Service-Logic Innovations

Service-Logic Innovations: How to Innovate Customers, Not Products
Stefan Michel, Stephen W. Brown, and Andrew S. Gallan.
California Management Review, Spring 2008

From the perspective of traditional product innovation theory, it is hard to understand how Google, just seven years after its founding, has achieved a valuation of billions of dollars and enjoys a market capitalization that surpasses a long list of business giants, including Coca-Cola, Honda, and British Airways.

Similarly, traditional marketing and strategy literature can’t explain the emerging pat­tern of Wikinomics or Open Business Models, for which the line between pro­ducer and consumer is not only blurring, but vanishing.

Quite simply, firms that focus on the distinction between products and services are shortchanging their own ability to innovate.  In “Service-Logic Innovations:  How to Innovate Customers, Not Products,” the authors argue that managers must view innovation from an entirely new service-logic perspective.

Michel is an Associate Professor of Marketing at Thunderbird School of Global Management.  Brown is Professor of Marketing at the W.P. Carey School of Business, Arizona State University.  Gallan is an Assistant Professor at the Weatherhead School of Management, Case Western Reserve University.

They argue that all innovation, whether a service process or a tangible product, should be viewed as a service-logic innovation.  This perspective is based on the idea that innovative new products enable customers to find new ways to service their personal needs.  As Clayton Christensen has argued, “When people find themselves needing to get a job done, they essentially hire products to do that job for them.”

After all, customers do not seek products; they seek satisfaction.  At its core, innovation is really about finding new ways of co-solving customer problems.

More and more, offerings are mixes of products, services, and customer participation.  For instance, when customers purchase new desktop publishing software for their computer, they may get a tangible product, in the form of CDs, to take home and install on their com­puter.  However, what they are truly buying is the ability to perform a task in a new way.  The installation CDs are replete with knowledge, which require that the customer knows how to use this stored knowledge to create something new.

The value-creating process is truly the co-creation of value among providers and customers.  In other words, value is not defined by a firm alone.

Moreover, to meet the needs of customers, firms are begin...