SME’s (surviving) thriving guide to business ecosystems

Tiina Valjakka @tiinavaljakka & Katri Valkokari @valkatti

Businesses operate in broad interlinked networks – business ecosystems – where the variety of habitats is as wide and competition as fierce as in natural ecosystems.

ekosysteemi

Some food chains in the ecosystem are easier to depict than others. Each firm has its own perception of the closest network and its position within it. Typically, each firm also tends to find, or draw, their own business as the core of the network and the closest collaborators around it. In practice, this is one of the reasons why attempts to manage a network often fail or create no response, while the network actors have not considered the interests of others, or even the existence of the further away ecosystem.

Due to their network position, firms have different opportunities to influence or control other actors, network relationships, and the whole network. Even with a more objective view of their surrounding habitats, managing the network position is a hard task.

Small businesses have traditionally been in the outskirts of business ecosystems but digitalization, e.g. sensor technology and the real-time data available is providing them with new means to become a more valuable and influential actor in the ecosystem. Our case firm here is an example of an SME that has looked around when formulating new strategy and offering concept.

Lännen Tractors- a Finnish SME exploiting the opportunities in the outcome economy

Lännen Tractors develops and manufactures machines for demanding applications. The long term objective has been to become a strong international player.  Three global megatrends: climate change, resource efficiency, and urbanization, set the base for the new ambitious strategy of the firm.

The analysis of a Lännen Tractors’s own position among the networks as well as different networking directions offered new ideas how their business networks will look like in the future and who are the relevant network actors and partners to contact and collaborate.

The strategic aim of the firm is to change the industry in the direction they believe is profitable to them and also to the other actors in the ecosystem (service purchasers, service providers, and contractors). The vision of the management is that “less is more”; that the modern mobile multi-purpose machinery is more productive and environmentally friendly than conventional solutions that have often led to sub-optimization on work sites.

The keystones of the offering in the new strategy are multi-purpose, mobility, productivity and sustainability and the concept is marketed as the “Heavy-duty multifunction backhoe loader with all terrain mobility”. The core capabilities are relevant to a single-machine contractor, to a service provider managing a larger fleet and also from service purchaser’s perspective. The aim of the concept is to concretize the meaning of “less is more” – productivity, and productivity goes hand in hand with environmental sustainability. One multipurpose machine compared to separate machines means less fuel consumption and less staff. Utilizing the full qualities of multi-purpose machinery increases productive work time and lowers the impact on the environment by decreased exhaust emissions, decreased noise levels, less disruption to traffic and residential areas and lower impact on the landscape.

See also:

DIMECC REBUS  programme final publication

Practices for Network Management – In Search of Collaborative Advantage

 

 

Managing Actors, Resources, and Activities in Innovation Ecosystems both at the inter-organisational and the interpersonal level

By Katri Valkokari and Tiina Valjakka

Only around a third of innovating companies drew on external development or knowledge sources within their innovation process. Therefore, there is a huge potential in innovation ecosystems that are able to integrate diverse actors for collaborative innovation. This was a key motivation of our study on two emerging innovation ecosystems, in Finland and Italy. We studied how actors in a network create and sustain competitive advantage independently and through participation in an innovation ecosystem. The concept of innovation ecosystem was used to capture the dynamic, temporary and networked assemblage that enables collaborative innovation.

Our main research question, ‘How are the innovation ecosystems created and managed – and by whom?’, was broken down into three sub-questions: 1) Who are the main actors in an innovation ecosystem? 2) What kinds of resources are needed to integrate key actors in an innovation ecosystem? 3) What are the key activities of the various actors within the innovation ecosystems? There were both similarities and differences between the two innovation ecosystems. Results (similarities) in a nutshell:

  • Actors. The participants recognised that in the ecosystem composition phase, it is important to confirm the involvement of a broad spectrum of actors, while membership dynamics (i.e., entry and exit of actors) were emphasised in the orchestration phase.
  • Resources and roles. Both cases show that public organisations can have the role of a keystone in innovation ecosystems. Furthermore, more than one actor may act in this kind of role, but no one can own the ecosystem.
  • Activities.For both ecosystems, the participants suggested that having various kinds of joint activities – such as joint discussions and operations – and shared resources was critical. In this connection, face-to-face discussions and networking via development forums were considered to be important for increasing commitment. Developing clear joint rules was seen as an especially strong way to increase trust in a situation wherein the relationship does not necessarily have a long history.

The findings highlighted that management needs and governance possibilities in innovation ecosystems differ from those in direct business relationships.The results were summarized as a collaborative model for innovation ecosystem management (Below).  araproveRecognising the resources of actors was a starting point for a negotiation process aimed at balancing out the self-interest of the actors involved. Accordingly, the practitioners pointed out that, in addition to their resources, it is important to understand the roles of actors. The role, which is closely linked to the relevant actor’s business model, affects what resources that actor is ready to bring and on what kind of terms. Finally, portraying the key activities of the various actors within the innovation ecosystems proved to be the most case‑specific element and depended on the goals of the development programme.

Relationships between actors proved to be the primary mechanism for managing in the innovation ecosystem. Also, in order to manage actors, resources, and activities, it is vital for actor organisations to find a balance between the interests of the individual actors involved and motivate the actors to put effort into the joint activities and the whole ecosystem. This requires understanding and managing both the inter-organisational and the interpersonal level at the same time.

Valkokari, K., Amitrano, C., Bifulco, F. and Valjakka, T. Managing actors, resources and activities in innovation ecosystems – a Design Science Approach. PRO-VE 2016, 17th IFIP Working Conference on Virtual Enterprises, Porto, Portugal 3-5 October 2016.

 

What managers really think about networks?

by Katri Valkokari & Tiina Valjakka

“Business relationships are neither bright nor dark, but rather represent a combination of the two”*

Business networks as well as other collaborative settings, such as partnerships and alliances, are characterized by the co-existence of negative effects (several tensions, uncertainties and opportunism) and positive elements (trust, commitment, win-win).

We were interested in managers’ perspectives related to these advantages and disadvantages of relational business practices associated with the operations in business networks. Thus, we built and tested a set of metrics through interviews, thematic group discussion, and a pilot survey with 22 companies participating in an industry academia research program that develops relational practices in business networks in the context of the manufacturing industry. (see REBUS). The survey questionnaire, with 18 statements presented below, was designed based on the preliminary data and the research framework.

Positive Negative
Performance of network 1) strengthen growth of business and profitability

2) enhance access to new markets

1) increase the risks of our business

2) increase the expenditures of our business

Practices – networks as goal oriented entities 1) enhance an effective division of labor with our partners

2) increase available resources and capabilities

3) enable more flexible contracts

1) hamper new business ideas and innovations

2) decrease willingness to renew and develop

3) increase dependency on network members

Information – networks as knowledge creating platforms 1) enhance integration of ICT systems with our partners

2) enhance access to knowledge that is critical to our business

1) lead to the concealment of information and information-dependency

2) cause  knowledge leaks and the risks thereof

Socialisation – networks as controlled social systems 1) increase mutual trust in our business relationships

2) enhance comradery with our partners

1) hamper our independent decision-making

2) weakens our position in business relationships

Business networks was defined in the survey as “a set of companies and potentially other organisations (a minimum of three network actors) connected to each other for the purpose of doing business on a relational basis” (e.g., Halinen and Törnroos, 2005).

The networks are considered an especially important means to access new markets, knowledge and resources

Based on the answers, it can be concluded that the respondents have distinctively positive view on networks and their effects on business performance. In the positive statements the average value of all the respondents’ answers was over 4 (agree), in 1-5 Likert scale whereas in the negative statements the average remains under 2,5 (between 3= don’t know and 2= disagree).

scale

The three most supported statements were positive statements: business networks 1) enhance access to new markets, 2) enhance access to knowledge that is critical to our business, and 3) increase available resources and capabilities.  This support a more general conclusion that potential drivers of networking – based on relational practices – lie more in intangibles, i.e., the effects on future competitiveness. The technical or tangible enablers in turn, are assigned lower importance by the respondents. From the negative aspects side, the results indicate that managers, while believing in the growth-boosting effects of networks, also acknowledge that this may be associated with specific costs of ‘losing’ something valuable. However, networks do not seem to weaken a firm‘s position or the ‘incentives’ for business development

When comparing the negative and positive statements, it can be concluded that the respondents consider knowledge and resource sharing an important reason for operating in business networks. On the other hand, the risks related to knowledge leaks were considered an important issue, which also highlights the importance of joint rules for knowledge management practices in business relationships and networks. While the respondents in our case recognized the potential hazards, they clearly have a positive view of the influence of networks on business performance, i.e., the managers perceive the overall outcome of networks and relational business practices as clearly positive.

*Abosag I., Yen, D.A. & Barnes, B.R. 2016. What is dark about the dark-side of business relationships, Industrial Marketing Management, Vol. 55, May 2016, pp. 5-9

Valkokari, K., Valjakka, T., Viitamo, E. & Vesalainen, J. Management over boundaries in the network era – what do managers really think about networks? 32th Annual IMP conference, “Change and transformation of markets, networks and relationships, 30 August – 3 September 2016, Poznan, Poland, IMP Group.

 

 

 

Lost in Network? Network picturing as a tool in dynamic network management

By Tiina Valjakka and Katri Valkokari

This post illustrates how picturing networks from different actors’ perspectives affects the network management and facilitates the building of new connections. It is based on a paper we presented last month in the IMP 2015 Conference in Kolding, Denmark. The aim of the paper is to extend understanding of strategic management in dynamic business networks, especially from the viewpoint of SMEs operating in a B2B context.

moniverkosto

Firms are simultaneously acting in various networks in different roles (see picture above).  Each of the actors has its own perception of the network and its position within it. Managers’ understanding of perceptions across boundaries is a key to a firm’s success in networked business ecosystem, where knowledge and resources are dispersed and value co-creation requires integration of resources. Drawing from the management point of view, our preliminary research question was: How to picture and combine the different network perspectives in order to better manage the business network?

Network pictures can be seen, and utilized as:

  • Business actors’ subjective mental frameworks of their surroundings, and thus as sense-making tools that underlie decision-making in networks
  • a tool used by researchers and practitioners to grasp actors’ understanding of their surrounding business network(s)
  • boundary-spanning mechanisms which serve as an interface between different organizations

In our case study, we utilized network picturing as a tool for strategic management in a SME. We first draw two focal company perspectives; factory and sales, identified their most important connections, and described the roles and content of interaction with these first-level partners. The other network perspectives depicted were end-users’ network pictures from different customer segments. These network pictures, snapshots from different network actors’ perspectives, were then utilized for drawing the network management perspective. Network picturing resulted in the identification of new relevant network actors and needs for building connections to them.

The managerial challenge is to guide the development within business networks. Often, companies anchor themselves to a single vision of their customer needs and network structures, which may preclude considering the viewpoints of other network actors. Many businesses have a complex nature, and network picturing gives a possibility to see beyond the most obvious and traditionally closest actors. Our study highlighted that in order to act as a change driver in their business environment, a SME must have broader connections than the relationships with the direct customers and suppliers.

Reference

Valjakka, Tiina; Valkokari, Katri; Kettunen, Outi. 2015. Utilizing network picturing in the management of dynamic networks. IMP Group. 31th Annual IMP Conference and Doctoral Colloquium 2015 “Organizing Sustainable BtoB Relationships – Designing in Changing Networks”, 25 – 29 August 2015, Kolding, Denmark.

Deepening customer collaboration in logistics services

By Inka Lappalainen and Marika Makkonen

Transforming logistics services towards S-D logic approach

Companies focusing on logistics services are called for proactive approach to develop customized service concepts to operate and manage complex material, information and capital flows in customers’ value chains and networks. An ideal example for that kind of trend provides our collaboration with HUB logistics which aimed at developing new conceptual tools for key customer relations in rapidly growing business areas (see http://www.hublogistics.fi/index.php/en/ and http://issuu.com/hublogistics/docs/hankintahetki_4_2014). The focus was in future modes for customer collaboration from strategic and operational perspectives and developing a conceptual framework for resource integration by applying S-D logic approach (Vargo & Lusch 2008; Maas et al. 2014). Empirical work is based on the interviews of the HUB management, representatives of three key customers and their HUB key account managers. The results were analysed and discussed with HUB in order to support customer specific development in the different time frames and to structure a conceptual model for support offering development.

Utilizing service platform for resource integration and relationship trajectories

In addition to customer specific needs our empirical results showed that two main value expectations characterized logistics services:

  • operational adaptability, flexibility and cost effectiveness
  • deep customer understanding, proactive development-orientation, and innovation capability

Long term customer collaboration manifested as mutual trust, integrative practices, continuous learning and open communication in all collaboration levels.

As the main result the conceptual frame for communicating value proposition with the platform of various resources and competences (service offering) was developed (cf. Lusch & Nambisan 2014). The main idea of the service platform is built on four service levels describing HUB value propositions (Standard, Plus, Premium and Premium+) including four types of customer collaboration: Service producer, Customer support, Performance partner, Development partner. Thus the platform is based on the transformation in value creation logic from G-D logic towards S-D logic (Vargo & Lusch 2008). Changes in service exchange are reflected in customer collaboration as a continuum where in one extreme a value proposition focuses on operative efficiency with more limited scope in customers’ business and the role of Service producer. Another extreme can be defined as a solution-oriented value proposition aiming at innovative Development partnering along the value chain. Thus those four service roles or relationship types can be interpreted as a trajectory of specific provider-customer relation (cf. Lappalainen et al. 2014). Naturally, the role of Development partner cannot be the final aim in all customer relations.

Concerning chosen customers, the HUB management has gained deeper understanding of the development needs, future prospects and collaboration potential in short and long term. New conceptual frames support strategic and operative reflection, communication and decision making internally and with customers – and seemed to provide application possibilities in different industrial contexts too. In terms of scientific implication, our study provides the still needed empirical evidence and operative concepts in the debate on S-D logic in relationship-specific levels, which has been acknowledged also in logistics services (e.g. Maas et al. 2014).

References

Lappalainen, I., Nuutinen, M., Valjakka T. & Ahonen, T. (2014). Situated provider-customer interaction as an arena for continuous service innovation. 15 th CINet Conference, Budapest, September.

Lusch, R.F. and Nambisan, S. Service Innovation: A service-dominant logic perspective, MIS Quarterly, Vol. X, No. X/Forthcoming 2014–2015.

Maas, S., Herb, S. & Haartmann, E. (2014). Supply chain services from a service-dominant perspective: a content analysis. International Journal of Physical Distribution & Logistics Management Vol. 44 No. 1/2, 2014, pp. 58-79.

Vargo, S. & Lusch, R. (2008), Service-dominant logic: continue the evolution, Journal of the Academy of Marketing Science 36(1), pp. 1–10.

Integrating services, the Universe and everything, part 4

by Tiina Valjakka and Katri Valkokari

This is the last post on the SHINE project since we had the closing seminar last week (picture below). In the seminar, Juhani Vanhala of Empower closed his inspiring presentation with a quote from Ralph Waldo Emerson: “There is no limit to what can be accomplished if it doesn’t matter who gets the credit.” The quote aptly condenses one challenge of the networked value creation, where the attention is easily centred around benefit sharing even way before there is anything to share.

Value creation through the development of a customer’s competence

One means of redirecting the attention is to focus on customers. Customers – both direct and those of your customers – and end customers, constitute a vital part of the network. The development of the customer’s skills and competencies is value creation that benefits the entire network in the long term, and forms an excellent foundation for co-operation.

Like the wise men have said, value can only be proposed. Ultimately, each customer defines the value they experience, and participates in the value creation with their own resources and processes. The success of other actors depends on the customer’s ability to utilise the network for reaching its own business objectives. This is how the development of customer’s competences creates value for the entire network.

In a value network, customers also integrate products, services and knowledge. And for this reason, the tasks of an integrator can also be viewed from the customer’s perspective: based on their competences and knowledge they decide which tasks to take care of by themselves and which to leave for other integrators to work on. Customer selection is as important as the selection of the other network partners.

In the SHINE project we collected a set of network development tools for different service integrators in a workbook (only in Finnish).

Featured image

Yli aitojen! 22.10.2014 Espoossa

Yli Aitojen! Iltapäiväseminaari palveluista, verkostoista ja kansainvälistymisestä

Palveluliiketoiminnan edelläkävijät pistävät pakettiin Tekesin Serve -ohjelman viimeisiä tutkimusprojekteja. Nyt on vuorossa SHINE- ja SerFinChi -projektien päätösseminaari. Molempien projektien ytimessä on suomalaisten business-to-business -yritysten uudistuminen ja asiakkaalle arvoa tuottavien palveluiden ja ratkaisujen kehittäminen ja toimittaminen verkostoissa.

Tervetuloa mukaan keskustelemaan!

Aika ja paikka: Keskiviikko 22.10.2014 klo 13-16, Digitalo (Tekniikantie 3, Espoo)

Ohjelma ja >Ilmoittautumislinkki<

13:00 Seminaarin avaus, Marja Toivonen, tutkimusprofessori, VTT
13:10 Internationalisation of SME´s in KIBS-sector to China, Sen Bao, tutkija, VTT
13:40 Pk-yrityksen matka kansainvälisille markkinoille, Tomi Luostarinen, Stereoscape
14:10 Kahvitauko
14:30  Palveluintegraattoriksiko?, Juhani Vanhala, Business Line Director, Centralized & Professional Services,  Empower Oy
15:00 Työkaluja yritysverkoston ohjaamiseen, Katri Valkokari, johtava tutkija, VTT 
15:15 Uutta arvoa asiakaskokemuksella, Minna Suutari, Fiiliksestä fyrkkaa ohjelmapäällikkö, Tekes
15:45 Loppukeskustelu

 

SerFinChi – Branding of Finnish Service Concepts in China and Far East -projektissa tutkittiin suomalaisten brändien palvelukonsepteja Kaukoidässä ja palveluliiketoiminnassa menestymistä kansainvälisessä kilpailussa.  Kohteena oli erityisesti Kiinan markkinoiden erityispiirteet ja  verkostoitumismallien löytäminen uuteen ja innovatiiviseen liiketoimintaan (kestävään kehitykseen, ympäristöystävällisiin kaupunkeihin ja 3D-filmiteknologiaan). Projektin yrityskumppaneina olivat KIBSit, jotka osoittavat että pienetkin yritykset voivat olla arvokkaita verkoston kutojia.

SHINE – Service Network Integrator – projektissa keskityttiin yrityksen palveluintegraattorin rooliin verkoston ohjaamisessa. Integraattori tuottaa arvoa asiakkaalle yhdistämällä osaamisia, koordinoimalla verkostoa ja vastaamalla asiakassuuntaan useamman toimittajan rakentamasta kokonaisuudesta.  Projektissa tutkittiin erilaisia yhteistyömalleja arvonluonnissa asiakkaalle, ja miten eri rooleja vaihdellen, koko verkoston osaamista hyödyntäen ja liiketoimintamalleja yhteen sovittaen ratkaisuja kehitetään ja toimitetaan erilaisissa verkostoissa.

Integrating services, the universe and everything, part 3

By: Tiina Valjakka and Katri Valkokari

No matter how excellently a network works, it will lose its competitive edge if it lacks the ability to renewal. The central question from the perspective of an integrator is how to utilise the innovation potential of the entire network?

A network can renew itself both by identifying new potential partners and utilising the existing resources in a new way. Switching roles from the integrator to the integrated is one way of renewing a network (see previous post). Networks are alive and their borders are not static, and typically the actors belong to several networks. For this reason, the integrator should find a balance between integrating the operations of the current service network and the freedom of the network actors, in order to maintain the attractiveness of the network.

Knowing the network and attracting the best partners

“The key to success is that you really know the customers and your network. It’s a demanding task but only that way you are able to develop the business”  – Mervi Heino, Managing director, Arpré Oy

Companies develop and grow through the right partners, and therefore the criteria for partnership and the means of attracting the best partners in your network are crucial.  The attractiveness of a network can be enhanced by, e.g., having ready customer contacts; a well-defined operating model; and the opportunity to develop and boost the business operations of each network actor as a part of the larger whole. The network capability of an integrator also includes facilitating the internal interaction between the different levels and actors within the network, and enabling the development of its network partners. Knowing the network helps in identifying new business opportunities. Efforts can be made to better utilise network’s innovation potential: Analysing the network as well as the network relationships supports the development of new ideas and creates new opportunities for interaction.

 

Integrating services, the universe and everything, part 2

All social and economic actors are resource integrators [1]. An adapted quote from Orwell says that all actors are integrators but some actors integrate more than the others. That is the core of our SHINE-Service Network Integrator project. Not the dystopia, but the idea of a service integrator.

Retailing is one example of a service integration function in a value network in which a retailer as a prime integrator is in a strong competitive position [2]. Customer interface gives the integrator the good competitive position in the network, and therefore customer management is a desired role in networks and direct customer contact is considered important.

The utilization of the role of the integrated party

The utilization of the other side of the role, i.e., that of being the party being integrated is also worth consideration, as it offers new possibilities for growth and development and a wider perspective to the network.

I have followed several technology and technical trade companies attempting to become more service- and customer-oriented. Service business is an attractive opportunity for steady growth, regular revenue, since it is seen as less prone to economic fluctuations. As a typical first step, the companies have added maintenance services to their offering and begun to offer them directly to customers. An alternative method would be to seek co-operation with companies that already are servicing the machines or equipment of customer companies. This would also support the objective of many customers, particularly large manufacturing companies, aiming to reduce the number of their partners.

On the global scale, a faster route to new (e.g. maintenance) markets is to seek networking or partnerships with companies from whom customers are already buying solutions and services. The perspective of the integrated party also helps understand and develop the operations as a whole.

“Konecranes MTS is typically the customer’s largest maintenance partner and thus naturally the main contact point. In the global market it is also essential to know how to operate when a customer wants a manager or another company between us.“ (Pekka Kujala, KAM, AGILON at Konecranes)

 

References:

[1] Vargo, S. L., & Lusch, R. F. (2008) Service–dominant logic: continuing the evolution. Journal of the Academy of Marketing Science, Vol. 36, No.1, pp. 1–10.

[2] Lusch, R.F., Vargo, S.L. & O’Brien, M. (2007) Competing through service: Insights from service-dominant logic. Journal of Retailing, Vol. 83, No. 1, pp. 5–18.

Integrating services, universe and everything, part 1

Integrate (verb): to form, coordinate, or blend into a functioning or unified whole

I thought to use this blog for sharing some findings of the SHINE project. SHINE focuses on a specific role in a value network, the role of a service integrator. In the project, we take the viewpoint of an integrator and study how services are developed and produced in networks and what kind of network management and collaboration models facilitate the value co-creation in the network? [And before anyone comments: We use the plural, “services”, since services exist in the case firms and industries]. The findings are compiled from the viewpoint of practical and pragmatic managerial implications and are based on observations in different networks.

Focus on the compatibility and alignment of business models

Business model is a commonly used concept providing a rather practical view on the essence of business: creating and capturing value. Business models can be described as ‘stories that explain how enterprises work’ [1] or ‘the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit’ [2]. Business model is thought to be something that sharpens the competitive edge and aims to make a firm totally unique.  What is the role of an integrator in this picture?

”Integrator is needed to unite the earning logics of different business models” – Juhani Vanhala, Business Line Director, Centralized & Professional Services at Empower Oy)

Generating a documented business model for a product, service or solution is a good way to bring up the different components of the model for discussion and testing. At a company level it supports the building of an identity: the model increases the internal understanding of the reason for the company’s existence. Discussion only inside a company is not sufficient, though: A business model is tightly interlinked with the operations of other companies and the constantly changing network. The compatibility and interfaces of a business model with the surrounding network largely determines how the model assists in the value generation and the achievement of the desired benefits. The integrator plays an important role in integrating the business models and the resulting different earning logics of the individual companies of the network.

References

[1] Magretta, J. (2002) Why Business Models Matter. Harvard Business Review, Vol. 80, No. 5, pp. 86–92

[2] Teece, D.J. (2010) Business Models, Business Strategy and Innovation  Long Range Planning  Vol 43, No. 2-3, pp. 172-194