3.5.2 New service development

With growth in the service industries in the 1980s and 1990s and the increasing need for new 'products', there grew an interest in the method of developing new services. In the 1980s, new service development started with the basic model of Booz, Allen and Hamilton (1982). A typical process was to develop a business strategy, develop a new service strategy, idea generation, concept development and evaluation, business analysis, service development and evaluation, market testing and commercialisation (Bowers, 1989). As service development grew, specific service development processes were produced (Johne and Storey, 1998). Scheuing and Johnson in 1989 proposed four stages - direction, design, testing and introduction, and identified a 15-step sequence of activities.

     Direction (or service strategy): formulation of new service objectives
        and strategy, idea generation, idea screening.

     Design: concept development, concept testing, business analysis,
        project authorisation, service design and testing, process and system
        design and testing, marketing programme design and testing,
        personnel training.

     Testing: service testing and pilot run, test marketing.

     Introduction: full-scale launch, post-launch review.

This model emphasises the intricate interplay between the design and testing functions during the design of a new service. The involvement of the operations personnel and the users is an important feature in the design stage. Customer participation is an essential part of new service development. Employee participation is also necessary, as the front-line employees are delivering the service. They are psychologically and physically close to the customer, and can identify customer needs and problems. If employees and customers are involved in the development, they will also behave knowledgeably and willingly in the delivery of the service. Therefore the design process in service development needs to include the designer, the customer and the employee as shown in Fig. 3.16.

Fig. 3.16 The design triangle in service development.

The designer, customer and the service employee are usually not individuals, but three separate groups - the customer's group, the development group in the company and the company marketing organisation.

The question is how well can new service development fit into a service development process? Edvardsson et al. (1995) concluded from their studies that innovation of new services is an extremely complex process when it comes to planning and control. Their four stages were idea phase, project formation phase, design phase and implementation phase; they suggested it was not a sequential process but an interacting process. The stages overlapped and could not be clearly identified. Edgett (1994) found that the launch plan must be part of the development process. It needs to be well planned and coordinated, with communication materials and marketing targeted correctly and backed with sufficient resources. New service development can be a planned process following the four stages of the PD Process, but there is significant iteration in and between stages because the strong involvement of customers and service employees does not allow a rigid sequential structure. Two important stages are the service strategy and the service design.

Service strategy is the direction for development based on the business strategy. Some of the service innovation strategies include positioning, process, new service, employee/customer relationship and communication (Stinson, 1996). Examples in the food industry are:

     commodity meat suppliers repositioning to ingredient meat suppliers
        with products tailored to high class hotels and restaurants;

     restaurant changing from table service to self-serve;

     frozen food company introducing a new home delivery of frozen
        meals, nutritionally balanced for different age groups;

     starch ingredient supplier developing a buyer contact group with
        recognised product development skills;

     soy products company opening an on-line data base so that their clients
        can formulate new products.

Service design includes service concept, service system, service process (Edvardsson and Olsson, 1996). The service concept is a description of the customer's needs and how they are satisfied in the form and the content of the service. As in product development, the customers have needs, wants and expectations. Expectation is critical in service - as can be seen from the attitude of any diner in an expensive restaurant, or a child in McDonald's. Expectation is based on the customers' needs and wants but it is also influenced by the com- pany's image or reputation on the market, the customers' previous experience of the service company, the service company's marketing. The customer perceptions of the company and the service, especially as compared with competitors, have to be taken into consideration in the design of the service.

The service system in the company is mainly the people in the company, not just the front-line staff but the whole chain of customer relations in the company. The customer is relating to the technical resources and administrative routines and procedures in the company, as well as the marketing personnel. There is also a relation with finance as they are setting limits on prices, financial contract and investment. The whole company system is a part of the service design as shown in Fig. 3.17.

Fig. 3.17 Company service system and customer group within the design triangle.

The service system includes the resources available for the service development and operation. The finance section is involved not only in allowing the resources but also in setting the financial arrangements with the customers. Marketing has a key role in building up the part of the customer in the service, in particular to inform, educate and give them the skills to take part in the service. The technical people are involved in designing the hardware and software supporting the service.

The service and the customer outcome are generated in the service process. The customer is present in the process and affects the result (Edvardsson and Olsson, 1996). The nature of customer contact is a factor in the design - is it mail, telephone, face-to-face; long-term or short-term relationship; casual or a contract? There are individualised customer experiences in which the company may wish to be involved or keep at a distance. The behaviour of the customer must be taken into account as the service process is built up. In designing the service process, a framework of activities is built up from the customer introduction to the service to the customer outcome of the service. The service process consists of a clear description of the various activities needed to generate the service - service company staff, the customers, the physical/technical environment and the organisational structure. The service process depends on the resources - people, knowledge, skills - in the company and how they are organised. The customers also have knowledge, skills and procedures that need to be taken into account in the design of the actual process for delivering the service. The service process designed is a framework, but it will vary with every customer; every customer makes it an individual customer process.

In developing from the service concept to the new service, there is constant interaction between the service concept, the system and the process; and testing of various combinations with the customers and the employees. This gradually expands with increasing numbers of customers into pilot testing, test marketing and the final launch.