New Service New Service Development: Development:

Initiation Initiation StrategiesStrategiesDavid Kelly and Chris StoreyDavid Kelly and Chris Storey

City University Business School, London,UKCity University Business School, London,UK

Jacqueline OwenJacqueline Owen

ObjectiveObjective This study was done using a survey of This study was done using a survey of

marketing managers in UK service marketing managers in UK service companies “to investigate how and to companies “to investigate how and to what extent service firms plan their what extent service firms plan their search for new services.”search for new services.”

What’s the general approach towards What’s the general approach towards New Service Development (NSD)?New Service Development (NSD)?

What strategies are used in choosing new What strategies are used in choosing new service projects?service projects?

Data were collected in the area of NSD Data were collected in the area of NSD strategy, idea generation, and screeningstrategy, idea generation, and screening

Initiation StrategiesInitiation Strategies

““These are methods and approaches These are methods and approaches service firms adopt in generating service firms adopt in generating and screening ideas for new and screening ideas for new services”services”

Firms must be innovative because of Firms must be innovative because of the competition; but can’t do a the competition; but can’t do a “quick fix”“quick fix”

Proper order: strategy, idea Proper order: strategy, idea generation, screeninggeneration, screening

Idea GenerationIdea Generation

Ideas for new service productsIdeas for new service products Where the development process startsWhere the development process starts Internal or external (employees, Internal or external (employees,

customers, competitors)customers, competitors) Formal or informal, etc.Formal or informal, etc. Requires close management attentionRequires close management attention ContinuousContinuous Embraces the whole firm Embraces the whole firm

(Vandermerwe, 1987)(Vandermerwe, 1987)

Previous ResearchPrevious Research

““Successful firms establish systems Successful firms establish systems and procedures for stimulating idea and procedures for stimulating idea generation on a long-term basis” generation on a long-term basis” (Robinson and Stern, 1997)(Robinson and Stern, 1997)

Firms tend not to engage in formal Firms tend not to engage in formal idea generation (Easingwood, 1986)idea generation (Easingwood, 1986)

Idea generation must be continuous in Idea generation must be continuous in the development process, with close the development process, with close management attention (Moore, 1987)management attention (Moore, 1987)

Must be ongoing (Crawford, 1994)Must be ongoing (Crawford, 1994)

Previous ResearchPrevious Research Employees are important in winning Employees are important in winning

new product ideas (McGuire, 1973)new product ideas (McGuire, 1973) New service ideas from employees New service ideas from employees

should be rewarded (Bowers, 1989)should be rewarded (Bowers, 1989) However, lack of formal NSD processes However, lack of formal NSD processes

could be why operations personnel don’t could be why operations personnel don’t contribute ideas (Easingwood, 1986)contribute ideas (Easingwood, 1986)

Competitors – more important source of Competitors – more important source of ideas than customers (Easingwood, ideas than customers (Easingwood, 1986)1986)

ScreeningScreening

““To allocate resources between those To allocate resources between those projects which have the most likelihood projects which have the most likelihood of helping the firm meet its objectives”of helping the firm meet its objectives”

Single or multi-stage procedureSingle or multi-stage procedure Uses quantitative or qualitative criteriaUses quantitative or qualitative criteria Involves a high degree of uncertainty Involves a high degree of uncertainty

and subjectivityand subjectivity Most service firms use informal Most service firms use informal

procedures (Easingwood, 1986; Edgett, procedures (Easingwood, 1986; Edgett, 1993)1993)

MethodologyMethodology Survey of executives in leading UK service Survey of executives in leading UK service

firms, across five different sectors: banking, firms, across five different sectors: banking, telecommunications, insurance, telecommunications, insurance, transportation, mediatransportation, media

Questionnaire survey followed by interviewsQuestionnaire survey followed by interviews 43 responded out of a sample of 154; 28% 43 responded out of a sample of 154; 28%

response rateresponse rate Questions regarded their firm’s NSD strategy Questions regarded their firm’s NSD strategy

and its approach to the generation and and its approach to the generation and screening of “new products” (core products screening of “new products” (core products that are new-to-the-world or to the company, that are new-to-the-world or to the company, improvements over existing products, or improvements over existing products, or supplementary and value-added services)supplementary and value-added services)

Methodology, Cont.Methodology, Cont.

Majority of the Majority of the respondents were respondents were from marketing from marketing functionsfunctions

Banking was the Banking was the largest sectorlargest sector

Consumer and B2BConsumer and B2B

Table 1

Methodology, Cont.Methodology, Cont. Respondents were asked to categorize Respondents were asked to categorize

themselves according to the Miles and Snow themselves according to the Miles and Snow (1978) typology ( a comprehensive typology (1978) typology ( a comprehensive typology for understanding organizational strategy):for understanding organizational strategy): Prospector – seek to innovate, take risks, seek out Prospector – seek to innovate, take risks, seek out

new opportunities and grownew opportunities and grow Analyzer – seldom first to market, but a fast Analyzer – seldom first to market, but a fast

follower; want to innovate, but desire some follower; want to innovate, but desire some stabilitystability

Defender – opposite of the prospector; desire Defender – opposite of the prospector; desire stability; want to produce reliable, high-quality stability; want to produce reliable, high-quality productsproducts

Reactor – responds to product & market changes Reactor – responds to product & market changes only when forced by environmental pressures; only when forced by environmental pressures; doesn’t have a strategydoesn’t have a strategy

ResultsResults The majority are The majority are

prospectors or prospectors or analyzers analyzers

Number of new services Number of new services introducedintroduced

The importance of The importance of new products is new products is recognized by these recognized by these organizationsorganizations

Performance of NSDPerformance of NSD The contribution new The contribution new

services make to total services make to total revenuesrevenues

Highest for Highest for Prospectors & Prospectors & AnalyzersAnalyzers

Firm’s approach to NSDFirm’s approach to NSD

Only half of the Only half of the sample possesses a sample possesses a formal NSD formal NSD strategystrategy

Analyzers more Analyzers more likely to have onelikely to have one

Barriers to NSDBarriers to NSD

Approaches to idea Approaches to idea generation & screeninggeneration & screening

Generating ideas Generating ideas “on demand”:“on demand”: Fails to develop an Fails to develop an

innovative cultureinnovative culture Gives employees the Gives employees the

notion that their notion that their ideas may be ignoredideas may be ignored

Employees are Employees are impor-impor-

tant source for newtant source for new

ideasideas

Satisfaction with approach Satisfaction with approach to NSDto NSD

The importance of The importance of a strategy: firms a strategy: firms with a formal NSD with a formal NSD strategy are more strategy are more satisfiedsatisfied

ConclusionConclusion

NSD initiation strategies are largely NSD initiation strategies are largely informal processes; therefore, firms miss informal processes; therefore, firms miss out on opportunities in the marketplaceout on opportunities in the marketplace

Few firms involve staff in the process; Few firms involve staff in the process; therefore, difficulty may arise when therefore, difficulty may arise when launching new serviceslaunching new services

Service firms with formal strategies are Service firms with formal strategies are more satisfied; therefore, more firms more satisfied; therefore, more firms need to adopt structured NSD need to adopt structured NSD approachesapproaches

Management Management ImplicationsImplications

There are great benefits in being an There are great benefits in being an active developer of new services: “over active developer of new services: “over 40% of the revenues of Prospectors & 40% of the revenues of Prospectors & Analyzers are received from the sales of Analyzers are received from the sales of new services released in the previous new services released in the previous three years”three years”

Only 25% of firms search for ideas on a Only 25% of firms search for ideas on a continual basis; “successful firms continual basis; “successful firms establish systems & procedures for establish systems & procedures for stimulating idea generation on a long-stimulating idea generation on a long-term basis”term basis”

Management Management ImplicationsImplications

““It is vital that NSD expertise is seen as an It is vital that NSD expertise is seen as an important skill within the organization; important skill within the organization; managers should involve proactive hiring managers should involve proactive hiring policies and knowledge of current staff must policies and knowledge of current staff must be carried over to the subsequent projects”be carried over to the subsequent projects”

There is an “urgent need for the development There is an “urgent need for the development of systems & processes that stimulate idea of systems & processes that stimulate idea generation activity”generation activity”

Don’t spread resources too thinly & across too Don’t spread resources too thinly & across too many projects; “lack of resources is a common many projects; “lack of resources is a common barrier”barrier”

Management Management ImplicationsImplications

““The presence of a detailed & formal The presence of a detailed & formal NSD process has been found to be a NSD process has been found to be a

key success factor in NSD key success factor in NSD performance” (de Brentani, 1991)performance” (de Brentani, 1991)