The Virtual Watch Tower: A Public Good

[By: Abhinayan Basu Bal, Trisha Rajput, Wolfgang Lehmacher, and Mikael Lind]

Building the new economy revolves around data, internet-of-things (IoT), artificial intelligence (AI), cloud and federated computing. The shipper-driven, terminal-centric Virtual Watch Tower / VWT (www.virtualwatchtower.org) is a federated computing initiative, created around fourth-generation logistics control towers of operational end-to-end logistics and supply chain monitoring (VWTnet). This results in an ecosystem that allows collaboration between global supply chain actors (VWT Community) to smartly share private data, enriched by public data. The collaboration allows enhanced visibility, analysis of data, and mitigation of risks such as disruptions or dealing with complex requirements like greenhouse gas (GHG) emissions calculations. Federated computing is chosen over centralized digital systems, where control is situated with the collaborating actors. In the new economy, the emphasis is on ‘collaboration’, and this article is about ‘governing’ collaboration in VWT. 

1.    VWT – an ecosystem of supply chain actors

As described above, the different watch towers form a digital network, which is about technology; and the actors using the network form an ecosystem, which is about interorganisational relations. VWT aims to provide situational awareness of vital transport and logistics assets, such as cargo and containers, and to facilitate collaborative decision-making between actors based on data insights, e.g., through the VWT virtual pop-up situation room. Both public and private data streams are aggregated to improve accuracy and reliability. 

The success of VWT is dependent on the balance between actors through governance. The most important element of VWT governance is control of data because visibility and analysis are directly related to the creation and use of data brought about by technologies such as blockchain, AI, cloud and IoT. The key is to place control of data in the hands of the VWT Community. This is achieved by making VWT a ‘public good’. 

2.    VWT as public good

The governance of VWT reflects ‘public good’ thinking, as proposed by the American scholar J.F. Moore, and envisages an ecosystem where actors co-envision and co-manage ‘co-evolution’ among themselves. Co-evolution means that each actor of the ecosystem ultimately shares the fate of the network as a whole, regardless of the individual actor’s strength or power. 

So far, VWT has followed the co-evolution approach to build consensus among its actors through living labs and working groups. In the coming phase of VWT, technology providers will co-create digital solutions responding to the needs of cargo owners, and transport and terminal operators. The actor focus is crucial as it resolves the paradox to hold back data, and the sense of community takes precedence to garner trust. In addition, the notion of ‘public good’ can be assumed to be ingrained in VWT as funding support came from governmental agencies in Sweden and Singapore to foster digital innovation and create economic and societal value.

Public good is ‘non-rivalrous’, i.e., an individual’s consumption of the good does not influence what is available for others; and ‘non-excludable’, i.e., no one can be excluded from consumption of the good. Typical example of a public good is a lighthouse where one ship’s use of the beacon does not prevent other ships from using the same. 

For VWT to become a public good, VWT as a ‘legal entity’ needs to act as a fiduciary for its community members, i.e., someone who manages the asset for the benefit of another. VWT is poised to do that as a non-profit entity. Then VWT as the ecosystem orchestrator has control of data collection and data use, where the community members can influence the orchestration rules, and VWT in its role as fiduciary assures that data use follows those rules, which means that it is difficult to centralize control by a specific actor. 

The cooperative nature of VWT necessitates establishment of a governance model comprising rules that guide the interaction of the actors, decide what behaviors are encouraged or discouraged, and choose how to enforce them. This governance model is a critical design choice for VWT because it replaces the hierarchical direct forms of control found in traditional vertical supply chains with indirect forms of control.

2.1 How the VWT balances actors through governance

Governance is important because it ‘encourages lots of innovation and allows complementors as well as users to benefit in a sustainable manner’ (Gawer, 2022). As explained above, VWT is an open network of economic actors that self-organize in their quest for exchange of information, where no specific actor is in control. Centralised control is avoided because that contradicts with the self-organizing nature of VWT. The governance model of VWT is established through various means, including the Project Agreement, Power of Attorney, other ecosystem orchestration rules, software tools, open-source licenses, etc. 

VWT’s governance model is designed with the following considerations in mind. 

(i) Foster co-opetition - In VWT, competitors cooperate to achieve a common goal. This is known as co-opetition, which is a mix of the words cooperation and competition. When competing actors join VWT to cooperate, they have already analyzed their position and decided to share their ‘special sauce’ with other actors. VWT fosters co-opetition through governance rules by striking a balance between openness and control so that actors can share their special sauce without giving away the recipe.     

(ii) Balance openness and control – VWT as ecosystem orchestrator strikes the delicate balance between openness and control. On the one hand, with openness, VWT transfers design capabilities and attracts contributions from third parties through APIs that grant access to the platform. On the other hand, with control, VWT secures and protects the compatibility of the platform through governance. For example, using openness, VWT may create the possibility for cargo owners to access data from multiple transport operators through APIs. Then, through control, it would provide governance for the data-sharing process between various actors in the VWT Community.

(iii) Balance value creation and value capture - VWT creates value through network effects, a business principle where the service becomes more valuable as more actors use it. The governance rules ensure that there is the possibility for actors to capture the value created through cooperation in an equitable manner.

2.2 Societal aspects through KPI-triangle

VWT views value to be both societal and economic. In VWT, societal aspects include sustainability, which goes together with economic considerations of participating actors. Sustainability represents one corner of the key performance indicator (KPI)-triangle through environmental impact, which is balanced with two other corners, namely, operational cost and delivery precision. The KPI-triangle is an essential part of analytical services. Thus, one of VWT’s objectives is to ensure that value capture is not only for actors in the VWT Community but also for the society at large. This objective aligns with emerging solutions for non-financial reporting, such as WEF stakeholder value principles that create ways to measure sustainable value creation.

 

Figure 1: VWT KPI-triangle

KPIs are quantifiable measures of performance over time for specific objectives that assist organizations in their decision-making. In VWT, KPIs present the possibility to allow businesses to partake in responsible decision-making through increased visibility, so that they can manifest themselves as ethical businesses fulfilling their Environmental, Social, and Governance (ESG) obligations. Conversely, it may be argued that the KPIs of VWT provide an acceptable approach to navigate through the complexities of sustainability actions in supply chains.  

The discussions in the VWT Community at living labs reflect that the actors are mindful about the pressures of emerging sustainability regulations. For the actors, the ‘environmental impact’ corner of the KPI-triangle may act as an ‘ecosystem binder’. For example, GHG emissions calculation is a feature under the ‘environmental impact’ corner and balancing that with the operational cost and the delivery precision corners is of common and mutual interest to the actors of the Community. Such common and mutual interests bind the actors together.

VWT orchestrates and promotes ‘collective decision-making’ that requires input from several actors with competing interests by optimizing their KPIs collectively. This aligns with Moore’s view, where he describes an ecosystem to provide ‘a vision and proof of concept that multiple contributors with differing interests can join in common cause’, making it a ‘public good’, which as an intangible asset subsists as an idea ‘in the mind of the possessors’ (Moore, 2006). 

Based on the ‘ecosystem binder’ and ‘collective decision-making’ arguments, VWT, as a ‘public good’ creates a sense of community and mutual trust amongst actors, which propels them to share their business data and participate in the digital transformation process ‘responsibly’ to balance societal concerns with economic gains. 

3.    Thinking ahead - VWT dynamics  

Conceptually, the ‘sense of responsibility’ is embedded in the design of VWT through a mix of internal governance, external regulation, and feedback loops. If the actors are not mindful of their ‘sense of responsibility’ towards the VWT Community, that creates misalignment resulting in ecosystem tensions. The ‘sense of responsibility’ is represented by generativity, which is the interaction of social and technical elements that enables digital transformation. Generativity acts as a force that creates various feedback loops and maintains the long-term stability of the ecosystem (Basu Bal, 2023). Generativity results in continued emergence through the formation of complex wholes from parts which comprises the dynamic relationship between people, technology, and organizations during the ongoing cycles of design, appropriation, and use of information systems (Basu Bal, 2023). This emergence phenomenon is referred to as VWT dynamics, that balances economic value creation and sustainability. 

VWT dynamics may be compared to the sight of hundreds of birds moving across the sky in giant swathes, as a single entity. They twist and swoop and change direction in split seconds and ensure the safety and protection of the whole flock. Scientists believe that large flocks do not have a social hierarchy, but they still move and change direction in perfect unison because each bird reacts to the changing dynamics by observing their neighbors. The above phenomenon is known as murmuration and is an example of emergence, which in this article is referred to as VWT dynamics.

Returning to the conceptual construct, the governance of VWT is envisaged as listening to endogenous feedback of the actors and being responsive to exogenous feedback from external regulations. The emergence phenomenon of the VWT dynamics is presented in the figure below.

 

Figure 2: Conceptual framework of VWT dynamics (adapted from Basu Bal, 2023).

The figure depicts VWT through the rectangle on the left and the tensions explained in section 2.1 above through the cloud. Any quest for seeking greater control of the VWT ecosystem by one actor would cause misalignment as shown by the arrow leading to tensions. This would trigger the rules of governance to resolve the tension internally within VWT as shown by the arrow marked endogenous feedback. 

VWT should not be understood as an isolated island. If VWT leaves a tension unresolved, that may lead to a societal concern and attract the attention of lawmakers, resulting in external regulation (law/ regulation/ guideline) mandating VWT to address the concern. In the above figure, societal concern is represented by the arrow leading from the tensions cloud to the grey rectangle of external regulation, which then feeds into the VWT rectangle through the arrow marked exogenous feedback. 

The grey rectangle is shown in gradient because, in some instances, an external regulation could be shaped by a larger societal concern in general, which does not arise from the tensions of VWT, such as climate change. In that case, the lawmakers may decide to promulgate external regulation and inject that directly into VWT for resolution. This could particularly be the case when lawmakers impose regulatory strictures that could be channeled through VWT, to use digital transformation as a tool to promote sustainability. The recent IMO and EU initiatives to decarbonize shipping may eventually take that course to use digitalization as a tool to promote sustainability. In that case, the KPI-triangle of VWT, which is currently geared to cater to CO2 measurement of shipments, could be that specific tool to combat climate change and act as an ‘ecosystem binder’.

4.    Conclusion – VWT: trusted ecosystem orchestrator 

This article highlights the importance of VWT to have a balanced governance framework for digital transformation and sustainability to go hand in hand and reinforce each other in international trade and transport. The analysis demonstrates that - (i) VWT as a ‘public good’ in conjunction with the ‘co-evolution’ approach develops a sense of community that enables actors to repose trust on each other; and (ii) VWT as an ecosystem orchestrator enables policy goals such as decarbonization which may serve as ‘ecosystem binder’. Overall, the article concludes that the value creation of VWT is embedded with societal concerns, which would lead to the long-term stability of the ecosystem and thus protract value capture.

Acknowledgments
We acknowledge and appreciate inputs received from Jan Bergstrand from Swedish Transport Administration, Markus Ekwall from Dania Connect, Fu Xiuju, Yin Xiao Feng, and Zhou Rong from A*Star/IHPC, Margi van Gogh from World Economic Forum, Kenneth Lind from RISE, Anders Rystedt from Alleima, Janne Swinnen from Scania, Stefan Väre from Stora Enso, and Phanthian Zuesongdham from Hamburg Port Authority.

About the authors

Abhinayan Basu Bal is a Senior Lecturer at the School of Business, Economics and Law at University of Gothenburg. He lectures and researches in commercial and maritime laws with emphasis on digitalization and sustainability. Since 2013, he has been the accredited Swedish observer to UNCITRAL Working Group-IV on E-Commerce.

Trisha Rajput is a Researcher at the School of Business, Economics and Law at University of Gothenburg. Her current research focuses on platforms that facilitate trade; and enhance the visibility, efficiency and predictability of global value chains. Her work on single window interoperability has been presented at UNCITRAL.

Wolfgang Lehmacher is partner at Anchor Group and advisor at Topan AG. The former director at the World Economic Forum, and CEO Emeritus of GeoPost Intercontinental, is Advisory Board Member of The Logistics and Supply Chain Management Society, Ambassador F&L, Advisor GlobalSF, Advisor RISE, and member of the think tanks Logistikweisen and NEXST.

Mikael Lind is the world’s first (adjunct) Professor of Maritime Informatics engaged at Chalmers, and Research Institutes of Sweden (RISE). He is an expert contributor at World Economic Forum, Europe’s Digital Transport Logistic Forum (DTLF), and UN/CEFACT. He is co-editor of the first two books on maritime informatics, and is co-author of Practical Playbook for Maritime Decarbonisation. 

References

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Gawer, A. (2022). Digital platforms and ecosystems: remarks on the dominant organizational forms of the digital age. Innovation: Organization and Management, 24(1), 110-124, https://doi.org/10.1080/14479338.2021.1965888

Moore, J. F. (2006). Business ecosystems and the view from the firm. The Antitrust Bulletin, 51(1), 31-75.

Thomas, L. D. W., & Tee, R. (2022). Generativity: A systematic review and conceptual framework. International Journal of Management Reviews, 24(2), 255-278. https://doi.org/10.1111/ijmr.12277