The need for digital innovation in the service sector

A few weeks ago we discussed with a client on the possibility to replace their point of sales system with a modern solution built on Dynamics AX for Retail and a customized device UI’s. They provide a service to their customers with a POS and logistics of goods. Their current solution was very near end of life and they had heard that we built something in their industry they wanted to see.

For this client, service innovation is not luxury. It is what they offer to their clients. Today they deliver a single service and feel the pressure from other vendors. Even their customers demand more, something I discussed in my post on digital innovation and the bear experience. By not bringing new services and innovations to their customers, the market opens up.

If you are a service company, what you bring is unique value. At the moment you can be replaced, you will. To ensure that this doesn’t happen you need to create a chain of services. This client need to start innovate, start bringing more of digital to their customers or they will soon be out of business.

This could be thought as a simple product or service development. But as long as they just create monolithic services that can be replaced, they will. Service by service.

This is where we as technologists can help them. By bringing the latest in technology and marry that with their business knowledge – it is possible to create strong service chains that helps them bring new value to their customers.

For this client we discussed that in the addition of bringing our solutions and technical knowledge we could bring our iDays methodology. By embedding an innovation methodology into their processes we could aid them staying ahead of their customers.

I believe that this is the future of the consultant industry. It will not be in answering RFP’s, but to co-create value in a process where we bring technology insights and cross market experience to a business that wants to move a head.

From Software as a product to Software as a service

This is a reflection I’ve done as an assignment for a class I am taking at Karlstad University on Service Innovation.

How does the shift to service dominant logic affect the software industry? Is it possible for the software giants to provide value in use instead of value in exchange? How can they bring innovation to their customers and how do they work with networks to do so?

This text examines how service dominant logic is changing how software vendors are approaching their business, their partners and their customers.

The force in SalesForce.com

In 1999 SalesForce.Com declared “The end of software”. What they really meant was “The end of software as a product”. Since then the software industry has increasingly moved towards providing their software as a service and customers are applauding this shift.

This makes business push software companies to deliver a higher value faster. They expect new features, new services and new value without the requirement of running IT-projects.

All the major software vendors have had to adapt and are now focusing on providing the function, not the binary bits. Which gives their customers value in use.

Enter software as a service

SalesForce.Com is a pioneer in providing software as a service. In the late 90’s they had, correctly, identified that the real value to their customers where not the product but the functionality, the use. They also identified that CRM is moving at a high pace, innovation is happening all the time and it is hard for companies to keep up. The CEO Mark Benioff’s vision is to help their customers to transform into, what he calls, “a customer company”. Clearly using their software as just the platform, a piece in the service chain, to help their customers achieve their end goals.

There are several examples of this today. Companies like Adobe with Creative Cloud – Creativity as a Service, Amazon with infrastructure as a service – Hardware as a service, and Microsoft who has set out to deliver the complete IT as a Service experience to their customers.

Microsoft has changed their business strategy and today their mantra is “lead with cloud” which is an IT synonym for delivering as a service. For them it started delivering infrastructure for web sites as a service in 2008 and today they are offering their complete office suite and Microsoft Dynamics CRM as online services on top of a complete stack of infrastructure services. This strategy is transforming the company not only in how they deliver the software, but also how they recognize value for their customers.

Microsoft is transforming their value metrics from value in exchange to value in use. During their fiscal 2015, sales will no longer be measured in sold licenses but in the extent their customers uses their software.

To achieve this, they are reaching out to their network of partners to find innovative solutions for their customers on top of their service offerings. Avanade is an example of a partner that is doing this together with Microsoft and their customers. Partnerships that has created business innovations like the connected fitting room and predictive health analytics using Microsoft’s software.

The new norm.

Some critics claim that this is just a different packaging. That the software companies are still thinking in terms of products and that the addition of value in use is limited.

Microsoft’s shift to metrics based on usage and the vision of SalesForce.Com CEO Marc Benioff clearly shows that this is much more than just a shift in packaging.

This is a shift in business models for software companies to adapt a service dominant logic over a goods dominant logic.

It is quite clear that software companies are thinking more in terms of service then products. There are several reasons why we are seeing this shift but the common theme for them all is that business wants to see value in use of their IT investments and have no interest in running costly IT projects without predictive results.

It is also quite clear that they will not be able to deliver on this shift by themselves. To understand what services to deliver and to understand what value can be realized, they need to partner with others.

This shift has been more rapid the last few years and in a few more we will have seen a large portion of the software industry transformed to a truly service dominant industry.

Read more:
Digital Innovation and the Bear Experience (blog post)

Digital Innovation and the Bear Experience

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Everyone is talking about innovation and digital. The words are getting washed up completely and it’s fair to ask if this is a hype that will pass. I’d argue that it won’t. I’d argue that this is the new norm and it will be commoditized just like having a “home page” or an “app” have.

The driver behind this is our expectation of experiences. We do not want to exchange money for things anymore, we expect that for what we pay, companies should give us an experience.

Build a Bear

Build a bear is a prime example where a simple product becomes an experience. They have turned the cuddly bear from a toy you buy and play with to a toy and a service.

As a customer you start by going to their store and build your bear. You go through the experience of selecting body, head and accessories. You pay more for fancy stuff of course.

Image from careers.buildabear.com

What is unique is that the bear then get’s a virtual persona where you can play with your bear online, send it to the north pole and you will receive post cards from it’s trip.

Build a bear has been innovative around the cuddly bear. They’ve turned a toy product into a service they can charge a premium for.

Moving from products and services to experiences.

We expect experiences with what we buy. No matter if it is a product or a service. This can range from your café experience to buying a car.

A business that wants to stay relevant and not get into a price war needs to start building these experiences for their customers. They need to shift from product innovation to service innovation.

Build a bear does this beautifully. They are not throwing themselves into a price war where the only increase in margin can come from lowering their cost of manufacturing. They create experiences that are unique. Experiences they can charge a premium for. By adding more services to the experience they make it hard for a competitor to copy their service chain without a huge investment up front.

At Avanade we see this shift in most of our consumer goods clients. They are all trying to figure out how add to the experience and turn their products into services. In our services clients we see a push to chaining services together to make their unique experience hard to copy. Banks are investing heavily in this now. Moving deeper into your household economy with apps and online services.

This is only logical. We as consumers, or buyers, are lazy. We want our experiences to be easy. If my travel agency takes care of everything for me, I’ll pay for that service. If my coffee machine maker calls me when I need to cleanse my machine, I’ll pay a premium for the machine. If my phone gives me all the services I need. I’ll never switch.

Same old, same old?

We have of course always loved it when the customer service is great. We gladly tip our waiter if we had good service. In that sense, turning products into services and chaining them together is nothing new. What is new is that companies that aren’t pure service companies are investing into this. They are switching from gaining value in the exchange of goods to gaining value in creating experiences.

There is an opportunity for you here.

One of the most important enablers of this is technology. As developers, architects and technology leaders we play a huge role in creating these services. Build a bear wouldn’t be successful without the technology component, nor would the banks.

The shift from product dominance to service dominance is a huge opportunity for us as technologists to truly disrupt and create unique values. Most businesses do not understand technology as well as you and have a hard time to turn technical advancements into innovation for their market.

There is a huge amount of cool work to be done. Go fetch.

Read more:
Service Dominant Logic (wikipedia)
Service Innovation – A Service – Dominant Logic Perspective (research paper)
Competing in a service economy (eBook)
From Software as product to Software as a Service (blog post)

New role, new focus – CTIO Patrik Löwendahl

Fotolia_71219196_Subscription_Monthly_M I joined Avanade March 2011 with a challenge presented to me; head Avanade’s collaboration business. It was my first step from being pure technical into a business role. Three years down the road and here we are.

In June I was asked to step into the Swedish leadership team as our Swedish Chief Technology and Innovation Officer – a role that started in Avanade with my old colleague Florin Rotar moving to Seattle stepping into the global CTIO role.

Satya Nadella had a profound quote in his first speech as CEO:

“Our industry does not respect tradition – it only respects innovation.”

With this in mind a role like this in a company like Avanade with it’s ties to Microsoft makes a lot of sense. I gladly accepted.

This of course changes things for me.  This is a new journey. A journey I decided to share on the blog. The blog will re-focus on digital, bleeding edge technology and innovation. Less code, more ideas.

If you want to join me on this journey you can subscribe to the RSS feed, join me on Twitter or add me on LinkedIn.

Looking forward to seeing you around.