Case studyCapturing and measuring technology based service innovation–A case analysis within theory and practice
Introduction
The status of developing indicators for service innovations has been recently argued for by Abreu, Grinevich, Kitson, & Savona (2010) and Schmoch and Gauch (2009), who all posit that there is a need for specific service innovation metrics to be developed. Organisations use research and development and product-development metrics to measure innovation. Common methods include an annual research and development budget as a percentage of sales; number of patents filed (and/or used to quell competitors’ activities); the number of active projects; and the number of ideas submitted by employees, etc. (Houzer, 1998).
Management accounting approaches, relating to measuring innovation, tend to either take a ‘one off’ based calculation that allows the innovation to happen (or not), or they aim to take a ‘mysterious’ balanced score card approach (Kaplan & Norton, 1992). The use of balanced scored cards has limitations. The fundamental problem is that they lack the ability to fully conceptualise the complex adaptive nature of service innovation and value, and therefore underpay the co-production and co-creation of value as well as failing to understand the service offering to the ‘customers customer’.
The area of measuring value from service innovation tends to be informed by partisan accounting methods such as NPV, DCF, and Payback. These tend to adopt a more objective and short term evaluation of the particular business unit's ability to deliver business value from service based innovation. Perhaps it is more important to take a more strategic, organisational and subjective based view, which allows for competing contexts for innovation and impacts on the organisations capability and capacity to be innovative, to be explored (Mouritsen, Hansen, & Ørts Hansen, 2009).
Section snippets
Accounting for service innovation
Den Hertog (2010, p19) defines service innovation as “a new service experience or service solution in one or several of the following dimensions: new service concept, new customer interaction, new value system/business partners, new revenue model, new organisational or technological service delivery system.”
When looking at innovation and value, what is apparent is that existing accounting techniques and tools are rarely concerned with the “intricacies of innovation” (Mouritsen, Hansen, & Ørts
Measuring IT enabled service innovation
This can be broadly classified as being an objective or implied interpretations of value and the impact of value drawing upon accounting and economic based techniques, such as rate of return, payback, and information value coefficient, in order to assess the value of IT to an organisation. However, establishing a linear cause and effect continues to be elusive (Barnier, 2011, Ross and Breath, 2002). The alternative, more subjective stream of research tends to draw on the behavioural and
Methodology and data collection
For this study an interpretive approach was adopted. The data collection approach has been informed by personal observations, four elite interviews and active participation in the processes analysed and supported by FlyWithMe International Airport2 (FWMIA) corporate documentation (as outlined below).
General Context and Background
FlyWithMe International Airport (FWMIA) is a privately run company founded in the 1990s with the responsibility to build, own, operate and transfer (BOOT) one of the most modern, functional airport in the world. FWMIA is divided into four businesses units (Aviation, Consumers, Property and Corporate Finance Unit) and two support units (IT&T3 and Corporate Services Unit). These units serve the needs of over 199,000 total aircraft moves per annum and around 16.5
Current investment methods adopted for technology enabled service innovation at FWMIA
There are three value measurement methods used in FlyWithMe International Airport at two annual stages; the first stage is the annual projects submission and selection process and the second stage is the past year's results evaluation process. The first method is a traditional return on capital investment justification applied ex ante on projects submitted as business cases. The second is an ex post performance evaluation method. This is composed of two elements, one mainly financial and the
The corporate balanced scorecard
The aim of the balanced scorecard system in FWMIA is to link the corporate strategy with a balanced set of relevant measures across the corporate units. It sets four perspectives for financial and operational performance at a corporate level and articulates goals for time, quality, performance (service) revenue and cost:
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The financial perspective addresses the question “how do we look to our shareholders?”
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The operational perspective sets the targets on operational issues that we must excel at;
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Lessons learnt: informing practice and policy
While FWMIA is a user of various appropriate evaluation tools, one could argue there is still a need to integrate and complement these tools into a comprehensive toolkit that all work in ‘sync’. It is argued that although the applied methods are well defined and documented, there appears to be disjointedness with Value Based Management (VBM) method's ideology, and that of service innovation. There also appears to be something of a token gesture at best towards measuring all forms of value which
Suggested improvements for the Capex projects evaluation
As presented, proposed Capex projects are submitted by the units to the Capex Committee for evaluation and approval. There are four main limitations to the current process.
The first limitation identified in the current process is the fact that the committee only uses the Internal Rate of Return (IRR) result to evaluate the projects characterised as business cases. The process is not well defined at this point; regardless if a project is a business case or not it involves operating costs (Opex)
Suggested improvements for the Value Based Management
The main financial metric of VBM is not used either in the investment justification and approval or in the corporate balanced scorecard. The Key Performance Indicators (KPIs), set under VBM are based on the value drivers for each unit, and are not part of the performance evaluation process which is based on the balanced scorecard. A potential solution to this is to associate clearly with the other methods VBM, investment justification and the balanced scorecard. This enhancement could be
Conclusion
It is apparent based on the lessons learnt from the case study, that organisations are able to measures investments in innovation fairly well, with a good degree of validity and reliability. However, tracking expenditure on all aspects of the management of innovation cycle remains a challenge, as much of the innovation effort transcends budgetary boundaries, which existing measurement techniques struggle to address.
Service innovation management tends to focus on developing and using metrics of
Kevin Grant is a Head of Department: Informatics, within the Faculty of Business, London South Bank University. His wide range of specialist expertise includes: systems; information and information systems; strategic information systems planning; innovation systems; it/is evaluation and research, teaching, scholarship and consultancy in higher education via the Triple Helix.
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Kevin Grant is a Head of Department: Informatics, within the Faculty of Business, London South Bank University. His wide range of specialist expertise includes: systems; information and information systems; strategic information systems planning; innovation systems; it/is evaluation and research, teaching, scholarship and consultancy in higher education via the Triple Helix.
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