Services are not products (so change the way you innovate)
Ask a class of 10-year-olds: ‘What do companies sell?’. Probably, the majority will answer ‘products’. Understandable, but reality is more complex. The services industry has been the dominant driver of the economy for almost a century – that is, responsible for the majority of Gross Domestic Product in most developed markets.
And services are still gaining ground[1].
Why? Traditional, product-focused, business propositions are being replaced by new ones characterized by creative mixes of connected products, content and personalized services – thus delivering additional value for their customers.
Think about listening to your favorite band on your smartphone via your Spotify subscription instead of buying CDs, or a booking a mobility service like Amber instead of owning a car.
Services, due to their characteristics (see ‘What discriminates a service form a product’) require a different innovation approach compared to the traditional product development process. Whether these services are strongly product-related (such as maintenance and lifecycle services) or provide customer benefits beyond products (sometimes called value-added services or professional services), they equally require innovation.
From our experience of helping both teams at Philips and external customers in this journey, and we want to share seven learnings.
1. Designing services = designing interactions
Product innovation starts with a sketch and (if everything goes well) ends with a working prototype and the manufacturing of the actual, tangible good. But how do you design a service that can neither be drawn, nor physically built?
The process of designing services is about designing, validating, and detailing interactions, which could be digital, human, or a mix of both.
This typically starts with storyboarding, a technique borrowed from the movie industry. Storyboards are then translated to service blueprints, that do not only describe the actual interaction, but also detail out all the actions that a service provider would take behind the scenes, as well as the resources, tools and knowledge needed to realize those actions. When a new service is launched, all these resources and infrastructure need to be in place in order to be able to provide the service to customers.
2. Success science is the key to success
Arguably the most important key success factor for services is success science. Success science refers to an evidence-based, quantitative understanding of how your customer defines success, how your products and services can help them achieve that success, and how you can help elevate that definition to a higher level.
The better you can prove or even guarantee the impact of your service to the specific situation of a new customer, the higher the value for that customer will be.
Note that success science is a continuous activity that remains long after the service is first launched.
3. Co-create with customers – and staff
Providing value through services usually goes beyond the traditional domain knowledge you need for developing products. You need to understand how to impact the customer’s business processes to be a credible service provider. Pilots are a proven way to interact with the different roles in your customer’s organization, verify the interactions you designed and validate the value of your service.
In our experience across many projects, we found that customer needs for services are often highly region-specific. Therefore, subject matter experts and key service users should be involved in service co-creation from an early stage in order to infuse their knowledge. Moreover, giving them a voice in the creation process will make adoption easier in a later stage.
4. Control points protect a competitive advantage
With products (and to a lesser extent software) you can use patents and copyrights to protect your intellectual property and defend a sustainable competitive advantage. Patenting a service is difficult, if not impossible. You need to consider early on which control points you have and need to develop to become and stay competitive.
Unique, detailed, and applicable knowledge and tools are a good start, and will help you to make a difference for your customers. Solid customer relationships are another one. An ecosystem of partner providers takes years to get right but allows you to build a consistent track record of solving your customers’ bigger problems. And obviously but far from simple, your own people who have direct customer contact will be the control point that is most visible and has the most impact on the actual customer experience.
5. Services can (more) easily be tailored
Services are very often used to address unique parts of a customer problem that are not solved by standardized products or software. When compared to products, services typically allow for higher degrees of tailoring. There is high variability in human interactions, and customers want to be treated as unique individuals.
However, tailoring comes at a cost. Building unique services for each individual customer is unaffordable. That is why tailoring should be carefully designed-in, using modules and configurations to make services more repeatable, predictable, and scalable.
6. Scalability comes with profitability
Typically, scaling costs of services are high. A growing customer base usually requires more staff to provide a professional service, or, in case of digital service, more bandwidth or computing power. Making services scalable is the only way a service provider can create significant growth and run a profitable business. This can be achieved by using standardized service modules across service offerings, common IT platforms, automation, scalable infrastructure, and applying common data models and operations processes.
7. Services require iterative development (in fact: continuous innovation should be part of the service itself)
Finally, it is very important to look at the iterative nature of services innovation. In our work in Philips and outside, we’ve seen several cycles of iterations that have a different nature compared to the typical flow of innovating products or software.
The first iteration cycle is often characterized by learning how to address the need of a few specific customers. A fail-fast, agile approach should be taken to demonstrate value, determine the willingness to pay and establish suitable pricing structure. The second iteration cycle is about learning how to address the needs of many customers, understanding how to scale across multiple regions and segments, whilst tailoring to the needs of specific user groups.
Although it’s essential to start thinking about these things as early as possible, most of this cycle might take place after the commercial introduction of a new service. After launch, you will gain more insights in success science and better understand your control points, and you might want to improve your service accordingly. Furthermore, you will get many customer requests to tailor your service to their individual needs and develop new ways to solve scalability challenges you have identified on the way.
Therefore, innovating services is a long-term process that does not stop at the launch; customers will expect you to improve over time. In the end, continuous innovation should become part of the service you deliver itself.
How are services disrupting your innovation process? We appreciate your comments on this article.
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[1] Our World In Data, 2017: https://ourworldindata.org/structural-transformation-and-deindustrialization-evidence-from-todays-rich-countries