Most firms are trying to combine products and services into innovative offerings in an effort to boost revenue and profit streams and balance cash flows. These hybrid solutions can help companies attract new customers and increase demand among existing ones by offering them superior value. Such offerings are commonplace - think Apple (the iPod product combined with the iTunes service). While the promise of combined offerings is great, it's easy to get them wrong. The problem is that too many companies, expecting to catch the brass ring, don't think through exactly how to structure, market, and sell their combined offerings. Over the past three years, the authors have analyzed more than 100 winning hybrid offerings from a variety of B2B and B2C companies. Their research shows that most companies stumble in at least one of four ways: failure to differentiate, failure to scale, failure to assess markets and prices appropriately, and failure to invest in the brand. The authors identify common types of hybrids: A flexible product-and-service combination allows buyers to customize their purchase. A "peace-of-mind" bundle offers the best of breed in both product and service. A multibenefit bundle offers customers an increasing number of add-on features or benefits. A "one-stop" bundle focuses on convenience shopping. The authors also offer a practical set of guidelines for identifying the opportunities to create a successful hybrid offering in your own company.

This is an MIT Sloan Management Review article. Service businesses now make up about 70% of the aggregate production and employment in the OECD nations, yet true innovation is rare in the service sector. Many companies incrementally improve their offerings, but few succeed in creating service innovations that launch new markets or reshape existing ones. By thinking about a service in terms of its core benefits and the separability of its use from its production, managers can more easily see how to out-innovate their competitors. Before they can do so, though, they must understand the different types of market-creating service innovations as well as the factors that enable them. Introduces and describes a two-by-two matrix whose taxonomy helps managers think strategically about service innovations that can create new markets. The dimensions of the matrix refer to the type of benefit offered and the degree of service separability. References best-practices examples to illuminate each cell of the matrix and explain the value of understanding the dynamics of the cell that is most applicable to a service innovation effort.