Service Model Generation

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If the title to this blog sounds a bit like I am trying to make a connection to Business Model Generation (BMGEN) by Alex Osterwalder and Yves Pigneur, you’re absolutely correct. As a former academic, I am a big believer in making connections and extensions to the models of others. In the end, I believe that this supports my primary goal in writing articles and blogs – to share knowledge that others can use.

I am also encouraged to do this because I know that Alex and Yves have a similar perspective. In their book, they explicitly make a connection between their business model canvas and the value innovation ideas presented in Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne – another book I hold in high regard. Fact is all of us benefit when seemingly disparate ideas are linked.

So, in this blog, my goal is to share and describe a service model generation canvas that intentionally parallels the visual layout of the BMGEN canvas, but that presents ideas I wrote about in my book, Service Innovation (McGraw-Hill 2010), along with other more recent thinking I have concerning service excellence.

Briefly, I believe that a canvas specific to service models is important because most services have unique elements that deserve special attention, including the important role of frontline service providers, direct interactions between customers and the company, the inseparability of service production and consumption, and the more direct effect of corporate systems and capabilities on the customer experience.

Service Model Generation (SMGEN) Canvas 1.0

Shown here is the canvas I have created to guide service model generation. Call it 1.0 because I hope it will be shaped over time by new experience and inputs. The canvas consists of 11 building blocks whose purpose, like the BMGEN canvas, is to provide a shared language by which a service model can be described, visualized, and assessed. 

Note. If you like the SMGEN canvas, please feel free to use it. All I would ask is that you link back to me and this post for credit.

For comparison purposes, here is a similar visual depiction of the BMGEN canvas of Osterwalder and Pigneur using a colour scheme that parallels the SMGEN canvas.

Like the BMGEN canvas, the SMGEN canvas can be used by an individual or group to think through and depict the various elements of a current or new service model. A product company might use this canvas to generate new service offerings around a product line whereas a service company might use it to innovate new services to add to their service portfolio. A thorough examination of each of the building blocks and their linkages ensures that a company builds a robust, differentiated, and integrated service model.

The SMGEN canvas can also be used to envision the impact of changes in one area on other areas of a current service model.

The remainder of the blog will describe the key considerations in each SMGEN building block and how they compare to the BMGEN building blocks.

Customer Jobs, Segments, & Contexts (CJ)

Beginning on the right side of the canvas, I believe that the starting point for all meaningful strategy is customer needs – specifically the one to many jobs that customers are trying to get done. This includes both functional jobs (e.g., purchase a home) and emotional jobs (e.g., feel in control). This is the same starting point for the BMGEN canvas, and Alex has more recently been elaborating of how customer jobs tie to it (read about it here).

For any given customer job(s), the specific opportunities for innovation (i.e., unmet needs) may also vary by customer segment, context (where, when, and with whom the service is used), or occasion for use. For example, Zipcar competes with traditional rental car services, but specifically focused on making short trips around town versus taking a business or leisure trip.

Customer Service Needs, Segments, & Contexts (CS)

The first distinction with the BMGEN canvas is a special call-out to customers’ service needs. On the one hand, customers have needs related to getting a job done – the reason they hire a service. However, once a customer decides to hire a particular service to get a job done, there are tasks that must be done as part of obtaining that service. These are things like accessing the service, explaining service needs, receiving the service, fulfilling a service role, and paying for the service. [You can get a free download of the chapter from Service Innovation that discusses this here.]

Customer needs for obtaining service are vital considerations in how a service is designed and delivered, and some companies build successful service models based primarily on them. Progressive Insurance, for example, has successfully differentiated itself on the basis of how its service is obtained, even though its core insurance offerings are similar to those of other auto insurance providers.

Like focal jobs in the CJ block, the specific opportunities for innovation with regard with obtaining service may vary by customer segment, context (where, when, and with whom the service is used), or occasion for use. Consider how your service needs change when you are dining with children versus a romantic dinner with a spouse.

Customer Value Proposition & Experience Motif (CVP)

In the BMGEN canvas, the focus of the Value Propositions building block is defining what value and offerings are provided to a specific customer segment for specific customer needs. The focus of the SMGEN canvas is the same, although I call out Service Offerings separately as well for reasons I subsequently explain.

In addition to the value proposition for a customer segment, however, I have also called out the importance of an Experience Motif. Because most services have an undeniable experience component that is directly impacted by the actions of the organization (e.g., people, process, physical environment), I believe it is important to separately define a unifying theme to guide service experience design (in alignment with the overall value proposition, of course).

The Experience Motif is not my creation. It comes from a 2002 article by Len Berry and colleagues (“Managing the Total Customer Experience,” MIT Sloan Management Review). As described in this article, an experience motif describes in a few words the theme to guide all experience management efforts. It “serves as the North Star” and “acts as the unifying element for every clue” in customer experience design. In my own company, our experience motif is “to help our clients to feel respected, reassured, & valued at every point in the delivery of our service.”

Service Offerings, Service Model, and Service Experience (SO, SM, & SE)

In the BMGEN canvas, offerings of the company are captured within the Value Propositions building block. I could have done the same with Service Offerings. However, I chose to call it out separately because offerings are one of three primary means by which value is delivered to service customers – the Service Model and Service Experience being the other two. So, as in BMGEN, another important question to consider is “What products and services do we offer or sell to each customer segment?” And, “What service needs will the company target for excellence and which will it trade off?”

In the BMGEN canvas, the building blocks that connect value propositions to customer segments are Channels and Customer Relationships. The key questions addressed by these blocks are “Through which channels do our customer segments want to be reached?” and “What type of relationship does each of our customer segments expect us to establish and maintain with them?”

In the SMGEN canvas, these linkages and questions are captured by the building block of Service Model. However, they are called out differently because of the complexity of decisions introduced by the simultaneous production and consumption of services, i.e., the customer is often right in the middle of the service factory. Also, the Channels and Relationships blocks are combined because I believe it is difficult to separate them in a service business.

Decades of services marketing, management, and operations research indicates that there are several core design dimensions or levers that characterize a service model. I have identified 20 of these individual levers that help answer the following four service model questions:

·         What service options are provided? (e.g., full versus limited menu)

·         When and where is service provided? (e.g., open versus selective access)

·         How is service delivered? (e.g., customized versus standardized)

·         Who does service work? (e.g., company versus customer production)

In chapter 7 of Service Innovation, I provide a summary of the 20 design levers, though I continue to make slight adjustments in how they are described and presented. While the design levers can be considered one at a time, a company must make sure its choices are synergistic and internally consistent, and it must make the appropriate trade-offs (ideally with a few unconventional choices in the mix). It is the aggregate of decisions across the design levers that becomes the service model, positions it relative to competition, and enables the company to achieve a profit.

Whereas the Service Model building block is a 30,000 foot view of what, when, where, and how value is co-created with customers, the experiential elements of a service also demand that special focus be paid to design of the ground-level view of the Service Experience building block. Specifically, what will the process of serving customers look like? What will take place first, second, and third? What will the processes, people, and physical environment clues look like at each point along the way? This is where tools like service blueprinting have made such an impact.

Provider Jobs & Engagement (PJ)

Another distinction with the BMGEN canvas is the special call-out for service providers’ needs. In a service business, the employee is part resource, part marketer, and part solution. As such, they deserve special consideration when creating or changing a service model.

The PJ block in the canvas calls out two types of distinct provider needs. Though second in order, the first one to discuss is engagement because this is the one where most focus has been placed. Engagement reflects how connected an employee feels to the organization, as influenced by factors such as job design, value alignment, pride in their work, and so on. Research certainly backs the importance of engaged (i.e., satisfied, committed, intrinsically motivated) employees to customer satisfaction and loyalty.

Another important type of provider need called out in the PJ block is the provider job. Service employees have a job to do – to provide service – and their success depends on how well an organization satisfies their needs at every step in getting this job done. In other words, frontline employees should be viewed as internal customers who depend on internal services from the company to get their job done.

The PJ block ensures that a company also considers the needs of its most important internal customers when designing, assessing, and adjusting a service model.

Provider Value Proposition (PVP)

In parallel to the customer value proposition, it is important for a service organization to craft a provider value proposition. What value, offerings, and support will the organization provide to engage employees and help them to succeed in getting their job done?

Service organizations can succeed or fail on the basis of their value proposition to employees – especially frontline service providers. Service leaders flip traditional thinking on its head in placing these employees at the top of their organizational chart and priorities. FedEx, for example, has long operated under a corporate philosophy captured by the phrase: People-Service-Profits. As Fred Smith, the founder of FedEx said, “When people are placed first, they will provide the highest possible service, and profits will follow.” (Blueprints of Service Quality: The Federal Express Approach)

Profit and Funding Formula (PF)

In the BMGEN canvas, the question of how a business makes money is captured by the building blocks of Revenue Streams and Cost Structure. In the SMGEN canvas, I am following similar thinking, but have combined the two elements into one Profit and Funding Formula block.

Like BMGEN, key questions in this block include ‘What is the source of revenues?’ and ‘How do customers pay?’ It also includes understanding ‘What are the key costs inherent in the service model?’ and ‘What margins and asset productivity are required to return desired profitability?’

However, borrowing a page and terminology from Frances Frei and Anne Morriss (Uncommon Service, 2012), it is especially important in services to consider how service excellence will be funded. What is perceived as fair? Will customers pay for it directly by paying more? Will they pay for it indirectly via paying more for something else, extra purchases, or loyalty? Will service excellence be funded via reduced costs?

I also believe it is significant that the Profit and Funding Formula building block is placed between internal resources and systems and the Customer Value Proposition. A distinct Customer Value Proposition will require a distinct Profit and Funding Formula which, in turn, will shape Service Resources, System, & Partners.

Service Capabilities (SC)

Capabilities are critical to all companies. However, I believe they are especially critical to achieving and sustaining competitive advantage in services because the internal workings of the company and the customer experience are so tightly integrated. As such, I believe it is important to actively consider what service capabilities are required to achieve and sustain service excellence prior to consideration of the key aspects of Service Resources, System, & Partners.

Just as a service model links a value proposition to customer needs, Service Capabilities are the glue that brings together the Service Resources, System, & Partners to deliver superior service to customers. As such, the placement of Service Capabilities between Service Resources, System, & Partners and the Value Proposition building blocks is also significant. This is especially true for the Provider Value Proposition since Service Capabilities impact providers first and foremost and they are the primary conduit by which a service is experienced by customers.

Based on my own review of scholarship on service management, market orientation, and customer-focused organizations, there are four critical service capability areas that a company should actively manage: orientation, design, delivery, and coordination.

Critical questions to consider are:

·         Orientation: What values, priorities, and shared beliefs are necessary to ensure service excellence?

·         Design: What accountability, responsibilities, and latitude will ensure that customers’ service priorities are met and exceeded?

·         Delivery: What must employees and customers be ready, willing, and able to do to ensure service excellence?

·         Coordination: What information and coordination are necessary to deliver and improve service excellence across people, place, and time?

Service Resources, System, & Partners (SRSP)

In the BMGEN canvas, there are three building blocks for Key Activities, Key Resources, and Key Partners. The same thinking holds in the SMGEN canvas, and the fact that there is only one block is not intended to reduce their significance. The service resources, system, and partners are the means by which Service Capabilities are created and the Profit & Funding Formula is put into action in order to deliver against the customer and provider value propositions.

In addition to general consideration of critical physical, financial, intellectual, and human resources per the BMGEN model, there are some unique considerations for a service company since employees are part of the service product and customers may come into direct contact with some system elements.

As such, a service company should ask ‘What is key in each of the following seven areas based on the envisioned Service Capabilities, Profit & Funding Formula, Customer Value Proposition, Provider Value Proposition, and Service Offerings, Model, and Experience?’

·         Structure, Policies, & Controls

·         Equipment & Technology

·         Suppliers & Partners (who they are, what they do, how they perform)

·         Processes, Methods, and Standards (how work is done and how success is gauged)

·         Information Management System (what is captured and shared, how, when, where)

·         Employee Management System (job design, selection, training, incentives, etc.)

·         Customer Management System (expectations, support, incentives, feedback, etc.)

Given that the world economy is now dominated by services, I wrote Service Innovation to address nagging confusion around how to systematically innovate services given an understanding of both their commonalities and differences with goods such as computers and automobiles.

I have written this blog to continue to add clarity to how the pieces of an entire service model fit together given the same commonalities and differences. I trust that this blog has been helpful in this regard.

At the same time, I hope that I have been able to advance understanding of business model generation specific to services by calling out new considerations, questions, and points of emphasis along the way. If this blog helps someone to understand how to link the ideas in my book with those of Business Model Generation, I will have accomplished a lot.

Many have used the BMGEN canvas to clarify current business models, think holistically about the critical elements of a business model, align different elements of a business model, illustrate the rationale of a new business model, and so on. Insert the word “service” for “business” in each of these objectives and you have some fine uses for the SMGEN canvas as well.

Of course, in trying to keep the blog reasonably short, I have not elaborated much in any given area. If the model proves useful to others, then I will take it upon myself to elaborate on specific parts. For the time being, my book, Service Innovation, provides in-depth discussion of the right hand side of the canvas (especially concerning customer and provider jobs-to-be-done and service model design levers), and I really like Uncommon Service for discussion of elements on the left side of the canvas.

If you like the SMGEN canvas, please feel free to use it. All I would ask is that you link back to me and this post for credit.

Image via flickr

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