Kristian Möller Petteri Ollila Mikko Laukkanen How to Create Value System Innovations Value Network Analysis in the Finnish Packaging Business Kristian Möller Petteri Ollila Mikko Laukkanen

Perspectives guiding this study Value system innovations – network roles and positions Value activities, capabilities, and resources in values-system innovations Business model changes in value-system innovations Management mental models in value-system innovations

Value Network Analysis Mental Models & Dominant Logic Packaging machinery manufactor Package manufacturer Central corporation (retail) End user (consumer) Packaging / brand owner Package retailer Refiner / printer Recycling company Forest owners Pulp mill Paper- / corrugated cardboard mill End user (company) Other suppliers (e.g. chemicals) Machinery Energy Contract packaging Retail Wholesale Value Benchmark Cases Tetra Pak Japanese Printers Sinebrychoff Toyota VRIN = Valuable, Rare, Inimitable, Non-substitutable

Domestic Packaging Industry Characteristics & Consequences Traditional vertical, multi-tiered supply chain structure Firms have specific and narrow roles Technical collaboration and long-term relations yet – ‘playing the market’ Little value-system innovations Domestic market too small – limited value potential Structure: Large Suppliers – Small service providers – Large customers Notable exceptions: Huhtamäki – Global service integrator Sinebrychoff – Strategic brand network orchestrator 4

Mental Models from the Field PROVIDE FULL SOLUTIONS ”In Finland we only sell blocks. Nobody wants to pay much for blocks, instead we should find out what the customer really needs and sell the full solution. Milk producer wants to pack milk. Give him the machinery, packaging material and full service, the whole thing, and you will have a long term customer with good profits.” – CEO of a consulting company CUSTOMER NEEDS ARE KING ”Forest industry should stop trying to find out how to find fibre-based packaging solutions. They should try to find the best solution for consumers and the society, how to tackle the packaging issues in a best way regardless of the material, and then network accordingly. Technology- and historical industry perspectives are not helping them to solve their problems.” – CEO of a packaging company UNDERSTANDING NETWORK PARTNERS ”Forest companies are incapable of admitting that hey, we are forest companies but we need others as well. In a network every actor has to feel that they are benefitting from the relationship and forest companies obviously haven’t understood this simple fact.” – CEO of a packaging company INNOVATIONS DO NOT HAVE BE TECHNOLOGICAL ”There are so many great examples of value system innovations worldwide that have changed whole industries, but in Finland we don’t understand business at all. For example UPM’s innovation center in Lappeenranta is very technology oriented, the guys are researching chemical processes and that is all they see.” – Owner of a consulting company 5. SOLVE REAL PROBLEMS “The forest industry has their own agenda of trying to be associated with forest and fiber, but I think it is much more important to find the solution, or understand the problems and find answers, instead of focusing on a certain technology or certain materials.” - CEO of a packaging company

Finnish Packaging Industry - Huhtamäki Packaging machinery manufactor Package manufacturer Legislation (lobbying) Central corporation (retail) Consumer trends and attitudes (e.g. environmental friendliness) End user (consumer) Packaging / brand owner Package retailer Refiner / printer Recycling company Forest owners Pulp mill Paper- / corrugated cardboard mill End user (company) Safety Education Research labs External factors affecting Competitivity (e.g. currency exchange rates) Other suppliers (e.g. chemicals) External factors: Machinery Energy UPM, M-real StoraEnso, Peterson Packaging Ciba Metso Germany, Switzerland, Italy Walki, Rosenlew RKW SOK, Kesko Finnstaples Contract packaging Fazer Novelpack Huhtamäki, Pyroll NP-kierrätys Retail Wholesale Mikko tai Petteri Vähän metodologiaa ja kuvia verkostosta

Illustrative Benchmarks Value network innovations open new opportunities Tetra Pak Japanese Printers Network innovations require network management Sinebrychoff Toyota Innovation is about ideas and execution

In conclusion… Structural and environmental conditions make value system innovations challenging in the Finnish packaging industry. However, a service integrator may find interesting opportunities. Our cases show that value system innovations require an understanding of one’s own network, the willingness to challenge existing structures, and the ability to execute change.

Network Roles in the Future?