driving growth and competitiveness through service innovation · innovation initiative introduction...

© 2007 IBM Corporation

Driving Growth and Competitivenessthrough Service Innovation

Presentation at Helsinki University of TechnologyMarch 27, 2007

Dr. Richard StraubAdvisor to the Chairman, IBM EMEAChair of the Living Labs Policy Group

© 2007 IBM Corporation1

Corporate Strategy

Services Innovation March 2007

Agenda – Questions rather than Answers

The bigger Picture – Economic Cycles

Is Innovation changing in a fundamental Way?

Services Innovation – Engine for Growth?

Are Business changing in a fundamental Way?

The Gobally Integrated Enterprise – a new Model for the 21st

Century?

© Copyright IBM Corporation 2007HUT | March 28, 2007

What is innovation? A Warm-up Quiz

“The effort to create purposeful, focused change in an enterprise’s economic or social potential…the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.”Peter Drucker, professor and author of “Innovation and Entrepreneurship, Management Challenges for the 21st Century,”

“The creation of impact, value and differentiation in novel and unique ways, utilizing the many capabilities available to businesses today. Innovation occurs at the intersection of invention and insight. It’s about application of inventions to solve problems.“Sam Palmisano, IBM Chairman of the Board of Directors and Co-Chair of the National

Innovation Initiative

Introduction

“Innovation serves to create wealth through fulfillment of customer needs with five different Types of Innovation: New Products, methods of production, sources of supply, exploration of new markets and new ways to organize the business.”Joseph Schumpeter, 1934, “Theory of Economic Development”


Corporate Strategy


Installation Deployment

The bigger Picture: Five Historical Waves of Economic & Social Transformation

Irruption

The Industrial Revolution

Age of Steam and Railways

Age of Steel, Electricityand Heavy Engineering

Age of Oil, Automobilesand Mass Production

Age of Information and Telecommunications

Frenzy Synergy Maturity

Panic1797

Depression1893

Crash1929

Dot.comCollapse

Coming period ofInstitutional Adjustment

1

2

3

4

5

Panic1847

1771

1829

1875

1908

1971

1873

1920

1974

1829

Source: Perez, C., “Technological Revolutions and Financial Capital”, 2002

Crash

• Formation of Mfg. industry• Repeal of Corn Laws opening

trade

• Standards on gauge, time• Catalog sales companies • Economies of scale

• Urban development• Support for interventionism

• Build-out of Interstate highways

• IMF, World Bank, BIS


Corporate Strategy


The Lifecycle of a Technological Revolution


Corporate Strategy


Installation DeploymentIrruption

Age of Information and Telecommunications

Frenzy Synergy Maturity

Dot.comCollapse5 1971

A global game board – doubling of the labor pool Social and political tension over globalization’s pace, impactOpen standards, and a proliferation of componentizationHost of collaborative tools and organizational modelsSignificant empowerment of individuals

Coming Period ofInstitutional Adjustment

The Particular Characteristics of the Coming Deployment

Crash


Corporate Strategy


In 2006 over one billion individuals are using

the internet~17% of global population

Internet Connectedness

Source: Computer Industry Almanac http://www.c-i-a.com/pr0899.htm

# of I

nter

net U

sers

(M)

North America

Western Europe

Asia-Pacific

South Central America

Eastern EuropeMiddle East/Africa

0

100

200

300

400

500

600

700

800

1995 2000 2005

DeploymentInstallation Crash

Worldwide Internet Usage by Region

Source: http://www.internetworldstats.com/stats.htm

4%1%Middle East / Africa

6%1%Eastern Europe

7%1%South Central America

25%8%Asia-Pacific

28%20%Western Europe

30%69%North America

20051995Region

Regional Share

30%

28%

25%

CAGR 30%


Is the coming deployment changing the Nature of Innovation?

1. Open collaborative innovation2. The primacy of the individual: 3. Focus on Intellectual Capital (IC)4. Growing non-product innovation5. Integration of existing technologies

Trends

The resulting trends have expanded the way we innovate:

Technology changes: maturing platforms provide communication everywhere, access to knowledge, collaboration

Societal, economic and technological maturity creates stable platforms for innovation.

Historical precedents such as steam power and electricity show that the scope and pace of innovation grows dramatically as platforms stabilize

Society changes: globalization, the rise of the individual, changing values & environmentalism

Economic changes: incorporation of developing economies in the global market, and the rise of services and intangible assets


Innovation Trend: Open collaborative innovation extends decades of evolution from corporate innovation to networks of innovation

Centralized inward looking innovationClosed Innovation

Ecosystem centric, cross-organizational innovation

Innovation Networks

Sources: Chesbrough 2003, Forrester 2004, von Hippel 2005

Trends

Externally focused, collaborative innovation

Open Innovation


Corporate Strategy


Innovative Milieux

A spectrum of innovation models

ClosedNarrow, Tight

Proprietary

Public

ScopeBroad, Loose

Evolutionary

System Models

Proprietary R&D(Technology Pushand Market Pull)

Open Academic R&D

Open Source

Increasingly Collaborative

Much would be lost if the academic research lost its historically open, collaborative nature


Innovation Trend: Non-product innovation

Product innovation dominates managerial thinking.

Differentiating new-product breakthroughs are increasingly rare and new products are more rapidly copied and commoditized

Business Process Innovation

Innovative business models or operations

Services Innovation

Businesses create and improve their capability to innovate systematically

Management and Culture of Innovation

Sources: Chesbrough 2004, The Economist 2004, Slywotzky 2003

Trends

Innovation Policy


Open Collaborative Innovation: Some of the most significant sources of innovative ideas reside outside the organization

Assoc’s, trade groups, conference boards

051015202530354045%

Academia

Competitors

Consultants

Customers

Business partners

R&D (internal)

Employees (general population)

Other

Think tanks

Internet, blogs, bulletin boards

Sales or service units

0 5 10 15 20 25 30 35 40 45%

Source: The IBM Global CEO Study 2006

Sources of Idea Generation

InternalExternal


Business Model Innovation is now nearly as important as more traditional innovation around products/services

“We start from the product concept and move to the business model and operations that best fit.”

“All [innovation] areas are linked.”

“An appropriate business model is a fundamental enabler for innovation and competitiveness.”

CEOs say:

P oint Alloca tion of Innova tion Type s

0%

10%

20%

30%

40%

50%

P S M OP S B E M

P ointA llocation

Products/Services/Markets

Operations Business Model

42% 30% 28%


Innovation Trend: The primacy of the individual – the “Knowledge Worker”

Trends

Increased autonomy of the individual in businesses & employment:Project-based temporary employment Communication cost reductions create decentralized decision making, loose hierarchies, internal quasi-markets and elements of democratization.

The individual is the ultimate source of new ideas:Management practices including internal motivation enhance the likelihood of innovation Individuals and team autonomy fosters creativity when there exists a sense of ownership and control over their day-to-day efforts and ideasChallenging work, sufficient resources, and organizational encouragement further promote innovation

The user of the products or services influences how they are created and utilizedUser Driven InnovationLiving Labs

Technology andInfrastructure

Organisation

Living LabExpertise

Living Labservices

USERCommunity

Methodology

Living Labs – invertingthe Innovation Process

“Customers” – Companies, Public SectorIndividuals, Academia


Innovation Trend: Integration of existing technologies

Integrative multidisciplinary innovations leverage existing Information and Communication platforms to create new services, new processes and new business models

– Easy connectivity between customers and suppliers, – Focus on new ways to create value with excisting Technology– Maturity of Information and Communication Technology allows combination

of existing technological components in new ways (e.g. eBay, Google, iTunesand Skype).

– Utilization and integration of existing technological components and focus on innovative processes and business models.

– Network Effects around new Service, Process or Business Model

Sources: Roadmap for Open ICT Ecosystems, Berkman Center for Internet and Society, Harvard Law School, 2005. Carl Shapiro and Hal Varian, Information Rules, HBS Press, 1999.

Trends


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1810 1835 1860 1885 1910 1935 1960 1985 2010

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1810 1835 1860 1885 1910 1935 1960 1985 2010

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1810 1835 1860 1885 1910 1935 1960 1985 2010

The Global Marketplace has fundamentally changed

Japan

China

Russia

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

United States

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

Germany

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

India

AgricultureManufacturing

Service


The overwhelming economic Importance of the Services Sector and Services Innovation

Services Account for 70 % of Value Add and Employment in OECD– Market Services (excl. Government Services) account for 50 %

Positive Impact of Knowledge-Intensive, ICT-based Services– GDP Growth, Productivity Increase and Job Creation– Performance for Market Services – Telecoms, Transport, Wholesale, Retail Trade,

Finance, Insurance and Business Services -> 60 % of New Job Creation– Non-Market Services -> 40% of New Job Creation (Community, Social and Personal

Services, Health and Education).

Megatrends driving the Growth in Business Services– Investment in “Intangibles”– Focus on Knowledge, Collaboration and Community (Knowledge Creation Bottom-Up) –

Web 2.0– De-composing – re-composing: Businesses as Network of Components – Connected via

Services Relationships (Outsourcing, Offshoring, Business Process Transformation Services)

– Globally Integrated Enterprises – New Service Oriented Model including the technical Infrastructure (SOA)

Sources: Seelly-Brown & Duguid, Evans & Wolf, Neely


Is Services Innovation different ?

Services Definition– Intangible in Nature– Cannot be stored – Production & Consumption simultaneous

Service Innovation– Less R&D driven than Product Innovation – external Sources– Interactive Process, multi-dimensional and increasingly co-creative process– Asset based Services vs. “one of a kind” (Scalability, Replication)– Skills Dependency – HRD challenge – Entrepreneurship as a driver of Services Innovation

Enhancing the Role of the Customer/User -> Living Labs– From User as “Target”, to User providing Feed-back, to Contributor and Creator– Passionate Users as Lead-Users– Liberating the “Creativity of the Crowds”– “Democratizing of Innovation” (Eric Von Hippel, MIT)– Markets for Ideas and for IP– Driving Innovation at various levels (business, civil society, public sector, societal)– Providing Capabilities, Methods and Tools – Network of Living Labs across Europe


High Value Jobs moving into Services

0102030405060708090

100

1800 1850 1900 1950 2000 2050

Services (Info)Services (Other)Industry (Goods)Agriculture

Estimations based on Porat, M. Info Economy: Definitions and Measurement,Augmented with recent data and projections from http://www.bls.gov/


Promoting & Enabling Services Innovation

Trends

Companies: Embed in company strategic direction Make the Customer/User central to the Innovation Process (Lead-Users)Innovation Culture supported by HR Practices – Creativity, Learning, Collaboration and Creativity Create a Collaboration Infrastructure to engage Employees and External PartnersMove R&D from Technology to Innovation

Academia:Prepare Students for the Services Economy and for Services Innovation Implement a new Academic Discipline (Services Science Management and Engineering –SSME).New Joint Ventures Academia – Industry (EIT – Knowledge and Innovation Communities)

GovernmentsDevise Policies targeted at Services InnovationEmbed Services Innovation in the “Innovation System”Supportive Regulatory Regime (Open Standards, Market for IPR)New Services Innovation Infrastructures as part of the “Democratic Process”


Corporate Strategy


In the New Landscape, Global = Local

Markets

Partners

Resources

Markets

Partners

Resources

Markets

Partners

Resources

Markets

PartnersResources

National (Local)Physical, technology, legal, cultural barriers foretell geographical proximity to clients, resources and partners

Old Paradigm

Companies with global reach typically

operate as independent “local” entities

Multi-National

Markets

Resources Partners

All firms, large or small, mature or emerging, have easier access to global sets of clients, resources and partners enabled by the

global digital infrastructure.

Globally Integrated Enterprise

New Paradigm


Corporate Strategy


A Component View of A Business Supports Modular Designs

Category

Salvage & Subrogation

PaymentsFraud Investigation

Policy Transactions and

EventsPremium Audit

Collections

Billing

Claims ProcessingCorrespondence

Execute

Asset Management

Fraud Management

Procurement/ Vendor

Management

Control

Cash FlowPlanning &Budgeting

Bus AdminCash FlowClaimsPolicyholderPolicyRisk Management

Touch PointHandling

Treaty & Facultative

Reinsurance

UnderwritingDecisioning


Fraud Investigation

Correspondence Handling

Document Printand Imaging

HumanResources

ClaimsProcessing

Policyholder / Affiliated Party

ProfilePolicy

Administration

Exec

ute

TechnologyManagement

FraudManagement

Asset Management

Cash TransactionsManagement

& Control

LitigationManagement

Risk and Exposure

Management

ClaimsInvestigationManagement

Policy AdministrationService Level Management

ActuarialControl

PolicyholderSatisfaction

Management

Con

trol

BusinessStrategy

ClaimsStrategy

PolicyholderRelationship

Strategy

Policy Administration

Strategy & Planning

Risk, Compliance, Legal

Management StrategyD

irect

Business Administration& Infrastructure

Cash FlowClaimsPolicyholder/Affiliated Party

PolicyRiskManagement

Financial reporting &

Metrics

Investment Management

Financial Capacity

RegulatoryComplianceReporting

InvestmentOperations

Financial Reporting& Metrics

InvestmentManagement

Treasury / BulkReserves

Management

InvestmentStrategy

FinancialManagement

ProductDeployment

Product Defineand Design

Product Economics& Performance

Product Planning & Analysis

Product PortfolioStrategy

Product Management

Campaign Planning

Sales Generation & Enablement

Commission/ Profit Sharing

New Business Processing

CampaignExecution

Rate Negotiation

Channel Mgmt/ Plan &

Performance

Sales & Channel

Managementt

Sales Generation& Enablement

ProducerCompensation

New BusinessProcessing

Channel Administration

Channel Management

ChannelSegmentation

Strategy & Planning

ChannelRelationship

Strategy

BusinessAcquisition &

ChannelManagement

AccountingFunctions

Systems Development &Maintenance


PaymentsFraud Investigation

Policy Transactions and

EventsPremium Audit

Collections

Billing

Claims ProcessingCorrespondence

Execute

Asset Management

Fraud Management

Procurement/ Vendor

Management

Control

Cash FlowPlanning &Budgeting

Bus AdminCash FlowClaimsPolicyholderPolicyRisk Management

Touch PointHandling

Treaty & Facultative

Reinsurance

UnderwritingDecisioning


Fraud Investigation

Correspondence Handling

Document Printand Imaging

HumanResources

ClaimsProcessing

Policyholder / Affiliated Party

ProfilePolicy

Administration

Exec

ute

TechnologyManagement

FraudManagement

Asset Management

Cash TransactionsManagement

& Control

LitigationManagement

Risk and Exposure

Management

ClaimsInvestigationManagement

Policy AdministrationService Level Management

ActuarialControl

PolicyholderSatisfaction

Management

Con

trol

BusinessStrategy

ClaimsStrategy

PolicyholderRelationship

Strategy

Policy Administration

Strategy & Planning

Risk, Compliance, Legal

Management Strategy

Dire

ctBusiness

Administration& Infrastructure

Cash FlowClaimsPolicyholder/Affiliated Party

PolicyRiskManagement

Financial reporting &

Metrics

Investment Management

Financial Capacity

RegulatoryComplianceReporting

InvestmentOperations

Financial Reporting& Metrics

InvestmentManagement

Treasury / BulkReserves

Management

InvestmentStrategy

FinancialManagement

ProductDeployment

Product Defineand Design

Product Economics& Performance

Product Planning & Analysis

Product PortfolioStrategy

Product Management

Campaign Planning

Sales Generation & Enablement

Commission/ Profit Sharing

New Business Processing

CampaignExecution

Rate Negotiation

Channel Mgmt/ Plan &

Performance

Sales & Channel

Managementt

Sales Generation& Enablement

ProducerCompensation

New BusinessProcessing

Channel Administration

Channel Management

ChannelSegmentation

Strategy & Planning

ChannelRelationship

Strategy

BusinessAcquisition &

ChannelManagement

AccountingFunctions

Systems Development &Maintenance

Illustra

tive

Strategic Differentiation

Differentiated

Competitive

Basic

Cost Reduction

Opportunity

Business Competencies


Corporate Strategy


Support Your Business

Service Your Customers

Setup Your Resources

Build Your Product

A Universe of Modular Business Services Allows Even small Businesses and Start-ups to Become Globally Integrated

Reach Your Customers

Google Apps for Your Domain

Used by Aural New York


Corporate Strategy


Source: “How we Compete” Suzanne Berger and the MIT Industrial Performance Center, 2006

Each business must determine its own unique path based on its history, competencies and market realities

All firms, regardless of size, must address global pressures and competitionLow wages do not necessarily translate to low costProduct and service innovation are alive and wellComponentization increases speed to market and therefore competitive intensityCustomer insights enable tailored solutions for multiple distinct customer segments

Client Selection

Value Proposition

Value Capture

Scope of Activities

Sustained Value Add

Which clients should we serve based on new global market insights and new points of innovation?

What unique value propositions should we build to differentiate in an industry of increasingly specialized players?

How will we make money? Who’s charged for what? Can we connect cost and benefit?

Which activities do we perform? Which are done by value net partners? How do we secure the learning we need for ongoing innovation?

How can we structure the business for continuous, rather than transactional value add? What are the new services models?


Corporate Strategy


How do we tap the Power of Globalization?

How do we deliver unique value in an open,

collaborative ecosystem?

How do we forge a strategy for

Specialization?

Enable Collaboration

Build a Specialized Enterprise

Leverage Global Assets

Serve Distinct Global Markets

Manage Value in an Open

Ecosystem

Address Shared Risk and Control

A Globally Integrated Enterprise addresses key globalization questions with a suite of six capabilities

Globally Integrated Enterprise


Corporate Strategy


“When everything is connected, work moves… the work of business and the work of technology. Work flows to the places where it will be done best”

Sam Palmisano, INSEAD October 3, 2006

driving growth and competitiveness through service innovation · innovation initiative introduction...

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