IBM Research – Almaden Services Research Why the world needs more systems thinkers focused on service systems --- or --Beyond computer science: The emergence of service science Services Sciences, Management, and Engineering (SSME) Networked Information (Systems, Services, Solutions) Sciences, Management, and Engineering (NIS 3 SME) Jim Spohrer, (spohrer@us. ibm. com) Director, Almaden Services Research ISSS 2005, 49 th Annual Meeting, Cancun, Mexico | July 4 th, 2005
Service Innovations & Service Science Today’s Talk § The world needs more multidisciplinary systems thinkers Accelerating rate of change and globally connected social, political, economic, business, and technology systems Unfortunately, without systems thinking, unintended consequences to actions all too often result In government policy, business strategy, and academic research, what is the optimal ratio of specialists to systems thinkers in this new age of rapid change and global interconnectedness? § Focused on service systems evolution and design Government, business, academic collaboration ready to focus on services Service sector dominates global economies, and the world is a big, rapidly changing, and highly interconnected service system All stakeholders (government, business, and academics) want systematic service innovations to predictably improve productivity and quality Why this matters to IBM? Now more than 50% services revenue, and on demand ebusiness and business performance transformation services require new ratio of specialists to systems thinkers (service scientists) 2 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Problem Need more thinkers system The Systems View of the World: A Holistic Vision for Our Time by: Ervin Laszlo 3 IBM Research How We Got Here : A Slightly Irreverent History of Technology and Markets by Andy Kessler © 2005 IBM Corporation
Service Innovations & Service Science Sterman’s Business Dynamics § “Accelerating economic, technological, social, and environmental change challenge managers and policy makers to learn at increasing rates, while at the same time the complexity of the systems in which we live are growing. Many of the problems we now face arise from unanticipated side effects of our own past actions. ” § Dynamic complexity arises because systems are: Dynamic, tightly coupled, governed by feedback, nonlinear, history dependent, self organizing, adaptive, counterintuitive, policy resistant, and characterized by trade-offs § How rapid is the change and are there any patterns in how humans deal with complexity… how do people invest their time? Business Dynamics: Systems Thinking and Modeling for a Complex World by John Sterman 4 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Q: How do people invest their time? A: Building and using tools and relationships (organizations) to achieve goals. (human activities change over time as we develop and use new capabilities) Humans as Informavore (George A. Miller, 1983) Source: Pirolli (2002) Information Energy George Max 5 [ Energy Time IBM Research ] [ ] Useful info Max Time © 2005 IBM Corporation
Service Innovations & Service Science Building tools & organizations – accelerating growth of capabilities Generations Ago Human Processes Milky Way (Atoms) 100, 000 Speech 8 Sun (Energy) 750 Agriculture 4. 5 Earth (Molecules) 500 Writing 3. 5 Bacteria (Cell) 400 Libraries 2. 5 Sponge (Body) 40 Universities 0. 7 Clams (Nerves) 24 Printing 0. 5 Trilobites (Brains) 16 Accurate Clocks 0. 2 Bees (Swarms) 5 Telephone 0. 065 Mass Extinctions 4 Radio 0. 002 Humans Tools & Clans Coevolution 3 Television 2 Computer 1 Internet/e-Mail Billion Years Ago Natural Processes 12 Big Bang (EMST) 11. 5 Global Brain: The Evolution of Mass Mind from the Big Bang to the 21 st Century by Howard Bloom 6 IBM Research 0 GPS, CD, WDM Nonzero : The Logic of Human Destiny by Robert Wright © 2005 IBM Corporation
Service Innovations & Service Science Coevolution of Institutions, Disciplines, Professions, Application (governance, exploration, exploitation, diffusion of innovation) System Evolution System Design = Knowledge Value Layer Evolution Laws & Institutions Disciplines & Research Professions & Jobs Technology & Organizations Governance (. gov) Systems Exploration (. edu) Exploitation (. com) (Application) Physics Physicist Lasers, Electronics Diffusion of Innovation Physical 12 -8 B Big. Bang/Sun empirical Chemical 4. 5 B Earth empirical Chemistry Chemist Dyes, Plastics Biological 3. 5 B Cells/DNA empirical Biology Biologist Vaccine, Corn Neural 700 M Clams… empirical Neuroscience Neurologist Cochlea Implant Sociotech Systems Hunter. Gatherers 2 M years ago (15 -150 people) imperial, chief, priest Anthropology Hunter Fire, Clothing, Knife, Spear 10 K-5 K years (5 million people) ruler, king, scribe History, Law or Agricultural Farmer, Miller, Smith, Baker Towns, Cities, Plow, Irrigation Industrial 250 years ago (1 billon people) democratic, politician, vote Engineering, Education Engineer. Teacher Steam Engine, Telephone, Public Education Services 100 years ago (2 billion people) politician, vote MBA, Social Science Manager M-Form Business Org. Info Services 50 years ago (now 6 billion) politician, vote Computer & Organization Sciences Computer Scientist Computer, Search Engine Natural Systems Human Systems 7 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Reductionism (specialists) & Integration (systems thinkers): Plus a much prettier picture than my coevolution table! Rita Colwell, Former Director National Science Foundation (NSF) 8 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Human Activities: Sociotechnical System Evolution Estimated world (pre-1800) and then U. S. Labor Percentages by Sector Estimations based on Porat, M. (1977) Info Economy: Definitions and Measurement The Company of Strangers : A Natural History of Economic Life by Paul Seabright 9 IBM Research The Pursuit of Organizational Intelligence, by James G. March Exploitation vs exploration © 2005 IBM Corporation
Service Innovations & Service Science Human Population: Sociotechnical System Evolution Rise of the modern managerial firm Effects of Agriculture, Colonial Expansion & Economics, Scientific Method, Industrialization & Politics, Education, Healthcare & Information Technologies, etc. Shadows in the Sun, by Wade Davis “Ethnosphere. sum total of all the thoughts, beliefs, myths, and institutions brought into being by the human imagination” 10 IBM Research The Visible Hand: The Managerial Revolution in American Business by Alfred Dupont Chandler © 2005 IBM Corporation
Service Innovations & Service Science Systematic Innovation: Invest & Get Predictable Results § Moore’s Law – Scaling down helped propel Computer Science Scale-down of transistor size every few years results in better economics of digital logic (faster and denser logic for computation and storage) Algorithmic complexity theory is a well developed theory of algorithm scaling in time and space complexity § Surowiecki’s Law – Scaling up may help propel Service Science Scale-up in number of service interactions every few years may result in better economics of service logic (higher productivity and quality) Wisdom of the crowds – laws of large numbers – Amazon’s recommendation system gets better with use/scale; E-bay’s reputation system; Google’s relevancy rank The more people that use a service the easier it is to make improvements – capture experiences, analyze experience, redesign based on frequency What is the optimal pacing to give innovators (service providers and clients) the best return on investment for participating in coproduction relationships? The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations by James Surowiecki 11 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Approach Focus on service systems 12 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Propositions § Government policy should more highly prioritize multidisciplinary services research and education centers. Industry, academics, and government need to work more closely together to articulate the need and the potential national and global benefits. Government needs to improve their productivity and quality of service § Businesses should be investing more to make innovation in services more systematic. Vast quantities of service data are generated by the business world every day, and yet precious little is being leveraged by research institutions. Businesses need to transform and improve productivity and quality of service § Academic silos should be bridged. There is an opportunity at the intersection of social sciences, business schools, science & engineering schools (1) to create a unified theory of service system evolution, management, and design, and (2) to graduate professionals that better meet the needs of society (highly interconnected, rapidly changing). Education needs to improve productivity and quality of service 13 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Definitions § Service Science, short for Services Sciences, Management, and Engineering (SSME) § Definition 1: The application of scientific, management, and engineering disciplines to tasks that one organization beneficially performs for and with another (‘services’) Make productivity, quality, performance, compliance, growth, and learning improvements more predictable in work sharing and risk sharing (coproduction) relationships. § § 14 Science is a way to create knowledge Engineering is a way to apply knowledge and create new value Business Model is a way to apply knowledge and capture value Management improves the process of creating and capturing value. IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Terms & Definitions § Service Science, short for Services Sciences, Management, and Engineering (SSME) § Definition 1: The application of scientific, management, and engineering disciplines to tasks that one organization beneficially performs for and with another (‘services’) Make productivity, quality, performance, compliance, growth, and learning improvements more predictable in work sharing and risk sharing (coproduction) relationships. § Definition 2: The study of service systems. Evolution & Design: Services systems evolve in difficult to predict ways because of naturally emergent and rationally designed path dependent interactions between economic entities, acting in the roles of clients and providers coproducing value. Interactions & Value Coproduction: Service systems are made up of large numbers of interacting clients and providers coproducing value. Each economic entity is both a client and a provider. Service system dynamics are driven by the constantly shifting value of knowledge distributed among people, organizations, technological artifacts (culture), and embedded in networks or ecosystems of relationships amongst them. Specialization & Coordination: One mechanism for creating value is specialization of clients and providers, which results in the need for coordination via markets, organizational hierarchies, and other mechanisms. Specialization creates efficiency. Efficiency creates profits and leisure. Profits and Leisure create investment (profits to innovation) and new demand (leisure to new aspirations). 15 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Why IBM cares about services… § Preamble: IBM Research – what you know and may not know § Problem: Motivation and Definitions § Importance: Economic Growth & Need for Service Innovations § Approach: Academic-Industry-Government Collaboration § Progress: Events, Relationships, References, Investments § Next Steps: Challenges and Obstacles 16 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science IBM Research Worldwide 17 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science What Physicists Do At IBM Research… This achievement is a major milestone toward creating a microscope that can make three-dimensional images of molecules with atomic resolution 18 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science IBM Computer Scientists build bigger, faster computers Blue Gene, as its name suggests, is aimed at the drug-development market. Scientists hope eventually to model how proteins fold – a process that is important in designing drugs that can block cancer cells and other diseases. 70. 72 teraflops on 11/2004 183. 5 teraflops on 3/2004 (Linpack benchmark) 19 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science What you may not know… IBM helped start computer science; not out of altruism, but to meet a business need Now IBM is working with academics and government to establish Service Science The biggest costs were in changing the organization. One way to think about these changes is to treat the Organizational costs as an investment in a new asset. Firms make investments over time in developing anew process, rebuilding their staff or designing a new organizational structure, and the benefits from these Investments are realized over a long period of time. ” Eric Brynjolfsson, “Beyond the Productivity Paradox” 20 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science: Why Now? IBM’s perspective 21 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science 2004 IBM Annual Report: 2 x Productivity Increase leads to 60% Gross Profit Margins for Services source: ftp: //ftp. software. ibm. com/annualreport/2004_ibm_financials. pdf 22 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Multidisciplinary Nature of Ph. Ds in IBM’s Global Services Division (US) 23 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Need for service scientists in Research Ph. Ds in IBM’s Research Division (US) 24 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Problem: Motivation & Definitions § Motivation Need better trained people: Services professionals & researchers Need more knowledge about sustainable service innovation techniques: Innovation is the key to value creation & capture, and hence the key to sustainable business advantage Need more systematic methods for studying and creating knowledge about service systems: Investment in science & research pays in new knowledge Example: Computer Science (coevolution of occupation, discipline, techniques, science) § Preliminary Definitions Services: A client pays a service provider to transform the state of something, a person, product, or business (e. g. , enterprise transformation), in a manner mutually shaped by both. Service Innovation: Service innovation is a change to a service system (made up of many clients and providers interacting) that creates measurable improvement in characteristics of interest, achieved via the diffusion of technical innovation, business innovation, social innovation, demand innovation, or some combination of these factors. Service Science: Working with academics in multiple disciplines to create a definition, draft - the study of service systems (characterized by coevolving technical-business-social change) and measures of system performance (productivity, client satisfaction), growth processes (scale, scope), and learning processes (optimization-exploitation, exploration). 25 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Why Now? The world is becoming a service system. Top Ten Nations by Labor Force Size (about 50% of world labor in just 10 nations) A = Agriculture, G = Goods, S = Services Nation % WW % Labor A % G % S 25 yr % delta S China 21. 0 50 15 35 191 India 17. 0 60 17 23 28 U. S. 4. 8 3 27 70 21 3. 9 45 16 39 35 Brazil 3. 0 23 24 53 20 Russia 2. 5 12 23 65 38 Japan 2. 4 5 25 70 40 Nigeria 2. 2 70 10 20 30 Banglad. 2. 2 63 11 26 30 Germany 1. 4 3 33 64 44 Indonesia >50% (S) services, >33% (S) services 26 2004 IBM Research 2004 United States (A) Agriculture: Value from harvesting nature (G) Goods: Value from making products (S) Services: Value from enhancing the capabilities of things (customizing, distributing, etc. ) and interactions between things The largest labor force migration in human history is underway, driven by urbanization, global communications, low cost labor, business growth and technology innovation. © 2005 IBM Corporation
Why Now? : US GNP Today and in the Future From Uday Karmarkar: “Service industrialization in the global economy” Also author of HBR article: “Will you survive the services revolution? ” Uday Karmarkar, IBM Faculty Award, Pro-Service Innovation Products Material Information Services 11% 30% 9% 50% 27 © USK/Sep’ 04 SI&GIE/27
Service Innovations & Service Science Definitions of Services § Deed, act, or performance (Berry, 1980) § An activity or series of activities… provided as solution to customer problems § § § 28 (Gronroos, 1990) All economic activity whose output is not physical product or construction (Brian et al, 1987) Intangible and perishable… created and used simultaneously (Sasser et al, 1978) A time-perishable, intangible experience performed for a customer acting in the role of co-producer (Fitzsimmons, 2001) A change in condition or state of an economic entity (or thing) caused by another (Hill, 1977) Characterized by its nature (type of action and recipient), relationship with customer (type of delivery and relationship), decisions (customization and judgment), economics (demand capacity), mode of delivery (customer location and nature of physical or virtual space) (Lovelock, 1983) Deeds, processes, performances (Zeithaml & Bitner, 1996) IBM Research © 2005 IBM Corporation
Service Innovations & Service Science So, services are… Pay for performance in which client and provider coproduce value § High talent performance Knowledge-intensive business services (business performance transformation services) (e. g. , chef’s, concert musicians) § High support performance Environment designed to allow average performer to provide a superior performance (average cook with great cook book and kitchen; average musician with a synthesizer) § High tech performance Computational services (e-commerce, self service – client does work) Even here… talent builds, maintains, upgrades, etc. the technology § Routine performance (sometime High Finance) This is being automated, outsourced, labor arbitrage, financial arbitrage, migrated to high talent/value sectors, or otherwise being rationalized 29 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Services: Client pays provider for a performance or promise of a performance. The client and provider share responsibility for coproduction of value within the boundaries of the relationship (aspire to “win-win”). § Performance: Activities that transform the state of something. § Coproduction relationship: A relationship in which goals/work responsibilities and risks/rewards are shared, with an explicit or tacit contract defining initial/intermediate/ongoing/final states/results/effort/quality levels. External factors that might impact the relationship may or may not be enumerated. Third party partners may be involved in establishing, evaluating, and working front stage or back stage in the coproduction relationship. § Front stage activities: Sometimes called the “moments of truth” in which client and provider directly interact. Pure services are mostly front stage. Variance in the front stage is largely due to the client’s requests and actions, and provides opportunities to provide higher value services. Eliminating front stage variance can lead to standards and higher quality, but may also destroy a lot of high end value creation opportunities. § Back stage activities: Both provider-side activities that do not directly involve the client, and clientside activities that do not directly involve the provider. Pure products are mostly back stage for providers (manufacturer). Six sigma is an effective method for eliminating unnecessary variance in the backstage, which leads from custom processes to standard processes. § Services vary based on how much front-stage or back-stage activities are required, how custom or standard the activities are, and how client intensive or non-client intensive the activities are. § Provider firms orchestrate or coordinate employees, partners, and clients in the coproduction of value. Some have referred to this as creating economies of coordination – simple to complex. 30 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Getting systematic about service innovations § Improve back stage provider or client productivity: Applying six sigma, process re-engineering, and other transformation activities to the back stage. Function of costs of activities, including costs of unwanted variance. § Improve front stage scope: Expanding the scope of front stage services – addressing more or better the custom requests of clients, as well as exploiting more of the unique capabilities of providers. Function of value of needs, including enabling new capabilities. § Improve coordination: Standardize processes and interactions. This can boost quality (compliance) and productivity. Function of scale, complexity, and uncertainty in the system. § Improve dynamic evolution: Continuously migrate provider-client pairs to higher value creation and capture points on an on-going basis. Function of time. § Improve capabilities of people, organizations, institutions or technologies to enter into higher value creation and capture configurations. Function of systems productive capacity – innovating new capabilities (incremental, radical, and super-radical innovations). 31 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science High talent performance is on the rise in the US economy 95% of all scientists are alive today. Type of work system 1979 Example 1996 All Services Goods 5% 4% 10% Call center, Fast food Unrationalized 25% Labor Intensive 25% 26% 15% Maid, child care Semi. Autonomous 35% 30% 35% Admin. , Manager High-skill Autonomous 34% 40% 40% Executive, Engineer Tightly Constrained 6% From Herzenberg, Alic, Wial (1998) 32 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Tip of the hat to Henry Chesbrough, a pioneer. Henry Chesbrough, IBM Faculty Award, Services Science Pioneer 33 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Why Service Science? New knowledge drives the process of systematic innovation… Knowledge sources driving service innovations… Science & Engineering (Study phenomena Technology and create new Innovation knowledge) Social-Organizational Social Sciences Innovation (Study phenomena and create new knowledge) Business Innovation Business Administration and Management (Study phenomena and create new knowledge) Demand Innovation Global Economy & Markets (Emergence of new knowledge in practice!) SSME = Service Sciences, Management, and Engineering 34 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Berkeley’s new ORMS undergraduate major Rhonda Righter, IBM Faculty Award http: //www. ieor. berkeley. edu/Academic. Programs/Ugrad/ORMS. pdf 35 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Evolution & Revision School of Management Marketing Service Marketing Operations Service Operations Accounting Service Accounting (Activity-Based Costing) Contracts & Negotiations Service Sourcing (e. Sourcing) Management Science Service Management of Technology Management of Innovation Operations Research Service Operations Industrial & Systems Engineering Service Engineering Computer Science Service Computing, Web Services, SOA Economics Institutional Economics Experimental Economics Psychology Labor Psychology (Human Capital Mgmt) Anthropology Business Anthropology School of Engineering and Science School of Social Sciences Organization Theory Professional Schools 36 Medical School, Law School, Education School, Hotel & Restaurant School, Media & Communications, etc. IBM Research Selection & Aggregation Transformation & Integration Services Sciences, Management, and Engineering (SSME) and Solutions Engineering Discipline Service & Solutions Excellence Centers (Information Science & Technology Management) School © 2005 IBM Corporation
Service Innovations & Service Science Relationship of Service Science to Existing Academic Areas: The center balances three key factors: business value, IT process, organizational culture 1. Service Engineering 1990 -2004 1900 -1960 14. Computer & Process: Information Technology 2. Service Operations 15. Management of Innovation 3. Service Management 4. Service Marketing 6. Agent-based computational economics 28 7. Computational Organization Theory 17. Operations Research 9. Experimental Economics 10. AI & Games 12. Computer Supported Collab. Work (CSCW) 13. Human Performance Tech. & Measurement People: Organizational Culture 1960 -1990 IBM Research 18. Systems Engineering 21 18 1 11 10 5 13 7 2 17 3 6 4 8 12 15 16 27 22 9 25 8. Human Capital Management (HCM) 37 16. Organization Theory 14 5. Social Complexity 11. Management of Information Systems Information Sciences 23 26 19 20 19. Management Science 20. Game Theory 21. Industrial Engineering 22. Marketing 23. Managerial Psychology 24 Capital: Business Decisions 24. Business Administration (MBA) 25. Economics 26. Law 27. Sociology Before 1900 28. Education © 2005 IBM Corporation
Service Innovations & Service Science Networked Information Systems ORGANIZATIONS TECHNOLOGY NETWORKED INFORMATION SYSTEMS MANAGEMENT 38 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Services Related Programs (small sampling) § § § § § § Center for Relationship Marketing and Service Management, Hanken, Finland Center for Service Leadership, Arizona State University, USA The Center for Hospitality Research, Cornell University, USA CTF, Centrum för Tjänsteforskning (Service Research Centre), University of Karlstad, Sweden Centre for Service Management, Cranfield School of Management, UK Relationship Marketing, Emory University, USA Service Management Research Programme, Nankai University, PR China Relationship Marketing, University of Auckland, New Zealand Center for Services Marketing, University of Maryland, USA School of Services Management, Nanyang Polytechnic, Singapore Fishman-Davidson Center for Service and Operations Management, Wharton, UPenn, USA Service Management, University of Buckingham, UK Service Engineering, Technion, Israel Services Management, Brigham Young University, Utah Service Management, Warwick Business School, UK Operations Management of Services, California State University, Northridge, USA Services Management & New Service Development, University of Texas, Austin, USA Service Operations Management, Universidade Federal, Rio de Janeiro, Brazil Service Operations Management, University of Calgary, Canada Management of Services, University of Western Ontario, Canada Service Operations Management, San Jose State University, CA, USA Productivity Management, City University of Hong Kong Managing Service Operations, De. Paul University, USA Service Management and Strategy, London School of Business, UK § Others at http: //www. servsig. org/Syllabi/Service_Operations_Management_Syllabi. pdf 39 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Select efforts to promote service science § Dec. 2002: Almaden Service Research established, the first IBM Research group completely dedicated to understanding service innovations from a sociotechnical systems perspective, including enterprise transformation and industry evolution (http: //www. almaden. ibm. com/asr/) § March 2003: IBM-Berkeley Day: Technology… At Your Service! (http: //www. eecs. berkeley. edu/IPRO/IBMday 03/) § September 2003: Coevolution of Business-Technology Innovation Symposium (http: //www. almaden. ibm. com/coevolution/) § April 2004: Almaden Institute: Work in the Era of the Global, Extensible Enterprise (http: //www. almaden. ibm. com/institute/2004/) § May 2004: “Architecture of On Demand” Summit: Service science: A new academic discipline? (http: //domino. research. ibm. com/comm/www_fs. nsf/pages/index. html) § June 2004: Paul Horn, VP IBM Research, briefs analysts on “Services as a Science” § September 2004: Chesbrough’s “A failing grade for the innovation academy” appears in the Financial Times (http: //news. ft. com/cms/s/9 b 743 b 2 a-0 e 0 b-11 d 9 -97 d 3 -00000 e 2511 c 8, dwp_uuid=6 f 0 b 3526 -07 e 3 -11 d 9 -9673 -00000 e 2511 c 8. html) § November 2004: IBM’s GIO focuses on service sector innovations: government, healthcare, work-life balance (http: //www. ibm. com/gio) § November 2004: Service Innovations for the 21 st Century Workshop (http: //www. almaden. ibm. com/asr/events/serviceinnovation/) § December 2004: Samuel J. Palmisano, IBM CEO, Harvard Business Review interview discusses the important role of “values” in organizational performance, “Leading Change When Business is Good” (http: //harvardbusinessonline. hbsp. harvard. edu/b 01/en/common/item_detail. jhtml? id=R 0412 C) § December 2004: IBM expands academic initiatives related to service innovations, including sponsoring Tannenbaum Institute of Enterprise Transformation at Georgia Tech. § February 2005: Chesbrough’s “Service as a Science” in Harvard Business Review Breakthrough ideas of 2005 § May, June, July, etc. Oxford, Warwick, Bentley, Penn State, etc. 40 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Historical Example: Emergence of new academic discipline and systematic approach to innovation and wealth creation § Emergence of German dye industry, German mid-19 th Century § Emergence of chemistry as an academic discipline § Emergence of patent protection in the new area of chemical processes and formula § Emergence of new relationships connecting firms, academic institutions, government agencies, and clients § Demonstrates needed coevolution of firms, technology, and national institutions § Took England US over 70 years to catch up!!! Knowledge and Competitive Advantage : The Coevolution of Firms, Technology, and National Institutions by Johann Peter Murmann 41 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science One Policy Challenge: Beyond Technology Patents… Patenting Business, Social. Organizational, Demand Innovations Source: Robert M. Hunt “You can patent that? Are patents on software and business models good for the new economy? ” 42 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science – Reading List § Motivation Chesbrough (2005) Towards a new science of services. Harvard Business Review. Chesbrough (2004) A failing grade for the innovation academy. Financial Times. Rust (2004) A call for a wider range of services research. J. of Service Research. Tien & Berg (2003) A case for service systems engineering. J. Sys. Science & Sys. Eng. Rouse (2004) Embracing the enterprise. Industrial Engineer. Karmarkar (2004) Will you survive the services revolution. Harvard Business Review. § Philosophy Vargo & Lusch (2004) Evolving a new dominant logic for marketing. J. of Marketing. § Exemplar Model Oliva & Sterman (2001) …Quality erosion in the services industry. J. of Management Science. § Economics Bryson et al (2005) Service worlds. Routledge. London, UK. Herzenberg et al (1998) New rules for a new economy. Cornell University Press. Ithaca, NY. § Technology Mc. Afee (2005) Will web services really transform collaboration? MIT Sloan Management Review. § Textbooks Fitzsimmons & Fitzsimmons (2001) Service management. Mc. Graw-Hill. New York, NY. Sampson (2001) Understanding service businesses. John Wiley: New York, NY. § Evolution and Change: Managed, Designed, and Emergent Khalil, Tarek (2000) Management of Technology. Mc. Graw-Hill, New York, NY. Nelson (2003) On the uneven evolution of human know-how. J. of Research Policy. Agre (2004) An anthropological problem, a complex solution. J. of Human Organization. Baba & Mejabi (1997) Socio-Technical Systems. J. of Human Factors & Industrial Egronomics. 43 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Core Questions: How do work systems reconfigure? What role does innovation play? Can integration relationships be found across different types of work system? Human System Help me by doing some of it for me (custom) Help me by doing all of it for me (standard) Tool System Collaborate Augment (incentives) (tool) 1 Z 2 Delegate Automate (outsource) (self-service) 3 The choice to change work practices requires answering four key questions: - Should we? (Value) - Can we? (Technology) - May we? (Governance) - Will we? (Priorities) 4 Organize People Harness Nature (Socio-economic models with intentional agents) (Techno-scientific models with stochastic parts) Example: Call Centers Collaborate (1970) Experts: High skill people on phones 44 Augment (1980) Tools: Less skill with FAQ tools IBM Research Delegate (2000) Market: Lower cost geography (India) Automate (2010) Technology: Voice response system © 2005 IBM Corporation
Service Innovations & Service Science Example Model: Oliva & Sterman (2001) Quality Erosion in Service Industry 45 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Model of service business Profitability measures for each of the 14 items below… (profits/time; time is life-span, year, quarter, month, week, day, hour, minute, second) First level measures Second level measures Third level measures Relationship & Sales Excellence Operations & Delivery Excellence Value Chain & Partnership Excellence Client-provider negotiations 1. value creation 2. differentiation 3. cost cutting 4. compliance 5. market insights Internal to service provider 1. providers resources 2. investments & incentives 3. quality & productivity 4. innovation & growth 5. life cycle management External to service provider 1. clients resources 2. suppliers resources 3. complementors resources 4. substitutors resources 5. academic, government, etc. service organizations people products assets methods offerings (solutions) engagements & renegotiation proposals & negotiation clients 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Governance & Management Excellence Geographies, Industry Sectors, Solutions 46 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Towards Service Arts & Science… Science (Knowledge of what can be validated) Arts (Knowledge of what can be imagined) Technology Engineering (Control) (Design of Possible) Policy Management (Governance) (Design of Possible) Service System Evolution (complex adaptive systems - Sociotechnical with dynamics to create and capture value - Socioeconomic -) 1. Is there a grand challenge problem worthy of both academics (a solution requires more deep knowledge and an integration across discipline silos) and businesses (a solution raises “all ships” by accelerating value creation and capture from service innovations and bestowing businesses with predictable growth advantages)? 2. Will the word “science” evolve in meaning to include methods for expanding knowledge about systems that are difficult or impossible to predict by their very nature – such as social-economic systems that invite “gaming” (as soon as the system becomes a little bit predictable competing dynamics are set in motion to both maintain the predictability and disrupt the predictability)? 47 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Grand Challenges (per Maglio) § 1. The value of method is to enable average performers to operate like higher skill performers. But when is this possible? Under what circumstances? When is it impossible? What are tradeoffs in re-skilling people versus modifying the method? Example: An average cook might seem like an expert in a gourmet kitchen using an easy to follow cookbook. § 2. What is the optimal experience-capture to method? What is the best way to go from experience to repeatable behaviors in similar but different client situations --- and with different people executing the method? What is the tradeoff of innovation versus errors in dealing with exceptional cases and differences? How does having a supervisor or mentor that checks performance help? § 3. How can get an organization to change when times are good? According to Sam Palimisano in his HBR interview in December, it is easy to change when times are bad (witness IBM in the early 1990 s), but how can we structure or encourage change when times are good but might be bad later? § 4. What grand challenge problem is worthy of both academics and businesses? Academics need a problem whose solution requires more deep knowledge and an integration across discipline silos, and businesses need a problem whose solution raises “all ships” by accelerating value creation and capture from service innovations and bestowing businesses with predictable growth advantages. § 5. Can there be a science of social-technical-economic systems, systems that by their very nature are diffciult or impossible to predict? Will the word “science” evolve in meaning to include methods for expanding knowledge about systems that are difficult or impossible to predict – such as social-economic systems that invite “gaming” (as soon as the system becomes a little bit predictable competing dynamics are set in motion to both maintain the predictability and disrupt the predictability)? 48 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Work items § Establish the importance of getting more systematic about service innovation § § § § 49 for academics, business, and government Highlight the work of the pioneers and early champions of systematic approaches to service innovation and service science Review of components of existing degrees requirements and course elements that should be part of a service science curriculum Define the fundamental research questions and grand challenges that the science is seeking answers to (value if answered, methodologies and tools for answering them, etc. ) Agree on conferences, journals, and other community growth initiatives Explore the role of government and industry, especially with respect to accessing the fundamental data on which the science will be based Establish a feedback mechanism that surveys graduates who enter IGS to see what skills they used most and the ones they wish they had learned while in school Discuss the many roadblocks, challenges, overwhelming political obstacles, etc. to establishing the field. IBM Research © 2005 IBM Corporation
IBM Research – Almaden Services Research REST IS BACKUP ISSS 2005, 49 th Annual Meeting, Cancun, Mexico | July 4 th, 2005
Service Innovations & Service Science Services § Services include government, security, healthcare, education, financial, insurance, retail, wholesale, leisure, entertainment, information, communication, transportation, utilities, professional, and business services § Characteristics of service systems Service systems are made up of clients and providers interacting & investing effort to coproduce value Clients and providers, especially businesses, care how much value is created & captures (coproduced), quality, productivity, experience Clients can play greater (self service) or lesser roles during performance Clients and providers as economic entities with preferences, capabilities, assets, relationships, roles, and unique histories are transformed by the nature of the service experience The primary output of the service performance is always transformed clients and providers – assets, preferences, capabilities, relationships, roles, history 51 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Why Service Science? The world needs more service innovation & systematic approaches to service innovation must be interdisciplinary Technology Innovation Science & Engineering Business Innovation Business Management &Administration Service Science Social-Organizational Innovation Social Sciences Global Economy & Markets Demand Innovation SSEM = Service Sciences, Engineering, and Management 52 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Trend 1: Rise of the Service Economy Service sector has rapidly grown in US (70% of labor force) Other nations are following the same pattern (urbanization, infrastructure, and business growth drive the shift) Service sector buys 80% of the $2. 1 T IT annual spend (worldwide) Four service industries are large and growing their IT spend rapidly to transform processes: financial and information, professional and business, retail and wholesale, and government Top Ten Labor Forces by Size (WW 50% Agriculture. , 10% Goods, 40% Services) % US Labor Force by Sector (S) Services: Value from enhancing, protecting, distributing, understanding, and customizing (G) Goods: things Value from making products (A) Agriculture: Value from harvesting nature IT spend contributes to rapid growth of productivity (GDP/Jobs) as well 53 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science Trend 2: Rise and Shift in Service Research Academic centers have slowly increased over the past 20 years to advance the practical and theoretical knowledge of services businesses Initially, the emphasis in service research and teaching was on B 2 C capacity and demand models – because underutilized capacity hurts productivity. Also demand that is simply waiting in queues may be lost or damage client satisfaction. Service places like banks, airports, hotels, etc. Increasingly over the past ten years, the new frontier of service research and teaching has shifted more and more towards B 2 B business process transformation models. Process reengineering, IT productivity paradox, and other case studies highlight the need to constantly redesign work to improve productivity through multiple types of innovation (demand, business value, process, and organization) Service research and practice agree that effective communication in service engagements depends on an appreciation of multiple factors: technology and process, business value and strategy, and organizational culture and people. With proper coordination between these per- spectives BPTS engagements succeed. A top adaptive work force requires people with a level of capability and familiarity in many relevant areas. 54 IBM Research “The biggest costs were in changing the organization. One way to think about these changes is to treat the Organizational costs as an investment in a new asset. Firms make investments over time in developing a new process, rebuilding their staff or designing a new organizational structure, and the benefits from these Investments are realized over a long period of time. ” Eric Brynjolfsson, “Beyond the Productivity Paradox” Part 3: Managing Service Operations Chapter 10. Forecasting Demand for Services Chapter 11. Managing Waiting Lines Chapter 12. Queuing Models and Capacity Planning Chapter 13. Managing Capacity and Demand (Excerpt from Fitzsimmons & Fitzsimmons) BPTS = Business Process Transformation Services © 2005 IBM Corporation
Service Innovations & Service Science What makes us smart? How will NBIC impact this? § Cognitive technologies = things that make us smart (What to measure? ) Growth of capabilities to create and achieve goals, intentionally and parsimoniously Growth of win-win games over win-lose; higher payoffs; lower risks; lower maintenance (entropy) Growth of capabilities to sense, communicate, decide, act; Growth of capabilities to bud and scale § Slowly: In the past 12 billion years (2 million years), evolution has been driving what has been things (humans) smarter (natural process - slow) Atoms, Molecules, Cell, Life, Body, Nerves, Brains, Swarms, Humanity… (See next slide!) § Rapidly (Gen): In the past 200 years, organizations have been driving what has been making us smarter (human process - faster) 230 years ago it was government – rise of modern democracy (intangible - sustainable freedom) 150 years ago it was business – rise of modern managerial firm (intangible - efficient value) Distributed intelligence - environment flooded with people!!! (Two slides away!) § Very Rapidly (Sub-Gen): In the past 50 years, technology has been driving what has been making us smarter (human process – faster still) Only in the last fifty years with the discovery of DNA (bio), creation of digital computing technology (info), ability to manipulate matter at the atomic scale (nano), and rapid advancement of cognitive science to better understand human thought processes (cogno) has information processing in natural, social, and technological substrates been perceived as “converging” – discoveries in one area leading to advances/applications in the others Shadows in the Sun, by Wade Davis “Ethnosphere: It's really the sum total of all the thoughts, beliefs, myths, and institutions brought into being by the human imagination. It is humanity's greatest legacy, embodying everything we have produced as a curious and amazingly adaptive species. ” 55 IBM Research © 2005 IBM Corporation
Service Innovations & Service Science The Company of Strangers: A Natural History of Economic Life § Human beings are the only species in nature to have developed an elaborate division of labor between strangers. Even something as simple as buying a shirt depends on an astonishing web of interaction and organization that spans the world. But unlike that other uniquely human attribute, language, our ability to cooperate with strangers did not evolve gradually through our prehistory. Only 10, 000 years ago--a blink of an eye in evolutionary time--humans hunted in bands, were intensely suspicious of strangers, and fought those whom they could not flee. Yet since the dawn of agriculture we have refined the division of labor to the point where, today, we live and work amid strangers and depend upon millions more. Every time we travel by rail or air we entrust our lives to individuals we do not know. What institutions have made this possible? § In The Company of Strangers, Paul Seabright provides an original evolutionary and sociological account of the emergence of those economic institutions that manage not only markets but also the world's myriad other affairs. § Drawing on insights from biology, anthropology, history, psychology, and literature, Seabright explores how our evolved ability of abstract reasoning has allowed institutions like money, markets, and cities to provide the foundation of social trust. But how long can the networks of modern life survive when we are exposed as never before to risks originating in distant parts of the globe? This lively narrative shows us the remarkable strangeness, and fragility, of our everyday lives. The Company of Strangers : A Natural History of Economic Life by Paul Seabright 56 IBM Research © 2005 IBM Corporation
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