What Service Innovation Means to Me

George Miller, Client Industry Executive, Global Partner Group, BT Global Services

June 14th 2010, Manchester

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What Service Innovation means to me

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•…the greatest opportunity to improve our world/ our quality of life everywhere

•…an opportunity to work on some of the human race’s most significant challenges

•…the chance to work with some of the brightest, most determined, & most entrepreneurial people you could ever meet

•…the potential to make a profound impact rapidly

•…the possibility of earning a good living…and perhaps more

Unlimited, unprecedented, universal services value creation

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…Let’s learn from some of the greatest entrepreneurs & leaders of our generation

• Business model innovation (e.g. new ways of creating/ delivering/ capturing value)

• The organisation in its environment (e.g. open/ distributed)• Innovation management within an org (e.g. governance/

methods/ tools)• Process innovation (e.g. consumer led)• Technology innovation (service innovation through use of

technology/ incl. in ICT)

Project your thinking into the future, and work back to today “There is no fate…the future

is what we make”TERMINATOR 2

Past

Present

Future we are exposed to

Future we accept

Future we create

Traditional extrapolation

STRETCH

FIT

Future based migration path

SOURCE: STRATEGOS

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Defining innovation

SEE what everyone else has seen

THINK what no-one else has thought

DO what no-one else has dared

Whatever you can do, or dream you can, begin it. Boldness has genius and power and magic in it.GOETHE

Hard Work Networking Passion Courage

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The “game” is to Make the Cake bigger

Shareholdervalue

Value paid toother

stakeholders

Value ofrevenues

Customerperceivedvalue formoney

Capturablecustomer

value

Customervalue ofbenefits

Availability ofcompetitor or

substituteproducts

Increaseefficiency

Optimisepricing

strategy

Differentiatefrom

competitors

Focus onsolving

customers’problems

$150$32bn

$1.85k$380bn

$2K$420bn

$2.5K$522BN

$7.5k$1566bn

$10k$2,000bn

Innovating your business model

SOURCE: PA CONSULTING6

Seek new opportunities to innovate at the intersection of lenses

Building and managing an innovation pipeline

Discontinuities

Customer Insight Business models

Orthodoxies

Economic engine

Core competencies

What new growth opportunities or

alternative business models might exist that

we (others) are not taking advantage of

today?

SOURCE: STRATEGOS

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Three technology “laws” that continue to change our world…

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1. Moore’s Law: “The number of transistors on a chip will double about every two years”.

2. Gilder’s Law: “The value of a telecommunications network is propositional to the square of the number of connected users of the system (n2)”.

3. Metcalfe’s Law: “The total bandwidth of communication systems triples every twelve months”.

The promise from IT is great…but can we accelerate value realisation?

From… To…

Architecture (bus/ proc/ serv) DIY Standardised/ Templated

Regulation/ compliance Client controlled Collective control/ responsibility

Inter-operability/ changeability Siloed/ Incompatible Inter-operable/ inter-changeable

Service delivery People centric Automated

Interface/ Access Complex Intuitive/ simple/ controlled

BPaaS Segregated/ bespoke “Snap & Click”/ Composite

CaaS Islands/ Staccato Embedded/ Frictionless

SaaS Monolithic Open source/ Modular

PaaS Distinct applications Aggregated/ Orchestrated

INFaas/ KMaas Business intelligence systems “True” Intelligence

DBaaS/ DaaS Client managed and controlled Federated/ Integrated

IaaS Silos/ fixed devices Clouds Services/ Mobile devices

NWaaS Separate fixed and mobile n’works Integrated networks, CoS, QoS

SMaaS Multiple infrastructure SLAs Business SLA/ ISD/ Cloud Broking

SECaaS Best efforts Security SLA/ Transparency9

Let’s think about large numbers…

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…with Service Innovation things can soon add up

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$1million in $100 bills $1billion in $100 bills

…and just keep on adding up

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$1trillion in $100 bills

Smart Metering: Revolutionising the way we manage & consume energy

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Investment Benefits Service Model

£9bn UK programme • £1,000 av. fuel bill• Target: 3% annual

savings (…but 10% US)• …26m UK households• £1bn pa UK savings in

2020• 4 fewer power stations

•Visible consumption•Energy deals to spread loads

•Remote home device management

•Sell home produced energy to grid

Technical Solution Future potential Time horizon

GPRS/ long-range radio/ hybrid

Smart GridSmart Home

From 2014- 2020

Biggest UK energy impact since North Sea Gas in ‘70s

Collective Intelligence: Revolutionised the way Politicians campaign

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•US “Politician-made” You-Tube videos views: 150m

•“Consumer-made” political video You-Tube views: 1.5bn

•Internet main source of political views: 2004…10%; 2008…33%

•18-29 year olds…49%

•Obama 18-29 y/o share of votes: 66%

Collective Intelligence: Revolutionised the way Politicians campaign

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Obama McCain

Number of Facebook friends on Election Day 2,397,253 622,860

Number of unique visitors to the campaign website for the week ending Nov. 1

4,851,069 1,464,544

Number of online videos mentioning the candidate uploaded across 200 platforms

104,454 64,092

Number of views of those videos 889 million 554 million

Total amount of time people spent watching each campaign’s videos, as of Oct. 23

14.6 million hours 488,000 hours

Cost of equivalent purchase of 30-second TV ads

$46.9 million $1.5 million

Number of Twitter followers 125,639 5,319

Number of blog posts using the phrase “voting for ______”

79,613 42,093

Number of references to the campaign’s voter contact operation on Google

479,000 325

Source: Politico, The Web, 2008’s winning ticket

Gartner’s 10 disruptive technologies to 2012

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1 Multi-core & hybrid processors

2 Virtualisation & fabric computing

3 Social networks & social software

4 Cloud computing & cloud web platforms

5 Web mashups

6 User interface

7 Ubiquitous computing

8 Contextual computing

9 Augmented reality

10 Semantics

Source: Gartner

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Intel

Oracle

Google

BT

Salesforce.com

Facebook

Microsoft

RIM/ Blackberry

You-Tube Linked-In Twitter

Just a few of the companies making a big difference to our planet…

Apple

Skype Nuance

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….not forgetting the founder of the internet era

Vince Cerf VP & Chief internet evangelist Google

Designed TCP/ IP protocols & basic architecture of the internet

• “Today, just 20% of global population have internet access…”

• “There are 3bn mobile users…”

• “…but only 15% of these can get online”

• Attack plan: mobile access/ low or medium orbit satellite (30m/s round trip)…Africa/ central LatAm/ Pacific Islands/ fibre where feasible/ local WiMax

Intel: Revolutionised our ability to create the small, powerful, low energy use computing devices….now being embedded everywhere

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• Intel now delivering 32nm technology• World has c10 quintillion transistors; 10,000/ ant; 1.5bn/ person• Intel market cap: $114.91bn

Robert Noyce Gordon Moore

Dates b.1927- d.1990 b.1929 -

Intel Co-founder Co-founder

Impact Co-inventor of the integrated circuit

President & CEO

Other 16 patents on semiconductor methods, devices & structures

Moore’s Law

Net worth NA $3.7bn

…and not forgetting Andy Grove, CEO from 1987 - 1997

Innovation management insight: Tick Tock

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Year 1: "Tick“New silicon process technology (transistor density/ performance/ energy efficiency).Year 2: "Tock“Entirely new processor micro-architecture…optimize value of new transistors/ tech.

BT: Revolutionised services access through ubiquitous broadband

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• £1.5bn investment…fibre in 10m UK homes by 2012• Top speeds 100mb/s; potential for 1000mb/s• BT Infinity now launched: Downstream 40mb; upstream 10mb• Faster: surfing…downloads…uploads…online experience

(Infinity-powered downloads up to x7 faster on iTunes; online gaming up to 30% faster).

• Dedicated: business user “fast lane”

Ian Livingston – CEO BT Group PLC

Age 45

Previous roles CEO BT RetailCFO BT GroupGroup FD Dixons

Vodafone: Revolutionised our ability to communicate anywhere

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Sir Gerald Whent Founder, CEO 1982-1997

Sir Christopher Gent

CEO 1997-2003

Arun Sarin CEO 2003-2008

Vittorio Colao (47) CEO 2008-

• Now largest company in FTSE 100 • £41.7bn annual revenue; £11.5bn adj. operating profit• Growth drivers: Intl presence (esp India); fixed broadband

(Europe); consumer & business data services; smart phones; machine-to-machine

• Now targeting Google’s mobile search/ advertising revenues

Business model insight: Tiered mobile bandwidth pricing

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Idea Charge mobile broadband customers a premium if they want access to higher bandwidth.

What? Manage levels of network usage through price discrimination.

Why? Data explosion…levels of mobile data usage predicted to grow x3

How? Demand driven…customers pay more to get a higher quality of service, including better speeds

Success? Yet to be implemented…although some traffic management already in place…EU/ OfCom consultations Spring 2010.

Microsoft: Revolutionised how we work through accessible software

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Bill Gates

Age 54

Forbes 400 debut

Aged 30

Debut year 1982

Wealth then $320m

Wealth now $53bn

• 2009/10 Q3 revenue: $14.50 bn (+6%)/ $4bn net income• Windows +28% (10% of all PCs globally run Windows 7)• Growth drivers: Windows 7; Bing Search; X-Box Live;

emerging Cloud Services• Market cap: $224bn

Business model innovation: MS Bing helps you cut through the clutter

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Challenges Google attempting a move on MS ownership of operating system market with Chrome OS; MS is targeting Google’s core profitability driver – search (SVP Yusuf Mehdi).

Customer insight

Explosive growth of online content continues; c30% of searches abandoned (source: comScore Inc); 66% of people using internet searches to make more complex decisions (source: MS research)

Bing value proposition

A decision engine – for faster, more informed decisions, through deeper insight and knowledge from the web (launch June 3 2009).

Features • Bing Social: incorporates Facebook & Twitter in experience (tweets/ updates/ links/ trending topics)

• Personalised interface: Users can select own background image (Google now copied)

• Four “verticals”: Making a purchasing decision; planning a trip; researching a health condition; finding a local business

Benefits Deliver great results; a more organised experience; simplify tasks; provide insight…resulting in faster, more confident decisions.

Service Design

Search: Best Match; Deep Links; Preview; Instant AnswersOrganised Experience: Explore Pane; Web Groups; Related Searches; Quick Tabs.

Oracle: Revolutionised the way we store, manage and access data

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Larry Ellison

Age 66

Forbes 400 debut

Debut year

Wealth then

Wealth now $28bn

• “Oracle” originally a CIA database project• Inspiration: “A relational model for large shared data banks”• Started Oracle in 1977; first release: Oracle 2• Initial focus: midrange/ microcomputer segments • Operating systems supported: UNIX, Linux and Windows• Market cap: $111.8bn

SalesForce: Revolutionised how we manage business processes

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Marc Benioff

Age

Forbes 400 debut

Debut year

Wealth then

Wealth now $1.3bn

• Founded Salesforce.com in1999• Vision: “the end of software”• Force.com cloud platform (2007)• AppExchange• 2010 $1.3bn annual revenue/ net income $80m• “1-1-1 model”

Apple: Revolutionised how we interact with software…device design…how we consume music…and now how we consume published material

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Steve Jobs

Age 55

Forbes 400 debut

Aged 27

Debut year 1982

Wealth then $100m

Wealth now $5.5bn

• $43bn (+14%) total sales… • i-phone $13bn (+93%) • i-tunes store $4bn (+21) • portables $9.5bn (+9%)• i-pod $8bn (-12%) • 2m i-pad sales in 2 months• Market Cap: £232.91bn (June 4th 2010)

Business Model Innovation: Apple i-pad raises stakes for eReaders

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Customer insight

Anyone who wants to consume multi-media on the move.

Value proposition

Multi-media anywhere… a new category of device – positioned between the Smart Phone & Laptop; Apple’s alternative to the Kindle & the Nook.

Features • Multi-touch display sensitive to fingertips• i-pad specific apps (also those for i-pod/ i-phone)• Wi-Fi or 3G • Wi-Fi trilateration provides location information for Google Maps• 3G data connection (3G version contains a GPS)• 3 axis accelerometer (portrait/ landscape switching)• Magnetometer• Battery life: 10 hrs video/ 150 hours audio/ one month on standby• Digital rights management: Remote delete of apps/ media/ data

Benefits Better digital experience for eBook, magazine & newspaper reading; also general internet surfing (speed/ responsiveness/ intuitive interface/ rich display detail).

Services • iTunes store; App Store; MobileMe; iBookstore

Business model

• 70% service revenue share to publishers

Blackberry: Revolutionised the way we work through push-email

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Michael Lazaridis

Age 49

Forbes ranking 437

Debut year

Wealth then

Wealth now $2.2bn

• Revenue $14.93bn• Net earnings $2.46bn• R&D spend $946m• 41m users globally (3% global mobile users)• …incl. President Obama• …target is 100m

Google: Revolutionised how we source & sort information…and now how we manage IT infrastructure

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Sergey Brin

Age 36

Forbes 400 debut

Aged 31

Debut year 2004

Wealth then $4bn

Wealth now $17.5bn

Larry Page

Age 36

Forbes 400 debut

Aged 31

Debut year 2004

Wealth then $4bn

Wealth now $17.5bn

Technology innovation: The search engine that changed our world

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Challenges Scaling…index millions (now billions) of pages; respond daily to millions (now billions) of queries; technical…exploit the additional information contained in hypertext…deliver search precision

Precedents 1994 World Wide Web worm could index 110k pages…and received 1500 queries per day; in 1997 best search engines (e.g. Altavista) could index from 2m to 100m pages…and handle 20m queries per day

Requirements Efficient storage of indexing/ optionally documents; process hundreds of gigabytes of data efficiently; handle thousands of queries p/s

Google design goals

Improved search quality (avoid “junk wash out”); push more understanding into academia; build systems many people can use; support novel search uses

System features

Use web link structure to “quality rank” each page (PageRank); Anchor Test – associates text link with page link points; location information; proximity search; visual presentation details (e.g. font size); retain full HTML of pages.

Amazon: Revolutionised how we buy goods…and now how we manage IT infrastructure

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Jeff Bezos

Age 46

Forbes 400 debut

Debut year

Wealth then

Wealth now $12.3bn

“We seek to be Earth’s most customer-centric company for three primary customer sets: consumer customers, seller customers and developer customers”

Consumer:• 50% more items/ 21 new product

categories• 7m customer reviews added to

site• US Kindle Store: 460k books/

8.9k+ blogs/ 120 countries/ 6 languages

Corporate (AWS):• Relational d’base service• Virtual private cloud• Elastic Map Reduce• Cloud Front Streaming• S3 streaming

• 2009 net sales +28% $24.51 billion (x15 1999).

• Free cash flow +114% $2.92 billion

Governance Insight : Goal setting

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2010: 360 of Amazon’s 452 goals will have a direct impact on customer experience.

• The word revenue is used eight times and free cash flow is used only four times.

• In the 452 goals, the terms net income, gross profit or margin, and operating profit are not used once.

…but in practice they have rigorous financial goals behind all these

Business Model Insight: Amazon Mechanical Turk

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Idea “Artificial” Artificial Intelligence…AAI

What? A crowd sourcing internet marketplace: enables “Requesters” (programmers) to co-ordinate use of human intelligence… perform tasks which computers cannot.

Tasks? e.g. Choose best store-front photo; writing product descriptions; identify performers on music CDs

How? Requesters set tasks…Providers browse tasks…complete for payment set by Requester (reward: from 1 cent to $10+).

Success? Still in Beta…March 2007 100,000 Providers from over 100 countries

Facebook: Revolutionised how we network with others

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Mark Zuckerberg

Age 25

Forbes 400 debut

Aged 24

Debut year 2008

Wealth then $1.5bn

Wealth now $1.6bn

• Business founded: 2004• 12 month user growth: 130%• Total users: 400m• Overtook Yahoo as #2 internet site in US (Jan 2010)• Facebook visitors to other sites “more sticky”• …but only 57% click on ads cf 79% wider internet• Business value: $15bn

Business Model Innovation: Exploit existing offline social behaviour

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Customer From college students (driven largely by dating activity)…to “everyone” engaged in social networks, & “everywhere”

Solution From high utility online student directory service, enabling pre-existing offline social behaviours;…restricted registration to .edu for given college; …limited search & browse; …credible “face” (MZ); …”viral” audience build; …roll-out prioritised by student request

…the world’s #1 social networking site (aggregation of a series of deeply penetrated micro-communities)

Model? Advertising, event listings, e-commerce, lead generation (targeted/ in-day, in-day, in-week audience contact)… exploiting brand value/ user recall/ trust; audience characteristics; service role/ usage

Competition? Early competition… MySpace/ Bebo; now…??

Outlook? • Be acquired (sustaining app for another business)?…e.g. 2006 Yahoo/ Microsoft talks c$1bn valuation

• Develop/ evolve compelling (disruptive?) business model

Business Model Innovation: 5 reasons why Facebook is so successful…

1. A huge untapped market…established competitor Friendster targeted at twentysomethings & fading; MySpace < 5% penetration in 2005

2. Experience designed by students…for students

3. Privacy… “walled” social networks

4. Economics…attractive initial segment…elevated perceived status

5. “Sticky” Features…organisation by classes; “the poke”; groups; directory; simplicity; “lightning fast”

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The organisation in its environment: Clever VC funding negotiation

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Negotiated value

April 2005 first round VC negotiated valuation $85m… when generating <$500k pm revenue

How? Initial pre-money valuation $20m… climbed when Facebook approached both VC’s and potential acquirers simultaneously

Who? • Seed-corn funding: Peter Thiel $500k for c5%-10% of equity?

• 1st round VC 2005: Accel Partners (…other VC’s thought Facebook would exit at c$200m/ $300m…x3 return not worth the risk?)

• 2nd round VC valuation 2007: $550m

Linked-In: Revolutionised the way business people network

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• Founded 2003• 60m users (Feb 2010); growth rate 5m in 2 months• 50% user-base ex US; …from over 200 countries• Execs from every Fortune 500 company• Value: in excess of $1bn• Revenue model: Job listings/ subscriptions/ advertising

Founders: Reid Hoffman, Allen Blue, Jean-Luc Vaillant, Eric Ly, and Konstantin Guericke.

Reid Hoffman

Age 42

Forbes 400 debut

Debut year

Wealth then

Wealth now

You-Tube: Revolutionised how we share ideas and experiences

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Sold to Google October 16 2006 $1.65bn

Chad Hurley (34) c700k Google shares

$345.6m @$470 per share ($487 10/06/10)

Steve Chen (31) c625k Google shares

$326.2m

Jawed Karim (31) c137.5k Google shares

$64.6m

• Business founded: January 2005• 2bn video viewings per day• Every minute 24 hours of video uploaded• User base 18-55; 51% use weekly or more• In 2007 consumed bandwidth equivalent of entire internet in

2000

Technology Innovation: Near instant response online video service

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Challenges The world’s No1 site for video demands several terabytes of data per day…20,000 plus views per second; av. search 70m/s; “normal” servers would take several minutes per request.

Precedents Google

Design goals Scalability; speed

System features

Exploit Google advanced caching; each video stored as duplicate (multiple online back-ups); popular content moved to CDN (replicated by geography); less popular content on local sites…but “long-tail effect”; “thumb nails” (x4 per video) stored separately.

Twitter: Revolutionised how we relate through “instant communication”

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• Business founded: 2006• 31 employees• Tweets per qtr: 2007…500k; 2008…100m; 2009…2bn; Q1

2010…4bn; and now 50m per day…600 per second• 2013 projections: Revenue $1.54bn; earnings $111m; users 1bn• Business value: $250m+

Jack Dorsey

Age 31

Forbes 400 debut

Debut year

Wealth then

Wealth now $100m+

Business Model Innovation: Exploit the desire to “reach out”

Customer People who desire an easy means of one-to-many communication

Solution Web interface that allows 140-character messages, plus replies, private direct messages, & search

Model? Launched as a free-to-use, no revenue stream business

Competition? Facebook/ blogging/ me-too – e.g. Yammer (charges companies for closed employee networks)

Outlook? Two ways to monetise:•Be acquired (sustaining app for another business)…e.g. Facebook•Develop compelling (disruptive?) model…e.g. Google adwords on user profiles pages?Pay-to-reach-users?Product feedback from Twitterers?Channel to advertise products?Integrated search? (advertising model)Charged for features/ analytics

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Business Model Innovation: CNN Twitterbuzz

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….and now Jack Dorsey launches Square: revolutionising payments

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Areas of current interest

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New/ improved ICT enabled service business models

Collective intelligence Standardisation Cloud Services

Smart Systems (e.g. Smart Energy)

End

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