S
ERVICE
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NNOVATION IN A
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MALL
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NTERPRISE
Introducing the Innovatiebox to the Linders service portfolio
Matthijs van Leeuwen
S
ERVICE
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NNOVATION IN A
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MALL
E
NTERPRISE
Introducing the Innovatiebox to the Linders service portfolio
Matthijs van Leeuwen
S1718355 Business Administration Business Development August, 2011 University of Groningen First supervisor Dr. C. Reezigt Second Supervisor Dr. J.D. van der Bij
CortexCortex
Supervisor
P
REFACE
With this thesis the final hurdle for graduating from the University of Groningen is taken. As a condition the subject of the thesis had to be an organisation with a business problem. Quite quickly I found an organisation in the services industry for which I could write this thesis. Inspired by the course of Service Innovation I was keen on starting my research on service innovation in small- and medium sized service providers. I my view service innovation is a hugely overlooked research topic. Since around 80 % of business is centred around providing services, it is strange that only little research is conducted in this field. With this thesis I hope I have made a contribution to the scientific community and that in practice, at least at Linders, service innovation will be thought of by management and employees.
After 1,5 year this thesis is nearing completion. In February 2010 I started working with Linders Consultants and slowly the first ideas on what to study were shaped. In June my first supervisor informed me that in August he will leave the University, and that by then I had to look for a new supervisor. Due to the change of supervisor and their differences in visions I had to rewrite most of my thesis. Although this sounds like a hassle, I was actually glad since this enabled me to continue a study that I like doing. In September 2010 I started working 3 days a week as an consultant for Linders Consultants and worked two days on my thesis. With only 4 days a week left for my thesis progress was not made fast. Half a year later I even started to work five days a week and I had to push my discipline to the maximum to work in the evenings and weekends. Now, 1,5 years after I started, this thesis is completed. Although relieved, I do have a feeling of desolation with nothing more pressing in my free time.
Near the end of the completion of this thesis, disaster struck. On a normal tuesday afternoon the general manager of the organisation called for a special employee meeting. Words of dismay arose in the organisation concerning the topic of the meeting. As it turned out a part of the organisation was declared bankrupt that morning, including the company I work for. From one day to the other I was out of a job. The effects on this thesis were only small, the most sever consequence that the recommendations made in this thesis would never be implemented. However, the end of my internship/appointment at Linders results in a new start, with many possibilities and chances. This thesis could not have existed without the help of several persons. First of all, I would like to thank Simon Splinter and Tom Linders for giving me the opportunity to write my thesis at Linders. I certainly hope you can learn from this thesis so mistakes will not be made again. From the University of Groningen I would like to thank Cees Reezigt for keeping me on track and enabling this thesis from the universities’ point of view. My colleagues at Linders have always been supportive and helpful, thanks to Wenneke, Niki, Soerik, Eric, Avinash and Maarten. Special thanks to Max, for always making time to listen to me and think with me. Finally, thanks to Djurra, for always supporting and stimulating me, without you I would never have finished this thesis.
ing. Matthijs van Leeuwen Utrecht, August 21st 2011
T
ABLE OF
C
ONTENTS
1. Introduction 5
1.1 Business Problem 5
1.2 Scientific Problem and Contribution 6 1.3 Problem Statement 6
1.4 Aim of the Study 7
2. Theoretical Background 8
2.1 Conceptual model 8 2.2 Service Concept 112.3 Service System and Service Process 15
3. Research Methodology 24
3.1 Research method 24 3.2 Research Sample 25 3.3 Data Analysis 26 3.4 Measurements 27 3.5 Quality of the research 28
4. Results of the Interviews: The Case 31
4.1 Linders’ Side of the Story 314.2 The Customers’ Side of the Story 37 4.3 The Design of the Service 40
5. Analysis 42
5.1 Relationship between the Innovatiebox and WBSO 42 5.2 Innovatiebox as simply a Service or More 43
5.3 Proposition and Expectations 44 5.4 Process Deficiencies 44
5.5 Support Services 45
5.6 Management and Employees 46 5.7 Knowledge 46
5.8 Analysis of the Design 47
6. Conclusions and Recommendations 49
6.1 Conclusions 49 6.2 Recommendations 527. Discussion 56
7.1 Limitations 56 7.2 Future research 578. References 58
1.
I
NTRODUCTION
This thesis is written as final examination for the Master Business Development as part of the Faculty of Economics and Business Administration, Rijksuniversteit Groningen. The assignment for the thesis is to investigate a business problem in an organisational setting, scientifically. In this chapter the business problem and the organisational setting will be discussed, along with the way this transfers to a scientific problem.
1.1 Business Problem
The organisational setting in which thesis is situated, is Linders Consultants. Linders is a subsidy consultancy firm, which helps organisations to apply for subsidies with a fiscal background. Since 1988 Linders has informed organisations on and helped them with applying for the so-called WBSO subsidy, which stands for Wet Bevordering Speur- en Ontwikkelingswerk. This regulation is directed at organisations that have innovative activities in their product development. By applying for the WBSO regulation they can discount their withholding taxes on labour.
In 2010 the Dutch government introduced the Innovatiebox. This regulation allows a discount on corporate tax for organisations that have innovative endeavours. There are three measures by which organisations can prove that they have innovative activities. First there is the S&O declaration (Speur- en Ontwikkelingswerk verklaring), the result of applying for the WBSO. Second, an organisation can prove innovative work by showing a patent or license for a patent (or from 2011 onwards, a patent application). The final proof for the Innovatiebox is plant breeders’ rights. This is the right of a breeder to gain exclusive control a new variety of plant that has been developed.
An organisation can apply for the Innovatiebox, if it can satisfy one of the three conditions described above, it can then partially discount its corporate tax from a normal percentage of 20 -25 % (depending on the level of the earnings before interest and taxation) to 5 % instead. This large reduction in corporate tax makes it highly interesting for many organisations that have innovative activities.
The problem for Linders arises when it is considers the Innovatiebox as a natural extension of the WBSO regulation. By applying for the WBSO, an organisation can automatically claim the Innovatiebox. There are several reasons why Linders must offer an Innovatiebox service as an extension of the WBSO. First, customers expect Linders to offer the Innovatiebox. By not offering the Innovatiebox Linders risks that customers will look to other organisations for the Innovatiebox, and in the process take their WBSO activities to the other organisation as well. If Linders Consultants wishes to retain their existing customers, they have no choice but to somehow offer the Innovatiebox.
Second, by offering the Innovatiebox, Linders can increase their potential market share. The number of organisations that currently uses WBSO is large. However, the number of organisations that apply the Innovatiebox is relatively small. Although these organisations cannot be served by Linders for the WBSO, they can be served for the Innovatiebox. This diversified proposition (offering WBSO as well as Innovatiebox) can attract a large amount of new customers. This is especially true for organisations that are considered too small for just the WBSO. When the savings of the WBSO do not outweigh the costs of Linders to help the organisation, Linders or the
customer organisation usually say that collaboration is not feasible. By including the savings from the Innovatiebox into the equation, smaller organisations have more chance to be considered by Linders.
The problem that Linders faces is how to introduce a new service for the Innovatiebox. Since Linders is a small organisation, it does not have the resources for a structural and formal new service development. The focus will be on identifying and acquiring the competences necessary to offer the Innovatiebox as a service besides the existing service for the WBSO.
1.2 Scientific Problem and Contribution
This thesis aims at the development of a service in a small service organisation. In the current literature streams there seems to be a lack of theories on the development of services in small service organisations; especially the combination of small business and service development is underdeveloped.
This thesis will use literature from the fields of small- and medium sized enterprises (SME’s) theory and combine it with literature from the service development literature to use as a framework for the research in this study. The literature will contribute to the conceptual development of the service for Linders, and experiences of the development of the service at Linders can be used for the development of literature in this specific stream.
1.3 Problem Statement
The problem for Linders can be broken down into two parts. Firstly, there is the implementation of the of the problem, or in other words:
The Innovatiebox must be properly implemented in the current organisation of Linders Consultants
The problem statement, as described above implies that the Innovatiebox must be implemented in the existing organisation. The newly developed service must fit with what is available in the current organisation. Furthermore, a proper implementation implies that there must be a solid basis for the implementation. This solid basis comes in the form of a framework grounded in literature.
This framework will be based on theory from the service development literature, in combination with literature on small- and medium-sized enterprises. Based on this framework a case study will be conducted into the implementation of the Innovatiebox at Linders. The framework will be leading in assessing the quality of the implementation of the Innovatiebox. Besides the qualitative assessment of the service implementation, the case study will feed important findings on service development back to the SME literature. In this way this thesis will contribute to the literature body of SME and service development.
The second part of the problem is concerned with the introduction of the Innovatiebox to the customers of Linders Consultants. Since this is a different kind of service than any in the current service portfolio, a critical look must be given to the way this new service is being introduced. This leads to the following problem:
As a new service, the Innovatiebox must be introduced such that the current customers of Linders Consultants will purchase the service, as well as prospective customers of Linders
yet.
The implication of this problem is that the introduction of the Innovatiebox is a change for Linders on two fronts. First of all, the introduction of a new service in an existing market is an acknowledged way to generate extra profits. Product development, as described by Ansoff in his growth matrix, is only one of four strategies that can be followed in order to grow in terms of marketing (Ansoff, 1957). Diversification is the final quadrant in the growth matrix, consisting of a new product placed in a new market. According to Smal et al. (2002) this is the most radical growth strategy. Ansoff describes that progressive organisations pursue the three first strategies, market penetration, market development and product development, simultaneously. Only organisations willing to change their organisation will be able to pursue a diversification strategy, since this strategy demands a different approach from the existing activities.
The pursuit of the strategies product development and diversification strategies leads to a problem in the organisation. The diversification strategy demands a change in the organisation that leads to the ability to grow in the new market. However, the product development strategy demands the same organisation in order to serve the existing customers in the same manner as the existing services are being offered. This thesis must devise a strategy that will ensure that both new and existing customers are being served in a manner that suits the growth strategy, with the fact that the diversification strategy demands a lot from the organisation.
1.4 Aim of the Study
As the previous paragraphs focused on discussing the problems to be handled in the thesis, this paragraph will enlighten the goals that must be achieved in order to solve the problems. In the end, the aim of the thesis is to properly implement the Innovatiebox as a service. In order to achieve this two conditions must be met. First of all, the existing customers must be offered a product that fulfils their needs. The service Linders offers must therefore be aligned with the needs of existing customers. Second, the needs of possible other customers whom do not belong to the current market segment of Linders must be satisfied. A design that satisfies the needs of the customers, current or otherwise, is therefore the combination and ultimate goal of this thesis.
In the next chapter of this thesis the theoretical background will be presented in which the problems described above will be worked out in more depth. Chapter 3 will concern the research methodology for this study. The fourth chapter will present the data in two forms, first the results from the quantitative study into the customer needs, and second the results from the case interviews in the form of a case study. Chapter 5 will present the results of the quantitative and qualitative analysis. In chapter 6 the conclusions and recommendations to the management of Linders Consultants will be displayed. Finally, in chapter 7 a discussion of the study will be provided.
2.
T
HEORETICAL
B
ACKGROUND
A lot of attention in scientific research is focused on the development of new products. Although this is an important topic in business administration studies, in practice, products are outnumbered by services four to one (OECD, 2005). In research this difference is not recognisable, in fact, more studies tend to research New Product Development (NPD) than New Service Development (NSD) (Thwaites, 1992; Johne & Storey, 1998; Akamavi & Thwaites, 1999; Akamavi et al., 1999).
The last few centuries have pushed the need for a structured and well-understood NSD process and understanding of service development in general to a next level. Governments have deregulated several sectors like banking, utility companies, and health care, while on the other hand, services offer a great opportunity for growth and profitability (De Jong & Vermeulen, 2003). These changes affected in increasing competition between organisations, a more rapid pace of development and more demanding customers (Akamavi, 2005). The pressing need for this understanding of service development has spawned a large number of scholars to investigate service development. However, the field of service development research is still lacking the depth in understanding, as can be seen in NPD (Biemans et al., 2009).
As is discussed in the introduction this thesis has as goal to complement the service development literature from a small business focus. In the small business literature several scholars have pleaded for a better understanding of development projects in SMEs (Vossen, 1999; McAdam et al., 2004). The main point of criticism in this stream is accurately rendered by McAdam et al. (2004); there is too little understanding of how SMEs can “incorporate the principles and practices of innovation”.
In the theoretical background this will be expressed by an explanation of how the specific topics in SME are handled. In other terms, every topic will be introduced by theories as they are described in the service literature, followed by an interpretation with a focus on small- and medium-sized enterprise literature. In this manner, both the general literature on service development will be introduced, but for every topic, a SME focus will be maintained.
The main goal of this thesis is to cross-pollinate the literature with practice. By analysing a specific case of service development, this study aims to interact between theory and practice; applying theory in practice, and feeding back information to literature. In fact, this study will look at how practice at Linders can be improved by looking at the theory on service development, while some findings in practice can improve the current scientific understanding of service development.
2.1 Conceptual model
In the service development theory there are a several theories. For this thesis a conceptual model of two of these theories is made, which will serve as a framework for the remainder of this thesis. The basis for the framework comes from Grönroos (1998) and Bitner et al. (2000). Both these scholars have adapted the model by Parasuraman (1996), and tweaked it to their own ideas. The models are based on three concepts involved in a service; the organisation, personnel and the customers. All these concepts have a relation with each other, as is depicted in figure 1.
According to Grönroos the relationships between the three concepts can be managed by three kinds of marketing, internal marketing, external marketing and interactive marketing. External marketing is marketing in the classical sense of the word, promoting the product to the customer
(Grönroos, 1998). Internal marketing is managed by leadership; clear leadership directs the vision the management of the organisation has to the employees, which in turn can interpret the vision in a way to interact with the customer (Grönroos, 2000). Finally, interactive marketing is all the marketing between the employees and customers. Since not all employees that have customer contact are marketing personnel, these are named part-time marketers and they are responsible for most of the customer contact (Grönroos, 1998).
Another leading theory in service development is by Edvardsson. He defines three levels of service management: service concept, service system and service process. The service concept is the strategic description of what the service must be; the service concept is the prototype of the service, which discusses the primary and secondary customer needs, and how these needs can be satisfied by core and supporting services (Edvardsson, 1997), which is depicted in figure 2.
The service system is the tactics of the service. Several different resources can make up subsystems that form the whole service system. An example of a service system is the organisational system that a service provider has in place. The service system is depicted in figure 3.
The service process is the service as it is provided to the customers and can be characterised as a black box; the service organisation takes input and transforms this into output (Slack et al, 2007). Edvardsson and Olsson (1996) have set three quality premises for a service to control their quality. First, for the input to the service quality requirements must be set; in order to deliver quality, a service provider must work with input that is of quality. Second, during the transformation, the
expectations of the possible internal customer must be understood. Only if the expectations of the customer are understood can the quality of the service produced be determined (Conti, 1989:45).
Organisation Personnel Customers Internal marketing External marketing Interactive marketing
Figure 1 | The service marketing triangle (Adapted from
Grönroos, 1998) Primary needs Secondary needs Supporting service Core service Service Concept
Figure 2 | Service Concept (Adapted from Edvardsson,
1997) Employee Organisational control Physical & technical environment Customer
Service System
Figure 3 | Service System (Adapted from Edvardsson,
1997) Quality requirements Understand internal customer expectations Understand end customers expectations Service Process
Figure 4 | Service Process (Adapted from Edvardsson,
This is also relevant for the t h i r d r e q u i r e m e n t : u n d e r s t a n d i n g t h e expectations of the end c u s t o m e r. T h e s e r v i c e p r o c e s s i s d e p i c t e d graphically in figure 4.
For this thesis the models of Grönroos and Edvardsson will be combined. Both the models are based on the premise that a service constitutes three dimensions; organisation, it’s employees and the customer. Where Grönroos (1998) describes the holistic overview of these three dimensions, Edvardsson put this overview in a more
specific perspective. The reason why these models fit together well is due to the fact that both these scholars are linked to the Nordic school of thought in Marketing (Aijo, 1996; Grönroos, 2006; Palmer et al., 2005). In this school of thought a holistic approach to marketing is key, in which the three cornerstones are the customer, the organisation and the employees (Grönroos, 2006). According to scholars that share the Nordic school of thought, the customer is a resource participating in the service consumption process, and therefore “has an impact on what he gets in return” (Gronroos, 2006: 2). The organisation as a whole is important in this view, since marketing is not seen as a separate institution within the organisation, but as a relationship between all other departments within the organisation (Palmer et al., 2005).
It is interesting that this combined view of Grönroos and Edvardsson was not investigated scientifically before. Because the theory is more application minded than the theory of Grönroos, this can lead to new insights, especially in SMEs, since these are more focussed on practical application than their larger counterparts. Large organisations are more willing to adopt theoretical views, because in general these are based on large organisations.
In the combined model, which is depicted in figure 5, the two views of Grönroos and Edvardsson can be recognised. This model will be the backbone of the research that will be conducted in this thesis.
In the introduction two problems were defined. In this conceptual model these two problems, or possible solutions, can be seen. On the left hand side of the model, depicted by the number 1, the first solution is given, and constitutes the service system and service process as they were defined by Edvardsson (1997). This part of the model will investigate the first problem as defined in the introduction: how to implement the Innovatiebox in the current organisation. The second problem, current as well as new customers must be attracted to the Innovatiebox, will be addressed by the right side of the model, the service concept. In the remainder of this chapter the specifics of the model will be discussed.
Organisation Employees Customers Core Service Supporting Service Primary Needs Secondary Needs Environment Quality Refinement Internal Customers’ Expectations Understand Customers’ Needs Service Process Service Concept Service System 2 1
Figure 5 | Conceptual model (Adapted from Grönroos, 1998; and
2.2 Service Concept
Before the service concept is discussed further, first a short abstract on the definition of service development will be provided. From this starting point the more detailed discussion concerning the decomposition of service development will follow.
Service development as a concept originates from the early NPD models. As the NPD models were used for NSD as well, the general term for the actual development phase for services became known as ‘service development’ (Bowers, 1986). In recent years, some scholars have directed their NSD efforts towards this specific part of NSD.
In their normative model, Scheuing and Johnson (1989) have combined all known NSD processes into a complete overview of NSD activities, in which they divide the service development activities into four different stages: service design and testing, process and system design and testing, marketing and program design and testing, and personnel training. Through the years, the concept of service development is continuously improved by other scholars. First, Cowell (1984) distinguishes between the core service attributes, and the service delivery system. The core service attributes add value for the customer and fulfil a certain need of the customer, while the service delivery system is the enabler of the process, bringing together the process, the employees, the customers and possibly technology.
Lovelock and Wirtz (2007, 69-71) distinguishes between service concept and the delivery process of the services. Although Lovelock and Wirtz acknowledge the difference between the core product and the delivery process, Cowell defines the service concept not just as the core product and accompanying supplementary services, but includes marketing characteristics of the service, to form a ‘total market entity’ (Shostack, 1977).
Edvardsson and Olsson (1996) take a different approach to advancing the literature on service development and start from a customer’s point of view. First they propose the theorem that the concept of a service constitutes customer outcome, customer process and prerequisites for the service. This theorem is based on quality research in services. The customer outcome is what the customer experiences or receives from the service. This is specific for any customer, since services are relatively heterogeneous, and the outcome is reliant on the input from that specific customer (Johne & Storey, 1998). The customer process is what the customer sees from the process. Again, the customer is an integral part of the process, which can have effect on the quality of the service. Edvardsson and Olsson (1996) posit that if the customer is seen as a co-producer of the service, this has implications for the service development itself. The customers logical actions and behaviour must be taken into account when developing the process in order to assure the quality of the service. The customer outcome and customer process are dependent on the prerequisites for the service. From this perspective, they propose that service organisations do not offer services, but opportunities for customers to attain a particular customer outcome from a customer specific process (Edvardsson, 1997).
From this thesis, Edvardsson and Ollson (1996) propose, just like Cowell and Lovelock, that besides the core service, there must be supporting services. The core service fulfils the primary needs a customer has: the supporting service fulfils the secondary needs (Goldstein et al, 2002). Again, just as Cowell and Lovelock have posited, the service concept describes how the service can fulfil these needs. Or to speak with the words of Edvardsson (1997, 35-36):
“Service concept refers to the prototype for the service, i.e. the customer utility and the benefits (value to the customer) which the service and its various sub-services are intended to provide and convey to the customer.”
2.2.1 Primary and secondary needs vs. core and support services
In figure 2, it can be seen that the service concept is divided into two parts. On the one hand there are the core and supporting services, and on the other hand the primary and secondary needs. This division is the classic division between the organisation and the customer, in which the customer has certain needs and the organisation a certain offering. This offering must fit the needs of the customer in order to actually sell its product or service (Anderson et al., 2009: 6).
There are several levels of needs associated with customers. The first division is mentioned in the title of this paragraph, the primary and secondary needs. Edvardsson and Olsson (1996) have named this division in order to differentiate between the need a customer has, which will compel the customer to become involved in a certain service. In the buying process, the customer is compelled to look at more than one variable to base its purchase on. There are several product or service specific factors that influence the buying process. In the product literature these characteristics are named order-qualifiers and order-winners (Slack et al., 2007). Order-qualifiers are specifications of the product that must be available in order to be acknowledged as a possible purchase. These order qualifying specifications are comparable with the secondary needs of Edvardsson and Olsson (1996). Order-winning specifications make the difference between a good product that fit the general need of the customer, and the winning product that fits the specific need of the customer. Again, the order-winning specifications compare with the primary needs of a customer.
The second division in the customers needs can be described as the difference between latent and expressed needs (Narver et al., 2004). The premise of this division is that a customer is not always aware of its own needs. In other words, a customer acts on the needs which he can express, but is also influenced by other needs that he/she is not yet aware of; the latent needs. Latent and expressed needs can either be primary or secondary. Either way, an organisation must work out a way to learn the latent needs in order to serve the customer (Narver et al., 2004). Edvardsson (1997) also distinguishes between a core and support service. The core and support service must be developed such that the needs a customer has, either latent or expressed, are satisfied. The core service is what eventually will trigger the customer into acquiring a certain service. The support service is there to fulfil any other derived need that might coexist with the primary need of the customer. In the product literature this is what Anderson et al. (2009; 181) name the core and augmented product. The core service is the fundamental and functional product that will fulfil only the basic needs of the customer. However, in order to make the product more attractive to the customer, and to better fit the product to the customers secondary needs, additional services can be added. This is what Anderson et al. (2009; 182) call the augmented product; a product that not only serves the primary need of a customer, but also the secondary. By offering specific additional services the value for the customer is increased, or the costs are reduced.
In service management this difference is pointed-out by Shostack; she calls it the molecular model of the service concept (1977). In this model the basis is the core benefit, addressing the basic customer need. Linked to the core benefit are other service characteristics that have an influence on the service as a whole. These influences can be both tangible and
intangible, and serve both expressed as latent needs of the customers. Grönroos differentiates the support attributes even further into facilitating services that enable a customer to use the service, and supporting services that increase the value of the service (Grönroos, 1990).
In the discussion above, it can be seen that the relationship of the primary customer need and the core service, as well as the relationship between the secondary customer needs and the supporting services, is direct. As can be seen in figure 2, Edvardsson has hypothesised this relationship also. In practice however, the relationship between need and service cannot be operationalised by value, as is proposed by Anderson et al. (2009 pp. 188). Per definition, organisation and customer have different views on the service’s value, since both have different interests. This means that the organisation must carefully listen to the customers; only they can express their needs. The task of the organisation is to satisfy these needs by allowing the customer lead them (Narver et al., 2004).
2.2.2 Synthesis
The discussion above has concluded that a service must align the needs the customer has with the service an organisation offers. All services offer a package of benefits or solutions that in total create the value proposition for the service (Lovelock & Wirtz, 2007; 133). For this thesis, the specific relationship between the needs the customers of Linders has, and the vision Linders has on their service will be investigated. By studying the customers’ primary and secondary needs in combination with the view on these needs of the organisation, this thesis will show how the service concept as Linders expresses it can be designed such that the service fits the customers’ needs.
2.2.3 Value attributes | Operationalisations In order to investigate the relationship between the customer needs and Linders’ service the hypothesis must be operationalised. In the following discussion the key variables of the hypothesis stated above will be described.
According to Lovelock and Wirtz (2007; 77) the value attributes are made up of the core service, and eight support service attributes. The graphical representation resembles the molecular depiction of Shostack (1977), but differs in content. Lovelock and Wirtz use eight categories of support service attributes, represented by the petals of a flower, which leads to the name of the model: The Flower of Service. The nine categories depicted in the Flower of Service can be used to offer value. Below a short discussion on the nine attributes and the conventional usage of them in SMEs will follow.
Core service - As discussed above, the core service is the mean service that will draw the customers to the service. The difference in SMEs and their larger counterparts are slight. From an economic point of view, the smaller organisations have smaller economies of scale, and therefore
Core
service
Information Consultation Order taking Hospitality Safekeeping Exceptions Billing PaymentFigure 6 | The Flower of Service. Adapted from Lovelock & Wirtz (2007; 77)
cannot offer competitive prices (Karaev et al., 2007). The strength of SME comes from either the advantage of serving smaller niche markets or scaling up by entering cooperative relations with other SMEs. Anyhow, SMEs do have to think wisely about the choices they make in their service offering since competition on price with their larger counterparts is economically speaking not possible. In this specific case, the needs the customer has must be defined according to the service itself and cannot be drawn from literature (Boiarsky, 2004). For this reason, the operationalisations will be worked out further on the basis of the service provided by the organisation in subject.
The main value of a third party service provider is the ability to allow someone else to undertake the work for you, like outsourcing accountancy to a third party. The advantage of this outsourcing is that it will save the customer costs since the service provider can do the work with fewer costs due to economies of scale, and since the third party is specialised in the product, the quality probably will be better. Thus, the ease of using a third party to apply the Innovatiebox has as indicators cost saving and quality improvement.
In practice this will be researched by looking whether the views of the customer and the service provider are different. Theoretically, these two should match in order to offer a good service. The customers will be asked how they feel about the service and how they are being served. The service provider will also be asked how they think the customer is being served. Comparison of the results must tell whether the customer has the same view on the service as does the service provider.
The supplementary services enable an organisation to differentiate the products to more specific markets or niches. This way, the service offered will better match the specific needs of the targeted niche market. As discussed above, the supplementary services augment the total offer such that the total perceived value is increased (Lovelock & Wirtz, 2007; 70). For SMEs this augmented service is of importance, since this enables them to target smaller niches that have specific needs that cannot be met by larger organisations. By differentiating to a niche market, the SMEs can ask a higher price than competitors that compete on price (Porter, 2001).
Information - An important part of a deal is to provide the customer with timely and accurate information about the service. The precise advantages and disadvantages about the service must be clearly communicated to the customers. There are several different indicators of the quality of information supplementary service, which have a variable application depending on the kind of service: directions to service site, schedules/service hours, prices, instructions on usage, reminders, warnings, conditions of sale/service, notification of changes, documentation, confirmation of reservations, summaries of recent account activity, and receipts and tickets (Lovelock & Witz, 2007; 78). Not all of these indicators apply to the service as it is provided by Linders. The nature of the service makes a number of indicators abundant for this research, namely: directions to the service site, schedules/service hours, confirmation of reservations, summaries of account activity, receipts and tickets.
Consultation - Although consulting looks similar to providing information, there is an important difference. Consulting involves a dialog with the customer, in which the specific requirements of the customers are voiced, and a tailored solution can be provided. In view of the scale of economies, this is where SMEs can gain their advantage since they are more flexible (Caniëls & Romijn, 2005). According to Lovelock and Wirtz (2007; 82) there are four indicators for
consultation: customised advice, personal counselling, tutoring/ training in product use, and management or technical consulting. Of these four indicators only two are applicable for this study. Since the service under investigation is a professional service, personal counselling is not of interest, and tutoring and training is not of interest since the service takes over activities.
Order Taking - During the order taking process the customer is introduced into the service. According to Lovelock and Wirtz (2007), this process must minimise the time and effort on the customer during this process. For Linders this process is important because it forms the basis for the service that will be provided further. The indicators that are provided by Lovelock and Wirtz are based on a consumer service, and therefore a business look at these indicators will be used. The indicators therefore will be: in-take forms, contracts/authorisation and in-take meeting.
Hospitality - Hospitality in services is usually connected to hotels and such. Lovelock and Wirtz (2007) have adopted this prejudice and focused on hotels, resorts, etc. For this study the focus will be on the face-to-face meetings between the provider and the customer. Indicator for hospitality in this case is: face-to-face meetings.
Safekeeping - Again this indicator is directed at physical services like hotels, resorts, stores, etc. In this context Lovelock and Wirtz (2007) place an emphasis on the safekeeping of personal belongings of the customer. However, in a business-to-business context this issue is not relevant for physical belongings. In this context, and specifically this service, the safeguarding of certain ideas on product development and corporate finances is crucial. Organisations trust the service provider with certain intelligence and count on the safe handling of it. The indicators for safekeeping will be: trust, discretion, incidents.
Exceptions- Most services are based on standard procedures. Throughout this thesis the notion that customers do not fit this standard service offering is made clear. For some customers this standard procedure does not fulfil their needs. Exceptions have to be made for customers that are willing to pay for this ‘extra service’. Lovelock and Wirtz (2007) name four kinds of exceptions on the standard service: special requests, problem solving, handling of complaints/suggestions/ compliments, and restitution.
Billing and payment - From a financial point of view, billing and payment are the most important supporting factors for the organisation. In this specific case, payment is not yet an issue, since there are no payments to receive. Due to the complicated nature of the service, the throughput time of a customer is quite long. The billing process can be of more interest because there are certain schemes available. Lovelock and Wirtz (2007) specifically look at the practical application of the billing process. For this thesis a focus on the possibilities concerning the billing process are of more interest. The indicator for the billing service is: variety in billing.
2.3 Service System and Service Process
The theoretical background in this paragraph will focus on the first part of the problem defined in the introduction. As discussed, this second part will handle the service system and the service process. The first problem is that the Innovatiebox service must be integrated in the current structure of the organisation. In the conceptual model it is hypothesised that the organisation has an influence on the customer through the service system and the service process. This paragraph will introduce the service system and service process, and explain the specific effects of a SME setting on these topics.
2.3.1 Service System
In addition to the service concept, Edvardsson and Olsson define two other prerequisites for the service; the service system and service process. The service system constitutes the resources that must be available in order to be able to offer the service. In essence the service concept is simply a conceptual caption of what the service can be. The service system is the actual enabler of the service concept (Edvardsson, 1996). According to Shostack (1987), the service system is a complex concept. Therefore she advocates for “an appreciation of the interrelatedness and intricacy of service systems [when] consider[ing] changes to any service structure”. She argues that the offering of a service is a continous event that has to be dynamic. This stresses the complexity of the service system, which must pre-empt the dynamics of a service. The service system itself can be divided into two parts: one part visible to customers and the other part is not visible to customers, marked by the line of visibility. The line of visibility is an often-used phrase in the service literature and originates from Shostack, who demarcates the importance of the difference between systems (and processes) that involve customers. When customers are involved in the system there is constant possibility of service failure (Tax et al., 2006).
Edvardsson (1997) proposes that there are four kinds of resources, or subsystems, which must work in unison. Although it is stressed that different categorisations can be described for the service system, Edvardsson claims that the following categorisation is preferred. The model can be operationalised per specific service, which thereby becomes more detailed (Edvardsson, 1997). The four categories in the model of Edvardsson are: organisation, employees, physical and technical resources, and customers. Although this view is not entirely shared by Grönroos (1996), who defines the four categories into employees, customer, technology and time; the effect of the categorisation is the same since all four are interchangeable with each other.
Organisational and structural systems
The first interpretation from the service concept to the service system comes through the organisational and structural system. In the business administration literature there is a large amount of literature on this topic. Edvardsson (1997) conceptualises these topics into four categories: organisational structures, administrative support systems, dialogue with customers, and marketing activities. All these different systems make up the organisation that is able to provide customers with a service. This organisational structure is of great importance for this can turn the services into “powerful means of competition” (Grönroos, 2007: 464). Key in the development of the structure is to support the employees in providing a good service.
Organisational structure - The organisational structure shows a more macro-view of the organisation on how to connect different departments of the organisation. Edvardsson (1997) and Edvardsson and Olsson (1996) only describe the organisational structure sparsely. What is essential is that the responsibilities and authorities within the organisational structure must be clear for everybody to understand. There is a multitude of scholars who have investigated organisational structures. This thesis does not aim to increase understanding of organisational structures in general, but to cast light on how they are handled within SMEs concerned with the implementation of services. In his classical work, Mintzberg (1980) proposes five ideal organisational structures that can be discerned. The entrepreneurial firm, Mintzsberg’s interpretation of a SME, naturally explains the simple structure.
Administrative support systems- Edvardsson (1997) describes the administrative and support systems as a construct of, for instance, planning and information, financial systems and wage systems. These administrative systems can have a large effect on the different services offered by the service provider. For example, Thong (2001) states that the implementation of an information system in a SME has an effect on staff productivity, operations efficiency, improvement in decision making, increased sales revenue, increased profits, and increased competitive advantage. The change in how information is processed in an organisation can have a very large influence on the service. Every specific service can have different demands for the administrative and supportive system. Edvardsson (1997) warns that these differences must be taken into account when developing a service. This means that the administrative and support systems must be able to work with the dynamism of the services, in order for all the services to work properly. Interaction with customers - Edvardsson (1997) conceptualises the interaction with customers as the ability to process customer contact, either positive or negative. Kohli and Jaworski name this intelligence generation, and more specifically intelligence dissemination. This is part of the market orientation construct, which stands for the gathering and use of market
intelligence throughout an organisation in order to accommodate the customers wishes to the fullest (Kohli & Jaworski, 1990; Narver & Slater, 1990). In SMEs it is found that the communication with customers influences the employees’ contribution to the service (Laforet, 2009). By systematically generating and disseminating market intelligence the organisation is better able to fulfil the customers’ needs.
Marketing activities - The focus of marketing in the classical sense is to increase the organisations profits, mainly by advertising (McNamara, 1971; 51). Today, this focus is not as direct. This is party due to the nature of marketing products, which does not fit the marketing of services. A service is not homogenous so marketing as a standard product to a large group is out of the question. For every customer a specific different heterogeneous approach must be taken to fulfil the customers’ needs, especially when the customer is a co-producer of the service (Edvardsson, 1997). To achieve a competitive advantage, SMEs must look at even smaller niches in the market to target and to try to target them individually. This approach to marketing has come a long way from the original goal of marketing to just generate large profits. Furthermore, Tax et al. (2006) assert that by “deeply embedd[ing] [customer performance] in the service system”, large inimitable competitive advantage can be created. Their rationale is that customers that perform well understand what is desired of them as a co-producer, and thereby increase the efficiency of serving them.
Customers
The customer is one of the most valuable assets of the service system (Edvardsson, 1997), which has two implications: the customer is actually a part of the system, and to preserve a good relationship with the customer is paramount. In the business administration literature there is some overlap between the concepts of market orientation and customer orientation. In the previous paragraph the term market orientation is handled, which focuses primarily on how an organisation must handle information concerning the customer, and how to use it in the organisation (Narver et al, 2004), while customer orientation is more directed at communicating with customers (Ordanini & Maglio, 2009). Market orientation is therefore more appropriately discussed in the organisational structures part of this thesis, where customer orientation is discussed here. Grönroos (2007: 34) describes customer orientation such that the characteristics are like market orientation, but he then
defines the goal differently. While the complete organisation must be committed, the ultimate goal is to serve the customer and satisfy his or her needs.
Customers as co-producers - In the product development literature a lot of effort is put into researching how customers can be co-producers or co-developers of a product. For example, Von Hippel et al. (1999) describe how involving important users in a development process could spur the rate of breakthrough innovations. Leonard and Rayport (1997) see that by only looking at the customer and understanding the customer’s usage of products, new products can be invented that fit the customers’ - latent - needs even better. In services, these kind of systems can be achieved with fairly minimal efforts. As in most cases the customer is involved in the production of the service as well as in the consumption of it, it is able to express its needs during the production of a service. By being part of the production of the service, the customer’s viewpoints on the service can be recognised (Grönroos, 1998). Tax et al. (2006) state that as customers are part of the service they, as the service provider, can actually fail. Although the organisation providing the service is not directly able to confront this problem, it does have to bear the consequences. For this reason, Edvardsson (1997) argues in favour of training the customer in being a good co-producer. This can be done either by informing what his role in the system is or by carefully placing incentives in order to direct the customer towards favourable behaviour (i.e. setting a deadline for document delivery and offering discount when that deadline is met).
Relationship Marketing - Since both authors of the models that led to the development of the conceptual model in this thesis are part of the Nordic School on marketing, this topic cannot be left out of the theoretical background. The Nordic School is the driving force behind the development of relationship marketing. Grönroos asserts that focusing on relationship marketing is truly focusing on market orientation (Aijo, 1996). Again, the distinction between the customer orientation and market orientation is vague, however, Grönroos sees relationships marketing as part of market orientation, and therefore argues that to have a focus on the customer, there must be a total focus on market orientation. As discussed earlier, it is important to have good customers, since this can hold a sustainable competitive advantage. Edvardsson (1997) states that marketing is all about building a relationship with the customer, in order to achieve quality. Relationship marketing as a system is important to retain customers (Grönroos, 1996), and is best managed with clear internal marketing (figure 1).
Employees
An important difference between services and products is that products are tangible, they can be physically assessed. Services do not have this tangibility and cannot, therefore, be assessed by physical appearance. Instead, services are judged by the appearance and behaviour of the service employees. For a considerable amount, these employees are the service in view of the customer, whatever the service concept actually is (Edvardsson, 1997). The connection between the organisation and the employee is conceptualised as internal marketing by Grönroos (1998). Internal marketing handles the translation from service concept and strategic implications as they are devised by the top-management to front-end employees who have the customer contact. Internal marketing therefore is a tool to convince the customer contact employees what and how to sell, behave and act around customers. In the specific setting of small- and medium-sized enterprises the communication between management and customer contact employees is likely to be better than in larger organisations. Small organisations tend to have simpler organisational structures (Mintzberg, 1980), which leads to shorter lines between management and employees. It
is likely that management can directly present the service concept to these employees, instead of depending on mid-level managers to transfer the message.
The customer contact employees are not only the tangible evidence of the service, but they are also the prime source of quality. Their actions dictate to a large extent the perceived quality of the service (Edvardsson, 1997). The organisation must therefore do everything within their powers to assure that the customer contact employees are able to help the customers. Key in this customer - employee relationship is the relationship the employee has with its manager. Employees who feel secure with their manager are more prone to discuss problems with the manager, as well as with the customer (Anderson, 2006). This strengthens the relationship between the customer and the employee, and increases the perceived quality of the customer. In SMEs this effect will be even stronger, since the relationships between manager and employee is likely to be better developed, and customer contact personnel is likely to fulfil more activities for a customer than in larger organisations (i.e. the employee will be solely responsible for a client, instead of multiple employees serving the same customer partly).
Knowledge, experience and motivation - For an employee to do his job properly, he/she needs knowledge and experience. It is assumed by Edvardsson and Olsson (1996) that the knowledge and experience of the employees cannot be captured in systems. Evidence for this assumption can be taken from Nonaka (1994). By stating that the knowledge of the employees is expressed only by routines and techniques of the human logic, Edvardsson and Olsson (1996) classify the knowledge as tacit (Nonaka, 1994). The main characteristic of this tacit knowledge is that it is hard to put into words or express otherwise. For this reason Edvardsson and Olsson are correct to consider that this a system that cannot be conceptualised.
Besides knowledge and experience an important indicator of quality delivered by the employee is motivation. Motivated employees not only work more efficient (Cummings & Worley, 2005) and more creative (Amabile, 1998), but also deliver better quality in their work (Edvardsson, 1997). The most important tool for managers to motivate employees is to define challenging goals, which the employee can then achieve on its own discretion (Anderson et al, 2009). Thus, the job design of an employee has a large effect on its motivation. Nohria et al. (2008) claim that enriched jobs must have distinct and important roles in the organisation and that they must be meaningful and contribute something to the organisation. For large organisations this can be considered a utopia, the ultimate goal. With a large amount of employees, it is vast impossible to enrich every job in this way. In SMEs it can be imagined that this ultimate goal is even harder to achieve. Since less people will be employed in one organisation, their job description will most likely be less specified. Broader job descriptions are harder to enrich, since the employee is less likely to like all the tasks that must be done in that description.
Recruitment and training - The basis of quality assurance in services concerning employees are the systems for recruitment and training. According to Edvardsson (1997) this should be an integral part of the service system. And for good reason, a good recruitment system can assure that the employees match the service concept. Since the customers interpret the employees as a kind of physical evidence of the service, the employees must be able to transfer the feel of the service concept to the customer. Besides a well formed recruitment system, training can be very beneficial as well. Ballantyne et al. (1995) see an opportunity in training of the service concept, in other words, promote internal marketing. They advocate this view since educating in the direction of internal marketing gives a ‘strategic customer focus’.
resources do not allow them to hire the most capable employees (Laforet, 2009). To hire the most capable employees an organisation must be able to offer more than just a job. Larger organisations not only have more financial resources that can lead to better fringe benefits, but can also offer better career paths for demanding employees. Also the financial resources for training are smaller for SMEs than large enterprises. This will deter the overall perceived quality of the service in view of the customer.
Physical and technical resources
For many services physical and technical resources are an enabling factor. Even the simplest services have at least one of these resources. An already classic example is the offering of the service through a physical outlet or over the internet (Bahn & Fischer, 2003). Edvardsson (1997) takes the technological and physical resources for granted, although he remarks that the physical resources, as well as the technical resources must be focused on the customer. The physical resources must fit the service concept in order to confirm the customer in the general feel of the service. The same is valid for the technical resources. Although it is tempting to be on the front-end of technological developments, the technical resources must also be focused on the customer (Edvardsson, 1997), in order to not distract the customer from the most optimal service experience.
Since the resources discussed above are costly, SMEs have the disadvantage that they cannot acquire the same amount of financial resources as their larger counterparts. Besides having larger financial funds, the larger organisations have the benefit that they can attract capital investments more easily (Ettlie & Rubenstein, 1987). This makes it difficult for SMEs to compete with larger organisations on resources.
2.3.2 Service Process
The service process is literally the “chain or chains of parallel or sequential activities which must function if the service is to be produced” (Edvardsson & Olsson, 1996). The process is the place where the organisation (the service) and the customer meet. From the first contact on the process must be customer-oriented, since in this phase the customer develops his own perception of the service. After the service is completed the customer will assess it according to his/her perception of how the service should be (Grönroos, 1998).
Edvardsson (1997) stresses the notion that not all the service processes are customer processes by definition. The customer process is the process in which the value for the customer is realised. The service process is an aggregation of all the processes of the service (of which the customer process is one). These processes can be categorised into four different processes (Earl & Kahn, 1994): (1) main processes/core processes, (2) support processes, (3) networking processes, and (4) management processes. Of these processes, only the main process (in which the value for the customer is added) is a customer process as well as a service process. The customer process is the interpretation of the service concept, put into words in the form of “precise description of various standardised and (alternative) activities” or standard operating procedures (Edvardsson, 1997). The customer service starts when the customer enters the process, and ends when the customer has left the process. Every process that is not involved with the definition above is therefore a service process.
The design of the process must be based on the staff that uses the process, but also on the service system. The staff must be able to utilise their existing knowledge about a process into
the new service process. Besides the existing knowledge of the process, their understanding of the service systems’ possibilities and limitations can be ‘reused’. This knowledge and understanding of the staff about the service system can then be used as a starting point from which the development of the service processes can be started (Edvardsson, 1997). On a more cautious note, Edvardsson adds that existing processes can be faulty, or that it has built-in recurrent defects. By reusing processes for a new service, these defects are likely to be taken over in the new process also. This merits a closer look at the process quality before a certain part is duplicated. Some service firms lack a standardised plan altogether, but focus on “a well-planned way [or process] of using […] resources as soon as the customer enters the arena” (Grönroos, 1996; 10). This fits the assumption of Edvardsson and Olsson (1996), who claim that the service process should be dynamic, and consisting of smaller processes that, together, evolve into the greater service system.
For this reason quality is an important topic. Since the processes itself are defined by what already exists, the focus on the quality of these processes will yield more valuable information. Edvardsson (1997) describes three key quality characteristics of a process: (1) quality requirements, (2) internal customers expectations, and (3) end customers’ expectations. Below these three indicators will be discussed in more depth.
Quality requirements
This thesis aims at evaluating the introduction and implementation of a new service. With this goal in mind this part of the theory will be approached. It is not logical to discuss the possible quality requirements measures that are valid for measuring this specific case. However, there is a large body of literature available that handles what can be measured in a generic way. An acknowledged model of measuring service quality is the SERVQUAL model by Parasuraman et al. (1988), based on the gap-model of service quality by Parasuraman et al. (1985) and Zeithaml et al. (1988). The gap model measures the differences in perceptions of customers and the organisation on five different levels. The rationale behind this model is that if the customers perception of the service process and service outcome is the same as the organisations on all five levels, and the organisation delivers a service process and outcome according to this perception, than the perceived quality by the customer will be high.
Grönroos (2007; 121) identifies two ground rules for service quality: (1) Quality is what customers perceive, and (2) Quality cannot be separated from the service process (the production and delivery process). With this in mind, all the organisation has to do is to make sure that their perception of the service corresponds with the perception of the customer, since he/she judges the service. However simple this may be, there are five possible gaps to cross. To further thwart the ability to control quality, organisations measure quality objectively, while the customer perceives the service subjectively (Grönroos, 2007; 122). On the other hand, not every part of the service is expected to score high in the customers’ perception. The zone of tolerance is the difference between what in eyes of the customer could be a good service and what should be a good service (Berry et al., 1991). The customer can have high expectations of an excellent service, but might settle for a less excellent service and perceive its quality as just fine. This is what Grönroos (2007; 119) calls the desired (quality) level and the adequate (quality) level, where the desired level is what could be the quality of the service and the adequate level is what should be the quality of the service. In the zone of tolerance, the actual service quality as the customer perceives it must be between these quality levels in order for the customer to be satisfied.
According to Reeves and Hoy (1993), small firms are better in differentiating their services than large firms. Although they cannot compete on costs/price, the small firms have the advantage of differentiating, and thus have the same benefits as large firms in achieving high quality. Most important factor in this, is that small firms lack the bureaucratic layers of the large firms and are therefore better able to tailor the service to a specific customer. This effectively aligns the customers perceived value to the organisation, so improving the quality of the service.
Internal customers’ expectations
As the external customers’ expectations must be managed, also the internal customers expectations must be managed. These internal customers are part of the internal chain of activities, called the process (Edvardsson & Olsson, 1996). During the handover of a task from one part of the process to another, there might be a difference in expectations, just as can be with regular customers. Internal customers’ expectations can be a gap 3 as described by Parasuraman et al. (1988). Grönroos (2007; 116) explains the problems underlying this gap can be divided into three categories, of which ‘employee perception of specifications and rules/customer needs and wishes is the most suitable for this thesis. He also states that the solution to solve the underlying problems is usually complicated, but is likely to be solved by internal marketing (Grönroos, 2007; 116). Lovelock and Wirtz adapted the gap model of Parasuraman et al. (1985) with the addition of two more gaps. In this configuration the quality characteristic will be directed to gap 3 and 4: the delivery gap and the internal communications gap (Lovelock & Wirtz, 2007: pp 424). The delivery gap can be described as “the difference between specified delivery standards and the service provider’s actual performance on these standards”, while the internal communications gap can be explained as “the difference between what the company’s advertising and sales personnel think are the product’s features, performance, and service quality level and what the company is actually able to deliver” (Lovelock & Wirtz, 2007; 424). As a possible solution to counter these gaps Lovelock & Wirtz (2007; 426) describe a vast amount of measures that can be taken. Although they are not clear on the actual name, they do describe what can be called internal marketing as described by Grönroos (1997); the customer contact personnel must be trained/educated on how the organisation interprets the customers expectations (Lovelock & Wirtz, 2007; 427).
In SMEs internal marketing will be easier to implement since there are less bureaucratic layers (Reeves & Hoy, 1993). This makes sense since the communication between the top management of the organisation and its employees is more direct. Besides the bureaucratic layers that are lacking, also the culture in these smaller organisations is less formal, thus leading to more open and direct communication on a operational level. On the operational level the customers will be discussed and management can give their opinion on what they think the customers’ perception is. One condition however, is that top-management must show commitment in pursuing a high quality service and communicate this to their employees (Reeves & Hoy, 1993). Finally, smaller organisations have smaller resources, financial, human and intellectual. This means that they can invest less on quality control and assurance, which would have a detrimental result on the quality achieved in the eyes of the customer.
End customers’ expectations
The final quality characteristic is the end customers’ expectations. In the previous paragraphs the importance of interpreting the end customers’ expectations is stressed. In this paragraph the impact will be discussed in combination with the process of a service. An important moment in
