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Foresight and Service Design Boosting
Dynamic Capabilities in Service
Innovation
Katri Ojasalo, Minna Koskelo and Anu K. Nousiainen
Abstract Identifying opportunities for service innovation and exploiting them
requires novel capability building in the rapidly changing business environments.
This study extends the existing literature on dynamic capabilities in service inno-
vation by operationalizing the capabilities of sensing and seizing new opportunities.
The purpose of this chapter is to examine how futures thinking and design thinking
can facilitate service innovation from the dynamic capabilities point-of-view. As a
result this chapter provides a conceptual framework for service innovation process
that is grounded on foresight and service design. To synthesize the literature into a
new conceptual framework, this chapter is based on a large body of literature from
four burgeoning fields of study: dynamic capabilities, service innovation, foresight,
and service design. The key point the chapter wishes to make is that a forward look at
new methodological perspectives in service innovation is needed and that integrating
the methods and tools of foresight and service design to the service innovation
process provides a promising new avenue to future success.
Keywords Foresight Service design Dynamic capabilities Service innovation
1 Introduction
In today’s dynamic environments in which customer needs, market trends, tech-
nologies, and other factors change rapidly, new opportunities for service innovation
appear in great abundance. To identify and exploit these opportunities, the
K. Ojasalo (&)M. Koskelo A.K. Nousiainen
Laurea University of Applied Sciences, Espoo, Finland
e-mail: katri.ojasalo@laurea.fi
M. Koskelo
e-mail: minna.koskelo@gmail.com
A.K. Nousiainen
e-mail: nuflow.anuk@gmail.com
©Springer-Verlag London 2015
R. Agarwal et al. (eds.), The Handbook of Service Innovation,
DOI 10.1007/978-1-4471-6590-3_10
193
emerging view on dynamic capabilities can offer a powerful framework (Teece
2009; den Hertog et al. 2010; Kindström et al. 2012; Ramírez et al. 2013). For this
reason, it has been selected as the starting point of this chapter.
Dynamic capabilities can be defined as routines within a company’s managerial
and organizational processes that aim to gain, release, integrate, and reconfigure
resources (Teece et al. 1997). Resources are specific physical (e.g., geographic
location), human (e.g., expertise), and organizational (e.g., superior sales force)
assets that can be used to implement value-creating strategies (see Eisenhard and
Martin 2000). When introducing the term “dynamic capabilities”, Teece and Pisano
(1994) highlighted the importance of adapting, integrating, and reconfiguring
resources in the rapidly changing environment. Thus, while operational capabilities
are geared toward the operational functioning of a company around the question
how to earn one’s living (Zollo and Winter 2002; Winter 2003), dynamic capa-
bilities focus on the modification of operational capabilities and lead to changes in
the company’s products or production processes (Cepeda and Vera 2007).
Teece (2007) divides dynamic capabilities into three categories: (1) sensing and
shaping new opportunities and threats, (2) seizing opportunities, and (3) main-
taining competitiveness through enhancing, combining, protecting, and reconfig-
uring the company’s intangible and tangible assets. The dynamic capability of
sensing new opportunities requires the ability to recognize, interpret, and shape
developments related to technological options, structural evolution of industries and
markets, customers’expressed and latent needs, and likely suppliers’and com-
petitors’responses (Teece 2007). This involves creative activity and scanning and
monitoring what is going on in the business ecosystem. The dynamic capability of
seizing opportunities refers to the formulation of a strategic response to the
opportunities sensed (Fischer et al. 2010). Reconfiguring capability is a key to
sustained profitable growth, and it means the ability to recombine and to recon-
figure assets and organizational structures as the company grows and markets and
technologies change (Teece 2007). In other words, dynamic capabilities include the
capacity to identify needs and opportunities for change, formulate a response to
those needs and opportunities, and implement a course of action (Helfat et al.
2007). Since, dynamic capabilities are required to adapt to changing customer and
technological opportunities, to shape the ecosystem the company occupies, to
develop new products and processes and to design and implement viable business
models, the dynamic capabilities view is well suited for studying innovation (e.g.,
Lawson and Samson 2001).
The dynamic capabilities view has been mostly used in product and technology-
related contexts but less in the context of service innovation, even though it seems
particularly useful for service innovation (Fischer et al. 2010; den Hertog et al.
2010; Kindström et al. 2012). For example, Agarwal and Selen (2009) highlight the
importance of dynamic capabilities in service companies in providing a proactive
way to explore new opportunities and help anticipate threats from competitive
innovations. Also Carlborg et al. (2013) mention that managing service innovation
means continuously redesigning and adapting new and existing service offerings to
address frequent changes and emerging opportunities. Thus, understanding and
194 K. Ojasalo et al.
developing dynamic capabilities associated with service innovation is important for
being able to reap the benefits of future service innovation (den Hertog et al. 2010;
Fischer et al. 2010; Kindström et al. 2012). However, developing dynamic capa-
bilities is challenging (Winter 2003; Teece 2007;O’Reilly and Tushman 2008), and
companies need support in operationalizing them (Fischer et al. 2010).
To address the above challenges, this chapter makes a unique contribution by
providing an important standpoint on operationalizing the dynamic capabilities in
service context. The purpose of this chapter is to examine how futures thinking and
design thinking can facilitate service innovation from the dynamic capabilities
point-of-view, and this chapter, accordingly, provides a conceptual framework for
service innovation process that is grounded on foresight and service design. To
synthesize the literature into a new conceptual framework, this chapter is based on a
large body of literature from four burgeoning fields of study: strategic management
literature focusing on dynamic capabilities, service management and service-
dominant (S-D) logic literature focusing on service innovation, futures thinking
literature focusing on the principles and methods of foresight, and design thinking
literature focusing on service design processes and methods. The most inspiring
sources of information contributing to this chapter have been the recent studies that
cover two of the four focus fields, i.e., dynamic capabilities in service innovation
(e.g., Agarwal and Selen 2009; den Hertog et al. 2010; Fischer et al. 2010;
Kindström et al. 2012), foresight in innovation process (e.g., van der Duin and den
Hartigh 2009; Holopainen and Helminen 2011; Carleton et al. 2013), foresight as a
dynamic capability (e.g., Ramírez et al. 2013), design thinking in innovation (e.g.,
Brown 2008; Bauer and Eagen 2010), and foresight in design processes (e.g., Evans
and Sommerville 2007; Alstyne 2010; Leihener and Breier 2013).
The dynamic capabilities view is a very suitable starting point for this chapter
because the interdisciplinary fields of futures thinking and design thinking are both
about sensing and seizing—focusing on figuring out and addressing changes and
opportunities in customers’expressed and latent needs, market trends, technologies,
and other evolving issues in business ecosystems. Being definitely needed in suc-
cessful service innovation, they can offer useful approaches and methods for
dealing with the dynamic capabilities in practice. For example, van der Duin and
den Hartigh (2009) mention that there is a significant need for further development
of dynamic perspectives, not only for academic purposes but also as practical tools
for managers, and they stress that futures research seems extremely well suited to
connect to such developments. Similarly, Brown (2008) suggests that incorporating
design thinking into all phases of innovation process would offer a huge benefit.
However, the current literature on service innovation does not seem to elaborate the
full scale of futures thinking and design thinking. For example, Miles (2010)
highlights the poor relationship between the theory and practice of service inno-
vation and service design, the big challenge being integration of these bodies of
knowledge. Leihener and Breuer (2013) suggest that service design should address
and incorporate a leap into the future because most of the current methods used in
service design processes rely on empirical data that deliver insights that are valid
only for the past or the present.
Foresight and Service Design Boosting Dynamic Capabilities …195
This chapter aims at providing improved insights for novel approaches and
methods in service innovation. Its next section discusses the needs for dynamic
capabilities in service-logic-based innovation. In the section after that, the main
principles of futures thinking and design thinking are shown. The next-to-last
section introduces the framework of a novel, future-oriented service innovation
process, and discusses the methods of foresight and service design in the process.
The final section presents the conclusions.
2 Service-Logic-Based Innovation Calls for New
Capabilities
Service innovation has been viewed as a significant driver of growth in businesses,
and companies are looking for better methods for service innovation (e.g., Ostrom
et al. 2010). Consequently, studies of service innovation are accumulating rapidly
(Droege et al. 2009; Carlborg et al. 2013). Still, most of the research in this field has
been carried out according to the manufacturing-based innovation paradigm resting
on the goods-dominant (G-D) logic that sees innovation as an output, i.e., a new
good or a service, and focuses on companies’internal innovation processes that are
clearly separated from the actual service practice (Mele et al. 2009; Barcet 2010;
Toivonen 2010; Ordanini and Parasuraman 2011). Recently, mainstream business
thinking has been shifting from G-D logic to service logic (Michel et al. 2008;
Chesbrough and Davies 2010;Grönroos and Ravald 2011) or service-dominant
(S-D) logic, (Vargo and Lusch 2004; Gummesson et al. 2010), in which service as
experienced by a customer is the fundamental basis of the new business logic. Based
on S-D logic, service is the central mechanism of any economic exchange, and it can
be conceptualized as the “process of application of specialized competences
(knowledge and skills) through deeds, processes, and performances for the benefitof
another entity or the entity itself”(Vargo and Lusch 2004, p. 2). Thus, S-D logic,
interpreted as strategic business logic, portrays creating value in conjunction with—
rather than for—customers as a source of competitive advantage (Karpen et al.
2012). The shift from G-D logic to S-D logic is consistent with the dynamic capa-
bilities view (den Hertog et al. 2010).
Service logic has profound theoretical and managerial implications for service
innovation (e.g., Michel et al. 2008; Edvardsson et al. 2010; Ordanini and Parasur-
aman 2011). However, the analysis of these implications is still at an incipient stage
(e.g., Helkkula and Holopainen 2011). The S-D logic perspective seems highly
appropriate for studying service innovations because it integrates both intangible
service offerings and tangible goods into an overarching service view (Vargo and
Lusch 2006). Viewing service as a co-produced process that involves the application
of competences supports a new perspective for thinking about service innovations
(Ordanini and Parasuraman 2011). When the customer is at the center of value cre-
ation, service innovation focuses on developing value propositions and prerequisites
196 K. Ojasalo et al.
for customers so that they can engage in value creation by providing resources with
their knowledge and skills (Edvardsson et al. 2010). Michel et al. (2008) stress that
service logic innovation requires changes in customer thinking, participation, and
capabilities for creating and realizing value, and the nature and magnitude of change
in competences determine the extent of service innovation. According to them (ibid.
2008, p. 50), “altering value as it is defined and used by the customer, not value in
production and exchange, defines innovation”. In a recent definition of service
innovation, den Hertog et al. (2010, p. 494) pay attention to the role of customers in the
creation of value: “A service innovation is a new service experience or service solution
that consist of one or several of the following dimensions: new service concept, new
customer interaction, new value system/business partners, new revenue model, new
organizational or technological service delivery process”.
Karpen et al. (2012) emphasize that the literature provides limited guidance for
implementing the S-D logic perspective in practice, and little research attention has
been paid to the capabilities required to enact S-D logic. A study by Kindström
et al. (2012) indicates that identifying and exploiting the benefits of service inno-
vation cannot rely only on capabilities derived from manufacturing-based innova-
tion. Service-logic-based innovation requires a new way of looking at the processes,
roles, and mechanisms that create value (Sebastiani and Paiola 2010). In other
words, the paradigm shift from manufacturing-based to service-logic-based inno-
vation implies that deep relationships with customers and their processes are
becoming central (see Barcet 2010), and adding customer-centricity in innovation
to replace the traditional and limiting product- and provider-centric view (Michel
et al. 2008; Edvardsson et al. 2010). According to S-D logic, the capability to
collaborate with customers during service development transforms the customer
into an operant resource on which the firm can draw to foster innovation (Vargo and
Lusch 2004). Also Carlborg et al. (2013) stress that service innovation studies
should focus on processes and gain a better understanding of interactions with the
customer and other stakeholders in the company’s service ecosystem. According to
Möller et al. (2008), successful service innovation demands that both the service
company and its customer first recognize each other’s value-creating strategies.
Thus, the capabilities needed in service-logic-based innovation focus on creating
new ways to better facilitate and enhance value co-creation with customers for
mutual and long-term betterment.
Ordanini and Parasuraman (2011) integrated S-D logic with innovation-related
insights from the literature and, based on that, introduced a framework that posits
three main sources of service innovation: collaborative competences, dynamic
capability of customer orientation, and knowledge interfaces, i.e., social and
physical conditions facilitating knowledge transfer within and among companies.
Collaborative competences include both “looking outside”, i.e., collaborating with
business partners and customers, and “looking inside”, i.e., integrating employees
in the innovation processes (see also Helkkula and Holopainen 2011).
Den Hertog et al. (2010) have proposed dynamic service innovation capabilities,
and according to them, the capability to empathically understand customers, to
sense their (potential) needs well in advance, and to see dominant trends and
Foresight and Service Design Boosting Dynamic Capabilities …197
promising technological options are particularly important in service innovation.
They stress that the capability to conceptualize is essential in service innovation due
to its conceptual and highly interactive nature. A conceptualization helps stake-
holders understand the usefulness and value of a new service and might involve
visualization of the service offering and deciding on how the new service relates to
company’s strategy, what the forms of customer interaction are, who the partners
are, and what kind of a revenue model is to be used (den Hertog et al. 2010).
Kindstöm et al. (2012) found that the dynamic capability of sensing includes
activities in four main areas of service innovation: customer-linked service sensing,
service system sensing, internal sensing, and technology exploration. Thus, service
innovation requires creativity, foresight, and deep customer, competitor, and sup-
plier information and intelligence (see also Teece 2007). Once new opportunities
are sensed, the dynamic capability of seizing these is a vital prerequisite to the
creation of value and accruing of profits through service innovation (Kindström
et al. 2012). This involves the design of a service concept and the business model
and defining the manner by which the company co-creates value with customers,
entices customers to pay for value, and converts those payments to profit (see Teece
2007).
3 Why Are Futures Thinking and Design Thinking Needed
in Service Innovation?
The interdisciplinary fields of futures thinking and design thinking are both about
sensing and seizing new opportunities. Thus, they support each other (e.g., Evans
and Sommerville 2007) and provide essential approaches needed in service inno-
vation. They also offer practical processes and concrete methods that are useful for
gaining relevant insights, ideating and imagining the unthinkable in uncertain
environments, and anticipating and conceptualizing novel value. Next, the princi-
ples of futures thinking and design thinking and the synergies between them are
discussed.
3.1 Principles of Futures Thinking
Several terms are being used when referring to looking into imaginable futures,
such as foresight, futures studies, futures research, futures field, futurology, and
forecasting (see e.g., Bell 2009; van der Duin and den Hartigh 2009). In this
chapter, the term “futures thinking”is used when speaking about looking into
futures as a general approach, and “foresight”when focusing on the concrete
forward-looking work aimed at mapping the change and influencing it (see Bishop
and Hines 2012).
198 K. Ojasalo et al.
Futures thinking has generated a rich and wide-ranging literature (see e.g.
Slaughter 2009), and, as a holistic and synthesizing field, it draws on methods from
many disciplines (Popper 2008). Futures studies discover, examine, evaluate and
propose possible, probable, and preferable futures (Bell 2009). The aim is to orient
people’s mental models to consider different possible futures in preparedness to
various chains of actions (see Hiltunen 2010). The futures thinking also offers the
possibility to actively shape the future (Alstyne 2010).
According to Bell (2009), prospective thinking is a distinctive principle of futures
thinking. Visioning is used in capturing the essence of and developing preferred
futures. A vision is the guiding principle in a long-term transformation, i.e., an image
of what future might look like (Bishop and Hines 2012). Although prediction is an
essential aspect of futures thinking, it is not about predicting a single, unconditional,
and certain future. Instead, the predictions are typically multiple, conditional, con-
tingent, corrigible, and uncertain (Bell 2009). This is why futurists usually use the
plural word “futures”. Thus, the focus is to explore many different kinds of alter-
native futures, and hence, alternative thinking is a central principle of futures
thinking (Alstyne 2010; Bishop and Hines 2012). Besides possible, probable, and
preferable futures, futures studies examine also wildcard futures: low-probability,
high-impact events with significant consequences (Slaughter 2009).
In the process of creating alternative futures, both creativity and critical thinking
are needed. Critical thinking is used in careful analysis of evidence related to the
economic, technological, social, political, and ecological changes in business
environments (Bishop and Hines 2012). Creativity breaks boundaries and reframes
problems (Alstyne 2010). A central feature of futures thinking are systems thinking:
each entity is seen as a system that consists of parts within a larger system. Every
system and their parts are interconnected to other systems, interacting in ways that
can produce surprising results. Understanding and predicting system behavior make
futures thinking very challenging (Bishop and Hines 2012).
Problem solving and practicality are important principles of futures thinking,
which aims to be of use in the real world (Bell 2009). Futures thinking offer novel
methods and tools that help companies make sense of complex situations, imagine
unexpected possibilities, and broaden perspectives (Alstyne 2010). In today’s
world, where surprises keep emerging with ever greater rapidity, sensitivity towards
weak signals, i.e., the first indications of changes, and trends, i.e., the general
direction found in the long-term development of a phenomenon, are obviously
needed for rapid reaction, seizing of opportunities, and avoidance of threats (see,
Hiltunen 2010; Godet 1994). Early warning systems allow companies to identify
and follow newly identified threats and opportunities emerging in the environment
(Ramírez et al. 2013).
To sum up, there seems to be a strong link between futures thinking and the
dynamic capabilities of sensing and seizing opportunities. Futures thinking aims to
sense weak signals and trends and to influence future developments. By under-
standing alternative futures, companies can become more innovative (Inayatullah
2008). Consequently, futures thinking should be explicitly integrated in innovation
processes (van der Duin and den Hartigh 2009).
Foresight and Service Design Boosting Dynamic Capabilities …199
3.2 Principles of Design Thinking
Academic research on design thinking has its roots in the late 1960s (Simon 1969;
Lawson 1972). Still, managers’and business researchers’interest in design thinking
only started widening in the 2000’s (Boland and Colloby 2004; Brown 2008). In
this chapter, the term “design thinking”is used when referring to designers’general
approach, and “service design”when speaking about applying design thinking in
service contexts (see Wetter-Edman 2011).
Design thinking aims at creating meaningful solutions (Verganti 2009). Obser-
vations are translated into insights and insights into products and service solutions
(Brown 2009). According to Griesbach (2010, p. 200), design thinking can be
considered as “a special way of problem solving which creates more value by better
satisfying human needs in the long run than other ways of problem solving might
do.”Brown (2008, p. 86) defines design thinking as “a discipline that uses the
designer’s sensibility and methods to match people’s needs with what is techno-
logically feasible and what a viable business strategy can convert into customer
value and market opportunity”. Thus, even though a central feature of design
thinking is creativity, design processes are controlled and channeled toward pro-
ducing a viable, practical solution to a design problem (Ambrose and Harris 2010).
Design thinking is a highly participatory, dialogue-based and issue-driven
approach, and its iterative nature aims at continuous invention and learning rather
than stability and control (Shamiyeh 2010). The process toward new solution differs
from a straightforward and linear problem-solving process by including continuous
invention, learning, and experimentation and paying sequential attention to idea
generation and evaluation (Liedka and Ogilvie 2011). Design thinking underlines
user-centered empathy,multidisciplinary co-design, and holistic engagement.In
fact, the current literature highlights empathy as one of the most important features
of design thinking (e.g., Brown 2009; Liedka and Ogilvie 2011). This involves
focusing on understanding people’s practices, complex interactions, diverse con-
texts, latent needs, emotions, and hidden motives (Dyer et al. 2011), and thus
design thinking offers views for applying S-D logic in practice (Wetter-Edman
2011). Collaboration, conversations and co-designing with customers/users, and
other stakeholders are crucial. Design thinking facilitates the creation of collabo-
ration platforms and tools to engage people in experimenting with prototypes,
mock-ups, and new service concepts (Meroni and Sangiorgi 2011). Design thinking
offers means for visualizing issues (Wetter-Edman 2011), and in fact, visualization
is often seen as one of the most essential features of service design due to the
intangible nature of service interactions and value (e.g., Segelström2012).
Thus, there seems to be a strong link between design thinking and the dynamic
capabilities of sensing and seizing opportunities. Design thinking brings empathic
and participatory approaches and methods to deeply understand customers, their
contexts, and latent needs. Design thinking also involves visualization, storytelling
200 K. Ojasalo et al.
and prototyping to support rapid testing, and agile service implementation (e.g.,
Rogers et al. 2007). Moreover, design thinking emphasizes creativity and idea
management that for example Lawson and Samson (2001) stressed as essential in
innovation capability.
3.3 Synergies Between Futures Thinking and Design
Thinking
Futures thinking and design thinking have both common grounds and unique
elements that supplement each other. This synergy between them seems to be
acknowledged (Evans and Sommerville 2007; Leihener and Breuer 2013), yet not
clearly highlighted in current literature.
First, they are both future-oriented. Not only futures thinking, but also design
thinking can help map a path into the future since it deals primarily with what does
not yet exist (Brown 2009; Liedtka 2010). Second, both futures thinking and design
thinking are about creative problem solving aimed at seizing new opportunities. In
other words, there is an iterative dialog between divergence, i.e., generating
options, and convergence, i.e., building synthesis (e.g., Brown 2009). Creativity
and intuition are integrated in systematic yet radical processes of design thinking
and futures thinking. Both fields reinforce intuition with documented information
and emphasize it (Meristöand Laitinen 2009; Kuosa 2012). Fraser (2010) suggests
that imagining is the key issue in taking the leap from observable and provable to
embrace what could be a possible new solution for unmet needs.
The third shared principle is a participatory approach to nurture the sensing of
unthinkable futures and solutions. Integrating customers/users and other stake-
holders in design processes is a central feature of design thinking (see Sanders and
Stappers 2008), and also futures thinking has been developed more to the direction
of participatory and open foresight engaging various stakeholders in the process
(e.g., Ramos et al. 2012; Miemis et al. 2012).
Design thinking is anchored strongly in a human-centered approach. Often the
psychological, anthropological, and sociologic perspectives enrich design projects
with needed nuances (Blomkvist et al. 2010). Therefore, while design thinking aims
at a deep understanding of the context and constraints by immersing into the lives
of the customers/users, futures thinking focuses on holistically analyzing the
commercial, technological, cultural, ecological, and political environment. Indeed,
this is the key difference, and simultaneously the key reason in bringing design
thinking and futures thinking together to strengthen the dynamic capabilities of
sensing and seizing new service opportunities. Together they help in uncovering
customers’expressed and latent needs and recognizing and influencing changes in
business environments.
Foresight and Service Design Boosting Dynamic Capabilities …201
4 A New Framework: Service Innovation Process
Grounded on Foresight and Service Design
In the literature, particularly in the emergence of the field, the terms “service
innovation”and “service development”have been used interchangeably (Menor
et al. 2002). Therefore, for this chapter we studied over 20 different processes for
service innovation, new service development, and service design (e.g., Scheuing
and Johnson 1989; Edvardsson et al. 2000; Mager 2004; Moritz 2005; Goodwin
2009; Toivonen 2010; Stickdorn and Schneider 2010; Holopainen and Helminen
2011). As a synthesis of these processes and based on the literature on foresight and
service design methods, we introduce a four-phase process for service innovation
(Fig. 1) that is grounded firmly on foresight and service design.
The phases of the future-oriented service innovation process are: (1) Map and
understand, (2) Forecast and ideate, (3) Model and evaluate, and (4) Conceptualize
and influence. However, it should be noted that this is rarely a linear process—
instead it may be highly iterative, the phases might overlap, and the innovation
process may be heavily integrated in actual service practice. Based on literature, we
have selected five illustrative foresight (F) and/or service design (SD) methods for
each phase. In fact, due to the interdisciplinary nature of foresight and service
design, many of these methods have been originally drawn from other fields of
study to be applied in foresight or service design (see, e.g., Popper 2008; Wetter-
Edman 2011). In each of the phases, the methods of foresight and service design
play a different role. Still, we would like to highlight that many of the methods
linked to individual phases are also useful for other purposes in the other phases of
the process (e.g. socio-drama). Additionally, since most of these methods and tools
can be used creatively and adaptably (e.g., Hanington 2003), they can also be
integrated, e.g., personas can be used in design games, trend cards in scenarios etc.
NATURE OF METHODS:
Contextual Open-minded Experimental Transformative
Empathetic Imagining Simulating Synthesizing
Evidence-based Collaborative Visualizing Visionary
SENSING
MAP
&
UNDERSTAND
FORECAST
&
IDEATE
MODEL
&
EVALUATE
CONCEPTUALIZE
&
INFLUENCE
SEIZING
Personas
Service ecology mapsTrend cards Change paths
Ideation workshops, design games Scenarios Visioning
Content analysis Prototypes Business model canvas
Environmental scanning
Futures wheel
Contextual interviews
Customer journey maps Multilevel service design
ILLUSTRATIVE METHODS AND TOOLS:
Storytelling
Ethnography , probes
Socio-drama
Delphi Role scripts
PROCESS APPROACH: HOLISTIC, ADAPTABLE, ITERATIVE
METHODOLOGICAL APPROACH: FUTURE-ORIENTED, PARTICIPATORY, CREATIVE
Fig. 1 The service innovation process grounded on foresight and service design
202 K. Ojasalo et al.
The application of methods is situational, highly context driven and depends on the
resources available (see, Saco and Goncalves 2010). An insightful combination of
various methods and tools can create visionary foresight and unique new ideas (see,
e.g., Aaltonen and Sanders 2005).
The criticality of sensing-related methods is high in the beginning of service
innovation process, especially in the mapping and understanding phase. Seizing
capability and related methods are most essential in the end of the process, where
service is conceptualized for the implementation purposes. Throughout the process,
different methods encourage and even require engaging current and future cus-
tomers/users, staff members, other stakeholders and experts from different fields in
co-designing the service (see Sanders and Stappers 2008).
4.1 Phase 1: Map and Understand
Mapping future changes in business environments and understanding and antic-
ipating customers’needs and desires in their contexts are essential in building
sensing capability for service innovation purposes. The methods of foresight help to
gain a holistic and systemic view based on insights from a range of different
viewpoints (Slaughter 2009). Monitoring and scanning the environment are
essential in sensing changes in the society, economy and technologies, and antic-
ipating their future developments (e.g., Bell 2009). Future trends and weak signals
can be identified at different levels: at the macro level, a specific sector level, and at
the level of a particular service (Holopainen and Helminen 2011).
The methods of service design bring empathy to allow deep understanding of
customers’and other stakeholders’perspectives (e.g., Polaine et al. 2013). The best
way to gain a deep customer understanding is through ethnography, observation
and empathic methods (e.g., Silverstain and DeCarlo 2009). The typical foresight
(F) and service design (SD) methods that can be used in understanding customers’
future needs and in mapping trends and weak signals in business environments are
listed next.
Ethnography (SD/F) allows to sense customer needs by getting deep insights on
people’s everyday lives through closely observing their behavior in real-life envi-
ronments (e.g., Moritz 2005). Besides direct observation, probes can be used as
self-documenting tools that engage people to participate and to explore opportu-
nities for a prolonged time period. Probes focus on people’s personal context and
perceptions which they actively document, e.g., in a diary or with a camera and
thus, produce design inspiration (Mattelmäki 2006; Stickdorn and Schneider 2010).
In foresight, ethnographic research typically includes lengthy and detailed, often
repeated interviewing, during which a respondent is asked to construct possible
future scenarios (Bell 2009).
Contextual interviews (SD) are conducted with (potential) customers in their own
environment or in the context of a new service. Depth interviews are an effective way
to generate insights into customers’perceptions, behaviors, and needs, and to
Foresight and Service Design Boosting Dynamic Capabilities …203
uncover their values and opinions (Polaine et al. 2013). Interviewing in real contexts
helps interviewees to remember and focus on specific details, and it allows the
interviewer to understand the social and physical surrounding and interpret its effects
(Stickdorn and Schneider 2010).
Environmental scanning and PESTE analysis (F) help to identify significant
changes and developments in business environments. Environmental scanning is
used for identifying, collecting and translating information about external influ-
ences, including trends, early warning signals, events, and expectations of different
interest groups (Albright 2004; Bishop and Hines 2012). In the PESTE analysis,
political, economic, societal, technological, and ecological variables are explored
and probable driving forces, signs of change, and weak signals are collected to map
the changes in the future operational environment (Meristöand Laitinen 2009).
Content analysis (F) is a systematic and objective study to identify emerging
trends and weak signals by collecting and analyzing information from sources
such as internet, newspapers, television broadcasts, speeches, etc. (Evans and
Sommerville 2007; Bell 2009).
Delphi method (F) generates views on future by involving an expert panel and
proceeding through several rounds of expert responses to specific questions about
futures. Feedback from an earlier round is first summarized and then sent to the
respondents. Experience has shown that the Delphi method is effective when a
collective judgment of experts is needed (Bell 2009; van der Duin 2006).
4.2 Phase 2: Forecast and Ideate
Findings from the mapping and understanding phase are taken forward to inspire
ideation and to forecast alternative futures. Open-minded collaboration and
co-designing with different stakeholders through forming heterogeneous teams is the
key in providing divergent thinking for innovation (Brown 2009; Lockwood 2010).
Foresight fosters alternative thinking in service ideation and allows understanding of
not only probable but also possible futures (Meristöet al. 2009). Illustrative foresight
(F) and service design (SD) methods and tools that can be used in forecasting
alternative futures and creating innovative service ideas are listed next.
Focus groups and ideation workshops (SD/F) involve different stakeholders in
brainstorming new ideas and co-designing a service (Polaine et al. 2013). Design
games are useful tools in workshops. Flexible and context-based games help diverse
teams to structure, interact, and inspire thinking around design challenge utilizing
playful elements and tangible game objects (Vaajakallio 2012). Collaborative
workshops can be also used to work with future trends and weak signals. For
example, Holopainen and Heinonen (2011) have developed the Future-oriented 3D
Concept Generation method, in which groups of people co-design a service by first
ideating with trend cards and then using three-dimensional building materials to build
the concept. Also public social networking platforms and other virtual environments
are valuable for collaboratively producing alternative futures (Ramos et al. 2012).
204 K. Ojasalo et al.
Trend cards (F) are a useful tool for ideation and prioritizing ideas. They are
visual and textual descriptions of trends created based on data generated in the first
phase. Trend cards are often used for understanding the change and its potential
effects on people (see, Raymond 2010).
Future users/Personas (F/SD) are fictional, visualized customer/user archetypes
that are created based on customer insight gathered by research in the first
phase (see Moritz 2005; Goodwin 2009). They help to identify relevant patterns in
customers’behavior, motivations, desires and needs, and can thus be helpful
in ideation and other innovation phases. They bring empathy and focus into idea-
tion (Williams 2006) and enable a more in-depth understanding of a group of
potential customers.
Future-telling/Storytelling (F/SD) is based on insights of future and helps ide-
ating and translating everyday challenges into customer needs (Watson 2010).
Stories typically include elements of rich characters, detailed settings, goals, and
even dramatic elements. A storyboard can also be sketched to explain a set of
events (Moritz 2005). The What if method is a simple way to consider alternative
anticipated or imagined future developments (Casti et al. 2011). It also helps to
evaluate the sustainability of service idea by asking how the service would be
affected if changes took place in its context (Stickdorn and Schneider 2010).
Futures wheel (F) is a tool for ideating the consequences of today’s issue on the
longer-term future (Inayatullah 2008). It can be used for graphical visualization of
future impacts of certain changes and for group brainstorming about possible future
developments. The possible impacts of a trend are collected and placed on a page in
a structured way, and the relationships of the causes and results are marked by
interconnecting lines. Thus, the futures wheel composes a mental map of the future,
and it can be used to stimulate new thinking and to organize and question thoughts
about future development (Glenn 1994).
4.3 Phase 3: Model and Evaluate
Modeling new service solutions moves the service innovation process from sensing
to seizing new opportunities. The intangible nature of service solutions and
uncertain nature of future both require narrative and visual means to propose,
communicate and test potential new service solutions. Therefore, service design and
foresight create highly visual and anticipatory stories by means of scenarios, pro-
totypes and preliminary concepts, for example. This phase includes zooming in and
out, i.e., focusing on details and seeing the holistic picture (Polaine et al. 2013).
Modeling new service solutions early helps in evaluating their true value for the
customer and for the company before large amounts of resources are used for actual
implementation. Presenting and testing new ideas quickly, iteratively, and crea-
tively through experiencing is the best way to see what might work in the future
(Dyer et al. 2011). Brown (2009, p. 18) introduces three overlapping criteria for
successful ideas: (1) feasibility (what is functionally possible within the foreseeable
Foresight and Service Design Boosting Dynamic Capabilities …205
future), (2) viability (what is likely to become part of a sustainable business model),
and (3) desirability (what makes sense to people and for people). The typical
foresight (F) and service design (SD) methods and tools that can be used in
modeling and evaluating service innovation are listed next.
Scenario planning (F) is an essential method in illustrating the alternative future
developments related to market potential and needs, societal requirements, and
technological feasibility (Meristöet al. 2009). Scenarios are narrative stories about
alternative possibilities for the future, and they are analytically, synthetically, and
collaboratively created from emerging signals of change (Alstyne 2010). Still, they
go beyond objective analyzes and include subjective interpretations (Schoemaker
1995). Inayatullah (2008) shows multiple methods for creating scenarios. Timespan
of a scenario extends typically beyond 10–20 years (Bell 2009).
Service ecology maps (SD) visualize the service system around customer
experience. They can be graphical diagrams of all the actors related to the service
and the relationships between them, displayed in a systematic manner (Polaine et al.
2013). Mapping the service ecology and creating stakeholder maps (e.g., Stickdorn
and Schneider 2010) concretize the complex service system with its different
contexts and human interactions.
Customer journey map (SD) is a visualization technique that connects together
all the touchpoints, i.e., the moments of customer interaction, and maps a cus-
tomer’s journey across the phases of the service experience (Polaine et al. 2013).
Service blueprint also adds the backstage processes to customer journey, and it is a
comprehensive tool to capture all service moments, their logical and timely pro-
cession, actions, and their resources (Shostack 1984; Bitner et al. 2008). Personas
can be used in customer journeys for designing a way through service for each type
(Polaine et al. 2013).
Prototypes (SD/F) help to ground the change, moving from analytical to the
experiential and rapidly testing the service experience (Polaine et al. 2013). Proto-
types include physical objects, models, or simulations for concept and context
exploration and stakeholder communication (Meroni and Sangiorgi 2011). Mock-
ups, e.g., photo montages, can act as prototypes illustrating a certain idea, and mood
boards, i.e., collections of different images and materials, can show a certain mood
or atmosphere of a new service idea (Moritz 2005). Prototypes can also be targeted to
future. For example, the Next year’s headlines method illustrates a future impact of a
service concept in a simple way (Evans and Sommerville 2007).
Socio-drama (SD/F), a form of experience prototyping, includes acting and
empathizing with individual service moments (Holopainen and Helminen 2011).
Theatrical methods are very useful in service innovation since service is more of a
performance than manufacture (Polaine et al. 2013). Roleplaying allows people to
act out service situations that are not yet real. Roleplaying, ranging from quick to
elaborated longer-term stagings, can involve many kinds of stakeholders. In fore-
sight, simulation of a real environment or situation helps participants consider the
possible consequences of their actions and the possible future actions and reactions
of other participants (Bell 2009). Empathic conversations invite all stakeholders to
206 K. Ojasalo et al.
step into the shoes of future users. Open and divergent dialog aims to create insights
into future experiences through learning about users’current and past relationships
(Raijmakers 2011).
4.4 Phase 4: Conceptualize and Influence
The fourth phase of the service innovation process conceptualizes the new service
finally influencing the future. This phase aims at transformation, and accordingly,
the future is narrowed toward the preferred (Inayatullah 2008). This is also the
phase where concurrent business analysis is integrated into creative thinking (see,
Lockwood 2010). Illustrative foresight (F) and service design (SD) methods and
tools that can be used in conceptualizing a service innovation and influencing the
future are listed next.
Visioning (F) provides the destination for an innovation, allowing planning the
route ahead (Bishop and Hines 2012). It provides the guidelines for action and
commitment. Carleton et al. (2013) suggest three methods that help to find and form
visions for innovation: Vision Statement, DARPA Hard Test, and Pathfinders.
Vision Statement helps in presenting a new idea as a clear and concise summary.
DARPA Hard Test measures the visionary potential of the innovation. The Path-
finders method determines an idea’s best path through the organization or network.
The Change paths method (F) helps to define the major steps or choices that
must be taken to get to the future vision. It helps to lay out the critical milestones to
be achieved on a particular innovation path. Instead of a typical direct path, a series
of smart choices linked together in a cohesive vision is envisaged (Carleton et al.
2013). This is closely related to the Backcasting method, in which a series of steps
to the future are worked out backwards from the future to the present (Inayatullah
2008). Backcasting offers a way to get a group to determine what must happen in
order to reach the envisioned future (Evans and Sommerville 2007).
Multilevel Service Design (SD) is an interdisciplinary method for designing
complex service systems, and it contributes toward multilevel understanding of
customer experience. This method enables integrated development of service
offerings at three hierarchical levels: (a) Defining the company’sservice concept
with the customer value constellation of service offerings for the value constellation
experience; (b) Defining the company’sservice system, comprising its architecture
and navigation, for the service experience, and (c) Defining each service encounter
with the Service Experience Blueprint for the service encounter experience (Patricio
et al. 2011).
Business model canvas (SD) is widely used in outlining companies’business
models (Osterwalder and Pigneur 2010). It consists of nine interrelated building
blocks: value proposition, target customer, distribution channel, customer rela-
tionship, value configuration, core capabilities, partnership, cost structure, and
revenue streams (Osterwalder 2004).
Foresight and Service Design Boosting Dynamic Capabilities …207
Role scripts (SD) are used to clarify the roles of different stakeholders within a
new service. They include different possible service scenarios and help staff and
other stakeholders to understand the new service and their role in it (Moritz 2005).
The shared understanding of the new service is critical for its successful realization.
5 Conclusion
This chapter makes a unique contribution by introducing a conceptual framework
for service innovation process that is grounded on foresight and service design. This
is a novel perspective in operationalizing the dynamic capabilities in service context
since both futures thinking and design thinking can evidently facilitate sensing and
seizing new opportunities for service innovation. Futures thinking help to make
changes and uncertainty in business environments more understandable and easier
to approach. Design thinking provides systematic, yet creative, and human-centered
approach for understanding and conceptualizing customer value and for integrating
customers, and other stakeholders in the innovation process. Both futures thinking
and design thinking are future-oriented, creative and participatory approaches, and
they tackle issues in a holistic, systemic, and iterative way.
The methods of foresight and service desig n complement each other in innovation
process. Foresight offers means for imagining and creating alternative futures.
Service design brings customers and other stakeholders and their needs into these
future contexts and ideates and visualizes potential new solutions in creating desired
futures. In the first phase of the service innovation process, the evidence-based,
empathetic, and contextual methods allow mapping the future changes in business
environments and deeply understanding customer contexts and needs. In the second
phase, foresight and service design help to forecast alternative futures and create new
service ideas based on the insight generated in the first phase. The methods are
highly collaborative, creative, and open-minded. In the third phase, the new ideas are
concretized and tested. The methods are visualizing, simulating, and experimental.
Finally, in the fourth phase, the service is conceptualized for realization and the
future is influenced by this new concept. These methods are visionary and synthe-
sizing, and they aim at transform ation. Combining the methods and tools of foresight
and service design and using them creatively together can generate the most forward-
looking, open-minded, and distinguishable end results.
To conclude, this chapter shows that companies looking to service-logic-based
innovation to generate new opportunities for value creation should employ futures
thinking and design thinking. Since futures thinking and design thinking boost the
dynamic capabilities of sensing and seizing opportunities for service innovation,
they should be built into organizational processes, structures and every day practices,
and they should also be trained as individual skills. Rather than doing them in a one-
shot activity, applying them should be a continuous activity in any organization.
208 K. Ojasalo et al.
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