In this difficult economic climate, most executives are looking to improve competitiveness and profitability by becoming more innovative. In most cases, their attention has been focused towards the product and operational areas of the business. However, successful product and operational innovation may still not be a long term panacea. Mega trends like rapid technology diffusion, globalization and falling industry barriers to entry will continue to drive product commoditization and shrinking margins.
One way to outflank competition, meet increasing customer demands and improve revenues is to target innovation efforts against the services side of the business. In essence, product suppliers would reinvent themselves as service companies, offering complementary services, support and tools that satisfy a wider range of customer needs and differentiate their firms. Granted this is not a new idea. Whats really interesting is how the approach is being implemented.
One powerful strategy borrowed from cutting-edge R&D firms is to move to an open services model, whereby a company offers complementary services, delivered internally or via external providers, through an open and collaborative framework. In particular, outside firms are encouraged to proffer their services through access to product technology, integration into the product firm's operational infrastructure and through joint marketing and channel management programs. Many industry leaders have successfully operationalized this model including Apple, Xerox, IBM, 3M and Amazon.
There is now a critical mass of best practices around making an innovation in services strategy work. Open innovation pioneer, Henry Chesbrough, recently summarized some of these in an interview in strategy+business magazine.
Focus on platforms
A powerful way of catalyzing innovation in services is by leveraging a powerful yet open platform. A platform is a foundational product (or products) which can support an ecosystem of complementary services, support and process methodologies. One of the most successful examples of a platform is the iPhone. The iPhone owes much of its success to the services that accompany the product, whether these are delivered internally (e.g., iTunes) or externally through thousands of externally developed applications, crowdsourced technical support and functional add-ons.
Be open…to a point
Many successful platforms such as GE (infrastructure financing), General Motors (OnStar information services) and Xerox (Managed Print Solutions) mix internal and external services, products and partners within one ecosystem. A hybrid approach is the ideal strategy for most firms as it leads to economies of specialization i.e. leveraging the optimal mix of services, expertise and resources. Despite apparent successes, we have seen some companies struggle with implementing and managing this strategy. For example, organizations need to be collaborative by nature and must be willing to expose their product roadmap, delivery model and their brand.
Understand the full gamut of needs
In our experience, launching innovative services requires that firms possess a deep understanding of customer purchase habits, supply chain dynamics as well as their core competencies. Amazon is a good example of a firm that uses consumer data to catalyze innovation in services. The company has leveraged a deep understanding of consumer needs across the full shopping, purchase and delivery spectrum to deploy innovative services like customer reviews, 3rd party book selling and referral tools. These combine to enrich the shopping experience, differentiate the offering and generate incremental revenue.
Every industry can be "opened"
Many "big iron" manufacturers, not traditionally viewed as service businesses, can benefit from a service innovation strategy. Case in point, the Taiwan Semiconductor Manufacturing Company. In the mid 1980s, TSMC began to decouple the design of chips from the manufacturing of chips creating an entirely new services business model called a foundry. TSMC's foundry leverages an open services model. The company can manufacture chip designs from fab-less chip designers, provide design tools, testing and process technologies or co-create chips with partners. As a result of this innovation model, TSMC is now one of the World's leading semiconductor firms.
Fast forward 3-5 years, it is likely most leading product companies – save the lowest cost, highest volume players – will have a robust open services offering. Their challenge will remain making it all work.
Mitchell Osak – Strategist to the C-Suite
Mitchell Osak is managing director of Quanta Consulting Inc. Quanta has delivered a variety of winning strategy and organizational transformation consulting and educational solutions to global Fortune 1000 organizations.
Thanks to Mitchell Osak / National Post - Division Of Postmedia Network Inc. / Business Financial Post
http://business.financialpost.com/2011/09/07/strategy-innovating-with-services/
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