Innovation in Services and Business Models

Innovation in services is not the same as innovation in products—services are intangible, usually consumed when delivered, and the customer can co-create experience with supplier. Products are tangible, last longer, and are usually created by the manufacturer alone. Information is not only key input in services production, but also the key output as well.  Interestingly, more than 70 percent of technology spending is by services businesses, which tend to be at the leading-edge industries in adopting new technology.

Business models are vital for realizing value for services business, allowing them to help create and capture a piece of value. Some companies are transforming their business models. now sells its back office functions to other online businesses, allowing its IT processes to be made available to other companies as a price, as a separate business from its selling of goods to consumers. However, successful business models often become a trap that causes firms to overlook chances to grow and improve. One way to remedy this is through a proposed business models lab, which would be based on both simulated and empirical data, where companies can explore and experiment with alternative business models. The business model lab would allow companies to find out whether new models could work for them, and why or why not. For researchers, this would be a tremendous opportunity to experiment with new processes.

Henry Chesbrough at Berkeley’s Haas School of Business would be a prime developer of this proposed lab. Chesbrough performs clinical research, asking how business and economic insights do and models translate into the wider world. He and his colleagues study what companies are actually doing and what patterns emerge, and then create new ideas for scientists to test in controlled environments.