Service Innovation: How to Go from Customer Needs to Breakthrough Services (BUSINESS BOOKS) - Hardcover

BETTENCOURT

Hardcover

ISBN 10: 007171300X ISBN 13: 9780071713009

Publisher: McGraw Hill, 2010

Synopsis

Advance praise for Service Innovation:

"To the CEOs of all service companies I deal with: READ THIS BOOK!" -- Dave Wascha, senior director, Bing Product Management, Microsoft Corporation

"Lance Bettencourt deftly blends his academic and consulting experience to provide an example-rich, readable, practical, and innovative discussion of service innovation." -- Leonard Berry, coauthor of Management Lessons from Mayo Clinic

"Provides the robust framework to design services that unlock growth opportunities for every business." -- Lance Reschke, vice president, Ceridian Corporation

"The tools and guidance in this book will inspire companies, small and large, to create effective and innovative services that are desperately needed." -- Mary Jo Bitner, Ph.D., W. P. Carey School of Business, Arizona State University, and coauthor of Services Marketing: Integrating Customer Focus Across the Firm

"Cracks the code from the fuzzy front end through the complete life cycle of Service Innovation." -- Angelo Rago, division vice president, Global Customer Services, Abbott Medical Optics

"Filled with rich examples of how firms can innovate service through helping customers get jobs done." -- Stephen W. Brown, Ph.D., W. P. Carey School of Business, Arizona State University

"Any leader intent on providing distinctive value to customers must read Service Innovation." -- Michael Reynolds, staff vice president, Commercial Marketing, WellPoint, Inc.

If there’s one truism about the service sector, it'sthat businesses don't succeed by inventing a better mousetrap; they succeed by finding the best, most cost-effective way to get rid of their customers' mice.

In industries ranging from heavy machinery to health care to financial services to consumer goods, service innovation is helping businesses find new revenue streams--and enhance existing ones--by satisfying their customer's need to get things done.

Few understand this better than Lance Bettencourt,a strategy adviser at Strategyn and a leading educatorin management innovation consulting. And in Service Innovation, Bettencourt gives a master's class on the art and science of creating breakthrough service products.

True service innovation demands that you shift the focus away from the solution and back to the customer. To achieve this shift in your business--one that takes you from making educated guesses to building a clear model to guide service innovation--Bettencourt instructs on the finer points of how to rethink your approach to the customer's needs: how the customer defines value in a product or service.

Bettencourt mines nearly 20 years' experience in teaching and advising clients with service- and product-dominant businesses to demonstrate proven ways you can build, streamline, and focus your company's service product innovation processes.

Among the numerous key ideas and practices are:

• Insight on understanding the different types of clients you serve―and how your products deliver value to them
• Ways to design specific frameworks for discoveringservice innovation opportunities for new, improved, and supplementary service products
• Practical guidance on staying focused on the "fuzzy front end" of service innovation
• The fundamental elements of a winning service strategy

Finding new ways to help people solve problems and get things done is why there are goods and services in the first place. And in Service Innovation, Lance Bettencourt fills a vital need by delivering the essential guide that can put your business on the latest frontier of value creation.

About this title

About the Author

Lance A. Bettencourt is the founder of Service 360 Partners, an American company for consulting services, and Distinguished Marketing Fellow at the Neeley School of Business at Texas Christian University. He was a professor of marketing at Arizona State University, Indiana University and consultant at Strategyn, consulting firm specializing in innovation and a pioneer in the development of the Outcome-Driven InnovationTM. During his professional experience with large multinationals like Abbott Medical Optics, Microsoft, Hewlett-Packard, Kimberly-Clark. His studies on innovation and services were published in Harvard Business Review, MIT Sloan Management Review, California Management Review, Journal of the Academy of Marketing Science.

Excerpt. © Reprinted by permission. All rights reserved.

SERVICE INNOVATION

HOW TO GO FROM CUSTOMER NEEDS TO BREAKTHROUGH SERVICES

By LANCE A. BETTENCOURT

The McGraw-Hill Companies, Inc.

Copyright © 2010 The McGraw-Hill Companies, Inc.
All rights reserved.

ISBN: 978-0-07-171300-9

Contents

Foreword
Acknowledgments
Introduction
1. CUSTOMER NEEDS THAT DRIVE SERVICE INNOVATION
2. DISCOVER OPPORTUNITIES FOR NEW SERVICE INNOVATION
3. DISCOVER OPPORTUNITIES FOR CORE SERVICE INNOVATION
4. DISCOVER OPPORTUNITIES FOR SERVICE DELIVERY INNOVATION
5. DISCOVER OPPORTUNITIES FOR SUPPLEMENTARY SERVICE INNOVATION
6. DISCOVER OPPORTUNITIES FOR SERVICE DELIVERY INNOVATION: THE PROVIDER 
PERSPECTIVE
7. DISCOVER WAYS TO DIFFERENTIATE SERVICE DELIVERY
8. DEFINE INNOVATIVE SERVICE CONCEPTS
Conclusion: Beyond Services Innovation
Notes
Bibliography
Index

Excerpt

CHAPTER 1

CUSTOMER NEEDS THAT DRIVE SERVICE INNOVATION

The secret of true service innovation is that you must shift the focus away fromthe service solution and back to the customer. Rather than asking, "How are wedoing?" a company must ask, "How is the customer doing?" To achieve this shiftin focus, companies must begin to think very differently about how customersdefine value based on the needs they are trying to satisfy. A properunderstanding of these needs enables value to be understood in advance of anyparticular innovation being created. True service innovation demands that acompany expand its horizon beyond existing services and service capabilities andgive its attention to the jobs that customers are trying to get done and theoutcomes that they use to measure success in completing those jobs.

The best guide to discovering service innovation opportunities is knowing howcustomers define value and the types of customer needs that can directmeaningful service innovation. This chapter begins by considering four truthsabout how service customers define value and then presents four approachescompanies can take to discover service innovation opportunities. It concludes bydiscussing how a company can go from a desire to innovate to a specific servicestrategy built around a unique and valuable service concept.

How Do Service Customers Define Value?

How do service customers define value? Few companies know the answer, and,lacking this knowledge, they are missing an essential ingredient to serviceinnovation success. There are four fundamental truths related to customer needsthat provide the answer to this question. These four truths provide a basis forthe systematic discovery of opportunities for unique and valuable serviceinnovations.

1. Customers Hire Products and Services to Get a Job Done

We hire a credit card to make purchases. We hire a doctor to diagnose and treatan illness. We hire education to develop career skills. We hire a home builderto build a home. We hire a trucking company to transport goods. We hire supportservices to troubleshoot an equipment malfunction.

When we consider services in terms of the job the customer is trying to get donerather than in terms of the service itself, then our definition of value nolonger is tied to current services. The customer doesn't value any particularservice solution; what the customer values is the ability to get the job donewell. The customer job therefore offers a stable, long-term focal point foreither the improvement of current services or the creation of new-to-the-world services. Ultimately, customers are loyal to the job, and they willmigrate to whatever solutions help them to get the job done better.

Consider how this change in focus would affect credit card innovation. Atraditional innovation focus for a credit card company would be the card itself.The company would host interviews with customers and ask what they liked anddisliked about their credit card. They might even ask what improvementscustomers would like to see. With this approach, it's all about the card, andthe insights would be about the card—for example, the company would likelydiscover that customers want low interest rates, don't want to have their cardrejected, desire fraud protection, and so on.

In contrast, when the focus is placed upon the job for which a credit card ishired—making purchases—a whole new domain of customer needs opensup. The company can now discover that customers struggle with finding desiredproducts to purchase, choosing among competing brands, tracking purchasespending, and a whole host of other steps required to get this job done. Withthe wealth of data that a credit card company already has at its disposal, it isin a perfect position to help customers overcome their difficulties in many ofthese other areas. For instance, a credit card company might be able to link itscard into the self-serve price scanners at stores such as Target to providecustomers with in-store customer ratings of different brands of a given productthat they are interested in purchasing.

In addition, a focus on customer jobs would enable the company to discoverrelated jobs that customers are trying to get done, such as keeping track ofwarranties, tracking spending while traveling, and even controlling impulsebuying. Any one of these or other related jobs could lead to new credit cardservices. This is the power of making the job, rather than the service, the unitof analysis.

2. Customers Hire Solutions to Accomplish Distinct Steps in Getting anEntire Job Done

A job is a process, and any step in that process presents opportunities forinnovation, but many services offer value to customers for only certain steps.For example, most credit card companies focus all their attention on the payingstep. They neglect the various other steps along the way in the job of makingpurchases—steps such as choosing from among competing brands (which comesbefore paying) or tracking purchase spending (which comes after paying). Theresult is that many companies leave value opportunities on the table,opportunities that are adjacent to what they currently offer. When a companylooks at the complete job the customer is trying to get done by hiring itsservice, it is in a much better position to optimize its core service offeringor to create entirely new services in what might be considered adjacent markets.

It also helps to realize that customers must accomplish a universal set of stepsto be successful in getting a job done. We'll go over these steps in more detailin Chapter 3, but they include defining goals and resource needs for thejob, locating required inputs, making the preparations or the evaluationrequired to get the job done, verifying readiness or choices, carrying out thecore job, assessing job execution, making required adjustments, and concludingthe job. For a financial investment service, a customer must define financialgoals, locate investment options, evaluate investments, choose specificinvestments, invest finances, assess investment performance, adjust investmentallocations, and store and retrieve investment information. Looked at from thisperspective, there are many opportunities for service innovation.

3. Customers Use Outcomes to Evaluate Success in Getting a Job Done

Outcomes are customers' measures of how well they are able to get thejob—or a step in the job—done. When customers hire products andservices to get a job done, they choose from among competing solutions based onhow well the various solutions satisfy the outcomes they are looking to achieve.Suppose, for example, I am trying to do the job of making a pur chase. When Ichoose from among the options available to me for making a purchase, I willchoose the option that best satisfies my high-priority outcomes, such as wantingto accomplish one or more of the following:

• Minimize the time it takes to complete the transaction

• Minimize the likelihood of buying more than needed

• Minimize the total amount paid for the purchase

As mentioned above, to get any job done, customers must go through a universalset of steps, and for each step, customers may have 5 to 10 or more outcomesthat they consider important. These outcomes provide rich insight into whatcustomers are trying to achieve, regardless of the solution hired. So, forexample, in the job of preparing income taxes, customers must complete the stepof determining deductions, and there are perhaps a dozen outcomes that customersuse to judge how successfully they have completed that step. Customers maymeasure their success in determining deductions by how well they are able toaccomplish the following:

• Minimize the time it takes to determine if a specific expense is deductible

• Minimize the likelihood that a legitimate deduction is overlooked

• Minimize the likelihood that a claimed deduction triggers an IRS audit

Even when there are no product or service solutions available for customers tohire, they still have outcomes against which they measure how successfully theyare getting the step in the job or the overall job done. This means that themetrics that customers will use to evaluate a new service can be known inadvance of the service itself being launched. So, for example, even beforeMinuteClinic was founded, one outcome I desired from medical care—and I'msure most people feel similarly—was reducing the time it takes to be seenby a medical provider when I am sick. MinuteClinic just happens to address thatoutcome with its service. Current services are merely point-in-time solutionsthat enable customers to achieve the stable outcomes they use to evaluate howsuccessfully a job is completed. This is why jobs and outcomes provide theoptimal road map for service innovation.

4. Customers Have Distinct Needs That Arise Related to the "Consumption" ofa Solution

On the one hand, customers have needs related to getting a job done—theyare the reasons people hire a product or service. These needs include both thejobs that customers are trying to get done by hiring a service—bothfunctional and emotional jobs—and the outcomes that customers use toevaluate success in getting a job done. Knowing these needs, a company cancreate entirely new service concepts and can improve current services. On theother hand, once a customer decides to hire a particular service to get a jobdone, there are tasks that customers must accomplish as part of "consuming" thatservice—things like making contact with the service, communicating serviceneeds, and paying for the service. That is, the customer must go through aseries of steps to obtain the service and receive its intended benefits. This istrue whether we are talking about having a meal at a restaurant, getting ahaircut, or obtaining a mortgage. Suppose I decide to hire a mortgage to buy ahome. Having made this decision, I now have distinct needs related to obtainingthe mortgage itself. These needs are vital considerations in how a service isdesigned and delivered, but unlike needs related to getting the primary jobdone, these needs presume a service solution.

So there is a distinction between needs that guide service concept creation andneeds that guide service concept design—but that doesn't mean that onecategory of needs is more important than the other. A company must ultimatelysatisfy both types of customer needs if it is to have commercial success. Forexample, if customers received excellent medical treatment from MinuteClinic,but they had horrible experiences trying to pay for the service, MinuteClinicmight not last long. By the same token, the best payment service is not going tosave a medical provider if the medical care is inferior.

A similar distinction can be made between why products are hired and the needsthat customers have once they own and are using a specific product. I hire amotorcycle for the transportation it provides. However, once I own a motorcycle,I also have needs related to learning to ride it, maintaining it, storing it,and, ultimately, selling or disposing of it.

How Can Services Create Value?

A company can choose to pursue any of four basic types of service innovationopportunity, each of which involves a slightly different approach (seeFigure 1-1). The four approaches represent a comprehensive set ofoptions for discovering service innovation opportunities by focusing both onwhat customers are trying to get done and what customers must do to"consume" a particular solution.

The four approaches to service innovation are these:

• New service innovation. Innovation comes from the discovery of new orrelated jobs that a current or new service can help the customer get done.

• Core service innovation. Innovation comes from helping the customerget a core job done better by improving a current service or introducing newservices.

• Service delivery innovation. Innovation comes from improving how thecustomer obtains the benefits of a service when getting a core job done.

• Supplementary service innovation. Innovation comes from helping thecustomer get jobs related to product usage or consumption done.

In contemplating each approach, a company is forced to think about serviceinnovation from multiple valuable perspectives. But a company shouldn't limititself to pursuing just one approach; there is no reason not to pursue multipleapproaches, and indeed, sometimes the approaches overlap. Sometimes, forexample, it is hard to separate core service innovation from service deliveryinnovation because the only way to get the core job done is to hire a service,such as making a travel reservation. So the point of calling attention to thesefour types of innovation opportunity isn't to limit companies; on the contrary,it is to show them their many options. Take the case of IBM, which used toregard services primarily as a means to support its products—that is, whenit thought about service innovation, it thought only of the fourth type:supplementary service innovation. In the past two decades, however, IBM has cometo see the broader possibilities that service innovation offers. It has grownservices revenue from $10 billion in the early 1990s to more than $50 billiontoday through a combined focus on all four innovation approaches.

In the coming paragraphs, we will explore what each approach has to offer. Eachof the four approaches is covered in more detail in the chapter devoted to it.

New Service Innovation

We hire services to get jobs done. What's more, we hire different services toget different jobs done—and often from the same company. For example, wemight hire a professional association to keep us up-to-date on current practices(webi-nars), give us opportunities to network with colleagues (conferences), andenable us to maintain professional certification (classes). As such, a companythat is looking for opportunities to develop new services needs to uncover morejobs that it might be able to help customers accomplish.

Let's consider the case of PetSmart, which was originally a retailer (knownuntil 1989 as PetFood Warehouse) that helped customers do the job of buying petfood. Over the years, Pet-Smart has expanded its vision to lifetime care forpets, and in doing so, it has opened up many more possible jobs that it can helpcustomers get done via new services. Among these are a full-service salon (whichhelps customers with the jobs of bathing and grooming their pets), in-store vetclinics (which help customers with the jobs of vaccinating their pets andmaintaining their pets' health, more generally), pet training services (whichhelp customers with pet training and bonding), a Pets-Hotel (which helps withthe job of caring for pets while customers are working), and a Smart NutritionSelector (which helps with the job of determining what to feed a pet). Since2000, when PetSmart adopted the vision statement "To provide Total Lifetime Carefor every pet, every parent, every time" and refocused its strategy on providingservices to fulfill this vision, revenue from services has grown more than 20percent per year on average.

New service innovation focuses on uncovering new and related jobs that thecustomer wants to accomplish. Because jobs are independent of today's solutions,the customer may not be using a particular solution—let alone a servicesolution—to get the job done. All that matters is that the customer wantsto get the job done. When a company collects a detailed set of jobs thatcustomers are trying to get done, it often discovers many for which there arecurrently no solutions. Therefore, a focus on new and related customer jobstruly opens up a company's service innovation possibilities.

Core Service Innovation

Although a company may help customers with multiple jobs, most individualservices focus on helping the customer get a core job done. Consider thefollowing examples of jobs and services that address them:

• Improve learning skills and understanding (personal tutor)

• Diagnose a medical condition (MRI scan)

• Find a home for sale (MLS.com, an online real estate advertising service)

• Pay for a college education (529 college savings plans)

• Stay in a location away from home (hotel)

• Transport cargo (freight service)

Given the importance of the core job, it makes sense for companies to understandthe struggles that customers have when using current services to get a core jobdone. Core service innovation often reveals opportunities for improving orextending current services, but because the focus is on the job, it can alsolead to entirely new services and service models. This is especially true if thecore job is defined in a manner that encompasses complementary solutions togetting the entire job done—a topic to which we will return in Chapter3.

Since the 1990s, for example, UPS has been expanding beyond package deliveryinto other specialized services related to its vision of enabling globalcommerce. It has done this by developing service offerings focused on specificcore jobs its customers are trying to get done. UPS Supply Chain Solutions, forexample, has introduced consulting services that help customers to execute thevarious steps involved with such core jobs as designing a supply chain network,fulfilling orders, and managing postsale returns. Hired by a distributor ofperiodicals who needed a more efficient delivery system, for example, UPSconsultants helped the distributor to understand inefficiencies in the currentsystem, create new work standards, plan system requirements, identify andevaluate technology vendors, develop and assess a new delivery system, andoversee the full implementation of the system.

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Excerpted from SERVICE INNOVATION by LANCE A. BETTENCOURT. Copyright © 2010 by The McGraw-Hill Companies, Inc.. Excerpted by permission of The McGraw-Hill Companies, Inc..
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Edition details

• Publisher: McGraw Hill
• Publication date: 2010
• Language: English
• ISBN 10: 007171300X
• ISBN 13: 9780071713009
• Binding: Hardcover
• Number of pages: 288