Get the balance right! • 2
Before diving into the intricacies of innovation portfolios, we need to expand the scope of innovation beyond the unimaginative, product-centric definitions of innovation that merely pay lip service to services. Let’s do this by unpacking three tensions in service innovation. The second one is covered below.
Tension 2: Innovation for value creation vs. innovation for value facilitation
Service providers need to get the balance right between investing in innovation for value creation and investing in innovation for value facilitation. This is ultimately about empowering customers to create value and empowering employees to facilitate that value creation. (If this feels a tad too commercial, simply replace ‘customers’ with passengers, guests, patients, residents, citizens, clients, etc.)
Value co-creation is a relatively new paradigm in the domain of innovation, management, and marketing. Multiple theoretical perspectives on value co-creation compete for attention (Galvagno & Dalli, 2014); for the purpose of this blog post, I will use Christian Grönroos’ rather pragmatic perspective (2011) to capture the fundamentals of (and differences between) value creation and value co-creation:
Reciprocal value creation is the fundamental basis of business, with service as a mediating factor.
The service provider is fundamentally a value facilitator. The provider is in charge of its own production process, where resources for customer use are designed, developed, manufactured, and delivered without direct interactions with customers.
The customer as the user and integrator of resources is a value creator. Value-in-use means that value is created by the user for the user (and is the one who determines whether value emerges or not).
Co-creation of value only takes place in service encounters (interactions) between the service provider and the customer. In other words, co-creation of value emerges when the customer is engaged in the production process as co-researcher, co-developer, co-designer, co-producer, co-marketer, and so on.
Needless to say, interactions between the service provider and the customer may also have a negative impact on the customer’s value creation process (i.e., value destruction).
By supporting and facilitating the customer’s value creation process, the service provider can gain financial and non-financial value in return.
Based on Grönroos (2011), I have teased out eight opportunity areas for service innovation:
New/untapped sources of value creation (as identified by underserved/overserved customer needs, segments, markets, geographies, etc.)
New/improved value propositions and customer offerings (core products and supplementary services)
New/improved pricing strategies, profit models, risk-sharing schemes, incentive programs, etc.
New/improved ways to enable and empower customers in their value creation processes
New/improved ways to entice, engage, and empower customers and employees in value co-creation
New/improved ways to enable and empower employees in value facilitation
New/improved ways to produce resources and facilitate customer value creation
New/improved ways to continuously learn, improve, and innovate
The eight opportunity areas can easily be tagged to the four elements of a business model (who, what, how, why), the three layers of the Golden Circle (why, how, what), the two dimensions of dual transformation (what we do, how we do it), and the five questions in the play-to-win strategy (e.g., where will you play, how will you win) (Gassman et al., 2014; Sinek, 2009; Gilbert et al., 2012; Lafley & Martin, 2014).
In my next blog post, I will unpack the third tension in service innovation.
References
Galvagno, M. & Dalli, D. (2014). Theory of value co-creation: A systematic literature review. Managing Service Quality, 24(6), 643–683.
Gassman, O., Frankenberger, K. & Csik, M. (2014). The business model navigator. FT Publishing.
Gilbert, C., Eyring, M. & Foster, R. (2012, December). Two routes to resilience. Harvard Business Review.
Grönroos, C. (2011). Value co-creation in service logic: A critical analysis. Marketing Theory, 11(3), 279–301.
Lafley, A.G. & Martin, R. (2013). Playing to win: How strategy really works. Harvard Business Review Press.
Sinek, S. (2009). Start with why – how great leaders inspire action [Video]. YouTube. TEDx talk.
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