Trends And Patterns In Service Innovation//Motiv Strategies

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"Trends and Patterns in Service Innovation" - Keynote address delivered by Jeneanne Rae, CEO of Motiv Strategies.

Given May 13, 2010 for the Government Leader Program at Guanghua Leadership Institute, in collaboration with Cisco.

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Trends And Patterns In Service Innovation//Motiv Strategies

  1. 1. Trends and Patterns in Service Innovation Jeneanne Rae, CEO, Motiv Strategies May 13, 2010
  2. 2. Goals for today <ul><li>Understand trends and patterns in services innovation </li></ul><ul><li>See how companies can develop highly defensible service strategies through effective use of ICT technologies </li></ul><ul><li>Draw conclusions about what is fundamentally different about service dominated business solutions </li></ul>
  3. 3. We Are Living at a Time of Unprecedented Change <ul><li>Pervasive Technology and connectivity </li></ul>
  4. 4. We Are Living at a Time of Unprecedented Change <ul><li>Pervasive Technology and connectivity </li></ul><ul><li>Consumer Composition and Expectations </li></ul>
  5. 5. We Are Living at a Time of Unprecedented Change <ul><li>Pervasive Technology and connectivity </li></ul><ul><li>Consumer Composition and Expectations </li></ul><ul><li>Economics of Information and Knowledge </li></ul>
  6. 6. These Trends Have Caused a Macroeconomic Shift to Occur … US and EU Economic Output Services Goods * * Tipping point was 1987
  7. 7. … and New Tools Are Emerging to Adapt to this Shift US and EU Economic Output Services Goods Transformative Business Disciplines 1 Six Sigma Note 1: Peer Insight analysis Note 2: “A Whole New Mind,” by Dan Pink (2005) Abundance Asia Automation Quality Reengineering Innovation
  8. 8. Services Are Becoming Dominant in All Developed Countries Ten Nations Total 50% of World Wide Labor A = Agriculture, G = Goods, S = Services 1980–2005 PC Age 2005 The Largest Labor Force Migration in Human History Is Underway, Driven by Global Communications, Business and Technology Growth, Urbanization and Low Cost Labor Source: International Labor Organization US Employment History and Trends *Source: “Service Research to Improve/Innovate Service Systems,” Jim Spohrer, Director, Almanden Service Research, IBM Corporation, April 2, 2008 (A) Agriculture: Value from harvesting nature (G) Goods: Value from making products (S) Services: Value from enhancing the capabilities of things (customizing, distributing, etc.) and interactions between things Nation Labor% A % G % S % Service Growth China 21.0 50 15 35 191% India 17.0 60 17 23 28% U.S. 4.8 3 27 70 21% Indonesia 3.9 45 16 39 35% Brazil 3.0 23 24 53 20% Russia 2.5 12 23 65 38% Japan 2.4 5 25 70 40% Nigeria 2.2 70 10 20 30% Bangladesh 2.2 63 11 26 30% Germany 1.4 3 33 64 44%
  9. 9. Look How Fast Services Are Growing in China Source: International Labor Organization Adapted from: Service Research to Improve/Innovate Service Systems, Jim Spohrer, Director, Almaden Service Research April 2nd, 2008 1980-2005 PC Age 2005 Source: International Labor Organization China Employment History and Trends (A) Agriculture: Value from harvesting nature (G) Goods: Value from making products (S) Services: Value from enhancing the capabilities of things (customizing, distributing, etc.) and interactions between things Ten Nations Total 50% of World Wide Labor (2005) A = Agriculture, G = Goods, S = Services Nation Labor% A % G % S % Service Growth China 21.0 50 15 35 191% India 17.0 60 17 23 28% U.S. 4.8 3 27 70 21% Indonesia 3.9 45 16 39 35% Brazil 3.0 23 24 53 20% Russia 2.5 12 23 65 38% Japan 2.4 5 25 70 40% Nigeria 2.2 70 10 20 30% Bangladesh 2.2 63 11 26 30% Germany 1.4 3 33 64 44%
  10. 10. Simple Quote Style “ Any product that is not closely associated with a service today, will be in 10 years… … Today we only fund devices that are connected to services. ” — Kevin Fong Managing Director Mayfield Fund
  11. 11. The Venture Community Is Seeking New Types of Value Creation <ul><li>Why Does Kevin Fong Say This? </li></ul><ul><li>Services generally produce— </li></ul><ul><ul><li>High margins relative to hardware </li></ul></ul><ul><ul><li>Recurring revenue </li></ul></ul><ul><ul><li>Valuable data streams that can be the underpinnings of new business models </li></ul></ul>
  12. 12. Server Farms and Mainframes Are the New Industrial Complex 2004 Investment in New Factories = $16.3 Billion* 2004 Investment in IT= $1.1 Trillion* <ul><li>Investment in the Goods Era </li></ul><ul><li>Investment in the Services Era </li></ul>*Note: “’U.S. Birthrate’ For New Factories is Steadily Falling, WSJ, 3/15/06
  13. 13. B to B “Solutions” Are Replacing Discrete HW/SW/Service Models Aerospace Computer Hardware Healthcare Climate Control
  14. 14. Technology Is Enabling New Solutions, New Customer Experiences, and New Business Models Source: The Internet Economy 25 Years After .Com, Transforming Commerce and Life. The Information Technology and Innovation Foundation, March 2010 Internet-Enabled or Empowered Biz Model Definition Example Companies E-Delivery Uses IT to undercut business models based on physical delivery Fractional Ownership Uses the Web to enable fractional ownership or capital assets, with the Internet enabling scheduling in time increments not previously practical Marketing of Excess Capacity Business models, often leveraging ICT, that identify and sell unused capacity Dynamic Pricing Adjusts prices online in real-time in response to fluctuating supply or demand variables Auction or Matching Markets Leveraging the Aggregation of Supply and Demand Markets Aggregates consumer demand and supply for products or services in one location, allocating supply and demand through auctions or matching Create a New, Web-Based Platform for Commerce Uses the Internet to create an entirely new platform for commerce, monetized by inviting third parties to participate through it Outsourcing and Cloud Computing Company assumes complexity, capacity, or hosts services on behalf of client Software-as-a-Service Enterprise-application software that customers do not have to license, but can access online over the Internet
  15. 15. Technology Is Enabling New Solutions, New Customer Experiences, and New Business Models Source: The Internet Economy 25 Years After .Com, Transforming Commerce and Life. The Information Technology and Innovation Foundation, March 2010 Internet-Enabled or Empowered Biz Model Definition Example Companies Pay-per-Use Plans On-demand or per-pay-use services “ Trip Sense” Program Information-Based, Targeted Offers Uses data mining to develop targeted offers or services Mass Customization Uses ICT systems to introduce “mass produced, yet customized,” also known as mass customized” services Anytime Services Internet enables always on availability of services Ad-Supported Search, Content, and Services Free content or search services for Web users supported by paid business advertising Social Media/Social Marketplaces Create a meeting place for people, enabling transactions Referral-Based Models Receive a fee each time a sale is made through the referring Web site
  16. 16. Innovation Value Chains
  17. 17. There Are 10 Types of Innovation 1 Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Note 1: “Ten Types of Innovation”, by Larry Keeley/Doblin Inc. (1999)
  18. 18. There Are 10 Types of Innovation 1 Assembled Capabilities that Enable Innovation Proprietary Processes that Add Value (Including ICT) Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Note 1: “Ten Types of Innovation”, by Larry Keeley/Doblin Inc. (1999)
  19. 19. There Are 10 Types of Innovation 1 Assembled Capabilities that Enable Innovation Proprietary Processes that Add Value (Including ICT) Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Note 1: “Ten Types of Innovation”, by Larry Keeley/Doblin Inc. (1999) Basic Features, Performance, and Functionality Extended System that Surrounds an Offering How you service your customers
  20. 20. There Are 10 Types of Innovation 1 Assembled Capabilities that Enable Innovation Proprietary Processes that Add Value (Including ICT) Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Note 1: “Ten Types of Innovation”, by Larry Keeley/Doblin Inc. (1999) Basic Features, Performance, and Functionality Extended System that Surrounds an Offering How you service your customers How You Connect Your Offerings to Your Customers How You Express Your Offering ’s Benefit to Customers How You Create an Overall Experience for Customers
  21. 21. There Are 10 Types of Innovation 1 Assembled Capabilities that Enable Innovation Proprietary Processes that Add Value (Including ICT) Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Note 1: “Ten Types of Innovation”, by Larry Keeley/Doblin Inc. (1999) How the Enterprise Makes Money Enterprise Structure and Value Chain Basic Features, Performance, and Functionality Extended System that Surrounds an Offering How you service your customers How You Connect Your Offerings to Your Customers How You Express Your Offering ’s Benefit to Customers How You Create an Overall Experience for Customers Inside-out
  22. 22. There Are 10 Types of Innovation 1 Assembled Capabilities that Enable Innovation Proprietary Processes that Add Value (Including ICT) Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Note 1: “Ten Types of Innovation”, by Larry Keeley/Doblin Inc. (1999) How the Enterprise Makes Money Enterprise Structure and Value Chain Basic Features, Performance, and Functionality Extended System that Surrounds an Offering How you service your customers How You Connect Your Offerings to Your Customers How You Express Your Offering ’s Benefit to Customers How You Create an Overall Experience for Customers Outside-in Inside-out
  23. 23. Consider How the Jet Engine Market Engaged in “Feature Warfare” During the Early 1990s Minimal/ None Some Activity Moderate Activity Frequent Activity Non-Stop Activity Business Model Finance Value Network Channel Delivery Brand Customer Experience Offering Core Process Process Enabling Process Product/Service Performance Product System Customer Service Source: Peer Insight analysis
  24. 24. Consider How the Jet Engine Market Engaged in “Feature Warfare” During the Early 1990s Business Model Finance Value Network Channel Delivery Brand Customer Experience Offering Core Process Process Enabling Process Product/Service Performance Product System Customer Service Source: Peer Insight analysis Minimal/ None Some Activity Moderate Activity Frequent Activity Non-Stop Activity JIT Delivery Depot Repair Staged Spares Thrust-to-Weight Ratio Modular Design (LRUs)
  25. 25. Consider How the Jet Engine Market Engaged in “Feature Warfare” During the Early 1990s Business Model Finance Value Network Channel Delivery Brand Customer Experience Offering Core Process Process Enabling Process Product/Service Performance Product System Customer Service Source: Peer Insight analysis Minimal/ None Some Activity Moderate Activity Frequent Activity Non-Stop Activity JIT Delivery Depot Repair Staged Spares Thrust-to-Weight Ratio Modular Design (LRUs) Six Sigma 5-Axis Machining
  26. 26. Consider How the Jet Engine Market Engaged in “Feature Warfare” During the Early 1990s Business Model Finance Value Network Channel Delivery Brand Customer Experience Offering Core Process Process Enabling Process Product/Service Performance Product System Customer Service Source: Peer Insight analysis Minimal/ None Some Activity Moderate Activity Frequent Activity Non-Stop Activity JIT Delivery Depot Repair Staged Spares Thrust-to-Weight Ratio Modular Design (LRUs) Six Sigma 5-Axis Machining
  27. 27. Consider How the Jet Engine Market Engaged in “Feature Warfare” During the Early 1990s Business Model Finance Value Network Channel Delivery Brand Customer Experience Offering Core Process Process Enabling Process Product/Service Performance Product System Customer Service Source: Peer Insight analysis Minimal/ None Some Activity Moderate Activity Frequent Activity Non-Stop Activity JIT Delivery Depot Repair Staged Spares Thrust-to-Weight Ratio Modular Design (LRUs) Six Sigma 5-Axis Machining Most Competitive Activity in the Jet Engine Industry Was Focused Here
  28. 28. Where Is the “White Space?” Business Model Finance Value Network Channel Delivery Brand Customer Experience Offering Core Process Process Enabling Process Product/Service Performance Product System Customer Service Source: Peer Insight analysis Minimal/ None Some Activity Moderate Activity Frequent Activity Non-Stop Activity JIT Delivery Depot Repair Staged Spares Thrust-to-Weight Ratio Modular Design (LRUs) Six Sigma 5-Axis Machining
  29. 29. GE Power Became #1 by Leasing Jet Engines to Airlines, Getting Paid Only for Uptime… in Effect, They Sell “Guaranteed Thrust” Business Model Finance Value Network Channel Delivery Brand Customer Experience Offering Core Process Process Enabling Process Product/Service Performance Product System Customer Service Your most trusted source for aircraft thrust Procure and repair competitor engines, too Lease any jet engine If engine is down, you don ’t pay Source: Peer Insight analysis Minimal/ None Some Activity Moderate Activity Frequent Activity Non-Stop Activity JIT Delivery Depot Repair Staged Spares Thrust-to-Weight Ratio Modular Design (LRUs) Six Sigma 5-Axis Machining
  30. 30. Volume of Innovation Efforts in the Goods Era (1990 ’s) Hi Lo Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Goods Source: Doblin analysis (1989-1999)
  31. 31. Comparing the Goods Era to the Services Era Hi Lo Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Goods Goods in Front 1 Volume of Innovation Efforts: Source: Doblin analysis (1989-1999) Note 1: “Ten types of Innovation”, by Larry Keeley/Doblin Inc. (1999) Note 2: 111 Service Innovation Projects Researched by Peer Insight (2003-2007)
  32. 32. Comparing the Goods Era to the Services Era Hi Lo Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Goods … Services in Back 2 Goods in Front 1 Volume of Innovation Efforts: Source: Doblin analysis (1989-1999) Note 1: “Ten types of Innovation”, by Larry Keeley/Doblin Inc. (1999) Note 2: 111 Service Innovation Projects Researched by Peer Insight (2003-2007) Services A B C D
  33. 33. Formula for Success in the Services Era Hi Lo Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Services Source: Doblin analysis (1989-1999) Note 1: “Ten types of Innovation”, by Larry Keeley/Doblin Inc. (1999) Note 2: 111 Service Innovation Projects Researched by Peer Insight (2003-2007)
  34. 34. Formula for Success in the Services Era Hi Lo Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Services Source: Doblin analysis (1989-1999) Note 1: “Ten types of Innovation”, by Larry Keeley/Doblin Inc. (1999) Note 2: 111 Service Innovation Projects Researched by Peer Insight (2003-2007) 1. Find the White Space
  35. 35. Formula for Success in the Services Era Hi Lo Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Services Source: Doblin analysis (1989-1999) Note 1: “Ten types of Innovation”, by Larry Keeley/Doblin Inc. (1999) Note 2: 111 Service Innovation Projects Researched by Peer Insight (2003-2007) 1. Find the White Space 2. Create a Compelling cX and Business Model
  36. 36. Formula for Success in the Services Era Hi Lo Customer Experience Core Process Enabling Process Product/Service Performance Service System Customer Service Channel Brand Business Model Value Network Offering Process Delivery Finance Services Source: Doblin analysis (1989-1999) Note 1: “Ten types of Innovation”, by Larry Keeley/Doblin Inc. (1999) Note 2: 111 Service Innovation Projects Researched by Peer Insight (2003-2007) 1. Find the White Space 3. Embed It Using ICT 2. Create a Compelling cX and Business Model
  37. 37. How Do We Define Services ? They Are Dominated by Intangibles Tangible-Dominant Solutions Intangible-Dominant Solutions Goods Services Customers Want Outcomes, or “Solutions” … and compelling solutions mix tangible and Intangible Elements 1 Note 1: Lynn Shostack, “Breaking Free From Product Marketing,” Journal of Marketing, 44 (April 1977).
  38. 38. How Do We Define Services ? They Are Dominated by Intangibles Tangible-Dominant Solutions Intangible-Dominant Solutions <ul><li>Fewer tangible components </li></ul><ul><li>Difficult to judge quality before purchase </li></ul><ul><li>Simultaneous production and consumption </li></ul><ul><li>Inability to inventory </li></ul><ul><li>Time-dependent </li></ul><ul><li>No transfer of ownership </li></ul><ul><li>Defined by their physical form </li></ul><ul><li>Enables comparisons before purchase </li></ul><ul><li>Produced first, consumed later </li></ul><ul><li>Ownership changes from seller to buyer </li></ul>Goods Services Note 1: Lynn Shostack, “Breaking Free From Product Marketing,” Journal of Marketing, 44 (April 1977). Customers Want Outcomes, or “Solutions” … and compelling solutions mix tangible and Intangible Elements 1
  39. 39. How Do We Define Services ? They Are Dominated by Intangibles Tangible-Dominant Solutions Intangible-Dominant Solutions <ul><li>Fewer tangible components </li></ul><ul><li>Difficult to judge quality before purchase </li></ul><ul><li>Simultaneous production and consumption </li></ul><ul><li>Inability to inventory </li></ul><ul><li>Time-dependent </li></ul><ul><li>No transfer of ownership </li></ul><ul><li>Defined by their physical form </li></ul><ul><li>Enables comparisons before purchase </li></ul><ul><li>Produced first, consumed later </li></ul><ul><li>Ownership changes from seller to buyer </li></ul>Goods Services Note 1: Lynn Shostack, “Breaking Free From Product Marketing,” Journal of Marketing, 44 (April 1977). We Know How Innovation Works for Goods… But What Tools and Methods Guide Innovation Here? Customers Want Outcomes, or “Solutions” … and compelling solutions mix tangible and Intangible Elements 1
  40. 40. Service Innovation Is an Emergent Discipline
  41. 41. Service Innovation Is an Emergent Discipline New Product Development <ul><li>Product platform strategy </li></ul><ul><li>User interaction design </li></ul><ul><li>Product prototyping </li></ul><ul><li>Pricing models </li></ul><ul><li>Production planning </li></ul>Robust Tools and Methods Exist Source: Peer Insight analysis
  42. 42. Service Innovation Is an Emergent Discipline New Product Development <ul><li>Product platform strategy </li></ul><ul><li>User interaction design </li></ul><ul><li>Product prototyping </li></ul><ul><li>Pricing models </li></ul><ul><li>Production planning </li></ul>These Tools Are Just Beginning to be Understood Robust Tools and Methods Exist Service Innovation <ul><li>IT platform strategy </li></ul><ul><li>Customer experience design </li></ul><ul><li>Service prototyping </li></ul><ul><li>Business model development </li></ul><ul><li>Service delivery planning/training </li></ul>vs. Source: Peer Insight analysis
  43. 43. Patterns for Customer Experience Elements in innovative offerings Source: Peer Insight analysis for Tekes, the Finnish Agency for Technology and Innovation, 2007 Report available at www.tekes.fileng/publications/innovative-service.pdf Managing Complexity
  44. 44. Patterns for Customer Experience Elements in innovative offerings Source: Peer Insight analysis for Tekes, the Finnish Agency for Technology and Innovation, 2007 Report available at www.tekes.fileng/publications/innovative-service.pdf Managing Complexity Minimizing Uncertainty
  45. 45. Patterns for Customer Experience Elements in innovative offerings Source: Peer Insight analysis for Tekes, the Finnish Agency for Technology and Innovation, 2007 Report available at www.tekes.fileng/publications/innovative-service.pdf Managing Complexity Minimizing Uncertainty Increasing Productivity
  46. 46. Patterns for Customer Experience Elements in innovative offerings Source: Peer Insight analysis for Tekes, the Finnish Agency for Technology and Innovation, 2007 Report available at www.tekes.fileng/publications/innovative-service.pdf Managing Complexity Minimizing Uncertainty Fostering Transparency Increasing Productivity
  47. 47. Patterns for Customer Experience Elements in Innovative Offerings Source: Peer Insight analysis for Tekes, the Finnish Agency for Technology and Innovation, 2007 Report available at www.tekes.fileng/publications/innovative-service.pdf Managing Complexity Creating Stickiness Minimizing Uncertainty Fostering Transparency Increasing Productivity
  48. 48. B to B: The GE Aviation Experience <ul><li>Functional elements </li></ul><ul><ul><li>Managing complexity </li></ul></ul><ul><ul><li>Predictable cost </li></ul></ul><ul><ul><li>Relieving technical burden </li></ul></ul><ul><ul><li>Allowing more focus on core competencies </li></ul></ul><ul><li>Emotional elements </li></ul><ul><ul><li>Peace of mind </li></ul></ul><ul><ul><li>Trust </li></ul></ul><ul><ul><li>Convenience </li></ul></ul>
  49. 49. Simple Quote Style Case Study Boeing 787 Dreamliner
  50. 50. Boeing ’s Dreamliner Program Puts Entire Emphasis on Services <ul><li>&quot;The Customer Experience Center sets the stage to engage in a dialog with customers and build upon their product knowledge so they become a more discriminating consumer. It's one of many tools we use to show that Boeing is the better buy. ” </li></ul><ul><li>— Klaus Brauer, Director of Passenger Satisfaction and Revenue </li></ul>
  51. 51. Boeing Has Focused on How to Make Its Customers More Successful at Running Their Airlines than Simply Flying Their Planes Airplane Health Management Maintenance and Engineering Management Maintenance Performance
  52. 52. Intimate Knowledge of End Users Needs Provides the Inspiration for State of the Art Design Elements for Passengers and Crew Alike State of the Art Cockpit Design for Pilot Safety and Usability Cabin Comforts for Passengers and Crew Alike
  53. 53. Summary of Service Era Lessons
  54. 54. Summary: What ’s Different About the Services Era? <ul><li>The services era has direct analogs to the goods era </li></ul><ul><ul><ul><li>Data is the “raw material” </li></ul></ul></ul><ul><ul><ul><li>IT is half of the services “factory”, front-line workers are the other half </li></ul></ul></ul><ul><ul><ul><li>The Internet is the services version of “trucks and roads” </li></ul></ul></ul><ul><ul><ul><li>Customer experience is the “product” </li></ul></ul></ul><ul><li>These new elements have broken down traditional market boundaries </li></ul><ul><li>Power has shifted from a paternalistic center to the nodes at the edge of the network … empowering the customer </li></ul><ul><li>In fact, the customer has replaced the direct competitor as the reference point for competitive strategy </li></ul><ul><li>Innovative service concepts can take advantage of these changes by targeting the white space and shifting the roles of which actors perform which tasks in a marketplace </li></ul>
  55. 55. Policy Implications?
  56. 56. Consider These Examples… <ul><li>U.S. Open Government Initiative </li></ul><ul><li>Finland Tekes Program </li></ul><ul><li>Enterprise Ireland SME Support </li></ul><ul><li>U.K. Design Council “Red” Do-Tank </li></ul><ul><li>Netherlands Annual Innovation Event “Innovation is Served” </li></ul>
  57. 57. Closing Thoughts <ul><li>What are the worldwide service and solution trends that are relevant to Chinese business prosperity? </li></ul><ul><li>How are Chinese companies positioned to take advantage of these opportunities? </li></ul><ul><li>How do Chinese businesses build service innovation capabilities? What do you need to do and who can help? </li></ul>
  58. 58. Thank you! Jeneanne Rae jrae @motivstrategies. com www .motivstrategies. com 703-778-1051

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