17 February 2014

How UK Manufacturing Firms Can Create a Business Model Fit for Exports in 2014

I am optimistic that during 2014, UK companies will be exporting more if they can think radically about what the future holds for them and about what role technology will play. They need to be able to deliver value to their customers. To achieve that they will need to create new business models. They will need to put their traditional business model under the spotlight, and do some robust thinking about how they are offering good products and services to their customers, but I think there are excellent reasons to be optimistic and at the Cambridge Service Alliance, we see lots of manufacturing firms moving forward and succeeding.  Our partners  BAE systems, Caterpillar, IBM and Pearson’s have been pioneering new ways for manufacturing companies to capture value and they have lessons they can impart to others.

Take the use of technology for example. We know that the World is becoming more “instrumented", that companies are using more and more “senses” and that those senses are connected to the net and that they are “intelligent”. Those “senses” can help customers make smarter decisions. My mobile phone company knows when I leave my home because my phone starts moving. It knows when I walk to the station because it knows the pace that my phone is moving because it is tracking the GPS signal. It therefore knows the train I am catching because it knows when I start moving from a walking pace to moving to a train pace. It can predict what time I am getting into London, and it can text me a voucher saying: “Get 15 p off a cup of coffee between 8.45 am and 9 am on this particular morning”! Unbelievably it knows that my train is going to arrive in London at 8.40 am and wants to encourage me to go and buy coffee from a particular stand at Kings Cross station.

This technology already exists, I am not talking about a mythical future, it is already here and there are now endless new ways in which you can innovate your business model, to create new value for your customers.

Capturing all of the value in your business model that new technology can add will not be a quick process, it will take time. But we need to wake up to the reality that the changes taking place in manufacturing over the next five to 20 years are really profound. Manufacturing firms need to ensure that as we enter 2014 they have to be there and ready to capitalise on the economic recovery that is most likely taking place around the Globe. They will need to put their hard manufacturing yellow hats on to think about the longer term and how they can build a sustainable new business model in the light of some of the incredibly profound changes that are taking place in our economy.   
Clearly with the fast pace of technological change taking place all over the World traditional Strategic Plans will need to undergo radical change and need more flexibility than ever before. Long  term planning is essential, and our UK manufacturing firms will have to make predictions about where the World is going and they will need to think carefully about how they build the right capabilities in their organisations to capture the value from those changes. They must not lock themselves into one single path they must think about what we at the Alliance term “the alternative futures” scenario. Their business models  will need  to reveal the real future trends across sectors with a World class strategy that supports those trends.

They will need flexibility in the longer term to be able to adapt and respond to the way that the economies they are working in move, and also the way the technology moves too. They will need to be nimble and respond quickly to those challenges and changes.

One trend that they will need to be aware of, is that the traditional classification of sectors is breaking down. There will over time be a convergence of certain sectors, particularly where those sectors rely on data. There is an interesting question about what role Google or companies like IBM will play in those sectors  in the future. Both are really good at analysing data so will they suddenly find themselves in sectors that they haven’t traditionally been big players in?

Their business models will need to take into account what their competitors are doing, where their partners are and who they are collaborating with and wish to partner with in the future. It may just be right for them to embrace their traditional competitors and work with them in some way at some time in the not too distant future. This new “strategic thought” will influence their future success.

We are used to the term “ Big M manufacturing” and are aware of how manufacturing companies are supplying services to sustain the assets they sell to others for the entire life-time of these products. Manufacturing firms now work with others running everything, from the initial concept and the initial idea,  through to the design and the production process. The relatively narrow concept that people have technically thought of as manufacturing has now expanded to include the distribution of products, and the service and support and ultimately end of life care of those products, including recycling the products and components! Now that is impressive.

We know that “Big M manufacturing”, adds value across that entire set of activities that a company offers, and that manufacturing is evolving and will continue to evolve during 2014 and beyond. This new industrial age we have entered is unbelievably exciting. Factories matter, the production process matters, but manufacturing is now part of a much broader chain of services companies can supply to their customers.

One of the figures that gets quoted often is that for every pound you spend on the initial product, you spend something like four pounds on the service and support of that product through its life time. When products are created we need to think of the “through life” value and support.

For a  business model to succeed in 2014, firms will need to be innovative, a much overused word. The challenge for manufacturing companies will be to think differently about the role that their business plays and how they are going to create value from that role.  A lot of that new value is going to be created by data and technology.

I would advise companies to think robustly about the way that they can use data, either to improve the efficiency of their products and services, or to improve their customers efficiency. If they get  that combination right, particularly the innovation that can come about around the use of new data, their 2014 business models will stand a greater chance of success.   

Here we talk about how UK firms can capture value from exporting more to the BRICS, Brazil, Russia, India and China, but we need to remember that this is a global race, and that the BRIC economies will also be adapting their business models too. They know that they ARE having the same conversation and are also working towards making manufacturing fit for the 21st Century.
Manufacturers as exporters can’t afford to ignore this global race, but they will need to make the right decisions, and to realise that “Big M manufacturing” is already a reality for many of the companies they are competing with.

My first Tip for 2014 is to get companies to focus on the outcomes that their customer wants. That outcome focus will lead to more profitable companies in the longer term. Customers don’t just want your products, they want the service or solution that the product offers and if you can give customers that final solution you will succeed. It  means that companies will really need to be clear about what their customer value is.

My second Tip for 2014 is to define what you are going to do in-house, and what you are going to ask others to do for you? How you collaborate and partner with people will be pivotal to your success.

My third Tip for 2014 is to understand some of the risk that is inherent when you start to move to these outcome based contracts. Companies will need to review what risk they are taking on, and how they mitigate those risks?

If they get these three things right, if they get the customer outcome right, the value delivery system right and understand the risk and the accountability spread, then I think UK manufacturing companies will be in a good position to capture value from their business models in 2014.

And one more tip from that Smarter planet phrase that IBM has coined. You DO undoubtedly have to think smarter. The World is getting more complicated for manufacturing firms, partly because sectors are breaking down and partly because of the speed at which technology is developing, but that also means there are many new opportunities that are opening up. Thinking smarter and thinking strategically about what you will and what you will not do is essential.

I know that the manufacturing renaissance is not just a vision for many UK manufacturing firms it is already a reality. Some are doing very well providing both products and services in this country and overseas. The market may be difficult, and it may be challenging, but there are many firms UK firms who already have a firm foot in that renaissance for manufacturing. They have got their business models right, and others will need to follow the lead they are setting in 2014.

Andy Neely, Cambridge Service Alliance

5 February 2014

First Electric Vehicle Project in the World for holidaymakers in Okinawa, Japan, struggles to make a profit

Researchers at the Cambridge Service Alliance at Cambridge University, have suggested new ways of increasing the uptake of electric car usage. They have just published a new paper on a pioneering Electric vehicle rental service for holidaymakers in Okinawa Japan, and found that low usage has led to a loss for the car rental companies. It is one of the first EV rental projects of its kind in the World and aims to help improve the environmental sustainability of tourism on the island of Okinawa, Japan. 

The search for alternative fuels to reduce car CO2 emissions is an important part of the climate change challenge. In Japan 18 per cent of total CO2 emissions are caused by road transportation, in the EU it is around 12 percent. In China car usage is expected to rise from 43 cars per 1,000 in 2010 to 320 cars per 1,000 in 2035, thereby increasing the pressure to find alternative sources of fuel.  

The paper called: 'Electric vehicle rental services: Project in Okinawa, Japan', written by PhD researcher Claire Weiller, in collaboration with the Department of Systems Innovation, University of Tokyo, concludes:
“The Okinawa EV rental service at the end of its first three-year operational phase in 2013, missed its initial targets. Low usage rates mean rental companies are making a loss. Customers worry about insufficient recharging infrastructure. Sales of used rental cars are low.”
Ms Weiller suggests an ecosystems approach, favoured by the Cambridge Service Alliance, whose partners include BAE Systems, Caterpillar, IBM, and Pearson says this could help turn around the project for others wanting to introduce similar schemes in the future. She continued:
”By adopting an ecosystems approach we can look at all the companies that are involved in providing this service and that affect the outcome of this service, for instance we found there was a lack of information sharing between them all.“The information was broken down into all the different components. They were keeping the data to themselves so Nissan kept information about the battery in the car, the travel agents keep information about the customers who book their holidays, but the charging company on the Island, for example, doesn’t have this information, it doesn’t know if the user is just one person or a family. Therefore it was difficult to tailor the service or improve it for the customer.“If the customer worries about whether they will be able to drive from the airport on the South of the Island to the beaches on the North of the Island, and there is no-one in the value chain able to answer that question they will not feel reassured about the rental service. An ecosystems approach can change that. ”    
Professor Andy Neely, Director of the Cambridge Service Alliance said: 
“An ecosystems approach could be beneficial to those involved in the EV scheme in Okinawa, in Japan. All the partners involved need to think about how to capture value from the information they have in order to serve the customer better.”
“It is very conceivable that this type of rental service with electric vehicles will be offered by more and more countries, including in the UK where there are plans to develop the charging network to 70,000 stations by 2020.“Electric vehicles really are a great option for the transportation of the future, for environmental reasons to reduce greenhouse gas emissions, and also for economic reasons. This makes them attractive because they have so much lower operating costs than gasoline vehicles. Electricity is cheaper and the fuel is more efficient.“Electric vehicles are a great option for rental car companies, or taxi fleets, as well as for private users such as commuters or for people who want to sign up for car sharing schemes.”