[Question 5] Service-logic innovation risks

A risk that comes to me is how difficult it is to master service logic
innovation for a company, especially if it is smaller or doesn't have
the experience of it's competitors.
Attribute based views (in my opinion) are easier for a company to
position itself and envolve fewer risks of missing the customer target
or misidentifying what is essential to customers.
Google&Youtube, IKEA, Netflix, all these are examples of companies that succeeded. However, how many didn't?

I'd say that while service-logic innovation can bring a solid
advantage, a company should assess it's strengths to see whether it can
benefit from such an approach.

Thank you Jeremy for this first answer!

There are a lot of kinds of risks we should take into account :
Financial risk, Organizational risk, Growth risk, Market risk...

Could you give examples related to Service-Logic innovations in each of these categories and even more ?
How the successes quoted in the case have dealt with them ?

The first one I thought about was financial one. If you decide to innovate, it costs money - both to develop the innovation as well as to inform your costumers about it. If there will be no revenue - the company might face bankruptcy...

Another one - I don't know what type this can be;) - innovation will be attractive for different part of consumers than we expected, thus we will have to adjust the product once again...

What if innovation occurs too innovative? Maybe clients will not be ready for it now, but in a couple of years... Just imagine what would have happened to YouTube if t was created 20 years ago but such situations rarely happen, as innovation is always a response to changes in the market.

Quite like that example of being too innovative and ahead of time.
You really need to identify what your customer will value and will be ready to choose you for.

We can imagine companies forgetting about the fundamentals of their business when engaging in strategic-logic innovation : this could lead them to develop "gadgets", non essential services.

This would fall under a "strategic risk" category in my opinion.

Is being too innovative a real risk or is it just a way for a company to hide a failure ? Can you think of any not-market-accepted real innovation ?

Besides, we have a new category, Strategic risk. Any others ?

I think the biggest challenge is the imitability of the servic-logic innovation. Take IKEA for example, she may enjoy a period of success but, believe it or not, most Taiwanese I know all agree that IKEA's quality is not so good. If we want cheaper furniture with similar look, we go to Carrefour, RT-Mart. DIY, go to B&Q. Good quality, go to HOLA, MUJI, NITORI or department stores. She has too many competitors here, I don't think she is doing good in TW...

But I also know lots of foreigners love her, maybe it's because of the style thing.

I think there must be a risk in "value constellation" strategy. For example, YouTube.com lets users to upload videos onto the website to add value to the platform. But YouTube may face some copyright risks.

About the imitability, I also want to add that, sometimes the service-logic innovation is very imitable. Eg. cell phone industry, computer industry. Key players keep searching for new possibilities of introducing new technology and 2nd tier companies are forced to follow them.
For me, I think most of the functionality of Nokia, Motorola, Samsung or other Japanese brands are pretty much the same. Maybe that's why they need to spend a lot in marketing.

BTW, if anyone of you are interested in JP cell phone, you can take a look here. They look nice~
http://www.nttdocomo.co.jp/product/new_model/new/index.html

All is about acquiring new customers and tapping underserved markets, as well as retaining those people once they become customers. Giving people a reason to try your service in a crowded marketplace requires going a step above what they experience with their current service.
it is risky in the sense that getting it right the first time, every time, is highly unlikely. Companies should expect failure as a part of the innovation process. In service logic innovation, companies have to focus carefully on the customers view point.

Besides the financial risk mentioned before, I think one other major risk (which is related to the financial one) is the misunderstanding of the customers, or the fact they might be scares about the innovation if it appears too difficult.
If it appears too complicated for the customers, they might be reluctant to adopt the new service, especially if they are already using a similar service.
Therefore it seems very important for the company providing the new service-logic innovation to give a clear and convincing message to the customer, to make him willing to adopt it.

I agree with Soraya about the fact that companies should accept the fact that it the probability of getting it right the first time, everytime is very low. Of course a company should try to keep up a certain level of service quality but at the same time have a reliable customer complaint service to deal with the occuring irregularities.
Innovative service-logic comprises a new way of handeling buyers/users/payers it should be made as clear and easy as possible even in the situations where the initially effort fails.

The risks associated with Logic service innovation is similar to the risks often faced by every company. One such risk is operational risk. This is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events." Many Logic service companies use the internet to conduct business. What if the internet fails? This could lead to a major catastrophy for the business. One example is Amazon. com, where customers conduct business online.

We have two new comers : technological risks and piracy risks... We're going on !

A question is still pending : How have the companies quoted as example in the case succeed in avoiding them ? Any ideas ?

Felix_Humbaire wrote:Is being too innovative a real risk or is it just a way for a company to hide a failure ? Can you think of any not-market-accepted real innovation ?

Besides, we have a new category, Strategic risk. Any others ?

According to me being too innovative is a real risk. For instance the first video K7 recorder Betamax was a huge failure even though the product was qualitatively interesting.
I think there are two ways to prevent a company from being too innovative:
- marketing survey. What are the real needs of our customer?
- encountering this risk by educating customers. A real innovative company just has to be prepared and allocate huge budgets for the education of customers. That could include sales force, advertisings, press release... And of course a company should try everything so that the product looks simple

Regarding the risk of deciding the timing of entry, I had a class last semester called "strategic management of technlogical innovation", in which we learned that there are a few key factors that a company has to look at when deciding whether to enter a market with a new product/technology. Among them, the ones that I think most relate to our case are the existence of enabling technology and complements (for example the PDAs had a lot of problems in the beginning when batteries' technology was underdeveloped and modems were big and heavy), and uncertainty of customer requirements - sometimes a company might think the market is ready and that they have a great new innovative product that can answer consumers' needs, but they could be wrong - particularly if the price is initially too high due to expensive R&D costs.

I think that as service logic innovation is customer focus, one risk could be loosing the customer-centric knowledge: it link the firm to customers' needs, desires of individualisation and customization.
Fims with service-logic innovation use them to share and disseminate such knowledge in their products and integrate the new knowledge into new activities. Customer-focus learning is pivotal to the service logic and guide the development of other forms of learning capabilities that the firm pursues in following an innovation based competition strategy.

There is the risk that co-creating value could be co-creating disaster. What if the diabetes example failed initially? Like, what if consumers were not educated properly using their insulin meters and people died as a result?

Generally, I guess there is always the risk of unintended negative consequences. In this case, medical service/goods firms would likely require rigorous testing standards either government or self-imposed to avoid such problems.

I think there is also a risk of getting pressured into unhealthy innovation cycles. Customers always demand new services, but how quick should a company respond and adjust? Sometimes it takes a while until a new product is ready for the market. Maybe releasing the product earlier can cater to some service needs, but at the same time neglect others and create some frustration among the customers. I think it is a challenge to use a service-logic innovation strategy but still be independent enough to withstand pressure for rapid innovations.

I agree with Tobias and would like to emphasize on a potential Market Risk.
This new tendency to innovate the consumer (experience) no the product will make it more and more difficult for company to maintain their competitive advantage.
Once you have created a new consumer experience, it can easily become a new target for potential competitors.
Web 2.0 have established the collaborative experience as a norm for many on-line stores whether they sell, travels, music, second hands goods.

Who were the first movers in the travel industry?
Now that this innovation has been integrated by the consumer, who is catching the revenues from this Service-Logic innovation?

I believe consumer knowledge is the key for the firm's success. In order for a firm to steer away from a financial risk and growth risk, they would have to educated their consumers to create the need feel for their service of their products. If this is achieved then I believe the toughest part is over, now it is just left for the firm to keep the need feel for their product or service.

I agree with Naomi's points of the expense of R & D innovations and the time issue. An innovation sometimes is something you meet by chance, not by force. We may have hundreds of and thousands of brilliant ideas, but not exactly know which one is really profitable. When we put the service-logic innovation into practice, just as every kind of product design, it is time consuming and cost consuming.