You have to forgive me for this post as I'm moving into much more complex ideas and articulating it is a challenge.
In my last post, I discussed the notion of variety in a system and the fact that delivering contextual value means inviting a whole lot of customer variety of contextual use into the system. This may render the system to be non-viable as the firm isn't able to absorb it. Either that or the firm attenuates the customer variety of use contexts which may result in an unhappy customer.
In some of my work, I am beginning to see that customer experience is emergent (I posted this earlier but will expand on it here). What do I mean?
1. Emergent properties of a system are properties that exhibited at the system level, which does not exist at the component level. That is the very nature of customer experience. Customer experience does not sit with the firm, or the customer. It emerges from the interactions between the 2.
2. Emergent properties exist because of the interactions. This means that interactions themselves are an asset, a unit of analysis. In a system of A+B+C, the '+' between A and B and the '+' between B and C (could be different interactions) hold the key to the emergence. Customer experience is a result of interactions between the components. Thus customer experience is an emergent outcome, even while a system is tasked to deliver functional outputs.
3. Emergent properties is the reason why a system is greater than the sum of its parts. That is why even when functional value is delivered (or not), customer experience still exists. It is emergent from the system. It makes the system greater (or not).
4. Emergent properties can not be deterministically designed (its emergent... doh)
So back to my ATM example.
Case A. You walk up to an ATM and you want to withdraw £200 and you wish to have 20 £10 bills (value of the ATM in context). You know you cannot get an ATM to do that so you attentuate your own variety and live with the 10 $20 bills that came out. You get a functional output you're not that satisfied with but you live with it. Your customer experience is just so-so (come on, its an ATM machine!)
Case B. You decided to go the teller to withdraw £200 and asked for 2o £10 bills.
(a) The teller smiles very nicely at you and say 'sorry sir, but i just don't have that many £10 bills today. But if I did, i would certainly give it to you!' You leave the bank again with a functional output you're not that satisfied with, but you had a nice experience.
OR
(b) The teller gives you a surly look, pulls open a drawer, counts the bills and gives it to you and continues to chat with the teller next to her, ignoring you. You leave the bank with a functional output you're satisfied with, but didn't have a good experience at all.
There are two thoughts here (and this stems from some of my own research). First, functional value seem to be a different construct from customer experience. Secondly, both constructs are achieved differently. Functional value could be achieved through deterministically designing a service and delivering on outputs. Customer experience, however, can only be achieved through a system of interactions resulting in emergent outcomes. By implication, delivering to FV could result in satisfaction (or dissatisfaction) but its the interactions that result in CE. That means the system that delivers functional value is not the same system that delivers customer experience.
Some firms do think that if they deliver functional value accurately and all the time, they would have happy customers. They probably would. But they may not have designed the interactions to have good customer experiences. That means they probably have designed only half the system. Or they could have accidentally delivered good interactions. Or they think that designing to functional value and to customer experience is the same system. It's not. One is deterministic, the other is emergent.
A final note on variety, to tie it back to my first paragraph of this post. Customer contextual variety is not necessary a bad thing. In fact, I would say the variety existing in customer contextual value is an opportunity for the firm to improve customer experience, since it means having interactions. A customer whose contextual value has little variety (e.g. taking the same bus every day) probably doesn't have much to say about his/her experience. So the greater the variety of contextual value, the more a firm has to design for both functional value and interactions with human resources (since human resources can absorb variety best), and the greater the opportunity for a great customer experience. I might just write a paper about this some day.
So, the bottomline is that a system can only be greater than the sum of its parts if you factor in the interactions. So my current fascination is on interactions. My work now is building a taxonomy of interactions, developing the notion of interactions as assets (within a collaborative system). With a taxonomy of interactions, we can discover what interventions can impede or facilitate what type of interactions (since interactions drive emergence, and since emergence can't be deterministically achieved, we need to work on interventions). Some might call this the co-creation of value. But in this work, I avoid the co-creators or the value that is co-created. I am interested in the 'combustion process', the 'chemical reaction', the 'glue', the 'interstitials', the 'dark matter'. And yes, you can call me mad.
Saturday, 5 June 2010
Friday, 16 April 2010
Designing for value and outcomes - dealing with variety
I've been hearing this a lot nowadays... engineers, computer scientists, designers, organisation science... all telling the world we must design for value. So you then go in and check how they actually do it and in almost all cases, you hear them start with 'understand what the customer needs'. or 'find out what the customer wants'. In engineering, it's about specifying the customer requirements.
In a world where the product is a tangible one, it would probably be ok. But in the case where the 'product' is a combination of physical asset and intangible human activities, this has to be a major challenge. I'll give an example. Checking in at an airport. Our 'needs' in checking in may be quite consistent if we travel frequently. so there may be some pattern to this. Yet, if tomorrow i decide to travel with the family (perhaps with my baby nephew in tow), those 'needs' change. the value of the airport service is now perceived differently and experienced differently. The context has change and the value of some of the airport services to me has changed. Bear in mind this isn't the same as the market segmentation problem because market segmentation typically talks about buyer types and buyer profiles. in this case, its use-types and use-profiles which are usually not a description of an individual i.e. one individual could have several use profiles. In the extreme, an individual could have infinite use profiles.
So... when you design an airport or a complex system, how do you design for context variety? how should variety be designed in terms of processes and a system architecture to better 'serve the customer'. Which customer is this? the customer that has the baby or the same customer that is the frequent flyer?
In my previous post, I discussed endstates. When a firm wants to deliver endstates or outcomes, it immediately inherits customer variety. You have no choice. How can you claim to deliver me outcomes if you don't also immediately promised me these outcomes at any of my experiential state? How can you claim to deliver me value-in-use if you don't immediately inherit all the various contexts of my 'use'? Do you even know the various context of my use? I get annoyed when firms think 'outcome-based' contracts or performance is a marketing spiel. The reality is that designing and delivering outcomes is a lot more challenging than firms realise.
Traditionally, when designing goods or equipment, the context of use by the customer does not change the delivery system quite immediately e.g. how a customer uses a TV, a car or a cup does not immediately change the design and manufacture of the TV or car (although may serve as inputs and feedback for future design). In service activities, customer ‘use’ of an activity in a context has a direct impact on the design and delivery of the activity, which makes it a challenge for the firm to decide how much variety to tolerate in its initial design and resource inputs.
I'll give you an example. Say I want to withdraw £250 from an ATM machine. On that day, I would like to have 10 £10 notes (instead of 5). That's a contextual use variety that the machine cannot tolerate. I know that, so I attenuate my own variety (Ashby's law says only variety can absorb variety) by living with it. I don't get what I want but I know an ATM can’t deliver it anyway so I'm not necessarily unhappy. Let's say, on that same day I decide to withdraw the £250 from a bank teller and request for 10 £10 notes. Will I get it? Well, it depends on the design of the service isn't it? If the teller absorbs my variety, that's 3 minutes additional time to serve me. Efficient process designers don't really like that. In aggregate this would have an impact on resources. Alternatively, the teller can tell me politely that this is not possible so my variety is attenuated. Interestingly, I get the same outcome as the ATM machine but in this instance, I am not happy. You now get a feel of the depth of the problem.
So how much variety should a firm tolerate? how should a service be designed for variety?
(Phil Godsiff, our PhD student at the institute and who has decided to dedicate his research life to variety, has written a nice paper on variety in the latest issue of service science here)
Contextual value is therefore a moving goal post. it doesn't mean it can't be designed, it just means you can't design with the assumption that value is static. Because if you do, you are making a whole load of assumptions around the context that you probably didn't realise. what we need is intelligent design. that means a redefinition of 'service excellence' to mean the ability of an organization to deliver to moving contextual value goal posts. that's a tough one. see next post.
Actually, I believe the problem is more than merely variety because we need to understand where customer experience sits in all that. As a lead in to my next post (and a reminder to self), I will blog next about variety, emergence and customer experience in a system.
(Phil Godsiff, our PhD student at the institute and who has decided to dedicate his research life to variety, has written a nice paper on variety in the latest issue of service science here)
Contextual value is therefore a moving goal post. it doesn't mean it can't be designed, it just means you can't design with the assumption that value is static. Because if you do, you are making a whole load of assumptions around the context that you probably didn't realise. what we need is intelligent design. that means a redefinition of 'service excellence' to mean the ability of an organization to deliver to moving contextual value goal posts. that's a tough one. see next post.
Actually, I believe the problem is more than merely variety because we need to understand where customer experience sits in all that. As a lead in to my next post (and a reminder to self), I will blog next about variety, emergence and customer experience in a system.
Wednesday, 10 March 2010
outcomes, competitive advantage and sustainability
I thought I'll share some of my thoughts about the work I'm doing in outcome-based contracts.
Outcome-based contracting (OBC) is a contracting mechanism where the firm is tasked to deliver outcomes rather than merely assets or activities. This is the case for Rolls Royce “Power-by-the-hour®” contracting for their aerospace engines, where the continuous maintenance and servicing of the engine is not paid according to the spares, repairs or activities rendered to the customer, but by how many hours the customer gets power from the engine.
It's not really easy, if you think about it. Imagine buying a power drill but only paying for holes in walls. Imagine English lessons being paid by how many English words come out of the student's mouth. There is the determination challenge (which outcomes?). There are measurement challenges (how do I measure the outcomes?), there is the revenue challenge (how do I pay for these outcomes?), there are skill challenges (the teacher needs skills in psychology, or counselling to get the student to be motivated to learn, rather than just teach). But overall, it's a nice idea. I've written an exec briefing on it so you can check it out here.
They are many types of outcomes of course, and it really depends on how far up to endstates you want to go. But its important to start from the ultimate end state. Customers won't tell you of course, because they probably are not sensitized about their endstates. It took us half a day (using a particular method we developed) of triangulating information of various employees before the National Library Board (Singapore) endstate was finally revealed - Literacy of the Nation. It might sound so obvious now but believe me it isn't obvious when you start to think about contracting and procurement of books on the basis of achieving literacy. Remember, a system endstate comes from both customer and firm and when a customer contracts, they are often not sensitized to their roles and their resources to achieve the endstate. Did you ever realise, when you drink coffee at the cafe, that you have the resource of being able to smell and taste to realise the endstate of 'good coffee'? you probably just think the cafe's good right? Now you see the problem when you talk to customers about endstates.
Well, that's where we always have to start from - the ground zero of endstates. Probably not measurable but its the axis on which proxies and measurements further down the endstate ladder are developed and the axis is crucial because all proxies and measurements have to consider the incentives, alignments and mechanism design of the parties involved in achieving outcomes. But then I get too technical so lets move on.
To me, the pursuit of outcomes and the capability to derive the right outcomes and how to achieve them is the pursuit of capability for value co-creation. Can you guarantee the 99% of IT systems even if a user could stick a virus infected usb stick into his computer? can you guarantee a clean washing load even if the user abuses the machine? The challenge of value co-creation is the challenge of managing/changing behaviors and integrating resources of the customer. Not many companies are up to the task. In fact, most firms would usually say 'well, we cant help it if they killed the system/dont know how to use it/dont know when to use it/abuse it'? They draw a strong boundary of what is us and them. It then gets relegated to 'high risk'. end of story. Well, imagine if your competitor can.
Here's a picture for you. If a firm can't achieve end states, they are basically saying they dont have the capability to manage a crucial system resource - the customer. To achieve desired endstates (see pic), the resources to achieve them is less dependent on the firm's resources and more dependent on customer resource (size of arrow depicts the level of resource to achieve which stage). Solve that, and you'll be dancing to outcome-land. Solve that, and you'll become a better English teacher, a better organization.
If you can't, this means that you have failed to understand what resources are contributed by both customers and the firm in order to achieve the benefits realized within the customer experience. Only by understanding the resources contributed by both parties in value co-creation can we achieve the best outcomes for customers in the target market, at the lowest costs. The substitutability of resources contributed by the firm, by the customer, and by technology must therefore be evaluated not merely from the cost perspectives, but with the possibility that it could also lead to better outcomes, resulting in the firm being able to either increase price or demand for the service. How's that for competitive advantage.
Why are outcomes important? Remember the English teacher and the change in skill set so that she can be more effective for student learning rather than teaching? Outcomes changes the boundaries of the firm. It shifts the boundaries of what is service, as that rendered not only by people but also by assets (see service dominant logic). It shifts the skills sets and capability of the firm (and therefore increases risk) and to get the firm to focus on effects of what they make/do and the effects of what customers do in combination for achieving endstates. It redraws a system to focus on joint system capability of customer and firm – rather than drawing a boundary and sub-optimizing. It makes all parties think of a better re-configuration of resources and substitutability of resources. For a UK economy that has lost so many jobs in manufacturing, it refocuses us to think about the future capability and skill sets that sits in our companies, indeed all companies to achieve outcomes and endstates of society, whether its living longer in our homes, or effective washing loads.
Most importantly, it shifts the focus from manufacturing/production to complex service systems – human, processes, assets – to achieve outcomes/effects/endstates call it what you will. If engines to fly longer - even if every component would have changed after 10 years, we would stop the make-buy-consume-break-buyagain model of production. If washing machines could last forever even it could change colour, component etc. along the way because the revenue models support it, we would be on a road towards a more sustainable future. If we worked hard to get our firms to develop capabilities to achieve outcomes, we make them motivated to innovate and outperform each other to achieve better outcomes and higher endstates of customers. That's a future that is surely worth working for.
Outcome-based contracting (OBC) is a contracting mechanism where the firm is tasked to deliver outcomes rather than merely assets or activities. This is the case for Rolls Royce “Power-by-the-hour®” contracting for their aerospace engines, where the continuous maintenance and servicing of the engine is not paid according to the spares, repairs or activities rendered to the customer, but by how many hours the customer gets power from the engine.
It's not really easy, if you think about it. Imagine buying a power drill but only paying for holes in walls. Imagine English lessons being paid by how many English words come out of the student's mouth. There is the determination challenge (which outcomes?). There are measurement challenges (how do I measure the outcomes?), there is the revenue challenge (how do I pay for these outcomes?), there are skill challenges (the teacher needs skills in psychology, or counselling to get the student to be motivated to learn, rather than just teach). But overall, it's a nice idea. I've written an exec briefing on it so you can check it out here.
They are many types of outcomes of course, and it really depends on how far up to endstates you want to go. But its important to start from the ultimate end state. Customers won't tell you of course, because they probably are not sensitized about their endstates. It took us half a day (using a particular method we developed) of triangulating information of various employees before the National Library Board (Singapore) endstate was finally revealed - Literacy of the Nation. It might sound so obvious now but believe me it isn't obvious when you start to think about contracting and procurement of books on the basis of achieving literacy. Remember, a system endstate comes from both customer and firm and when a customer contracts, they are often not sensitized to their roles and their resources to achieve the endstate. Did you ever realise, when you drink coffee at the cafe, that you have the resource of being able to smell and taste to realise the endstate of 'good coffee'? you probably just think the cafe's good right? Now you see the problem when you talk to customers about endstates.
Well, that's where we always have to start from - the ground zero of endstates. Probably not measurable but its the axis on which proxies and measurements further down the endstate ladder are developed and the axis is crucial because all proxies and measurements have to consider the incentives, alignments and mechanism design of the parties involved in achieving outcomes. But then I get too technical so lets move on.
To me, the pursuit of outcomes and the capability to derive the right outcomes and how to achieve them is the pursuit of capability for value co-creation. Can you guarantee the 99% of IT systems even if a user could stick a virus infected usb stick into his computer? can you guarantee a clean washing load even if the user abuses the machine? The challenge of value co-creation is the challenge of managing/changing behaviors and integrating resources of the customer. Not many companies are up to the task. In fact, most firms would usually say 'well, we cant help it if they killed the system/dont know how to use it/dont know when to use it/abuse it'? They draw a strong boundary of what is us and them. It then gets relegated to 'high risk'. end of story. Well, imagine if your competitor can.
Here's a picture for you. If a firm can't achieve end states, they are basically saying they dont have the capability to manage a crucial system resource - the customer. To achieve desired endstates (see pic), the resources to achieve them is less dependent on the firm's resources and more dependent on customer resource (size of arrow depicts the level of resource to achieve which stage). Solve that, and you'll be dancing to outcome-land. Solve that, and you'll become a better English teacher, a better organization.
If you can't, this means that you have failed to understand what resources are contributed by both customers and the firm in order to achieve the benefits realized within the customer experience. Only by understanding the resources contributed by both parties in value co-creation can we achieve the best outcomes for customers in the target market, at the lowest costs. The substitutability of resources contributed by the firm, by the customer, and by technology must therefore be evaluated not merely from the cost perspectives, but with the possibility that it could also lead to better outcomes, resulting in the firm being able to either increase price or demand for the service. How's that for competitive advantage.
Why are outcomes important? Remember the English teacher and the change in skill set so that she can be more effective for student learning rather than teaching? Outcomes changes the boundaries of the firm. It shifts the boundaries of what is service, as that rendered not only by people but also by assets (see service dominant logic). It shifts the skills sets and capability of the firm (and therefore increases risk) and to get the firm to focus on effects of what they make/do and the effects of what customers do in combination for achieving endstates. It redraws a system to focus on joint system capability of customer and firm – rather than drawing a boundary and sub-optimizing. It makes all parties think of a better re-configuration of resources and substitutability of resources. For a UK economy that has lost so many jobs in manufacturing, it refocuses us to think about the future capability and skill sets that sits in our companies, indeed all companies to achieve outcomes and endstates of society, whether its living longer in our homes, or effective washing loads.
Most importantly, it shifts the focus from manufacturing/production to complex service systems – human, processes, assets – to achieve outcomes/effects/endstates call it what you will. If engines to fly longer - even if every component would have changed after 10 years, we would stop the make-buy-consume-break-buyagain model of production. If washing machines could last forever even it could change colour, component etc. along the way because the revenue models support it, we would be on a road towards a more sustainable future. If we worked hard to get our firms to develop capabilities to achieve outcomes, we make them motivated to innovate and outperform each other to achieve better outcomes and higher endstates of customers. That's a future that is surely worth working for.
Saturday, 20 February 2010
Value-in-use
I've recently returned from the New York, where I was visiting for a month. During the month, my iPhone was on wi-fi and I rarely used the data roaming. However, I did forget to turn my auto data-roaming off. So when I got slapped with a £560 bill I decided to use this as an example to illustrate value-in-use and how the concept is not as easy as it seems.
When we use the word 'use', we immediately think of physical use like using a car, a stove, a TV. Actually, the word 'use' is much broader. The better word is of course 'consumption' but even then, with consumption, we conjure images of using up something. Not necessary. As I have explained before, a ferrari sitting on your driveway gives you value-in-use even if you are not driving it. This is because you are still consuming the benefit of the ferrari on your driveway - the status and pride it gives you. So when it comes to emotional value, value-in-use is derived from the 'consumption' of the emotional attributes of the good or activity. A piece of art, an antique on your mantel - these give people great pleasure and such pleasures are still value-in-use because every day the piece of antique sits there, you are 'consuming' (or experiencing) it.
It gets a little more complicated and less obvious in certain offerings. In the case of my telco service, my iPhone did not 'use' the data service in New York (whether directly or indirectly through roaming). I was on the house wifi. Yet, one can argue that I did 'use' it, because the mere provision of availability of use by the telco is of value to me. In this case, one must differentiate between the actual use of the data and the use value of the availability of the data.
Let's try another example. I work with the defence industry and one of the most used words in maintenance and service contracts is availability e.g. delivering 85% availability of a missile, or some other equipment. If I were to promise you the availability of a piece of equipment, it doesn't matter if you use it or not - my job is to make sure that all the parts are in good condition and the equipment works.
'Use' would affect the availability of course, so if I 'use' it badly, the parts would fail often and this would make repair more frequent and threaten availability (and therefore the design and delivery of the service - one of my papers on value co-creation in outcome based contracts actually discusses this) but the point I'm trying to make is that as a customer, availability for use is of value, even if i don't actually use it (of course, i have no intention of educating my telco on this - I only asked for my money back since i did not use it :p).
Still not convinced? Think about the servicing and support of a nuclear weapon to achieve value-in-use for the customer. It is the availability-for-use of the weapon that is prized and paid for. We all hope it would never actually be used.
So pop quiz - what's the pricing, design and delivery of 'availability-for-use' as value and how is this different from 'actual-use' value? There are huge pricing implications in this (and for me personally, a £560 question). Think hard about this and you would really be pushing the boundaries of pricing, value, design and delivery....
When we use the word 'use', we immediately think of physical use like using a car, a stove, a TV. Actually, the word 'use' is much broader. The better word is of course 'consumption' but even then, with consumption, we conjure images of using up something. Not necessary. As I have explained before, a ferrari sitting on your driveway gives you value-in-use even if you are not driving it. This is because you are still consuming the benefit of the ferrari on your driveway - the status and pride it gives you. So when it comes to emotional value, value-in-use is derived from the 'consumption' of the emotional attributes of the good or activity. A piece of art, an antique on your mantel - these give people great pleasure and such pleasures are still value-in-use because every day the piece of antique sits there, you are 'consuming' (or experiencing) it.
It gets a little more complicated and less obvious in certain offerings. In the case of my telco service, my iPhone did not 'use' the data service in New York (whether directly or indirectly through roaming). I was on the house wifi. Yet, one can argue that I did 'use' it, because the mere provision of availability of use by the telco is of value to me. In this case, one must differentiate between the actual use of the data and the use value of the availability of the data.
Let's try another example. I work with the defence industry and one of the most used words in maintenance and service contracts is availability e.g. delivering 85% availability of a missile, or some other equipment. If I were to promise you the availability of a piece of equipment, it doesn't matter if you use it or not - my job is to make sure that all the parts are in good condition and the equipment works.
'Use' would affect the availability of course, so if I 'use' it badly, the parts would fail often and this would make repair more frequent and threaten availability (and therefore the design and delivery of the service - one of my papers on value co-creation in outcome based contracts actually discusses this) but the point I'm trying to make is that as a customer, availability for use is of value, even if i don't actually use it (of course, i have no intention of educating my telco on this - I only asked for my money back since i did not use it :p).
Still not convinced? Think about the servicing and support of a nuclear weapon to achieve value-in-use for the customer. It is the availability-for-use of the weapon that is prized and paid for. We all hope it would never actually be used.
So pop quiz - what's the pricing, design and delivery of 'availability-for-use' as value and how is this different from 'actual-use' value? There are huge pricing implications in this (and for me personally, a £560 question). Think hard about this and you would really be pushing the boundaries of pricing, value, design and delivery....
Sunday, 7 February 2010
Systems thinking, Customer Experience and Business Schools
At business schools, knowledge is firmly discipline specific. Strategy, Marketing, Operations Management, OBHRM, Finance - each discipline is a component in the knowledge of business.
When businesses were making cereals, cars, computers and lamps, the disciplinary components and the domain knowledge embedded within them were quite amenable to being transferred to students (MBA etc.) in a component fashion. The old Porterian value chain, value stream and value mapping were reasonably effective in practice, and there were clear boundaries between customers and firms. So students could learn marketing, OBHRM, ops mgt, strategy etc. as discipline/component knowledge and then go out into the world and apply them. From a systems perspective, the interactions between components, even in practice, were sufficiently weak (although still there) and it allowed firms and business schools to construct departments and disciplines respectively to some degree of success.
As we move to service, my argument is that it all starts breaking down. Although we like to imagine there is still 'a service' delivered to a customer like there is a cup and a lamp, the truth is that this 'service' has very fluid boundaries. Customer 'touchpoints' are many and they are part of the co-creation process, indeed, that is the experience of the service. In the goods dominant world, our 'experience' with what we buy was private. How we use the TV, enjoy the oven or eat our cereal didn't have anything to do with samsung, belling or kelloggs. In the service world, our 'experience' such as banking, maintenance, telecommunication includes contact with the firm, whether directly or indirectly. As business schools, do we have the necessary knowledge to help practitioners deal with this?
As an illustration, I asked a provocative question in twitter, and asked the same of my colleagues in operations management. Who is responsible for the customer experience? In the case of tangible offerings (goods), customer experience is entirely in the customer's hands. For intangible offerings, customer experience, from a systems perspective, is an emergent property. So you think as a firm, we can make a very good TV, we should be able to 'make' a very good customer experience right? Think again. The knowledge to make a good TV profitably (six sigma, lean and all) is not the same knowledge as delivering a good restaurant experience profitably. The former is very much a 'click and play' integration of non-interactive component based knowledge. And a good TV is not an emergent property. It is a property of manufacturing and we can control it to such a great degree that we have terms such as six sigma to measure the logical value of the TV. Customer experience is an emergent property of a system of interactions with the firm, with other customers etc. etc.
So let's ask some rather basic questions about this emergent property.
Who is responsible for customer experience? The answer is, of course, everyone and every discipline, but we know what happens when we say everyone - it basically means no one. Just like public goods. No ownership means no one will do anything about it. Business Schools haven't even come round to discussing this yet - simply because no discipline owns the problem, the problem doesn't exist right? Ops discusses the process of delivery, but does not go anywhere near the psycho-social aspects of the customer experience. Marketing will discuss psycho-social aspects to death, but won't go near the actual delivery of what has been promised (seen as an ops domain). OBHRM still treat employees as though they are assets to the company, rather than valued by the customer. Strategy is still living in the Porterian world and has not even yet acknowledge that the new resource within the firm is that of the customer's. The best part is... here comes the punchline... if we had all the knowledge of marketing, ops, OBHRM, strategy and finance, we assume they would somehow all came together to have the knowledge to deliver a customer experience - plug and play right? (like the community example below?) No....... Sigh. You know what is scary? Customer experience is what the customer pays for, the source of firm's revenues.... we are in so much trouble...
How should the customer experience be designed? This is a tricky question. It is clearly not fully an adaptive system, unlike swarms of bees or other ecological systems. The firm clearly does design something. So we are looking at a system that has some aspect of deterministic structure, but- I will keep arguing this - the deterministic structures do not determine the emergent property of customer experience - it determines a secondary component that interacts with the customer to arrive at that emergent property. If any firm thinks they can design customer experience, they are dead wrong. What they can design, though, is how the system could be regulated, stabilized, and design interventions for better adaptation to customer consumption behaviors (for more on such tools, read up on cybernetics).
What is the knowledge required to design and deliver customer experience? Now this is interesting. If you've read my previous post, my criticism of component based understanding is that they implicitly assume elements of the whole are the same when examined independently of the whole as when they are examined as a whole. So if you take a service business as a system inclusive of the customer with the emergent property as customer experience, are business schools teaching the right thing by teaching component based knowledge as though they can be learnt without the interactions with other disciplines/functions in the system they need to function in? Is our disciplinary knowledge wrong as more offerings in the service economy become more integrated and more complex? I don't think I'm that much a heretic. To say that it is all wrong would be too drastic. There are some good tenets of component knowledge in there but disciplines have to get out of feeling too full of themselves and the 'legacy knowledge' they hold and start teaching component and interactive knowledge. Business schools are missing the parts of the component knowledge that really really need adapting for systems thinking to understand service.
And just in case you're thinking practice is where integration happens and what they (students) need to learn are the theories back in the business school, I would suggest you go back to my systems post again. Component level theories could be wrong if interactivity within a system is not factored in. In the old days, I would agree that disciplinary knowledge can be learnt in school and our students go into the firm and integrated all they knew with what they did and it helped. In the modern economy, some of the component knowledge could set them back. We are just simply not giving our students enough knowledge to operate in the modern economy.
I'm in the midst of writing a book on my learning development from practitioner to academic - a 14 year journey from a CEO running a cruise line with a turnover of USD250m to a Professor on research projects. Given that this rather autobiographical account is probably of interest to an audience of 1 (and I don't even count my husband), I'm doing it as a hobby. But I find it interesting as I write because I realize much of my transdisciplinarity comes from a practice legacy. I believe business schools have not developed enough pedagogical tools to harness practice experience into theoretical domains, particularly around business as systems. I believe, as baby boomers retire, many practitioners could help business school academics learn the art of transdisciplinarity - not in practice, but in theories - just as I have learnt it. But the politics of academia would most likely push them away (after all, they do come from 2 different power bases and each base is a threat to the other). Still, even as a lone voice, I will keep trying. Wish me luck.
Sunday, 31 January 2010
Systems thinking and outcomes
I'm going to talk about systems. We tend to use this term so casually that we forget that it really requires a big change in the way we think. What do I mean? well, let's start from the beginning and use an example of a community.
You move into a village and you really like it. On weekends, people go to the village green, have picnics, everyone knows everyone else and they welcome you as a local. Someone knocks on your door and tells you that your headlights are on, and they invite you to a party at the village hall. You think, wow, this is really nice and you become part of the village, the unwritten 'norms', the friendliness, the sense of ownership and responsibility to your neighbours and other villagers.
The village becomes popular and more houses get built. Pretty soon, 8000 people become 10,000 and then 30,000 and in a short span of 10 years, you suddenly feel the village has lost its community feeling. There's graffiti on the walls, no one smiles much anymore and there are hardly any village get togethers. What happened? was it because there is more antisocial behavior from the young? is it because of the size? it's easy to say 'well, we went from 8000 to 30000, that's what happened' but that's not a reason. what is it that held a community together at 8000 that cannot hold at 20,000? what if you had to design a village, a city and a community? how would you do it?
Community, is a typical example of an emergent property. The scary bit about emergent properties is that its the property of the whole, and only exists as a whole, not a property of the component bits. you can throw people, pond, playground, houses, village hall, shops and schools together but that does not make a community. community is about the interactions between the components. In other words, its not about people and playground and houses and shops but the word and in between those words.
Health is an emergent property too. It's about our diet, our fitness, our genes, our lifestyle, all interacting with one another. How do you design health? or community? the scientific thinking we've been taught is so component based that i can bet you're thinking... ok... let's see what components go into that system and design it accordingly. er... no...emergent properties cannot be deterministically designed (it's 'emergent'?)That's the problem.
System thinking is not intuitive. Our scientific education have taught us to be reductionist in that the division of a complex problem into separate components is acceptable and that the elements of the whole are the same when examined independently of the whole as when they are examined as a whole. Think about the way we go through our lives - the whole 'plug and play' mentality has made us troubleshoot systems by taking out bits at a time, look at it, change it, fit it back and expect things to work. This is fine if the linkages between the components are weak but disastrous if the linkages are more important than the components - the case of a community.
Systems thinking is important in understanding VALUE and OUTCOMES because it radically changes the way we think and we really have to start thinking in this way. The world we are currently operating in is becoming more complex, where components cannot be analysed on its own, but within their ‘whole’, as the interactions between components are key to achieving system level outcomes. Our world is evolving towards complex systems where offerings are interconnected. The nature of the interdependencies are accelerated by technologies moving towards convergence resulting in the involvement of multiple stakeholders and multiple customers all contributing resources into the system and paying for different facets of the system and deriving different benefits. Emergent properties such as community, health etc. are starting to be key outcomes to society and yet because the design is not one of cause-and-effect, is not one of modularity (plug and play), we need to think differently. During the industrial era, outcomes were achieved with inventions such as steam engine (transportation), TV (entertainment) and these are designed and produced in a reductionistic, component-driven way. Our future in the modern economy wants critical systems-based outcomes such as community, sustainability, health and yet the knowledge to achieve such outcomes is still so lacking.
A final word about emergent properties. If you don't know what caused the emergence, they can be very fragile. Sometimes the wrong interventions disrupt the entire property. i like to use newscorp's monetization of myspace (see economist article here) as how their intervention is destroying the myspace community. The economist attributes it to the neglect of technology. my opinion is that it goes much deeper than that. the emergent property of community in myspace was a result of interactions between users. myspace just never knew how the outcome was achieved and what resulted in that emergence. They now run the risk of ruining that property for good (i happen to know a little about newscorp and I gather that they really want to develop their own content for the community, rather than have the community develop the content. good luck). And I dont buy the 'ubiquity first, revenues later' argument either for developing online communities. The community can go down at 6m, 60m or 600 million if the interventions are wrong.
Online communities give the illusion that we have data for all the interactions - online right? so we can get loads of data, the kind of data we couldn't get from a village community. right? maybe..... but the science and thinking is still the same. systems thinking is to think about interactions and emergent properties (and from the design angle, its about interventions and feedback (see comments in my blog post below on nokia and value). Quite different from component-based design that we're used to.
You move into a village and you really like it. On weekends, people go to the village green, have picnics, everyone knows everyone else and they welcome you as a local. Someone knocks on your door and tells you that your headlights are on, and they invite you to a party at the village hall. You think, wow, this is really nice and you become part of the village, the unwritten 'norms', the friendliness, the sense of ownership and responsibility to your neighbours and other villagers.
The village becomes popular and more houses get built. Pretty soon, 8000 people become 10,000 and then 30,000 and in a short span of 10 years, you suddenly feel the village has lost its community feeling. There's graffiti on the walls, no one smiles much anymore and there are hardly any village get togethers. What happened? was it because there is more antisocial behavior from the young? is it because of the size? it's easy to say 'well, we went from 8000 to 30000, that's what happened' but that's not a reason. what is it that held a community together at 8000 that cannot hold at 20,000? what if you had to design a village, a city and a community? how would you do it?
Community, is a typical example of an emergent property. The scary bit about emergent properties is that its the property of the whole, and only exists as a whole, not a property of the component bits. you can throw people, pond, playground, houses, village hall, shops and schools together but that does not make a community. community is about the interactions between the components. In other words, its not about people and playground and houses and shops but the word and in between those words.
Health is an emergent property too. It's about our diet, our fitness, our genes, our lifestyle, all interacting with one another. How do you design health? or community? the scientific thinking we've been taught is so component based that i can bet you're thinking... ok... let's see what components go into that system and design it accordingly. er... no...emergent properties cannot be deterministically designed (it's 'emergent'?)That's the problem.
System thinking is not intuitive. Our scientific education have taught us to be reductionist in that the division of a complex problem into separate components is acceptable and that the elements of the whole are the same when examined independently of the whole as when they are examined as a whole. Think about the way we go through our lives - the whole 'plug and play' mentality has made us troubleshoot systems by taking out bits at a time, look at it, change it, fit it back and expect things to work. This is fine if the linkages between the components are weak but disastrous if the linkages are more important than the components - the case of a community.
Systems thinking is important in understanding VALUE and OUTCOMES because it radically changes the way we think and we really have to start thinking in this way. The world we are currently operating in is becoming more complex, where components cannot be analysed on its own, but within their ‘whole’, as the interactions between components are key to achieving system level outcomes. Our world is evolving towards complex systems where offerings are interconnected. The nature of the interdependencies are accelerated by technologies moving towards convergence resulting in the involvement of multiple stakeholders and multiple customers all contributing resources into the system and paying for different facets of the system and deriving different benefits. Emergent properties such as community, health etc. are starting to be key outcomes to society and yet because the design is not one of cause-and-effect, is not one of modularity (plug and play), we need to think differently. During the industrial era, outcomes were achieved with inventions such as steam engine (transportation), TV (entertainment) and these are designed and produced in a reductionistic, component-driven way. Our future in the modern economy wants critical systems-based outcomes such as community, sustainability, health and yet the knowledge to achieve such outcomes is still so lacking.
A final word about emergent properties. If you don't know what caused the emergence, they can be very fragile. Sometimes the wrong interventions disrupt the entire property. i like to use newscorp's monetization of myspace (see economist article here) as how their intervention is destroying the myspace community. The economist attributes it to the neglect of technology. my opinion is that it goes much deeper than that. the emergent property of community in myspace was a result of interactions between users. myspace just never knew how the outcome was achieved and what resulted in that emergence. They now run the risk of ruining that property for good (i happen to know a little about newscorp and I gather that they really want to develop their own content for the community, rather than have the community develop the content. good luck). And I dont buy the 'ubiquity first, revenues later' argument either for developing online communities. The community can go down at 6m, 60m or 600 million if the interventions are wrong.
Online communities give the illusion that we have data for all the interactions - online right? so we can get loads of data, the kind of data we couldn't get from a village community. right? maybe..... but the science and thinking is still the same. systems thinking is to think about interactions and emergent properties (and from the design angle, its about interventions and feedback (see comments in my blog post below on nokia and value). Quite different from component-based design that we're used to.
Tuesday, 26 January 2010
Value Co-creation and Service Systems
I am finally going to post the reason why this blog is called value-based service systems but I have a few final words on value co-creation.
To reiterate, the concept of value co-creation surround the idea that firms do not really provide value, but merely value propositions and it is the customer that determines value and co-creates it with the firm at a given time and context best for the customer achieve the outcomes they want. So a firm’s product offering, whether they are goods or activities, are merely value unrealized i.e. a ‘store of potential value’, until the customer realizes it through co-creation and gains the benefit. As I mentioned previously VCC implies customer resources to realize the value become central towards achieving end benefits.
We are seeing value co-creation gaining a more prominent role with healthcare (with greater customer empowerment), with mobile telecommunication and the internet (with user generated content), education (with self study courses). That is the world we're going towards. Customer resources as central to value, benefits and outcomes.
Actually, I like to flip it around. Think about yourself as a 'firm'. You would ordinarily do everything yourself but that would be hugely inefficient and impossible. So you would 'outsource' certain aspects. Take an extreme view - you could drink water from a tap but that is not effective so you buy a cup to hold the water to drink it. You have just outsourced that function to a cup. So all goods and services are offerings to make your life better, more effective and improve your quality of life. I like to say this to the NHS - 'your service is an interruption to my quality of life. How are you interrupting me today?' - it gives an 'outside-in' perspective and if you read some of the VCC literature (Payne, Gummesson, Prahalad), they talk about the need to balance out the system to understand VCC better - Evert Gummesson calls it 'balanced centricity'. (By the way, for UK people, Evert is coming to Cambridge and London on 11/12 Mar so let me know if you'd like to attend his seminar.)
So if you think about the customer as a 'firm', you will understand VCC as a partnership with shared resources. Steve Vargo has a real nice paper out on 'It's all B2B...' forthcoming in the industrial marketing management. Really a good read. So as a 'customer/firm', what are our resources? There is currency in our time, our ‘eyeballs’, our effort, our loyalty and all type of resources accessible only to us which we can trade off with money (price) and firm’s propositions - all to co-create value. But do we know how to measure this VCC? or price it?
The answer, I think, means we need to extend the logic a little further coz most of us who come from the cause-and-effect world, the Porterian 'value chain' world, don't necessarily look at the right unit of analysis to find the answer.
It's nice to think of the firm and the customer in partnership, sharing resources, co-creating value and then think of the price the firm can charge for the service (that includes customer resources) and then try to compute customer long term VCC-informed value, VCC-informed customer equity and the like. It's nice to think of it like that because we can see the cause, and the effect, and it makes it all nice and neat.
The truth, like life, usually gets a little bit more complicated.
In today's world of outsourcing, firms' value propositions can sometimes be a network of propositional value e.g. server farms from Amazon, social media from facebook, search engine from google, all work together in one click, or on one web page. On top of this, content can sometimes be from other customers, so consumption (and the realisation of value-in-use) is derived from multiple customers consuming and providing value propositions with the firms. This is starting to get really murky.... and it's not just online either - whether you're talking about an airport, transportation, olympics, value is being co-created in systems now, by multiple stakeholders - customers, suppliers, firms. In such systems, it’s hard to tell who’s the provider and who’s the customer. Also, who pays whom for what is also unclear. The future resides in a service system of resources proposed, consumed and value co-created by a web of stakeholders, including customers themselves, all of whom have something to gain and something to give to the system.
What is cause, and what is effect? And when you really can't tell cause from effect, what technologies should we use? As a social scientist, an economist, a consultant, this problem intrigues me. Yes, and this is the reason why this blog is called value-based service systems. The interplay between processes and outcomes within a service system which are non-linear and multi-directional in nature suggests that our current instruments of analysis may not be as effective. Miller and Page (2007) calls it, “understand running water by catching it in a bucket”. The future will see the development of more dynamic system level tools, with the system as a unit of analysis in measuring value co-creation, stakeholder (including customer) equity... think about how this could work for hybrid public-private sector collaboration.. which of course leads to ..........ta-da! my NHS project starting this April.
But I will talk more about systems.......
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