New Service Development in the
service sector
How do the NSD stages impact service innovation
when influenced by the tangibility of services?
By A.J.L. Wiegers
Master Thesis MscBA: Strategic Innovation Management University of Groningen
Faculty of Economics and Business First supervisor: Dr. H. van der Bij Second supervisor: Prof. dr. J.M.L. van Engelen
23-01-2017 A.J.L. Wiegers Oude kijk in ‘t jatstraat 71a
9712 EE Groningen The Netherlands a.j.l.wiegers@student.rug.nl Student number: s2187078 Telephone number: +31657558225 Abstract
New service development (NSD) has become an important subject in the research on innovation last decades. Seen the economic importance of innovation, the current literature on NSD still shows gaps. This study tries to extend current knowledge by examining the impact of the NSD stages concerning the newness of innovations and what the influence of tangibility of services is on this relation. Using innovation and tangibility perspectives, such as the tangibility spectrum, the research question was tested. The data was collected from 212 Dutch financial and non-financial service firms. These consisted of financial service firms, private and public hospitals and restaurants. It was expected that intangibility and high innovativeness influenced service innovation negatively. The results of the study show that this was not that clear. The analysis showed that different levels of innovativeness and tangibility in services did not show clear differences in the effect of the NSD process. Theoretical and managerial implications are given concerning the results of this study.
Table of contents
1. Introduction 3
1.1 Problem definition 3
1.2 Purpose and significance of study 4
1.3 Research question 5
1.4 Scope of study and contribution 5
1.5 Research outline 5
2. Theoretical background 6
2.1 Service characteristics 6
2.2 New service development process 8
2.3 Service innovation 10 3. Hypotheses 11 3.1 Innovativeness 11 3.2 Tangibility 13 4. Methodology 15 4.1 Sampling 15 4.2 Data collection 16
4.3 Research instruments and validity 18
4.4 Method of analysis 19 4.5 Measures 20 4.5.1 Dependent variables 20 4.5.2 Independent variables 20 4.5.3 Moderator variable 20 4.5.4 Control variables 21 5. Results 21
5. 1 Data reduction results 21
5.2 Descriptive statistics and correlations 22
5.3 Hypotheses testing 24 5.3.1 Innovativeness 24 5.3.2 Tangibility 25 6. Discussion 27 6.1 Theoretical implications 28 6.2 Practical implications 29
6.3. Limitations and future research 30
6.4 Conclusion 31
10. References 32
1. Introduction
The fast changing environment requires companies to constantly innovate. Because of this, the amount of literature on product and service innovation has been growing over the last decades. So far product innovation received more recognition in studies. In the recent years, economies of developed countries made a move from product orientation to an economy where the service sector is leading (Palmer, 2001). As a reaction to the increase of customer demand and the development of the service economy, services have gained more attention recently (Miles, 2001). The service sector is important for a country’s economy as they provide jobs, inputs and public services. In 2010 about 50 percent of the total world employment was in the service sector (Worldbank, 2017) and it accounts for a substantial share of the GDP of most countries (OECD, 2017). Besides that, the growth of the service sector in a country has been considered as an indicator of the economic progress of that country (Eichengreen & Gupta, 2013). Seen the importance of the service sector, it is thus relevant for firms to know how to innovate and keep ahead of competitors. To innovate, firms have to produce new or significantly improved products or services. In the literature the process of bringing new products or services to the market has been described as new product development (NPD) and new service development (NSD) (Takeuchi & Nonaka, 1986; Edvardsson & Olsson 1996). New service development process will be the focus of this study.
1.1 Problem definition
Characteristics that influence NSD have been studied, but their effect on firms in different service sectors is still missing. Furthermore, previous studies have used less advanced analysis techniques (Papasthathopoulou & Hultink, 2012). Moreover, usually the stages of the NPD stage-gate model are applied to the NSD process.
Additionally, previous studies focused on NSD mostly studied financial- institutions (Papasthathopoulou & Hultink, 2012). These NSD processes are, although they are made for services, quite similar to the NPD process. Lastly, service innovation knowledge has been mainly built on technological innovation in manufacturing activities (Gallouj & Weinstein, 1997). Research in the NSD processes is thus limited in its scope and depth and further research is desired.
1.2 Purpose and significance of study
Following Griffin (1997), four out of ten NSD projects fail, once introduced to the market. Despite the recent focus on NSD and the fact that NSD is based on the NPD process, further research into the subject can thus be profitable for service firms. As the fail rate is rather high, the goal of this study is to discover what the effect of NSD stages and service tangibility is on the success of an innovation so that this rate can be reduced. To study this subject, initially gaps in the existing literature were identified.
The existing NSD studies are mostly empirically driven (Sethi & Iqbal, 2008), have no theoretical perspective and are focused on tangible services (Papasthathopoulou & Hultink, 2012). Moreover, the current literature on NSD is often based on conceptual knowledge gathered from the manufacturing industry (Cooper & de Brentani, 1991). The findings of studies based on the manufacturing industry could not be applicable to all services as they differ in organizational structures, development processes and lifecycles (Griffin, 1997). Besides that has the focus mainly been on the process behind the development of new services. This process can be studied in more detail.
NSD stages on service innovation. Besides that, the study provides implications for managers concerning the new service development process.
1.3 Research questions
This study attempts to determine the relationship between the NSD stages and service innovation. The focus will be on the tangibility of service firms and the different types of innovation. Therefore the following research questions are addressed: (1)‘Does the tangibility of the service influence the relationship between the new service development process and the service innovation?’(2) ‘Does the innovativeness of the service influence the relationship between the new service development process and the service innovation?’
1.4 Scope of study and contribution
This study focuses on three different sectors of the service industry. These include: financial service companies, public and private hospitals and restaurants. The latter two will be defined as the non-financial sector in this study. All data points are received via surveys of different Dutch service firms; these were collected from 2014 until 2017. These data points gathered from firms spread all over the Netherlands. Within the sector, different types of firms were also interviewed. In the financial sector, 114 firms (49 banks, 30 insurance firms, 35 fin-tech firms) responded to the survey and completed it. For hospitals (private and public) 38 completed the survey. Finally, 60 restaurants completed the survey as well. This led to a total of 212 service firms’ responses.
1.5 Research outline
In order to reach the goal of answering the proposed research question, a literature review is performed to get a deeper understanding of the discussed topics. With these theories and their corresponding concepts, hypotheses are formulated. The research process and the outcome of the study will follow. Then the findings are analyzed and interpreted using different advanced testing methods. Followed by a discussion, theoretical and practical implications, limitations and future research directions, and finally a conclusion is given.
2. Theoretical background
In the following section the constructs concerning service firms, innovations and tangibility will be explained in more detail. Firstly, different methods to characterize services will be discussed. After that the new service development (NSD) stages are explained and connected to this study. Finally, the concept of service innovation will be touched upon. Concerning these concepts, different theories will be reviewed and summarized.
2.1 Service characteristics
of services plays a role. Services do not have a tangible or materialistic presence as products do and therefore cannot be held in stock. This also makes them perishable.
Besides the intangibility of the service it also leads to difficulties in keeping competitive advantages, as the ‘supplied’ is more difficult to patent than a physical product. It is thus easier for competitors to enter the market (Carman & Langeard, 1980).
Following the study of (Carman & Langeard, 1980) the ‘core’ service offering is explained as the output of a service firm intended to provide the intangible benefits customers are searching for. It is seen as an act or process instead of a given result. Another difficulty of intangible services is that they are more problematic to test. It is tough for customers to envision the new service; they need a more tangible representation of the new service. Therefore, it is challenging to get a reaction in order to evaluate the service before the launch of the service. So it can be said that the new service ideas stay conceptual throughout the whole NSD process as a result of the tangibility.
Heterogeneity is also seen as a characteristic of services. This aspect makes it challenging for firms to keep the differentiation advantage of their service, as competitors are able to adjust their services to the demand of customers. Another way to explain a service is described by Hill (1977) as the service triangle where a service is seen as a set of processing activities performed by a service provider to add value for customers. Here the benefits of the service are described by the value-in-use.
Resulting the article of (Gallouj & Weinstein, 1997), technical and process characteristics of services can also be used to describe services. They explain services by two activities, front-office technologies and back-office technologies. The former one explains the contact with the customer, while the latter one focuses on the process characteristics. Characteristics of technology in services can be seen as the knowledge and skills of the employees that perform the activities when a purchase takes place instead of a production machine. Supplying a service is a result of application of technical characteristics and the immediate usage of the abilities and knowledge of the employees.
easy to capture have characteristics that show variation between the key objectives and the objectives that are reached. Expertise is seen as an intangible aspect of services, which is most comparable to process characteristics. Systems are seen as a tangible aspect of services, this is comparable to technological characteristics. Therefore can be said that the degree of standardization of characteristics says something about the tangibility of the service.
Another method to differentiate between services is explained by Gadrey (1992). He made a difference between directness of services based on the time of their ‘consumption’. In his study he identified direct and indirect services, where the former one applies to the actual delivery of the service, such as a consultation with a doctor or a visit to a restaurant. The opposite is the indirect product where the results of the service are described. So for the doctor: the effect of getting better or in case of restaurants: being full.
Services can thus be characterized on their need for cooperation between the customer and firm, the lack of materialistic presence, intangibility, perishability, technological and process technologies, time of consumption and heterogeneity.
2.2 New service development process
Services have gained more attention lately because of the development of the service economy as a reaction to the increase of customer demand (Miles, 2001). Because of this changing customer demand and technology, an increase in competition and globalization is seen in the service sector. Besides that do services also form a significant share of the economy and it is expected to grow even more. Because of this economic shift, NSD is seen as an important method for the continuity and growth of service firms (Cooper & Edgett, 1999).
based on knowledge gathered from the manufacturing industry and services in the financial sector. As services are differently managed than manufacturing processes (Griffin, 1997), it can be problematic to generalize findings on NPD for NSD. Besides that do they have marketing and development needs that go further than those of the NPD processes. Different types of NPD processes are the basis for explaining innovations in the service sector.
In this research, the process of NSD is referred to as an explanation of how and why an organizational entity changes and develops (Van de Ven & Poole, 1995). In the article of Avlonitis et al. (2001) they add a third segment. He stated that there are three different segments of NSD that are controlled by the firm, namely; ‘what', ‘how’ and ‘who’. The former one refers to developments that lead the to actual development of new services. ‘How’ is associated with the way the NSD process is tested. And finally the ‘who’; this focuses on the degree of cross-functional engagement in the NSD process. In this study the focus will only be on the ‘what’ segment. These developments are described in the NSD process.
From different theories (Cooper & Kleinschmidt,1986; Bowers, 1986), Avlonitis et al. (2001) made the following model (figure 1) to portray the new service development process. His model follows all the steps a new service needs to make, from idea to launch.
Figure 1. New service development stages
The first step of the NSD process is explained as the go/no go decision after different options have been considered. Here the idea is assessed on market-based and technical norms. The second step is a cost-benefit comparison of the idea, based on an analysis of the environment concerning the market, trends and customers. Also will the investments to develop and promote be taken into account. The next activity is technical development. This includes the design, development of process procedures
Idea generation and Screening Business analysis and Marketing Strategy Technical
and system design; here the idea becomes an actual service. Testing is the next step; here the new service is examined internally and externally on its marketing and operational aspects. The last step of the NSD process is the commercialization and launch of the new service. This refers to the introduction of the new service on the market and the evaluation of this.
The literature till now is focused on the difference between NPD and NSD and the corresponding NSD models. This focus should shift to differences within the service sector (Atuahene-Gima, 1996). For that reason, little is known about the influence of NSD success on services from different industries. Although research of Atuahene-Gima (1996) is two decades old, the subject still requires more research. Consequently the focus should shift to specific service categories. Ottenbacher et al. (2006) followed this line of thought and argued that the service spectrum is too wide to have an overarching strategic analysis on the entire service sector. There is need for research on factors that influence innovativeness concerning different service sectors and characteristics.
Avlonitis et al. (2001) presented 29 characteristics of NSD and categorized them per step of the NSD process. The NSD process uses these service characteristics to make the stages more tacit. The standardization of the characteristics will help firms with the addition, elimination, improvement, bundling and unbundling of characteristics.
New service development thus differs from NPD on several characteristics. These service characteristics are seen on multiple levels of the NSD process namely; idea generation and screening, business analysis and marketing strategy, technical development, testing and the launch. Studying these stages in different sectors is valuable to fully grasp differences between services.
2.3 Service innovations
innovation also became clear. Previous research was mainly focused on the analysis of physical products, which seems to be less difficult than an analysis of intangible services.
Observing services in terms of technical and process characteristics is used as way to look at service innovation. Innovation can be seen as the improvements of characteristics or the formation of new characteristics. This can be a change in one characteristic or several at the same time. Characteristics can be changed, removed or added to the service. It depends on the capability of service firms to search for and develop a certain set of knowledge and skills.
Different types of innovation exist for services. For product innovations it is difficult to make a difference between process and product innovation. As for service innovation the product already indicates a process as it is the activity that is supplied to the customer. This makes it more difficult to make a distinction on the type of innovation compared to product innovation. Besides that are innovations in services more difficult to grasp than product innovations. This is a result of the fact that the theory of innovation is established following the ideas of Schumpeter (1934), which was directed at technological innovation in manufacturing services. Together with the tacit nature of services, which make it more difficult to measure the output by traditional economic means, and the difficulties in measuring improvements.
Subsequently can be said that service innovations are more difficult to grasp and to analyze because of the intangibility. Introducing radical innovations creates higher risks for service firms. This type of innovation is more intangible for the customer as well for the firm.
3. Hypotheses and conceptual model
How and why firm’s change has been an important subject for research in the field of innovativeness. Although the changes are apparent, it is not fully explained yet. In the following section, concepts will be explained concerning innovativeness and tangibility. Building on these concepts, the hypotheses are then formed and explained.
3.1 Innovativeness
If firms want to survive in the ever-changing environment, they need to innovate. Radical and incremental innovations are means used for the production of new services, whereby radical innovations will lead to ‘newer’ services. Avlonitis et al. (2001) argued that different innovation types are associated with different development processes and performance results. When the innovativeness of a service increases, the amount of experience that can be used for the NSD process decreases (Olson et al. 1995).
innovations. Also the identification of characteristics of the new service will be more difficult for radical innovation as these services do not have preceding services the new service is building on. These are two examples why the NSD process is less applicable to radical innovations.
Within the NSD process, the stages are influenced by the previous stages and build upon it. All the stages have to be run through in order to reach a favorable outcome. Following the study of Zomerdijk & Voss (2011), one of the key success factors of service innovation is having a systematic NSD process. Proficiency in the activities of the NSD process will thus lead to successful service innovations (de Brentani, 1993). Radical innovations are likely to have a different development process. Resulting the study of Avlonitis (2001), financial performance and the degree of innovativeness have an inverted U-shaped relationship. So the higher the innovativeness or the more radical, the lower the financial performance.
On the other hand, incremental innovations have minor changes in its existing framework. Therefore, processes for improvements are comparable to the old one but with some changes. The steps of NSD can still be followed for the incrementally new services. In the study of de Brentani (2001) was suggested that a well-defined NSD process when producing incremental innovative services would enhance performance. On the other hand, exactly sticking to the stages of NSD process can be devastating for creativity and innovation (Edvardsson et al., 1995; Bodewes, 2000). This is seen at the other side of the inverted U-shaped graph of Avlonitis et al. (2001) where low innovation leads to low financial performance. As the NSD process has predefined stages, it is likely that the NSD process will play a smaller role in radical innovations compared to incremental innovations.
Since the NSD process is not fully applicable, the uncertainty whether a service innovation is successful increases. It can be argued that radical innovations have a negative effect on service innovation, as there is no proof that the used development process is successful. Because of this, it is hypothesized that;
H1: Innovativeness has a negative moderating effect on the relationship between the
3.2 Tangibility
Studies have pointed out that the service sector is too broad, leading to outcomes of studies that are not applicable to the whole sector. Focusing on specific service subfields within the service sector could be a solution for this problem. Wright (1993) suggested that categorizing different types of services could lead to a different point of view that could possibly help with the understanding of the sources of new service success. These specific service subfields can be grouped by certain characteristics of services. Previous studies already grouped services in order to provide better strategic analyses and guidelines of NSD.
Shostack (1977) argued that services have tangible and intangible aspects. Services can thus be both tangible and intangible, but there is a dominant concept that is either tangible or intangible. This is described by the molecular entity concept, where every innovation can lead to a change in tangibility. She states ‘The greater the weight of the intangible elements in a market entity, the greater the divergence will be from product marketing in priorities and approach’. For intangible services, firms need to perform more research than for tangible services. In her study she classified the services on tangibility via a goods (tangible) – service (intangible) spectrum. She defined tangibility as a state instead of a modifier. Tangible services can be touched, displayed on the shelf and seen physically. An intangible service on the other hand cannot be touched, tried or displayed on the shelf. It is also classified as dynamic, subjective and temporary.
A distinction between the financial and non-financial sector concerning tangibility is made on physical presence. In this study, restaurants and hospitals will be grouped together to form the non-financial sector as these sectors are both intangible. The financial and non-financial sectors are on the opposite sides of the tangibility spectrum as proposed by Shostack (1977). Focusing on services that are on the opposite sides of the spectrum will give the most reliable outcomes for this study. Following the above statements, intangible services are thus more difficult for consumers to grasp and for firms to understand the development process, as there is no physical and testable product. This could indicate that the firms are less able to fully perform the NSD stages, as certain activities will be more difficult to complete. Market studies that are done during the business analysis and marketing strategy phase will be extra challenging. The ‘execution of service tests within potential customers’ activity from the testing stage will also be more difficult for intangible products. As less is known about the intangible service for the NSD process, the steps of the process are less fitting, because not all activities are applicable or feasible. For firms, less is known for the NSD process, thus the result of the NSD process is that the steps are less well followed. Whilst not all activities can be done properly, intangibility could negatively influence new service development. On the other hand new intangible service is viewed differently by customers, as there is no possibility to view and test the product.
All the above-explained aspects of intangibility can thus have a negative influence on the execution of the NSD process, which in turn could have has a negative effect on new service development. This could indicate that intangibility has a negative effect on the result of the NSD stages. Therefore can be said that it is expected that intangibility negatively moderate the relationship of the NSD stages and service innovation. Because of this, it is hypothesized that:
H2a: Intangibility has a negative moderating effect on the relationship between the
NSD stages and incremental service innovations.
H2b: Intangibility has a negative moderating effect on the relationship between the
4. Methodology
For this study an empirical quantitative study was conducted to gather information on the researched subjects. A survey was used to gather data from the respondents. In the article of Avlonitis et al. (2001) a scheme of activities was created where these activities were divided over the five different new service development stages. Using high quality journals and the snowball method, the gaps in the current literature were recognized, the current status of the NSD process was identified and the important constructs and theories were discussed. These actions led to the formulation of the above-mentioned hypotheses for this study. In the following section the sampling, data collection, measures, biases and validation of the method is discussed.
4.1 Sampling
To make a distinction between the financial and non-financial service sector, additional data on the second sector was needed in order to have a representable and credible dataset. Data on restaurants were thus essential to answer the research question. Public databases were excluded as a source of data, as they did not provide the needed information concerning the hypotheses. In order to collect specific data, two ‘restaurant ranking’ sites were used. IENS and Eet.nu provide lists of restaurants based on their location and specifics. These sites were used to select restaurants that complied with the conditions of the other sectors. As the study focuses on the Dutch market, a criterion was that the restaurant needed to be located in the Netherlands and served the food ‘in-house’. So no delivery restaurants were included. Furthermore, fast-food chains were not included in the study and firms needed to have experiences with innovation.
With the conditions described above, a list of restaurants spread over the Netherlands was gathered to account for geographical biased responses. The sampling frame consisted out 1985 restaurants from different cities and regions. Just as the function of the employee, were the size and age of the restaurants recorded.
As this study not only focuses on restaurants, the data on financial services and hospitals was gathered from previous studies. In these studies the same conditions were applicable.
Stratified sampling was used to test service innovation. This type of sampling can lead to an outcome of the study that will give a better reflection of the reality (Neyman, 1934). Tangibility was studied observing different levels, namely geographic dispersion and variation of services. The former one stresses the need to have data from different places in the Netherlands. The latter one emphasizes the importance of different services. All together these give a good representation of the tangibility of services.
4.2 Data collection
In order to collect data that complies with the conditions described above, personalized emails were sent to the restaurants. Within these emails a short expectation setting was done, where the study was explained and the respondents were thanked for their possible participation. Also a link to an online survey was provided, where potential respondents were directed to a Google survey. As mentioned in the sampling, this study also used secondary data from different industries provided by the University of Groningen. To make the difference between financial and non-financial services concerning tangibility, responses of 114 financial firms and 38 hospitals were studied, the data points of the latter one will be considered as non-financial.
First of all, the geographically dispersed trait of the study could lead to limitations concerning time. By using an online survey and using emails to contact restaurants, the amount of possible respondents increased. Another reason for the low response rate could be the lack of knowledge on new service development. Previously mentioned, restaurants are less likely to have organizational units that are focused on innovation. As a result they could be less conscious of innovations processes and the frameworks behind it. Which in turn could be the reason for the low response rate. Another reason for this, which became clear after receiving some responses of restaurants, is the time restriction of restaurants. The study was conducted during the autumn/winter season that is generally seen as the holiday period. In this period, restaurants are usually very busy, which could also be a reason for the low response rate.
Seeing these outcomes, it can be said that the choice for the electronic ‘dropping-off’ method (Fowler, 2009) was the right one. The gathering of restaurants’ email addresses was a time consuming process. Compared to the option of physically visiting restaurants, this type of data gathering was probably less optimal concerning the response rate. On the other hand it was less time absorbing, as there was no need to travel to each restaurant.
The chosen method of sampling led to a dataset of 212 service companies, dispersed over three service industries. The financial sector had 114 respondents that accounted for 53.8% of the total amount. The hospitals made up 17.9% of the total amount of respondents, with 38 completed surveys. Finally, as mentioned above, the restaurant survey had 60 respondents leading to the remaining 28.3%. This is shown in table 1 of the appendix.
Finally, statistics of the survey showed that the functional form of restaurants consisted of; ‘Sole-traders’ (65.0%), ‘Family-owned business’ (18.3%), ‘Partnerships’ (6.7%), ‘Private Ltd companies’ (5.0%), and ‘Other’ (5.0%).
4.3 Research instruments and validity
The survey questions used in this study are based on the new service development activities provided by the article of Avlonitis et al. (2001). From his study 29 development activities were placed in the 5 stages of NSD. As these activities are explained in English, the activities needed to be translated to Dutch so that the interviewees would be able to understand the survey as best as possible. For the translation process, the parallel translation method was used (Hambleton & Kanjee, 1993; Sekaran, 1983). This method suggests that the translation is done by more than one person and separately of each other. After that the translations are compared and built into one survey.
As the questions were translated, persons with different types of backgrounds reviewed the survey. Firstly, two university students reviewed the survey. After that a University Professor with long experience in academic research was asked to check for validity. Finally, a professional with 30 years of experience in restaurant industry reviewed the survey. The pre-testing of the survey gave insights in the feasibility of the survey, whether it was understandable for restaurant employees. From the feedback, the questions were fine-tuned to the restaurant sector and any ambiguities were explained in more detail. This was done to increase the validity of the study (Newman, 1998). In the appendix, the final version of the survey can be found.
The survey consisted of 12 sections where the different stages of NSD process, innovativeness, formalization and, return on investment was discussed. Dichotomous, multichotomous, 1-7 Likert scales and open questions were used to measure the different sections. Using different types of questions decreases problems with common method bias. From the study of Nunnally (1978) was shown that scales ranging from 1 to 7 are very suitable for research. They are big enough to differentiate without having to many choices.
Furthermore validity is guaranteed as statistically proven variable measurements and control variables are used.
4.4 Method of analysis
To analyze the data the statistical program SPSS was used. In order to process the data and draw conclusions from it, different tests needed to be performed. To start with, an exploratory factor analysis was done and underlying structures were
identified. This type of test is used to analyze the relationships of the variables. Factor analysis is performed as data reduction method to recognize factors that explain the most of the variance. The Principal Component Analysis (PCA – covariance matrix) was chosen as mode for data reduction, as this type of analysis uses the total variance of the variables for the subtraction process and derives factors that only consist of the shared variance. After the data reduction, the variables were prepared for further analyses. To account for multicollinearity, mean centering was used (Aiken & West, 1991; Cronbach, 1987; Jaccard et al.1990). Mean centering was performed in order to compute interaction terms for the regression analysis.
and formalization (p=0.093; p < 0.10) have a significant effect on radical innovation while size was not significant (p= 0.782). Interestingly, the launch stage becomes significant when incremental innovation is the dependent variable. Although launch changes to significant, other variables become insignificant (technical development, business analysis, age and formality).
4.5 Measures
4.5.1 Dependent variables
The dependent variable used for this research is service innovation. The variable is split into radical and incremental innovation to analyze the effect of the NSD stages. Innovativeness has been measured in previous studies in multiple ways (patents, R&D, sales etc.). In this study the scales on explorative (radical) and exploitative (incremental) innovation of Jansen et al. (2006) are used for the formulation of activities. These activities were adapted to the restaurant sector and used to describe radical and incremental innovations actions. An example of a radical activity is, ‘We commercialize products and services that are completely new to our unit’. Here unit is replaced by restaurant. These activities were, just like the NSD activities, rated on a 1 to 7 Likert-type scale (1: strongly disagree, 7: strongly agree).
4.5.2 Independent variables
Five out of the 12 sections of the survey were used for the NSD stages. As compared to the stages described by Avlonitis (2001), the activities were grouped by stage. These included 29 activities. Besides that, 15 activities were proposed that reflected radical and incremental innovation. For these activities the respondents were asked to indicate to what extent they agreed with the statements. A 1 to 7 Likert-type scale (1: strongly disagree, 7: strongly agree) was used to gather this data.
4.5.3 Moderator variable
non-financial could be made. Therefore a dummy variable was made, that showed whether the responses where from the financial sector or not. The data from the financial sector was indicated with 0 while for hospitals and restaurants were indicated by 1.
4.5.4 Control variables
To be able to estimate and interpret the relations between the other variables, control variables were used. The first variable used for this study is the size of the firms. Secondly, the age of the firms was measured to capture the number of years of experience in the sector. This reflected the years of existence. Both control variables were recorded by open-ended questions. As a final control variable, formalization was applied. This variable explains the degree to which roles are structured and employees are governed by rules and procedures (Hall et al, 1967). The formalization scale was based on the studies of Deshpandé and Zaltman (1982) and Jansen et al. (2006) and a 1-7 Likert scale was used to test the formalization in restaurants.
Age of the firm, size and formalization are used as control variables as they together can influence the dependent variable. From previous studies is shown that both age and size are related to innovation (Acs & Audretsch, 1987; Hansen, 1992; Huergo & Jaumandreu, 2004). Besides that was shown that formalization of processes is also related to innovation (Bodewes, 2000). Therefore, it is important that these are taken into account for this study.
5. Results
5. 1 Data reduction results
In order to answer the research question, concerning the influence of the NSD stages on innovativeness of service firms and the moderation of tangibility on this relationship, in-depth analyses were performed. First an exploratory factor analysis is conducted to reduce the dataset. The used analysis for the extraction was the Principal Components Analysis (PCA). Here uncorrelated combinations of the variables are extracted, it removes uncorrelated linear combinations of the variables.
that have high correlations (> 0.40) with the incorrect factors and variables with high (> 0.40) cross-loadings. The variables with values less than 0.4 (suppression limit) were deleted one by one. After a factor was deleted the factor analysis was run again, this process was repeated until all factors were above 0.4. As seen from table 2 in the appendix, this process was repeated 3 times until RAD 2 and 3 were removed from the analysis. They contributed too little to the predictive ability of the model. After the reduction, all factors were above the suppression limit of 0.4.
For the independent variables the same oblique rotation analysis was chosen, with five fixed numbers of factors. The Varimax rotation was thus used to test, which activities needed to be removed. From a total of 34 activities, the PCA removed 14 actions in order to have a linear combination of the variables. Here the same extraction rules applied as for the dependent variable. The factor analysis thus resulted in a reduced set of variables. This is seen as a better outcome as compared to the original set (Hair et al. 1998). The rotated component matrix can be found in the appendix, table 3.
The same analysis was performed on one of the control variables, formalization, which was measured by the scale of Desphandé and Zaltman (1982). In the appendix, table 4. can be seen that all the items were approved. Therefore no items were removed.
As seen from this table, all mean variables comply with the study of Nunnally (1978) as they range between 0.726 and 0.839. Four variables are acceptable and 3 variables have good reliability, leading to reasonable internal consistency. Although this says something on the reliability, one test does not give the ability to base any conclusion on internal consistency.
A problem with data reduction is a decrease in diversity, which in turn hinders content validity (Newman, 2008). As a higher Cronbach’s Alpha is desired, a consideration has to be made between reliability and validity versus a high alpha. In this study, 14 factors were removed which sacrificed the diversity of items the least compared to the alpha levels. Also, there has been critique on the threshold Nunnally used in his research as it was not the result of empirical research but based on his own intuition (Peterson, 1994).
5.2 Descriptive statistics and correlations
Following the descriptive statistics (Appendix, table 7) several outcomes need to be discussed. First of all, the means of radical and incremental differ more than 1 point. This suggests that incremental innovation (𝑎 = 5.3619) scored higher by the respondents compared to radical innovation (𝑎 = 4.2007). This complies with the study of Berry et al. (2006), who states that most service firms prefer to introduce incremental innovations.
Furthermore, seen from the descriptive statistics is that the means of the different NSD stages lie somewhat close to each other. The lowest mean is 4.68 (Idea Generation and Screening) compared to 4.98 (Testing), with a difference of 0.30. This suggests that the independent variables of the NSD stages are found comparably important for the innovation process.
Finally, the standard deviations of the control variables are very high. This indicates that there is large difference between the respondents on this matter. The high standard deviation for size for example can be explained by the assumption that restaurants will have fewer employees than hospitals.
incremental innovation and radical innovation the dummy variable restaurant & hospitals have a negative Pearson r correlation. This indicates that if a firm is active in the other sector, financial services, radical and incremental innovation will score higher. So the dependent variables are thus less dependent. Another result of the correlation statistics is the significance. As seen from the table, all independent variables are significant at a significance level of p<0.01. Besides the independent variables, the control variable formality is in relation to radical innovation not significant. This means that an increase in formality decreases radical innovation. Another interesting observation is that the size of the firms is only significant for age and the dummy of the non-financial sector, restaurants and hospital.
To test the hypotheses, a hierarchical multiple regression was performed for the dependent variables, incremental and radical innovation. These were performed with the composed mean variables that were made after the Varimax rotation. First, a model (model 1) was built that only included the three control variables; age, size and formality. After that the second model (model 2) was created, here the independent variables were added. The last model (model 3) included the interaction effect of the non-financial factor, which acts as the moderator. The outcomes of this analysis, concerning incremental and radical service development are showed in the appendix, table 9 and 10.
To test for hypotheses 1, the relationship of the NSD stages with innovativeness, incremental and radical service innovation results were compared.
To test for the moderating effect of hypotheses 2, an interaction variable was created for the five NSD stages and the dummy non-financial. To create these variables, the mean centered variables of the NSD were used. This decreases the chance of multicollinearity
5.3 Hypotheses testing 5.3.1 Innovativeness
Hypothesis H1 predicted that the higher the innovativeness with respect to the
of innovation (table 11 and 12 of the appendix) showed that hypothesis 1 is partially significant.
To start with, it can be seen that for radical innovation more stages are positively associated with new service innovation. For radical innovations, idea generation and screening (β=0.226; p= 0.006 <0.01), business analysis and marketing strategy (β=0.254; p= 0.001 <0.01) and testing (β=0.257; p=0.000<0.001) had a significant positive effect on new service innovation. Theory development is also positively associated, but with a confidence interval of 90% (β=0.121; p=0.068<0.10) For incremental innovation, idea generation and screening (β=0.120; p= 0.044 <0.05), testing (β=0.224; p= 0.000 <0.001) and launch (β=0.103; p=0.013<0.05) had a significant positive effect on new service innovation. So for both types of innovation, idea generation and testing was significantly positive.
The control variables show no significance for the incremental innovation model. For radical innovations are age (p=0.016<0.05) and formalization (p=0.093<0.10) are significant.
Based on the adjusted R2 for incremental innovation can be said that the model
explains 42.6% of the total variability. Compared to the model of radical innovation, which explains 42.5%. As these percentages only differ 0.01%, one could say that the variability accounted for by both models is comparable. So the level of variation explained by the dependent variable is similar for incremental and radical innovation.
5.3.2 Tangibility
Hypothesis H2 predicted that the intangibility negatively moderates the
Table 13, shows that model 1 explains 44% and model 2 explains 43.3 % of the total variability in the dependent variables based on the adjusted R2. The ANOVA table shows that both models are significant. The outcome of the regression analysis shows that radical innovation as dependent variable has a lower F value. This means that intangibility has less effect on dependent variables when it concerns radical innovation. Looking at the p-values of the interaction effects, high values indicate that the interaction has no effect on the relationship. As seen from table X, this is the case for both incremental and radical innovation. None of the interactions were significant.
A negative β value indicates that certain interactions become less strong because the non-financial service is included. If this relationship is already negative, a negative β-value makes this less negative. A positive β-value suggests that the relationship improves because of the interaction effect. The table for the incremental model the coefficients results show that only formality has a negative effect on the dependent variable. All other independent and control variables are positive. For the second model: formality, launch and age have a negative effect on radical innovations.
In the first model, only testing is significant (p= 0.006 <0.01), while all other variables are insignificant. The second model shows that business analysis (p=0.026<0.05), technical development (p=0.082<0.05), theory testing (p= 0.009<0.01).
The control variables show no significance for the incremental innovation model. For radical innovations are age (p=0.054<0.10) and formalization (p=0.069<0.10) are significant.
6. Discussion
This quantitative study attempts to develop an empirically based understanding of the influence of the NSD process on innovativeness. Furthermore it is evaluated if tangibility has an effect on this relationship.
generation and screening, business analysis and marketing strategy, technical development, testing and launch. Furthermore, the innovation literature was reviewed. Here the distinction was made on the newness of services. Finally, the tangibility concerning new service development and service innovation was delved into.
Following the results, it became clear that idea generation and testing are important stages when firms want to innovate. Whether the innovations are incremental or radical, it does not matter for these two stages. Contrarily for the launch stage, the NSD process only contributed to service innovation when the firm wanted to produce incremental innovations. Concerning radical innovations, business analysis and market strategy, and technical development are valuable. Intangibility did not show any effect on the NSD staged and service innovation.
From this point can be established that all stages of the NSD have different outcomes when influenced by different levels of innovation newness and service tangibility. The results of this study are not as anticipated. It was proposed that the different NSD stages would have a greater effect on service innovation than was revealed by the study, especially the results of hypotheses 2a and 2b.
6.1 Theoretical implications
The current literature showed gaps in theoretical explanations of the NSD process. First of all, this study tried to contribute by broadening the knowledge on success of the NSD process. Previous studies on NSD have focused on the financial sector. This study included the non-financial sector. The outcome of the study was not as expected. This could be a consequence of the heterogeneity of services as explained by Zeithelm et al. (1985). Services vary on many aspects, i.e. tangibility and innovativeness, therefore is the grouping of services difficult. As there are multiple views on how to place services on the tangibility spectrum (Lovelock, 1983; Chase 1978; Shostack 1977), it is suggested to do more research on tangibility of services.
as applicable to the non-financial sector as to the financial sector as expected. Besides that, the outcomes of this study showed that certain stages are more crucial for service innovation than others. Especially, the idea generation and marketing strategy stage was shown to be very effective for both incremental as radical innovations. This is in line with the outcome of the study of Verhage et al. (1981) who stated that idea generation is important, as many ideas are required to have one innovation that would perform on the market. Furthermore, Avlonitis et al. (2001) stated that stages needed to be followed in order to introduce new services to the market. The stages are shown to be more important for the radical innovations. Thus when the uncertainty of a new service increases, the stages of the NSD process become more important.
Another interesting outcome of the study is the business analysis and marketing strategy stage, which was shown to be significant for radical innovations. This type of innovation is more uncertain compared to incremental innovations. Because of this, the cost-benefit comparison aspect of this stage explained by Avlonitis et al. (2001) is more beneficial for radical innovations.
The technical development stage also showed some interesting outcomes. From the descriptive statistics is shown that the average was 4.7343 (Appendix, table 7) on a 1-7 Likert scale. Therefore is expected that firms view this stage as important for the development of new services. The analysis did not show this expectation; it revealed that technical development differentiated when the new service was seen as radical. The stage was not measured as important when intangibility moderated the relationship. This indicates that the production of an intangible new service is comparable to tangible services, this conflicts the literature (Shostack, 1977). Therefore further research is suggested.
6.2 Practical implications
Also, the NSD process could help service firms with the right steps concerning the type of innovation. This study has shown that certain stages in the service development are more important than others depending on the type of innovation and level of tangibility. From the analysis is shown that idea generation and marketing strategy, and testing are always important steps for NSD. Collecting ideas, initial screening, translating ideas, exploring implications, testing internally and externally and evaluation are important aspects for managers.
Besides that, it is important for managers to focus on the launch of the new service when the innovation is incremental and on business analysis and marketing strategy when the innovation is radical.
6.3 Limitations and Future Research
Although this study has proven enhancement of the current literature and practical implications for service firms, it also has its limitations. First of all, the data is collected in only one country, The Netherlands. Moreover, the study is based on a cross-sectional sample, which could make the cause and effect analysis difficult.
Another limitation of the study is mentioned by Lovelock (1983). Following his study, services can spillover to more or less tangibles innovation types. This could trouble the choice of innovation type and the focus on important NSD process stages as the services are less fixed to one certain type.
The conflicting literature is also on the subjects a limitation of the study. The financial sector has been explained in this study as the tangible sector. In the article of Lovelock (1983), the financial sector is defined as intangible. Moreover, the decision to use the NSD model of Avlonitis et al. (2001) also influences the outcome of the study, as the respondents could have viewed stages and activities differently.
Besides that, this study uses radical and incremental innovation as a measurement of NSD process success. In future research this could be done via different measures that are more tangible than innovation.
separately. Moreover, other types of service firms could be used similarly. Also, future research could examine the influence of formality of the NSD process and tangibility of services.
6.4 Conclusion
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8. Appendix
Table 1. Sample statistics of respondents Service Industry
Number of Respondents
(N=212) Average age Average size
Finance 114 41.32 (σ: 55.6597) 1517.40 (σ: 6263.3442) Health-care* 38 50.08 (σ: 86.2469) 2001.84 (σ: 7164150.569) Restaurants** 60 14.59 (σ: 474.073) 18.48 (σ: 462.288) * missing (N=1) for age
** missing (N=1) for age
Survey
Algemene informatie (open and dichotonomous questions) 1. Naam restaurant: 2. Naam participant: 3. Functie participant 4. Geslacht □ Man □ Vrouw
5. Ervaring (in aantal jaren) van het restaurant met innovatie en nieuwe services: 6. Oprichtingsjaar restaurant:
7. Restaurant locatie(s):
8. Aantel werknemers momenteel werkzaam binnen het restuarant: Restaurant classificatie (open and multichotonomous questions) 1. Bedrijfsvorm: □ Zelfstandig □ Famlie bedrijf □ Keten □ Anders, namelijk: 2. Restaurant type: □ Brasserie □ Luxe restaurant □ Eetcafé □ Biologisch □ Trendy
Idee generatie en verificatie (1-7 Likert scale)
1. Wij verzamelen systematisch ideeën over de ontwikkeling van nieuwe services.
2. Wij filteren de nieuwe service ideeën en maken een eerste evaluatie. 3. Wij vertalen het idee naar een ‘full service concept’.
4. Wij vertalen de service naar bedrijfstermen.
5. Wij vergelijken de verwachte uitkomsten van de nieuwe service met andere aangeboden services binnen het restuarant.
6. Wij verkennen de bedrijfseconomische implicaties (kosten/baten) van de ontwikkeling van de services.
7. Wij verzamelen feedback van klanten en gebruiken dit voor de ontwikkeling van ideeën.
8. Wij kijken naar de concurrentie en gebruiken dit voor de ontwikkeling van ideeën.
Bedrijfsanalyse en marketing strategie (1-7 Likert scale)
1. Wij identificeren kenmerken van de markt en huidige trends.
2. Wij voeren een compleet marktonderzoek uit naar de behoeften en voorkeuren van de klant.
3. Wij analyseren de concurrenten uitgebreid.
4. Wij identificeren de doelgroep voor de nieuwe service.
5. Wij identificeren unieke kenmerken die de nieuwe service onderscheidt van concurrenten.
6. Wij ontwikkelen een stappenplan voor de positionering van de nieuwe service. 7. Wij bereiden een compleet marketing plan voor (e.g. service-prijsstelling,
distributie, promotie, etc.).
8. Wij beoordelen de tijd, mensen, investering voorwaarden en prestatie doelstellingen van de nieuwe service.
Ontwikkeling (1-7 Likert scale)
1. Wij beslissen over de uiteindelijke specificaties van de service.
2. Wij bepalen het operationele afleverproces dat de service ondersteunt. 3. Wij inspecteren het operationele afleverproces en maken aanpasingen indien
nodig.
4. Wij maken een service prototype.
5. Wij voeren operationele testen van het service prototype uit en maken indien nodig aanpassingen aan de systemen en procedures.
Testen van de service (1-7 Likert scale)
1. Wij testen de nieuwe service bij het personeel van ons restaurant. 2. Wij testen de nieuwe service bij potentiële klanten.
3. Wij evalueren de resultaten van de testen en maken indien nodig aanpassingen aan de service.
Lancering (1-7 Likert scale)
1. Wij ronden het marketingplan van de service af.
