service innovation

Service Innovation

There's quite a lot written about innovation - especially from the

perspective of new product development. However, our economies and

most of those of the developed world are switching rapidly to

service-oriented economies, and the definitions of innovation and

research on service innovation are very slim. We've only really had

about 30-40 years of research on innovation in the product sector, and

that work has produced some good thinking (Stage-Gate for example),

but there's been little work done on service innovation while our

business models have changed substantially.

I guess there's probably several reasons for the focus on product

rather than service innovation. First, it's easier to define and

manage a physical product as opposed to a service. Products can be

created and churned out in rapid order with little variation, and can

be changed or adapted quickly. Most services can't be easily moderated

and rely on people to deliver, which introduces variation from the

outset. Second, product innovation can be defended with patents and

product protection, while it is hard to defend service innovation. If

I offer the world a new service, it's usually not hard for others to

copy it if they choose to. Third, many "services" have been deemed as

too insignificant or too inexpensive to innovation. Most firms would

prefer to throw more "low cost" people at this issue rather than

improve the service or innovate around it. Well, over time, people

will become your highest cost factor, and you'll need to find ways to

innovate your service model just to keep your costs in line.

Peer Insight, a firm in Alexandria, Virginia headed by Tim Ogilvie and

Jeneanne Rae, have tackled the question of service innovation head on.

Through a lot of research and work with some leading firms, they've

begun to compile a database on innovation projects and lessons learned

within firms that are focused on service innovation. Some of those

firms offer products and the services are secondary, and some are

completely service focused. Peer Insight has recently published an

executive summary of the work they've done so far, which you can

request at their website. The executive summary presents some high

level findings from the research they've done to date.

There are a couple of findings that were of interest to me, especially

the "origins" of innovation and "intended market effect". For the work

in the survey, they asked the innovators where their innovations came

from. Over 70% of the innovations came from internal sources, as

process improvements or planning for growth. 30% came from external

sources, mostly as responses to competitive threats. Only 10% of the

innovations were noted as "customer initiated". In a service company,

where you'll live and die through the daily interaction with your

customers and the value you add in each interaction, you'd have to

believe that customers can create a number of ideas and

recommendations for improving your service. Yet so far only 10% of the

service innovation originate through what I'd consider an

exceptionally important channel. Firms that focus on services and want

to innovate would be well served to listen more closely and work with

their customers to sustain innovation.

Second, the intendend market effect was interesting because it

indicated that service innovation is still fiddling with the edges

rather than any disruptive innovation. Over 85% of the innovations

noted were incremental innovations or, generously, a breakthrough

innovation. Most were "new to segment", which suggests the

capabilities and ideas were already in play and the firm packaged them

for a new segment. Only 15% were "new to world", which suggests that

the service oriented firms are still playing it very carefully.

The synopsis goes on to note that there is a less well-defined

development path for service innovations as opposed to products. In

our methodology for innovation, we have a five step process - Generate

ideas, Capture ideas, Evaluate ideas, Develop as products or services,

Launch. In the "Develop" phase, new products go through a fairly

sophisticated process of New Product Development managed by Stage Gate

or other processes, enabled by Product Lifecycle Management

applications. In most firms there is no corresponding New Service

Development process and few systems or tools to support the process.

Note that the "front end" of innovation for both types of innovation

is the same - ideas have to be generated and captured and evaluated -

but then the process really breaks down where service innovation is

concerned.

Peer Insight is doing some great work around service innovation, and

their work and thinking can be applied to any firm that provides

services to their customers.