Integrated Solutions and Organisational Transformation in ... Key elements of a business model • A

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  • Dr Andrew Davies & Dr Lars Frederiksen 5th. May 2011

    Integrated Solutions and Organisational Transformation in


  • Our background

    • 2006-2010, Andy and Lars working at Innovation and Entrepreneurship Group, Imperial College Business School, Imperial College London

    • Continue work on project-based suppliers and consultants in complex products and systems

    • 2007-2010 research on Integrated Solutions in collaboration with IBM and BT

    • 2006-2010 research on business model innovation in infrastructure industries (i.e. roads, water, and urban design)

  • Overview

    1. Introduction to the concept of a business model

    2. The integrated solutions business model

    3. Core capabilities and organisational challenges

  • Change is the way the future invades our lives (Alvin Toffler)

    That’s what business models innovation is all about!

    Business model innovation

  • What does a model do?

    • Provides means to describe and classify… businesses

    • Acts as recipes for creative managers

    • Serves as analogies to set novel models apart

    • Operates as sites for scientific investigation

    • Thus, business models are a strategic resource for managers!

  • Innovation

    The traditional view: • Technology • Product (+ service) development • New processes/services (solutions)

  • What is the most important innovations for your organisation?

    Tell us about the most important innovations for your organisation

  • A business model explains value creation and capture

    It is dynamic! It can be innovated!

    Business model innovation may contain innovation in the product domain as well as in processes, services and technology, markets, partners, etc.

  • Source: “Expanding the Innovation Horizon: The Global CEO Study 2006.” IBM Global Business Services

    Benefits cited by business model innovators

  • A classic example: Business model innovation

  • • Conceptual confusion • Transaction systems and revenue model - concerned with

    value creation and value capture through efficiency or novelty • Cognitive model…what business are we in

    • Origin  • Close association between Nasdaq stock market price index

    (ICT boom) and with a 1 year lag conceptual academic underpinnings in business and management journals (1996 – 2003)

    • A concept entering from practice into academia or vice versa?

    What is a BM and where does the concept come from?

  • Key elements of a business model

    • A business model is a conceptual tool • set of elements and their relationships which jointly express the logic

    of business for a specific firm

    • It focuses on the value a firm offers to one or several segments of customers

    • Using its technology and organisational design: • activities and capabilities • network of partners for creating, marketing, and delivering this value

    and relationship capital

    • Business objectives – to generate profitable and sustainable revenue streams

  • An alternative view: BM as performative representation

    • Business models are narratives that convince stakeholders

    • They are useful for typifying thus providing legitimacy

    • BMs serve as recipes instructing operational action

    • Interpretative flexibility regarding the notion: • Bad: promote individuals’ own agendas • Good: offers a room wide enough for meaningful interaction between

    practitioners and academics

  • Business model….building blocks

    Offer: • Value proposition: • Product • Service • Integrated solution • Product, service and


    Market/demand: • Customer’s

    (B2B, B2C, B2G) • Customer relationship •Distribution or

    Market channel

    Organisation: • Technology • Capabilities/skills: • Series of activities • Partner network

    • Organisational structure

    Revenue streamCosts structure Finance


    Value creation Value captureNow, add considerations about sustainability to all components!

  • External forces

  • Technology/product



    Business Model


    Technological change

    Demand/ Social change

    Climate change and sustainability

    Political environment and legal framework

  • The integrated solutions business model

  • General trend: from products to services

    • ‘Smart manufacturers are moving downstream [into services] for the very simple reason: that’s where the money is’ (Wise and Baumgartner, 1999)

    • Services 25% of total revenues across manufacturing firms

    • Rolls Royce services over 50%

    • IBM services are over 60%

  • Expenditure on services







    Total expenditure on services = 21x product costs

    Rolling stock

    Rolling stock services

    Freight car services

    Train operations


    Railway administration


    Total annual cost US rail operations: $29 billion (1999)

    Installed-base-to-new-product ratio: Trains (22:1) Civil aircraft (150:1)

    Expenditure on new products

    Servicing the installed base

  • Our learning is from 10 multinational companies

    • Over a decade of pioneering collaborative research, teaching and consulting • 2 large government funded research projects: 2000-2010 • Over 200 interviews with CEO, CTO, Managing Directors, Project Managers, Bid

    Managers, Functional Heads (e.g. HR), etc. • Collaboration with leading scholars: e.g. Henry Chesbrough, Hass, Berkeley and

    Michael Cusumano, MIT • Industrial collaborators:

  • Integrated solutions business model

    • ‘A solution is an innovative combination of technology, products and services providing a high value unified response to a business [or government] customer’s needs’ • Davies, MIT Sloan Management Review (2006)

    • Selling products and services as integrated solutions that solve a customer’s business need

  • Examples of integrated solutions

    • London Underground: requests that 96 trains available each day over 20  years ‐ 1995‐2015

    • Alstom Transport: designs and builds 106 trains ‐ £429m contract

    • Contracts paid according  to length of delays and  number of passengers  held up

    • Alstom builds a  maintenance service  business to delivery the  project

    Example: Solutions for ‘train availability’

  • Integrated solutions – new types of customer-focused projects

    • Global outsourcing solutions (e.g. Cable & Wireless) • Turnkey solutions (e.g. Ericsson, ABB) • Design, Build, Operate (DBO) • Design, Build, Finance, Operate (DBFO) • PFI - Private Finance Initiative (e.g. UK defence, NHS

    procurement) • PPP - Public Private Partnerships • Integrated solutions (IBM)

  • The shift to integrated solutions

    ManufactureRaw materials Systems integration

    Operational services

    Final service provision

    Final consumer

    Upstream Downstream Products Services

    Raw materials, intermediate goods, primary product manufacture

    Produce components and subsystems

    Design and integrate systems

    Operate, maintain and upgrade systems

    Use operational capacity to provide services to users

    Consumption of service by end- user

    CustomerSystems selling

    Manufacturer Customer – vertically integrated business and/or government

    Customer Integrated solutions

    Customer Systems integration

  • Integrated solutions: drivers and challenges

    1. New strategic focus in value stream

    2. New capabilities

    3. New organisational structures

    4. Balancing innovation and productivity

    5. Growing the business

    Organisational Challenges

    • Customer outsourcing

    • Attraction of higher-value services

    • Liberalisation & privatisation

    • Government procurement (PFI & PPP)


  • Systems integrator

    Parts suppliers

    Subsystem suppliers


    Component suppliers

    Design and integrate hardware, software and services into functioning system

    Capabilities 1: Systems integration

  • • Single-vendor - Product components sourced from in-house product divisions - Thales flight simulators – pure ‘system seller’

    • Multi-vendor – ‘the acid test of solutions provision’ - Components sourced from external suppliers Service-based firms – pure ‘systems integrators’

    e.g. telecoms: Cable & Wireless ‘best-in-class’ products Product-based firms

    e.g. railways: Alstom, Ericsson, IBM

    Types of systems integrator organisations

  • • Systems with independent functions, but each with common goal

    System of systems

    • e.g. ai