Kick Off Meeting Island of San Servolo - Venice, Italy 11th to 13th February 2008

1. Kick Off MeetingIsland of San Servolo - Venice, Italy11th to 13th February 2008 Value Innovation for the Logistic Sector Paolo Paganelli Insiel

2. Agenda • Why pursuing value and innovation • The concept of Value Innovation • A strategy formulation process based on value innovation • Example • Conclusions

3. R.I.P. R.I.P. Changing the logistics ICT paradigm: past attempts

4. Reasons behind past failures • “Evil customers” • “Entrepreneurs seeking easy profit” • “Immature technology that doesn’t work” • “Large corporations saturating the market” • “Global warming” • “Bill Gates” • …. • Why not thinking about faulty value propositions?

5. Our goal: Create value for users through technological innovation • Research focus • Innovative concepts and technologies • Advance on state-of-the-art. • Pilot users and industry focus • Fulfill user needs through successful technology applications. • Our greatest concern: users adoption • Develop innovative solutions that the users can and are willing to adopt • “Exceptional Utility” is the key • Cost and accessibility are other important adoption factors. • Overcoming barriers to adoption is essential to bring products and services on the market … • … But this should not be seen as an exclusive concern of exploitation and product industrialization. • We should start looking for a methodology that takes into account the adoption potential by end users throughout the lifecycle of an innovative idea.

6. There are several ways to deliver value to users,not all of them relying on S/T innovation NewParadigm NewProduct S/T Innovation ProductImprovement None Current needs Emerging needs Unstated needs Future needs User value

7. EURIDICE aims at creating value through “disruptive innovation” NewParadigm NewProduct S/T Innovation ProductImprovement None Current needs Emerging needs Unstated needs Future needs User value

8. Schumpeter’splayground New pro-cesses Newmarkets New products New in-dustries User ValueToday User Value Tomorrow Lower prices Sustain-ability Better Service Acces-sibility Porter’splayground Chasm Ahead How to handle disruptive innovation:The concept of Value Innovation What: Bridging the gap between technicallyinnovative and industry accepted solutions to create value for users. Research Center of Gravity Industry Center of Gravity How: Through a clearly defined strategy which addresses the key value elements from conception to adoption.

9. In EURIDICE we need a strategy for Value Innovation • We are not in a mature sector, where traditional competition-based strategies apply. • We cannot imitate competitors (there are no market leaders). • We cannot ask customers (they have no comparison terms). • We are looking for a “blue ocean”: uncontested market space for a new offering (*). “Valuewithout innovation tends to focus on value creation on an incremental scale .. not sufficient to make you stand out in the marketplace.Innovationwithout value tends to be technology-driven, market pioneering, or futuristic, often shooting beyond what buyers are ready to accept and pay for.” (*) Kim, W. Chan, Mauborgne, R., « Blue Ocean Strategy », Harward Business School Press, 2005

10. The principles of Blue Ocean Strategy

11. Strategy formulation in practice • From the research vision to application ideas • Assessing an idea’s success potential • Comparing and revising the idea • The strategy canvas • The six Paths to market reconstruction • Steps beyond idea formulation (not of interest for today discussion) • Pricing, cost estimation and organizational change

12. The research vision • In year 2012… “In five years time, most of the goods flowing through European freight corridors will be ‘intelligent’, i.e.: self-aware, context-aware and connected through a global telecommunication network to support a wide range of information services for logistic operators, industrial users and public authorities.” • Coordinated developments in key technologies will get us there: • Identification through RFID tags readers/writers. • Positioning through GNSS (GPS or Galileo) devices. • Mobile devices embedded into a network infrastructure that host local services for identification, data observation and manipulation. • Middleware architecture including proxy functionality for information system backbone and data interchange. • Security infrastructure. • Flexible mobile radio transceiver by means of software defined radio technologies. • ..

13. From the research vision to application ideas • Who are the users (value recipients)? • What are their needs and objectives? • What applications can we deliver to fulfill their needs?

14. Who are the users? EURIDICE applications may have different target users

15. What are the user needs to be fulfilled? • Tracking goods movements • Managing transit documentation • Handling cargo-related events as they occur • … • … and many more.

16. Application ideas • Ubiquitous track & trace functionality, based on events communicated bottom-up by moving freight items. • Cargo-initiated, completely automated transit verification and authorization procedures. • Supply chain event management based on thing-to-thing interaction and embedded intelligence, where cargo itself has the primary responsibility to detect and handle unexpected events and to escalate to a human operator if needed. • … • … and many more applications that Euridice S/T research will make possible.

17. Assessing an idea’s success potential • Three elements of a successful idea: • Focus: the idea is based on few coherent and well identified innovation factors. • Divergence: the new idea is clearly differentiated from competing solutions. • Clear and compelling tagline: the idea is easily described, advantages are immediately clear to the average customer.

18. Example • We want to assess the success potential of our “Ubiquitous Track & Trace” application idea. • The value chain is complex, including both ICT vendors and different kinds of logistics providers. • We will refer to logistic companies as target customers. • Anyway, the end user (cargo owner, shipper) is going to have the final word on the value being delivered.

19. Revising the idea • Six paths to market reconstruction: • 1: Look across alternative industries • 2: Look across alternative segments • 3: Look across the value chain • 4: Look across complementary products/services • 5: Look at functional/emotional appeal • 6: Look across time • Important Note: The analysis does not take into account technical problems related to feasibility of the application idea. The only purpose of the analysis is to highlight features (value elements) that should be targeted by research and future industrialization investments.

20. 1. Look across alternative industries • The “tracking goods movements” need is addressed by three alternative industry solutions: • Big logistic companies • As part of the service provided. • ICT industry • Track & trace solutions (either stand alone or part of larger packages like Oracle OTM). • In-house • Internally developed track & trace solutions. • Our positioning: “me too” strategy • We provide similar solutions as other ICT providers, only smarter and with more modern technology. • Our main differentiator is “really real-time tracking” but as any innovative technical feature it is not immediately attractive to the average customer.

21. The strategy canvas • It is a graphic representation of an idea positioning versus competitors. • The X axis contains the “value elements”, i.e., the key technical and non-technical factors that we consider important in our value proposition to the customer. • Values on the Y axis represents the relevance assigned to each factor in relation to competitors. • Each competing offering is represented by a “Value Curve”.

22. Value curve for “me too” strategy

23. Problems with this value curve • Lack of focus (peaks and valleys): inconsistent strategy. • Convergence with competitors (ICT vendors): "me too" strategy. • No compelling tagline: we are unable to synthesise our offering in a compelling message for the end customers. • We appear as just another track & trace technology offer. • Small and medium customers will continue preferring turnkey logistic services, for their null set-up cost. • We have no clear advantage over current ICT solutions for large companies, to whom back-office integration and customization are key concerns.

24. 2. Look across strategic groups (segments) • The current market is split into two broad segments: • Large accounts, addressed by ICT vendors for company-owned track & trace systems. • Small and medium customers, addressed by large LSP (DHL, UPS) that provide logistics as well as track & trace. • We could try to reposition ourselves to offer the best of both worlds: • Same customization options of in-house solutions. • Low set-up cost by means of our standard-based, shared, ubiquitous cargo connectivity system.

25. Value curve after repositioning

26. 3. Look across the value chain • The value curve has improved, but still no big innovative element has been introduced in our value proposition. • We could search for insights by looking at the transportation value chain: • Large logistic service providers often outsource significant portions of the trip to small carriers. • SMEs but even large manufacturing and distribution companies hire small carriers for many of their shipments. • How this can help us redesign our value curve: • The “Ubiquity” feature, unique to us, now becomes important. Indeed when transport is fragmented among several small carriers, it is not as simple to track cargo as along pre-defined routes. • A further feature we could add is “Carrier independence”. Our technology, being focused on the cargo and its relation to virtually “any” context, could theoretically eliminate the need for dedicated investments on the carrier side. This could open the way for adoption even by small carriers, thus enlarging even more the market base. Reach beyond existing demand. • On the other hand, Carrier Independence can be seen as a danger by large LSPs view of track & trace as a strategic element in their offering.

27. Value curve after looking at the value chain New value elements

28. Re-assess our idea • Does it have Focus? • The value curve gives a clear indication of key technical and non-technical elements to focus upon. • Does it Diverge from competition? • The value curve is clearly divergent from the three categories of competitors. • Does it allow a clear and compelling tagline? • Let’s try:“Track & trace functionality that can be activated at low cost and works with any carrier along any transport route.”

29. Beyond idea formulation • Strategy formulation and assessment is just the initial stage in a process aimed at bringing the idea to the market and integrating it into the company business. • The subsequent steps are: • Testing for “Buyer Utility”, to maximize adoption potential. • Find the correct pricing. • Fixing the target cost and profit margin. • Removing adoption hurdles within the company organization.

30. Conclusions • Adoption potential should be addressed since the conception stages of EURIDICE results. We cannot afford to postpone this as a concern for later industrialization stages. • The Blue Ocean principles and tools, like the Strategy Canvas, are an innovative, widely appreciated approach for assessing the market potential of innovative ideas. • Other parts of the Kim and Mauborgne framework address well known problems (e.g., pricing, industrialization) and they appear as not so innovative. • The EURIDICE project should refer to the Value Innovation concept, and apply the Strategy Canvas for formulation of product features and business ideas, throughout the duration of the project. • For example, this activity can be part of Business Modelling in WP31 and can provide input to Exploitation (WP34), although it must be complemented with other existing methodologies for business planning.