CHAPTER 1

CUSTOMER NEEDS THAT DRIVE SERVICE INNOVATION

The secret of true service innovation is that you must shift the focus away fromthe service solution and back to the customer. Rather than asking, "How are wedoing?" a company must ask, "How is the customer doing?" To achieve this shiftin focus, companies must begin to think very differently about how customersdefine value based on the needs they are trying to satisfy. A properunderstanding of these needs enables value to be understood in advance of anyparticular innovation being created. True service innovation demands that acompany expand its horizon beyond existing services and service capabilities andgive its attention to the jobs that customers are trying to get done and theoutcomes that they use to measure success in completing those jobs.

The best guide to discovering service innovation opportunities is knowing howcustomers define value and the types of customer needs that can directmeaningful service innovation. This chapter begins by considering four truthsabout how service customers define value and then presents four approachescompanies can take to discover service innovation opportunities. It concludes bydiscussing how a company can go from a desire to innovate to a specific servicestrategy built around a unique and valuable service concept.

How Do Service Customers Define Value?

How do service customers define value? Few companies know the answer, and,lacking this knowledge, they are missing an essential ingredient to serviceinnovation success. There are four fundamental truths related to customer needsthat provide the answer to this question. These four truths provide a basis forthe systematic discovery of opportunities for unique and valuable serviceinnovations.

1. Customers Hire Products and Services to Get a Job Done

We hire a credit card to make purchases. We hire a doctor to diagnose and treatan illness. We hire education to develop career skills. We hire a home builderto build a home. We hire a trucking company to transport goods. We hire supportservices to troubleshoot an equipment malfunction.

When we consider services in terms of the job the customer is trying to get donerather than in terms of the service itself, then our definition of value nolonger is tied to current services. The customer doesn't value any particularservice solution; what the customer values is the ability to get the job donewell. The customer job therefore offers a stable, long-term focal point foreither the improvement of current services or the creation of new-to-the-world services. Ultimately, customers are loyal to the job, and they willmigrate to whatever solutions help them to get the job done better.

Consider how this change in focus would affect credit card innovation. Atraditional innovation focus for a credit card company would be the card itself.The company would host interviews with customers and ask what they liked anddisliked about their credit card. They might even ask what improvementscustomers would like to see. With this approach, it's all about the card, andthe insights would be about the card—for example, the company would likelydiscover that customers want low interest rates, don't want to have their cardrejected, desire fraud protection, and so on.

In contrast, when the focus is placed upon the job for which a credit card ishired—making purchases—a whole new domain of customer needs opensup. The company can now discover that customers struggle with finding desiredproducts to purchase, choosing among competing brands, tracking purchasespending, and a whole host of other steps required to get this job done. Withthe wealth of data that a credit card company already has at its disposal, it isin a perfect position to help customers overcome their difficulties in many ofthese other areas. For instance, a credit card company might be able to link itscard into the self-serve price scanners at stores such as Target to providecustomers with in-store customer ratings of different brands of a given productthat they are interested in purchasing.

In addition, a focus on customer jobs would enable the company to discoverrelated jobs that customers are trying to get done, such as keeping track ofwarranties, tracking spending while traveling, and even controlling impulsebuying. Any one of these or other related jobs could lead to new credit cardservices. This is the power of making the job, rather than the service, the unitof analysis.

2. Customers Hire Solutions to Accomplish Distinct Steps in Getting anEntire Job Done

A job is a process, and any step in that process presents opportunities forinnovation, but many services offer value to customers for only certain steps.For example, most credit card companies focus all their attention on the payingstep. They neglect the various other steps along the way in the job of makingpurchases—steps such as choosing from among competing brands (which comesbefore paying) or tracking purchase spending (which comes after paying). Theresult is that many companies leave value opportunities on the table,opportunities that are adjacent to what they currently offer. When a companylooks at the complete job the customer is trying to get done by hiring itsservice, it is in a much better position to optimize its core service offeringor to create entirely new services in what might be considered adjacent markets.

It also helps to realize that customers must accomplish a universal set of stepsto be successful in getting a job done. We'll go over these steps in more detailin Chapter 3, but they include defining goals and resource needs for thejob, locating required inputs, making the preparations or the evaluationrequired to get the job done, verifying readiness or choices, carrying out thecore job, assessing job execution, making required adjustments, and concludingthe job. For a financial investment service, a customer must define financialgoals, locate investment options, evaluate investments, choose specificinvestments, invest finances, assess investment performance, adjust investmentallocations, and store and retrieve investment information. Looked at from thisperspective, there are many opportunities for service innovation.

3. Customers Use Outcomes to Evaluate Success in Getting a Job Done

Outcomes are...