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Article 22A Customer-Oriented New Service

Development Process

Authors: Ian Alam & Chad Perry

Presented By: Jill Reynolds

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Objectives

How can a New Service Development (NSD)program in the financial services industry be

managed? Explore the stages in the NSD process

Explore how customer input may be obtained in thevarious stages of the development process

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Previous Research

Barabba (1995) and Wind and Mahajan (1997) - Stressed the need forcreating a new service/product development model that will enablecustomers to provide input throughout the development process.

Booz, Allen and Hamilton (1982) - proposed a model for tangibleproduct development of eight linear stages: new product strategy, ideageneration, screening, evaluation, concept testing business analysis,development, testing and commercialization.

Scheuing and Johnson (1989) - used a survey of 66 financial servicesto develop an expanded model of 15 stages: formulation of new serviceobjectives, idea generation, idea screening, concept development,concept testing, business analysis, project authorization, service designand testing, personnel training, service testing and pilot run, testmarketing, full scale launch and post launch review.

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Methodology

Population: Australian financial servicesorganizations

Sample: 12 organizations based on three dimensions

Firm Size

Ownership; multinational and Australian firms

Types of service firms

3 Innovative types of new services: new-to-the-world

innovations, new service lines and line extensions. Firms with at least 50 employees

Average total revenue of the firms was $500 million

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Methodology

Elite interviews were the main source of data collection(interviewing the managers / decision makers)

Total of 36 interviews were conducted (3 interview per

organization)

Most questions were open-ended and some placed on a 5-pointLikert scale - Very Important and Not an Issue

Each interview lasted two hours

Structure of the interviews: started with introduction about the

purpose, then general questions and non-directive, therespondents then told the story about NSD in their own words,and finally the interview became more structured withpredetermined questions were asked.

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Objective 1 - Findings

The cases were analyzed primarily through pattern matching ofmatrices of data.

NSD stages have different levels of importance - measured by

their frequency of use and related interview data. Table 1 is a summary of data about the stages of new service

development by case (company)

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Findings

Table 2 above represents the mean importance of the tenstages of NSD.

Idea generation, Idea Screening and Formation are the mostimportant stages of an NSD process where test marketing wasthe least important stage.

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Sequential & Parallel Stages

The large organizations followed a bureaucratic, sequential NSD thatcontained checkpoints at the end of every stage, where go/killdecisions were taken.

The small organizations conducted parallel activities for three pairs ofstages. (Pair 1 - Strategic Planning and Idea Generation, Pair 2 - IdeaScreening and Business Analysis, Pair 3 - Personnel Training andService Testing/Pilot Run

The small organizations needed to keep up with rising competitionwhich is why parallel activities are necessary

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Objective 2 - Customer Involvement

Second Objective was to investigate the role of customersat various stages of the development process.

Managers agreed that customer involvement was

necessary for developing a superior and differentiatedservice with better value for customers.

Customer input was obtained through periodic meetingsbetween customers and the NSD team, customerobservation and sporadic in-depth interviews.

Three stages reported the highest frequency of customerinput (idea generation, service design, and service testingand pilot run.)

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Results

3 basic findings emerged from this research

Importance of various stages in NSD models

Two models about those stages Customer input into various stages of the

development models

10 stages of NSD - identified by two versions, one islinear and the other is parallel

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TwoModels of NSD

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Results

Which of the two models is more appropriate, thelinear or the parallel?

This research provides that managers should use a linearsystem that contains a formal process for conductingdevelopment activities from stage 1 to stage 10.

However, three pairs of stages may be conducted

simultaneously: strategic planning and idea generation ;idea screening and business analysis ; and personneltraining and service testing.

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Important Insights

A customer oriented development process yields asuperior innovation and greater new product/service

success. The new product/service development process

provides evidence that customer interaction canincrease product/service success.

At what stages of the NSD should the customer inputbe obtained?

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Customer Input in NSD

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Managerial Implications

Should they follow a sequential NSD process or conduct parallelstages?

A parallel model can be more useful in competitive markets

such as the financial services market. Service developers are often pressed for time to develop

new service quickly because innovation are copied soquickly.

Managers should pay close attention to the idea generation

stage as it is the most important stage of new services. Emphasize developing services that match customers needs by

adopting a customer-oriented approach to NSD and obtaincustomer input.

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Limitations

Study used in-depth field interviews in a smallnumber of cases in the financial services industryonly.

Cross-sectional nature of the research might haveproduced biased results.

Studied business-to-business services only

Sample is confined to only Australian firms

Relationship between customer input at variousdevelopment stages and new service success wasnot tested in this research.

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Conclusion

Focus was to examine the process of NSD in thefinancial services industry and to find out the roles ofcustomers at various stages of that process.

Stressed the need for new ways of thinking aboutand conceptualizing NSD activities.

It is believed that service firms that adopt customer-oriented NSD process will be those that will lead theirindustries.