A (modern) Services Innovation Framework

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Please note: this article is under development - it may change (improve ) between visits
  • Describing innovations
  • Finding innovations
  • Understanding impact of innovation(s) on organisation and customers
  • Engineering down innovation implementation complexity.
  • (Justifying, work that is not innovative itself, but makes innovation easier; e.g. master data cleansing, creating APIs)
  • Managing innovation portfolios

These are some of the practical challenges we have with innovation. Ideation might be a partial solution to the first, but we can also be more systematic.

I believe harnessing, den Hertog’s 4 dimensions model from 2000 is the basis to answering these questions (for service innovation). In this article we will explore this model and update it for today’s technology and data first world. We will also see how we can score innovation complexity using this model (which leads to ranking, portfolios, engineering and justifying enabling work).

Key take-aways

  • den Hertog’s service innovation model looks at three aspects of a service innovation
    • 4 dimensions – new concept, new client interface, new delivery system (process, culture, organisation), and technology options
    • Capabilities – HR, Organisational and Marketing & Distribution
    • Existing & Competing services and service workers; and Actual & Potential customers
  • In today’s world we raise technology and the organsiations technology capabilities as a key aspect
  • We also introduce data and data capabilities as vital (data can be your own, bought or shared with allies
  • there is a 6-dimension model den Hertog published in 2010; I stick to the 4-dimension model for the two reasons below
  • Using the model we can:
    • explain better what the service innovation is
    • explore the impact of executing the innovation
    • understand where change efforts are needed and their magnitude
    • Systematically hunt for service innovations
  • The model helps us score complexity of innovation. Once we can do that, we can:
    • manage and rank service innovation portfolio
    • engineer down complexities of an innovation
    • build business cases of strengthening organisation capabilities
    • build business cases for implementing enabling changes (such as master data cleansing, or implementing APIs to systems etc)

Before we jump into the model and updates, it is useful to remind ourselves of the classic service marketing triangle. This sets the context for why den Hertog’s model helps explain a service innovation.

Setting the scene: the service marketing triangle

In the services marketing triangle, Figure 1, we can see the three entities that work together when delivering a service. These are: the company, the employees and the customer.

Figure 1: The Services Marketing Triangle

We can say a lot about this triangle. But for this article, I want to pull out two points. First there is a promise made by the company to the customer. And second, to fulfil that promise, the company needs to enable the employees so that they can deliver the promise to the customer.

So, what does this have to do with service innovation? Well, a service innovation is likely to change:

  • the promise, or
  • how the employees deliver the service, or
  • how employees are enabled

More often, the service innovation will change a combination of these.

But the service marketing model doesn’t help us understand what those changes actually mean. I see den Hertog’s model as providing that information. I don’t know whether den Hertog drew the link between his model and the service marketing model, but i do. So, with the service marketing model in mind, let’s look at den Hertog’s model.

The den Hertog 4-dimension model

Here in Figure 2 we can den Hertog’s 4-dimension service innovation model (from den Hertog (2000)). This is not to be confused with his later 6-dimension model.

Figure 2: den Hertog’s 2000 Services Innovation Model

There are three aspects to the model, in my interpretation. First there are the 4 dimensions new service concept, new delivery systems, new client interface, and technology options.

Second, there are the capabilities needed to implement a service – HR, Organisational and Marketing & Distribution.

Not shown in the diagram is the third aspect: characteristics. the comparisons of the outer dimensions to the existing situations.

Let’s explore the dimensions by looking at example innovations in each. Usually a service innovation will be in a combination of dimensions, so it is a little hard to isolate, but let’s concentrate on the main dimension in each case.

1. New service concept

I interpret the new service concept as there being a new promise from the service marketing triangle.

Many years ago I changed my mortgage from a traditional UK style one to one called an Australian style mortgage. The concept change was from having a loan to having a maximum value overdraft, the size of the mortgage. My salary went into the overdraft account. And out of it came my expenses, including overdraft interest. What money I didn’t spend of my salary each month reduced the overdraft. I could use up to the mortgage value at anytime I wanted through a debit card. In comparison to a standard mortgage it was remarkably inflexible.

2. New Client Interface

How are you interfacing with the end customer, aka the client? Perhaps you are moving from bricks ‘n’ mortar to a call center, or an online presence. Or perhaps, like Amazon, you are exploring going the other way.

Another example is the supermarkets that have been implementing self service checkouts. In this case the familiar helpful checkout staff are being replaced by machines you use yourself.

Yet another client interface change was when bikes you could hire in cities moved from being docked to dockless. In this case the client was freed from having to find a docking station to end the service. And, taking it one step further is the move from bikes to electric scooters for the same promise.

I believe Blue Ocean Strategy is useful for searching both the new client interface and new service concepts.

3. New Delivery System

Are you changing the rules people have, or how you organise your structure? Maybe even you are changing your culture. These are innovations in your delivery system – people, culture and organisation.

Imagine you work in an IT consultancy that aligns itself around technologies. So you have teams specialising in Microsoft products, others in Oracle products, and so on. One day you decide that aligning around industries would be a better approach. For example, Retail, Banking etc. Now you need to change organisational structure, most likely train people, and probably alter culture an amount.

4. Technology Options

Think of the move to the cloud that has happened in recent years. I would argue this is an innovation in the technology dimension that has limited impact on the other dimensions. At a basic level, we are moving from on-premise servers to cloud services hoping to get a reduction in cost (Del Monte recently claimed a 35% reduction in IT spending costs in just 4 months). Just a move of back-end systems to the cloud has no impact on client and very limited, or no, impact on people, organisation or culture.

Technology options can be classed as tech push our tech pull. Tech push is where we have a technology and are trying to find problems on which to user it (you might look at general application of blockchain as an example). Tech pull is where we have a defined problem which we are seeking a technical solution.

Final thoughts on dimensions

In practice a service innovation is more likely to touch two or more dimensions than just one.

Imagine introducing an automated bot to your retail process to handle returns. Maybe in a similar way to this shown in the video.

It’s a tech innovation that you can probably guess see changes the interface to the client. Additionally it changes your delivery system. Existing staff can change focus is probably the first change you can guess. But, depending on the technology chosen, you probably need new roles. One role might be to monitor the bot and ensure it stays on-brand. Especially avoiding Microsoft’s Tay’s meltdowns (“Microsoft’s racist chatbot returns with drug smoking Twitter meltdown“) .

Capabilities

The capabilities your organisation have are, to an extent, your competitive advantage. Den Hertog highlights three:

  • HR Capabilities
  • Organisational Capabilities
  • Marketing & Distribution Capabilities

When thinking through a new service innovation you need to also consider what changes you need to make in your capabilities in order to execute the innovation.

Final thoughts on capabilities

I wonder if we can use some measure of dimension complexity and organistations capabilities to determine how difficult innovations are for an organisation to implement. (see article)

Update #1: Technology First

Whilst perhaps cosmetic, I move technology dimension from a small block inside the model, to a large block outside. Nineteen years after the original model, I feel it is clear that technology is a major contributor to services innovation.

Figure 3: Moving the Technology dimension to have a stronger focus, and including Tech Capabilities of the organsiation as a capability

Together with this move, I add to the capabilities the technical capabilities an organisation has access to. Imagine you decide to implement an innovation based on blockchain or machine learning. If your organisation has no access to tech skills in these areas then the innovation will be hard for you to progress. This doesn’t mean you have to have skills in house, you can ally or buy.

Update #2: Data first

They say data is the new oil (or perhaps not). Certainly the importance of data to your company is growing. Either it is important to the running of your business, or as a source of additional revenue.

Figure 4: Adding Data as a dimension, and data capabilities as a capability

If you want to apply machine learning algortihms, then you need data to train the system. Most companies now run Customer Relationship Systems (CRM) to understand sales – that is all data based.

You can acquire data yourself from your customer interactions. Alternatively, you can buy data sets. Or even ally with partners to get access to their data for the length of the alliance.

Similar to tech, you data skills become important. And again, it doesn’t have to be in house. But, still transactional costs economics concept of “hold-ups” applies if you choose to partner or buy instead of having in house.

Using the Model to describe an innovation

Using the Model to find innovations

Using the Model to score complexity of an innovation

Engineering down complexity

Justifying enabling projects

Portfolio management

Other extensions to den Hertog’s Model

Den Hertog himself updated his model in 2010 to reflect 2 additional dimensions – New Business Partner and New Revenue Model (i have seen later referred to as new business model) Additionally, Technology Options dimension reasonably changes to New Delivery System (Technology).

There’s a lot of merit in this evolution. I will look at that in a separate article. For now, I keep to den Hertog’s 4-dimension model. I want to later look at the revenue model as part of the iterative approach to the business model canvas. And I see, right or wrong, new business partners as part of the delivery system. Albeit a useful distinction.

Wrapping up

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