Business Model Innovation in the manufacturing sector


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Contribution to the conference on New Business Models in the manufacturing sector.

Business Model Innovation in the manufacturing sector

  1. 1. Contributo “Nuovi Modelli di Business nel settore dei beni strumentali”06/03/2012 - Laboratorio MUSP – Piacenza (IT)Andrea CocchiPhD student Newcastle University Business
  2. 2.   Introduction on BM  Innovation and technology trends: impact on manufacturing  BMI in machine tool: services, networks and knowledge Andrea Cocchi 6 Mar 2012 2
  3. 3.   A business model articulates the logic and provides data and other evidence that demonstrates how a business creates and delivers value to customers. (Teece, 2010)  “Business Model Innovation (BMI) can provide significant opportunities both during periods of rapid economic growth and at times of turmoil” (Giesen et. al. 2010 - IBM)  “BMI can provide companies a way to break out of intense competition … product and processes are easily imitated, sustained advantage is elusive […] BMI can be more challenging than product or process innovation” (Lindgardt et. al, 2009 – BCG) Andrea Cocchi 6 Mar 2012 3
  4. 4.   Client/Users   Process/UsersBusiness Models Business Concepts (1990s)Who: Practitioners, Scholars Who: Engineers, DesignersWhat: Cooperation and What: time to market, use of evolution technologiesHow: Sharing, Outsourcing,Value How: process modelling / Proposition reorganisation, service design (i.e. Serivce Blueprint)Selling Points: Innovation, Selling Points: Finance, flexibility, Adaptation, Profitability costs, environmental impacts Common Points & Trends: From Product to Service Logic, Systemic Logic, Customer as profit driver (TCO) Andrea Cocchi 6 Mar 2012 4
  5. 5. BUSINESS STRATEGY Business CultureBusiness Directions Model & Vision Framework Mission Customers Focus Customer Orientation Strategic Plan Goals Perf.Business Tactics & Plan Budget Operat Standardisation Andrea Cocchi 6 Mar 2012 5
  6. 6. Value PropositionTarget Segment (s) Product/service Revenue Model offering BUSINESS MODEL Value Chain Cost Model Organisation Source: Lindgardt et. Al. 2009) Operating Model Andrea Cocchi 6 Mar 2012 6
  7. 7. TSR Premium over  Communication of new industry peers, median 6 performance (%) ideas/concepts 6.8 Source: Lindgardt et. al, (2009)  Organization of resources and activities  Connect the strategic 2.7 and operative level  Facilitate the evolution 1.7 1.7 of organisations  Help to “create” markets 0.1 for innovation 3 Years 5 Years 10 Years Prod. Proc. Serv. BMI Andrea Cocchi 6 Mar 2012 7
  8. 8. 1.  Emerging Economies (i.e. China, India, Su America): increasing demand for goods2.  Credit Crunch: substitution of machinery plant renewal3.  Machine Operating life: longer than the average product life4.  Lessons learnt form other sectors: renting and leasing for critical components (i.e. power by the hour, Oil&Gas) Andrea Cocchi 6 Mar 2012 8
  9. 9.   Rapidincrease of wages and energy prices (outsourcing/offshoring under duress) (crf. Sirkin et. al. 2011)  Evolution in the consumption models: the dawn of the middle class - creativity more than technology  Public programs for Key technologies: focus on M&A (cfr. Orr, Roth 2012; Wale et. al. 2012, Dutta 2011)  Innovation leaded by commercialisation: commercial innovation, frugal Innovation, time to market, TT Centres (Wale et. al. 2012, AA.VV, 2011) Andrea Cocchi 6 Mar 2012 9
  10. 10. Know How Crowd Sourcing Education Service/Experience/ Participatory design Living LABSVALUE Intermediaries Product Manufacturing Assembly True games Service training/ Frugal Innovation simulation OEM/ODM Business Transformation Outsourcing Technology MarketOur elaboration on Chen, 2009, Gao 2011 ACTIVITIES Andrea Cocchi 6 Mar 2012 10
  11. 11. WHY? HOW?1.  Customers require 1.  Close cooperation them with production2.  Customer Loyalty 2.  Push by service3.  Understanding personnel Customers Needs 3.  Dedicated sale force4.  Offering 4.  Customers leaded Differentiation 5.  Independent units for5.  Tie Customers in service provisionSource Tether 2012 Andrea Cocchi 6 Mar 2012 11
  12. 12.   Creation of an independent unit (New.Co.)  Aiming at define, penetrate, develop and exploit new markets, need and technologies  Definition of a stable network in specific contexts: machine tool, engineering services, service design and implementation Andrea Cocchi 6 Mar 2012 12
  13. 13. LEASING BANK Property Knowledge on Transfer or markets and Sharing technologiesSUPPLIER New.Co. Ltd. CLIENTS Define a Provision of Knowledge Base Services and Explore New Production Options Capacity SKILLED WORKERS Andrea Cocchi 6 Mar 2012 13
  14. 14. Sources: Greenough, Grubic 2011; Gebauer, 2008; Lanza et. Al, 2011, Chen et. al., 2009, Gilart-Igesias,,, 2007, Kwan et al. 2008, 2011a,b Participatory design (TCO, modularity) End Phase 1  Phase 2 Requirements Consultancy, Services personalisation (embedded End of Life Specification tech.) prognostics and healthEvaluation, Benchmarking managementOperation and Profitability (PHM) Training work force Routine Maintenance Maintenance Realisation Services’ parameter (MTBF - MTBF MTTR) on contracts Management of services (Prognosis and Health Usage Pricing Operating machine: management System) Reconfiguration logistics, security, heath and Performance and profitability safety management Andrea Cocchi 6 Mar 2012 14
  15. 15. LEASING BANK Exploration of Development new of Market Opportunities PotentialSUPPLIER New.Co. Ltd. CLIENTS Mutual R&D Specialized Process Services Bundled Solutions SKILLED WORKERS Andrea Cocchi 6 Mar 2012 15
  16. 16. VALUE PROPOSITION (JOB TO DO) Suppliers CustomersNETWORK NETWORK Specific SUPPLY CUSTOMERS SERVICES Our elaboration form: Kwan, Min 2008; Kwan, Muller-Grochs 2011; Kwan,Yuan 2011) Andrea Cocchi 6 Mar 2012 16
  17. 17.   BM highlights the systemic nature of innovation activities  BMI can provide superior profitability to firms, but it is riskier than traditional ones  It facilitates the exploration/exploitation of new opportunities (new markets)  It is a cooperative effort: no “silver bullet”, no “copy and paste” or transfer  BM is process or “focalised” learning Andrea Cocchi 6 Mar 2012 17
  18. 18. AA.VV. (2011) “Where is Chinas manufacturing industry going? Deloitte China manufacturing competitiveness study 2011”, Deloitte China Research and Insight Centre November 2011Chen,Yu, Wen, Lin (2009) “Paradigm Shift of Manufacturing: A Proposed Strategy for Taiwan”, Presentation for the 2009 International Conference on Industrial technology Innovation, Taipei, August 20-21, 2009Dutta et. al. (2011) “The Global Innovation Index 2011”, INSEADGao et. Al. (2011) “Service-oriented manufacturing: a new product pattern and manufacturing paradigm”, Journal of Intelligent Manufacturing,Vol. 22, N. 3, pp.435-446Gebauer (2008) “Identifying service strategies in product manufacturing companies by exploring environment–strategy configurations”, Industrial Marketing Management 37 (2008) 278–291Giesen, Riddleberger, Christner, Bell (2010) “When and How to Innovate your Business Model”, Strategy and Leadership, vol. 38 N.40, pp.17-26Gilart-Iglesias, Macia-Perez, Capella-D’alton, Gil-Martines-Abarca (2007) “Industrial machines as a Service: A model Based on Embedded Devices and Web Services”, In Proceedings of the 5th IEEE International Conference on Industrial Informatics (INDIN), pages 737–742, 2007Greenough, Grubic (2011) “Modeling condition-based maintenance to deliver a service to machine tool users”, Int. J Adv Manuf Technol (2011),Vol. 52, pp. 1117–1132Kwan, Min (2008) “An Evolutionary Framework of Service Systems”, Paper presented at the International Conference on Service Science, Beijing, China, April 17-17, 2008Kwan, Muller-Grochs (2011 a) “Constructing Effective Value Proposition for Stakeholders in Service System Networks”, Sprouts: Working Papers on Information Systems, 11(160)Kwan,Yuan (2011 b) “Customer-Driven value Co-creation in Service Networks”, in H. Demirkan (eds.) The Science of Service Systems, SpringerLindgardt, Reeves, Stalk, Deimler (2009) “Business Model Innovation. When the Game Gets Tough, Change the Game”, The Boston Consulting Group, Dececember 2009Muller, Rammer, Tuby (2009) “The Role of Creative Industries in Industrial Innovation”, ZEW Discussion Paper No. 08-109Orr, Roth (2012) “A CEO’s guide to innovationin China” McKinsey Quarterly, February 2012Sirkin, Zinser, Hohner (2011) “Made in America, Again. Why Manufacturing will Return to U.S.”, The Boston Consulting Group, August 2009Teece (2010) “Business Models, Business Strategy and Innovation”, Long Range Planning,Vol 43, Special IssueTether (2012) “Servicisation: The Extent of and Motivation for Service Provision amongst UK based Manufacturers”, ESRC Report (downloaded form , last access 14 Feb. 2012)Wale et. al. (2012) “Three Snapshot of Chinese innovation” McKinsey Quarterly, February 2012 Andrea Cocchi 6 Mar 2012 18