Shift to services is vital for UK industry

New research from the Cambridge Judge Business School shows that providing ‘service’ offers companies significant opportunities to create and capture economic value.

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The economy of three quarters of the developed world relies on the stand-alone service sector. However, almost half of manufacturers now provide services alongside products to the 50% of the income of traditional manufacturing firms now stems from service provision.

“In the manufacturing sector we see many companies saying we can’t compete by just selling products, we need to sell the service that goes with the product” says Professor Andy Neely, Director of the Cambridge Service Alliance (CSA), who led the research.

Neely says that underlying this shift to service provision is a change in the nature of ‘service’ itself, with firms increasingly focusing on how they can deliver services that increase value for their customers.

Providers are progressing from ‘do-ers’ to problem ‘solvers’ and becoming capable of orchestrating the delivery of complex services.

“Understanding what is happening in the shift to services is vital to the future success of UK industry” says Neely. “One of the most interesting things is the role that technology plays, its advancement meaning that companies are able to offer services in new ways”

“An example would be the Apple iStore, which has changed the way music is accessed, and created an experience that is dead easy for users to navigate.”

“But underpinning that is a complex service eco-system involving banks, music rights, platforms such as the iPhone, software and so on. We looked at how these eco-systems come about, evolve and who captures the value they create, which is at the heart of business model innovation.”

“Through this research into business model innovation we’ve identified the three key elements to making successful innovation of your business model - understanding the value proposition; understanding the service value delivery system; and understanding the risk that is inherent in your new delivery system.”

In the research paper entitled ‘Business model innovation in complex services in the 21st Century’, Professor Neely lists 12 steps, which he says can act as a guide for executives who are keen to pursue business model innovation as an approach to service provision.

They take in value propositions, value delivery and accountability spread including the range of risks a business model innovation creates.

Professor Andy Neely is Fellow in Business Performance Measurement and Management at Cambridge Judge Business School. The research will be published as a whitepaper on 21 September 2011 at the Cambridge Service Alliance conference ‘Service Innovation: Competitive advantage through new business models’.

The Cambridge Service Alliance is a business led alliance founded in 2010 by Cambridge University, with BAE Systems and IBM as the core industrial alliances. Academically, CSA brings together some of world's leading scholars working on the design and delivery of complex service solutions.

Academic leadership at Cambridge is provided by a core group sourced from the Institute for Manufacturing's expertise in the servitisation of high value manufacturing and Cambridge Judge Business School's expertise in improving business models in a range of industries.