Beyond “the new oil” – assessing the strategic role of information in digital services

In this article, the authors address the strategic role of information in smart industrial services.

The fundamental characteristics of information, as well as lowering costs of gathering and processing it, have had a dramatic impact on companies’ business models. For instance, manufacturing industries have become extremely information-intensive and companies have adapted digital service offerings (referred as “smart services” in many discussions) to benefit from information.

The data is the new oil. Or is it…?

Information is seen as one of the most important strategic assets the digital service providers posses. It is said that “data is the new oil” fulfilling the empty space of matured markets. Some companies have even reported to place information to their balance sheets.

Given this, there is still too little elaboration on how and why information provides strategic benefits. This assumption that information simply yields benefits seem to be taken for granted in a unanimous agreement.

Considering the breadth of different approaches to the sources of competitive advantage, as well as the diversity of digital service business models, we argue that the strategic role of information remains unclear and needs to be further elaborated. In one of our previous articles, we already touched upon this theme, and now we broaden our argument.

Toward holistical view of information as a strategic asset

In our research we have identified the distinct and even surprising ways information can provide strategic benefits in different business contexts and smart service business models. Our findings are based on empirical evidence gathered during the last five years from leading European industrial service providers. We back the empirical material with a systematic literature review on the role of customer or installed-base information on successful service business models.

Based on the emerging results, we introduce four schools of information leverage. These are

1) information as a source of power
2) information as a currency in value-based exchange
3) information as an attractor in communities, and
4) information as a commodity or resource.

Among these schools, the information should be treated distinctively different, as the strategies are based on completely different assumptions.

Furthermore, according to the results, it appears that the characteristic fluidity of information has set a new baseline level for the transparency in the service operations. As smart services are innovated and delivered in company networks, the opportunistic behavior becomes visible, inhibiting the crucial inter-firm relationships. In turn, mutually beneficial intentions between collaborating companies function as attractors and lead to synergetic results.

Steering the research further

This article provides some sneak peeks to the preliminary results of our emerging research. Our aim is during the upcoming months to summarize discussion even further and present conclusive frameworks that challenge the somewhat overly-simplifying information-related talks that prevail at the moment. Information seems to be a resource that requires own methods of assesment. It might not be just “oil”.

 

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Leveraging complexity of platforms by connecting, sharing, and integrating

In this article, the authors present a three-category model through which platform-based value creation can be analyzed.

Platforms are complex entities. Although the “complexity” sounds a bit negative, it actually seems to be a very beneficial characteristic. Complexity in platforms provides a lot of value potential. However, there is no one way to leverage the complexity. Our research involving large industrial service providers (in logistics, automation, and construction industry) has revealed that there are at least three distinct logics of value creation in complex service platforms.

The platforms seem to exhibit three distinct logics: connecting actors, sharing resources, and integrating systems. One of the logics prevails in our cases, while others play a lesser role. Primary differences between the logics are in the areas of openness and transparency, actor involvement, and control over the value creation and innovation.

Figure 1 presents the three-category model we provide. Our case companies wanted to remain anonymous at this stage, so we give some illustrative examples from more popular platforms.

 

Figure 1: The underlying logics of value creation in platforms.

The logic of connecting actors

In the first value creation logic, connecting actors, the platform provides opportunities for increasing collaboration between actors. Like in LinkedIn or eBay, innovative actor constellations are formed. The platform makes it easier for the two sides to find and connect with each other. Every participant that joins the platform decides what he will use the connectivity for. The platform orchestrator facilitates this network formation and helps to synchronize the interests of actors.

However, the orchestrator must find ways to maintain his broker position in the long run. This can be done via an open or closed strategy. Openness means continuous expansion of the actor base (i.e., to new actors or companies and farther reach inside the existing organizations). The closed approach, in turn, tries to protect the capability used to form the connections, such as any special knowledge on platform members.

Sharing resources

The second value-creation logic model is about sharing resources, and even creation of new markets. As in Linux, Wikipedia, Airbnb or Kickstarter, the orchestrator tries to promote trust between the actors to get them to share proprietary assets with each other. Increased openness is believed to result in benefits regarding open innovation but also more efficient service delivery.

Exploring mutual benefits and facilitating the formation of innovative resource combinations is at the core of this logic. The actions usually involve disclosing proprietary resources to the parties involved in co-operation. This requires trust that the orchestrator can provide. In addition, firms must be given methods to influence the level of visibility they provide to their important assets

Integrating systems

The platforms can also be organized around integrating systems, in which the target is forming an efficient service delivery environment. In many ways, the integration logic model is a traditional “technology-first” approach to service platforms. The model is similar to the ones Uber, Salesforce, or the credit card companies use.

In this setting, the challenges lie in creating an effective service delivery system. Building common processes, structures, and routines are the primary targets of the orchestrator. Interfacing and connecting human actors, technological machinery and intangible capabilities is the starting point of constructing integration platforms.

Then, the challenges revolve around resource slack reduction and identification of control points for value creation and capture. An orchestrator company strives for a dominant position in the network, setting the rules for co-operation.

But how to use the framework?

The aim of this connecting-sharing-integrating framework is to advance the discussion related to analyzing value creation in platforms. It is based on explorative case research, so more data and details are needed. However, even in its present form, it provides a lens through which different platform approaches, and especially their internal consistency, can be evaluated.

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