Open Services Innovation, a persuasive argument for the power of co- creation in the ttps:// The father of “open innovation” is back with his most significant book yet. Henry Chesbrough's acclaimed book Open Innovation described a new paradigm for. Jul 7, Read Open Services Innovation PDF - Rethinking Your Business to Grow and Compete in a New Era by Henry Chesbrough Jossey-Bass | The.

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cently turned his attention to services innovation, and his book Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era was. The New Business Model of Open Innovation. N. Re v. New Mkts. N ew venues e. Licensing. Spin-off. Own. Market. Revenue. I t l. Own. Market. Revenue. Bringing Open Innovation to Services. WINTER VOL NO REPRINT NUMBER By Henry Chesbrough. Please note that gray areas reflect.

Physical traffic vs. Dec Facebook world traffic Mitchell Normative model of new service development Mini Case 3. Mitchell Figure 3. Management must address this. Four answers from each person 2. Smart hostel 1. Dabawalla idea.

FeedEx 1. Company which plans Booking code allows entrance, Home-made food goes to customize your holidays bed number and locker.

Hotel based on physical helps you to reach 4 points and pyschological needs unusual destinations 2 points 5 points 02 March 34 www. According to Lusch et al. Bharadwaj et al. Indeed, even though companies are interested in developing their business with the principles of S-D logic, they need pragmatic frameworks for that. The ongoing research of inno- vation is driven by a need to develop more compelling value propositions Vargo et al.

The need for understanding innovation as a collaborative process occurring between actors is emphasized in S-D logic Lusch and Nambisan Cocreation of customer value, which is the central element of S-D logic Vargo and Lusch , is not trivial, however, and it requires more attention in the context of service innovation. The second knowledge gap relates to an in-depth understanding of the needs of new or potential customers in service innovation.

The third knowledge gap relates to discover- ing and utilizing latent customer needs in service innovation.

Currently, S-D logic includes little knowledge of managing these challenges systematically with a holistic innovation process. The theoretical development, further research, and application of S-D logic could gain from the ideas of lean innovation. Lean approach has potential to help solving the above challenges of service innovation, in particular. Early Identification of the Core Customer Value with Business Potential According to Gummesson , there is no sense in solving the wrong problem in an excellent way.

Traditionally, the process models of service innovation have consisted of a linear sequence of consecutive phases Donnelly et al. Some process models of service innovation include iterative feedback loops or parallel processes e. The traditional process models typically include business analysis at some point of the innovation process, but they do not emphasize the early-stage and grassroots-level testing of customer value and the business potential of the new service. Consequently, service innovators may end up developing a service for a nonexisting need.

Or they may develop a service that does solve a need, but customers are not willing to pay for it. According to Christensen et al. Lean Service Innovation Service Science, , vol. Finding the core customer value with business potential at the early stage of the innovation process is vital.

An interview with Eric Ries, an entrepreneur and author, illustrates this challenge: If our business model depends on people paying us money for something, we need to create as close a facsimile of that downloading experience as we can, and we need to make sure that they will actually pay us money for it quoted in Euchner and Ries , pp.

The latest service innovation research is evolving toward an iterative service innovation process based on incremental improvement cycles. Carlborg et al. They found that the latest evolutionary phase, the multidimensional phase, included the idea of a cyclical form of innovation in terms of integrating downstream activities into the innovation process.

Moreover, Shang et al. Indeed, service innovation research is moving toward cyclical and experimental innovation pro- cesses, but more theoretical and applied thinking is needed in this area. In addition, the customer involvement and related managerial approaches require more theoretical development. Customer Value for New or Potential Customers This challenge has been recognized in the early market orientation literature.

Christensen and Bower showed that established companies tend to focus on the needs and customer value of an existing market and omit opportunities of value in emerging markets. Companies tend to focus on value expressed by the existing powerful customers, in particular. This is manifested by adaptive learning Senge , Berthon et al. By contrast, disruptive innovation, also called radical innovation, often requires considering the value for customers that do not exist yet. However, such innovation projects often lack initiative, willingness to take risk, and resources Christensen and Bower The existing service literature includes plenty of knowledge about innovating new service but very little knowledge about innovating for new or potential customers Berry et al.

One of the central ideas of lean innovation Blank , pp. Ojasalo and Ojasalo: Lean Service Innovation 28 Service Science, , vol. Latent needs refer to what customers really value or the products and services they need but have never experienced or would never think to request Senge They may generate both Downloaded from informs.

Slater and Narver addressed various shortcomings of the early literature on market orientation and introduced two forms of market orientation: It has a short-term focus and is reactive. They think that customers hire a product to get a job done for themselves, and every job people need or want has social, functional, and emotional dimensions Christensen et al.

They use exploration and experimentation Quinn , Sykes and Block , Hamel and Prahalad and probe and learn process Lynn et al. Indeed, because discovering and understanding latent needs can be facilitated by repeating exploration and experimentation closely with customers, and because this is the main idea of lean innovation Blank , ; Ries , the lean innova- tion approach has clear potential to add to the knowledge of discovering and utilizing latent needs in service innovation.

We address the above threefold knowledge gap and argue that both the theoretical domain and the applica- bility of S-D logic can be extended with a new perspective that borrows ideas from lean innovation. We focus on the holistic process rather than on individual cocreation methods. As a result, we introduce a model of lean service innovation. This conceptual article is based on the literature on S-D logic and lean innovation. The rest of this article is organized as follows.

First, it reviews the literature on S-D logic and lean innovation. Then, based on the literature, it proposes a model of lean service innovation. The concept of service science Maglio and Spohrer , sees that economic entities are collections of resources, including people, technologies, organizations, and information Spohrer et al. The concepts of value-in-use and value-in-context have replaced the traditional concept of value-in-exchange. In other words, value is idiosyncratic, experimental, contextual, and laden with meaning.

Consequently, the customer is always a cocreator of value Vargo and Lusch , a. They are the fundamental source of competitive advantage. A customer is primarily considered an operant resource, only occasionally functioning as an operand resource. People exchange to acquire specialized competences knowledge and skills or services.

Knowledge and skills are also operant resources.

Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era

The company cannot deliver value but can only Downloaded from informs. Goods are a distribution mechanism for service provision. This means that goods derive their value through use and the service they provide. S-D logic also considers that service singular , which is the application of specialized skills and knowledge, is the fundamental basis of exchange and that all economies are service economies. Still, because service is provided through complex combinations of goods, money, and institutions, the service basis of exchange is not always apparent but rather masked by the indirect exchange Vargo and Lusch , , a.

Customers are always the value creators. Goods are resources similar to other physical objects. Blank , p. In line with this, Taatila et al. According to Taatila et al. In his approach, the process is iterative and cyclical, and it entails three steps: The purpose of each iteration round is to bring the product or service to a more developed level.

The aim is to minimize the total time through the loop. It lacks many features that may prove important later on. The impact of the minimum viable product must be measurable. Most importantly, the impact must be measured, not just inside the company by engineers or designers but also with potential customers, to see their reactions. Instead of using vanity metrics, the metrics should be valid from the business viewpoint. It does not matter if the development project is on time and on budget if the company is building something that nobody wants.

The metrics need to be actionable, accessible, and auditable. It is accessible when it is understandable by those who are supposed to make changes in the product or service being developed. Finally, the learning phase represents the most vital phase of the loop. The company must learn the truth about which elements of the strategy are working to realize the vision and which are not working.

The company must learn what customers really want, not what they say they want or what the company thinks they should want.

Open innovation

Lean Service Innovation 30 Service Science, , vol. The company must decide whether to pivot or preserve the original strategy.

If the company realizes that some original assumptions or elements of the strategy are false, it should make a major change in the strategy Ries Maurya extended the lean approach by showing and visualizing various methods how to implement the lean development philosophy in practice. According to Maurya , life is too short to build something nobody wants. Listening to customers is Downloaded from informs. The release-early, release-often approach is the key to lean development.

Blank explained the lean start-up concept further. According to him, the idea of a lean start-up or a lean business launch is based on observations from various failures with a traditional way of planning and launching a new business.

Traditionally, the development of a new business and start-up is considered to begin with creating a business plan. Writing a business plan is based on the assumption that it is possible to anticipate most of the unknowns of a business.

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Instead of a big and ready master plan, successful start-ups go quickly from failure to failure, and they adapt, iterate, and improve their original ideas as they continually learn from their customers. The lean approach is based on the following foundation. First, the founders summarize their assumptions about the business in a framework called the business model canvas.

Second, lean start-ups go out and visit their customers and other stakeholders and start testing their guesses. On the basis of the input, they revise their assumptions and start the cycle all over again. The third foundation is agile development, which takes place together with customers and eliminates wasted time and resources. Start-ups create the minimum viable product.

As explained above, a minimum viable product or service has just those core features that allow the product to be deployed to potential customers for feedback, and no more Ries This iterative and incremental process is called quick, responsive development, where the minimum viable product is improved through repeated cycles. The developmental objective is to make it fast and make it real Tripp and Bichelmeyer , Desrosier A start-up is not a smaller version of a large corporation.

Established companies know their market, but start-ups often do not know well who their customers are, what they want, or how to get them to download.

Indeed, the lean development approach was originally designed for start-ups Blank But the lean start-up methods may not be appropriate for every situation. In conclusion, the existing lean development models emphasize an early understanding of customer value.

This principle is well in line with the fundamentals of S-D logic. But so far, these two research streams have not yet met each other. This means that value is uniquely and phenomenologically perceived and determined by the customer, and it is experimental and contextual in nature. Consequently, in successful service innovation, it is paramount to deeply understand what represents value-in-use as well as to develop and enable the integration of the resources accordingly.

This refers to under- standing the context in which value is perceived. Magnusson et al. They argue that it is not enough to merely ask the customers if they have any ideas but instead activate them into experimentation and problem solving in their own day-to-day environment. The value-in-use to the customer Downloaded from informs. S-D logic is philosophically grounded on a commitment to collaborative processes with customers, partners, and employees, as well as a perspective that recognizes the company and its exchange partners who are engaged in the cocreation of value through reciprocal service provision Lusch et al.

As shown in the previous section, such collaborative and cocreative processes in understanding, developing, and creating value-in-use can be facilitated with lean service innovation, which is based on learning from and experimenting with customers and other relevant actors through a cocreative and cyclical innovation process.

Next, we propose a model of lean service innovation. This conceptual model is based on the ideas of S-D logic and lean business development. According to Schipper and Swets , six principles make development both innovative and lean. They are as follows: The whole development process consists of several repeated and incremental development cycles. According to Blank , each cycle consists of planning, requirements, analysis and design, implementation, testing, and evaluation.

Each development cycle results in a minimum viable product that is deployed for customer feedback. On the basis of the literature on lean development Blank , ; Schipper and Swets ; Ries ; Maurya ; Cooper and Vlaskovits ; Owens and Fernandez , we propose a model of lean service innovation Figure 1. The model of lean service innovation consists of the following phases and activities: The whole process of lean service innovation is guided by the attempt to achieve deep customer understanding and codesign.

This may happen based on changes in the business environment, the emergence of new technologies, customer complaints, etc.

Agarwal R. et al. (eds.) The Handbook of Service Innovation

Next, ideas for a solution are proposed. The most promising is chosen for development. The solution gets an incremental improvement and results in the next-level version. This can also be called a minimum viable product MVP , minimum viable service, or service prototype.

Next, the current version of the solution is tested with authentic customers. The purpose is to gain deep customer insight on how the proposed solution responds to their needs and problems. At the same time, the aim is to make the experimentation and rapid prototyping as fast and real as possible. In addition to customers, this phase may involve any other relevant stakeholders of the solution. In this phase, all the learning from the previous phase is carefully analyzed.

Then the decision is made on how to proceed in the innovation process. Three options are available. First, the process may go back to the development phase, in which the experiences from testing and experimenting are used to improve the current version of the solution. Second, the solution idea may turn out to be ready for full-scale implementation.

Third, it may turn out to be too inappropriate for its purpose and further development. This loop is at the heart of the lean service innovation approach. This phase is about full-scale implementation of the developed service. The service solves the targeted problem and generates revenues for the service company. Lean Service Innovation 32 Service Science, , vol. Lean Service Innovation Experimenting and rapid prototyping with customers Downloaded from informs.

However, once the service innovators are convinced that the new service is developed enough to meet the customer value as well as business objectives, it is ready for full-scale implementation in the marketplace. When a certain solution idea is abandoned, the process may return to the solution ideas phase, and another idea may be taken up for further development lower dashed line in Figure 1.

The learning from the previous attempt is utilized in the next one. They have the potential to start a new innovation cycle. They represent new business opportunities for the service company. The lean service innovation approach is used throughout the service innovation process. Various service design methods can be powerful here. Examples of widely used service design tools include ethnography, probes, con- textual interviews, environmental scanning, content analysis, Delphi, ideation workshops, design games, trend cards, personas, storytelling, futures wheel, scenarios, service ecology maps, customer journey maps, proto- types, sociodrama, visioning, change paths, multilevel service design including service blueprints , and role scripts Ojasalo et al.

In addition to learning and qualitative feedback from testing and experimenting with customers, several quantitative metrics can be used in evaluation. Consequently, this has two advantages. First, it makes useless investments less likely in the further development of a nonviable idea; in other words, the innovation becomes less risky.

While the literature on innovation points out the speed of the innovation process Stalk and Hout , Barkema et al. Niosi and Berkhout et al. According to Berkhout et al. The cyclical innovation pro- cess also ensures that mistakes can be learned from, which is a very important property of innovation.

Cyclical interaction is considered as a prerequisite for the model of dynamic systems as well as for the network structure of competitive organizations. The current lean service innovation approach contributes to fast service innovation through its basic idea of cyclical rapid prototyping and learning.

Supported by this, we argue for the applicability of rapid prototyping and learning in service and use it as the cornerstone of our model of lean innovation of service. This means avoiding the temptation to include many features in the initial development, since time will be much better spent developing experiments that measure the impact on perceived customer value.

Later on, if the idea of core customer value is viable enough, it will be planned in detail and complemented with secondary features during the process. Features should be pulled, not pushed Maurya Customer Value for New or Potential Customers Companies tend to innovate based on the expressed needs of their existing powerful customers.

This is called the tyranny of the served market Hamel and Prahalad , and it tends to lead to incremental innovation Slater and Narver This is particularly true for established companies where senior managers are unwilling to risk their careers for potential failure in innovation for new or potential customers Bower , Christensen and Bower The proposed model also shows how unexpected aspects of customer value can be used as the basis for developing another new service.

This helps in responding to invisible and mental aspects Heinonen et al.


In addition, the present model explicitly shows that terminating the service innovation process is not necessarily an indication of failure. Sometimes the initial idea for a new service just turns out to be something that is not valued by the customers. In such cases, terminating the innovation process is a sensible decision and prevents later failure and a further waste of resources and time.

Latent needs represent a special challenge as well as an opportunity for service innovation. Companies have tra- ditionally focused on satisfying expressed customer needs and have omitted latent needs Hamel and Prahalad , Slater and Narver , Christensen and Bower , Matthing et al. Lean Service Innovation 34 Service Science, , vol. The challenge with latent needs is that customers have trouble imagining and giving feedback about something that they have not experienced von Hippel , Leonard and Rayport , Veryzer , Ulwick The literature includes various techniques for customer involvement in service innovation see the literature reviews by Matthing et al.

Customer participation in the innovation process and observation of the customer in real action are common methods suggested for developing service that meets latent needs Matthing et al. Examples of such methods include emphatic design based on observation Leonard and Rayport , the customer-input uncer- Downloaded from informs. The existing literature includes var- ious single techniques for discovering latent needs.

However, if their use is not built into the process, there is no guarantee that any of them will be used. However, this literature is scarce in providing managerial approaches for implementing the ideas of S-D logic in practice. It shows how service developers will get a deep under- standing of the value perceived by the customer through an innovation process that involves customers and proceeds through iterative incremental development rounds.

It highlights that customers should be engaged already from the beginning of the innovation process. This prevents making wrong assumptions about the value at the outset. The service is thus less likely to make useless investments and waste time. Rapid prototyp- ing and learning is at the heart of the introduced model. The understanding of the customer value increases incrementally through consecutive repeated rounds. The customer value guides the innovation process at all times rather than assumptions made in-house.

The present approach emphasizes the involvement and role of people rather than tangible assets. In other words, it shifts the focus from operand to operant resources Vargo and Lusch already in the service development phase, which is a fundamental change of mind-set for many companies operating in the goods-dominant mode.

Edvardsson and Tronvoll ; see also Edvardsson et al. The rapid prototyping and learning loop illustrated in the present model makes possible a deep understanding of customer needs.

The earlier lean innovation literature is mostly focused on helping start-ups to develop successful products with customer value Blank , ; Schipper and Swets ; Ries ; Maurya ; Cooper and Vlaskovits The present article extends the start-up focus to a broader arena, service industries in general. Achieving a deep understanding of what represents value to the customer is the foundation of both S-D logic and lean innovation. The role of a business model is to capture, visualize, understand, and communicate the business logic Osterwalder A value proposition is the central building block of any business model Chesbrough The company must consider what service the customers receive resources and how they receive it practices.

In addition to the value proposition, a business model includes many other building blocks required in building and maintaining the business Chesbrough Expanding service research from value propositions to business models with a S-D logic lens is clearly a promising avenue Downloaded from informs. Management of Customer Involvement in Innovation The vast amount of the literature on cocreation mostly ignores the challenges of customer involvement in inno- vation.

This may give the illusion that customers are self-evidently able or willing to participate. Logistical and economic considerations Wayland and Cole , lack of incentives or appropriate infrastructure Nambisan , and language Blomkvist and Holmlid are examples of such challenges. Since S-D logic relies on cocreation and customer involvement, there is an evident need to increase knowledge in this area.

Various methods of connected research Schillewaert et al. Similarly, considering the service-related use situation and resource context Edvardsson et al. Strandvik et al. Since customer-experienced value is at the heart of service design, it has a great potential to facilitate the application of S-D logic in the managerial context. Speed of Innovation Cycle Time in Service Fast-changing markets and technologies Drucker force companies to accelerate their innovation life-cycle times Enkel et al.

Slow product development has a higher development cost for organizations Gupta and Wilemon , Hairman and Clarysse Although it is a vital factor in successful innovation in many industries, the time aspect—speed of innovation cycle—has not attracted any greater interest in service research.

According to Alam and Perry , p. The concept of rapid prototyping in our model addresses the speed of the innovation life cycle. However, this area deserves more profound research and theory development.

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It is likely that the transformation from linear to lean service innovation requires several organizational changes. More research is needed in the struc- tural, institutional, political, and learning processes of such change cf. Hannan et al. Lean Service Innovation 36 Service Science, , vol.

Examples of organizational change philosophies include biological, rational, institutional, resource, contingency, psychological, political, cultural, systems, and postmodern philosophies Graetz and Smith Four answers from each person 2. A lot of people don't even We can all learn from co-creation shoot. G, Easingwood C. This principle is well in line with the fundamentals of S-D logic.

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