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Service Innovation and BoA
Service Innovation and BoA
Service Innovation
Considered by global executives to be very
important to achieving revenue targets and
to long-term success.
Two-thirds expect spending on innovation to
increase in the next year.
Service innovation is difficult to achieve.
WHY??
What are the fundamental differences between a
product and a service?
Why do these differences present challenges to
innovation?
Characteristics
Manufacturers of
tangible products
Service providers
of intangible
products
Nature and
consumption of
outputs
Consumption after
production
Consumption as being
produced
Uniformity of inputs
Inputs vary
Uniformity of outputs
Customized outputs
Nature of inputs
Capital intensive
Labor intensive
Measurement of
productivity
Fairly straightforward
More difficult
Challenges to service
innovation
Services are intangible and difficult to protect through
legal means.
Good services are customized.
Good service depends on consistency and capability of
service provider.
High cost of failure.
Experiments are visible and hence, easily copied.
Expectations of short-term financial success.
Innovation not a priority in resource allocation decision.
Lack of organizational mechanisms to encourage
innovation.
Low tolerance for risk and failure.
Service Innovation
What is service innovation?*
Increase margins of delivering existing
service offerings cut costs
Create new kinds of high value service
offerings grow revenue
Improve skilled labor productivity in
creating and delivering service.
Achieving Service
Innovation*
Value thinking
Customers as co-creators of value
New thinking that enables customers
to do new things
Profitable innovation
Knowing how to make it happen
One innovative example
NEW SERVICE
DEVELOPMENT SYSTEM
Bank of America
Innovation & Development
Teams
Product & Service Innovation
Process?
Components
Structure
Cycle time
Off-site
rehearsals
Control
branches
Parallel testing
Objectives
Speed
Minimal cost
Learning
ORGANIZATION?
Protoype Centers
Living Laboratories
Experiments in 20 (+5) I&D Centers
Five express centers
Five financial centers
Ten traditional centers
National Rollout
Management/Leadership?
Headed by two senior VPs (Butler and
Brady)
Emphasis on innovation and profit
objectives
Strong moral support
Indirect reporting to President
Minimal Financial Commitment
Budget of $8 million = 0.1% of revenue
Branches pay for own experiments
INCENTIVES/COMPENSATION
Sales associates earn 30% - 50% of pay
from point based performance system.
Initially experiments not included in point
system.
Then changed to fixed incentives based
on team performance.
Then changed back to old system.
Why??
Part of the learning process
Danger of on-line experimentation
MEASURING RETURN
Direct measures
Customer volume
Increased revenue
Decreased cost
Indirect measures
Reduced personnel turnover
Customer satisfaction
Bragging rights
Cost
Designing, building, running and analyzing
including expenses for prototypes, laboratories,
etc.
Iteration time
Time from initial planning of experiment to
availability of analyzed results for next iteration
Capacity
Number of experiments that can be carried out with
some fidelity during given period of time.
Sequence
Extent to which experiments are run in parallel or
series.
Signal-to-noise ratio
Extent to which the variable of interest is obscured
by other variables.
Type
Degree to which a variable is manipulated, from
incremental change to radical change.
Skill
Degree to which service providers understand and
consistently deliver experimental service
DECISION
Decline
25 branches too large for small
group.
Already too many experiments; need
to focus on better pipeline, not
simply bigger pipe
Bigger innovation market leads to
more risk aversion.
Team first needs to prove it can be
successful, then expand.
May drag down overall financial
performance.
New branches will distract team;
they have no control/authority and
need to retrain people.
No need to hurry, industry changes
slowly, BoA already leading.
Does senior management