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Service Innovation: New Service Development

Sung Joo Bae

Associate Professor

Operations and Technology Management

Yonsei University Business School

Service is becoming increasingly important

• The paradigm is shifting to service-oriented industry structure

– Service sector is larger than 60% in OECD nations

– USA: 82% of GDP (2006)

• Service sector grows in South Korea as well

– Experiments not easily testable in a large sample

Source: KIDP

Service is becoming increasingly important

Source: KIDP

Manufacturing firms shifting towards service

• IBM: sold PC division, focus on consulting/service

• GE: restructuring focused on finance, healthcare, NBC Universal

• SONY: 27% of revenue coming from game, movie, and finance

• Xerox: copier document management solution

• Apple: product(iPod, iPhone) + service (iTunes, Appstore) integrated platform

Source: KIDP

Important characteristics of service

We need to visualize & standardize customer-interface in order to provide valuable experience for the customers.

Intangibility

Visualization

Heterogeneity

Standardization

Inseparability

Touch Point

Perishability

Experience, Value

Source: Service Management, 2002 (in Korean)

Touch Point

• Physical, interpersonal, virtual

• E.g. product, advertisement, web site, smartphone app, salesperson, store, point of purchase(POP) device, receipts………

• Customers formulate their perception about the service and the service provider based on their experience at touch points

• Touch point not only affects current customers but also future customers

Source: KIDP & JH Son

Every contact points between a customer and the service provider

Two things matter in considering “Touch Point”

• Taking customer perspective as well as operation

• Focus rather than details

Source: KIDP, JH Son

Orininal Source: JH Kim (Customer Satisfaction Management, 2007)

Customer

Bathrooms should be nearby

Business center should be nearby

Enough rooms for chatting

Snacks & coffee

Quick breaks should not interfere

Manager at convention center

Warm coffee at the right moment

Fresh snacks

Neat and clean space

Clean table and dishes

Things to consider for the break time during the seminar at the convention center

Important characteristics of service

We need to visualize & standardize customer-interface in order to provide valuable experience for the customers.

Intangibility

Visualization

Heterogeneity

Standardization

Inseparability

Touch Point

Perishability

Experience, Value

Source: Service Management, 2002 (in Korean)

Creating a better service experience

• Service Design

• Service Science

• Service Engineering

Source: KIDP

3 principles of service design

• Carefully observe all the experience the customers go through when they use the service

• Visualize and make the service tangible

• Define a service concept that generates real values

Source: KIDP & JH Son

Insight Concept Process

Carefully observe all the experience of the customers

Carefully observe all the experience of the Customers

Ethnography

• Ethnography is a branch of anthropology. It is a methodological strategy used to provide descriptions of human societies. Direct observation is the most common method of data collection.

• Empathic Design is a way to elicit latent user needs by observing them in the actual use context.

– Unarticulated needs, Use environment, User

customization, Intangible attributes of products

(Source: Leonard & Rayport)

Carefully observe all the experience of the Customers

1. Plan the study • When, where, who, how long, how (covert or overt)

2. Identify participants

3. Observe participants

• Why? Original use? What expectations? Any emotion? Any confusion or misuse?

• Things to record: date, time, place of observation, facts and details, sensory impressions, personal responses, specific words or phrases, questions for future investigation

4. Interview participants – with open-ended questions

5. Collect artifacts – pictures or videos, process map

6. Analyze data

7. Verify hypothesis – interviews, focus groups, survey

8. Document findings

Ethnography

Carefully observe all the experience of the Customers

Source: KIDP & Engine

Carefully observe all the experience of the Customers

Source: KIDP & Engine

Carefully observe all the experience of the Customers

Source: KIDP & Engine

Carefully observe all the experience of the Customers

Source: KIDP & Engine

Carefully observe all the experience of the Customers

Source: KIDP & Engine

Visualize & make the service tangible

Visualize and make the service tangible

Visualize and make the service tangible

Source: KIDP & JH Son

Visualize and make the service tangible

Customer Experience Map

• The journey of customers using the service is visualized sequentially and longitudinally

• Touch points can be physical, interpersonal, or virtual

• The nature of service is represented from the customer’s view

• Quite similar to the scenario for movie-making

Structured visualization of a service user’s experience

Source: KIDP & JH Son

Visualize and make the service tangible

How to draw an “Experience Map”

• Identify the touch point where users interact with the service

– Define the touch points from user insights

– Methods to find user insights: Observation, Shadowing, Interview, Blog, Video diaries, Life in a day

• Details are important to provide real insights

• To gain emotional identification, use personas (virtual profile)

• Customer participation is sometimes used in order to gain more realistic results

Source: KIDP & JH Son

Visualize and make the service tangible

The purpose of “Experience Map” • Provides a high-level-overview of the factors influencing user

experience, constructed from the user’s perspective.

• Identifying both problem areas and opportunities for innovation

• Customer participation is sometimes used in order to gain more realistic results

Source: KIDP & JH Son

Visualize and make the service tangible

Simple Experience Map for using restaurant

Source: KIDP & JH Son

예시 2) 유로철도 고객경험맵

Define a service concept that generates real values

After you identify a problem or an opportunity…

• Need for developing a solution emerges

• Need for laying out what the service provider can offer meeting the need emerges

• Need for laying out the details emerges

– Front stage & back stage processes

– Support processes

– Different stakeholders and touch points for improvement

Source: KIDP

Define a service concept that generates real values

Front stage & back stage

Source: KIDP & JH Son

Front stage Back stage

Define a service concept that generates real values

Front stage & Back stage

Source: Glushko, 2008; KIDP & JH Son

Define a service concept that generates real values

Front stage & Back stage

Source: KIDP & JH Son

Front stage Back stage

• The front stage represents the interaction the customer or service consumer has with the service

• The front stage service interface can be an employee, in a high-contact service, or a user interface, as in a self-service encounter with a computer or machine application

• Design goals: • Usability • Responsiveness • Flexibility/Customization • Transparency • Enjoyment

• The back stage operates on raw materials or information to create the finished products or processed information needed by the front stage

• "Industrialization" of the back stage to achieve efficiencies and economies of scale inevitably simplifies the front

• Design goals: • Efficiency/Productivity • Robustness • Standardization/Reuse • Scaleability

Define a service concept that generates real values

Service Blueprints • Incorporating the perspectives of both user, the service provider

and other relevant parties that may be involved

• Detailing everything from the points of customer contact to behind-the-scenes processes

• A collaborative workshop is a very effective way for this kind of co-creation, as this is an great and ideal way to bring together the various perspectives

• Blueprint ideally should be periodically revised to be a “living” document

Source: KIDP & JH Son

Define a service concept that generates real values

Service Blueprints • Physical evidence: all the physical factors

surrounding the interaction, affecting the communication and performance

• Customer actions: sequential; things provided to customers or customer participation in service

• Onstage employee actions: direct interaction between the customer and the service provider

• Backstage employee actions: employee actions invisible to the customer

• Support processes: connection to other parts of service provider

Source: Bitner, 2007; KIDP & JH Son

Define a service concept that generates real values

Service Blueprints

Source: Bitner, 2007; KIDP & JH Son

Define a service concept that generates real values

Service Blueprints

Source: Bitner, 2007; KIDP & JH Son

Define a service concept that generates real values

Cross-functional research is critical for developing and implementing service blueprints

Source: Bitner, 2007; KIDP & JH Son

• Front stage perspective

– Designer, Marketing researcher, Marketer, Service Employee

• Back stage perspective

– Operations Manager, Technician, Logistics Specialists

Case: elBulli – The Taste of Innovation

Video: elBulli’s Innovation in Taste

What elements of the elBulli experience create value for customers?

(These are the reasons why elBulli was the best restaurant in the world)

Constructing Experience

Reservation Trip Tour Meal Service

Scarcity Effort Access Innovation Exclusivity

What are the most salient features of the creative process at elBulli?

Innovation Process

Catalog of Thought Generating Techniques

• Deconstruction: Taking it apart, putting them back together in a new way

• Six senses: Irony, humor, provocation, childhood memories

• Adaptation: Revising recipes from traditional/classic cuisine

• Minimalism

• Haute cuisine version of mass-market items

• Influence from other cuisine

• Senses as the starting point to create

• Symbios of sweet and salted world

• New ways of serving food

• Techniques & concepts applied to new products

• …

Progression of Economic Value

Extract

Commodities

Make

Goods

Deliver

Services

Stage

Experiences

Pricing Market Premium

Relevant to

Irrelevant to

Needs of

Customers

Competitive

Position

Differentiated

Undifferentiated

Frisholt Experience

Facts about Frisholt

• Built in: 1925

• Established as guest residence in: 1967

• Guests: Customers, partners, subsidiary

employees, consultants

• Dining guests: 4,500 per year

• Overnight guests: 2,500 per year

• Facilities: 24 rooms, 2 dinging rooms, 3 bars,

karaoke, conference room, billiards, table tennis,

multi-purpose chapel, golf course with putting

green and driving range, pentaque, multi-purpose

game room

Frisholt Experience

Kano Model

Kano Model

Why models of product innovation, especially the experimentation approach, doesn’t easily apply to the service innovation?

• Service is intangible, and realized only at the moment of delivery to the customer

– Not easily isolatable in a traditional laboratory

• Many services are individually tailored at the point of purchase

– Experiments not easily testable in a large sample

Case: Bank of America

Iterations Reveal New Information to Improve Upon

Experimentation allows quick iterations in a controlled way, so that the iterations results in a more robust findings

Design Build Test

Design

Build

Experiment

Build

Product Innovation

Service Innovation

Iteration

Iteration

experimental

control

Service Innovation Process through Experimenta- tion

Source: Thomke, 2003