Design, strategy and innovation Master programme in business & Business Design Lab, University of Gothenburg. Strategy and business innovation - Design thinking in strategy

1. Design, strategy and innovation
Master programme in business & design
Business Design Lab
University of Gothenburg
Strategy and business innovation
- Design thinking in strategy
21 January 2016
Ulf Mannervik
Founding Partner, NormannPartners
Associate Fellow, Saïd Business School, University of Oxford

2. Agenda
1000 Strategy paradigms: Value chain vs. value creating systems
1130 Map value creating systems; group work
1230 Lunch
1330 Threats and opportunities from new value creating systems
1400 Explore threats and opportunities; group work
1500 Break
1530 Present threats and opportunities
1630 Reflections and discussion
1645 Concluding remarks
1700 Closing

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Aspired outcomes
- Introduction: using VCS strategy framework in business design
- Understand how value is created in the customer systems
- Explore threats + opportunities of new value creating systems
My view

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Strategy
paradigms

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Music industry incumbents
+10 years ago:
Business designs have assumptions that
new value constellations may change...

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Source: Apple and Spotify

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Sources: NASA, Lawrence Livermore National Laboratory

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Source: Kraftwerk
Source: eZelleron Inc.

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The voyage of innovation
is not in finding new
landscapes, but in having
new eyes.
Proust

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Evolution of strategy paradigms
Critical
competence
View of
customer

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In the early days (and still today….)
Critical
competence
View of
customer
Receiver
(market)
Production
Industrialism

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Critical competence in the industrial logic

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Client role in industrial logic
A buyer of goods,
pays for it,
and destroys value
14

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Critical
competence
View of
customer
Source
Receiver
(market)
RelationshipsProduction
Industrialism
The “service management” business era
‘the moment of truth’
nag
Customer
Base
Management

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Positive feedback circle in
the moment of truth
Uplifted
customer
Uplifted
service
supplier

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Customer Base Management
Customer Relationship Management
Most problems with customer profitability
are due to having the wrong value creation
logic for some customers – not having
wrong customers

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Co-producer
Critical
competence
View of
customer
Source
Receiver
(market)
RelationshipsProduction Organization
of value creation
nag
Customer
Base
Management
Industrialism
Reconfiguration
of Value Creating
Systems
The value creating systems era
“If you don’t destroy
your business,
somebody else will.”
“Designing interactive
strategy.”

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Pays for being
relieved or enabled
to create value
Client (+ other actors’) role in VCS paradigm
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The numbers
1965, Swedish youth to UK
1970’s European expansion
1980’s North America + New Offerings
1990’s Local schools + Online schools
2000’s Expanding Asia, Americas
Revenue: Estimated 25 B Euro
Profitability: Estimated at 5-10%
Growth: 20% yearly since 1990
Offices in >50 countries
Staff. 9,000
Teachers 25,000
Online school w >14 M students

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New value constellation
pay travel,
teach
sell empty
seats cheaply
host & house sell empty
classrooms
cheaply
design &
organize
EF language
education
English
schools
closed for
the summer
Airplanes
flying with
empty seats
Empty beds
in English
households
Swedish
parents
Swedish
teachers
Swedish
children
English
families

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Co-producer
Critical
competence
View of
customer
Source
Receiver
(market)
RelationshipsProduction Organization
of value creation
Strategy paradigms

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Different strategy models belong
to different strategy paradigms
Source: Cummings and Wilson, Images of strategy

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Value chain and the industrial paradigm
Metaphore and model:
• related to industrial logic
• physical flow of goods
• flow only in one direction
• value added in each step
• customer destroys value
• zero-sum game against against
actors in other parts of chain
• 5-forces reviews relative strength
of others in the game
• competitive strategy is key
Source: Normann

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Value constellation and service paradigm
Source: Cummings and Wilson, Images of strategy
Metaphore and model:
• related to service logic
• also immaterial flows
• flows in many directions
• value created in customer’s use
• customer co-creates value
• reconfiguration can enhance system
effieincy and new value creation
• system analysis explores roles and
resources
• collaborative strategy is key
Source: Normann

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Strategy paradigms:
how our mind works
(and how boss’ mind works…)

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Two mental activities
Perception Conception
Bandwidth of conscious
image of impressions
10-50 bits/second
Bandwidth of senses
11 million bits/second
60 : 1 Source: Normann 2002

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Mercator’s vs. Peter’s projection

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Strategy models belonging
to different (sticky) paradigms
Source: Cummings and Wilson, Images of strategy

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Value constellation approach focuses on
the client’s context as the reframing area
Supplier
Client’s
stake-
holders
The client’s context
Value created
Client

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The client’s context as the reframing area
Supplier
Client’s
stake-
holders
The client’s
context
Client
Client’s
stake-
holders
Client’s
stake-
holders
Supplier
2
Supplier
3

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What key interactions in the larger value network?
Medical technology provider in healthcare system
Financing
institutions
Policy
maker/
legislator
Care
providing
organisat. Nurses
& other care
providers
Medical
technology
company
Relative
Elderly
patient
Other
suppliers
Providers
of non-care
services
System inefficiencies?
Under-attended needs?
Under-utilized resources?
Home adaptation
Food and nutrition
Active lifestyle
Social stimulation
Cleaning & hygiene
Influence care
Avoid blocking
Detect changing care needs
Ergonomics in handling
Reduce feelings of guilt
Temporary relief
Analysis & therapy
Medication in time
Prevention, e.g. skin
What products and use?
Few contact points
Financing options?
Services available?
Labor law, etc.
Care standards
Compliance
Frameworks
Care system efficiency
Effective management
Staff training &
compliance
Cost vs. value ratio
Appeal avoidance
Financing care
Monitoring & reporting

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Co-
Critical
competence
View of
customer
Source
Receiver
(market)
RelationshipsProduction Organization
of value creation
nag
Customer
Base
Management
Industrialism
Reconfiguration
of Value Creating
Systems
Case on shifting from value chain
to value creating systems logic

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Enablig better home security experience:
development of capabilities and offering
Depth and width
of customer base
Accumulated
capabilities
Installation and alarm services in private homes
Education
Knowledge on the
customers situation
Organization
Cross-functional value chain results in
lower prices and more distinct value
Learn customers how they can reduce the risk of false alarms
Counter-calling at alarms reduces Call-outs
and makes the customers feel more secure
Installation and alarm services in small companies
Customer offering
Alarm technology
and patrolling
Insurance company finances
part of the installation
Mediation of alarms to police
and rescue corps
Certain guidance at S.O.S. situations
Co-ordination of the total home security
Risk management
Crisis management
Finance
Smart home platform with partners
Smart home
management

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Value creating
system
Organizes protection of the customer’s home
(or small company); installation in co-operation
with entrepreneurs and insurance companies,
investigation of alarms and mediation to Verisure’s
patrol guards, police or rescue corps. Also initiates
smart house intelligence built into offering.
Re-organization across the value chain: all services are included
in the price (installation + monthly subscription) = customer
base grows. Education about preventing accidental alarms +
counter-calling reduces patrolling. Higher experienced value,
as customers feel more secure.
Customer base
orientation
Shifts of business logics:
Security and smart home management
Installs home alarms and offers connection to
alarm central. Invoices every utilized product and service separately.
High variable costs for customers implies few connected.
Production
orientation

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The value creating system:
Security and smart home management
From small internal
integration and high prices,
to cross-functional co-ordination
of internal and external resources,
in order to enable cost efficient
and reliable home security and
smart home management
for the customers.
Rescue
corps &
police
Home
owners
Call
center
Patrol
guards
Alarm &
lock
installers
Insurance
company
Energy, care
+ other smart
home actors

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Design thinking in business
What ”business”
are we in?
What ”business”
could we be in?
What ”business”
should we be in?
Closing/focusingOpening/distancing
Source: Normann

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Group work
- Map value creating systems

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Instructions for group session 1
- Map value creating systems
or like this:
Like this:
Client
1. Select one (1) offering area for a business, and one (1)
customer type of strategic importance
2. Think about the customers’ business that the offering has a
role in
3. Use a flip-chart to make a draft of the actor and interactions
in the customer’s business that the existing offering is a part
of: the customer’s value creating system
a) What value(s) is created in the main interactions?
b) What do you do (relieving or enabling roles) in your
interactions, and what resources do you utilise?
c) What roles do “others” (e.g. other suppliers,
customer’s customer) have?
4. Review the mapped draft value creating system. What did
you learn about the (your) offering?

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Group work
- Threats and opportunities

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Mobilize many and new
capabilities
Use few and traditional
capabilities
Supplier
Prime
mover
Vision
Prime movers
Follow
existing rules
of the game
Define
new rules
of the game
Supplier Supplier

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Truck makers
Trucking companies
Ryder
Systems
$
Insurance
Logistics
Maintenance
Repairs
Empty truck warranties
Trucking companies
Trucking companies
Trucking companies
Transport companies
pirate parts HR
administration

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Transport system reconfiguration
- Sustainable logistics system
Source: Lots Group

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Transport system reconfiguration
- Make it attractive to be part of offering
Source: Lots Group

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Instructions for group session 2
- Threats and opportunities
1. Go into same groups that mapped the value
constellation (VCS)
2. Use strategic analogy cases to translate to your mapped
value creating system in two ways (1 flip-chart for each):
a) Opportunity: Design a value creating system where your
offering integrates and organises a more effective value
creation (e.g. as in Securitas)
b) Threat: Show how some new player could enter the wider
value creating system and redesign it against you (e.g. as
in Ryder)
3. Prepare 7-8 mins presentation of your 3 flip-charts:
Original value creating system (group work 1),
Opportunity VCS design (2a), and
Threat VCS design (2b)

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Concluding
remarks

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VCS framework and paradigm – benefits
− Reflects business realities of a networked
world
− Effective for reframing of existing business
landscapes and offerings
− Reconfiguration can enhance system
effectiveness and enable new value creation
− Collaborative strategy can mobilize, utilize
and lever on other actors’ resources

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- (One…) User context design approach in practice
- Some organisational architectures for strategic
renewal
ADDITIONAL CONCLUDING REMARKS…

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USER CONTEXT DESIGN APPROACH
CONTEXTUAL: Macro and market analyses, exploring market data and plausible
impact of drivers
MULTI-STAKEHOLDER PERSPECTIVES: Internal interviews, external customer and
stakeholder research and interviews on key markets, involving the entire project
team to create insight and ownership
ANTHROPOLOGICAL: Genuine customer insight, based on on-site dialogues with
customers, focus groups and observing user situations

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Factors
Actors
Focal actor
USER CONTEXT DESIGN APPROACH
From drivers to opportunity areas
Social
Economical
Political
Technology
Environment
Legalistic

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Opportunity
areas
Drivers
Keyactors
Business
potential
Strategicfit
Business model
Offering stepping-stones
Offering
concepts
From opportunity areas to stepping-stones
USER CONTEXT DESIGN APPROACH

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Some organisational architectures
for strategic renewal
• Bolt-on process
• 10% time to explore new ideas
• voluntary to join initiative
• no ideas ’under waterline’
• always cross-functional
• spend time with advanced customers
• involve champion in core business
LoB
LoB LoB
LoB
• Separate organisation
• Embedded in culture
Source. Oxford Strategic Renewal Research Programme

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Bolt-on process
- The Shell GameChanger
1. Ideas can be submitted at any time
2. A panel of peers decides
in a week
3. If needed some budget is given to
mature the idea
4. Decision to continue is made by
extended panel
5. The first tollgate is a value
proposition
6. And followed by technical feasibility
7. Another innovation!
Source: Shell International

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Separate organisation
- IBM Emerging Business Opportunities
Existing core Growth areas Future growth
BU1
BU2
Project/
venture
Partner A
Partner B
Research/
venture
Partner C
Partner D
Early emerging
domains with no
established leaders
Defined
growth domainsCurrent
business areas
Accelerate
Accelerate

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“emerging because
they are somehow
changing the dynamics
in the marketplace”
Source: Charles O’Reilly, J. Bruce Harreld and Michael L. Tushman (2009)
Separate organisation
- The IBM EBO process and its horizons

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Strategy and business innovation
Balancing growth and renewal
Source: Arvidsson & Mannervik

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SE-114 32 Stockholm
Sweden
Tel: +46 (0)8 410 84 000
33 St. James’s Square
London, SW1Y 415
United Kingdom
Tel: +44 (0)20 7129 1209
Ulf Mannervik
ulf.mannervik@normannpartners.com
ulf.mannervik@sbs.ox.ac.uk