User-based service innovation18.4.2013Marja ToivonenVTT Technical Research Centre of Finland
222/04/2013Topics of the presentation- the old dispute between technology push and market pull- users to the fore- users, customers (clients), consumers, citizens- early studies on user-based (product) innovation- newer developments: managerial approaches- collaboration with users in innovation- different user groups- implications to practice
322/04/2013The old dispute between technology pushand market pull• Lively discussion in 1970s and 1980s, whether the main source of innovation istechnology push or market pull. Typical was macro-economic orientation – also thepull factor was analyzed at the level of markets.• This antagonism has been rejected long ago – nowadays the importance of bothfactors is generally recognized, and the pull factor is increasingly analyzed in termsof user- or customer-based innovation.• As regards technology, information technology has drastically changed the deliveryof services and facilitated their internationalization. Many service firms are centralactors in the markets of information – mediators between generic knowledgeavailable in the economy and tacit knowledge buried in the organizations.
422/04/2013Users to the fore• Research into service innovation is today carried out both on basis of generalinnovation theories (e.g. Gallouj et al.) and on the basis of service marketing theorieswhich apply the concept of New Service Development (e.g. Edvardsson et al.).• During recent years, a third approach – service design – has gained ground. Thisapproach is not rooted in innovation theories or service theories in the first place, butin the practice of industrial designers, who nowadays aim to extend their expertisefrom the traditional design of material products into services (Hollins et al., 2003).• Service design is one of those approaches that have promoted the idea of user-baseddevelopment of services. However, emphasizing users as central drivers ofinnovation is today spreading to other approaches as well.
522/04/2013Multiple roles of service users• Due to the late development of innovation theories in services, also the conceptof user-based innovation and the views about the significance of user-orientationwere first introduced in the context of material products.• In services, the development of corresponding views started within the school ofservice marketing (applying the NSD framework). Here, the focus is on therelationship between the provider and the customer (or ‘client).• Recently, the multiple roles of users have been raised to the discussion. It has beenrealized that a specific service relationship provides quite a narrow perspective to thehuman world, where people are consumers, citizens and members of variouscommunities that form their reference groups.
722/04/2013Defining ’user’ in more detail• An explicit definition of ‘user’ is difficult to find in literature. The concept refersto a person/an organization who or which actually or potentially benefits of a servicevia receiving it or via participating more or less in its production and development.• It is important to note that the end result of an innovation process may not benefit theimmediate user only (or even primarily), but there may be a shorter or longer chain ornetwork of actors. Often the focus is on the last link in the chain – on the end user.• The concept of end user is linked to business-to-business context. Thus, the conceptof user is applicable not only in consumer services, but also in business-to-businessservices. In addition to active users, the concept also involves potential users.
822/04/2013’User’ of goods and services• The concept of user cannot be transferred as such from the material world to theservice context. In the material world, using something implies the idea of a tool:innovation process provides users with new, better tools (Hasu, 2001).• This holds true in some service cases, too, but not generally. A categorization basedon ‘what is being handled’ or ‘what is being changed’ is helpful here. Goods,information, and persons are the basic groups (Illeris, 1989; Miles et al., 1995).1) tangible objects are processed in some way, i.e. transported, transformed,maintained, repaired etc.2) information is produced, captured, diffused, stored or revealed.3) a change takes place in the physical or mental condition (health, skills,emotions etc.) of a person. This case requires a broader interpretation of use-related concepts – the idea of a new tool is odd here.
922/04/2013’User’ of goods and services (cont.)• Another important difference between material products and services is the natureof services as entities in which production and consumption coincide. The user of aservice benefits not only from the end result but also from the process (Edvardsson,1997; Grönroos, 1990).• In the service process, the user is a more or less active party – the co-productionrelationship has been highlighted as a fundament of services (Gallouj and Weinstein,1997; Sundbo and Gallouj, 2000). Thus, in the service context a ‘user’ actually meansa ‘user-producer’.• Service-Dominant-Logic (SDL) has supplemented this view from the value creationperspective: it highlights the value in use and its co-creation. The service providercannot create value on behalf of the user, because the value manifests itself onlywhen the service is consumed. (Vargo and Lusch, 2004)
1022/04/2013The concept of customer (client)• The concept of customer (client) is common in service marketing literature. Whenthe focus is only on the consuming of a service, the customer can be defined as thebuyer of a service, whose role is restricted to the purchasing decision and acting asthe receiver of a service.• The co-production relationship implies, however, that customers are important actorsin production as well (Lengnick-Hall, 1996): they act as a resource (providinginformation) and as a co-producer (performing work). In addition, customers areincreasingly involved in innovation and development activities.• The concept of customer has its roots in private business. Customers are suggestedto be sovereign and rational, being able to decide whether or not they want to dobusiness with a specific firm and having the option to choose between differentservices. (Alford, 2002)
1122/04/2013The concept of consumer• The literature based on the concept of consumer points out that even though value isessentially created in cooperation of the provider and the customer, the value networkexternal to the dyad is important to take into account.• The so-called cultural consumption theory highlights value drivers beyond financialaspects: social, cultural, moral and political values that influence both individualconsumers and consumer groups. The latest discussions in relationship marketingcome close to this view (Kaijanen, 2010).• However, in business sciences the starting point is still that there is enough rationalityto secure manageability of consumer behaviour. Consumer researchers argue thatunpredictability and inconsistency characterise today’s consumption; the notion ofaverage consumer is a fiction (Gabriel and Lang, 2008).
1222/04/2013The concept of citizen• The concept of customer has been transferred to the public sector. New managementmodels highlight that the recipients of public services have the right and obligation tobe active participants in planning and producing these services.• Also ideas linked to consuming have been applied - freedom to decide between publicservices like a consumer in a market (Newman and Clarke, 2009).• The concept of citizen is, however, linked with public services, and complicatesthe situation. Citizens are not only individuals but members of a collective; they arenot always sovereign actors but restrained by power structures (Rosenthal and Peccei,2007). Thus, the rights and responsibilities of citizens, and the relationship betweencitizens and the state, are very different from those of customers and consumers.
1322/04/2013The development of studieson user-based service innovation
1422/04/2013Early studies on user-based (product) innovation• There are two main ways in which user-based innovation has been understood inliterature: taking user needs as the starting point and relating to users as innovators.Both viewpoints are old and still extensively applied.• The former can be traced back to the emergence of interest in ‘user feedback’ in the1970s and early 1980s (Nelson and Winter, 1977). Empirical studies indicated that themost important factor in the success of innovations is the understanding of user needs.• The early findings also formed the basis for von Hippel’s studies (e.g. 1978, 1986,1988), which focused on the analysis of the role users as innovators. According to vonHippel, users may supply an innovating firm with the identification of a problem orneed, product-related specifications, or even a complete product design. Lead usersare particularly important.
1522/04/2013Customer-orientation – the view of service marketing• Service marketing scholars have developed managerially oriented research basedon the importance of user feedback. Relationship marketing has pointed out that usingcustomers as informants secures the success of services and the loyalty of customers.• Methods of acquiring and structuring customer information have been developedwithin this framework. The versatility of information has been emphasized: both factsabout the profile of customers (demographic data and business figures), andbehavioural and relationship information should be included (Xu and Walton, 2005).• Information should be gathered not only of the customers, but also from the customers(Rowley, 2002) – customer information often includes weak signals about the future,enabling the analysis of potential customers. Client interface as an arena for theacquisition of versatile customer understanding has been emphasized besides surveys.
1622/04/2013User experience and shared understanding• In the newer studies, two additional perspectives have come to the fore: 1) the roleof user experience, and 2) the importance of elaborating information on user needsinto shared understanding within the provider organisation.• The first perspective focuses on the phenomenological side of the service and onsocial networks as the framework for experiences (Payne et al., 2008). It highlightsthat novelties are not perceived in the similar way - there are novelties that providersdefine as innovations, but which users do not consider useful from their viewpoint.• The second new perspective highlights that information gathering does not guaranteeits purposeful application, but customer information has to be elaborated andinterpreted within the organisation. The formation of shared understanding is oftenmuch more demanding than the gathering process. (Nordlund, 2009)
1722/04/2013Collaboration in innovation: stage-gate models• In addition to the ‘sources of innovation’approach, the interaction between producersand users during the innovation process is gaining foothold increasingly.• Several empirical studies have confirmed that users can and should come into thepicture earlier than at the point where a new service is brought to the markets. Thelinear model of innovation has been modernized into more flexible stages modelswhere the input from users can be taken in at every stage (Alam and Perry, 2002).• Often the innovation process is divided into two main parts: the so-called fuzzy frontend that emphasises creative problem-solving, and the more systematic developmentthat highlights rational planning (Koen et al. 2001). In this context, user input hasbeen considered to be valuable first and foremost in the front-end.
1822/04/2013A customer-oriented stage-gate model1. Strategic planning2. Idea generation3. Idea screening4. Business analysis5. Formation of across-functionalteam6. Service designand process systemdesign7. Personnel training8. Service testingand pilot run9. Test marketing10.CommercilizationFeedback on financial dataState needs, problems and solutions. Criticize, identify gaps in the market, wishlists etc.Suggest sales guide and market size, suggest features, benefits, attributes, showreaction and preferenceLimited feedback on financial data and profitability.Join top management in selecting team members.Review and jointly develop the blueprints, suggest improvements by identifyingfail points.Observe and participate in mock service delivery process, suggest improvements.Participate in a simulated service delivery processes. Suggest final improvementsand design change.Comments on marketing plan and satisfaction on marketing mixes. Suggestdesired improvements.Adopt the service as a trial; feedback about overall performance of the servicealong with desired improvements, if any; word of mouth communication to otherpotential customers.Source: Alam and Perry, 2002
1922/04/2013Collaboration in innovation: rapid application• Stage-gate models are based on a planning process. Several researchers (e.g. Engvallet al., 2001) have pointed out that these model systematize the form but do not help intackling the unknown content. They suggest an alternative which enables the creationof shared experience of the object to be developed.• The creation of shared experience means that planning and implementation aremerged to some extent. It is not self evident that planning always occurs first and isfollowed at a later time by implementation.• These views have led to innovation models which assume a process relying on real-time experience (the effectual approach and bricolage). They consider that intuitionand flexibility are essential on the uncertain path through shifting markets andtechnologies. (e.g. Read et al., 2009)
2022/04/2013The effectual modelInteractwith peopleI know ormeetWhatcan I doNewmeansNewgoalsObtainpartnercommit-mentsAssessmeans:•Who I am•What Iknow•Who IknowConvergingcycle ofconstraintsStartInnovationsExpandingcycle ofresourcesSource: Read et al., 2009
2122/04/2013’After’ innovation• Newer user-centric views have also discussed the continuance of the innovationprocess after the launch.• Tuomi (2002) has described this phenomenon in the technological context: newtechnologies are not unchangeable artefacts, but modified and reinvented in use.Technological novelties are also actively interpreted by the users; one artefact hasdifferent meanings for different user groups.• Sundbo (2008) has examined the same phenomenon – after-innovation – in thecontext of services: innovation in services is not completed when it is launchedon the market. The reason is that customers cannot say beforehand what they wantand they even have difficulties in assessing prototypes. They react by suggestingideas for improvements when they use the service in practice.
2222/04/2013Implications to managerialand innovation practice
2322/04/2013Making the service user’s (customer’s)process visible• The process of the user (the customer) essentially differs from the process of theprovider. Realizing this is the first stage in the building of customer understanding.• The old method of service blueprinting is nowadays developed further and providesquite a versatile tool for making the customer’s process visible. It shows, amongothers, how much time the customer devotes for the service.• Blueprinting also reveals the service vs. goods -dominant orientation of the provider:the extent to which the provider emphasizes the customer experience and theinteraction with the customers (cf. Vargo and Lusch, 2008).
2422/04/2013Source: Bitner et al. 2008Service blueprinting as a way to createuser understandingPhysicalevidence&outputsCustomer:preparatory actionsCustomer: face-to-face actionsEmployee:front-office actionsEmployee:back-office actionsDevelopment needsin the service processSteps in the servicedelivery processCustomer interfaceConcrete outputs of theservice for a customerLine of visibility
2522/04/2013Different user groups• Recent research has also emphasized that there are very different user groups.In addition to lead users, there are ordinary users, advanced users, critical users,unresponsive users and non-users (Heiskanen et al., 2007).• Besides individual users, user communities are increasingly sources of innovations –both existing communities and new communities that are grown around the service.• A common feature between different schools is that emphasis is moving away fromthe question ‘can the user cope with the service’ to usage motivations and userattitudes towards the service throughout its lifecycle. Designers are replacing theconcept of ‘usability’ with the broader concept ‘user experience’. Also in marketingresearch, the focus is increasingly on customer value and customer experience insteadof customer satisfaction. (Kaasinen et al., 2010)
2622/04/2013Different roles of customers in service innovationEfficient acquisition ofcustomer informationFocus on structuring andusing knowledge, notonly on acquiring itKnowledge aboutcustomers’ future needs,not only about thepresent situationEfficient utilisation ofCRM systemsFrom customerinformation to customerunderstandingBuilding in-houseunderstanding how thecompany links customerknowledge with its ownbusiness systemsCommon understandingbetween the company’scustomer service and theR&D personnel is essentialCo-development ofservices together withcustomersCustomers can beinvolved in servicesinnovation in three ways:1) The innovative ideacomes from a customer2) Customers actuallyparticipate in theinnovation process2) Customers develop theinnovation furtherSource: Nordlund 2009, modified
2722/04/2013Implications of service-dominant logic1) Moving the focus of providers from making something (goods or services)to assisting customers in their value creation process.2) Seeing value as co-created with customers and partners instead of thinkingit as produced and sold.3) Relating customers to the context of their networks instead of understandingthem as isolated entities.4) Considering organizational resources in terms of knowledge and skills,not primarily as tangibles.5) Appreciating customers as resources, not handling them as targets. Threeroles of customers: co-creator of value, co-producer and co-innovator.
2822/04/2013VTT creates business fromtechnology