Filling the invisible gap | Bangkok Post: tech

Information Technology and Communication is leading the world into the "service dominant logic" economy that will transform today's business world, lead to the emergence of new business models, cause a paradigm shift in future marketing, and create a new species of talented people while impacting on the world of intellectual property.

Speaking at the PICMET '10 conference, "Technology Management for Global Economic Growth" co-organised by the Department of Engineering and Technology Management, Portland State University Maseeh College of Engineering & Computer Science and Nectec, Manoo Ordeedolchest, chairman of ICT policy at Sripatum University and chairman of Software Park, said the rapid changes in Information Technology and Communication is driving businesses to transfer to the "service dominant logic", changing the mindset to find value enhancing add-ons for products and services.

This is a transformation from a manufacturing or industrial economy to a service economy with changes from goods-oriented firms to service-oriented firms, enabling new business models and creating more opportunities. In a nutshell, it is a change in mindset of doing business in which everything is a service.

Dr Jay Lee, Ohio Eminent Scholar and L.W. Scott Alter Chair Professor at the University of Cincinnati, said that today innovation is not compelling but continuous innovation is helping companies to survive and compete in the market.

Continuous innovation is more related to product modification and serves customers' needs, but in order to build a deep customer relationship and loyalty with the company, it requires "dominant innovation" as a tool for dominant products and services by adding enhanced value on products or services that customers are not telling or not asking, but it is the value that customer really cares. And ICT is a tool to enable "dominant innovation".

For example, John Deere Agric Service, an agricultural machinery company selling tractors as a service by using ICT to provide farming services to farmers, uses Global Positioning System (GPS) in its tractors and utilises software to offer fertiliser service that helps precision fertilise, saves cost to farmers and increases yield and productivity.

GE Medical transformed itself by applying smart IT not only to provide medical equipment but expanded services by customising drugs according to the symptoms of each patient via their medical records.

Apple became a media company with the success of the App Store and iPad as well as the iBookStore. And collaboration between Nike and Apple that uses sensors in Nike shoes connected to an iPod or an iPhone showing running data and compared running performance with friends so Nike is not selling shoes but is selling a "running experience".

"Businesses should find the 'invisible gap' between a product and people that customers have not thought of, but that need added value to make it better to customers. Success in business does not come by luck, it comes from insight, from seeing the gap that customers have not seen," Dr Lee said.

He continued that in order for a business to embrace dominant innovation, the company has to start by identifying the 'invisible gap', then measuring value lost to fill that gap, collect all data and use business analytics to transform that data into information and gather knowledge management to build business know-how to fill that gap.

Moreover, the dominant innovation will create various business models and flexible pricing charges for instant service, on-demand or time-based charging, pay per use etc.

New marketing paradigm shift

Manoo Ordeedolchest, chairman ICT policy of Sripatum University and head of Software Park, said that the service innovation will see a paradigm shift from traditional marketing based on the "4Ps" - Product, Price, Place and Promotion.

Marketers should look at products as a "service". For instance, they should look at roofing material not as a product to be sold but offered as a service to be by paid for monthly. When there is a roofing problem, the company then fixes it for free.

Goodyear Tire Company is also an interesting case. The company uses sensors in its tires and offers tire services by to logistic companies which pay for tires on a monthly basis, with prices based on the goods they carry and the weight of the goods calculated and measured by sensors. This model is a win-win situation since the tire company gains loyal customers and owners of logistic companies save on costs and car drivers gain reward incentives.

For pricing to be flexible depends on how customers react to the services. The price will no longer be fixed by the company. For example, when customers give their requirements or feedback to software developers after the launch of new software, customers who co-create or cooperate with the developers can get a special price depending on the degree of co-creation.

Places of sale will also undergo changes. Customers will be the ones who tell sellers where they should market, but the company has to have openness and give product information to the public.

Promotion is another 4P marketing. For example, Bank of America partnered with Visa to offer promotions to customers who use credit cards and agree to a round number. The bank opens a new account and collects the round figure from the credit card to this account. This helps the bank to acquire a large number of new customers within a short period.

Moreover, when service innovation which is related to new business models and business process has emerged, the intellectual property side will impact from this phenomenon because the current patent system in Thailand does not cover business processes.

Government agencies should be aware of this issue and the system needs patent experts who know which service innovations are created for the first time to verify patent rights.

Sourcing talent through social networks

Manoo continued that demand for knowledge workers will increase while talent will be difficult to find because of the changing behaviour of workers, especially among the young hyper-connected generation, who tend to set their own business and gather small niche groups.

IDC predicts that by 2020, around 40 percent of active workers will be members of social network sites created by hyper-connected professionals.

Hyper-connected professionals will collaborate, brainstorm and network on the job and need more freedom to do their work and they will only be willing to work with organisations that they believe rank social corporate responsibilities highly.

Manoo believes that with the increasing number of social network users, there will be a globally unified market of knowledge workers that employers can source through social network channels, especially for researchers, scientists and experts that tend to gather and discuss with their groups in the network.

However, businesses have to consider this issue not as a human resource issue but it as a business issue and change their hiring processes to utilise this channel.

Businesses have to build their brands and presence in the social network and openly share information to let them know the company is attractive to work with or trust to co-work in some projects.

SCG role model of innovation

Aiming to reach its own vision to be an innovative workplace of choice and become a regional market leader in Asean by 2015, Siam Cement Group (SCG) has increased its research and development budget since 2005 from 100 million baht to one billion baht this year, said Kan Trakulhoon, President and CEO of the leading Thai industrial conglomerate.

Investment in R&D has helped SCG to create its own innovation, bringing High Value Added (HVA) products and services that contribute profits to the company as well as technology and green initiatives.

Before 2005, SCG mostly licensed technology from others and was quite good at processing modified machines in its factories, but when having to differentiate products to its customers, innovation was more important, so SCG started to create its own innovation management system, with staff training focusing more on soft skills from engineering to innovation culture and inculcating a service mindset.

Moreover, it increased its number of R&D staff from 100 in 2005 to 800 full time R&D staff in 2010. The company also spends 8 percent of its R&D budget on collaborating with government R&D agencies and academics at both local and international institutes.

The company plans to increase its budget in collaborative research with external bodies but the problem is the difficulty and complexity of Intellectual Property (IP) management.

Moreover, it needs to align R&D with business strategy which is another key challenge. SCG mostly sends its research workers to a marketing team before they work in their laboratories.

There is plenty of innovation from its investment such as PE100 for high pressure pipe, CPAC Agricultural Drying Yard Concrete to speed up the drying process, Heim modular home and SCG Experience flagship store for innovation design. And it will continue to offer its products in integrated services to customers.

There is tangible evidence that SCG received returns from innovation in the first quarter this year. HVA products and services contributed nearly 30 percent of overall revenue but this converts into 50 percent of total profit and is expected to drive HVA products and services to half of its revenue by 2015.

"SCG is considering using a merger and acquisition strategy like in other countries when there is a sizeable market, when the market develops we will propose more high value added products.

"A company without R&D will hardly survive in the future. Smart R& D projects will bring innovation," Kan said.