From the course: Service Innovation

What is service innovation?

From the course: Service Innovation

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What is service innovation?

- If you search the internet, you will find many different definitions for service innovation. My own definition is simple and very broad. A service innovation changes the way a customer is served. Service innovations take place across all industries and around the world. Of course, this involves service firms, but product-based firms can also develop service innovations. Think about Apple and how iTunes has revolutionized the way we buy music. The key to service innovation is that it changes the way the customer is served. And using this definition, we can distinguish between four levels of service innovations. The first level improves an attribute or a feature of an existing service. For example, when internet service providers and telecommunication operators change their pricing model to unlimited data traffic. Some providers now offer unlimited gigabytes at the different speed rates for different prices. You may begin the month with high speed service for the first 10 gigabytes, and then change to a lower speeds after that. The second level of service innovations are new service offerings. And a good example is a new idea within the travel industry. When revenues were declining because of online bookings, travel agencies started to offer a new service to its clients. Business travelers, by far the most lucrative segment in the traveling market, often require visas to travel internationally. Applying for a visa is a time consuming process, and business travelers are often under time pressure. So, offering the visa service allows travel agency to charge an extra fee and keeps the busy executive loyal. For some travel agencies, it is the most profitable and fastest growing service. The third level of service innovations are new service firms. For example, the fastest growing market in tutoring students at home was created by Indian firms who connect English speaking professionals with kids via Skype. And mobile phone repair centers, which you now find at every mall and street corner, did not exist when I was a kid. The same of course is true for everything that is internet related. I was recently helping my son with his homework and explained why water is the heaviest at four degrees Celsius. So he asked me, "How do you know all that stuff, Daddy?" To which I responded, "Well, I'm older than the whole internet." But not all service firms are internet related. Firms that specialize in admission consulting are new. Firms that specialize in controlling the organic processes for your produce did not exist 20 years ago. Finally, the fourth level of service innovations require a new value constellation. You may be familiar with the term value chain, where one firm's output is the next firm's input. Value constellations are similar, but there is no linear buyer-seller relationship between different actors or firms, and the service innovation is not just directed by one firm, but through a different interplay between several actors. The most famous examples are Uber and Airbnb. These companies act as matchmakers to connect assets they don't own with customers. A service innovation that I personally use a lot is car sharing. I often travel with the Swiss Railway. The car sharing company has cars at every train station. So I can pick them up whenever I need one. This allows me to work while I'm on the train, and I still have the flexibility of a car without owning one myself. New attribute features, new offerings, new firms, and new value constellation. Think of it like this, everything that changes the way the customer's served is considered a service innovation.

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