Mid-term Report on Research into Service Innovation
April 21 (Friday) 2006
Previously in this column I discussed the progress of our research into service innovation here at FRI. The last post presented our thoughts concerning the essential activity of service as communication between entities. Today I wish to suggest that the very practice of dividing the activities of entities into “manufacturing” and “services” holds little value. Within manufacturing itself, communication between entities is an important activity, and thus this can be thought of as service. Therefore, it seems unnecessary to draw distinctions between manufacturing activities and service activities.
With this in mind, considering services and innovation therein in more specific terms allows us to make the following remarks.
1.Traditional Distinctions between Product Innovation and Process Innovation
In Japan, there has been much debate about conceptions that Japan is traditionally strong in process innovation in manufacturing activities but weak in product innovation, or that the U.S. and Europe are more advanced in product innovation and thus Japan should learn from them. However, when revisiting the fundamentals of “communication and innovation” it is clear that there is really no need to distinguish between product innovation and process innovation.
Instead, it is important to define innovation as how communication is conducted between entities and between organizations, and to what extent the efficiency and effectiveness of such communication can be improved. Defining innovation in this way transcends distinctions between manufacturing activities and services, or between product innovation and process innovation. In other words, it becomes clear that what is most important is the clarification of the fundamental act of innovation.
2.Consumption and Consumer Behavior
Services are the realization of consumer demands. If consumers' desires change, so to must the concept of services. As a result, the paramount theme of service research is understanding what consumers demand, or in other words, anticipating consumers' needs.
Here it is important to distinguish between consumer wants and consumer needs: “needs” are consumers' demands concerning actual goods and services; in contrast, “wants” are consumers' thoughts and desires that aren't captured by actual goods and services, or else desires that consumers are unable to express. In other words, needs are conscious demands, whereas wants are subconscious demands.
The fundamental root that defines innovation in services is translating these “wants” that consumers are unable to clearly express into tangible products. The key factor that controls service innovation is, therefore, how businesses can grasp these wants and commodify them.
3.The Utility of E-Commerce
Amazon and other e-commerce stores feature functions that analyze people's buying behavior and recommend products to individual customers via a method known as collaborative filtering. In e-commerce it is easy for retail stores to collect and analyze data on buying behaviors, and thus they are able to anticipate consumer wants and use this information to fuel future product development. Additionally, such stores are able to receive customer appraisals and complaints on website bulletin boards and analyze this qualitative data via text mining. This allows e-commerce stores to determine customer wants before the customers themselves are aware of them, and respond through tangible product design based on these subconscious desires.
In this way, this kind of e-commerce that uses IT is one example of service innovation in which companies exploit a wealth of information to anticipate people's wants and connect this with new product development.
It is my hope to develop this conceptual structure of service innovation even further, to accumulate more empirical research, and to conduct deeper analyses in order to craft a more effective theoretical hypothesis.
Building upon this research, on July 6 FRI will host a workshop for experts and specialists aimed at developing a more fundamental and workable ethos of service innovation.