Common Pitfalls That Prevent Servitization Progress
A useful definition of innovation is “anything that creates new value for the firm.”
Some “big hurdles” in the service innovation space are easily avoidable
At The Service Design Group, we specialize in service-based innovation. Our particular focus is driving growth through services, where growth can come in many forms: top-line revenue, margin, new lines of revenue (revenue diversification), market penetration, market share or wallet share.
Growth through services can feel like a challenge and there are certainly hurdles in the way of companies who choose to shift from the status quo; however, not all hurdles are created equal! Some “big hurdles” in the service innovation space are easily avoidable.
This article will identify the “self-inflicted” hurdles to make them easier to identify, understand and frame in order to mitigate their effects. We present them in order from least detrimental to most harmful.
Smiles vs Dollars
If you solely chase customer satisfaction, loyalty and NPS, you are chasing smiles instead of dollars
Many companies recognize they need to innovate, but are unsure what needs to be directly innovated; therefore, they rely on current management trends and innovation hype to guide them. Lately, there’s been a big push for UX and CX “innovation” which far too often means “improve our customer satisfaction and loyalty scores as measured by NPS (net promoter score).”
Don’t fall into this trap! If you solely chase customer satisfaction, loyalty and NPS, you are chasing smiles instead of dollars. Soon, you’ll hit a wall where it’s unclear what your efforts are producing.
To avoid the smiles vs dollars trap, step back and ask what form of growth you are after. Chances are, the growth you seek will come from creating new service offerings, not improving the UX and CX of your current product offering. And, when you take your new services to market, chances are you’ll improve your customer satisfaction and loyalty scores, too!
Top performers in service innovation often take years to fully mature their service offerings
So often we are tricked — by the glossy innovation use cases that are published at large — to expect innovation to be an easy, somewhat magical process: all we have to do is follow an agile process, and… after a few handfuls of two week sprints… voila! We. Are. Done!
While it sounds silly, this type of “fantasy” is much more common than not, particularly when firms who have never done service innovation first consider it. The thinking goes: how hard can it be? We read this use case and this sprint handbook and it’s “just” a service. It will go fast! In particular, firms with years of product innovation history are overly prone to pegging expectations for service innovations to product innovation timelines, always assuming service innovations will go much faster (because, after all, it’s “just” a service).
Don’t let these unrealistic expectations cripple your opportunity for growth through services before innovation even begins. Instead, consider that innovating and building a service may be equal to – if not longer – than creating a new product. Also consider that the top performers in service innovation often take years to fully mature their service offerings. Bottom line: producing service innovations and growth through services requires realistic expectations and timelines in order to succeed.
Two flawed metrics we commonly see are “profitable growth” and “in year revenue”
A special category of unrealistic expectations (above) is the more formidable hurdle of flawed metrics. Flawed metrics are the well intended consequence of the adage “you can’t manage what you can’t measure” that never considers “are we measuring the right things?”
Often, when first embarking on a service innovation path, product firms will apply the time-proven management measures that work so well on products to their fledgling service innovations. These are the metrics they know. The metrics they trust. The metrics that have explained, measured and predicted success to date. Why wouldn’t they work for services? Spoiler alert: they won’t! They will doom service innovation from the outset.
Two flawed metrics we commonly see are tracking “profitable growth” (measuring revenue and margin growth in tandem) and “in year revenue.” Both are flawed for service innovation. Building a new service will take time, and margins will be challenged. Similarly, revenue will likely be subscription based, where in-year revenue is far less interesting than annual recurring revenue.
Avoid the flawed metrics trap by picking new metrics that will truly explain and measure your service innovation and growth through services work. And, remember, service innovation takes time, don’t hamper the possibilities for measuring short-term concerns.
Digitalization on its own isn’t so interesting compared to digitalization with the express purpose of forging the infrastructure to bring as-a-service business models to market
If phrases like “Data is the new gold!” and “Let’s build a data lake!” sound familiar, you may be self-inflicting this next hurdle on yourself and potentially blurring the vision of what’s possible for service innovation.
Certainly data is a critical consideration for today’s businesses and it is easy to get swept away in the hype of data. It is also true that data will drive the backbone of business for many years to come. And, AI (artificial intelligence), ML (machine learning), and IoT (Internet of Things) are all technologies that enable companies to do more than they ever have. But, what do these things “do” for the business? It’s unclear!
However, if these capabilities are in service to creating new, as-a-service offerings, it gets interesting! Digitalization on its own isn’t so interesting compared to digitalization with the express purpose of forging the infrastructure to bring as-a-service business models and advanced services to market!
Avoid the digitalization noise hurdle by taking stock of why you are doing it and where how your current efforts will manifest in new commercial offerings. If you can’t find the commercial offerings or don’t have some service innovations in line, consider it a red flag.
Companies assume they already have the process for innovation
Often when companies are challenged to innovate and grow, they assume they need to choose the “right” process. These days that likely means “adopting agile” or “becoming lean.” Or – and perhaps worse – companies assume they already have the process for innovation. That is, they believe their existing NPD (new product development) system can help them innovate services and solutions.
Both assumptions are flawed and will bring any attempt to grow and innovate with services to a halt. Why? Because these processes have nothing to do with designing, testing, launching and hardening a service-based solution or business model!
Our advice? Don’t worry about whether you’re being “agile” or “lean” enough or if you’re hitting the correct checkpoints and gates of your NPD process. Instead, focusing on whether you are innovating and growing with services or not.
“if it ain’t broke, don’t fix it” is risk aversion defeating strategy
“We can’t change what we already do!” and “we can’t charge our customers for what we’ve always done!” are common reasons to not explore a service innovation and growth through services agenda. If you’re already saying or thinking these things, you’re in trouble. Why? Because if you don’t, someone else will! The global economy has been and will continue to trend towards being service-based.
Yes, the saying goes “if it ain’t broke, don’t fix it” but this is risk aversion defeating strategy and the future potential of what could be. Don’t let risk aversion win!
Instead, realize that it takes leadership and vision to acknowledge that although something might not be broken now, this will not remain true in perpetuity. Quell your perceptions of risk to at least explore and understand that services offer a proven path to diversify revenue and capture growth.