This document summarizes a presentation on combining creativity and efficiency in service innovation. The presentation discusses: 1) What service innovation is and why it is important for economic growth and competitiveness. 2) Combining customer-driven and employee-driven innovation approaches to develop new services. 3) Using foresight and futures tools to help innovators design services to meet future customer needs. 4) The need for policy support to promote service sector innovation.

1. D r. Marja Toivonen Director, Adjunct Professor BIT (Business, Innovation, Technology) Research Centre Aalto University e-mail : [email_address] A presentation on how to combine creativity and efficiency Dutch conference on Service Innovation 2 November 2010, Schouwburg Almere Innovating customer-oriented services - a central challenge for managers

2. Contents of the presentation What is service innovation and why is it important Combining customer-driven and employee-driven innovation in services Including foresight in innovation processes The need for policy support in service innovation

3. innovation is an idea which is carried into practice innovation provides benefit both to its developer and to users innovation is reproducible (important criterion in services) innovation differs from everyday development : it represents a new kind of problem formulation, a break in business-as-usual innovation leads others to follow ; it functions as a driver of development in a broader context, not only in the organization which has developed it. What is (service) innovation?

4. Why is service innovation important? At the firm level, innovative orientation means that the firm need not compete for a share of a given demand, but it can discover hidden demand . Pursuing innovations raises the level of ambition in the firm and supports the maintaining of motivation. At the societal level, innovation makes it possible to increase growth, employment and welfare , not only to re-divide them between firms, regions and nations. Innovation in services is important in particular: services play the major role in all advanced economies – not only in service sectors but also increasingly in manufacturing.

5. Customer experience – an important perspective to service innovation Customer needs have usually been included in service innovation on the basis of information which is quite general in nature (information about customer profiles, feedback questionnaires etc.). A growing challenge is the acquisition of deeper experience-based (not only ‘factual’) knowledge. Service innovation as experienced by the customer Service innovation developed by the provider (based more or less on its understanding of customer needs) Customers judge novelties individually and pay much attention on the service process (not only on the outcome). Providers aim to increase efficiency of their service processes and adopt new services that offer competitive advantage. For example, a customer pays attention to the easy access to a service. For example, a provider pays attention to the scalability of a service.

6. Different ways to collaborate with customers Efficient acquisition of customer knowledge Focus on structuring and using knowledge, not only on acquiring it Knowledge about customers’ future needs, not only about the present situation Efficient utilisation of CRM systems From customer knowledge to customer understanding Building in-house understanding how the company links customer knowledge with its own business systems Common understanding between the company’s customer service and the R&D personnel Co-creation of service together with customers Customers can be involved in innovation in three ways: The innovative idea comes from a customer Customers actually participate in the innovation process Customers develop the innovation further

7. Customer-oriented innovation at the level of individual offerings Source: Edvardsson , 1997 the perspective of the service provider and service innovation SERVICE CONCEPT Analysis of the customer’s needs and the ways in which they are met; the content and structure of the service UNIQUE OUTCOME PERCEIVED BY THE CUSTOMER UNIQUE PROCESS WHERE THE CUSTOMER PARTICIPATES PREREQUISITES the perspective of the customer and actual service provision SERVICE SYSTEM Resources: staff, physical/ technical environment, the organisational structure; customers as a resource SERVICE PROCESS Prototype of customer processes, describes the chain of activities

8. Combining innovation and systematization 8. Launch; follow-up and evaluation; continuous improvement 7. Concretising the service for the customers (brochures etc.) 6. Developing indicators for success 5. Planning the pricing systems 4. Defining the degree of ‘standardization’ 2. Defining the basic concept for the service 3. Defining the structure, process and resources for the service 1. Starting point: identifying customer needs

9. Customer-oriented innovation at the firm level If a firm produces only one type of service, the other innovation types (market and organisational) are linked to this service. However, larger firms usually produce several different services. Here, changing the value offering point and moving to solutions business are important examples.

10. Changing the value offering point real estate planning construction selling/ main- using development renting out taining provider of goods and services Positioning oneself in the markets – examining carefully the point where the value chains of the client and the provider meet – is essential from the viewpoint of client benefit and provider profitability. The following figure describes a typical change of the value offering point in the real estate sector.

11. Supporting the customer with solution-oriented services Modified: Mathieu 2001and Cova et al. 2000 A solution is a bundle of goods, services and information, combined in a way that provides more value than the parts alone. Solutions business is long-term oriented and aims at optimizing the total cost for the customer. Individual service A solution supporting the customer A solution which takes into account the networks of the customer

12. Employee-driven innovation In services, innovation activities are distributed – only rarely delegated to a specific R&D department. Thus, innovation management should apply the approach of broad but also balanced empowerment : both encourage ideas and channel/control the ideas so that they are in line with the strategy of the organization.

13. The central role of strategy in employee-driven innovation the strategy of the organization: creating the framework for continuous renewal through the specification and re-evaluation of the goals; inspiring innovations inducing innovativeness: openness, encouragement of idea generation loosely coupled interaction structure channeling innovativeness towards strategic goals (organizational learning) management system: Source: Sundbo 1996

14. Including foresight in innovation processes ’ Here and now’ phenomena which have impact on the service to be developed Analysis of trends: probable lines of development Analysis of weak signals: improbable phenomena which are important if realized Even a limited futures working is beneficial in the innovation context, because innovations are not created for today but for the future.

15. Working with trend cards - case: future health insurance

16. Working with trends cards in an insurance company

17. Combining design and futures tools Building a 3D model of a future health insurance service in two groups: 1) representatives of the service provider and 2) representatives of customers.

18. Service innovation policy – experiences from Finland Considering the development of services as an essential part of innovation policy is an important feature in the Finnish activities. At the national level, service development is today supported intensively in the framework of the ‘Serve - Innovative Services’ programme carried out by Tekes, The Finnish Funding Agency for Technology and Innovation. At the regional level, the need to include the development of services into regional innovation strategies is increasingly emphasised in big cities and also in some more remote regions.

19. Broad perspective and industry- university collaboration Policy activities concern both supply- and demand side. The latter is important e.g. in the development of KIBS (knowledge-intensive business services). Stimulating and supporting measures are targeted not only to KIBS, but also to their clients. Industrial services and public services are important focus areas. In manufacturing, sectoral variety is great in the development stage of service business. In the public sector, innovation activities are only emerging. The most common way to support innovation activities is fostering the collaboration between companies and universities . Tekes’ funding model is based on this principle both in the research funding and company funding.

20. How research meets practice in BIT Research Centre Research tackles real life problems. Results are presented for companies in a form which they can concretely utilize. Companies get the newest scientific knowledge in the project area in a summarized form. Benchmarking workshops are an important tool in projects. Results are disseminated to broader audience (e.g. courses together with Life-long Learning Centre Dipoli in Aalto)

21. Thank you!