1. Service Systems, Value Propositions, and Service Innovation Dr. Stephen K. Kwan Professor, Service Science Management Information Systems College of Business Administration San José State University, CA, USA http://www.sjsu.edu/ssme Contact: stephen.kwan@sjsu.edu Prepared for Visitors from Chinese University of Hong Kong August 2nd, 2011

2. 2 Kwan 2010 Changing nature of work - away from farms and factories… World’s Large Labor Forces A = Agriculture, G = Goods, S = Service US shift to service jobs 2010 2010 (A) Agriculture: Value from harvesting nature 40yr Service Growth S % G % A % Labor % Nation 142% 29 22 49 25.7 China 35% 23 17 60 14.4 India (G) Goods: Value from making products 23% 76 23 1 5.1 U.S. 34% 39 16 45 3.5 Indonesia (S) Service: Value from enhancing the capabilities of people and their ability to interconnect and co-create value 61% 66 14 20 3.0 Brazil 64% 69 21 10 2.4 Russia 45% 67 28 5 2.2 Japan 19% 20 10 70 1.6 Nigeria 37% 26 11 63 2.1 Bangladesh 42% 64 33 3 1.4 Germany Employment Change CIA Handbook, International Labor Organization Note: Pakistan, Vietnam, and Mexico now larger LF than Germany Numeric change in wage-salary employment by industry sector, projected 2004-14 (Thousands) Professional and business service4566 Healthcare and social assistance4303 The largest labor force migration in human history is underway, driven by global communications, business and technology growth, urbanization and regional variations in labor and infrastructure costs and capabilities. 2 Kwan 2010

3. Innovation in Modern Services 现代服务的创新 In its 11th Five-Year Plan, China had targeted an increase of the service sector’s output to 43.3% of GDP by 2010, up from 40.3% in 2005 In its 12th Five-Year Plan, China had targeted an increase of the service sector’s value-added output to 47.3% of GDP by 2015, up 4%.

4. 4 Kwan 2010 Skills for the 21st Century http://www-03.ibm.com/press/us/en/attachment/25091.wss?fileId=ATTACH_FILE1&fileName=Podcast%20interview%20with%20SFSU.mp3

5. 5 Kwan 2011 Some Definitions Service Science is short for Service Science, Management, Engineering and Design (SSMED1). Service Science is concerned with the study of Service Systems. cf. Computer Science is concerned with the study of Computer Systems. Service Systems are man-made complex systems designed to improve the quality of life by co-creating value through value propositions among the stake-holders. 1 Spohrer, J., Kwan, S.K. “Service Science, Management, Engineering, and Design (SSMED): An Emerging Discipline – Outline and References”, International Journal of Information Systems in the Service Sector, 1(3), 2009.

6. Service Science is a Big Tent (for every variety of disciplines) Service Operations Marketing Management Quality Supply Chain Human Factors Design Innovation Engineering Systems Computing Economics Arts Science “Service Science is just ___<name your discipline>____” General Systems Theory A Service System is Complex OR/IE MS Information Science (i-schools) MIS Economics & Law Game Theory Anthropology & Psychology Organization Theory CS/AI Multiagent Systems 6

7. Service System Worldview1 Service Provider Customer Service Experience A Service System and Its Entities 1Kwan, S. K. & Min, J. H. (2008) “An Evolutionary Framework of Service Systems”. Presented at the International Conference on Service Science, Beijing, China, April 17-18. 7 Kwan 2011

8. 8 A Service System Network Service System A Service Interactions Service System B Service System E Service System C Service System D Service System F Kwan 2011 8

9. 9 A Service Supply Chain Service System A Service Interactions Service System B Service System E Service System C Service System D Service System F Kwan 2011 9

10. 10 Example: Purchases from Amazon.com Kwan 2011

11. Example: Purchases from Amazon.com Customer Amazon.com Bookcloseout_us theBookGrinder USPS nengland4 USPS USPS “transparent” service provider Not being evaluated? USPS Kwan 2011

12. 12 Kwan 2010 Example: Quality of Service Supply Chain Example from Dan Pritchett

13. Service System Worldview Employees & Stockholders Community Service Provider Customer Service Experience Partners Competition Service System Society 13 Kwan 2011

14. Service System Worldview Service Management Fitzsimmons & Fitzsimmons Employees & Stockholders Capacity & Manpower Planning, Training Community Service Provider Customer Facility Location & Design Service Experience Partners 14 Social Networking Competition Competitive Strategy Service Concept Realized Customer Flow & Service Delivery Market Segmentation Operating Strategy Society Kwan 2011

15. Value Co-Creation Through Value Propositions Value Employees & Stockholders Community Service Provider Customer Value Value Value Service Experience Partners Competition Service System Governance Society 15 Kwan 2011

16. 16 Service Systems, Computing, and IT Services1 Service Provider’s Back Stage Support Information Technology Platform Back Stage Processes Front Stage Processes Front Stage ITSM – Management of the Processes and Infrastructure of IT Services Service Computing (e.g., SOA) 1 Kwan, S. K. & Hefley, B., “Service Systems”, 2008. Kwan 2011

17. 17 Kwan 2011 Formulation of Value = Benefit / Cost Better Off From: Customer Value = (Results + Process Quality ) / (Price + Customer Access Costs) Heskett et all 1997 To: Harvey 2005 To:

18. 18 Stages in Customer Empowerment in Value Co-Creation Stage 1: Value Chain Value Proposition Customer Service Provider Focal Relationship Service Experience 5 Kwan, S. K. & Yuan, S. T. ”Customer-Driven Value Co-Creation in Service Networks”, to appear in Demirkan, H., Spohrer, J.C. and Krishna, V. ed., The Science of Service Systems, volume in Service Science: Research and Innovation (SSRI) in the Service Economy series, Springer, 2010. Kwan 2011

19. 19 Stage 2: Traditional Service Value Network Value Proposition Customer Service Provider Focal Relationship Provider Partner Network Service Experience Value Proposition cf. ICT-enabled service networks, mobile applications, etc. Kwan 2011

20. 20 Kwan 2011 Example of Service Value Network Service System/Network 1. People 2. Technology 3. Shared Information 4. Organizationsconnected by value propositions from Jim Spohrer

21. Stage 3 – Improved Value Chain Value Proposition Customer Service Provider Focal Relationship Value Proposition Customer’s Social Network Service Experience Kwan 2011

22. 22 Example of Customer Driven Service Value Network Their Friends TV Programs Ad’s and “Buy Me” Target Audience Illustration from: Vascellaro, J. A. “Video’s New Friends”, The Wall Street Journal, February 28, 2008. Product Placements Kwan 2011

23. 23 Taking Advantage of Social Networks Kwan 2011

24. Stage 4: Customer Driven Service Value Network Value Proposition Service Provider Customer Focal Relationship Value Proposition Value Proposition Provider Partner Network Customer’s Social Network Service Experience cf. “Resource Integrators” in Service Dominant Logic literature Kwan 2011

25. 25 Variety of Value Propositions Maslow’s Hierarchy Of Needs Value Dimensions Service Provider Society Community Employees Stockholders Partners Customers Intrinsic Hedonic Social Societal Environmental Political Stakeholders Economic A point in this 3-D space is a Potential Value Proposition 1 2 4 3 Stages of Customer Empowerment Kwan 2011

26. 26 Kwan 2011 Maslow’s Hierarchy of Needs Disposable Income & Desire for Services Needs vs. Wants

27. 27 Service Provider Society Community Employees Stockholders Partners Customers Value Propositions can also be bi-directional Customers Partners Service Provider Service Provider Society Community Employees Stockholders Partners Customers ? Kwan 2011

28. 28 Kwan 2011 Value Proposition Model (VPM) Starting with the Service System Service Provider Customer Service Experience

29. 29 Kwan 2011 VPM – a common example Service Provider Customer Value Proposition Customer Service Experience Service Experience Customer Service Experience

30. 30 Kwan 2011 VPM – individuals and community Service Provider Customer Value Proposition Community/ Social Network Customer A Shared Experience Service Experience Service Experience Customer Service Experience

31. 31 Kwan 2011 VPM – individuals and Facebook community Service Provider Customer Value Proposition Community/ Social Network Customer A Shared Experience Service Experience Service Experience Customer Service Experience

32. 32 Kwan 2011 VPM – service provider partners Service Provider Customer Value Proposition Customer Service Experience Service Experience Service Experience Service Experience Vendor Value Proposition

33. 33 Kwan 2011 VPM – partner’s acquistion of customer Service Provider Customer Customer Service Experience Service Experience Service Experience Service Experience Vendor Service Experience

34. 34 Kwan 2011 Example 1 of 4 Service Provider Customer Customer Service Experience Service Experience Service Experience Service Experience Vendor

35. 35 Kwan 2011 Example 2 of 4 Service Provider Customer Customer Service Experience Service Experience Service Experience Service Experience Service Experience Vendor Vendor Service Experience

36. 36 Kwan 2011 Example 3 of 4 Service Provider Customer Customer Service Experience Service Experience Service Experience Service Experience Service Experience Vendor Vendor Service Experience

37. 37 Kwan 2011 Example 4 of 4 Service Provider Customer Customer Service Experience Service Experience Service Experience Service Experience Vendor Service Experience

38. 38 Innovation 혁신 創新 创新 革新 Innovation resides at the intersection of invention and insight, leading to the creation of social and economic value.National Innovation Initiative Innovation can happen anywhere on the Value Chain! (business model, organization, environment, process, technology, etc.) CREATING SOMETHING NEW Kwan 2011

39. 39 Kwan 2011 Some Thoughts on Innovation “Creativity can be taught. Innovation can be learned.” David Blakeley, Director “Incremental Innovation vs. Radical Innovation” Judy Estrin “Closing the Innovation Gap” Innovation in Modern Services 现代服务的创新

41. Start-up Business: new service for underserved market.

43. Service Improvements: changes in service delivery process.

45. 42 How the Service System Framework and VPM could complement the Foresight Method applied to Services © Cockayne and Carleton Kwan 2011

46. 43 How the Service System Framework could complement the Foresight Method applied to Services Business Models & Value Propositions Service System Thinking © Cockayne and Carleton Kwan 2011

47. 44 Example of how the Service System Framework could complement an Innovation Method applied to Services BPMN UML – Use Cases Service Blueprint Story Boards UI Prototyping MANGA textbooks etc. Kwan 2011

48. 45 Using the Foresight Method Kwan 2011

49. 46 Sample Project from SJSU MBA Students 46 Kwan 2011

50. 47 Kwan 2011 Teaching the method for “Service Made in ?country?”

51. 48 Kwan 2011 Service Summer 2010 Karlsruhe, Germany

52. Service Systems, Value Propositions, and Service Innovation Dr. Stephen K. Kwan Professor, Service Science Management Information Systems College of Business Administration San José State University, CA, USA http://www.sjsu.edu/ssme Contact: stephen.kwan@sjsu.edu End Prepared for Visitors from Chinese University of Hong Kong August 2nd, 2011