By Sarah Nicastro, Creator, Future of Field Service
It’s exciting when we see the success of service organizations who are embracing the opportunity to innovate and seeing the impact of their efforts. Take, for example, the stories of how companies like Baxi, Kaer, and Schneider Electric have introduced As-a-Service offerings to replace their historical transactional models.
But while there’s inspiration and wisdom to be gained from triumphs like these, there’s also value in understanding the trials – what is preventing companies from succeeding?
It helps to understand the complexity that exists around service innovation. When we’re talking about bigger-picture, disruptive innovation we’re typically referring to a company that has a long history with a particular business model looking to completely reinvent the way it goes to market, sells, and services. It’s not only an identity shift but also a process that in many ways goes against the momentum of the “machine.”
I’ve recently had the pleasure of connecting with two innovation thought leaders that I’ve learned so much from – Frank Mattes, author, advisor & founder and CEO of Lean Scaleup and Dan Toma, award-winning author of the Corporate Startup and Innovation Accounting, and co-founder of innovation advisory firm OUTCOME. Frank and Dan both cover different perspectives and have so much knowledge to explore – they are both worth a follow.
From my handful of conversations with them, I have put together a list of 10 reasons that service innovation fails. This isn’t an exhaustive list, by any means, but it gives you some cautionary points to be aware of and consider.
#1: Companies Ambiguously Define Innovation
“Innovation is the creation of new value,” says Toma. “Digital transformation is around keeping existing business models and processes valuable in the digital age, which improves customer satisfaction and lowers operational costs. Confusion comes in because companies think innovation is a one size fits all type of word, but one of the big lessons learned for us is that when you want to start doing innovation, the first thing you need to do is to define what innovation means for your organization.”
There are different ways to define innovation, but one thing that tends to happen is that a company wants the benefits of bigger, more disruptive innovation from the efforts of more incremental improvement. Digital transformation is one example of more incremental improvement – it, in and of itself, isn’t changing the core business, but rather improving upon it. Yet companies expect that once they’ve invested in digital transformation, they’ll see the results of bigger innovation – which is only possible if that investment is used to drive further change in the business, aka disruptive innovation.
“Innovation is a game that you play three to five years in advance,” says Mattes. “I define innovation as capturing the value from meaningful insights via new offerings that change the order of things. It’s not about ‘new stuff’ – it’s about value, and value is defined by the customer. It’s also about capturing the value or collecting the dollars and the cents of that value. The last point, new offerings that change the order of things, means new business models, new go-to-market strategies, etc. We are talking about big steps here. Changing the order of things, thinking outside of the box, if you will. If it’s in the box, if it doesn’t change the order of things, and then we have incremental innovation.”
#2: Companies Fail to Realize Service Innovation = Business Transformation
Within our audience specifically, one of the issues we see is that companies think they can innovate within service as a silo. While this is possible, incrementally, in the form of service transformation, if the company desires the more disruptive innovation of a shift like Servitization or moving to an As-a-Service model, the conversation changes. At this point, it becomes critical to reconcile the fact that what we’re really talking about is business innovation – not service innovation. This means that it’s a journey for the entire organization, not for service alone.
What today’s customers are demanding from companies are outcomes, guarantees, peace of mind – and that is a different way of doing business than transactional service. This is prompting companies to examine the layers of business transformation needed to evolve fully to a new value proposition. Aspects like go-to-market, financing and revenue recognition, sales and marketing, customer success, and many more arise as a part of bigger-picture service innovation.
#3: Companies Expect Operational Talent to Lead Innovation
I’ve seen pressure on service leaders to juggle both the needs of the day-to-day business while creating a strategy for innovation. Not only is this an impossibly tall order, but it also often isn’t realistic to ask your operational talent to think as creatively as necessary for true innovation.
“The skill that you need for digital transformation, the capabilities you need for digital transformation are not going to be sufficient once you’re trying to innovate. Let alone the talent. If you are trying to hire somebody and that particular person has an amazing track record of helping organizations digitally transform, they’re not going to be the right person for disruptive innovation. You need different skillset, different personalities. This is another reason it is important to make the distinction before you start investing,” says Toma.
Mattes explains the importance of each type of talent, as well as the degree to which overlap is needed, by segmenting into “red shirts” and “blue shirts.” This terminology was born of the book Blue Ocean Strategy, published in 2004 and written by W. Chan Kim and Renée Mauborgne, which describes a new market with little competition versus the “red ocean” of cutthroat competition. “As we consider innovation, it’s helpful to say the day-to-day operations are the people working in the red oceans or what I call the ‘red shirts.’ Those working to find new value pools, they are the ‘blue shirts.’ You need both. You need to own the business NOW and in the future in the NEW,” explains Mattes. “One is not good and the other bad, they are both important. They are living in different systems that were designed for different purposes. So, we come to that million-dollar question in the truest sense of the word: how do we make them work together?”
#4: Companies Narrow Their View of What’s Possible
Another stumbling block of innovation is that companies unintentionally, even subconsciously, limit their perspective of what is possible. This can be habitual, rooted in legacy, a factor of long-term talent, sticking with examples only within one’s industry, or a variety of other reasons. To embrace disruptive innovation, we must be more comfortable thinking out of the box – often this can be prompted by expanding your perspective and seeking inspiration beyond your own industry.
“I think of some work I’ve done with a 150-year-old insurance company out of Germany where the head of the innovation lab was tasked to think beyond core and to build the insurance of the future,” retells Toma. “The problem for him was that despite the new lab that he had, the new processes that he used, all the thought leadership that he brought in, HR was only hiring people that had insurance written on their CVs. People that worked with other insurers in the region, sometimes even brought them from abroad. And he said, ‘I can’t innovate with these people, because these people can only think insurance in the way that insurance has been for the last 100 years. I need to have people that come from automotive. I need to have that come from the music industry, from entertainment, from travel, people that think differently about insurance, because they don’t have that legacy.’”
If your objective is disruptive innovation, often fresh perspective is incredibly important.
#5: Companies Attempt to Define Value (Versus Accepting that Value is Defined by the Customer)
If you aren’t innovating from the outside-in, you’re taking incredible risk in missing the mark. Your customers’ needs should dictate where you focus your efforts. This doesn’t mean your customers know exactly what they want or need five years from now – it usually isn’t as easy as simply asking. You will need to be creative and determine what value will hit the mark in three or five- or ten-years’ time – but the point is, it should all be centered around their challenges, opportunities, and needs.
“So many organizations are building it backwards from what we were used to doing in the outside world, in the startup scene,” says Toma. “Essentially, they were starting from a business plan. Financing the whole thing based on this plan and then after six months, they would put a prototype in the hands of a customer only to learn that it doesn’t work.”
This type of inside-out innovation is costly and can deter a company from future innovation because rather than the particular approach being deemed a failure, the overall effort is categorized as such.
Stay tuned next week for part two!
By Sarah Nicastro, Creator, Future of Field Service
It’s exciting when we see the success of service organizations who are embracing the opportunity to innovate and seeing the impact of their efforts. Take, for example, the stories of how companies like Baxi, Kaer, and Schneider Electric have introduced As-a-Service offerings to replace their historical transactional models.
But while there’s inspiration and wisdom to be gained from triumphs like these, there’s also value in understanding the trials – what is preventing companies from succeeding?
It helps to understand the complexity that exists around service innovation. When we’re talking about bigger-picture, disruptive innovation we’re typically referring to a company that has a long history with a particular business model looking to completely reinvent the way it goes to market, sells, and services. It’s not only an identity shift but also a process that in many ways goes against the momentum of the “machine.”
I’ve recently had the pleasure of connecting with two innovation thought leaders that I’ve learned so much from – Frank Mattes, author, advisor & founder and CEO of Lean Scaleup and Dan Toma, award-winning author of the Corporate Startup and Innovation Accounting, and co-founder of innovation advisory firm OUTCOME. Frank and Dan both cover different perspectives and have so much knowledge to explore – they are both worth a follow.
From my handful of conversations with them, I have put together a list of 10 reasons that service innovation fails. This isn’t an exhaustive list, by any means, but it gives you some cautionary points to be aware of and consider.
#1: Companies Ambiguously Define Innovation
“Innovation is the creation of new value,” says Toma. “Digital transformation is around keeping existing business models and processes valuable in the digital age, which improves customer satisfaction and lowers operational costs. Confusion comes in because companies think innovation is a one size fits all type of word, but one of the big lessons learned for us is that when you want to start doing innovation, the first thing you need to do is to define what innovation means for your organization.”
There are different ways to define innovation, but one thing that tends to happen is that a company wants the benefits of bigger, more disruptive innovation from the efforts of more incremental improvement. Digital transformation is one example of more incremental improvement – it, in and of itself, isn’t changing the core business, but rather improving upon it. Yet companies expect that once they’ve invested in digital transformation, they’ll see the results of bigger innovation – which is only possible if that investment is used to drive further change in the business, aka disruptive innovation.
“Innovation is a game that you play three to five years in advance,” says Mattes. “I define innovation as capturing the value from meaningful insights via new offerings that change the order of things. It’s not about ‘new stuff’ – it’s about value, and value is defined by the customer. It’s also about capturing the value or collecting the dollars and the cents of that value. The last point, new offerings that change the order of things, means new business models, new go-to-market strategies, etc. We are talking about big steps here. Changing the order of things, thinking outside of the box, if you will. If it’s in the box, if it doesn’t change the order of things, and then we have incremental innovation.”
#2: Companies Fail to Realize Service Innovation = Business Transformation
Within our audience specifically, one of the issues we see is that companies think they can innovate within service as a silo. While this is possible, incrementally, in the form of service transformation, if the company desires the more disruptive innovation of a shift like Servitization or moving to an As-a-Service model, the conversation changes. At this point, it becomes critical to reconcile the fact that what we’re really talking about is business innovation – not service innovation. This means that it’s a journey for the entire organization, not for service alone.
What today’s customers are demanding from companies are outcomes, guarantees, peace of mind – and that is a different way of doing business than transactional service. This is prompting companies to examine the layers of business transformation needed to evolve fully to a new value proposition. Aspects like go-to-market, financing and revenue recognition, sales and marketing, customer success, and many more arise as a part of bigger-picture service innovation.
#3: Companies Expect Operational Talent to Lead Innovation
I’ve seen pressure on service leaders to juggle both the needs of the day-to-day business while creating a strategy for innovation. Not only is this an impossibly tall order, but it also often isn’t realistic to ask your operational talent to think as creatively as necessary for true innovation.
“The skill that you need for digital transformation, the capabilities you need for digital transformation are not going to be sufficient once you’re trying to innovate. Let alone the talent. If you are trying to hire somebody and that particular person has an amazing track record of helping organizations digitally transform, they’re not going to be the right person for disruptive innovation. You need different skillset, different personalities. This is another reason it is important to make the distinction before you start investing,” says Toma.
Mattes explains the importance of each type of talent, as well as the degree to which overlap is needed, by segmenting into “red shirts” and “blue shirts.” This terminology was born of the book Blue Ocean Strategy, published in 2004 and written by W. Chan Kim and Renée Mauborgne, which describes a new market with little competition versus the “red ocean” of cutthroat competition. “As we consider innovation, it’s helpful to say the day-to-day operations are the people working in the red oceans or what I call the ‘red shirts.’ Those working to find new value pools, they are the ‘blue shirts.’ You need both. You need to own the business NOW and in the future in the NEW,” explains Mattes. “One is not good and the other bad, they are both important. They are living in different systems that were designed for different purposes. So, we come to that million-dollar question in the truest sense of the word: how do we make them work together?”
#4: Companies Narrow Their View of What’s Possible
Another stumbling block of innovation is that companies unintentionally, even subconsciously, limit their perspective of what is possible. This can be habitual, rooted in legacy, a factor of long-term talent, sticking with examples only within one’s industry, or a variety of other reasons. To embrace disruptive innovation, we must be more comfortable thinking out of the box – often this can be prompted by expanding your perspective and seeking inspiration beyond your own industry.
“I think of some work I’ve done with a 150-year-old insurance company out of Germany where the head of the innovation lab was tasked to think beyond core and to build the insurance of the future,” retells Toma. “The problem for him was that despite the new lab that he had, the new processes that he used, all the thought leadership that he brought in, HR was only hiring people that had insurance written on their CVs. People that worked with other insurers in the region, sometimes even brought them from abroad. And he said, ‘I can’t innovate with these people, because these people can only think insurance in the way that insurance has been for the last 100 years. I need to have people that come from automotive. I need to have that come from the music industry, from entertainment, from travel, people that think differently about insurance, because they don’t have that legacy.’”
If your objective is disruptive innovation, often fresh perspective is incredibly important.
#5: Companies Attempt to Define Value (Versus Accepting that Value is Defined by the Customer)
If you aren’t innovating from the outside-in, you’re taking incredible risk in missing the mark. Your customers’ needs should dictate where you focus your efforts. This doesn’t mean your customers know exactly what they want or need five years from now – it usually isn’t as easy as simply asking. You will need to be creative and determine what value will hit the mark in three or five- or ten-years’ time – but the point is, it should all be centered around their challenges, opportunities, and needs.
“So many organizations are building it backwards from what we were used to doing in the outside world, in the startup scene,” says Toma. “Essentially, they were starting from a business plan. Financing the whole thing based on this plan and then after six months, they would put a prototype in the hands of a customer only to learn that it doesn’t work.”
This type of inside-out innovation is costly and can deter a company from future innovation because rather than the particular approach being deemed a failure, the overall effort is categorized as such.
Stay tuned next week for part two!