Value-To-Market: an alternative approach to service innovation in the auto sector
- Raid NaimHead of Digital Transformation
Thanks to our increasingly digitised world, almost any product can now be transformed into a connected platform for offering long-term, value-added services to customers. Companies that remain focused on creating finite products will increasingly find themselves outmanoeuvred by rivals and locked out of the bigger profits that sit further up the value creation chain.
The shift of focus from product to service is igniting most of the innovative work that’s currently emerging from the automotive world. Carmakers and large players in their supply chains have understood the need to step up their game and offer services that enable, complement and enhance core products. (e.g. connected car services) or that create new ecosystems around them (e.g. shared mobility services).
However, the business of creating successful services is one that adheres to different rules than the business of creating products. The unidimensional view of the ‘time-to-market’ approach that dominates the auto sector will need to shift towards one based on long-term value generation. For traditional carmakers, this will require radical change at all organisational levels.
When time-to-market (TTM) strategies started to be discussed towards the end of the last millennium, they were mainly aimed at optimising already established business models by reducing the length of time it takes for a product from being created to being available for sale.
Because of these strategy advances, the product development cycle (PDC) of new car models dropped from over 10 years to below 4 years in the last five decades. Carmakers utilised technologies to create new variations of their products in a much faster manner, thus shortening the TTM needed for providing their customers with the promised value.
Example PDC Shortening: VW Golf
However, with the increasing importance of services, this approach is no longer delivering the kind of value it once did. For decades, carmakers have been delivering “Das Auto”, “The Ultimate Driving Machine”, “The Car That Cares”, “The Car In Front”. They have delivered a product that moved the customer from A to B and that was optimised every few years to improve that movement: becoming faster, cheaper and safer.
Let’s imagine however, an automotive manufacturer is moving from promising a car to promising “mobility” to its customers. Suddenly it is not about delivering value in a certain speed, but rather making sure that the “overall new value” is delivered by continuously increasing the value creation. So, instead of just reducing the PDC of “Das Auto”, the carmaker has to make sure that other essential mobility value propositions like “Das Parken” (parking), “Das Navigieren” (navigation), “Das Abholen” (collection), “Das Pendeln” (commuting) or even “Das Fliegen” (flying) are being created accordingly.
Three of the four classic types of TTM discussed in literature are mainly about the value delivery: increasing speed, optimising scheduling and reducing required resources. Only one type (flexibility to make changes) addresses the product creation process and the ability to react to change. But even this type is usually associated with KPIs related to the product itself – features or scope for example.
Because TTM was meant to improve the lifecycle of established business models, none of its four types put a real focus on the long-term value the product creates for consumers beyond the initial point of purchase.
Time-To-Market Development For “Das Auto”
In order to shift thinking around the development and launch of auto products we need to move away from the more time-focused mindset and embrace a longer-term ‘Value-To-Market’ (VTM) approach. With continuous validation and improvement at its heart, VTM strategies try to assess, create, validate and improve innovative services by always putting the measurement focus on the value to be created and delivered rather than on the process of creation and delivery.
A VTM strategy is a refocus of the assessment view to measure the perception in the outside world more carefully than internal processes. It is a strategy that takes KPIs from the old world of deadlines, scopes and budgets to the new, brave world of insights, values and impact.
Ideal Scenarios of Time-To-Market and Value-To-Market iterations
Value-To-Market Development For “Die Mobilität” (mobility value proposition)
To give a sense of what’s meant by this, consider the difference between building a house and growing a tree. The house will be a work-in-progress entity delivering next to zero value until the day it is completed. The tree, on the other hand, will be delivering different sorts of value (oxygen, leaves, blossoms and fruits to name a few) while still growing. The house is a deterministic value creation process, in which concepts like on-time, on-budget and quality (all time-to-market concepts) have a real place. But a tree growing is a process of continuous value creation, much like the VTM strategy carmakers must now adopt.
Deterministic vs. Continuous Value Creation
While TTM requires a stable business model underpinning it and is assessed by product creation and delivery optimisation, a successful VTM accelerates the validation of new business models and is served by an optimised value creation chain. This chain is based on lean build-measure-learn iterations and assessed by the value increase each of these iterations delivers to the market.
One of the main reasons why this approach is easy for startups (almost standard operation), but rather difficult in large organisations is the established mindset in the latter which focuses all assessments on internal processes. There are a few principles that enable the required shift of focus – from the more inward-facing deadlines, scopes and budgets to outward looking insights, values and impact.
● All Value Is Customer Value
When building new innovative services, validating the value proposition is always the main activity. All KPIs, assessments, trackings need to focus on it.
● All Creation Is Co-Creation
The best way to increase value creation within a value creation cycle is to include the customer in the value creation process. It enables a continuous validation and manifests the focus on customer value.
● All Business Is Scale Business
Services in the ecosystem of a core product need to be based on a scalable business model. This is the main focus of the business model validation during and after validating the value proposition.
● All Service Is Prime Service
Services in the ecosystem of a core product aim to elevate the product and protect it from commoditization. Thus, the services should be positioned to compensate through characteristics of excellence: quality, individualisation, novelty etc.
● All Change Is Lean Change
In order to maintain a process of continuous validation and improvement, an underlying approach of continuous change is needed. Lean change puts people and their behaviour before structure, process and hierarchy. It enables value creators to take ownership of how to create and increase value.
● All Delivery Is Continuous Delivery
In value-to-market, delivery is an inherent part of value creation, as it enables continuous validation and improvement. Having the appropriate structure and processes for continuous delivery is thus essential for managing the insight/value feedback loop.