations, whether to service processes or products are service logic innovation
Argue that service logic innovation innovate customers
To have an innovation, a customer must be involved in co-creating the service

Thinking about significant innovations in our time, they would be difficult to explain to traditional innovation literature

Google
Netflix
Ikea
European free fast-read newspapers in major cities

Contrast a goods-logic approach from a service-logic approach

Will illustrate with 26 case studies

Goods-logic innovation, goods-dominant perspective

Lusch & Vargo introduced Service Logic, leads to this
9 postulates ... including:
Goods are distribution mechanism for service provision: goods are a means to an end
The customer is always a co-creator of value, e.g. Google needs user
All that a firm can do is make value propositions, it's up to the customer to see whether they generate value

Goods logic versus service logic (table)

[Stefan]

Looking for things we don't understand, collected cases, looking for a pattern

Found service-dominant logic was helpful to understand these

Categories:

Buyer
Customer's role
Co-creator of value
Uses Sheth and Mittal 2004: sometimes can be in multiple roles simultaneously

Innovating:

Smart offerings: embed know-how and skills into products
- This doesn't make sense in the traditional goods-dominant logic
Value integration: what does the customer do versus firm
Value constellation: reconfiguring, number of players increased

3x3 matrix, always at least a change in the customer role, and the firm's value creation role -- although there's sometimes more, so they're not exclusive

		Change of Customer Role

Change of firm's value creation

Glucose monitoring system: intelligence of doctors embedded into product, so customer can do itself

U. of Phoenix: targets market that traditional universities can't, less integrated resources

Multiplex cinemas: doesn't change the user role (same movie), but the way the users buy movies (go to a theatre, and see what's playing)

Pitney Bowes: offers a different value integration that changes all three roles, having started from selling meters for stamps, evolving to taking over whole logistics of mail, insourcing all mail, changing the user role, the buyer role and payer

Ikea: Ikea catalog has high circulation worldwide, next to the bible!

Managerial standpoint:

How to change the customer role outside in; versus firm role inside out
A lot of marketing literature focuses on buying, not using: dangerous
Find out what customers stay away (Drucker)
Eliminate waste in the buying process
Change the payer (e.g. executive education is great, but students can't pay, so maybe should get a bank to pay for a financial services course)
...

Inside-out service logic innovation

What are the value constellations
Increase the density of your offering
Integrate more to relieve your customer
Integrate less to enable your customer

[Questions]

End is not the provision of the service, but consumption of the service. Business value, how to capture?

Try to avoid consumption, because it means destroy
Difference is between value in use, and value in exchange
Traditional marketing is focused on value in exchange, which is economic
Shift from buyer to how it creates value
Value that the customer can co-create leads to willingness to pay
Should be more open on willingness to pay
e.g. newspapers provide podcasts, but can't charge for that
Looking at the three roles of the customer, make it more accessible for managers

Resource-based view, looking at value, means customers are willing, would get a price level. Value constellation is more difficult to copy.

Was reviewing a paper on SD logic, and asked how it links to RBV, still waiting for this.

Vargo & Lusch are relabelling a few things

Particularly in the book

“Managing Service Ideas and Suggestions – Information Systems in Innovation Brokering”, Miko Ahonen and Katri Lietsala

Miko Ahonen, U. of Tampere, Hypermedia Laboratory (that does games research, open source research)

Focus on information systems and brokering

Intermediaries are like brokers
Have evaluated 3 services with a certain brokering model, from Hargadon and Sutton

Kelley & Storey 2000, were focused on service firms in the UK

After 150 companies, found no systematic innovation process for the companies
Could those information systems or marketplaces be used in developing services?

Open Innovation (Chesbrough 2006), question of intermediaries

Many variations coming with this
No single path, companies have to work with partners, consumers, sometimes sell and negotiate IP
Is a middleman needed, or a person, or can an information system do the job?

It's much about trust

Wolpert 2002: Intermediaries work between companies
Can information systems be trusted?

Hargadon & Sutton 1997 knowledge broker (technology brokering)

HBR article easier than the ASQ article
How to extend this to social media?
1. Capture good ideas
2. Keep ideas alive
3. Imagine new uses for old ideas
4. Put promising concepts to the test

Innocentive as a case, can only support 1 or 2 of Hargadon & Sutton

Looked at del.icio.us, as it captures good ideas with an open API

Interest in collective creativity, Hargadon & Bechky 2006 (analysis of consulting companies)

Should be some reflective reframing that goes on, but many systems are just request and proposal
How can collaborators develop ideas?

Social media is about online technologies, sharing in certain formats

Success factors of Web 2.0 services

1. Early entry / first mover: getting a user base, really fast
3. Localization important
6 ...

Company or firm perspective, working as an intermediary

Not much communication between innnovators and company
Innocentive, from company to innovators
Ideawicket starts from innovators
Del.icio.us would be of this class

Future work:

Will do some interviews, need to choose many innovation marketplaces
Are developing a mobile tool, using the knowledge brokering model
Will look at Steven Alter's work system framework

[Questions]

Study inside companies, e.g. Nokia

Main financier is Ericsson

How do Innocentive and Ideawicket make money:

Innocentive is a middleman, takes a certain amount of money
Ideawicket claim that they will seek out financier, and will also take some money, but their challenge is to get a user base and enough interested companies
Ideawicket is well-built as an information system

9sigma is under Innocentive

“Service Innovation Using Design Patterns”, by Robert Glushko and Christo Sims

Bob, Silicon-valley refugee

Working with a graduate student, Christo Sims, working not just person-to-person, but also web-based services, machine-to-machine

Frameworks are not abstract enough
More computer science background, to generate new service ideas

Will survey, talk about some patterns

Plastered on the wall, thinking about them
Want to get to a large selection of patterns to see what works
Trying to invent patterns, and select the ones that are good

Thinking about design spaces: 8-space

What do services have in common, when we're talking about web services and person-to-person services

Customer and supplier, then not much
If abstract, could manipulate in head or on a machine

Pattern: generable, adaptable, and worthy of imitation so that it can be reused

Patterns can be used description, as a situation for solution
Could be used to encourage best practices
As abstract, they can help invention

Some patterns, in a stack at levels of organizations, down to individual services

Example: Betancourt and Gautschi: 25 patterns of production, distribution and consumption activities

e.g. education can be produced, delivered and consumed as a brainstorm session, lecture, posted on a web
Can see which ones make sense

MIT business patterns, Tom Malone

Four kinds of assets: financial, phyiscal, intangible, human
Archetype: creator, distributor, landlord, broker
Can zoom through a pattern explorer
e.g. see where Amazon fits (as "distribute books via electronic store")

In consulting firms like IBM, looking at components

Component Business Model, a description of how the business works
Perspectives (executive roles ....) vs. activities
Best practices
Could outsource one of the components

Supply Chain Operations Reference model (SCOR)

Drop shipment pattern, most common on the Internet

Retailer, banker, credit authority, delivery service

Front stage and backstage

Things invisible to the customer and things they see

Apte and Mason (early paper): information intensity, customer need, ...

Carve them out

Glusko and Sims: looking at design framework for services, 8 dimensions

Who gets responsibilities for delivery?
Covers not just person-to-person, but also machine to machine
Knowledge /expertise
Cognitive capability
Physical capatiblity
...
Technolgy and captial
Disposible resources
Encoded information

[Questions]

There's lots of other dimensions. How decide those that are more or less important

Want a small number, e.g. 8, but 25 is too many

Value capture?

Will generate an infinite of services, and let you figure out what is important
A framing for designers not evaluators

Does Malone look at value capture?

Yes, but at the granularity, firms do multiple things

Christopher Alexander patterns

In document-centric domain, have done this down to document patterns
Haven't gotten to do this in the more general sense of patterns, yet

Copenhagen Business School: similar framework comparing airlines as components

“Service Blueprinting: A Practical Tool for Service Innovation”, by Mary Jo Bitner, Amy L. Ostrom, and Felicia N. Morgan

Mary Jo Bitner

Something different from what I usually present

Have done a lot on service encounters
Today, will show a tool, has evolved over 20 years
A practical tool for customer-focused service innovation

There's a need for innovation in services, but we don't have a lot of tools

Have used this with different companies

There's little written about service blueprinting

Service blueprinting can help ...

processes
customer experiences
Service development and design

Service is blueprinting

A tool for simulaneously depicting
processes
points of contact
evidence of service
from a consumer's point of view

Start from customer activities, and then work backwars into contact employee, backstage and support processes

One response: customers have no idea what we're doing for them, because there was no tangible evidence of the service

e.g. one night in a hotel room.

(It looks like process swim lanes!)

Cases of companies that have used blueprinting

Yellow Transportation, has been working with ASU ten years ago

YRC worldwide
Ten years ago, ranked as worst company in industry
For last five years, have been ranked as first
They used service blueprinting in many ways
Used blueprinting to design new services, e.g. Exact Express guaranteed services, that no one else had done this
Also used it for core service improvements
A-ha: 20,000 Teamsters needed to understand the value provided to customers
Introduced a customer-centric change program

2007/04/28 13:00 Papers on "Service Innovation in Software and Financial Services"

2007/04/28 13:00 Papers on "Service Innovation in Software and Financial Services", Innovation in Services Conference, Berkeley, California

Discussant: Antti Ainamo

Papers:

“eInsurance – Novel Services in the Electronic Environment”, by Ahonen, Salonen, Kivisto-Rahnasto, Jarvinen, and Silius
“Building SaaS Business on Top of Open Source – Economic and Legal Considerations, by Oksanen, Helander, Seppanen, Puhakka, and Laine
"Issues in Shifting from a Product-Based Business Model to a Service-Based Model", by Mironov
“Services Innovation: Sourcing In Lessons from True Professionals”, by Antti Ainamo and Marc Ventresca

Note: (power failure in audio recording)

“eInsurance – Novel Services in the Electronic Environment”, by Ahonen, Salonen, Kivisto-Rahnasto, Jarvinen, and Silius

Tampere

Insurance concept for insurance, to help consumers get more familiar with insurance in an electronic environment

Most electronic use in insurance has been just in getting information

Surveys show that customers are interested in operating in the environment

Challenges:

Complex nature
Transaction frequency low, e.g. compared to banking
Physical service component is missing

Tekes research project

Focus group results:

Customers not interested in service, maybe because current service is underdeveloped

Have been doing usability evaluation, compared to British web sites

Practical results for safety and insurance provider

User interface: Drag-and-drop family members into house

Results: "Insurance Selector" service launched by Pohjola Non-life Insurance Company

Feedback that results have been useful

[Questions]

Drop out?

Insurance isn't high involvement, it's not where people go when they're trying to find something interesting

“Building SaaS Business on Top of Open Source – Economic and Legal Considerations, by Oksanen, Helander, Seppanen, Puhakka, and Laine

Of team, am a lawyer working at SoberIT

How to manage open source in a corporate environment

http://www.coss.fi/ossi

"Community Created Content" book available on web site

What is SaaS (aside from the hype)?

Chong and Carraro (2006), it's something between a service provider and a customer
Four levels
Level 1: ASP, service provider offers online application
Didn't take off, as not seen a reliable

At the moment moving to Level 4: scalable, configurable, multi-tenant-efficient

Large server farm

Intellectual property rights: there aren't any, on services

Copyleft

Affero's addition to GPL license

GPL v3

Have created an opensource license checker

[Questions]

Business method patents?

Don't have business method patents in Europe

"Issues in Shifting from a Product-Based Business Model to a Service-Based Model", by Rich Mironov

Practitioner, consulting to companies that want to move to service models

Software business models:

Product / licensing model
Subscription service model
Transaction service model

Service models force "shared succcess"

Survey, pulse of the market

http://www.mironov.com/more/survey_results
If in the product model, still slanted towards large enterprise and government, they're coming up from the bottom of small and medium businesses
If selling a service, subscription is 33% faster, and nearly 50% faster if selling by transaction models
How to tell what the users are using? Licensing models mean that transaction logs are at the customer site, but subscription services have transaction logs and 75% of them aren't looking at them
Service product managers have userids and passwords, but they use product registration cards, so they're not using the data they have
Almost all companies in Silicon Valley are overdesigning the software, because they guess that users use 50% of available functions

Findings

SaaS slows down revenues, and increases early capital requirements, because there's a tasting model where they try it, and then might eventually take more
They don't have people that understand uptime, customer requirements, etc., so they need to change the structure of their firms

Industry metaphors:

Licensing software firms are grocers
Service firms are chefs
Service based pricing (check, please)
Operational metrics: meat thermometer

[Questions]

Quality is more obvious in SaaS

Most companies will fail, as they're missing the capabilities

Types

Different slices
Will see people tossing out a few critical functions

Why do it?

New entrants
People who will lose with new entrants

“Services Innovation: Sourcing In Lessons from True Professionals”, by Antti Ainamo and Marc Ventresca

Why not look at the people who do services only, and don't have anything to do with material products

There's a lot of manufacturing products

Services literature

More tangible
Consumption
Standardized
Customers in the core
Absence of inventory

Differences across services, Zeithaml 1981

High in search qualities
High in experience qualities
High in credence qualities, e.g. legal, dental
Interest in credence offerings

Collected some data in Silicon Valley, Britain and Finland

Case studies under way
1. Service marketing
2. Segments
- Medical diagnosis
- Law
- Consulting
- Advertising
- Architecture
- Design
3. The sociology of status ordering

Case study: Roschier Wallenius legal services in 1990s

Legal company, small business, rules that were broken by the leading partner
Problems and solutions would rise to the partner
Limited scale

Case: Ideo

Intra-organizational network, work in small groups, geographically distributed
They use computers, but that's not the essence of growth
John Kelly has written books, as a way to diffuse messages
Douglass North: Until have clearly specified rules, high uncertainty means "personalized exchange" person to person

Services mindset

Partner is the platform
Goods and supporting technologies as optional value-added

Partnership model

Reificiation: serving on a personal basis clients of high importance
Diffusion (books, mediat atttion) and emergence (problems, solutions)
Blueprinting (delegating to lower salary)

Implications

e.g. HP and Nokia or IBM and Nokia have "exclusive" strategic partnerships for different things
Multiple layers of hierarchies
Dedicated account managers

[Questions]

New? Ideas of branding

Target publication wasn't to introduce very new
Sociology of status, search qualities

Service innovation or service marketing?

Trying to show organization design for service innovations

2007/04/28 14:50 Papers on "Hybrid Innovation and New Product Development in a Services Context"

2007/04/28 14:50 Papers on "Hybrid Innovation and New Product Development in a Services Context", Innovation in Services Conference, Berkeley, California

Discussant: Marja Toivonen

Papers

“Hybrid Innovation Management – Lessons Learned from Mobile TV Development”, by Kirsimarja Blomqvist, Kaisa Henttonen, Pia Hurmelinna-Laukkanen, and Paavo Ritala
“Creating and Managing Hybrid Innovations”, by Shankar, Berry, and Dotzel
“New Product Creation Process of KIBS Firms: A Case Study”, by Salmi, Torkkeli, Ojanen, and Hilmola
“Innovation Processes In Professional Business Service Firms: Their Drivers, Nature And Management Challenges”, by Marja Toivonen and Anssi Smedlund

“Hybrid Innovation Management – Lessons Learned from Mobile TV Development”, by Kirsimarja Blomqvist, Kaisa Henttonen, Pia Hurmelinna-Laukkanen, and Paavo Ritala

Kirsimarja and Paavo

Lappeenranta

Hybrid has a different meaning

Mobile tv markets

Finns are good in technology, but what about services?

Hybrid as multiple forces, e.g. competition-collaboration

Singapore and Italy have mobile tv ahead, e.g. Italy as 400,000 subscribers, ahead of Finland

DVD-H technology, low battery consumption and faster than 3G
Consumers want to watch, but also want to be interactive, e.g. voting, video blogs

Includes Nokia, carriers, broadcasters

Forum Virium Helsinki, uses open innovation paradigm

Turning point

Contradictions and paradoxes

Sequencing: one extreme at a time, e.g. R&D, then marketing
Layering: have to rise above, picturing the whole market perspective
Taking a third perspective: bring in a third party

Old boys network on technology development

Bonding
Need to bridging to build social capitals
Also link

Project manager can act as boundary spanners

Technology-based service development plus service development as a new capability

Have to find new networks

In Finland, can use trust, as don't have governance

[Questions]

Lobbying?

Legislation is falling behind

Forgot to invite people to work out IPR, a mistake

“Creating and Managing Hybrid Innovations”, by Shankar, Berry, and Dotzel

Hybrid as combination of product and service innovations

Quotation from Embarq, spun off from Sprint: "bundled package of products and services"

Examples:

Tivo, the digital video recorder, plus controlled live tv
Xerox: copier, printer, supplies, plus maintenance, configuration and user support

Definition of hybrid innovation

Utility of purchasing and consuming goods and services increase with each other
Firm sells both
Good and service are combined in a way unique to the firm
Not tying in, so don't violate Sherman Act

Good-Service Continuum

Goods dominant ... to services dominant
Balanced: contract IT

Economics

Three zones
Dead zone, when price is below total unit cost, when scaling up
Likely sweet spot zone: price about cost
Nirvana zone: making so much money

For a service innovation ...

Dead zone is shorter
Likely sweet spot zone longer but thinner
In the Nirvana zone, don't make as much profit