Service Innovation: (Having a) Meeting with Customer Needs

Vast number of new service concepts fail (> 4 out of 10), because they are build first and then introduced to the market (Bettencourt, 2010). The focus should be another way around and shifted away from the service solutions and back to the customer. Rather than asking, “How are we doing?” companies must began asking “How are the customers doing?

The key questions in service innovation are “How the customers define value?” and “How the companies approach customer needs?”. Outcome-driven innovation is an innovation philosophy and process built around the understanding that people “hire” goods and services to get jobs done (Bettencourt, 2010). By concentrating on these jobs, companies are capable of creating services beyond traditional services. For example when a person opens a bank account, creates a budget etc. the fundamental job is managing day-to-day cash flow. Service innovation in this case would be to create service to help the customer manage cash flow on daily bases. Creating a tool to help the customer make a budget in an easier and better way would not be service innovation but service development.

“.. most management teams fail to distinguish between service innovation and service development. Service innovation is the process of devising a new or improved service concept that satisfies the customer’s unmet needs. Service development, in contrast, occurs once a service concept has been devised.” (Bettencourt, 2010).

Four approaches to service innovation

Customers often measure service success by its ability to minimize something, whether it’s reduced time, variability or deviations from the ideal output. In the book Bettencourt defines four approaches to service innovation, each of which involves a slightly different approach to doing that: new service innovation, core service innovation, service delivery innovation and supplementary service innovation (Figure 1). For companies there is no reason to focus just on one approach nor it always is possible because of being able to get the core job done company might have to hire or/and discover other jobs.

Figure 1 Approaches to Discovering Service Innovation Opportunities
(Bettencourt, 2010)

Creating value with service strategy

“An effective service strategy spells out who the target customer is, what customer needs the service satisfies, and what the important elements of the service concept are.” (Bettencourt, 2010).

Bettencourt writes that a service strategy defines the position a company wants to occupy with its service. It should be valuable to customers and well differentiated from the competitive offerings. Great service strategy brings value to customers, company and service providers and it has to take into account the perspectives of the customer, the company, and the competition.

Successful service strategy is built with four steps: (1) choosing right innovation focus (as introduced above), (2) mapping the customer needs, (3) prioritizing them and (4) developing effective service strategy (Bettencourt, 2010).

Bettencourt suggests that idea generation teams should consist of people from different sides of the company to ensure all aspects are considered. He also reminds that wild scattershot brainstorming has to be avoided, because it creates hundreds of useless ideas instead of handful of useful ideas.

Critical part of the service strategy is service concept, which describes the important elements of the service design from marketing, human resources, operations and IT-perspective and the important elements of the service delivery system (Bettencourt, 2010).

Even the best service concept is worthless, if company is unable to deliver service in a profitable manner.  Failure can lead to loss of investment, loss of customer goodwill and weaken the brand image (Bettencourt, 2010). Delivery process is crucial.

The key to deliver the service in consistent and profitable manner is employees. They are internal customers who rely on the solutions provided by the company in order to provide service for the customers. If the internal customers are doing well, external customers will benefit as well (Bettencourt, 2010).


The book offers systematic approach to create successful service innovations, but it is not the easiest book to digest. We would say it is recommendable book especially for those who are seeking a practical guide to create successful service innovations. Although it might not be the easiest, but it rewards the reader with deeper knowledge of the service innovations.

 Some steps to create winning service innovation strategy:

  • Find out systematically what your customer wants. Do not spend time and money on service innovations that your customer is not interested of or is already satisfied with
  • Build service innovation team. Make sure all the aspects of your service are covered. Stay focused. Don’t fall into the trap of wild scattershot brainstorming. Choose the ideas that are most important to your customers.
  • Do you have what it takes? Make sure your company has the needed resources to deliver your service promise.

Text by Laurea SID students: Markus Saks and Erkki Salo.


This blog post was created as an assignment in SID course New service development and innovative service systems.

Bettencourt, L. A. (2010), Service innovation: how to go from customer needs to breakthrough services, McGraw-Hill, New York.

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