The Business Case For (Or Against) Service Design — Service Design Network 2011

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I care about service design because I come at it as a leader of an organization that design services for our clients. Therefore, it’s in my best interest to know how and why it delivers real value. The more value it creates, the more organization will seek out, use, and pay for our work in service design.

I believe strongly that the approaches and mindset of service design can bring about more human and more empathetic services that connect people and business in better ways. But to forward this potential I focused this presentation hard toward the numbers side to find the spaces where service design has the best economic impact.

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The Business Case For (Or Against) Service Design — Service Design Network 2011

  1. 1. — from UserExperienceWorks
  2. 2. At a train station in Seoul, South Korea
  3. 3. value It makes money
  4. 4. “How might we increase our sales volume without adding more stores?”
  5. 5. value It makes money systems Integrated and scalable
  6. 6. value It makes money systems Integrated and scalable people Humans in the right places
  7. 7. value It makes money systems Integrated and scalable people Humans in the right places journeys A few sensible touchpoints
  8. 8. value It makes money systems Integrated and scalable people Humans in the right places journeys A few sensible touchpoints proposition Low risk—it could fail
  9. 9. Service Design
  10. 10. value It makes money systems Integrated and scalable people Humans in the right places journeys A few sensible touchpoints proposition Low risk—it could fail
  11. 11. The Business Case For (Or Against) Service Design Brandon Schauer @brandonschauer
  12. 12. The Business Case For (Or Against) Service Design Brandon Schauer @brandonschauer 16
  13. 13. SITUATION
  14. 14. Markets Revenue Trends *BS Business Models Return on Investment Expenses * my calculations based on other factual data
  15. 15. MARKET SIZING Using a rough top-down estimate, the size of budget for service planning and design is BIG. Annual economic output 1 Wholesale trade, retail trade, transportation, and public utilities $0.5 Trillion Finance, insurance, real estate $1.5 Trillion Total annual economic output $2.0 Trillion Portion of economic output from mid-and-large scale firms (50%) 2 $1.0 Trillion Average margin on services 3 Cost of services sold Annual investment in planning & design of services 4 Total annual investment in service design 10% $100 Billion 2.0% $2 Billion 1 ‘The Role of Services in the Modern U.S. Economy’, U.S. Department of Commerce 2 The U.S. Small Business Administration estimates half U.S. GDP is from small business 3 Conservative round guess 4 The U.S. spend 2.6% of GDP on R&D according to the OECD *BS
  16. 16. MARKET SIZING Using a rough bottom-up estimate, the size of spending on service design appears smaller. Number of U.S. service design agencies 1 Annual agency book of business 2 Total agency revenue for service design 20 $1 Million $20 Million Number of in-house service design groups 3 Annual expenses/charge-backs 4 Total in-house expenditures on service design Annual investment in service design 20 $2.5 Million $50 Million $70 Million 1 Estimate based on tally of listing on service-design-network.org and related sites 2 Roughly ten $100K projects per year 3 Gut estimate based on mirroring the agency estimate 4 Gut estimate based on average staff size of 8 *BS
  17. 17. MARKET SIZING $2 Billion Estimated size of total dollars spent in U.S. on the planning and design of services *BS
  18. 18. MARKET SIZING $2 Billion Estimated size of total dollars spent in U.S. on the planning and design of services $70 Million Estimated total portion of these dollars spent on service design *BS
  19. 19. MARKET SIZING $2 Billion Estimated size of total dollars spent in U.S. on the planning and design of services $70 Million Estimated total portion of these dollars spent on service design *BS
  20. 20. COMPETITION How’s the rest of this work getting done? *BS
  21. 21. COMPETITION How’s the rest of this work getting done? System Engineers — Complete unscientific guessing of who’s doing how much *BS
  22. 22. COMPETITION How’s the rest of this work getting done? System Engineers Operations Management — Complete unscientific guessing of who’s doing how much *BS
  23. 23. COMPETITION How’s the rest of this work getting done? System Engineers Operations Management Branding & Marketing — Complete unscientific guessing of who’s doing how much *BS
  24. 24. COMPETITION How’s the rest of this work getting done? System Engineers Operations Management Branding & Marketing Customer Service — Complete unscientific guessing of who’s doing how much *BS
  25. 25. COMPETITION How’s the rest of this work getting done? System Engineers Operations Management Branding & Marketing Customer Service “The Organization” — Complete unscientific guessing of who’s doing how much *BS
  26. 26. COMPETITION How’s this work getting done? System Engineers Operations Management Branding & Marketing Customer Service “The Organization” Straight-up Service Designers — Complete unscientific guessing of who’s doing how much *BS
  27. 27. THE BUSINESS CASE FOR SERVICE DESIGN
  28. 28. 362 firms 95% say they are “customer focused” 80% say they deliver a “superior experience” How many of these firms’ customers agree that they deliver a superior experience? 8% from “Closing the Delivery Gap” by Bain & Company
  29. 29. REMEMBER THIS? $2 Billion Estimated size of total dollars spent in U.S. on the planning and design of services *BS
  30. 30. OMG For every $20 spent on ads for services in the U.S., only $1 is spent improving that service. $40 Billion $2 Billion Estimated 2011 U.S. ad spends for top 5 service categories: Local, Financial, Telcom, Restaurants, and Travel & Tourism Services Estimated size of total dollars spent in U.S. on the planning and design of services photo by Seal Beach AT&T *BS
  31. 31. $40 Billion Ad Spend Service Anticipation Gap $2 Billion Planning & Design of Services photo by Seal Beach AT&T
  32. 32. Service Anticipation Gap The loss of future potential revenues and the wasted ad spend when a service doesn’t meet or exceed the expectations set with the customer.
  33. 33. Service Anticipation Gap The loss of future potential revenues and the wasted ad spend when a service doesn’t meet or exceed the expectations set with the customer. SAG = Ad spend that attracted customers who didn’t engage + Potential future revenues lost when customer didn’t engage
  34. 34. Overcoming SAG Increased customer acquisition and adoption rates by planning and designing for service propositions, sequencing, and flow Increased customer loyalty and advocacy through user-centered planning of customer journeys across touchpoints and evidencing of customer value
  35. 35. THE BUSINESS CASE AGAINST SERVICE DESIGN
  36. 36. value It makes money systems Integrated and scalable people Humans in the right places journeys A few sensible touchpoints proposition Low risk—it could fail
  37. 37. value It makes money systems Integrated and scalable people Humans in the right places journeys A few sensible touchpoints proposition Low risk—it could fail Five Fundamentals of Service Design
  38. 38. value It makes money systems Integrated and scalable people Humans in the right places journeys A few sensible touchpoints proposition Low risk—it could fail Current service design is underpowered at two of these
  39. 39. value
  40. 40. value — Where service design misses EXISTING CAPABILITIES NEW CAPABILITIES EXISTING CUSTOMERS Optimization Service Development NEW CUSTOMERS Market Development Diversification — riff off of the Ansoff Matrix, circa 1957
  41. 41. value — Why service design sucks at it EXISTING CAPABILITIES NEW CAPABILITIES EXISTING CUSTOMERS Optimization Service Development NEW CUSTOMERS Market Development Diversification — riff off of the Ansoff Matrix, circa 1957
  42. 42. value — Why service design sucks at it EXISTING CAPABILITIES NEW CAPABILITIES EXISTING CUSTOMERS Optimization Service Development NEW CUSTOMERS Market Development Diversification — riff off of the Ansoff Matrix, circa 1957
  43. 43. value Where a dollar/won of sales goes RETAIL STORE SALES 89¢ for product VIRTUAL STORE SALES labor marketing overhead 89¢ for product labor marketing overhead location location profit profit *BS
  44. 44. value Where a dollar/won of sales goes RETAIL STORE SALES 89¢ for product VIRTUAL STORE SALES labor marketing overhead 89¢ for product labor marketing overhead location 3% location profit profit PROFIT MARGIN 7% PROFIT MARGIN *BS
  45. 45. value Where a dollar/won of sales goes Service design should be tapping new RETAIL STORE SALES revenue by VIRTUAL STORE SALES sources of changing the labor labor economics. 89¢ for product marketing overhead 89¢ for product marketing overhead location 3% location profit profit PROFIT MARGIN 7% PROFIT MARGIN *BS
  46. 46. value The value virtual stores add RETAIL STORE VIRTUAL STORE 100 Stores 25 Stores 500 Customers/store $150 Average $/customer 200 Customers/store $75 Average $/customer $225,000 $26,250 10% DAILY GROSS PROFIT DAILY GROSS PROFIT ADDITION *BS
  47. 47. value The value virtual stores add RETAIL STORE VIRTUAL STORE $225,000 $26,250 DAILY GROSS PROFIT DAILY GROSS PROFIT $2,250 $1,050 PER EACH ADDITIONAL STORE PER EACH ADDITIONAL STORE *BS
  48. 48. value — Where service design should be playing EXISTING CAPABILITIES NEW CAPABILITIES EXISTING CUSTOMERS Optimization Market Optimization Service Development NEW CUSTOMERS Market Development Diversification
  49. 49. value It makes money systems Integrated and scalable people Humans in the right places journeys A few sensible touchpoints proposition Low risk—it could fail Current service design is underpowered at two of these
  50. 50. value It makes money systems Integrated and scalable people Humans in the right places journeys A few sensible touchpoints proposition Low risk—it could fail Service design is extremely strong at some of these
  51. 51. SO WHAT?
  52. 52. THE TACTICS
  53. 53. THE TACTICS: FLOW-NOMICS
  54. 54. FLOW-NOMICS The Peak-End Rule — from Daniel Kahneman
  55. 55. FLOW-NOMICS Conversion funnels
  56. 56. FLOW-NOMICS Conversion funnels
  57. 57. FLOW-NOMICS ROI ROB
  58. 58. FLOW-NOMICS Return on Behavior
  59. 59. THE TACTICS: DIGITAL
  60. 60. THIS MUST BE STOCK PHOTOGRAPHY FROM 1996.
  61. 61. DIGITAL low-volume, high touch high-volume, low touch
  62. 62. DIGITAL
  63. 63. THE TACTICS: LEAN SERVICE DESIGN
  64. 64. LEAN Ideas Learn Build Data Code Measure
  65. 65. LEAN Use of concept
  66. 66. LEAN Use of concept
  67. 67. LEAN Use of concept
  68. 68. LEAN Use of concept
  69. 69. LEAN Use of concept
  70. 70. LEAN Use of concept
  71. 71. LEAN Use of concept
  72. 72. LEAN Mature businesses can do it too
  73. 73. LEAN Increasing confidence of adoption Relative advantage The degree to which an innovation is perceived as better than the idea it supersedes Compatibility The degree to which an innovation is perceived as being consistent with existing values, experiences, and needs of users. Complexity The degree to which an innovation is perceived as difficult to understand and use. Trialability The degree to which an innovation may be experimented with on a limited basis. Observability The degree to which the results of an innovation are visible to others.
  74. 74. THE TACTICS: BLENDED TEAMS
  75. 75. The service designer isn’t the center of it all :(
  76. 76. COMPETITION How’s this work getting done? System Engineers Operations Management Branding & Marketing Customer Service “The Organization” Straight-up Service Designers — Complete unscientific guessing of who’s doing how much *BS
  77. 77. In fact, the service designer might not even be the center of a service design team
  78. 78. BLENDED TEAMS product development software development service development Industrial Designer Interaction Designer Service Designer Mechanical Engineer Front-End Developer Electrical Engineer Front-End Developer
  79. 79. BLENDED TEAMS Staff teams based on the expected outcome. EXISTING CAPABILITIES EXISTING CUSTOMERS NEW CAPABILITIES Optimization Service Development More Operations Savvy NEW CUSTOMERS Market Development Diversification More Marketing Savvy
  80. 80. HERE’S THE PITCH
  81. 81. THE PITCH Capture lost revenues from the Service Anticipation Gap by applying just a portion of the overwhelming ad spends on the optimization and creation of services. Awareness Entry Engagement Action Traditional Ad Spends Service Investments Inferences Highly measurable Fades quickly Long-lasting investment
  82. 82. THE PITCH Capture lost revenues from the Service Anticipation Gap by applying just a portion of the overwhelming ad spends on the optimization and creation of services. Awareness Entry Engagement Action Traditional Ad Spends Service Investments Inferences Highly measurable Fades quickly Long-lasting investment
  83. 83. The Business Case For (Or Against) Service Design Brandon Schauer @brandonschauer

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