Service Innovation in the Digital Age

As the service economy strengthens and we see rapid growth of service-based industries in the developing world, current thinking on what drives innovation in the digital age is being challenged.  In developed countries, knowledge work has gained greater dominance throughout all verticals, and to a degree services are driven by innovation brought about by that work.  Yes, some services are tried and true in our minds at this point, but we continue to see innovation around what services are provided and how those services move to a digital platform.  Twenty years ago, the prevalence of Starbucks would have shocked many of us, and while they sell a product that has been standardized across all stores, it is the service that Starbucks strives for in providing that product that the company capitalizes on.  Today, when you go to buy a new or used car, it typically isn’t the sale of the car where the auto dealership makes the lion’s share of their revenue, but in the services they provide after the sale and we’ve all seen how those services have become more and more digitized.

It seems fitting to dig a bit deeper into this intersection of innovation and the digital age given where many services-based companies as a whole sit within the service economy.  In this article, the authors discuss theorizing service innovation and as well give an approach for researching new service initiatives to ascertain whether they will bear fruit in any given market.  It’s a long article so I will try to summarize it here:

Historically, the drivers of service innovation have been viewed as arising mainly from clients’ demands for new services or executives’ desire to find create new services for market niches.  Today we see a prevalence of reverse product cycle, where an organization will adapt existing technologies to increase the efficiency of existing services that will then result in the creation of a new service as technology is applied to increase the quality or effectiveness of the service, resulting in a wholly transformed or new service.  Service innovation has been the focus of certain industries such as financial services in the past, but now we see a drive for innovation across industries, spanning healthcare, education, entertainment, and even in the public sector.  Open standards and architecture have facilitated the dis-integration of services and their restructuring around service ecosystems – high level, think of your favorite iDevice and the ecosystem that has been created around that device which also locks you into using that system.  The move towards open standards and architecture should lead to a more open ecosystem with greater fungibility across platforms.

All this has led to four dimensions of service innovation: service concept, client interface, service delivery system, and technology, with many service innovations involving some combination of these four dimensions.  As well, service innovation can be viewed as emergent, interactive and dynamic.  As a result, service innovation can emerge as ad hoc innovation arising in service exchanges as well as through anticipatory innovations (when service providers develop new spheres of knowledge) or formalization of standardized procedures across multiple service provider/client interactions.  Professional service firms, in which firms depend on knowledge as an important strategic resource, illustrate these varied aspects of service innovation. Through client interaction and coproduction of knowledge with business partners, professional service firms are able to improve their knowledge development processes for value.   In addition, there is no longer a meaningful distinction between products and services, as products require a service and services generally involve some form of product or artifact.  This intermingling of products (artifacts) and service offerings is evident, for instance, in the growing trend toward servitization) and has become a major development in the information technology (IT) field.  For instance, at its most basic level, cloud computing entails firms selling computing rather than computers to clients. Servitization strategies allow an organization to shift from selling a product to selling an integrated product and service offering.

To build a relationship where we are partnering with our customers towards creating opportunities for service innovation (large or small) we must ensure focus is on mutually beneficial partnership, added value, and shared performance-based risk.  Service innovation is inherently network-centric, value and experience focused, and spans the tangible–intangible divide.  Service innovation in a digital world will accelerate. Whereas most innovation throughout human civilization has captured natural phenomena to invent tangible product offerings, with the separation of information from matter and the rapid growth of global communications networks, more and more innovation will be intangible and digitally enabled.

 In the end, there is no silver bullet or specific “do this and you’ll get that” methodology for innovating in the services we are providing day to day for our customers.  It’s case by case and really is driven by HOW we engage and WHO we engage with, and the mindset we take when we are engaging with our partners, both internal and external.  It’s up to us to leverage the tools we have at our disposal to find opportunities for innovation with our customers.  If nothing else, focusing on how our projects tie back to the strategic mission of our customers is where we start this journey, and by focusing on the need, scope and how our projects fit within that plan we can push ourselves to search for new and novel ways to meet our customer’s success criteria.

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