Obstacles with Servicification of Manufacturing

When thinking of Servicification of the Manufacturing Industry, you soon realize it's a very complex topic. Not only you must have deep insights in topics like history, psychology, economy, technology, trade politics, and others - you also face a shortage of studies in the area. Gremyr, Löfberg & Witell writes that "there is a shortage of literature that includes elaborate empirical accounts of service innovations in manufacturing firms", and Oliva & Kallenberg concludes that "The literature, however, is surprisingly sparse in describing to what extent services should be integrated, how this integration (services into their core product offering) should be carried out, or in detailing the challenges inherent in the transition to services.". So it's big, it's complex, and we don't know too much. I would call that a major obstacle - you really need to roll up your sleeves!

Gremyr, Löfberg & Witell conducted their study "Service Innovation in Manufacturing Firms" on the companies SKF, Volvo Buses, and Volvo Trucks. They all are highly successful in their transitions, and they are all 100% dedicated to the task. One thing they all have in common is that their transition is strongly enforced by the top management, and this leads me to the second obstacle: top management. There is no way you (as an engineer in a major company) can start or manage to implement any major servicification in your company, unless you start by getting the trust and assignment to the task from the top management. This not only means the managing director, possibly you also need the whole board of directors and the majority of the owners at your side. If not, just forget it.

In today's highly globalized markets, especially evident for Swedish companies, the trade policies are another obstacle. Lodefalk remarks in a column that "The historic divides in policymaking between trade in manufactures and services, and between offensive and defensive interests are largely antiquated". So the policymakers are also an obstacle on the way to success, and they are not easy to get the hold of!

In my own experience as a Quality Manager, many manufacturing companies are entangled in long and complex supply chains. For example supplyers to the oil & gas industry, apart from facing fierce competition from other manufacturers, also have to face a complex and multi-level supply chain of purchasers; contracting negotiators; engineering-procurement-construction (EPC) companies; platform owners; operators; right owners, and many others - not to mention the whole industry of companies specializing in services like operating, manning, maintenance, repair, and more. The only way to implement anything like vertical integration or integrating services on a major scale is through acquisitions. And again, this is a task for owners and top management.

Nevertheless, servicification of manufacturing is an ongoing process, locally, nationally and globally. How intelligent it may appear, there is no "intelligent design" behind it all. It's more like a silent evolution happening in front of us, and we can only discover its driving forces, machinery and effects. Should we stop it? Should we hail it? Well... no. As little as we could stop industrialization, we can or should stop servicification. But we certainly need to learn more, to get our industry "on track", and to spread the word to all top management and leaders in policy making around the world. To start with. Someone said that there are people out there that are against any change - but that's a completely different story!

References

Oliva, R., Kallenberg, R. ("Managing the transition from products to services". International journal of service industry management 14.2 (2003): 160-172.

Gremyr, I., Löfberg, N., Witell, L. (2010), "Service Innovations in Manufacturing Firms". Managing Service Quality, 20(2): 161-175

Lodefalk, M. (2015), "Tear down the trade-policy silos! Or how the servicification of manufacturing makes divides in trade policymaking irrelevant". http://www.voxeu.org/article/servicification-manufacturing-and-trade-policy

What does it take to actually do an innovation?

First and foremost, the organization itself must participate. Otherwise it is considered an external innovation, possibly an acquired one from another party - and that would only require a nose for a good buy.

Secondly, to have a fair chance for the innovation to survive its infancy, it requires the active participation of the customer. More specifically, as Associate Professor Peter Magnusson at the Center for Service Innovation at Karlstad University advocate in his videos, open innovation radically raises the probability to get the smartest people to join forces and co-innovate with the organization. And moreover, these smart customers will have unique user knowledge of both existing products and services and what it takes to be successful in the future.

In my own experience as an IT systems developer, I certainly can affirm that. In a few rare occasions, where the outcome was truly innovative and successful, I teamed up with a (one) customer representative in a very specific way. As I now recall it, in the light of Magnusson's theories, there are a few prerequisites that made the success possible:

1. My expert knowledge and the users deep knowledge from practicing
2. Our true interest in the other party and his field of knowledge, willingness to learn from each other and to give up old standpoints
3. For the user to realize that his role is to provide the problem, not the solution
4. For me to realize that my role is to provide the solution, not to add to or modify the problem
5. For the both of us to be dedicated enough not to give up, even though it looks impossible from start and will take endless iterations until we can finalize
6. The cooperation must be sound, equal and mutually rewarding

Magnusson uses the term lead user, as a user with both use knowledge and technology knowledge. I would say that to have technology knowledge is not necessary and might even lead to problems. More important is that the user doesn't restrict his thinking to what's technically possible - from real or imagined limitations. This way his problem description might seem unsolvable to a rigid expert on the basis of old technology and routines, but would be gold worth as the problem basis for an innovation. For me, as the expert, I have to acknowledge the description and use all my knowledge, experience and inventiveness to find a solution that reaches out and solves the problem. In practice, it's a dialogue where we step by step rephrase, tweak, and reconsider, until we have found the best solution and problem compromise - including aspects as feasibility, cost, producability etc. In this dialogue, we would have made loads of drawings, mock-ups and at least a few working prototypes. Even though my experience is from programming, I would say this way of working in a close companionship should be considered for any product or service innovation.

Could this be scaled up to cover more complex products or services? Yes, I think so. My experiences covers two persons, but I believe it very well can be re-written to guide any innovation project. Possibly with the addition that it requires a dedicated project leader.

Oh, one more thing: you need fuel. This can be very personal, like for a friend of mine who propelled himself thru the education system to become a plastic surgeon because of a an accident that crippled his friend. For me it's much easier - just tell me it's impossible.

What can we learn about innovation from computer programming?

Someone said that the bumble bee shouldn't be able to fly, but it doesn't know it so it flies anyway. True or not, an interesting analogy is what many computer programmers have been doing since decades: they had no clue on how to create working computer programs with the aid of user input, so they just went on doing it anyway.

Anders Gustafsson, professor at the Service Research Center at Karlstad University, excellently lays out the cornerstones of Service Innovation process in this video, finalizing in the levels of service maintenance; service improvements and radical service innovation.

Professor Lars Witell at the same institution, exemplifies with microwave accuracy the range and variation of user involvement and how it can be put to work.

About 30 years ago (or more), a method of making radically new programs with prototypes came into fashion for PC programmers - as opposed to the traditional mainframe style with a planned and managed development process. It was called prototyping, the same thing that is done today with agile methods like Scrum and others. In prototyping, you have frequent user meetings and after every meeting you create a new better prototype of your program - as in input to the next meeting. The users is clearly a co-creator, participates during the whole creation process and benefits from constantly running the prototype in its context. I'd say this is a good example of radical innovation with customer co-creation, if now a computer program can be radical.

Secondly, in the same decade it also came into fashion for the users to organize themselves into user associations, loosely linked to the software company owning the program.The software companies quickly gave them the role of filtering which suggested developments to implement, and which to not. The big advantage is that you by definition implement the most valuable and (in the future) most widely used improvements, and the customers will never complain - as opposed to the traditional style of selling an endless amount of customized functions, getting your software into a swamp where it eventually can't evolve any more. I'd say this is a good example of a well defined process for service improvements, with the customer association acting as a focus group.

Thirdly, with the wast number of users created by the IBM PC boom at the mid 80's, came the invention of the user Helpdesk. It's designed to relieve computer specialists from solving endless and annoying user problems - but also to give them feedback on common user problems, that then can be fixed once and for all. This is a well defined process, and I'd say a good example of service maintenance based on (a kind of) formatted customer interviews.

So the bumblebee flied. As I see it, parts of the computer industry has come to be a forerunner in using these methods - not knowing they did and that we are discussing them as models for the whole service industry today. I wouldn't be surprised if there where more to find, if someone examined these forerunners systematically. Possibly this role has now been overtaken by an even newer and less tradition-bound IT sector. The smartphone app industry? The internet-enabled gadget industry? The gaming industry? Go and look - and tell me!

If Service Innovation has an anatomy, is it then alive?

The headline question might seem far fetched, but the language used to describe Service Innovation is full with innovative analogies. Reading the paper "Exploring value propositions and service innovation: a service-dominant logic study" by Skålén, P., Gummerus, J., von Koskull, C., & Magnusson, P. (2015), we are imperceptibly served with words like anatomy, creation, resources and adaptation. They all also are used in describing the concept of life. This is of course a play with words - which by the way is a creative way of making associative innovations. So lets play along for a bit.

In what way is Service and Service Innovation alive?

I'll just restrict myself to Services B-B and B-C, to make the associations clearer. So, lets pretend Services are alive. They thrive when delivered, so in a way they consume resources like manpower and electricity, and they deliver experiences, satisfaction or physical attributes. Obviously a Service can be copied, like Dolly the cloned sheep, but Service Innovation is how they reproduce. Everybody has heard the saying "Necessity is the mother of invention". In the living Service context it would mean that problems or needs is what the reproductive process (Service Innovation) is aiming for, while consuming its resources and producing the Service babies.

Linking back to the Skålén - Gummerus - von Koskull paper, a value proposition would be a service on display. The three aggregates of practices that constitute and fulfill value propositions, provision, representational and management and organizational practices, would be the living service in action, its genes and feeding practices respectively.

Types of innovation and is corresponding life analogy

Anders Gustafsson, professor at the Service Research Center at Karlstad university, presents a model related to Doblin’s ten types of innovation (see picture below).

In the above model, and listening to Anders Gustafsson presenting it, you can figure out that streamlining a Service is like holding it on a leash; brand innovation is to brush up the service and make it more attractive; experience innovation is to alter what and how the Service consume resources; and finally social innovation actually has many similarities with a pet dog: it's a nice companion and you meet lots of people when you are out walking the dog.

Is this meaningful?

OK, I must confess it has been a nice time trying to find useful analogies - but I at the same time have learned some more about these concepts. However I think there really is a deeper meaning, taking concepts like evolution, genes, reproduction (mixing of genes) etc. into account. It should be used carefully, for explaining. But possible life can give something back. Perhaps this analogy can provide some deeper understanding and new discoveries?

The customer is not always right

I will now plunge myself into the infected debate on whether the customer is always right or not. This might seam far fetched from the actual purpose - to write about Service Innovation - but that is what I actually will do. In the process I will come to the conclusion that the customer is not always right, only to rephrase the sentence and seemingly contradict myself. I have the coffee cup at the ready!

How to Innovate Customers, not Products

I will refer to findings and conclusions made by Michel, Brown and Gallan in their paper “Service-Logic Innovations: How to Innovate Customers, not Products” (2008). To me, some of their statements seams to be less trustworthy, or at least less apparent.

I do however fully support them argue that service-logic innovation is customer-oriented. To me, service innovation is a process, and the outcome is the specification of a new service. Nothing could be more natural than involving the potential customers to that (coming) new service, in the process of specifying it. But I would also like to point out that there is nothing saying you can't perform service innovation without the involvement of customers. Of course you can, and you might get initially very successful - but hardly for any longer period of time (without customer involvement).

They also state for example that “Altering value as it is defined and used by the customer, not value in production and exchange, defines innovation”. This to me is in the eyes of the observes, that is the system boundaries you have set up. There clearly can be innovation in for example production, and setting the proper system boundaries you will find there is an internal "customer" - and if you will (using the service-logic innovation terminology) there also might be some service innovation made. I would prefer another definition to innovation, I just can't formulate it now. Note that the customer is not included in their definition, so by (their) definition customer involvement is not an unavoidable part of Service Innovation.

So, as they put it: “How can we anticipate and assess alterations in customer roles, such that we can innovate our offerings? And finally, how can innovating customer roles alter the ways our firm needs to configure its value network?”. To customer involve, or not to customer involve, that is the question.

Confusion

There is some confusion at play here. One very important issue is about the concept Service Innovation, and that comes from the fact that it is actually two terms. First, Service Innovation (verb) is a process, and as such a service itself. Then a Service Innovation (noun) is a result from a value creating process (Service Innovation), and that result is the specification of a new service. So when discussing Service Innovation you always have to be crisp clear whether it is the process or the result you mean.

Does it matter? Very much: As we know from Michel, Brown and Gallan, the process of Service Innovation benefits from involving the customers, but the service innovation itself (the resulting service) might well be one not involving the customer in its delivery or execution. Take for example the service home delivery of groceries connected to a fix weekly menu. The whole point is not involving the customer (in the making). But the very same service might well be the result of heavily involvement of customers in the service innovation process.

Did that help? Here's another one: a (normal) service is a value creating process ordered by a customer. But a service innovation is a value creating process ordered (indirectly) by the customers. In the first case we clearly have customer in singular, or at least a group that acts as a single customer. In the second case, we have customer in the plural: customers. It is customers as a collective that can accept or reject a new service - not any single customer. Well they can, but unless they are very influential and convinces the whole customer collective to follow suit, any single customer can't change the success of a service on the market. So when we talk about "customer involvement" in general, we should clarify if we mean involvement of customers in the service innovation process, or involvement of the customer in the execution or delivery of the new service. It might be booth or one of them.

With their exploratory, rather than confirmatory, research orientation, Michel, Brown and Gallan finds that service-logic innovations are triggered by the following forces:

1. Embedding know-how into objects
2. Changing the integrators of resources
3. Reconfiguring the value constellation, or combining any of these forces.

They also found that “each service-logic innovation changes at least one of customers’ roles as users, payers, and buyers”.

This is all well, these are the triggers and these are the impacted roles, but what about service innovation in the making? How is actually the service innovation process working? To get the grips of this, we still need a strong definition of Service Innovation. Having this, it would be much easier to move on in the process of understanding.

Conclusion

So, in conclusion, the customers are always right. Nota bene: customers in plural. Why? The customers, as a collective, can always use their right not to use your services. If they choose to, there's nothing you can do. You are out of business. They are always right.

But there's an important measure for preventing this: to involve the customers in the process of Service Innovation. This way, the customers have actually specified the outcome (the new service) and are by definition co-owners of that specification. So if they want to oppose the suppliers right, they will at the same time be opposing themselves. This is a contradiction, and hence to involve the customers is the road to success. By definition. You can however, like Henry Ford with model T, have a visionary insight in customers future behavior and initially win a market without any customer involvement in the innovation process - but eventually customers are right. Do you know of anyone driving a T-Ford today? (This was of course a product example, not a service, but you can always refer to the service the car delivers in moving you swiftly around).

Is the customer always right? No. Definitely not always. If you yourself haven't experienced the rejection of a seemingly righteous claim with reference to written terms, you probably have heard stories of others claiming such and getting both denied and humiliated in the process. So the sentence is negated by example, and hence the customer is not always right. But customers are always right. Crisp clear.

References

Michel, Stefan, Stephen W. Brown, and Andrew S. Gallan. “Service-Logic Innovations: How to Innovate Customers, not Products” California Management Review 50.3 (2008): 54-66.

What drives service innovation?

What are the driving forces for successful service innovations?

Service innovation focuses on the Value in Use (VU) rather than the traditional product-oriented Value in Exchange (VE). What this actually does is shifting the focus from the manufacturer (or producer) to the customer. VE could be interpreted as the purchasing cost, which in a product centred logic is all the value the manufacturer cares about. We could also assume that the newer service centred logic actually works as well for services as for goods, or any combination of them. The important key here is the customer focus and the attempt to evaluate, or at least consider, the VU.

No easy task

It certainly isn’t an easy task, as described by A. Walters, P. Thurston and G. Cawood in the paper “User-centered service innovation: Are commercial interests preventing clients from maximising the value they get from service design research?” (Service Design with Theory, 01/2013: pages 125 - 130; Lapland University Press). They conclude that "Companies employ numerous options to gain knowledge of their customers, from reacting to reports of customer needs conveyed by the sales people at one end of the scale, to employing anthropologists to document the lives of prospective customers at the other. Whatever strategy a firm utilises, it is likely to be driven by a combination of knowledge, expertise and resources". This is in sharp contrast to just rely on a few simple indexes like the turnover measure on the success of your service innovation experiments.

The next step

As a systematist I’m tempted to take another step, beyond the customer. What focus could be more important than that of the customer experience? Take for example the product petrol (gasoline). It has an obvious VE announced at the pumps, and it also has a fairly apparent VU as a propellant for your car. However, today we know there’s a downside to all this: the pollution and the climate change it produces. There must be another even more important value to consider. It has something to do with the environment, the future of mankind and our planet. Let’s call it Sustainability Value (SV). The term SV is investigated by J. Darmanata, C. Somohano, S. Saad and T. Perera in their conference paper “A sustainability value system principle for a global supply chain” at the 5th International Conference on Responsive Manufacturing - Green Manufacturing (ICRM 2010), 2010 p. 329 – 334. They state that the “Sustainability is becoming a key strategic and business issue for companies” and sets it in the context of a global supply chain.

The more important the index are, the harder it is to measure

If VE is fairly easy to define and measure (however still not uncontroversial), VU is much harder but SV is inherently more complex and hard to handle and use. There are attempts to do the calculations for SV via life cycle assessments, based for example on the burden of the environmental impacts, but we are far from acknowledging all pros and cons (mostly cons) there is. However, there are many attempts to make these costs visible, and to for example charge the manufacturer for the environmental impact costs for producing and to charge the customer for the environmental cost for disposal of the products. As a result of all these efforts, we hopefully will eventually come to a sustainable lifestyle, using goods and services considering their SV rather than their VU or VE.

Things take time (TTT)

As always when complex systems are to change, things take time. In my experience, I would say that still the majority of our companies uses the accumulated Value in Exchange (i.e. turnover) as the key index for success. A growing number are more considering (the accumulated) Value in Use (possibly reflected in the Customer Lifetime Value, known by many successful companies), and a very few are in practice trying to calculate and take responsible actions considering the impacts based on the Sustainability Value. One possible driving force for this change is the assumption that companies focusing on the VU are more successful and survives longer than those focusing on the VE, and also that focus on the SV gives advantages compared to focus on the VU.

Transformation of values

Having written all this, I’m due for a cup of coffee – and it’s naturally both ecological and FairTrade marked. Being conscious of the importance of the sustainability in my actions I am in practice supporting companies aware of the SV. These labels has actually created a Value in Use for me and many fellow caffeinists. Some SV has thus arguably transformed to VU. In the making of a service innovation, I conclude that companies would benefit from taking a broader perspective and try to highlight and capture some of the Sustainability Values their customers would acknowledge. In the transformation of Sustainability Values to VE and VU, the market mechanisms would then take over and drive us to a sustainable future.

Service Innovation vs. Branding

The Big Picture

Sometimes you need to stop and just watch for a moment, and ask yourself "Where am I?". This is definitively the case with exploring Service Innovation as a concept. As revealed by  Carlborg, Kindström & Kowalkowski (2014, p19), the concept tends to become all-encompassing, and it may eventually lose its focus.

Branding

There is one question in particular that I have: the close relationship with the concept of Branding. According to www.businessdictionary.com, Branding is defined as the process involved in creating a unique name and image for a product in the consumers' mind, mainly through advertising campaigns with a consistent theme. Branding aims to establish a significant and differentiated presence in the market that attracts and retains loyal customers.

So Branding is a process that creates a value, just like Service Innovation. Checking with the list of differences between Goods and Services in Gustafsson & Johnson (2003, p5), the Brand value ticks most of the Service boxes.

If you imagine yourself sipping a coffee at the Starbucks, you are at the same time sipping some of its Brand value and making personal benefit (feeling good) of its value. This is exactly what happens when you trigger the service chain (to get your coffee) - you benefit from the value the service delivers.

Evolution of competition

One hint to identify the difference between brand and service value is to look at the evolution of the competition stair shown in Gustafsson & Johnson (2003, p9), escalating from Product value, to Service value, Solution value and to the final Experience value. As I see it, the Brand value is actually part of the Experience value.

One possible difference is that the Brand value is designed to appeal to all stakeholders, and exists outside the service chain (in the stakeholders mind). The Service value emerges only when the service chain is executed, and only in the customers mind.

The power of Why

Again turning to my favourite TED Talk, Simon Sinek’s “golden circle” and his book “Start With Why: How Great Leaders Inspire Everyone to Take Action” (2009), I sense he is addressing another difference between the two. One could easily make this parallels with his talk:

• What - represents the physical product and its manufacturing
• How - represents how the product is delivered, that is the service
• Why - represents the permanent value, the true reason to buy the product or service

I can think of a number of branded values that triggers my daily purchases: ecological foodstuffs, fair trade coffee, rain-forest safe palm oil or pesticide free clothes. In a B2B context there's a whole set of certificates around quality, environment and corporate responsibility, that all trigger the same need - they don't deliver any specific service, but represents a value.

How is now, Why tomorrow

Today, a growing number of companies are developing and focusing on their "How". A few, like the Ikea and Apple Inc., have realized the value of Value and are investing heavily in their Brand and the value experiencing their services. Yet a shrinking number of companies are doing What they always have - producing and selling stuff.

References

1. Carlborg, P., Kindström, D. & Kowalkowski, C. (2014). The evoloution of service innovation research: a critical review and synthesis. The Service Industries Journal, 34(5), 373-398.
2. Gustafsson, A, and Johnson, M., 2003, Competing in a Service Economy, Jossey-Bass, San Francisco. 

What is an innovation?

Reinventing myself

In my world, populated only by me, I got this new idea to redirect my career towards creating and managing innovative services in the area of the industries I previously have worked in. In short, I will reinvent my work-self, so this is truly an innovation. Wow! What a great start at the open course “Managing Service Innovation” that started this Friday at the Karlstad University, Sweden, centre for Service Research.

One of the first lessons at the kick-off meeting was that the term “innovation” actually is quite complex, and needs to be specified in order to be useful. For example “incremental innovation” indicates a step by step fashion that makes use of earlier knowledge and processes, as opposed to “radical innovation” that makes a fresh start.

And, of course, I’m not the only one reinventing myself. It’s not that innovative, I confess. But – it still is quite a good idea and this turn in my work life will serve my work-self well in the future.

So who am I? 

Sticking to my work-self, I started off in the 80’s with a Master of Science (in Engineering), working with opto-electronic component development and the ever expanding business of developing software. After a decade, I found myself also working with the work-processes and quality aspects connected to my software. In other words, I focused more on HOW my customers used my systems, rather than WHAT the system was doing.

After another decade, I got my Master of Education (for the Upper Secondary School), practiced as a teacher (for a handful of years), and then went on being a Quality Manager (for another handful of years). At this point, I had changed my focus again, towards WHY my customers need the software and processes, what they actually need and how to give them just that. Why THAT is important, I will not explain.

My favourite TED Talk

This “why – how – what” terms comes from one of my favourite TED talks, Simon Sinek’s talk “golden circle” and his book “Start With Why: How Great Leaders Inspire Everyone to Take Action” (2009).

As you now realise, I have lived my work life backwards to this day. But it’s never too late to learn, and this is why I’m here.

My private self...

...is that of a typical Swede: nature-lower, home and family comes first, book-reading and just loves mathematics. Well, the last one was NOT typically Swedish. I’ve got a few more aces up my sleeve, and will reveal them in later blogposts. Be patient and follow…

This blog will trace the lessons of life I will make, on the path presented above.