KNOWLEDGE, INNOVATION & NEW PRODUCT DEVELOPMENT 2UZB614 Lecture-1 KNOWLEDGE, INNOVATION & NEW PRODUCT DEVELOPMENT 2UZB614 Mamurjon Rahimov and Farhod Karimov Academic year 2015-2016 TW-6

New service innovation

New service development (NSD) Introduction Growth in services Technology and new services Characteristics of services Customer relationship process New service innovations NSD process Summary & recap

Introduction Growth in services Characteristics of services Services are processes where customer is part of it Viewed differently to products Services contribute to new business models: eBay new way of conducting business Ryanair new way of flying Amazon new way of viewing and buying books iTunes new way to buy music

Categories of service mix Pure tangible good Tangible good with accompanying services Hybrid Major service with accompanying minor goods and services Pure service

Growth in services – but what does this mean? Within the EU services now account for more than 60% of GDP. huge growth in coffee bars, smoothie bars and hair salons? Growth in knowledge intensive business services (KIBS) Since 2003, shares in oil companies have doubled. Halliburton and Schlumberger, the world market leader for oil services, have more than tripled.

Outsourcing and service growth Expected gains that companies can derive from outsourcing include: the reduction of operational costs; the ability to transform fixed costs into variable costs; the ability to focus on core competencies; access to the industry-leading external competencies and expertise.

Typology of services Business-to- business services (traditional) Business-to- business services (KIBS) Consumer services Internal firm services Public services Not-for-profit services Description Services provided for businesses Specialist services provided to businesses Services provided to individuals Services provided by internal functions Services provided by local and national government Services provided by charities Examples Accountancy Legal advice Training Management consultancy IT consultancy Shops Hotels Banking Health and beauty Finance Personnel IT Health Education Leisure Prisons Hospices Counseling Aid agencies Customers Frequently purchased by professionals, who may not be end users Purchased by consumer of the service Consumers of the service have no choice of provider Funded through taxation and little choice for consumer Funded through charities maybe government grants consumers chosen or choose. Challenges Providing high-quality tailored and personal service Providing high quality services to businesses who have high purchasing power Providing a consistent service to a wide variety of customers Delivering customized, personal service. And demonstrating value for money. Delivering acceptable public services against a backcloth of political pressures. Balancing needs of volunteers, donors and overwhelming needs of customers.

A range of new services that also create new business models, where technology plays a key role Company Industry sector New service/new business model eBay On-line auction A new way of buying and selling through a community of individual users Ryanair Airline A new way of consuming air-travel with no frills service and emphasis on economy Amazon Retailer New way to buy goods – on-line retailer iTunes Music retailer New way to buy and download music Google Internet search engine A fast way to search for information on the internet Facebook Social networking A community of users on-line who can chat and share music, images, news from their own home You-Tube On-line video and film archive A community of users sharing home made video clips plus recorded favourite clips from movies

Characteristics of Services Services are co-produced by the customer Services are heterogeneous Services are intangible Services are processes Services are produced and consumed simultaneously Services are perishable Services cannot be transported

The customer relationship process Service quality Service value Services marketing Customer value Customer retention Relationship quality Customer satisfaction

New service innovation As with products, service innovations can be classified in many ways: eBay was new to the market; Google’s on-line auction is new to Google; Internal process innovations, e.g. Amazon: delivering books to consumer is not new, but using internet; Line extensions to services, e.g. banks offering insurance; Service modifications, e.g internet access to airline passengers.

Typology for innovations (Ozdemir, 2007) Booz et al. (1982) Lovelock (1984) New to the world products: new products that not only represent a major new challenge to the supplier, but which are also seen to be quite new in the eyes of customers Major innovation: new services for markets as yet undefined; innovations usually driven by information and computer-based technologies New product lines: new products which represent major new challenges to the supplier Start-up business: new services in a market that is already served by existing services Additions to existing product lines: new products that supplement a company’s established product lines, so rounding out the product mix New services for the market presently served: new service offerings to existing customers of an organisation (although the services may be available from other companies) Improvements and revisions to existing products: new products that provide improved performance and so replace existing products Service line extensions: augmentations of the existing service line such as adding new menu items, new routes and new courses Repositionings: existing products that are targeted to new markets or market segments Service improvements: changes in feature of services that currently are being offered Cost reductions: new products that provide similar performance at a lower cost of supply Style changes: the most common of all “new services”; modest forms of visible changes that have an impact on customer perceptions, emotions and attitudes, with style changes that do not change the service fundamentally, only its appearance

Customer roles in NPD (Nambisan, 2002) NPD phase Customer as resource Ideation Customer as co-creator Design and development Customer as user Product testing Product support Key Issues/Managerial Challenges Appropriateness of customer as a source of innovation Selection of customer innovator Need for varied customer incentives Infrastructure for capturing customer knowledge Differential role of existing (current) and potential (future) customers Involvement in a wide range of design and development tasks Nature of the NPD context: industrial/consumer products Tighter coupling with internal NPD teams Managing the attendant project uncertainty Enhancing customers' product/technology knowledge Time-bound activity Ensuring customer diversity Ongoing activity Infrastructure to support customer-customer interactions

The service innovation process Different from NPD: customer is part of the process Blueprinting the service Identify every activity and every possible outcome in the process ‘Prick-eared’ market research Direct contact facilitates dialogue Service prototypes Difficult because customer is part of process Level of integration determines ability to prototype E.g. a doctor’s home visit a visit to the cinema

Customer interaction process Determinants Service encounter Service provider Customer Customer roles Encounter management Critical incidents

How do customers evaluate services? Perceived service quality . . . Perceived service value . . . Customer expectations . . . Reliability Responsiveness Assurance Empathy Tangibles

Reliability Providing service as promised Dependability in handling customers’ problems Performing services right first time Performing services at the promised time Maintaining error free records Responsiveness Keeping customer informed when service will be performed Prompt service to customers Willingness to help customers Readiness to respond to customers’ requests Assurance Employees who instil confidence in customers Making customers feel safe in their transactions Employees who are consistently courteous Employees who have knowledge to answer questions

Empathy Giving customers individual attention Employees who deal with customers in a caring manner Having the customers best interests at heart Employees who understand the needs of their customers Convenient business hours Tangibles Modern equipment Visually appealing facilities Employees who have neat, professional appearance Visually appealing materials associated with service

New service innovation For many years the literature overlooked this concept! Innovation deemed to require a new physical “thing” But, the world of business suggested new services could deliver even more significant changes (new business models): First Direct Ryanair eBay Apple’s iTunes

Recommended Reading Essential Reading Recommended Reading Trott, P. (2012) Innovation Management & New Product Development. FT Prentice Hall. Recommended Reading Davis, S.M. & Moe, K. (1997). Bringing innovation to life. Journal of Consumer Marketing, 14 (5), 338-361. Kao, S-C., Wu, S-H. & Su, P-H. (2011). Which mode is better for knowledge creation? Management Decision, 49 (7), 1037-1060. Mitchell, R. & Boyle, B. (2010). Knowledge creation measurement methods. Journal of Knowledge Management, 14 (1), 62-87. Witell, L., Kristensson, P., Gustafsson, A. & Löfgren, M. (2011). Idea generation: customer co-creation versus traditional market research techniques. Journal of Service Management, 22 (2), 140-159. Yelkur, R. & Herbig, P. (1996). Global markets and the new product development process. Journal of Product and Brand Management, 5 (6), 38-47. KNOWLEDGE, INNOVATION & NEW PRODUCT DEVELOPMENT