Innovation + Services

Innovation is one of the most powerful and creative forces of human nature, it has literally changed the world (for good and ill). In the commercial environment, innovation has been widely applied to and analysed against products and processes. More recently, significant study has been given to the impact of innovation on services.  Services are both major drivers of innovation and products of it.

We are currently working on some programmes that develop the relationship between innovation and services and will share some interesting highlights in upcoming blog posts starting below:

Services as an Innovation Enabler

Innovations can be loosely grouped into two catagories – incremental innovations and disruptive innovations. The development of a radical new product, process or service is often the outcome of a disruptive innovation.

Disruptive products are often built upon new, unproven or incomplete technologies and designs. Many such products stall or fail during the transition from a working prototype to a saleable comodity. This is where services can play a critical role as an innovation enabler. Services can bridge the gap between an innovative new product and a potential customers ability to use it effectively (or at all).

A great example of this exists in the early years of the photographic industry. The first generation of photography technologies and products were based upon copper and then glass plates that captured and stored still pictures. Altough these plates went through a number of incremental improvements (innovations) over a period of decades they remained expensive and cumbersome thus limiting the camera market to professionals and dedicated amateurs.

In the 1880s a disruptive new innovation began to gain some following, roll film. This promised to make cameras significantly easier to use, much more portable and less expensive to own and operate. The charge was led by one George Eastman, who saw that roll film could alter the entire market for photography products by expanding their use from the professionals to everybody.

But like many radical new innovations, refining the technology and bringing the product to market was difficult. Having made great progress on the roll film itself  and the camera that would utilize it, a gap still existed. The ordinary user could now take a photograph without specialist training but they could not be realistically expected to open and replace the roll film (let alone develop it).

One solution was to engineer the camera and film to make them user changable (something which would happen but would take time), the other solution was to servitize the camera. This is exactly what Eastman did. He launched his new camera, called the Kodak, with a complete service wrapper whereby the user purchased the camera with a 100 picture roll film already installed and once they had use all of these photos they returned the camera as a complete unit to the Eastman Company who would then return it to the customer with a new film installed and the set of developed photographs (for a healthy fee).

In this example the service was not only a profitable business model, it was the innovation enabler that made the product ready for market use. Total customer solutions have a long history then and todays product developers must consider service as a core part of the innovation cycle.

Steve

Servitizing A Services Business

In the classic scenario, servitization is a process of transforming a product business into a products+services one. But the process of servitization is centered on people and organization (both internally and externally) and a similar, but different, approach can be used to take an existing services business forward too. Servitization is also a continuum – both in terms of how companies implement it (its an iterative process) and also in how the concept and diciplne of servitization itself has evolved and will continue to evolve over time. The methodologies, techniques and processes used to servitize a business are refined based on experience and technological developments.

One of the most high profile servitization initiatives undertaken was that of IBM in the 1990s. Theirs was (and still is) a story familiar to many other product companies – shrinking margins on a product business facing increasing commoditisation and competition. They embarked on a wide ranging programme of servitization that completely transformed the company and its fortunes. Today, services account for 60% of IBMs revenues (and even more of its profit margin) and its Global Services organisation is a global leader in the field of IT services. So it is particularly interesting to note how in recent years it has had to re-structure itself again – this time in that same services business.

As the recent FT article recounts, by 2004 IBM was facing increasing commercial pressures due to commoditisation and competition of its services portfolio. This was largely driven by the growth of off-shore outsourcing from the BRIC countries (even though IBM had massively increased its footprint in these regions too). The solution for IBM was to review and rethink its services business – servitize its services business. Its a process we undertake with our customers too, many of whom are pure service companies. It involves a complete audit of the existing service portfolio, revenues, customers and markets. In IBMs case, this led to strategic exiting of lower value services where commoditisation and globalisation had the greatest impact and an increasing focus on services where their specific advantages in both knowledge and location gave them an edge (and higher margins). They also implemented a programme of service standardisation to reduce their costs of service delivery and greatly increased the use of technology tools throughout the entire process. Many of the servitization lessons IBM applied to its services business were learned earlier through the servitization of its hardware business.

It is often much easier to understand and implement servitization in a product company. Services companies can be somewhat blind to their own needs and opportunities in this area. In an increasingly competitive, globalised, service-centric world, it’s important that they don’t lose sight of them. IBM posted improved earnings results in the 4th quarter and have a more positive outlook for 2009 than many of their rivals.

Steve

Identifying the Invisible

For many companies looking to build and expand their services business, one of the biggest challenges is identifying what services they can (and already do) offer. Services are much less tangible than products and this creates many challenges when you try to segment, price and market them.

The challenges are greatest in product driven companies where the entire organisational structure is often built around product development, manafacture and sale. Many such businesses already deliver sophisticated services without really understanding their cost, worth and application. Services, it seems, can be invisible. They clearly exist, as products cannot live without them – a kind of Dark Matter in a product universe.

So how do you identify existing services and new service opportunities?

The answer is much simpler to express than it is to implement. You must  fully understand a few things:

• How your customer interacts with your business
• How your customer interacts with your product
• How your product interacts with your customers environment

To answer these questions you need to create and implement discovery methodolgies and knowledge capture processes that provide this information. This requires effective and wideranging communication and collaboration within your business.

This is a critical phase in a companies servitization and if done correctly it will uncover the invisible services available.

It won’t shed any light on the dark matter though.

Major increase in the level of discussion on services

It is great to see the level  of increase in discussion/debate around services in recent times. Clearly this is fast becoming a major area of potential growth for companies, especially those who haven’t previously exploited their full services potential or who need to differentiate themselves in their specific markets.  Services Innovation, Services Transformation or Servitization are the terms most commonly used to capture this activity and there is one common denominator here  –   companies are now learning that the closer they move towards solving their customer’s real problems the more they are likely to depend on services to achieve this.  This can only be a good thing in general both for the service provider and for the end customer.  Stay tuned to this blog for regular conversations, debates and news on services and how they can stimulate business growth  -   and more compelling solutions for the customer.