The concepts of innovation and sustainability give projection to the service and constitute real challenges for the permanence of the businesses in the market. The ever-changing user expectations and the highly competitive business environment demand from companies and their leadership creative and innovative responses contribute to their stability and continuous growth.
The cases of innovative and sustainable services such as Uber, Cabify, Lyft, and so forth in the transportation network company sector and Airbnb in hotels and hospitality, and so on, are known as well as the potential for innovation in the services identified in each phase of the manufacturing process:1, 2
• Services associated with the consumer: the role of the customer, the delivery of the product, and the point of consumption.
• Services associated with the product and related to its nature and presentation.
• Services associated with production: technology, skills, operations, organization, and so on.
• Services associated with the market: types of entities or markets, regulatory and marketing matters.
These purposes permeate the servitization strategy, take shape, and define its own perspective and entity.
The servitization construct is conceptually an innovation model by referring to the transformation process from a product-centered business form to an integrated system of products and services that proposes strategic and competitive benefits to the company. From this perspective, servitization involves challenges and the first is in the purpose of achieving the visualization of new value proposals that impact the integral chain of business profit.3, 4 In this regard, it has been possible to develop schemes that facilitate the identification of service types and roles, as well as axes of innovation in the development of strategies in product companies, considering when these and their business structures complement, replace, or create products and services.
Innovation Axis by Service
This classification of services guides the action of the innovation process by separating them into three groups:
(a) Associated services: They facilitate the sale and use of the product without altering its functionality. They are the services of operation, technical support, maintenance, mentoring, training, and among others. They are inherent or added to the product and can be offered by the company or a commercial partner.
(b) Adaptation services: They are integrated into the product to extend its functionality or provide it with new uses. These services are commonly known under the concept of personalization or customization and require a greater exchange of knowledge between the manufacturer and its user/consumer.
(c) Substitute services: These services replace the purchase of the product, and the consumer mainly pays for its use. Also known as Advanced Services, they represent a level of evolution in the servitization strategy of manufacturing companies and constitute the Product as a Service or Product-Service System model (PAAS and PSS, respectively), today of wide interest and application in the sector.
The Product as a Service is also an economic model different from the traditional linear buy-spend-discard model, where the consumer discards it when he no longer needs the product. In the context of the circular economic archetype (circular economy), the disposable product returns to the producer where it can be recycled or given a new use or application.
This circular connection gives the PAAS/PSS model a significant value for companies that seek to boost the profitability of their products, strengthen relationships with customers, and launch new sustainable business lines.
Well-known companies in the manufacturing sectors benefit from the PAAS/PSS model, such as Xerox, Hp and Lexmark, Rolls-Royce and General Electric, Philips, Apple, John Deere, among others.
Innovation Axis by Product Life Cycle
Another axis of innovation in the servitization process is the analysis of the stages of the product or industry life cycle. This opportunity to adapt services is presented, previously taking into consideration at the beginning of the life cycle that the level of cost and uncertainty related to the product and the market are high, and that as the phases of the life cycle advance toward their maturity, these conditions diminish, and the services acquire more relevance.
In the case of replacement services, although they may arise in the initial phase of the cycle as in cases of extreme uncertainty, they are more frequent in the maturity stage, when companies seek to expand the market to attract new customers who cannot pay or they do not consider the purchase of the product useful, profitable, or of interest. These options depend on the type of industrial environment of the company. From the standpoint of Schumpeter’s Creative Destruction theory,5 companies choose product-oriented services in industrial settings, while customer-oriented services are more sought-after in-service settings. This is because product companies do not necessarily follow the product-service continuum.
These services respond to requests and opportunities that one faces in the life cycle of the industry. Additionally, they aim to complement and leverage each other and expand product sales.6, 7 Consequently, various service strategies result in different modes and levels of servitization, which in turn require appropriate reconfigurations of the business model.8
Innovation Axis by Company Size
Servitization as a business innovation model is nourished by valid and effective innovation models that help to visualize and holistically identify the manufacturing process to analyze its possibilities in terms of adding value as services. The Business Innovation Assessment, a proposed logical scheme to guide the identification of innovation opportunities, serves as a reference for this purpose:
This framework identifies five key areas with its main points of search for opportunities in a business innovation process from its initial value proposition and all the way down to the end customer: (1) user/consumer, (2) portfolio, (3) manufacturing, (4) marketing, and (5) meeting place:
1. User/Customer
Understanding the user and consumer of the company’s products and services in its broadest dimension is key to success in identifying innovation opportunities. The effective analysis of this area of innovation in its more extensive concept (user, consumer, and market) and based on what really matters and influences giving, collaborating, or purchasing decisions. This understanding allows the company the opportunity of discovering new customers, segments, or unmet needs, wants, expectations. Two main drivers of innovation are highlighted here:
(a) The Interaction Experience: The user experience at every moment of their interaction with the business at any meeting point. Innovating here means rethinking the company’s approach and contact with its customers as well as its environment. Data analytics, research like focus groups, in-depth interviews, social media analysis, and feedback from existing customers are all helpful for that purpose.
(b) Value-added: The enhancement in quality, service, value, or extent that the company creates for its products or services and is perceived as important, useful, or beneficial by customers. Expanding the ability to co-create value from interactions with its customers in an array of sources and without developing sophisticated and expensive methods or systems.
2. Portfolio
The set of all items (products and services) offered by the company. The analysis of this innovation phase provides the opportunity to discover and develop new products and services that are valuable to customers. Two key factors of innovation to explore are as follows:
(a) Model: The archetype used by the company to design and develop a diverse, derivative, and differentiated value proposition of products and services. This often-underestimated factor is a potential source of considerable value creation. A good reference in this regard is the pattern used by the automotive industry in its variety and endless designs.
(b) Solutions: It is the customization, integration, and information of a product or service that solves the situation or problem of a user/consumer. The variety and depth of the company’s assortment is a good example of value creation in this factor.
3. Manufacturing
The scaffolding of processes and activities used to carry out the operations of the company. Finding the best way to perform more efficient operations, with higher quality or with more punctual delivery, is an opportunity offered by this phase and it has been the basis for the success of many companies that have taken advantage of it. This stage offers three central factors for innovation:
(a) Structure: It refers to the organizational structure of the company. The way in which the company aligns its associations, roles, and responsibilities with its collaborators and allies. Innovating along this factor means rethinking the scope of the company’s activities, as well as redefining the roles, responsibilities, and incentives of the different business units and people.
(b) Supply chain: The network (activities, people, entities, information, and resources) between the company and its suppliers to produce and distribute products and services to the final user/consumer. It represents a sequence of steps that serve to scrutinize sources of innovation. The company’s ability to streamline the flow of information through this sequence of steps results in innovating its structure or improving the collaboration of its participants.
4. Marketing
The activity, processes, and agents for creating, communicating, delivering, and exchanging value propositions for customers. Market intelligence and database analysis make this axis of business activity a valid, effective, and large source of information and communication for innovation in the company.
5. Meeting place
Channels and meeting points that a company uses to offer its portfolio to the market as well as the user/consumer where they can get their products or services. Innovation in this area involves creating new outlets or using existing ones in creative ways. Particular attention must be paid to the convenience and comfort of the user at the meeting point. The service environment is key to success in user experience, satisfaction, and trust.
(a) Networking: The connection of the company’s products and services with its users or consumers. This connection when converted into a franchise results in a competitive advantage for the business. Innovating in this area means strengthening and expanding the network to increase the value of the company’s offerings.
(b) Branding: The symbols, words, signs, or distinctive by which a company communicates its promise of value to users/consumers. Extending or leveraging your brand creatively is the way to innovate in this factor, associated with marketing strategies.
Assessing each of these main business components in terms of innovation requires a holistic and exhaustive vision, considering the user/consumer needs and expectations, the attributes of each product and service based on their distinctive qualities, as well as their contributions, and its organizational structure and operations.
How to measure innovation in the company?
The management of innovation in business requires, in addition to identifying potential areas of innovation, defining, and communicating the appropriate evaluation metrics. Chapter 3 on service compliance management describes a general set of indicators relevant to their performance, taking as a reference the well-known model of the four perspectives: The Balanced Scorecard by the authors Kaplan and Norton.9, 10 Based on the innovation axes of a business, described earlier, a set of indicators are identified and established by way of illustration:
Table 5.1 Innovation metrics
Phase | Indicator |
User/consumer | • New customers, segments, or unmet needs • New experiences • Value recovery/recapture methods • New income streams • Novel pricing systems |
Portfolio | • New and innovative products and services • Quality and reliability level • Technological application level • Reduction of the product and service development cycle |
Manufacturing | • Innovations in production and processes: performance and benefits • Refinement of the supply/delivery model for greater efficiency, higher quality, or faster cycle time • Rethink company activities • Redefine the roles, responsibilities, and incentives of different business units and individuals • Information flow through the supply chain, change its structure, or improve the collaboration of its participants • Technological investment/application level |
Marketing | • Reach & Engagement • Actionable ideas (having practical value) • Innovation costs and benefits • Cultural impact |
Meeting place | • New points of purchase/meeting • Redesign of existing ones • Improve the network to increase the value of the offering • Extend or take advantage of the brand |
The concept of sustainability in practice refers to the integration and reconciliation of environmental, social, and economic values to maintain life in the long term. Its application is common to any process, whatever its nature: product, company, sector, and so on. In this context, servitization is a potential opportunity to incorporate socio-environmental values in the process of co-creation of value with the user by infusing the principle of sustainability in the process of preparation, delivery, and experience of the service.
“Service and the dominant logic of service11 that drive today’s global economy permeate all aspects of daily life and shape social and natural environments.” Also, the service activity requires physical and nonphysical resources with potential short- and long-term effects on both a local and global scale. From this perspective, the quality of intangibility and the perishable nature of the service, its cyclical and transformational continuity over time without negatively affecting the natural or social environment, impose the design, development, and delivery of sustainable services.
What is a sustainable service?
A sustainable service is understood to be that one that meets the needs and expectations of the user and remains innovative over time without negatively impacting its natural or social environment. Based both on the intelligent and efficient integration of physical and nonphysical resources and on behaving with environmental and social awareness, sustainable service also carries substantial economic benefits.
The adoption of this quality in the servitization process promotes the creation of sustainable services while transforming the user into a permanent agent of sustainability. It is to be observed, as Wolfson12 points out, that the sustainable service adds in its unidirectional, bidirectional, and partner composition, a cogeneration of direct and indirect values to other users or actors in the process, and to while grounded in the succession of social, environmental, and economic values (sustainability), they approach the concept of ecosystem services, that is, those benefits that people obtain from nature.
How to infuse sustainability in the generation of services in the servitization process?
The application of the concept of sustainability in addition to the services of the company’s integral value chain is an opportunity to revitalize the mutual connection between sustainability and service. A relationship, that is an integral part of the interaction and a means through which sustainability is produced and delivered, defines a continuity of the service from generation to generation.
Wolfson’s sustainable service model,13 which serves as a reference for the inclusion of the concept of sustainability in the servitization strategy, suggests seven criteria for the design, development, operation, and implementation of a sustainable service; among these, the following stands out:
1. Sustainable value: Sustainability must be an essential part in delivering value as well as a service in itself.
2. Co-creation of value: The integral process of value co-creation must be included from the service delivery structure and the participation of the user in the interactive process of resources, activities, and capacities.
3. Total and continuous value: These qualities must be inclusive and receive due attention.
4. Life cycle of the value: All phases of the service life cycle including physical and nonphysical resources must contain the concept of sustainability.
5. The intangibility of value: The appropriate solution must be based on an intangible value.
With these criteria in mind, the conceptualization of a sustainable service comprises three phases:
1. Identify the essential components of the service value chain
(a) Identify the value proposition of the service.
(b) Identify the provider and user of the service.
(c) Identify and characterize the main operational and technological processes involved in the production of the service from the provider to the end user and how the end user makes use of them.
(d) Identify and characterize suppliers, supply, indirect users, and interested parties.
(e) Identify the distinctive attributes (associated values) of the service proposal.
(f) Identify the resources and capacities required for both the provider and the user of the service.
(g) Identify the environmental, social, and economic values of the service.
(h) Identify the responsibilities for the sustainability of each actor in the production, delivery, and use of the service.
2. Engineering and service project
(a) Qualify and quantify the use of physical and nonphysical resources: materials, energy, infrastructure, efforts, information, and knowledge.
(b) Identify the short- and long-term effects, as well as the local and global impact of the service.
(c) Qualify and quantify the distribution of resources and tasks between the provider and the user and between the value proposition and the distinctive attributes of the service.
3. Alternative proposals
(a) Identify alternate routes to supply the same solution.
(b) Identify support services to ensure the sustainability of the service proposal.
(c) Compare the options by following all the steps, resources, values, and so on.
The Environmental, Social, and Economic Values of the Service
How to identify the sustainability components as values in the service design?
Knowledge of the broad meaning of the term value contributes to the understanding of sustainability and its components as inherent values of the add-on service proposal. The philosophy underlying this consideration is the conception of values as moral and ethical precepts that underpin human behavior and their integral connection with education, culture, and experience, as well as with the place and time of their exercise. In short, value is commonly part of a value system that guides people’s behavioral preferences in all situations.
The essence of sustainability in the service, including its industrial origin of manufacture, is in the optimal use of physical and nonphysical resources involved in the process and in attention to their categories of reduction, reuse, recycling, recovery, or regeneration to achieve efficient performance in the environmental, social, and economic dimensions of its composition.
(a) The environmental value: It is the option of adding value to the service, based on the maintenance and conservation of the ecosystem and biodiversity through the efficient use of the tangible resources involved in the process and the anticipation or control of its polluting effects.
(b) The social value: It is the option of adding value to the service by including social elements related to changes and positive impacts on the experiences and daily life of users and society in general with the service. The health, education, and welfare services, among others, are aimed at the provision of social values.
(c) The economic value: Generally referred to the price. However, the price of a product or service quantifies a wide range of factors whose value is still not entirely clear and which has given rise to many valuation methods and strategies. Among the price considerations are mainly the user/consumer, their needs, expectations, habits, social stratum, and so on, where it is necessary to distinguish between cost and value as well as exchange value and value in use. Consequently, the profitability of a product or service is associated with the satisfaction and loyalty of the consumer/user whose purchase decision is guided by the perceived value and the value in use of their experience with the product or service.
The process of evaluating physical resources to make a rational use of them in the established dimensions has given rise to the technique of “product life cycle analysis.”14, 15 The analysis starts from the extraction and processing of the raw materials that are used in the second phase of its manufacture. It continues with the third delivery phase that leads to its use where it should be kept or returned to the cycle for reuse or recycling, or concludes the life cycle with its disposal.
In this section, it is worth mentioning that the idea of the circular economy or restorative model emerges from the environment of sustainability and environmental quality, which gives foundation to the PAAS/PSS model indicated at the beginning of this chapter. A paradigm on the rise and alternative to the traditional linear economic model in three steps: take-do-discard.
From sustainability, service provision involves not only socioenvironmental awareness or mentality but also the efficient use of tangible resources and the anticipation or reduction of their possible polluting effects. The product life cycle analysis scheme contributes to this purpose to identify and consider the treatment of these dimensions:
1. Describe the life cycle of the service with respect to the tangible resources used
2. Analyze and evaluate the inclusion, use, and disuse of the resource in each step of the process:
(a) Collect information and direct and indirect data: polluting resources, facilities, landfills, and wastes.
(b) Establish key performance indicators.
(c) Identify the steps of the cycle with the greatest use of resources and polluting emissions.
3. Seek clean services and technologies that prevent, reduce, or replace, or increase the efficiency of the resource at each step.
(a) Identify the steps of the process where the addition of services or clean technologies has the relevant potential for improvement.
(b) Find the appropriate clean technologies and/or services.
(c) Identify the limitations or restrictions for its implementation.
(d) Identify the relevant indicators and compare with the possible alternatives.
These principles and approaches to sustainable development, conceived in the ecosystem of the service and integrated into the servitization process, add value beyond the scope of the service itself by inherently contributing to the social well-being and the conservation of natural and artificial ecosystems.
Application Exercise
Sustainability Strategies in Service
Objective
Strengthen knowledge and develop skills to identify resources and polluting impacts in service and apply strategies for their prevention, reduction or replacement, and increase of its efficiency.
Instructions
Applying the product life cycle analysis scheme:
(a) Describe the life cycle of a service (service journey map) of your interest from the perspective of the tangible resources used.
(b) Identify tangible resources, their polluting impacts, and efficiencies.
(c) Define strategies to prevent, reduce or replace, and increase their efficiency.
(d) Identify the limitations or restrictions for its implementation.
(e) Identify the relevant indicators.
Outcome
Appropriation of knowledge on sustainability and development of capabilities for identification resources and pollution impacts as well as strategy design and application in services provision.
Final Acknowledgment
Upon completing this application exercise, the reader will have acquired sufficient knowledge about the sustainability concept and managerial capabilities to provide services in an environmentally secure manner.