When we engage with a client for service design, one of the things we always do is scan their industry, as well as other industries, for any technology that might be a good fit for their particular solution. Too often, companies are inclined to believe that their problem is so unique that only a custom application will do. But by spending some time on deep research, this “re-purposing” ultimately saves our clients tremendous amounts of time and money. One of the areas we have learned to tap into is the U.S. government. With the right search methods, you can uncover a treasure trove of data, software, and intellectual capital that is available for the asking.

An article in today’s Wall Street Journal shows how software, already funded by the U.S. taxpayers, could be the lynch pin to solve one of the most dysfunctional aspects of the U.S. health care crisis. The potential solution lies in a software system that was designed to manage the medical records for Veteran’s Administration hospitals across the country. The software, dubbed VistA (Veteran’s Health Information Systems and Technology Architecture) has been created with several billion dollars of taxpayer funds over the past two decades. The system is now used in over 1,400 VA facilities and the source code is now in the public domain.

According to the paper, “Paperless technologies have revolutionized banking and retailing. But even after a decade-long effort to modernize health care, fewer than 2% of the nation’s 5,000 non-VA hospitals have what could be considered a comparable full-fledged system, according to a recent survey in the New England Journal of Medicine. Hospitals say they haven’t been able to afford the cost of the systems, which range from $20 million to $100 million, and the current economic crisis isn’t helping.”
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A book which had a big influence on our thinking back in the late 1990s was "The Innovator’s Dilemma" by Clayton M. Christensen, a Harvard professor who illustrated in very simple and elegant terms how disruptive innovation is brought about not by the folks with the big R&D budgets, but by smaller companies who "thought differently." Instead of adding feature upon feature, these innovator’s create products and services that are "good enough" at dramatically lower (and disruptive) price-points. Christensen and his colleagues have now set their sites on one of the biggest and toughest issues now facing the United States; healthcare.

In the recently published "The Innovator’s Prescription: A Disruptive Solution for Health Care" Christensen, along with co-authors Jerome H. Grossman M.D. and Jason Hwang M.D. lay out some very fundamental and easy-to-understand concepts as to why the current healthcare system is broken. You can read an extended excerpt of the book at the Forbes website, and we have chosen some of the "best of the best" ideas below.

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In order to understand how to "fix" hospitals, first it’s important to understand the value proposition of hospitals. Hospitals have become the workshops within which physicians could be trained and practice their intuitive craft, clinical laboratories where complex medical cases could be solved and unanticipated emergencies and complications could be resolved with as much certainty as possible.

This value proposition has been a great fit for solving poorly understood problems of the past, such as tuberculosis in the early 1900s, poliomyelitis in the 1950s and AIDS in the 1980s. When these diseases were first encountered, they had to be addressed in hospitals. However, in terms of the complexity of diagnosing and treating disease, for a century hospitals have been on a relentless upmarket march on the trajectory of sustaining innovation.
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Some excerpts from a recent article in The Economist…

"In recent years, consumers have become used to feasting on online freebies of all sorts: news, share quotes, music, e-mail and even speedy internet access. These days, however, dotcoms are not making news with yet more free offerings, but with lay-offs—and with announcements that they are to start charging for their services.” These words appeared in The Economist in April 2001 , but they’re just as applicable today.

The only reason it had not worked the first time around, it was generally agreed, was a shortage of broadband connections. The pursuit of eyeballs began again, and a series of new Internet stars emerged: MySpace, YouTube, Facebook and now Twitter. Each provided a free service in order to attract a large audience that would then—at some unspecified point in the future—attract large amounts of advertising revenue. It had worked for Google, after all. The free lunch was back.

Ultimately, though, every business needs revenues—and advertising, it transpires, is not going to provide enough. Free content and services were a beguiling idea. But the lesson of two Internet bubbles is that somebody somewhere is going to have to pick up the tab for lunch.

We were profiled today by The Phoenix , a local newspaper and I think it was very well written on our approach to service design. Here’s the article…

New Start-up Focuses on ‘Service Design’

Wednesday, March 18, 2009 8:39 AM EDT

By G.E. Lawrence

MALVERN — For Charlestown resident Bob Cooper and Frontier Service Design LLC, the most interesting part of finding ways to add to a company’s bottom line is its intellectual challenge.

"We want to work with clients who know what they know, and more importantly, know what they don’t know," Cooper says. Clients who are "eager to find a knowledgeable and experienced partner who will help them know what they don’t know."

That’s no Zen koan: it’s a principle of a business model emerging out of Cooper’s over two decades working with corporate clients, and discovering along the way undiscovered value in what they do — leading to the development of new and consistent revenue streams.

"The most fun and profitable relationships for everyone," Cooper says, are those "where we really get inside the business, understand the culture and the people, and really make a difference through service design."

"Service design?" Yes, the focus is on "service," in a national economy in which 70 percent of gross domestic product is in services, not products — but on the services surrounding manufacture, as well.

His new company, Cooper says, takes "an approach to help companies design, prototype and launch" service innovations, by getting to know a company’s processes thoroughly, and applying good ideas and best practices across industries, developing in the end "new and recurring revenue streams.

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Our latest case study is now available. This describes the service design process we went through with Complete Healthcare Communications to transition an internal database from "a cost of doing business" into a vibrant, revenue-generating service that delivers multiple benefits to subscribers and CHC. This will also be permanently posted on our client list as well. Enjoy!

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Frontier Service Design Helps Complete Healthcare Communications
Turn Internal Cost Center Into New Revenue Source

Background
Complete Healthcare Communications, Inc. (CHC) is a publication planning and scientific medical writing firm based in Chadds Ford, PA that has been servicing the top pharmaceutical firms and brands since 1994. With more than 115 professionals, CHC employs one of the largest, in-house medical writing staffs in the industry. The company is top performer in its industry. But that did not keep Bob Norris, founder and CEO, from wanting to explore new ways in which to grow the company.

"I had been very focused on building a best-of-breed medical communications company, but as I looked around the pharmaceutical and broader life sciences industry, I wondered if there were other opportunities for our firm," explained Mr. Norris.

Understanding the Business
As part of their standard service design process, Bob Cooper of Frontier Service Design worked with CHC’s senior management team to assess the organization’s internal strengths. As part of this process, Frontier examined the current services that CHC provided to its clients, the relationships they had with those clients and trends in the pharmaceutical industry. In addition, Frontier identified the assets that the company had, in the form of knowledge and technology. Frontier was asked to evaluate the value and commercialization potential of an internal database that had been built by CHC employees over the years as a potential new revenue opportunity. The database had been used as a tool by CHC’s account teams to track peer-reviewed medical journals around the world. (more…)

Last week during my service design workshop for Inc. Magazine, I cited the study from Bain Consulting in which 80% of executives from large public corporations believed that they were providing "outstanding customer experiences" to consumers. I asked the group of privately-held company CEOs to guess what percentage of customers actually agreed that statement. People called out "30%," "20%," "15%!" It was like a reverse auction. And yet nobody even came close to the dismal truth that only 8% of customers agreed that they had an outstanding customer experience. You could actually hear a collective gasp in the room when I told them that the number was 8% and that the execs had missed it not by a factor of two or three but by a factor of 10!

I’ve been thinking a lot about this disconnect within large corporations. Why does it exist? I have a couple theories, and the first revolves around the old saying, "familiarity breeds contempt." It’s tough to nail down who first said that, either Aesop in a fable or St. Augustine ("vulgare proverbium est , quod nimia familiaritas parit contemptum.") And while this saying is most often associated with individuals and inter-personal relationships, I think it’s true for companies and their customers. In traditional marketing there is a mad rush to get new customers, as opposed to really understanding the customers you have, which in turn, would help you attract more customers. (more…)

A recent article in the Wall Street Journal shows how service revenues can dwarf product revenues for manufacturers. One case in point: the aviation industry. According to GE Chairman and Chief Executive Jeffrey Immeltt, GE has sold $13 billion in aircraft engines since 2006. Over their 30-year life, those engines will generate about $90 billion in service revenue. In this case, service drives 7X the initial product price.

From aircraft engines to locomotives, GE expects that 75% of its industrial operation’s $85 billion in revenue will come from services this year, up from 65% in 2007. Companies in other industries, such as Siemens AG and Caterpillar Corp., also are leaning on service revenue as product sales slow. At United Technologies Corp., whose products include Otis elevators and Sikorsky helicopters, roughly 40% of revenue came from parts and services last year. Of course, plenty of companies are looking to grab those service revenues away from the original equipment manufacturer (OEM.) Why? Because it’s lucrative. After-sales services and parts typically yield 25% of revenues and nearly 50% of profits for industrial companies, according to consulting firm Accenture Ltd.

Even though total sales fell 12% in the fourth quarter for GE’s aviation unit, rising service orders propelled a 21% profit increase for the unit. GE’s backlog in aviation services rose 9.5% last year to $55.2 billion, representing nearly half of the company’s total services backlog.

In this economy, everyone from consumers to large corporations must do more with less. Often times, that means keeping older equipment running longer, as opposed to buying new. That’s bad news for manufacturers, unless they have strong service divisions to back them up, and good news for service innovators.

Noticed this Tweet this morning from Alan M. Webber…

"Just had coffee with Wickie Meier in Copenhagen; she reports that "service design" is under-appreciated next big thing — makes sense to me!"

So who is Alan Webber ? He launched Fast Company , the fastest growing, most successful business magazine in history. He was named Adweek’s Editor of the Year in 1999, along with co-founding editor William Taylor. In 2000 Fast Company was sold for the second largest amount of any magazine in U.S. history. He "gets" what it means to be a “fast company”: the ongoing competition for the best people, for great ideas, and for the right way to think about leadership. And it’s great that he "gets" service design.

Prior to founding Fast Company, Webber was the managing editor and editorial director of the Harvard Business Review for five years. His article and columns have appeared in The Wall Street Journal, New York Times, Washington Post, USA Today and the Los Angeles Times.

So who else in the mainstream media "gets" service design? Let us know at hey @ FrontierServiceDesign dot com.

Originally published Feb 19, 2009, by Kenneth Hein

While it isn’t shocking that a positive customer experience leads to customer loyalty, Forrester Research’s new report shows just how crucial it can be. Forrester surveyed 4,500 U.S. consumers and asked them about their interactions with more than 100 brand name firms.

It found a good experience correlates with a willingness to repurchase a product or service, a reluctance to switch and a likelihood to spread a positive word-of-mouth endorsement.

Among the companies surveyed, Office Depot and SunTrust Bank showed the highest correlation between customer experience and customers’ repurchase plans. Merrill Lynch, Hampton Inn/Suites, Sears and RadioShack followed.

In terms of overall categories, TV service providers, Internet service providers and banks showed the greatest link between the brand experience and whether or not customers would spend again.

“Since new customers are harder to come by in an economic downturn, firms need to pay even more attention to building loyalty with their most important customers,” wrote Bruce Temkin, author of Customer Experience Correlates to Loyalty . “If firms lose pace with competitors’ customer experience, they may end up attenuating the negative impact of the economic downturn.

The companies that showed the highest correlation between customer experience and a reluctance to switch were U.S. Airways/America West and RadioShack. This was most common among investment firms and medical insurers.

Charter Communications, an ISP, plus TV service provider Bright House and AAA insurance showed the highest correlation between experience and likelihood to recommend.

Excerpts from an article in the Wall Street Journal…

For decades, Xerox and others built their businesses by pushing companies to buy more office machines and supplying pricey ink and toner. But increasingly these vendors are now advising big customers to reduce their number of machines and find ways to cut printing costs."That sounds like a strange way for a manufacturer to make money," concedes Stephen Cronin, president of Xerox’s global-services business, which reached $3.5 billion in sales last year.

The printing companies want to entice clients to sign up for exclusive contracts, allowing them to replace machines made by rivals and thus provide all printing supplies. In some cases, clients let a single supplier manage the whole system for a monthly fee. The business, known as managed-print services is expected to jump 36% this year to $15.7 billion. In Xerox’ case, more than half of the 1.5 million devices the company currently manages are from other vendors. "Total spending goes down, but my proportion goes up," Mr. Cronin says. Last year, services, including maintenance as well as managed print, contributed $3.5 billion of Xerox’s $17.6 billion in revenue.

Last month, Procter & Gamble Co. agreed to turn over to Xerox its vast fleet of printers and copiers in a multi-year contract valued at more than $100 million. Filippo Passerini, P&G’s chief information officer, says the decision is expected to cut paper usage 40% and costs 20% to 25%. He declined to disclose dollar figures.

Because of their push into services, the hardware makers are increasingly frank about the high costs of printing. Xerox says its research shows that companies spend between 3% and 4% of revenue on producing documents, or $3,400 per employee, so savings can be significant.