Innovating in a Service-Driven

Economy & The Service

Innovation Triangle

Presenter: Stephen Ezell, Vice President, Global Innovation Policy

August 12, 2015

Value: innovation outcomes

Management: innovation ability

Resources: innovation capacity

Layers of In

no

vation

: Reso

urces, m

anagem

ent, valu

e

Value

Service system

Business model

Customer experiences

Tangible

assets

Technology

Financial

assets

People

Intangible

assets

Owners 2

The firm and its environment Service

Innovation T r i a n g l e

http://www.bi.edu/PageFiles/214077/Service%20Innovation%20Triangle%20Booklet.pdf?epslanguage=en

Value

Service system

Business model

Customer experience

Tangible

assets

Technology

Financial

assets

People

Intangible

assets

Apple Advantage/ Differentiator

Parity

Nokia Advantage/ Differentiator

vs.

© Cuthbertson, Ezell, Furseth, 2015.

Customer Experience

• Steve Jobs “Humanized technology and made it work in wondrous ways that genuinely improved our lives.”

• Jobs set out to build products (and services) in the iPod, iPhone, and iPad that “he would want himself as a customer.”

• Used design principles not only to make elegant devices but also to create elegant and seamless experiences.

• Solving real problems that enhanced the user’s experience.

• Breakthrough insight for Nokia had been viewing the mobile phone as a fashion accessory.

• In the 2000s, Nokia phones with their personalizable cases were viewed as hip fashion accessories.

• Catered to mass of younger customers, beyond the business customers that dominated mobile phone use at the time.

• But, over time, customer experience deteriorated and Nokia lost core customers.

Apple vs. Nokia – Customer Experience

© Cuthbertson, Ezell, Furseth, 2015.

Apple vs. Nokia – Intangible Assets (Brand)

• Valued as high as $185 billion, Apple has became the world’s most valuable brand.

• Now Apple has the “hip” products.

• By 2010, one UK customer satisfaction survey of Nokia phone owners planning to get a new one found they would not recommend Nokia to a friend. They were almost ashamed to own Nokia phones.

Intangible Assets

© Cuthbertson, Ezell, Furseth, 2015.

Apple vs. Nokia – Technology

• iTunes (and later AppStore) were revolutionary Internet content platforms.

• iPhone and iPad introduced breakthrough technologies to phones and tablets

• Seven critical years passed before Nokia developed a similar site to iTunes. Nokia fundamentally failed to anticipate the threat that the iPod/iTunes ecosystem posed.

• Nokia’s response to the iPod/iTunes/iPhone trilogy was largely to try to build better smartphones.

Technology

© Cuthbertson, Ezell, Furseth, 2015.

Apple vs. Nokia – Service System

• Though not without a few hiccups, has performed far better at coordinating service operations behind launch of new iPhones and iPad products.

• As it scrambled to catch up with Apple, Nokia tool to announcing new smartphone models (e.g. Lumia 820 & 920) without stating when they would become available, where to buy them, or what they would cost.

• That frustrated carriers, consumers, and app developers for those details let consumers plan purchases, carriers plan marketing promotions, and app developers schedule new updates.

Service System

© Cuthbertson, Ezell, Furseth, 2015.

Apple vs. Nokia – Tangible Assets

• The 450 Apple Retail Stores generate more revenue per square foot than Tiffany’s stores.

• Confounded skeptics in establishing the first truly successful retail store by an electronics/computer manufacturer.

• Apple retail stores encourage “tryout” and “play” with Apple’s products.

• Some successful retail stores in major European cities, but never reached global critical mass.

Tangible Assets

© Cuthbertson, Ezell, Furseth, 2015.

Apple vs. Nokia – People and Culture

• Apple’s location in the heart of Silicon Valley made it easy to acquire the very best engineering and software talent.

• Jobs managerial style was combative but often brought out the best work in his people.

People

• Perception in high-tech community that Apple offered better environment for risk-taking and financial reward “posed a challenge for Nokia’s management in attempts to hire software engineers.”

• Risk-averse and consensus-based culture lacked innovation and entrepreneurial spirit; not able to keep up with pace/speed of digital innovation.

• Decisions being made within the firm were often cancelling each other out.

• Complacent, overly bureaucratic structure with poor accountability.

© Cuthbertson, Ezell, Furseth, 2015.

Apple vs. Nokia – Business Model

• Built product/service ecosystem with iPod, iTunes, iPhone, iPad, Mac, and AppStore that encourages cross-sales

• Developed the iPhone in part to cannibalize the iPod (fearing competitors would do so).

• Open approach with 70/30 split allows others to monetize Apple platform; generating more revenues for Apple.

• Developers have earned a cumulative $25 billion from the sale of apps and games

• Retail store space generates more revenues per square foot than Tiffany’s.

• Generated an advantage by producing just one phone (e.g., Southwest Airlines model), unlike rivals like Nokia who made multiple devices.

• To the end, predominantly focused on manufacturing technologically superior smartphones.

• Drove stake in its own heart by shutting down Symbian OS and going with Microsoft.

• Ovi app store underwhelmed and was shut down.

• Failed to demonstrate clear commitment to U.S. market (pre-MSFT purchase); had only 2% share of U.S. smartphone market.

• Fought a multi-front war and lost. Lost on high-end to Apple/Android and on low-end in developing markets to cheaper feature phones from Asian manufacturers.

Business Model

© Cuthbertson, Ezell, Furseth, 2015.

Apple vs. Nokia – Value

• Today’s smartphone business is less about specific devices than about ecosystems—combinations of hardware, operating systems, and applications.

• Nokia lost because its ecosystem was bested by Apple’s iPhone (and Google’s Android), as these ecosystem platforms have attracted the most developers, investors, and users.

Value

© Cuthbertson, Ezell, Furseth, 2015.

Twitter: @sjezell

Facebook: facebook.com/innovationpolicy

Blog: www.innovationpolicy.org

Website: www.itif.org

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Thank You Stephen Ezell

sezell@itif.org