Faculty of Computing, Engineering
                     and Technology


              Module – Service Science
           ...
Student number: TU 007321

Date of Submission: 05. 01. 2010
Contents
Contents............................................................................................................
Abstract
In the modern economy, service is about building a collaboration relationship between
the supplier and the custom...
Manufacturing
                  input                                output              customer
   Supplier             ...
emphasis on the potential strength of the business structure will be taken into full
consideration.   For example, by prod...
services. Based on the key dimensions of services that summarized by XinHui (2008),
Figure 3 illustrate the four dimension...
centric and aim for promoting the core competitiveness of the enterprise and creating
the loyalty of the customer. As trad...
5.0 Strategic for service innovation
5.1 Value Creation
At the beginning of 2007, IBM’s Jim Spohrer announced, “Service is...
Figure X. Basic Interaction Modes in Service Co-Creation
The service co-creation framework is used to analyzed service dev...
clients’ requests by offering rich applications and information for the client.
According to Moller; Rajala; and Westerlun...
5.2.1 New Service Design
Having new design will help organization to achieve competitive advantage in term of
differentiat...
5.3.1 Managing knowledge for customers
According to Michael Gibbert (2002), he proposed that the customer knowledge
manage...
To summarize the above analyses, Figure X shows a relationship between the
customer knowledge management and service innov...
SSME programme to student. So, as student is being innovate with service mindset,
they will able to work effectively in in...
6.2.4 Creating a roadmap of service innovation
As sustainability becomes an increasingly urgent global concern, businesses...
8. L.A. Bettencourt, A.L. Ostrom, S.W. Brown, and R. Roundtree, “ Client Co-
    Production in Knowledge-Intensive Busines...
Service innovation tys
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Service innovation tys

  1. 1. Faculty of Computing, Engineering and Technology Module – Service Science (CE00822-3) Innovation is the key for competitiveness in organizations. Discuss how we can promote service innovation. For the attention of Professor Lorna Uden
  2. 2. Student number: TU 007321 Date of Submission: 05. 01. 2010
  3. 3. Contents Contents..........................................................................................................................3 Abstract..........................................................................................................................4 1.0 The meaning of service and service system.............................................................4 2.0 Service economy......................................................................................................5 3.0 Service competition..................................................................................................6 4.0 The meaning of innovation......................................................................................6 4.1 Service Innovation................................................................................................6 4.2Factors affecting service Innovation.....................................................................7 4.2.1 Service-value chain.......................................................................................7 4.2.2 Service Culture..............................................................................................7 5.0 Strategic for service innovation................................................................................9 5.1 Value Creation......................................................................................................9 5.1.1 Value creating through client-driven modes...............................................10 5.1.2 Value creation from the Service Provider Perspective................................11 5.1.3 Balanced modes of Value Co-Creation.......................................................11 5.2 2-D of innovation model ...................................................................................11 5.2.1 New Service Design....................................................................................12 5.2.2 New Service Delivery.................................................................................12 5.3 Knowledge management for service innovation capability...............................12 5.3.1 Managing knowledge for customers..........................................................13 5.3.2 Extracting the customer knowledge............................................................13 5.3.3 Co-Create Knowledge with the customer...................................................13 6.0 Discussion on how service innovation can be promoted.......................................14 6.1 Education............................................................................................................14 6.2 Business..............................................................................................................15 6.2.1 Creating T-Shape professional culture .......................................................15 6.2.2 Relooking at previous system and propose a new service design...............15 6.2.3 Develop a collaborative for value creation..................................................15 6.2.4 Creating a roadmap of service innovation...................................................16 7.0 Conclusion..............................................................................................................16 9.0 References..............................................................................................................16
  4. 4. Abstract In the modern economy, service is about building a collaboration relationship between the supplier and the customer, in which the creation of value occurs between both parties. Thus, both customer and supplier play an important role in a service system. The value created in a service system is the co-creation value, where the key characteristic is to differentiate service system from a traditional economic transaction where the client work as a co-producer in the value chain of service innovation. This reports examine the differentiation of a service system from a traditional economic to a transaction system, and the value chain of the service system is then break into three components such as supplier, employee, and customer. Thus, identify the areas of potential of innovation through a new service development framework. Finally, is to determine how service innovation can be promoted through strategy business models, customer’s experiential services, and technologies. 1.0 The meaning of service and service system Service is defined as the application of competences (knowledge and skills) for the benefit of another party (Vargo and Lusch, 2006). Service involves at least two entities, on one hand in applying competence and another integrating the applied competences with other resources which form a value-coceration in the value chain network and determining benefit. These interacting entities are known as service systems. A service system can be defined as a dynamic value-cocreation configuration of resources, including people organizations, shared information (language, laws, measures, methods), and technology, all connected internally and externally to other service systems by value proposition (Spohrer et al, 2007). In a service system, customer play a key role where the service system is dominated by the relationship between organization, supplier and client. In the service supply chain model, the stakeholders interact with each other to create value. From the aspect of systems, service systems include both systematic parts such as clients, suppliers, and employees ( ). The key characteristics of a service system is the interaction with the clients as participants in the service process, not pure value transformation active ( ) as shown in Figure 1 and 2.
  5. 5. Manufacturing input output customer Supplier process Figure 1. Traditional transaction system model Customer feedback Manufacturing input output customer Supplier process Figure 2. Service transaction system model 2.0 Service economy In the competitive market today, firms and industrial who innovate by service acumen plays a significant role in improving the aggregate economy attributes and values. The service economy is designed in a structural way where different sector offer different services to the public and businesses. Thus, service systems are growing rapidly and have become an ever greater part of value creation in modern economies. As discussed earlier on, large firms and manufacturing industrial should change their traditional views of value creation into a service value creation chain. Microsoft for example, they were offering Window Office to the customer as a product, which rather than co-creating value by the customer and this has caused them to lose their potential customer in the changing service market against their rival such as Open Source Software like Linux. However, in improving the supply chain of the Microsoft, the management has reconfigure their traditional supply chain by integrating customer ideas for developing new service product, thus offering various product such as Window 7 Home & Professional. From the observation above, it can be stated that the demand for service innovation in the economy is highly needed to impact the service economy. Therefore, it is important that organization study their business process and management which
  6. 6. emphasis on the potential strength of the business structure will be taken into full consideration. For example, by producing an innovative strategy with value proposition, innovative business model and a well structural service culture in the organization. In the article of “Innovation in the Service Economy” written by Gallouj (2002), he describes that: “.. modern economies are both service economies and economies of innovation. Paradoxically, there are not regarded as economies of innovation in services that is as economies in which service firms’ innovation efforts are proportionate to their contribution from the major economies aggregate. 3.0 Service competition In the book of “The Future of Competition”, Prahalad and Ramaswanmy (2004) focus on co-creating unique value together with customers and argue that ‘value is now centred in the experience of consumers’ (p. 137) and not just embedded in products and services. Customer delight and customer perceived value are linked to memorable and favourable customer experiences (Pine and Gilmore 1999; Johnson and Gustafson; Berry et al. 2002). 4.0 The meaning of innovation Innovation can be defined as the creation and implementation of new process, products, sources, and method of delivery, which results in significant improvement in outcome, efficiency, effectiveness, and quality (Mulgan. G & Albury, D, 2003). While other definitions are innovation is the successful exploitation of new ideas (Innovation unit, department of trade & industry, 2004). Innovation can be defined as a new ways of co-solving customer problems, whether they are fully recognized or completely latent to the customer (Michel; Brown; Gallan, 2008). 4.1 Service Innovation Service innovation refers to new or considerably changed service concepts or service delivery process that deliver added value to the client by means of new or improved solutions to a problem (Tidd, Hull, 2003). Thus, service innovation is a methods of improving performance to obtain a desire opportunity for consumption or consumer
  7. 7. services. Based on the key dimensions of services that summarized by XinHui (2008), Figure 3 illustrate the four dimensional model of innovation in service adapted from Den Hortog (2000). 4.2Factors affecting service Innovation 4.2.1 Service-value chain Authors such as Heskett (1994), presented the service-value chain, where the characteristics of value chain is to analyzing the collaboration between two organization for achieving value, Customer Loyalty, Customer Satisfaction, and the value that perceived by customer based on the service offering. In the basic market, to manage a service, an organizations need to know how to lock-in their customer through offering satisfaction service which is influenced by service value. These satisfactions may be originated from IT investment, training and knowledge exchange. Figure X: The service value chain model 4.2.2 Service Culture In the service firms, service culture is the main driver for organization improvement than in the manufacturing industry. According to Lyons (2007), the differences between product and service innovation expresses the importance of fostering a service innovation culture which is consistent, coherent, and comprehensive presence of values and norms that promote creative ideas and implementation. Another authors such as Shouming & Yang Zhang (2009) stated that service culture is based on value-
  8. 8. centric and aim for promoting the core competitiveness of the enterprise and creating the loyalty of the customer. As traditional service move to service-oriented culture, different aspects in service culture, promote innovation in technology, business, organization and demand. These innovation are mutual influenced and interacted, all build up the main body of service innovation. The shape of service innovation management, will absolutely impact the company service value. To understand how service culture and service-value chain impact on service innovation, figure x illustrate the model of it Figure 2: The impact of service culture on service innovation
  9. 9. 5.0 Strategic for service innovation 5.1 Value Creation At the beginning of 2007, IBM’s Jim Spohrer announced, “Service is value co- creation”. (Spohrer, 2007). The purpose of value co-creation is to stimulate change. Value creation occurs when there is a strategic agreement between the client and the service provider. This agreement exist when both the client and the service provider have sufficiently related service innovation strategies. Most service provision requires a high degree of interaction between the client and service provider, especially in knowledge-intensive fields such as the information service business (Bettercourt et al, 2002). According to the research done by Moller; Rajala; and Westerlund (2008), their research show that providers who have either a strong technology orientation or who wish to create high value-added services are the most willing to enter into close-relationship with their clients. Through their study, they also noticed that provider who focused on operational efficiency, aim at value creation though more distant, transactional customer relationship. In order for an organization to be competitive in the market, it is crucial that they develop a successful innovations in client-provider relationship by recognizing each other’s value-creating strategies. These value-creating is separate into three strategies ranging from establish service to incremental and radical service innovation development, as illustrated in Figure X which is adapted from (Moller et al; 2008).
  10. 10. Figure X. Basic Interaction Modes in Service Co-Creation The service co-creation framework is used to analyzed service development, focusing on the client-provider interaction modes in service innovation (Moller et al; 2008). The modes are classified into three categories which is balance, provider-driven and implausible. 5.1.1 Value creating through client-driven modes In these modes, it is concern about the collaboration of knowledge exchange between the client and the provider. As the demand of customers need increase, service provider may hard to met the customer expectation and provide competencies that can met their satisfaction. Having a strong relationship with the client, it will help the provider to produce an innovative service packages for their client. Thus, it may reduce the risk of client going for other service provider which offers different types of service offering or packages. In the case of creation of new service innovations, it is sometimes difficult to differentiate the roles of “customer” and “service provider”. For example, Facebook often add new features and contents to their Social Web-Based channel which is grounded on client’s request. While Facebook original solutions could be characterized as provider-driven, its drive to also cover the needs of customer involvement in its service strategy. By inputting rich content into the social network, Facebook developer adds service modules to the Facebook.com in accordance with
  11. 11. clients’ requests by offering rich applications and information for the client. According to Moller; Rajala; and Westerlund (2008), successful client-driven innovation is derived from the client’s ability to demand services and the service provider’s ability to meet these requirements in incremental but continuous development. 5.1.2 Value creation from the Service Provider Perspective Well known and large service provider such as P&G, Google, Microsoft and Nokia shares a common goal in value creation by creating a business model that are typically focused on the service co-creation. Authors such as Flint, Woodruff and Fisher (2002) argued that when service providers design new service, they have to realize that it is the benefits that customer device from the service, not the offering as such, which add perceived value for the clients. For example, Microsoft create new operating system which the innovation activity does not create extra value for the clients. However, in redesign their service offering, they providing alternative version of its Window operating system package, such as the Window 7 Home and Professional Editions. 5.1.3 Balanced modes of Value Co-Creation 5.2 2-D of innovation model At the firm level business system, the key processes for developing customer-oriented innovative services are new service design, deployment, and delivery (i.e, the 3D). As service provider have create the value proposition for the customer, the next stage is to identify ways to differentiate their servicer offerings. In the traditional economy, new service development often used on “product development”. But on the transactional service system, it is more service oriented where it focus more of collaborative. So, firms develop new service concepts according to customer preferences and customer value propositions. Next, linking the newly developed service concepts to the market segment to gain which market has a pontential customer. The final step is the efficiency of the service offering by analyzing the quality of the service and the experience that perceived by the customer.
  12. 12. 5.2.1 New Service Design Having new design will help organization to achieve competitive advantage in term of differentiation of service offering. A new way of generating the revenue can be created when the new service design involve customer as the co-producer and co- creator in the new service development process. However, this raised an issues as seen below: 1. What is the value and services that customer want? 2. Is the value concept consistent with the value proposition? 3. How to identify customer value and propose a scope of offerings? The new service design process include as following: 1. Generating the ideas based on customer input 2. Identify the market segment 3. Developing new business model through market analysis and customer involvement 4. Positioning the new service offering by having customer participate in the service design process 5.2.2 New Service Delivery 5.3 Knowledge management for service innovation capability Knowledge management is part of value creation process in achieving service innovation. In the modern economy, especially those firms using technology often provides potential technology to manage customer knowledge to make customer knowledge leading to innovation, and enhance service innovation capability. In service innovation process, customer collaborate with the service provider for exchange of knowledge for innovation capability. As mentioned by Sampson (), customer always the co-producer in a service process, where they indentify and demand for innovation change. Thus, as customer participate in this service process, they also influence the quality of the innovation service. There are three ways how organization can manage the customer knowledge.
  13. 13. 5.3.1 Managing knowledge for customers According to Michael Gibbert (2002), he proposed that the customer knowledge management is about the management of innovation and the growing demand of it. By managing knowledge for the customer, organization would be able to point out the quality of their service. Thus, helping them to make decision easily by understanding customer needs. For example like Amazon.com , they have a intelligent knowledge system tools such as customer tracking which used to collects information from registered user during their visit to the web site. In order for them to promote new service innovation, Amazon offers new service by helping the users to search through a book without any delay, as the system has a database tracking on the current user preference. Thus having this system, it will also offer new knowledge to the new customer on what current customer have bought, and their review on the books(Layton ,2009). 5.3.2 Extracting the customer knowledge Knowledge extraction is crucial in obtaining customer experience in a service process. Every opinions and suggestions that given by the customer will help to evaluate the value that they perceived from the service provider. From the case of Reebok, getting the information that manage customers relative information and knowledge from customer can improve service innovation’s efficiency and amount. So, in product or service innovation, idea generation, even product or service development, customer should be encourage to participate in service innovation process, and use knowledge from customers to improve company’s service innovation capability. 5.3.3 Co-Create Knowledge with the customer Co-create knowledge with the customer mean the process of involving customer into the innovation process which often based from the perspective of customer experience. Organization who exchange knowledge with their customer, will able to deliver new service offering, thus able to differentiate their total service packages different from their rivals. Google for example, exchange their knowledge with the internet users for new service development such as Google Map, Gmail, Spam solutions and etc. So, having customer interact in the service process, and their innovative knowledge and creative ideas will help to promote new service development that organization need to provide.
  14. 14. To summarize the above analyses, Figure X shows a relationship between the customer knowledge management and service innovation capability (Hongqi & Ruoyu, 2008). Figure X: Relationship between customer knowledge management and service innovation capability 6.0 Discussion on how service innovation can be promoted After analyzing the factors and strategy of achieving service innovation, now the next steps is how to promote the service innovation to the customer. To understand how service innovation can be promoted, it is important to look on the different sector in the service market. 6.1 Education In order to promote service innovation as an education, it can be achieved by adding SSME qualification to an existing deep home discipline of study. Staffordshire University for example, previously they was focusing on the subjects of computer science rather than service science. Moreover, all the University that has establish the field of service science was from top elite university. However, as competition rise in the education industry, some of the professors and researcher in the Staffordshire University has develop a SSME programme by collaborating with IBM to offers the
  15. 15. SSME programme to student. So, as student is being innovate with service mindset, they will able to work effectively in innovating ideas, designing complex system and thus prepared to succeed in the 21st century service-driven globally integrated economy. 6.2 Business 6.2.1 Creating T-Shape professional culture Businesses should define career paths for T-Shape professionals and indicate their preference for SSME qualifications in recruitment. This would demonstrate the demand for academic programmes and encourage the formation of interdisciplinary Service Science communities. Furthermore, organization should emphasize a T-Shape working culture, where employees are always able to generate ideas for new service innovation. Such culture can be taken from the example of Google, where the workers was given a priviledge to find problems from a service system range from service industry to manufacturing industries. 6.2.2 Relooking at previous system and propose a new service design Building a new service design will require the businesses to participate in a complex service system. For example, (a) how to make optimal investment for service innovation, (b) how to scale up margins as service revenue increase, (c) how to systematically reduce the complexity of service systems, and (d) how to devise measurements system that can be used internally and share externally to protect privacy and preserve competitive advantage (IFM; IBM, 2008). 6.2.3 Develop a collaborative for value creation Small and Medium Enterprise can collaborate with the IBM in learning the fundamental of Service Science and the latest research and tools use to develop a service system that can impact the businesses. For example, NHS collaborated with CSC consulting group for service innovation. Through the collaboration, CSC consultants gather the clients need and participate in the service development process of NHS. Here, it can be stated that there is an exchange of knowledge for value creation, which can help businesses to stimulate rapid progress.
  16. 16. 6.2.4 Creating a roadmap of service innovation As sustainability becomes an increasingly urgent global concern, businesses should take the opportunity to expand the definition of stakeholder value to include new measures. More emphasis should be placed on the balance between efficiency, effectiveness and sustainability. Roadmaps for service innovation should include update performance measures and adjust mechanism of measurement. 7.0 Conclusion Although there are many ways that service innovation can be promote, it is important that a service innovation should be looks in perspective of service dominant logic where collaborative and value-creating is about. Furthermore, it is important that new service development should focus on a service-oriented process. This means that customer should be involved in the ideas generation process not just the suppliers. Finally, service innovation can be promoted through the customer knowledge and theirs word of mouths. As customer consume a service product, he/she is experiencing the service and therefore able to pass the new knowledge to another customer. In another words, it is a source of advertising which cost can be reduced rather than using heavy media application to advertise. 9.0 References 1. C.K. Prahalad & V. Ramaswany (2004) Co-Creation Experiences: The Next Practice in Value Creation. Journal of Interactive Marketing, Vol.18(3), pp 5-14 2. D. Flint, R.B. Woodruff, and G.S. Fisher (2002), “ Exploring the phenomenon of Customers’ Desired Value Change in a Business-to-Business Context, “ Journal of Marketing, Vol. 66, No.4, pg 102-117 3. Den Hertog, P. (2000) “Knowledge-intensive Business Services as co-producers of innovation”, International Journal of Innovation Management, pg 491-528 4. Gallouji, F. (2002) Innovation in the service economy: The New Wealth of Nations,Edward Elgar, Cheltenham. 5. Gibbert. M, Leibold. M, Probst .G (2002) “Five Styles of Customer Knowledge Management, and How Smart Companies Use Them To Create Value.” European Management Journal. Vol. 20, No.5, October 2002, pp. 459-459. 6. Heskett J.L, Jones T.O., Loveman G.W., Sasser W.E, JR and Sehlesigner L.A. (1994). “Putting the service – profit chain to work” Havard Business Review, 72, pg 162-174. 7. Hongqi. Z and RuoYu. Lu (2008), “A model for the Relationship between Customer Knowledge Management and Service Innovation Capability”, IEEE Journal.
  17. 17. 8. L.A. Bettencourt, A.L. Ostrom, S.W. Brown, and R. Roundtree, “ Client Co- Production in Knowledge-Intensive Business Services, “ California Management Review, 44/4 (Summer 2002): 100- 128. 9. Lyons, R. K., Chatman, J. A., Joyce, C. K. (2007) Innovation in Services: Corporate culture and investment banking, California Management Review, Vol. 50, No.1, p. 174-191. 10. Meyer.C and Schwage.A (2007). “Understanding Customer Experience”. Havard Business Review, pg 2-3. 11. Moller. K, Rajala . R, Westerland . M (2008). “Service Innovation Myopia? A New Recipe for Client-Provider Value Creation”, California Review Management, Spring 2008, Vol. 50, No. 3, pg 31-45 12. Mulgan, G. and Albury, D. (2003): Innovation in the Public Sector, Strategy Unit, Cabinet Office, October 2003 13. Pine, J. and Gilmore, J. (1999) The Experience Economy, Harvard Business School Press, Boston, 1999. 14. R. F. Lusch and S. L. Vargo, “Service-Dominant Logic as a Foundation for a General Theory,” in The Service-Dominant Logic of Marketing: Dialog, Debate and Directions, R. F. Lusch and S. L. Vargo, Editors, M.E. Sharpe, Armonk, NY (2006), pp. 406–420. 15. Sampson, S. E., 2000. Customer-supplier duality and bidirectional supply chains in service organizations. International Journal of Service Industry Management 11 (4), pp. 348-364. 16. Sampson, S. E., 2001. Understanding Service Businesses: Applying principles of the Unified Services Theory, 2nd Edition, John Wiley & Sons, New York. 17. Sampson, S. E., and Froehle, C. M., 2006. Foundations and Implications of a Proposed Unified Services Theory. Production and Operations Management 15 (2), Summer, pp. 329-343. 18. Shuoming ,C and Yang Zhang (2009), “Service Culture and its Impact on Service Innovation Based on the Model of Service Value Chain. IEEE Journal. 19. Spohrer, J & Maglio, P. ( 2006). The Emergence of Service Science: Toward systematic service innovations to accelerate co-creation of value,innovations to accelerate co-creation of value, http://www.almaden.ibm.com/asr/SSME/jspm.pdf 20. Spohrer, J., S. Vargo, N. Caswell, P.Maglio. 2008. The Service System is the Basic Abstraction of Service Science. 41st Annual HICSS Conference Proceedings. 21. IFM & IBM (2008). “Succeeding through Service Innovation: a service perspective for education, research, business and government”, Available from :http://www.ifm.eng.cam.ac.uk/ssme/documents/080428cambridge_ssme_whitepa per.pdf. 22. The Council on Competitiveness. 2004. Innovate America. Referred on 19th December 2009 from World Wide Web: (http://www.compete.org/pdf/NII_Final_Report.pdf) 23. Tidd, J. and Hull, F. M. (2003) Services Innovation: Organisational responses to technological opportunities and market imperatives, Imperial College Press, London. 24. Yang Liu., De-Jung.S (2008) “Conceptualizing Service Innovation and Service Innovation Model Constructing, IEEE journal.

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