This document discusses two developments requiring new strategies and capabilities: servicisation and digital convergence. It provides background on both topics, including how servicisation involves manufacturing firms increasingly offering services and how digital convergence involves the merging of previously separate industries like publishing, media, IT, and telecommunications due to shared digital technologies. The document also discusses challenges involved in these transitions and provides examples of firms that have adapted to these changes.

1. Manchester Institute of Innovation ResearchInnovation and Convergence: Digital Convergence and ServicisationIan MilesIan.Miles@mbs.ac.ukIME service innovation seminar 8

2. Two developments requiring new strategies and capabilitiesServicisationDigital ConvergenceManchester Institute of Innovation Research

3. Manchester Institute of Innovation ResearchServicisation

4. Sectoral convergenceSimilar technology

5. White collar workforce

6. Customer orientation

7. Customisation

8. Many ways in which manufacturing and services look more alike

9. Services become “productised”, other sectors “servicised”.Manchester Institute of Innovation Research

10. Productisation of services ..either the evolution of a service to include a productor a service that becomes standardised to a degree where it is marketed as a product. For example in logistics, transport contracts can be so well defined that they turn into a service that is effectively sold as a product. www..productserviceinnovation.comManchester Institute of Innovation Research

11. Manchester Institute of Innovation ResearchFrom Baines, Lightfoot, Benedettiniand Kay (2009): Journal of manufacturing technology management, Vol 20 No 5 2009.Servicisation:The increasing emphasis on service outputs from manufacturing and other non-service firms

12. Some very different aspectsEmbedded servicesProduct services: complementary to the goods; aiding users; adding more value; support services, KIBSServitising goods: not rentalProcess services: selling business processesSoftware, comms, content [e.g. Kindle]Aftersales, software sales, systems integration and managementPay for service, not goodTesting, production, comms, marketingManchester Institute of Innovation Research

13. Why servicise?Manchester Institute of Innovation ResearchThe annual volume of new equipment sales compared with the size of the installed base in selected capital goods sectors (ie one car is sold for every 13 on the road).

14. Some cases: Manchester Institute of Innovation ResearchT.S. Baines, H.W. Lightfoot, O. Benedettini, J.M. Kay, (2009) "The servitization of manufacturing: A review of literature and reflection on future challenges", Journal of Manufacturing Technology Management, Vol. 20 Iss: 5, pp.547 - 567

15. How is it done?Andy Neely, Cambridge, sees 3 strategies:Product-focused strategies seek to capture information regarding product usage and then integrate any relevant findings so they influence the design of the next generation of products - for example maintenance processes, functionality upgradesService-focused strategies seek to address broader customer expectations concerning for example, service availability, co-location of service engineers, customer equipment training, speed and quality of response to specific enquiriesValue chain-focused strategies seek to provide integrated service solutions (such as acting as prime contractor) so that, in effect, the supplier firm takes over some part of the customer's operationAnother approachManchester Institute of Innovation Research

16. “Product” Life CycleManchester Institute of Innovation ResearchDesign Manufacture Delivery Usage Support End-of-useVeronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

17. “Product”-service relations: conventional manufacturingManchester Institute of Innovation ResearchDesign Manufacture Delivery Usage Support End-of-useSupplierCustomerInteraction: mainly transactional.Some product supportSome peripheral servicesVeronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

18. “Product”-service relations: more serviceManchester Institute of Innovation ResearchDesign Manufacture Delivery Usage Support End-of-useProduct + service deliveryVeronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

19. “Product”-service relations: more service customisationManchester Institute of Innovation ResearchDesign Manufacture Delivery Usage Support End-of-useCustomisation of product and serviceVeronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

20. “Product”-service relations: more service customisationManchester Institute of Innovation ResearchDesign Manufacture Delivery Usage Support End-of-useProduct & service codesigned: total solutionsVeronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

21. “Product”-service relations: not a linear model/stages theoryManchester Institute of Innovation ResearchDesign Manufacture Delivery Usage Support End-of-useVeronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

22. “Product”-service relations: not a linear model/stages theoryManchester Institute of Innovation ResearchDesign Manufacture Delivery Usage Support End-of-useVeronica Martinez, Marko Bastl, Jennifer Kingston, Stephen Evans, (2010) "Challenges in transforming manufacturing organisations into product-service providers", Journal of Manufacturing Technology Management, Vol. 21 Iss: 4, pp.449 - 469

23. Large-scale analysis is rareManchester Institute of Innovation ResearchAn exception: Andy Neely ‘The Servitization of Manufacturing: An Analysis of Global Trends’Data from OSIRIS [44,000 listed companies from around the world].

24. Companies with primary or secondary US SIC codes in the range 10-39 inclusive, extractive & manufacturing, and over 100 employees [n=12,521].1.Pure manufacturingPetroChina principally engaged in a broad range of petroleum & natural gas-related activities.2.Some combination of manufacturing & serviceSiemens -predominantly electronics & electrical engineering, but provides wide variety of consulting, maintenance & other services.3.Pure serviceThe Brink's Company: security industry firm - services offered include armoured-car transportation, automated teller machine (ATM) servicing, currency & deposit processing, coin sorting & wrapping, & arranging secure air transportation of valuables.Three models

25. Neely casesManchester Institute of Innovation Research

26. Main services offeredManchester Institute of Innovation Research

27. Some trend dataManchester Institute of Innovation ResearchLAY, G. 2007. ‘Towards a Comprehensive Innovation Strategy’. Quality Congress. Istanbul: Fraunhofer Institute for Systems and InnovationResearch ISI, Karlsruhe

28. Servicisation is revenue model innovation; but can affect innovation more generallyKnowledge about customers, product use, product failures and problemsReallocation of costs changes logic about product maintenance:Affects product designScope for innovation in monitoring and maintenanceNew service innovationManchester Institute of Innovation Research

29. Environmental argumentServices = less environmental impact (?)Swedish PhD study , firm (and user) interviews: Oksana Mont (2004) Product-service systems: Panacea or myth? Lund University, The International Institute for Industrial Environmental EconomicsManchester Institute of Innovation ResearchDrivers:Some general factors, but also market issues vary considerably across sectors; coercive market includes consumers and regulations Barriers:Limited regulatory drivers; high costs of labour; need for better awareness on part of consumers and intermediaries (and own staff) – long learning time; credibility/demonstrability to users; diminished user responsibility; possible internal conflicts (2nd hand vs new), etc.

30. Challenges for servicisersDifferent management and customer relations requiredMay need understanding of new markets, and evaluation of potential of new service offeringMay require thorough reorientation of sales workforceNew capabilities – separate organisation?Manchester Institute of Innovation Research

31. Exercise!You work for a firm that makes high-value consumer products. (cosmetics, jewellry, babyfood, petfood....) There is a potentially disruptive technology emerging which will allow consumers to make the final products at home, easily, and for much less money.This is attracting a great deal of media attention, and public response to the new offering looks positive.What do you do?Manchester Institute of Innovation Research

32. Some optionsWe rule out suppressing or banning the technology! (Though you could try dark propaganda against it...)We do not rule out your doing deals with the supplier.We do not rule out your downsizing, but you must try to remain sustainably profitable.Could you go upmarket?Can you complement your product with other tangible elements, or with new services?Can you move away from the original product, and focus on ancillary goods and services that sill appeal to consumers (and maybe give you advantage with the new technology)?Can you do other things with your skills, plant and equipment?Can you think of other options?Manchester Institute of Innovation Research

33. The taskDecide on your product and on the strategy/ies you will pursue. (5 mins+15 mins.)Consider what capabilities you will require to implement this:Types of KnowledgeWorkforce skillsAlliancesEtc (30 minutes)Decide on what the most urgent of these are, and how you will address them. (10 mins)Manchester Institute of Innovation Research

34. Manchester Institute of Innovation ResearchDigital ConvergenceConvergenceWhat is digital convergence?Digital convergence and innovationWho does this affect?How does it affect media, IT industries, other sectors…

35. 3 sorts of convergenceManchester Institute of Innovation ResearchDisruptive innovation challenges, PLUS need to master new technologies.“Both market and technology-driven convergence tendencies along the value chain ...eventually imply entire industries to converge in the long term. ...the decision to integrate competences and technologies from external sources does not necessarily come as a strategic choice... Rather required to avoid negative effects of emerging shakeouts.”

36. Technology-driven caseManchester Institute of Innovation Research

37. Manchester Institute of Innovation ResearchConvergenceFor some decades commentators have addressed computer/ telecommunications “convergence” – or collisionHeld by many to be a defining feature of new IT, e.g. Kobiyashi “IT=C&C”… and related to common underlying technologies (microprocessors, digitalisation)But more industries and activities “converge” than just data processing and communication

38. Manchester Institute of Innovation ResearchDigital Convergence Historically, distinct industries dealt with print, recorded music, images, other media, telecomms, broadcasting, computer hardware, software

39. Manchester Institute of Innovation ResearchDigitalisationAnalogue     DigitalPublishing, broadcasting, etcTextPhotographyMoving ImagesSoundInstruments Doc. Processing

40. Digital cameras

41. “ ”, projection, TVs, DVDs etc.

42. DT, CD, MP3....

43. Digital display, measurement(printing)(photochemistry)(phonography, electronics…)(mechanical, electromechanical)New storage devices and displays – ebooks, CDs, MP3/4 players, etc; Web publishing

44. Manchester Institute of Innovation ResearchDigital Convergence Distinct industries have dealt with hardware, software, telecommunications, broadcasting, print and other media They have varying assets, capabilities and types of content - and regulatory and IP systems But now they have increasingly shared underlying technologies (microelectronics, optronics, software) All types of data and information potentially captured, processed, communicated, stored, displayed digitally via new IT

45. Manchester Institute of Innovation ResearchThree Uses of Information

46. Manchester Institute of Innovation ResearchThree Sorts of Industry(Tele)communicationsPublishing MediaComputation

47. Manchester Institute of Innovation ResearchTraditional Features(Tele)communications1 to 1PROCESSINGCOMMUNICATIONINTERACTIONCONTENT1 to many(Broadcast Media)Early Online MediaPublishing MediaComputation

48. Manchester Institute of Innovation ResearchA Growing Market Space…

49. … Within which the offerings of established industries expandManchester Institute of Innovation Research========Increasing ===proliferation of ======= products

50. Manchester Institute of Innovation ResearchThe Expanding Media UniverseTimeCommunicationsComputation ContentThe three “trumpet” shapes represent telecommunications, computer, and broadcast & print media fields. Over time the product space to which they contribute, and its market size, expands, and the three fields overlap increasingly.

51. Manchester Institute of Innovation ResearchEarly Industrial SocietyCOMPUTATION(TELE) COMMUNICATIONSMechanical information processing: very limited till C20th - punch cards, calculatorsPaper-based communication: Stationery, Post.C19th - telephone, telegraphAll (but telecomms) based on PHYSICAL TRANSPORTPaper-based information products - books, newspapers, etc + live consultation & entertainment + (later) mechanical recorded media (gramophone etc)INFORMATION GOODS & SERVICES

52. Manchester Institute of Innovation ResearchThe mid-1950sCOMPUTERSTELECOMMUNICATIONSVery few, very large, valve-based electronic computers; Keyboard calculatorsPHYSICAL TRANSPORT plus increasing electronic delivery (telecomms, TV, radio, etc.)TelephoneTelegraphTV (mainly monochrome)AM radio, LP records, valve amplifiersBROADCAST + PUBLISHED MEDIA

53. Manchester Institute of Innovation ResearchThe mid-1970sCOMPUTERSTELECOMMUNICATIONSIncreasing role for electronic delivery, but little integration of mediaNumerous mainframe computersPocket calculatorsTelephoneTelegraphTelexTV (colour) AM and FM transistor radio, LP records, transistor amplifiersBROADCAST + PUBLISHED MEDIA

54. Manchester Institute of Innovation ResearchThe Mid/late-1980sTELECOMMUNICATIONSCOMPUTERSTelephone Answering Machines, Mobile phones, Pagers, Business Fax MachinesNumerous Personal Computers, Home Computers and videogames, Electronic wristwatchesSome integration of media, emergence of optical media, increasing digitalisationElectronic mailBulletin boardsVideotex Online databases for business & scienceRecorded information servicesVideorecorders, audio CDs, cable and satellite TV, TeletextBROADCAST + PUBLISHED MEDIA

55. Manchester Institute of Innovation ResearchTurn of the CenturyTELECOMMUNICATIONSCOMPUTERSNumerous PCs, laptops. notebooks, pocket organisers, etc. Numerous home computers and videogamesDigital mobile phones,Widespread use of Fax, pagersElectronic mail, SMSMobile data commsIncreasing integration of media, use of optical media, digitalisationInternetWorld Wide WebCD-ROM publishingCable telephony AudiotextVideorecorders, audio CDs, digital recording cable and satellite TVBROADCAST + PUBLISHED MEDIA

56. Manchester Institute of Innovation Researchc2010COMPUTERSTELECOMMUNICATIONSPervasive computers, in many types of device (e.g. Personal Digital Assistants, smartphones)Internet telephone VoI, Internet videotelephony Digital mobile communications in wide use - pervasive communicationsWiFi, Next generation of Internet & WWW, Web2.0, Video telephones and conferences Internet TV Video on Demand Interactive TVDVD-R+, interactive videoMP3 and PVR, Digital Broadcast TV digital videorecording High definition TVBROADCAST + PUBLISHED MEDIA

57. Manchester Institute of Innovation ResearchUncertaintiesSuccessful products/applications/triggersDesign paradigms/platformsUser implementationEmergence and take-off of markets, market structuresProduct spacesCapabilities and industrial structureGovernance of content (news, porn, gambling) and property rights (intellectual property)Other governance issues (crime, security…)

58. Manchester Institute of Innovation ResearchRegulatorsUK system changeOFTEL (Telecommunications Act, 1984, on “deregulation”) + Cable Authority + ITC ….OFCOM (Communications act, 2003)

59. Manchester Institute of Innovation Research1996?Broadcasting Standards Commission2003networks1990Oftel19841991But not print media – Press Complaints Commission etc.spectrumRadiotelecommunications Agency

60. Management of digital convergenceService industries in communications and media (and software) confront or create potentially disruptive challenges – e.g. To content deliveryManufacturers in publishing and IT face scope for new servicesMajor challenge to capabilitiesManchester Institute of Innovation Research

61. Jong-SeokKim PhD Digital Covergence in South KoreaManchester Institute of Innovation Research

62. Manchester Institute of Innovation ResearchJong-Seok Kim: Korean mobile phone companiesCapabilities to establish large markets for music via cellphone14.4k/sec2nd generation, digital services – earlier 1990s generation was analogue2.5 generation64k /sec3rd generation128k – 2m /sec

63. Manchester Institute of Innovation Research

64. Manchester Institute of Innovation ResearchSKT’s responseThe Network R&D Center’: to develop core technologies to ensure the continual advancement of the next generation network, which in time will become one of the core competencies of mobile network operators. The Platform Research Center: to research, develop, and operate Internet-related services, as well as to develop/grow the Financial Enabling business, which make bankingand financial transaction possible on mobile phone. In addition, to discover new sources of growth engines by creating new businesses based on existing technological platforms. Currently the Center is carrying out R&D activities on WAPbased Platforms, M-Commerce, LBSIn the year 2004, SKT placed more emphasis on the R&D of technology. In addition, aA New Business Division was established, aiming at explore new growth engines. TheNew Business Division deals with the formulation of new business strategies and theirimplementation at global levels. New managerial routines were adopted to operateefficiently and to speed up business processes. The Chief Business Officer wasresponsible for the Business Strategy Division, Business Division, and Customer Division (the new name for the Marketing Division). At the same time, with the continuous introduction of new convergent services, the number of transactions with content providers was escalating. Hence, a Content Business Unit was also formed, to deal with the many issues relating to content.. ...while the three firms took different measures, they watched each other and worked on some common issues

65. New knowledge to be acquiredDRM and relevant systems and solutionsNew markets, their properties and evolving demands, incl. Attitudes to IP and preferences for paymentKnowledge of competing devicesContent providers, the existing music businessPotential new services – ringtone, streaming, downloads, associated content and marketingManchester Institute of Innovation Research

66. Manchester Institute of Innovation ResearchConvergenceExample: “smart phone” and tablets converge entertainment (games, videos, music), communications (phone, VOIP, videophone), publishing (newspaper download), and much more (cameras, health apps)… Much alliance and networking across firms to achieve success in new markets.Blurring industry boundariesNew convergent servicesMuch scope for innovation in new services, improved service designNew playersDiversification, vertical integration (?)Requirement for new strategies, capabilities, organisation

67. Manchester Institute of Innovation ResearchNot just MediaNew categories:e.g. chematronics, mechatronics [watch this space for bio and nano categories]…Converged products:e.g. “smart house” converges consumer electronics, telecomms, utilities, construction

68. Manchester Institute of Innovation ResearchKey Features of New Media: INTERACTIVITY: promises and realities differential development of applications and competences on both - user and supplier sides Sometimes technically demanding – sometimes “democratic” innovation around types of content, interfaces, delivery and “display” systemsCONVERGENCE and COLLISON: digitalisation blurring boundaries new modes of delivery and use of existing (types of) contentrepurposing and repackaging of contentNew types of content (eg MMORG)

69. Hacklin et al: strategic and operational issuesManchester Institute of Innovation Research

70. Manchester Institute of Innovation ResearchSome implicationsStandard classifications of creative industries may be destabilisedImportance of users and intermediaries, continually challenging IP systems and assumptions – not just driven by “piracy” (though this may often predominate)Liable to be continual dialectic between established players and newcomers, established consumption and production modes and new styles.Much creativity and innovation will not be managed in any recognisable way!But much will be, as major new markets are created and accessed.

71. Manchester Institute of Innovation ResearchEnd of Presentation