I’m always looking out for ways to discover service innovation. Especially if I can do that discovery in a systematic manner (supporting that innovation needs to be one of only two functions of a firm).
To this end, Gallouj & Weinstein have an interesting model we can use to describe a service. A list of external characteristics defines the outcome of a service. And we deliver those by combining items from 3 other characteristics lists. The first is the technical characteristics (tangibles and processes etc used in the delivery of the service). These used together with the skills and competences of the customer as well as the skills and competences of individuals in the service provider.
Using this model gives us a clear view of what a service is. And how it is delivered. But better still, we can use that model to systematically look for new innovations. Since we can define service innovation as adding, removing, and/or changing items in those four lists of characteristics (as I look at in Service Innovation – the basics).
- We can summarise our definition of service as:
- A solution (offering) to a job a customer wants to fulfil
- occuring as interactions between the customer and a combination of service provider elements
- those elements are employees, goods, or systems of the provider
- Gallouj and Weinstein’s model of services is made up of
- external characteristics – this is the solution/offering as seen from a customer’s perspective
- technical characteristics – this items used internal to the service delivery. This can be goods or systems of the provider.As well as processes etc.
- provider competences – the individual skills of the provider employees needed to deliver the service
- customer competences – the individual skills the customer needs to have in order to co-deliver the service
- We find four common patterns of interactions of service characteristics used in a service
- intangible service – seeing a doctor
- intagible service with co-production – interior design
- tangible service with co-production –
- self-service – which includes the concept of goods
Let’s jump in by first recalling how we are defining a service.
What is a service? A quick review.
Remember what we gave as our preferred definition of service? It was a slight re-organisation of Grönroos’ definition. For quick reference, I show it again here in Figure 1.
Let’s use that now to introduce the example I’ll use throughout this article. It concerns a financial service popular in Sweden for instant payment between friends (and increasingly to businesses).
Swish – an example (financial) service
Swish is a popular mobile application in Sweden. It solves the customer problem of securely and instantly transferring money from their own bank account to another (person’s) bank account. Initially, it was provided as a consumer-2-consumer solution to the EU’s faster payment regulations. And has expanded to support consumer-2-business payments.
Another way of looking at the service is that it is a substitute for cash and credit/debit cards. That’s to say you use a simple mobile phone application provided by the Swish organisation. And through doing so, you can easily, say, send 500kr to phone number +46 708 99128.
The service’s process is a series of intangible actions. Initially, both the payer and payee link a bank account to a phone number. And at some point in the future, the payer makes a payment.
These actions take place in interactions with the Swish organisation’s provided system: a mobile application. Whereas identity and security are provided separately by the Swedish banks’ BankID service.
Whilst this is a nice verbal description of the service it still lacks some rigour and description of how it works and who does what. Now, we could add more words to enhance the description. But, we’ll explore a model that guides us on what we need to describe. And that means getting a little more formal and mathematical-ish looking. But (hopefully) not in a scary way.
What is a service? A more formal description.
Gallouj and Weinstein’s detail their model for describing services in: “Innovation in Services”. And that model consists of four lists of characteristics. Though they almost immediately refer to two of those lists as competences rather than characteristics. Firstly there is a list of external characteristics. They define the problem the customer wants solving. After that, there are three other lists of characteristics which define the service itself. Have a look at Figure 2.
We achieve the external characteristics through the customer interacting with individuals in the provider. We see both customer and provider competences in the model. Additionally, we include in the model something called technical characteristics. These are the systems, resources and goods in our informal definition.
Let’s dig into each of these, using our Swish example to help. And, to start with, we’ll look at the problem being solved.
Experiencing the service: the External Characteristics
As end-users, we experience a service through the external characteristics (sometimes called the final characteristics). And, we can think of these as characteristics as aspects such as the performance, opening hours, the job to be done etc. Additionally, we can relate these back to the external marketing promise of the marketing services triangle. Or the new service concept of our services innovation model. As such, we can consider the business model as part of these external characteristics.
We’ll use Y = (Y1 Y2 … Ym) to refer to these characteristics. And so we can refer to them all as Y or the 3rd one as Y3.
For our Swish example we will define the following three external characteristics:
- Y1 = instant money transfer between two bank accounts
- Y2 = no fee to sender or receiver (the customers)
- Y3 = secure
Y1 captures the job-to-be-done. Y2 is part of the business model. And Y3 is capturing an attractive (and necessary) attribute of the service: secure.
Bringing competences to bear: end-user and organisation working together to deliver the service
If you look to the left of the model we see an important aspect of service captured. This is that both the customer and provider usually work together to provide the service. More often we refer to this as co-generation of value; or co-value generation.
The model uses the term competences. And it refers to competences or skills that individuals have. On the customer side, it could be the ability to use a particular interface (e.g. virtual reality or navigate a menu on phone). Provider competences might be having the skill of a particular programming language. Or being highly outgoing.
We use C’ = (C’1, C’2,…C’q) to represent the customer competences. And for provider competences we use C = (C1, C2,…Cp). However, you should notice that C’ has q items and C has p. What we’re saying here is that they are not the same length. And, lower down, we will see examples where one or other of these lists are empty.
The model places these two lists together in a form that is almost representative of matrix multiplication. This reinforces that this is the main interaction point of service, in general.
All well and good, but what types of competence are we talking about?
Types of competences
According to Gallouj & Weinstein, competences are roughly categorised as:
- scientific and technical competences
- internal and external relational competences
- combinatory or creative competences (i.e. those that combine technical characteristics into coherent sets and subsets)
- operational (or manual) competences.
However, there is a key thing to understand about these competences. They relate to individuals, not the firm.
Competences are individual
You might intuitively think provider competences relate to the competence of the organisation. But the definition is different. Provider competences relate only to individuals in the organisation. The processes, routines or ways of working the organisation has – what we might intuitively have thought provider competences were – fall under technical characteristics in this model.
An example of provider competence is the skill in a particular programming language an individual programmer in an IT consultancy has. Another is how skilled each hairdresser is at cutting hair in a particular salon.
Individuals get these competences from various sources. Originally from education, training and experience. And often from the repeated interaction with customers.
Just to finish off this side point we observe that sometimes provider competences can become technical characteristics. What we mean is that the organisation has codified a particular individual competence and replicates this across the organisation for the benefit of customer and provider. For examples, the ways of working in management consultancies are codified best practices of individual competences.
With all that in mind, let’s take a deeper look at customer competences in general, and for our Swish example.
Over on the far left of the model, we find the customer competences . These are the skills and resources the customer needs to bring to the service delivery.
Now, you might wonder why the customer needs to bring any competences? And that’s true for some service types. For example, a meeting with your lawyer doesn’t require you to use any competence. This type of service we could see as shown in Figure 3. That is to say, the external characteristic (usually the receiving of legal advice) is only dependent upon the individual competence of the lawyer you are talking to.
Interestingly our Swish example actually has two customers. First, there is the sender of money. And secondly the receiver of the money. We could, therefore, graphically create two lists for customer competences. However, since the competences are quite similar in our example, we’ll keep one list.
And the competences we expect the customer to have, in order for them to use the service, are:
- C’1 = they can use a smartphone mobile application that uses common, standard user interface components.
- C’2 = that the payer can find the phone number of the payee
- C’3 = (that the payee and payer are optionally comfortable with QR codes)
- C’4 = that the payer can use the separate BankID application (to identify themselves and sign legally binding agreement to transfer money)
By listing the needed customer competences we start to see some potential constraints. C’1 and C’4 should not be a constraint in current day Sweden. But they may have been in the past. The payee typically solves C’2 by telling the payer his phone number. It is C’3 – the use of QR codes – that we’ll look at next.
New customer competences implications
An interesting aspect of customer competences is that a service, or service innovation, may require the end-user to gain new ones.If your service requires a customer to gain a new competence, then think through how you give it to them…otherwise you'll quickly hit innovation resistance. Click To Tweet
If you introduce the need for a new customer competence in order to use your service, you have a task ahead. We read before that individuals get competences from various sources – education, training, experience, or repeated interactions. How will you help your customer gain the needed competence? If you don’t consider that, then you’ll quickly hit innovation resistance.
Things can go in reverse though. Where users have gained a competence in another market/industry and expect to use it in yours.Customers may gain a competence in another market or industry…and then expect to start using it in your market/industry. Click To Tweet
Swish introduced QR codes to minimise the need to type in phone numbers. What impact does that have?
Example: Swish and QR codes
Whilst QR codes are not on the bleeding edge of technology nowadays, they are an example of both of the above.
A challenge with using Swish is having to type in the payees’ phone number. It’s admittedly not a huge problem, but there’s always the potential that you mistype a number and pay someone else instead. Back when Swish was mainly payments between friends this was minimal. Your friend’s phone number was likely in your contacts list so, in reality, no typing to do.
But as Swish expands into B2C market then the effort to use (type in 10 digit numbers) and the probability of making a mistake increase.
The solution is relatively simple – let a payee create a QR code in the app and let the payer scan a QR code to initiate a payment.
Now we have to consider the customer and do they have these competences. Well, actually it is yes and no.
One part of the Swish customer base is familiar with QR codes from another industry: travel. There, tickets are regularly in the form of QR codes. However, another part is not familiar at all.
Luckily for Swish, scanning QR codes is a skill that customers can quickly get from observation. And perhaps a little help from the payee. I see it at the local farmer’s market. People behind in the queue follow the lead of the person in front scanning a large QR print-out instead of typing in the number. And like other innovations, customers are asking the stallholder that don’t have a QR code where is it? Consumers and Providers working together to jointly create new value…wonder where I have heard that before…?
That’s quite a lot on customer competences! Let’s jump to the provider competences.
We’ve already mentioned provider competences relate to the individuals in the provider no the provider itself. And, similarly to customer competences, we have to train/educate our individuals if our service requires new competences. Or maybe hire/acquire to get those as an alternative.
In our Swish example, there are no provider competences. Because the customers do not interact with any individuals from the provider (it is all done through a mobile app).
(Now, I’m still a little undecided if the mobile app would have a transactional agent (chatbot or AI, for example) if that would fall under provider competence…)
Finally, we’ll look at technical characteristics. And they include those competences you might have intuitively thought were provider competences. Such as ways of working, processes etc.
Using Technical Characteristics: the products, processes, people, places involved
Last, but not least, we have the technical characteristics of the service. We define these as the tangible and intangible assets used internally to deliver the service. By tangible I mean the scissors and the hairdryer of the hairdresser, etc. And by intangible I mean the processes and frameworks business consultants use to provide advice, etc. Also included are the servicescape – see under the 7Ps of the marketing mix – including (digital) client interfaces.
Your choice of technical characteristics has an impact on customer and provider competences. Since both may use them. Individuals in the provider need to already know how to use tangibles or you have to train them. You most likely need to train them in your processes and ways of working.
Customers, on the other hand, need to be comfortable with your client interface. And that interface may have restrictions placed on it from 3rd parties. Mobile apps, for example, are limited to the user interface components provided by iOS and Android.
We can also observe that some individual competences in the provider can become new intangible technical characteristics.
Creating new intangible technical characteristics
Every so often we find a competence that an individual brings along that is really useful (perhaps giving us a strategic advantage). And it might be a competence that we want everyone in the organisation to have. So we capture it as a way of working or a process. And subsequently, everyone that works in our organisation follows it.
With that in mind, our Swish example has the following technical characteristics:
- X1 = Swish Mobile Application
- X2 = Associate a phone number with a bank account
- X3 = Check with Payer’s bank there are sufficient funds
- X4 = Co-ordinate system that allows inter-bank transfer in near real-time
- X5 = Interface with BankID system
Finally, we can bring all of the characteristics of our Swish service together.
Bringing it all together
So we can collect together all the characteristics of the Swish service. As I do in Figure 4.
Our next step is to show how all the competences and technical characteristics work together to achieve the external characteristics.
Delivering the Service: competences and characteristics working together
How do the characteristics interact to provide the service?
Now we have the service characteristics we can look at the interactions that take place. These you can see in Figure 5.
Here in Figure 5, we’re quite detailed. For example, we are saying that customer competence C’1 interacts with technical characteristic X2. Which in turns leads, with some others, to external characteristic Y1. Or in English: the payer and payee know how to link the phone numbers to bank accounts; the system can perform that linking action, and the outcome supports the secure payment between two bank accounts.
OK, with that simple example under our belt you hopefully have a more comfortable feeling about this model. Now we dig a bit deeper to see some of the nuances.
Next, we have the competences used in delivering the service, C and C’.
Finally, we can look at the delivery of the service. And we see that it is done through a combination of the competencies and the technical characteristics, in order for the end-user to experience the external characteristics. There are a few combinations that can occur, and in Figure 2 I show the four most common.
I’ve updated the terminology lightly sine we now talk about co-creation rather than o-production.
Let’s look at these four common ways, starting with a pure intangible service.
Example 1: An intangible service
A good example of an intangible service is when we need some legal advice. Here the external characteristics would relate to getting particular advice on legal issues. They might include whether the business model is hourly-based, no-win-no-fee or pro bono. You can envisage that the advice given is going to be heavily reliant on the training and experience the lawyer has (his competences, C). But is unlikely to make use of any of our, as a customer, competences (C’).
I also include some technical characteristics in my view of an intangible service. Whilst there are unlikely to be any tangibles used in the service directly, there is always the client interface. And in this case, it could be the offices the lawyer has. Or even the web site they have that dispenses simple advice.
Gallouj & Weinstein suggest this as well as this type of service being an intellectual one, such as consultancy. It could be a manual service such as emptying wastebaskets, or a masseur using only their hands. They also point out that the provision and quality of the service (Y) is highly dependent upon the ability to implement and organise the provider competences (C). As such, innovation in organisational design is important.
Example 2: Pure intangible service with co-creation
More commonly though a service will be driven by combining customer and provider competences. In the eyes of Service-dominant logic, the beneficiary of the service is always involved in value co-creation. For example, engaging a headhunting firm to fill a role. In such a service both actors bring different competences to the delivery. Without either the service has no value. As a customer, you know the role you are looking for. Whereas the headhunting company has the individuals who can find a selection of potentially right people for you.
This type of service is likely to have some process/routine behind it in the ways of working of the head hunter firm. The client interface is likely to be in an office. We could also argue that there is a third actor as the head-hunter has two “customers”. First, the customer who hires them to find someone. Second, the people being head-hunted.
Example 3: Tangible service with co-creation
We can think of tangible service with co-creation as the full-blown version of a service. Here we have co-creation by combining actors’ competences as well as tangible technical characteristics to deliver the service.
Let’s imagine you are an architect that wishes to build something. You have your architecture competences and need to find a building service that has competences of building. They’ll also of tangibles in the form of bricks, tiles and machines to dig holes and construct things.
Example 4: Self-service
There are also services where there are no provider competences involved. These are the so-called self-service services.
In such cases, it is a combination of customer competences (C’) and technical characteristics (X) that provide the experience (Y). There are no provider competences involved.
An example is self-service checkouts in supermarkets. Here the customer uses the scanning system to scan their goods and pays. No supermarket staff need to be involved.
An aside: goods in service-dominant logic
[I wonder if this is coming too early?] When we later look a service-dominant logic we’ll find that goods are seen as a distribution mechanism for services.
We might think, for example, that a chocolate bar is just a goods that we buy as we are hungry for something sweet. in SD-logic we would see a chocolate bar as providing a service. The chocolate bar is fulfilling a customer’s need to have a sweet nourishment.
We can explain this with this model. The chocolate bar maker has used their provider competences (C) to create a goods (X) that “freezes” this sweet nourishment service. The external characteristic is now tied to that X. I show this with no explicit co-creation. But it could be argued that with the high volume of turnover of sweet nourishment services that usage figures quickly feedback if the goods is delivering the service or not.
So, there we have it. A more formal way of describing a service. And one that appears to work for all types of services we can think of.
It’s important to remember that provider competences relate to individuals. Whereas the processes and routines that may give a strategic benefit are classed as technical characteristics. Which also includes goods that are used in the internal delivery of the service.
And also that customer competences need to be acquired by the customer to use the service. This implies you might have to perform some form of training. Alternatively, a customer may gain a competence in another market/industry that they expect to use in your market/industry.
As for why is this useful? Well, it does not only help us be clearer about what a service is and how it is delivered. We can use this model to understand what innovation in service means and to systematically search for service innovation. In short, service innovation is the act of changing (or adding/subtracting) characteristics.