Mapping Services V1

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This presentaion argues that all businesses should look at themselves as providers of services. This metaphor is then expanded to investigate the role of products. Finally, a new mapping technique is proposed that highlights shifts in the value network.

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Mapping Services V1

  1. 1. Mapping Value Migration from a Service Dominant View November 2008
  2. 2. Introduction <ul><li>Innovation often results in the migration of value creation from one actor (or grouping of actors) to another </li></ul><ul><li>We demonstrate a mapping technique that can be used to show the evolution of the shifts in these patterns of value creation </li></ul>
  3. 4. iPod Generation (2005)
  4. 5. iPod Generation (1889) Source: Wired, http://www.wired.com/science/discoveries/news/2007/11/dayintech_1123#
  5. 6. Who moved the value? <ul><li>‘ The Online Bonanza: Who is making all the money and why aren’t they sharing it?’ </li></ul><ul><ul><li>The Vertigo Tour in 2005/2006 grossed $355m and played to 4.6m people in 26 countries. </li></ul></ul><ul><ul><li>So what has gone wrong with the recorded music business? </li></ul></ul><ul><ul><li>The record companies, through lack of foresight and poor planning, allowed an entire collection of digital industries to arise that enabled the consumer to steal with impunity the very recorded music that had previously been paid for. </li></ul></ul><ul><ul><li>Today, there is a frenetic search for new business models that will return the record business to growth. </li></ul></ul><ul><li>Paul McGuinness, U2 Manager, January 2008 </li></ul>
  6. 7. Mapping Goal <ul><li>Develop a mapping technique that can graphically show the value-creation system in which a firm operates. We need to be able to: </li></ul><ul><ul><li>Identify the actors </li></ul></ul><ul><ul><li>Identify the service or offerings </li></ul></ul><ul><ul><li>Identify the flow of value </li></ul></ul><ul><ul><li>Identify the points at which knowledge is “frozen” </li></ul></ul><ul><ul><li>Identify value shifts through time </li></ul></ul>
  7. 8. Overview <ul><li>Innovation </li></ul><ul><li>Creation of Value </li></ul><ul><li>Theories of the Firm </li></ul><ul><li>Mapping Value Migration </li></ul><ul><li>Discussion </li></ul>
  8. 9. Joseph Schumpeter The defining traits of capitalism are constant change and innovation.
  9. 10. A Working Definition Innovation is something new that ensures the ongoing creation of superior value for the organisation’s stakeholders .
  10. 11. On Value Creation “ The only true source of competitive advantage is the ability to conceive the entire value creating system and make it work.” Normann & Ramirez (1993) Source: Normann, Ramirez, 1993, Designing Interactive Strategy: From Value Chain to Value Constellation, Harvard Business Revue, July-August
  11. 12. Value Creation Cycle Value Proposition Client Intimacy Product Leadership Operational & Service Excellence Learning Knowledge Innovation Change fuels creates breeds accelerates envisions delivers Offerings via Core Capabilities experiences judges signal a need to adapt The Organization and it’s network of stakeholders (incl. customers) Customers and their network Source: See separate slide signal a need to adapt
  12. 13. Core Capabilities Stock of knowledge, skills, experience, cultural attributes & resources Culture & Values People Embodied Knowledge Processes & Decision Rights Systems & Infrastructure Capability A Capability B Capability C Capability z … Source: See separate slide Learning Knowledge Innovation Change fuels creates breeds accelerates
  13. 14. Source for Value Creation Cycle and Core Capabilities Source: Treacy, M. & Wiersema, F.D. 1997, The discipline of market leaders : choose your customers, narrow your focus, dominate your market, Expand edn, Addison-Wesley Pub. Co., Reading, Mass. Ross, J.W., Weill, P. & Robertson, D. 2006, Enterprise architecture as strategy : creating a foundation for business execution, Harvard Business School Press, Boston, Mass. Birchall, D.W. & Tovstiga, G. 2005, Capabilities for strategic advantage : leading through technical innovation, Palgrave Macmillan, Houndmills, Basingstoke, Hampshire ; New York.
  14. 15. Some Theories of the Firm <ul><li>The Resources View </li></ul><ul><ul><li>sees the firm as bundles of physical, human, or organizational assets, capabilities, processes, attributes, or knowledge (Wernerfelt 1984) </li></ul></ul><ul><li>The Core Competence View </li></ul><ul><ul><li>sees the firm as having a number of key technological or production competences which are best applied at vital points in the value chain (Prahalad, Hamel 1990) </li></ul></ul><ul><li>The Dynamic Capabilities View </li></ul><ul><ul><li>which highlights the difficult-to-replicate capabilities that are required to respond to changing customer and technological opportunities and the capacity to shape the ecosystem that the organization occupies (Teece, Pisano & Shuen 1997) </li></ul></ul>
  15. 16. A Goods-Centered View <ul><li>The purpose of economic activity is to make and distribute things that can be sold . </li></ul><ul><li>To be sold, these things must be embedded with utility and value during the production and distribution processes and must offer to the consumer superior value in relation to competitors’ offerings. </li></ul><ul><li>The firm should set all decision variables at a level that enables it to maximize the profit from the sale of output. </li></ul><ul><li>For both maximum production control and efficiency, the good should be standardized and produced away from the market . </li></ul><ul><li>The good can then be inventoried until it is demanded and then delivered to the consumer at a profit. </li></ul>Vargo, S.L. & Lusch, R.F. 2004, &quot;Evolving to a New Dominant Logic for Marketing&quot;, Journal of Marketing, vol. 68, no. 1, pp. 1-17.
  16. 17. Service Dominant View of the Firm A service dominant view of organisations seeks to explain organisations in terms of the application of bundles of knowledge, skills and resources across value networks where value is based on the assessment of the consumer at the point of consumption
  17. 18. Cheap Bicycle Rentals in Paris Source: New York Times 13 July 2008 http://www.nytimes.com/2008/07/13/world/europe/13paris.html?_r=1&scp=1&sq=cheap%20bicycke%20rentals&st=cse&oref=slogin
  18. 19. S-D Logic Core Principles <ul><li>Service [the application of specialized knowledge, skills and resources for the benefit of another] is the fundamental basis of exchange </li></ul><ul><li>Service [is (usually) monetized and] is exchanged for service </li></ul><ul><li>The customer is always a co-creator of value </li></ul>Source: Vargo, S.L. & Lusch, R.F. 2008, &quot;Service-dominant logic: continuing the evolution&quot;, Journal of the Academy of Marketing Science, vol. 36
  19. 20. S-D Logic Foundational Premises (2008) <ul><li>Service is the fundamental basis of exchange </li></ul><ul><li>Indirect exchange masks the fundamental basis of exchange </li></ul><ul><li>Goods are a distribution mechanism for service provision </li></ul><ul><li>Operant resources [knowledge and skills] are the fundamental source of competitive advantage </li></ul><ul><li>All economies are service economies </li></ul><ul><li>The customer is always a co- creator of value </li></ul><ul><li>The enterprise cannot deliver value, but only offer value propositions </li></ul><ul><li>A service-centered view is inherently customer oriented and relational </li></ul><ul><li>All social and economic actors [individuals, firms, organizations, economies] are resource integrators </li></ul><ul><li>Value is always uniquely and phenomenologically determined [via experience] by the beneficiary </li></ul>Source: Vargo, S.L. & Lusch, R.F. 2008, &quot;Service-dominant logic: continuing the evolution&quot;, Journal of the Academy of Marketing Science, vol. 36
  20. 21. Goods and Service Goods are “the physical embodiments of one or more competencies.” People often purchase goods because owning them, displaying them, and experiencing them provide satisfactions beyond those associated with the basic functions of the product. Source: Prahalad, C.K. & Hamel, G. 1990, &quot;The Core Competence of the Corporation&quot;, Harvard business review, vol. 68, no. 3, pp. 79-91. Source: Vargo, S.L. & Lusch, R.F. 2004, &quot;Evolving to a New Dominant Logic for Marketing&quot;, Journal of Marketing, vol. 68, no. 1, pp. 1-17.
  21. 22. Service Dominant Logic is a View … <ul><li>Products are still important </li></ul><ul><li>Knowledge may be “embedded” in a product (Vargo and Lusch, 2004) </li></ul><ul><ul><li>Service is the application of competences for the benefit of others. </li></ul></ul><ul><li>Knowledge is “frozen” in a product (Normann, 2001) </li></ul><ul><ul><li>An offering is a configuration of the value creating process and consists of relevant actors and actions. </li></ul></ul>
  22. 23. Mapping Goal <ul><li>Develop a mapping technique that can graphically show the value-creation system in which a firm operates </li></ul><ul><ul><li>Identify the actors </li></ul></ul><ul><ul><li>Identify the service or offerings </li></ul></ul><ul><ul><li>Identify the flow of value </li></ul></ul><ul><ul><li>Identify the points at which knowledge is “frozen” </li></ul></ul><ul><ul><li>Identify value shifts through time </li></ul></ul>
  23. 24. Service Value Networks Source: Basole, R.C. & Rouse, W.B. 2008, &quot;Complexity of service value networks: Conceptualization and empirical investigation&quot;, IBM Systems Journal, vol. 47, no. 1
  24. 25. On “freezing”: Sushi Business Models <ul><li>There are distinct characteristics in the point at which the “freezing” takes place </li></ul>Who: Producer Consumer When: Well before the primary economic tx Well after the primary economic tx Where: Away from the market, before use Away from the market, in use Focus: Product End-to-end value creation process
  25. 26. Music has always been about service (the application of skills, knowledge and resources) … All related products have attempted to “freeze” the consumer experience, resulting in wave upon wave of technologically driven innovation
  26. 27. A Brief History of the Recorded Music Industry 1900 1925 1950 1975 2000 1877: First Recording on Tin Foil by Thomas Edison 1889: First Coin-in-Slot Jukebox 1900: Music Recorded onto Wax 1942: First ‘Gold’ Record 1952: First Stereo LPs 1948: Vinyl Records 1906: Victrola Gramophone Released 1920: First Entertainment Radio Broadcast 1935: First Public Demonstration of Magnetic Tape 1960: 8-track Systems 1965: 8mm Cassette Tape Systems 1978: First Compact Disc 1979: First Version of Walkman 1990: First CD-ROM 2001: First iPod 1998: First MP3 Player 2003: iTunes Store Opens 1993: First Browser 1981: First Music Video on MTV
  27. 28. Mapping Basics Actors Time Service for service “ Freezing” Point
  28. 29. CD Industry circa 1990 Map
  29. 30. CD Industry circa 1990 Map Detail
  30. 31. A “Long Tail” Business Model <ul><li>Democratise the tools of production </li></ul><ul><li>Democratise the tools of distribution </li></ul><ul><li>Connect supply and demand </li></ul><ul><li>This means a basic flow: musician -> social network -> music listener </li></ul>
  31. 32. iTunes store opens for Mac only iTunes store opens for Windows U2 special edition iPod iTunes store sells music videos and TV shows
  32. 34. CD Industry circa 2008 Map New sector of Industry
  33. 35. CD Industry circa 2008 Map
  34. 36. Conclusion <ul><li>Innovation the introduction of new service (application of skills, knowledge or resources – whether embedded in a product or not) in order to ensure the ongoing creation of value for an organisation’s stakeholders </li></ul><ul><li>In this process value can migrate from one actor (or grouping of actors) to another </li></ul><ul><li>We demonstrate a mapping technique that can be used to show the evolution of the shift in these patterns of value creation </li></ul>

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