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Int. J. Technology Marketing, Vol. 8, No. 2, 2013 159

The service innovation triangle: a tool for exploring

value creation through service innovation

Peder Inge Furseth*

Department of Innovation and Economic Organisation,
BI Norwegian Business School,
Nydalsveien 37, 0442 Oslo, Norway
E-mail: peder.i.furseth@bi.no
*Corresponding author

Richard Cuthbertson
Saïd Business School,
University of Oxford,
OX1 1HP, UK
E-mail: richard.cuthbertson@sbs.ox.ac.uk

Abstract: This paper provides a new framework for service innovation based
on an extensive literature review, semi-structured interviews with some of the
best known thinkers and practitioners in the field of innovation, as well as
supported through case study analysis, in order to identify the components of
service innovation and their interrelationships, especially with respect to
creating value through the innovative management of business models, service
systems and the resulting customer experiences. The result of this research is
the service innovation triangle, a simple but rich model, consisting of nine
integrated elements in three layers. The service innovation triangle can be used
by firms to explore innovation opportunities for themselves, customers, and
suppliers, as well as providing a foundation for future research in the area of
service innovation.

Keywords: service innovation; tool; value; business model; service system;

customer experiences; people; technology; core assets; marketing.

Reference to this paper should be made as follows: Furseth, P.I. and

Cuthbertson, R. (2013) ‘The service innovation triangle: a tool for exploring
value creation through service innovation’, Int. J. Technology Marketing,
Vol. 8, No. 2, pp.159–176.

Biographical notes: Peder Inge Furseth is an Associate Professor at the

Department of Innovation and Economic Organisation at the Norwegian
Business School in Oslo. He has spent more than 15 years identifying
innovative value and differentiation in markets. In particular, his innovation
work focuses on business models, organisational cultures, multichannel
services and value creation. He has presented innovation seminars and
workshops for over ten years in Oslo, Oxford and the San Francisco Bay Area.
He is also responsible for the content at http://www.bi.edu/serviceinnovation
and the VDSI activities on LinkedIn and YouTube.

Copyright © 2013 Inderscience Enterprises Ltd.

160 P.I. Furseth and R. Cuthbertson

Richard Cuthbertson is the Research Director of the Oxford Institute of Retail

Management at the Saïd Business School, University of Oxford, where he is
a Senior Research Fellow. His research interests focus on how the society,
economy and the environment are influenced and changed by service providers.
In particular, his research has focused on the extent to which service innovation
and customisation through information and new technologies can be efficiently
leveraged in a mass market, leading to improved customer experiences.

This paper is a revised and expanded version of a paper entitled ‘The service
innovation triangle: a tool to create value through innovation’ presented at
XXIV ISPIM Conference in Barcelona, Spain on 17–20 June 2012.

1 Introduction

When a service company innovates, it will not be long before others copy. When a
product company innovates, it will take a while and then someone is sued. Service
innovations are not protected in the same way that product innovations are protected. The
only protection for a service company is to keep on moving, to embed innovation as an
integral part of the management process. This paper aims to identify the key business
components that need to be managed accordingly. While some business models do exist,
these tend to be incoherent, incomplete or inconsistent. There is no single integrated tool
that covers all of the key aspects of service innovation. This paper aims to identify the
components of a model for service innovation and their interrelationships.

2 Approach

There has been a considerable growth in developing service innovation theory in the last
decade. Some examples of this are Vargo and Lusch (2004), Vence and Trigo (2009),
Gallouj and Djellal (2010), and Ostrom et al. (2010). However, researchers still start from
the absence of an agreed model of service innovation (Howells, 2000), and have
struggled to explain practical developments. Hence, our main research question: What are
the commonly agreed elements that contribute to successful service innovation?
Furthermore, how do those elements interrelate?
One of the challenges of the service innovation field is the multi- and
inter-disciplinary nature, hence, the need to draw on a wide variety of rich sources. This
early stage research is based on three qualitative comparative studies. The first
comparative study reviews the literature on existing models of the firm for innovation.
The aim is to discuss the common elements and differences in order to identify key
elements. The second study is a small comparative study to confirm the findings of the
literature review, as well as compare and contrast theory and practice. This primary
research considers the views of distinguished academics and practitioners of service
innovation. The third comparative study of case studies aims to explore the key
relationships between the agreed elements.
The first comparative analysis comprises a literature review that aims to identify
commonalities and differences in the theoretical business models employed in the field of
service innovation. This provides a starting point for the subsequent analysis. While the
 The service innovation triangle 161

analysis does not claim to be exhaustive it does highlight the current lack of a common
framework for service innovation.
Table 1 Semi-structured interview questions

Personal questions
Interviewer says: We will start with asking you some questions that reflect your personal view
and thinking about innovation.
PQ1: Please tell us what you currently work with, and how this is related to innovation.
PQ2: How do you define innovation?
PQ3: How do you define value?
PQ4: What is your strongest contribution to the field or practice of innovation?
PQ5: How does this help change people’s lives?
General questions
Interviewer: We will now proceed with some questions that are about innovation in general.
GQ1: What is most important for innovation to succeed?
GQ2: Which failure is most serious in innovation?
GQ3: Which have been the three most innovative companies globally the last 3 years?
GQ4: Who have been most influential in your thinking about innovation?
Statements
Interviewer: Please rate the following 11 statements in terms of importance for companies
today. Then we will talk about those three or four statements that you find the most important.
ST1: “Successful innovation is driven by the value created.” (Furseth et al., 2011)
ST2: “All businesses are service businesses.” (Vargo and Lusch, 2004)
ST3: “A better business model often will beat a better idea or technology.” (Chesbrough,
2007)
ST4: “Involve design thinkers at the very start of the innovation process”. (Brown, 2008)
ST5: “Ultimately, it is the customers who define the value of innovation.” (Furseth et al.,
2011)
ST6: “Both customer and competitor orientation can be successfully used to develop
innovative products and services”. (Grinstein, 2008)
ST7: “Through innovation and growth, firms can do untold good for society.” (Ahlstrom,
2010)
ST8: “The strategic role of the supplier is to support the customer’s value creating
processes.” (Ballantyne and Varey, 2008)
ST9: “Service innovation starts with culture”. (Berry et al., 2006)
ST10: “The success of an innovation depends on your ability to mobilize your network.”
(Hargadon, 2002)
ST11: “When an established logic for satisfying consumer needs is overturned, the business
model must change too.” (Teece, 2010a)

The second comparative study comprises semi-structured interviews with both academics
and practitioners. The aim of this analysis is to validate the common elements identified
in the literature review, as well to identify any missing elements. This analysis may also
point towards differences of opinion the two distinct viewpoints of theory and practice.
This primary research compares the thoughts of leading academics in the field, notably:
David Teece, Director of the Institute for Business Innovation, Professor of Business
Administration, and holder of the Thomas W. Tusher Chair in Global Business, Haas
162 P.I. Furseth and R. Cuthbertson

School of Business, University of California, Berkeley; Stephen Vargo, Professor of

Marketing, Shidler College Distinguished Professor, University of Hawai’i at Manoa; and
Henry Chesbrough, Executive Director, Garwood Center for Corporate Innovation,
Adjunct Professor, Haas School of Business, University of California, Berkeley, with
leading practitioners in the field, notably: Jose Avalos, Director of Visual Retail, Intel;
Jon Pittman, Vice President Corporate Strategy, Autodesk; and Erik Kiaer, Specialist
Leader, Monitor Deloitte. The questions are listed in Table 1 and are based on the
literature review. The interviews are segmented into three sections. The first section asks
some personal questions to relax the interviewee and understand their definition of core
concepts such as innovation and value. The second section covers general questions on
the success and failure of service innovations and example companies. The final section
plays back statements from the literature review in an attempt to further validate the
different elements identified in the literature review comparative study.
The case studies in the final comparative analysis comprise a longitudinal analysis of
pairs of successful and failing (or failed) cases within the same or similar sectors, thus
allowing for a deeper analysis of the complex interrelationships (Eisenhardt, 1989;
Weick, 2007; Yin, 1994). This analysis is based on secondary data, and supported
through primary research to confirm the analysis. The pairs of case studies are: Apple and
Nokia mobile phones; Tesco and Sainsbury’s supermarkets; Xerox and Kodak
technology products and services; Amazon and Borders book retailing; Facebook and
MySpace social networks. Two of the paired case studies are portrayed in more depth to
highlight the main conclusions. The case study analysis includes a variety of sectors
based around a different product-service utility focus in a range of physical-digital
distribution settings, as illustrated in Figure 1.

Figure 1 Sector focus of comparative case studies (see online version for colours)

Note that some of the cases may be considered product rather than service firms.
However, Vargo and Lusch (2004) argue further that goods are now dominated by the
service elements. This service centred view implies that marketing is a continuous series
of social and economic processes that is largely focused on operant resources with which
the firm is constantly striving to create better value propositions than its competitors.
Overall, this qualitative and comparative approach to the research is adopted in order
to reflect the complexity of service innovation, as well as the rich variety of potential
 The service innovation triangle 163

explanations for success or failure. The research presented here is clearly limited by this
approach in that it can only begin to describe this complexity and so move us towards a
better understanding of service innovation. This research does not seek to explain such
complexity but instead aims to provide a broad framework for future analysis.

3 Service innovation business models

A literature review highlights that there are many authors that discuss business
models in relation to service innovation, including: Johnson et al. (2008), Baden-Fuller
and Morgan (2010), Casadesus-Masanell and Ricart (2010), Chesbrough (2010, 2011),
Johnson (2010), McGrath (2010), Osterwalder and Pigneur (2010), Teece (2010a,
2010b), and Zott and Amit (2010).
However, definitions of a business model are varied and often all encompassing,
leaving the manager with little idea as to how to embed innovation within this context.
“The essence of a business model is that it defines the manner by which the
business enterprise delivers value to customers, entices customers to pay for
value, and converts those payments to profit.” [Teece, (2010a), p.172]
“The business model is a useful framework to link ideas and technologies to
economic outcomes… At its heart, a business model performs two important
functions: value creation and value capture.” [Chesbrough et al., (2006), p.108]
“Whereas innovation is more typically seen in the form of a new product or
service offering, a business model innovation refers to the creation, or
reinvention, of a business itself. A business model innovation results in an
entirely different type of company.” (Johnson, 2010)
“A business model describes the rationale of how an organisation creates,
delivers, and captures value. This could be economic, social or other forms of
value.” [Osterwalder and Pigneur, (2010), p.14]
Regardless of the author, common to these definitions is a focus on value: delivering,
creating, and capturing. Even if definitions of business models vary, there is some
commonality of elements but also some differences.
Through an analysis of the business model frameworks, it is possible to identify the
comparisons and contrasts. An analysis of the four most comprehensive business models
are shown in Table 2.
All of the business model frameworks consider value to be the key driver of service
innovation. The value of any innovation lies in the value created. However, value is a
complex concept. Even in simple terms, for example, where a commercial organisation
pursues only economic goals, values may still vary. For some organisations, the value is
in market share; for other organisations, the value is in profit; for others, turnover is the
key metric and so on. The successful service firm delivers the relevant value.
While these frameworks generally focus on value in commercial terms, all discuss
value in other forms. This implies that the same model could be used in non-commercial
situations where value may have a greater social or environmental rather than economic
utility. With knowledge, both individuals and firms will trade-off such values. For
example, does a customer choose a cheaper service in preference to a more socially
inclusive service?
 164

Table 2

Author
Elements of Chesbrough Teece Johnson Osterwalder
the framework
Value Value proposition Determine benefit to the Customer value Value propositions
customer from proposition
using/consuming the
product/service
Commercial or business model Cost structure and profit Confirm available revenue Profit formula, consisting Revenue streams and cost
potential value streams of revenue model, margin structure
network/ecosystem linking model, resource velocity.
P.I. Furseth and R. Cuthbertson

suppliers and customers

Customer Identify a market Identify market Customer value Customer
experiences segment segments to be targeted proposition segments customer
Comparison of business model frameworks

relationships
Service system Value chain to create and Design mechanisms to Key processes that allows Channels and key partners
distribute the offering capture value the company to deliver
value in a repeatable way
Technology Select technologies and
features to be embedded in
the product/service
Key resources and strategic Competitive strategy to Key resources Key resources
capacity gain advantage
 The service innovation triangle 165

In any event, in both commercial and non-commercial situations, there may also be a
difference between the payer and the user. So, in a supermarket the shopper pays while
the shopper’s family might consume. Similarly, in the healthcare sector, a patient may
use services paid for by government. In most cases, the service tends to focus on the point
of direct contact, i.e., the paying customer or the user of the service.
Ultimately, value is dependent upon the perspective of each actor involved. One
supplier may value entry into new markets while another supplier values volume to build
economies of scale. Similarly, one service firm may value revenue generation, while
another firm values profits above all else. Likewise, one customer may value the speed of
service, and another customer may value the minimal environmental impact of the
service. So, a wide range of potentially disconnected values may exist. It is the
commercial business model that attempts to align these potentially disparate values to
create the overall value proposition.
While value creation is the ultimate goal of the firm, sustainable value creation
requires that value is created for everyone involved: the customer, the service provider,
the supplier, all the stakeholders. In the frameworks under consideration, all imply that
service innovations require all stakeholders to gain over the long-term for the
interrelationships to be sustainable. However, the customer tends to be the initial focal
point for driving value, especially in the business models provided by Johnson (2010) and
Teece (2010a).
Therefore, it is assumed that successful innovation depends upon the ability to
provide added value through a relevant customer experience. The customer experience
represents all of the outcomes necessary for customers to ‘feel’ the desired effects of
innovation. Note that there will be many customer experiences as this is dependent upon
the differing perceptions of individual customers. In a mass market, the total market is
segmented into similar groups of customers and their relevant experiences, as made clear
by Osterwalder and Pigneur (2010), Teece (2010a) and Chesbrough (2010).
The service system represents all the activities necessary to deliver an innovation.
This will typically include existing as well as some new activities. Note that the service
system is singular. In order to gain economies of scale, a single service system needs to
deliver a variety of customer experiences to different segments of the mass market.
Moreover, as Johnson (2010) stresses, this service system needs to deliver consistently,
time and time again.
While all the frameworks for innovation under consideration make reference to
technology, Teece (2010a) in particular emphasises the embedded nature of technology in
the overall product or service. The importance of this role is likely to increase as the
technology, including information systems and data, of customers as well as suppliers
interacts with the service firm. For example, a customer may use their mobile phone
while in a store to obtain a virtual coupon for a discounted price.
All the frameworks also make reference to key resources. These may include capital,
people, stores, transport, warehouses, and inventory. It is worth noting that larger
resources, while providing greater potential for innovation and hence greater innovation
capacity do not equate to greater innovation ability. For example, the small, local
organisation will often find it easier to innovate than the large multi-national corporation.
Chesbrough (2010) emphasises the need to have a clear innovation strategy in order to
gain competitive advantage.
166 P.I. Furseth and R. Cuthbertson

While this comparative analysis of the relevant literature does not claim to be
exhaustive, it does highlight the current lack of a common framework for service
innovation. Furthermore, it points towards the commonly agreed elements that contribute
to successful service innovation, namely: an attractive value proposition for all
stakeholders, a clear business (or commercial) model, a single service system delivering a
variety of customer experiences, supported by technology and information systems,
alongside other key resources, such as capital, people, land, buildings, transport, and
inventory.

4 Expert views

The second comparative study validates the commonly agreed elements identified in the
previous section, including validation by two of the key authors referenced. Moreover,
this analysis provided the potential for some contrasting views by carrying out the same
semi-structured interviews with both academics and practitioners.
The identified elements quickly validated by this analysis are: value, business model,
customer experiences, service system, and technology (where technology includes
associated appliances, information systems, software, and data).
One of the many interesting issues highlighted in the interviews is that the speed of
service innovation through technological means is not always quick, neither is it always
radical. Infrastructure takes time to change but often supports a step-change in service;
software is more flexible; while new uses of information and data may change very
quickly but will tend to support incremental rather than radical innovations.
The identified elements that are clarified through this analysis are a plain division of
key resources between people, tangibles assets (such as land, buildings, transport, and
inventory), and financial assets (access to capital). The discussion around people, culture
and organisation is particularly strong. All interviewees though that humans are a critical
resource in making service innovation happen.
People are a hugely important resource in any firm but their contribution to
innovation capacity may vary enormously. Though generally more flexible than
technology, there are still aspects of people that are more difficult to change. Some
people are great enablers of innovation, while others may be more constraining. This
variety of contribution not only reflects individual personalities but also reflects roles and
responsibilities within the organisation. For example, the role of the quality control clerk
is focused on consistency rather than change.
Tangible assets cover both fixed assets and current assets, and so include machinery,
offices, shops, warehouses, land, and inventory. These are an important identifiable
element of corporate balance sheets, or audited public accounts, even though they may
not be immediately apparent to the customer.
Financial assets include all forms of cash and credit. The amount of finance available
to an organisation is usually dependent upon a mix of current assets and current financial
performance. However, innovation knows no such constraints! Innovative ideas and
practices attract the availability of finance. This is the basis of entrepreneurial start-up
companies. Hence, successful innovation is not usually thwarted by a lack of cash.
Indeed, a lack of cash can be a generator of innovation rather than an inhibitor by
encouraging people to think about doing things in different ways using the same
resources.
 The service innovation triangle 167

Finally, an extra element also became apparent, intangible assets (such as brand and
intellectual property rights). While such issues had been noted in the literature review, the
semi-structured interviews brought this element out much more clearly. Jon Pittman,
Autodesk brought out this issue in explaining the support required for successful
innovative customer experiences. The customer has to have trust in the brand in order to
try the new experience. Nike and Virgin were two companies identified that are able to
innovate on this basis. Erik Kiaer mentions Jaguar in a similar way in his interview, while
Henry Chesbrough spoke similarly with reference to suppliers rather than customers, and
specifically referenced Bosch.
Intangible assets cover a wide variety of difficult to value assets, such as patents,
trademarks, copyrights, goodwill and brand recognition, as well as potentially including
customer contact details, and even unique process design within the firm. Note that in
service environments, there is often a lack of intellectual property rights, which are the
mainstay of the manufacturing firm. New products can be protected in law via intellectual
property rights, while new services cannot be protected in the same way. An innovative
new product cannot be copied directly, but an innovative new service is usually open to
duplication immediately. Historically, this lack of copyright for service innovation has
obscured the real activity within this area, while government surveys can easily count the
number of new product patents to understand innovation activity within manufacturing
industry. Like all assets, brand may enable and constrain innovation capacity. Brand
assets may enable innovation capacity by providing trust, and therefore a willingness for
the customer to experiment with new services with the knowledge that the brand is
behind them. On the other hand, brand assets may constrain innovation capacity through
the limits of brand stretch. For example, would a discount retail company be trusted to
provide high quality legal services? This recognition of the importance of intangible
assets chimes with the Vargo and Lusch (2004) service-dominant logic (SDL), which
highlights the importance of intangibles, such as brand value and tacit ways of doing
things.
Apart from clarifying the common elements of a service innovation framework, this
small expert analysis suggests that there is no obvious gap between theory and practice in
practitioners and academics identifying the same core elements of service innovation.

5 Case studies

Having identified the commonly agreed elements of service innovation, the comparative
case study analysis aims to begin to explain how these elements interrelate. To illustrate
these relationships, four contrasting cases studies are outlined here to reflect the
ubiquitous and all encompassing nature of service innovation. The final synthesis results
from an analysis of all the case studies outlined in the methodology, and their
interrelationships between the common elements of a service innovation framework.
Firstly, consider the low-tech grocery industry in the UK. In the 1970s and 1980s,
Sainsbury’s was the number one grocer in the UK, and famed for its continual radical
innovation, especially in supply chain management and integrated information
technology systems. Sainsbury’s was the first UK grocery retailer to recognise that they
could manage their distribution and supply networks better if they integrated them. Their
distribution network became the standard for all their competitors to try to match. From a
168 P.I. Furseth and R. Cuthbertson

value driven service innovation perspective, Sainsbury’s focused on their network to

restructure their organisation and so provide much better service systems for their stores
and hence their paying customers, with higher availability, lower out-of-stocks and less
stock lost, damaged or out-of-date.
Tesco, the UK retailer, has similarly developed a competitive advantage through its
online grocery service in the UK. In 12 years, Tesco has gone from zero to around
$3 billion annual sales online of grocery products, providing a profit of almost
$200 million per annum. 850,000 active customers place more than 300,000 online
grocery orders each week. This radical innovation came about through the simple
organisation of managing grocery orders through the extension of adding vans to the
existing store infrastructure and supporting supply chain network. Once implemented,
several iterations of incremental innovation have grown the service, for example,
economically through the provision of more accurate stocking systems, and socially
through greener deliveries using more environmentally friendly transport and bagless
deliveries. Tesco now have sufficient scale within the London area to radically innovate
again and reduce the impact on busy stores by centralising the picking system by moving
to a central warehouse rather than an individual store environment.
Innovation as a function of time can be emphasised in three areas. In the pre-launch
phase, there are issues relating to idea generation (e.g., origin of ideas, quality of ideas,
number of ideas, filtering of ideas). At launch, issues relating to the process of innovation
are paramount. In the post-launch phase, there is a continuing focus on improving and
innovating to offset competition and extend the service lifecycle. While the pre-launch
phase may lead to disruptive or incremental innovations the post launch phase
is a process of incremental innovations. Sainsbury’s, like Nokia for example in the
contrasting mobile telecoms industry, continued to be productive in the pre-launch phase,
generating new concepts, but not productive in the launch phase, actually realising those
new concepts. Similarly, they continued to innovate post-launch, incrementally
improving the existing products and services but never radically.
Like Nokia, Sainsbury’s ended up creating lots of new ideas internally but became
cautious about innovating until crisis – however they are now innovating in an effective
way.
As a comparison in terms of innovation but a contrast in terms of sector, back in
1992, Jorma Ollila became CEO of Nokia. At that time, Nokia was suffering from
internal disputes and was heading towards a financial crisis. The mobile phones market
was in its infancy and Ollila created a radical strategy that restructured the organisation
and focused away from the current mobiles users of that time (business people) and
towards a younger consumer, providing them with an alternative to their parents’
landlines. The phones produced focused on brand image, with a lot of customerisation
possible, extra functionality, and a robust product that could withstand being in
someone’s back pocket in a Finnish nightclub. There was little emphasis on price. This
was a radical step at the time away from the conventional niche business user towards a
mainstream culture with the result that Nokia’s share price soared and grew 2300%
during the first 8 years with Ollila as CEO. From a value driven service perspective, by
identifying a potential new market (the mainstream consumer), Ollila restructured the
organisation around both the broad services marketing required to build the brand and
connection with the consumer, as well as the operational platform required to build in the
mass customerisation of the product. The supporting network followed the increase in
 The service innovation triangle 169

sales and grew accordingly. Nokia became the world’s largest mobile phone supplier and
still is today.
However, that share is now declining. Having innovated radically once, Nokia then
retreated to a more comfortable state, developing new products on the same basis but not
radical new products and services – until forced to do so as a response to the competition.
There was a large degree of structural and cultural inertia in Nokia.
In contrast, Apple revolutionised the consumer world through the iPod, then through
the iPhone, then through the iPad. However, Apple did more than develop a good
product, it developed a good service through the ecosystems of iTunes and iApps, similar
to another great business model innovation of Gillette (Johnson, 2010).
The Apple story contrasts with the story of Nokia in continuing the trail of radical
innovation. By focusing on radical as well as incremental innovation Apple avoided
structural and cultural inertia.
It is also worth emphasising that Nokia and Sainsbury’s often had greater innovation
capacity than their competitors but did not have the innovation ability required to turn
capacity into value. Thus, such competitors, despite their large resources and strong
positioning, end up chasing the market rather than leading it because they were unable or
unwilling to develop the necessary service systems to deliver the greater value to both
customer and suppliers.
The analysis of case studies highlights that many firms are and have been successful
for a time, the key challenge is whether a firm can continue to innovate in their service
provision. The case studies appear to show that service innovation can start anywhere,
but must continue everywhere. Moreover, any framework for service innovation needs to
provide a more integrated view of value creation through innovation than currently exists,
encompassing multiple perspectives, and not limiting service innovation to linear
development.
To deliver the relevant value, an organisation must have the resources necessary for
successful innovation in the form of tangible, financial and intangible assets, as well as
people and technology. Within innovation capacity lie the foundations of service
innovation success. These financial, tangible and intangible assets are the solid
foundations of any service firm, and are difficult to change in the short-term, while
people and technology may provide more flexible resources, being capable of changing
more easily.
The pairs of case studies chosen highlight the difference between innovation capacity
and innovation ability. Successful service innovation is usually the result of the various
qualities of people, technology and other resources, rather than the quantity of those
resources. Even if companies have the resources or the capability to innovate, they may
lack the ability to innovate, and so may fail. This is supported in the literature review by
authors such as Tushman and O’Reilly (1996) who emphasise that larger and older
organisations tend to have more cultural inertia. Such organisations are usually only
capable of incremental innovation, and may even fail at that.
The focus is on the development of the branded experience to build current and future
demand. However, in mass markets, different customer segments will have different
requirements, expectations and desires. Thus, the customer experiences need to be
multiple to accommodate such differences and so tend to be built around the flexible
innovation capabilities of people, finance and intangible assets, forming an innovation
170 P.I. Furseth and R. Cuthbertson

demand-based triangle, as presented in Figure 2. However, this still requires the right mix
of technology and tangible assets to support this activity.

Figure 2 Demand-based triangle (see online version for colours)

Figure 3 Supply-based triangle (see online version for colours)

The initial focus of a single service system is to ensure that the innovation is delivered as
planned. Over time, the management of a service system will tend towards a focus on
 The service innovation triangle 171

productivity, cost and consistency. Thus, a service system tends to be built around the
structured innovation capabilities of technology, tangible and financial assets, forming an
innovation supply-based triangle, as presented in Figure 3. However, this still requires the
right mix of people and intangible assets to be successful.
The service system is linked to the customer experiences through the business model.
This provides the system for all parties to give and receive value in all its forms, whether
it is economic value, social value, or any other form of value that is important to any of
the parties involved: a customer, the firm, a supplier, or any other stakeholder. Hence,
management requires the innovation ability to deliver services through relevant customer
experiences delivered by a relevant service system, united by a relevant business model.
This can be described as the realisation triangle with the resulting value representing the
outcome of the innovation, as presented in Figure 4.

Figure 4 Realisation triangle (see online version for colours)

So, the outcome of any service innovation is dependent on the value created, for all
involved: the firm, the firm’s customers, and the firm’s suppliers. Any sustainable
innovation should create value for all these parties over the long-term. However, this
value is only realised if the firm has the ability to deliver the required service in the
appropriate way at an acceptable price or cost for all the parties concerned: firm,
customers, and suppliers. Moreover, this ability is only relevant if the firm has a
sufficient capacity of resources to succeed. Thus, any service innovation comprises of
three simple levels, driven by the value created:
• innovation capacity: the potential for innovation
• innovation ability: the practice of innovation
• innovation outcomes: the result of innovation.
172 P.I. Furseth and R. Cuthbertson

6 Synthesis

Putting all of the analysis together, the outcome of this research is the service innovation
triangle (SIT), a simple but rich model, consisting of nine integrated elements in three
layers.

Figure 5 Service innovation triangle (see online version for colours)

This SIT can be used by practitioners, as in the case studies, to explore service innovation
opportunities for their firm, their customers, and suppliers. Academics may also use the
framework for teaching the key elements of service innovation as well as a basis for
further research in the area of service innovation.
The SIT provides an integrated view of value creation through service innovation,
encompassing multiple perspectives (their firm, their customers, and suppliers) across the
key elements, and does not limit innovation to linear development. An elaboration of this
view is presented in Furseth and Cuthbertson (2014).
Of course, the SIT may represent any service firm regardless of their level of
innovation. All firms aim to have a business model that creates value through a customer
experience, delivered by service systems that are built on their resources of people and
technology exploiting their assets: financial, tangible and intangible.
However, any service firm is subject to a changing context: social, technological,
economic, environmental, political and so on. This changing context means that the
relevant value to stakeholders will also change. Service innovation provides the means to
 The service innovation triangle 173

lead the search for greater value, however it is defined, such as cheaper, quicker, or
cleaner; whoever is involved: customers, the firm, or suppliers. Hence, value sits at the
top of the SIT, and the three sides of the triangle represent the main parties involved.

Figure 6 SIT: unsuccessful firm in disarray (see online version for colours)

If the service firm does not innovate then the value equation will still change and
customers start to move away. The firm will then race to catch up with a new business
model, through changing service systems to provide a new customer experience. But
while financial assets may be more reactive, it takes time to change technology and
people, and even more time to change tangible and intangible assets, leaving the
unsuccessful firm in disarray rather than a solid SIT.
Hence, successful service firms have innovation integrated into their daily strategy
and operations in order to adapt to a changing context, and so keep the SIT integrated and
moving as a whole rather than break up into individual elements.
The case studies described illustrate just two of the many routes through the SIT, or
two ‘innovation journeys’.
Apple and Sainsbury’s started out by considering how the supply-side could add
value by becoming more integrated, suppliers in the case of Sainsbury’s and developers
in the case of Apple. That led to a change in the supply-side triangle, which in turn
changed the business model, lower costs in the case of Sainsbury’s and higher revenue in
the case of Apple. The change in the business model led to new products and services,
and changes to the demand-side triangle, leading to the supremacy of supermarkets over
traditional markets, and smart phones over regular mobile phones, respectively.
174 P.I. Furseth and R. Cuthbertson

On the other hand, Nokia and Tesco started their innovations on the demand-side with
customer segments that were not previously well served, young customers in the case of
Nokia and online customers in the case of Tesco. The business model was then developed
to justify the supply-side triangle required to deliver to the consumers. Then, the
customer experience helps create the new market as people start buying these new
products/services. The existing suppliers and competitors see the growth, and so respond
to change the overall context.

7 Conclusions

Value driven service innovation provides new or better services motivated by value
creation for the organisation, its customers, suppliers and partners, which is based on the
organisation’s innovation potential and realised through the management innovation
ability.
The SIT can be applied by businesses to develop value for their customers, as well as
providing a foundation for academic research in the area of service innovation.
By considering the context of innovation, it is possible to see why there are major
differences between various sectors. For example, in the competitive market of grocery
retailing, the products may often be similar emphasising the need to drive competitive
advantage through innovative service systems, while in the mobile service provider
market, the customer experience of the product may be the key innovation device, as
demonstrated by the Apple iPhone example. On the other hand, there may not be a
competitive marketplace, for example in national health provision, but different customer
segments still have very different value-creating needs. Within each of these different
sectors, the key driver of value driven service innovation may be very different. Hence, it
is necessary to test any generic model of service innovation against a range of different
service scenarios.
The SIT model provides a focus for questions to be asked to promote service
innovation:
• What are the plausible futures for your market sector?
• Who are your future customers?
• What do they want of their customer experience tomorrow?
• How will you provide the necessary service systems?
• How will you make the new business model create value for all?
• How will you innovate to achieve success?
• Do you have the required innovation capacity?
• Do you have the required innovation ability?
• Do you have an innovation process for creating new value?
This paper is useful for both thinkers and practitioners in innovation. This paper provides
a new framework for academic analysis, as well as a tool for executives to implement
innovation within the firm.
 The service innovation triangle 175

Acknowledgements

This article is a publication from the research project named Value driven service
innovation (VDSI). The authors gratefully acknowledge the financial support from the
Research Council of Norway Grant 187941, Borg Innovation, and Accenture Norway.

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