Cambridge Service Alliance AND The Service Reseach Center (CTF) Event - April 2019

We heard from some of the world’s leading B2B (Volvo Trucks and CRH) and B2C firms (IKEA) on how digital disruption is affecting their industries, their business models and how they manage innovation. We also heard from some of the world’s leading researchers from the Universities of Cambridge and Karlstad, sharing their insights into the future of services.

Key insights from the day

• Services are co-created with partners and customers – and we need to take a systems view to understand them.
• Digital transformation needs to happen at the sector or ecosystem level and it will need a mobiliser or orchestrator to make it happen.
• For large B2C firms finding a way to capture, analyse and act on customer feedback is going to be key to achieving competitive advantage.
• Service transformation is just as important in B2B as it is in B2C and creating the right conditions for innovation is critical.
• Blockchain will be as transformative as the internet.
• Getting inside the mind of their customers is essential if retailers are to create better customer experiences.
• Firms need to look at how their services are delivered across the digital, physical and social spaces if they are to co-create a satisfying customer experience.

The service innovation system: introducing the work of CTF

Professor Bo Edvarsson founded CTF Service Research Centre at Karlstad University in 1986. CTF now has more than 70 researchers across a wide range of disciplines working closely with industry to understand how service creates value and the system that underpins it.

Understanding value

Edvarsson emphasised that products, services and brands do not have intrinsic value. Their value is only ever potential: it needs to be created with others (co-created) for that potential to be realised.

Taking a systems perspective

Services are co-created within systems by a set of actors, using resources – such as technology – and sharing common standards and laws – the rules of the game. The value lies in what a system does for its beneficiaries, whether that’s the service provider, its delivery partners or its customers.

Using a service ecosystem lens allows us to look at things in a different way: how do organisations work together? How do you work out what’s going on both inside and outside these organisations? What are their norms, cultures and habits and how do they shape the behaviours of employees and customers? What are the asymmetries in these relationships and how do they affect the system? What is the outcome, the value for each of the actors and is it economic or something else? And what are the implications for innovation and why some scale and some don’t?

Edvarsson gave us two examples of firms which are growing rapidly. Eataly, physical and online stores in which customers can eat, shop and learn about Italian food. It started in Italy in 2007 and is now in 35 locations around the world. KidZania is a play space which allows children to role-play being responsible adults doing responsible jobs – and is one of the world’s fastest growing edutainment brands.

What is about these two firms that is fuelling their rapid growth? Two key concepts here are service innovation and the service ecosystem. Service innovation is about coming up with new and useful ways of creating value and institutionalising it. The service ecosystem is about understanding how different actors work together to co-create value through service exchange. These two concepts work in tandem: any innovation needs to be understood in the context of its ecosystem.

Digital platforms are the co-ordinating mechanisms, orchestrating the collaborations of lots of different actors. They help entrepreneurs (or intrapreneurs) make things happen – transparently – so that everyone knows the rules of the games.

INSIGHTS FROM INDUSTRY

Volvo Trucks: reinventing the service business

Christina Stenman Jörgensenis Product Planning Manager at the Volvo Group, responsible for long-term roadmaps and strategic directions for future transport solutions and services.

Jörgensen talked about how developments in electric vehicles and automation are combining to give us completely new – and more environmentally-friendly – ways to transport people and goods. Neither of these technologies is new but together they are accelerating change in the industry. At the same time, firms are responding to an increasingly insistent societal demands to tackle climate change by reducing harmful emissions.

There is also a growing interest in ‘smart cities’, and what new digital technologies can do to connect buildings and infrastructure so that they can operate more efficiently. But developing new transport models for cities is a complex challenge. How does Volvo Group turn this into an opportunity, particularly when change will require the co-operation of a large number of actors, not least Volvo’s competitors?

Innovation in practice - Electric vehicles

Volvo Group already sells a range of hybrid and electric buses with fully electric construction vehicles, refuse and distribution trucks available very soon. This switch to electric is already paying environmental dividends. One example is the first fossil-fuel-free quarry project near Gothenburg, which has trialled using Volvo’s electric and autonomous construction machines and resulted in a reduction in carbon emissions of 98%.

Autonomous vehicles

Automation as such is nothing new to the automotive industry. The first level of automation is already here in the form of, for example, “adaptive cruise control” and “lane keep assist”, but the market and the technology are not yet ready for fully autonomous vehicle on public roads.  In the commercial vehicle industry, however, the value of automation is already clear for certain applications, with Volvo Group already testing automated vehicles in several mines and quarries.

Making it happen: the challenges

Jörgensen described some of the barriers Volvo is facing. The limited range of today’s batteries means that if more customers are to switch to electric vehicles they need to be confident they can find a charging point. In B2B, the charging infrastructure for electric lorries and buses is even less mature than in the consumer market. They need to be built and they need to work for all brands.

But for this happen there needs to be a collaboration between charging station providers, real estate owners, energy companies, not to mention government and regulators.

The need for orchestration is a common thread. Volvo already offers a range of services such as telematics and predictive maintenance for service contract trucks, but the new technologies will change the model: individual trucks will be part of an integrated, agile and transparent logistics system.

The big question remains: how will you build a platform of platforms so that the likes of Volvo, Caterpillar and Mercedes can all work together. Who will develop it? To make that happen you need a mobiliser – which could, Jörgensen thinks, be the city.

IKEA: from flatpacks to actionable insights

Maria Møllerskov Jonzon is Customer Experience Knowledge and Insight Leader at IKEA Group. Anneli Palm is Service Offer Manager at Ingka Group, one of IKEA’s largest franchisees.

Jonzon explained that products have always been at the heart of IKEA’s identity but what customers expect from retail has changed enormously in recent years, thanks in large measure to the advent of online shopping.

"It needs to be less about blue bags and shopping the IKEA way – and more about shopping the customers’ way."

For IKEA this means understanding that it’s no longer enough for consumers to love its products. It needs to be less about blue bags and shopping the IKEA way – and more about shopping the customers’ way. This has led to new retail formats, such as its Design Studios in Manhattan and London, and a new approach to listening to its customers.

This is not easy on such a vast scale, with 2.5 billion web visits each year, 957 million store visits and more than 200,000 members of staff. Not surprisingly, customer feedback has, until now, been siloed, scattered, unconnected and, hence, difficult to act on.

The CXP – Customer, Experience, Performance – initiative has been designed to listen to every interaction: every email, phone call and online rating. Its aim is to embrace the whole ecosystem and the entire customer journey to understand precisely where the chain is breaking and where it is exceeding expectations.

To really understand what it’s customers feel about it, IKEA is using natural language processing techniques to analyse free text – the words used by their customers to describe their experiences.

Palm explained that IKEA Services is one of the first areas to implement CXP. To work, the process needs to be used staff as well as customers. Simplicity is key here. The easy-to-use dashboard allows staff to spot issues as they arise and drill down to understand and act on the problem.

Gathering, understanding and acting on this data will not only improve the way IKEA does things now, it provides the information it needs to innovate and offer new and better services.

Innovation-led digital transformation at CRH

Johan Bos, Strategic Projects Manager of Digital Innovations at CRH, specialises in understanding customer needs and optimising supply chains and production processes.

CRH is the leading building materials business in the world, employing around 90,000 people in 32 countries. It manufactures and supplies a range of integrated building materials, products and innovative solutions which can be found throughout the built environment.

There are undoubtedly opportunities in the construction sector, driven by growing urban populations and the need for new housing and infrastructure. But the industry suffers from a number of challenges, including a shortage of skills and a way of working which has remained largely unchanged for centuries.

New technological developments have the potential to bring about significant change, whether that’s robotics to automate tasks such as bricklaying, 3D printing of buildings or developing materials which use less energy to make. The industry is making concerted efforts to adopt new approaches such as Building Information Modeling (BIM) which allows data to be shared between architects, designers, engineers and construction firms from the start of a project and throughout its life.

CRH has put in place a digital acceleration programme and is working hard to create the conditions in which innovation can flourish.

Bos suggested that there are three prerequisites for digital transformation:

1.    You need digital talent which is scarce in the construction sector. Solve this by using your existing digital talent.
2.    You need to put effort and resources into facilitating innovation
3.    You need the support of senior management.

Through a series of workshops, CRH identified the core areas where transformation would most benefit the business and on which new technologies and processes could have the most impact. This in turn led to a number of pilot projects in areas such as augmented reality for commercial appliances, cloud platforms for product delivery, cobots and machine vision for quality control.

Each pilot was assessed using a range of criteria: how scaleable is it across the CRH portfolio, does it deliver customer value and employee engagement, does it reduce complexity and increase productivity?Emerging from these pilots are some near-term priorities around e-commerce and digital marketing, BIM, Industry 4.0 and automation and robotics.

Throughout, Bos emphasised the importance of taking employees with you. Digital transformation, he argued, is as much about people as it is about technology.

Innovation in Fintech

Rob Ellisis the Director of HCL’s 200-strong FinTech Innovation Lab working with Deutsche Bank.

How do big companies know which technologies to pick in order to stay relevant? One way is to acquire as many ideas as possible by connecting with start-ups. Ellis’s Innovation Lab helps its clients do this by keeping up with new developments, focusing on the most relevant and screening out the noise.

It has also developed a structured, repeatable process for taking ideas that have been developed externally and integrating them into another business.

One of the challenges Ellis described is that innovation is an investment, not low-hanging fruit. It needs time to work but senior executives tend to lose interest after six months if they are not seeing immediate results.

He sees it as an important part of his job to help them understand innovation maturity, the difference between an application and a platform and what a truly disruptive technology looks like.

For Ellis, blockchain looks like a truly disruptive technology – in the same league as the internet. He argued that it is not just a secure way of managing data, it has the potential to be its own ecosystem on which other applications work. He pointed to similarities between it and the internet, with blockchain following a nearly identical path to maturity. The only difference between them is the speed at which blockchain is evolving.

INSIGHTS FROM RESEARCH

Understanding the retail experience

Dr Poja Sams, Assistant Professor at Karlstad Business School, researches consumer decision-making and visual attention in the retail environment. With colleagues at CPF, he has developed
an impressive toolkit of technologies to obtain insights into how consumers respond to their environment.

Attentional mapping is one of these techniques. In both the lab and in retail settings, Sams uses eye tracking and facial coding to understand what is attracting people’s attention and why. Emotion mapping is used to delve further into why people respond to particular stimuli. This could be monitoring movements in facial muscles as people watch adverts or asking consumers to wear wristbands that measure their arousal levels. When combined with eye-tracking this can provide very detailed data about the way customers are responding to their surroundings.

It’s not just visual stimuli, Sams is interested in. He also investigates scent and touch and how they influence responses. He described one experiment in which he tested two scents – coffee and chocolate chip cookies – to see if they caught the attention of people walking past a café. They did. Intriguingly, there was a marked difference in responses between males and females, with males more responsive to the smell of cookies and females to the smell of coffee.

The internet of things is helping Sams explore the effect if touch. If you touch a product in a shop, it deepens your bond with it and increases your chance of buying it. 600 washer-dryers in a retail setting have been fitted with sensors which map the touches these products are receiving. By introducing different textures, the researchers are seeing if they can increase touch behaviour and hence the likelihood of purchase.

Applying these insights

The research is being used with retailers to help them understand why, for example, customers ignore particular areas in a shop and how to counteract that behaviour. But understanding customer behaviours doesn’t always produce easy answers. The researchers found that if customers were disturbed by their phone while shopping they became angry – but they also bought more goods!

From a retailer’s perspective it is difficult to know how to act on that insight. No-one wants angry shoppers even if they are contributing to the bottom line.

The future of customer experience platforms

Dr Mohamed Zakiis Deputy Director of the Cambridge Service Alliance.

His research focuses on developing new machine learning methods to manage and measure customer experience and predict customer loyalty.

Customer experience is where competition between firms will be won or lost, and B2B firms in particular must understand that customers need to be cared for.

Zaki and colleagues have been taking a step back to understand customer experience across three spaces – the digital, the physical and the social – and how they are connected. Until now, researchers have tended to think about these dimensions of the customer experience separately but firms need to consider them holistically if they are to develop the right services for their customers and co-create a consistent and satisfying experience.

An example of this kind of approach would be in a B2B heavy asset context. In today’s world, it is likely that a technician will fix a vehicle on site. This is a highly physical and partially social activity. We are already moving to a world where using sensors and data analytics for predictive maintenance is becoming the norm and this is moving the experience further into the digital space, a process which will be further intensified with the development of digital twins.

Retail been an area of intense innovation in recent years, moving from a highly physical and social model to a highly digital one. But there is an interesting convergence going on here as some conventional bricks-and-mortar retailers are bringing digital channels instore and some online retailers – like Amazon – are opening bricks-and-mortar shops. Whichever route they take, they recognise the need to create a highly personalised, consistent and integrated shopping experience.

Zaki and his colleagues have developed a framework for looking at firms’ levels of maturity in each of the three spaces to help them think about where they are now and where they want to be – and the steps they need to take to get there.