CUSTOMERS AND USERS AS DRIVERS AND RESOURCES OF NEW SERVICE

DEVELOPMENT: THREE APPROACHES TOWARDS USER NEEDS DRIVEN

SERVICE INNOVATIONS
Arja Kuusisto1 and Jari Kuusisto2
1
Lappeenranta University of Technology, Finland (corresponding author),
P.O. Box 44 FI-62101 Lapua
2
Lappeenranta University of Technology
P.O. Box 44 FI-62101 Lapua, Finaland
arja.kuusisto@lut.fi, jari.kuusisto@lut.fi

ABSTRACT
This paper presents an analytical review of innovation literature identifying its
main approaches to customers’ and users’ roles in new service development.
With increasing activity in the field, the methods and techniques have become
plentiful. The key aim is to organise existing knowledge and develop
systematic thinking in the area. We first present a framework for customer-
and user-driven innovation, which provides a structure for the subsequent
literature review. We then elaborate identified three key approaches to
customers’ and users’ roles in new service development. These are: Building
deep customer understanding; Involving customers as participants in new
service development activities; and, Making use of user-generated content and
innovations. These three approaches are exemplified by several methods and
techniques. The discussion also highlights the importance of careful
consideration of the desired role of customers or users in new service
development. These issues are focal, especially in terms of allocation of power
and responsibilities between in-house development staff and customers or
users.

Keywords: service innovation, customers, users, review.

1. INTRODUCTION
The past decade has witnessed evolving of the open innovation thinking along with
customers’ and users’ growing role in the new product and service development. Indeed,
there has been a surge of research and practitioner interest in the area (Alam & Perry
2002; von Hippel 2005; Edvardsson et al. 2006; Kristensson et al. 2008; Nesta Research
Report 2008). With increasing activity, the variety of available methods and techniques
has become plentiful. This research paper aims to organise existing knowledge and
develop systematic thinking in the area. The aim will be achieved by identifying main
approaches in innovation literature and in business practice into customers’ and users’
role as drivers and resources of new service development.

User-orientation has become a major trend across the industries. The importance of
close linkages to customer and user needs stems from several sources: The fact that
most new products and services are commercial failures (e.g., Balachandra & Friar
1997), has forced businesses to search for new ways to organise their innovation
activities. Customers and users themselves have become more active and powerful in
communicating, producing data and working on their own ‘projects’ – empowered by
the Internet (e.g., Howe 2008). Further more, the fact that services account for an ever
increasing share of economic activity is extending the group of actors in innovation
activities in the direction of customers, users and user groups (Kuusisto 2008).

In the following Section 2, we discuss important developments in innovation and

service research and practice that have contributed to the growing importance and
changing roles of customers and users in service innovation activities. We present the
customer- and user-driven innovation perspective (Figure 1), which also gives structure
for the literature review. Section 3 defines the objectives of the study whereas Section 4
describes the data sources and the analytical procedure used in the review process.
Findings are presented in the form of the description of the three approaches to
customers and users in service innovation through Sections 5.1 to 5.3. Section 6
concludes the paper.

2. CUSTOMER- AND USER-DRIVEN INNOVATION PERSPECTIVE

2.1 OPEN INNOVATION AND CHANGING ROLES OF CUSTOMERS AND USERS IN INNOVATION

It is well established that most new products and services that are developed and
introduced to market by manufacturers and service suppliers fail commercially
(Balachandra & Friar1997). The general inefficiency in innovation processes, along
with keen global competition, has led major global companies (such as, P&G,
Electrolux, Lego, Apple Computer) as well as a myriad of smaller ones to search for
radically new ways to organize their innovation activities.

In innovation research, the paradigm of open innovation has become powerful. One of
its key arguments is that important innovations increasingly originate outside the
(commercializing) company. In Henry Chesbrough’s words, at its roots, “open
innovation assumes that useful knowledge is widely distributed, and that a key task of
an innovating firm is to identify, connect to, and leverage external knowledge sources as
a core process in innovation.” (Chesbrough 2006, p.3).

The single most important external knowledge source is the knowledge and ideas
obtained from customers and users (Business Decisions Limited 2003). Obviously, to be
successful at markets, companies need to create products and services that are based on
customer needs. Towards this end, companies are looking for new ways to make their
research and innovation practices more closely linked to customer needs. Some
businesses are developing new processes that enable deeper understanding of their
customers’ and users’ needs. The increasing use of business ethnography provides an
example (Korkman 2006). Many businesses are emphasizing working together with
their customers on innovation projects to better understand their customers’ view and to
co-create innovations with them (Prahalad & Ramaswamy 2004; Kristensson et al.
2008). A different approach is suggested by organizations that identify innovations that
users have developed for themselves (user innovations), and then commercialize these
to a broader market (von Hippel 1986, 2005; Baldwin et al. 2006).

Figure 1 presents customer- and user-driven innovation perspective. It shows the three
basic routes by which customers and users may have a role in companies’ innovation
activities and innovation outcomes. In a nutshell: innovating businesses can learn from
customers and users (in new ways) and make use of this knowledge in their
development process; companies can directly engage customers and users in their
development activities; and, companies can build upon and commercialize innovations
that users have developed for themselves. Taken together, this customer- and user-
driven innovation perspective (Figure 1) provides a fundamentally new perspective in
comparison to the traditional, ‘supply-driven’ innovation perspective – which, in short,
emphasizes research and development activities that are relatively distant from the
market, and in which direct interaction with customers or users is limited (see
discussion in, Ministry of Employment and the Economy in Finland 2010).

Figure 1. The customer- and user-driven innovation perspective.

2.2 CONTRIBUTION OF SERVICE STUDIES TO OUR UNDERSTANDING OF CUSTOMERS AND

USERS IN INNOVATION

Service firms have traditionally had close ties to their markets. The fact that the
customer/user is often (but not always) directly involved in the service process
(Lovelock & Gummesson 2004, 29), has helped service providers build a close
understanding of their customers’ needs. Also, in service research, the insight that
customer value is generated only when the customer actually uses the service, has
become foundational (Grönroos 2000; Vargo & Lusch 2006). Such value-in-use concept
indicates that customer experience in the service usage situation should be a primary
source of knowledge to any organization that aims to develop new value to its
customers.
The role of customers and users is also well established in service innovation studies.
There is a lot of empirical evidence that customers are involved in and can provide
important contributions to service innovation processes and results (Alam & Perry 2002;
Magnusson 2003; Matthing et al. 2006; Sandén et al. 2006; Heiskanen et al. 2007;
Kuusisto & Riepula 2008; Kristensson et al. 2008). In particular, in knowledge-
intensive business services, direct customer participation in service innovation activities
is typical (Gadrey et al. 1995; Sundbo & Gallouj 2000).

Overall, research in services has sharpened the way we see customers and users in
innovation activities, both in manufacturing as well as in the service context. Most
importantly, customers and users are not only, or not primarily, a passive source of
information and feedback, but an active agent: Customers and users initiate innovation
processes (Sundbo & Gallouj 2000; Toivonen & Tuominen 2006; Kuusisto & Riepula
2008; Howe 2008); they co-create new knowledge and innovations with development
teams (Lundkvist & Yakhlef 2004; Prahalad & Ramaswamy 2004); and, they act as
innovators on their own (von Hippel 2005; von Hippel & Oliveira 2009). Moreover,
service research has well demonstrated the need to understand customers in their natural
usage situations (Korkman 2006).

Building new customer/user orientation into a company’s innovation process is not easy.
Even when businesses have attained excellent results by working with customers,
engaging customers into innovation activities is often perceived as being difficult,
complicated, and a demanding process involving excessive workload (Sandén et al.
2006). Apparently, new ways of working with customers or users demand new
organizational structures and processes and personal competences (Sandén et al. 2006;
Heiskanen et al. 2007). However, there is not much research on what such competences
are (an exception is the study by Kristensson et al. 2008). There is some highly
interesting, though preliminary indication that ‘old’ competences that have been
successful when the focus has been on internal R&D&I can become counterproductive
when innovation is based on more open development with customers or users (for
instance, see Olson & Bakke 2001, in Sandén et al. 2006). However, we can conclude
that strong support from top management is crucial when a business is to transform its
inward development practices into customer- and user-driven more open practice: For
instance, in Procter & Gamble (Howe 2008, 9-10) and Electrolux (Wise &
Hoegenhaven 2008, 97), it has been the newly appointed CEOs who have succeeded in
making such transformations in their businesses.

3. OBJECTIVES
The primary objective of this review paper is to identify and describe main approaches
in innovation literature analysing customers and users as drivers and resources of new
service development. Put simply, the aim is to provide a ‘big picture’ of customer and
user roles in service innovation. Based on the customer- and user-driven innovation
perspective (presented by Figure 1), we will make a distinction between three key
approaches. Conceptually, thus, the three main approaches that are described in the
literature review (Sections 5.1-5.3) are based on the ones that are visually presented in
Figure 1. The literature review characterises the nature and content of the three
approaches, and exemplifies them by several methods.

The review has practical rather than theoretical orientation and it takes the perspective
of the innovating service provider. Accordingly, the three approaches can be loosely
characterised in terms of customer/user roles in new service development in relation to
the company’s development process. Hence, the ‘big picture’ should be helpful for the
service innovators, as it can quickly give an idea of the basic types of ways of
harnessing customer and user potential as well as the variety of ‘new’ methods in the
field.

The second objective is to make visible strategic level questions of the desired role of
customers and users in new service development. These are key considerations that the
innovating management should carefully consider prior to making any decisions on
particular customer inquiry or integration methods. These strategic considerations of the
desired role of customers/users in service innovation stem from the characterisation of
the three approaches throughout Sections 5.1 to 5.3, and they will be discussed in
Section 5.4.

4. DATA AND METHOD

This paper provides a focused literature review that is not seeking to cover
systematically all published research in the addressed domain. Rather, the focus is on
identifying those streams of research that have become important among business
practitioners and that indicate different perspectives into customers and users from the
point of view of the innovating service business. The following two criteria have guided
us in the search of the leading edge research that has introduced new thinking and
methodology into the field:

First, the focus is on the role of customers and users in new service development. We
have searched literature that reports developments in the services innovation field. Such
literature includes articles published in key journals of services management and
innovation studies; other academic journals and working paper series that are
established sources of leading edge knowledge in innovation practice and service
research (such as Harvard Business Review); and, recent compilation volumes,
dissertations, and reports in the field. However, new service and product development
literatures and practices are overlapping (e.g., Sandén et al. 2006). Thus, some of the
methods we will discuss have been originally developed in a manufacturing setting but
are highly relevant also for services. Second, we have only included studies that report
actual, empirical use of the method or working process. As our purpose in introducing
different working methods is only to exemplify and characterise the respective main
approach, we mostly discuss what has become relatively popular and well known in
service innovation research and practice.

As said, the customer- and user-driven innovation perspective (Figure 1) provides us a

framework for structuring the literature review. It is itself based on extensive reading of
literature. Thus, the ‘analytical procedure’ used in the review process has been highly
iterative: The customer- and user-driven innovation perspective is a result of the ‘first
round’ of reading the literature. Then, the point of departure was to look into different
customer and user roles in service innovation literature from the view point of whether
the key customer or user ‘input’ was generated inside or outside the service provider’s
innovation process. The ‘second round’ of reading the literature was more systematic:
we went through more than 30 influential studies in the field, and based on them,
characterised the nature and content of each of the identified three basic approaches.
This qualitative, descriptively oriented analysis also suggested that the three identified
approaches are indeed inclusive: they seem to cover the key routes by which customers
and users benefit service innovation activities.

5. RESULTS – THREE APPROACHES

Below we outline three basic approaches to customers and users in new service
development. These are: Building deep customer understanding (Section 5.1), Involving
customers as participants in new service development (Section 5.2), and Making use of
user-generated content and innovations (Section 5.3). Figure 2 summarises the three
approaches.

User as drivers of innovation activities

Supplier driven R&D&I and market research

Developing Users as R&D&I User innovations and

understanding actors and their commercialization
on user needs resources
User innovations represent
New research New level of interaction great potential but the
methods that gives users more effective commercialization
provide in-depth power & responsibilities requires new skills and
understanding on in the R&D&I process capabilities
users needs

©Kuusisto,  2009

Figure 2. Three approaches to customer/user-driven service innovation.

5.1 BUILDING DEEP CUSTOMER UNDERSTANDING

The essence of this perspective is generating a better understanding of the customers’

needs and of how customers create value in their every-day activities, or when they use
service provider’s offering. The argument is that traditional market research techniques
(surveys, focus groups, interviews) that directly ask people express their thoughts make
people rather talk about what they already are familiar with than to produce innovative
ideas of the future. Hence, other methods are needed when the aim is to understand
customers’ latent needs (Kristensson 2006, 131).

This category of methods essentially collects information from customers and users, and
transfers this information into the service provider’s development process. Thus,
customers and users remain an external source of information to the service provider.
New types of methods are being used, which focus upon creating a deep contextual
understanding of customer and user needs. The role of the customer or user in the
provision or generation of such information may range from very active (for instance, in
many ethnographically oriented studies) to a rather passive one (for instance, when
information is collected by unobtrusive observation).
When gaining a deep contextual understanding of customers and users is the starting
point in new service development, researchers or development personnel actually go to
the customer’s natural environment or usage situation. Several authors recommend that
the innovating organization’s development team (rather than outside researchers) should
conduct the fieldwork (Holtzblatt & Beyer 1993; Leonard & Rayport 1997; Heiskanen
et al. 2007). Need- and use-context -related information may be very much in a ‘tacit’
form, and thus difficult to transfer. As Heiskanen and her colleagues (Heiskanen et al.
2007) suggest, interaction of the development personnel with users strengthen the
internalization and actual utilization of user information in innovation activities, and
overall, motivate the development effort.

Building deep understanding of customer and user needs is typically the focus in the
early stages of new service development, also, such insight is used to inform strategy.
Below, this approach is exemplified by ethnographic approach (Hammersley &
Atkinson 1983; Korkman 2006), emphatic design (Leonard & Rayport 1997),
contextual inquiry (Holtzblatt & Beyer 1993) and contextual interviewing (Ulwick
2002).

Ethnographic approach has been suggested to be a key approach to gaining a deep

understanding of customers, and it is increasingly used to generate new ideas and
concepts in business settings (Anderson 2009; Korkman 2006). Ethnography has its
roots in anthropology and it is best seen as an approach combining different research
methods to understand people’s actions, practices, experiences, and the social meanings
attached to these, in people’s own, natural setting. The open-ended qualitative data
gathering can have many forms, participatory observation and interviews being most
typical (Vuorinen 2005, 63-65; Segelström et al. 2009).

The role of the researcher, ethnographer, is particularly important in data analysis. In

writing an account of the situation or action, the researcher not only combines empirical
material but essentially includes herself into the research focus (Hammersley &
Atkinson 1983, 25). It may be said that the ethnographer is trying to understand the
experience of other people by sharing this experience and by making perceptions with a
‘different set of eyes and ears’.

Emphatic design (Leonard & Rayport, 1997) is a technique of observing customers

while they are using the product or service in their own physical environment. This
technique is particularly developed for product and service development purposes.
Emphatic design process aims to generate information on questions such as, ‘What
circumstances prompt people use the product or service?’ ‘How does the product or
service fit into users’ own systems?’ Observation in the emphatic design process is
unobtrusive: the key idea is to combine insight gained from watching people using the
product or service with the company’s knowledge of its capabilities.

Contextual inquiry has been developed in the field of systems design. Among others,
Holtzblatt and Beyer (Holtzblatt and Beyer 1993; Beyer and Holtzblatt 1995) have been
influential in developing a contextual inquiry and participatory design method (we here
discuss only contextual inquiry). Contextual inquiry is about collecting detailed data
about working processes while customers work at real tasks in their workplace. At its
foundation is data gathering by observation and through interviews. The purpose of
interviewing is to make sure that the observer really understands what is happening.
Interviewing means asking simple ‘interrupting’ questions such as “What are your
doing now?” and “Is that what you expect to happen?” (Holtzblatt & Beyer 1993, 94).
Interviewing should be conversational: The aim is to make “user and interviewer
discover together what was previously implicit in the user’s mind” (p. 94). Thus,
building a shared understanding of the working process –users’ motives, routines,
workarounds, structure of the work, etc. – is emphasized by the method.

The contextual interviewing or the desired-outcomes technique developed by Ulwick

and Bettencourt (Ulwick 2002; Bettencourt & Ulwick 2008) shares many of the
elements described above. At its foundation is “breaking down the task the customer
wants done into a series of discrete steps”, which can be visually presented as a ‘job
map’ (Bettencourt & Ulwick 2008, 2). The purpose is to identify what customers are
trying to get done at every step. The authors argue that customer needs are tightly linked
to customer jobs (also, Christensen & Raynor 2003): customers are able and willing to
reveal their needs when the interview focuses upon the particular task the customer is
trying to get done, and on the metrics customers use to measure how successful they are
at the task (Bettencourt 2008 & Ulwick 2008).

5.2 INVOLVING CUSTOMERS AS PARTICIPANTS IN NEW SERVICE DEVELOPMENT

This approach, involving customers as participants in new service development, gathers

together working methods in which customers or users directly participate in one or
several stages of a company’s innovation process. Thus, customers or users are pulled
into the service provider’s development process in different roles. These roles, or
specific tasks of customers and users vary a lot. In every case, customers are regarded as
valuable resource for the new service developer, and certain ‘outputs’ are sought from
their participation (in terms of ideas, design relevant knowledge, testing, or co-
designing). Customers and users may be granted, or persuaded to act in a highly active
role such as actually co-designing a new solution with the sponsoring company’s
employees. Often they participate in less active roles, such as observing a simulated
service delivery process and suggesting improvements. A key purpose in engaging
customers and users is to ensure that new services will be relevant and valued in the
market. However, there are other important objectives: Customer involvement in service
development provides opportunities to market the company and the new service (Alam
2002; Sandén et al. 2006; Kuusisto & Riepula 2008); it helps build customer
commitment to the new service (Lundkvist & Yakhlef 2004; Buur & Matthews 2008);
and, it is a cost-effective way to harness creative potential and expertise into the
company (Howe 2008; von Hippel 2005).

On the whole, new levels of interaction allocate more power and responsibilities for
customers and users in the new service development process. The innovating service
organization needs, first, to find successful ways to work together with customers,
second, to develop and establish processes and routines that help integrate customer and
user activities into the development process. Below, we exemplify this approach by: ‘in
situ’ customer identification of needs (Kristensson et al. 2008), participatory innovation
(Buur & Matthews 2008), and conversational approach (Lundkvist & Yakhlef 2004).

‘In situ’ customer identification of needs. The studies conducted in the telecom sector
in Sweden (Magnusson 2003; Kristensson et al. 2008) introduce ‘in situ’ involvement of
customers at the idea generation phase. Customers are not observed or interviewed, but
customers themselves identify needs and generate ideas in the course of their normal
activities. The study by Kristensson et al. (2008) empirically shows that user needs can
be identified by users themselves when these needs actually arise as users go about their
normal activities and encounter difficulties. However, users need to be helped and
encouraged to actively make a connection between their situations and potential
solutions in terms of new service ideas. Kristensson et al. (2008) show that this can be
done by providing the participating user co-innovators with ‘analytical tools’: in their
case study, this included information about the opportunities and limitations of
technology, and a physical platform upon which users could elaborate their ideas.

Participatory design can be seen as a label for design and development processes in
which end-users are invited to participate very much throughout the development
process (Holtzblatt & Beyer 1993; Buur & Matthews 2008). Participatory design
practices have been developed in systems design context, in particular. The key idea is
to engage users as stakeholders in development projects: active collaboration between
designers of new technology and its users should help ensure that innovations will be
meaningful to their users. Buur and Matthews (2008) have developed an approach they
label as participatory innovation by combining aspects of participatory design practices,
design anthropology, and the lead-user approach developed by von Hippel (2005).
Without discussing their five step procedure in detail, it is noteworthy that active
collaboration with users is suggested throughout the innovation process: in ethnographic
field studies and sense making of the results, co-ideation, establishment of new
concepts, as well as in the co-design phase of development.

Related to the above, Lundkvist and Yakhlef (2004) suggest a conversational

approach. The basic tenet of the approach is that new knowledge and ideas are not ‘to
be found’: such information does not pre-exist, for instance, in customer practices, but
language and conversation are key processes by and during which new ideas arise and
are co-created (in dialogue between the service provider and customers/users). An
important aspect in the conversational approach is that conversation is also seen as a
means of creating a ‘collective actor’: through conversation new ideas are created that
neither of the parties would be able to figure out in isolation, and this collective
creativity establishes commitment to action (Lundkvist & Yakhlef 2004, 253).

5.3 MAKING USE OF USER-GENERATED CONTENT AND INNOVATIONS

The third main approach views customers and users as innovators on their own. The
idea is not to explore customer needs, but systematically look into customer and user
potential as innovators. The difference between involving customers as participants in
new service development as discussed above (Section 5.2) and making use of user
innovations is not always clear-cut in empirical settings: However, the focus here is on
what customers or users are primarily generating outside the interaction with the
commercializing service provider.

There is a lot of empirical evidence that a significant share of most important

innovations have originally been developed by users for in-house use (users innovations,
by both companies and individuals) (von Hippel 2005; von Hippel & Oliveira 2009).
User innovation is also likely to continue to grow in importance. This trend is being
driven by improvements in Internet-based communications and by improvements in
easy-to-use, computer-based design tools (Howe 2008; Baldwin & von Hippel 2009).

When businesses become interested in commercializing products and services that users
develop for themselves, they face challenges to change their existing innovation process.
Again, there is not much theory-based research on what new structures, processes and
competences are needed. However, there exists a number of empirically proven
methods or techniques that are available for service providers seeking to build upon and
commercialize user-developed innovations: Some companies systematically build
relationships to user communities in order to obtain a flow of user innovations over time.
Others provide ‘innovation toolkits’ to potential user-innovators to both support and
learn from their innovation efforts. Companies can also provide users with product or
service ‘components’ to make their own versions of the products or services. Still other
companies are seeking out lead users and lead user innovations for specified new
product or service development efforts (von Hippel 2005; Howe 2008; Nesta Research
Report 2008).

Many new innovative services operating over the Internet are based on user-produced
content and the users’ development efforts. These include the free encyclopedia
Wikipedia, the photo sharing service Flickr, the video service YouTube, and several
software development projects, such as ‘Apps’, applications developed by users for
each other’s use on Google and Apple mobile devices. In the context of these services,
the business offers its user-developers a platform and tools enabling a large number of
users to develop content and services.

Users innovators can also be highly important for the development of public services.
For instance, allowing third party access to public data offers an opportunity for this
kind of development activity. An example is users developing applications with which
they can improve public transportation services (see, for instance,
http://www.massdotdevelopersconference09.com).

5.4 STRATEGIC CONSIDERATIONS OF THE DESIRED ROLE OF CUSTOMERS OR USERS IN

SERVICE INNOVATION

The secondary objective of this paper was to make more visible strategic questions of
the desired role of customers and users in new service development. These
considerations stem from the characterisation of the three approaches above, and the
close look we have had into the different methods and techniques in this field. We think
that paying attention to such fundamental considerations is worthy, because they should
form the foundation for more specific choices between available customer inquiry or
integration methods. The considerations we wish to bring into the forefront are:

First, the role of customers and users as objects or subjects in the new service
development process. In the ‘object’ role customers are regarded as a source of
information and other resources in development activities, but they are not genuinely
(co)setting the agenda for action with the service innovator. When customers are
‘subjects’ in the process, they have an active role in interpreting the data (e.g.,
Holtzblatt & Beyer 2003), defining the meaning of service, and shaping the desired
direction of action with the service provider (Lundkvist & Yakhlef 2004). Thus, one of
the first questions the innovating organisation should ask itself is, What kind of
influence are we willing to grant to our customers/users in new service development?
Do we see customers or users in our service development process as active subjects, or
rather as objects?

Second, the contextual nature of service use, and its implications for new service
development. The idea that the value of products and services is ‘embedded’ in their
context of use has become widespread. Consequently, creating a better understanding of
users in their natural context is emphasized by many methods, and increasingly,
researchers and development personnel work in users’ natural environments. At the
same time, it has been suggested that user needs may be best identified (Kristensson et
al. 2008), and many functional innovations best created by users themselves (von
Hippel 2005) in the course of their normal activities and as a response to new challenges.
The service innovator faces several important choices, which are here summarized by
the question: Where and by whom do we think customer needs are best identified, and
new ideas are most likely to be created?

Third, the service innovator’s organizational readiness to change its development

process and working practices. New ways of working with customers demand
systematic development of the existing service development process. Strong
management support (in terms of resources and incentives) and a long-term focus are
essential: What kind of challenges and changes do the desired new customer or user
roles impose on our service innovation process and other competences? What changes
are realistic, and how can the management act in order to facilitate the transformation?

6. CONCLUSIONS
This study has characterized three key approaches to customers’ and users’ roles in new
service development based on an analytical review of innovation literature. The
approaches are based on customer- and user-driven innovation perspective, which
outlines main routes by which customers and users can benefit service innovation
activities (presented in Figure 1). The three approaches are discussed in brief below,
with a focus on the challenges they impose on existing innovation processes.

The first approach, Building deep customer understanding, can be seen as being closest
to traditional research and development activity. Here, research and development
personnel try to understand the often hidden needs of customers and users by employing
tools such as ethnography. Customers and users remain an external source of
information and new insights. Thus, it is possible that no significant changes to the
existing development process (its structural elements) are required. However, new
methods to gain a deep understanding of customers/users and their environments call
for new expertise in conducting the fieldwork as well as analytical skills. Several
studies show that development staff should have a strong role in the fieldwork; thus,
situational sensitivity and the ability to place oneself in the user role become important.

The other two approaches, Involving customers as participants in new service

development activities, and Making use of user-generated content and innovation,
suggest the need for a more open innovation model and practices. There is a scarcity of
theoretically grounded research on what organizational and personal competences are in
fact required when a company aims to pursue innovation in close co-operation with its
customers/users, or build on commercializing of user-generated content and innovations.
In Continuous Improvement literature, for instance, the primary focus has been on the
innovating organization’s internal structures, processes, strategies and competences (e.g.,
Soosay et al. 2005). We believe that theoretically based research on organizing
customer- and user-driven innovation is now highly important. Accordingly, we suggest
the following types of questions for future research: What are the crucial challenges that
business face when they aim to transfer their innovation process into a customer/user-
driven one? What types of capabilities businesses, and their customers or users, need to
have in these processes? How can such transformations be facilitated by management,
as well as, at the macro level, by tools available for innovation policy?

An important question for future empirical research is also the question of the
‘suitability’ of various approaches and methods in different (market, innovation,
organizational) settings. There are some important recent efforts towards such
contingency frameworks (e.g., Möller et al. 2008). However, surprisingly little research
has been done to empirically evaluate the popularity, performance, and comparative
value of different types of customer- and user-driven innovation methods and practices
across the settings.

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