Service innovation

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Business Week, March 29, 2007, stated that Service Innovation is "The Next Big Thing".^[1] The story discusses the not-for-profit consortium called the Service Research & Innovation Initiative

1 Definition
2 Service Innovation Models
- 2.1 Areas of innovation - den Hertog's model
- 2.2 Services Features and Innovation Potential - Miles' approach
3 Services innovation and public policy
4 References

[edit] Definition

The term “service innovation” is used to refer to several things. These include:

Innovation in services, in service products – new or improved service products (commodities or public services). Often this is contrasted with “technological innovation”, but service products can certainly have technological elements.
Innovation in service processes – new or improved ways of designing and producing services. This may include innovation in service delivery systems, though often this will be regarded instead as a service product innovation. Innovation of this sort may be technological, technique- or exopertise-based, or a matter of work organisation (e.g. restructuring work between professionals and paraprofessionals).
Innovation in service firms, organisations, and industries – organisational innovations, service product and process innovations, and the management of innovation processes in service organisations.

A helpful definition^[2] comes from Finland’s research Agency, TEKES:^[3]

“

Service innovation is a new or significantly improved service concept that is taken into practice. It can be for example a new customer interaction channel, a distribution system or a technological concept or a combination of them. A service innovation always includes replicable elements that can be identified and systematically reproduced in other cases or environments. The replicable element can be the service outcome or the service process as such or a part of them. A service innovation benefits both the service producer and customers and it improves its developer’s competitive edge. …A service innovation is a service product or service process that is based on some technology or systematic method. In services however, the innovation does not necessarily relate to the novelty of the technology itself but the innovation often lies in the non-technological areas. Service innovations can for instance be new solutions in the customer interface, new distribution methods, novel application of technology in the service process, new forms of operation with the supply chain or new ways to organize and manage services.

”

One quibble with this definition is that there are many cases of innovations whose benefit to the customer is somewhat dubious – offshored call centres being a current case in point!

[edit] Service Innovation Models

Much literature on what makes for successful innovations of this kind comes from the New Service Development research field (e.g. Johne and Storey, 1998;^[4] Nijssen et al, 2006^[5]). Innovation researchers have stressed that much service innovation is hard to capture in traditional categories like product or process innovation.

[edit] Areas of innovation - den Hertog's model

Thus den Hertog (2002)^[6] who identifies four “dimensions” of service innovation, taking us in quite a different direction from much standard innovation theorising.

The Service Concept: refers to a service concept that is new to its particular market – a new service in effect, or in Edvardsson’s (1996,^[7] 1997^[8]) terminology, a “new value proposition”. Many service innovations involve fairly intangible characteristics of the service, and others involve new ways of organising solutions to problems (be these new or familiar ones). Examples might include new types of bank account or information service. In some service sectors, such as retail, there is much talk about “formats”, such as the organisation of shops in different ways (more or less specialised, more or less focused on quality or cost-saving, etc.).
The Client Interface: refers to innovation in the interface between the service provider and its customers. Clients are often highly involved in service production, and changes in the way in which they play their roles and are related to suppliers can be major innovations for many services. Examples might include the greater involvement of self-service for clients visiting service organisations. There is a French literature on service innovation that focuses especially on this type of innovation, identifying it as innovation in “servuction”.
The Service Delivery System: also often relates to the linkage between the service provider and its client, since delivery does involve an interaction across this interface. But there are also internal organisational arrangements that relate to the ways in which service workers perform their job so as to deliver the critical services. Much innovation concerns the electronic delivery of services, but we can also think of, for instance, transport and packaging innovations (e.g. pizza delivery!). An emerging concept of SDP is the idea of taking a "factory" appraoch to Service Innovation. A "service factory" approach— is a standardized and industrialized environment for more effective service innovation, development and operations for the IP era.
Technological Options: these most resemble familiar process innovation in manufacturing sectors. New IT is especially important to services, since it allows for greater efficiency and effectiveness in the information-processing elements that are, as we have seen, prevalent to a great extent in services sectors. We also often see physical products accompanying services, such as customer loyalty cards and “smart” RFID cards for transactions, and a wide range of devices for communication services.

In practice, the majority of service innovations will almost certainly involve some combination of these four dimensions. The combination of the four dimensions will vary across innovations. For instance:

a new IT system (technology dimension) may be used to enable customer self-service (interface dimension) as in the case of a bank contacting its customers.
Another interface innovation involving new IT is the ability to track one’s order or the location of an item that one has posted or is expecting to receive.
Services may be delivered electronically, as in the case of much online banking – or, better still, cash withdrawals from ATMs.
A new service may also be offered, for instance allowing the client to examine various options and calculate what they would be paying with different types of account.
A new service will often require a new service delivery system, and changes at the client interface.
...

An elaboration of this model to suggest SIX dimensions of innovation was developed in the course of work on creative sectors, by Green, Miles and Rutter [9] As well as Technology and Production process, four dimensions were specified whose linkages are very strong in creative sectors like videogames, advertising and design: Cultural Product, Cultural Concept, Delivery and User Interface.

The service innovation literature is surprisingly poorly related to that on new product development - which has spawned a line of study on new service development. This often focuses on the managerially important issue of what makes for successful service innovation. See for example Johne and Storey (1998),⁴ who reviewed numerous New Service Development studies.

[edit] Services Features and Innovation Potential - Miles' approach

It is commonplace to note that many service firms and processes have characteristics different from manufacturing and manufacturers. Miles (in a 1993 article in the journal FUTURES, Vol. 25, No. 6, pp.653-672,) [10] listed a series of characteristic features of services, and associated these with particular types of innovation. Such innovations are often aimed at overcoming problems associated with service characteristics like the difficulty in demonstrating the service to the client, or the problems in storing and building up stocks of the service. Note that the “product” related innovations below have a lot in common with new service development as discussed above. In the following list, features of services are linked to innovation strategies by the symbol >>>.

Features of services associated with service production
1. Technology and Plant (Low levels of capital equipment; heavy investment in buildings.>>> Reduce costs of buildings by use of teleservices, toll-free phone numbers, etc.)
2. Labour (Some services highly professional (esp. requiring interpersonal skills); others relatively unskilled, often involving casual or part-time labour. Specialist knowledge may be important, but rarely technological skills (other than Information Technology). >>> Reduce reliance on expensive and scarce skills by use of expert systems and related innovations; Relocation of key operations to areas of low labour costs (using telecommunications to maintain coordination).
3. Organisation of Labour Process (Workforce often engaged in craft-like production with limited management control of details of work. >>> Use IT to monitor workforce (e.g. tachometers and mobile communications for transport staff; Aim for 'flatter' organisational structures, with data from field and front-office workers directly entering databases and thence Management Information Systems.)
4. Features of Production (Production is often non-continuous and economies of scale are limited.>>> Standardise production (e.g. 'fast-food' chains), reorganise in more assembly-line-like feature with more standard components and higher division of labour.)
5. Organisation of Industry (Some services state-run public services; Others often small-scale with high preponderance of family firms and self-employed. >>> Externalisation and privatisation of public services; combination of small firms using network technologies; IT-based service management systems.)
Features of services associated with service product
1. Nature of Product (Immaterial, often information-intensive; Hard to store or transport; Process and product hard to distinguish. >>> Add material components (e.g. client cards, membership cards). Use telematics for ordering, reservation, and if possible - delivery. Maintain elements of familiar 'user-interfaces'.)
2. Features of Product (Often customised to consumer requirements.>>> Use of Electronic Data Interchange or Internet for remote input of client details; use software to record client requirements and match to service product.
Features of services associated with services consumption
1. Delivery of Product (Production and consumption coterminuous in time and space; often client or supplier has to move to meet the other party. >>> Telematics; Automated Teller Machines and equivalent information services.)
2. Role of Consumer (Services are consumer-intensive, requiring inputs from consumer into design/production process. >>> Consumer use of standardised menus and new modes of delivering orders.)
3. Organisation of Consumption (Often hard to separate production from consumption; Self-service in formal and informal economies commonplace.>>> Increased use of self-service, utilising existing consumer (or intermediate producer) technology - e.g. telephones, PCs - and user-friendly software interfaces.)
Features of services associated with services markets
1. Organisation of Markets (Some services delivered via public sector bureaucratic provision; Some costs are invisibly bundled with goods (e.g. retail sector).>>> Introduction of quasi-markets and/or privatisation of services; New modes of charging (pay per society), new reservation systems; more volatility in pricing using features of EPOS and related systems.)
2. Regulation (Professional regulation common in some services. >>> Use of databases by regulatory institutions and service providers to supply and examine performance indicators and diagnostic evidence.)
3. Marketing (Difficult to demonstrate products in advance.>>> Guarantees; demonstration packages (e.g. demo software, shareware, trial periods of use).)

Additionally, a number of more general tendencies in the innovation process in services have been noted. These include:

The industrialisation of services, involving efforts to standardise services, to yield service products of predictable characteristics and quality, with economies of scale and improved delivery times. This typically involves the introduction of high levels of division of labour, with the use of pre-packaged and automated elements (such as pre-prepared meals, word processed templates for form letters, and the like). Standardisation of the service products has become a competitive strategy for many firms.
Organisational innovation. Survey data suggest that services place particular emphasis on organisational change. Many important innovations in services involve combinations of specific new technologies together with organisation change. The role of organisational innovations in services is very apparent - developments such as supermarkets and other self-service facilities are extremely significant in the development of modern service industries. Such organisational innovations will often have a technological dimension, whether this be very basic (e.g. shopping trolleys), or relatively high-tech (EPOS - electronic point of sale - equipment or ATMs linked into networks).
An important trajectory of organisational change has been towards self-servicing, without necessarily following this development all the way toward the vision of the client sitting at home interacting with the service provider via a remote terminal. Instead, reorganisation of the facilities of the service provider permits customer self-service in the service establishment, saving on labour costs and often increasing user satisfaction as its is possible to make decisions anonymously and at one's own pace.
Beyond self-servicing, the involvement of clients as coproducers, is particularly important for knowledge-intensive business services, with the emphasis being laid upon clients' role in advancing the expertise of service suppliers, and identifying new avenues for its application. Web2.0 has brought “user innovation” to the fore in electronic services.

[edit] Services innovation and public policy

In recent years policy makers have begun to consider the potential for promoting services innovation as part of their economic development strategies. Such consideration has, in part, been driven by the growing contribution that services activities make to national and regional economies. It also reflects the emerging recognition that traditional policy measures such as R&D grants and technology transfer supports have been developed from a manufacturing perspective of the innovation process.

The European Commission and the OECD have been particularly active in seeking to generate reflection on services innovation and its policy implications. This has resulted in studies such as the OECD’s reports into knowledge intensive services,^[11] and the European Commission Expert Group report on services innovation - the report of the group, "Fostering Innovation in Services" [12] as well as various TrendChart studies [13]. The European Commission has also launched a number of Knowledge Intensive Services Platforms designed to act as laboratories for new public policies for services innovation. Few economic development agencies at the member state level, and fewer still at the regional level, have translated this new thinking on services innovation into policy action. Finland is an exception, where Knowledge Intensive Business Services [14] have been a focus of much regional work (esp. the Uussima region).

Finland has been active in the thinking about the policy implications of services innovation. This has seen TEKES – the Finnish Funding Agency for Technology and Innovation - launch the SERVE initiative, designed to support ‘Finnish companies and research organisations in the development of innovative service concepts that can be reproduced or replicated and where some technology or systematic method is applied .’^a Germany has also undertaken initiatives for services R&D, and Canada and Norway have programmes. Ireland has been considering a services-focused innovation policy, with Forfás – its national policy and advisory board for enterprise, trade, science, technology and innovation – having undertaken a review of Ireland’s existing policy and support measures for innovation, and outlined options for a new policy and framework environment in support of service innovation activity.^[15]

At the regional level, limited information is available on how Europe’s regions are responding to the challenges presented by services innovation. [CM International] is currently conducting a European survey on services innovation and regional policy. The results of this will be published in early 2008.^[16]