Managing the new service development process towards a systemic model

The aims of this paper are to provide a detailed description of the development process of a new financial product and to identify learning actions that may contribute to its effectivene

Managing the new service

development process: towards a

systemic model

Eric Stevens Groupe ESCEM, Tours, France, and Sergios Dimitriadis Athens University of Economics and Business, Athens, Greece

Abstract

Purpose – When compared with the field of new product development, research on new services has

seen fewer developments and offers less comprehensive insights This paper tries to fill this gap by

providing empirical findings from two qualitative longitudinal case studies of new service

development Knowledge on the management issues for developing new bank offerings efficiently is

limited Furthermore, recent research suggests that organisational learning can contribute greatly to

the success of innovation projects The aims of this paper are to provide a detailed description of the

development process of a new financial product and to identify learning actions that may contribute to

its effectiveness.

Design/methodology/approach – The paper reports findings from a qualitative, longitudinal case

study of a well-known French bank, and of a retailer The research focuses on the description of the

process, the organisational issues involved and the decision making during the development process.

Findings – The findings lead to the proposition of a model of new service development comprising a

strong organisational learning component Research and managerial implications are discussed for

ways to better understand the new service development process and to enhance its effectiveness The

results reveal an informal development process consisting of a sequence of issues to solve and

decisions to make Multiple learning actions and strategies are identified that enhance the process’s

effectiveness and efficiency.

Research limitations/implications – Generalisation of the proposed NSD model will require

further qualitative and quantitative investigations For the qualitative part, observations of the

development of standardised offers are necessary to enrich the initial framework Furthermore,

non-standardised offers would constitute a specific research field, given the dimensions of complexity

and divergence of the delivery processes For the quantitative part, the impact of learning process on

results of the development may be assessed on the basis of measurements used in similar contexts,

such as the impact of learning on the success of joint ventures.

Originality/value – Findings suggest that learning during innovation should be supported for

banks and retailers Several opportunities for further research are therefore suggested.

Keywords Financial services, Retailing, Innovation, Learning, Learning organizations, Research

Paper type Research paper

1 Introduction

During the two last decades, the deregulation and globalisation of markets, as well

as the internationalisation of service firms, has made competition among service

The authors gratefully acknowledge support provided by P Forte and Groupe ESCEM (France)

during the final stage of this research

Service development process 175Received October 2003 Revised February 2004

European Journal of Marketing Vol 39 No 1/2, 2005

pp 175-198

q Emerald Group Publishing Limited

0309-0566

companies extremely harsh These trends place service innovation at the heart ofthe firm’s competitiveness, as constant adaptation in a turbulent environmentrequires a continuous flow of new offers Consequently, much research hasconcluded that new service development (NSD) is a major competitive factor forthe service industry ( Johnson et al., 2000; Fitzsimmons and Fitzsimmons, 2001).

In contrast to these trends, research on how new services are developedremains fragmented and much less developed than for products (Drazin andSchoonhoven, 1996; Sundbo, 1997; Johne and Storey, 1998; Menor et al., 2002) Thefew empirical studies have not reached consensus on a well-formaliseddevelopment process – in fact, they have often led to contradictory results In arecent publication, Menor et al (2002) underlined that significant effort is required

to clarify the existing works, which are scarce and scattered Among potentialresearch topics, the authors underlined that understanding the process by whichnew services are designed and launched may lead to improve the efficiency of thedevelopment process Such results could contribute to reduced development timesand increased chances of success

The first research in the field of NSD was based on the well-documented newproduct development (NPD) frameworks and findings (Booz Allen Hamilton, 1982;Kline and Rosenberg, 1986; Cooper, 1990, 1994; Cooper and Kleinschmidt, 1987,1991; Baker and Hart, 1999) However, services are different (Berry, 1980; Shostack,

1984, 1987; Lovelock, 1983) and the validity of NPD models for services remains to

be demonstrated Callon et al (1996) identified three fundamental differences thatmight invalidate the NPD models applied to services First, due to inseparability,there is simultaneous innovation in the product and in the procedure Second, there

is no separation between product innovation and organisational innovation Third,there is no distinction between the creation of the offer and the activity ofproduction and/or commercialisation These differences have led to the NSDprocess being considered as different from the NPD process (Martin and Horne,1993; Menor et al., 2002)

Recognising the need for a specific NSD framework and the lack of research in thisfield, the motivation of the present research is threefold First, few observations of theentire NSD process have been made in the past The absence of empirical data inhibitsour understanding of what the main stages of the development may be Second, therehave been no attempts to compare different NSD processes, even though the diversityand complexity of the delivery process is well known (Shostack, 1987; Lovelock, 1983).Third, among the empirical research describing NSD processes, very few attemptshave been made to provide a development model Given this context, providingempirical evidence on the NSD process and outlining a general model of this processmay constitute a significant contribution to a better understanding of the waycompanies develop new offers efficiently

The paper is organised as follows: the “Conceptual background” section reviewsexisting knowledge on new product and service development description andmodelling Then the “Methodology” section presents the research design Followingthis is the “Results” section, which describes the NSD process, and the “Discussion”section, which concludes by suggesting a NSD model Finally, the limits andimplications of the paper are discussed

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2 Conceptual background

Given the very limited research on NSD models, this section also reviews models and

evidence on NPD in order to draw a richer perspective on the question Sequential

development models and models using an organisational perspective will be reviewed,

as the latter appear to be particularly suitable for understanding the specificities of the

NSD process

2.1 Sequential development models

The first research on development models came from the field of NPD (Booz Allen

Hamilton, 1982; Kline and Rosenberg, 1986; Cooper, 1990, 1992, 1993, 1994; Cooper and

Kleinschmidt, 1987, 1991) These contributions described the NPD as an organised

process made up of well-defined steps and tried to identify the most efficient

combination This approach led to a linear conception of the development that flows

logically from the initial idea to the launch, as illustrated by the “stage-gate” model

(Cooper, 1994) shown in Figure 1 Logically, a focus on the planning and the know-how

developed for each stage constituted the recommendations for improving the results

(Cooper, 1993)

Several researchers applied sequential development models to the service activity

The work of Reidenbach and Moak (1986), based on American financial firms,

highlighted that companies using more formal procedures succeed more frequently,

even if the duration of the development process is longer Edgett and Jones (1991)

observed a successful NSD project developed by using a very formal process No less

than 16 stages were identified, including marketing research, business plan, IT

development, agreement, and post-launching evaluation stage Supporting the idea of

formalisation, a flow chart provided an accurate description of the process

Nevertheless, the authors observed and concluded on the importance of unforeseen

co-operative behaviours among departments Jallat (1992) made a similar statement

Investigating 52 service firms, the survey revealed that the degree of sophistication of

the development process had a positive impact on the performance of new service

activities

More recently, Johnson et al (2000) suggested a model describing the NSD sequence

which identifies four broad stages and 13 tasks that must be produced to launch a new

Figure 1 The stage gate model

Service development process 177

service, as well as the components of the organisation which are involved in theprocess (see Figure 2).

Although they provide a descriptive view of ongoing processes, sequentialdevelopment models suffer from three major weaknesses First, Cooper (1994)recognised that the implementation of “stage-gate” systems led to time-consuming andoverly bureaucratic processes that slow projects down Overcoming this majorlimitation requires the adoption of a whole range of procedures which facilitatecross-functional teamwork and solve as early as possible the problems that couldappear during the later stages (Midler, 1993) This leads many authors to proposealternative models based on “parallel processing” and “multiple convergent”approaches, such as the one of Baker and Hart (1999)

Second, the description of the stages does not integrate the way firms organisedevelopment teams Several authors have stated that the NSD process is based onmulti-functional teams, specifically created for this task (Thwaites, 1992; Scheuing andJohnson, 1989; Edgett, 1996) It was also observed that the processes werecharacterised by informal steps It seems that new services are the output of aco-operation rather than the result of a “champion” talent, either individual ordepartmental, even if a champion formally drives the process The level of personalcontact maintained by the product manager, the commitment of the senior managers,the cross-functional team and the interaction process are the antecedents of the speedand effectiveness of the NSD (Edgett and Jones, 1991; Lievens and Monaert, 2000a, b;Froehle et al., 2001) Thus, the focus on the development team and its organisationseems to provide more insights about the potential success factors

Third, sequential models do not help to define what must be produced during each

stage Cooper (1993) demonstrated the positive impact of the quality of execution of

each stage on the final result One key to success is ensuring that every step of the

process is executed in a quality fashion In order to ensure this quality of execution, the

project can be seen as a process of exploration of possible “new combinations”, an

acquisition of information that reduces uncertainty (Midler, 1993) This suggests that

the content of each stage is an exploration of possible solutions and that a learning

process will lead the team to select the most efficient combinations Such background

justifies the relevance of organisational frameworks for understanding development

processes

2.2 Development models based on organisational factors

Damanpour (1991) identified important organisational determinants of innovation,

such as functional differentiation, centralisation, managerial attitude towards change,

managerial tenure, technical knowledge resources, administrative intensity, and

internal communication These results were consistent with Burns and Stalker’s (1961)

early findings highlighting the existence of a link between organisation characteristics

and their capacity to react to a moving environment It is thus suggested that an

organic configuration enables:

. fast adaptation to a changing context due to the spread of commitment all over

the firm;

. strong inter-functional communication; and

. a continual redefinition of individual tasks (Scheid, 1990)

These statements, applied to development projects, have been confirmed by many

authors (Ancona and Caldwell, 1992; Clark and Wheelwright, 1992; Midler, 1993) By

investigating the different structures able to carry out development projects, it has

been noticed that the way the development team is organised influences the overall

efficiency of the NPD The “heavyweight structure” (where a project manager interacts

directly with specialised project managers) and the “autonomous team structure”

(same protagonists as before, with full autonomy for the project) were clearly identified

as leading to shorter development periods and lower development budgets (Midler,

1993) With such perspective, the recommendation is not to formalise stages and gates,

but to build an organisation that will support development As stated by Garel (1999):

It [fast development] is characterised by a strong uncertainty and a need for heedful

communication These structures contribute to strong integration between different functions

and the overlapping of development stages They support fast decision-making and favours

transversal and simultaneous actions (p 39)

Although it is not clearly formalised by the authors, the rationale behind choices is that

such an organisation facilitates communication and learning

Furthermore, research on communication among members of the organisation

demonstrated that an informal structure contributes to the innovativeness of the firm

The facilitation of the communication, supported by a “gatekeeper”, supports a better

product design (Katz and Tushman, 1981; Von Hippel, 1982) The gatekeepers, because

they can gather and translate external information, contribute to the improvement of

the decisions made during the development Similarly, Ancona and Caldwell (1992)

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found that development teams that have more thorough internal communicationachieved a superior performance To some extent, Lievens and Monaert (2000a, b)confirmed this observation more recently for services The focus emphasises the waythe team organising the problem-solving process all through development reinforcesthe relevance of the learning strategies for understanding the NPD/NSD process.

In fact, NPD can be considered as a classical organisational learning process:

a successful product must satisfy a whole range of constraints, the knowledge of whichmay originate in many parts of the organisations [ .] Acquiring knowledge of theappropriate constraints is an important learning process, since that knowledge is generallywidely distributed throughout the organisation and elsewhere, and is seldom all available tothe R&D teams at the beginning of the process (Simon, 1991, p 183)

Maidique and Zirger (1990) revealed through the analysis of 158 new products thatsuccess and failures where strongly inter-related Successes were considered as leading

to the creation of new knowledge, while failures resulted in the unlearning of theprocesses, which led to success More recently, Nonaka and Takeuchi (1995)demonstrated the existence of links between the learning process and NPD Their workanchored the development process in the creation of new knowledge It is becauseteams produce new inferences that they are able to create new products, and it isthrough the testing of inferences and through the mutual adjustment of therepresentations that the development team is able to produce a result in accordancewith its expectations

The organisational dimensions seem better a candidate to aid understanding of theNSD process This is because the organisational perspective is very well fitted to thesystemic nature of services management (Eiglier and Langeard, 1987; Fitzsimmonsand Fitzsimmons, 2001) Empirical evidence has confirmed the strong impact oforganisational factors on NSD Hart and Service (1993) established, through “actionresearch”, that a change in the organisation is necessary to run a shorter developmentprocess successfully The NSD process increased in efficiency when a “functionalintegrative perspective” was adopted, setting up a less formal but more communicativeorganisation, improving shared information, decision-making agreement anddecision-making authority agreement A similar statement was made byEdvardsson et al (1995), who revealed that the lack of co-ordination betweenfunctions, intra-organisational conflicts and the integration of departments had amajor influence on the creation, design and launch of new services Such statementsopened the way for an analysis based on the description of social networks, able toinduce either failure or success (von Raesfeld Meijer et al., 1996; Pearson, 1991; Callon

et al., 1998) This research underlined again that organisational change is associatedwith innovative service process It provided also an important contribution to thenature of the success factors linked to the organisation

In line with those observations, recent work has revealed links between learning,communications flows and the NSD process Management practices, cross-functionalcommunication, organisational and decision-making patterns were found to influencethe level of NSD project learning This learning during the NSD process contributedpositively to the competitiveness of the firm (Lievens and Monaert, 2000a, b; Blazevicand Lievens, 2004)

Those evidences indicate very clearly that the organisational features may have aconsiderable influence on the successes and failures of NSD However, no overall

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development framework has been produced in order to replace the sequential or linear

development models This is probably due to the limited number of studies that

observed the entire development process Building on this background, the present

research was designed to address the following three main issues:

(1) observe the NSD process all along its flow in order to identify its main stages,

the people/departments involved, the communication flows as well as the

organisational issues involved;

(2) understand the decision-making process occurring during this process; and

(3) identify patterns that could lead to a general framework for NSD

3 Methodology

3.1 Research design and data collection

Because of the lack of validated knowledge on the NSD process, an exploratory

comparative longitudinal research design was adapted Longitudinal studies seem

necessary to identify the sequence of events during innovation processes while they

happen This method provides the best way to avoid the “ex-post rationalization”

phenomena (Van de Ven and Poole, 1990) It also provides insights on decisions before,

during and after events Thus, it becomes possible to compare what people assert

during different stages of a specific decision

Two different sectors were selected, i.e retailing and banking Two NSD projects

were investigated, one in each sector The investigations covered two and a half years

for each project Observing similar emerging projects provided opportunities to

establish cross-case patterns in the development process By doing so, we adopted a

theoretical sampling strategy as described by Eisenhardt (1989) This contributes to

reinforce the external validity of the findings (Yin, 1994; Huberman and Miles, 1994)

For each project, observations and analysis focused on four main points:

(1) the content of the new services offered;

(2) the development process itself, its main stages, its participants and the way the

decisions were taken;

(3) the organisational features of the company before, during and after the NSD, in

order to understand which parts of the organisation were transformed by the

NSD, and whether a relationship was established between the organisational

change and the NSD process; and

(4) the firm’s external environment, which could impact on the NSD

Data collection was based on multiple semi-directed interviews all along the

development process at different hierarchical levels, observation (attendance of

meetings), text analysis of internal and external documents such as market reports,

reports from consultants, reports from the internal meetings, advertisements and

promotional leaflets, procedure charts and routines supporting the production of the

service

The interviews were recorded on tape and transcribed Notes were taken during the

different meetings with executives and observations were written in a research diary

Verbal declarations were triangulated by crossing the different sources, as

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recommended by many authors (Stake, 1995; Yin, 1994) First, the declarations weresystematically crossed between the different respondents Second, they were compared

to the internal and external reports Last, the summary of findings was regularlysubmitted to an internal committee, which included managers involved in the NSD, butnot necessarily those investigated

Companies agreed to give free access to all documents, data and people that theresearchers thought relevant This collaboration was an additional criterion for theselection of the companies Both projects have been launched on the market and havebeen successful Our investigations stopped three months after launch The firstproject was with Cora, a well-known retailer operating in the eastern part of France, inBelgium, Luxembourg and Hungary In France, Cora manage 60 hypermarkets with amedium size of 8,700 m2 The “Universe” project aimed at increasing the attraction ofthe hypermarkets against specialised retailers through the restructuring of thenon-food department

The second project involved Credit Mutuel, a bank created in 1882 in the easternpart of France, which is today one of the largest French banks We observed the NSDprocess in the Anjou region, which accounts for more than 230,000 clients who depositover 2 billions euros The initial idea of the project aimed to replace detailed andcomplicated billing by a package adapted to customers’ needs and consumption As acounterpart of a set of different services including cheques, clients would have to pay afixed amount monthly This induced a major change for both bankers and clients Thecontent of these packages had to be transformed by defining the kind of products thatshould be included to be attractive and useful Moreover, the bank had to decide howmany packages should be proposed in order to satisfy the different categories ofclients Finally, it had also to build the process that should be adopted to convince animportant number of clients

Both projects aimed at designing new standardised processes We deliberatelyfocused on the development of standardised offers with low customer involvement inthe delivery process, having noted that development process for non-standardisedoffers may be impossible to compare (Lovelock, 1983) Moreover, the two companieshad a significant network of outlets where they intended to distribute their offers Thisallowed us to observe the way the development team and the other levels of theorganisation interacted with front office staff, specifically during the crucialimplementation stage

The two projects were of similar importance The re-implementation of two thirds ofthe store for 60 hypermarkets meant the transformation of at least 300,000 m2of salesarea The transformation of the contracts established with the bank’s clients led them

to negotiate with more than 230,000 customers In both cases, the scope of changeinvolved major investments in terms of time, money and people

4 ResultsPrevious development models put the emphasis on the main stages of the developmentprocess In this investigation clear stages were not observed, but rather a continuouslymoving process, comprising different and changing actors as well as frequent “backand forth” communications, behaviours and decisions This is why results will bepresented along three dimensions:

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(1) the actors involved in the NSD process and their organisation;

(2) the decision-making process that allowed the NSD to progress; and

(3) the changes that were necessary for the NSD process to be completed

successfully

4.1 The actors in the NSD process

In both cases, the achievement of the development was reached by various and varied

development groups Teams were constantly changing None of the members was

directly involved in the entire process Even the project managers changed along the

different stages

The retailer case illustrated this permanent transformation of the team in charge of

the successive stages The initiator of the project, who became the project champion at

the initial stage, was replaced after one year due to a change in his function Then the

second project manager changed after another year of tests, due to the return of the

previous manager Similarly, the development team moved constantly during the

process After having achieved a first stage of the process that resulted in a first test of

the concept, the initial team changed By their integration in the development group,

the people in charge of the communication created the first promotional leaflet based

on the concept of the “Universe of Interior” Then another group worked on the

simulation of the new organisation required by the concept Those changes lasted until

the final stage, the launching in each store, where this time another team took the

implementation project under its wing

In both cases the nomination of a project manager required considering not only his

competencies but also his position in the structure Although the criteria themselves

differed in the two cases because of different internal contexts, the choices were based

on the same kind of reasoning: identify the crucial success factors and then find the

people who possessed the corresponding competencies The case of banking revealed

three successive steps

In the first period, the identification of the consumer preferences was identified as

being crucial for success In the second period, the writing of the procedures became

very sensitive The last stage was focused on the training of the sales department, on

the way the product would be advertised and promoted and finally on the kind of

interaction the salespersons must establish with their clients Such development

required a large range of competencies that none of the staff members actually

possessed entirely Thus, two project managers worked successively on the project on

a regional scale One of them, a marketer, was very competent in consumer and

distribution aspects of the project The other, a specialist in organisation, had

previously realised many developments involving the writing of procedures and

computer programming

Similarly, the “Universe project” presented many stages The first stage began with

the creation of the initial development group This team was in charge of producing the

first ideas of what the redesign of the entire non-food area of the store could be The

person in charge was the head of the non-food purchasing organisation Then, the project

required first implementations and tests Due to the departure of the previous project

manager for an opportunity abroad, a new working group was created in order to test the

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first implementations and to design the final offer A store manager was chosen tomanage this group Finally, after many tests and formal definition of the project, theorganisational part of the project remained to be decided Thus, the second working groupwas disbanded 18 months later A third group managed by the person initially in charge

of the project undertook the final implementation, including the organisational aspects ofthe project The nomination of the first project manager for this role could easily beexplained by his competencies, and also by his position outside of the store’s organisation.These observations illustrated that the choice of the development team, its leaderand its team members are strongly anchored in the local context (political, technicaland human) and are therefore difficult to compare Nevertheless, in both cases, thechoice relied strongly on the identification of the kind of problems that are expected toarise The leader was chosen according to his ability to solve the kind of problem thatwas expected to happen If required competencies were due to change, then anotherproject manager was chosen

More fundamentally, the study revealed that the NSD process benefited from thecontribution of people occupying a marginal position in the organisation Nevertheless,their contribution appeared to be ambiguous On the one hand, because they had adifferent perception of things, they were able to renew the frame of thinking of theorganisation On the other hand, however, and because the first ideas appeared to befragile, the testing required strong support from the existing structure Themanagement of the development project relied on the solution of this complex equation:too much divergence will result in the rejection of the ideas; too much convergence willproduce conformity rather than innovation

In such changing contexts, it is clear that the actor’s willingness contributed to thesuccess of the development In both cases, only a project that could benefit some of theactors of the organisation had a chance to survive and to progress Rather than relying

on abstract motivations, the progress of the development project was strongly linked tothe interests of the individuals and groups of the organisation It is because staffmembers could find a potential benefit to the final offer that they brought theirexpertise, competencies and skills

4.2 The decision-making processDecision-making in both cases was achieved by an ongoing process, resulting from theconstant exchange and confrontation of assertions and presentations Throughout thedevelopment, an organisational process was under way which linked the individualcognitive conflicts to the final output of the stage The juxtaposition of the twodevelopment processes revealed that they were divided into three broad segments:(1) initial decision making about the project and the creation of the project team;(2) the development of new procedures, processes and behaviours through whichthe new service was formalised; and

(3) implementation of the new service within the distribution network

Decision making during these stages was achieved by an ongoing process resultingfrom the constant exchange and confrontation of information, assertion andrepresentations Faced with the uncertainty of the NSD, the actors used a variety ofaction rules and behaviours These decision-making activities were grouped according

to their nature, and are summarised in Table I

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