Radical Service Innovation

Strategies on the frontiers of service design demand a blend of creativity and discipline. Here are five steps to leverage positive results

To compete in the marketplace and maintain relevancy, service companies need to innovate constantly. But while there is a desire to innovate, actually getting new services to market is rare, and what we call radical innovation—new services that dramatically change the marketplace—is even rarer.

When asked about the pathway to radical innovation, service company executives will also tell you that ideas are a dime a dozen. What's more important is the execution: the alignment of the right idea, the right team, the right development process, the right leadership, the right level of risk management, the right target, the right time to market, and so on. Innovation is not just a matter of "Aha" ideas. It is rather a process that requires a disciplined approach to rigorously identify and execute the most promising ideas. Here is a five-step framework for implementing innovation projects successfully.

1. Develop insight about the market

Develop insights about customers, the business, and technology in parallel. Simply observing customers may not be enough to drive the kind of innovation that changes markets. Inspiration can come from many areas, so be as insightful as you can about alternative business models, market landscapes, and operational and technology infrastructure. Innovations will come from the union of these perspectives and will be successful when aligned with customer needs.

Develop frameworks that clearly describe the "pain point" and the opportunity space. What you do with market insights is more important than the insights themselves; too often, companies don't take advantage of their full potential. Excitement over customer insights alone can lead teams to jump the gun and start brainstorming service solutions that solve only specific issues. This tends to result in incremental service improvements rather than the more substantial leaps the team is looking for.

It takes time for a team to immerse itself in the nuances of a problem. But it's critical to take that time to develop meaningful frameworks that can structure ideation. A team knows it is ready to move on to ideation and prototyping when it sees an opportunity for a radically different way to serve customer needs.

2. Create radical value propositions

Radical innovation is about acquiring new customers and tapping underserved markets, as well as retaining those people once they become customers. Giving people a reason to try your service in a crowded marketplace requires going a step above what they experience with their current service. And if what you are offering is a new class of services—think Zipcar, for example—then you'll have to help your customers recognize the value of trying something new. Sometimes, radical services fill an obvious gap in the marketplace—think Google (GOOG) 411 and SMS information services. At other times, they help steer markets in new directions by capitalizing on existing but fragmented behaviors—think Apple's (AAPL) iPod and iTunes.

Prototype extreme service propositions early to stretch the organizational mindset. Quick, low-cost mockups allow emerging ideas to be expressed, explored, modified, and shared with customers, experts, and stakeholders in a very tangible and emotive way. They encourage informed decision-making more than a paper description could ever do, and they encourage the idea to continually evolve. Since they often deal with the intangible, service ideas may also require simulation or even the acting out of a scenario. For example, simulating a customer's experience of interacting with a service can be an invaluable tool.

Experience prototypes that look like and behave like, but are not built like, the innovative new service allow a diverse range of customers, as well as stakeholders (those involved with brand, marketing, technology, customer care, delivery, and so on), to engage with and build on the new service from their specific perspectives. A good prototype will prompt questions around consumer desirability, business viability, and technical feasibility.

3. Explore creative service models

Innovations that have the ability to change the marketplace usually require radical or fundamental changes within an industry, as well as creative solutions to make these new service offerings viable from a business perspective and feasible from a technology perspective.

Challenge the existing operational realities. Successful innovation requires business and technology team members to be as creative as their design counterparts—think of Google's service model, which allows it to monetize offerings through ad revenue without compromising the value provided by the service. It is critical to remember that the success of these offerings rejuvenated the advertising industry, which was not showing too much promise at the time. Facebook is still refining how it will use information about users' interests and activities to support highly targeted advertising, and it hopes to offer a similarly revolutionary ad scheme as Google did with AdWords.

Champion customer desirability as the reality of viability and feasibility are considered. It's easy to revert to traditional benchmarks and models, but doing so dramatically reduces the innovation from radical to incremental. Championing the desirability of an innovation forces the organization to build new constructs that will nurture radical innovations. And this is not an easy task.

4. Bend the rules of delivery

Get permission to fail. Radical innovation is risky in the sense that getting it right the first time, every time, is highly unlikely. Companies should expect failure as a part of the innovation process. Teams need to have buy-in from leaders so that they feel confident trying new service concepts that have many unresolved questions. Teams that are afraid to fail make radical innovation, by definition, impossible. Set up for successful experimentation by getting buy-in from leadership, and then use that buy-in to get permission to fail.

Design new metrics for measuring success. Rules about metrics can be a huge barrier to innovation. This is especially true within service organizations that have adopted Six Sigma methodology. Funding guidelines that work well for the evolution of incremental improvements to services are often at odds with the scale and ambiguity of radical innovation. Radical service concepts may not have a business case that meets Six Sigma guidelines; waiving those criteria can open up opportunities that would normally be squelched. Innovation efforts are likelier to be successful if they are funded and measured separately from the rest of the organization.

5. Iteratively pilot and refine the new service

Radical innovation is inherently risky as it involves new-to-the-world offerings. Piloting a service is the best way to manage this risk—before it is scaled. But most service organizations are paranoid about exposing their intent to the market. Therefore, they are reluctant to pilot in order to protect their first-mover advantage. That reluctance needs to be balanced against the advantages that pilots offer in informing investment decisions.

Don't wait for the service to be perfect; get comfortable with beta. Radical innovation is fundamentally based on evolving customer behaviors and market trends. These changes are hard to predict accurately, and the success of a service can hinge upon a small nuance that is hard to pinpoint unless it is highlighted in a pilot. A works-like prototype can be easily piloted on a small scale to drastically reduce development cost, and it allows for iterative refinement that is critical to risk management.

The market landscape for services is evolving constantly and rapidly. Both the market and customers expect nimbleness when it comes to innovative services. Frequent and radical innovations are key to being relevant in such a landscape.

Read a case study of IDEO's work with 1st Source Bank in Indiana, which resulted in a brand new banking paradigm.

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