_________________________________________________________New Service Development
FIND THE DIFFERENCES….
THE INFLUENCE OF SERVICE CHARACTERISTICS ON THE PROCESS OF NEW SERVICE DEVELOPMENT
NSD NSD NSD NSD NSD NSD NSD NSD NSD NPD NPD NPD NPD NPD NPD NPD NPD NPD NSD NSD NSD NSD NSD NSD NSD NPD NPD NPD NPD NPD NPD NSD NSD NSD NSD NSD NSD NSD NSD NPD NPD NPD NPS NPD NPD NPD NPD
NSD NSD N NSD NSD NSD NPD NPD N NPD NPD NPD
NSD NSD NSD NSD NSD NSD NPD NPD NPD NPD NPD NPD NPD NPD
RENSKE BARTELS NOVEMBER 2004
Rijks universiteit Groningen
_________________________________________________________New Service Development
FIND THE DIFFERENCES….
THE INFLUENCE OF SERVICE CHARACTERISTICS ON THE PROCESS OF NEW SERVICE DEVELOPMENT
Author: Renske Bartels, s1293591
1
stassessor: Prof. dr. ir. F.P.J. Kuijpers
2
ndassessor: Prof. dr. D.F.M.F. Jacobs
_________________________________________________________New Service Development CONTENT
PREFACE...5
MANAGEMENT SUMMARY...6
1. INTRODUCTION...8
1.1 RESEARCHCONTEXT ...8
1.2 CONCEPTUALDESIGN...12
2. NEW SERVICE DEVELOPMENT...15
2.1 THESERVICEECONOMY ...15
2.2 SERVICESDEFINED ...17
2.3 THENEWSERVICEDEVELOPMENTPROCESS ...20
2.4 TRANSLATIONALNSDMODELS ...22
2.4.1 Booz, Allen and Hamilton...22
2.4.2 Cowell...23
2.4.3 Donnelly et al. ...24
2.4.4 Bowers ...25
2.5 SUMMARY ...25
3. COMPREHENSIVE NSD MODELS...27
3.1 COMPREHENSIVENSDMODELS ...27
3.1.1 Scheuing and Johnson ...28
3.1.2 Johnson et al...30
3.1.2 Edvardsson and Olsson ...31
3.1.3 Tax and Stuart ...33
3.2 SUMMARYOFTHENSDMODELS...35
4. SERVICE CHARACTERISTICS...36
4.1 SERVICECHARACTERISTICS ...36
4.2 INTERRELATIONOFSERVICECHARACTERISTICS...40
4.3 REFININGTHERESEARCHQUESTION ...43
4.4 IMPLICATIONSOFSERVICECHARACTERISTICSONNSD ...45
4.4.1 Intangibility ...45
4.4.2 Inseparability...46
4.5 SUMMARY ...47
5. EMPIRICAL RESEARCH DESIGN AND METHODOLOGY...49
5.1 THEORETICALBACKGROUND ...49
5.2 RESEARCHMODEL...49
5.3 TYPEOFMETHOD...51
5.4 THEFINANCIALSECTOR ...52
5.5 THEPARTICIPANTS ...53
5.6 CONCLUSION...54
_________________________________________________________New Service Development
6. ANALYSIS...55
6.1 REFLECTIONONTHEPRACTICALRESEARCH...55
6.2 THEPROCESSOFNEWSERVICEDEVELOPMENT...56
6.3 THEINFLUENCEOFSERVICECHARACTERISTICSONTHENSDPROCESS ...63
6.3.1 The influence of intangibility on the process of NSD ...64
6.3.2 The influence of inseparability on the process of NSD...66
7. CONCLUSION...70
7.1 REFLECTINGONTHEORY...70
7.2 REFLECTINGONEMPIRICALRESEARCH ...72
7.3 REFLECTINGONTHERESEARCHQUESTION ...73
7.4 REFLECTINGONTHETHESIS...75
7.4.1 Reflecting on the choices ...75
7.4.2 Reflecting on the findings ...76
LIST OF REFERENCES...78
APPENDIX I: THE INTERVIEW...ERROR! BOOKMARK NOT DEFINED.
APPENDIX II: INTERVIEW REPORTS...ERROR! BOOKMARK NOT DEFINED.
_________________________________________________________New Service Development
PREFACE
The first words of this thesis are more or less the last written. These words reflect the finalization of my student years, first Human Resource Management, later Business Administration with Business Development as focus. The words reflect the ending of two decades in which education, college and studying stood on the foreground and in which I received my professional founding and forming. The words do not only represent an ending, for an ending of one thing starts the beginning of something else. These words therefore also reflect the beginning of decades of a working life in which all the lessons learned hopefully can be applied and more knowledge will be gained. Finally, it is the beginning of a new exiting journey in life, one that I look forward to without reluctance. I would like to underline the fact that I love to study, as you would expect of someone who takes seven and a half year for it. Yet, in addition I love to work in which the learned can be applied and adjusted to the rules of life and where I find aspiration to learn more.
The great adventure of studying; of meeting new people, making friends and having an almost endless list of possibilities, creates a very inspiring environment to make the best out of it.
Finally, I would like to thank some people for enabling me to create this product. First of all, I would like to thank Bob de Wit and Ron Meyer for giving me the opportunity to work in such a fantastic environment. I thank my colleagues at Strategy Works/Strategy Academy for all their friendliness and interest, and especially for their inspiration during the SWU of August. In this light, I would like to highlight the support and stimulation of Casper van der Veen, without his coaching this product would not have reached the same quality. Thank you very much for your endurance and profound ideas. I would also like to thank my assessors Mr. Kuijpers and Mr.
Jacobs. A special thanks goes to Mr. Kuijpers for the moments of discussion in which I was encouraged to think beyond my own boundaries. Furthermore, I received many supporting words during the months of my friends, and I would like to especially thank Margreet Waterweg for her listening ear and the always-helpful moments of relaxation. I would also like to thank Pascal Emens for sticking with me not only the last few months but the last seven years, thank you for your support and love. Last but not least, I would like to thank my parents and sisters. I would like to thank my sisters for creating the very motivating picture of a vacation in Australia with me, which certainly helped to set the time objective. Though most of all, I would like to express my gratitude to my parents, who encouraged me all my life to reach for my ambitions and have always supported me in achieving my goals.
Renske Bartels.
_________________________________________________________New Service Development
MANAGEMENT SUMMARY
The subject of this thesis is new service development. It discusses the relatively short history of the research field and the different perspectives on the field. Moreover, it describes the process of new services development and the models that were developed to illustrate this process. Quite some researchers see a tension between the research fields of new service development (NSD) and new product development (NPD), while others consider products and services as other ends of the same continuum. This thesis agrees with this last view, however it does acknowledge the characteristics that distinguish a service from a product. The objective of this thesis is:
“To examine how service characteristics influence the new service development process”
In describing the NSD models, a distinction is made in researchers that built further on the NPD model of Booz Allen and Hamilton and the researchers that separate themselves from this perspective. The NSD models of the researchers: Cowell, Donnelly et al. and Bowers are used to illustrate the first type of NSD model. These models do not explicitly account for the differences in services and product, reflected in a linear process in which customers and the existing organization are not integrated. The second type of NSD model is illustrated by the researchers:
Scheuing & Johnson, Johnson et al., Edvardsson & Olsson and Tax & Stuart. These models take a non-linear approach to new service development and integrate other issues into this development process compared to the first type of NSD models, like the existing organization and quality.
The theoretical research furthermore looked into the service characteristics: intangibility, inseparability, heterogeneity, variability, perishability and non-ownership. A model is proposed that distinguishes intangibility and inseparability as the two stand-alone characteristics of a service. The research question was adjusted to these findings:
“How do intangibility and inseparability influence the new service development process?”
From a theoretical view, the implications of intangibility are: the inability to investigate the
service, the lack of a tangible feature that represents value for the amount paid and the perceived
feeling of risk of the customer created by the uncertainty of the final outcome. This makes it
necessary for the organization to clarify the service concept to the customer and to lower the
_________________________________________________________New Service Development feeling of perceived risk. The implications of inseparability are: the different levels of customer influence on the development and delivery process, the organization of the operational activities like capacity planning and the interaction in the customer interface. This makes it necessary for the organization to create an accurate and qualitative process that embeds the customer.
Reflecting on the theory led to the proposal of matrix for the empirical research. The matrix shows a segmentation of the NSD models based on a high or low level of the service characteristics intangibility and inseparability. The models were place in a combination of high intangibility – low inseparability, high inseparability – low intangibility and low intangibility – low inseparability, this last combination was not actively involved in the research. There was no model that could be placed in the high intangibility – high inseparability combination. The segmentation of the models was based on how each of the models accounted for the implications of intangibility and inseparability. This matrix formed the bases for the empirical research, which was conducted in the financial industry. This consisted of semi-structured interviews with managers involved in new service development.
The first analysis focused on the activities conducted in the development process of new services.
Two notable conclusions were drawn. First of all, the activities: developing a service strategy,
market testing and evaluation were conducted in only a few cases. Secondly, it was observed that
the two main sources of idea generation are competitors and imposed regulations. It is further
notable that managers emphasize a tendency to a more customer focused orientation, but that
especially time drives the decisions. The second analysis focused on the influence of intangibility
and inseparability on the new service development process. The results established that
intangibility affects the phases: concept development, marketing program and full-scale launch
and that inseparability affect the phases: idea generation and process and system design. The
phases market testing, evaluation and personnel training were affected as well, though in a lesser
degree, the first two by intangibility, the last by inseparability.
_________________________________________________________New Service Development
1. INTRODUCTION
1.1 RESEARCH CONTEXT
At the Lisbon European Council in March 2000, the European Union set itself the ambitious goal
‘to become the most competitive and dynamic knowledge-driven economy in the world’ by 2010 (http://europa.eu.int/). In The Netherlands this statement and the growing sense of urgency for action initiated the creation of the Dutch Innovation Platform (www.innovatieplatform.nl). On June 7
th2004, six well-known Dutch organizations wrote a letter to the head of the Dutch Innovation platform, Prime Minister Balkenende. The organizations; Philips, Shell, ING, Akzo Nobel, Schiphol and Unilever urged to lessen regulations and lower administrate charges to stimulate innovation (www.volkskrant.nl).
Today there is generally little argument, in politics or business, about the contribution innovation can make to a company’s success and long-term survival (Von Stamm, 2003). Many researchers also agree on the importance of innovation to organizational competitiveness and effectiveness.
Innovation, however, has become a word used in many different contexts, so when a hundred different people are asked to define innovation a hundred different answers can come up. This makes it a blend of everyone’s perspective. A clear definition of innovation can help writers, readers and managers to focus. Many authors have tried to make a distinction in the wide array of definitions. Cameron and Whetten (1998) have drawn a line between continuous improvement and innovation. In their view, continuous improvement refers to incremental steps, while innovation involves discontinuous changes and breakthroughs. Peter Drucker (1985) refers to innovation as the set of tools to create a new business. Gary Hamel (1998) redefines innovation as strategic innovation: the capacity to reconceive the existing business model in ways that create new value for customers and stakeholders and advantage over the competition. With regard to this perspective, there are many authors that consider innovating as a way of creating value (Wijnberg, 2004). In the next part of this paragraph I will clarify the difference between service innovation and service development, followed by a short description of the concepts new service development and new product development. This will define the topic of this thesis and set out a
In this chapter I will describe the research context, the research objective and the concepts. I
will also set out the structure of this thesis.
_________________________________________________________New Service Development
Service innovation and service development
The constructs ‘service development’ and ‘service innovation’ have been used interchangeable in past research (Sundbo, 1997). Therefore, in this paragraph, I will discuss these two concepts to clarify the object of this thesis. For an organization to be involved in a service innovation process can be very distinct from being involved in a service development process. The label service development originates from the service management and marketing tradition, while service innovation originates from the economics and business strategy tradition (Menor, et al., 2002). In addition, the two perspectives can be distinguished in that service development focuses on the understanding of service development practice and on describing the tactical management of development activities. Service innovation on the other hand, typically focuses on developing abstract theories and describing the strategic implications of offering new services (Gallouj and Weinstein, 1997; Menor et al., 2002). Figure 1.1 shows the business system of an organization, with the components resource base, activity system and product offering (De Wit and Meyer, 2004). In the light of the above, the focus in my thesis is on the product offering and the interfaces with the markets and the activity system. The product offering is in this thesis the
‘service development’, whereas service innovation stands for innovation in the business system.
The most important decision in the product offering is to create a competitive value proposition that fits to customer needs. Customers consider several factors of importance, these are called the
‘value drivers’, and they are the elements responsible for creating value in the eyes of the customer. The activity system reflects the processes an organization conducts in supplying a product or service to create value.
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Figure 1.1: The business system
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Objective thesis
_________________________________________________________New Service Development With the product offering as a defined object for this thesis and in particular service development, I will shortly describe two concepts that will be expanded in the following chapters: new product development and new service development.
New Product Development
‘The economic success of manufacturing firms depends on their ability to identify the needs of customers and to quickly create products that meet these needs and can be produced at low cost’
(Ulrich & Eppinger, 2000). Successful new product development (NPD) is an essential element for the renewal and survival of many manufacturing companies. The importance of NPD has been recognized for many years. Cooper (1980) named new product development as one of the most crucial yet deficient functions of the modern corporation, which makes firms look more critical at their efforts in creating new products. Hart (1995) also observes the importance of new product development for corporate and economic prosperity, but considers also the high risk of failure in such endeavors. This, he claims, has led to a considerable research interest in the dynamics of new product development. Cooper and Kleinschmidt (1991) second the importance of NPD as a field of research since many companies are still not achieving the success rates they and their governments desire. Not surprisingly, not only authors recognize the importance of new product development. Business Week devoted a complete issue on the Innovation Economy (October 11, 2004), looking into the organizations like 3M, GE, Motorola and Philips and the new technologies and ideas they produce. Canon for instance, experienced a metamorphosis through innovation the last decade. The CEO, Fujio Mitarai, said: “The key element is our commitment to innovation”. This commitment helped the organization to go in less than ten years from a debt of
$7.78 billion, to a virtually debtless organization. An organization that has lessened the average product development time with a third.
New Service Development
After products, services have moved to the center of economic activities in modern societies.
Both the commercial services and the non-profit/government sector have grown to the point that
they now employ well over 70% of the working population in most advanced countries (Quinn et
al., 1997). Services dominate most developed economies given that significantly more than half
of these countries’ gross domestic product is in the service sector. Economic and job growth
through the 21
stcentury is expected to be dominated by services (Grönroos, 1992). Yet, Pilat
(2000) critically described that it is a problem that we still do not fully understand how the
_________________________________________________________New Service Development implies changes in how, where and when a service is delivered then the occurrence of new
“products” and processes, which more often occur in manufacturing. Secondly, service innovations are often more difficult to identify than innovation in the manufacturing sector. The management of new service development (NSD) has become, like its counterpart NPD, an important competitive concern in many service industries. This paper will only include expansion of the service portfolio by internally developed services, so adding new services through acquisition or developed through a joint venture is not considered.
However, other than in NPD, research in NSD is scarce and limited to more of the same. If there is one thing that authors of service development seem to agree upon it is that our current understanding of the necessary resources and the steps that need to be undertaken to develop new services is inadequate given the importance of new service development as a competitiveness driver (de Brentani, 1989; Menor et al, 2002; Fitzsimmons and Fitzsimmons, 2000). Lack of studies keeps it one of the least understood subjects in service management literature (Menor et al, 2002, Küpper, 2001). To say the least, our understanding of the development of new services is inadequate. Behara and Chase (1993) quip that ‘if we designed cars the way we seem to design services, they would probably come with one axle and five wheels’. Other authors pointed out that there seems to be a ‘generally accepted principle behind NSD namely that “new services happen” rather than occurring through a formal development process’ (Menor, et al., 2002).
New Service Development & New Product Development
The importance of developing new services and products for the competitiveness of organizations
and the economies of countries seems unquestionable. But, more than the why of developing
services and products, the question is on how. Especially the research field of NSD seems to
disagree on the matter if and how NSD can look at the NPD research field for lessons to learn. On
one side there seems to be a field of researchers making a point that NSD is not to be compared
with NPD for reasons as the incomparability of products and services. For instance, Johnson,
Menor, Roth and Chase (2000) argue, that the models of product development fail to address the
unique characteristics inherent in services such as customer as participant in the services process,
intangibility, and heterogeneity of customer demand. On the other hand, there are researchers that
call for a pragmatic view, who carry out the perspective that NSD should look at NPD for a
foundation. Krishnan and Ulrich (2001) believe that NSD researchers can avoid ‘reinventing the
wheel’ to some degree as some of the design and development problems and decisions in NPD
_________________________________________________________New Service Development are common to services. Following this path, Meyer and DeTore (2001) believe that principles of design and development for new products and services are common.
In this light, it would be interesting to know what the arguments are that both parties behold and on what belief these arguments are stated. Without services having different characteristics as products, there would be little need for discussion. Therefore, it would be interesting to investigate how and to what degree the characteristics of services influence the development process.
1.2 CONCEPTUAL DESIGN
Above, a short introduction was given on the field of innovation management and two derivatives; new product development and new service development. This paragraph will look at the research objective and research question. Service development is an acknowledged field of study, by researchers and practioners. Yet, the question remains why separate research is necessary, and why the results obtained in the research work for tangible goods cannot be transferred directly to services (Küpper, 2001). One of the answers can be found in the influence of service characteristics. I have formulated the following research objective and question.
Research objective
To conduct research on this topic it is necessary to look into the new service development process. What have researchers on the new service development process focused on and why did they take that perspective? Furthermore it is necessary to look at the characteristics that distinguish a service from a product. What are these characteristics and how do they relate to each other and with the development of new services? A lot of questions came up in the beginning of a research. Researching these questions will bring information and insights that are not available in the beginning of the thesis. This makes it hard to define a research question that covers the whole thesis topic. The research question can of course be seen as a reflection of the objective:
However, it is quite possible that the research on the new service development process and on the To examine how service characteristics influence the new service development process.
How do the service characteristics influence the new service development process?
_________________________________________________________New Service Development research question is a first workable research question, due to the theoretical research another research question and additional sub-questions are presented in chapter 4. The research findings on the following questions will lead to the final research question.
Sub questions
1. What models of new service development are there?
What are the differences and similarities of these models?
2. What are the characteristics of a service?
Conceptual framework
The conceptual framework indicates what elements will be studied in the theoretical part of the thesis in order to fulfill the research objective. The research focus is on the process of new service development and the possible effects that service characteristics have on this process. The right part of the model indicates that I will look at different types of new service development, expressed by different authors through models. The left part of the model shows the characteristics of services that are identified in the literature. Service characteristics are the features that distinguish services from products. This thesis will investigate the influence of these characteristics on the development of new services.
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N e w S e r v i c e D e v e l o p m e n t
C h a r a c t e r i s t i c ( 1 )
C h a r a c t e r i s t i c ( 2 )
C h a r a c t e r i s t i c ( 3 )
C h a r a c t e r i s t i c ( n ) S e r v i c e c h a r a c t e r i s t i c s
N S D c o n c e p t ( 1 )
N S D c o n c e p t ( 2 )
N S D c o n c e p t ( n ) R e s e a r c h :
I n f lu e n c e o f s e r v ic e c h a r a c t e r is t ic s o n
n e w s e r v ic e d e v e lo p m e n t
Figure 1.2: Conceptual Framework
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Research design
The research design (Figure 1.3) shows all the elements of the thesis: theoretical and practical.
The research design has three phases. In the first two phases, I conduct different types of research.
_________________________________________________________New Service Development In the first phase, I conducted Desk Research, this encompasses literature study in the research field of new service development en the accepted models of new service development, the right part of the conceptual framework, and literature study on the service characteristics, the left part of the conceptual framework. These two studies answer the two stated sub questions, which are based on the research question. As mentioned before, the findings on these questions lead to a new, more detailed, research question. In the second phase of the research design, an Empirical Research is conducted. Based on the findings of the desk research, an empirical research was conducted to see if these findings are confirmed in practice. The importance of this phase is to investigate if the findings from the literature perspective are supported in practice. The objective of this part of the research is to investigate if service characteristics influence the process of new service development. A methodology for this part of the research is proposed in chapter 5. The research is conducted in financial organizations. The third phase brings together the findings of the desk research and the results of the empirical research. The models of new service development and the service characteristics are researched in the desk research. The influence of the service characteristics on the process of new service development is researched in desk research and in empirical research in organizations. Based on this, I will write my conclusions.
Figure 1.3 also shows the chapter flow of the research paper.
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Introduction
New
Service
Development
Characteristics
of
services Comprehensive
NSD
Models Fase 1: Theoretical Framework
Fase 2: Practical Research Fase 3: Interaction fase 1 and 2
Conclusion Analysis Empirical
Research
Chapter 1 Chapter 2 Chapter 3 Chapter 4
Chapter 5 Chapter 6
Chapter 7
Figure 1.3: Research and Thesis Design
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_________________________________________________________New Service Development
2. NEW SERVICE DEVELOPMENT
2.1 THE SERVICE ECONOMY
Services are a growing part of our economy. Service providers as data processing, health care, transportation, and financial services, account for two-thirds to three-quarters of the gross national product in many highly developed industrial nations (Lovelock, 1996). Table 2.1 shows the breakdown of GDP per sector in the average percentages, in the European Union.
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Table 2.1: Breakdown of GDP in the EU, 2001 (http://europa.eu.int) ______________________________________________________________________________
The sector ‘services’ encompasses a wide variety of businesses that can vary from governmental services as education, health, military, and formerly telecommunications and transportation to commercial services as airlines, banks, hotels, consultancy and architects. It seams clear that one can ‘endlessly’ add to this list. The service sector is looked at as one of the most promising areas for further economic development today with new services being a driving force. Many service markets are being deregulated and competition is increasing, leading to customers being offered a greater number of options (Edvardsson and Olsson, 1996). Industries race forward with the development of new services, many of which are Web-enabled substitutions for traditional services (Meyer and DeTore, 2001). Figure 2.2 shows the development of six sectors since 1991
In this chapter I will first give an overview of the main authors on NSD and their perspectives regarding NPD. Secondly, I will describe a number of concepts of NSD that are well known
and accepted in this research field.
_________________________________________________________New Service Development (starting point: 100). Though it may not come as a surprise; the two most growing sectors are financial intermediation, renting & business activities and distributive trades, hotels &
restaurants, transport, storage & communication.
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Figure 2.2: Breakdown of development in GDP in the EU (http://europa.eu.int)
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There are multiple examples of industries where, as the market matures and growth from scale becomes limited, the focus draws to offering new services to the customers. In the telecommunications sector, providers face the challenge of achieving financial growth without adding customers. In Italy, Telecom Italia Mobile (TIM) is an example of this. With 98% of Italians owning a mobile phone, the focus is on adding successful new services, which find a high demand. With an operating margin in 2003 of 32,1% on sales of $14,6 billion they seem to find it.
The commitment to innovation is viewed as crucial to their performance. They are the customers choice as they, according to their customers ‘always come up with new offers’
(www.businessweek.com).
The importance of a new service for an organization is evident. As mentioned, benefits of new
services include enhancing the profitability of existing offerings, attracting new customers to the
firm, improving the loyalty of existing customers and opening markets of opportunity (Storey and
Easingwood, 1999). The objective of the development of new services can be made clear through
a service-market strategy. This strategy is a derivative of the business strategy and describes
_________________________________________________________New Service Development attempting to sell more: existing services to existing clients, existing services to new clients, new services to existing clients or new services to new markets (Ansoff, 1965; Cowell, 1988).
The service sector has become of viable importance to many large industries and the importance of new services as an important competitive advantage for service industries is unquestioned. Yet, new service development remains among the least studied and understood topics in the service management, service marketing and service operations literature (Menor et al, 2002; Fitzsimmons
& Fitzsimmons, 2000). As a result, our current understanding of the critical resources and activities to develop new services is inadequate given NSD’s importance as a service competitiveness driver (Menor et al, 2002). Compared to physical products, services are generally under designed and inefficiently developed (Froehle et al., 2000). Any effort to clarify this distinction benefits both service organizations and their customers (Fitzsimmons & Fitzsimmons, 2000). Before looking at the developments in new service development, I will look at the perspectives on this topic and the definition of a service.
2.2 SERVICES DEFINED
In 1984 the book “Developing new services” was published, which is a summary of conference contributions of the American Marketing Association held 17 and 18 October 1983 at the Villanova University, Philadelphia. This led to a continuous amount of publications and in the middle of the 1980s scientists started to establish the area of service as an autonomic research field within the framework of innovation research (Küpper, 2001; Johnson et al., 2000). For this reason new service development and NSD models will be described from this important milestone till now. One of the important issues concerning NSD emerged from the 1983 conference, was the need for a description of what constitutes a “new services”. The last word wasn’t said at the conference…
The problem with defining new services is that most existing definitions are based on divergent
researchers perspectives (each definition fitting with another type of research). Among others, the
bases for the definition can be found in the newness of the service (Johnson et al, 2000; Donnelly,
1985) in the service input, delivery process of output (Menor et al, 2002), in the service concept
(Johnston, 1999; Shostack, 1987). Below some of these definitions will be highlighted, starting
from the product development research field, before defining a new service for this paper.
_________________________________________________________New Service Development Booz, Allen and Hamilton (1982) identified six categories of new products. These are defined by their newness to the company and to the marketplace. Figure 2.3 shows a representation of the different types of product introductions. The cost reductions represent new products that provide the same performance at lower cost; furthermore the figure needs little explanation. Looking at the figure, it is clear that it can persist when product is replaced for service.
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H i g h H i g h
L o w L o w
N e w n e s s t o m a r k e t Newness to company
N e w P r o d u c t l i n e s
N e w - t o - w o r l d P r o d u c t
I m p r o v e m e n t s / R e v i s i o n s t o
E x i s t i n g P r o d u c t s
C o s t
R e d u c t i o n s R e p o s i t i o n i n g A d d i t i o n s t o
E x i s t i n g P r o d u c t L i n e s
Figure 2.3: Types of New Product Introductions (Booz, Allen and Hamilton, 1982)
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More authors have made typologies of new product development, like Wheelwright and Clark
who talk about breakthrough, platform and derivative projects on the basis of the degree of
change in the product and the degree of change in the manufacturing process (Wheelwright and
Clark, 1992). Other authors are Heany (1983), Cooper and Kleinschmidt (1993) and Roberts and
Berry (1983). Tidd et al. (2000, see figure 1) have made a typology for product, services and
processes. Gadrey et al. (1995) have made a typology specifically for services, namely
innovations in service products; architectural innovations; modifications of service products and
innovations in processes and organization for existing service products. Avlonitis et al. (2001)
recognized six types of service innovativeness who can be represented on a continuum. From the
most to the least innovative site of the continuum they see: the new-to-the-market services; new-
to-the-company services, new delivery processes; service modifications, service line extensions
and finally service repositionings.
_________________________________________________________New Service Development
We see that new services can be viewed in terms of the degree of newness: ranging from
discontinuous to incremental innovations as other ends of a spectrum, and on dimensions of
newness: like the newness to the developing organization, to the outside world or to both (de
Brentani, 2001). Johnson et al. (2000), for example, have defined radical innovations as offerings
not previously available to the existing customers, as to incremental innovations that only change
an offering already available. However, if an innovation is defined based on the newness to an
organization, the same innovation can be radical to one organization and incremental to another
(Wijnberg, 2004). De Brentani (2001) takes under consideration that services that are
incrementally new can include me-to offerings that provide no new or very limited added benefits
for customers. Wijnberg (2004) defines a new service in terms of the relationship between the
new service and the selection system, the selectors and their preferences. The above shows that
with regard to new services there are many perspectives: one that regards organizational change,
one that regards the perceptions of the market, one that regards the set of preferences of the
customers. As early as 1960, the American Marketing Association defined services as ‘Activities,
benefits or satisfactions, which are offered for sale, or are provided in connection with the sale of
goods’. This definition clearly needed a refinement because it did not sufficiently make a
distinction between goods and services. The refinement in 1981 became: ‘Services are those
separately identifiable, essentially intangible activities, which provide want-satisfaction, and that
are not necessarily tied to the sale of a product or another service. To produce a service may or
may not require the use of tangible goods. However, when such use is required, there is no
transfer of title (permanent ownership) to these tangible goods’. Berry (1980) kept it shorter and
defined a good as “an object, a device and a thing” in contrast to a service, which is “a deed, a
performance, an effort”. Looking at a new service, Johnson et al. (2000) define this as an offering
not previously available to customers. It can be the result of additional offerings, radical changes
in the service delivery process, or incremental improvements to existing service packages or
delivery processes that the customer perceives as new. Comparable to this definition, Menor
(2000) recognized the need to consider both the newness of the service offering (what service is
offered?) and the service concept (how is the service offered?). He defines a new service as an
offering not previously available to a firm’s customers resulting from the addition of a service
offering or changes in the service concepts that allow for the service offering to be made
available. In this sense it is possible that the new service was already offered by a competitor
(Cowell, 1988). Tax and Stuart (1997) defined a new service based on the extent of change to the
existing service system seen that services are essentially a series of interaction between
participants, processes and physical elements.
_________________________________________________________New Service Development Yet, it is difficult to fix definitions. Many authors confirm that new service development for the most part has been treated as an extension of the product development process for goods (Bowers, 1989). Meyer and DeTore (2001) believe that principles of design and development for new products and services are common. One must clearly segment customer groups, understand user needs in target segments, design effective solutions that have competitive differentiation, and carefully consider the distribution, service, and integration of either the product or service with other products and services. Yet, others point to the unique characteristics of services as evidence for leaving behind the NPD models and look for models more fitting with new service development (de Brentani, 1989). In this context, Johne and Storey (1998) consider the interaction between the service supplier and the customer the distinguishing feature of a service.
According to them, this means that the service and the way of interaction need to be developed together. This integral way of developing makes NSD more complex then NPD. This thesis will make use of Grönroos’ (1990) definition of a service as:
‘An activity or series of activities of more or less intangible nature that normally, but not necessarily, take place in interactions between the customer and service employees, and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems’.
This definition is usable because it accounts for the distinctive features of a service compared to a product. These distinctive features and the perspectives of researchers are described in more detail in chapter 4. Whatever perspective is supported, new services, like new products, need to be developed. The next paragraph will explore the perspectives on developing new services.
2.3 THE NEW SERVICE DEVELOPMENT PROCESS
Martin and Horne (1993) note, “The process of NSD is not well defined and does not adhere to conventional empirical mechanisms. Yet, new services come onto the market everyday. ‘How?’
remains the critical question”. The development process of services can be presented, in line with
the traditional manufacturing-based literature, as a number of formal phases or activities that are
conducted more or less sequentially (Vermeulen and Dankbaar, 2002). Literature and research
have hardly ever specified what exactly happens in these phases, which is surprising since it is
frequently argued that organizational factors contribute decisively to the success of new services
(De Brentani, 1991; Edgett and Parkinson, 1994). A review of the literature shows that most of
the authors draw attention to the paradoxical issue of the importance of new services for the
competitiveness of the organization and at the same time the inadequate understanding of the new
_________________________________________________________New Service Development service development process (Scheuing & Johnson 1989; Tax & Stuart, 1997; Johnson et al, 2000; Bowers, 1989, Cowell, 1984; Menor et al., 2002). Johne and Storey (1998) even speak of new service development as a ‘neglected area’ in research. An issue recognized by many authors (Johne & Storey, 1998; Menor et al, 2002) is that our understanding of NPD drives our understanding of NSD. Although some find this alarming (Johnson et al., 2000), we will see that many have made good use of it.
Differences in the models of NSD can be found in several aspects, like the degree to which a NSD model is based on a NPD model or the extent of incorporation of various steps. The scope of stages differs with each author. Some look mostly at the creation part (Bernstein, 1990), some include other aspects of the development of a service, including the organizational aspects, but do not include aspects of a launch strategy (Storey and Easingwood, 1993). Others encompass all activities that move the project from the idea stage to final launch (Cooper et al., 1994). In 1987, Scheuing and Johnson have developed a detailed normative model of the process steps of new services on the basis of earlier research. Several authors adopted this model. In many of the later publications the phases idea generating, idea selection, concept design, test and introduction can be found (Küpper, 2001). Some authors have added phases, others have focused their attention on one phase. There have been critics of the model as well, mainly because the model follows a linear process. These critics, like Padmore et al. (1998), suggest a cycle model for innovation.
The new service development models can broadly be placed into two categories (Tax and Stuart,
1997; Johnson et al., 2000). One category contains models that are related to a NPD model,
namely the Booz Allen and Hamilton model (BAH-model, 1982). The other category contains
models that are not based on a NPD model. Johnson et al (2000) have named the models in these
categories respectively ‘translational’ models and ‘comprehensive’ models. They have opted for a
third category that consists of partial models. This category is not included in this paper, because
this paper looks at the process of service development as a whole. The authors of the
comprehensive models (Tax and Stuart, 1997; Johnson et al., 2000) view the NSD process as
iterative and nonlinear, as a reaction to the models of the first category. These view the process as
divided sequential steps and contain ‘linear’ planning frameworks. Several authors (Bowers,
1987, 1989; Donnelly et al., 1985; Johnson, Scheuing and Gaida, 1986) recognized the need for
systematic new services “product” development processes (Johnson et al.) and based these NSD
models on the revised model of Booz, Allen and Hamilton (1982). Before, some research on new
service development had been done based on the 1968 model of Booz, Allen and Hamilton, yet,
_________________________________________________________New Service Development in this paper I will only incorporate NSD models since the conference of 1983 of the American Marketing Association. In the next paragraph, I will look into the models of new service development that found their funding in the new product development model of Booz, Allen and Hamilton. I will start with a description of this 1982-model, which had and still has such an influence on the research field of new product and service development.
2.4 TRANSLATIONAL NSD MODELS
Perhaps no activity in business is more heralded for its promise and approached with more justified optimism than new product and new process development (Wheelwright and Clark, 1992). The research field of new product development (NPD) dates back much further then that of new service development (NSD). Bowers (1989) noted in his article that a bibliography in 1980 listed several thousands of articles published on NPD, but only sixteen articles that addressed NSD and these focused more on customer acceptance then on the development of a new service. Whatever way you look at new service development, you have to consider the inheritance of new product development. Taking this approach has helped the research field of NSD to take a few steps with seven-league strides. Although it is considered that the existing NPD research does not have all the answers to the questions of product or service development, there is a foundation that can be drawn on (Menor et al., 2002). Krishnan and Ulrich (2001) have stated that NSD researchers can avoid ‘reinventing the wheel’ as some of the design and development problems and decisions in NPD are common to services. So, it does not come as a surprise that many authors on NSD looked at NPD for inspiration and that NPD models were extended into NSD. To paint a full picture of models of NSD, it therefore is necessary to include some perspectives of NPD. The remaining pages of this chapter will first describe the NPD models of Booz, Allen and Hamilton (1968, 1982), as these models laid down the fundament for the earliest work of NSD. Next, I will describe the translational models of Cowell (1984, 1988), Donnelly et al. (1985) and Bowers (1987, 1989). In chapter 3, I will describe the comprehensive NSD models.
2.4.1 Booz, Allen and Hamilton
Based on their experience in assisting corporate management in organizational growth through
new product development, Booz, Allen and Hamilton developed a 6-step new product
development model in 1968. Other findings of the hand of the management consulting
organization are the product life cycle and the new product idea ‘mortality curve’. The first
_________________________________________________________New Service Development describes the relationship between profit margins and sales volume over the life of a product, the second displays the number of ideas that are screened out in each development phase.
The first NPD model of Booz, Allen and Hamilton (BAH model; 1968) contained the phases of exploration, screening, business analysis, development, testing, and commercialization. The company objectives were the input and the expected outcome was a successful product. As the years passed, there emerged new tendencies to which organizations wanted and needed to react upon. Changing technologies, shifting needs of markets and consumers, shorter life cycles and increased competition made the managing of new products more complex and demanding. So Booz, Allen and Hamilton conducted another research. The results were derived from over 700 manufacturers of both consumer goods and industrial manufacturers. The most important outcome of their research was the need for a long-term commitment to support new product development. Other important results were the need for an organization specific approach and the creation of a favorable environment for creating new products. The results led to some alterations to the model. A seventh phase, new product strategy development, was added. This became the first phase, followed by the six former phases. The input for the model is the business strategy, and the outcome commercialized products (Booz, Allen and Hamilton, 1982). The addition of the first phase influenced the next two phases of idea generation and screening and evaluation.
Though the BAH model is foremost sequential in structure (Johnson et al., 2000), the first three steps are now more closely linked and allow for iteration (Bowers, 1985). Although based on new product development, there are limited challenges to the usefulness of the BAH model in the NSD literature (Bowers (1985), in: Johnson et al., 2000). The conventional steps of exploration, screening, business analyses, development, testing and commercialization apply to services as well as goods (Cowell, 1984). The BAH models have been the basis for many models of NSD in the following ten years (Bowers, 1995, 1989; Donnelly et al, 1985; Johnson et al., 1989;
Anderson and Pennington, 1992; Palmer and Cole, 1995). In the next three subparagraphs, I will look at three authors that were inspired by the BAH model in their research on new service development and their attempts to develop a NSD model.
2.4.2 Cowell
Cowell (1984, 1988) points out that while the range and order of steps in the new product
development process may vary, the underlying notions behind the use of systematic procedures
can also be used in new service development. He sees this broadly, in the sense that first the most
important activity is to create many good ideas, then screen these ideas and do a business analysis
_________________________________________________________New Service Development to make sure that finally the services with the best chance of success are launched. According to his view, this orderly and systematically development process reduces the risk of failure (1988). It seems a bit inconsistent when he says that a common development sequence is: idea generation, idea screening, concept development and testing, business analysis, development, testing, and commercialization, yet he also acknowledged that not all these steps are necessary for all services. He describes difficulties mainly for concept development and testing and market testing, which are the only added phases to the sequence compared to the 1982-BAH model. Concept development is linked with ‘service positioning’, which is often imprecisely defined, loosely used and difficult to measure (Cowell, 1988). Market testing is not always an available option for service organizations and research showed that this is a limited performed development phase.
Another noticeable point is that although he does describe the differences between services and products, he does not extend these findings into the development process of service ‘products’.
He places the issue of services being characterized by some distinct features foremost in the marketing perspective, rather in the perspective of development. Cowell (1988) noticed that the development of new services depend upon several factors like the characteristics of a target market, the nature of the new service, competitive pressure and the time and resources which can be devoted to the process.
2.4.3 Donnelly et al.
The new service development model of Donnelly et al. (1985) is almost identical to the NPD
model of Booz, Allen and Hamilton (1982). The resemblance is almost complete, was it not that
Donnelly et al. integrated the stages of development and testing into one. The authors emphasize
the importance of customer involvement in the early stage of exploration. They point out that
although potential customers are often unable to describe the services that would like, they often
are capable of discussing their concerns and their satisfaction with the existing services. This
information can provide valuable insights for the developers. The authors further see employees
as a source for information on this subject, as they have the closest relationship with the
customers. Donnelly et al. (1985) portray the nature of services and the differences this makes in
the development of the service. Yet, like the model of Cowell, their model does not show
attention to the differences. For instance, they describe that the ‘potential of variability’ places a
demand on the employees’ skills, but in the model training of the staff is not even mentioned. The
stages in the model can be applied in developing new services as well as new products. Other
then in words there seems to be no special distinction.
_________________________________________________________New Service Development
2.4.4 Bowers
Bowers (1989) also recognized that many service organizations use incomplete means of NSD.
His research was conducted in 900 companies, equally divided over three sectors; banks, hospitals and insurance companies. The objective of the research was to find out if the phases of the 1982-BAH model are being used in the development of services as well. He concluded that there were some noticeable differences. His first observation was that the responding companies tended not to engage in formalized idea generation, product development and testing, or marketing testing. Secondly, the two activities most likely undertaken were the development of a business strategy and business analysis. Thirdly, the development of a new product strategy, the development and evaluation of the concept, and the commercialization occurred in moderate amounts. Bowers also observed some differences between the service industries. For instance banks less likely to engage in idea generation, yet give a high score on the phase of commercialization. Bowers concluded that one of the reasons why service organizations did not attend market research was that competitors could note it. Yet, the lack of market testing, results in a lack of attention to the needs and expectations of the marketplace. He developed a NSD model that allows for greater input of the market. Bowers (1989) concluded that service firms were doing an incomplete job of managing the new service development process. The insufficient incorporation of input from the market place leads to developing services in a vacuum. He describes a normative model of new service development in which he emphasizes a systematic process of new service development that is sensitive to external change and incorporates reactions and criticisms. However, the ‘normative model of new service development’ is almost exactly like the NPD model researched. ‘Developing and testing prototypes’ is ‘replaced by establishing standards for performance of the new service’. The “advice” for service organizations developing new services is to; routinely search for new product ideas outside of the information, secondly to
‘define, develop and evaluate’ the service with the contact personnel and customers and thirdly to test market the service to determine the probability of success of the marketing mix.
2.5 SUMMARY
The models described all clearly built further on the NPD model of Booz Allen and Hamilton
(1982), see the summarizing figure below. They all seem to realize and consider the differences
between services and products, yet they do not show for it in the phases of new service
development. The models are all sequential, consist of seven, eight phases and in theory allow for
some iteration. Some of the authors consider the differences between services and product, yet
none of the NSD models really account for these differences. From this moment on, al the
_________________________________________________________New Service Development described models will be viewed as the same type of “NSD model based on the BAH-model”. So, maybe Booz Allen and Hamilton were right when they named their book ‘product management for the 1980s’, however the 1990s were on their way with some significant changes in economies and industries. New service development was in for some changes.
BAH model (1982) Cowell (1984/1988) Donnelly et al. (1985) Bowers (1986)
Strategic Guidelines Develop a business strategy New product development strategy Develop a service strategy Idea Generation Idea Generation Exploration Idea Generation Screening and Evaluation Idea Screening Screening
Concept Development/Testing Concept Development/Evaluation Business Analysis Business Analysis Comprehensive Business Analysis
Development Development Development/Testing Development/Evaluation
Testing Market Testing Market testing
Commercialization Commercialization Introduction Commercialization
_________________________________________________________New Service Development
3. COMPREHENSIVE NSD MODELS
3.1 COMPREHENSIVE NSD MODELS
Several authors have made an attempt to view the stages in the new service development models in a way that accounts more for the differences between products and services. As mentioned in the second chapter, early research on new service development mostly denied these differences or at least did not account for them in the models. So other researchers felt that there was a need to add more clarity in this research field. Among others, Lovelock (1996) made the significant contribution of recognizing two important concepts in the process of service development. The first is the service-marketing concept, the second is the service operations concept. Together they form the main processes in a new service development model. The service-marketing concept clarifies the benefits offered to customers and the costs that they will incur in return. The service operations concept describes the facilities design and layout, and indicates how and when operating assets should be deployed to perform specific tasks. Figure 3.1 visualizes the concepts.
The two concepts interact with the choices that management must make.
______________________________________________________________________________
Figure 3.1: The concepts of NSD (Lovelock, 1996)
______________________________________________________________________________
Although the models account for the interaction between the two concepts, we see that in the described models the main focus of attention is more on one of the two concepts then on both the concepts. The authors often do consider the other concept, yet have one concept that is leading in
In this chapter I will look at the authors that see the process of service development as different than the process of developing new products. The perspectives of all of the authors,
including those of chapter 2, will be summarized in the last part of the chapter.
Customers Service
Marketing Concept
Benefits
Costs Requirements
Resources
Existing Organization
Service Operations
Concept
_________________________________________________________New Service Development their model. Den Hertog (2000) presents a four-dimensional model of (services) innovation. He makes a distinction between: the new service concept, the new client interface, the new service delivery system and the technological options. All these blocks are linked with each other. With this model he presents an approach to map and analyze the diversity of innovations. In his view innovations can take place in each of these dimensions, leading to “conceptual” or “client- interface” innovations. The author considers service innovation rarely to be limited to a change in the service product itself, yet sees this as the interaction with the four dimensions. The model resembles some of the concepts of the models described in this chapter, yet these models do account for the development of the service itself. For this reason the innovation model of Den Hertog will not be taken further into the discussion of the NSD models. However, because the dimensions described are similar to concepts in other NSD models, the dimensions are shortly explained. The service concept reflects the combination of tangible and intangible characteristics.
A service concept represents a novelty in its application within a particular market. The author mentions that in innovation research ‘there are thorny problems concerning when is something really new’, yet he does not state his vision on this. The client interface represents the way the service provider interacts with the client. The line where the producer’s activity stops and the user’s activity begins can get blurred. The service delivery system and organization stands for the internal organizational arrangements that have to be managed. The dimension technological options is often discussed, because the service organization is sometimes limited in her degree of influence. In the following paragraphs, I will describe in more detail the well accepted models of new service development that are not based on the new product development model of Booz, Allen and Hamilton (1982).
3.1.1 Scheuing and Johnson
