What is service innovation?

A brief explanation and introduction

Service innovation can be introduced in different ways:

  • Within companies whose business model is to provide services,
  • as an additional service to a product or an offer,
  • as a free-of-charge marketing service.

The development of service innovation is part of the innovation management of companies and is structured by an innovation process from idea generation up to successful implementation. Through digitalization and the option of developing digital business models, service innovation can also become an interesting business area for companies that primarily manufacture products and capital goods. This article describes the different stages in developing service innovation.

Service innovation (also called service design) is the development and successful introduction of new services for customers.

Customer insights as key to service innovation

Successful services are based on a deep understanding of customer problems and requirements. Therefore, when developing service innovation, a deep exploration of a customer’s situation and goals is the first step. Customer insights are obtained using various methods, such as customer interviews, customer observation and monitoring, or the evaluation of incoming customer inquiries and complaints. Methods such as Design Thinking provide for a so-called understanding stage at the beginning of the development of service innovation.

Customer insights gained are collected, discussed and evaluated in tools such as Innolytics® Innovation Management Software. The challenges and problems of customers are used to derive areas of opportunity for service innovation. The fields of opportunity for innovation are evaluated within a company or organisation, and a decision is made as to which field of opportunity ideas should be developed for.

Developing ideas for service innovation

In the second step you go through the stage of idea generation and systematic idea development. This stage is often carried out together with prospective customers, and is referred to as co-creationcustomer co-creation and open innovation. In an innovation workshop or using an innovation platform like the Innolytics® innovation software, different ideas are created. Each of these ideas contains the following information:

  • Title of a service idea
  • Description of the idea in three to five sentences
  • Description of the underlying problem
  • Target group for the service innovation
  • Implementation from initial idea to service innovation
  • Market potential

These descriptions can be entered in the Innolytics® innovation software and enhanced by further input fields. The exact description helps to consider the scalability already in the early phase of the development of a service innovation.

Please note!

One-time services, such as responding to a one-time customer inquiry, are not service innovations. Accordingly, it is important to pay attention from the beginning to the later marketability.

From the initial idea to successful service innovation

In the development of service innovations, ideas go through various stages of evaluation. In the first step, Customer Insights are evaluated based on

  • how relevant a customer problem is,
  • how many customers have specific problems and challenges, and
  • whether the company has the competencies to solve these problems.

Later, factors such as the marketability of a service, the ability to implement it, the degree of problem solving (is an idea suitable to effectively solve a customer problem?) and the market potential are evaluated.

A further evaluation will take place after completion of a prototype stage (see next section). Among other things

  • the acceptance of a service by customers,
  • the willingness to pay and
  • the possibility of successfully delivering a service are evaluated.

The different evaluation stages pursue the goal of assessing the quality of service innovation from the customer’s point of view step by step: the more concrete the service innovation becomes, the more operational the evaluation criteria become.

Prototyping in Service Innovation

In contrast to technological innovations or product innovations, which often require months or years of R&D efforts, service innovations are relatively easy to develop. Accordingly, they often lack the unique selling proposition in the long term. Other companies can quickly copy successful services. When developing service innovations, it is therefore important to test the services offered in the form of prototypes. This serves to filter out the right ones from a high number of potential service innovations. This can be done in several stages:

  • Design prototypes: A service innovation is first presented in the form of a brochure or a website. Also visualization methods like videos and animations can be used. Design prototypes serve to present a possible new service to customers and to evaluate its acceptance.
  • Project prototypes: The service is provided and tested in the form of prototype projects for customers. The service innovation is usually not yet finished at this point in time.
  • Prototyping in a test market: A selected area (e.g. regional) or a specific target group is selected to provide the service. Within this test market, the extent to which the service innovation is accepted is evaluated.

The market for service innovation is more dynamic than the market for product innovation or innovation in complex solutions. Accordingly, it is important to set up a well-filled innovation pipeline for service innovations, regularly test new offers and convert them into prototypes. At the end there is the decision of a market launch.

Introducing service innovation to the market

Within the prototype stage, the essential components of a service innovation have already been determined. In the market launch stage it is usually only a question of scaling an already tested service outside of previous test markets and target groups. For this purpose, it is particularly important to set up organizational structures that allow the service to be provided cost-efficiently to a large number of customers.

The Innolytics® innovation management software supports companies in all phases of the development of service innovations. Customer problems can be discussed and evaluated, fields of action and opportunities derived, ideas developed and matured into concepts. The multi-stage evaluation process makes it possible to evaluate the different phases of a service innovation. In the market launch phase, the Innolytics® software supports companies with the opportunity to establish an innovation roadmap in which all milestones in the market launch can be documented.

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