Developing Service Innovations
The process of new service development is not well defined, and does not adhere to conventional empirical mechanisms. Yet, new services come onto the market every day. “How?” remains the critical question.
—Martin and Horne (1993, 62)1
This chapter covers the service innovation process and the steps that we feel an organization must successfully carry out in order to create a complete offering. Service innovation is more iterative and less structured than product-development processes for goods. Our suggestion will be that a service innovation process in essence is divided into three steps: focus (on the development project), understand (the customer), and build (a structure that facilitates delivery of customer value). However, we do expand on likely content in each step. One oft-voiced concern about service innovation is that services are easier and quicker to copy than physical products. Therefore, the chapter concludes with a discussion of the ways in which a company can create unique offerings.
Preview of Action Questions
How and when does your organization involve customers or users in your service innovation process?
Is your firm able to test and experiment with new services in real environments?
Service Innovation as a Process
Comparing service innovation processes with new product-development processes for goods reveals that the former are often less structured and not as well documented. Data we have collected reveal that structured development processes can be found in only about half of all service companies.
Even this 50 percent assumption may be overstated: One of the authors asked a group of service innovators if they had a formal service innovation process in place. He followed up with individual interviews of the ones who said that they did have a formal process in place and had them describe their most recent innovation in detail. It turned out that the majority of the service innovators, in this small sample, who said that they had a formal process in place had not actually followed the described formal structure in their most recent new service development! It seemed that some of the service innovators wanted to have a structured process but were unable to apply a process originally developed for new product development of goods to more iterative service innovation.
In our encounters with companies, we are often told of how services have been developed around the coffee table or, as was the case with text messaging—short messaging service (SMS; described in the previous chapter), over a pint of beer and a pizza, that is, basically anywhere but the company’s conference rooms. Research also shows that companies that invest in development and employ structured processes enjoy a greater hit rate, more satisfied customers, and higher profitability. This suggests that we should consider the components required to develop successful service innovations.
Innovations have different degrees of novelty as defined, for example, by the incremental, more innovative, radical classification scheme described in Chapter 2. As in goods innovation, the majority of service innovations are incremental, modifying existing offerings with the purpose of increasing company competitiveness. Incremental development work should be an optimization effort—how a company can increase its competitiveness by creating a better offering, and thereby enjoy more loyal customers. Incremental efforts must be focused on areas with the greatest potential for impact as resources are limited. Research shows that efficient incremental innovation involves communicating with customers, involving them in the entire development process. An incremental innovation represents current customer needs and changes that a customer can easily understand.
As noted in Chapter 3, communication is a complex and multifaceted phenomenon. We define customer communication in terms of: (1) frequency, which denotes how often a company meets its customers in different forums; (2) direction, which indicates whether or not customer and company meet on equal terms or if there is any kind of balance of power at play; (3) medium, the way communication is carried out; and, finally, (4) the content of the discussion, which includes the level of detail in the solutions that the customer may provide.2
A successful incremental service innovation depends on the communication with customers during the development work. The most successful companies carry out frequent meetings with their customers. Research also indicates that it is important that the company and customer meet on equal terms. Content of the meetings is important: Firms should encourage customers to provide concrete proposals and solutions, as well as problems and perceived needs. Our research finds, however, that one of the facets of communication, the choice of medium, does not have any direct impact on the service innovation outcome.
In summary, a company should spend a great deal of time with its customers in their own context in order to succeed in service innovation. What applies to people also applies to people in companies: The more you interact, the better you will know each other. Encourage the customers to talk about solutions and new services. Experiment with a variety of different media to communicate: Our research indicates that interacting via social media, forums, or blogs may work as well in some cases as interacting face to face.
The biggest innovation challenge is the third category, radical innovation, which requires substantial customer interaction and familiarity with customer context in order to acquire tacit, latent, context-specific information. Context is key to revealing customers’ latent needs. Two approaches to uncover this difficult-to-gather information are (1) proactive user research, which was discussed in Chapter 3, and (2) active customer involvement in innovation, which is discussed in Chapter 5.
For many companies there seems to be no shortage of customer information. CRM systems record all the contacts or “touches” between the customer and customer service, sales, and researchers. In addition, smart companies conduct ongoing customer and user research, incorporating the proactive tools and the customer involvement techniques of Chapters 3 and 5. The problem faced by many companies is finding a way to prioritize customer information and decide what is important and how to use it, or deciding what problems or needs to focus on and how to use whatever limited resources are at hand.
Our prescription is focus: understand the customer and establish a structure for service innovation. One suggestion of a service innovation process can be found in Figure 4.1. The process described in the figure is not meant to be a strict linear progression nor should you think that you need to follow each and every step. An organization using a structured linear process, such as a Stage-Gate® approach to new product development, will likely need to modify the process for service innovation.
Our research shows that the development process structure in successful service companies is lenient and iterative. Service innovation projects alternate between phases to a higher degree than in new product development for goods. However, it is useful to highlight the important components of successful service innovation processes from our studies.
Figure 4.1 has been divided into three major phases: focus (focus) during the development project, understanding (understand) the customer, and establishing (establish) a structure that facilitates the delivery of customer value. Interestingly “design thinking,” which focuses on deep knowledge of customers and iteration, also breaks the innovation into three processes—inspiration, ideation, and implementation.3 The service innovation model we have observed and advocate shares features with the design thinking approach.
Figure 4.1 The service innovation development process
In the focus–understand–build model, the two latter phases are segmented into additional activities to better understand the activities required for service innovation success, resulting in six steps in total. The full process is illustrated in Figure 4.1, which was drawn to go downward from right to left, reflecting the outward to inward flow of the process: the original focus is outside the organization or from the customer perspective.
Phase I: Focus
The first step of the service innovation process is to establish a goal of what kind of value-creation process to develop. Which of the main value-creation process types described in Chapter 2 shall be improved: streamline, differentiate, helping, or experience? Companies and organizations should not use an excessively broad scope during their development process; they should focus on the customers’ “jobs.” A specific goal makes it easier to understand what resources should be integrated in order to provide the best possible solutions for the customers. Focus also makes it easier to understand what needs to be studied.
It is possible that a company, after identifying its area of focus, could find an already implemented solution, perhaps in a different industry or another country. One such example is the prepaid card for mobile phones, which was originally developed by the Irish operator Eircell (now known as Vodafone Ireland) in the 90s to allow new customer groups to make phone calls. The card was aimed at individuals who, for various reasons, were not eligible for permanent mobile phone subscriptions, perhaps due to a lack of a regular income, being underage, missing identity documents, or needing privacy to engage in illicit activities. The concept became an immediate success despite the higher cost.
Another way of finding the goals an organization should outline is to study the areas from which innovations normally emerge in a particular industry. Have the innovations consisted of experiences, processes, or financing? If so, it could indicate what customers generally perceive as important. Is it possible to find a completely new niche? This could involve areas where no previous innovation activities have taken place. A company that has always focused on hardware or is operating in an industry that focuses on goods may want to consider service innovations.
Another method to identify goals is to make long-term trend analyses where companies try to predict the direction their industry is heading. For instance, Posten (the Swedish postal service) has for a long time predicted that its customers will prefer electronic correspondence to traditional letters. Consequently, Posten has developed solutions that combine web-based services with regular postcards. Posten is seeking business solutions in a market facing a steady decline in letters and postcards sent each year.
Phase II: Understand
The phase following focus is understand. Achieving understanding of the customers’ value-creation process can be thought of as two steps: involving customers in innovation and learning from them.
Involve
Involving customers facilitates learning both from and with the customers. As previously pointed out, this learning process ideally takes place in the customer’s own context and does not rely solely on memory-based research methods such as focus groups or surveys.
Ethnographical studies or methods based on active customer involvement have proven to work best. One example of customer involvement was the development of Volvo XC90. Rich married women in California, also known as “Hollywood wives,” were regarded as the main customer group and Volvo focused on involving them in the development process. From detailed knowledge of how the car was to be used by these potential customer, Volvo was able to discover solutions that would not have been possible if development had been carried out internally without customer involvement.4
Service innovation consists of “discovering” customer experiences, which are improved to create satisfied customers. However, the journey of discovery has a far less certain outcome than it would appear to have when completed. The task of the developing party is to help the customers communicate information on what creates actual value and to solve the problems at hand. A company can more easily understand how to negotiate this challenge by involving customers or studying them in their natural environment.
Learn
It is not always easy for companies to translate customer needs into a saleable product. Good innovations not only create opportunities for new values for the customer but also contribute to long-term corporate profitability. In the learning phase, the company must learn as much as possible about the customers and their contexts. A key issue for the company is how to transform this customer information into a solution capable of being internalized and realized in a reasonable manner despite imperfect knowledge of what customers want and how willing they are to pay for a solution. One high-level manager at an innovative company described this issue in the following way:
Customers always have lots of requests and when we ask them if they want us to come up with a solution to a problem the answer generally is yes—however, when the solution is ready, it turns out very few customers are willing to adopt it or pay for it.
The manager’s interpretation of the situation is that the customers are not telling the truth, which is probably not the case. Customers may give their best prediction, but predicting needs for new solutions is very difficult. Customers might believe that a particular solution has some kind of practical value in its unrealized state, only to discover that it is not as useful the case when given the opportunity to try it. Therefore, it is wise to test a potential solution as soon as possible.
The company may start by outlining simple solutions that can be tested on employees or users in order to be as realistic as possible. The work group can enact scenarios to get indications of whether or not they are on the right track. Some companies use customer panels to discuss various solutions while some use a particular market as a “test market” to implement pilot projects and relevant solutions. Rapid prototyping can push this process along.
A major fear in this situation is that a company’s competitors will find out the direction it is heading. These concerns are well founded in service innovation; services are easily copied. However, it is difficult for a competitor to identify and understand the plethora of services offered by a competing. Confidentiality is not an insurmountable problem if a company has found a market-relevant solution capable of being implemented in the organization with reasonable resource use. The company should always be one step ahead of its competitors in innovation, which will allow them to more quickly introduce further new services. If they stay on top of customer information, the company that launched a new service should be first to market with versions 2.0 and 3.0!
A high-level manager at Volvo Cars said that Volvo has traditionally been good at maintaining confidentiality and curtailing the dissemination of internal information. However, the restrictions on dissemination of information were so severe that it did not even reach key company employees. He went on to state that if the need exists, competitors will be able to obtain any kind of internal information regardless of what security measures are in place. He concluded that the benefits of spreading customer information internally outweighed the competitive drawbacks. In reply to the information problem, Volvo created a database—the Volvo Index of Car Experience (VOICE)—and made it available internally to everyone at the company, which was one of the factors for the company’s success at the end of the 90s.
Phase III: Build
After the understand phase we move into an build phase that includes the steps—orchestrate, test, and standardize. The build phase needs to be convergent and move toward a solution to the identified problem.
Orchestrate
In the orchestrate phase, the company faces crossroads in implementing the new solution. It is crucial to stop and reflect on how realistic the solution is and how difficult or easy it will be to implement. The company must take several factors into account: How aligned is the solution with the company’s strategy? Will the organization be able to carry out necessary changes? Will the organization be able to sustain the new service? And finally, will the company’s business relationship network be able to support the new innovation?
Few organizations sell one single service—rather, they sell “bundles” of services that are aimed at facilitating customers’ everyday activities and solving their problems. In goods it is not uncommon to have one stand-alone product; this is rare for services. A company may regard its range of services as a system of integrated components whose purpose is to deliver value to the customer. This can be exemplified by observing telecommunications companies that deliver offers such as fixed telephony, broadband, mobile phone, and IP TV services to its customers. In some cases, these types of enterprises are composed of different organizational units for each individual service as well as different customer service departments with individual opening hours. If the same company delivers all these services, customers will not regard them as separate entities— they contact the company to get help and do not care if the problem with their TV is caused by the broadband connection or the IP TV itself. The different segments must not cancel each other out however, as the company strategy has to encompass the offer in its entirety. One possible solution is to implement IP telephony despite its effect on the other segments (fixed and mobile telephony usage may decrease, while broadband usage may increase). Sometimes we speak in terms of channels that companies use to reach a certain market. The customers, however, do not distinguish between channels—as far as they are concerned they are dealing with a single company. Customer service in a company using different channels must be able to cover the gaps between channels in order to appear seamless; the customer must not be able to detect any channel switching at all if the experience is to be successful. All contact with a company must be convenient and coordinated.
Corporate culture is incredibly complex; not all cultures are capable of delivering certain types of service successfully. An organization is often focused on delivering a service as efficiently as possible. A focus on efficiency and a development phase that has most likely taken a long time can create norms and values in terms of how organizational members should act. People find it difficult to break habits: Norms and values can be regarded as aggregated habits and their advantage is their ability to enable efficiency improvement—a task that has been carried out before does not require much effort to be carried out again.
Look back at how it felt when learning to drive a car compared to how it feels now—a process that we have mastered becomes second nature. Given new services, companies must ask themselves if the organization will be able to break existing norms or if it would be better to simply avoid implementing the new service altogether. In fact, a better option might be to start a new organization in parallel with the old one in order to deliver a new offering.
A famous example of the need for a new organization was the IBM PC. After being late to market with midrange computers, IBM decided that it had to be a leader in the new personal computer market. However, IBM executives knew that their engineering department’s emphasis on performance and their marketing department’s fear of cannibalization of profitable products would hinder—or more likely, kill—any PC project. So IBM created a new entity located in Boca Raton, Florida, far away from its New York headquarters, that successfully launched the PC in 1981.
Many goods-based organizations today stand at a crossroads in terms of whether to deliver more services. Research shows that offering service presents an inherent problem caused by company cultures not ready for change. Company staffs may be comfortable accepting orders from customers via item numbers, receiving the order, and dispatching goods from a central warehouse. When delivering services, the staff may need to travel to the customers in order to find out what problem needs to be solved, design a specific solution to the problem, and subsequently coordinate with a number of suppliers to make the customer satisfied. This constitutes an entirely new way of working, which becomes a difficult challenge. Researchers sometimes recommend not making this change to existing organizations but rather to create a specific department in parallel with the existing organization. When the new department’s revenue reaches a benchmark such as 10 or 20 percent of the total revenue, it is deemed sufficiently large to handle the internal competition and may subsequently be merged with the rest of the organization.
Some organizations may find it difficult to implement solutions that involve solving individual customer problems since they lack the requisite level of customer orientation. Other organizations that are by tradition built on customer interaction have exceptionally skilled employees who are able to attend to the customers in an exemplary manner. It might be difficult for such organizations to implement new technical solutions both from the customers’ and the employees’ perspectives.
The Swedish Social Insurance Agency is an example of an organization that has suffered from such problems. Their strategy has long been based on letting the insured parties solve the more trivial problems themselves via technical solutions so that employees may focus on more complex problems. The challenge for the social insurance agency has been its relatively low level of technological maturity that has made it difficult to fully implement various information technology (IT) solutions designed to support customers.
Since services are coproduced with customers, distributing them can be a challenge. If a company operates on a global market, it is wise to establish a relationship or network with other companies that assist in delivering services directly to the customer. Not even a company the size of IBM or Ericsson is able to use in-house staff in every location where their product is offered. If one of their customers requests service of a product, the company must have someone ready on site who can quickly help the customer, which may require sending another company to represent it.
Test
The next step is to extract feasible concepts in the customers’ contexts. This must be carried out in close collaboration with selected customers in order to allow the company to tailor solutions to specific customers and customer groups. For industrial companies, this involves working symbiotically with customers with whom they have a good relationship and for whom they are developing a concept that meets specific needs. For companies in the consumer market industry, this process relies on a testing market or office where the new concept can be launched initially. The concept of first implementing a service or product in a limited market is based on being able to test a solution on a small scale before making a more extensive and costly change.
Standardize
The last phase in the model consists of launching a new service on an open market. A number of service modifications probably have taken place during the test phase, which means that the company might not be able to offer the service to all customers. In order to launch the service on a larger scale, some segments have to be standardized to allow delivery to a greater number of customers as uniformly as possible. It is simply too expensive to offer custom-made solutions to every single customer.
Volvo Trucks have found a creative solution to the problem of standardization. They bundle their solutions by packaging services and giving them an item number as if they were regular products. In the consumer market, Geek Squad sells standardized service “packages” for protection of computers or related technical goods.
Several companies in the more traditional service sector also employ this “package” strategy. The financial services industry has long attempted to standardize financial and nonfinancial services. Components of service “productification” include employee outfits, the store environment, service brochures, and the company’s logo.
Service Innovation Implementation
Identifying all the important phases of service innovation implementation would likely fill another book. We argue that the greatest service implementation challenge lies in rolling out the new innovation to customers via company staff. Company staff must embrace the service and promote it in such a way that customers will purchase it, and then deliver the service in such a way that customers are delighted.
The new service innovation will ideally be intuitive and easy to understand for both customers and company staff. Moreover, services are seldom offered individually, but are usually incorporated into what we previously referred to as a bundle and must therefore be compatible with other products and services. It might take some time before the services can be merged into a single entity. The corollary to this strong reliance on staff and the single web of services is that the implementation time of service innovation may be greater than that of product innovation.
The development time for a service innovation can in fact appear relatively short in relation to implementation time. The reader might recall how long it took from the time when online banking was first introduced until a majority of customers chose to adopt this service innovation. The development time in this case was significantly shorter than the adoption time.
We would also like to emphasize a few aspects that companies may need to focus on in order to succeed during implementation:
Share information that is important to you. How should the company express values addressed by the new service innovation that are important to the company and its customers?
Enable customers to adapt the service to their own needs. There are numerous advantages involved when customers are able to adapt solutions to their own needs. This, in particular, solves more of the customers’ latent needs; however, it also makes it difficult for them to replace services. If possible, the solution should be a platform for value-creation that can be adapted to the customers’ needs.
Adapt according to context. How should the company address specific user segments more directly in order to customize the offer to the customer? The company needs to be able to address its customers more directly and the first step is to identify the customer group in question.
Differentiate. How can the company discover unique properties that bind the solution together? To facilitate implementation, it is necessary to point out the services’ unique properties to the customer compared to that of existing ones on the market.
How Unique Is Your Service Innovation?
As noted, a big problem with service innovations is that they can easily be copied, which requires companies to consider how unique their service innovation really is.
In Chapter 2, we presented a model that divides service innovations into six different categories: process innovation, brand innovation, business model innovation, experience innovation, social innovation, and behavioral innovation. These types of innovations must be aligned with the company’s competence and resources. Business models are by nature difficult to copy since they mainly involve emphasizing a company’s strengths and new ways of charging the customer, which is why we have chosen not to bring them up. Business model innovation will instead be discussed in Chapter 6.
Process Innovation
In general, the most easily copied type of service innovation is what we refer to as process innovation or streamline. The purpose of process innovation is to improve efficiency and thereby save resources—either the company’s or the customer’s. We could regard the concept of lean as a type of process innovation in which flows are optimized with regard to resource efficiency both for customers and companies. One distinguishing characteristic of process innovation is that it can be transferred to other companies and even to other contexts—in other words, it is not tied to a specific company or its customer relations.
In order for the companies to succeed with this type of service innovation, they must either have a strong customer base that can quickly embrace the solution or possess a sufficient amount of resources in order to withstand other companies that copy their concept. For example, Amazon has become so large and efficient at online retailing that new entrants to online retailing often find it attractive to be hosted by Amazon. The key to stymieing competition lies in being the largest actor on the market or having the strongest brand in combination with continuous reinvention procedures. One of the reasons why the founders of Skype decided to sell their company was that they feared a company with greater resources, such as Microsoft or Google—which already have strong existing customer bases and relations—would copy their idea, which would make it very difficult for Skype to survive in a long-term perspective.
Brand Innovation
Studying strong brands that are referred to as service innovations, such as Google, Starbucks, or Ikea, reveals that each represents arrays of innovations that collectively represent the actual service innovation. Even though each of these innovations can easily be copied individually, it is incredibly difficult to copy the entire concept.
Ikea is a good example. Figure 4.2 attempts to illustrate its core activities, where the darker colored activities are most important as they represent Ikea’s areas of focus. The company is driven by a pervasive eagerness to constantly lower internal costs, which obviously includes its manufacturing process as well. Focusing on cost reduction has also had an impact on other areas that constitute key components in Ikea’s innovation work. This has led to a module-based paradigm that allows identical components to be implemented in different applications. Ikea’s customers are expected to contribute to the value-creating process to let it further circumscribe its costs. Ikea’s coproduction and modularization of furniture allows it to limit its customer support, and its focus areas are surrounded by a number of service innovations that promote additional consolidation. The purpose of Figure 4.2 is to illustrate how Ikea’s internal processes are used to support the customers’ preferred actions in their interaction with it, which subsequently leads to customer experiences.
Figure 4.2 The core of Ikea’s service3
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3 Gustafsson, A., and M.D. Johnson. 2003. Competing in a Service Economy: How to Create a Competitive Advantage through Service Development and Innovation. San Francisco, CA: Jossey-Bass.
Another key principle illustrated in the figure is the interactivity linking aimed at achieving a “seamless” system. The innovations build on each other and make it easier for Ikea to deliver a complete solution to the customer.
Business Model Innovation
Replacing the business model of a particular service could either be a strategic decision that takes several years to complete or an everyday activity. The ease with which a business model can be created and introduced on a market depends on the level of cultural change required, both as far as the organization and the customers are concerned. A new business model that fits in well with the customers’ value-creating processes has a greater chance for rapid deployment and market success.
The Internet has rendered previously chargeable services such as news subscriptions, matching services, and file storage nonchargeable since customers expect them to be offered for free. Today we visit sites like The Wall Street Journal (WSJ), LinkedIn, and DropBox using services that are offered free of charge in a business model called “Freemium.” A good basic service is available for free at these sites. But if you want something more—such as certain articles in the WSJ, better search or messaging on LinkedIn, or more storage on DropBox—you must pay for a subscription. When Chris Anderson wrote the book Free—The Future of a Radical Price, he posted an audiobook version on his blog, which was made available for free. However, the abridged version of the book containing only the most important sections was not available for free.
Companies like Google, Nintendo, and various social media platforms have all been able to reap great benefits from business model innovations. For example, Google chose to give access to a great search engine for free and earn money on advertising. Google applied the same model when it entered the market for mobile phone operating systems, with the result that Android has the dominant major share. The key for successfully launching a new business model innovation is that both the company and customer benefit from it.
Social Innovation
The purpose of social innovation is to be replicated by others since the underlying ambition is based on social commitment and a belief in a better society by providing help to those in need. We gave a few examples of this type of innovation earlier in the book, such as “paused coffee,” “layaway angels,” and the concept of collecting equipment no longer used by public actors and reselling it to other parties. One social innovation currently enjoying significant growth is advanced education where new and established actors alike (e.g., the edX collaboration led by Harvard and MIT) are offering education for free.
Experience Innovation
In order to succeed in service innovation, the company has to be unique, otherwise it will not be able to charge the price needed to cover costs associated with niched services. One such example is that of Chuck E. Cheese. Its concept is actually based on a regular pizzeria that has been augmented to provide an exciting experience to small children where they can interact with Chuck E. Cheese (a big mouse) and play lots of different games on arcade machines. Coupons that can be used to claim prizes are issued to customers who do well on these machines. Today’s market is saturated with experiences—who has not heard of bungee jumping, zip lines, or indoor water parks? Unique customer experiences is said to be one of the major remedies for brick and mortar stores against Internet.
Behavioral Innovation
As previously mentioned, the purpose of behavioral innovation is to create a market and bring about a change in customer behavior. We have nevertheless chosen to view behavioral innovation as a special type of service innovation. The underlying objective is again to point out the importance of starting with the customers and their behavior as it constitutes the basis of service innovation. As pointed out in the introduction of this chapter, our view of innovation is based on starting at the market level and analyzing the customers’ expectations of the value-creating processes. This is the diametrical opposite of an inward–outward paradigm, which starts with an innovation and then lets the customers contemplate what they are supposed to use it for. Iridium Satellite Phones, deliberately crashing a fleet of satellites, is a famous example of what happens to a great technical solution that does not have a market. Another extreme example of this phenomenon is the company Uddeholm, which developed a type of steel that was so hard that it was not possible to process with normal tools. Unfortunately, there was no real area of applicability either—Uddeholm did not know which customers would find any use for it or even if any areas of application existed. Eventually they did find use for the material in valves for extreme engins.
Behavioral innovation encompasses a process in which the customers must make radical changes to their way of acting in order to use the innovation. The company must consider how much it dares change the customers’ behavior to, in effect, make the offer unique. One example of this phenomenon is Spotify. Its customers can basically ignore their collection of CDs as they have to adopt a completely new behavior in order to benefit from the company’s services.
Considerable changes to customer behavior are very difficult to achieve, as the customers will demand significant benefits in return. One alternative to voluntary adoption is to force the customers to make the necessary changes. One example of the latter mentioned is the self-service concept found at airports where the airline does not accept customers unless they have already checked in themselves.
Figure 4.3 Which category best represents the service innovation?5
We would like to give the following advice to companies that want to evaluate how unique their service innovation really is: Consider which of the aforementioned categories of service innovation best represents the idea in question. Ideas that are not unique to the company’s own customers, suppliers, and contexts are incidentally most easily copied by competitors, and experience shows that said services are most often based on process innovations that are aimed at improving efficiency.
Figure 4.3 illustrates another way of analyzing service innovation. The process begins by categorizing a company’s current activities and competitors. Activities that are carried out in the same industry will most likely overlap while some aspects have to be unique in order to achieve a degree of differentiation. One question a company may ask itself is which category best represents the new innovation. Is it supposed to increase intercompany similarities or promote differentiation? The latter obviously contributes to the uniqueness of a service innovation. The center part of the figure contains a symbol that we refer to as basic supply, which represents a very important category in this context. It is a category of services offered by a company and its competitors that customers also expect them to offer. Any reduction in the basic supply potentially leads to a rapid loss of customers.
Summary and Further Reading
It is important for organizations to develop a service innovation process. Many companies are not sure of how to implement such processes as they lack experience and, most of all, the tools needed to successfully adopt service innovation. Sometimes, service innovation is equated with new product development of goods, which unfortunately steers thoughts in the wrong direction in many instances.
This chapter presents our view of service innovation as new value-creating processes and customer solutions, as opposed to independent and intangible services. This means that the service can consist of a combination of direct and indirect services (a physical product), which facilitate everyday life and lead to a good experience. Service innovation refers to new value-creation processes, and understanding customer needs is a prerequisite for success.
Companies striving to increase service innovation have to establish a service development process in their organization. Such processes need not be particularly complex. Rather, they most often involve a change in thought processes. We suggest three simple phases of service innovation: finding a focus, understanding the customers in their own context, and building a solution that fits in with the rest of the organization. Adoption within the organization is often the most difficult and time-consuming phase since the service innovation has to unite new customer needs while remaining compatible with the company’s existing activities. The development and implementation time for service innovation is equal to that of product innovation, although the distribution of time is completely different—the implementation time in service innovation is greater due to the number of actors involved.
Questions for the service innovator:
Which customers or users have been involved in a recent service innovation?
Which users should you involve in a future innovation?
Do you have a standard service innovation process?
What are the most important phases in your service innovation process? Does everyone agree?
How should ideas that are conceived during the service innovation process be evaluated?
Are you able to test service innovation and experiment in real environments?
The main sources of inspiration for this chapter are:
This chapter was inspired by the following sources:
Berry, L.L. 1999. Discovering the Soul of Service: The Nine Drivers of Sustainable Business Success. New York: The Free Press.
Fang, E.R., W. Palmatier, and J.B.E.M. Steenkamp. 2008. “Effect of Service Transition Strategies on Firm Value.” Journal of Marketing 72, no. 5, pp. 1–14.
Gustafsson, A., and M.D. Johnson. 2003. Competing in a Service Economy: How to Create a Competitive Advantage through Service Development and Innovation. San Francisco, CA: Jossey-Bass.
Kowalkowski, C., L. Witell, and A. Gustafsson. January 2013. “Any Way Goes: Identifying Value Constellations for Service Infusion in SMEs.” Industrial Marketing Management 42, pp. 18–30.
Prahalad, C.K., and V. Ramaswamy. 2003. “The New Frontier of Experience Innovation.” MIT Sloan Management Review 44, no. 4, p. 12.
Witell, L., A. Gustafsson, and M.D. Johnson. 2014. “The Effect of Customer Information During New Product Development on Profits from Goods and Services.” European Journal of Marketing 48, no. 9–10, pp. 1709–30.
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1 Martin, C.R., and D.A. Horne. 1993. “Services Innovation: Successful Versus Unsuccessful Firms.” International Journal of Service Industry Management 4, no. 1, pp. 49–64.
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