INTRODUCTION
Developing new products and services
has become more and more important in
today’s turbulent business
environment. In several European countries, also the financial
sector has turned into a dynamic
industry in which product and service innovation has
gained importance (Vermeulen, 2004).
There is, however, a lack of
research in the field of new service development (NSD)
(Stevens & Dimitriadis, 2005).
Especially the role of customers in NSD has received
inadequate attention (Akamavi,
2005a). In addition, NSD in alliance context seems to be
an unexplored area.
Services differ from physical
products, which brings particular features also to their
development efforts (Edvardsson et
al., 2000; Alam & Perry, 2002; Stevens &
Dimitriadis, 2005). Nevertheless,
the study of Vermeulen and Dankbaar (2002) shows
that several concepts originating
from the new product development (NPD) literature are
applicable to service companies too.
Several firms collaborate with their
partner companies in new product and service
development, which adds complexity.
According to Rindfleisch and Moorman (2003),
fairly little is known about how
inter-firm NPD and NSD affect the customers of the
collaborating companies. Their
findings put forward that horizontal, i.e., competitor
dominated, new product alliances may
have a negative impact on the level of the
companies’ customer orientation,
which can be explained by the partners’ overlapping
knowledge and the lack of mutual
trust.
This paper reports the findings of a
study examining customer orientation in the early
phases of the NSD process in
alliance context (Valkeapรครค, 2006). The study answers to
the following research question.
• What kind of a process supports
customer orientation in the early phases of new
service development in a strategic
alliance?
The empirical case study of the
paper concerns NSD of a strategic alliance operating
in the financial sector in Finland.
The paper presents the findings of a developmental
action research project that aimed
at developing a new service idea further in a customer-
oriented way. The project was part
of a research project called Co-Create carried out by
the Enterprise Simulation Laboratory
SimLab at Helsinki University of Technology.
In this paper, NSD and services are
examined from a process-oriented point of view.
We concentrate on examining
business-to-consumer services because the case alliance
primarily develops new services
targeted to household customers.
The paper describes the theoretical
background, the methodology, the financial
service case study, and the results
of the study followed by the managerial implications
and the conclusions.
THEORETICAL BACKGROUND
The Characteristics of Services
Grรถnroos (1990, 2000) points out
that services differ from physical products in many
ways. Services are processes by
nature. They are produced and consumed at least partly
simultaneously, and also the
customer participates in the production of the service.
(Grรถnroos 1990, 2000) According to
Edvardsson and Olsson (1996), the fact that the
customer is a co-producer of the
service has wide-reaching implications to NSD.
Services are intangible and cannot
be stored like physical products. Another typical
feature of services is heterogeneity
resulting from the uniqueness of the service situation
and the social relationship
involved. (Grรถnroos, 1990, 2000)
Grรถnroos (1990) suggests that the
core value of services is produced in the buyer-
seller interaction.
This interaction includes encounters
between the service provider and
the customer, i.e., “the moments of
truth”, which considerably affect service quality.
Edvardsson and Olsson (1996) note
that the customer is the recipient of the service and
also judges its quality. Service
quality depends on the quality of both the service process
and its outcome (Grรถnroos, 1990;
Edvardsson & Olsson, 1996).
The primary task of NSD is to build
prerequisites for services that add value for
customers. These prerequisites
consist of the service concept, the service process, and the
service system. (Edvardsson &
Olsson 1996)
Service Concept, Service Process,
and Service System
The term service concept defines the
customers’ needs and how these needs are
supposed to be satisfied by the
service (Edvardsson & Olsson, 1996). The service concept
describes a potential new service
including its features and benefits as well as motivation
for offering and purchasing it
(Scheuing & Johnson, 1989).
It is often the service process that
enables the differentiation of the service from
competing offerings (Grรถnroos 2000).
According to Edvardsson and Olsson (1996), the
service process describes several
standardized and potentially alternative activities that
must function in order to guarantee
the production of the service. The service process
usually includes interfaces between
different units of the company but also between the
customer, the company, and its
business partners. These interfaces are often difficult to
control. (Edvardsson & Olsson,
1996)
By service system, Edvardsson
and Olsson (1996) mean the resources that are
required by the service process to
make the service concept concrete. These resources
contain the customers, the
employees, the whole organization with its management
routines, and the environment
including technical systems.
The role of information and
communication technology (ICT) has increased
substantially in the service system.
Technology enables new ways to communicate and
interact, but NSD should be
customer-focused instead of being driven by technology
(Edvardsson et al., 2000).
Service Innovations
Service innovations concern
different dimensions of services, such as the service
concept, the customer interface, the
service delivery, or the technology involved (De Jong
& Vermeulen, 2003). A new idea
is a starting point for an innovation. When the idea is
successfully developed and
implemented to create new benefit, such as profit, an
innovation emerges. Innovation can
deal with products, services, or processes. (Smeds,
1994; De Jong & Vermeulen, 2003)
Avlonitis, Papastathopoulou, and
Gounaris (2001) have developed a typology of
innovations for new financial
services. According to them, the most innovative type
includes new-to-the-market services.
The next type constitutes of new-to-the-company
services. The services that have new
delivery processes are the third type. The fourth,
fifth, and sixth types are called
service modifications, service line extensions, and service
repositionings. The service
developed in our case study represents new-to-the-company
service. Thus, it can be regarded as
innovative.
The level of innovativeness of the
new service also affects NSD and its success
factors. The structuring and the
critical points of the NSD process differ between projects
that concern radically versus
incrementally innovative services. (Avlonitis,
Papastathopoulou & Gounaris,
2001; De Brentani, 2001)
The New Service Development Process
Many models illustrating NSD stem
from the NPD theory that is much more
developed than the theory concerning
services (Scheuing & Johnson, 1989; Akamavi,
2005a; Stevens & Dimitriadis,
2005). The NSD process has been described in the
literature by sequential process
models and, on the other hand, by models that emphasize
an organizational perspective
(Stevens & Dimitriadis, 2005). Our framework is primarily
sequential, but we also recognize
organizational factors, such as interaction, supporting
customer-oriented NSD in a strategic
alliance. Our framework has elements of interaction
models that describe interaction and
communication between people or groups and
factors affecting it (Wiio, 1989).
The Early Phases of the New Service
Development Process
The NSD process consists of
sequential and parallel activities (Alam & Perry, 2002).
The early phases of the process
include formulating service objectives and strategy,
generating ideas, screening ideas,
developing the service concept, testing the service
concept, and analyzing business
implications of the service (Scheuing & Johnson, 1989).
New service ideas may emerge already
in the course of the planning of service
objectives and strategy. The phases
of idea screening, concept development, concept
testing, and business analysis can
be carried out in parallel. (Alam & Perry, 2002)
Johne and Storey (1998) note that
developing a new service is usually more complex
than developing a physical product.
This is because, besides developing the concept, also
the interaction process with the
customers has to be developed. They also point out that
intangibility makes it difficult to
test service concepts. Edvardsson et al. (2000) stress this
complexity by stating that the
service concept, the service process, and the service system
relate closely to each other and are
developed to some extent in parallel.
Organizational factors originating
from the NPD theory, such as effective and open
communication, cross-functionality,
and teamwork, have been suggested to contribute to
NSD too (Vermeulen & Dankbaar,
2002; Stevens & Dimitriadis, 2005). Communication
between different parties may
improve if cross-functional project teams are used or if the
phases of the NSD process are
carried out in parallel (Vermeulen & Dankbaar, 2002).
Akamavi (2005a) suggests that an
iterative NSD process helps to involve customers and
personnel from supportive activities
(e.g. front office) in NSD.
The study of De Brentani (2001)
suggests that the most important success factors for
new business services are the
service’s fit to the customers’ needs and the expertise of the
front office personnel, regardless
of the level of innovativeness of the service. Customers
and front office personnel possess a
lot of valuable knowledge about customer needs and
competing offerings, and they should
participate in NSD. The commitment of front office
personnel is crucial since the
success of the new service depends mostly on their abilities
after the launch. (De Brentani,
2001)
Improving Customer Orientation in
New Service Development
Kรคrkkรคinen, Piippo, and Tuominen
(2001) state that customer-oriented NPD requires
collecting knowledge about the
customers’ needs in a systematic way and designing
products based on this knowledge.
This holds true for services as well. Customer needs
can be studied with the help of
various techniques, such as market research and
observation (Edvardsson et al.,
2000).
According to Johne and Storey
(1998), it is important to involve customers in NSD
and to help them to articulate their
needs. The simultaneity of production and
consumption and the customer’s
participation in service delivery make it even more
important to involve customers in
the development efforts than in the case of physical
products (Vermeulen, 2004; Akamavi,
2005a).
Process-oriented management
emphasizes customer orientation and cross-
functionality. Activities of a
process can be modeled in chronological order in a process
model, and the actors of the process
can simulate the progress of the process by role-
playing. (Hannus, 1994) Process
modeling can enhance the development of new services
in a customer-oriented way because
designing the service process helps to examine the
customer’s interaction with the
service (Edvardsson et al., 2000). Process modeling can
also help to identify bottlenecks
and to improve the quality of service (Akamavi 2005b).
SimLab
TM
business process simulation method
(Smeds, 1994, 1997; Smeds, Haho &
Alvesalo, 2003; Forssรฉn & Haho,
2001; Haho, 2002) has been successfully applied to
improving a customer-oriented way of
working in collaborative service provisioning. The
method has enabled partner companies
to discover customer needs (Koskelainen et al.,
2005) and to create common
understanding about the needs of the partners’ common
customers (Jaatinen, Sรถdergรฅrd &
Peuhkurinen, 2005).
New Service Development in a
Strategic Alliance
NSD can be carried out by a single
company or an inter-company alliance. The case
study of this paper concerns NSD
conducted by a strategic alliance consisting of two
partner companies. Inkpen (2001)
defines a strategic alliance as a partnership in which
resources and governance structures
from two or more organizations are utilized in
collaboration to create strategic
benefit. According to him, mutual interdependence
between the partners exists,
although the strategic partners remain independent
companies.
The alliance formation can be
justified by strategic, transaction cost related, or
learning related reasons.
Inter-partner learning enables alliance partners to access and
acquire complementary capabilities
and knowledge. However, some proprietary assets
need to be protected. (Kale, Singh
& Perlmutter, 2000)
Learning, sharing knowledge, and
operating in a customer-oriented way in a strategic
alliance require strong relational
ties built on mutual trust and interaction between
partners. (Kale, Singh &
Perlmutter, 2000; Rindfleisch & Moorman, 2003) Trust is a
fundamental success factor for
strategic partnering. The strategic partners also need to
establish a shared vision as well as
shared values and rules in order to succeed. (Stรฅhle &
Laento, 2000)
According to Gerwin and Ferris
(2004), strategic partners have several alternatives
from which to choose the
organization of the collaborative NPD project. The decision-
making and the work itself can be
carried out by a joint project team or separate teams.
The composition of the project team
also affects the learning opportunities of the
partners. (Gerwin & Ferris,
2004) The NSD project of our case study was carried out by a
joint project team that included
service developers from both partners.
THE FINANCIAL SERVICE CASE STUDY
The Background of the Case Study
The case study of this paper
concerns NSD of a strategic alliance operating in the
financial sector in Finland. The
developmental action research project was part of the
case alliance’s wider NSD project.
The case study examines a single NSD project that is
an instance of the general NSD
process of the case alliance.
The case alliance consists of an
insurance organization and a group of banks that have
a common representative ‹‹ Figure 2
››. In addition, a data system provider that is closely
committed to the banks participated
in the NSD project of the case study.
Figure 2: The case alliance
(Valkeapรครค, 2006)
One of the collaboration fields of
the case alliance is NSD that has been carried out
for a couple of years. In the
Finnish market, there are a few banking and insurance related
services developed by the case
alliance. Besides collaborative NSD, the case companies
develop services independently.
The New Service Development Project
of the Case Study
The NSD project of the case study
concerns the development of a collaborative, ICT-
based service that includes features
from both banking and insurance services. The
service is targeted to household
customers.
The case alliance’s service
objectives were derived from the partnership strategy that
embodied the partners’ shared
vision. New services of the case companies relate closely
to the customer schemes of the
companies. The partners did not have a shared customer
strategy, but they had gone through
their own customer schemes together.
The idea of the collaborative
service arouse when the managers of the case companies
thought through collaborative
service objectives. They pondered how the companies
could create competitive advantage
and added value to customers together.
Both partner companies considered
the service idea as a promising opportunity, so
they decided to continue developing
it. The partners organized common meetings in
which the service developers tried
to concretize the initial service idea and to create
consensus about it. After the
partners had a better understanding about the idea, they
formed a joint project team whose
mission was to turn the idea into a service concept and
a service process and to analyze its
business implications. The team included ten service
developers representing the
insurance organization, the banks, and the data system
provider. The case alliance also
decided to include an external party, the SimLab research
unit, in the NSD project. The task
of the SimLab’s researchers was to facilitate the
development of the new service in a
customer-oriented way.
The representatives of the joint
project team gathered several times to design the
service concept together. They also
participated in the group sessions in SimLab ‹‹ see
Figure 1 above ››. In two process
modeling sessions, the service developers designed the
collaborative service process in
group discussions led by the researchers. The visual
model of the service process was
formed using paper sheets in the first process modeling
session. The model included the
phases from selecting the sales channel to the use of the
new service. Later on, the
researchers modeled the process with the help of modeling
software. The model was improved in
the second modeling session.
The service concept and the service
process were tested and developed further in the
simulation day. The use of the
service was discussed around visually modeled case
examples representing real-life
situations that might relate to the use of the new
collaborative service. The
participants of the simulation brought up their own experiences
and ideas as potential customers of
the new service, which worked as substance for the
further development of the service
concept. The other parts of the service process were
discussed around a model
representing the steps of the future service process in
chronological order.
Seven service developers, three
customer servants, and eighteen representatives of
end-customers participated in the
simulation discussions in the morning. The
representatives of customer servants
and end-customers did not have prior knowledge
about the new service. In the
afternoon, the service developers and the customer servants
worked in three groups to tackle the
challenges recognized in the course of the simulation
project.
Dozens of ideas concerning the new
collaborative service were raised in the
simulation day, and the service
concept was developed further by utilizing these ideas.
Some ideas concerning the service
process may lead to service innovations, but
innovative ideas concerning the
service concept itself were not born.
According to the filled
questionnaire and the follow-up interviews, most service
developers considered the
interaction with the representatives of customer servants and
end-customers as highly valuable
because it enabled the reflection of their ideas with
these parties. In addition, the
process-oriented approach was regarded as important.
Modeling and simulating the service
process helped to build shared understanding
between partner companies and to
consider the customer as the driving force in the
development of the new service.
Business analysis was conducted by
the companies’ joint project team during and
after the development of the service
concept. Later on, the joint project team gave
recommendations concerning the
implementation of the new service. Due to some
external changes in the operating
environment, the implementation of the service could
not be started immediately. The
implementation waits for a more suitable time.
RESULTS – THE NEW FRAMEWORK
As a result of the study, a model of
a customer-oriented NSD process in a strategic
alliance was created ‹‹ Figure 3 ››.
The model presents the prerequisites and the early
phases of the collaborative NSD
process as well as the interaction that is needed to
support the customer orientation of
collaborative NSD (see Valkeapรครค, 2006).
Figure 3: The model of a
customer-oriented NSD process in a strategic alliance
The prerequisites of the
collaborative NSD process include trust, shared vision,
strategy, values, rules, and a
shared view on the customers. The early phases of the
collaborative NSD process consist of
formulating collaborative service objectives,
generating ideas, screening ideas,
developing the concept and the service process, testing
the concept and the service process,
and analyzing business implications of the service.
The parties that need to interact in
order to improve the customer orientation of
collaborative NSD include service
developers (back office), customer servants (front
office), and customers. The content
of the interaction (e.g. the participants and the topics
of discussions) varies in different
phases of the NSD process.
Customer-oriented NSD requires that
knowledge about customer needs is collected
and utilized to support service
innovation. Diverse methods (e.g. market research and
observation) can help to discover
customer needs. In the case study of this paper, the
business process simulation method
was applied in order to enhance interaction and to
acquire knowledge about customer
needs.
MANAGERIAL IMPLICATIONS
The managers of collaborating
companies can use our framework to identify factors
that contribute to the customer
orientation of NSD in alliance context.
The results of the study highlight
the importance of the collaborative development and
testing of the joint service process
already in the early phases of the NSD process. The
development of the service process
is important in NSD of a single company and the
importance increases when companies
collaborate. The interfaces between different
actors in the service process within
and between the collaborators are difficult to control.
It is a challenge to design and
implement clear and consistent service processes in an
alliance. Furthermore, collaborative
service processes have potential for service
innovations, so their development
should be emphasized.
In collaborative NSD, it is
important that there is enough interaction between the
service developers of the
collaborating organizations. This peer-interaction between the
partners is crucial in order to
build common vocabulary and consensus about the
collaborative service. In addition,
the service developers need to interact with the
customer servants and the customers
in order to discover customer needs. This cross-
group interaction should take place
within one company but also between the partners.
The business process simulation
method helps to develop and test customer-oriented
service processes in alliance
context. The method supports both peer-interaction and
cross-group interaction. Managers
are encouraged to use business process simulation in
collaborative NSD projects in order
to improve customer orientation.
Finally, the study implies that the
collaborating companies should have a shared
vision and strategy and the customer
schemes of the organizations should be compatible
enough. The shared vision and
strategy should be implemented in the organizations in
order to make sure that they also
guide the work of the service developers.
CONCLUSIONS
According to the results of this
study, the early phases of the collaborative NSD
process include formulating service
objectives, generating ideas, screening ideas,
developing the service concept and
the service process, testing the service concept and
the service process, and analyzing
business implications.
The development and testing of the
service process differentiate NSD from NPD.
Developing and testing the
collaborative service process is crucial since the service
process helps to make intangible
services concrete and to differentiate them from
competing services. In alliance
context, joint service processes easily become complex,
which highlights the importance of their
careful collaborative development.
In collaborative NSD, interaction
between the service developers of the strategic
partners is crucial but the service
developers should also interact with the customer
servants and the customers. This is
especially important in service context due to the
special characteristics of services,
such as the customer’s participation in service delivery.
We claim that business process
simulation supports both peer-interaction between the
partners and cross-group interaction
within one company and between the partners, which
helps to develop customer-oriented
collaborative services.
Action researchers affect the
research results because they act as change agents and
interact actively with the research
subject. Therefore, it is important for an action
researcher to document the research
process and to evaluate the results of the study.
(Gummesson, 2000)
