Reduce Risks of Service Innovation by Experiments

With experiments, you can test critical assumptions and success factors of your service innovations to avoid risks and increase chances for success.

Summary

With experiments, you can test all critical assumptions and success factors of your service innovations and make better decisions before scaling up investments and implementation. As a result, you will only pursue the viable and valuable ideas, will not waste resources on unsuccessful ideas, nor jeopardise today’s business, your brand and the confidence of stakeholders and colleagues in your innovative initiatives.

Do you experience pushback when you try to get momentum in one of your essential service innovation initiatives? Does your top-management or other stakeholders raise questions like;

• Is it the right thing to commit to and invest right now?
• What is the expected ROI?
• Do customers ask for it?
• Will it not potentially jeopardise current business, brand and customer relationships?

Or, have you experienced that innovations failed, after investing a lot of resources?

You are not alone!

The Problem

One of the critical questions is: How can you reduce risks of service innovations and at the same time improve the quality and capacity of your innovations.

 All of your ideas for service innovation are based on critical assumptions about;

• The problem of your clients
• Your envisioned solution
• The ability to capture the value
• The ability to deliver the value

 When any of these critical assumptions is not true, your innovation will fail;

• Your clients may not experience the problem you are trying to solve
• Your envisioned solution is not seen as a proper solution
• You cannot commercialise the new solution and cannot generate revenues
• You cannot deliver at the right quality or cost

These assumptions are often implicit and not well articulated.

 The problem is, that we skip the validation of these assumptions and try to get funding and to move on full force ahead in developing and launching new services.

 As a result, you may experience:

• Difficulties in convincing decision-makers and stakeholders and getting the required budget
• Pushback from stakeholders, whose active support you need to make the envisioned changes happen
• Your clients do not buy the new services

Momentum for business innovation declines, jeopardising your business’ future success

Read more about Service Innovation in our

Ultimate Guide for Service Innovation

The Solution

The innovative and dynamic industry leaders set themselves apart by their strong focus on continuously testing critical assumptions, already at the very early stages of the innovation process. Only when they have validated all critical assumptions, they will start increasing investment levels and put any stakes in the ground for the launch of their new services.

Just as they do, you should follow an iterative experimentation process – as part of your innovation process;

• Document the essence of the innovation
• Define the critical assumptions
• Design the experiments
• Run the experiments
• Evaluate the results, adjust your hypothesis and idea or maybe even pivot your idea – that is a radical change of your idea.

In each iteration, you will gather more data to make better decisions on abandoning, adjusting pivoting or perusing your service innovation.

Let’s elaborate on how this works, based on a real-life example.

An equipment-manufacture had the idea to offer in-house maintenance departments of clients a portal to easily access the right product documentation and manuals. This would be a subscription-based service.

Step 1: Document the essence of the innovation

• What exactly is the problem to solve, in this case, the clients’ problem?
  The manufacturer’s first idea was that clients spend a lot of time finding the right documents and manuals they received with the products. Too often, they start working with the wrong manuals at hand. With some rough estimations, the manufacturer calculated how much time their clients wasted on an annual basis.
• What is the solution?
  An online portal to quickly navigate to the right manuals and documents and access online.
  This would save a lot of time for the employees of the in-house maintenance department and reduce the risk of working with the wrong information.
• What is the commercial model?
  Sell the subscriptions to existing clients for a low monthly fee
• How good are the capabilities to deliver/build the solution?
  PDF-files and customer information on installed base were readily available.
  They only had to find the right portal software available in the market. 

Step 2: Define the critical assumptions

Which critical assumptions will determine the success of the new service?
In the very early phase of the innovation project, the focus will probably be on validating the clients’ problem and the envisioned solution.

• Assumption 1: Clients spend a lot of time finding the right documents before they can start executing the work on the equipment.
• Assumption 2: Solving this problem is essential for clients, and they are willing to pay for a solution.
• Assumption 3: Clients will go to an online platform to find and access the pdf-files

Step 3: Design a low-cost experiment to validate these assumptions

There are many ways to do this without even building a first version of the envisioned portal. You can think of;

• a slide-deck
• a video or animation
• a few mock-up pictures of the portal pages
• a one-page brochure.

 The manufacturer of this example first prepared a few mock-up screens of their envisioned portal and selected a few clients to meet and discuss their ideas and the mock-up screens.

Step 4: Run the test and document the feedback, new insights and data.

In a short period of time, they met 10 clients and had in-depth discussions about;

• The vision of the manufacturer regarding the clients’ problems and solutions
• The mock-up screens of the envisioned portal
• The clients’ challenges as an in-house maintenance department
• The solutions they already had been trying
• Other alternative solutions.
• The (financial) value of the envisioned portal

Step 5: Evaluate and adjust

The manufacturer got very valuable feedback to further explore the clients’ issues and required solutions.

 It turned out that the time the clients could save with the portal was estimated accurately by the manufacturer in this example. However, the perceived benefit of the envisioned portal was too low for them to spend time and effort on considering a subscription.

They did appreciate the idea of having the manuals and documents available online but expected that as a given after buying the equipment.
So far, the idea of the portal did not resonate with clients.

At this point, the manufacturer did not fall in the potential trap of abandoning their idea too early, even though the feedback was not positive. They were very clear and focussed: it was not about testing the overall idea of a portal, but the specific assumptions.

Triggered by the discussions about the challenges and problems of the clients, a new picture for the clients’ problem and new (portal) solution emerged and they adjusted their assumptions:

• What exactly is the problem to solve?
  In-house maintenance departments are under high pressure to improve their performance at a lower cost. Users of the equipment are not happy about the mean-time-between-failure, the first-time-fix-rate and the resolution time.
  The clients’ learning curve and rate of continuous improvement are slow. They have little insights on how an excellent maintenance department works and what the benchmarks are for performance. This was the primary concern and priority of the clients.
• What is the solution?
  Clients believe that (online) tools to help improve the end-2-end process and using external best practices could help them solve their problem. They would like to learn more about how the manufacturer could provide such tools.
• What is the commercial model?
  Sell subscriptions to existing clients at a monthly fee
• How good are the capabilities to deliver/build the solution?
  Most information, like historical data of installed base, best practices, diagnostic tools and customer information were available. Also, various tools as used by the manufacturer’s service department are available. Developing and maintaining the portal would be more complex with the added features.

Iterations

The first iterations should focus on getting feedback on your vision of the clients’ problems and your envisioned solution.

Gradually you will move to the ability to capture the value (with a good business model, pricing model and sales model) and the ability to deliver the value. In later iterations you will also look for more feedback based on the behaviour of clients and not only their verbal input during conversations.

The proof of your pudding is in the eating of your clients!
Here are some good practices for measuring the interest of (potential) clients;

• Ask your clients to register for an email list to be notified about any news about your new service innovation
• Ask your clients to pre-register for an upcoming service and maybe even ask them for a (small) down-payment (Tesla has been quite successful with this)
• Ask your clients to provide input and feedback
• Do a joint pilot
• Sell the very first version with limited features (for an attractive early-adopters-fee)

Conclusion

By embedding experiments to validate the critical assumptions of innovations in your development and decision-making processes, you can;

• Maximise your chances of success
• Reduce the risks of pursuing non-viable ideas before putting any stakes in the ground
• Reduce investments in the development of ideas, making it more affordable to have multiple innovations at the same time

The Essence

For sure, better testing of assumptions with the 5 steps described in this article will help you make your service innovation projects more successful. 

However, the real value of these techniques is to strengthen your business innovation capabilities. This is crucial to be successful in today’s disruptive times without jeopardising today’s successful business.