Managing the new service development process towards a systemic model

The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0309-0566.htm Managing the new service development process: towards a systemic model Eric Stevens Groupe ESCEM, Tours, France, and Sergios Dimitriadis Service development process 175 Received October 2003 Revised February 2004 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 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 European Journal of Marketing Vol 39 No 1/2, 2005 pp 175-198 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510572070 EJM 39,1/2 176 companies extremely harsh These trends place service innovation at the heart of the firm’s competitiveness, as constant adaptation in a turbulent environment requires a continuous flow of new offers Consequently, much research has concluded that new service development (NSD) is a major competitive factor for the service industry ( Johnson et al., 2000; Fitzsimmons and Fitzsimmons, 2001) In contrast to these trends, research on how new services are developed remains fragmented and much less developed than for products (Drazin and Schoonhoven, 1996; Sundbo, 1997; Johne and Storey, 1998; Menor et al., 2002) The few empirical studies have not reached consensus on a well-formalised development process – in fact, they have often led to contradictory results In a recent publication, Menor et al (2002) underlined that significant effort is required to clarify the existing works, which are scarce and scattered Among potential research topics, the authors underlined that understanding the process by which new services are designed and launched may lead to improve the efficiency of the development process Such results could contribute to reduced development times and increased chances of success The first research in the field of NSD was based on the well-documented new product 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 that might 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 of production and/or commercialisation These differences have led to the NSD process 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 this field, the motivation of the present research is threefold First, few observations of the entire NSD process have been made in the past The absence of empirical data inhibits our understanding of what the main stages of the development may be Second, there have been no attempts to compare different NSD processes, even though the diversity and complexity of the delivery process is well known (Shostack, 1987; Lovelock, 1983) Third, among the empirical research describing NSD processes, very few attempts have been made to provide a development model Given this context, providing empirical evidence on the NSD process and outlining a general model of this process may constitute a significant contribution to a better understanding of the way companies develop new offers efficiently The paper is organised as follows: the “Conceptual background” section reviews existing knowledge on new product and service development description and modelling Then the “Methodology” section presents the research design Following this is the “Results” section, which describes the NSD process, and the “Discussion” section, which concludes by suggesting a NSD model Finally, the limits and implications of the paper are discussed 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 Service development process 177 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 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 The stage gate model EJM 39,1/2 178 Figure The NSD process cycle service, as well as the components of the organisation which are involved in the process (see Figure 2) Although they provide a descriptive view of ongoing processes, sequential development models suffer from three major weaknesses First, Cooper (1994) recognised that the implementation of “stage-gate” systems led to time-consuming and overly bureaucratic processes that slow projects down Overcoming this major limitation requires the adoption of a whole range of procedures which facilitate cross-functional teamwork and solve as early as possible the problems that could appear during the later stages (Midler, 1993) This leads many authors to propose alternative 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 organise development teams Several authors have stated that the NSD process is based on multi-functional teams, specifically created for this task (Thwaites, 1992; Scheuing and Johnson, 1989; Edgett, 1996) It was also observed that the processes were characterised by informal steps It seems that new services are the output of a co-operation rather than the result of a “champion” talent, either individual or departmental, even if a champion formally drives the process The level of personal contact maintained by the product manager, the commitment of the senior managers, the cross-functional team and the interaction process are the antecedents of the speed and 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 organisation seems to provide more insights about the potential success factors Third, sequential models 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) Service development process 179 EJM 39,1/2 180 found that development teams that have more thorough internal communication achieved a superior performance To some extent, Lievens and Monaert (2000a, b) confirmed this observation more recently for services The focus emphasises the way the team organising the problem-solving process all through development reinforces the 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 which may originate in many parts of the organisations [ .] Acquiring knowledge of the appropriate constraints is an important learning process, since that knowledge is generally widely distributed throughout the organisation and elsewhere, and is seldom all available to the 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 that success and failures where strongly inter-related Successes were considered as leading to the creation of new knowledge, while failures resulted in the unlearning of the processes, which led to success More recently, Nonaka and Takeuchi (1995) demonstrated the existence of links between the learning process and NPD Their work anchored the development process in the creation of new knowledge It is because teams produce new inferences that they are able to create new products, and it is through the testing of inferences and through the mutual adjustment of the representations that the development team is able to produce a result in accordance with its expectations The organisational dimensions seem better a candidate to aid understanding of the NSD process This is because the organisational perspective is very well fitted to the systemic nature of services management (Eiglier and Langeard, 1987; Fitzsimmons and Fitzsimmons, 2001) Empirical evidence has confirmed the strong impact of organisational factors on NSD Hart and Service (1993) established, through “action research”, that a change in the organisation is necessary to run a shorter development process successfully The NSD process increased in efficiency when a “functional integrative perspective” was adopted, setting up a less formal but more communicative organisation, improving shared information, decision-making agreement and decision-making authority agreement A similar statement was made by Edvardsson et al (1995), who revealed that the lack of co-ordination between functions, intra-organisational conflicts and the integration of departments had a major influence on the creation, design and launch of new services Such statements opened the way for an analysis based on the description of social networks, able to induce either failure or success (von Raesfeld Meijer et al., 1996; Pearson, 1991; Callon et al., 1998) This research underlined again that organisational change is associated with innovative service process It provided also an important contribution to the nature 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-functional communication, organisational and decision-making patterns were found to influence the level of NSD project learning This learning during the NSD process contributed positively to the competitiveness of the firm (Lievens and Monaert, 2000a, b; Blazevic and Lievens, 2004) Those evidences indicate very clearly that the organisational features may have a considerable influence on the successes and failures of NSD However, no overall 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 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 Service development process 181 EJM 39,1/2 182 recommended by many authors (Stake, 1995; Yin, 1994) First, the declarations were systematically crossed between the different respondents Second, they were compared to the internal and external reports Last, the summary of findings was regularly submitted to an internal committee, which included managers involved in the NSD, but not necessarily those investigated Companies agreed to give free access to all documents, data and people that the researchers thought relevant This collaboration was an additional criterion for the selection of the companies Both projects have been launched on the market and have been successful Our investigations stopped three months after launch The first project was with Cora, a well-known retailer operating in the eastern part of France, in Belgium, Luxembourg and Hungary In France, Cora manage 60 hypermarkets with a medium size of 8,700 m2 The “Universe” project aimed at increasing the attraction of the hypermarkets against specialised retailers through the restructuring of the non-food department The second project involved Credit Mutuel, a bank created in 1882 in the eastern part of France, which is today one of the largest French banks We observed the NSD process in the Anjou region, which accounts for more than 230,000 clients who deposit over billions euros The initial idea of the project aimed to replace detailed and complicated billing by a package adapted to customers’ needs and consumption As a counterpart of a set of different services including cheques, clients would have to pay a fixed amount monthly This induced a major change for both bankers and clients The content of these packages had to be transformed by defining the kind of products that should be included to be attractive and useful Moreover, the bank had to decide how many packages should be proposed in order to satisfy the different categories of clients Finally, it had also to build the process that should be adopted to convince an important number of clients Both projects aimed at designing new standardised processes We deliberately focused on the development of standardised offers with low customer involvement in the delivery process, having noted that development process for non-standardised offers may be impossible to compare (Lovelock, 1983) Moreover, the two companies had a significant network of outlets where they intended to distribute their offers This allowed us to observe the way the development team and the other levels of the organisation interacted with front office staff, specifically during the crucial implementation stage The two projects were of similar importance The re-implementation of two thirds of the store for 60 hypermarkets meant the transformation of at least 300,000 m2 of sales area 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 change involved major investments in terms of time, money and people Results Previous development models put the emphasis on the main stages of the development process In this investigation clear stages were not observed, but rather a continuously moving process, comprising different and changing actors as well as frequent “back and forth” communications, behaviours and decisions This is why results will be presented along three dimensions: (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 Service development process 183 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 EJM 39,1/2 184 first implementations and to design the final offer A store manager was chosen to manage this group Finally, after many tests and formal definition of the project, the organisational part of the project remained to be decided Thus, the second working group was 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 of the project The nomination of the first project manager for this role could easily be explained 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 leader and its team members are strongly anchored in the local context (political, technical and human) and are therefore difficult to compare Nevertheless, in both cases, the choice relied strongly on the identification of the kind of problems that are expected to arise The leader was chosen according to his ability to solve the kind of problem that was expected to happen If required competencies were due to change, then another project manager was chosen More fundamentally, the study revealed that the NSD process benefited from the contribution of people occupying a marginal position in the organisation Nevertheless, their contribution appeared to be ambiguous On the one hand, because they had a different perception of things, they were able to renew the frame of thinking of the organisation On the other hand, however, and because the first ideas appeared to be fragile, the testing required strong support from the existing structure The management 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 will produce conformity rather than innovation In such changing contexts, it is clear that the actor’s willingness contributed to the success of the development In both cases, only a project that could benefit some of the actors 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 to the interests of the individuals and groups of the organisation It is because staff members could find a potential benefit to the final offer that they brought their expertise, competencies and skills 4.2 The decision-making process Decision-making in both cases was achieved by an ongoing process, resulting from the constant exchange and confrontation of assertions and presentations Throughout the development, an organisational process was under way which linked the individual cognitive conflicts to the final output of the stage The juxtaposition of the two development 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 which the 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 resulting from the constant exchange and confrontation of information, assertion and representations Faced with the uncertainty of the NSD, the actors used a variety of action rules and behaviours These decision-making activities were grouped according to their nature, and are summarised in Table I Definition The team implements a solution in order to analyse the reactions of its adopters Most often this trial results in adjustment of the solutions The team creates a fictive solution by writing or drawing an expected result This draft provides the basis for discussions between team members Trying to benefit from the experience of other organisations Because of an unexpected problem, or due to an invalid experiment, the individual must find a new solution A new fictive solution is then created in order to solve the problem This is what we call a new representation Main activities Trial and error Simulation Observation of other experiments and behaviours Building new representations (continued) Retailing: the team made a trial in one store in order to analyse customer reactions A comparison was done between many different solutions in order to check the results Banking: the development team, after having designed the packages, organised a trial sales session, with real sellers and consumers, in order to validate the acceptance of the offers Banking: the team created a computerised simulation in order to build the quantitative profile of each segment Retailing: the team asked the computer department to issue a simulation about the weight of each “universe” in terms of turnover and profitability The intention was to create new departments which were of similar importance This simulation changed the initial composition of the offer a little Retailing: the team visited other outlets or parent companies in order to analyse the way they have solved similar problems Retailing: the creation of a promotional leaflet presenting new categories of product suggested that the organisation of the stores may be changed Banking: the manager in charge of the billing process changed the process she initially planned due to a conflict about the “transparency for the customer” principle adopted for the project Examples Service development process 185 Table I Actions of learning in the decision-making process Having to solve a problem, the individuals confront their opinions and partially change their minds about their own solution Expectations about the behaviours of both consumers and staff are produced in order to justify decisions Some of those expectations are tested immediately, some later The individual transfers to another context the results of his previous experience by making the hypothesis that it could work in the same way The individual or the group collects existing information in order to reduce uncertainty Formal and/or informal discussions Building hypothesis and conjecture Acquisition of information Banking: the definitions of the procedures and of the programming were interrelated As a consequence, people in charge of those two processes worked through conversations to achieve a close mutual adjustment Retailing: hypothesis of what could be accepted by the consumer was produced all along the development process, based either on personal intuition or on tests Banking: during the computer programming stage, people in charge of the task anticipated what could be asked in the near future for promotional purposes Banking: the decision of the launch and the final offer were linked to the conclusions of the Minister of Economy Examples 186 Transfer of personal previous experience to the development group Definition Table I Main activities EJM 39,1/2 The only common pattern in the decision-making processes that was observed can be described as an organisational learning process which linked the individual cognitive conflicts to the final output in each stage The process of decision making through learning during the three main stages of the NSD process is described in Figure First, the NSD process began long before an official development project was decided Such a decision, which entailed devoting time and budget, relied on a set of arguments Those initial assertions were the result of a first individual and group learning By being officially supported they were institutionalised, and therefore could be considered as a first organisational learning loop The second part of the development, which was strongly influenced by the initial stages, resulted in the production of the procedures and rules that had to be adopted in order to produce the new service This development was strongly anchored in the existing knowledge brought by the individual in order to solve the problems encountered This is so important that the development group was changed throughout the development according to the potential contribution of the individuals This stage resulted in procedures and rules, but also in the production of the means used in order to support the process and to institutionalise it These activities constituted a second learning loop Still, and because the processes were produced in direct contact with the client in varied local contexts, their implementation appeared to be a third organisational learning loop Operations had to learn the proposed rules and to adapt them to the local context so that they could be efficient These three broad stages span the entire set of events of the NSD In this process, many kinds of actions have been clearly identified First, the individual, faced with a cognitive conflict, would try to interpret the reasons why the problem arose This stage, called the interpretation stage, led to the production of divergent interpretations, anchored in the individual experience Though the interpretation cannot be considered as being a learning activity Service development process 187 Figure The three segments of the NSD process EJM 39,1/2 188 in itself, the production of new representations must be considered as essential in the design of new processes Second, the flow of constant and divergent interpretations within the organisation would lead to conflicts of representations between individuals Two ways of solving these conflicts have been observed The first referred to previous experience The solution that fitted best with positive lessons from the past would be adopted The second was based on testing the ideas This test was achieved by the multiple actions of learning that overcome simple trial-and-error strategy The collection of data, informal conversations, formal presentations and simulations were the multiple means that contributed to modifying, enriching and validating one representation The final output, which integrated the expertise of the people included in the process, was finally shared by the organisation Third, the output of the interpretation process was institutionalised by multiple means The formalisation of procedures and rules that would allow the production of the process was achieved by the use of internal communication, of the information system, of training programmes, and eventually by communication to the final client This large set of means was designed to train and constrain individual behaviours The adoption of a pre-determined role in the process permitted an interaction process made up of the co-ordinated actions of all of the organisation’s members Finally, the implementation of the new process ended as soon as the behaviours were routinised This routinisation provided the means to avoid the waste of energy, time and budget that were correlated to the constant efforts of interpreting, testing, and building new procedures The routinisation of individual behaviours, and therefore of organisational behaviour, would occur as long as the output did not trigger cognitive conflicts With routinisation, the development process resulted in the launch of the new services 4.3 Transformations occurring during the NSD process As services are mainly intangible, the question of what has been transformed or created remains to be investigated Due to their inseparability, the components that contribute to the delivery of the new service are altered by the NSD process Our observations were that the NSD process transformed: the interaction process between the company and the client; the information systems; and the organisational chart 4.3.1 Change in the company-client interaction process Changing the service entails designing company-customer interaction scenarios Even in the case of such different offers like retailing and banking, the NSD relied on a new process, on the design of new stages in a certain order, and on the definition of events that would trigger them In the two cases, producing a new service meant creating a new scenario which defined the role of each of the staff members By telling the front line people the kind of behaviours they have to produce and by providing the means to nurture and support them, the working team design the potential interactions, the situations where standardised behaviours must take place, and the moments where individual initiatives may be developed The development team of the bank created a new offer by bundling many independent financial products However, in this case, the difference was not the products themselves but the way they were delivered and, once they had been purchased, the way the customer was billed The purchase of a credit card before and after the launch of the packages was very different First, the packages were not launched because of explicit and formal expectations of the client As a result, the bank had to call the client and suggest the new formula Second, three options would be proposed, each with its own tariffs and options according to the kind of credit card involved This choice was only possible when the entire account was analysed in order to understand the kind of option required To so, a simulation was designed by the information system in order to make a rational choice and to limit the costs of the offer Then, and because the client must learn how to use the package, a three-month free trial would be offered During this period, the client was informed of what he would have been charged At the end of the period, the client had to make a formal choice and sign a contract that would result in the start of the invoicing process Although the scenario was not as tightly formalised in the retailing project as in the bank project, analysis of the changes demonstrated that the customer was obliged to enter a new purchase scenario The new “universe” concept aimed at enhancing impulsive purchases by the association of products on the same displays This way of displaying the product assortment would mean that in the same “scanning” the consumer would perceive more diversity than in the first case In both projects, part of the activity of the development team has been to imagine, design and formalise the scenarios of delivery Given the intangibility of a service, this could be considered as the major output of the development process This change was achieved by transformation of the tools that supported the interaction process 4.3.2 Change in the information system To be delivered, the new offers had to be written within the computing system Far from being a simple writing process, this stage required partial or complete redesign of the procedures In the case of the bank, the way an account was debited, the way the financial services were invoiced and debited, and the management of credit transfer from one account to another were integrated into the computer system Even in the case of a more informal client-salesperson relationship, the information required to make a decision and the potential simulation of the effect of this decision had to be defined before the interaction occurred in order to be included in the electronic office of each salesperson This rigid frame emphasised the standardisation of the financial offers Due to the computerised framework, each previously designed offer had very few possibilities to be adapted to local expectations or contexts As a result, the strategic position and function of the information system conferred on the computer department has an enormous importance As the core production of the bank is the transformation of information related to accounts, the computer department may be considered as the production plant Therefore, its role is to transfer the service specifications into programmes and then to enter them into the central computer for future implementation Similarly to the retailing case, the display of daily results had to be transformed in order to give feedback on the new categories of products Each time a sale was registered by the checkout’s scanner, the amount was added to the department’s Service development process 189 EJM 39,1/2 190 turnover Each day, week, month and year, the turnover was summarised and compared to the results of the previous period The information provided the basis for a gap analysis, which was used by the department manager to guide his commercial policy, and also by store management to assess the department manager Similarly, the same information was used to compare the performances between the same departments of different stores Removing the items from one department to another invalidated all historical comparisons, and in doing so, prevented efficient purchase and appropriate management of stock Finally, the information system appeared to be one of the most efficient ways to institutionalise the new service For the bank, once the electronic office integrated the offer, the employee was forced to follow the programmed procedures, with very few possibilities of adapting them In this case, the procedures were directly frozen during the programming Institutionalisation resulted from the impossibility of producing the service without computer support 4.3.3 Change in the organisational chart Analysis of the two cases revealed a clear link between the writing and implementation of the new service and the organisation’s features to the point that the new processes transformed the structures The retailer case presented many examples of such organisational change First, the division of work among departments changed due to the different dispatches of the products For example, the department managers previously in charge of furniture, of kitchenware products, of home furnishings and domestic cleaning products had to hand over their responsibilities to the new manager in charge of the new department, included in the “universe of the interior” This entailed the transfer of decisions for the selection of products, for their disposal, the choice of promotion policy, the ordering process, and also the management of the employees in charge of maintenance of shelves Producing such a task for an entirely new range of products required integrating new individual competencies Consequent to this evolution, the organisation of the purchasing department changed in order to be structured on the same basis, since co-ordination with the department managers implied an adaptation of the purchase department Such changes did not occur explicitly during the creation and launch of the new bank package Nevertheless, some change in the head office organisation revealed that the job content was progressively changing throughout the NSD process The beginning of the change was based on the general management’s intuition that salespeople would have to reinforce their role if they wanted the launch to succeed Before this development, there was no requirement to meet all the clients and to convince and train them The local agency’s directors managed the sales force with the use of small and local budgets The function of the sales person was not very clearly defined Most of them also performed administrative tasks by being involved in the everyday operations of the local agency The first decision made during the NSD in order to change this situation was to give more power to the manager in charge of the sales force activity and results A new director was hired for this purpose and a “Network Marketing” department was created in order to provide means for the salespeople At the same time, investment in the training of the salespeople was budgeted Finally, it was decided to remove administrative personnel from local agencies in order to reinforce the commercial orientation of front line employees Discussion and model building Compared to previous work, evidence from these two longitudinal observations provides a different, richer and broader view of the NSD process It has revealed changes in the intangible delivery scenarios supported by the redesign of the information system as well as the infrastructures; a decision-making process achieved through an organisational learning process that transforms the individual intuitions and cognitive conflicts into organisational routines by successive interactions; and a change process that lasts until the implementation of the procedures in the distribution network, which will adapt them to its own experiences This is summarised in the model for NSD presented in Figure The dynamics of the NSD and of organisational learning are made up of interactions This is the reason we introduce the concept of “interactors” in order to refer to actors who create knowledge by constant interaction with each other The number and functions of the “interactors” and the way they interact will determine the final fit between the new service and the customer’s expectations The concept of “interactors” is applied both to individuals and groups In the sense of learning, the group will be used each time an individual adopts an interpretation commonly shared by other individuals It may be the opinion of the members of a department, who perceive data in a similar way due to their common concern and experience However, it may also be the opinion of less formal groups, made up of Service development process 191 Figure The systemic learning model for new service development EJM 39,1/2 192 individuals coming from different parts of the organisation This suggests that the “interactors” may be external to the organisation A consultant, a client and an organisation could have a crucial influence on the knowledge-building process The integration of knowledge previously acquired by “outsiders” must be considered as an important means of increasing the competencies that can be used by the actors during development Besides the “human interactors”, the model includes the technical devices that contribute to the interaction process This choice may seem surprising, as technical devices are generally considered to be passive contributors to the processes However, internal and external individuals will use them in order to obtain or transform information Both cases revealed the crucial role of technical devices in the design of the offers Managers extracted information from the databases and used it in order to design the offers and/or to test the initial hypothesis This means that during development, the learning process is dependent on the technical devices that can be used At the same time, the way the information system is designed and the way it supports the interactions is of primary importance during the design of the offers Similarly, the infrastructure, when it contributes to displaying the offers, must be considered as an “interactor” In the case of retailing, the shelf’s layout and the choices adopted for the implementation of the sales area will determine the interaction process with the consumer They condition the different stages of interaction and their content Thus, the design of new offer entails building the means that will support the new interactions Finally, the external context is included in the model Although cognitive conflicts may arise internally, the external context appeared in both cases to be a source of innovation Because individuals interpreted the change in the legal context as a potential threat, they tried to create new bank offers that could face those changes Similarly, due to the increase in competitors, the retail managers tried to design a new offer The importance of context revealed that the NSD may be very sensitive to the interpretation of the environment The nature of the data that are collected, their frequency and the way they are displayed lead to the emergence of new interpretations In fact, what matters most is not the external environment itself, but rather the way the individual interprets and gives sense to the flow of data that surrounds the organisation Such a model is not normative It reveals the systemic nature of the NSD process It provides an in-depth representation of the nature of NSD process, of the main tasks that will be executed during its course, of the main contributors and of the way each individual, group and technical device contributes to the process It explains the behaviour of the individual during the process and it provides rational explanations for the first empirical statements Compared to the sequential development models, the suggested model presents many advantages First, it explains why the huge efforts that have been devoted to explore and understand the role and importance of R&D in innovation processes may be unlikely to produce results in the service sector The issue of the location of the R&D department within the company and its role in linking innovation and corporate strategy is irrelevant if such department does not exist (Tidd et al., 1997) In the case of services, this competence is embedded in the organisation of an interaction process supported by many skills and competencies The development team’s know-how is similar to that of the architect The project manager must gather, associate and integrate multiple competencies and skills He has to make sure that each contributor learns both from clients’ expectations and from organisational interactions, and that each contributor finds an interest in the NSD process Sequential development models (Kline and Rosenberg, 1986; Cooper, 1994) ignore many organisational aspects that play an important role from the earliest to the last stage of NSD Most of these models describe the initial stages as being “idea generation” or “preliminary assessment of potential markets” This generation may come from inputs of engineering, of science, and/or from analysing the needs, constraints and requirements of markets Yet, for services, organisational factors should be included in this stage as potential inputs or initiators For instance, it has been suggested that the individual may use innovative behaviour in order to control their position in the structure (Crozier and Friedberg, 1977; Alter, 1995) Similarly, research has emphasised that the generation of ideas is obtained each time actors escape from the frameworks that result from previous experiments This is achieved at the strategic level by opening a space for interpretation based on a vision or guiding principles From the organisational perspective, testing and offer-building rely on the change of organisational routines, procedures and rules Because they exist to prevent divergent interpretations, they prevent innovative behaviours Not surprisingly, our findings confirmed that general management opened the scope for interpretation by using vision, vocabulary and vague concepts By opening this possibility, they left space for individual divergence and therefore for potential innovation The managers used the interpretation mechanisms as a very useful means to support development Finally, the model provides an integrative framework that agrees well with several previous observations and findings It is consistent with the findings of von Raesfeld Meijer et al (1996)), who stated that a deep change exists in the information flow between people during the development of a new offer Similarly, it confirms the central role of communication amongst the members of the development project (Lievens and Moenaert, 2000a, b) Above all, the model contributes to solving the apparent contradiction that emerges from previous observations On the one hand, conclusions from Reidenbach and Moak (1986) and Edgett and Jones (1991) attributed success in the launch to the strong formalisation of the NSD On the other hand, the research of Thwaites (1992), Jallat (1992) and Edgett (1996) noted that development projects were very informal and poorly structured By putting the focus on “organisational learning” as one condition for success, the model indicates that both approaches (formal versus informal) may lead to success as far as learning was achieved By doing so, the learning perspective provides an integrative framework for the existing research on NSD Limits, potential for further research and managerial recommendations Qualitative methodologies present the well-recognised problem of the generalisation of findings In-depth observations focus on small numbers of cases that may appear very specific Yet, as the purpose of providing a first model becomes a valid goal, the adoption of qualitative methods seems fully justified Nevertheless, generalisation of the NSD model will require further qualitative and quantitative investigations For the qualitative part, further observations of the Service development process 193 EJM 39,1/2 194 development of standardised offers are necessary to enrich the initial framework, specifically during the initial and informal stages In-depth case studies for recently launched services, based on multiple interviews but concentrated during the post-launch period for easier data collection, could be used to validate the different elements of the model and the way they interact Furthermore, non-standardised offers would constitute a specific research field given the dimensions of complexity and divergence of the delivery processes (Shostack, 1984, 1987) For the quantitative part, the impact of learning process on results of the development may be assessed on the basis of measurements used on similar contexts, such as the impact of learning on the success of joint ventures (Lane et al., 2001) Considering specific aspects of learning, quantitative scales have been developed for constructs like project learning and communication flows (Blazevic and Lievens, 2004) These quantitative approaches can provide the grounds for further validation and extension to other components of the model, such as the role of interactors, in order to complete and reinforce the systemic aspect of the model Additionally, mechanisms of adoption or avoidance of learning procedures remain to be explored extensively It has been observed that some decisions were taken on the basis of some “guiding principles” that clearly were not learning actions In other cases, random choices occurred, raising the hypothesis of a contingent process resulting from external events One reason for these choices is the perceived duration and cost of learning (Simon, 1991, 1955; March, 1978) Because each of the learning loops entails spending time in the experimentation of results and in the analysis of the outcomes, a rational decision on all the parts of development appears impossible Due to time pressure but also to the difficulty of exploring all possible options and their consequences, it must be said that learning is in all cases partial, fragmented and incomplete The evidence of the study and the organisational learning perspective introduced by the model leads also to several managerial recommendations First it suggests considering that the way to foster innovation is to foster learning This is why, supporting the interpretations and thus the divergence, enlarging the scope of skills and competencies associated with the development, facilitating testing, making interactions between people easier and encouraging the formalisation of outcomes should be used more systematically as a guiding principle for managing the development of new services For example, implementing a state of mind that considers failure, conflict and dissatisfaction as opportunities to progress could contribute much to innovation Because they extend the potential experience of groups by adding multiple individual history and competencies, multi-functional teams clearly contributed to improving launch results Managers should select individuals for the team according to the experience or knowledge they can bring to the processes If the new service is to rely on a strong information network, computer engineers must participate in workgroups Similarly, if the distribution network has a major role to play in the production and selling of offers, specialists in this part of the process must participate The identification of competencies required to solve problems and the facilitation of the interactions between well-skilled people should greatly benefit NSD projects Finally, it is important for managers to consider the end of the development as the “freezing” stage Two major means can contribute to this stage The first is the use of information systems Because software works in a given way, it allows managers to “freeze” interpretations The second means is linked to the use of communication and promotion tools By promoting the final offers, managers communicate to the customer what is expected from the service in terms of benefits and the interaction process Having this information in mind, clients are likely to adopt standardised expectations, and therefore behaviours As in the case of information systems, standardisation of the experiences and perceptions is obtained by standardisation of information In conclusion, the suggested model permits a 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Journal of Product Innovation Management, Vol 9, pp 303-13 Tidd, J., Pavitt, K and Bessant, J (1997), Managing Innovation: Integrating Technological, Market and Organisational Change, Wiley, New York, NY, p 133 Van de Ven, A.H and Poole, M.S (1990), “Methods for studying innovation development in the Minnesota Research Program”, Organization Science, Vol No 3, pp 313-35 Service development process 197 EJM 39,1/2 198 von Hippel, E (1982), “Appropriability of the innovation benefit as a predictor of the source of innovation”, Research Policy, Vol 11, pp 95-115 von Raesfeld Meijer, A., de Ruyter, K and Cabo, P (1996), “Cooperation in new service development: a social dynamic approach”, Advances in Service Marketing and Management, Vol 5, JAI Press, Greenwich, CT, pp 193-214 Yin, R.K (1994), Case Study Research: Design and Methods, Sage Publications, Thousand Oaks, CA Further reading Myers, S and Marquis, D.G (1969), “Successful industrial innovation: a study of factors underlying the innovation in selected firms”, Paper No NSF 69117, National Science Foundation, Washington, DC  ... seems that new services are the output of a co-operation rather than the result of a “champion” talent, either individual or departmental, even if a champion formally drives the process The level... provided the basis for a gap analysis, which was used by the department manager to guide his commercial policy, and also by store management to assess the department manager Similarly, the same information... and implementation of the new service and the organisation’s features to the point that the new processes transformed the structures The retailer case presented many examples of such organisational