Innovation in service businesses: the ‘secret sauce’ of innovation leadership

For service operations, innovation is obviously important. It can enable service organisations to raise quality and productivity levels, meet changing customer needs, and overcome superior competitor offerings. But those service organisations looking to develop innovation leadership face a number of challenges—some obvious, some less so.

Typically, for instance, a lot of the research into innovation leadership has focused on manufacturing companies, not service operations. Moreover, unlike manufacturing businesses, it’s unusual for service organisations to have a formal R&D department. Furthermore, in services, the customer is frequently a co-producer of the service.

Roll it all together, and what is usually found is that innovation in service organisations tends to stem from the operations function—including front and back office employees—rather than from some function or department formally tasked with innovation.

Whose job is ‘innovation’?

Which poses something of a problem for service businesses looking to develop innovation leadership, of course.

Rather than simply assign the task to some innovation department, they must inculcate an innovation and service development capability among their—often hard-pressed — operations employees.

More precisely, with innovation leadership as the focus, they must not only disseminate an innovation culture among as wide a group of operations employees as possible, but also get that group to innovate faster, so as to enable the business to accelerate away from its competitors through a superior innovative performance.

It’s a tall order, in short.

Strategic innovation

And yet, among a group of service operations that our research at Cranfield followed in depth over a five year period, some service businesses managed to achieve just that.

We termed them ‘strategic service innovators’, as opposed to the more tactically-focused ‘tactical service innovators’ comprising the greater part of the sample.

At the 'tactical service innovators' we studied, service operations made year on year innovations in support of company performance, but had no influence on strategy. Instead, their innovations simply supported and delivered on the existing business strategy.

But at the 'strategic service innovators', their innovation capability not only supported current performance, but also opened up new strategic directions for their organisations, presenting senior management with the opportunity to devise a new business strategy.

Skills = good, competencies = better

So what distinguished the two groups of operations employees?

Well, it wasn’t their technical operation skills. All the companies we studied were unswerving in their efforts to improve the technical skills possessed by their operations staff.

But among the ‘strategic service innovators’, the improvement in technical operations skills possessed by their respective workforce was a prelude for the pursuit of behavioural competencies, which started to dominate their training agendas.

The client services director of  one of the ‘strategic service innovators’ summed up the competitive innovation edge of his business like this:

“It’s now more and more about behaviours [of our service operations workforce]. It’s become less about what you do, and more about how you do it.”

In other words, when employees develop behavioural competencies in addition to their technical operational competencies, this combination leads to the development of an innovation capability that can genuinely help to formulate business strategy.

For service innovation, think operational competencies

What to take away from all this?

The key finding is obviously that service organisations can not only positively impact their ability to innovate, but more importantly, use that enhanced innovative ability to make a genuine contribution to business strategy formulation.

But secondly, within such service organisations, it’s very evident that support for personal growth—through coaching, mentoring and greater self awareness—should become a passion of the operations function.

For while technical operational skills can be taken as a given among high-performing service organisations, superior behavioural competencies can’t.

And for service organisations where innovation leadership is on the agenda, a focus on developing such competencies is likely to pay definite dividends.

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