Paul Sloane in his latest newsletter gives an instance of Service Innovation that benefits both the organizations and the customers, saving both time and resources. He talks about self-check at airports, self-help groups for common diseases which in some cases has helped lesser cases reaching the hospitals, of Ikea that lets its customers do the product assembly themselves and outfits like Threadless that depend on crowdsourcing the designs for their products.
Now, these cases sound very interesting and as of now, they are almost unique in the way they engage the customer to do a part of work that was traditionally done by them. It is not as simple as it sounds. To let customers do a part of your job, you have to make the job so simple and intuitive that customers can do them without needing any kind of help otherwise you are creating another service monster for yourself.
Having said that, I think there is a lot of scope in service innovations as that is where most customer complaints lie, so by improving the service or by involving the customers in the service, you are improving the customer experience which would for sure impact the customer loyalty and retention.