CYCLE TIME REDUCTION OF A SERVICE DEVELOPMENT PROCESS
L. van der Wardt
August 2004
CYCLE TIME REDUCTION OF A SERVICE DEVELOPMENT PROCESS
On behalf of: ING Nationale Nederlanden Poland Ul. Ludna 2
00-406 WARSZAWA RijksUniversiteit Groningen Faculty Business Administration Landleven 5
9700 AV GRONINGEN Author: Luke van der Wardt
Mozartlaan 33
5343 EK OSS
lukeaiesec@hotmail.com
Student no. 1065300
Supervisors: Mr. R. Otto, supervisor ING Nationale Nederlanden
Mr. Dr. W. Biemans, first supervisor Bussiness Administration Mrs. N. Campbell, second supervisor Business Administration
The author is responsible for the content of this thesis, August 2004, Oss.
PREFACE
In front of you is my final thesis “Cycle time reduction of a service development process” based upon a research done on behalf of ING Nationale Nederlanden Poland. The final objective of this thesis is to graduate from the faculty Business Administration of the Rijksuniversiteit Groningen.
The research is about the way the cycle time of a service development process can be reduced. The months that I spend in Poland to complete this research were interesting for me because I could learn a lot about the topic of service development. I also learned a lot about working - and living - in an emerging market/country which was one of the nicest experiences during my student time.
I am thankful that ING Nationale Nederlanden gave me the opportunity to do a research in Poland.
I want to thank them for the great support they offered me during the research and afterwards. The people of ING Nationale Nederlanden I especially want to thank for their support are:
Mr. M. Van der Ploeg, Mr. R. Otto, Mrs. G. van Vollenhoven and Mr. Z. Hojka.
I herewith would like to thank Mr. Dr. W. Biemans of the Rijksuniversiteit Groningen for the constructive support and guidance he gave me during this thesis. He helped me to look more critical at the research.
Completing this thesis means also the end of my student days, for what I can say a great time.
During my five and a half years in Groningen, I learned a lot and made some of my best friends.
I especially want to thank my parents who always supported me during my study and made it possible that I could have a wonderful and instructive six years.
Luke van der Wardt,
August 2004
MANAGEMENT SUMMARY
This research is done on behalf of ING Nationale Nederlanden Poland (ING NN), one of the biggest life insurance organizations that operates on the Polish market. ING NN is one of the Polish business units of the Dutch ING group. On the Polish life insurance market ING NN operates in the markets of: individual life insurance, group life insurance and in the pension market.
The objective of this research is: “To (re)design the product development process of ING NN in such a way that the cycle time of this process reduces.”
The product development process can be defined as a series of activities, carried out over time that results in a new or adapted product that is introduced on the market.
ING NN wants to reduce the cycle time of their product development process because the time taken to develop and to introduce products is too long (14 till 24 months), which results in a less competitive position on the market. Another reason is that the sales agents become less motivated because they are not able to sale new products to new or existing customers. The sales agents are the only distribution channel within ING NN. They get paid based upon provisions per sold product. Hence, if no or limited new products are introduced their income and their motivation decreases. The last reason to reduce the cycle time is that a reduction of the cycle time directly influences the organizational profit.
To achieve the objective, research questions have to be answered. The research questions are divided into sub questions. The four research questions are:
1. What are the strengths and weaknesses of the product development process of ING NN?
2. What are the opportunities to reduce the time-to-market of the product development process of ING NN?
3. In which way can the opportunities, found in theory and in other business units, be useful for ING NN?
4. How can the suitable opportunities be implemented in the process of ING NN, so that it will result in a reduction of the cycle time of the product development process?
By answering the last research question (number 4), the research objective can be achieved.
The first step in the research was to analyze the product development process of ING NN. This is done through interviews, desk research and questionnaires which resulted in the founding of three weaknesses that cause the long cycle time of the process. These are:
A. The first activities (product idea generation, product idea evaluation and the feasibility study) in the product development process are not structured.
The first activities in the product development process are managed as a process. The product management department is responsible for managing these activities.
Supporting tools and templates and decision making moments should structure the activities. They
are not used in the first activities which results in less structured activities. The later activities are
managed as a project and structured through tools and templates.
B. The emphasis is not on the first activities in the development process, but on the later activities.
All divisions are involved in the activities that are managed as a project. The late involvement of all divisions results in a high degree of disagreement among the representatives of the divisions in the project activities. A high degree of disagreement during the end activities influences the cycle time of the product development process.
Late involvement of all divisions and less structured first activities result in less emphasis on the first activities than on the later activities.
C. There is one decision-making moment within ING NN, which is not adapted to the Polish culture.
There is one decision-making moment within ING NN during the product development process, which is time consuming. This moment is between the unstructured process activities and the project activities. The inputs for this decision are the results of the unstructured activities. Rational decision making is hard, based upon unstructured information. Besides the Polish decision making culture has a high degree of structuring and formalizing. As there is only one decision making moment within ING NN, based upon an unstructured process, this decision is not consistent with the culture which influences the time-to-market negatively.
The second step in the research was the analysis of success factors of service development and theoretical methods to reduce the cycle time of the product development process. This is done through desk research. To complete this analysis the found success factors and theoretical methods are analyzed in practice. This is done through a benchmark study of the product development processes of two Dutch business units of ING: Postbank Verzekeringen and ING Bank. The opportunities to reduce the cycle time of the product development process of ING NN are:
A. A standardized tool (the innovation funnel) to structure the first activities of the product development process.
B. Involvement of front line personnel in the product development process.
C. Early conflict resolution.
The third step of the research was to make the opportunities suitable for the product development process of ING NN. The Delphi Group technique is used to translate and to adapt/design the found opportunities to the process of ING NN. The Delphi Group technique uses groups of interested experts from the organization to make the opportunities suitable for the organization. This resulted in the following –suitable- opportunities:
Ad A To structure the first activities of the product development process.
For the first activity in the process (product idea generation) tools are designed that support the
generation of product ideas. The supporting templates are translated and adapted and now structure
the product idea evaluation and feasibility study activity in the product development process of
ING NN. The results of these templates are input for the decision-making moments between the
activities; these results can be quantified. Support of quantitative data can reduce the time of the
decision-making process, according to the Delphi Group. To put more emphasis on the first
activities, the Product Steering Committee is formed. This committee controls and monitors
product development on a strategic level and will make go/no go decisions during the feasibility
study.
Ad B Involvement of front line personnel in the first activities.
A task matrix and a decision-making matrix are designed and can be used as a standard to structure the involvement of all divisions in the product development process activities and in the decision- making moments.
Through the design of a focus group, front line personnel are involved in the product idea generation activity. During the product idea evaluation and the feasibility study (quick scan) the front line personnel will support the product managers to study the commercial feasibility of the product. An Agent Focus Group is designed to involve the sales agents operationally in this activity.
Ad C Early conflict resolution
Early conflict resolution, as an opportunity to reduce the cycle time of the product development process, is dependent on the success of implementation of opportunities A and B. Although the product managers have to be aware that they focus on conflict resolution during the early activities and apply different methods to resolve conflicts, for instance involvement of a third party.
Implementation of these suitable opportunities will result in a re-designed product development process of ING NN. In this re-designed process, the first activities are structured through tools, templates and decision making moments between the activities. During the process front lint personnel are involved. Structured activities and involvement of all divisions complete the existing product development process. Product managers must focus on early conflict resolution, which is relative easy when the first activities are structured and when all divisions are involved.
The first recommendation is that ING NN should implement the designed tools and templates that
structure the first activities of the product development process. The second recommendation is
that ING NN should involve front line personnel in their process. The last recommendation is that
product managers should focus on early conflict resolution. This will result in a reduction of the
cycle time, because it completes and structure the entire product development process.
CONTENT
PREFACE
MANAGEMENT SUMMARY
1 ING & RESEARCH APPROACH 9 1.1 INTRODUCTION 9
1.2 ING GROUP 10
1.2.1 Organization structure 10 1.2.2 ING Poland 10
1.3 ING NATIONALE NEDERLANDEN POLAND 11 1.3.1 Product groups 11
1.3.2 Organizational structure 13 1.3.3 Markets 14
1.4 REASONS FOR RESEARCH 15 1.5 RESEARCH APPROACH 16 1.5.1 Research objective 16
1.5.2 Research questions 17 1.5.3 Preconditions 18
1.5.4 Schematically view of the research 19 1.6 METHODOLOGY 20
1.6.1 Research methods 20
2 ANALYSIS OF THE PRODUCT DEVELOPMENT PROCESS 23 2.1 PRODUCT DEVELOPMENT 23
2.1.1 Service organization 24
2.1.2 Product development in service organizations 24 2.1.3 Conclusion 26
2.2 ANALYSIS OF THE ACTIVITIES 26 2.2.1 Critical Path 32
2.3 MANAGEMENT THE PRODUCT DEVELOPMENT PROCESS 33 2.3.1 Process management 33
2.3.2 Project management 34
2.4 DECISION MAKING PROCESS 37
2.5 STRENGTH & WEAKNESSES 39
2.5.1 Conclusion 40
3 IMPROVEMENT OF THE PRODUCT DEVELOPMENT PROCESS 41 3.1 THEORETICAL OPPORTUNITIES 41
3.1.1 Success factors for service development 41 3.1.2 Methods to reduce the time-to-market 43 3.1.3 Conclusion 46
3.2 PRACTICAL OPPORTUNITIES 47 3.2.1 Innovation funnel 47
3.2.2 Decision making innovation funnel 49 3.2.3 ING Bank 50
3.2.4 Postbank Verzekeringen 50 3.2.5 ING Checz republic 50 3.2.6 Conclusion 51
3.3 OPPORTUNITIES 52
4 TRANSSLATION AND ADAPTATION OF OPPORTUNITIES 53 4.1 DELPHI GROUP 53
4.2 OPPORTUNITY 1: STRUCTURING THE PRODUCT DEVELOPMENT PROCESS 54 4.2.1 Product idea generation 55
4.2.2 Idea evaluation 56 4.2.3 Feasibility study 58 4.2.4 Conclusion 59
4.3 OPPORTUNITY 2: INVOLVEMENT OF FRONT LINE PERSONNEL 60 4.4 OPPORTUNITY 3: EARLY CONFLICT RESOLUTION 61
4.5 SUITABLE OPPORTUNITIES 62 5 IMPLEMENTATION 64
6 SUMMARY AND RECOMMENDATIONS 66 6.1 SUMMARY 66
6.2 RECOMMENDATIONS 70
LIST OF LITERATURE
LIST OF FIGURES
APPENDICES
1 ING & RESEARCH APPROACH
1.1 INTRODUCTION
Research has shown that the profit of an organization, which operates on technology intensive markets, can increase with 30% when their time-to-market is reduced with six months
1.
When profits can decrease with such numbers, it is essential for every company to keep their time- to-market as short as possible. Whether or not they operate on technology intensive markets.
This scientific statement crossed my mind when I received the assignment of ING Nationale Nederlanden Poland (ING NN), to analyze their product development process in order to reduce their time-to-market.
Time-to-market is defined as:
The time to develop a product and to introduce this product on the market.
The time-to-market is the cycle time of the product development process. The product development process will be defined as:
Series of activities carried out over time, which results in a new product that is introduced on the market
1.
ING NN is one of the key players in the life insurance business in Poland and it is very important for them to stay competitive in an emerging market as the Polish insurance market. The Polish market changes rapidly and it is therefore essential to develop and launch products fast, in order to keep up with the market and its competitors.
The central question in this research is:
How can the product development process be (re)designed which will lead to a reduction of the cycle time of this process?
Chapter 1 starts with a view on the ING group. In the following chapter ING NN, the sponsor of this research, is analyzed. It describes the market on which they are operating, the organization structure and overview of the products. Next, the reasons for this research are mentioned. The following paragraph states the problem definition which consists of the research objective, the central research question and the preconditions.
Finally the research methodology, research methods and processes are clarified.
1
Biemans, W.G., 2000, Business marketing management, Groningen, Wolters-Noordhoff.
1.2 ING GROUP
ING Group is a global financial institution of Dutch origin with 115,000 employees.
ING was established in 1991 as result of the first ever-full merger between an insurer (Nationale Nederlanden) and a bank (NMB Postbank) in the Netherlands.
The group offers the following activities to his customers:
• Banking products
• Insurance products
• Asset management services.
In all their activities ING wants to be a leading, global, client-focused, innovative and low-cost provider of financial services through the distribution channels of the client's preference in markets where ING can create value
2.
1.2.1 Organization structure
The ING Group is geographically structured which means that the company is divided in
geographical areas. The product group asset management division is not divided in geographical areas. The organizational chart below shows the structure:
Figure 1: Organizational chart ING group
ING Nationale Nederlanden Poland is part of and controlled by the board of ING Europe. The next part of this chapter is a summary of the activities of ING in Poland.
1.2.2 ING Poland
ING Group began its operations in Poland in 1993 and was a pioneering foreign financial institution in the country. ING in Poland employs more than 12,000 employees.
Total assets of ING Group in Poland amount to PZL 30 bln
3. ING companies in Poland serve more than 3 million individual clients and some 3.5 thousand corporate clients. At the moment Poland is the third home market of ING, after The Netherlands and Belgium
4.
2
www.ing.nl
3
Polish currency; 1 Euro is 4.88 PZL, March 2004.
4
www.ing.pl
Supervisory board Executive board
ING Americas
ING Asia/Pacific ING
Europe
ING
Asset management
ING now offers a full range of financial services in the field of:
• Insurance: ING Nationale Nederlanden
• Banking: ING bank Slaski
• Asset management: ING investment management and ING real estate.
1.3 ING NATIONALE NEDERLANDEN POLAND
ING Nationale Nederlanden started its activities in 1994. After a re-branding process in 2002, it changed the name from Nationale Nederlanden into ING Nationale Nederlanden.
The organization is responsible for the insurance activities of ING Poland. The Polish insurance market consists of life insurances and non life insurances. The Polish government entitles in which field an organization may be operational. ING NN is entitled to operate in the life insurance market.
The definition of life insurance is:
A legal contract between an insurance company and an insured to provide protection against adverse financial consequences of the life of an individual or a group of people in the form of payment to a beneficiary
5.
1.3.1 Product groups
ING NN has three life insurance product groups. The product groups are stated underneath.
Product group Content Products in the group
A. Pension fund Obligatory pension fund insurance controlled by the Polish state
Open pension fund B. Group life insurance Life insurance which covers the lives of
more than one person
Term life insurance Unit link life insurance Employee benefits Riders
C. Individual life insurance Life insurance which covers the life of an individual
Term life insurance Unit link life insurance Riders
Figure 2: Product groups
The distribution channels used to sell the products are company dependent agents and branch offices of ING Bank Slaski.
5
www.insurance.com/glossary
Company dependent agents are permitted to sell ING insurance products. They are not allowed to sell products from competitors. ING NN has 2400 agents. This is the only operational distribution channel. The second distribution channel, the branch offices of bank Slaski, is at the moment not operational. Actually the main reason for this is the negative image of the bank. The ING group is doing research in order to be able to improve this image, so that the cross selling activities can increase.
A. Pension Fund
In March 1998 ING NN decided to enter the pension business. Polish people are obligated by the government to take care of their own pension. Only when they are not able to build up a pension themselves, the government will take care of this. Everyone who is capable builds up a pension and this is called the open pension fund.
ING NN offers long-term savings account aimed at accumulating capital to be paid out as annuity after retirement. These saving accounts are under regulations by the government. Due to this the space to develop new products is limited.
B. Group life insurance
In 1996 the company introduced group life insurance. The market share on this market is not as high as on the individual life insurance market. The reason for this is that this market is still under control by a state owned company called PZU.
The products in this product group are:
• Term life insurance: The customer pays premiums to the insurance company on a monthly or yearly base. The company saves these premiums for a specific period of time and pays them back after the insurance holder passes away. There is no cash value building. The savings are paid according the wills of the customers.
• Unit link life insurance: The customer pays premiums to the insurance company on a monthly or yearly base. The company invests these premiums for a specific period of time in investment funds. There is cash value building. After the specific period the results of the investments are paid according the wills of the customers.
• Riders: Supporting products that are linked to the core group life insurance products of ING NN. These supporting products foresee in the secondary needs of the customers. They are only available for customers who already have a core product. Examples of these riders are the critical illness rider and the health rider. They both foresee in attention for the insured group when somebody from the group gets health problems.
• Employee benefits: These are insurance and pension products which are delivered to
employees via the employer as a benefit package. This can include group life insurance
(both term as unit link products) and employee pension schemes. The reason that employee
benefits are in this group is because of the limited pension plans available for groups. The
group life insurance product manager is responsible for employee benefits
.C. Individual life insurance
ING NN started selling individual life insurances in January 1995. At the moment the organization is one of the market leaders in the individual life insurance business with 16.16% market share. An individual life insurance is an insurance in which the life of an individual is insured.
The products that the company has in this product group are:
• Term life insurance: The customer pays premiums to the insurance company on a monthly or yearly base. The company saves these premiums for a specific period of time and pays them back after the insurance holder passes away. There is no cash value building. The savings are paid according to the will of the customer.
• Unit link life insurance: The customer pays premiums to the insurance company on a monthly or yearly base. The company invests these premiums for a specific period of time in investment funds. There is cash value building. After the specific period of time the results of the investments are paid according to the will of the customer.
1.3.2 Organization structure
ING NN has since 2002 a line structure. There are four divisions in this structure. Three of them are line divisions. These are Operations & IT, Marketing & Sales and Financial & Legal division.
There is one staff division, which is the program office. The management board controls all divisions.
Before 2002, there were three business units in the organization and every business unit was responsible for one of the product groups. Due to the possibility of economics of scale and better internal transparency, the company reorganized this structure into a line structure. Figure three gives an overview of the current organization structure of ING NN.
Figure 3: Organizational structure ING NN Poland
The management board is under control of ING Europe. The program office, which can be considered as a staff division, is responsible for all projects within the organization.
The product management division, which is part of the marketing and sales division, is responsible for the product after it is developed and launched on the market.
As product development crosses the whole organization, all divisions are internal stakeholders in this research. The divisions that are mostly involved during this research are:
Management board
Program office
Operations & IT Marketing &
Sales
Financial & legal
• The Marketing division as gatekeeper of the product.
• The program office department as developer of the products.
There is one external stakeholder, which is the Rijksuniversiteit Groningen.
1.3.3 Markets
The life insurance market can be divided into a market for pension funds, private life insurances and group life insurances.
A. Pension fund market
As mentioned in paragraph 1.3.1 "Product Groups", Polish people are obligated by the government to take care of their own pension. The Polish government takes care for the pensions of people who are unable to do so. This is the so-called first pillar of the pension market and is totally state owned.
The second pillar of the pension, the Open Pension Fund, is in the hands of the markets. It is obligatory for everybody who can afford it. Due to this obligation the Polish government supervises this market closely and there are a lot of regulations for the parties operating on this market.
At the moment there are sixteen Open Pension Funds operating on the Polish market. There are 11.29 million people with an Open Pension Fund in Poland. The sum of the assets gathered by the Open Pension Funds amounted to PZL 37.94 milliard.
The market shares of the four biggest organizations operating in the market are:
a. Commercial Union: 2.53 million members - market share 22.6%.
b. ING NN: 1.9 million members - market share 17.0%
c. PZU Złota Jesie : 1.83 million members -market share 16.2 % d. AIG: 895 thousand members - market share 7.9%.
B&C. Life insurance markets
There are 74 insurance companies which have a license of the Minister of Finances to operate in
insurance activities in Poland, out of which 36 companies are life insurance and 38 are non-life
insurance companies. These 36 life insurance companies collect a total premium of
PZL 5.3 milliard. The life insurance company’s gross value of compensations and benefits paid in
the first six months of 2003 was PZL 2.6 milliard. The markets where these products are sold will
be analyzed.
Ad B Individual life insurances market
The private life insurance market is not dominated by one party.
The market shares of the four biggest organizations operating on this market are:
a. Commercial Union: market share 27.72%.
b. Amplico Life: market share 17.82%.
c. ING NN: market share 16.16%.
d. PZU ycie: market share 10.58%.
This market is the main market for life insurances where ING NN operates on. Due to the relatively bad economic situation (first quarter 2004) the market does not grow.
Ad C Group life insurance market
The size of the Group life insurance market is decreasing since the first quarter of 2002. The reason of this is the decreasing of the polish economics. Less people want to spend their money on life insurances and less companies are willing to spend money on employee benefits.
The market shares on the Polish group life insurance consist of the following companies:
a. PZU ycie S.A: market share 82.25%.
b. Commercial Union: market share 3.00%.
c. Amplico Life S.A: market share 1.36%
l. ING NN: market share 0.46%.
As mentioned before the market leader on this market is PZU, a state owned company. Because of their 82.25% market share and the economies of scale, they are able to sell/dump their products under the cost price of their competitors. That is why the competitors have relative low market shares on this market.
1.4 REASONS FOR RESEARCH
In 2003 Commercial Union developed and introduced two new private life insurance products and group life products. PZU developed and introduced two new riders (see page 9) for group life insurance and Amplico introduced one new private life insurance.
ING wanted to develop and introduce a new private life insurance (New Dowry) and a rider for private life insurances (Health rider) in 2003. The product ideas for the development of the individual life insurances of Amplico and Commercial Union came from insurance law changes in 2002 and are technical the same products as the New Dowry product that ING NN is developing based upon the law change. However ING NN did not manage to develop the product in the same time as its competitors which results in the conclusion that competitors are able to develop products faster than ING NN.
A negative aspect of the long cycle time of product development is that the sales agents acquire
less customers and therefore loose their motivation. They get paid based upon provision per sold
insurance. If they cannot offer their customers new products and not foresee in the needs of their
customers, their income decreases.
At the moment the minimum time used to develop and introduce a product is 14 months; the maximum time taken for this process is over 2 years. It takes too long to develop the product and this costs resources. The objective of ING NN is to develop products in a cycle time with a maximum of 12 months.
Other ING insurance business units as ING Bank, Postbank verzekeringen and the ING insurance in the Checz republic have a solid reputation in case of development and introduction of new products. In their markets they are well known as innovative companies.
Other reasons for reducing the cycle time of their development process are:
• ING NN wants to let the profit grow by reducing the time-to-market. Research has shown that the profit of an organization, which operates on technology intensive markets, can increase with 30% when their time-to-market is reduced with six months. From profit point of view it is essential for every company to keep their time-to-market as short as possible, whether or not operating on technology intensive markets.
• They want to be able to develop products within a reasonable cycle time. Reasonable means that the current opportunities to develop the product still exist when the product is ready to be introduced in the market.
1.5 RESEARCH APPROACH
The research approach consists of the problem definition which consists of the research objective, the research questions that have to be answered to achieve this objective and the preconditions.
1.5.1 Research objective
The benefits flowing from cycling time reduction are good reasons for ING NN to do research how to reduce this cycle time. The problem definition consists of a research objective. To achieve this objective questions have to be answered.
Research objective
The research objective defines what the constituent of the research is. It states what the outcome of the research should be and why this outcome is important.
The objective of the research can be defined as:
The result of the research should be a redesigned product development process. The relevancy of the research is that ING NN wants to reduce its time-to- market. The time-to-market is the cycle time of the development process. So reducing the time-to-market means (re)designing the product development process.
“To (re)design the product development process of ING NN, in such a
way that the cycle time of this process reduces.”
1.5.2 Research questions
To achieve the research objective, the research questions have to be answered. To specify each question it is divided into sub questions.
Question 1
What are the strengths and weaknesses of the product development process of ING NN?
- What is product development in an organization that produces services?
- Which activities can be distinguished in the product development process of ING NN?
- How are these activities structured?
- How is the product development process of ING NN managed?
- How are decisions made within the product development process of ING NN?
Question 2
What are the opportunities to reduce the time-to-market of the product development process of ING NN?
- What are the theoretical success factors in a service development process?
- What are the theoretical methods to reorganize the product development process in order to reduce the time-to-market?
- Are the success factors and theoretical methods to reduce the time-to-market an opportunity to (re)design the product development process of ING NN?
- How are the key success factors of service development implemented in the product development process of other business units of ING NN?
- In which way are the theoretical methods to reduce the time-to-market implemented in the product development process of other business units of ING NN?
Question 3
In which way can the opportunities, found in the theory and in other business units, be useful for the reduction of the cycle time of the product development process of ING NN?
- In which way can the opportunities be translated, adapted and designed to suitable opportunities for the product development process of ING NN?
- Is this adaptation cultural and organizational possible?
- Why should ING NN implement these opportunities in their product development process?
Question 4
How can the suitable opportunities be implemented in the process of ING NN, so that it will result in a reduction of the cycle time of the product development process?
- What should ING NN do to (re)design its product development process?
- Will the cycle time of the development process reduce after this (re)design?
By answering this last question, the research objective can be achieved.
1.5.3 Preconditions
The preconditions give the boundaries of this research.
The preconditions of this research are:
A. The (re)designed product development process has to be useful for all product groups within ING NN.
B. The (re)designed product development process must be functional within the existing organizational structure of ING NN. This organizational structure exists since 2002 and can not be changed for the reduction of the cycle time of the product development process.
C. The clients of ING NN perceive the products of ING NN as of high quality. A reduction of the cycle time of the product development process must not affect the quality of the
products negatively.
D. ING NN has a good image in the Polish market. A reduction of the cycle time must not influence this image.
E. This research has to be done in a period of six months.
1.5.4 Schematically view of the research
The structure of this research is shown in the following figure.
DesigDe
Figure 4: schematically view of the research
Explanation of the figure:
Chapter 1 contains the introduction and the research approach.
In chapter 2 the product development process of ING NN will be analyzed. The results of this analysis are the strengths and weaknesses of this process.
Chapter 3 consists of an analysis of the methods to reduce the time-to-market. The results of this analysis are theoretical and practical opportunities to (re)design the product development process.
In chapter 4 the found opportunities to reduce the time-to-market are translated and adapted to ING NN to make them suitable (to filter out possible cultural biases) for the product development process.
Introduction
Analysis
Design
Implementation
Chapter 1
ING Nationale Nederlanden &
research design
Chapter 3 Question 2 Analysis of theoretical and practical methods to reduce the
cycle time Chapter 2
Question 1 Product development
within ING NN, strengths & weaknesses
Chapter 4 Question 3
Translate/adapt/design the found opportunities to ING NN
Chapter 5 Question 4 (Re) design of the product
development process
Finally the designed suitable opportunities are the input to recommend ING NN how they should implement these in their product development process in order to reduce the time- horizon of this process.
1.6. METHODOLOGY
This section consists of the methodology and the methods used during this research. It is not common to distinguish these two factors, however, it is done in this research to create more transparency in the approach of this research.
Methodology refers to the theory of how research should be undertaken. It is important to have some understanding to make an informed choice about the research.
Methods refer to the tools and techniques used to obtain and analyze data
6.
The first part of this section is used to explain which methodology is used for this research. The second part is used to show which methods will be used. This will be specified per sub question.
The research result should support the product development process. This implies that the output of the research has to be the input for the product development process of ING NN.
The research that will be used is action research. De Leeuw
7defines action research as:
Research that considers the total problem of the stakeholder and tries to create a knowledge product, which can solve the problem.
1.6.1 Research methods
For every sub question the research method used are outlined:
Sub question 1:
What are the strengths and weaknesses of the product development process of ING NN?
- Objective: To analyze the product development process in order to outline the strengths and weakness.
The research methods that are used are:
Literature is studied to gain knowledge about product development, service organizations and about product development in a service organization. Based upon the literature and semi structured interviews with involved product managers a model of to analyze the product development process of ING NN is designed.
The first step was to analyze the activities from which the process exists. This is done through semi-structured interviews with employees from the organization who are involved in the activities. Semi structured interviews are used because the research topic was already known but not yet analyzed. The interview questions differed per respondent but were all related to the topic.
The barriers, of the respondents, to give their opinion about the process were less high when these
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Saunders, M., e.a., 2003, Research methods for business students, Prentice Hall.
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Leeuw, A.C.J. De, 1996, De bedrijfskundige methodologie, management van onderzoek, Assen, Van Gorcum
interviews were done one-to-one. The respondents were free to give their opinions about the topic, without the interference of collogues. The generated results of these interviews were the
respondents’ opinions about the way the product development process activities were managed, structured and the way decisions were taken.
For an objective analysis it was necessary to interview employees of all departments. The involved departments were: operations, IT, finance, legal, marketing, sales and program office department.
Based upon the qualitative data output of the interviews, questionnaires were made. The objective of these questionnaires was to generate quantitative data. Quantitative data were used to check if there was a bias between the qualitative data from the interviews and the respondents of the questionnaires.
The desk research method was used to analyze former and two running development processes.
The two products that ING NN was developing during the time of this research are the New Dowry product and the Health rider product. The New Dowry product is an individual term life insurance and the Health rider is a rider that can be added to individual life insurances. Both products are in development over the last two years. Research after the documentation of the development of these two products must generate insight in the way such a process is managed, from which activities such a product development process exists and the way the decisions are made.
A quantitative method that was used to analyze the product development process was the critical path method. This method was used to identify the particular important activities and to calculate the duration of the whole project
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All these methods were used to analyze the activities in the process, the way the process is managed and the way the decisions during the process were taken. The output of the analysis was compared to literature. This resulted in an overview of the strengths and weaknesses of the product development process.
Sub question 2:
What are the opportunities to reduce the time-to-market of the product development process of ING NN?
- Objective: To do analyze the theoretical methods to reduce the time-to-market and to benchmark these opportunities in product development processes of other business units.
The desk research method was used to analyze the success factors of service development and of the theoretical methods to re-organize the product development process focused on a reduction of the time-to-market. The analyzed opportunities were compared to the product development process of ING NN, based upon the output of sub question 1. This resulted in theoretical opportunities that could be useful to reduce the time-to-market of their process.
As is mentioned in section 1.4 some business units of ING have a good product development reputation. These are ING Bank, Postbank verzekeringen and ING insurance in the Checz republic.
Desk research after development processes in other business units should result in insight in the way they implemented the found success factors and methods in their product development processes. The input needed for this desk research was sent to ING NN.
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Slack, N., e.a., 1998, Operations Management, Pitman publishing, Londen.
Based upon the results of this desk research, semi structured interviews were held with product development mangers of the business units by telephone(ING insurance in the Checz republic) and during a visit to the business units (ING Bank and Postbank Verzekeringen). Because of the distance this way of research was expensive and the time for the interviews was limited. The objective of these interviews was to clarify and specify the way they designed their product development process. The interviews were not specified per activity but were concentrated on the way the found opportunities were implemented in practice. The output of the desk research and the semi-structured interviews resulted in opportunities for ING NN to (re)design its product
development process. To confirm if the output was consistent with the opinions of the respondents, they received the results to check it on observer bias and/or errors and if necessary to give
feedback. Finally the found opportunities were presented to the involved employees of ING NN.
During this presentation they could give their opinion about the value of the found opportunities to reduce the time-to-market.
Sub question 3:
In which way can the opportunities, found in theory and in other business units, be useful for ING NN?
- Objective: Translation and adaptation/design of the opportunities that are found in sub question two, in operational activities that can be implemented in the development process of ING NN.
Due to a cultural bias between the organizations, the opportunities must be made suitable for ING NN in order to be sure that they were useful to reduce the cycle time of their process. This is done through the Delphi Group technique. This method uses a group of employees to translate and adapt the found opportunities to ING NN. ING NN employees could translate and adapt the
opportunities because they have the cultural and organizational knowledge.
The input for the Delphi Groups existed of a business case based upon the output the opportunities found in chapter three (sub question 2). The group existed of employees from different disciplines and positions in the organization. A precondition was that they were interested in the research topic and motivated to improve it. This resulted in suitable opportunities to (re)design the development process of ING NN.
Sub question 4:
How can the suitable opportunities be implemented in the process of ING NN, so that it will result in a reduction of the cycle time of the product development process?
- Objective: Give ING NN recommendations on their product development process and show them how they could (re)design this process to reduce their time-to-market.
The input for answering this question consisted of the output of all previous sub questions. Based
upon the analysis and the (suitable) opportunities, the product development process of ING NN is
(re)designed.
2 ANALYSIS OF THE PRODUCT DEVELOPMENT PROCESS
Within chapter 2 the product development process of ING NN is described. In this chapter a model is designed to analyze all the activities of the process. It further consists of a management and decision-making analysis. The output of this analysis is an overview of the strengths and weaknesses of the process.
2.1 PRODUCT DEVELOPMENT
The product development process can be defined as series of activities which are carried out over time that result in a new product that is introduced on the market.
The activities from which such a development process exists are:
A. Generating ideas B. Evaluating ideas
C. Technical and commercial evaluation D. Creating the product concept
E. Development
F. Testing of the product
G. Testing of the product introduction H. Market introduction
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Cooper designed a product development model, see figure 5 which is used for the product development. The products that ING NN produces are services. In the next sub section the way services are developed are analyzed.
Management of the product development process
Figure 5: Product development model12
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Biemans, W.G., 2000, Business marketing management, Groningen, Wolters-Noordhoff.
= Evaluation moment (go/no go decision)
Generating ideas &
evaluation
Technical and commercial evaluation .
Creating product concept
Product development
Testing product
Testing product introduc- tion
Market intro- duc- tion
Market Technology
2.1.1 Service organization A service is:
An economic activity that creates value and provide benefits for customers at specific times and places, as a result of bringing about a desired change in – or on behalf of - the recipient of the service
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There are some basic differences between goods and services.
These are:
• Customers do not obtain ownership of services. Ownership of the ING NN products is proved by the polis-document of the insurance.
• Service products are intangible performances: ING NN products are intangible and the tangible aspect of the product is the polis-document.
• The customers are often involved in the production process.
• People can be part of the service. People are not part of ING NN’s final services.
• There is an absence of inventories in service organizations (of the final end service).
• Many services are difficult for customers to evaluate. This is because the output of the services provided by ING NN takes place after the owner has passed away.
• Service distribution channels involve electronic and physical channels. The products of ING NN are distributed physically. This is due to the electronic infrastructure of Poland.
The products produced by ING NN have mainly service characteristics.
A remark with regards to services is that the customer is involved in the development process. The involvement of customers is higher in a service development process than in the development process of goods (tangible products).
Lovelock segmented service companies on the level of customer contact with the service
organization. Hereby he created three segments which are high customer contact services, medium customer contact services and low customer contact services. A higher level of customer contact results in more involvement of the customer in the development process. According to Lovelock insurance companies are in the last segment which means that there is little, if any, physical contact between customers and service providers. Contact takes place at arm’s length through physical distribution channels
11. So there is no necessity to involve customers in the development process, their involvement can be represented by sales agents who have direct customer contact.
2.1.2 Product development in service organizations
Does the fact that an insurance company is a low customer contact organization mean that the product development model, out of figure 5, can not be used to develop services?
Edvardsson and Olsson state that there is a key concept to develop services.
This concept consists of three elements:
• The first element is to develop the service concept. The service concept specifies the domain of the customers´ needs and the service offer to meet these needs. The steps to
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Lovelock, C., e.a., 1996, Services marketing, A European perspective, Prentice Hall.
create this service concept do not differ from the steps before the product concept is described.
• The second element is the development of the service system. The service system includes allocation of the resources available for the process of realizing the service concept. The resources must be designed in a way that the concept can be realized that the right service can be generated.
• The third element is the development of the service process. This is the specification of the activities needed to generate the service
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When this concept of service development is compared to the concept of product
Figure 6: Product development according to Edvardsson and Olsson
Another service development model is also analyzed in order to see whether or not it is useful for the analysis of product development within ING NN. This is the model of Stephan Thomke which he uses in his article “R&D comes to services” in the Harvard Business Review
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This service development model distinguishes five activities which are:
A. Evaluation of ideas B. Plan and design C. Implementation D. Test
E. Recommend/introduction.
The main difference between Cooper’s and Thomke’s model is that the Cooper’s model distinguishes more separate activities. In total, the content of the activities of the models is the same.
A fourth model that is analyzed is the model of Mc Grath
13, which distinguishes five activities.
These are:
A. Evaluation
B. Planning and specification.
C. Development D. Test and evaluation E. Service release.
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Edvardsson B., Olsson, J., Key concepts for new service development, The service industry journal, Lovelock, Prentice Hall.
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Thomke S., 2003, Harvard Business Review, “R&D comes to services,” Boston.
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http://herkules.oulu.fi/isbn9514264509/html/c635.html
Service concept development
Service system development
Service process development
Actual
service
This model distinguishes fewer activities than Cooper’s model but the content of all activities does not differ.
2.1.3 Conclusion
The models used to analyze a product or a service development process show a lot of similarities.
In this research both models are combined in order to analyze the development process of ING NN. The model that is used can be found in appendix 1.
This model shows the activities of which the development model consists. The broken line is a kind of funnel. This shows that the number of ideas that will be developed into actual products decreases per activity. It also shows that every activity is tested in and influenced by the market and to the technology.
Biemans states that there should be emphasis at the first activities of the process (generation of the ideas, evaluation of the ideas, technical and commercial evaluation).
The length of the evaluation arrow shows that the evaluation moments between the first activities are more important than the evaluation moments (go/no go decision moments) between the activities at the end. Because of the fact that it gets harder to make a no go decision in the later activities because the sunk costs are higher.
The service development model shows the ideal way to develop a product and is used to analyze the service development in ING NN.
2.2 ANALYSIS OF THE ACTIVITIES
Every activity out of the service development model of appendix 1 is analyzed within ING NN.
The distinguished activities in this model are:
A. Generation of product ideas B. Evaluation of product ideas
C. Technical and commercial evaluation D. Creation of the service concept E. Service development
F. Testing of the product G. Testing of the introduction H. Introduction.
Ad A Generation of product ideas
The ideas for developing a new product come from internal and external factors
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• Internal factors are factors from within the organization that come up with ideas for new products. Examples of these factors are: personnel that come up with product ideas, product ideas from other business units or withdrawn products.
Tools to monitor these internal factors to gather new product ideas are focus groups of employees and brainstorming sessions.
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Biemans, W.G., 2000, Business marketing management, Groningen, Wolters-Noordhoff.
It is the responsibility of the product manager to monitor the internal factor to generate product ideas. During this research no product ideas are gathered from internal factors.
Ideas for new products come from external factors.
• External factors are factors from the environment of the organization from which new product ideas are gathered. Examples of external factors are: changes in the insurance law, changes in the economic environment of life insurance companies, new technologies, products that competitors offer to their customer (reverse engineering), or final customer needs for new products.
External factors are monitored, within ING NN, to generate new product ideas. The market research department and the product managers do this. The market researchers or the product mangers do not monitor the needs of the customer. This should be done by the sales agents (an internal factor).
In section 2.1.2 the theory of Lovelock is used to show that the customer is involved in service development processes. This means that the customer is involved in the generation of new product ideas. As an insurance company is a low contact service company, the sales agents could fulfill the role of the customer. However, the product managers should then monitor the sales agents. During this research the input of the sales agents is rather passive.
Ad B Evaluation of product ideas
Every generated product idea should be evaluated. The objective of this evaluation is to define the product idea and to outline the market potential of this idea.
This evaluation should give a rough indication of the value of the new product for the customers and for the organization.
Based upon the research results of this activity can be concluded that new product ideas are not evaluated within ING NN. Reason given for this are:
• There are no tools available to support and structure product idea evaluation. For example:
A tool that supports product idea evaluation, but does not exist within ING NN is a product portfolio. A product portfolio is an overview of all products that the company has and offers to their customers which can support the evaluation on market potential of the idea
15. Besides product managers find it hard to evaluate product ideas without a
standard/structure that helps them evaluating the idea on commercial and operational aspects.
• There does not exist an evaluation moment (go/no go decision) between the product idea evaluation activity and the technical and commercial evaluation activity. The employees do not distinguish the objectives of these separate activities.
• It is not in the job description of the product manager to evaluate generated ideas, so there is less emphasis on this activity.
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M lbacher H., e.a., 1999, International Marketing, London, Thomson Business Press.
Ad C Technical and commercial evaluation
In theory most product ideas do not survive the idea evaluation activity. The product ideas that achieve this phase are evaluated. During this activity the feasibility study is done.
This study consists of:
• Technical evaluation: study on if it is possible to develop the product and what the production process should look like. The information needed for this evaluation comes from employees in the own company or from external consultants.
• The commercial evaluation: study on the commercial potency of the product. The information for this evaluation comes from the marketing department and/or the sales department
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Within ING NN this phase is called the feasibility study of the generated product ideas. It is not an independent activity in the product development process.
This feasibility study exists of a study on the objectives (business, organizational, financial, technical, control and process improvement) of the product idea. A study on the scope of the process, the proposed solution, the possible impact of the process, the planning of the milestones, the possibilities of synergy with other projects, the key risks of the process, the estimated financial benefits, the non-financial benefits, cost allocation and a resource planning.
Part of the commercial evaluation is to check the market potential; this is done by checking the financial and non-financial benefits.
The feasibility study is roughly done in ING NN. This is because there are no resources allocated to this activity. It means that it may occur that departments are not involved, because they do not have resources available to check the feasibility of the product idea in their department.
The output of the evaluation and feasibility study is put in the project brief. Based upon this document (the project brief) a go/no go decision is made to go to the next activity or not.
In the opinion of ING NN the feasibility study is the start up for the initiation (service concept) and development activities of the product development process. These activities are managed as a project and that is why the results of the feasibility study are summarized in a project brief. The go/no go decision is about the question whether a project should be started to develop the product or not.
Ad D Creation of the service concept
Creation of the service concept in ING NN is the start of the project to develop the product. This activity is called the initiation activity. Objective of this activity is to create a concept of the service that is going to be developed. This concept is based upon the output of the project brief.
It exists of three sub activities.
The first sub activity is a concept of the product features. This is a general description of the product. The product features are input to make the business analysis and the PARP (Product Approval Review Product).
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