Structure of Value Networks in Telematics Business

1. Structure of Value Networks in Telematics Business 2.9.2003 Ville Salomaa

2. Structure of Value Networks in Telematics Business • Made by Ville Salomaa at Siemens Oy in Espoo • Supervisor: Professor Heikki Hämmäinen • Instructor: Lic. Tech. Janne Kankare • Professorship: S-38 Telecommunications Management ,

3. Agenda • Introduction • Definitions • Market potential • Technical overview • Value networks in wireless telematics • Two case studies • Conclusions ,

4. Introduction (1) • The market of mobile subscribers is becoming saturated in Western Europe • New potential customers beyond human beings • wireless machine-to-machine communication = M2M = wireless telematics • M2M has huge market potential due to the fact that machines outnumber humans by a ratio of at least four to one • The M2M market potential can not be utilized by usual means in telecommunications industry ,

5. Introduction (2) • Need for cross-business know-how • Vertical M2M markets, understanding customer • Telecommunications • IT, application development • Business processes and applications • No single telecommunications company can cover the whole fragmented value network Need for partnerships • Value network fragmented -> brings the complexity back to business logics in telecommunications • Value Networks basis for business strategy -> VN must be studied in this new business area ,

6. Intoduction (3) • Reseach Problem: The largest challenge in wireless telematics business is considered to be the finding and managing of the fragmented value networks. • Objective: The key objective of the study is to define the structure of value networks in wireless telematics business. • Scope: Wireless M2M from business point of view • Reseach Methods: literature analysis, interviews and calculations. Literature mostly studies and articles. • Reliability: Extensive research material does not exist -> much is based on real-life business ,

7. Definition of Wireless Telematics (1) • Definitions not established • The Vocabulary of Mobile Communication (2001) describes telematics as follows. “Telematics: Sector of information technology which simultaneously combines telecommunications technology and data processing technology” • Lately also used in the meaning of “automotive telematics” • M2M is modernly emphasized as wireless machine-to-machine communications • machine-to-machine,communication between machines • machine-to-mobile, for example remote monitoring by the user • mobile -to-machine, for example remote control by the user ,

8. Definition of Wireless Telematics (2) In this thesis: “Wireless Telematics” refers to computerized wireless communication with or between machines = M2M = Wireless machine-to-machine communication ,

9. M2M Market (1) • Huge market estimations • Nature the same in all of them, but scale varies remarkably ,

10. M2M Market (2) • Conclusion: M2M market is hard to forecast. Some studies predict strong growth. But as learned in the near history of mobile telecommunications, all market estimations in this business field have to be dealt with caution. ,

11. M2M Market Areas • Telemetry • Telematics / in-vehicle applications, • Public traffic services, • Industrial applications, • Security and surveillance, • Sales & payments, • Fleet management • Telemedicine • B2B market is estimated to grow first, because consumer market adopts new technologies slower ,

12. Technical overview (1) • Fundamentally, existing technologies used • GSM/GPRS/UMTS are major M2M technologies • Short range technologies: WLAN, Bluetooth, RFID (Radio Frequency Identification) • XML and Corba to hide the underlaying technologies from applications • Location technologies based on GPS, wireless terminals and networks • At the moment GPRS enables cost effective IP connectivity in M2M solutions ,

13. Technical overview (2) ,

14. Technical overview (3) • Wireless module is essentially a stripped-down version of a mobile phone • Wireless moduless and terminals highly developed • fast application developement and integration (java) • Rugged, operation in temperatures of (–20) – (+65) C • weight 10-18 grams Siemens MC45 Wireless Module Siemens TC 35 Wireless Terminal ,

15. Technical overview (4) • There is basically no M2M standardization -> strongest technologies will develop into de-facto standards • From technology perspective it is quite clear that no wireless technology can provide such QoS that life-critical M2M services could be implemented in the near future • QoS enough for applications where best effort reliability level is enough • cost reductive applications • new features to products via mobility ,

16. Value Chain • Value chain is a chain of interactions which takes place inside or between organizations in order to produce products and services to customers • The term value chain is used to underline the sequence of actions in value creation. • VC is a linear mechanistic model of business that is based on the industrial age production line. Developed by M.E. Porter in 1985. • Such a mechanistic model is simply inadequate to understand the complexities of value in the knowledge economy. Manufac- turer Distribu- tion Materials End User ,

17. Value Network • A value network is an enlarged view of value chains as they come together to form complex networks • A value network is a web of relationships that generates economic value and other benefits through complex dynamic exchanges between two or more individuals, groups or organizations • The Value network, its different entities and their relationships can be defined in different resolution ,

18. Value Network in Mobile Services Business • An example of a value network: value network in mobile services business from a study by Finnish ministry of transportation and communication http://www.mintc.fi/www/sivut/dokumentit/julkaisu/julkaisusarja/2001/3_1_22.pdf ,

19. More detailed value network in Medical business http://www.vernaallee.com/primary%20pages/Understanding%20Value%20Networks.html ,

20. Customer interface in value network • Value network can be complex, but basically only one company acts in customer interface  Gatekeeper • ”Gatekeeper” owns the customer Supply action in the value chain Supply action in the value chain End user / Customer ”Gatekeeper” owns the customer Supply action in the value chain Supply action in the value chain ,

21. Value networks in Telematics business • Finding successful business models and well-managed value chains is probably the most difficult part of M2M business. • Partnerships and alliances are favoured in order to reach this goal • Value Networks in wireless telematics business are fragmented • Who owns the customer? • A single company can not cover the whole value network • Too many players in the value network will eat the profit ,

22. M2M Value Network • User of the M2M system asks the System Integrator for a solution to a problem. • System Integrator optimizes the telecommunications solution according to the environment and available telecommunications services. • System Integrator builds the applicable devices and controls for the user systems • M2M system is integrated with the systems of the user • User purchases the defined telecommunications services from the Network Operator ,

23. Big role of the integrator in M2M value network ,

24. Case study: M2M in industrial automation • Industrial automation seems to be the most interesting market area in M2M business in the short-term because • industrial companies are fast to adopt new technologies, like wireless telematics, • wireless automation is a natural continuation for wired automation • wireless modules are easy to integrate with automation logics • Major driver for M2M is cost reduction • remote control and maintenance • also emerging service business • Automation companies strong candidates for integrator role in the value network ,

25. Case study: M2M in industrial automation (2) ,

26. Case study: Integration of M2M with business processes • Machines can be linked wirelessly to business processes and applications (like ERP), and thus the machines and the company can be managed more efficiently. • Already happening in wired automation. Wireless connection does not add complexity to the integration from business application point of view ,

27. Case study: Integration of M2M with business processes (2) • Wireless telematics brings more machines available for business process integration • Businesses like vending, can be operated more efficienty when the machines are linked wirelessly to the business processes of the company • Also tasks in service management can be automized ,

28. Case study: Integration of M2M with business processes (3) ,

29. Conclusions (1) • An essential conclusion about M2M value networks is the importance of defining and managing them • value network is the basis for business strategy • The key finding of this thesis is that the value network in wireless telematics business is dominated by a M2M system integrator. • Industrial automation seems to be the most interesting application area of wireless telematics in the short run • Integrating M2M with business processes will be increasingly important in the future ,

30. Conclusions (2): Issues for further research • There is a need for further research in studying the value network in several different application areas of wireless telematics business. • M2M application cases from technical point of view • Product and consulting -based approaches on wireless telematics business and their influence on the M2M value network ,