Irene ngobc2013 final

Introducing University of Warwick, WMG
and IIPSI
Irene C L Ng
Professor of Marketing & Service Systems, WMG
Director, International Institute of Product & Service
Innovation
irene.ng@warwick.ac.uk
@ireneclng
http://uk.linkedin.com/in/ireneclng
bit.ly/vcssblog
www.warwick.ac.uk/go/sswmg
www.ireneng.com

The University of Warwick

Facts and ................................. Figures
 Established 1965  Undergraduates 12,979
 Postgraduates 10,441
 League table positions
– Times and Sunday Times (2012) - 8th
 International students 6,411
– Guardian (2012 guide) – 6th  International students 27%
– Independent (2012 guide) - 8th

– RAE 2008 – 7th overall
 Total staff 4,912
– QS* World University Ranking (2011) – 50th  Academic staff 687
– We aimed to be in the top 50 by 2015
 International staff 25%
 International working  Turnover £419m
– Formal working relationships with Boston  Campus size 292 hectares
University, Monash University, IIT
Kharagpur, Jawaharlal Nehru University  Academic departments 28
and Nanyang Technological University
 Research centres 48
 Overseas alumni 44,194
* Quacquarelli Symonds Ltd

WMG Research and Development
Centres

International International Automotive
Manufacturing Centre
Research Centre

Engineering
International Digital Management Building
Laboratory (IDL)

New Centres

International Institute for Product and Service Innovation (IIPSI)

International Digital Laboratory

Product Life-Cycle Management
Robotics

Digital Experiential Engineering
Manufacturing Product Evaluation Technologies
Embedded Systems
Simulation and Modelling
Cloud Computing Security
Privacy Enhancing Technologies
Institute for
Data Loss Monitoring
e-Security
Vulnerability Research
Trust Management
Health Informatics
e-Health
Institute of
Neural Engineering
Digital Healthcare
Biomedical Engineering
Virtual Reality Medical Training
Visualisation
Digital
Digital Media
Technologies
e-Business

International Institute of Product &
Service Innovation (IIPSI)

14 January, 2013 Copyright Irene Ng, 2012. All rights reserved.

Digital Application Innovation (tech
demonstrators)
Cloud for Business

Mobile for Business

Smarter Social Media
Data to Intelligence

Polymer Innovation (sample tech
demonstrators)

Adding Functionality to Plastic
Parts
Low Volume Production

Polymer Recycling

Experience-led Innovation (sample
tech demonstrators)

User Focussed Product/Service Desig

Customer Engagement
Visitor Experience

Energy Usage Behaviour


IIPSI Service Systems & Business+ (bootstrapping
tech innovation with service science & business
models research and innovation)

• Technology disruptions cause challenges to existing business
models (e.g. Kodak)
• Adaptability, transformation needed – both for their business
models (the firm’s capability to serve the market) and their
economic models (the way they derive their revenues and the
market exchanges they participate in)
• Business+ research into value creating service systems,
digitisation/virtualisation, service science, S-Dlogic (e.g.
Bombardier, Rolls Royce, GSK); also into pricing/revenue models,
methodology for new transactions & markets
• Transdisciplinary team of social science, technology, business &
engineering
• 4 RCUK/EPSRC DE projects, NEMODE virtual collaboration host

17
Markets
Practice
Scale Inform
IIPSI Marketspace
2 1
corporate Mkt modularity
6
space
7 SME space Startup
space
Education
9 11 SME funding
8 Social
Devt

Science IP Passing Model, 3 Pre- 10 Student
IP Passing Model, independence incubating s
demonstrators
15 5 demonstrators
14 4
Research
Service Systems, New Econ/Biz models 10
Experience- Digital Lower
Polymer TRLs Knowledge
led (software)
Innovation innovation
Innovation
18 Transfer & 19
Trade Tools
pubs
Academic Bootstrap Projects
pubs 13
12 11 primary knowledge flows, 8 secondary flows

Impact

• created 12 new high tech start‐up
businesses,
• directly generated 70 new jobs,
• trained over 450 small business in a range
of digital technologies over the last 4 years
• International publications, patents, tools
etc.


Outcome-based Contracts as a New
Business Model
Research Insights from
Aerospace/Defence contracts

Theoretical background

The ‘science’

More than 200 years of Goods
dominant logic: Value as WORTH


But it wasn’t exchange that made us happy. It
was experiencing what we bought that gave us
the outcomes we wanted

We buy because of the service of the object,
even if it was an emotional „service‟ i.e. things are
service avatars* Mike Kuniavsky, 2010

But it wasn’t exchange that made us happy. It
was experiencing what we bought that gave us
the outcomes we wanted

To find ways of innovating, we need to understand value-
in-use

So let’s look at this logically

• We buy products to
obtain benefits
• What are the benefits
• How do we get the
benefits?
• What is the role of the
firm? The customer?
• The GDLogic mentality
of organizations.

SD Logic: The co-creation of value
for outcomes/benefits/value-in-use

Peace of mind
Entertainment
Love

CO-CREATED Realise
VALUE that is
RESOURCES higher than
proposed Enhance

RESOURCES????

1. Value is co-created: Customer resource to
co-create needs to be a feature of design &
innovation
Ng, Irene C.L. (2010) “The Future of Pricing and
Revenue Models”, Journal of Revenue and
Pricing Management, Vol. 9, No. 3, pp276-281

Ng, Irene C.L., and Laura Smith (2012), “An
Integrative Framework of Value” in Review of
Marketing Research Special issue on Toward a
Better Understanding of the Role of Value in
Markets and Marketing, Stephen L. Vargo and
Robert Lusch (Eds) Vol 9, pp 207-243

From a Value co-creation perspective, outcomes could
come from several types of contract point A to B
Getting from
Good driving experience

Drive

Car

Actual „outlays‟ are
Other drivers
Traffic
resources available to co-
create value

Key issues in value co-creation for
outcomes
• There is (perhaps) only a difference between a
product and a service if you’ve already made the
product
• From an outcomes perspective, the key issue is
(a) what should be the value proposition
(combination product/service) (b) how does the
firm participate in value (co)creation by the
customer to achieve those outcomes and (c) how
do we capture ‘worth’ ($$$). In other words –
what’s the business model


BUSINESS MODEL
Context
ECONOMIC MODEL
BUSINESS MODEL
- Where exchanges Variety
come from, what
exchanges are there,
person
monetization
Resources
Value (co) Experiencing/u
se of

Capturing worth
Money fr access, outcomes, Creation
equipment
ownership, personal data

Resources

Value
prop

Viability/Scal Equipment
14/01/2013
ability
WMG 24

Outcome-based Contracts
• Some simple analogies
– English lessons, holes in the wall
• More complex OBC
– Rolls Royce Power by the hour ©,
Availability of equipment, Popularity of a
fiction collection in a library

25

(c) Irene Ng, University of Exeter, All Rights Reserved

Understanding Efficient and Effective
Value Co-Creation and the Marginal
Analysis of Service for Outcomes

The Case of Rolls Royce
Smith, Laura, Irene CL Ng and Roger Maull, (2012) “The Three Value Cycles of
Equipment Based Service,” Production, Planning and Control, Vol 23, Issue 7, pp1-
18, DOI:10.1080/09537287.2011.640055

Ng, Irene C.L., Glenn Parry, Roger Maull, Laura Smith, Gerard Briscoe (2012),
“Transitioning from a Goods-Dominant to a Service-Dominant Logic: Visualising the
Value Proposition of Rolls Royce,” Journal of Service Management, Vol 23 (3),
pp416-439

Maull, Roger, Laura Smith and Irene C.L. Ng, (2012) “Servitization and Operations
Management: A Service-Dominant Logic Approach”, International Journal of
Operations and Production Management, forthcoming

The value-creating service system of
equipment (the vertical)

Transcending Logic of Value
Creation
GD Logic Value Propositions SDLogic - Value Creating Activities (Collaborative co-
(provision of assets, time and creating activities to achieve value-in-use) i.e. what we
information as exchange value) do together (and with other entities)
i.e. what we can sell you

· Engine (asset) Equipment Performance
· Time Technical Variance
· Spares Technical Query Resolution
· Information Repair Service
Maintenance Service
Parts Forecasting & Provisioning
Exchange value –
Installation and commissioning of equipment
Value proposition
as ‘units’ Through-Life and Obsolescence Planning
Capability Forecasting & Planning
Exchange value –
Equipment Training/Operating Advice
value proposition as Capability Advice
firm’s contribution
to value-in-use

14/01/2013 Copyright © Irene Ng, all rights reserved 28

Visualising Exchange and Contextual Value &
Resource Integration informed by SDLogic

• Visualising exchange value from value-in-use
– Understanding customer choice through Conjoint
Methodology
• Visualising Resource Integration
– S-D Logic suggest that ”resources are not, they become.” (Vargo
and Lusch, 2004, p.2)
– resources are only active in enabling processes.
– depiction of resources as activities and the focus on process in
service is the domain of operations management (Silver, 2004;
Ponsignon et al. 2011)
– to visualise resources as activities we first developed a process
model for each of the VCAs and then developed a discrete event
simulation model to visualise the impact of changes in volume and
variety of inputs on the resources.

14/01/2013 WMG 29

How should the firm contribute to value-
in-use?

14/01/2013 WMG 30

Demonstrator (3)

£99,999 £88,888

Demonstrator (4) – Marginal
analysis

Case study on value co-creation: BAE
Systems & outcome-based contracts

ATTAC Outcome-
based contract

BAE Systems

Ng, Irene C.L., Xin Ding and Nick K.T. Yip, “Outcome-based Contracts as New Business Model: The Role of
Partnership and Value-driven Relational Assets,” forthcoming in Special issue on Business Models – Exploring
value drivers and the role of marketing, Industrial Marketing Management

Ng, Irene C.L., Sai Nudurupati and Paul Tasker, (2010) “Value Co-creation in Outcome-based Contracts for
Equipment-based Service”, AIM working paper series, WP No 77 - May – 2010
http://www.aimresearch.org/index.php?page=wp-no-77

Sophistication of contracts & service capability (for MRO context)

Increasing value co-creation
and partnering mechanisms &
increasing complexity and risk
Capability-based Contracts (delivers
benefits)

“Availability”-based Contracts (delivers
availability for use)

Multi-Attribute-based Prime Contracts (delivers
bundled attributes i.e. „activities‟)

Attribute-based contracts (delivers an
activity)

Resource contracts Increasing price
(delivers resources) efficiency for customer

(c) Irene Ng, University of Exeter, All Rights Reserved

Optimised OBC delivery
System costs for achieving end states/outcomes Marginal gains from OBC (e.g.
Type 45 destroyer

Outcome (system)
costs)

Contract
Price

Customer
resources

Firm
Vendor Marginal resources
cost line (driven by
risk)

Desired
Desired attributes Desired attribute Desired End States
Consequences in use
performances
situation

Contract level

Some lessons


(1) Why/when systemic costs go down
& margins increase for OBC
• Optimising marginal rate of technical
substitution of skills & competencies
• Understanding risks, location and marginal rate
of risk impact on operational effectiveness &
efficiency – information asymmetry – related to
skills & competencies
• Pain/gain shares
• Low transaction costs (partnership competency)
• Higher customer empowerment


(2) 7 attributes of value co-creation
(partnership competency)
• The system reflected seven attributes that enabled value co-creation
towards outcomes (that enabled customer „use‟ to change delivery,
enable agility, flexibility, absorption of variety)
– Congruence of Expectations
– Complementary Competencies
– Process Alignment
– Behavioural Transformation
– Empowerment for Behavioral Transformation
– Perceived Control
– Behavioral Alignment
Ng, Irene C.L., Sai Nudurupati and Paul Tasker, (2010) “Value Co-creation in Outcome-based Contracts for Equipment-based
Service”, AIM working paper series, WP No 77 - May – 2010 http://www.aimresearch.org/index.php?page=wp-no-77 under second
revision for resubmission to Journal of Service Research

(3) Outcome-based Contracts are not
the same as solutioning
• Diferent org competency
• Different system (open, collaborative)
• Paradox of solutioning (engagement, emergence)
• Solutioning is sometimes more expensive (due to
location of risks and info asymmetry)
• Complex outcomes vs functional complicated outcomes
• Variety
• COULD be pre-specified but on marginal cost of
competencies


(4) OBC change boundaries – focusing on value co-
creation

• Shifts the boundaries of service
• Shifts the skills sets and capability of the firm –
risks
• Joint system capability of customer and firm –
rather than drawing a boundary and sub-
optimizing
• Better re-configuration of resources and
substitutability of resources
• Major impact on human skills of the future:
systems thinking, what we try to achieve

(5) Starting to understand the interactions: the need to
move to Service Dominant Value-creating Systems
The firm‟s equipment
and service interacts
with resources to co-
create

Customer
Manufact resources
uring Service
resources resources

Indirect Customer Activities for
Direct
Value Co-creation
Provision Co-creation (realising the firm’s assets Co-creation Provision
(asset) (People &
and service value
processes)
propositions)

Contextual Variety

Customer co-creation
Customer co-creation
to realise the firm‟s
to realise the firm‟s
assets interacts with
service provision
the service provision
interacts with the asset
design Marginal Analysis of the value creating
system

(5) Manufacturing AND Service for
Outcomes
• Assets: scalable to support customer resource co-creation for
outcomes
• People, processes: support contextual variety, emotional
value, experiences, engagement
• No conversation on manufacturing can be held without service
conversations which include people, technology processes of the
firm and the customer to realise the value that is high contextual
variety
• No conversation on service can be held without manufacturing
and design conversations which include requirement analysis,
product design

Some extensions

(aka – what we have
been thinking about)

Boundaries

• What do we learn from the iPhone
as a platform
– Every iPhone is the same
– Every iPhone is different
• Variety, stability & scalability
– Between customer use resource, the
firm’s service resource and product
resource

14/01/2013 WMG 47

OBC: Issue of distributing & delegating skills
and competencies between firm, customer

• Boundary issue (product-service, service-
customer, product-customer)
• Influence on boundary: Contextually
personalisable (variety issue) & stable in
propositioning & growth (scalability issue)


Other extensions

New Economic Models
for Outcome-based
Contracts

The value-creating system of equipment
Horizontal &
Systemic Org
Competency

Vertical Org Competency

Systemic v Vertical business
models
• Influence on boundary: Challenge of
systemic (H&V) and vertical business
models – appropriating revenues from
other verticals


Outcome-based business &
economic models

• Has a huge impact on sustainability (engines fly longer,
washing machine last longer)
• Shifts the focus from manufacturing/production to
complex service systems – human, processes, assets –
to achieve to outcomes
• Important focus for the economy (e.g. UK) that has lost a
lot of jobs to manufacturing, a focus to build better
competencies and competitive advantage
• Increasingly possible because of sensor technologies
and IoT. Buying closer to contexts (see tomorrow‟s
presentation)

Thank you


Irene ngobc2013 final

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