MASTER THESIS
“Towards a Fourth-Generation Model in New
Service Development Processes”
By: Lauréna Rutgers – Zoutstraat 29, 9712 TB, Groningen – l.d.rutgers@student.rug.nl First supervisor: Dr. Jan Postema – Second supervisor: Dr. Eelko Huizingh
Date: 21-06-2013 Word count: 12,013
Keywords New Service Development Process, service types, customer involvement
ABSTRACT
The purpose of this research is to answer the question: “What are thestages of a fourth-generation New Service Development Process for services that are value-added or derived from a tangible product, and for which stages is customer involvement useful? Little effort has been put in proposing different New Service Development
INTRODUCTION
Even though the service sector employs about two-thirds of the world population, there has been only limited research about the New Service Development (NSD) Process (Mersha andAdlakha, 1992). Although some
researchers have paid attention to service innovation and new service success, little is known about how services are actually developed (Alam and Perry, 2002).
So far, New Services Development research has focused on the differences between products and services. When in the late 1980s it became apparent that services have distinctive different characteristics than products, New Product Development Processes were transformed into New Services Development Processes. The adjustments that need to be made to transform a NPD model into a NSD model have to do with the fact that NPD focuses on homogenous products which are tangible outcomes whilst the NSD focuses on heterogeneous services which are perishable and intangible outcomes (Johne and Storey, 1998). Also, a point of difference in customer involvement between the product development process and service development process is an interesting finding (Ennew and Binks, 1996). Customer input and involvement in the service innovation process may be more useful than in the case of tangible products (Langeard et.al., 1986; Martin and Horne, 1995; Sundbo, 1997). Additionally, NSD research has only taken place in the financial and healthcare industry (Bowers, 1987; Scheuing and Johnson, 1989; Alam and Perry, 2002).
On the other hand, there are several authors who argue that the NSD process only slightly differs from the NPD process (Bitran and Pedrosa, 1998; Avlonitis,
Papastathopouplou and Gounaris, 2001). Bitran and Pedrosa (1998) propose that all stages of the NPD process can also be applied in the NSD process by making only small adjustments. More recent literature also underlines the doubts about the differences between products and services. Drejer (2004) notes that the next step in developing a new innovation model is focusing on the blurring boundaries between manufactured products and services. While developing a unique new service development model there is a possible avenue for further research focusing on the homogenous aspects of products and services. Another more exciting approach would seem to be a synthesis of new product and service research (Nijssen, 2006).
Thus, the literature points out that on the one hand that the New Product Development Process and New Service Development Process are very different from each other due to the unique service characteristics. On the other hand it is being suggested that products and services show similarities and New Service Development Processes should focus on the homogenous aspects of products and services.
as a product, which is the case for the finance and healthcare industry, there are also other types of services identified; services can also be derived from tangible products or services as value-added to manufactured goods such as transportation, communication, training and advice. This suggests that services and products are much interwoven and cannot be seen separately anymore. This analysis is also identified by firms operating in the service industry. When asking the employees of KPN Consulting about the differences and similarities the general opinion is consistent with this analysis.
“I think that products are behaving more and more as a service. You see that there’s a growing connection between products and services. I believe there are hardly any products anymore that are being offered without a service” (Johan Barnhard, KPN Consulting, 8tf of May 2013).
KPN Consulting is an example of a company where services and products are homogenous by providing services for the ICT-solutions of KPN Corporate Market and identify their services as the product of the company. This would mean a mix between the New Product Development Process and New Service Development Process would be optimal as the innovation process model for this type of company, however such model is non-existing. Therefore, this research focuses on designing a New Services Development Process based on services derived from a tangible product or services as value-added to manufactured goods. Since no attention has been paid to these types of services and the recently converging characteristics of services and products, consequently there is an incomplete picture about service types and their development processes.
This provides opportunities for adding to the literature by developing a new New Service Development Process. Stages for the NSD process will be formulated and advice will be given on customers’ involvement and therefore draws further on the research of Alam and Perry (2002) who developed the most recent third-generation NSD process. Data will be collected at KPN Consulting. The findings of this data analysis show that the optimal way of combining NPD and NSD research by fusing the third-generation NSD model with the product development funnel and the product life-cycle. This research expects to assist practitioners such as KPN Consulting in optimizing service development and increasing the awareness of customer input.
This research has four parts. First, a literature review about relevant research to New Product Development Processes, New Services Developmeent Processes and customer involvement is given. Then the research methodology and data analysis are explained. Third, the results are presented and discussed. Last, the paper will conclude with extensive managerial implications and suggestions for further research and the conclusion.
discussed and the business profile of a service company that offers services derived from a tangible product or services as value-added to manufactured goods will be analyzed.
New Product Development Process After the Second World War, interest started to be shown in the development process of new products. Because of the rapid economic growth companies started to have more interest in how to
commercialize technological
developments. Even though little attention was being paid to the process itself, it was acknowledged that more R&D resulted in more successful products (Rothwell, 1994).
The first ones to acknowledge that a structured process was necessary when developing new products were Booz, Allen and Hamilton (1982). They proposed a model for tangible product development consisting out of eight linear stages; new product strategy, idea generation, screening, evaluation, concept testing, business analysis, development, testing, and commercialization. Several improved versions of this model have been suggested throughout the years to improve the development of tangible products. For example, Cooper (1988) felt there was a need for better product development management and designed the stage-gate model. It is a conceptual and operational model for moving a new product from idea to launch in seven steps of which are five stages and five gates (Cooper, 1988) (see Appendix I, Figure 3). The gates review the quality of the input, assess the quality of the project from an economic and business point of view which results in a Go/ No-go/ Hold/ Recycle decision, and an approval of the action plan for the next
stage (Cooper, 1988). This forces managers to do their homework carefully and senior management has the role of gatekeeper which prevents potentially unsuccessful projects from being continued.
Because this second generation model had some weaknesses (too time consuming, too many wasters, too bureaucratic and no provision or focus) Cooper (1994) provided the third-generation new product development process. He proposed fundamental changes to the stage-gate model and speculates about the nature of an emerging next generation in product development (see Appendix I, Figure 4). The third-generation model still contains five stages and five gates but evolved around the four F’s; stages will be fluid and adaptable, they will incorporate fuzzy gates which are both situational and conditional, they will provide a much sharper focus on resources and management of the projects, and they will be much more flexible (Cooper, 1994). Also in 1994 the interest in the New Product Development increased substantially. Rothwell (1994) introduced a fourth-generation model, focusing on internal and external networking (see Appendix I, Figure 5). The key aspects of the NPD process should be speed, efficiency, integration, flexibility, networking among departments, and parallel information processing.
the importance of external linkages and transactions during the New Product Development. Hart and Baker (1994) acknowledge the findings of Saren (1994). They found however that the activity-stage and decision-models are most effective and suggest a multiple convergent processing model of New Product Development, where multiple points of convergence are designed to maximize information gathering and evaluation. Again,
networking among the different
departments within the firm is underlined as being important.
Thus, the New Product
Development Process has gained a lot of interest in research for several decades already, which led to great development of this model. From a first-generation linear process, the NPD process evolved into an overlapping, converging model where involvement of multiple departments within the firm is seen as crucial to gather as much information as possible to make well grounded Go/ No-go decisions. New Service Development Process
In contrast to the New Product Development Process, little models have been provided for the New Service Development Process. It was not acknowledged until the late 1980s that services needed a different development process than products. So far, only three models have been suggested
The first New Service Development model was designed by Bowers (1987) for the healthcare industry and is based on the New Product Development model of Booz, Allen and Hamilton (1982) (see Appendix I, Figure 6). This model consist of eight steps; develop business strategy, develop a new services strategy, idea generation; concept development and evaluation,
business analysis, service development and
evaluation, market testing, and
commercialization (Bowers, 1987). This New Service Development model is actually similar to the New Product Development and contains the exact same stages. Only the word product is replaced by service. Bitran and Pedrosa (1998) also propose that all stages of the NPD process can also be applied in the NSD process by making only small adjustments. They propose that the methods and tools that are used in the NPD process can successfully be applied in the NSD process but adapted to physical and human behavior during the process (Bitran and Pedrosa, 1998). They illustrate that the main components during the NSD process are people (support employees, front-line employees, and customers), service offering (mix of
tangibles and intangibles), and
infrastructure (external organization, internal organization, and technology).
The second New Service
model, it does not reach the evolved models of the NPD process since the NPD models also include, for example, the important issues of cross-functional teams, parallel processing of the development
stages (Alam and Perry, 2002),
networking, and speed and efficiency. The third model has been designed by Alam and Perry (2002). They built upon the model of Scheuing and Johnson (1989) and identified two models of NSD designed for the finance industry. They designed a linear and a parallel model for NSD (see Appendix I, Figure 8), because some researchers considered a linear model for NSD inadequate and ask for a parallel model (Scarbrough and Lannon, 1989), while others consider it as one of the success factors for new services (Cooper and Edgett, 1996; de Brentani, 1989; Lievens et.al., 1999). They probe the role of customers at the different stages of the process and designed new key stages of the innovation development process (Alam and Perry, 2002). The stages according to them are strategic planning, idea generation, idea screening, business analysis, formation of a cross-functional team, service design and process system design, personnel training, service testing and pilot run, test marketing and commercialization (Alam and Perry, 2002). These two models are the most currently developed NSD models. In comparison to the four-generations New Product Development has evolved in, New Service Development has only entered the third generation in the development of the model and is therefore a generation behind NPD research.
All the NSD models have been designed focusing on the differences between products and services. The main differences between NSD and NPD can be
captured under three headings (Johne and Storey, 1998):
1) Intangibility. Services are
predominantly intangible, so processes rather than things (Johne and Storey, 1998). This leads to the fact that they are, in comparison to tangible product, difficult to test in concept, can be easily modified, and are easily copied because intangibles are difficult to patent (Johne and Storey, 1998).
2) Heterogeneity. Employees and
consumers play an important role because services are often produced and consumed at the same time (Johne and Storey, 1998). This results in a low degree of standardization, high risk (Johne and Storey, 1998) and difficulties in pre-testing in comparison to products (Ennew and Binks, 1996). 3) Simultaneity. Services are inherently
perishable, which means they are produced and consumed simultaneously and cannot be held in stock (Johne and Storey, 1998) in comparison to products.
Although it is proved to be very important to recognize these differences when designing a service innovation model, in practice it is shown that services and products are overlapping and show more similarities than differences. Most of the interviewees agreed that services and products are more similar than dissimilar.1 Both products and services should add value to the customer and organization, and are developed to make things easier better and faster2. More recent literature also underlines the doubts about the differences between products and services. Drejer (2004) notes that the next step in
1
Johan Barnhard, KPN Consulting, 8tf of May 2013
2
developing a new innovation model is focusing on the blurring boundaries between manufactured products and services. While developing a unique new service development model there is a possible avenue for further research focusing on the homogenous aspects of products and services. Another more exciting approach would seem to be a synthesis of new product and service research (Nijssen, 2006). This suggests that there is need and possibilities for designing a new fourth-generation New Service Development Process.
Customer involvement
As stressed before, customer involvement and the interaction between customers and employees is very important when designing new services (Martin and Horne, 1995; Johne and Storey, 1998; Slater and Narver, 1998; Alam, 2002). Nonetheless more awareness needs to be created. Research has stressed on multiple occasions the importance of customer involvement for service innovation. However management often fails to apply these findings. This is maybe due to the fact that customer involvement is not referred back to in the NSD model (see third-generation model Alam and Perry, 2002) while the research does stress its importance.
There are four key elements of customer involvement that have been pointed out in the literature; objectives, stages, intensity, and modes of involvement (Alam, 2002):
1) Objectives. With customer involvement it is possible to develop a superior and differentiated service, the cycle time can be reduced, customers can be educated already about service usage, helps in rapid diffusion of the service innovation
within the market, improves public relations and therefore support, and improves the long-term customer-producer relationship (Alam, 2002). 2) Stages. Customers can be involved in
all stages of the service innovation process (Martin and Horne, 1995; Alam, 2002). However, customer involvement is most important in the development stages; idea generation, service/process system design, service pilot/testing (Alam, 2002). Customers are a rich source of information.
3) Intensity. There are four levels at which customers can be involved, which vary from considerably low to extremely high. This intensity can be determined by the company itself, but customer involvement obviously is more effective and useful when the intensity is higher. Managers can acquire input passively so customer involvement is considerably low, managers can approach customers to obtain information and feedback so customer involvement is somewhat high, managers can invite customers input by means of planned processes and predetermined objectives so customer involvement is relatively high, or managers can invite customers to join a new service innovation team so customer involvement is extremely high (Alam, 2002).
4) Modes of involvement. There are several activities a manager can undertake to obtain customer input. These modes can be face-to-face interviews, customer visits and meetings, brainstorming, users’ observations and feedback, phone/fax/e-mail, or focus group discussions (Alam, 2002).
development process, the better (Martin and Horne, 1995).
This literature review leads to the following research question:
Business profile KPN Consulting
To answer the research question, data will be obtained at KPN Consulting.
KPN Consulting is a long
established service provider in the consulting industry. The company originated from Pink Elephant in the 1980s, which was renamed Pink Roccade after the merger with RCC (the Rijks Computer Centrum). A few years later it was taken over by Getronics, and after the takeover by KPN the company was renamed KPN Consulting in 2011. KPN Consulting specializes in providing ICT-services to organizations and private institutions operating in the education, finance, security, government, healthcare and industry sectors. It provides knowledge and expertise in how to implement and use ICT solutions, and how its clients can adapt to innovations in the ICT market to improve their capabilities and competitive advantage. Besides offering knowledge and expertise they also advise firms in implementing (new) hardware and software introduced in the market or by KPN Corporate Market. This means employees also need to be able to work with new techniques and products offered and design new services for these
hardware and software or provide advice in how to use these new ICT products. This all should result in improved business performance and greater competitive advantage through more efficiency, effectiveness, higher speed and lower costs.
Before data collection started a period of extensive pre-research took place. At the hand of observing,
interviewing and documentation
information is collected and the organization and its organizational processes are experienced from within. Extensive information has been provided by the company in the form of representations of its innovation process, meeting notes from the Innovation Board, innovation proposals, service information documents, and policy documents. Also, observation took place during meetings of the Innovation Board to gain more insights in the practical implications of the above mentioned documents. And lastly, informal interviews took place to identify innovation experts within the company and users of the innovation process.
As mentioned above, members of the Innovation Board and users of the innovation process were observed and interviewed (see Appendix II, List of interviewees). The group of interviewees enjoys great variety in working experience for the organization. The participants range from six months till seventeen years of working experience for KPN Consulting (and previous owners of the organization). This suggests that the participants have a diverse job history and working experience with innovation processes which provides diverse and more reliable insights and data. Besides the list of interviewees, informal conversations took place with middle and
lower management employees to
experience the organizational culture and become to some extent a member of the organization.
The innovation process of KPN Consulting has changed a lot already over the past couple of years. They started with an isolated innovation group within the company and all innovations were designed within this small team. One interviewee called it the “ivory tower of innovation”3
. Next, the company moved towards completely open innovation where everyone in the company could make suggestions for innovations and work on these innovations. Currently they are working with their third innovation model where everyone can still generate ideas but the Innovation Board decides whether to continue with the idea or not.
“We went from completely closed, to a completely open, to a mix between both when it comes to innovation processes within this company” (Joris Geertman, KPN Consulting, 26th of April 2013).
So even though a lot of changes have been made already considering the type of innovation process, the content of the model hardly changed and the transition of a product focus to a service focus has not yet been initiated. This may be due to the fact that no managerial implications have been provided in NSD research on how to implement a new innovation model and how a transition can be made from a product innovation model to a service innovation model when these findings arose during the late 1980s.
When looking at the innovation process of KPN Consulting (See Appendix I, Figure 1), it immediately appears that the organization does not use a service
3
Daan Linden, KPN Consulting, 14th May 2013
innovation process but a product innovation process based on the fact that customer involvement is very low and Go/ No-go decisions are based on criteria designed for a product innovation process. For example, the market implementation is based in market assessment and financial analysis, while a Go/ No-go decision for service implementation is based on technical feasibility and customer satisfaction. Also, as can be seen in the Appendix (see Appendix 1, Figure 1), customers are only involved in Stage 4. Moreover, in the report by Ermers and Linden (2011), it is specified that at Stage 4 the innovation is being tested with a launching customer but beyond that no customer involvement is being initiated (see Appendix 1, Figure 2). To exclude the customer from the innovation process is also typical for the product innovation process, while for the service innovation process customer involvement can be initiated at every stage of the process (Martin and Horne, 1995).
Key issues
From this literature analysis three key issues emerge that should be addressed when designing a fourth-generation New Service Development Process.
First, little effort has been made in
proposing different New Service
Development models adapted to the different type of services. So far, research has only highlighted the financial and healthcare industry where the service is the product and therefore no offering of a tangible product is being initiated which is the case for the other service types. Therefore, a mix between the NPD and NSD model would provide an optimal innovation process focusing on the homogenous aspects of products and services, for firms offering a service as value added or derived from a tangible product. This leads to a fourth-generation model in NSD research.
Second, more emphasis is needed on the involvement of customers during the service innovation. A lack of customer involvement is apparent, because it is not clear which role customers can play in the New Service Development Process and how their involvement can lead to service development success.
Third, little practical implications have been provided on how to implement a
NSD model. Since it was not
acknowledged until the late 1980s that services needed a different development process than products, a lot of service firms still use a NPD model. This causes difficulties for managers to decide to work with a NSD model. Therefore, the advantages of this fourth-generation NSD model are being explained in comparison to other NSD models and how customer input can be used during the NSD process.
METHODOLOGY
The New Service Development is a fairly new area of research. Even though since 2002 research to the NSD process has been given more interest, no research has succeeded in designing a NSD process for all types of services so they can be implemented immediately by any service firm. This is due to the unique characteristics of services and therefore an in-depth research within KPN Consulting is necessary to design a NSD process that fits the characteristics of a professional service firm that provides services designed for tangible products like a consulting company as KPN Consulting and therefore develop new theory which adds to the literature. Hence, this research asks for an exploratory research approach. Since KPN Consulting wants to improve its innovation process but no NSD model has ever been desgned for the type of services offered by a consulting firm, qualitative research is necessary to obtain the appropriate information needed for designing a new NSD model.societies (Van Aken et.al., 2009). Qualitative methods are those that are oriented at the discovery of qualities of things, that is, properties of objects, phenomena, situations, people, meanings and events. In contrast, quantitative measures are oriented at the number or amount of these qualities (Van Aken et.al., 2009). Since an amount or number of qualities is not an issue for this research purpose but the discovery of qualities, in this case a New Service Development Process, qualitative research is more suitable than quantitative research.
Case study
By determining the unit of analysis, it can be decided which data collection technique is suitable for designing a New Service Development Process for services that are derived from or value-added to a tangible product. The unit of analysis is the type of object that is the focus of interest (Van Aken et.al., 2009). Since this research is aimed at designing an innovation process not yet existing in the literature, a business process is the unit of analysis since it is the subject of research. When the unit of analysis is a business process, there is no need to compare different cases (van Aken et.al., 2009). This means that data collection from one specific case provides enough insights to design a new process. Therefore a single case study will be conducted.
Thus, for this research data will be collected at the hand of a case study at KPN Consulting. During a case study the important aspects of the environment are analyzed and understood (Dana and Dana, 2005). A case study is widely used as a research method based on three strengths; it provides novel data which can lead to novel theories, the emergent theory is
likely to be testable with constructs that can be readily measured, and the resultant theory is likely to be empirically valid (Eisenhardt, 1989).
Data collection
Because this research will take place at KPN Consulting, employees will be the sources of information. The employees will be interviewed in-depth to gain a better understanding of the service development process and which stages should be designed. Interviewing is one of the main methods of data gathering in case studies (Van Aken et.al., 2009). A series of interviews are necessary to obtain valid and reliable data, so a semi-structured interview method will be used where specific open-ended questions are asked to all interviewees but leaving sufficient room for additional information. In conducting the interview, a dual role has to be played to obtain the best possible data. A content-oriented role is aimed at getting clear unbiased answers to the questions, and a management role aimed at managing the time spent on the various questions and maintaining an open and pleasant atmosphere showing that the informant is giving an important contribution to the solution of the business problem (Van Aken et.al., 2009). The interviewees were carefully selected after a period of
observing, interviewing and
documents. And lastly, informal interviews took place to identify innovation experts within the company and users of the innovation process. This ensured that the accurate people would be interviewed to obtain valuable and reliable data. Even though this may lead to a sampling-bias since all participants share common knowledge and expertise and represent a similar company, a fairly homogenous sample will share critical similarities related to the research question
(DiCiccio-Bloom and Crabtree, 2006). All
participants can provide usable and reliable data which ensures a high validity rate. Besides having scientific knowledge about innovation processes, participants also have practical knowledge about innovation processes since they work with the process every day. Interviews were conducted with ten participants in total (see Appendix II, List of interviewees). Eighteen individuals were contacted but not all were able to cooperate due to a fully booked agenda and limited time scale in which the interviews could take place. This leads to a response rate of 56%.
The interview was pre-tested to check whether questions were missing or were not relevant or badly formulated. After making additions to the interview the official interviews were conducted with members of the Innovation Board and consultants who work with the innovation model and customers on a daily basis (see Appendix II, Interview questions).
First, the interviews start with a general introduction about the research project to inform the interviewee about the purpose of the interview and to explain the interview agenda (Alam and Perry, 2002). Also, confidentiality has to be underlined and secured so interviewees will talk freely and provide reliable information (Van
Aken et.al., 2009). Next, interviewees are asked some general questions to ensure the correct person is being interviewed and create a pleasant atmosphere. Then, the questions will go in-depth in to the research objective and start with questions about the New Service Development Process. Interviewees have to explain differences and similarities between products and services in their own words and what according to them are the most important that should be recognized in their innovation processes. Also, detailed questions will be asked about the process and sequence of NSD activities, and the importance of various stages (Alam and Perry, 2002). The last part of the interview deals in-depth with customer involvement such as the types of customer input that should be obtained, details about in which stages customer input should be obtained, purpose and objective of customer input and activities of customers in various stages (Alam and Perry, 2002).
To enable triangulation, more qualitative methods will be applied to secure an in-depth understanding of innovation processes (Flick, 2004). Documentation is often a more reliable source of information than the opinion of employees and may provide information that organizational members have partly or completely forgotten (Van Aken et.al., 2009). Several documents such as
proposals, minutes of meetings,
Lastly, observation is used by attending meetings of the Innovation Board. This will provide insights in how an innovation model is being used in practice and where improvements can be made in the application of such a model. This enables a researcher to experience the innovation process from within the company and is therefore very suitable for management studies (Van Aken et.al, 2009).
Data analysis methodology
Analyzing data is the heart of building theory from case studies but it is both the most difficult and the least codified part of the research. The aim is to build a chain of evidence to support the results of your research. (Eisenhardt, 1989)
The first step that is taken is to transform the interviews into transcripts. These transcripts are sent to the interviewees. They can check the transcript for reliability. That way, if necessary, any additions can be made afterwards by the participant. The reexamining of the interviews also provides additions to the reliability and validity of this research. After all the interviews have been checked, they will be anonymized and codes can be identified. By coding the data the range of issues and meaning attached to these issues can be identified.
Next, the codes are described and compared. The codes will provide summary statements and key quotations which will add transparency and depth of understanding (Alam and Perry, 2002). When all transcripts are described a comparison can be made across all interviewees. The codes provide for a good overview and a structure already can be
identified for the New Service
Development Process.
Continuing, the codes have to be grouped and categorized based on a common attribute. This will lead to the identification of the necessary steps that need to be taken during the NSD process. By conceptualizing the categories, relations can be visualized and an order in the stages and activities per stage will be observed. In this way the complete New Service Development Process can be designed based on the insights of the participants.
The last step is explaining the findings and linking back to the literature and quotations of the interviewees. Here, a definite proposition can be given for a fourth-generation NSD model for services value-added or derived from tangible products and assist practitioners such as KPN Consulting in optimizing service development and increasing the awareness of customer input.
RESULTS
An analysis of the interview transcripts leads to the following New Service Development Process model that represents the results from the in-depth interviews (Figure 1). The model is designed based on four aspects; the third-generation NSD process by Alam and Perry (2002), customer involvement, the product life-cycle (Schumpeter, 1934), and the product development funnel (Clark and Wheelwright, 1993). Here, products and services become equivalent by combining service innovation and product innovation theory.
market and its success. Monitoring a negative result based on success criteria formulated for a particular innovation should lead to either the elimination of the new service innovation, or new ideas for an improvement of the existing one or a completely new service.
“You have to track the entire life-cycle of the product, including its elimination” (Sjoerd Hulzinga, KPN Consulting, 23rd of April 2013).
Therefore, I chose to complete the service innovation process by connecting the last and first stage, which is in accordance with the product life-cycle model (see Appendix I, Figure 9) and designed the NSD model as a round circle. The product life-cycle concept has an enduring appeal because of the intuitive logic of the product birth maturity decline sequence based on a biological analogy which is also apparent for services. The product life-cycle has considerable descriptive value for explaining market dynamics (Day, 1981). Hence, it is very suitable to connect the service innovation process to the product life-cycle.
Another aspect that has been included in the NSD model is the product development funnel of Clark and Wheelwright (1993) (see Appendix I,
Figure 10). Multiple participants believe that the ideal start of the innovation process should be according to the product development funnel.
“The idea gathering should be a sort of funnel by which you can collect as many ideas as possible” (Jurjen Niezink, KPN Consulting, 17th of May 2013)
Figure 1. A fourth-generation New Service Development Process In comparison to other NSD models, this
model conists of only seven stages instead of ten (Alam and Perry, 2002) or fifteen (Scheuing and Johnson, 1989). The interviewees underlined that the innovation model should be efficient, simple and not bureaucratic.
“Let’s not make it difficult and add more stages. Innovation should be efficient, fast and with little bureaucracy as possible” (Malinda Emmerik, KPN Consulting, 16th of April 2013).
When categorizing all the stages recognized by the interviewees, the stages for the New Service Development Process model can be identified (see Figure 2). In total, twelve different stages were recognized as important by the
Figure 2.Summary of data about the stages for the fourth-generation NSD model Sequence of the model
A discussion in literature recognized by Alam and Perry (2002) was the sequence of the model. Since all other NSD models were designed in a linear order, it was questioned whether this is the most preferred sequence of a NSD model, since it was recognized already by Cooper (1994) that a product innovation model needs a parallel order. Cooper (1994) believed that the traditional linear stage-gate is too time-consuming, too bureaucratic, too many time wasters, and has no provision for focus. Alam and Perry (2002) designed two models with similar stages in their research, but with different
sequences. Since there is a
disagreement in literature about the preferred sequence of a NSD model, Alam and Perry (2002) introduce both and let users of the model decide which one is most preferable for their organization.
Since there are no results in the literature about the sequence of a NSD process, the interviewees have been asked about their insights and preferences for the sequence of the model. Again, no clear cut conclusions can be drawn since all have different ideas about the sequence of the model (see Figure 3). More prefer a parallel model over a linear model,
however a mix between both is recognized as a logical and preferable sequence as well.
“A couple of actions cannot be done parallel and need some structure. However, innovation cannot take place in isolation and should be iterative” (Joris Geertman, KPN Consulting, 26th of April 2013). “The beginning should be linear but when you enter the development stage you can perform steps parallel” (Malinda Emmerik, KPN Consulting, 16th of April 2013).
Figure 3. Sequence of the fourth-generation NSD model
Stages
1) Idea Generation: Idea generation is the heart of the innovations’ success. Without an idea there will not be an innovation, which also resulted from the interviews (see Figure 2). Idea generation therefore needs to be as optimal as possible. As can be seen in the results (see Figure 4) the interviewees agreed that not only employees, but also customers, partners, academics and competitors can be a source of ideas. As explained above, it is therefore chosen to generate ideas at the hand of an idea funnel. This symbolizes that as many ideas as possible from all external sources can be generated and the most promising ones can be selected. So besides internal input, expternal input is initiated as well in the NSD model.
“One of the things I really believe in is co-creation with other organizations, clients or random people. Even though experts know a lot, most of the smart people work outside the company and you need to involve them to generate brilliant ideas” (Daan Linden, KPN Consulting, 14th of May 2013).
2) Determine type of Innovation: A new element in New Service Development Processes is the stage where it is being determined which type of innovation the idea is. The idea can be completely new for the organization and/ or non-existing at the market; a radical innovation. Or the idea is based on existing knowledge and can be seen as an improvement of existing products/ services, or a new purpose is being given to an existing innovation; an incremental innovation. The results show that the interviewees like to see a
different process for both types of innovation because both are very different and can have a different impact for the organization and market. The basic stages for radical innovation and incremental innovation should be similar. However, radical innovation should be given more time, space and freedom while incremental innovation should be fast, efficient and structured because the knowledge is familiar and/ or in-house in the organization.
“Radical innovation needs freedom, space and time because it is unpredictable and more creative. You have to put them in a room with pizza and soda and see what comes out of it after a while. For incremental innovation you use more project management, determining what you need, what’s going to happen and what will be delivered.” (Jan Peter Alberda, KPN Consulting, 24th of April 2013)
Therefore the model is divided in two lanes after this stage; I represents incremental innovation and R represents radical innovation. You can compare this structure with a running track; the inside lane is shorter and therefore faster, and the outside lane is longer and therefore can need more time to enter the finish. Both ideas go through the same stages but more time is given to radical ideas than incremental ideas in this NSD model.
existing knowledge and skills, improves established designs, increases efficiency of existing distribution channels and meets the needs of existing customers or markets (Jansen et.al., 2006). This stage
will lead to agreement and
understanding of the innovation within the organization and enables the organization to give suitable treatment to all generated ideas. It will enable an organization to rescue a “false negative”
(Chesbrough, 2011) by giving
seemingly impossible or initially worthless looking ideas a chance to become valuable.
3) Development Preparation: This stage is a combination of multiple stages that have similar characteristics and, according to the interviewees, can be combined to one stage for efficiency and speed. It is a combination of Determine Assessment Criteria, Idea Assessment, Determine Development Facilities, and Determine Inventory Needed. As can be seen, this stage is about managing all preparations that need to take place before assuring that the new service can be developed.
“Initiation analysis, scoping and the business case should be seen as one stage because they are so overlapping and should take as little time as possible” (Simon van den Doel, KPN Consulting, 23rd of April 2013).
The three main pillars are therefore; the analysis of the idea based on the criteria an organization has for a service to fit in their portfolio or capabilities; Scoping what is necessary to develop the service; Design a business case to prove that the new service can be developed and that there is a (possible) demand or possibilties to push the new innovation
into the market. Sometimes customers do not always know what they want and therefore potentially successful innovations should be pushed on the market. Henry Ford achknowledge this when introducing the automobile to the market.
“If I’d asked people what they wanted, they would have said faster horses” (Henry Ford)
During this stage Marketing and Sales should play an important role since they are highly involved with customers and have great market knowledge. This knowledge and expertise should be used carefully to successfully go to the Development stage and therefore internal input is important.
“Where it often goes wrong is that Sales and Marketing are not involved in the beginning already. You cannot invent something on your own and push it in to the market without feedback or input from Sales and Marketing” (Joost Verbeke, KPN Consulting, 7th of May 2013).
4) Development: This stage is also one of the four most important parts of the innovation process. Even though the data analysis led to the category Development and Quality Review (see Figure 2), I decided to rename this stage to the Development stage. As can be seen in Figure 2, the stages after the Development and Quality Review are also stages of reviewing the new service.
For this stage the interviewees stated that during the development it is most preferable to have a “launching customer”4.
4
“Why would you hide and not apply your innovation at a customer? Because let’s be honest, if no customer wants to have your service for free to test it and give feedback then it is not going to be a success” (Jurjen Niezink, KPN Consulting, 17th of May 2013).
Customer input is very important during this stage and is therefore represented in the NSD model. Services are inherently perishable, which means they are produced and consumed simultaneously (Johne and Storey, 1998). Therefore, a customer trial is needed when developing the service to gain experience and see where there is space
for improvements and needed
adjustments.
5) Review and Scale-out: This stage is again a combination between multiple stages (Development and Quality Review, Technical and Commercial Review, Determining ability to deliver). When the development is completed after the customer trial, the service needs to be reviewed by technical and commercial experts within the company.
“You really need a technical specialist for the content review of the new service and a commercial review for the saleability of the new service. This will lead to possible education programs and the delivery of the new service” (Malinda Emmerik, KPN Consulting, 16th of April 2013).
Based on the assessment criteria from Stage 3, the development will be reviewed and all preparations that need to take place to sell the service on large scale to the market are completed. This can be enabled by designing a delivery program for the service and/ or training programs for the employees.
During this stage customer input is important as well, based on the results (see Figure 4). The launching customer can give important feedback to optimize your service and enlarge possible market success. Also, customer input can be given about the most preferred delivery program of the service.
6) Market Launch: The category
Marketing Campaign and
Commercialization has been renamed to Market Launch. During the scale-out phase in the previous stage the new service will be commercialized, meaning being prepared to be sold to a larger market and multiple customers. At this stage Marketing and Sales are important tools for the success of the new service. They are accountable for implementing the new service in the market and attract (new) customers. Again, the special characteristics of services are deemed to be very important here. Since services are being produced and consumed at the same time, the delivery part is very important because during the service delivery the quality of the service is being determined. In many cases the employee that delivers the service is the service and the organization for the customer. Front-employees who deliver the service play therefore an important role.
“Using a reference of a customer when entering the market shows: We did with a customer, it works, these are the results, and now you want it too” (Simon van den Doel, KPN Consulting, 23rd of April 2013)
7) Monitoring Market Success: The results showed that there is a need for a last stage where market success should be monitored and a decision should be made whether the new service is a success, improvements should be made, or whether it should be eliminated.
“At the hand of product life-cycle management you need to determine whether a service is a cash cow, dog, star or question mark. And then you can decide to eliminate certain services which do not gain any profit anymore” (Joris Geertman, KPN Consulting, 26th of April 2013).
Therefore the model is designed as a circle where the Monitoring Market Success stage can lead to either new ideas, the elimination of an idea or continue launching it at the market. Customer input
During the literature review it is analyzed that there are four key elements of customer involvement; objectives, stages, intensity, and modes of involvement (Alam, 2002).
In line with what has been suggested in the literature review, the results also show that customer involvement is particularly important in the development stages; idea generation, service/process system design, service pilot/testing (Alam, 2002) (see Figure 4).
“I would use customer input especially in the beginning to gain innovative ideas. Where the customer and the company set
apart is when development begins and we look at who invested what and what is my knowledge and input” (Jan van Gammeren, KPN Consulting, April the 24th 2013). “I think customer input can be used in all stages but most importantly in the begin phase” (Joost Verbeke, KPN Consulting, 7th
of May 2013).
All interviewees were unanimous about the fact that during the idea generation customer input should be obtained. There are four levels at which customers can be involved, which vary from considerably low to extremely high (Alam, 2002). For this stage the customer involvement can be extremely high. As mentioned before already, the participants really believe in co-creation which is, as the name already suggests, involving the customer from the beginning until the end phase by creating a new service together. For this specific stage, customer input can be obtained at different modes. Examples are face-to-face interviews, customer visits and meetings, brainstorming, users’ observations and feedback (Alam, 2002).
However, not only customer input is recognized as an important source for idea generation; other external sources can lead to new insights and ideas as well. Partners, employees, academics and competitors are recognized as sources for generating ideas. This phenomenon is called open-innovation. In the literature, open-innovation is also recognized as an
important source for successful
(Chesbrough, 2011). Another advantage of open-innovation is that both closed and open models are adept at weeding out the “false positives” (bad ideas that initially look promising), but open-innovation also incorporates the ability to rescue “false negatives” (ideas that initially seem worthless but turn out to be valuable) (Chesbrough, 2011). By discussing and sharing ideas, opinions and insights with external parties, ideas that normally would not have been selected and executed by the organization can receive a Go based on external parties’ insights and belief in possible success. Thus, the Idea Generation is the first stage where input from customers and possibly other external sources can be used. As indicated by the participants as well, the ideal way of
enabling open-innovation is by
implementing the development funnel-structure in the Idea Generation stage as explained above and implemented in the NSD model.
There are different modes of innovation, meaning that open-innovation cannot only be used during the idea generation stage, but also during funding
and commercializing innovation
(Chesbrough, 2011). This is also shown in
the data obtained from the interviews. The respondents recognize that input can also be used during the Development, Review, and Market Launch stage (see Figure 4). This is also represented in the NSD model by pointing out that during these particular stages customer input should be obtained. As the results already show, fewer participants agreed that customer input can be used during these stages in comparison to the Idea Generation stage. The modes of involvement and objectives of customer input remain the same as for the Idea Generation stage, but the intensity level can vary. If it is decided that the customer becomes part of the innovation team the involvement level is extremely high for these stages as well. However, if this is not the case, then customer involvement can also have a different intensity level. Managers can acquire input passively so customer involvement is considerably low. Managers can approach customers to obtain information and feedback so customer involvement is somewhat high. Or managers can invite customers’ input by means of planned processes and predetermined objectives so customer involvement is relatively high (Alam, 2002).
The results show that customer input is not necessary for the stages Determine Type of Innovation, Development Preparation, and Monitoring Market Success.
When determining the type of innovation, customer input is not very helpful. The organization has to determine for itself whether the idea involves completely new knowledge or knowledge that is already existing and/or in-house.
Besides looking internally, the
organization needs to do a market analysis to analyze whether the idea is also new for the market or a similar innovation already exists at competitors. Customer will not add any value in this research. Especially when the customer is not aware of its needs and requests for a “faster horse” instead of an automobile.
During the Development
Preparation phase all preparation that needs to be done inside the organization takes place. The organization is going to analyze if it is able to deliver the service, if the innovation fits in the organization’s portfolio, if there is a possible market demand or possibilities for pushing the idea into the market, et cetera. All are internal analyses and customers will not add any value during this stage.
The last stage where customer input is not necessary according to the results is Monitoring Market Success. As one of the participants acknowledged; the customer is not interested if the service is profitable for your organization or not. If a service is not profitable for your organization, does not fit in the current portfolio anymore, or does not meet the assessment criteria of the organization, the service can be eliminated or innovated. However, a customer that does enjoy the benefits of the service will advice you to continue developing the service because it is in its own interest.
Therefore, monitoring should take place internally and without customer input.
“If the customer likes us to proceed with offering a service because they enjoy using it, but if they are the only customer left and it does not profit the organization anymore it is not up to the customer to decide to continue or eliminate the service” (Joris Geertman, KPN Constuling, 26th of April 2013)
RESEARCH
CONTRIBUTION
AND IMPLICATIONS
The last key issue that needs to be addressed is stress the contribution this research makes, and provide managerial implications for this fourth-generation NSD model and underline the advantages in comparison to other models.Development field and sheds new light on innovation process models by combining service innovation theory and product innovation theory.
The research also has sufficient implications for practitioners. The results offer a blueprint for service organizations that provide services value-added or derived from tangible products to successfully develop new services. Practitioners should give more attention to the Idea Generation stage, because it is the most important stage for developing new
services. By using the product
development funnel as idea generation many ideas will be collected and the most promising ones can be selected. An organization can profit from external- and internal input during this stage, however the organization does need to be willing to implement open-innovation and allow external parties to gain insights from the organization since open-innovation is the key to the success of the idea funnel.
Second, practitioners should focus more on the different needs of incremental and radical innovations. So far, no attention has been paid to the differences between incremental and radical ideas and both were treated as equal going through a similar process. However, radical innovations are rare and could need more
time, space and freedom whilst
incremental innovations need speed, structure and efficiency. Therefore, a clear distinction should be made so every idea can be identified and offered a proper treatment by sending the idea through the correct “lane” of the NSD process and a successful outcome is achieved. Clear assessment criteria or definitions of both types of innovations should be met so all individuals involved in the innovation
process are in line when assessing the type of idea.
Third, the entire life-cycle of the new service should be monitored. So far, all NSD models end after the Launch stage. However, the service should continuously be monitored for market success. Not only does monitoring lead to possible new ideas, it also helps organizations to identify unsuccessful services and eliminate them from the portfolio to prevent a negative market performance. Monitoring services should therefore occur consistently.
Lastly, innovation is often isolated within the organization. Not only should the organization be open for external sources, but also for internal input. For example, Marketing and Sales can provide useful input and have large customer and market knowledge. From all departments input can be generated at every stage of the process. Even though this is outside the scope of this research, it is mentioned by the participants that a higher internal involvement during the innovation process
can be advantageous. Therefore
practitioners should focus on involving internal sources as well.
LIMITATIONS AND
SUGGESTIONS FOR FURTHER
RESEARCH
Even though this research has been conducted carefully and is validated by literature and qualitative data, the results should be interpreted at the hand of some limitations that naturally occur out of qualitative research and a limited scope of time. The purpose and scope of this research were essentially exploratory, aiming to provideDevelopment Processes and adding to the literature and practice. The results are based on a single case study and therefore single industry. Hence, caution is required in generalizing the findings. Also, the interviews were conducted with a limited number of participants from the same organization which can lead to a sampling bias. Additionally, internal input did not receive the proper amount of attention since the main focus was on customer input, as mentioned in the previous section as well.
These limitations offer possibilities for further research. The model can be further validated by empirical research. Further studies can test the model at a large scale by quantitative surveys. By gaining input from a larger pool of resources or multiple case studies the stages of the model and results for customer input can be empirically tested.
Second, since this research took place within a limited time scope, the NSD model can be observed over an extended period of time at the hand of a longitudinal study. The results and implications of the model can be observed and tested after an extensive research to test the validation of the model.
Third, a multiple case study can provide more insights on customer involvement. The results in this research are based on a single case study within the consulting industry. Conducting research in other industries may provide more insights about customer involvement during the stages of the model and the role the customer can play. Also, the consulting industry is more focused on business-to-business services, but obtaining data from
business-to-consumer service
organizations might provide other results
for customer input during the service innovation process.
Lastly, an aspect that needs more attention in the fourth-generation NSD model is internal input. The research mainly focused on involving customers during the service innovation process, however the participants already underlined that internal input such as Marketing and Sales are important during every stage of the process as well. Even though internal input is being included during every stage of the NSD model, more clarification is needed which internal department could play an important role during every stage and which mode and level of involvement this role could have.
KPN Consulting. The NSD model is a fusion between the third-generation NSD model, customer involvement, the product life-cycle and the product development funnel. Hence, service innovation theory and product innovation theory are combined, providing a possibly optimal
innovation process for service
organizations providing services value-added or derived from tangible products.
ACKNOWLEDGEMENTS
I would like to express my sincere thanks to KPN Consulting, and in specific the people that participated in this research, for the useful input, comments and help which enabled me to write this Master thesis.
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