Digital platforms vol. 2: Mass Customisation Strategies

The digital development towards connected products, or IoT, and platforms has led to realisation of a relatively new concept within the context of supply chain management known as mass customisation. Essentially mass customisation is creation of personalised and “customized products with production cost and monetary price simi-lar to those of mass-produced products’’ . In general, there are two main strategy approaches for achieving mass customisation, which are a tailoring strategy or a platform strategy.

Tailoring Strategy

A tailoring strategy implies that detailed information is analysed in order to create customised and personalised products for each individual user before entering the consumption space. An example of this are shoe manufacturers Nike and Adidas, with their tailoring platforms NIKEiD and miadidas (see featureing picture of this blog post). This means that intel on the real needs of the customer could be understood and utilised to fullest extent, in order to generate maximum value for the end user. This concept is obviously much more effective and valuable compared to how the traditional tailoring is done and performed, where the tailoring process is simply based on suggestion about existing varieties. However, note that the tailoring strategy is in this context closely related to the goods-dominant logic approach because of the focus on value-exchange.

Platform Strategy

A platform strategy distinguishes in that sense that it takes more of a service dominant logic, or value-in-use, approach compared to the tailoring strategy and that the customi-sation process can occur in the customisation space or postponed indefinitely. Thus the fundamental principle of a platform strategy is that the provider offers a standardized, or a “incomplete product”, that can flexibly be updated and boosted later on after the product has transferred and is being used by the consumer.

So What Are Incomplete products Then?

The concept of an incomplete product is an extension of a postponement strategy, which strives for producing standardized products and delaying much of the movement or configuration of the final product within the frame of the supply chain. The difference between postponement and incomplete products is that the customisation process can be executed even when the product has exited the traditional supply chain domain. In other words, the customisation takes place in the consumption space, which has been made possible thanks to the recent digital advancements. Thus an incomplete product is defined as “a physical product, design with a modular architecture, capable of dynamic reconfigurability allowing for the offering to obtain an optimal fit within the actors’ dynamic and ever changing context of use where the transaction boundaries are aligned with the context of use”. In the previous context the concept of “dynamic reconfigurability” for an incomplete product is referred to “the capability to modify their functionalities, adding or removing components and modify interconnec-tions among them”.That is to say, a software platform is the holistic core that provides with these new configuration features and customisations possibilities for the incomplete product.

An example of an incomplete product is Tesla cars. In 2013, there were concerns that the Tesla cars were to low, which resulted that the litium batteries could ignite and catch fire because of the heat. The solution to this problem was a code fix over “the air” which lifted the springs of the car by a few inches, so that the risk was fully prevented.

Summary

It can be concluded that both presented strategies may use a software platform for offering products and services with different variety. The actual distinction is in how the custom-isation and variety is executed: is it before the consumption space or in it? Therefore, the current school of mass customisation is mostly focused around tailoring strategies, despite the fact that numerous successful platform strategies already exist and has proven to be very profitable and effective, such as Apples iPhones in combination with the iTunes platform. Therefore, one can expect that more platform strategies and incomplete products concept will be applied on a greater scale in the future.

/Drill

10 types of Innovation

Innovation is defined by Oxford English Dictionary as “make a change in something established“ or “introduction of something new”, such as a method, idea or device. A similar but a more sophisticated definition is presented by Abernathy and Clark (1985), who illustrate it as:

”an innovation is the initial market introduction of a new product or process whose design departs radically from past practice. It is derived from advances in science, and its introduction makes existing knowledge in that application obsolete. It creates new markets, supports freshly articulated user needs in the new functions it offers, and in practice demands new channels of distribution and aftermarket support. In its wake it leaves obsolete firms, practices, and factors of production, while creating a new industry”.

Thus, this view clearly focuses on entering new unexplored domains and markets.

The Periodical system for Innovation

Keeley et al. (2013, here is the link to the book. I highly recommend if for anybody that is working with innovation) introduces an innovation framework, which is inspired by the periodical system from chemistry, that consists of three different main segments: configuration, offering, and experience. The first segment, the configuration aspect, focuses on the innermost workings of an enterprise and its business system. The second segment, the “offering category”, concerns with the core products and services of an enterprise, or a collection of these. Finally, the experience category focuses on the elements that the customers face in the regards to the enterprise and its business system.

 

All these three segments are also horizontally ordered as from left to right, according to its internal to its external impact and influences of the enterprise. In addition, the whole framework constitutes of further ten category types, which is grouped into the aforementioned three main segments (Figure 1).
The first type in the configuration segment is the “profit model”, which essentially involves how to convert “firm’s offerings and other sources of value into cash”. Hence fore, the focus in on having a deep understanding of what the customers cherish and aspire, in order to discover new revenue and pricing opportunities. It should be noted and clarified that a profit model differs significantly from a business model, mainly because a profit model only concerns with catching value and is not involved in the value creation process.

 
The second innovation type is “network”, which represents the opportunities that lies in both leveraging on one’s core competences and harnessing other firm’s strengths and assets to one’s advantage. This innovation type is thus closely associated with various co-creation and business ecology concepts, which will increase in an ever more connected global environment.

 
The third innovation type is “structure”, which focuses on how the company’s assets are organised in order to generate value. In other words, these innovations encompass the alignment and nature of company capabilities and assets, so that the configuration and management of these are structured and leveraged in the best possible manner.
The process unit refers to the primary activities and operations that are associated with producing the offerings of a company. Innovating in this division requires fundamental changes from “business as usual”, although the outcome, that is the offering, remains the same and unchanged.

 
The first innovation type in the offering segment is “product performance” which addresses the “value, features and quality of a company’s offering”. Often the traditional understanding of innovation is associated with this type, a goods-dominant logic perspective on innovation. The thumb of rule states that these innovations most often are easily copied by industry competitors, or reverse engineered, and therefore provide with only a temporary advantage.

 
The “product system” division refers to the bundling and connecting effects between products and services. The foundation for fostering these effects lies in interoperability, modularity and integration between otherwise distinct and separate offerings. Therefore, product systems are the blueprints for building valuable and protected and differentiated product offering entities, that strives for establishing ecosystem-like synergies within the company’s reach and boundary.

 
The first innovation type in the experience category is “service”. This division refers to the innovations that “ensure and enhance the utility, performance, and apparent value of an offering”. Thus, services function as a supporting element that improves the customer journey and reveals new overlooked value capabilities for the users.

 

innovationtype1
Figure 1. Illustration of the innovation type framework with the three segments distinguished in different colours. The innovation types are ordered from left to right, according to its internal to its external impact and influences of the enterprise (from Keeley et al., 2013).

The channel division involves all the conceptual innovations associated with connecting the value offerings with the customers and users of a company. In short, channel innovations are various new infrastructure solution concepts that conveys the final products or services to the end users.

 
The “brand” innovations helps the customers to remember, recognize and prefer the offerings of a company over other similar substitutes. The goal is to seduce and attract the customer with a conveyed promise that will make the offerings distinctive and unique. By doing this the offerings gain an immaterial advantage over its competitors that gives rise to new exploitable value dimensions.

 
The “customer engagement” is the final innovation type, and strives for designing and implementing a deep relationship between the enterprise and its users that symbolises meaningfulness and endeavours aspirations beyond the original commercial incitements. This means that the paradigm encompasses and stimulates an emotional dimension to the offerings of a firm, which give rise to a symbiosis effect between the company and its users.

 

Periodical tables might change…

It is clear that the 10 types of innovation is a pragmatic model for classifying different innovations. However, innovations are obviously not as straightforward as the model suggests. The chategories may develop over time or new ones might be introduced etc., just like new elements are found and added into the periodical table, when new scientific breakthroughs are made . But the great value in this model is that it will help you seeing things from a different perspective. That in itself is a innovation! 

/Drill

Firms Cannot and will Never Deliver Value!

 

There is a general accepted understanding that firms deliver and create value…which is complete corporate bullshit. This is a radical statement, but as you read further you will come to understand this point of view.

What is Value anyway?

The definition of value is perhaps the most ill-defied and elusive concept within the field of service management and marketing. There are several holistic approaches that tries to conceptualize the concept of value, though without any further establishments. This means that even though the word value is widely used in our everyday life, nobody really know what it is. Taking this abstract concept for granted is pure hipocripsy that serves no one well.

“There frankly don’t exist a clear and transparent definition of what value actually is…”

So what is my proposal, then? How do we get out of this swamp of confusion? There is a solution. It has been suggested that the focus should shift towards the value creation process, which in general terms is defined as a “process that increases the customer’s well-being, such that the user becomes better off in some respect “.

Value in Use – The Customer Delivers the Value

According to Grönroos and Voima (Click for full article) value emerges from a value-in-use perspective. Where the concept of “value-in-use” refers to the idea that it is explicitly only the consumers of a service, who has the exclusive right to determine and control the final and true value of a service, not the providers (see video 1). Thus value is generated and “created by users (individually and socially), during usage of resources and processes (and their outcomes)”, where usage is referred to as physical, virtual, or mental process, or a mere possession attribute. However, the providers of a service do play an important role as a provider of potential value, or as a value facilitator.

Video 1. Grönroos on Value-in-use

This view is aligned with Lusch and Vargo who also emphasizes that enterprises cannot create value alone themselves, but are instead very capable of deriving new lucrative value propositions. Therefore, an all-encompassing process in the aspect of value creation emerges, where all parties involved are co-creators of value.

Grönroos and Voima elaborate and develop this idea further and forms a frame-work constituting of three distinguishable value spheres: provider sphere, joint sphere and customer sphere (Figure 1). Despite the fact that the framework is showing and implying a linear structure, it does not apply in practice because the value spheres are dynamic and might show different sequences and patterns for realising the value creation process. In addition, the framework does take into consideration the two perspectives of value delivery (production) and value in use (value creation), which are illustrated in Figure 1.
The provider sphere generates only potential value or a value proposition, which a cus-tomer hopefully later extract and converts into real value (-in-use). Thus, it is justified that the fundamental function of the provider is to work as a value facilitator.
value in use
Figure 1. Value creation spheres.
The joint sphere is a union formed between the customer sphere and the provider sphere. The sphere represents the value creating process that emerges from interaction and dialogs between the two aforementioned spheres, which interacts either through direct or indirect procedures. Above all, the customer is always solely in charge of the actual value creation, although the provider may influence the process as a co-creator but only by implementing direct interaction methods. Hence, it is important that the provider truly understand how the customer uses and combines resources, processes, and outcomes in its interactions. This in order for the provider to shift from a mere value facilitator to a co-creator of value.
In the customer sphere the value creation appears as sole or independent process. In reality it “may take several forms in multiple temporal, spatial, physical, and social customer contexts, and it can encompass both individual and collective levels”. Therefore, by independently accumulating experiences, resources, and processes into different contexts; the customer is able to generate value(-in-use) paradigm. In addition, it is worth mentioning that the value is influenced and affected (indirectly) by the presence of a wider customer network or ecosystem, although this is always beyond the providers control.

The Customer is Always Right

It can be justified that a company or a firm cannot create value. Instead organisations must realise this new perspective of value-in-use, where “the customer is in charge”. Therefore the cliché – “the customer is always right” – has more truth into it than one might think. This is especially true in today’s modern time, where the traditional goods-dominant-logic is rapidly losing foothold to the service-dominant-logic (see my last blog post- What is a Service). Mainly because consumers have more rights and have more to alternatives to chose from.

Finally, I praise the great professor Grönroos, whose inspiring video can be found in the beginning of this article.  He is truly a forerunner in the field of marketing and is a master at delivering his points, such as one cited below.

” ‘we deliver value’ is Garbage”

-Grönroos

On that note, we cannot and will never be able to deliver value. However by being a Value facilitator or Co-creator, one can improve the probability and circumstances that will/may contribute to increased value.

/Drill

What is a Service?

In recent decade we have observed a service revolution, where the advanced economies all have transitioned to so called service economies – servitazation. Cool, uh? But what is and are these services? It feel like the concept is one that everybody knows, but nobody when asked is able to define or explain it clearly. Often explanations are formulated like: “for example when eating att a restaurant there is a service…” etc. (In general, I can not stand explanations that starts with the phrase “for example” because often the one  explaining do not know the earth nor sky about the subject)

Thus the word “service” is a business lingo used in everyday life, without any concern to what it actually represents. This blog post will try to shred some light on this vague issue.

Putting It All Together…

The best fast definition I found was from the Information Technology Infrastructure Library (ITIL) which defines a service as:

“a means of delivering value to customers by facilitating outcomes customers want to achieve without the ownership of specific costs and risks”

However, the presented definition is not universal because many different contradictive opinions and views exists. Service as a concept remains elusive and has of yet not reached a consensus, although common ground is found and agreed upon in which ways services are different from goods or products. Likewise, a consensus regarding the distinctive features of a service have been reached, which are referred to as “IHIP” – an acronym for intangible, heterogeneous, inseparable and perishable.

Intangible

The intangible feature points out that services are not physical things and are therefore humorously said to be “something that you cannot drop on your foot”. However, the intangible feature distinction between product and service is at times blurry. For example, both music and software have intangible features but the media files that are sold as tangible goods, therefore some ambiguity remains.

A service is “something that you cannot drop on your foot”

Heterogeneous

Services are complex bundles of activities, where each customer perceives and experiences a service differently. This is because there are numerous implementation varieties in the aspect of its context, nature, and requirements. In addition, services vary across different geographical regions, cultural backgrounds, and the char-acteristics of the providers. Thus, services are truly a multifaceted approach of delivering value to a consumer. Yet there are some discussions that some products are also gaining heterogeneous features, such as the Mercedes E Class car that is offered in 1024 different variations, and that some services in fact are homogenously similar to a product . For example, Mc Donald’s hamburger offerings are executed and performed in a standardised manner and has the same taste all over the world. Therefore, this distinction has flaws that needs to be considered.

Inseparable

Services are inseparable in that sense that both the production and consumption process occurs simultaneously and cannot be separated or distinguished. Essentially, this means that services cannot be produced without an engaged consumer – a counterparty- similar to the yin and yang dualism and therefore services cannot be owned.

Perishable

The last feature, perishable, refers to fact that service capacity cannot be stored for future use, like stocks or other fixed assets. For example, an empty unsold flight seat cannot be inventoried and sold in the future because it simply perishes after the flight.

Other Definitions

In Addition to these aforementioned features, Grönroos (2001) identifies further three basic characteristics of a service that is:

“services are processed using a series of activities (a business process) rather than things, services are to some extent produced and con-sumed simultaneously, and the customer participates in the service delivery process”.

This view shares many similarities with the postulates of IHIP, though complementing the conceptual understanding of services significantly.

What is Service Dominant Logic?

Professors Vargo and Lusch presented the idea in the beginning of the millennia, that marketers have transitioned from a goods-dominant logic (G-D) into a service-dominant logic (S-D) perspective. The G-D logic concerns primarily with value-in-exchange, where value is embedded into physical objects, also known as operand resources, on which an act or operation is performed to produce an effect. In G-D logic the consumer is also to be seen as a passive recipient of depreciating goods, whose production ends after its manufacturing process and where services are considered as a mere special cate-gory of marketing offerings.
In contrast, the S-D logic is a philosophy of reorientation that focuses on the actual value creation that is the process of co-creation with customers and other actors, rather than a conservative value production paradigm. A Similar view is shared by Grönroos who formulates himself as follows:

“The focus is not on products, but on the consumers’ value -creating processes, where value emerges for consumers, and is perceived by them…the focus of marketing is value creation rather than value distribution”

The S-D logic argues and contends that all products and services, both tangible and in-tangible, in the end are different vehicles for providing various services to the customer or consumer. In other words, service is the fundamental basis of all exchange activities because essentially “everything is a service” and thus all existing marketing offerings are applicable to the S-D logic. The concept of service can in this context be redefined as “the application of the knowledge and skills (competences) of one actor for the benefit of another”, hence S-D logic is a logic about “togetherness” where mutual benefits are generated through a foundation based on relationships, trust and a win-win exchanges.

Everything is a Service

The final explanation of  “what is a service” is a fairly simple one: everything is a service. Sounds like a cliché, eh? But as we have seen the are many opaque views that are at times very complex and even philosophical at times. Therefore it is easier to just apply the “keep-it-simple- stupid” (a.k.a. “KISS”) principle. And there is nothing wrong with keeping things as simle as Eistein points out:

“If you can’t explain it to a six year old, you don’t understand it yourself.”
― Albert Einstein

/Drill

Digital Platforms

The word platform is defined by Oxford English Dictionary as:

 “a raised level surface on which people or things can stand, usually a discrete structure intended for a particular activity or operation”

The modern and present understanding of the concept has evolved through three different chronological, though overlapping, waves that focuses on prod-ucts, technological systems and transactions.
The first wave emerged from product developers, who used the term for product genera-tions or families for a specific firm, such as Samsung’s Galaxy phone series. This view meant that the platform functioned as a foundation for various customer segments, service and product variations. Therefore, the platform characteristics focuses on the high degree of modularisation and variation.
The second wave was brought by technological strategist who “identified platforms as valuable points of control (and rent extraction) in an industry”. This indicate that income was generated without producing any actual value, but instead at the expense of the whole economy network. One example of this was operating system Windows decision to make their own web browser a default, which distorted the browser competition remarkably.
The third wave is formulated by industrial economists, who describes the platform as a marketplace for products, services, firms, or institutions that mediate transactions among two or more parties. An example of this is Amazon, an e-commerce retailing company, who connects sellers and buyers of retail products.

Network Effects

In literature there are a lot of different interpretations regarding the term “platform”, but two perspectives remain predominant that is external and internal platforms. Gawer and Cusumano defines internal platform as a “set of assets organized in a common structure from which a company can efficiently develop and produce a stream of derivative products”, while external platform is “products, services, or technologies that act as a foundation upon which external innovators, organized as an innovative business ecosystem, can develop their own complementary products, technologies, or services”.
It is evident that the external platforms face challenges in terms of creating fruitful network effects. Network effects are defined as the additional utility that an economic agent benefit and gains when other agents are consuming the same good or service. Also network effect give cause to a “generativity” phenomenon, which is defined as “a technology’s overall capacity to produce unprompted change driven by large, varied and uncoordinated audiences” (Elaluf-Calderwood et al., 2011). In a platform context this refers to its ability to produce, create, and generate new content, without input or addi-tional help from its original creators.

Direct and Indirect Network effects

Network effects can further be categorised into direct and indirect effects, where:

“direct network effects are generated through a direct physical effect from the number of purchasers, whereas indirect network effects are market mediated effects”.

The generation of network effects is a very crucial and essential factor from a platform perspective, because without users the platform appears useless. This paradox gives rise to “chicken-and-egg” problem which all platforms need to tackle before their establishment.
Finally, a digital platform can be defined as a “IT systems and their common operating standards who different stakeholders – users, providers and other stakeholders across or-ganizational boundaries – together realise and embodies for value generating activities”. Also these platforms are characterized by its different actors whom create, provide, and maintain complementary products and services through different dis-tribution channels, but within the frame of common established platform rules and user experience requirements. In addition, a typical characteristic for these digital platform administrators is to encourage, attract, and commit various stakeholders to the platform; in order to generate network effects that produces overall economic gains for all interact-ing parties.
It can be concluded that in recent decade there has emerged loads of digital platforms that has proven to be extremely valuable. For example, half of the twenty most valuable cor-porations on the New York Stock Exchange (NYSE) considers themselves as digital plat-form companies. Henceforth, three main shifts in the aspect of competition that digital platforms are reckoned that are causing:

from resource control to resource orchestration; from internal optimization to external interaction; and focuses shifting from customer value to focus on ecosystem value.

Because of these shifts the digital platforms are showing the way for a new emerging economy, that is a platform focused digital economy.

Digital Platform Structure and Classification

There are identified four basic structural types of interacting actors that can be found in every platform ecosystem. The structure is divided into owners, providers, producers, and consumers. Where the platform actors are: the owner, exhibits control over the intellectual property and governance; the providers, who “serve as the platforms interface with users”; and producers, who create offerings that the final consumers use. Thus in order to manage digital platforms, it is of great importance to understand each of the different actors and their dynamic relationships.
Evans and Gawer (2016) introduces a framework that classifies platforms into four different types, or groups. These platform types can further be ordered and visualised into a 2×2 matrix illustrated in Figure 8, whose vertical axis refer to the amount of knowledge is known about the end customer and correspondingly the horizontal axis refer to the required network effects.

platform
Figure. Matrix illustrating the classification of platforms.
The transaction platform can be a product, service, or technology that functions as an intermediary for exchanging transactions between different users, buyers, or suppliers. The basic principle is that the transactions result in reorganiza-tion of both resources and assets by digital means and that these platforms are character-ized by its tendency to monopolise its customers. For example, Uber and PayPal are transaction platforms.
An innovation platform is a “product, service or technology that serves as foundation for which other firms can develop complementary technologies, products or services”, for example both Amazon and Google are innovation platforms. In essential this means that anyone can use the platforms resources freely and no one are eligible to own the platforms customers.
Investment platforms are owned by companies that are developing “a platform strategy and act as a holding company, active platform investor or both”. The idea is to provide with a broader solution offering to its customers, e.g., Santander and Naspers.
The integration platform “is a technology, product or service that is both a transaction and innovation platform”. A typical characteristic for integration plat-forms is that it attempts to convince and attract various parties to join the platform because of its plausible economical gains from the arising network effects. The Apple iStore concept is an example of an integration platform.

Connecting People and Economics – A Bad thing?

Are the new emerging platforms a trampoline for growth and opprotunites, or more like a malevolent spider-webb with negative and polarlizing side-effects for the society as a whole? Platfoms, such as Apple; Amazon; and Ebay, surely makes our lives more practical/easier and improves the classical functionality of a market for exchanging goods. However, I am not so sure about the new platforms that concerns with intangibles, such as Facebook and Google. Do these improve our everyday life? The answer is clear as mud. On short term these do provide with improvements, but what about long term effects? Are an overflow of “bad” information and cyber-relationships good for us?

Time will tell, but one thing is sure that these issues needs more attention and discussion. Regardless, my strong personal view is that some intangible cyber platform “relationships” are align with the follwing qoute:

“F**in’ see why they call this bullshit a “relationship” – ships sink”

-Eminem

/Drill

The Business Model Fuzz?!

In everything you do, you need to have a clear understanding of “why” you are doing the things you do. In other words, have a plan. Not having one is planning to fail. Period. Having a plan is the same as having a clear vision and a mission.

By the way what is the difference between vision and mission? A vision is the ideal state you want to be in the long future, a roadmap of sorts. On the contrary, the mission is far more shortsighted and defines clear objectives, when the operating context and environment is taken into account. Still confusing, eh? What helps me to distinguish these concepts from each other is to compared them with the concepts of tactics and strategy in the following manner:

Tactics is winning a battle, while strategy is winning the war

Knowing this, so what is a business model then?


Orgins of Business model

The term “business model” was first time used in academic literature in 1957, but has since early 2000s gained more attention because of the emerging digital economy and therefore is a relatively young phenomenon and concept (Osterwalder, Pigneur, & Tucci, 2005). According to Fielt (2013) the concept is criticized often for being vague, fuzzy and not clearly defined. Also Slavik, and Bednar (2014) agree with this view, but establish that the different definitions can be separated into two categories: a purely economic view and an extended view, where the creation of value is considered. A purely economic business model definition is presented by Chesbrough (2006a) as “a useful framework to link ideas and technologies to economic outcomes “. By comparison, Osterwalder’s and Pigneur’s (2010) definition of a business model takes the value creation and capturing approach, which is illustrated as:

“the rationale of how an organization creates, delivers, and captures value”.

In any case, it is clear that a general definition of business model is still out of sight within the academic context, though it seems that the focus is shifting towards the value generating and capturing perspective (Fleit, 2013). Therefore, the most complete conceptual definition so far is presented by Fleit (2013), who share similar elements with Osterwalder and Pineur, where a business model:

“describes the value logic of an organization in terms of how it creates and captures customer value”.

The best tool for visualizing the business model is the business model canvas, which I will  explain in the next section.


The Business Model Canvas

The business model canvas is a visual strategic management tool initially proposed by Alexander Osterwalder in late 2000s. According to Osterwalder (2012) the business model canvas framework is capable of both discovering all new business models and designing and describing existing ones. The model itself constitutes of nine fundamental building blocks, which are: customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partnerships and cost structure. In Osterwalder’s reference model (2012) the nine blocks or modules are placed in a prestructured order which in turn forms a rectangular entity or image (Figure 1) that is the final canvas.

The first block, customer segments, can be found in the upper right corner of the canvas (Figure 1). This conceptual block aims to identify the different groups of people and organisations that the enterprise wants to reach and serve. The customer segments are separated into groups based on: their specific needs; relationship requirements; profitability, their willingness to pay for different aspects of the offering; and how the distribution reaches them (Osterwalder & Pigneur, 2010). Examples of different customer segments are mass market and niche market.

ostervalder

Figure 1. The business model canvas with its different modules (Osterwalder & Pigneur, 2010).

The second block, value proposition, is found at the heart of the business model canvas. This module involves a mix of various different elements catering to the customer segment’s needs (Osterwalder & Pigneur, 2010). Osterwalder and Pigneur (2010) also recognizes elements and features that contribute to value creation which are newness, price, performance, customisation, design, brand/status, cost reduction, risk reduction, “getting the job done”, accessibility, and convenience/usability. All these elements are self-explanatory, except for “getting things done” which refers to the service aspect of helping the customer to achieve her desired results. For example, Rolls-Royce and GE sell operative hours of their machinery instead of the actual product (Wharton, 2007). Finally, all of these value generating elements can be divided into two major categories: qualitative and quantitative values (Osterwalder & Pigneur, 2010).

The third module, channels, is found in the middle-right part of the canvas (Figure 1). Channels are defined as the touch points of the customer, thus it plays a very central and important role regarding the customer experience. In addition, Ostwalder and Pigneur (2010) argues that channels serve important and crucial functions, such as: raising awareness of a company’s products and services; helping customers to evaluate the value proposition; take part in the actual delivering of the value proposition; and providing post-purchase support. Thus the channel process can be divided into five chronological phases, which are called awareness, evaluation, purchase, delivery and after sales (Osterwalder & Pigneur, 2010).

Customer relationship module, the block located above the channels block in Figure 1, portrays the type of relationship a company endeavour to establish with its customer segment (Osterwalder, 2012). Osterwalder and Pigneur (2010) further elaborates this concept by presenting various categories in regards of customer relationships. The first is personal assistance, which encompasses real human interaction and cooperation. This relationship can further be refined into a separated category called “dedicated personal assistance”, which represents the deepest and most intimate possible relationship. Obviously, these kind of relationships takes a lot of time and effort to develop and realise. The third category is self-service, where the customer helps themselves and has no direct relationship with the company. Self-service can further be evolved into “automated services”, the fourth category, that is a more advanced concept, where sophisticated automation is embedded into the self-service processes. The fifth category is the utilisation and involvement of user communities. The rationale is that communities can exchange valuable knowledge and experience with a company’s customers. However, generally this concept face issues related to establishing this crowd sourcing platform with enough contributing parties and customers, who form these valuable network effects (Kemper, 2010). The last category is co-creation, which is a relationship where customers and vendor co-create value together, such as using influences from both parties to make the final product. It can thus finally be concluded that the motivation for all customer relationships are either customer acquisition, customer retention and boosting sales (Osterwalder & Pigneur, 2010).

The importance of Revenue Streams, the block in the lower right corner (Figure 1), is well expressed and formulated by Ostwalder’s and Pigneur’s (2010) citation: “if customers comprise the heart of the business model, Revenue Streams are its arteries”. Revenue streams thus refers to the money that the company generates through its activities and operations. Revenues Streams can further be divided into two groups: transaction revenues from one-time customers and recurring revenues that result from on-going payments (Osterwalder & Pigneur, 2010). Revenue streams are obtained through several ways, such as asset sale, usage fee, licensing, lending/renting/leasing, subscription fees, advertising and brokerage fees.

The sixth block, key resources, can be found in the middle of the left half of the business canvas (figure 1). Key resources constitute of the most important assets of company and forms the core for a successful working business model (Osterwalder, 2012). Key resources can be divided into the following unique categories of physical, financial, intellectual and human assets.

The seventh, key activities, block is located on the left side of the value proposition block (Figure 1) and represents all the most important and crucial operations that a company carries out in order to make its business model work. Key activities can be organised in three categories: production, problem solving and platform/network (Osterwalder & Pigneur, 2010). The production term consists of elements related to designing, producing, and delivering a product or good of a superior quality, therefore this group is often represented by manufacturing companies. The problem solving category differs in the sense that it tries to solve the problems of a customer and is often executed and realised by various different service concepts, thus this group is dominated by service specialised organisations. The last group, platform/network, concerns with matchmaking, networking, and software activities. Additionally, it must be mentioned that even some brands, such as Loui Vuitton, can also function as a platform, which expands the concept remarkably (Osterwalder & Pigneur, 2010).

In the upper left corner (Figure 1) one can find the eight block, key partnerships. Partnerships are a necessity in the modern business environment, where the focus on one’s core competencies and the ability to leverage these are often the deciding factor for a firm’s survival and profitability. Therefore, partnerships are sometimes the cornerstone of many business models (Osterwalder & Pigneur, 2010). The motivation for seeking a partnership can be elaborated into three alternative synergy endeavours, which are optimization and economy of scale; reduction of risk and uncertainties and acquisition of a particular resource and activity (Osterwalder & Pigneur, 2010). Ostwalder and Pigneur (2010) also suggest that partnerships can be distinguished into four differ types, which are strategic alliances between non-competitors, coopetition, joint ventures and buyer-supplier relationships. Where coopetition means that a strategic alliance between competitors are being formed, for example LinkedIn works intimately with competing headhunters (Cabrera, 2014). While Joint venture is per definition a business agreement, for a finite time, between parties to develop a new entity and new assets by contributing equity. The most famous joint venture setup was between Nokia and Siemens, who formed Nokia Networks (Ernst & Kim, 2002).

The last block, cost structure, is found in the lower left corner of the canvas (Figure 1) and illustrates all costs that arise from implementing the business model (Osterwalder & Pigneur, 2010). There are two board extreme classes of cost structure, which are cost-driven and value driven. Most businesses apply a hybrid version of these two classes. Regardless of classification, the cost structure has four characteristics: fixed cost, variable costs, economies of scope and economies of scale (Osterwalder & Pigneur, 2010). Where the “economies of scope” is the cost advantage that arises from producing many distinct goods, while “economies of scale” is the cost advantage arising from an enterprises size, output or scale of operations (Gilligan, Smirlock, & Marshall, 1984).


Final Evaluation of the Framework

The final business model canvas framework is a powerful tool for understanding and implementing business model innovation (Osterwalder & Pigneur, 2010). The real strength of the framework lies in its simplicity, practice orientation and its principle of “Plug- and Play” i.e. ability to start over with the remodelling process (Hong & Fauvel, 2013). However, the greatest short coming of the canvas framework is that it does not take into account the competition of the investigated object (Hong & Fauvel, 2013).

Finally, the importance of the business model is very well expressed by Chesbrough (2010), who illustrates that “the same idea or technology taken to market through two different business models will yield two different economic outcomes”. Therefore, a well-designed business model architecture is a necessity for running a business like a well-oiled machine.

In my opinion, a business model is thus a map for achieving the vision, but the map itself is stuctured based on the mission. Summa summarum, the business model is a concrete and detailed illustration of how to implement you mission (and the vision in the long term).

/Drill

 

 

References:

Chesbrough, H. (2010). Business Model Innovation: Opportunities and Barriers. Long Range Planning, 43(2-3), 354-363.

Chesbrough, H.W., 2006a. Open innovation: The new imperative for creating and profiting from technology. Harvard Business Press.

Ernst, D. and Kim, L., 2002. Global production networks, knowledge diffusion, and local capability formation. Research policy, 31(8), pp.1417-1429.

Fielt, E., 2013. Conceptualising business models: Definitions, frameworks and classifications. Journal of Business Models, 1(1), pp. 85-105

Osterwalder, A., 2012. Alexander Osterwalder: The Business Model Canvas. [Online Video]. Available from:  https://www.youtube.com/watch?v=2FumwkBMhLo.

Osterwalder, A., & Pigneur, Y., 2010. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, Wiley, Hoboken, US.

Osterwalder, A., Pigneur, Y. and Tucci, C.L., 2005. Clarifying business models: Origins, present, and future of the concept. Communications of the association for Information Systems, 16(1), p.1.

Seven Laws of Information – A Foundation for “Digital Wisdom”

186721518Information is increasingly being perceived as a valuable asset in today’s modern society, de facto that in some occurrences information is by far the most valuable asset of a business and its activities. This tendency is refered often with the quote: “data is the new oil”.

What is problematic about Information is that it has an intangible character embedded to it, which makes it very hard to evaluate its real actual nominal value. Moody and Walsh (1999) recognizes this issue and introduces seven laws or postulates associated with the natures of information in order to understand its underlying value and how information differs from regular assets. I believe that by understanding the very nature of information (combined with the DIKW – hierarchy, which was my second blog post), one is able to become more wise, but also able to obtain a new form and dimension of  wisdom, which I would like to call it “digital-wisdom”.

1. Infinitely shareable

The first law states that information is infinitely shareable. Essentially this means that information has the unique ability of being shared among numerous parties, “without consequent loss of value to each party” (Moody & Walsh, 1999). The fact that information can be unlimitedly replicated and shared, with no real additional costs, makes it possible for many parties to use it at the same time. However, the duplication of information does not mean an increase of financial value of the information set (Uckelmann et. al., 2011). In contrast, information is very different from regular assets because assets are appropriable, i.e. you either have it or you do not (Moody & Walsh).

2. The value increases with use

The second law is that the value of information increases with use. This is intriguing because usually resources deprecate with use. In spite of this statement, it is important to point out that information does not provide any value if it is not used at all (Uckelmann et. al., 2011). Thus Moody and Walsh (1999) concludes that information in itself “has no real value on its own” and is in it unused form seen rather as a liability.

3. Perishability

The third law indicates that information is perishable. In practice this means that information depreciates over time and can thus be compared to any other asset (Moody & Walsh, 1999). The useful lifetime of information is therefore often relatively short, though it can be extended to a certain point when used for decision-making (Moody & Walsh, 1999).

4. Accuracy

The fourth law postulates that the value of information increases with accuracy. It is apparent that the more accurate information, the more valuable it beholds. However, 100 percent accuracy is rarely required in a business context, while a 100 percent accuracy is a must in some cases, such as maintenance or data banking records (Uckelmann et.al., 2011). In regards of decision-making, the level of “accuracy of information is as important as having accurate information”, because the margins for errors can be incorporated into the context (Haebich, 1997). For this reason, the view extends itself to the fifth law.

5. Synergies of combined pieces of information

The fifth law establishes that the value of information increases when combined with other information. Practically this states that integration or comparison of information generates new additional value. Therefore, it is evident that even a slight standardization of this information integration process will accumulate with high benefits. The inclusion of both identifiers and coding schemes are facilitating computing tools for achieving these benefits (Uckelmann et.al., 2011). Often the integration process is a great hurdle for many organisations, thus it is suggested that the focus ought to be aligned with the pareto principle, or the 80/20 rule, where the idea is that most of output is generated from the 20 percent effort or input (Moody & Walsh, 1999).

6. The more, ain’t better

The sixth law states that more information is not necessary better. Nevertheless, increasing amounts of information do result in more value to a certain extent, however crossing the information overload point causes significant problems and issues (Uckelmann et.al, 2011). Moody and Walsh (1999) points out an interesting empirical paradox related to information and decision-making, which is that the perceived value of information continue to increase even after the information overload point has been reached. The reason for this delusion is most likely related to the misconception that more information helps to avoid mistakes and reduces the uncertainty involved (Moody & Walsh, 1999).

7. Not depletable

The seventh and last law appoints that information is not depletable. At heart this refers to the fact that information is self-generating – the more one use it, the more one obtains of it (Uckelmann et.al, 2011). This differs greatly from traditional assets and resources, who cease to exist the more it is used (Moody & Walsh, 1999).

Summary

By understanding the very nature of information, it is evident that it is a very misunderstood and poorly managed asset, especially in terms of duplication; lack of standardisation; and lack of attention to its quality (Moody & Walsh, 1999). If other assets were managed in a similar manner as information (e.g. financials or people) then firms would most likely go out of business. Therefore, in order to manage information properly, one needs to understand its many unique features and facets (Alberts et.al, 2001).

The “digital wisdom”, as a concept, is in its very early stages and needs to be futher clarified. For now it will answer to the simple question: “know-why?“, when associated with digital and other heavily data oriented technologies. And evidently, the seven laws of information helps to clarify this matter to some extent, though there is still a long way to go. Finally, my future belief is that new regulations, such as GDPR, will empahsize the importance of “digital wisdoms” for both consumers and firms. This because “digital wisdom” also comprises both ethics and foresight within the context of digital data, which clearly is needed in the future.

/Drill

References:

Alberts, D.S., Garstka, J.J., Hayes, R.E. and Signori, D.A., 2001. Understanding infor mation age warfare. ASSISTANT SECRETARY OF DEFENSE C3I/COMMAND CONTROL RESEARCH PROGRAM  WASHINGTON DC, pp. 9-17.

Moody, D.L. and Walsh, P., 1999. Measuring the Value of Information – An Asset Valuation Approach. ECIS (pp. 496-512).

Uckelmann, D., Harrison, M. and Michahelles, F., 2011. An architectural approach towards the future internet of things (pp. 260-263). Springer Berlin Heidelberg.