What is the Future of Digitally Enabled Service Business?

One Day Conference - Wednesday 16 October 2019

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The future of digitally-enabled services: the power of ecosystem, customers’ experience and competitive advantage

Mohamed Zaki, Deputy Director of the Cambridge Service Alliance

Back in 2009, product manufacturers were beating a path to our door asking for help in reorienting their businesses. They had seen the future and it was in services and solutions. Fast forward ten years, and the future has turned out rather differently to the one they were imagining. Whether you call it the ‘Fourth Industrial Revolution’ or the ‘Fifth Wave of Computing’, the advent of digital technologies and analytics has abruptly and irrevocably changed the world of business. Firms of all shapes and sizes have been forced to embark on a digital transformation or risk obsolescence. As a service business, how do you ensure you are a winner in the race to digital?

The power of collaboration and ecosystem

The good news is that the lessons we learnt on the journey from products to services apply equally in the digital era. One of the most important, perhaps, is that – with some notable exceptions proving the rule – one company on its own cannot change an entire industry. To deliver a successful service, you need partners. Understanding your ecosystem, the part you play in it and where the value resides underpins successful service design. Arguably, no one understood this better than Arm when in the 1990s it decided not to make its own chips but to license its IP to semiconductor manufacturers instead – and the rest is history. There are now more than 150 billion Arm-based chips in the world, powering everything from super-computers and smart phones to the smallest IoT sensor.

For Graham Budd, Arm’s president and Chief Operation Officer, we are entering the ‘fifth wave of computing’. The first wave was the development of mainframe computers in the 1960s and 70s, followed by the PC revolution in the 1980s, the arrival of the internet in the 1990s and the proliferation of smart phones and mobile computing in the 2000s. We now need to brace ourselves for this next wave, brought about by the convergence of three technologies: IoT, AI and 5G. Together they will give us access to unprecedented amounts of data acquired through billions of devices combined with the means to analyse that data and derive insights from it in real time.

The challenge is how to maximise the potential of this new wave. Firms are already using digital technologies to improve things like factory performance, but Budd contends, in order to derive real value from it you need industry-wide standardised approaches and infrastructure otherwise everyone is reinventing the wheel and getting nowhere fast. And that requires a “collaborative mindset that builds trust across the ecosystem and acts as a powerful accelerator of innovation.”

Putting customers first

The airline industry is a good example of a sector facing huge challenges: intense competition, geopolitical concerns, the advent of low-cost airlines and the increasingly urgent need to reduce its carbon footprint are all putting pressure on airlines to change the way they operate.

In response to these challenging market conditions, Singapore Airlines initially focused its attention on its assets and infrastructure, switching to a new breed of lighter, more fuel-efficient planes and extending its network of hubs to more countries. But it became apparent that it needed to go further: the monolithic mainframe underpinning the whole business was a barrier to understanding its customers and being able to respond to their needs.

The result: a digital transformation strategy focused on delivering exceptional customer experience. As Sheldon Hee, Singapore Airlines General Manager in UK and Ireland, emphasised: “Digital is not just about the technology, it’s about understanding the problem, knowing what our customers and staff need and being able to anticipate that and not just react to problems.”

This was the starting point of a seven-year digital transformation process in which no aspect of the business was left untouched. Key to its success has been a determination to develop a data-driven mindset and openness to innovation across all functions and at all levels of the business. An important part of that process has been learning to work collaboratively whether that’s sharing data with different sales platforms, partnering with the entertainment and retail giants or working with innovative start-ups.

Underpinning the transformation was an investment in a next-generation CRM system that would capture all the elements of the customer experience to support a truly seamless service. As a frequent flyer on Singapore Airlines you will get your preferred drinks and newspapers without having to ask and your meals will arrive when you want to eat not when it’s most convenient to serve them. Entertainment options for those taking connecting flights are impressively joined up. Arrive at your transfer airport before the credits have rolled on your film and you can automatically pick it up where you left off on your next flight. Inflight shopping has also been revolutionised. No longer are you restricted to the items that can be carried on the plane, now you can choose from an inventory which is stored at the airport and handed to you as you disembark.

Other aspects of the customer experience have also benefited from digitalisation. IoT is being used to improve reliability by anticipating maintenance issues, and external data sources are combined with the airlines own to understand potential threats to schedules from, for example, the weather.

Achieving competitive advantage

Cambridge Service Alliance partner, HCL Technologies, is the world’s largest provider of third-party research and development services. As such, it has worked with some of the world’s leading companies on digital transformation programmes. The somewhat unsurprising news from the frontline is that it isn’t easy.

Corporate Vice-President and Head of EMEA, Ashish Gupta, explained that HCL’s main task is helping its customers understand how digital technologies can be applied to their business to deliver real impact. For the last forty years, technology has been about improving back office efficiency and productivity. “Now it is a strategic lever and the prize for those that get it right is massive competitive advantage.”

But the challenges are considerable. In the real world, most firms are struggling with legacy data and systems which are not fit for purpose. As exemplified by Singapore Airlines, these need to be tackled before you can proceed to the next level. According to Gupta, it’s only when you are able to harness digitalisation first to reimagine your business processes and then to rethink your entire business model that you can really start to reap the rewards.

One of the main obstacles to digitalisation is the insistence of senior management on having a conventional business case to support investment. For Gupta, changing this mindset is a critical part of the process: “The more senior you are, the more important it is that you figure out that the world is changing around you. You need to be paranoid about what everyone else is doing, not worrying about spreadsheets.”

The same, but different

One of the interesting things about digitalisation is that it looks both very different and very much the same from the other end of the telescope. Alex Bazin, Managing Director of FLEC, a platform-based start-up joint venture with DHL, explained that for his firm (just like Singapore Airlines) the starting point is understanding the business problem and developing a strong proposition that will resonate with his customers.

In FLEC’s case, the problem is the difficulty big logistics firms have in filling jobs and holding on to their staff. On the other side of the coin, is the increasing desire of younger people to work more flexibly. DHL spun FLEC out to develop a platform that puts logistics firms, agencies and workers in touch with each other via an app. A year in, it is getting 1,000 sign-ups a month, it has 5,000 staff using the platform and it’s saving logistics centres an average of £71k a year in staff costs.

The issues for FLEC are in many ways identical to those facing their more established counterparts. Ultimately, it’s about understanding their ecosystem and who to partner with in order to create and capture value. The platform is the means to an end but one that has the significant advantage – unlike ‘bricks and mortar’ businesses – of being almost infinitely scaleable. And, of course, FLEC’s other enormous advantage is the absence of legacy systems – or legacy mindsets – to overcome.

Understand your customer’s behaviour

Whatever the size of your organisation or its stage on the digital journey, knowing what your customers are thinking, feeling and doing will be fundamental to your success. For years, firms have tended to reply on simple surveys or Net Promoter Scores to find this out. But we now know that these techniques don’t work, it is difficult to determine drivers of actual behaviour and can be actively misleading. A principal focus of research at the Cambridge Service Alliance has been on how we can use techniques such as machine learning and natural language processing to analyse customer’s behaviour and what customers are saying in the free-text boxes on feedback forms or in emails or social media. Most firms are sitting on a treasure trove of this kind of data but don’t have the tools to turn it into actionable insights.

There is no doubt that the convergence of digital technologies brings with it huge opportunities. Some will use it to achieve unassailable competitive advantage by creating new services and new business models. And they are most likely to do this by working collaboratively and by putting the customer – and not the technology – in the driving seat.

This article is based on talks given at Cambridge Service Alliance’s 2019 Industry Day, an annual gathering of some of the world’s leading companies and researchers to consider the challenges and opportunities facing service businesses in the digital era.