Service Innovation

Service innovation as “a new or significantly improved service concept that is taken into practice. It can be for example a new customer interaction channel, a distribution system or a technological concept or a combination of them. A service innovation always includes replicable elements that can be identified and systematically reproduced in other cases or environments. The replicable element can be the service outcome or the service process as such or a part of them. A service innovation benefits both the service producer and customers and it improves its developer’s competitive edge. A service innovation is a service product or service process that is based on some technology or systematic method. In services however, the innovation does not necessarily relate to the novelty of the technology itself but the innovation often lies in the non-technological areas. Service innovations can for instance be new solutions in the customer interface, new distribution methods, novel application of technology in the service process, new forms of operation with the supply chain or new ways to organize and manage services.”

Another definition proposed by Van Ark states it as a “new or considerably changed service concept, client interaction channel, service delivery system or technological concept that individually, but most likely in combination, leads to one or more renewed service functions that are new to the firm and do change the service/good offered on the market and do require structurally new technological, human or organizational capabilities of the service organization.” This definition covers the notions of technological and non-technological innovation. Non-technological innovations in services mainly arise from investment in intangible inputs.

Service innovation is used to refer to many things. These include but not limited to:

Innovation in services, in service products: New or improved service products (commodities or public services). Often this is contrasted with “technological innovation”, though service products can have technological elements. This sense of service innovation is closely related to service design and “new service development”.

Innovation in service processes: New or improved ways of designing and producing services. This may include innovation in service delivery systems, though often this will be regarded instead as a service product innovation. Innovation of this sort may be technological, technique- or expertise-based,or a matter of work organization (e.g. restructuring work between professionals and paraprofessionals).

Innovation in service firms, organizations, and industries: Organizational innovations, as well as service product and process innovations, and the management of innovation processes, within service organizations.

Areas of innovation: Den Hertog’s model

Thus den Hertog who identifies four “dimensions” of service innovation, takes quite a different direction to much standard innovation theorizing.

The Service Concept refers to a service concept that is new to its particular market a new service in effect, or terminology, a “new value proposition”. Many service innovations involve fairly intangible characteristics of the service, and others involve new ways of organizing solutions to problems (be these new or familiar ones). Examples might include new types of bank account or information service. In some service sectors, such as retail, there is much talk about “formats”, such as the organization of shops in different ways (more or less specialized, more or less focused on quality or cost-saving, etc.).

The Client Interface refers to innovation in the interface between the service provider and its customers. Clients are often highly involved in service production, and changes in the way in which they play their roles and are related to suppliers can be major innovations for many services. Examples might include a greater amount of self-service for clients visiting service organizations. There is a French literature on service innovation that focuses especially on this type of innovation, identifying it as innovation in “servuction”.

The Service Delivery System also often relates to the linkage between the service provider and its client, since delivery does involve an interaction across this interface. However, there are also internal organizational arrangements that relate to the ways in which service workers perform their job so as to deliver the critical services. Much innovation concerns the electronic delivery of services, but we can also think of, for instance, transport and packaging innovations (e.g. pizza delivery). An emerging concept of SDP is the idea of taking a “factory” approach to Service Innovation. A “service factory” approach is a standardized and industrialized environment for more effective service innovation, development and operations for the IP era.

Technological Options resemble most familiar process innovation in manufacturing sectors. New information technology is especially important to services, since it allows for greater efficiency and effectiveness in the information-processing elements that are, as we have seen, prevalent to a great extent in services sectors. We also often see physical products accompanying services, such as customer loyalty cards and “smart” RFID cards for transactions, and a wide range of devices for communication services.

Features of services associated with service production

  • Technology and Plant (Low levels of capital equipment; heavy investment in buildings >>> Reduce costs of buildings by use of teleservices, toll-free phone numbers, etc.)
  • Labor (Some services highly professional, esp. requiring interpersonal skills); others relatively unskilled, often involving casual or part-time labor. Specialist knowledge may be important, but rarely technological skills (other than Information Technology) >>> Reduce reliance on expensive and scarce skills by use of expert systems and related innovations; Relocation of key operations to areas of low labor costs (using telecommunications to maintain coordination).
  • Organization of Labor Process (Workforce often engaged in craft-like production with limited management control of details of work. >>> Use IT to monitor workforce (e.g. tachometers and mobile communications for transport staff; Aim for ‘flatter’ organizational structures, with data from field and front-office workers directly entering databases and thence Management Information Systems.)
  • Features of Production (Production is often non-continuous and economies of scale are limited >>> Standardize production (e.g. ‘fast-food’ chains), reorganize in more assembly-line-like feature with more standard components and higher division of labor.)
  • Organization of Industry (Some services state-run public services; Others often small-scale with high preponderance of family firms and self-employed >>> Externalization and privatization of public services; combination of small firms using network technologies; IT-based service management systems.)

Features of services associated with service product

  • Nature of Product (Immaterial, often information-intensive; Hard to store or transport; Process and product hard to distinguish. >>> Add material components (e.g. client cards, membership cards). Use telematics for ordering, reservation, and if possible delivery. Maintain elements of familiar ‘user-interfaces’.)
  • Features of Product (Often customized to consumer requirements.>>> Use of Electronic Data Interchange or Internet for remote input of client details; use software to record client requirements and match to service product.

Features of services associated with services consumption

  • Delivery of Product (Production and consumption coterminous in time and space; often client or supplier has to move to meet the other party. >>> Telematics; Automated Teller Machines and equivalent information services.)
  • Role of Consumer (Services are consumer-intensive, requiring inputs from consumer into design/production process. >>> Consumer use of standardized menus and new modes of delivering orders.)
  • Organization of Consumption (Often hard to separate production from consumption; Self-service in formal and informal economies commonplace.>>> Increased use of self-service, utilizing existing consumer (or intermediate producer) technology e.g. telephones, PCs and user-friendly software interfaces.)

Features of services associated with services markets

  • Organization of Markets (Some services delivered via public sector bureaucratic provision; Some costs are invisibly bundled with goods (e.g. retail sector).>>> Introduction of quasi-markets and/or privatization of services; New modes of charging (pay per society), new reservation systems; more volatility in pricing using features of EPOS and related systems.)
  • Regulation (Professional regulation common in some services. >>> Use of databases by regulatory institutions and service providers to supply and examine performance indicators and diagnostic evidence.)
  • Marketing (Difficult to demonstrate products in advance.>>> Guarantees; demonstration packages (e.g. demo software, shareware, trial periods of use).)

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