Service Innovation: The Next Big Thing

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Such an information resource could help service innovation evolve from a fairly common business practice into a more formally recognized field, by allowing researchers to uncover profitable patterns among companies implementing innovative services.

And the SRI Initiative's future online social-networking and public archive features could distinguish the SRI initiative from earlier industry groups, such as the San Carlos (Calif.)-based Consortium for Service Innovation, founded more than a decade ago. That nonprofit organization's list of tech benefactors and advisers has some crossover with that of the SRI Initiative (Microsoft and Cisco, e.g.). It offers white papers, workshops, and conferences for members to learn how to improve their customer-service programs, as well as a members-only wiki to share ideas. The SRI Initiative's plans to formally involve educational institutions and government funders to collaborate with corporations—perhaps the next step in gaining widespread acknowledgement for both the idea and practice of "service innovation"—should further distinguish the two organizations.

No Overnight Success

But even with the growing number of consortia with service innovation in their titles, the concept won't achieve the recognition of say, management theory or supply-chain analysis overnight.

"It's a very broad field," says Jeneanne Rae, president of Peer Insight, a service-innovation research firm based in Alexandria, Va. "There's no quick elevator pitch for defining 'service innovation.' It's extremely complex and involves many diverse environments and the management of diverse types of people."

While academics and business leaders could afford to ignore the study of service innovation in the past, when the U.S. economy was driven by manufacturing, the situation is changing. Recent statistics illustrate that services, in a wide spectrum of industries, are becoming a dominant force in the U.S. economy. The latest data from the Bureau of Labor Statistics (published in December, 2005) projects that the service-providing sector of the U.S. economy will see the highest employment growth by 2014.

Growing Notice from Academia

The 10 industries with the most dramatic salary growth are all in this service-providing sector, ranging from employment services to education to health care. In contrast, employment in the manufacturing sector is expected to drop 5% by 2014, and goods-producing industries will decline to 13% of total American employment in the decade 2004-14, down from 15% in 1994-2004. And the trend is global: Service workers now outnumber farmers for the first time, according to the January, 2007, issue of Global Employment Trends, a newsletter published by the International Labor Office.

Economists and academics are paying attention to such changing stats, evident in the increasing number of research papers written on service innovation. A year ago, for example, organizers of the Frontiers in Service conference in San Francisco, the largest service innovation thinkfest in the world, received 181 abstracts of research papers to be considered for presentation. This year, the number of proposals for the conference which takes place Oct. 4-7, 2007, nearly doubled—to 309.

"Service innovation simply reflects the new playing field of business," Rae says. She points out that technological advances, which allow for service innovation opportunities such as live instant-messaging with a consumer representative while shopping online, combined with consumers' increasing demands for faster and better services, have made service innovation an important part of top companies' competitive strategies.

How to Jump on the Bandwagon

"Consumers' increasingly higher expectations demand business models in which services are seen as added value to products" from cars to personal electronics to clothing, Rae says.

So it's not just technology companies that can benefit from service innovation. At the recent Service Innovation Design & Development conference in San Diego last week, Rae presented a chart of the revenues of top nonenergy firms in the U.S., from Wal-Mart (WMT) to General Electric (GE). On average, in 2005, the 10 companies Peer Insight analyzed saw 65% of 2005 revenues from services. Moreover, those companies saw an astounding 85% of 2005 profits from services, according to Rae's proprietary research.

So where does a company eager to jump on the service innovation bandwagon begin? The newly minted SRI Initiative has come up with suggested paths of action, stated as the organization's own goals. For corporations, the SRI proposes setting and funding long-term research and development budgets. For academia, the SRI suggests service-centered courses and degrees. For government bodies, the SRI prescribes sponsoring university and applied-research organizations. All three entities should ideally foster commitment to participating in service research projects alongside each other.

While the strategies put forward by the SRI Initiative are tailored to technology companies, corporations in other fields could use them as an early guide to navigating the new field of service innovation.

Jana is the Innovation Dept. editor for BusinessWeek.