Services Innovation... the Hidden Value Creator for Australian Organisations
by Tess Julian, CEO of Catalyst Exchange
With the release of the Government’s innovation policy and the attention that is, rightly, being paid to support product and technology innovation through R&D, entrepreneurship and funding for start ups, it is timely to raise the flag for services innovation.
What is services innovation?
The Economist magazine has defined services as ‘things you cannot drop on your foot’, which covers a massive and diverse space. It might be a hand massage while waiting for a haircut, a work process which saves time for the operators, a web-based service for addressing a legal problem, a partnership between hospitals and hotels for maternity care, a new type of banking service or a new government service or policy.
Services innovation is essentially about the interaction between people—the customer (user) and the people in the agency, and is therefore different to product and technology innovation in important ways:
- Services innovation focusses on the “how” rather than the “what”;
- “How” innovations can seem small and unremarkable, but have a potentially huge impact in intangible ways, but also contribute to productivity and growth;
- “How” innovations often use existing technologies in a new way, rather than creating unique products;
- It is driven by the customer or user experience rather than R&D;
- People rather than products create the value of services innovation;
- Every employee can contribute, and those closest to the customer and/or process often have the clearest insights and the best ideas;
- Internal and external collaboration in all parts of the organisation are essential for finding opportunities, for scaling and for replicating;
- Innovation thinking and collaboration skills drive “how” innovations rather than technical skills;
- A whole organisational culture that provides processes and practices that support everyone to connect and innovate is critical;
- Leadership that focuses and supports services innovation is also essential.
Why don’t we talk about services innovation more?
Perhaps since Adam Smith in the 1700s described services as “unproductive” compared with manufacturing, we’ve been stuck in a mindset that innovation is all about developing new products, and therefore about investing in researchers, technology and commercialisation.
But we live in different times that demand a rethink.
According to ABS statistics 2005–2006, the services industries now account for 76% of gross added value and 85% of employment. That doesn’t include the service functions which are now part and parcel of product delivery and customer experience. Doblin found in research with American firms that investment in product and technology innovation far outstripped investment in other types of innovation, but that ”other” types of innovation, including customer experience, partnerships and business model innovation with only 2% of total investment, created over 90% of value.
While the focus of much of European innovation policy is now on the services sector and service functions, the UK and Australia seem to be lagging. NESTA (a government-funded UK agency) argues that innovation has always been measured in terms of R&D (and intellectual property outputs) because it’s tangible and for that reason has become the focus of government innovation policy in the UK (which is probably also true in Australia). In response to this, the UK Government requested a new Innovation Index that captured wider forms of innovation. In this index they found that investment in innovation was in reality much more diffused:
- R&D: 13%
- Design of products and services: 12%
- Organisational improvement: 21%
- Training and skills development: 21%
- Software development: 18%
- Market research & advertising: 10%
- Other (copyright development, natural resources exploration, etc.): 5%
A recognition of value of “how” innovation and concrete support for services industries and services functions to develop the capability, culture and leadership for innovation is a must. Services innovation, along with product innovation, is critical to creating the agile, innovative nation that we aspire to be.
This blog is also live on Open Forum.