We are in the early throes of a Great Restructuring. Our technologies are racing ahead but many of our skills and organizations are lagging behind. So it is urgent that we understand these phenomena, discuss their implications, and come up with strategies that allow human workers to race ahead with machines instead of racing against them.1
—Erik Brynjolfsson and Andrew McAfee
The Great Restructuring is apparent to many who are engaged within and outside business enterprises. In addition to Erik Brynjolfsson and Andrew McAfee, authors such as Nilofer Merchant, Terri Griffith, Irene Ing, Linda Sanford, and Geoffrey Moore (all of whom are referenced in this book) are engaged in explorations of how to understand the rapid changes in the global economy and the emergence of new organizations, business models, and career paths.
Our small contribution to this exploration focuses on the customer experience. It has become clear to every business that customer relationships are changing quickly and massively in the digital era. Customers become frustrated, and migrate to disruptive offerings. Many large established businesses, abandoned by good customers, face stasis, low employee morale, and a dismal future.
Much of the problem stems from the failure of enterprises to serve customers as individuals. Businesses deal in aggregations, because aggregation is deemed necessary to realize efficiencies. They can monitor and manage segments, geographies, service lines, and brands, but not so much individuals. Yet the underlying trend in the digital revolution that is bringing about the Great Restructuring points toward the individualization of opportunity. Individuals can exchange information about their behaviors, preferences, values, and needs for a personalized service response delivered on a platform of their choosing. Moreover, businesses deal in objective outputs. Even though they are migrating from the product-centric world to the service-centric world, they continue to measure outputs. But the output of service is a customer experience, subjectively and idiosyncratically evaluated. This creates a new and different challenge for business strategists.
Old strategy tools wedded to legacy data, processes, and technologies are hindering rapid, intelligent, individualized response. Fortunately, there is an emerging alternative we propose, with the potential to change every aspect of business strategy.
Service and Service Science
The context within which our exploration takes place is the radical re-invention of value creation that is under way in the global economy, via the interaction of two vectors of change. First, the majority of value creation now occurs in services, and all economies are moving in the direction of an increase in the percentage of GDP generated by the services component.
Second, a large and increasing proportion of services are digital, that is, they are delivered digitally, involve some form of a digital interface, and are intermediated via digital technology, or both, often via a Cloud platform.
Service Science is an emerging field that strives to bring together many disciplines (computer science, information systems and technology, cognitive science, economics, organizational behavior, human resources management, marketing, operations research, and others) in an attempt to study and understand service systems.3
Figure 1. Service component of economies.2
Service Thinking
Service Thinking is a business model that derives from Service Science. It is the systemic application to the enterprise of a seven-point framework, which we introduce here for the first time, to establish the globally integrated service standard, and to identify the pathways to transformational service innovation and absolute competitive advantage.
The Impact of Service Thinking on Enterprise Transformation
Service Thinking offers new practical adaptations of business informatics that will transform enterprise design. New challenges are presented, such as new roles for provider and customer in value creation, the qualitative, subjective, and idiosyncratic nature of the customer experience, and new realizations of value in the form of value-in-experience and value-in-context. The enterprise must be re-engineered, including business architecture, resource allocation, and metrics. Engineers, specifically, who are designing service delivery via digital technologies, must be cognizant of the Service Thinking framework in designing for customer acceptance.
No framework or approach currently exists to design such enterprise responses, although there are partial contributions from multiple sources, including academic research, business research, computer science, analytics, and finance. The synthesis we propose is new. The result is a uniquely adaptive non-linear approach, with the potential to catalyze innovative new service initiatives.
The Service Thinking Brand
Our Service Thinking framework is a new brand of strategic modeling for business. It challenges conventional strategic practice. In that spirit, we offer the following Challenger Brand Manifesto.4
We are not the first to think this way. Prescient business writers such as Richard Normann foresaw emergent strategy as design and redesign of business systems.
In so volatile a competitive environment, strategy is no longer a matter of positioning a fixed set of activities along a value chain. Increasingly, successful companies do not just add value, they reinvent it. Their focus of strategic analysis is not the company or even the industry but the value-creating system itself, within which different economic actors—suppliers, business partners, allies, customers—work together to co-produce value. Their key strategic task is the reconfiguration of roles and relationships among this constellation of actors in order to mobilize the creation of value in new forms and by new players. And their underlying strategic goal is to create an ever-improving fit between competencies and customers.To put it another way, successful companies conceive of strategy as systematic social innovation: the continuous design and redesign of complex business systems.5
We believe the journey of continuous design and redesign of complex business systems can be guided by the North Star called Service, and propelled by the motivation to serve the individual customer.
What Exactly Is Service Thinking?
Where Does it Lead Us?
Service Thinking hinges on two overarching changes in the digital economy: (1) the relationship between provider and customer has changed dramatically and continues to evolve; (2) the design of enterprise operations to serve this new customer relationship is dramatically different from previous business architecture:
1. The change in the provider–customer relationship is driven by the unique customer dynamics of service:
1.1 The output of service is an experience, which is subjectively evaluated by the customer. Vargo & Lusch' Service-Dominant Logic (S-D Logic) Fundamental Proposition (FP) 10 states that value is uniquely and phenomenologically determined by the beneficiary. Since no two customers perceive and feel in the same way, and since individual customers perceive and feel differently in different times, locations, and contexts, service delivery is driven remorselessly toward individualization and personalization. The economics of individualization is evolving rapidly. Starbucks customizes its service and provides the experience of community; they offer much more than just coffee.
1.2 Now experiences are co-created. A service provider can only create a value proposition. S-D Logic FP 7 states that the enterprise cannot deliver value, but only offer value propositions. Not until the customer responds to the proposition by committing resources (e.g. in an information exchange) is experiential value created. Enterprises must elevate their skills in co-creation. Zipcar is a good example of a car as service to urban dwellers and provides specialization and integration into the offerings of a complex city transportation system.
1.3 The service experience is never a result of a one-on-one relationship between providers and customers. Spohrer et. al. (2012) state that service in context is always part of a dynamic ecology of evolving nested, network service system entities, providers, customers, authorities, and competitors. Customers constantly assemble and reassemble a set of service offerings in a service system to best meet their goal. They discard weak links and add new offerings with which they can create new value. Providers must fit in to customers’ service system and prove they provide new value to replace or supplement existing components. For example, banking services must fit in to customers’ life context of working, travelling, and using mobile devices in an unfettered way in any location.
2. Service providers have four ways to respond to the change in the customer relationship:
2.1 Business architecture and organization: Providers can best respond to the dynamics of co-creation and continuously evolving service systems via a componentized business architecture. Pohle et. al. (2005) and Moore (2011) state that outsourcing non-core components of the enterprise can free up needed resources to innovate specialized, and differentiated enterprise components. Weak links must be replaced with best practice service components from external partners. Strong components must be honed to absolute advantage. The internal and external components must be tightly integrated.
2.2 Scalable Glo-Mo-So platforms: Customers increasingly plug in to platforms that are global, mobile, and social for their service experience. Spohrer and Engelbart (2004) and Spohrer & Maglio (2006) state that individuals, enterprises and institutions augment their performance via a technology-enabled bootstrapping and continuous improvement processes that can co-elevate customer-provider service interactions through technology platforms. Providers must integrate with these global platforms for delivery, and embrace the social and mobile functions that are key to knowledge sharing and to scale.
2.3 Reallocation of resources (R-T-I): The dynamics of co-creation and service systems require continuous innovation. Sanford and Taylor (2005) state that entities (individuals, enterprises and institutes) must "let go to grow." Moore (2011) adds this discipline of letting go of the past can help "free your company's future from the pull of the past." The fiercest competitors find ways to reduce the cost of running today’s business (“R”) in order to transform (“T”), and innovate (“I”) in offering new value propositions for Customers.
2.4 Metrics: Service Thinking metrics provide better ways to gauge success. Kumar et. al. (2007) state that "value merchants" systematically derive meaningful key performance indicators for multiple stakeholders directly and indirectly connected via value proposition networks. Multisided metrics systems measure customer sentiment, non-customer stakeholder sentiment, and the attitude of authorities, as well as the output growth of the Provider.
Taken together Service Thinking is the systemic application of these concepts to the enterprise to establish and identify the pathways to transformational and disruptive service innovation.
Service Thinking and The Individualization of Opportunity
The driving energy for economic growth comes from the individualization of opportunity.
Each of us as individuals seeks to improve our own quality of life. That is the purpose of all human action, as suggested by Ludwig von Mises.6 When we serve, we exert our effort and apply our resources for the benefit of others, to improve their lives. The utility of human action is multiplied. The individual improves the quality of life of others at the same time as improving his/her own, in an ascending cycle of value co-creation that embraces enterprises, systems, cities, nations, and the planet.
The keys are (a) individualization organized within service systems combined with (b) specialization and integration. These two forces inexorably and irresistibly power the digital economy. The drive for continuous improvement and absolute advantage demands specialization—becoming better and better at serving the individual customer as a result of more and more specialized knowledge. Ultimately, this leads to individualization and personalization.
The drive for more and more complex and comprehensive systems—in healthcare, energy, transportation, finance, government—demands integration: the networking and knowledge sharing of systems nested in systems nested in even bigger systems. This sounds the death knell for the vertically integrated, self-sustaining enterprise that dominated the global economy in the second half of the 20th century. There is no better example of this than the extraordinary transformation of IBM from being the dominant computing-business-machines-company-serving-industry to becoming the leading orchestrator of data integration and smarter services for sectors that include healthcare, transportation, and many other private and public domains.
Service Thinking can translate to individual opportunity as well. The individual, by developing specialized knowledge, has the opportunity to contribute at any level to any system through integration. This can be as a one-person application designer in a smartphone service system, or an employee-by-choice making a unique contribution to a team project within an enterprise engaged in service, or a government worker who chooses to contribute to service in a civic system of city, region, or national governance.
Individuals can choose and design how to serve and contribute through the Service Thinking framework. If they choose to serve in a large enterprise, they will measure their contribution through a lens of evaluation that is more multifaceted than ever before. They may design their own engagement, and generate their own motivations.
If they choose to serve as single-employee enterprises or small start-ups or local service businesses, they may evaluate their contribution in equally varied terms, in how they serve the needs of customers, community, and other stakeholders.
The individualization of opportunity opens up vast new horizons of personal contribution and global growth. Service Thinking is its manifesto.
The Service Thinking Revolution Will Be in the Hands of Entrepreneurs and Regional Small- and Medium-Sized Enterprises (RSME)
The individualization of opportunity coupled with scalable platforms for the delivery of service will open up new growth energy. Historically, capital allocation has been undemocratic. It has favored large businesses with institutional access to investment capital, or, alternatively, a highly selected group of start-ups with relationship access to pools of venture capital. The Service Thinking future will be much more democratic.
Sramana Mitra, founder of the global incubator 1M/1M, is an evangelist for global entrepreneurs to use the bandwidth connectivity to access online learning, online access to capital, and online channels to build businesses. She states:
If we can democratize the education and incubation of entrepreneurs on a global scale, I believe that it would not only check the infant entrepreneur mortality, it would create a much more stable economic system.
Why? Because this middle of the pyramid—large numbers of small and medium businesses—is outside the reach of the speculators. If they produce something of value that their customers want, they can build stable businesses. They may not grow 300% a year. They may never become billion dollar enterprises.7
That’s Okay.
Too much energy in the business world today is being spent on high-growth businesses that go after very large business opportunities. All of the startup incubation eco-system of the world focuses on the venture-fundable businesses only. As a result, less than 1% of the world’s entrepreneurs are able to access high caliber incubation support.
My thesis is that the other 99% entrepreneurs hold the key to Capitalism 2.0: a system of distributed, democratic capitalism. Still focused on creating value, generating wealth, creating jobs, but not so focused on speculation.
Let’s Get Started
We have organized this book to explain and illustrate our Service Thinking framework for use by any business or enterprise of any size to increase opportunities. We emphasize that our approach is non-linear, and can be hinged in multiple ways. Nevertheless, a book requires a starting point, and we begin with the most important insights: value is created through the customer experience and the co-creation of value is the key to opening the portals to opportunity and growth.