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.