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New Service Development in the

Service Industry

Managing innovation development in service firms: The

influence of tangibility and innovativeness on the structured

NSD stages.

By:

Genien Pathuis

S.1994999

Master Thesis MSc in BA Strategic Innovation Management

University of Groningen

Faculty of Economics and Business

First supervisor: Dr. J.D. (Hans) van der Bij

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Managing innovation development processes in service

firms: The influence of tangibility and innovativeness on

the structured NSD stages.

Abstract

The service industry faces a rapid changing environment dominated by numerous challenges. The need to successfully innovate and finding the key factors that attribute to achieve this are crucial. Although the concept of service innovation is not new, its research has predominantly focused on the financial services within this industry. As such, this study examines the influence of tangibility and innovativeness on the structured new service development (NSD) stages of the service sector. Through a comparison of the hospitality (restaurant) service industry with financial and health-care services, this study attempts to broaden current literature regarding the NSD process. Furthermore, it examines the NSD process, looking at the inherent differences between incremental and radical new service development in this field. Using the uncertainty literature and process management theories, in relation to the NSD stages and interrelations in it, to understand the inherent complexity of the service industry practices used to innovate. Gathering data by means of the drop-off survey method, the results indicated that both tangibility and innovativeness only influence NSD stages to a limited extend. It concludes with a discussion on the theoretical and managerial implications of these findings.

Keywords: NSD process, Service industry, innovation, radical and incremental service development, NSD stages, innovativeness, tangibility.

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Table of Content

Abstract ... 1

Introduction ... 3

Literature Review ... 5

Innovation ... 5

New Service Development ... 6

Hypotheses Development ... 8 Levels of innovativeness in NSD. ... 8 Levels of tangibility in NSD. ... 10 Methodology ... 11 Sampling ... 11 Data Collection ... 12 Measures ... 13 Dependent variable. ... 14 Independent variables. ... 14 Moderator variable. ... 15 Control variables. ... 15 Method of Analysis ... 15

Descriptive statistics and correlations ... 16

Results ... 18

Discussion and Conclusion ... 19

Theoretical implications ... 20

Managerial implications ... 21

Limitations and future research ... 22

Conclusions ... 22

References ... 24

Appendices ... 29

Appendix A: Survey Questions (in Dutch) ... 29

Appendix B – Factor Analysis ... 31

Appendix C – Correlation statistics ... 34

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Introduction

In today’s society, innovation has become of key importance in order to remain competitive within the dynamic economic environment. This environment creates a strong need for companies to not only be able to respond in a timely manner, but also play into these market opportunities. Therefore, the innovation process in relation to the changing conditions is widely recognized and the increasing prominent role of innovation has instigated an extensive literary field. However, in earlier research, the main focus of such literature remained on products (Droege, Hildebrand, & Heras Forcada, 2009; Drejer, 2004; Evangelista, 2000; Miles, 2000), while only relatively few have focused on the new service development (NSD) process. Thus making the field overall less extensive, providing limited insights (Drejer, 2004; de Brentani U. , 2001; de Brentani & Ragot, 1996) and a fragmented state of the NSD literature (Biemans, Griffin, & Moenaert, 2015).

Despite the limited insights, services are of increasing economic importance, contributing to about 70% of the world’s added GDP value (Cusumano, 2010; Ostrom, et al., 2010) and continue to grow (World Economics Ltd., 2016). Furthermore, with an increasingly relied upon tertiary sector, the present-day economic setting has made successful New Service Development crucial for the organization’s market growth and profitability (de Bertani, 1995). However, this process is neither easy nor is it without its risks. The innovation process is filled with uncertainty (Teece, Peteraf, & Leih, 2016) and for service companies the heavy competition, time constraint, diversity in customer demand and rapid technological developments makes it a complex endeavor (Martin, Horne, & Schultz, 1999). Moreover, the development of a new service is a costly process, requiring capital and human resources, that cannot be easily discontinued (Kuester, Schuhmacher, Gast, & Worgul, 2013; Oldenboom & Abratt, 2000). Furthermore, there is increased competition for the service industry as previous manufacturing companies also recognize the shifting market and now often offer complementing services next to or in combination with their (new) products (Kastalli & Van Looy, 2013; Kuester, Schuhmacher, Gast, & Worgul, 2013). Taking the aforementioned aspects into consideration it clearly signifies the increasing uncertainty services face and importance of the NSD process, not only within but also outside the service industry.

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study attempts to explore the behavior of the stages within the service industry, it not only wishes to determine to which extent it is actually beneficial towards the NSD process but also how the stages and consequently the level of success are influenced by the tangibility of services. Currently the literature has already reviewed the success vs failure factors for NSD (Biemans, Griffin, & Moenaert, 2015; De Jong & Vermeulen, 2003). Yet the results remain precarious, as most of this literature is based on financial services which are very similar (in terms of tangibility) to actual product innovation. Moreover, it has been argued that this specific research stream has not substantively progressed as it failed to consistently answer the managerial question of how to most effectively manage the NSD process (Biemans, Griffin, & Moenaert, 2015). A possible reason for this is the lack of consistency between the NSD frameworks that exist in the present literature. There are numerous types of NSD frameworks, yet they have not accomplished in raising the success rates of new service development (De Brentani, 1991; Cooper & de Brentani, 1991). One underlying reason for this is that most knowledge of the NSD process is based on manufacturing, which is more defined in success versus the failure of a product, but with a service this success versus failure border is harder to distinguish (Cooper & de Brentani, 1991).

Hence, the aim of this study is threefold. Firstly, it wishes to build upon the previous work by Avlonitis, Papastathopoulou and Gounaris (2001) where they examined the success and failure scenarios for financial services. This study wants to add to the existing services literature by broadening its horizon, as most previous studies primarily focused on financial or consulting services (i.e. Avlonitis, Papastathopoulou, & Gounaris, 2001; Cooper & de Brentani, 1991). Additionally, this study also distinguishes between the different types of innovation, radical and incremental, as this is rarely done in other studies. By including the taxonomies of service firms, it highlights the potential nuances between the sub-groups of services and allows managers to act accordingly. Furthermore, this would also provide a basis to answer the previously mentioned question by managers on how to manage the NSD process most effectively, as it can provide a more in-depth answer. Moreover, this study continues to build upon the uncertainty literature and process management theories, regarding the use of NPD frameworks for NSD and explore the potential effects of the services tangibility within the NSD framework, plus its implications on the level of success when developing new services. This results into taking the initial step towards providing a more unified view of the NSD process. Third and lastly, on an academic level this study enhances literature as it uses more advanced analyzing methods, as previous papers have relied more on computing averages or case-studies.

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type on the structured NSD stages, within the services industries, in order to clarify the level of success when developing new services.

This paper is divided into three remaining sections. First, a literature review illuminating the theoretical concepts as well as subsequently developing the hypotheses. Secondly, the research approach, this section clarifies the chosen method and documents the resulting findings. Followed by the analysis of the deductions and are then discussed in depth through managerial and theoretical lenses. The paper is concluded through establishing the potential future research avenues as well as highlighting the limitations of this research.

Literature Review

Innovation is becoming an increasingly critical field for organizations to gain a competitive advantage and is reflected in academic literature (Zheng & Yang, 2015). Moreover, an organization’s capability to innovate is the most important factor impacting its performance (Hult, Hurley, & Knight, 2004). Nonetheless, there are gaps within this literature, as empirical findings are either inconclusive or limited, in particular regarding the new service development (Engen & Holen, 2014). Within the innovation academic literature field, a core area of research regarding innovation is focused on the NPD process (Papastathopoulou & Hultink, 2015). However, with the ever growing service industry, the need to successfully innovate for services and the NSD process are of increasing importance.

Innovation

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However, the innovation in services theory has advanced beyond the traditional radical versus incremental perspective. Researchers have found more defining characteristics and introduced several innovation types, namely: technological, radical, incremental, improvement, combinatory (architectural), formalization and ‘ad hoc’ innovation (Droege, Hildebrand, & Heras Forcada, 2009). Nevertheless, this broader representation of innovation types has been subjected to criticism by some scholars (i.e. Drejer, 2004) and support by others (i.e. De Vries, 2006). This is due to the inherent difficulty of differentiating between the contrasts of product innovation versus process innovation (Djellal & Gallouj, 2001; Droege, Hildebrand, & Heras Forcada, 2009), resulting in the reinforcement of the ambiguity surrounding the innovation typology within services. Moreover, the NSD process research that has been done for implementing innovations was limited (van der Aa & Elfring, 2002).

This study chooses not to adhere to the finer nuances, instead following the two extremes of incremental and radical innovation instead. This is both due to the complexity of services as well as the on-going debate of innovation types. Moreover, the focus of this study does not solely lie within innovation theory but is also regarding the new service development. Therefore, due to the aforementioned complexity of services this study defines innovation typology as the differentiation between two types of innovation, namely incremental and radical. This coincides with the previous research of Carlborg, Kindstorm & Kowalkowski, (2014). Additionally, this study uses Barcet’s (2010) definition of service innovation. Where he (Barcet, 2010) defines service innovation as an introduction of something new regarding the organization, placement, delivery and time related to the processes that interact or relate to the consumers.

New Service Development

This study defines services as “the application of specialized competences (skills and knowledge), through deeds, processes, and performances for the benefit of another entity or the entity itself” (Vargo & Lusch, 2004. p 326). Furthermore, according to Zeithaml, Parasuraman, & Berry, (1985) services can be recognized through specific characteristics, namely their intangibilty, heterogeneity, inseparability and perishability, and affect the services development process (Nijsen, Hillebrand, Vermeulen, & Kemp, 2006). This process is part of the activities that is known as new service development. NSD can be defined by using the life-cycle theory and starts with the process of innovation which consequently ends with the development of completely new services (Droege, Hildebrand, & Heras Forcada, 2009).

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(Biemans, Griffin, & Moenaert, 2015; Zeithaml, Parasuraman, & Berry, 1985) that affect the NSD process (Nijssen et al., 2006), while also keeping in mind that some manufacturing contexts can be actually transferred to services (Ndubisi & Agarwal, 2014). Hence, new service development is often organized in a successive manner (De Jong & Vermeulen, 2003). This is in line with the research by De Jong & Marsilli, (2006) who found further evidence of the blurring lines between manufacturing and services. Due to the blurred lines between manufacturing and services many researchers have used the stage-gate process from Cooper (2008) as the theoretical basis for NSD, for instance like what Avlonitis et al., (2001) did. As such, it is not surprising that overlap can be found when looking at more tangible services. Yet this cannot be naturally assumed for intangible services. This study continues to build upon the Avlonitis et al., (2001) NSD process framework, which is illustrated and briefly explained below in figure one.

Figure 1: New Service Development Process

The first three stages are known as the ‘fuzzy font-end’ stages, the first ‘idea generation’ (IG) is characterized by its unstructured process and uncertainty (Khurana & Rosenthal, 1997). Here ideas are narrowed and screened for their usefulness and novelty. This is a crucial step as it dictates the potential of innovation success in all the stages after (Alam, 2006). Next is the ‘Business Analyses and Marketing Strategy’ (BA), here the firm conducts analyses regarding their organizational conditions and the market. Followed by the ‘technical development’ (TD) stage, where the design and delivery process are focused on as well as needs for training of employees (Cooper R. G., 2008). Then the latter two stages, also known as the ‘fuzzy back-end’, consist of ‘Technical Evaluation’ (TE) and ‘Service Launch’ (LA) (Baumgartner, 2013). Where ‘Technical Evaluation’ concerns the pre-launch near testing, field testing and market testing phase and the last stage ‘Service Launch’ is the culmination of having past all the previous stages and refers to the full-scale introduction of the service in the market (Avlonitis, Papastathopoulou, & Gounaris, 2001).

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researchers suggest that the boundaries of such sectors are blurred and no longer apply (Grönroos, 1989; Monger, 2012). Yet, according to Biemans, Griffin and Moenaert (2015), how the service context impacts the new service development process remains vague and unclear. Hence it is important to actually make this differentiation between service types. Another concept used to categorize the service industry is tangibility. This concept was first introduced by Shostack (1977) who found that services could be on the spectrum of tangibility. According to her a service could either be ‘tangible’, meaning palpable and material based, or by its antonym ‘intangible’, impalpable and not physical (Shostack, 1977). Seeing as this a straightforward, practical and understandable conception, this study chooses to use her concept as a manner to categorize the services industry.

Hypotheses Development

The performance of innovation is dependent on the execution of the NSD process as well as influencing factors such as uncertainty (Stevens & Dimitriadis, 2005). This study sees uncertainty as a resulting factor of either or a combination from the innovation type, radical versus incremental, and tangibility of the service. According to researchers (i.e. De Brentani, 2001; De Jong & Vermeulen, 2003) following the aforementioned stages can enhance the innovation performance. However, it is unknown what the influence of uncertainty, brought about by tangibility and innovativeness, is when it comes to the performance and behaviour of the stages. As such, to solve for this ambiguity this study wishes to compare the tangibility of industries within the service sector and the types of innovation to determine their influence on the behaviour of the stages and NSD.

Levels of innovativeness in NSD.

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found that different types of services may require different NSD practices. Hence, this study believes that regarding the innovation success, NSD stages are moderated by the type of innovation.

Previous research has found that incremental innovations are less risky, require fewer resources and have less uncertainty (Ottenbacher & Harrington, 2010). Hence the process would not be extremely different from what is already present within the firm’s own knowledge base and capabilities. Furthermore, this would indicate that for incremental innovation an organized step-by-step approach would be beneficial and could even improve the success (De Brentani, 2001). Yet, incremental innovation is also more susceptible to the influence of consumers, increasing the complexity of the NSD process; this would only be hindered more by inflexible systematic approaches (Damanpour, 1991). However, according to both de Brentani (2001) as well as Ottenbacher and Harrington (2010) the success of incremental new business services are dependent on the organization’s ability to follow a systematic NSD process. According to the research of de Jong and Marsilli (2006), the differentiation between services and product innovation is lessening, as more and more manufactures offer services. Thus it is possible to believe that the same principles of a systematic style in NPD can be transferred to NSD. Past research indicates that an inflexible step-by-step approach has a negative relationship with innovation as it creates communication barriers. However, research also found that following the NSD stages process leads to successful service innovations (de Brentani U. , 1993).

In contrast, radical innovation is characterized by its high levels of risk, uncertainty but also by its greater rewards for organizations (Hult, Hurley, & Knight, 2004; Ottenbacher & Harrington, 2010). For radical innovation there is little customer involvement due to a lack of understanding and ignorance about radical concepts (Heiskanen, et al., 2007), as these innovations are often new to the market or creating a new market. Furthermore, the organization’s existing services will not provide much of a guideline as radical innovation substantially differs from its current services, implicating that the NSD process would be less beneficial to radical innovations. Moreover, according to Damanpour (1991), radical innovation produces fundamental changes, as it is a representation of parting away from existing practices and routines. This implies that for radical innovation to follow the NSD stages would be harder, as it would encounter problems when going through the stages activities. This is supported by the literature, where it is found that for highly innovative new services a creative and flexible approach, not hindered by the systematic rigidity, is required (Ottenbacher & Harrington, 2010).

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Consequently, there is a need to understand the moderating relationship between the innovativeness and NSD stages. Moreover, within radical innovation all of the NSD stages would not be possible to follow, and this potentially increases the uncertainty about the success of the new service development. As such, it can be expected that radical innovation negatively moderates the relationship of the NSD stages and services innovation.

Therefore, the following hypothesis is developed:

H1. The relationship between the NSD stages and new service development is negatively

moderated by the level of innovativeness Levels of tangibility in NSD.

Researchers have established the need to differentiate between the idiosyncrasies of services, as the service sector industry is too broad to generalize. One solution to this is through focusing on specific service categories. Previous research has been found relying on using Shostack’s (1977) definition of the tangibility of a service as an indicator (Fitzsimmons & Fitzsimmons, 2000; Nijsen, Hillebrand, Vermeulen, & Kemp, 2006). Shostack (1977) defined tangibility as a state and classified it with goods being tangible and services being intangible. Where tangible services can be physically touched and seen, while on the other side of the spectrum, intangible services are non-physical, dynamic, temporary and subjective.

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it could hinder an organization’s ability to properly go through some of the NSD stage activities. For example, the testing stage’s need for customer involvement would be harder to execute for intangible products and would be harder to understand, as customers won’t be able to fully perceive the whole service.

Furthermore, there is less knowledge about the intangible service for the NSD process and stages plus their activities; consequently it would be harder to follow the steps properly. This in turn means that when not all of the stages can be followed correctly, intangibility could negatively influence the NSD. Whereas, it would be the opposite for tangibility. As such intangibility would negatively moderate the relationship of the NSD stages and new service development.

Therefore, the following hypotheses are constructed:

H2a. The relationship between the NSD stages and incremental new service development is

negatively moderated by the intangibility of the service

H2b. The relationship between the NSD stages and radical new service development is

negatively moderated by the intangibility of the service

Methodology

In this section the sampling method, measures, biases and justification of the chosen method are described. An empirical quantitative study was conducted to gather data. The survey questions used in this study are based on the new service development activities provided by the article of Avlonitis et al., (2001) where 29 development activities were placed into the 5 NSD stages (shown in appendix A). While for the literature review, high quality journals were investigated to identify the gaps, describe the current setting of the NSD theory, and to clarify important constructs leading to the creation of the hypotheses within this study.

Sampling

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because of the different organizational focus of restaurants, often not having an NSD manager, project manager or any type of function that is wholly focused on NSD activities. Hence an additional question was created to ascertain the functions of the respondents. A list of restaurants operating in the Netherlands was compiled through this process. This process led to a sampling frame of 1985 companies from various locations, to counter geographical bias, throughout the Netherlands. Furthermore, the age and sizes of the companies had a wide range which is typical for the service sector (Kuester, Schuhmacher, Gast, & Worgul, 2013).

The service innovativeness was measured using the stratified sampling as its method as this would concur with the research focus regarding the different tangibility levels within the service industry. This is based on both geographic units and organizational units. The geographic unit was that for each province in the Netherlands a minimum of 100 restaurants should be contacted. While for organizational unit, it was of importance to get a diverse sample of the service industry. Albeit it taking longer, the advantage of using stratified sampling is that the representation of all groups, in this case tangibility levels within the service industry, will be adequately represented. Moreover, it could lead to more precise estimates (Dudovskiy, 2013). Additionally this research used secondary data from previous research, done by two students of the University of Groningen, to include the tangibility spectrum of this study.

Data Collection

To collect the data, a personalized email was send to the potential respondents explaining briefly the intention of this study followed by asking for their time and cooperation. Next, a generalized letter including the link towards the online survey (using the Google Survey’s function) was mailed. Additionally this research used secondary data, namely 38 health-care services and 114 financial service companies, to include the tangibility spectrum of this study.

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the dropping off method (Kuester, Schuhmacher, Gast, & Worgul, 2013) was the best option as this was the least time consuming and most efficient. Had the timing of the data collection been different a more personalized approach would have been more optimal.

The resulting final sample, illustrated below in table 1, consisted of 212 service companies and belonged to three different service industries: (53.8%) financial services; (28.3%) restaurant services; and (17.9%) health-care services.

Table 1: Sample Statistics of total respondents

Service Industry Number of Respondents* Avg. Age Avg. Size

Finance 114 41.32 (σ: 55.6597) 1517.40 (σ: 6263.3442)

Health-care** 38 50.08 (σ: 86.2469) 2001.84 (σ: 7164150.569) Restaurants*** 60 14.59 (σ: 474.073) 18.48 (σ: 462.288)

*total N=212

** missing value (N=1) for age *** missing value (N=1) for age

Moreover, other statistics that were gathered from the restaurant survey included; gender, the total sample comprised of 15 women (25.0%) and 45 men (75.0%). As well as the functions held by the respondents, included; ‘Owners’ (65%), ‘managers’ (15.0%), ‘directors’ (10.0%), and ‘others’ (10.0%). The latter category included positions such as secretaries, chefs or those who held more than one position at a time. Lastly, the respondents’ legal business structures were comprised of ‘Sole-traders’ (65.0%), ‘Family-owned’ (18.3%), ‘Partnerships’ (6.7%), ‘Private Ltd companies’ (5.0%), and ‘Other’ (5.0%).

Measures

The survey was originally developed in English, based on Avlonitis et al., (2001) and was translated to Dutch by using the parallel translation method (Hambleton & Kanjee, 1993; Adler, 1983). A first version was developed in English and then subsequently translated individually to Dutch. Then as the survey questions were pre-established it was checked for consistency and coherency in three ways in order to further remove any potential bias.

Firstly it was peer-reviewed by two students. Secondly, it was send to a University of Groningen professor who has a long experience in academic research to validate. Then, after his approval, an independent party who had over 30 years’ experience within the restaurant service industry examined the survey and answered it (their results were excluded in the data). This pre-test included reading through all the questions and asking whether it was understandable as well as what their line of thinking and reasoning was.

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to increase the validity of the study and in accordance with Dillman’s (1978) and Hunt’s et al., (1982) specifications. In the survey respondents were asked to answer multichotomous questions, via scales such as nominal scales as well as the Likert-type (1: strongly disagree, to 7: strongly agree), dichotomous, and open questions when appropriate. This mix is chosen in order to counter the common method bias. Furthermore the reliability of the Likert scales will be checked by using the Cronbach alpha. The finalized survey can be found in the appendix A.

Dependent variable.

To analyse the effect of NSD stages on new service development, the dependent variable ‘service innovativeness’ is used, and is divided in incremental versus radical innovation. This study used, in order to measure the activities of the dependent variable, the scales of Jansen, Van den Bosch, and Volberda (2006) on exploitative (incremental) and explorative (radical) innovation. They were slightly adapted in order to fit better within the hospitality (restaurant) services. The scales are based on a 1 to 7 Likert-type scale, where 1 is ‘strongly disagree’ and 7 is ‘strongly agree’. An example item of the incremental innovation is ‘we improve our existing services for our clients’. While an example of radical innovation is ‘we bring new services on the market that are completely new for our restaurant’. All questions pertaining to the dependent variable can be found in the appendix A.

Independent variables.

The survey consisted of a 12-part self-administered questionnaire as a component of a wider study of the new service development and service innovativeness. Five out of twelve parts concerned the NSD stages based on Avlonitis et al., (2001) 29 new service development activities. Here too the Likert-type scale (1: strongly disagree, to 7: strongly agree), was used. An example of each of the NSD stages and the number of items can be found in the table below.

Table 2: Example of Survey questions for NSD stages

Fuzzy front-end

Example

Idea Generation and Screening

(8-item scale)

‘We systematically collect ideas about the

service to be developed’

Business Analysis and Marketing Strategy

(8-item scale)

‘We conduct a full-scale analysis of competitors

Technical Development

(5-item scale)

‘We determine the operating and operational

delivery process’

Technical Evaluation

(3-item scale)

‘We test the new service within the restaurants

personnel’

Launch

(7-item scale)

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Moderator variable.

The moderator variable, the level of tangibility, is based on Shostack (1977), where healthcare and restaurant services are seen as less tangible in comparison to the very tangible, financial services. Hence health-care and restaurant services are seen as intangible on the tangibility level.

Control variables.

In order to assess the relationship between other variables, three control variables were selected. These control variables are used to eliminate the omitted causal variables in this case being ‘Formality’, ‘Age’ and ‘Size’. Firstly, this study controls for formalization as it is common to distinguish between the action of carrying out the NSD stages and the formality of process (Avlonitis, Papastathopoulou, & Gounaris, 2001). Moreover, the differences between these two variables are closely related, seeing as the NSD stages are the independent variables it is needed to control for the formality (De Brentani, 2001). As with the other variables a seven-point Likert scale was employed for the 5-item formalization scale. An example question was ‘Rules and regulations are central within our restaurant’. Furthermore, both ‘firm size’ (number of employees) and ‘firm age’ (in years) were controlled for.

Method of Analysis

For the data processing and analysing the statistical program SPSS was used. First, an exploratory factor analysis was conducted in order to investigate the variable relationships and underlying structures. For the method of extraction the Principal Components Analysis (PCA) using the Covariance matrix was selected. Although some researchers argue against the PCA method (Bentler & Kano, 1990; Floyd & Widaman, 1995), others have found that there is almost no concernable difference (Arrindell & Van der Ende, 1985; Velicer & Jackson, 1990) and concur that PCA is an appropriate method (Wise, Gallagher, Butler, White, & Barna , 1999). The variables included: those without a correlation of .40 on any factor, those with high correlations (> .40) with the incorrect factors, and variables with (> .40) cross-loadings.

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other words, after a single factor was deleted the factor analysis was performed again and this process was repeated until all factors were above the suppression limit. As illustrated in the appendix B: table 4, this process was repeated three times until RAD 2 and 3 were removed and all remaining factors were above the suppression limit. The deleted variables contributed little to the predictive ability of the model. This is in accordance with Field (2000) and Stevens (1992) as they state that above 0.4 values work better for interpretation purposes as they explain around 16% of variance

For the independent variables the same oblique rotation analysis was chosen and was followed by the Varimax rotation. This was done in order to test which NSD activities needed to be removed. PCA removed 14 out of 34 activities in order to have linear combination of the variables. According to literature this is a better outcome than the original set of variables (Stevens J. P., 1992). Followed by the control variable formalization, the same analysis was performed, found in appendix B: table 5 and all items were approved.

Then computing the approved variables (> 0.4) by their means, they were grouped into a total of six new variables. The reliability of the analysis was tested through the variables Cronbach Alpha’s. The alpha shows the expected correlation of two tests that measure the same construct (Cronbach, 1951). According to Nunnally (1978), a Cronbach’s alpha has the following implications: it is excellent when α ≥ 0.9; good when 0.9 > α ≥ 0.8; acceptable when 0.7 > α ≥ 0.8; questionable when 0.7 > α ≥ 0.6; poor when 0.6 > α ≥ 0.5; and unacceptable when it’s lower than 0.5. In the appendix B: table 6, & 7 show the outcomes of the factor analysis, before and after the reduction. It is including the Cronbach Alpha’s of each dependent and independent are stated and comply to Nunally’s (1978) rule set as they range between 0.726 and 0,839. Furthermore five variables are in the acceptable range and three have good reliability. However this test does not give the ability to base any conclusion on internal consistency. As such further analysis is needed and will be illustrated later on.

One issue with data reduction is the decrease in diversity, limiting the content validity (Newman, 2008). However, as a higher Cronbach Alpha is preferred a deliberation has to be made between reliability and validity versus a high alpha. With the removal of 14 factors in this study limited the diversity of items compared to alpha levels. Nevertheless, as Nunnally’s (1978) scale has been criticised by other researchers as it was not empirically validated (Venkatraman & Grant, 1986; Peterson, 1994).

Descriptive statistics and correlations

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Following the results of the descriptive statistics table (Appendix B) some variables need to be clarified. Firstly, the means of radical and incremental differ more than 1 point, suggesting that incremental innovation (a ̅ = 5.3619) scored higher by the respondents compared to radical innovation (a ̅ = 4.2007). However, this is not unexpected, as it complies with the study of Berry et al. (2006), who states that most service firms introduce incremental innovations. Moreover, the standard deviations of the control variables are very high, indicating large differences of the respondents on this matter. Yet this isn’t an issue as it can be easily rationalized, for example, for size it would be logical for financial service firms to have more employees than in the restaurant industry, whereas health-care could either be small or large depending on the type of facility. Lastly, the different NSD stages mean values lie relatively near to each other, the lowest being ‘Idea Generation’ (4.68) and the highest, ‘Testing’ (4.98). This is a difference of 0.30. As such it suggests that all of the NSD stages as independent variables are critical to the innovation process.

Next, the correlations need to be analyzed in order to assess whether the variables are significant for the dependent variables. Appendix C: table 9, shows variables correlation statistics. The table illustrates that the dummy variable ‘restaurants & hospitals’ have a negative Pearson r correlation, for both incremental innovation and radical innovation. This shows that the radical and incremental service development will fall slightly behind, if a firm is active within the intangible services sector than with tangible services. Another result of the correlation matrix is the significance, all independent variables, accept formality in relation to radical innovation, are significant at p<0.01. Therefore, formality increases results in a decrease of radical innovation.

Then using a hierarchical multiple regression analysis the models were constructed as shown in the appendix D. The hierarchical multiple regression analysis is used to determine the overall fit of the three models and all of the predictors’ relative contribution to the total variance explained. Furthermore, to facilitate the interpretation of the regression coefficients for the interaction terms the variables, Mean Center Variables of all the variables were created for both hypotheses. This was done using the SPSS Python Mean Center Tool, then ‘descriptives’ was used on the ‘mean centered variables’ to confirm that they all have zero means.

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In order to test the second hypotheses (in both appendix D tables 10&11 as Model 3), steps had to be undertaken to include the moderator variable. First a dummy variable was created for the tangibility where 1 equals intangible services (restaurants and healthcare) and 0 equals tangible services (financial). Then to get the interaction variables, for the second hypotheses, a new variable had to be computed. The variables involved were each of the NSD stages times the tangibility. These new variables were then used for the in the hierarchical multiple regression analysis to test the second hypotheses.

Results

Hypothesis 1 stated that there is a negative moderation by the level of innovativeness on the relationship between the NSD stages and new service development. In other words, it predicted that the NSD stages would be less important for NSD with radical new services whereas more important for incremental new services. Comparing the unstandardized hierarchical regression results in both tables 10 & 11 (models 2) show that the first hypothesis is partially supported.

Firstly, for both innovation types, the stages ‘Idea Generation and Screening’ and ‘Testing’ are found to have a positive significant effect. Furthermore, for radical innovation more NSD stages are positively associated with new service development. Namely, ‘Idea Generation and Screening’ (β=0.226; p <0.01), ‘Business Analysis and Marketing Strategy’ (β=0.254; p <0.01) and ‘Testing’ (β=0.257; p <0.001) have a significant positive effect on new service development. Furthermore, with a confidence interval of 90%, ‘Theory Development’ (β=0.121; p<0.10), has a positive association to NSD. Whereas for incremental innovation the NSD stages; ‘Idea Generation and Screening’ (β=0.120; p<0.05), ‘Testing’ (β=0.224; p< 0.001) and ‘Launch’ (β=0.103; p<0.05) have a significant positive effect on new service development. The results, based on the adjusted R-square, indicate that the model explains 42.5% (radical NSD) and 42.6% (incremental NSD) of the total variability. Based on these values, with a difference of 0.01%, the variability in the stages of both models can be called comparable. Hence, the level of variation explained by the dependent variable is similar for both levels of innovativeness.

Testing for the second hypothesis involved the analysis of the interaction of tangibility between the NSD stages and new service innovation. The hypotheses 2a and 2b, predicts that there is

a negative moderation of non-financial (intangible) services. Here, as the dependent variable incorporates the innovativeness, there are two models one for incremental innovation and the other for radical innovation, illustrated in table 10. Therefore the results indicate that both hypotheses 2a

and 2b are not significant. The results, based on the adjusted R-square, indicate that the model

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ANOVA table shows that both models are statistically significant. The lower F-value of radical compared to incremental new service development, indicates that tangibility has a lesser effect on the NSD stages for radical innovation. The p-values of the interaction effects in both incremental and radical new service development tables, illustrate that none of them were significant.

Regarding the control variables (model 1), in relation to radical new service development, the firm’s age is negatively associated. Whereas, firm age has no association regarding incremental new service development. Firm size does not have any association for either radical or incremental new service development. Last, formalization illustrates mixed results. At times having a statistically significant negative relationship, sometimes a significantly positive relationship, and in most of the case it has no significant effect.

Discussion and Conclusion

This study was motivated by the wish to advance the service innovation and new service development literature. Using a quantitative approach, this study examined the influence of innovativeness and tangibility on the relationship between NSD activities and new service development. This was done through distinguishing five NSD stages based on Avlonitis et al., (2001) and Cooper‘s (1990) stage-gate model. Namely, ‘idea generation and screening’, ‘business analysis and marketing strategy’, ‘technical development’, ‘technical evaluation’ (also called testing), and ‘launch’. Through a broad literature review the concepts of innovativeness and level of tangibility were described and further distinguished into sub-categories; radical versus incremental new service development and tangible versus intangible.

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Theoretical implications

As aforementioned this study’s approach to NSD in terms of the stage-gate process, tangibility level and innovation characteristics offer a stimulating starting point. Such an approach is sufficiently flexible to include a broader spectrum of service industries without sacrificing specific aspects of the NSD and service innovation. Two modes of innovativeness (incremental and radical), and tangibility (tangible and intangible) are highlighted and analyzed in terms of their relation to the NSD stages and new service development. Such an approach might be adopted in other theoretical setting as well.

Furthermore, the literature fields of the NSD process and stage-gate are mainly empirically driven and theory based approaches are rare most likely due to the heterogeneous NSD field (Kuester, Schuhmacher, Gast, & Worgul, 2013; Zomerdijk & Voss, 2011). Hence this study attempted to bridge this gap by using the perspectives of uncertainty in innovation as well as process management theories. However, the predictions of the hypotheses were not accurate. One reason for this could be due to the difficulty to reliably differentiate between the tangibility dichotomy (Gallouj, 2002; van der Aa & Elfring, 2002; Djellal & Gallouj, 2001). On the other hand, the results indicated that not all stages were equally important, meaning that the perspectives do play a small role, just not as much as initially thought, especially regarding intangibility.

This research does contribute towards the literature on NSD in another way. The typology of services might not be as heterogeneous as assumed by researchers (i.e. Kuester et al., 2013; Zomerdijk and Vos, 2010). This is because two stages were beneficial for all service development types. Nevertheless, other stages are less important and as such it doesn’t fully comply with the process management perspective. However, there is a partial contribution here as the results of this study do indicate that the process management perspective, can still uphold despite some processes being less important than others.

Examining the roles of the stage offered two interesting points. First, the role of technical development, with a high mean (4.7343 as seen in appendix B), it would be expected that it would play a prominent role within the service industry. However, this is not the case. It only differentiates in the case of radical innovation, with no regard to the tangibility. The latter is surprising as it seems unlikely that it is just as easy to develop something corporeal as it is for non-corporeal. This calls for further research to observe what is truly happening in the technical development stage.

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differentiates in the case of radical service development. A possible explanation for this would be the higher risk involved with radical innovation and as such business analysis and marketing strategy’ is more important for radical innovations than for incremental innovations. Nevertheless, it would be interesting to do more in-depth research regarding this and also see if other stages are suddenly standing out.

Lastly, this research contributes to the debate surrounding the overlap between manufacturing and services, as the results indicated no strong division between tangible and intangible. This is in line with the research by De Jong & Marsilli, (2006), who studied the changes and blurring lines between product manufacuters and service providers.

Managerial implications

Regardless of the unexpected findings, the results do have some important managerial implications. First off, the results underscore the importance of several NSD stages as a foundation for new service development. This is important for managers as 40% of NSD projects fail when introduced to the market (Griffin, 1997). Hence, knowing where and what to focus on for managers is critically important. Managers are urged to implement certain NSD stages for specific innovation and tangibility types in order to help them with their innovation strategy. For instance, ‘idea generation and screening’, as well as ‘testing’ for new service development is important for new service development regardless of innovation types. This illustrates that it is of crucial importance for managers to follow the activities that belong within that particular stage. In this case, for idea generation and screening, it is the systematic gathering of ideas about the new service, translating it into a full service concept and then exploring the implications as well as performance possibilities. This is also the case for testing, where managers should conduct the service tests with participants from within the company (employees) and outside (customers). Afterwards they should be thoroughly evaluated.

The launch stage, however is only beneficial for incremental new service development, whereas ‘business analysis and marketing strategy’ is only advantageous for radical new service development. Moreover, ‘business analysis and marketing strategy’ as well as to a relatively lesser extend ‘technological development’ is beneficial to tangible radical new service developments.

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Limitations and future research

The results and contributions of this paper should be considered in light of its limitations. Firstly, this paper used an adaptation of Avlonitis et al., (2001) NSD process activities and these activities are grounded in NPD literature. It cannot be said with certainty that these activities are transferable from products to services. Although according to De Jong & Marsilli, (2006) the line between services and manufacturing is blurring, it is needed to have more studies to find out if this is truly the case.

Secondly, this is a cross-sectional survey study, meaning that it is likelier to be exposed to the risks of common method bias and reversed causalities. Several tests were conducted to check for this and as such the risk of it is low yet it cannot be fully excluded. However, this issue could be solved by adopting a longitudinal research method, which could be a future possibility. The issue of one size fit all assumption with the survey still exists, as each service industry is vastly different from the other it would have been better to conduct in depth interviews to fully understand how firms NSD process goes. However, in order to make a cross comparison between the industries a survey was the best tool to do so. Another limitation was that the results are based in the Netherlands only, meaning that it cannot be fully generalized. However, the data was gathered from all over the Netherlands in order to lessen this limitation.

The final limitation had to do with the level of understanding of the restaurants respondents, potentially creating an answering bias there. However, this was limited as much as possible by using a 7-point Likert scale, and by emphasizing that no answer was right or wrong.

However, the limitations also give way to potential improvements and future research. For instance, expanding the measurements used for different types of innovation. Following the six types of innovation by Gallouj and Weinstein (1997) might be very interesting to explore to see if this makes a difference or creates a better understanding on how to manage new service development more efficiently and effectively. Moreover, it could also be interesting to see what would happen if research items used were not based on NPD, but rather were created for NSD. Opting to include more types of service firms and locations would increase the generalizability. Finally, a very interesting future research option would be gathering data oriented at financial terms or performance scales.

Conclusions

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Appendices

Appendix A: Survey Questions (in Dutch)

Algemene informatie (open and dichotomous questions) 1. Naam restaurant: 2. Naam participant: 3. Functie participant 4. Geslacht □ Man □ Vrouw

5. Ervaring (in aantal jaren) van het restaurant met innovatie en nieuwe services: 6. Oprichtingsjaar restaurant:

7. Restaurant locatie(s):

8. Aantel werknemers momenteel werkzaam binnen het restuarant:

Restaurant classificatie (open and multichotomous questions) 1. Bedrijfsvorm: □ Zelfstandig □ Famlie bedrijf □ Keten □ Anders, namelijk: 2. Restaurant type: □ Brasserie □ Luxe restaurant □ Eetcafé □ Biologisch □ Trendy

□ All you can eat □ Anders, namelijk:

2. Soort keuken :

Idee generatie en verificatie (1-7 Likert scale)

1. Wij verzamelen systematisch ideeën over de ontwikkeling van nieuwe services. 2. Wij filteren de nieuwe service ideeën en maken een eerste evaluatie.

3. Wij vertalen het idee naar een ‘full service concept’. 4. Wij vertalen de service naar bedrijfstermen.

5. Wij vergelijken de verwachte uitkomsten van de nieuwe service met andere aangeboden services binnen het restuarant.

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7. Wij verzamelen feedback van klanten en gebruiken dit voor de ontwikkeling van ideeën. 8. Wij kijken naar de concurrentie en gebruiken dit voor de ontwikkeling van ideeën.

Bedrijfsanalyse en marketing strategie (1-7 Likert scale)

1. Wij identificeren kenmerken van de markt en huidige trends.

2. Wij voeren een compleet marktonderzoek uit naar de behoeften en voorkeuren van de klant. 3. Wij analyseren de concurrenten uitgebreid.

4. Wij identificeren de doelgroep voor de nieuwe service.

5. Wij identificeren unieke kenmerken die de nieuwe service onderscheidt van concurrenten. 6. Wij ontwikkelen een stappenplan voor de positionering van de nieuwe service.

7. Wij bereiden een compleet marketing plan voor (e.g. service-prijsstelling, distributie, promotie, etc.).

8. Wij beoordelen de tijd, mensen, investering voorwaarden en prestatie doelstellingen van de nieuwe service.

Ontwikkeling (1-7 Likert scale)

1. Wij beslissen over de uiteindelijke specificaties van de service.

2. Wij bepalen het operationele afleverproces dat de service ondersteunt.

3. Wij inspecteren het operationele afleverproces en maken aanpasingen indien nodig. 4. Wij maken een service prototype.

5. Wij voeren operationele testen van het service prototype uit en maken indien nodig aanpassingen aan de systemen en procedures.

Testen van de service (1-7 Likert scale)

1. Wij testen de nieuwe service bij het personeel van ons restaurant. 2. Wij testen de nieuwe service bij potentiële klanten.

3. Wij evalueren de resultaten van de testen en maken indien nodig aanpassingen aan de service.

Lancering (1-7 Likert scale)

1. Wij ronden het marketingplan van de service af.

2. Wij promoten de nieuwe service bij frontline personeel. 3. Wij ontwikkelen handleidingen voor frontline personeel. 4. Wij organiseren trainingen voor frontline personeel.

5. Wij lanceren de service op de markt (e.g. promotie, distributie, etc.). 6. Wij ontvangen feedback van klanten met betrekking tot de service. 7. Wij nemen correctieve acties ten aanzien van het lanceren van de service.

Incrementele innovatie (1-7 Likert scale)

1. Wij verfijnen regelmatig het aanbod van de bestaande services.

2. Wij implementeren regelmatig kleine aanpassingen aan bestaande services.

3. Wij introduceren verbeterde versies van bestaande services voor onze lokale markt. 4. Door innovatie verbeteren wij de efficiëntie van het leveren van onze bestaande services. 5. Wij sparen kosten door schaalvoordelen in de huidige markt.

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7. Het verlagen van kosten van interne processen is een belangrijke doelstelling.

Radicale innnovatie (1-7 Likert scale)

1. Ons restaurant aanvaardt behoeften die verder gaan dan de bestaande services. 2. Wij bedenken (compleet) nieuwe services.

3. Wij experimenteren met nieuwe services in onze bestaande markt.

4. Wij brengen services op de markt die volledig nieuw zijn voor ons restaurant. 5. Wij pakken vaak de gelegenheid aan om in nieuwe markten te opereren. 6. Ons restaurant gebruikt vaan nieuwe distributiekanalen.

7. Wij zoeken en benaderen regelmatig nieuwe klanten in nieuwe/andere markten.

Formaliteit (1-7 Likert scale)

1. Welke sistuatie zich ook voordoet, wij hebben schriftelijke procedures beschikbaar om hiermee om te gaan.

2. Regels en procedures nemen een centrale plaats in binnen ons restaurant. 3. De prestaties van iedereen worden administratief bijgehouden.

4. Werknemers worden nauwelijks gecontroleerd op het overtreden van regels.

5. Schriftelijke functieomschrijvingen zijn geformuleerd voor alle niveaus in het restaurant.

ROI (open questions)

1. Wat is het percentage verschil in omzet dankzij het invoeren van de nieuwe service(s)? 2. Wat is het percentage verschil in winst dankzij het invoeren van de nieuwe service(s)?

Appendix B – Factor Analysis

Table 3: Rotated component factor analysis for dependent variables

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Nee, je moet meten hoe relevant die service is en dat kan je doen door.. je hebt eigenlijk als je een dienst ontwikkelt een paar fases. Je hebt diensten die

As shown before, production blueprints rely on model-based design techniques to manage and inter-link product data and information (both its content and context),

 The multiple linear regression analysis for testing the influence of service failure magnitude, service failure frequency, customer participation and co-creation in the