The Role of Customers and Business Support Organizations in Innovation

By Lauri Kuljus and Mari

The Handbook of Innovation and Services: A Multi-disciplinary Perspective, edited by Gallouj & Djellal, brings together 49 international specialists to discuss innovation as it relates to services. This handbook investigates the role of innovation in services from a variety of directions and provides a good source of comprehensive reference material on this field.

Out of the many topics discussed in the book we chose to look at innovation from a company point of view. First we identify the background on what is innovation in services, then discuss the impact of innovation on the start-up service companies, and conclude with the importance of involving customers in innovation process.

How to support innovation?

Marie-Christine Monnoyer-Longé (ML) defines innovation using the definition of the third edition of the Oslo Manual of OECD as: “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations”.  ML suggests the chambers of commerce and government should highlight the benefits of a competitive business to a local economy. In such an innovative start-up program called Reliantis operating in Toulouse they realized that more research was needed about the essence of innovative service firms and the types of help they needed. It was identified that further study was needed on the following topics:

1. Analysis of the business links between new business services and local development
2. Service innovation process and
3. Analysis of the start-up support process.

Impact of Innovation in Business Services on Local Development

In analyzing business services within the context of local development, the local statistics show that 73-100% of companies from cleaning to telecom industry were purchasing business services in the first years of the current century (SESSI, 2007). The share of business services in the European national economies is said to be increasing steadily (Rubalcaba and Kox, 2007). Further studies say 75% of outsourced services are provided by regular, mostly local suppliers (Monnoyer and Zuliani, 2007; Spath and Ganz, 2008). Another study identifies several benefits of innovative services to industry:

• Improved organizational efficiency including interdepartmental coordination
• Improved hiring, training and use of manpower and
• Improvements to specific tasks and operations (Rubalcaba, 1999).

Start-up Support Process

In identifying ways of improving the start-up support activities provided by programs like Reliantis, ML concluded that such a process should include an R&D platform, services should be developed according to the functional phases of services described on Figure 1 and the usage of a diagram of innovation pathways would be a good tool to identify sources of innovation and the strength of the connection with market demand.

Involving Customers in Design Process

In the book, the active role of customers in service innovation process is discussed from many different angles. Edvardsson, Gustafsson, Kristensson and Witell have studied the importance of customer involvement and in this book they address among other things the relationship between the cost of customer involvement and the financial performance of the company.

This is a dilemma, which many service designers are faced with: How to convince managers that customer involvement pays off? Edvardsson et al. acknowledge that there is need for future research in this field, but the studies conducted so far strongly support the claim that involving customers in service innovation process has significant business potential not only for service companies, but also for public service providers and manufacturing companies. We’ll come back to that a little later, after first discussing different ways of involving the customer.

Customer involvement can be defined in various ways. According to Edvardsson et al. it means “being proactive and getting close to the customers in order to learn from and with them beyond what traditional methods such as focus groups, observations, questionnaires and interviews can provide”. In literature, there are also different views on customer’s role in service innovation. Edvardsson et al. suggest a gradually changing view to the customer, ranging from the customer as a buyer, subject of interest, or provider of information to customer as a co-developer and developer. Now let’s go through these complementary views in little more detail.

1. In the most passive end of this scale, the customers are merely seen as buyers and passive recipients of a new service. The company may have a technology-push belief, or they may believe that service innovation is driven by their own ideas or capabilities, created in absence of actual customer needs.
2. When customers are viewed as subjects of interest, an organization uses passive and often rather negative information, such as customer complaints, as a basis for their service development work. The company is passively waiting for feedback, often stuck in day-to-day activities, and has great difficulties in creating service innovations.
3. Some companies see their customers as providers of information. Traditional marketing research techniques are often used and almost-finished prototypes are tested with customers. The company may claim that this is a form or co-creation with customers, but Edvardsson et al. argue that is not the case, because major part of the development work has been conducted without customer participation and the customers only speak when spoken to.
4. When customers are seen as co-developers, there is a change in their role from being reactive to proactive contributors in the process. Companies and customers have joint roles in shaping expectations and co-creating market acceptance. Successful innovations come from matching technical knowledge with knowledge about usage, and thus the user represents a substantial part of the knowledge that is crucial for innovation.
5. And finally, customers can be seen as developers, where customers take over the responsibility of service innovation. This can be a rewarding strategy since costs of service innovation for the company are low to non-existent, but there are also risks related to it.

The two most active roles (co-developer and developer) truly count as co-creating with the customers, which the authors show through examples to be fruitful and profitable. They list a number studies reporting on benefits of customer involvement, ranging from improved service performance to better business performance, and from competitive advantage through organizational learning to improved public relations – just to name a few. And according to them, there is a clear trend in many industries – and especially among the leading and successful companies – to come closer to their new and existing customers. But as stated before, there is a need for further research on this area.

Edvardsson et al. conclude, that customer involvement can “provide useful and critical information to make sure that the resulting new services will be wanted, chosen and preferred”. However, it does not guarantee commercial success, but can and should be considered as one important success factor in a service-driven economy.

Is your business’ service innovative enough to stay competitive? Does your company involve customers in service development? How do you innovate?

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This blog post was created as an assignment in SID course New Service Development and Innovative Service Systems.

References

Book: The Handbook of Innovation and Services: A Multi-disciplinary Perspective (2010), Gallouj F. & Djellal F. (eds.), Edward Elgar Pub, Northampton, MA.

Text references:

• Gallouj, F. (1999), “Les trajectories de l’innovation dans les services: vers un enrichissement des taxonamies evolutionistes”, Economies et societies, serie Economie et Gestion des Services, 1(5), 143-169.
• Monnoyer, M.-C. and J.M. Zuliani (2007), “The decentralisation of Airbus production and services”, Service Industries Journal, 27 (3-4), 251-262.
• Rubalcaba, L. (1999), “Business services and the European industry: growth, employment and competitiveness”, Brussels: Commission of the European Union.
• Rubalcaba, L. and H. Kox (eds) (2007), Business Services in European Economic Growth, London: Palgrave MacMillan.
• SESSI (2007), Enquete recours aux services par les entreprises industrielles en 2005, Paris: SESSI.
• Spath, D. and W. Ganz (2008), The Future of Services, Munich: Hanser.