Last week we published the EEF/NatWest Innovation Monitor 2013 which found that manufacturers are planning to use innovation to sell to new customers and new markets in the next three years.
As well as looking to expand into new markets, manufacturers say they expect to innovate a little differently in the next three years, and service innovation is seen as a particular opportunity.
37% of companies plan to introduce a new or significantly improved service
In the last three years, only 28% of manufacturers said that they engaged in service innovation, some way down from the 41% of companies who said they did this in 2010's Innovation Monitor. But this is expected to change. Looking ahead to the next three years, service innovation is expected to become more prevalent, with 37% of companies saying they plan to introduce a new or significantly improved service.
To some extent this intended move towards service innovation is driven by manufacturers' customers who are expecting them to deliver their products in a different way. It can also be driven by the fact that manufacturers are selling increasingly complex products, which need specialist installation or servicing that they are well-placed to provide. Ultimately, though, a service offering is another way for manufacturers' to compete, and differentiate themselves from their competitors.
One manufacturer suggested that it is now harder to have a product advantage than it was ten years ago, but services can give a product an edge. Examples include maintenance contracts or agreements with customers that they will receive a guaranteed level of performance from a product.
Our survey has show that plans for service innovation do not always materialise
While manufacturers can see the advantages of service innovation, our survey has historically shown that it is something more companies plan to do in the next three years, than will actually do so. This is not a phenomenon that is unique to UK manufacturers. US research for the National Institute of Standards and Technology suggests that there are several challenges that are specific to service innovation, which mean it can take longer for companies to engage in this kind of activity.
Providing services is inherently different from providing products: it is usually more labour-intensive, and requires different facilities, equipment and skill sets. Service provision also often requires a deeper understanding of an individual customer's specific requirements. Changing a business structure to meet these needs can pose major management and organisational challenges.
The full report is available here.