I attended on the 2nd of June 2015 to a Fimecc Future Industrial Services (FutIS) WP2 Final Seminar hosted by Program Manager Mr. Pekka Helle. This seminar had both researchers presenting results as well as the industrial and garco sector presenting their cases. FutIS is organized by the Finnish Metals and Engineering Competence Cluster (Fimecc) and aims to ease the industry’s transformation by research and development in the area a service business. Over twenty companies and eight research institutes collaborate in this joint program with a budget of 35 million euros. After attending to this seminar I feel strongly that the biggest challenge is to turn up side down (bouleverser) the way of looking from the point of view of the industrial needs to doing business from the point of view of the customer.
Transformation starts from understanding customer’s business logic, processes, long-term targets, segments and motives and adding a lot of co-creating and team-work with all the relevant stakeholders. Mr. Henri Paukku, Project Manager at MacGregor Finland Oy gave an example of bottle necks in the container ship solution offering. He explained how removing one bottle neck usually increases the problems in the next phase if the whole chain hasn’t been cleared.
Bigger ships have bigger capacity but if the terminals aren’t fit to it, there is a gap between capacity and functionality. Data collecting and collaboration between different parties is extremely important. Attitude towards data gathering and traditional logistic chain needs to change. The idea is to make bigger profit, utilization and increase the cash flow. Mr. Pekka Helle stated that with good Solutions design and service innovations, investment costs are lower, the revenue curve higher and the profit lifetime longer.
According to D.Sc. (Tech.) Pekka Töytäri, Post-doctoral researcher from Aalto School of Science, it is often the case that customer’s don’t know why they want to have Solution design and what they can accomplish with it.
When deciding on a new innovation combined with solution design there comes the question of pricing. As pricing solutions is not the same as pricing product costs, new ways of pricing through value-based pricing can be used. In a simple way of looking, value-based pricing is the price between the economic benefits from the buyer’s point of view and the costs from the seller’s point of view. Unfortunately value-based pricing is not that easy to define in real life. D.Sc. (Tech.) Pekka Töytäri propose the following steps for value based selling:
- Selecting the target segment
- Value research
- Preparing value propositions
- Selecting customers
- Building trust and credibility
- Sharing and adapting value propositions
- Building shared solutions (concepts)
- Quantifying value
- Verify value read and leverage in marketing and sales
Töytäri presented barriers to value-based pricing. According to him the first problem is that customers and seller disagree about what matters, what is important. Sellers and customers should speak the same language in terms of management accounting, otherwise the project is rejected already in the early stages. Whereas customers might think that it is only the installation costs, purchase price and delivery cost that matter, sellers might be focused on presenting value in maintenance costs, energy costs, durability and inventory cost, relationship management costs, re-sale values etc. Having same goals and measures is therefore important in order to communicate the benefits of the whole project. Dedicating people, consults, to educate customers of these issues is one solution.
Another barrier in the value-based pricing is how to proof the value and quantify it. There might reluctance as well as lack of trust and data. Providing quantified proofs of value helps in convincing customers of the benefits of doing Solution design. This proof from the industry point of view can be for example estimates of higher revenues as well as lower energy and maintenance costs. I wonder if Design ROI could be used in the future as a tool of proof for predicting financial outcomes of design. Design ROI is not yet considered as a general tool but it is being developed. It should ease long-term investment plans as it measures the design investment’s benefits and impacts. It quantifies soft aspects of design, such as brand value, image and other immaterial capital.
The third barrier is how to defend your own share of value. There comes the question of fairness. Value-based pricing is a good way of showing, how value is shared. Emphasize should be put in communicating the value and how it is shared.
D.Sc. ( Tech.) Taija Turunen, Professor at Aalto University, School of Business, presented an interesting framework of capabilities for a value based solutions business. This framework was develop through capabilities survey and interviews. Her conclusions for today’s industrial change is that future’s business models connect people, create networks and let the market decide what the customer wants. Three types of open, collaborative and flexible business models were defined during the study:
- connecting platforms (example of a platform is LinkedIn)
- integrating platforms (manufacturing provider is an integrator as it integrates several stakeholders)
- sharing platforms (this can be used when the company doesn’t know what the customer wants, example AirB&B)
These business models support service and value based strategies. Turunen points out that the structure of the company needs to support the business model and the inner organizational measures. The KPI’s must be fair, transparent and motivating. A separate solution design team can be established to drive solutions business together with external and internal network.
After breaking the barriers the direction is from partnership to ecosystems. Different stakeholders together by co-creation constitute value networks. Solution design is a bundle of networks, new innovations and new ways of pricing through value-based pricing. Fimecc is a great forum for networks to develop into ecosystems. This seminar proved its importance and showed me how much work there is still left for us to narrow the gap between traditional thinking and the solution and service design centered thinking.
Written by Eliisa Sarkkinen – Laurea, Helsinki, Finland