MscBA Master Thesis
Customer acceptance of an innovation:
Building customer trust in the case of a monopolist
J. J. de Vries
1st supervisor: Dr. H. Snijders 2nd supervisor: Dr. T. L. J. Broekhuizen
University of Groningen
Faculty of Management and Organization MSc in Business Administration: Strategy & Innovation
j.j.de.vries.9@student.rug.nl Student number: 1337041
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Customer acceptance of an innovation:
Building customer trust in the case of a monopolist
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ABSTRACT
This paper discusses the success factors that are important for customer trust in an innovating monopolist in order to get the innovation accepted by customers. Results indicate top management action, consultation with customers or representatives, employee involvement and a persuasion campaign can be effective for building trust in a monopolist. These aspects have a positive influence on the relationship between firm and customer and can eliminate confusion about the innovation and uncertainty about the outcome.
Keywords
Customer trust Market acceptance Monopolist
Professional football league Railway sector
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INDEX
1 Introduction 5
2 Theoretical framework 11
2.1 Top management action 11
2.2 Consultation with customers or representatives 14
2.3 Employee involvement 16 2.4 Persuasion campaign 18 2.5 Conceptual model 21 3 Methodology 24 4 Case studies 26 4.1 Case 1: description 26 4.2 Case 1: results 28
4.2.1 Top management action 29
4.2.2 Consultation with customers or representatives 31
4.2.3 Employee involvement 33
4.2.4 Persuasion campaign 34
4.3 Case 2: description 36
4.4 Case 2: results 37
4.2.1 Top management action 38
4.2.2 Consultation with customers or representatives 39
4.2.3 Employee involvement 39
4.2.4 Persuasion campaign 40
5 Conclusion and discussion 42
Acknowledgements 45
References 46
Appendix 1 51
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1 INTRODUCTION
Organizations face an unstable and often turbulent business environment. The marketplace for products and services is dominated by rapid changes in customer needs and by fierce competition, globalization and innovations. Organizations can respond to this by innovating; in fact sometimes the organization is forced to innovate. Even monopolists, who normally are less stimulated to innovate, can be forced to innovate if they have reached their own boundaries through which further growth is not possible anymore. According to the figures, innovating is not always successful: four out of ten new services fail in the market place (Gnoth et al, 2006; Griffin, 1997). The purpose of the present study is to contribute knowledge and insights by gathering information on and exploring the factors that contribute to the success of an innovation. The goal of this research is to gain insight into the success factors of an innovation’s acceptance by customers and to give recommendations with regard to improving this success.
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because this part of the season determines which teams will play in a European league during the next season.
Numerous definitions of innovation are given by numerous authors. Schumpeter (1942) sees an innovation as the most important tool to create value and thereby achieve competitive success. According to Baker and Hart (1999), innovating in its simplest term is to create something new for a certain industry or firm, whether it is through improvements in technology or better methods of doing things. Although the various authors state that an innovation is something new, Wijnberg (2004) emphasizes that something new can only be called an innovation if its value will be determined by its selectors. Selection can be differentiated into three selection systems. The traditional type is market selection, in which consumers select and producers are being selected. The second type is peer selection, in which the opinions of other producers determine the outcome of the competitive process. Finally, expert selection means that competitive success or failure is determined by the opinions of a category of people who are neither consumers nor producers but to whom particular knowledge or expertise is ascribed.
In general, two dimensions can be used for categorizing innovations. The first dimension is the degree of innovativeness. Radical innovations produce fundamental changes by causing major breakthroughs. Incremental innovations enhance existing practices or make small improvements in products. Second, innovations can change products or processes. A product innovation is a transformation of new ideas into new concepts. A process innovation is a new form of creating or delivering the product or service. Process innovations are more likely to occur in the later stages of an industry’s life cycle and are often associated with improving materials utilization, shortening cycle time or quality increase (Dess et al, 2005).
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Damme (2004) examined that an industry with too many competitors does not stimulate innovation either. Sooner or later, perfect competition makes an industry unlevel. An industry is called level if the industry’s actors are of a similar size or when the company with the largest market share in the industry changes every period of time. Nevertheless, Demsetz (2004) states that restricting monopoly profits may hurt consumers in the long run, by choking off innovations or by obliging a new technology or method as a substitute for the old one.
In this report innovations at services are investigated. One particularity of a service is the participation of the customer in the production process. Either the customer is subject to transformations stemming from the production system, or he participates in the execution of certain tasks. When the customer is subject to transformations stemming from the production process it is called that the customer is the target of the production process. When the customer participates within the process, the customer is used as a production system resource (Abramovici and Bancel-Charensol, 2004). Evangelista and Sirilli (1998) summed up the following characteristics of a service:
It is very difficult to clearly separate or distinguish the product (or process) and the delivery
phase from each other. There exists close interaction between production and consumption;
Whereas goods have usually a physical existence, services have an intangible nature;
Human resources are a key role in the provision of services. Services are usually dependant on
the knowledge and skills of the employees directly involved in service processes. These employees often have high contact with the customer.
According to De Jong et al. (2003), innovative output in service firms can be characterised by changes in the service concept, client interface, delivery systems and technological options and is often a mixture of these dimensions. They propose a two-stage model for new service development that can be separated into several steps. Figure 1 illustrates this. During the search stage, ideas are gathered and selected. Promising ideas are transformed into concrete results in the implementation stage.
Figure 1 A model of new service development (NSD)
Search stage Implementation stage
Idea generation Commercial evaluation Screening Development Launch Testing
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Customer trust
Some services appear more dependent on the presence of the customer than other services. Some services share more of their primary functions directly with the customer, because interpersonal attention must be paid to the customer. In these services, customers have to participate (physically or perceptually), influencing his or her well-being. In particular, these services transform the customer as a person, by providing what are often complex experiences. In these cases, it can be argued that such services must be provided by highly skilled personnel and that organizations use their personnel to satisfy the customer (Gnoth et al, 2006). In principal, the two main things closely related to services are expected quality and experienced or perceived quality (Natalisa and Subroto, 2003). Customers will always evaluate the services they experienced by comparing them with whatever they expected or wished to receive.
Customer satisfaction is a key issue for all those organizations that wish to create and keep a competitive advantage in today’s highly competitive world (Davies et al., 2005). Furthermore, customer satisfaction can also provide important feedback about the quality of marketing decisions and is widely recognised as a key influence in the formation of customers’ future purchase intentions (Taylor and Baker, 1994). Satisfied customers are also likely to tell others of their favourable experiences and thus engage in positive word-of-mouth advertising. Davies et al. (2005) state that repeated purchase and word-of-mouth directly affect the viability and long-term profitability of a firm. It is asserted that although a buyer becomes aware of an innovation mostly from mass media, it is the word-of-mouth sources which are mostly utilized by the buyer at the critical stage of evaluating the innovation (Rogers, 1962). This finding can be explained by the possibility that customer satisfaction generates free word-of-mouth advertising. Perhaps more obvious is the opposite case in which dissatisfied customers give negative references and this possibly occurs even to a greater extent than positive word of mouth from satisfied customers. Such negative publicity is difficult to adjust and can harm communication efficiency (Homburg and Luo, 2007).
Customer satisfaction can be influenced in two ways: the creation of expectations and the conformation or disconfirmation of those expectations (Maloney, 2003). A customer is said to be satisfied when actual performance outcomes exceed expectations (positive disconfirmation), whereas one is said to be dissatisfied when expectations exceed performance outcomes (negative disconfirmation). The higher the customer satisfaction level is, the higher the revenues will be. This is based on positive word-of-mouth which attracts new customers to the firm and repeated sales are the result of it (Chang and Liao, 2005).
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In common, the key incentive for the provider to orientate its service to the users’ needs is missing (Schiefelbusch, 2005) and the strong position of the monopolist may cause that stakeholders have doubt about the innovation, especially when the innovation is forced (Demsetz, 2004). Trust is needed to decrease that uncertainty and increase legitimacy (Aldrich and Fiol, 1994). Simply marketing the innovation to the market will not change the opinion of the customer very often. More importantly, it involves proactively equipping customers with the necessary knowledge for understanding and using the new services as a means of transforming an opposing force into a promoting one. This can result in trust, which has a major influence on the level of community support for the project (Galliers et al., 2003).
Customer trust has three characteristics, namely competence, benevolence, and integrity. Competence means that the customer believes that the company has the ability or power to do what the customer needs. Benevolence is the extent to which the customer believes that the organization wants to do good for its clients, aside from any egocentric profit motive. Integrity means that the customer believes that the organization makes good faith agreements and fulfills promises (Han and Suh, 2003). The research question that is investigated in this paper is formulated as follows:
What success factors are important for customer trust in an innovating monopolist in order to get the innovation accepted by customers?
This research question will be answered in a combination of information analyses. Explicitly, this research is based on both theoretical and empirical data. After combining findings of previous literature, an empirical study based case is provided. The case study approach is quite useful in the process of building theory (Yin, 1984).
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2 THEORETICAL FRAMEWORK
The choice of a certain innovation is a political process - both formal and informal - of negotiation and bargaining (Reshef, 1993). These decision processes are shaped by actors with particular interests and values and in particular positions of power. Several success factors have influence on customer trust in a monopolist’s innovation. The factors top management action, customer involvement, employee involvement and persuasion campaign are explored in this theoretical framework.
2.1 Top management action
Innovation projects need competent staffs to succeed. Managers of the innovating firm must have great social capital and must know the organization’s culture and routine (Dess et al, 2005). It would be incorrect to define product innovation as only an internal middle-level managed process. Rather it is a major element of strategy (Bessant and Francis, 2005). Targeting innovation capability on developing new or improved products can involve multiple actors engaged in complex and inter-linked processes with a single end in view: creating value at an acceptable cost for the customer. Institutional leadership is particularly needed for organizational innovation, which represents key periods of development and innovation when the organization is willing or forced to consider alternative ways of doing things. During these periods, the central and distinctive responsibility of institutional leadership is the creation of the organization's character or culture. This responsibility is carried out through four key functions: defining the institution's mission, embodying purpose into the organization's structure and systems, defending the institution's integrity, and ordering internal conflict (Van de Ven, 1986).
The literature suggest that certain ‘softer’ dimensions (besides harder dimensions as technology and knowledge) define the behaviour and reactions of the organization’s environment to an innovation (De Brentani and Kleinschmidt, 2004). These dimensions are the firm’s organizational culture and management commitment and can have an important impact on the complex and risky process of an innovation. The literature speaks of the firm’s innovation culture, when it comes to an innovation friendly environment. Innovation culture is a style of organizational behaviour that is comfortable and willing to deal with new ideas, change, risk, and failure (O’Reilly, 1997) and where managers and employees believe in the importance of new products for the company’s continued success, domestically and internationally (Smith, 1998).
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management action means that the management of an organization is personally involved with the innovation process. This is when managers play a visible role on a day-to-day basis as a visionary, champion or project facilitator for new ventures (Swink, 2000). These roles mean that the top management provides a vision to guide the program along the new product road of the firm and takes responsibility for the innovation program. Also other authors define a champion as an important factor in the innovation process. Howell (2005) speaks of champions that are required to overcome organizational inertia or fierce opposition and move new product ideas from small to large project endeavours, market launch and ultimate market success. Rogers (1962) says that for costly, visible or radical projects this champion needs to be a powerful individual with a high function in the organization. Furthermore, the champion’s transformational leadership skills play a crucial role in implementation success as he must constantly resolve conflicts and canalize resistance.
Turning back on the subject of playing a visible role on a day-to-day basis, senior managers need to play an active role in the innovation program at both the strategic and detail level and use performance measures for this program as part of individual management objectives (De Brentani and Kleinschmidt, 2004). They can contribute explicit practical knowledge to the process and are able to use their hierarchical power for a smooth acceptance and implementation of the innovation.Summed up, the management of the innovating organization has two tasks: making the idea realizable by developing the innovation and using the authority to reduce resistance and persuade the importance of the innovation to the market.
A prominent activity identified for top management is their role in maintaining or establishing a vision for the change. Kotter (1996) posited that change agents are leaders and that leadership includes establishing direction: developing vision of the future and strategies for producing the changes needed to achieve that vision. Management must review and reformulate the firm’s strategies in order to achieve the newly set business goals of developing and commercializing high-quality new and customized service more rapidly than competitors. Thus, the management must be concerned not only with involving the organizational participants within the process, but also with bringing that action toward constructive ends. Those leaders know how to get employees and external stakeholders like customers excited about their mission. By expanding the purpose into a vision, they effectively draw out the inspiring and energizing aspects so people can become focused and excited about it. The top management is able to turn an idea into a plan of action. The top management has specific know-how and is able to make the various stakeholders such as consumers convinced of the innovation. Moreover, it is capable of translating the language of innovation technology into the language usually spoken and understood in the organization.
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stakeholders; and persisting in the face of adversity (Howell, 2005). Relying on their personal networks inside and outside of the organization, they scout widely for new ideas and opportunities to pursue. Effective champions build support for the innovation by sharply analyzing customers’ interests and tailoring their selling strategies to be maximally persuasive, and by tying the innovation to positive organization outcomes such as profitability, enhanced reputation, or strategic advantage. A great difficulty is managing ideas into good currency so that innovative ideas are implemented and institutionalized. While the invention or conception of innovative ideas may be an individual activity, innovation (inventing and implementing new ideas) is a collective achievement of pushing and riding those ideas into good currency. The social and political dynamics of innovation become important as one focuses the energy and commitment that are needed among coalitions of interest groups to develop an innovation (Van de Ven, 1986). The task for the top management is to try to acknowledge the concerns of the customer and communicate with them in order to find a solution in conflicting interests (Landin and Olander, 2005).
According to Howell (2005), a manager must have confidence in its ability to deliver what the customer wants. He claims that the most effective way to get people on board when promoting an innovation is to understand what people need to hear and give them the information in the form that they can process in a way that is useful for them. Also for the organizational commitment, he reaches across different levels and divisions in the company, to sound out his idea and increase interest and commitment to it. In fact, managers who use their well developed networks inside and outside the organization to source new ideas are associated with more successful innovations than managers who rely on written materials exclusively (Howell, 2005). A bad management team lacks to report project updates repeatedly and lacks answering questions if they are asked by stakeholders. Because of the lack of evidence, especially in the beginning of the project, customers can be doubtful about the innovation. Trust is needed to decrease that uncertainty and increase legitimacy (Aldrich and Fiol, 1994). If stakeholders trust the managers, they believe that the venture of the innovation is necessary for the organization’s and society’s sake. The manager must present the product innovation idea to customers as an opportunity instead of a threat. When managers label innovative ideas as opportunities, people are agree that change is necessary and they will get actively involved and committed to the innovation.
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The management team must take charge of internally generated ventures. They have to bring entrepreneurial ideas forward, identify what kind of market exists for the innovation, find resources to support the venture and promote the venture concept to stakeholders; especially the customers and the employees who have to transmit the message to the customers (Dess et al, 2005). This is explained in paragraph 2.3.
Hypothesis 1: Top management action is crucial for customer trust in an innovating monopolist in order to get the innovation accepted by customers
2.2 Consultation with customers or representatives
Innovative ideas can be developed more easily when stakeholders and the innovating organization discuss and exchange thoughts in an environment of trust. Identifying the expectations of service users is a way to find out the customers’ satisfaction or dissatisfaction (Natalisa and Subroto, 2003). Abramovici and Bancel-Charensol (2004) state that the success of innovating depends on the way the customer deals with the innovation. The conditions of implementing an innovation appear to be fragile if the customer is a resource in the process and if this process is transformed by the innovation. In that case, the firm must be capable of guiding and training the customers’ participation if the project must succeed. Therefore, it is important that the organization is constantly thinking about customer expectations, external communication and customer training methods which can help the innovation to be accepted. Even without initial demand from customers as a factor for innovation, taking into consideration customers requests can facilitate customer approval of innovation and perceived quality of it will then increase (Abramovici and Bancel-Charensol, 2004). The lack of initial demand also makes an organization consider the conditions under which customers will perceive the innovation as an improvement and looking outside the own four walls of the organization.
Pinto and Rouhiainen (2001) suggest making project management more customer-focused in order to improve the practice of this discipline. They argue against measuring projects via the traditional constraints of time, money and performance, which force an internally focussed process in which only the accomplishment of the intention is measured and instead propose that true project success is only achieved when a fourth measure (customer satisfaction) is accomplished (Ives, 2005).
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improvement of community awareness of important issues, a mechanism for public feedback and increased networking, access to local resources and skills of consumers and an enhanced sense of control and empowerment within the community (Pivik et al, 2004).
However, in a market where lots of (potential) customers are dependant to the innovating firm, involving all customers to the innovation might get complex. Consumer representatives share the consumer perspective and have the opportunity to shape policies and in so doing develop model regulations and legislation that organization can adopt. A special interest group can represent consumers with their very broad, diffuse, non-commercial interests (Schuck, 1977). They identify issues, form alliances, bargain and accommodate, accumulate and make use of their political influence, perform and demand favours and care for the needs that their members have. Frequently, they evaluate the quality of the services provided and define measures of effectiveness that over time is able to become widely used and accepted. Special interest groups demand better services and describe both the form and characteristics of the service (Garrity and Stupak, 1993).
Abramovici and Bancel-Charensol (2004) state, that customer (union) involvement can be realised in diverse phases of the development of the innovation project. At the start of the innovation project an analysis has to be done, in order to identify the needs of the customer. During this moment, it is important that customers are advised that the company is moving forward with the initiative and will be asking customers to identify issues (Berdie, 2003). By informing how the firm will identify the needs of the customer and how their input can help provide solutions to existing problems, the firm actually shows how the customer will be involved. Client input can be the basis for setting mission and establishing the goals of the innovation. Later on in the project, continuous consultation with the client can help in correcting errors previously made in translating goals into performance measures. All these actions indicate that the firm will be listening to the customer.
Based on the identification of the needs of the customer, concepts or ideas are researched. The innovation project must specify the information necessary for the project manager to accomplish the project according to the expectations of the customer and thus a guarantee for the customer that the project will correspond to his request (Berdie, 2003). When the innovating firm explains the needs that are interpreted by summing up the actual findings and agreements that are made with the customer (union), the firm shows that it has involved the customer with the innovation and that the customer has influenced a decision in some cases.
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2003). Unless customers are told why something is better, they are more likely to attribute it to coincidence than the company's commitment and hard work (Shtub et al. 1994).
With regard to an innovation, a firm should not only take in consideration the expectation of customers but also the expectations of the conditions for developing the benefit provided by this service. Service performance is based on the result and the way the service is delivered (Abramovici and Bancel-Charensol, 2004). In other words, service performance is based on the performance of the service and the experience of the customer.
Hypothesis 2: It is required that innovators consult with customers or representatives, by having an open discussion, in order to get an innovation accepted by customers
2.3 Employee involvement
Companies must decide who will be engaged to an innovation project. Senior managers may have experience and credibility but tend to be more risk averse (Dess et al, 2005). Midlevel employees, who may be the innovators themselves, may have more enthusiasm because they can see firsthand how an innovation would address specific problems. Furthermore, employees can play an important role within the innovation process, because they have knowledge of the work process and often know best the relevant practical options and their implications. Employee involvement in decision making may occur at all or any of the stages of figure 1. However, early involvement should produce a greater commitment to and a stronger sense of ownership toward the innovation among employees and decrease political tensions (Reshef, 1993). Bowen and Lawler (1992) present three types of employee involvement, namely suggestion involvement, job involvement and high involvement. Suggestion involvement is fundamentally based on communication. In this approach, information is being passed up and down the organization. Suggestion involvement contains programs that encourage employees to contribute ideas to the top of the organization.
Job involvement includes teamwork and the improvement of productivity through finding better ways of organizing and carrying out tasks. In this approach, teamwork is the magic word that is associated with complex service organizations. Due to the added complexity, job roles and responsibilities are shared within the team, while supervisors are having less control in directing the activities of teams and taking on a more supportive role towards the team.
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employees are actively involved in decision making they will be better informed about the innovation and the implications of any changes that are introduced. When employees are informed about the changes, their resistance generally dissipates (Reshef, 1993). Second, if employees participate, they can be assured that their interests and concerns have been adequately represented and accommodated and they are more trustful that management is concerned about their interests. This is explicitly important with NS, who had a conflict with its personnel a few years ago. Employees were discontented with the standardized schedule that they had to work with. Train drivers and conductors had to work on the same track every day and on the same time in order to increase track and customer concern. An enormous conflict arose, which affected the employees’ relationship and trust in NS in a negative way. Third, if employees participate in the decisions, they become committed to and responsible for the innovation process. This will be shown in the next paragraph.
That employee involvement can be a benefit for the company is two-fold. First, companies have the opportunity to expand the knowledge of their customers. Front office personnel often serve as an intermediary between the customer and an organization. They know who the customers are and what they need. Eccles (1993) states, that worker participation is used in achieving higher quality in decision making, than if the management team decides on their own. This is assumed, because front office personnel are better able to judge what should be done to solve problems. In this way, the innovation process has involved the part of the organization that is closest to the customer.
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It is also the front office personnel who will eventually train the customer with the innovation. This requires first that the innovation process is accepted by the employees and that personnel is trained and informed about the innovation before tested (Abramovici and Bancel-Charensol, 2004).
This means also that employees understand and support the new service when it is launched. When employee involvement is lacked, there is a chance that some workers are resistant or there is a chance that some workers accept and smooth the progress of the innovation. This can be crucial for the survival of the firm. Successful new services display higher levels of commitment and enthusiasm among employees developing the project and also among the employees selling the new service (Gnoth et al, 2006).
An important consideration for employee involvement is the communication between top management and employees. The presence of a labour union does not automatically guarantee that workers’ interests are adequately represented in the decisions regarding systematic changes (Reshef, 1993). Unions must achieve an effective voice in this process in order to reassure workers that the changes do not affect their working conditions negatively. Union leaders, who accept the necessity of technological changes, may try to control its adverse effects by providing workers with effective, direct and indirect, voice in the decision-making process through plant-level mechanisms, such as collective bargaining and joint consultation with management, or through extra-plant mechanisms, such as political or legal action (Freeman and Medoff, 1984). But unions may also inhibit direct employee involvement in the decisions about technological changes if the initiative comes from management (Reshef, 1993). Top management must communicate to employees and should make it clear that customer satisfaction is the key to do business. It should also let employees know they have the responsibility to resolve customer issues. This means that top management will stimulate employees for serving customers even if stepping outside formal procedures is necessary. To promote participatory work practices, management must facilitate worker involvement in decision making, a commitment to quality, communication and trust.
Hypothesis 3: Employee involvement is crucial for customer trust in an innovating monopolist in order to get the innovation accepted by customers
2.4 Persuasion campaign
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will not get any better. There is a challenge in marketing new products to help consumers identify and appreciate the innovation’s benefits and understand the necessity to change; particularly those innovations that might not be clear from an inspection of a product's outside perspective and that will not be immediately discovered by everyone (Hultink et al., 2005).
Consumers can be convinced of the innovation’s benefits if a number of preconditions is fulfilled. The consumers have to access external signals that link the product to the quality dimension, the consumers have to hold positive attitudes towards the quality dimension and activate these attitudes at the time they evaluate the product, and the consumers have to believe that the supposed link of the product to the quality dimension is present (Frewer and Scholderer, 2003).
Garvin and Roberto (2005) state that persuasion promotes understanding of the customer, which subsequently breeds acceptance and eventually leads to action. The persuasion campaign consists of four phases:
1. Convince the market that radical change is needed: demonstrate why this innovation is the
right choice.
2. Position and frame a preliminary plan, gather feedback and announce the final plan.
3. Manage the mood of the customer by constant communication.
4. Reinforce behavioural changes to avoid backsliding.
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Persuasion can be realized by advertising. Advertising is relatively cheap, the information that is communicated to consumers is under control, and it can reach a mass audience (Hultink et al., 2005). However, in the case of innovations, it is important to note that advertisements need to contain a high amount of attribute information, because there is more content-related information to report the innovation. Consumers typically have to learn about new benefits in order to appreciate new products or services and have to recognize possible changes (Hultink et al., 2005; Lehmann et al., 2001). Because innovations can be complex, buyers need to be educated about potential applications of the new system before they can evaluate its appropriateness (Meyers and Sivakumar, 1999).
Two types of advertisement strategies can be identified based on the content of the message, namely functional advertisement and emotional advertisement. Functional advertisement means that rational appeals are used to demonstrate a product’s attributes and features in an objective manner. Emotional advertisements express the subjective and symbolic benefits of the product, such as humour or guilt appeals. In some cases, consumers may not have the product knowledge for understanding the functional process. Under those conditions emotional advertisement may be a more effective approach (Lee and O’Conner, 2003). A common mistake in managing innovation-driven ventures is that the firm usually is concerned with improved technologies or systems rather than with improved customer benefits (Ryans, 1987). The reality is that customers are interested in benefits, not in technologies. Therefore, the communication objective of an innovation is not to emphasize whether the new system is superior to existing system or not. Instead, a more effective communication objective is to persuade the customers that the innovation provides a bundle of benefits to them, such that they are willing to give up the older method. This shaping process must be actively managed before change is introduced, when uncertainty is high and setbacks are inevitable (Garvin and Roberto, 2005). When the innovation is seen as a brand new or radical innovation, it is more likely that the public might not appreciate it at the beginning. This means that customers need to be taught to recognize the improvements or benefits of the innovation (Ryans, 1987). Furthermore, implementation needs communication because it reassures the public. Namely, communication can act to reduce uncertainty that is caused by risk and complexity (Fidler and Johnson, 1984).
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realized by early identification and enhancement of the fit between a product and user needs, by preparation of the consumer (union) to receive the innovation, and by providing the message of development of the innovation to the needs of the customers (Kraus and Leonard-Barton, 1985). The organization must ensure that consumers will listen to tough messages, question old assumptions and consider new ways of work (Garvin and Roberto, 2005).
Since so much of the learning about customers and their value propositions involve those people regularly dealing with customers, it is essential that frontline workers are also involved with the campaign (McMillan and Selden, 2006). During the discussion of involving employees within the innovation process that is described earlier, it was argued that the transfer of knowledge between the frontline personnel and the customer increases the probability of implementation success.
It is important to make the organization ready before action. This results in employees that not only understand why change is needed, but also are emotionally committed to implement it and build trust to the customer (Garvin and Roberto, 2005). Customers may be well served by individuals who can act as effective conduits of information, namely employees who directly interface with customers. Hypothesis 4: A persuasion campaign that explains the reason to change an established system or method, is essential for customer trust in an innovating monopolist in order to get the innovation accepted by customers
2.5 Conceptual model
The discussion above illustrates that various factors influence customer trust in an innovating monopolist. The relations between these factors are shown in figure 2.
Figure 2 Conceptual model
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First of all, it is argued that top management action is crucial for customer trust in an innovating monopolist in order to get the innovation accepted by customers. The management team needs to play an active role in the innovation program at both the strategic and detail level. By expanding the purpose of the innovation into a vision, they effectively draw out the inspiring and energizing aspects so people can become focused and excited about it. The management team must be able to turn an idea into a plan of action. With specific know-how and authority it is able to make the customer convinced of the innovation. Effective champions are distinguished by three behaviours: conveying confidence and enthusiasm about the innovation; enlisting the support and involvement of key stakeholders; and persisting in the face of adversity. Especially with regard to an innovation of a monopolist, the management team must communicate with the customer in order to decrease doubt about the reason to innovate and the innovative solution and communicate with the customer in order to find a solution in conflicting interests. The decrease of uncertainty is realizable by acknowledging the concerns of the customer and tailoring their selling strategies to be maximally persuasive. The management team must label the innovation as an opportunity to the customers and to the employees who have to transmit the message to the customers.
The second hypothesis was about consultation with customers or representatives. The innovating organization must constantly think about the customers’ expectations and needs in order to get the innovation accepted by the marketplace. This is realizable by having open discussions with customer groups. A special interest group can represent consumers with their very broad, diffuse, non-commercial interests. Consumers have a different view on the innovation and can contribute that programs are more closely attuned to their own needs, values and culture. Furthermore, consumer involvement provides the opportunity for greater support of resulting decisions and services, an improvement of community awareness of important issues and a mechanism for public feedback and increased networking. Moreover, customer involvement gives an indication to the market that the innovation project will correspond to the request of the customer.
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innovation process is accepted by the employees and that employees are trained and informed about the innovation before tested. Customers may be well served by individuals who can act as effective sources of information, namely, employees who directly interface with customers. The employees can thus function as the extension part of the persuasion campaign.
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3 METHODOLOGY
To examine what success factors have an influence on an innovation’s acceptance by customers, two case studies are used. A case study is an empirical inquiry that investigates a contemporary phenomenon within its real-life context and may involve both qualitative data as quantitative data (Yin, 1984). The essence of a case study is that it tries to illuminate a decision or a set of decisions: why they were taken, how they were implemented and with what result (Shramm, 1971; Yin, 1984). Empirical data is obtained by documentation, archival records and interviews. With regard to the first case, interviews were of particular importance. This study is about human affairs and these affairs can be reported and interpreted through the eyes of different parties that can provide important insights into a situation.
The questions that are asked during the interviews are based on the theoretical findings in chapter 2. By questioning those people who were directly involved within the project, secondary data can be verified by relating it to primary data. This process can also be described as triangulation. According to Blumberg et al. (2005) triangulation is a method which increases the construct validity of a research, because it uses multiple sources of evidence to increase the independence of the sources of information. In this research a case is used for testing the formulated hypothesis.
The first case that is investigated, is the Netherlands Railways (NS). NS is a Dutch railway operator and can be labeled as a monopolist, regarding the Dutch passenger railway transport. To increase the quality of the research, multiple sources are investigated in order to view the case from different angles. The persons that are interviewed for this research, are chosen on the basis of the involvement with the innovation. By making a overview of all the stakeholders that were involved in the process, respondents were sought from these organizations that were knowledgeable about the issues being researched. NS was the first organization to contact, because NS is the key player in the innovation process. The list of interviewees is shown in table 1.
The second case is the Eredivisie, which is the highest professional football league in the Netherlands. Secondary data is obtained by websites and documents from the internet. Information about perspectives from diverse stakeholders is found, through which a complete case description is provided.
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project. Different parties are spoken with in order to increase the validity of the research. The interviews lasted approximately 40 minutes (Connexxion and ProRail) and 70 minutes (NS, VVMC and Rover). The list of the interview questions can be viewed in the appendix 2.
Table 1 List of interviewees
Organization Role Interviewee Function Date of interview
NS Dutch (passenger)
railway operator L. Stellingwerff Head of transport management 20
th June, 2006 ProRail State-owned organization that is responsible for the railway infrastructure A. Zegwaard Planner of infrastructure availability 27th June, 2006
Connexxion Dutch
bus-transport operator R. Ouwehand Traffic expert 29
th June, 2006
VVMC Employee union
of NS W. Bouman Policy maker new timetable 2
nd July, 2006
Rover* Customer union
of the Dutch public transport
R. Spithorst Policy maker new
timetable 4
th July, 2006
* Rover is one of the organizations in LOCOV, which are the joint customer organizations with regard to the public transport
All the answers of the various interviewees were documented and summarized in a table in order to compare the interview results. Similar and contrasting answers could be identified in this way. The results of the case analysis are presented in chapter 4. The findings are shown by using answers and examples given by the interviewees.
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4 CASE STUDIES
In this chapter, the hypotheses of chapter 2 will be tested by using two case studies, which are NS, the national passenger railway operator of the Netherlands and the Eredivisie, the highest professional football league of the Netherlands. First of all, the case of NS and the new timetable will be described in detail. Afterwards, the most significant findings of the case of the Eredivisie will be presented.
4.1 Case 1: description
Since 2002, the railway sector has been occupied with the establishment of a new timetable for the railway network in the Netherlands. The timetable that was in operation until December 2006 was based on the timetable that was implemented in 1970. The railway sector elaborated on this timetable for 35 years and now reached its boundary’s. During the last decennium issues had arisen:
• Train traffic has grown drastically, both passenger transport and goods transport. The demand
for rail transport will grow further for the coming years;
• There was a poor connection of the Dutch rail network with the European rail network;
• Train travelers needed a more flexible service to travel and to choose options. Traveling
options should be as efficient as possible for the customer, and the various forms of transport (like trains, trams, busses and also automobiles) should complement and connect each other perfectly.
Although all kinds of transportation have grown during the second half of the 20th century, traveling by car and train have developed to cover the largest share of all the ways to travel in the Netherlands. This is shown in appendix 1A. As can be seen in appendix 1B, the annual amount of kilometers that is traveled by train has grown from 8 billion in 1970 to 15 billion in 2004. The increased demand of train transportation could not be accommodated anymore, because the options to improve the transport by train were limited. The rail network of 1970 is for 80 to 90 percent similar, whereas twice as much passengers are served in the 21st century. Concerning the goods transport, 50 percent more goods are transported the last five years (Mols, 2004). In 2006, 1,000 trains a day more are in operation than in 1995, which is an increase of more than 16 percent. 7,000 trains transported 1,000,000 passengers and a 100,000 ton goods last year on a daily basis (Dukker, 2006).
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the HSL, the Betuwelijn and some extremely stressed lines are being constructed1. All these issues made the timing right to change the timetable rigorously instead of modifying the old one.
The Dutch railway sector consists of ProRail, the state-owned organization that is responsible for the rail infrastructure, and 17 passenger and goods railway operators. The far largest is the company NS (Netherlands Railways) and the passenger railway company NSR (NS Reizigers) in particular. ProRail divides the infrastructure capacity among these several railway operators in such a way that their needs are responded in the best way. With regard to the division of the infrastructure, ProRail has to consider the (inter)national legislations that promotes goods transport by train.
Every year, slightly modifications are made in the timetable to solve minor problems in the schedule. However, this new timetable is revolutionary and can be classified as an innovation:
• Improved reliability of the daily operation of NS. For NS and the other railway operators, the
intention of the new timetable is to make the schedule more robust. Owing to the new timetable, these providers will be better able to depart and arrive on time. Moreover, the intention of the new timetable is to make sure that trains will ride in the first place. NS wants that disturbances on a specific track do not affect the rest of the rail network.
• Two instead of three categories of trains on the Dutch railway network. If the differences in
speed between intercity’s, stopping trains and goods trains are decreased, capacity gains are realized. In order to erase those differences a bit, the fast train does not exist anymore.
• Changed arrival and departure times to almost all stations. The amount of trains that are
riding in the Randstad2 has increased. The decision to intensify the traffic in the Randstad is taken because city’s in this area keep growing. The new timetable is more open to change or add trains when this is needed.
• Other begin and destination stations. This is caused by the new infrastructure, that makes
drastic changes of the structure necessary: the HSL, the Betuwelijn and the additional trails.
1 The HSL is the high speed train that was planned to be introduced during the last months of 2007. The HSL
connects the rest of the European high speed rail network with cities like Rotterdam, Amsterdam and the national airport and provides lower traveling times within the Randstad, to Belgium and France. Moreover, high speed trains are a relative safe, environmental friendly and a durable way to travel.
The Betuwelijn is a 160 kilometer railroad that connects the harbor in Rotterdam with the East of The Netherlands. This line is intended for the goods trains that can ride to Germany and East Europe. By using this line, the goods railway transport has a chance to grow further.
Furthermore, additional rails are build at the most intensive parts of the Dutch rail network, in order to serve more customers in the future. Moreover, the additional rails make goods trains, intercity’s and stopping trains less dependent to each other by troubling each other less.
2 The Randstad is an area that is situated in the west of the Netherlands between the city’s Amsterdam,
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• A better connection to the European rail network. This is in particular the case for the Belgian
and German rail network.
The railway sector wants to realize growth and quality improvements to the best of its abilities. Since 1970, the structure of the timetable had not changed, while extra services and 60 stations3 were added to the network afterwards. As a result, disturbances on a specific track spread unchecked like an oil stain. The Dutch government is not willing to invest more money in the Dutch rail infrastructure after the great investments in HSL and Betuwelijn and believes that the infrastructure must be used more efficiently. A vision was established with the development of the new timetable which is called ‘Utilize and Build’ (U&B). U&B symbolizes the philosophy of a timetable that is simplified and more robust. The new timetable can affect the travelling time in a negative way for a small group of passengers, but makes the service more reliable, through which the customer knows that trains will ride for sure. U&B pleads three measures:
1. The realization of more train traffic by a better punctuality of the railway services. The
average intensity of trains riding on a certain track in The Netherlands is the second highest of Europe. However, technical arrears are present. The railway sector is improving the infrastructure and train materials to achieve a better punctuality.
2. The changed characteristics of the trains, so that more trains per hour can ride on the same
track. If the differences in speed between intercity’s, stopping trains and goods trains are decreased, capacity gains are realized.
3. The reduction of the unchecked spread of problems when a disturbance arises. The timetable
has been simplified, through which trains are less dependent to each other.
2007 is the first step to the final creation that must be ready in 2009. A lot of changes are made already in December 2006. The basis has already been developed in order to achieve increased reliability of the rail services. All in all, the positive and negative consequences of the new timetable are summed up in figure 3.
4.2 Case 1: results
The results of the case study of NS are described below. The factors top management action, consultation with customers or representatives, employee involvement and persuasion campaign are investigated by interviews and written material about the new timetable.
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Advantages:
Higher frequency of trains and train travelers are able to find their destination in a more quick and easy way than before:
• Improved reliability of the product that is offered by the railway operators; • Higher frequency of train runs in the Randstad;
• Improved connection to the European railway traffic;
• Faster way of traveling owing to the introduction of the HSL;
• A timetable that is easy to memorize. The timetable has become less complex concerning
the stops and types of trains.
Disadvantages:
• Some of the direct connections are eliminated. Not every single passenger can benefit from
the new timetable and for some passengers small or no changes are present;
• Some passengers must deal with longer traveling times. This is caused by the vision that
the train traffic has to be robust and reliable. Passengers have to change trains for their destination more often to realize this vision. However, waiting times have become less due to a higher frequency of train runs.
Figure 3 Weak and strong points of the new timetable
4.2.1 Top management action
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An other important question for this unit of analysis was the role that the management of NS played during the project. The management of NS was responsible for the outcome of the innovation project. Although the daily operation was executed by a special project team, the project was being supervised by the management, that also made the final decisions for complex dilemmas. An example is the situation of ‘Gouda-Zoetermeer-Voorburg’ and the decision to classify one of them as an intercity station on the track between Utrecht and Den Haag. The product manager of this region and the rest of the project team presented a product plan with pros and cons of each situation. Together with a financial report from the commercial department, the management team had the information to make a decision. Because assigning multiple intercity stations on this line was not an option, the management based the decision on the amount of travelers at each of the stations. Connections with Voorburg are now deteriorated significantly, whereas the situation of Gouda has been really improved in comparison with the old system (Mols, 2004).
Interviewees were asked what the role of the management NS was during the innovation project. According to NS, the management had to present itself in order to show its commitment to the project. Moreover, the management’s task was to ‘stimulate the project’ in the organization and ‘make all
25,000 employees rowing in the same direction’. VVMC and ROVER stated that the management of
NS was open and concerned during the meetings. Trust was created through the presence of the management. Moreover scenarios were discussed with the management in order to solve differences of opinions. The management of NS tried to overcome resistance and this was done by meeting in a small group, through which a calm and friendly atmosphere was realized and a trustful relationship could arise. Furthermore, discussing in small groups prevented chaotic meetings that had a
‘we-against-them-ambiance’. The meetings had a cooperating character and the management of NS could take
responsibility for the project and for their decisions.
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Mid-2002 Idea generation of a new timetable by NS and ProRail
February 2003 Meetings with (regional) governments about potential changes in various
regions in the Netherlands
May 2003 - Meetings with employee unions and the work council about the idea to
change the whole railway system
- Meetings with customer unions about the idea to change the whole railway system
2003-2005 Frequent meetings and dialogues between NS, governments and customer
unions (every two months)
September 2005 Interim response by the customer unions to the new timetable design
January 2006 Presentation of the new timetable of NS to customer unions
February 2006 Advise of the customer unions as feedback to the presentation
March 2006 - Timetable adjustments on the basis of the advises of the customer unions
in order to establish a definite timetable - Petition to ProRail for capacity confirmation
December 2006 Implementation of the new timetable
Every year NS formulates a transport plan, that requires approval from the Minister of Transportation. In the transport plan for the year 2007, it is stated that NS focuses on the customer needs in order to operate the organization (NS, 2007). The customer focus is a management philosophy that leads that everyone in the organization must have the ambition to serve the customer in the most optimal way. Moreover, the customers’ appreciation of the service by NS has become the indicator of the quality of this service. NS investigates the most important requests of customers and makes adjustments in the process to these needs. Five indicators exist which are riding on time, a good information system for customers during disturbances, a reasonable chance for passengers to acquire a seat, social safety and cleanness in the train. The customer organizations applaud for this measurement to give the customer a central position in the decision making process (LOVOV, 2007). More about this and the involvement of the customer in the new timetable development process is stated in the next section.
4.2.2 Consultation with customers or representatives
The second hypothesis was about consultation with customers or representatives. NS chose for a participative method, with regard to the establishment of the new timetable and the contact with stakeholders. After the railway sector decided to change the schedule radically and project objectives and boundary conditions were set, stakeholders were involved. Figure 4 presents a timeline.
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After NS and the rest of the railway sector considered that a new timetable had to be developed and a proposal was thought through, regional governments were contacted about the intention of the railway sector and the potential changes for every region. Various scenarios have been described, that also were discussed with customer unions. In this stage, all the stakeholders’ viewpoints were clarified and recommendations were given by these parties.
ROVER (and also other stakeholders) had the feeling they obtained enough information and were contacted early enough in the project. Furthermore, ROVER said that they communicated via formal and informal ways, which made the contact more trustful (LOCOV, 2006). NS and the customer unions had a common vision about the new timetable and established the word ‘customer
attractiveness’ as the keyword for the project. In this case, customer attractiveness consists of four
factors, which are increased reliability of the service4, a high frequency of trains, a good connected rail network (also with international trains and other forms of public transport) and transparency and predictability, which means a constant rhythm of departing trains every hour. Moreover, the customer unions insisted that traveling times should decrease on average. Although NS also attaches value to this last condition, the railway operator had the opinion that reliability of the service is preferred instead of shorter traveling times (NS, 2006-1).
From mid-2003, the stakeholders gathered together every two months. According to ROVER, the customer unions had a lot of possibilities to explain their viewpoints and they have the technical knowledge to be a strong debater towards NS. LOCOV has the legal right to advise NS if changes are implemented. Therefore, NS must present good arguments for the measurements that the company takes. The dialogues with customer unions were also useful for NS, that could find out if everything was considered well and if important data was overlooked.
There was both formal and informal contact between NS and the customer unions, where ‘transparency’ and ‘openness’ were the keywords to describe the meetings. Both NS and the customer unions came with ideas and solutions. This resulted in production models that were developed to alternatives by both parties, which have been examined by the logistical and commercial departments of NS. Although the atmosphere was open and calm, the parties could not agree about all the outcomes. Opposing viewpoints resulted in both positive and negative outcome for the customer unions. For example, the unions succeeded in implementing journeys with shorter traveling times (LOCOV, 2007). On the other hand NS decided to transform some intercity stations to stopping train stations. Complex decisions about the situation in the provinces Friesland and Zeeland have been postponed to 2008. Overall, customer unions are content that NS has listened to requests, especially to the advisements that were given in February 2006 (ROVER, 2007-3). NS listened to the request to
4 In 2006, NS already achieved a high punctuality (93.4%) compared to other Western European countries like
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prevent a decrease in passenger trains during the evenings and a better connection between the northeast of the Netherlands and the Randstad (LOCOV, 2007). Customer unions are aware of the fact that a timetable cannot have a perfect format for every passenger. However, they are particularly disappointed in the increased switchovers that a lot of passengers have to make, despite the positive measurement that trains ride more frequently in the Randstad, which means that passengers do not have to wait for their next train very long.
A last thing that should be considered is the fact that ROVER and other customer unions wanted that the implementation of the new timetable should be delayed. They proposed for this, because a lot of uncertainties were present in 2006 about completion of the HSL and the Betuwelijn. At the moment that this paper is published, it is clear that this doubt was not incomprehensible, because the HSL will not be realized in 2007. Although ROVER agreed that a new timetable was necessary, ROVER has not the opinion that it had to be introduced in 2007 necessarily, because the customer does benefit from schedules that are rigorously changed every year. Moreover, ROVER wanted to investigate if some of the most extremely negative consequences (for example passengers who have to wait 25 minutes or longer for a train during a switchover) could be improved. Although ROVER confirms that every scenario has some negative consequences, the extremely discriminated passenger should not be forgotten. Therefore, the customer organizations hope that this indicator will be added to the traffic plan of NS (LOCOV, 2007).
4.2.3 Employee involvement
Hypothesis 3 claimed that employee involvement is crucial for customer trust in an innovating monopolist in order to get the innovation accepted by customers. NS informed the employee staff in the same period of time as the customer unions. NS sees the employees (especially the train drivers and conductors) as an intermediary between the customer and the organization. When employees understand and support the new timetable, it is easier to implement it, because the organization has a broad basis for the plan then.
NS chose for openness about the plans and about the development of the project. Conversations with the working council, that lead to acceptation of a work schedule for the employees, created a stable environment instead of a confronting one. All the interviewees stated that change in an organization creates a certain amount of resistance and agreed that involvement engages the employees to the project and makes them enthusiastically about it. The interviewees were acquainted with the new direction that NS chose for implementing an innovation. “The executives are more listening to the
employee unions” and “the executives give a more positive impression that leads to a certain drive for cooperating with each other” are citations from Connexxion and VVMC. NS thinks that an
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‘fair process’. This means that people have to contact each other with proposals, debate about it, which leads to a decision.
NS and VVMC mentioned three reasons for informing employees as soon as possible. The first important circumstance was the disbelief of employees that a new timetable can increase the quality or punctuality of the service that NS provides. Second, change can cause confusion for employees when negative effects are unclear or uncertain. Even worse, “few contact moments between personnel and
the management team (which can occur because of different working schedules of managers and driving personnel) can easily lead to differentiated information (or gossips) that is generated by employees themselves during lunch breaks or working shifts”. This can create a negative tone. By
assuring the employees that the new timetable has no negative consequences for the job circumstances or income of the employees, uncertainty is taken away and employee unions have a friendlier attitude towards NS. “Meetings are more responsive when change can have positive effects for both parties
(e.g. growth of the organization) instead of a win-lose situation (e.g. reorganizing of job structures)”.
Third, the relationship between the (former) management team and employees of NS was far from good in the past. This was caused by strict regulations and sanctions that have been proposed by the management of NS. There was a conflict in 2002, that was also highly covered by the Dutch media. The conflict is called ‘het-rondje-om-de-kerk’, which means that employees had to work with a standardized schedule. Train drivers and conductors had to work on the same track every day and on the same time in order to increase track and customer concern. Back then, informative meetings between management and employees were organized, where employees were informed (instead of involved) about the plans to reorganize the work circumstances of all the train drivers and conductors. At that time, the management of NS was not responsive to suggestions from employees and opposing arguments from employees were not considered during the decision-making process. Through this top-down policy the relationship between the two parties was ruined and job satisfaction of employees decreased (Mat, 2002).
Another question was if employees felt responsible and engaged to the innovation. VVMC answered that some internal campaigns were released to make employees more enthusiastic about the new situation. An example is an assessment, that evaluates the knowledge that employees have about the new timetable. Although the majority did not make the test, the response indicated that ‘enthusiasm
about the new timetable’ was present (www.nrc.nl). Also prize contests were developed for the
employees.
4.2.4 Persuasion campaign
