Service Science, Service-Dominant Logic, Network Thinking for a Smarter Planet

1. Service Science, Service-Dominant Logic, Network Thinking for a Smarter Planet • Dr. James C. Spohrer • Director, Global University Programs • IBM Almaden Research Center, San Jose, CA 95120 USA • spohrer@us.ibm.com • Service Forum 2009/EIASM • June 17th, 2009 • Capri, Italy

2. Service Dominant Logic • Service is the fundamental basis of exchange. • Indirect exchange masks the fundamental basis of exchange (networks). • Goods are distribution mechanisms for service provision. • Operant resources are the fundamental source of competitive advantage. • All economies are service economies. • The customer is always a co-creator of value. • The enterprise cannot deliver value, but only offer value propositions. • A service-centered view is inherently customer oriented and relational. • All economic and social actors are resource integrators. • Value is always uniquely and phenomenologically determined by the beneficiary. From: Vargo & Lusch: Ten Foundational Premises Service is the application of competence for the benefit of another

3. Service Science • Ecology (Diverse Types) • Entities (Systems) • Interactions (Networks) • Outcomes (Value Changes) • Value-Proposition-based Interactions • Governance-Mechanism-based Interactions • Access Rights • Resources • Measures (Rankings) • Stakeholders (Roles) From: Spohrer & Maglio: Ten Foundational Concepts Service is value-cocreation phenomenon between entities interacting

4. Madelene, daughter in the city WE & OUR FREEZER Network Thinking: Many-to-Many Marketing Electrolux Dagmar, 85, neighbor Retailer Ingrid & Gunnar, neighbors Transport company Laila, Sverker, Linnea & Fredrik, neighbors From: Evert Gummesson: Cold Case – A Freezer Value Network Offering, package, solution are more neutral terms

5. IBM as a network of entities Employee Service Centers Major Employee Sites IBM operates in more than 170 countries Customer Fulfillment IBM Research Centers Manufacturing IBM Internal Data Centers

6. Smarter Planet…Instrumented, Interconnected, Intelligent(More measurement data, More networks, More learning and adaptation) Smart traffic systems Intelligent oil field technologies Smart retail Smart energy grids Smart food systems Smart healthcare Smart supply chains Smart countries Smart weather Smart regions Smart water management Smart cities Source: www.ibm.com/think

7. Smarter Service Systems = Complex Systems That Serve Customers Better water, electricity, transportation, education, healthcare, etc. Human Systems Planetary Systems Quality of Life Smarter Planetand SSME:Our world and us Has Part Has Part Planetary Systems Benefits Benefits Carbon Footprint (Choices) Capabilities, Experience (Choices)

8. Virtual World Real (Instrumented) World Simulated World www.caiso.com Mathematical World Multiple Approaches to Study Service Systems Focus: Smarter Service Systems = complex systems that serve customers, increasingly enabled by advanced ICT (www.thesrii.org)

9. Adaptable, Forward-Looking, Knowledgeable, Innovative Science and Engineering Industrial and Systems Engineering Economics and Law Social Sciences & Anthropology Computer Science & Info. Systems Organizational Change & Learning Math and Operations Research Management and Marketing

10. Key Concepts in SSME Smarter systems serve customers better and improve quality of life, creating more opportunities for win-win, or benefit-benefit, interactions: resulting in measurable resource access & value-cocreation for multiple stakeholders.

11. Service Innovation matters at IBM “We will not simply ride out the storm,” Palmisano said. “Rather, we will take a long-term view and go on offense.” Bloomberg, March 2009 Source: 2008 IBM Report of Financials at www.ibm.com/investors

12. World’s Large Labor Forces A = Agriculture, G = Goods, S = Service US shift to service jobs 2009 2009 (A) Agriculture: Value from harvesting nature Nation Labor % A % G % S % 40yr Service Growth China 25.7 49 22 29 142% India 14.4 60 17 23 35% (G) Goods: Value from making products U.S. 5.1 1 23 76 23% Indonesia 3.5 45 16 39 34% (S) Service: Value from enhancing the capabilities of things and their ability to interconnect and create value Brazil 3.0 20 14 66 61% Russia 2.4 10 21 69 64% Japan 2.2 5 28 67 45% Nigeria 1.6 70 10 20 19% Bangladesh 2.1 63 11 26 37% US Bureau of Labor Statistics: Highest growth jobs Germany 1.4 3 33 64 42% CIA Handbook, International Labor Organization Note: Pakistan, Vietnam, and Mexico now larger LF than Germany The largest labor force migration in human history is underway, driven by global communications, business and technology growth, urbanization and regional variations in labor and infrastructure costs and capabilities.

13. US Gross Domestic Product Product Service Material 11% 30% Information & Organization 9% 50% • Based on Uday Karmarkar, UCLA • (Apte & Karmarkar, 2006) US GDP shift to service innovation

14. CBM: Component Business Model WBM and RUP: Work Practices & Processes SOA: Technical Service-Oriented Architecture Key Performance Indicators (KPIs) IBM IBV: Component Business Models Service System Component Architecture MapsSystematically map and track performance of diverse types of service systemsindustry by industry, component by component, measure by measure… IEEE Computer, Jan 2007 Spohrer on Service Blog: Government Business Architecture Services

15. Valium (Trade Name) Diazepam (Generic Name) CAS # 439-14-5 (Chemical ID #) Valium>149 “names” From Information Analytics to Business Insight:GBS BIW COBRA (Corporate Brand); SIMPLE (Intellectual Property)Better use of information, better decisions, continuous CBM KPI improvements Courtesy of Jean Paul Jacob, IBM Also New Book: Mining the Talk, Spangler & Kreulen

16. Process Digitization Business Logic Intelligent Document Gateway (IDG): ibm.com and WWERS Service System Analysis

17. To Get Started On SSME: A Whitepaper for Multiple Stakeholders 1. Emerging demand 5. Call for actions 2. Define the domain 3. Vision and gaps 4. Bridge the gaps Service Innovation Growth in service GDP and jobs Service quality & productivity Environmental friendly & sustainable Urbanisation & aging population Globalisation & technology drivers Opportunities for businesses, governments and individuals Service Systems Customer-provider interactions that enable value cocreation Dynamic configurations of resources: people, technologies, organisations and information Increasing scale, complexity and connectedness of service systems B2B, B2C, C2C, B2G, G2C, G2G service networks Stakeholder Priorities Education Research Business Government The white paper offers a starting point to - Service Science To discover the underlying principles of complex service systems Systematically create, scale and improve systems Foundations laid by existing disciplines Progress in academic studies and practical tools Gaps in knowledge and skills Develop programmes & qualifications Skills & Mindset Encourage an interdisciplinary approach Knowledge & Tools Develop and improve service innovation roadmaps, leading to a doubling of investment in service education and research by 2015 Employment & Collaboration Policies & Investment Glossary of definitions, history and outlook of service research, global trends, and ongoing debate “Succeeding through Service Innovation” Whitepaper: A Framework for Progress (http://www.ifm.eng.cam.ac.uk/ssme/)

18. National Innovation Initiative Talent Infrastructure Investment • Develop a diverse, world class, next-generation of innovators • Establish a National Innovation Prize • Make the US a magnet for the best global talent • Create world-class infrastructures, including transportation, information, healthcare and energy • Drive regulatory and legal systems to better support innovation and entrepreneurship • Build a system that protects the rewards of IP, but that also encourages open collaboration • Help markets place top value on long-term innovation strategies • Establish incentives to increase early-stage investment in small-business innovation • Invest to accelerate innovation in the services economy Establish innovation metrics for the knowledge economy, not the industrial economy

19. Service System/Network 1. People 2. Technology 3. Shared Information 4. Organizationsconnected by value propositions Computational System More win-win interactions, more value Requires investment roadmap More transistors, more powerful Requires investment roadmap Our Vision – A Moore’s Law for service system improvementsas service system become increasingly enabled by ICT advances

20. Service Research & Innovation Institute (SRII) After SRII 2.0 Before SRII 1.0 … Healthcare Retail Transport Call Centers Operations Marketing Getting Started www.thesrii.org Computing Analytics … Umbrella Professional Association of Service SIGs • INFORMS Service Science SIG • AMA Service SIG • IEEE Service SIG • AIS Service SIG • ACM Service SIG (proposed) • SSPA/ TPSA/ AFSMI SRII provides a SIG (Special Interest Group) platform for business (industries - infrastructure) and academics (disciplines - talent) and government (policy - investment) to work together

21. Almaden Service Research (ASR: 8x ROI on base funding in 6 years) • Projects (focus on business, science/technology, and relationship results) • CBM, IDG,SDM Pricing & Costing, BIW COBRA, SIMPLE, IoFT, etc. • 9 accomplishments awards ($10M impact each) and 2 outstanding awards ($100M each) • Manage multiple 3-5 person project efforts to accomplishments in 2-4 year periods • If appropriate, increase to 6-10 person effort to achieve outstanding in additional 2-4 years • Portfolio Approach (focus on service system resources, stakeholders, measures) • 1. Improve existing offerings (value propositions) – to internal and external customers • 2. Create new offerings • 3. Improve insourcing, outsourcing, acquisitions, divestitures results • 4. For all three of the above, improve customer/partner capabilities • 5. For all four of the above, increase patents and service IP assets • 6. For all five of the above, increase publications and service knowledge KPIs = Key Performance Indicators, measures of service system performance; including quality, productivity, compliance, and adaptiveness (sustainable innovation) Spohrer on Service Blog: Industrial Service Research: Six Measures of Success

22. Service Research for Service-Oriented Business Units • Service-Oriented Business Units Clearly Understand… • Their offerings and resources (business models, value propositions, KPIs) • Budgets and returns (financial fundamentals) • Stakeholder relationships and interactions (network structures) • Customers • Provider/partners/employees • Competitors • Governing authorities (transparency and compliance requirements) • And Adopt a Continuous Improvement Investment Strategy • Run Budget (execution – reduce cost of operations and maintenance) • Transform Budget (agility - adopt industry best practices & structures) • Innovate Budget (leadership - create industry best practices & structures)

23. Technology Technology Technology Technology Technology Technology Technology Technology Run Technology Technology Transform how much time devoted to each? Technology Technology Technology Technology Innovate Lifelong learning enables entities to change and adapt as value migratesinto new areas of opportunity • Three types of entities • Individuals • Enterprises • Businesses • Non-profits • Regional Authorities • Cities • Nations • Three types of change • Run = use existing capabilities and improve with practice • Transform = adopt a new best practice • Innovate = create a new best practice

24. Service science: Adaptable individuals, governments, and companies

25. Source: Kurzweil 1999 – Moravec 1998 Information technology (IT) is one driver of change

26. 100 Television Electricity Telephone Radio Automobile VCR 50 PC % Adoption Cellular Internet 0 25 50 75 100 125 150 Years The hallmark of a smarter planet is accelerating change…As measured by customer adoption rates of innovations

27. Technology immersion of today’s students Innovations in the consumer marketplace are driving rapid adoption of new technologies for communication, entertainment and learning Over 4 billion individuals now have access to mobile technologies worldwide – representing over 60% of the population Social networking sites, virtual worlds, and mass collaboration technologies allow crowd sourcing to gain insights 27

28. Agenda • Introduction to Smarter Planet and SSME (Slides 25-35) • Update on Industrial Service Research (Slides 37-42) • Define Service Science & Systems Science (Slides 44-49) • The word “service” used in many disciplines (Slides 51-64) • The evolution of types of service systems (Slides 66-76) • Example service research projects (Slides 78-92) • Overview of Global University Programs (94-95) • Lifelong learning on a Smarter Planet (97-140)

29. Smarter Service Systems = Complex Systems That Serve Customers Better water, electricity, transportation, education, healthcare, etc. Human Systems Planetary Systems Quality of Life Smarter Planetand SSME:Our world and us Has Part Has Part Planetary Systems Benefits Benefits Carbon Footprint (Choices) Capabilities, Experience (Choices)

30. The World is Getting Smarter– As we build better service systemsSSME educates people about complex systems that serve customers…about a diverse ecology of types of service systems that all interact Smart traffic systems Intelligent oil field technologies Smart retail Smart energy grids Smart food systems Smart healthcare Smart supply chains Smart countries Smart weather Smart regions Smart water management Smart cities

31. …And that’s a lot to know! SSME creates T-Shaped Professionals What is different about SSME? Broad Communication Skills and Practical Experiences Supported by Deep Knowledge in an area of: Science Or Management Or Engineering Or Design of Service Systems

32. Virtual World Real (Instrumented) World Simulated World www.caiso.com Mathematical World Multiple Approaches to Study Service Systems Focus: Smarter Service Systems = complex systems that serve customers, increasingly enabled by advanced ICT (www.thesrii.org)

33. Key Concepts in SSME Smarter systems serve customers better and improve quality of life, creating more opportunities for win-win, or benefit-benefit, interactions: resulting in measurable resource access & value-cocreation for multiple stakeholders.

34. To Get Started On SSME: A Whitepaper for Multiple Stakeholders 1. Emerging demand 5. Call for actions 2. Define the domain 3. Vision and gaps 4. Bridge the gaps Service Innovation Growth in service GDP and jobs Service quality & productivity Environmental friendly & sustainable Urbanisation & aging population Globalisation & technology drivers Opportunities for businesses, governments and individuals Service Systems Customer-provider interactions that enable value cocreation Dynamic configurations of resources: people, technologies, organisations and information Increasing scale, complexity and connectedness of service systems B2B, B2C, C2C, B2G, G2C, G2G service networks Stakeholder Priorities Education Research Business Government The white paper offers a starting point to - Service Science To discover the underlying principles of complex service systems Systematically create, scale and improve systems Foundations laid by existing disciplines Progress in academic studies and practical tools Gaps in knowledge and skills Develop programmes & qualifications Skills & Mindset Encourage an interdisciplinary approach Knowledge & Tools Develop and improve service innovation roadmaps, leading to a doubling of investment in service education and research by 2015 Employment & Collaboration Policies & Investment Glossary of definitions, history and outlook of service research, global trends, and ongoing debate “Succeeding through Service Innovation” Whitepaper: A Framework for Progress (http://www.ifm.eng.cam.ac.uk/ssme/)

35. Service System/Network 1. People 2. Technology 3. Shared Information 4. Organizationsconnected by value propositions Computational System More win-win interactions, more value Requires investment roadmap More transistors, more powerful Requires investment roadmap Our Vision – A Moore’s Law for service system improvementsas service system become increasingly enabled by ICT advances

36. Major Types of Demand: Customers of… Service Science: Big and Precise (Finite SIGs) Major Types of Expertise/Knowledge: Providers of… SIGs = Special Interest Groups (e.g., healthcare-operations, retail-marketing)

37. Six Major Types of Demand Example Analysis Customers of… 1800 1800 US (4 million people) 1940 1940 US (132 million people) 2010 2010 US (300 million people)

38. 13 Major Types of Expertise/Knowledge: Providers of… Example Analysis

39. 1 Area of Depth & 78 Areas of Breadth (13 Expertise/Knowledge X 6 Demand) So what should an SSME graduate know? For example… Depth = Problem Solving Skills (Tools & Practical Experience) Breadth = Communications Skills (Vocabulary & Lab Experience)

40. Agenda • Introduction to Smarter Planet and SSME (Slides 25-35) • Update on Industrial Service Research (Slides 37-42) • Define Service Science & Systems Science (Slides 44-49) • The word “service” used in many disciplines (Slides 51-64) • The evolution of types of service systems (Slides 66-76) • Example service research projects (Slides 78-92) • Overview of Global University Programs (94-95) • Lifelong learning on a Smarter Planet (97-140)

41. Agenda: Introduction to industrial service research • Status: Service Innovation Proof Points • Industrial Service Research (IBM ASR Example) • Service Research for Service-Oriented Business Units • University Programs and SSME (Service Science Management and Engineering) • Government Programs and Service Innovation Roadmaps (SIR) Reports • Professional Associations (Service SIGs) and SRII • Going forward and strengthening connections to… • Smarter Planet: Serving customers better with smarter societal systems/networks • Analytics, SOA, and CAD Tool: Software systems and community platforms • Cloud Computing and HPC: Hardware systems and compute utilities • Nanotechnology: Materials, sensors, and energy • Policy: Better measures/statistics/investments, job creation & recovery acts ASR = Almaden Service Research SIG = Special Interest Group SRII = Service Research and Innovation Institute SOA = Service-Oriented Architecture CAD = Computer-Aided Design HPC = High Performance Computing

42. Almaden Service Research (ASR: 8x ROI on base funding in 6 years) • Projects (focus on business, science/technology, and relationship results) • CBM, IDG,SDM Pricing & Costing, BIW COBRA, SIMPLE, IoFT, etc. • 9 accomplishments awards ($10M impact each) and 2 outstanding awards ($100M each) • Manage multiple 3-5 person project efforts to accomplishments in 2-4 year periods • If appropriate, increase to 6-10 person effort to achieve outstanding in additional 2-4 years • Portfolio Approach (focus on service system resources, stakeholders, measures) • 1. Improve existing offerings (value propositions) – to internal and external customers • 2. Create new offerings • 3. Improve insourcing, outsourcing, acquisitions, divestitures results • 4. For all three of the above, improve customer/partner capabilities • 5. For all four of the above, increase patents and service IP assets • 6. For all five of the above, increase publications and service knowledge KPIs = Key Performance Indicators, measures of service system performance; including quality, productivity, compliance, and adaptiveness (sustainable innovation) Spohrer on Service Blog: Industrial Service Research: Six Measures of Success

43. Service Research for Service-Oriented Business Units • Service-Oriented Business Units Clearly Understand… • Their offerings and resources (business models, value propositions, KPIs) • Budgets and returns (financial fundamentals) • Stakeholder relationships and interactions (network structures) • Customers • Provider/partners/employees • Competitors • Governing authorities (transparency and compliance requirements) • And Adopt a Continuous Improvement Investment Strategy • Run Budget (execution – reduce cost of operations and maintenance) • Transform Budget (agility - adopt industry best practices & structures) • Innovate Budget (leadership - create industry best practices & structures)

44. University Programs and SSME • >250 Universities in >50 nations • Courses that combine business and engineering perspectives • Various levels: undergraduate, masters, and doctoral programs • Core area of study remains the focus • Adds breadth and exposure to many service system examples • Preparing graduates to be adaptive innovators in service-led economies • Example: USA SJSU (http://www.cob.sjsu.edu/ssme/) • >25 Service Research Institutes established • Practical experience and industry participation • Interdisciplinary teams that focus by industries • Student competition and award programs • Example: Germany KIT (http://www.ksri.uni-karlsruhe.de/) Some programs add a “D” for Service Science, Management, Engineering, and Design Others shorten to Service Science or Service Research [Note: There were a few pioneering service programs over 30 years ago, e.g. ASU]

45. Government Programs and SIR reports • >18 Nations have held events and written white papers • Basic statistics on jobs, businesses, GDP, Import/Export, growth • Typically, focus on a few key industries (health care, financial, etc.) • Often tied to growth of entrepreneurship and new e-service offerings • A few have made government e-service offerings a priority • Identify leading university programs • Identify leading industrial research organizations • Identify government research and funding programs • Identify public-private stakeholder organizations to drive agenda • Establish recommendations going forward • See examples on Jim Spohrer’s Blog SIR = Service Innovation Roadmap

46. Service Research & Innovation Institute (SRII) After SRII 2.0 Before SRII 1.0 … Healthcare Retail Transport Call Centers Operations Marketing Getting Started www.thesrii.org Computing Analytics … Umbrella Professional Association of Service SIGs • INFORMS Service Science SIG • AMA Service SIG • IEEE Service SIG • AIS Service SIG • ACM Service SIG (proposed) • SSPA/ TPSA/ AFSMI SRII provides a SIG (Special Interest Group) platform for business (industries) and academics (disciplines) to work together

47. Agenda • Introduction to Smarter Planet and SSME (Slides 25-35) • Update on Industrial Service Research (Slides 37-42) • Define Service Science & Systems Science (Slides 44-49) • The word “service” used in many disciplines (Slides 51-64) • The evolution of types of service systems (Slides 66-76) • Example service research projects (Slides 78-92) • Overview of Global University Programs (94-95) • Lifelong learning on a Smarter Planet (97-140)

48. Outline: Introduction to service science • Define for our purposes: • Service = Value-Cocreation • Science = Methods to answer questions • Artificial = Human-made world (Service World) • Understand Relationship • Systems Science = systems in natural world and artificial world • Service Science = systems in artificial world • Fundamental Questions for any Science • How did we get here? • Describe & Explain • Map & Model • Where are we going? • Predict & Control • Invest & Improve • Crisis & Recovery

49. Competitor Provider Customer Authority A S P C (substitute) OO OO lose-win (coercion) win-win (value-cocreation) LC LC Win Lose Provider SA SA PA PA value-proposition change-experience dynamic-configurations lose-lose (co-destruction) win-lose (loss-lead) time Lose Win Customer service = value-cocreation B2B B2C B2G G2C G2B G2G C2C C2B C2G *** provider resources Owned Outright Leased/Contract Shared Access Privileged Access customer resources Owned Outright Leased/Contract Shared Access Privileged Access Service = Value-Cocreation • When two entities interact, and the two are capable of reasoning about value, their’s and the other’s • Win-win, or more correctly benefit-benefit

50. Science = Methods used by a community to both answer questions and to falsify/improve answers • Science is the agreed upon methods and standards of rigor used by a community to develop a body of knowledge that accounts for observable phenomenon with conceptual frameworks, theories, models, and laws that can be both empirically tested and applied within a world view or paradigm (Kuhn, 1962). • Two fundamental questions: • How did we get here? (describe and explain) (map and model) • Where are we going? (predict and control) (invest and improve) • Evolutionary perspective • Structuration theory for social sciences (Giddens 1986) • Social structure and human agency coevolve • Service dominant logic (Lusch and Vargo, 2004) • Operand resources and operant resources coevolve • Service science (Spohrer and Maglio 2008) • Types of entities and interactions coevolve