Dominant Innovation section

What are the current gaps existing between product requirements and customer needs?

How do we bridge the gaps by mapping, modeling, relating, and evolving the identified customer needs to design, and optimize the most effective product-service system using the right innovation tools and strategies?

There are many ways to develop product core offerings beyond the product. However, most methods of service innovation are ad hoc and unsystematic.

A systematic methodology for innovation is necessary to understand how to generate, develop, and implement new concepts. The dominant innovation approach relies on three core tools—an innovation matrix, application space mapping, and quality function deployment (QFD). The innovation matrix is used for systematic thinking and to easily visualize the current state of the company, its competitors, and where to go from there. Application space mapping narrows down the scope of the innovative ideas in terms of the different application spaces. QFD is used for analyzing the technical deployment methods and other management concerns, so companies can identify the most feasible implementation methods for new service ideas.

The innovation matrix, for example, is divided into nine grids or quadrants distinguished by different combinations of customers (representing markets) and needs (representing products/services). Some needs are explicit, and others are latent. Articulated or explicit needs are separated into those needs that have been met and those that have not. Similarly, customers/markets are separated into two categories, customers who are currently being served and those who have yet to be. Successfully combining this matrix with QFD-based application space analysis enables systematic thinking and generation of opportunities for service innovation.

Such an approach helps companies get a grip on some of the most important aspects of service development, from increasingly smarter products to defining core service value.

Smart Products and Services

with the escalation in technological infrastructures, augmented networking, and vast connectivity options, products are becoming smarter with increased customer-oriented interactivity through effective combinations of a physical interface with a software interface. A smart product is specialized in a certain type of data processing and functionality. Its usage is interactive and demands some cognitive work. The ease of use and consumer appeal of smart products is based on a foundation of understanding the user and involving the user in the design process, including both industrial design and software design. Such inherent technological capabilities in smart products are revealing hidden opportunities for business revenue that can be fulfilled through establishing a service framework around the core product.

Smart services require knowledge of product usage, transformation of product usage data into relevant information using enabling technology, and the optimization and synchronization of cost factors. Such product-service systems have the following intrinsic characteristics that distinguish them from a typical product system.

Defining Service Value

A value spectrum for product-service systems can be highlighted in terms of two distinct types of value: value inherent in the characteristics of the service business, and value in terms of profitability to both customer and company. A pure product is where a genuine tangible value lies mainly in the product content, whereas a pure service is where a genuine intangible value lies totally in the service content. In contrast, a true product-service system enables the combination of tangible and intangible characteristics of product and service content, and offers four major categories of service systems:

Function-centric service: This service system has high product content and low service content. This typically includes product-oriented services offered throughout the lifetime of the product, such as maintenance and warranty.

Usage-centric service: This service system has equivalent contents in terms of tangible product and intangible service substance. Such services are evidence-based and may be offered when the product is leased, rented, or pooled, where the customer pays a fee for the service, and the service provider retains ownership of the product.

Result-centric service: This system has low product content and is solely servicebased. Such services exist where the customer does not own the product and only utilizes the output of the product, such as pay-per-use services.

Hybrid service: shares several characteristics across the above systems.

Research and development of a new product mostly has value to a company with almost no value to the consumer until the product is actually developed, manufactured, and sold. After the selling point of the product, the value of this product to the company greatly diminishes, leaving most actual value to the customer through usage and product functionality. To maintain company value, the establishment of a service framework around the core product becomes of value to both company and customer. In addition, it can become an important market differentiator through the unique packaging of relevant services offered with the core product.

Two Examples

Two examples of how a more enlightened service innovation approach can create new revenue opportunities and satisfy customer needs help illustrate this point.

John Deere Precision Farming: John Deere has more than 170 years of history in manufacturing, especially in agricultural equipment. In late 1993, the company formed the Precision Farming Group, which encouraged employees to create new products and services that could more accurately satisfy the needs of customers. Today, John Deere has taken smart farming to the next level. Its Precision Farming service uses a GPS to track the concentration of water and other essential entities for crop growth in each quadrant of a field. The information is then used to distribute precise amounts of water, vitamins, and minerals to precise areas of the field using John Deere equipment. This innovative new approach helps farmers gain maximum yield by preventing a large amount of waste and ensures that crops are as healthy as possible. The result of this enlightened transformation is that the company can now offer a whole range of revenue-generating agricultural support services along with its main line of products.

GE Healthcare Transformation: GE has already undertaken many steps toward a dominant innovation approach. The company realized that offering a pure product is not sufficient in the modern market, and that more widely available and advanced healthcare can lead to a new usage-based service for clients. Advanced medical technologies are increasingly moving into the home. GE is therefore capitalizing on its ability to provide new types of information and knowledge to its healthcare customers to support more accurate predictions, diagnoses, and treatments. Better knowledge of the needs of each individual, gained by analyzing personal features such as body structure and medical history, is leading to “precision healthcare.” This would be the ultimate healthcare where no one is given the incorrect treatment, diagnoses are rapid and accurate, and people seldom fall ill since their medical and health needs are thoroughly mapped out prior to any incident. This is a key service area that GE is keenly working toward as it transforms from a productonly strategy to a much broader, customercentric, service-driven strategy.

The Future of Service Innovation

These are just two examples of how the move into more service-driven businesses can be both profitable and help companies get closer to customer needs. In a world where basic product competition is increasingly intense, a move into smart services can create opportunities that help ensure the future of the company. Dominant innovation offers companies an approach to developing such new productservice offerings, capturing previously “invisible” areas of value and creating a more sustainable and enduring relationship with individual customers around the world.

Reference materials

Dominant Innovation Template 2013