Blog: Performance drivers in new service development2023-03-14
Professor Bo Edvardsson summarizes and reflects on a new book chapter and provides guidance on how to become more successful when developing new services.
Businesses and other organizations need to renew themselves to survive in fast changing markets. This is today even more important than ever before. Thus, new service development (NSD) is an essential management task, focusing on new and better ways of creating value for customers and other engaged actors, by innovative service provision. However, the failure rate of new services are high and the success drivers are often poorly understood and learnt from.
New service development (NSD) is a stream of research with many conceptual approaches and models, some with close links to service design and innovation. One approach I have used is grounded in three concepts: the service concept, the service process, and the service system. The service concept denotes the service offering in relation to the customer’s needs, and thus what value and customer experiences to be created. The service process refers to the activities carried out by the firm, the customer and all other engaged actors to realize the new service. This is done with the support of the resource structure in the service system, both within and outside the firm. Together, these three concepts form the basis for what is labeled the prerequisite for value creation enabled by the new service.
A somewhat different approach to NSD is offered by a Service-Dominant logic lens, conceptualizing NSD by using the concepts value proposition (VP), the development of the service ecosystem (resource structure), and the service process (resource integration and collaboration activities). The VP refers to an invitation to customers and other actors to collaborate in and contribute to NSD projects. The focus is on co-developing the new service and thus better ways for customers to serve themselves and others. The VP forms the point of departure and acts as a strategic compass in developing and realizing the new service. The value proposition describes how actors can improve their own and the service ecosystem’s viability. The VP is built on access to and integration of engaged actors resources, enabled (and inhibited) by existing institutional arrangements and platforms (infrastructure). The service process refers to all activities, interactions and ways of collaborating with customers and other actors, which need to be specified, sometimes in the form of contracts.
Different ecosystems and platforms are used when new services are launched in the market. This can be illustrated by downloading different Apps using a smartphone and accessing, and maybe paying for, the use of services such as Uber, Spotify, Evolution gaming, Netflix, newspapers, audiobooks, or buying or selling shares in global stock markets. Other examples include the activities and interactions (the service process) when paying bills using different service ecosystems with a lot of safety procedures built-in or test-driving new clothes in virtual realities before buying and purchasing to avoid returns. These examples show the need for an ecosystem and digital platform enabled approach in NSD and points to customer or multi-actor involvement in sometimes overlapping processes. I will focus on three performance drivers: NSD strategy, customer involvement and engagement and managing NSD through digital platforms.
NSD strategy: NSD strategy must focus on integrating and using, often ‘sticky’ user information and insights, throughout the NSD process. Research shows that the greatest effect on performance, measured as success rate in the market and financial outcome, was organizing NSD grounded in a service development strategy aligned to the firm’s business strategy.
Customer involvement and engagement in NSD: Learning from and with customers has turned out to have a major impact on NSD performance and a way to deal with the high failure rate. Research shows that the consumers’ service ideas are more innovative, in terms of originality and user value, than those of professional service developers. Therefore, developing forms for collaborating with and engage customers, frontline employees and experts, inform the NSD strategy and development projects, from idea generation and selection to scaling up of new services, and thus driving performance.
Organize NSD projects to focus on value creation for target customers: NSD success needs an ecosystemic and structured way of organizing development processes and projects, often supported by digital development platforms. Digital platforms, AI and a wide range of methods and tools (such as test-driving new services in virtual realities) are available for developing, integrating, scaling up, and personalizing new services to create value in service ecosystems. The NSD platform’s built-in structure, resources and methods should be linked to the firm’s business model.
Professor in Business Administration
Edvardsson, B., & Tronvoll, B. (2023). New Service Development: Key concepts and performance drivers, pp. 374-379. In Elgar Encyclopedia of Services. Edited by Faïz Gallouj, Edward Elgar Publishing, London.