Cover Sheet
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Course Code: FEAD06 Course Name: Service Innovation
Title of Work: Service Innovation in Different Industries
The Last Date: 2011-09-16
Name of Student/Students
Family Name Given Name T-Number Bhatty | Usman Tariq | 840415-9256 (R238) | | | | | | | | | | | | |

Name of the Teacher: Lars Witell
Name of the Administrator: Frania Johansson
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Filled out by the examiner
First Return: _____ Second Return: ______ Fourth Return: _________ Passed: _________
Received Points: _________ Grade: _________ Examiner: __________________

Service Innovation
In different industries

Contents
Introduction 1
Service Innovation in Industries 1 Financial Services 1 Health Services 3 Hospitality Services 5
Brief Analysis & Conclusion 6
References 7
Appendix-1 1

Introduction
The study of services innovation immediately poses the question of how a ‘service’ should be defined. From a conceptual standpoint there are a variety of views. Crespi et al. (2006) review the literature and conclude:
“...it is often useful to think of services as either intermediation activities, such as transport, that arise because consumers want to separate production and consumption, or contact services, such as haircuts or medical services, where production involves the consumer directly and where the output of the activity is embodied in the consumer ..... An important aspect of a service is the ‘jointness’ of production and consumption – i.e. that goods can be produced meaningfully without consumers (think of a firm producing a car), whereas services require jointness (a haircut, or repairing a car).”
These characteristics already suggest broad areas of importance for the study of innovation in services, notably the interactive role of the consumer and the challenge of defining and measuring output (i.e. the embodied nature of output rather than physical, more readily codifiable output).
The description above also hints at the considerable heterogeneity of services with respect to knowledge and capital intensity. Miles (2000) argues that the contrasts within the service sector are as significant as those differentiating the sector from manufacturing:
“... the sector includes the most concentrated, knowledge-intensive, and IT-intensive sectors in modern industrial economies (banking, professional services, etc.), as well at the least (retail, cleaning etc.)”
Service sector has dominated the world’s economy. In most countries, services nowadays contribute to more economic values than agriculture, raw materials and manufacturing all together. Service economies‟ dominant position is more apparent in developed countries. Up to three-quarters of the wealth and 85% of employment are generated by services (Tidd and Hull, 2003), and most new job growth comes from services.
Service Innovation in Industries
"Create the possible service; don't just create what the market needs or wants. Create what it would love." (Holter, 2003)
Service innovation plays a vital role in all the industries. The aim of this report is to get an understanding of the role of service innovation in different industries. The three main industries under consideration in this report are Finance, Health care and Hospitality to study and look into the major innovations and analyze them according to the literature and the discussion made during the seminar/lectures.
Financial Services
In Finance Sector, the concept of “financial innovation” can be defined as making and promoting new financial products and services, developing new processes to facilitate financial activities, to interact with customers and to design new structures for financial institutions. (Mention, 2011)
Yet, not only the financial services have been a major source and target of innovation but banks, including large commercial banks, played a major role in steering and amplifying it.
As per Nightinggale (2003) and Goldfinger (2002) there are several innovations taken place in Financial Services, Especially in the past fifty years or so, financial services have undergone deep and extensive changes in all aspects of their business: products, delivery channels and market structure. * Products: Financial products have become more varied and more complex. The product cycle has been accelerated: products are conceived, deployed and made obsolete much more quickly than before. They have become more liquid and tradable, as financial institutions seek to externalize and share their risks. * Delivery channels: Delivery channels have proliferated in order to enable customer’s remote and permanent access: ATMs, telephone banking, on-line banking, Internet banking, etc. Contrary to early expectations, new channels have reinforced rather than cannibalized the existing ones and have not fundamentally changed the market shares allocation as all major financial institutions were quick to adopt a multi-channel strategy. * Market structure: Boundaries between different categories of financial services become blurred. Banking, insurance and capital markets firms are invading each other’s turf and competing aggressively. Market structure is becoming more fluid and unstable. Established hierarchies can no longer be taken for granted. The perception of opportunities in financial services has attracted many newcomers: retailers, industrial companies, telecom operators. New entrants achieved significant inroads in a number of segments, particularly in the US. Yet, established banks have demonstrated a remarkable resilience. In continental Europe, they successfully invaded life insurance and securities brokerage. More importantly, they appear largely in charge of their destiny.
The pace and reach of change are unlikely to slowdown in the foreseeable future. If anything, they are likely to be amplified. Instability and volatility will persist. However, and this is a major paradox of financial services, their specificity is likely to be preserved. They will remain the main focus of the measurement and exchange of economic value. Barriers to entry will remain high, with incumbents maintaining strong competitive advantage under the watchful eye of regulatory authorities.
Role of information technology: The initial role of IT, starting in the 1970s, was to facilitate the administrative function of account keeping. It then gradually expanded to other back-office functions and infrastructure such as transaction processing, branch management, payments, etc.
IT mainly is providing solutions for back-office, front-office trading and decision-assistance tools. The Back-office systems, reducing the costs by cutting overhead expenditures and leveraging transaction processing infrastructure. The Front-office trading, generating business opportunities and increasing revenues. Decision-assistance tools are to monitor the overall profitability of various units and of the entire institution. Goldfinger (2002)
Alongside their individual IT systems, financial institutions have developed numerous co-operative systems, whose development and operations are shared by several financial institutions or even the entire industry. These systems manage functions which ensure the integrity of financial transactions, their correct execution and settlement. They include: * Payment infrastructure (clearing and settlement) and payment services (debit and credit cards, Automated Teller Machines (ATM) networks) * Financial markets infrastructure (trading, settlement/clearing, custody).
It could be argued that co-operative systems always existed. This is true of course, but the massive use of IT has utterly transformed their nature and their scope. Traditional co-operative systems were inefficient and costly. Their dependence on paper-based exchanges severely constrained their ability to scale and to expand. New systems substituted electronic data for paper and automated transaction processing. This drastically reduced transaction costs and allowed a dramatic scaling of the systems.
Health Services
The healthcare industry has experienced a proliferation of innovations aimed at enhancing life expectancy, quality of life, diagnostic and treatment options, as well as the efficiency and cost effectiveness of the healthcare system. Information technology has played a vital role in the innovation of healthcare systems.
Healthcare innovation can be defined as the introduction of a new concept, idea, service, process, or product aimed at improving treatment, diagnosis, education, outreach, prevention and research, and with the long term goals of improving quality, safety, outcomes, efficiency and costs.
Information technology remains a key driver of innovation in healthcare. According to Gupta (2008),
“―while hospitals and other care providers have long been quick to adopt breakthrough technology in medical devices, procedures and treatments, far less attention have focused on innovations in networking and communications. This is partly because of concerns about breaches in security and patient privacy, and because healthcare until recently was a service always performed locally and in person.”
With the dramatic improvements in network security and the ability to transmit images and data globally, the opportunity to revolutionize the healthcare industry has never been greater.
There is a tremendous growth in the outsourcing of diagnostic services particularly imaging, such as X-rays and mammograms and consultations by specialists. Telemedicine has been used by doctors in the U.S. (Roien et al., 2001) and other countries to provide care to patients in hard-to-reach and underserved locations. Websites such as WebMD have become a source of information for patients and doctors. These sites receive contributions of medical materials from doctors and scientists, and are enhanced by the automated search tools. Many such sites draw materials from on-line text books and medical journals.
Automatic-tracking software programs were introduced more than a decade ago to help hospitals prevent infant abductions. Now, institutions are putting electronic tags on all sorts of things, from EKG monitors and ventilators so they can be readily located in an emergency, to surgical sponges so they do not get sewn up inside a patient. According to Landro, 2008, some hospitals have begun tagging arriving patients to help cut waiting times in emergency rooms. About 10% of U.S. hospitals use some kind of radio frequency identification, or RFID, tags, the most common tracking technology, according to ECRI Institute, a nonprofit consulting group. (Omachonu & Einspruch, 2010)
As mentioned Bower (2003) and Omachonu & Einspruch (2010) Some of the health care innovations are as follows: * An electronic Personal Health Record solution (ePHR) to enable consumers to record and selectively share healthcare information. * An electronic Clinician Health Record solution (eCHR) to enable physicians and other healthcare providers to securely access healthcare information. * A healthcare informatics platform to enable all healthcare data to be stored and accessed via the ePHR and eCHR solutions. The platform is based on industry-standard technologies and data models. * The use of robots in rehabilitation therapy for victims of stroke. Robots being built by a team at MIT are able to help deliver therapy with the promise of reducing elbow and shoulder impairments in stroke victims (Riezenman, 2008). * High definition television signals used in cameras (known as videoscopes) by surgeons to snake through patients’ bodies to search for stomach tumors, perform colonoscopies, or assist in removing diseased gallbladders. * The da Vinci Surgical System allows physicians to perform minimally invasive procedures most commonly in the treatment of urological and gynecological conditions. Seated at a console, a physician can view the surgical area through a tiny camera that reveals magnified 3-D images. The controls at the console allow the physician to move robotic ―hands with precision, eliminating the natural tremor of human hands. The physician can perform complex surgery using 1- to 2-centimeter incisions, and patients generally recover in less than 48 hours. * The CyberKnife Stereotactic Radiosurgery System is used by physicians to deliver high doses of radiation with great accuracy, which allows incisionless surgery for previously inoperable tumors. * The Elekta Synergy Cone Beam CT system for image guided radiation therapy provides a 3-D view of the patient and can detect very small shifts in position that can be corrected before treatment. The system incorporates a linear digital accelerator with a built-in CT scanner that, like the CyberKnife, allows physicians to deliver a high dose of radiation with great accuracy. * Ablation therapy has transformed what 20 years ago was a risky, invasive open-heart surgery for treatment of abnormal heart rhythms to a procedure that takes a matter of hours and has a 95 percent success rate. * Intel Corp. is taking its next step in building a business in health care by introducing technology to help homebound patients with chronic medical problems such as diabetes, hypertension and heart disease (Clark, 2008). Intel’s offerings include a simplified computer and software that are designed to help elderly people and other patients monitor and manage their conditions at home. It connects to medical devices such as scales, blood-pressure monitors and glucose readers, recording information that can be shared with health professionals over the Internet.
There are seven critical success factors for the dissemination of health care innovation, Berwick (2003). Formal mechanisms to find sound innovations that should be disseminated, Find and support innovators, Invest in early adopters, Make early adopter activity observable, Trust and enable reinvention, Create slack (including resources) for change and Lead by example. The best of innovations may not be successful if the market or environment is not ready for adoption (Varkey et al., 2008). Berwick notes that in health care, invention is hard, but dissemination is even harder.
Hospitality Services
Hospitality firms, such as hotels, are an ideal example of a market which could benefit from the implementation of service innovation. Numerous lodging and hospitality firms are focusing intentionally on innovation as a way to improve guest satisfaction and, as a result, boost revenues and profits. While the actual measurement of service innovations can be difficult, most participants pointed to such metrics as improved customer satisfaction, greater participation in loyalty programs, and cost savings from more efficiency in the guest service process, since guests usually appreciate service that is as direct and simple as possible. A presentation by Marriott International, for instance, explained how the idea of improving the guest arrival experience in the lobby led to the development of the “great room” concept, which includes additional (and more speedy) food and beverage service. Innovation at Wyndham includes its many sustainability initiatives. throughout any innovation, change agents will confront different types of support and resistance, and must have a strategy for addressing the concerns of each person.
Some of the service innovation in hospitality industry are the emergence of “boutique” hotels during recent years is an excellent example of an innovative offering in an otherwise standardized industry. Hotel guests tend to perceive boutique hotels as a stylish location for which they are willing to pay premium room rates for (Binkley, 1999). Recently, the boutique hotel trend has crossed over into the mid-priced hotel market (Chittium, 2004). Another higher-priced hotel chain has adopted amenities. These innovative changes are expected to boost their occupancy rates beyond their rivals (Binkley, 2003). (Victorino et al., 2005)
Another example of innovation in hotel services is the use of information technology. One study determined which of the recent technological innovations were most beneficial, least beneficial, and had future benefits for hotels (Reid and Sandler, 1992). The technological innovations that were found to be most beneficial included: a wake up system, electronic door locks, in-room pay-per-view, video cassette players, multiple phone lines, video library, personal computers, voice mail, computer modem connections, video check out, electronic in-room safes, and a software library (Reid and Sandler, 1992).
Customizing the service experience for hotel guests is another means of service innovation. Some examples of service customization include: allowing guests to have flexible check in/out times, personalizing room décor, or having child care options available. Customized options adapt the hotel's service offering to each individual guest's preferences (Victorino et al., 2005).
As per Enz (2011) study, the recent service innovations likewise target ways to improve the guest experience. That included expressly developing ways to improve communication, boost efficiency, and make the arrival process more appropriate. Indeed, several companies were focusing on improving interactions at the front desk. This includes a warm welcome, quickly addressing any problems, and continuing with ongoing recognition. In addition to company-specific innovations, participants of his her study mentioned the following initiatives:
• Applying hospitality analytics that target guests based on their spending and amenity use profiles.
• Encouraging associates’ behavioral change through recognition programs.
• Improving the interaction between guests and associates so that guests can more easily express their needs.
Some of the other innovations in this industry are mentioned in seminar discussion and described by various studies are Digital Thermostat, Valet Stand, Shower System, ATMs, Electric Chafing Dish, Laundry Solutions, Spa Baths, and Internet Marketing Services, Training on iPod and Umbrellas and Handbags…
Brief Analysis & Conclusion
There is a detail analysis of individual service sectors already mentioned above. As per my limited knowledge and literature review I come up with the following common points and findings to summarize the whole concept of service innovation in all of these sectors: * The customer is the new reference point. The customer has replaced the direct competitor as the dominant reference point for strategy and innovation. We can observe (1) competition from new and unexpected sources, (2) customers that are more informed and more demanding, and (3) opportunities for new, information-driven business models. * Many of the innovative service concepts in the research are based on shifting the traditional boundary of which party performs a given task in the value chain. * IT capabilities are critical in service innovation because of the potential to “productize” (i.e., make more repeatable) the innovative service concepts. In many ways, IT is the production department of the services era in much the same way factories and machines were for the goods era. * If IT is the factory of the services era, then the Internet is the trucks and roads. Many of the exemplars in all three sectors leverage the Internet either to directly create innovative new service concepts, or to reconfigure their value chains.
There is an analysis attached at Appendix-1 from IBM of “What improves quality of life? A Service system innovations”
In general, there is even chance for service innovation to fail and to succeed. Only practice can tell the result. However, no pain, no gain. We should always try to boldly innovate and explore, because that is the way of human progress.

References
Berwick, D. M. (2003), “Disseminating Innovations in Health Care”, JAMA. 289: 1969-1975
Binkley, C. (1999), "Hotels: big chains finally discover virtues of ‘boutique’ hotels", Wall Street Journal, 7 January, pp.1
Binkley, C. (2003), "Wire storage racks, no box springs", Wall Street Journal, 8 October, pp.B.1.
Bower, D. J. (2003), “Innovation in Healthcare Delivery”, in Tidd J and Hull F., Service Innovation, Imperial College Press: UK
Chittium, R. (2004), "Budget hotels to get a makeover: in bid for business travelers; major chains plan boutiques, area rugs and glassed-in showers", Wall Street Journal, 8 June, pp.D1.
Clark, D., (2008), “Intel Takes Step Into Home Health Care”, The Wall Street Journal, p. B3.
Crespi, G., Criscuolo, C., Haskel, J. and Hawkes, D. (2006) “Measuring and Understanding Productivity in UK Market Services”, Oxford Review of Economic Policy, 22 (4).
Enez, C. A. (2011), “Improving the Guest Experience through Service Innovation”, Cornell Hospitality Roundtable Proceedings, Vol. 3, No. 7, Cornell University
Goldfinger, C. (2002) “INNOVATION IN FINANCIAL SERVICES”, Communication and Strategies, 48, pp. 139-160
Mention A. L. (2011), “Innovation for Financial Services” [Online], Available at: http://www.innovationmanagement.se/2011/09/13/innovation-for-financial-services/, Accessed on: 2011-09-15
Miles, I. (2004) “Innovation in Services”, The Oxford Handbook of Innovation, Oxford University Press, Chapter 16.
Nightinggale, P. (2003), “Of Barnacles and Banking: Innovation in Financial Services”, in Tidd J and Hull F. Service Innovation, Imperial College Press: UK.
Omachonu V. K. and Einspruch N. G. (2010), “Innovation in healthcare delivery systems: A conceptual framework”, The Innovation Journal: The Public Sector Innovation Journal. 15(1) Article 2
Reid, R.D. and Sandler, M. (1992), "The use of technology to improve service quality", Cornell Hotel and Restaurant Administration Quarterly, 33 (3), pp.68-73
Riezenman, M. J. (2008), “Robots in Rehab”, in Omachonu V. K. and Einspruch N. G. (2010), “Innovation in healthcare delivery systems: A conceptual framework”, The Innovation Journal: The Public Sector Innovation Journal. 15(1) Article 2
Roine, R., Ohinmaa, A. and Hailey, D. (2001), “Assessing telemedicine: A systematic review of the literature”, CMAJ, 165 (6), pp. 765-771
Skinner, W. (1974), "The focused factory", Harvard Business Review, 52 (3), pp.113-21
Tidd, J. and Hull, M. F. (2003), “Service Innovation: Organizational Responses to Technological Opportunities and Market Imperatives”, Imperial College Press, London.
Varkey, P., Horne A., and Bennet K. E. (2008), “Innovation in Health Care: A Primer”, American Journal of Medical Quality, vol. 23: 382-388
Victorino L., Verma R., Plaschka G. and Dev C., (2005) "Service innovation and customer choices in the hospitality industry", Managing Service Quality, 15 (6), pp.555 - 576

Appendix-1
What improves quality of life? A Service system innovations
Every day we are customers of 13 types of service systems. If any of them fail, we have a “bad day” (Katrina New Orleans)

Every day we all depend on 13 systems to have a relatively high quality of life, and if any one of these systems goes out or stops providing good service, then our quality of life suffers…. Transportation, Water, Food, Energy, Information, Buildings, Retail, Banking & Financial Services (like credit cards), Healthcare, Education, and Government at the City, State, and National levels…. Volcanic ash, hurricanes, earthquakes, snow storms, floods are some of the types of natural disasters that impact the operation of these service systems – but human made challenges like budget crises, bank failures, terrorism, wars, etc. can also impact the operation of these 13 all important service systems.
Why is that “smarter” or sustainable innovation, which continuously reduces waste, and expands the capabilities of these systems are so hard to achieve? Can we truly achieve smarter systems and modern service? A number of organizations are asking these questions – and before looking at how these questions are being formalized into grand challenge questions for society – let’s look at what an IBM report concluded after surveying about 400 economists….
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Quality of life for the average citizen (voter) depends on the quality of service and quality of jobs in 13 basic systems…..
Dr. James (“Jim”) C. Spohrer, spohrer@us.ibm.com, Innovation Champion and Director, IBM University Programs WW RIT Service Innovation Event, Rochester, NY, USA, April 14th, 2011