Design and Innovation

Digitalization has dramatic implications for revenues, profits, and business opportunities. Digital platforms and the platform economy are disruptive transformations, influencing how companies do business. The digitalization of products and services is shaping traditional business models and blurring boundaries in business and the public sector.

Most of the world’s most valuable brands are associated with digital platforms. One-tenth of the US labor force participates in a platform-mediated “on-demand economy,” “sharing economy,” or “gig economy” in some way or other. The platform economy is less prevalent in Finland, and the country plays a minor role in providing such global consumer platforms. However, Finland has successfully used platforms and has good leads in emerging industrial platforms. Digital service ecosystems and platforms may provide Finland with an important competitive factor. Finnish companies have the potential to succeed in the platform economy, particularly if they can focus their existing strengths and competencies on industrial digital platforms. Health and wellness, the bio-economy, forest economy, and Mobility as a Service are areas where Finnish companies have a competitive advantage in the global market.

Bringing innovation to markets

In the innovation economy, bringing services and products to the global market and scaling them up is more challenging for many European companies than their Asian counterparts. In the service and platform economy, even small players have opportunities to grow and succeed based on unique business models. This calls for building competencies in commercialization as part of the innovation process.

In innovation management, organizations seek new ways of transforming their practices and processes and developing more agile structures. The key is ambidexterity, securing the core business while developing new initiatives and innovating. This calls for exploration and exploitation in both business management and business models.

In innovation leadership, the crucial question is how to lead change, enhance creativity, and develop the capacity to deliver change within an organization. This requires an understanding of how work and work processes are transformed and the capability to lead and influence people’s attitudes and motivation. Digital transformation is a major driver of change in organizational cultures and work. To manage such change, leaders must develop their understanding of the challenges it brings and improve their capabilities to lead people and renew processes and practices.

Innovation practices must evolve to match the need for business renewal. The key factor is to genuinely focus on customer needs and new ways of creating value. Design-led innovation offers valuable insights and methods for achieving this. Design Thinking is a methodology for taking a practical and creative approach to solving business challenges. Design Thinking methods guide companies toward rethinking and reframing problems and acquiring new insights into idea development.

Design Thinking will help you to enhance your creativity and capability to innovate. Combined with business innovation methodology, Design Thinking forms a powerful and actionable approach to innovation. Such an approach and methodology can be applied to developing products, services, and organizational practices.

From product-oriented business to service solutions

The social significance of services has increased. They already account for over two-thirds of total production. In particular, many industrial companies that previously built services around their products now blend their products with a service that can be produced in a diverse value network.

On a global scale, the transition from product-oriented to service-dominant production began in the early 1990s. Within value chains, the profitability of the manufacturing industry has decreased due to high costs, particularly in the West (Wise and Baumgartner 1999).

Such companies are now seeking a new role and position in value networks, and are changing traditional industry structures. Structures are also transforming because entirely new types of actors and networks of actors are being created for service development and production. Change is also being driven by customers who are demanding wider and more user-friendly service solutions. In the midst of such change, most companies with a product-oriented business logic are seeking innovations through servitization, in particular.

In production, new technological developments, such as IoT and 3D printing, may restructure value networks in such a manner that the focus returns to high-cost countries, which have the skills required by new technology.

The driver of growth in the services sector lies in the need for companies to switch from commoditizing business activities to more profitable and better-differentiated products and services. The lost competitiveness of the basic industry has been replaced with various servicing, optimization, development, and manufacturing services that enhance the customer’s efficiency. Most of these services are new to the customer. They also require a new approach and difficult changes from the customer, such as outsourcing decisions, reorganizations, acceptance of supplier dependency, risk sharing, commitment to common goals, and ultimately the sharing of jointly created value. In this way, servitization also leads to new forms of cooperation and business models between companies.

The servitization of production structures is a multi-directional phenomenon. Whereas companies previously focused on building services around their products, products are now being embedded in services, while services have become more productized. This is also evident in B2B businesses, where customer understanding and customer-oriented innovations are increasingly dominant in innovation management. The development of service business models also lies at the heart of this trend. In turn, servitization and the strong emergence of the platform economy require expertise in developing new approaches to value creation for the customer and, thereby, growth for enterprises.

Management and development of service processes

Service processes tend to be heterogeneous: a wide variety of services is available, different service types differ markedly, and quality varies considerably.

Lean is a system for developing operational processes, with the aim of generating as much customer value as possible with as few resources as possible. The term originated in the United States, and its content is largely based on Toyota's management and operational philosophy, as well as the work of Ford and Taylor, and newer research on work. Lean has also been successfully applied to the development of service processes.

Many problems with service processes, such as the overloading of workers and uneven quality, are due to dispersion: variations in issues such as workday starting times, customer needs, the volume and duration of work, and working methods. Although not all causes of dispersion can be eliminated, they can often be isolated. Lean principles, such as standards, which help both supervisors and employees to detect deviations from standard processes, can be used in process development. Standards can include shelf marks for goods, morning meetings with agendas, red and green indicators, checklists, and failure prevention mechanisms.

Management of service processes should also be standardized with regard to the monitoring of process status, indicators, and work standards, as well as problem-solving processes and, of course, monitoring the management system itself. Executives who apply Lean principles also know that the employee development of subordinates is a key task.

New approaches to business and product development are being sought through servitization. Service design supports innovation management by providing a process and methods for the development of customer-oriented services and their cost-effective validation at the start of product development.

In service design, the customer service experience is designed in a user-centric manner so that the service meets both the needs of users and the service provider's business objectives. That is why a better understanding is required of people and their needs, desires, and dreams. Service design enables the identification of customers’ hidden needs and desires, and the development of easy-to-use, experiential, and individually tailored products and services. People also want to influence the design of services targeted at them. Service design provides a process and tools for meeting these needs.

It is equally applicable to the development of physical and digital services. Through service design, information can be gained on customers and their needs, and the best possible solutions can be identified, e.g., smooth customer service, the building of interactive channels and service paths, and the scaling up of services. Service design also helps to ensure that a service is pleasant and easy to use for the customer.

In the future, the role of service design will expand from the development of the customer experience to the planning of the employee experience and organizational strategy, and business development and strategic decision-making. The use of data and analytics will increase as service design becomes more strategic. The importance of service design expertise to all parts of organizations is growing; the aim is to develop a corporate culture based on the understanding and adoption of the customer-oriented approach across an organization. In addition to the recruitment of service design experts from outside, this requires the training of current employees in the service design approach.

Product development as part of innovation management

A survey by the Confederation of Finnish Industries indicates that industrial investment in research and development has fallen from EUR 2.9 billion to just over EUR 2.3 billion in the last few years. While such investments are currently close to the EU average, their share of overall investment has decreased, and Finland has fallen behind the top Western European countries in this respect.

It is worth investing in product development, which lies at the core of innovation management. The world is crying out for products and services; now, if ever, is the time for responsible and sustainable product development based on customer needs. This means innovative, ground-breaking ideas, well-considered selection of the best concepts, goal-oriented development, and the successful market entry of products and services.

From the product development perspective, during the early stages of innovation management (i.e. the fuzzy front end), the key issue lies in our being able to make the right choices, based on a strong understanding of the customer, with respect to ideas and requirements for the further development of future products and services. Decisions made at this stage will have a major impact on whether a development project fulfills its set goals or becomes a money pit.

The actual product development phase is characterized by systematic work, which can take advantage of the opportunities afforded by lean principles to increase customer value and reduce waste, for example. Agile methods provide the ability to perform rapid pilots of new products or service concepts with the target group. This saves time and money while providing the customers with a product or service that better matches their needs.

IPR at different stages of the product development process

Finnish companies are active patent filers. Finland was ranked fifth in the European Patent Office's (EPO) statistics for 2016 on the number of patent applications filed per capita. Southern Finland (84.4% of all Finnish applications), Western Finland at 9.8%, Northern Finland at 3%, Eastern Finland at 2.6%, and Åland at 0.1% come top of Finland's regional rankings.

Patenting is an integral part of product development, particularly during the ideation phase and when the new invention is almost in its final form. During the ideation phase, for example, the Finnish Patent and Registration Office’s free patent databases can be used to obtain detailed information on existing and lapsed patents and public patent applications under consideration. With this knowledge, product developers can avoid repeating the prior art and, in the best-case scenario, obtain new ideas and perspectives on the ongoing ideation phase.

Patent protection should be sought at the stage when a possibly patentable invention is being conceived. Timing is of the essence since the aim is to provide the invention with the best possible protection. On the other hand, protection should not be sought too early, to ensure that subsequent improvements and modifications can be patented.

In addition, patent databases can be used to monitor the activities of competing companies. Such databases show what competitors have patented and what kinds of new applications they have filed. As well as revealing a competitor's future goals, monitoring can address patent infringements at the earliest possible stage.

Intellectual property rights provide an opportunity for developing active new business models, as well as seeking patent protection. A business-driven IPR strategy and active patent portfolio management and leadership provide a solid basis for expanding the use of intellectual property rights to the creation of new business models.

The commercialization perspective

The customer and target market walk hand in hand with the generation of ideas and R&D. Who is the customer, and what are the customer's real needs? What would generate the value of a kind that the customer is willing to pay for? How can information on customers be obtained during product development, so as to understand the customer in a way that ensures that the right decisions and choices are made during the product development process?

There are many tools and operating models for increasing customer understanding. How can the most suitable ones be found in each case? To solve this challenge, a focused and systematic approach to product development is needed, which involves experts from areas such as sales, marketing, and production, in addition to product developers. Digitalization also enables simple and easy participation by customers in the design of products and services intended for them.

In addition to customer understanding, the creation of a product or service concept with an interesting customer promise requires a well-functioning overall package, including well-targeted distribution and sales channels, a viable pricing policy, and target audience communications.

The leadership of product development projects and project portfolio management

Project management and leadership lie at the core of product development. Product developers tend to have several product development projects of varying sizes underway at the same time, often in a multicultural working environment. A clear understanding of project management dynamics and a good overview of tools and methods enable a product developer to select tools suitable for managing his or her own project.

A product development project often links directly to a company’s business strategy, which affects decisions made before, during, and after the project. When evaluating the profitability of a project, the account is taken of the direct benefits (product requirements, achievement of objectives, and internal efficiency) as well as immediate impacts (the customer and the project group). The project is also evaluated at various stages of the product development process, from the ideation, research, technology and concept development phases to product development and market entry.

Several simultaneous, competing product development projects can be compared and evaluated in accordance with factors such as strategic consistency, commercial benefits, and the technical feasibility of the change. This is often the case when building and maintaining a company’s product development project portfolio.

Project portfolio management enables holistic management of product development: monitoring finances and the sufficiency of resources, and guiding the implementation of agreed common policies in portfolio projects.