TECHNOLOGY TREND 08

TT08 Service Design Innovation

A design process that fosters services via continuous improvement builds a foundation for corporate competitiveness. Successful businesses use the flexibility of IT to take advantage of change through service design. Services, now the main driver of business change, will transform business operations.

Digital Accelerated Service Design

Service design optimizes the customer experience by defining the customer and weaving together various components of business operation. The customer experience involves not only direct points of contact such as advertisements, stores, displays, services and payments, but also back-office functions and activities. Improving the customer experience requires measurement of customer reactions at each of these crucial points of contact, and finding comprehensive ways to improve them. This is easier said than done, especially at large-scale enterprises.

Digital has made service design the vanguard of competitiveness. Smartphones are now ubiquitous and serve as a direct-to-consumer (D2C) channel for business. Digital businesses not only offer services through this channel but also collect detailed feedback from customers in real time. Electronic Commerce (EC) is a case in point. In EC, digital covers almost all points of customer contact and businesses use service design on the D2C channel to provide service, collect feedback and make continuous improvements. EC smartphone apps use huge amounts of consumer purchasing data to create tailored product recommendations. Purchased products are input into a logistics system and delivered efficiently and on time. Customer satisfaction is enhanced through design for one. This is a service that tailors services to individual customers as if attended by an experience concierge. For example, when customers place an item in their shopping cart but hesitate to buy, the reason behind this decision is analyzed carefully so that the customer experience can be enhanced. Upgrades are made immediately through software revisions and results of these improvements are once again extracted and evaluated in a continuous loop called DesignOps.

Continuous improvement through service design boosts customer satisfaction, attracts more clients and augments competitiveness. The numbers speak for themselves. EC account for 13% of all retail sales and shows signs of further growth.1

1Internet Trends Report 2018

Service Design Expands the Business Realm

Service design is expanding into many different areas, and businesses that use a service design strategy have overwhelmed peers that rely on legacy models. Examples include product sales, content sales such as video/music, services such as online travel, and regulated services such as online sales of prescription drugs. Subscription services have been made possible through digital systems and D2C channels. FinTech ventures are also using service design to revolutionize customer experience through investment apps with intuitive UI offered free of charge, and financial planning apps that can organize multiple loans and debts plus provide more personalized services. Businesses have expanded via numerous new approaches: automation and streamlining of back-end operations, re-organizing complex business practices based on the customer’s perspective, utilizing massive data to improve customer targeting, and re-designing business schemes through design for one.

Digital technologies have been the primary driver behind service design. In addition, cloud technologies enable this process by increasing flexibility within this improvement loop and by supporting rapid changes in strategy.

Service Design Drives Increased Competition

As the effectiveness of service design becomes clear, competition has intensified between digital business firms. The competition is basically a race to secure more of the disposable time of customers on D2C channels. Digital businesses are destined to compete for face time since there are numerous types of businesses on D2C platforms, but a limited number of channels. The amount of disposable time secured through a channel is equivalent to how much data can be obtained. In other words, securing users’ disposable time is the driver of continuous improvement in service design.

Smartphones and smartphone apps currently occupy D2C channels. The time spent on these channels allocated to a particular service is now decisive for the future development of any business.Digital enterprises with different profit infrastructures such as EC, advertisements, on-demand media and hardware all compete for a slice of face time spent on D2C channels. In order to secure a higher share, businesses are integrating functions on chat apps covering entertainment, EC, payments, mutual funds and social credit scores. Moves to gain share of disposable time on new D2C channels (which serve as alternatives to smartphones) are also noteworthy. Possible future channels include smart speakers that use voice UI, smartwatches that help monitor individual health and compact/lightweight head-mounted display goggles that use spatial computing.

Future Developments in Service Design

Service design is being applied to companies that connect the digital with the real world. For example, several stores have opened in North America without cash registers, which offer a customer experience similar to EC in purchasing daily necessities. These operations possess the potential to translate the same characteristics as digital businesses into brick and mortar stores such as speed of opening and scaling.

Service design is also expected to transform transportation. Drivers will become redundant if autonomous vehicles can transport people and luggage. Ridesharing and other digital businesses that have already disrupted the customer experience in other areas are now moving into the center of the transportation industry. As a proof point, the first company to publicly announce a self-driving taxi was not a traditional carmaker but a digital business. The company’s demo video trumpeted its creation of the most desirable mode of transportation for users, not the self-driving technology itself. In this sense, it can be called service design.

Many issues remain with this business model. Data cannot be derived from the physical handling of objects, quality cannot be digitized and some tasks cannot yet be automated. This presents a challenge for digital businesses to transcend the digital realm into the real world. Advancements continue to be made based on trial and error, such as in EC shipping, fitting clothes and accessories, and management and logistics in the sales of perishable goods. Overcoming these challenges in the physical world is key to a successful digital business, but failures remain commonplace. 
The fact that digital businesses are struggling with physical world problems also shows that traditional firms still have the potential to leverage competitive edge accumulated in the physical world. For example, one automaker is revamping its business around service design. This strategy combines the characteristics of a traditional business, i.e., strenuously accumulated production technologies, long-term customer satisfaction and quality that generates a sense of assurance to users, with the customer experience derived from the flexibility and speed of digital technologies. Traditional manufacturers have accumulated technologies from the result of steadfast service design that can be used to their advantage, although they may still lack the degree of design needed to match the speed of digital businesses. In summary, conventional businesses have the option to steer in a given direction to adapt to significant changes in market conditions, while calmly acquiring any competencies that they lack.

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