Service Innovation

The focus of Service Innovation must be to constantly improve the Customer Experience by

• systematically understanding the customer’s expressed and non-expressed needs
• aligning the individual skills on the front line, supported by the organization’s culture, structure and processes.

Most people today (including politicians and journalists) define innovation as R&D technology for tangible products and processes. The issue is that today over 75% of people employed in North America work in the service sector and only 10% are employed in manufacturing. The service sector accounts for 70% of GDP. Our economy is dependent on the Service Sector, yet all our innovation processes are perfectly adapted to the Industrial Sector where the purpose is the product.

Where Service Innovation applies

Service Innovation is the best tool to improve productivity in the Service sector.

Service Innovation is the application of innovative principles to three different types of activities:

Service innovation applies to all the companies that are included in the Service Sector such as Financial Services, Transportation, Information, Government and Public Service, Healthcare, Education, Tourism, Arts and culture, etc.

Service Innovation is not limited to the Service Sector. Around the world, the Manufacturing Sector is developing services to build on their manufacturing base.

For example:

• For many years car companies have made more money leasing cars than making them.
• RIM doesn’t make its profits from selling Blackberries but from the monthly fee you pay through your phone company.
• Rolls Royce now rents airplane engines to airlines by hours of flight, instead of selling them.

3. Service activities inside every organization

Many non-manufacturing activities in organizations are considered “services”. For example: Marketing and Sales, Management and Strategy, Finance, HR, IT, Legal, Accounting, Logistics and even R&D are all service functions. Some statistics suggest that the service “jobs” in manufacturing are as high as 35% to 45% of the total employment in the Manufacturing Sector.

Service Innovation is very different from R&D innovation

Service innovation is fundamentally different from technology R&D innovation and a different model of innovation is required for innovation in the service sector.

Ideaction is a leading organization in Canada in the provision of practical, effective and proven methodologies to deliver Service Innovation.

Here are some of the unique characteristics of Service Innovation:

• Service innovation always begins with consumer needs or wants – frequently unexpressed -- while manufacturing innovations most often start with a product or problem.
• Service innovation usually involves an entire company – particularly the customer interface -- while Manufacturing innovation involves very few people until implementation.
• Service innovation monetizes consumer behaviours while manufacturing innovation monetizes technology and tools.

The critical role of technology in Service Innovation

Information and communication technologies (ICT) have become the most important enablers of service innovation. Because of the strength of ICT companies such as IBM, HP or Cisco, there has been a growing tendency to look at these companies as the source of Service Innovation.

To be effective at Service Innovation, you must ensure that you start with the Customer and end up with the delivery of an innovative and consistent Customer Experience. Information and communication technologies are important but they are only tools, not the end game.

Relevant differences between products and services

The challenge of Service Innovation:  Who is in charge?

There is no doubt that in a manufacturing company the VP of R&D is in charge of technology innovation.

Service innovation, on the other hand, involves almost every department in the organization and no-one really “owns” it.

In service organizations, innovation falls amongst at least 5 or 6 departments such as Sales, Marketing, Operations, Customer Service, IT or HR. Very few organizations have an executive with innovation in their title, with the solid knowledge necessary to make innovation effective, and the accountability to coordinate innovation initiatives and really “make it happen”. How many Chief Innovation Officers do you know who are not in charge of R&D? How many organizations do you know who have an Office of Innovation?

Examples of service innovation:

Finance

1. Direct Protect changed the way home and auto insurance is distributed in Canada
2. Charles Schwab changed the way brokerages operate. Because of their focus on Service Innovation, Bank of America has over 300 people with Innovation in their title, the best Canadian bank has around 10.

Retail

1. Retail innovators such as Starbucks, Amazon, Walmart have created game-changing business models. They are exporting their innovations and other countries are paying the “royalties”.
2. eBay created a new category by using technology to capture a latent consumer need.
3. Lululemon created a new retail category by focusing on an unmet customer demand.

Communication and Entertainment

1. Apple sells iPods but makes money with the iTunes service
2. RIM sells Blackberry but makes money with the monthly service charge

Healthcare

1. The Mayo Clinic is constantly innovating how they deliver their services to their “customers”

Transport

1. WestJet and Southwest Airlines compete in their markets on service and constantly innovate, using their innovative culture to maintain a competitive advantage.

Manufacturing

1. Rolls Royce now rents airplane engines by the hour of flight.