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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

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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

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Recent focus on services and the service sector

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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

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1.1 Employment and GDP

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Productivity, jfr. SSB, 47/2010 – this is the macro level challenge…

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Baumol’s disease …?

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Service industry differences…

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Varehandel

Post og telekommunikasjon

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Investments in service innovation….

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Kostnader industri

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Innovation costs (Andeler av totalkostnader til og offentlig finansiering av innovasjon (FoU))

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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?

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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

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A business model (canvas)

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Osterwalder et al., Business Model Generation

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An example of service business model innovation – servitization or servicizing

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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

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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?

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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)?

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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

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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

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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

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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:

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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…

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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

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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

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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

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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)

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Service blueprint of a hotel visit

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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))

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A simple ”value chain” like mapping

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More complex competencies – e.g. insurance (i.e. value network)

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The Norwegian graphic arts industry

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Admin.

support

Equipment

managem.

CRM Binding Other

finishing.

Storage Distri-bution

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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

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But this ONLY describes the key activities part of a business model

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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