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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Why data ownership is not always the answer in service platform business

In this article, the authors provide new perspectives to the wildly burgeoning debate regarding strategic role of information in the service platform business.

Data and services form a self-enforcing loop. Services, by definition, enable movement toward a customer, giving companies’ more access to different kinds of information. And the more services there are, the more potential data there are that make these new services possible.

Due to this virtuous cycle, it is not surprising that most of the current data-related discourse stems from the idea that data are owned and controlled by a single company that has control over the supply chain. This logic is heavily emphasized in the “winner takes all” discussion regarding platforms. As a consequence, a lot of managerial effort seems to be focused on the possession of information as the basis for value creation.

The protection doctrine has been especially dominant in the B2B industries, especially in the context of one of our research domains: industrial services. In this setting, large integrated platform implementations have indeed created vast amounts of detailed information regarding customers.

However, our research points out that there seems to be also new strategies emerging. It seems that the approaches toward information resources are moving toward extremes: some parties, especially established manufacturers, are trying even harder to protect the data, while their rivals are following a contradictory strategy built on resource sharing.

In our research, we explored this dissent in detail. We focused on rather new industrial service providers, pursuing information-intensive business models. Here are our key findings:

Exclusive access to data is not always a source of strategic benefits. The possession of data or exclusive access to data from a company’s technological resources no longer solely yields strategic benefits. The raw data only act as necessities for service provision and enable the existence of the market within which the service providers can operate. Furthermore, given today’s rapid technological development, and due to a fear of lock-ins, proprietary access interfaces become an unfavorable option that inhibits possibilities to strategically leverage a data monopoly.

Companies prefer data volume to exclusive access. Successful big data service providers agree that the volume of data that they can access in real time and is highly relevant to their business. In the words of one of our informants: “In the current situation in the industry, gaining volume is at least equally important as doing something unique and exclusive.” Furthermore, the companies are willing to “trade” exclusive access for higher volume and may therefore give data away freely in order to encourage the necessary volume.

The customer’s data ownership is not challenged. Many companies seem not to question the customer’s strong right to possess any data, even though the data are generated using the service provider’s technological resources. Gaining ownership of the raw data is largely irrelevant, as the service providers are only interested in providing insight based on the data.

Customers share data in exchange for insights. Customers may have an unchallenged ownership to their data, but they generally choose not to exercise this control. When customers lack the knowledge or capabilities to gain insight from the data, they share it with service providers: the clients “have extreme amounts of data in the databases, but no one remembers what data it is, why it has been gathered, and how it could be utilized.”

Service providers develop their capabilities with the shared data. The new ventures stress the importance of “learning by doing.” They are not interested in the data themselves, but rather on the insights that can be learned. The companies perceive that “the information is what we are trying to get, in order to produce something bigger and more interesting.”

Capability building can be enhanced by combining diverse data sources. Since the shared data are crucial to service providers’ development of capability, the effect is amplified when insights from all potential sources are combined. As the business environments become increasingly interlinked, combinatory and complementary offerings can become the trend for service providers. However, the companies are not aiming to build a stock of data resources; rather, they are focusing on real-time sources that provide access when needed, where needed.

To summarize, it is data access—not always ownership—that counts. Our results have revealed that there are successful service providers focusing on broad data access. Instead of data protection or ownership, these providers aim to share and recombine existing data. This is in sharp contrast to the approach that many incumbent firms use, in which chunks of data are collected and stored as without a specific aim, as these companies are unsure about the ways data should be generated and the context within which they should be utilized.

These contradicting views provide us with a fruitful area of dissent to be elaborated upon further. The key question now is, “What are the contexts in which the open strategies are preferred?” We will touch upon this question in our next writings.

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