Services Innovation Model for the Modern World

business capabilities change client interface new concept data delivery systems dimension hertog marketing model organisation partners system technology

A Services Innovation Model helps us solve several practical challenges we come across in (services) innovation. Not least:

  • 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

Luckily, there is a model that we can use to help us. In this article we’ll look at Pim den Hertog’s 4-dimension model that he published in 2000. All we need to do is update it to be even more relevant for 2019+. Our updates bring technology more to the front and introduce the relevance of data. At the bottom of this article I link to the individual articles I have that show this model solving the above problems.

Key take-aways

  • den Hertog’s service innovation model, published in 2000, looks at three aspects of a service innovation
    • Dimensions – new concept, new client interface, new delivery system (process, culture, organisation) and technology options
    • Capabilities – HR, Organisational and Marketing & Distribution
    • Comparisons – to existing & competing services and service workers; and actual & potential customers
  • The world has changed since 2000, and so we make the following 4 updates to bring den Hertog’s model to even more relevance by:
    • highlighting the job to be done – why is the end customer “hiring” us
    • raising technology and the organsiations technology capabilities as much higher key aspect
    • introducing data and data capabilities as vital (data can be your own, bought or shared with allies
    • including partners/alliances in delivery systems
  • We propose using the lean canvas as a parallel tool to explore value and revenue
  • Using the model we can:
    • explain better what a service innovation is
    • explore the impact of executing the innovation
    • understand where change efforts are needed and their magnitude
    • Systematically hunt for service innovations
  • Our extended model allows us to solve a number of problems associated with (services) innovation

Before we jump into describing the model, let’s remind ourselves of the classic service marketing triangle. That 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 - a view of the services marketing triangle showing the promises between Company, Employees and Customer
Figure 1: The Services Marketing Triangle

We can say a lot about this triangle (and over in this article we do). But now I want to pull out just 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

Usually the new service innovation will change a combination of these.

However, the “problem” with the service marketing triangle is that it doesn’t help us understand what those changes actually mean. We can’t see the impact of an innovation. Nor can we see how it differs from the today view. To do both of those, we can use a model created by den Hertog. That model, in a sense, twists the service marketing triangle inside-out.

Introducing den Hertog 4-dimension services innovation model

Back in 2000, den Hertog (2000) published the first version of his services innovation model (see Figure 2). And I’ll refer to it as the 4-dimension model (he later developed a 6-dimension model, and we look at that a little later).

Den Hertog's Model of Service Innovation
Figure 2: Den Hertog’s Model of Service Innovation

Looking at the model there are three distinct aspects we can observe. First there are four, what he calls, dimensions. Second there are the capabilities needed to implement a service. And third are the comparisons (not shown in Figure 2). These compare the dimensions with the existing situation.

Let’s now explore these aspects through the lens of the dimensions.

New service concept

We can think of the new service concept as the new promise from the service marketing triangle. As such, changes in the concept impact the client and so are likely accompanied by new client interface and new delivery system, often enabled/driven by technology options.

These new service concepts can be quite wide ranging. If we follow Gallouj & Weinstein (1997) view that a service is a set of characteristics, then a new service concept is the alteration, addition and/or subtraction of one or more of those characteristics. And that also builds the basis for the comparison to existing service concepts. To me, this sounds very similar to the Blue Ocean Canvas tool, and we’ll explore that in a future article. This also means that new service concepts can cover the full range of innovation (as defined by Gallouj & Weinstein): radical, improvement, incremental, ad hoc, re-combinative and formalisation.

Figure 3: New Service Concepts of several social sites as viewed in the Blue Ocean Canvas

When it comes to capabilities, new service concepts are reliant upon the Marketing & Distribution capabilities of the organisation. These are needed to persuade customers to use (don’t forget. innovation, particularly in services, is a change that needs managing well). Remember the struggle when banking moved from the high street to online.

Furthermore, they are reliant on the organisational capabilities of the firm. A new concept generally is going to require internal changes to the delivery. It could require new processes, new people, new partners etc. If your organisational skills are weak, the chance of success is low.

And not last, a new service concept is probably going to rely heavily on technology and technological capabilities the organisation has access to. For example, the introduction of pay-for-use electronic scooters is reliant on battery life, GPS (tracking/billing) and mobile phone (the apps used to access scooters) technologies.

New Client Interface

The new client interface is where our service and the end-user meet. And maps to a number of the extended Ps in the services marketing mix.

Covering the physical (place)We can create a new client interface with less impact on the other dimensions than, say, a new service concept. However, 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.

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“) .

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.

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.

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.

Other extensions to den Hertog’s Model

Den Hertog 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).

Business Partners

Adding business partners reflects the observation that the full service an end user receives can often be the result of a combination of different services. Think of on-line shopping for physical goods. There is always a package delivery service involved, which is often not part of the on-line provider.

Business Model

Highlighting the revenue/business model is a key aspect. It reflects how revenue models have changed the last 20 years from a simple one-off payment and ownership to, for example, subscription and non-ownership.

Delivery System (Technology)

Additionally, the original 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.

So, here are the updates I make.

Update #1: Capturing the job to be done

To me, if we don’t understand why the end customer is “hiring” us, then we have already failed.

Levitt’s Marketing Myopia showed us two things (amongst others). First, it is important to identify what our business is really about (the classic example: running a railroad (myopic) or transportation (progressive)). Second, there are no growth industries, only organisations that are able to capitalise on growth opportunities. Druker’s The Principle of Management further told us that a firm has only two purposes: innovation and marketing.

Therefore, at the top of our model needs to go the business vision. And we need to challenge ourselves to make that as less myopic as we can.

In my studies we had a group challenge to turn around an international brewer, that also owned some bars/pubs, that was seeing year on year decline in sales of beer (both economically and socially). The great group I was in abstracted the brewer’s business to be one of connecting people through experiences. You already go to the bar to meet people. And with increasing frequency to watch sports games or listen to gigs.

By framing the company in this way we could think of how future connections will be made. And we could see a growth opportunity for the company in artificial reality attendance of games, concerts and more. The existing properties offered a stepping stone to get customers comfortable with the technology. ditching brewing was not necessary as people may still want to drink whilst they are in their virtual space (and who knows what delivery systems will be available in the future..).

Update #2: Raising Technology to a first dimension

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 4: Moving the Technology Dimension to have a stronger focus as well as including Tech Capabilities as a capability of the organisation

Together with this move, I add technical capabilities to the 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.

I keep technology separate, rather than call it part of the new delivery system. For me, the technology could be on the organisation’s or client’s side. And yes, you could argue that technology on client’s side is still new delivery system (due to inseparability of provision/consumption of a service, or that provider and consumer work together to deliver a service etc). However, I feel that calling it “delivery” narrows the minds focus to something the provider uses.

Along with technology, data is increasingly important in service innovation.

Update #3: Introducing data as a key dimension

They say data is the new oil (though some might argue not). I think it is hard to not see data as important. We all collect sales data in CRM systems, track staff in HR systems and so on. As such, this data is important to the running of your business. But a growing base of companies collects data to be used as a source of additional revenue. That could be the case if your business is running a freemium model.

Figure 5: Adding Data as a dimension along with data capabilities as a capability

Even more so if you are intending to employ deep learning algorithms (a subset of artificial intelligence / machine learning). In this case you usually need large amounts of data to train the system.

You can acquire data yourself from your customer interactions. Alternatively, you can buy data sets. Or ally with partners to get access to their data for the length of the alliance. In some cases there are datasets available for free.

Similar to tech, you data skills become an important capability. Again, these 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.

Update #4: Including partners/alliances in new delivery systems

Provision of services can require using partners/alliances. We already mentioned on-line shopping sites require a way to deliver physical goods to the purchaser. Often they use local shipping agents. They can though extend their service vertically to deliver themselves. Similarly, they will use a payment service to take your payment. It could be credit card processing, or smoother payment service such as Klarna.

Rather than have a separate dimension for partners/alliances, I see them as part of the delivery system.

So, now we have a model, how can we use it?

Using the model

There are a variety of ways we can use this model. And I have an article on each:

  • Describing an innovation
  • Searching for innovations in a systematic manner
  • Understanding the complexity of an innovation’s implementation in an organisation
  • Engineering down innovation implementation complexity
  • Justifying enabling projects
  • Portfolio management

Wrapping up

Den Hertog’s 4-dimension model from 2000 is a perfectly serviceable model for service innovations. However, in the 19+ years since its publishing the world has changed and some updates only add to its usability.

We added a new dimension (data) and promoted an existing one (technology). This reflects the technology/data driven world we find ourselves in. We also introduced the need to describe what the business does in a non-myopic way. Doing so helps us spot the growth opportunities that are needed for innovation and which innovation can drive. Finally, we recognise that partners/alliances are key to service delivery. However, we keep them as part of the “new delivery system” rather than create a new dimension.

The extended model is highly versatile. And this article links to several articles where we show this.

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