Bringing Innovation to Services

Great article in the latest MIT Sloan Management Review by Henry Chesbrough at Haas on bringing innovation to services.  His key point is that open innovation has been changing the approach to product development recently, but this should also apply to services given the migration of economic value towards the services offered with products (think IBM and GE).

Chesbrough quotes Theodore Levitt's insight that customers often do not want the product itself, but rather the effect that the product produces.  The famous example being not wanting a drill, but the holes that the drill will make.  Similar observation from Peter Drucker: "What the customer buys and considers value is never a product. It is always utility - that is, what a product does for him."

Chesbrough's key recommendations are:

• Work closely with customers to develop new solutions
• Focus offers on utility, rather than the product
• Embed your company in your customer's organization

He cautions, however, that product-oriented companies will have to overcome organizational barriers when moving to a greater emphasis on services.  I'm sure many of us will agree with that from personal experience.