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The Big Difference With Service Innovation

We acknowledge 3 types of innovation: product, experience, and service (or business model) innovation

Innovation challenges all aspects of a firm. It requires a deep understanding of your company’s current capabilities, and where you need them to be in order to continue delivering the best experience for your customers. In today’s data-driven, digitally-fueled world, this often means transitioning towards more service-based offerings. Making that journey is difficult, and requires a different kind of innovation than what most companies are accustomed to.

At The Service Design Group, we acknowledge 3 core types of innovation: product innovation (the most comfortable), experience innovation (almost as comfortable, and very fashionable these days), and then service and business model innovation. As we move from product to service/business model innovation, the levels of ambiguity, risk, and skill required increase exponentially.

Product Innovation

In product innovation, feature/function invention prevails

Traditional product innovation utilizes proven approaches to prototype, test, refine, scale, and launch. Think of the many great product concept sketches, renderings and videos that circulate social platforms like LinkedIn, tagged as “innovation.” While all interesting, these are always “just products” looking to marginally improve upon some pre-existing product offering.

In product innovation, feature/function invention prevails. Sure, a lot of “cool things” get designed a built, but to excel in product innovation, one does not need to be concerned with user experience. (Yes, a compelling user experience is beneficial, but it is not necessary to successful product innovation.) More importantly, in the product innovation business, the end outcome does not matter. That is, it is not the concern of the product innovation as to whether an outcome is delivered or not.

The product innovation space is where most firms operate, today. It’s comfortable, well understood, and easy to manage; but, perhaps not so interesting.

Experience Innovation

The experiences you can innovate are limited to purchase, use, repair/replace

The next form of innovation concerns customer experience. Like product innovation, companies are comfortable with experience innovation, as it’s a fairly well understood concept these days. It is well understood because – when doing experience innovation – you are naturally bound by the constructs of the product life cycle.

That is to say, the “experiences” that you can innovate are limited to: 1) the purchase experience; 2) the in-use experience; 3) the repair/replace experience. While there are certainly many improvements to be made, what is the point of experience innovation? Innovating the purchase, use, or repair/replace experience for a product typically aims to reduce the “friction” in the existing product business or to make the existing business “more seamless.”

In the end, experience innovation efforts will only – at best – improve customer satisfaction and loyalty. Experience innovation is not going to generate new forms of revenue or change the enterprise value of a firm.

Service and Business Model Innovation

Services must deliver specific, measurable outcomes at a level of expertise and value that the customer can not otherwise achieve

Services change everything and service innovation is unlike any other type of innovation. Service innovation redefines how you interface with customers and it requires envisioning how to be connected with the customer past the point of sale. Unlike products and experiences, services are oriented towards outcomes. This shift requires fundamental changes in how a company understands itself as part of the market. It also fundamentally changes the innovation process.

The big difference? If you enter the service innovation game, you’re entering the outcomes business! Services must deliver specific, measurable outcomes at a level of expertise and value that the customer can not otherwise achieve. And, the service must come with a compelling user experience! Delivering an outcome through a pleasurable experience is easier said than done. Metrics must shift from quantitative (how many units were sold) to qualitative (how would you rate your experience?). Intangibility confounds innovation and precipitates new management challenges.

Services must be constantly improved, necessitating a change in mindset and operations

The most salient of which is adjusting to continuous enhancement. Services have to be constantly monitored and improved. This necessitates a change in mindset as well as operations. How can we align incentives to continue getting the most out of our employees? What sort of infrastructure needs to be put in place so that the lag time between feedback and implementation is at a minimum?

These types of questions will seem intimidating at first. They should! Service innovation is unlike any other type of innovation. It is a process that requires envisioning how to be connected with the customer past the point of sale. Achieving that end has the potential to generate different points of leverage, gain customer insights, and expand influence over the market.

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