Service Operations Management:

The total experience

SECOND EDITION
Chapter Six

Innovation and Services Development

 Innovation and creativity

Creativity provides the essential spirit and behaviour

from which innovation or tangible beneficial change
takes place.

Culture of innovation and creativity

The very essence of creativity and innovation is the

formation and spread of knowledge, and so the
process of ‘original thought’ must play a major role in
contributing to the organizational culture. Clear
evidence must be in existence to indicate built
systems to underpin innovation.
Fig 6.1 Operational balance
Fig 6.2 Industrial economy versus service-innovation economy
(Source: Adapted from Leibold, Probst, and Gibbert, (2002).)
Contemporary approaches to creativity and innovation display
significant limitations in dealing with the new, rapidly changing
service environment.

Traditional logic of innovation through internal R&D which works

on an innovation from its beginning to its end, keeping it secret
from the external environment and especially from competitors,
limits expansion of knowledge creation, learning, and growth.

The nature of service innovation is changing from incremental

towards being more and more disruptive, from closed to open,
and becoming increasingly networked. This tendency of
companies opening up in targeted connectivity, sharing risks
and acceptance of disruptive practices is of growing
significance.
The Innovation Value Chain Model developed by
Morten Hansen and Julian Birkinshaw

Three stages in the process of innovation and

creativity:
•idea generation
•selecting and developing ideas
•diffusing ideas (getting them to spread)

Linking improvements to customers’ needs

 Drivers of innovation and creativity

The traditionalists using mainstream planning approaches (NPV for

example) are negatively correlated with innovation performance. In
other words, imposing strong traditional financial criteria for project
selection makes the firm less innovative than firms that have no
particular financial criteria for the selection of projects.

1. Innovation means trying things out and often failing. Attempting to

provide detailed plans and forecasts regarding what is going to work
will mean missed opportunities.
2. Large firms with traditional planning processes and valuation tools
need to create different procedures for managing innovation.
3. We need to change the way we value innovation projects and
include the upside of uncertainty in our assessment
Fig 6.3 Innovation and knowledge at Flight Centre
 THE BALDRIGE CRITERIA

Leadership (90 points)

Information and Analysis (75 points)
Strategic Planning (55points)
Human Resource Development and Management (140 points)
Process Management(140 points)
Business Results (250 points)
Customer Focus and Satisfaction (250 points)

Without ongoing innovation and improvement in all seven

categories, organizations will not show that they are sustaining
a competitive enterprise.
 Developing Service Networks
Commercial convergence

From a service delivery perspective, selecting and evaluating

partners in a network for entry into a new market or expansion
beyond existing boundaries frequently requires the injection of
cash, resources, knowledge or all three.

In whole, or in part, the principles of mutual evaluation apply to

network partners, joint ventures or indeed to the other key
selections: such as selecting suppliers (often overlooked or
assigned to the bottom of the priority list yet a bad supplier
decision can go a long way to ruin customer relationships).
Fig 6.4 A new approach to innovation for services
(Source: Adapted from Kim & Mauborgne (2004))
Fig 6.5 Service network
 Evaluating the suitability of a network partner
• Customer Profiling
• Revenues and Profitability
• People and Structure
• Values, Mission, Strategy and Tactics
• Performance Metrics and Achievements
• Growth and Development Plan
• Innovation
• Market and Competitive Position
• Value for Money and Cost Components
• Skill Sets
• Process Engineering
• Key Differentiators
• Quality System
• Technology and Information Systems
• Investments
• Overall Perceptions
Table 6.1 Partner selection criteria scores