This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

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.

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