Tuesday, 10 November 2015

THE VIDEO OF: Supply and demand chain management: the effect of adding services to product offerings

We are creating a series of video abstracts summarizing our research. In the video below Glenn Parry explains how demand chain management works in the music industry, a context in which services are sold in addition of products. 

Tuesday, 1 July 2014

Business Servitization: What we know and what is still to come?

Servitization is formally described as the process of seeking additional value through taking services propositions to market, and is an academic theme of increasing relevance. Competitive advantage achieved through services is potentially more sustainable since, being less visible and more labour dependent, services are more difficult to imitate than other strategies focused on product innovation, technological superiority or low prices. Servitization is part of the service dominant logic, which highlights an epistemological shift in the customers understanding of value; from understanding the ‘value in exchange’ of product ownership business models to understanding ‘value in use’ created through access to resources, which entails a transition from transactional value to value-in-use. Rolls Royce offering hours of use of their engines and not selling them, or IBM developing software and consultancy instead of producing computers are successful business cases of the organizational transformation required when implementing service business models, with ~ 90% of revenues now coming from service or digital provision respectively. These successful strategies are increasingly presented in business school case studies. But, is all that glitters gold? Are servitization strategies a winning recipe for managers and policy makers from across the competitive and industrial landscape?
The answers are not direct and we still need to develop new quantitative and qualitative approaches to assess the service-oriented business models from different angles. We are organizing an academic forum for discussion on these topics in parallel with similar communities across Europe, with the Spring servitization conference in Aston and the service operation management forum in Tilburg. What can we learn from these initiatives?
I attended the Aston Spring Servitization conference one month ago. I had the invaluable opportunity to interact with senior executives from large manufacturing companies implementing service-oriented business models successfully into their organizations. This is consistent with what was discussed six months ago in the second edition of the conference we held in Granada (book of abstracts can be accessed here). So, evidence shows a consistency of signalling servitization as a potentially successful strategy for manufacturing companies. This good performance can be enhanced when applied alongside appropriate methodologies such as cost analysis, gap analysis or enterprise resource planning.
However, other streams of research have started to explore the phenomena of servitization in other industries. This brings some surprises. Creative industries like music or cinema have seen a huge decrease of their revenues, while the digitalization of their resources and the implementation of service business models like streaming music and video increase. Recent research (see here and here) highlights that creative industries are different from manufacturing in three respects. First the digitalization of creative content has been forced from the power of peer-to-peer networks. The increasing pressures of those platforms obliged managers in creative industries to offer a wider range of formats. Second, those new formats are substitutes of traditional physical format rather than complements, like occurred with manufacturing industries. Third, creative industries are focused mostly on B2C relationships. 
Service science is still in its inception and future debates will explore the problem from new perspectives. It is difficult to give a precise indication about the relevant subjects for academics and practitioners but I will try to summarize some of them. 
Service oriented business models increase value creation and capture in manufacturing sectors, specifically in B2B relations. These services are tailored and focused on minimizing the risk of the client and providing extra information. In this category we have global services from companies like Rolls Royce, MAN or Goodyear undertaking specific and constant monitoring of their engines, trucks or tyres. Corporate clients behave differently to final consumers and the challenge is whether servitization can be implemented closer to the final consumer. Some effort has been made in the direction of analysing servitization as a B2C business model. In this category we have new constructs being explored like gamification, co-creation or ‘the internet of all things’. 
As any other stream of research in its inception, servitization has been explored mostly from theoretical perspectives. Future research will need to assess service-oriented business models with quantitative approaches. At a first glance I can see that big data will be an opportunity for the analysis of B2C business models, but the real deal is to analyse the success of manufacturing firms. This is especially challenging as long as it is difficult to measure the productivity of a service: what is the unit of analysis of a service?
In fact, the productivity and the economic analysis of service is a relevant issue to explore. The success of manufacturing business models during the last three centuries was based on the productivity increase given economies of scale, economies of scope and technology improvement. An interesting question is whether business models based on services will maintain those levels of productivity growth for the next decades. This has direct implications for territorial competitiveness and hence policy makers should be aware of these potential limitations (or not) of services business models as a source of economic development.
Last but not least, firm location could be another relevant subject to explore. E-Commerce and cloud computing technology simplify the process of delocalization from big cities. Knowledge intensive small business can move now to rural areas where the cost of rent space is cheaper, or to less developed countries with lower salaries. All those process will impact on firm demographics and again is a relevant area for those interested in territorial competitiveness.
Overall, the exploration and implementation of service business models is a subject that is changing our lives and will impact the competitiveness of firms and territories. I understand that the word ‘servitizacion’ may not be the best choice, but this should not be used to discredit the analysis of the phenomenon, which undoubtedly will be an area of significant interest for the upcoming years. 

* The author of this post is Ferran Vendrell and was originally published in Orkestra's blog.

Monday, 23 June 2014

(What) has digital done for music?

Everyone enjoys music, but what is it? Is it a product, a service, an experience? How do we sell it and what is its value? What has digital done for music?

Recorded music sold in physical format, either on vinyl or CD has historically generated significant financial returns. Global recorded music sales in 1997 were USD 27.6 billion. However, once music entered the digital domain those revenues radically reduced, totalling USD 16.5 billion in 2012.

Do people in the digital age not like music so much?

Music is now available as product and service. You can buy a physical CD, a vinyl record, a digital download, access streaming services, or listen via internet radio which can be personalised to your tastes. There are a growing number of sales channels through which music firms reach out to their audiences, but revenues have not significantly increased in over a decade.

With so many new ways to access music, why haven’t sales revenues gone up?

Let’s look at what has changed with regards to the sales experience. The move by traditional manufacturing firms to generate revenue through the provision of service associated with their product has been described as servitization. Firms in this sector are moving from a focus on selling music as a physical product towards creating value from selling music in digital formats which gives rise to different business models. In developing a broad portfolio of ways to access music, the servitization of the music industry has been progressing for a decade.

As we move from the physical to the digital sales channel, a physical tangible object is no longer present at the point of sale, even though a physical object may arrive in the post later. Exchange value underpins the traditional view of the customer–producer relationship with each party exchanging one value unit for another, e.g. a vinyl album for money. With the servitization of the music industry, a physical product is now no longer present at all when someone buys a digital track online or pays for streaming service. There is some degree of theatre with the physical - when you buy and listen to a vinyl album or CD. You have to find the item you want and buy it and get it home. Then there is the disc, the player, the cover art and the sleeve notes to read. If it’s a vinyl record you have to stay nearby to turn it over half way through. It's very engaging of the listener's time.

The focus of value for online digital music services is very different. Access to almost any desired music is possible within a very short time of asking for it. The devices have changed and music is perhaps background, listened to through earbuds off a phone whilst we do something else.  And payment - payment may happen for a digital download, or a streaming service. It may not happen if we access music through a streaming service which makes its money from advertisements and where the artist may get a small revenue per play.  Or it may not happen if we illegally download or stream the music from a pirate website.

Is music piracy destroying the value of music?

Music piracy significantly decreases sales revenues and is a common problem around the world. Based upon our own conservative analysis we have estimated that 28% of people participate in illegal file sharing. That’s almost a third of the potential market and clearly represents a major problem for the music industry and the artists who don’t get paid for their creative efforts.

So what is to be done? What is the future business model for music?

Well, I think there is a need to legislate to limit piracy. We need to think of ways of explaining that taking music without paying isn’t right and collectively consider how we support artists. I can also see that the music market presents an opportunity for those who are innovative, with many new business model possibilities still to be explored.

To end, I will finish with two extreme examples of how artists are trying to re-establish the value of music in the digital age.

Wu-Tang Clan will be pressing only one copy of their album The Wu – Once Upon A Time In Shaolin. Various media sources are already suggesting that an offer of USD 5million has been made for this album, and we can imagine it will sell for much more. Wu-Tang Clan states that this release “launches the private music branch as a new luxury business model”. They are creating a market around the scarcity of their music, driving up the worth of the album.

Amanda Palmer was the lead singer of The Dresden Dolls and subsequently The Grand Theft Orchestra. Having fallen out with and left her record company, Amanda turned to the internet and successfully raised nearly USD 1.2 million on Kickstarter to fund the recording of her album. She uses the full range of social media to crowd source places to stay, food, musicians to play with her,  gives away much of her music and encourages sharing online. Amanda's message is that artists need to connect with their fans and ask them for their support, creating value and capturing worth through large numbers of small contributions.

These are two models, but I am not sure that either is scalable for the majority of artists. I can’t see a digital or physical business model that really appeals to me, a music consumer. This is the opportunity space – how would you like to be engaged with music? Go build that!
* The author of this post is Glenn Parry and was originally published in WMG blog.

Friday, 31 January 2014

II International Conference on Business Servitization: Book of Abstracts

The move from traditional product to service based sales, dubbed ‘Servitization’, is being utilized by manufacturing firms in developed economies to address the five forces that influence an industry’s dynamics and its inherent profitability. This process has affected a wide range of manufacturing firms, which are consciously transforming their businesses into services to gain competitive ground. These firms use service elements to differentiate manufacturing offerings and provide important competitive opportunities. Firms seek to create greater value through integrated product and service offerings, product– service systems.
Last November we celebrate the second International Conference on Business Servitization in the university of Granada. This is an academic forum that pursues to engage with experts in the fields of service management, business engineering and economics in a constructive dialogue about the process of Servitization. We have recently published the Book of Abstracts with a collection of all the contributions offered by attendants. The conference also received a support from two highly regarded international journals. Best papers in English and Spanish will be published soon in the sponsored journals Strategic Change and Intangible Capital respectively.
We are delighted to inform that we are already organizing the 3rd edition of the conference to be held in the University of Deusto next November. Soon we will publish the call for papers.

Thursday, 9 January 2014

Enriching and repositioning debate on copyright and creation

We have recently made publicly available a short report repositioning the debate on copyright. The report titled “Copiright and creation: repositioning the argument” can be downloaded here

The report was motivated from the publication of a report from LSE Media project making a case against the current proposed form of legislation in the UK for protecting intellectual property rights in the digital domain, the UK Digital Economy Act. This report has several drawbacks in methodology that raises questions as to the validity of parts of the argument made in their call for a review. In presenting their argument overlook some of the existing evidence from analysis of the impact of the implementation of IPR policies and our report makes an effort to reposition his work in the literature, which in turn will help policy makers in taking informed decisions. 

The debate on copyright has been approached from different empirical perspectives. There is an existing research with more than ten papers using surveys, aggregated data and/or transaction data. It is true that at some extent the results are not conclusive but still most of the articles signal a negative correlation between file sharing and sales. One of the main problems of LSE report was the literature review. It is based on the evidence of one article (this one which we also strongly criticised in here) using clickstream data. It implies that all the conclusions of the report may be flawed. 

Moreover, the report has other flawed conclusions. For instance, considers the concert revenues as relevant for the recording industry, which is a totally different source of revenues with totally different cost structure, for instance it does not have economies of scale. It also interprets the results of recent evaluation on Graduated Response Anti-Piracy (see here) exactly in the opposite direction as the authors did. Finally, makes the strong assumption than all the creative industries are affected by digitalisation in the same way. It is clear that videogames or books are not consumed in the same way of music. There is still a preference for reading in paper and videogames depends on platforms, allowing to introduce strong restrictions for copying them. 

Finally, as Liebowitz (see here) we strongly believe that creators should be treated as any other worker and hence the work should be well-protected, even in the case it is not economically efficient. 
“If we could create an economically efficient copyright law, would we want to do so? ... Even though economists typically argue in favor of efficiency my answer here is that society should not favor an economically efficient copyright law. Efficiency would lead to disparate and inferior treatment for the creators of copyrighted works compared to workers in other types of industries. My concern is rooted in the very basic concept of “fairness” that arises when, in the name of economic efficiency or social welfare maximization, a particular market would need to treat its labor component differently than other markets treat their labor components”

To conclude we agree with LSE report that an in-depth economic and legal evaluation of regulations legitimate and valuable. However, the motivation for this evaluation is exactly the opposite of the LSE report. We should evaluate whether with the current legislation the creators and copyright holders can efficiently protect its rights.

* the author of this post is Ferran Vendrell and was originally published in his blog Freshonomics.