Learning Session: Service Innovation

1. Learning Session: Service Innovation Service Innovation Webinar via Innovations MarkNet Hosted live from the GE Capital, RCF Bentonville, AR Offices July 20th, 2010 3pm-4:30pm Eastern • Dr. Robert J. Harrington provides • insights & learning's focused on: • Importance of innovation • Key success factors • Innovation blue prints • Monetizing service • Lessons learned University of Arkansas Ph.D., MBA, CEC, 21st Century Endowed Chair in Hospitality

2. MarkNET Innovation: Learning Session Sponsors Innovation Hosts Steve Liguori Executive Director Global Marketing, GE Michael Abbott CMO GE Capital, RCF Bart Schaller GM & VP, Walmart GE Capital , RCF Steve Hacala GM & VP, Sam’s Club GE Capital, RCF John K. Mullis GM - Walmart & Sam's Club GE Lighting Innovation Hub Leaders Guest Speaker Cari Steele VP, Innovation GE Capital Anubhav Ranjan Director Strategic MarketingGE Courtney Keating VP, New Products GE Capital, RCF Dr. Robert J. Harrington University of Arkansas Ph.D., MBA, CEC, 21st Century Endowed Chair in Hospitality

3. Agenda Why Innovation? • Key to long term business success • Increases loyalty and build brand What is Innovation? • Definition, Evolution & Categories • Service Innovation & Examples • Co-production vs Co-creation • NPD process vs NSD • Crowdsourcing How do we Innovate? Best Practices • 15 Best Practices! Summary of Key Learning’s • Conclusions & Takeaways • Q&A Discussion

4. Why Innovation? • As about 85% of all jobs are service-based, service organizations have two choices - succeed at innovation or fail as a company (Cooper and Edgett) • Innovative organizations are: • more competitive • produce higher revenues and profits • deliver substantially higher increases in firm value (2-3% annually) and annual increases in market share (1-3%) (Blundell, et al.). • Innovative firms don‘t have to compete strictly on price • Better image - Branding • Increased loyalty of customers - an increase of just 5% in customer retention returns 25%-125% to bottom line profits.

5. Definition of Innovation “innovare” = Latin - to make or create something new Schumpeter (1934) – “continuous process of creative destruction” Invention and Innovation Invention = discovery of new phenomenon Innovation = social and managerial processes through which solutions are first translated into social use (Quinn, et al., 1997). Innovations are “the outcome of the innovation process, which can be defined as the combined activities leading to new, marketable products and services and/or new production and delivery systems” (Burgelmann and Maidique, 1996, p.2)

6. The Innovation Evolution Entrepreneurship 1930’s Technology 1960’s Market Driven 1990’s Social Process Driven 2000’s The concept of innovation has evolved:

7. What isInnovation(Categories)? NPD (New Product Development) NSD (New Service Development) Incremental changes to products or services Channel (ex. Mobile) Communication (ex. Twitter) Management Technology Revolutionary vs evolutionary Innovation is Multi-dimensional & Dynamic

8. What is aNew Service Innovation?

9. Service Value Innovation Examples First Class Willingness by customer to pay for premium services (e.g. rather than free TV, radio…Heathrow express £25 vs. £4) No Frills Providing the essence of the primary service for less (e.g. quick casual dining segment – Chipotle Grill) Value For Volume Creating greater engagement for customers to increase value in the experience (e.g. Harley Davidson) – ownership group = social experience, permanent circumstances of value Double Your Time Creating time for customers (e.g. Single Service Focusing on creating capabilities in a single service (e.g. Shouldice Hernia Centre in Thornhill, ON – specialization in external abdominal hernia operations) Breaking Compromises Breaking the rules and doing something different (e.g. Virgin Airlines Freedom Menu – no set meal times, personally prepared meals, etc.)

10. How do you create a new service? Predominately goods-oriented view of services Customers select from a predetermined combination of choices = i.e. “best available” Co-creation Co-production • On-going business practice where consumer needs and wants are communicated before, during and after the experience or service is provided. • (Chathoth, et al., 2010) vs

11. Co-creation Examples Product: Starbucks – “however-you-want-it frappucino” customizes you’re frappucino through different amounts/types of coffee, milk, flavors, toppings, and calories. Price: AMEX ZINC – a lower annual fee and allows users to select “packs” to earn extra rewards in areas of their choice (airfare, restaurants and concerts, etc). Place: eBay – provides possibilities to globally auction and bid on running auctions detached from place and time. Promotion: Amazon – recommends products based on other people’s buying behavior.

12. Traditional NPD Process* Idea Generation Screening and Evaluation Business Analysis Concept Development Final Testing Commercialization *Booz Allen Hamilton, 1982

13. New Service Development Process Michelin-Starred Chefs Product Considerations Idea Generation Strategy Generation Idea Formulation Tacit Creativity Skills Inspiration Sources Screening Criteria Screening Step 1: Cooking in your head Step 2: Giving it a shot Trial & Error Formalize Concept Concept Development Informal Market Research Differentiation Factors Multiple Sources of Testing Final Testing Operational Issues Training Communication & Testing Commercialization Assessment:1 – Satisfaction 2 - Popularity Feedback/Learning

14. NSD Process Results: Michelin-Stars Molecular Cuisine Colors, Textures & Flavors Unique Food Pairings

15. Tip: Co-Creation & Crowdsourcing Crowdsourcing: Term coined by Wired magazine = a Web-based movement that harnesses the ideas and opinions of the masses Why pay high agency fees to develop and test ideas when it can be done at a lower cost using the Web? Test usefulness and need for inventions/innovations Useful Sites Threadless.com = all about t-shirts and casual apparel – submit a design and receive some cash and store credit Crowdspring.com = post a creative project and watch others contribute ideas, then pick the best Innocentive.com = connects companies, academic institutions, public and non-public firms with a global network of “solvers” Geniusrocket.com = submit a “request for brilliance” then pick the direction that fits best (marketing and advertising) Quirky.com = for $99, submit your idea and other members weigh in – if your thingy gets chosen, you get a cut of the revenue

16. Service Innovation: Best Practices Tangible quality - tangible output dimension of service (what is received vs. customer needs/wants) Effective external communication – raise awareness and communicate benefits Technology – cost effective use, improving quality, making service simpler and faster Differentiation - better value than competitor and/or unique benefits Market responsiveness – fit between innovation and demand of the market Market selection – identifying target market and affirming sufficient market size Fits reputation – creates synergy or fits with expertise, resouces, and portfolio of products/services Pricing – the right price (differs by organization type – does price vary by level of demand [e.g., hotels]?)

17. Flexibility – (vs. Rigidity – what we need is a bigger hammer syndrom) - entreprenuerial thinking (proactive, innovative, risk taking, future oriented, aggressive in pursuit of growth) Learn from competiton and other industries – service industries have less protection from mimicry, casinos learn from department store layouts Strategic alliances – regional alliances, cross-branding (McDonald‘s and Newman‘s Own), Casinos and IT software firms, etc. Employee management – strategic HR techniques: HR practices linked to strategic planning, attract/retain excellent staff, viewed as competitive advantage rather than cost, climate allowing use of judgment and initiative Innovation culture - Are there observable signs of innovative organizational climate or culture (rewards, values, behaviors)? Creativity – processes that facilitate idea generation and development (sharing of concerns, use of humor, ‘devil’s advocate’ approach) Crowdsourcing – collaborative approach to service innovation (usage studies, service simulations, social media, involvement of stakeholders) Service Innovation: Best Practices

18. Service Innovation: Lessons Learned Innovative service organizations demonstrate stronger market performance, financial performance, and employee/customer relationship enhancement (Ottenbacher & Harrington, 2010). 1 2 Successful service innovations demand a balancing act between encouraging open-ended, free-flowing creativity with management of the process. 3 A variety of best practices are key to success and within the control of service firms. 4 Service innovation models and processes are evolving to more ‘empathic’ approaches that move from a co-production process to one of co-creation.