New Service Development: Initiation Strategies David Kelly and Chris Storey City University Business School, London,UK Jacqueline Owen

Objective This study was done using a survey of marketing managers in UK service companies “to investigate how and to what extent service firms plan their search for new services.” This study was done using a survey of marketing managers in UK service companies “to investigate how and to what extent service firms plan their search for new services.” What’s the general approach towards New Service Development (NSD)? What’s the general approach towards New Service Development (NSD)? What strategies are used in choosing new service projects? What strategies are used in choosing new service projects? Data were collected in the area of NSD strategy, idea generation, and screening Data were collected in the area of NSD strategy, idea generation, and screening

Initiation Strategies “These are methods and approaches service firms adopt in generating and screening ideas for new services” “These are methods and approaches service firms adopt in generating and screening ideas for new services” Firms must be innovative because of the competition; but can’t do a “quick fix” Firms must be innovative because of the competition; but can’t do a “quick fix” Proper order: strategy, idea generation, screening Proper order: strategy, idea generation, screening

Idea Generation Ideas for new service products Ideas for new service products Where the development process starts Where the development process starts Internal or external (employees, customers, competitors) Internal or external (employees, customers, competitors) Formal or informal, etc. Formal or informal, etc. Requires close management attention Requires close management attention Continuous Continuous Embraces the whole firm (Vandermerwe, 1987) Embraces the whole firm (Vandermerwe, 1987)

Previous Research “Successful firms establish systems and procedures for stimulating idea generation on a long-term basis” (Robinson and Stern, 1997) “Successful firms establish systems and procedures for stimulating idea generation on a long-term basis” (Robinson and Stern, 1997) Firms tend not to engage in formal idea generation (Easingwood, 1986) Firms tend not to engage in formal idea generation (Easingwood, 1986) Idea generation must be continuous in the development process, with close management attention (Moore, 1987) Idea generation must be continuous in the development process, with close management attention (Moore, 1987) Must be ongoing (Crawford, 1994) Must be ongoing (Crawford, 1994)

Previous Research Employees are important in winning new product ideas (McGuire, 1973) Employees are important in winning new product ideas (McGuire, 1973) New service ideas from employees should be rewarded (Bowers, 1989) New service ideas from employees should be rewarded (Bowers, 1989) However, lack of formal NSD processes could be why operations personnel don’t contribute ideas (Easingwood, 1986) However, lack of formal NSD processes could be why operations personnel don’t contribute ideas (Easingwood, 1986) Competitors – more important source of ideas than customers (Easingwood, 1986) Competitors – more important source of ideas than customers (Easingwood, 1986)

Screening “To allocate resources between those projects which have the most likelihood of helping the firm meet its objectives” “To allocate resources between those projects which have the most likelihood of helping the firm meet its objectives” Single or multi-stage procedure Single or multi-stage procedure Uses quantitative or qualitative criteria Uses quantitative or qualitative criteria Involves a high degree of uncertainty and subjectivity Involves a high degree of uncertainty and subjectivity Most service firms use informal procedures (Easingwood, 1986; Edgett, 1993) Most service firms use informal procedures (Easingwood, 1986; Edgett, 1993)

Methodology Survey of executives in leading UK service firms, across five different sectors: banking, telecommunications, insurance, transportation, media Survey of executives in leading UK service firms, across five different sectors: banking, telecommunications, insurance, transportation, media Questionnaire survey followed by interviews Questionnaire survey followed by interviews 43 responded out of a sample of 154; 28% response rate 43 responded out of a sample of 154; 28% response rate Questions regarded their firm’s NSD strategy and its approach to the generation and screening of “new products” (core products that are new-to-the-world or to the company, improvements over existing products, or supplementary and value-added services) Questions regarded their firm’s NSD strategy and its approach to the generation and screening of “new products” (core products that are new-to-the-world or to the company, improvements over existing products, or supplementary and value-added services)

Methodology, Cont. Majority of the respondents were from marketing functions Majority of the respondents were from marketing functions Banking was the largest sector Banking was the largest sector Consumer and B2B Consumer and B2B Table 1

Methodology, Cont. Respondents were asked to categorize themselves according to the Miles and Snow (1978) typology ( a comprehensive typology for understanding organizational strategy): Respondents were asked to categorize themselves according to the Miles and Snow (1978) typology ( a comprehensive typology for understanding organizational strategy): Prospector – seek to innovate, take risks, seek out new opportunities and grow Prospector – seek to innovate, take risks, seek out new opportunities and grow Analyzer – seldom first to market, but a fast follower; want to innovate, but desire some stability Analyzer – seldom first to market, but a fast follower; want to innovate, but desire some stability Defender – opposite of the prospector; desire stability; want to produce reliable, high-quality products Defender – opposite of the prospector; desire stability; want to produce reliable, high-quality products Reactor – responds to product & market changes only when forced by environmental pressures; doesn’t have a strategy Reactor – responds to product & market changes only when forced by environmental pressures; doesn’t have a strategy

Results The majority are prospectors or analyzers The majority are prospectors or analyzers

Number of new services introduced The importance of new products is recognized by these organizations The importance of new products is recognized by these organizations

Performance of NSD The contribution new services make to total revenues The contribution new services make to total revenues Highest for Prospectors & Analyzers Highest for Prospectors & Analyzers

Firm’s approach to NSD Only half of the sample possesses a formal NSD strategy Only half of the sample possesses a formal NSD strategy Analyzers more likely to have one Analyzers more likely to have one

Barriers to NSD

Approaches to idea generation & screening Generating ideas “on demand”: Generating ideas “on demand”: Fails to develop an innovative culture Fails to develop an innovative culture Gives employees the notion that their ideas may be ignored Gives employees the notion that their ideas may be ignored Employees are impor- Employees are impor- tant source for new ideas

Satisfaction with approach to NSD The importance of a strategy: firms with a formal NSD strategy are more satisfied The importance of a strategy: firms with a formal NSD strategy are more satisfied

Conclusion NSD initiation strategies are largely informal processes; therefore, firms miss out on opportunities in the marketplace NSD initiation strategies are largely informal processes; therefore, firms miss out on opportunities in the marketplace Few firms involve staff in the process; therefore, difficulty may arise when launching new services Few firms involve staff in the process; therefore, difficulty may arise when launching new services Service firms with formal strategies are more satisfied; therefore, more firms need to adopt structured NSD approaches Service firms with formal strategies are more satisfied; therefore, more firms need to adopt structured NSD approaches

Management Implications There are great benefits in being an active developer of new services: “over 40% of the revenues of Prospectors & Analyzers are received from the sales of new services released in the previous three years” There are great benefits in being an active developer of new services: “over 40% of the revenues of Prospectors & Analyzers are received from the sales of new services released in the previous three years” Only 25% of firms search for ideas on a continual basis; “successful firms establish systems & procedures for stimulating idea generation on a long-term basis” Only 25% of firms search for ideas on a continual basis; “successful firms establish systems & procedures for stimulating idea generation on a long-term basis”

Management Implications “It is vital that NSD expertise is seen as an important skill within the organization; managers should involve proactive hiring policies and knowledge of current staff must be carried over to the subsequent projects” “It is vital that NSD expertise is seen as an important skill within the organization; managers should involve proactive hiring policies and knowledge of current staff must be carried over to the subsequent projects” There is an “urgent need for the development of systems & processes that stimulate idea generation activity” There is an “urgent need for the development of systems & processes that stimulate idea generation activity” Don’t spread resources too thinly & across too many projects; “lack of resources is a common barrier” Don’t spread resources too thinly & across too many projects; “lack of resources is a common barrier”

Management Implications “The presence of a detailed & formal NSD process has been found to be a key success factor in NSD performance” (de Brentani, 1991)