‘Product development: innovate or Kaizen?’

Q: WE’RE an SME CPA company primarily providing auditing services. We’re actually more medium size than small. We recently attended a product innovation seminar but the cases and examples on product development were all in consumer products. When we asked the seminar facilitator about our industry, she told us that she did not have the necessary experience to answer our questions.  We wanted to ask her about an issue she brought up during the seminar.

This was about the choice of product development strategy between innovating versus improving existing products or in our case, existing services.

Our seminar director talked of product innovation as referring to really new and breakthrough products. She said that’s where the giant revenue increases are to be found. Improving an existing product, she claimed, is not product innovation. It’s “second rate product development” that can give increased revenue that’s just equal to “a new packaging, a good TVC or a hit promo.”

Our own experience in the audit service business does not really support this claim. In a short period of eight years, we attained medium size in terms of revenue, manpower and clients by our perseverance in improving our audit and related services.  May we have your own diagnosis? Which do you think is better for us?  Service innovations or continuing with our service improvement initiatives?

A: Let’s start by first agreeing to start our vocabulary.  Let’s adopt your seminar facilitator’s definition of product or service innovation.  As to service improvements and your persistence in them, let’s use the shorter term, “Kaizening.”

This is a Japanese term that translates to “continuous improvement” or “continually changing for the better.”  This concept came into popular use as part of the TQM (Total Quality Management) movement in the 90s.

There’s a lot that’s been written and said about the related topics of product development and innovation. For the issue you’ve sought our help, there’s at least two or three issue-resolving approaches. Our preferred approach is to tackle it from the consumer perspective.

For products and services where many customers are dissatisfied or even just somewhat disappointed, customers are quick to positively respond from a product improvement or improvements. This is especially true when the disappointed customer can visibly see that the product or service improvement has greatly removed the area or areas of customer irritation and annoyance.

After the second World War, Japan’s National in appliances and Toyota in automobiles succeeded in grabbing global market share leadership in the two product categories by simply making appliances and cars better.  Today, Korea’s Samsung in appliances and Hyundai in automobiles are proving that the well-researched product improvement strategy has not at all lost its power and magic.

In service marketing, service improvement is the more dominant service development approach versus service innovation. You see this in the airline industry, restaurants, hotels, entertainment, hospitals, banks, and many others. This happens because there are so many specific aspects of a service that can disappoint customers. You only have to remember that a customer, for example, of a restaurant can get annoyed or irritated by the many many things that have to do with that restaurant’s service staff, its service venue or servicescapes, and its service processing.

In contrast, breakthrough service innovations are rare. While they can be sourced from the very same service aspects where service improvements are taken, they require a more creative and “out-of-the-box” thinking.  Just consider the service innovation that brought FedEx its leading global position in air delivery of packages.  That innovation was nothing more than simply timeliness of delivery or what it termed as “time-definite shipping and delivery of packages.”  What made it succeed so extra-ordinarily well?

That success came from the fact that the service innovation was satisfying an unserved customer need. There was no such service like it. That’s unlike a product improvement. While service improvement is also satisfying a customer need, it is a different and lesser intensely felt need. It’s simply an underserved need. It’s a need that’s already being met but not adequately, only partially.

This difference between satisfying an unserved customer need and an underserved need defines the core difference between a service innovation and a service improvement. This leads us back to your question:  “Which is better for us in our audit service?”

If you understand “better” in terms of revenue productivity, it’s obvious that a true service innovation will yield for you much more initial revenue than a service improvement. But you should not only think of initial revenue gains.  Think as well of accumulated revenue increases. Over the long term, “Kaizening” or continuous service improvements can equal and even exceed in accumulated revenue increases from a sensational service innovation.

So it’s not an “either-this-or-that” choice. Choose instead on the basis of “both-this-and-that.”

Go after both ‘’Kaizened” service improvements and innovation.  There’s no reason why you can’t pursue both. There’s no reason why you have to choose just one of the two.

Keep your questions coming.  Send them to us at [email protected] or [email protected]. God bless!