1
Per Egil Pedersen Center for Service Innovation Norwegian School of Economics and Business Administration
An introduction to services, service science, service innovation and new service development
Outline
1. Introduction
1. Service – definition
2. Services – the macro level challenge
3. Service innovation ≠ New service development
2. Service innovation – the micro level challenges
1. Characteristics of services
2. A service innovation model
3. Service innovation and NSD methods
1. Identifying service oportunities - Outcome-driven service innovation (Ulwick)
2. Innovating services from the customer’s perspective - Service Blueprinting
3. Innovation service operations from the firm level perspective – Component Business Modeling
4. Summary
2
1. Service defined
• A goods dominant logic (GDL) definition won’t do:
– A service is the intangible equivalent of an economic good
• Proposed definition:
– Services are economic activities offered by one party to another, most commonly employing time based performances to bring about desired results in recipients themselves or in objects or other assets for which purchasers have responsibility. In exchange for their money, time, and effort, service customers expect to obtain value from access to goods, labor, professional skills, facilities, networks, and systems; but they do not normally take ownership of any of the physical elements involved (Lovelock and Wirtz, 2001 and later)
• Service Dominant Logic (SDL)-based characteristics:
– Activities
– Processes (time based performances)
– Value in use (as opposed to value in exchange)
– Nonownership
1. Service sector
• Defined:
– The economic industries in which the provisioning of services represents the main economic activity
• Defined by NACE codes from G and up:
• NACE (Standard for næringsgruppering, 2007):
Many service activities are also performed in other industries E.g. KIBS versus KISA
3
Recent focus on services and the service sector
5
Outline
1. Introduction
1. Service – definition
2. Services – the macro level challenge
3. Service innovation ≠ New service development
2. Service innovation – the micro level challenges
1. Characteristics of services
2. A service innovation model
3. Service innovation and NSD methods
1. Identifying service oportunities - Outcome-driven service innovation (Ulwick)
2. Innovating services from the customer’s perspective - Service Blueprinting
3. Innovation service operations from the firm level perspective – Component Business Modeling
4. Summary
4
1.1 Employment and GDP
7 Kilde SSB
0
10
20
30
40
50
60
70
80
90
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Employment, andel av personer sysselsatt
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
Primærnæringene
Industri
Tjenesteyting
GDP (faste 2000-priser mill NOK)
Productivity, jfr. SSB, 47/2010 – this is the macro level challenge…
8
Kilde SSB
Productivity (endring i bruttoprodukt pr. timeverk (1970=100))
0
200
400
600
800
1000
1200
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Primærnæringene
Industri
Tjenesteyting
Baumol’s disease …?
5
Service industry differences…
9
0
200
400
600
800
1000
1200
1400
1600
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Varehandel
Post og telekommunikasjon
Finansiell tjenesteyting
Forretningsmessig tjenesteyting
Industri
Productivity (endring i bruttoprodukt pr. timeverk (1970=100))
Investments in service innovation….
10 Kilde SSB
0
10
20
30
40
50
60
70
80
90
1995 1997 1999 2001 2002 2003 2005 2006 2007
Kostnader industri
Offentlig finansiering industri
Kostnader tjenester
Offentlig finansiering tjenester
Innovation costs (Andeler av totalkostnader til og offentlig finansiering av innovasjon (FoU))
6
Outline
1. Introduction
1. Service – definition
2. Services – the macro level challenge
3. Service innovation ≠ New service development
2. Service innovation – the micro level challenges
1. Characteristics of services
2. A service innovation model
3. Service innovation and NSD methods
1. Identifying service oportunities - Outcome-driven service innovation (Ulwick)
2. Innovating services from the customer’s perspective - Service Blueprinting
3. Innovation service operations from the firm level perspective – Component Business Modeling
4. Summary
New (Norwegian) services– is this service innovation?
12
7
Yes, but only partly - service innovation is?
• Innovations in traditional service industries
– E.g. Service exerience or structural organization
• Innovations in knowledge intensive services
– E.g. Methods or processes
• Innovations in service activities in manufacturing
– E.g. The business model
13
A business model (canvas)
14
Osterwalder et al., Business Model Generation
8
An example of service business model innovation – servitization or servicizing
15
Outline
1. Introduction
1. Service – definition
2. Services – the macro level challenge
3. Service innovation ≠ New service development
2. Service innovation – the micro level challenges
1. Characteristics of services
2. A service innovation model
3. Service innovation and NSD methods
1. Identifying service oportunities - Outcome-driven service innovation (Ulwick)
2. Innovating services from the customer’s perspective - Service Blueprinting
3. Innovation service operations from the firm level perspective – Component Business Modeling
4. Summary
9
2.1 Why is this so challenging- IHIP
• Intangible – non material: – E.g. Underinvestments in SI due
to lack of IPR?
– E.g. Underinvestments in SI due to difficulties in measuring the effects of intangibles?
• Heterogeneity–customization: – E.g. Underinvestments in SI
that scales (economies of scale) because this is difficult to obtain when being customer/user oriented?
17
0
200
400
600
800
1000
1200
1400
1600
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
06
20
09
Varehandel
Post ogtelekommunikasjon
Finansielltjenesteyting
Forretningsmessigtjenesteyting
Industri
Cont… characteristics…
• Inseparable– co-produced by provider and customer: – E.g. Are service innovations created
by customers or providers?
– E.g. Is critical mass potential a requirement for SI’s?
• Perishable– cannot be stored: – E.g. Will the application of NPD
methods result in the wrong service innovation types?
– E.g. Are NPD methods at all applicable to SI (demarcation approach)?
18
10
Outline
1. Introduction
1. Service – definition
2. Services – the macro level challenge
3. Service innovation ≠ New service development
2. Service innovation – the micro level challenges
1. Characteristics of services
2. A service innovation model
3. Service innovation and NSD methods
1. Identifying service oportunities - Outcome-driven service innovation (Ulwick)
2. Innovating services from the customer’s perspective - Service Blueprinting
3. Innovation service operations from the firm level perspective – Component Business Modeling
4. Summary
2.2 A service innovation model
20
Service- innovation process •Search
•Implementation
Service innovation: •Service concept
•Client interface
•Delivery system
•Technology
Effects : •Financial benefits
•Customer value
•Strategic success
Process-conditions: •People
•Structure
•Resources
•Networking
Climate-related conditions: •Culture
•Strategy
•Company characteristics
External conditions: •Market
•Knowledge
•Government policy
Only partly under firm level control
Firm level control
11
What is done at the firm level?
• Adapt (to) the special SI conditions
– E.g. Develop a service oriented innovation culture (e.g. teaching SDL) or using brand strategy as an overall strategy
• Adapt the service innovation (NSD) processes
– E.g. use NSD methods that involves end-users and/or customers
• Adapt the innovation types
– E.g. focus more on business model innovations rather than service interfaces or service technologies
• Adapt (to) the innovation effects
– E.g. measure and use qualitative effect measures (customer and brand value) 21
Outline
1. Introduction
1. Service – definition
2. Services – the macro level challenge
3. Service innovation ≠ New service development
2. Service innovation – the micro level challenges
1. Characteristics of services
2. A service innovation model
3. Service innovation and NSD methods
1. Identifying service oportunities - Outcome-driven service innovation (Ulwick)
2. Innovating services from the customer’s perspective - Service Blueprinting
3. Innovation service operations from the firm level perspective – Component Business Modeling
4. Summary
12
3.1 Managing intangibility when identifing SI opportunities - Outcome-driven service innovation–
• Two publications:
– Ulwick (2005): What customers want: Using outcome-driven innovation to create breakthrough products and services
– Bettencourt (2010); Service innovations: How to og from customer needs to breakthrough services
• Basic method:
23
Outcome-driven innovation – capture and transformation stages
• ….
• Uncover jobs and outcomes:
– Identify customer jobs and outcomes
• Jobs in a process or blueprint model
• Job instead of need or problem….
• Outcome instead of solution…
• Job – outcome hierarchy
• Identify jobs and a number of outcomes from that job
– Ensure job and outcome statements
• Validating statements with customers…
24
This course: Comprehend articles, organize assignment, remember from lectures, manage exam Comprehend articles:
Min time to find/copy Min time to read Min likelihood of misunderstanding Max likelihood of recall at exam
13
Outcome-driven innovation – capture and transformation stages
• Prioritize outcomes and transform to services:
– Let customers assess outcomes to generalize
• How important are the following outcomes when ”job”
– E.g. … in comprehending the course articles/book
– E.g. … minimize the time to copy/find the articles/book chapters…
– E.g. … minimize the likelihood of misunderstanding
• How satisfied are you with the way the following outcomes are supported when ”job”
– Course example … Same as above….
– Calculate opportunity
• Opportunity algorithm
• Average opportunity
• Average importance and satisfaction
• Opportunity maps
• Segment based on opportunity map
• (Map competitors in opportunity map)
– Identify services to improve underserved opportunities
• ….
• Method examplifies ways of overcoming service characteristics and addressing SI research findings in practice
25
minimize the time to copy/find the articles/book chapters…
minimize the likelihood of misundertsanding…
3.2 Managing heterogeneity and inseparability - Service blueprinting
• Characteristics of customer facing services:
– Services as a customer experience
– Services as processes
– Services as staged and thus designed (e.g. the servicescape)
• Suggested by Shostack (1983)
– Further developed by Bitner et al., (2007) and Kalakota/Robinson (2003)
• Principles:
– Use modeling principles that customers easily understand (nonUML)
– Five components:
• Customer actions
• Onstage service activities
• Backstage service activities
• Support processes
• Physical evidence (touch-points)
– Visualized in ”Service Blueprint” layers
26
14
Service blueprinting prosess
• Process:
– Identify service process (+segments)
– Map process from customer perspective (journey)
– Map corresponding onstage and backstage service processes
– Link to support activities
– Add physical evidence (touchpoints)
• E.g. innovations in backstage activities to improve the customer journey)
• E.g. innovations in customer roles (see , jfr SDL, Michel, Brown og Gallan, 2008)
• E.g. innovations in physical evidence such as touchpoints (see Touch- Point cards)
27
Service blueprint of a hotel visit
28
15
3.3 Managing intangibility and ”perishability”- Component Business Modeling
• Traditional approach to structural innovations
– Map business as a value chain (of physical processes creating value in exchange)
– Innovate through vertical and horizontal integration and disintegration
• Serivces better described as value networks and/or -shops (Stabell and Fjeldstad, 1998)
• Principles:
– Identify the core competencies of the firm
– Identify service components along competencies and operational/accountability levels and map these in a component map
– Heat map components (e.g. customer value or profitability)
– Structural innovation:
• Innovate by structural specialization and selective service sourcing
• (Aggregate component maps and innovate throug vertical and horizontal disintegration))
29
A simple ”value chain” like mapping
30
16
More complex competencies – e.g. insurance (i.e. value network)
31
The Norwegian graphic arts industry
32
Admin.
support
Equipment
managem.
CRM Binding Other
finishing.
Storage Distri-bution
E
x
e
c
u
t
e
C
o
n
t
r
o
l
D
i
r
e
c
t
Develop-
ment
Design Printing Cross media
publishing
Design-
systems
Strategists
Develop-
ment
intensive
prov-
iders
Admini-
strative
sup-
porters
Indust-
rial
pro-
ducers
Large -
custo-
mer
oriented
prov-
iders
Control system
oriented providers
Specia-
lized
printers Systems
devel-
opers
and
systems
prov-
iders
General
design-
ers
Cross media publishers
Specialized
finishers
Vertically differentiated solution providers
Warehouse specialists
Analysts
Printing service administrators and providers
Regionally differentiated solution providers
Web designers and
specialized web hosters
17
But this ONLY describes the key activities part of a business model
33
Osterwalder et al., Business Model Generation
Summary
1. Introduction
1. Service – definition
2. Services – the macro level challenge
3. Service innovation ≠ New service development
2. Service innovation – the micro level challenges
1. Characteristics of services
2. A service innovation model
3. Service innovation and NSD methods
1. Identifying service oportunities - Outcome-driven service innovation (Ulwick)
2. Innovating services from the customer’s perspective - Service Blueprinting
3. Innovation service operations from the firm level perspective – Component Business Modeling