What is the difference between innovation, new service development, and research? Does it matter?

There are differences between new service development, research and innovation in the professional services. And yes, these differences matter. As I found out the hard way, mixing up these terms can be utterly confusing.

I will therefore start by providing a definition for each:

Innovation

Innovations are novel activities professionals undertake for their clients on a day-to-day basis. When a client struggles with an unfamiliar challenge, or the situation is uncommonly complex, professionals use their wit to come up with innovative solutions. In most professions, this on-the-job kind of problem-solving is labeled innovation.

Research

Research are those activities geared towards expanding the body of knowledge of the profession as a whole. It aims to explore novel, undiscovered territory. The results – novel findings, novel approaches, novel solutions -are shared among peers in scientific and/or peer-reviewed journals.

New service development

New service development are the activities professional service organizations undertake to develop and deliver new services to their clients. Clients’ future needs are anticipated and novel solutions that address challenges or problems are developed proactively. The goal of new service development is to create new services that your clients will value and that makes the organization stand out among the competition.

Return on investment

While all three activities involve novel and creative solutions, the return on investment is not the same for each of these activities.

Innovations have an immediate return on investment, as these fall within the scope of work paid for by the client. The client will appreciate your creative solution and reward you appropriately.

The return on investment of research is less clear. Your name on an article in a prestigious journal certainly contributes to your reputation of … you! In all likelihood it will enable the you to demand a higher price for your services. Yet, since this return is for you, it does not always translate in a financial return for the professional service organization that paid for your time and effort. The return for the organization is further diminished by the long lead times before these research finding make it to practice and because the knowledge gained becomes public information.

New service development activities should have a return on investment for the organization, because that is the purpose. Without such a return, why undertake new service development activities? However, that is not to say that creating a return is easy. Without diligent execution and some form or structured approach, it is easy to fall in the trap of starting too many new service initiatives and having too few initiatives actually deliver results. Moreover, if diffusion of successfully implemented new services is not considered an integral part of the development process, the return on investment is certainly not maximized.

Highest potential?

Overall, new service development activities have the highest return on investment. Doblin, Deloitte’s innovation institute, estimates that the broader the scope of a new product or service project, the higher its return on investment. That is, with only a product performance change, the expected return is relatively small. Instead, when a new service entails a new financial model, a new business model, and a new process, the investment almost certainly will pay off. Since most new services – especially in today’s high-tech world – rely on changes in financial models, business models and operational processes, they have tremendous opportunity for high payoffs.

In sum, new service development is in the sweet spot between research and process improvement. For process improvement the risks are typically low, but so is the yield. For research, the yield can be significant – if the generated intellectual property can be protected and appropriated. Yet the risks are significant too. Most often, the yield of research is a scientific article.

New service development is in the sweet spot, when it aims to develop next-generation and breakthrough new services. Since it typically makes use of existing technologies, the risks are significantly lower than those of research activities.

While new services certainly can be copied, novel combinations of financial, business and operational models are often hard to copy for competitors. Especially in the professional services, where the intangible aspects new service delivery models are high.

Challenges

However, that is not to say that new service development is easy in the professional services. New service development is typically not ingrained in the culture and business model of professional service organizations, making the development of new services tricky.

New service development requires busy professionals to take time out of their busy schedules to challenge existing ways of servicing customers and act upon these opportunities. Especially the latter is challenging, as developing new services is time-consuming and requires a lot of perseverance.