IoT is first and foremost about service!

by Taru Hakanen

‘IoT’ and ‘industrial internet’ are major hype words in the current business world. IoT-solutions are already abundant in the market, but the main buzzing seems to circulate around the question: How to make money with IoT? How to build successful IoT business models?

What are services?

We argue that the most important prerequisite for building successful IoT business models is the realization that IoT and industrial internet are foremost about service!

And what services are, then? What are they about?

Services are highly context-dependent resulting in increased need for understanding customers’ business and behaviour. Services are about interaction. They are about relationships between companies and company representatives. They are about customer participation in service co-production. Services are about mutual value co-creation, in which both the suppliers and customers have their own role. They are NOT products that are ‘pushed’ to the markets through logistic chains in containers or truck trailers with a hope that a customer would purchase them.

We embrace reversing the whole mindset in business model building, aiming rather for a ‘pull’ than for ‘push’ mode in IoT business model creation. IoT is not about developing and applying IoT-solutions and ‘pushing’ them to the markets, but about customer- and service-focus. After all, IoT is primarily used for creating new kinds of services and supporting the existing ones. This notion has an outstanding impact on IoT business model generation and also on creating new service innovations!

Five keys for successful IoT business models

The message of creating successful service-oriented IoT business models (Hakanen et al., 2015) is now condensed in five key points:

  • Ensure value creation for all the service ecosystem actors: Customer value is the reason for buying any services. A service provider’s task, then, is to identify customers’ expectations for value or discover totally new value that IoT brings and build an attractive business model accordingly. However, with IoT business models – not only customer value – but also reciprocal value creation between all the service ecosystem actors is pivotal (Jaakkola & Hakanen, 2013).
  • Design cost-effective and customer-focused service processes: IoT-solutions may change the way services are co-produced with the customer. IoT enables even new service innovations in terms of remote services but also in terms of closer cooperation with the customer due to increased knowledge exchange. Suppliers need to design channels and touchpoints of interaction with the customer and make a distinction between back-office and front-office service operations. A salient issue in developing successful IoT business models is, then, to plan the role of customer in the service process and include knowledge flows of the whole service ecosystem in service process mapping.
  • Ensure positive customer experience: IoT may have both positive and negative effects on customer experience. It may decrease face-to-face interaction because of knowledge exchange via various IT-tools and platforms. On the other hand, an IoT service supplier may grab a chance of increasing customer interaction with IoT. Some companies may even start building a new IoT business model from an innovative way of interacting with the customer and managing customer relationships!
  • Design global service networks: IoT is not only about integrating technology and IT-systems and applications but also integrating organizations in service co-production. Especially in the global setting, providing services locally – remedying the customer’s problem on-site on the other side of the globe – is expensive. Then, finding partners that take responsibility of local service co-production in different markets is pivotal in order to build cost-effective business models. And although there would be several service partners operating on the customer interface, they should be able to offer a coherent customer experience for the customer (Hakanen & Jaakkola, 2012).
  • Discover the most profitable earning logic: Earning logic and the way an IoT business model creates revenue for the suppliers are at the very core of a successful business model. The financial income largely relates to benefits that can be accrued for the customer. As IoT-services are complex in nature with multiple actors within a service ecosystem, one way of proceeding with totally new IoT business models is sharing risks and benefits in terms of revenue, if the business model proves to be successful.

 

‘Service-oriented IoT business model canvas’ in Hakanen, Taru; Antikainen, Maria; Pussinen, Pasi & Muikku, Matti (2015). Boosting service export – a roadmap for IoT enabled business models. To be published in The ISPIM Innovation Summit, Brisbane, Australia on 6-9 December 2015.

Jaakkola, Elina & Hakanen, Taru (2013). Value co-creation in solution networks. Industrial Marketing Management, Vol. 42, No. 1, pp. 47–58.

Hakanen, Taru & Jaakkola, Elina (2012). Co-creating customer-focused solutions within business networks: A service perspective. Journal of Service Management, Vol. 23, No. 4, pp. 593–611.

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