Uncertainty Management in Service Innovation

The importance of innovations and innovation management is recognized in companies, research institutes and in the whole society. We also know that most innovations will not achieve commercial success. As a matter of fact, most innovations fail. New business creation obviously involves stepping towards an unknown future, and many kinds of uncertainties for decision making are involved. Renewal of the business, however, is the key to the long term success of companies. Companies will not be successful in the long run if they continue too long with a strategy that only fits the needs of today. IBM (2008) defines a service as a provider/client interaction that creates and captures value. The provider and client coordinate their work (co-production). In the process they both create and capture value (transformation). Services typically require assessment. During this assessment provider and client come to understand one another's capabilities and goals. [IBM 2008] A service innovation is a novel or significantly improved service concept that is brought to practice, e.g. a new customer interaction channel, distribution system, or technology. Service innovations include replicable elements that are part or all of a service outcome or service process. A service innovation benefits both producer and client while improving its developer's competitive edge. [TEKES 2008] An innovative service enterprise must have an ongoing process for moving from a relatively large number of perceived opportunities to a relatively small number of new service offerings. It must also have a process for reviewing and updating its current repertoire. With the co-production of value that often involves prolonged interactions over significant periods of time, services generate more time related risks and require more responsiveness to the changing needs of clients than do products. Methods currently used for the management of new innovation development are largely based on those of manufacturing enterprises [Ulrich and Eppinger 2004, Cooper and Edgett 2005, Kettunen et. al 2007]. Service innovations, however, are inherently much more multidisciplinary than innovations of manufacturing enterprises and, therefore, call for a graceful change of methods and procedures used for innovation management at different stages of the innovation life cycle. Service innovation typically needs four aspects of innovation to be successful: technological, business, social-organizational and demand innovation [Spohrer and Maglio 2005]. In the case of manufacturing enterprise innovations each the four are present but a breakthrough in one is typically sufficient. Therefore, service innovation is hard for enterprises focussed primarily on high tech [Spohrer and Maglio 2005]. This paper reports research on decision support at multiple critical decision points of innovation development and was originally motivated by an interview study about innovation management practices that identified management of future uncertainty as one of the main challenges faced by corporate executives. This work is a result of a joint study involving VTT Technical Research Centre of Finland and IBM Research. The paper gives an overview of the joint work in the field of service innovation development. In this joint work we have integrated separately developed techniques to produce a more systematic, more comprehensive, but highly efficient innovation management process for the new service development. Our approach is to link expertise in the area of service sciences and advanced technology foresight techniques at IBM and risk management of innovation development at VTT. The objective is to develop a framework model giving support to strategic decision making related to ideation, design, development, marketing and delivery of service offerings. This paper describes an innovation management process designed for efficient management of service visions (cohesive collections of ideas and plans for a service offering). This process provides strategic decision support throughout the design, development, and offering phases of the service innovation life cycle. It is constructed to make use of qualitative evaluation techniques, based on risk management methodology, early in the innovation process when faster, less expensive methods are preferred to more accurate quantitative techniques. It describes a method for generating, evaluating, and selecting service visions for advancement to the next stage. It also includes systematic processes for in putting plans on hold and actively monitoring signposts in order to time correctly both market launch and termination of a service line of business. The developed method is based on the framework of strategic decision making in the development of new innovations and new lines of business [Paasi et. al. 2008]. Here we illustrate its operation using specific potential service innovations as examples, including some real life emerging service business models. For example we studied what we thought was an entirely novel market service for allowing early trading of patent licenses, only to find that its forerunner already exists and is open for business [http://www.freepatentauction.com/]. Our method is built around the concept of a risk taxonomy, a combination of a prioritized taxonomy of service innovation risk factors with a corresponding decision tree. The risk taxonomy is a hierarchical organization of (possibly overlapping) risk factors. Relevant risk factors will depend on the stage of the service life cycle. Potential risk factors at the early, design stage of new innovation (service design) may different to those of development project (service development) and definitely different to those of running line of business (service offering). A risk taxonomy can be used as a checklist at decision points in the innovation life cycle. Risk factors are turned into questions used for obtaining qualitative expert estimates using approximate Delphi technique. Throughout the process, our focus is on performing the minimum amount of work required to support service innovation life cycle decisions.