Suppliers stream up the value chain

Collaboration needs to be enabled amongst city, industry and citizens and cut across national, public-private and sector silos. This approach results in new forms of organizations within stakeholders as well as redefines their role towards other companies and customers.

The traditional product solution will make way for the design of “satisfaction”. Innovation no longer happens on product level, but in ways existing technology is systemized. As a result traditional product suppliers are likely to loose relevance in their former established markets if they remain in their value chain position. In order to survive they have to look how to deal with the new business environment “City”. Especially as new entrants with focus on holistic solutions, often based on data services and project management, turn into disruptive forces.

There seems to be a tendency that the value chain of a pure product-supplier will be shortened and there seems to be deminishing room for the accustomed long term business in future. The sale of isolated products to municipalities looses relevance in the context of holistic solution approaches. These are composed of products but further more of data management components. Pure component- and product suppliers become exchangeable, their products commoditized and they slip down the ladder of TIER positions.
On the other hand there are market entrants that had nothing to do with segment modernization in the past. Companies based on ICT are cross entering and by bridging segments (e.g. energy, mobility) start shaking traditional markets. In addition their software focussed business has normally a better EBIT than the traditional hardware oriented solutions.

A disruptive development for those product suppliers that don’t see a need in streaming up the value chain.

The sustainability journey must begin with revenue, cost, brand and risk

Finally an article that looks beyond technical options, referring to a study conducted with 30 North American supply chain executives – whatever that means. Anyway. Well, they ranked “sustainability” as “important” but “not critical” to their company strategies. Isn’t that a bit like the saying “pls wash me, but don’t make me wet”?
The author Susan McNally describes “revenue, cost, brand and risk” as the 4 “horsemen” that help understand, what inhibits the leap to “critical”.

The reason why I mention this article is that it can be transferred to the hurdles we see in the conceptual leap for smart cities. Being a smart city or a technical provider with holistic solutions is – of course – important, due to all the facts on demographic change, fast urbanization, critical (!) resource management…. but it is “not critical” for our current (!) business. Nice to talk about it, but let others do the first step 😉

A propos “step”…. McNally thinks of 5 reasons why the conceptual leap of sustainability is limping and i feel free to transfer these to smart cities:

Environmental and social ambitions must match corporate financial objectives.
Same applies for SC activity: It is worth evaluating the smart city solution mid-/longterm even though the next election period is in sight and a “ribbon-cutting” moment (as a result of an optimized subsystem solution) is ravishing.

There are 2 types of organizations: Real strategists and operational piecemealists. While the ones fly quite high and often struggle to deliver sustainable value on the ground the others keep ploughing the ground.* Again transfer to SC: So far there is a lot of piecemeal out there. Pilots to gather experience but – at least to my knowledge – no scaleable concept. Give me a shout, when you know any different!

Competitor analyses – well actually i thought this is a no-brainer… But as McNally mentions it in her article her studies seem to tell a different story.
What I discovered on conferences on SC topic is that the exchange on municipal level, the collaboration and joint approaches start building…. it is still a “young” market and all stakeholders need to get confident in and with it.

“…stitching sustainability into the everyday business of profit and loss….”
Looking at SC stakeholders and their business models, sustainable solutions mustn’t be an add-on. Pilots should be developed to the intrinsic structure of the city or company – otherwise the pilot-project remains a “nice try”.

“…game plan looks… at existing processes such as product design, procurement, supply chain planning and logistics, and identify the heat map of where sustainability must be injected into the decision process and what sort of leadership is needed to see the game plan through….”
Within the complex system of SC solutions that is probably a challenge. And it definitely makes a difference on how mature a city is regarding infrastructure and ICT as well as the municipal structures it is based on. However – this fifth aspect is vital.

No rocket science really, all common sense. As all good things come out on top one day i am positive that cities set up their smart agendas, convinced that it is “critical”.

Manzini on “Strategic Design Approach”


Literature Review:
E. Manzini, C. Vezzoli
A strategic design approach to develop sustainable product service systems: examples taken from the “environmentally friendly innovation” Italian prize
(Source: Paper, Journal of Cleaner Production 11 (2003); pg. 851-857; Milan / Italy)

Product service system (PSS) describes the idea of designing and selling “satisfaction” rather than products. Assuming, that the customer (business as well as end user) doesn’t necessarily demand the product itself, but what the products and services enables him to achieve. This is basis for new stakeholder relationships, production processes and business models. Manzini describes this business model innovation as ‘… shifting the business focus from designing (and selling) physical products only, to designing (and selling) a system of products and services which are jointly capable of fulfilling specific client demands, while re-orienting current unsustainable trends in production and consumption practices. … usually referred to as a Sustainable Eco-efficient PSS.’.

Besides the collaborative idea key is that innovation doesn’t happen on product or process side but in the way existing technologies are systemized. In the paper 4 examples are described that target a latent social demand. Given the fact that they all use a – so far unseen – combination of existing technologies and services implementation seems quite easily possible. Prerequisit is that stakeholders are flexible enough to depart from consolidated patterns and get away from business-as-usual. Instead of optimizing their own segment PSS follows an overall systemic resource optimization which is based on the convergence of stakeholders’ interests. This approach results in new forms of organization within stakeholders as well as redefines their role towards other companies and clients. PSS is based on new systems of values and consequently creates new market opportunities that enable new offerings which either add value to the product life cycle or are a final result for the customer.

The 4 examples given are:

A)    “The Diddi & Gori textile flooring service”
Diddi & Gori is in the segment of synthetic fibers production and sold textile flooring, mainly to retailers for exhibitions and trade fairs. Such products rely on oil refining which obviously have an environmental impact (e.g. resource consumption).
Their new idea is to offer services in addition to the product as a final result to the customer by offering the utility of the product rather than the product possession. The new offer includes the whole service from supply and installation to removal. This way the customer no longer buys the product but its utility – they don’t have to struggle with the disposal as Diddi & Gori remove the flooring and make fibre again. This has an impact on the design of the flooring in the first row. As Diddi & Gori  remain the owner of the product over its life cycle, they are interested to enhance material’s lifetime. So easy recycling that allows to create new flooring is their inherent economic interest which reduces resource consumption and waste.
The motivation for the customer is that the overall cost is cheaper than buying and disposing the product.

B)    “The Kübler services added to lubricant supply”
Kübler is a lubricant supplier for machines and components in various industries.
Their new idea is to offer services that provide value added to the product life cycle by analyzing the effectiveness of the aerosol treatment plants and of sewage treatment. In order to do so they set up a van as a movable chemical laboratory with which they analyse the performance of lubricants, the noises, vibrations and other undesired effects directly at the clients machines. Kübler suggests potential for efficiency as well as environmental protection and guarantees functionality and durability.
The motivation for the customer is to improve the lifetime of the clients’ machines and reduces their cost for monitoring and maintenance. The reduction of lubricants sold is compensated by the services offered and improved customer loyalty.

C)    “The Allegrini service added to detergent supply”
Allegrini produces detergents and cosmetics.
Their new idea is to offer services that provide value added to the product life cycle by offering home delivery as a new way of supply. They have a mobile van that periodically tours from household to household and refills the provided plastic flacons – even if not completely empty. This reduces cost for packaging which – bottom line – reduces the cost of the product over all and increases customer loyalty.
The motivation for the customer is time saving (no need to go to a shop) and reduction of waste (reuse of packaging) and landfill.

D)    “The AMG solar heat selling service”
AMG is a municipal enterprise providing gas and lighting to the city of Palermo / Italy.
Their new idea is to offer services in addition to the product as a final result to the customer. So instead of selling the gas they sell heat and hot water as a finished product as well as the maintenance of the equipment.
The motivation for the customer is to be environmentally friendly which – for a municipality – reacts to public opinion.

Designing Smart Cities

Literature Review:
Norbert Streitz, Smart Future Initiative, Frankfurt am Main
(Source: Mensch & Computer 2012, Oldenbourg Verlag, München, 2012)

In order to successfully develop a “Humane Smart City” where people can develop and make use of their creative potential Streitz identifies two key areas: One is the objects (Gegenstandsbereich) – developing from single objects to rooms to buildings into urban context. Enhanced through informationtechnology (ambient intelligence) those things become “smart”. The other one is usage (Anwendungsbereich) – going from individual use to groups to communities where private and business purposes merge. Technology is the enabler for this progress but should always be in harmony with the wishes and possibilities / abilities of the users / people.

Digitalization of content will leave the virtual world and be integrated into real environment. This augmented reality offers new ways of interaction and is basis for the so called Smart Hybrid Cities. Consequently the traditional computer will disappear – the “role” is taken over by objects surrounding the user, e.g. smart furniture or cooperative buildings. “Cooperative building” react to the needs of the users but are also tools to communicate with the environment. A transformation from information design to experience design is the consequence that is challenge and chance for new products and innovationstrategies. Key for success is acceptance. Users need the confidence that digitization and automatization is to their benefit and only with data relevant and allowed by the user (Furcht vor entmündigender Automatisierung). Therefore the user – or in case of smart city the citizen – is far more in the center of development than ever before. In order to achieve a user-oriented solution inter- and transdisciplinary development is a new challenge. IT specialists, engineers, psychologists and designers are already sort of used to collaborate – but the circle needs to be extended to architects, city planners, infrastructure specialists, economists and sociologists alongside with the extension of objects and usages involved.

Scale up!

The energy and climate challenges will be won or lost in cities. The EU’s 20 / 20 / 20 goals goals (until 2020: 20% less CO2 emissions compared to 1990; 20% renewable energy) can only be achieved by accelerating full deployment of solutions that help answering these challenges.
There are a lot of pilots funded by EU money. So far they don’t lead to a wide, not to mention global, roll out. So what is the sustainability in the pilot solution? It is time to learn from pilots, standardize and transfer solutions to market. There is no need to wait for further technological innovation – it is all there, data is available. Key is to create business models that use information from existing systems.

There are various reasons for the missing scale up: First of all there hasn’t been a driver so far to cluster learnings and standardize solutions. Secondly cities are concerned to get locked into particular vendors. Thirdly industry is lacking knowledge on collaborative work with municipalities. And last but not least industry fears to give up competitive advantage by sharing knowledge cross-industry.

Maybe a way forward is that the EU funding focuses on interfaces, standardization and collaboration rather than further pilots. Maybe subsidies should focus on few but big selected pilots that are the nucleus for standards and collaboration models. Just recently the EU set up a platform to exchange experience on smart city solutions – for cities and industry. Goal is to obtain at least 20 SC solutions that are highly transferable and independent of particular vendors.

Lets closely watch it!