CTFblog: Ever wondered what service innovation is?2017-05-16
Service innovation is an area that many firms, organizations and society are struggling with. Service as a phenomenon is what most of us is occupied with; both as employees and how we spend our money. I have spent a lot of time trying to make sense of what it really is.
The first thing that is striking with service innovations is that some are easy to copy while others are difficult to copy and latter types work well as differentiators for firms. The service innovations that seem to be easier to copy and protect are related to process innovation and improved ways of doing something. A firm or organization rarely provides their customers with one service but rather a bundle of services. The bundle of services is difficult to copy, as it is an eco system that is developed to fit as a whole. Consequently, we can think in terms of service bundle innovation that in general are more incremental and designed to be congruent with what a firm is already offering to a market.
The general trend among firms now is to think in terms of customer experiences. Customer experience is a broad and multi-facetted concept that includes customers’ cognitive, emotional, sensorial, behavioral, and social response to an offering. The purpose of experience innovation is to try to differentiate an offering and to be able to charge a price premium by focusing more on the experience part. We also see an increased focus on helping people create a better future for themselves and create a better use of available resources. For instance, why should we as a society throw away food that has passed the expiration date when we can create business to distribute this? These types of innovations are designed to help people and to be easy to replicate and would be categorized as social innovations. Another growing trend is to alter a business model and create more focus on the service part of a business. We see that many product-based firms are relying more on their service part of the business. The main reason for doing this is to be more competitive and build a closer relationship with their customers. However, relying more on the service part of the business as opposed to the product base is a major shift in strategy and can be categorized as a business model innovation.
Service innovation often also emerges outside a firm on customer initiatives. These can often be based on customer behavior and create changes in their behavior. We can all relate to the changes in music consumption where customers started to share their music with each other using Napster. In essence this is a sharing of resources and today we find multiple examples such as houses, toys, books, cars and competences. Firms such as Spotify, Airbnb, and Uber can then build on this willingness to share. I would categorize these as behavioral based innovation. Finally, firms cannot control brand perceptions; it is in the hand of customers. Firms can, to some degree, control customer experience but never the brand perception, this lies outside the firm control. However, I do think brand innovation is important which is why I have chosen to highlight that. Brand innovation are actions that are more related to the appearance of the actual brand and less about adding new services.
It must be pointed out that most service innovations do have some component of almost all dimensions. The key is that all new developments have some focus, for instance creating a better experience. This probably results in developing new service components to fit into a service bundle, which in turn results in a change in business model as the firm may need to shift the portfolio.
If you want to read more on these thoughts we have recently published a book on Service Innovation; Gustafsson, A., Kristensson, P., Schirr, G., and Witell, L. (2016) Service Innovation, Business Expert Press, LLC, New York.
Professor in Business Administration at CTF