“And now tell me how to do it” - An explorative case study in new service development

D I S S E R T A T I O N of the University of St. Gallen,

School of Management, Economics, Law, Social Sciences

and International Affairs to obtain the title of

Doctor of Philosophy in Management

submitted by

Josef Frischeisen

from

Germany

Approved on the application of

Prof. Dr. Andreas Herrmann

and

Prof. Dr. Torsten Tomczak

Dissertation no. 4593

(Difo-Druck GmbH, Bamberg 2017)

The University of St. Gallen, School of Management, Economics, Law, Social Sciences and International Affairs hereby consents to the printing of the present dissertation, without hereby expressing any opinion on the views herein expressed. St. Gallen, October 24, 2016 The President: Prof. Dr. Thomas Bieger

Für Johanna und Johanna

Vorwort Beruflich wie privat war das Doktorat an der Universität St.Gallen eine überaus prägende und lehrreiche Zeit. Diese Zeit gebührend aufzuarbeiten, würde den Umfang eines Vorworts sicherlich sprengen; und nachdem die mehr als 130 Seiten dieser Dissertation dem geneigten Leser bereits einiges an Ausdauer abverlangen, möchte ich mich an dieser Stelle so kurz als möglich fassen und vor allem eines tun: „Danke“ sagen.

„Danke” an meine Kollegen des Instituts für Customer Insight für Eure Unterstützung, fachlich anregende Diskussionen und, wenn nötig, Ablenkung zur rechten Zeit. Allen voran gilt hierbei mein Dank Dr. Dennis Vogt. Ohne Dich hätte ich mich niemals auf den Weg gemacht, eine Dissertation zu verflogen; und ohne Dich wäre dieser Weg um einiges farbloser gewesen.

„Danke” an meine Doktorväter Prof. Dr. Andreas Herrmann und Prof. Dr. Torsten Tomczak. Ohne Eure Unterstützung wäre diese Dissertation niemals zu Stande gekommen. Die Zusammenarbeit mit Euch war und ist eine grosse Bereicherung für mich und meine Entwicklung – auch über diese Dissertation hinaus.

„Danke“ an meine Freunde und Familie. Ohne Euren Rückhalt und Zuspruch würde es diese Arbeit nicht geben. Ganz besonders möchte ich an dieser Stelle meiner Mutter, Johanna Frischeisen, und meiner Grossmutter, Johanna Bäumler, danken. Eure grenzenlose Unterstützung, Eure Opferbereitschaft und Eure bindungslose Liebe haben mich stets ermutigt, neue Herausforderungen zu suchen. Nur so konnte ich beruflich wie auch persönlich wachsen. Hierfür gilt Euch mein tiefster Dank; und deshalb ist diese Arbeit Euch gewidmet.

St. Gallen, im September 2016 Josef Frischeisen

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Abstract There is no arguing around the importance of innovation for both service and product companies in today’s competitive markets. But when we look into how much attention the scientific community has paid to new product development (as opposed to new service development), a dramatic misfit between economic reality and scientific research enfolds. Services contribute 70% of world GDP, but for a long time, they have been largely neglected by research. This is not only a drastic misrepresentation of economic realities; it has also left managerial decision makers in the service sector with too little advice. This is particularly true in the field of innovation research, where the existing body of knowledge provides barely any guidance on how to successfully manage new service development. This dissertation was bound to address this gap in current knowledge and did so based on a two-folded approach. First, through an extensive literature review and, second, by applying an explorative case study.

The literature review found that many of the established new service development models were conceptual in nature and did not account for the specific characteristics and/or contexts under which different new services were developed. Hence, this part of the study went on to analyse how services’ distinguishing factors – i.e., intangibility, heterogeneity, inseparability and perishability – influence new service development.

This provided a sound conceptual grounding for the subsequent case study, which was conducted together with a leading Swiss B2B services company that operates across various countries in Asia. Through the extensive analysis of seven different new service development projects, this study found that managing internal capabilities and processes is not sufficient for successful new service development. Rather, successful new service development is decided in an eco-system of three levels: The service-specific level (issues inherent to the service itself), the engagement-specific level (issues that result from the interaction with a specific client/customer) and the provider-specific level (issues that originate from within the service provider). Success depends on managing all three levels.

In addition, 5 implementable success factors for new service development have been identified: (i) a timely viability assessments of a new service idea, (ii) sharing of best practices and past failures, (iii) integrating clients/customers in the NSD process, (iv) defining and standardizing the core service offering, (v) while, at the same time, adjusting services to local market requirements.

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Zusammenfassung Unter den heutigen, kompetitiven Marktbedingungen steht es ausser Frage, dass es für Unternehmen nahezu überlebenswichtig ist, erfolgreich zu innovieren. Dies gilt zwar gleichermassen für produzierende Unternehmen und Dienstleistungsunternehmen, jedoch könnte die Wissenschaft ihre Aufmerksamkeit nicht ungleichmässiger auf diese beiden Sektoren verteilen. Während heutzutage 70% des weltweiten BIPs auf Dienstleistungen zurückzuführen sind, beschäftigt sich die Wissenschaft – nach wie vor – vor allem mit Produkten. Damit zeichnet sie nicht nur ein verzehrtes Bild der wirtschaftlichen Gegebenheiten, sondern verpasst es auch, Entscheidungsträgern aus dem Dienstleistungssektor relevante und umsetzbare Ratschläge mit an die Hand zu geben. Dies trifft insbesondere auf die Innovationsforschung zu, die zur Bewältigung aktueller Herausforderung im Dienstleistungssektor nur unzureichend beitragen kann.

Die hier vorliegende Doktorarbeit möchte dabei helfen, diese Lücke zu schliessen. Dies sollte durch zwei Schritte passieren: Erstens, durch eine umfassende Analyse der bestehenden Literatur zu Dienstleistungsinnovationen. Zweitens, durch eine explorative Case Study.

Die Analyse der vorhandenen Literatur hat erkennen lassen, dass viele der bestehenden Modelle zu Dienstleistungsinnovationen vor allem konzeptioneller Natur sind und es diesen Modellen daher nicht hinreichend gelingt, den spezifischen Merkmalen von Dienstleistungen – und deren Einfluss auf den Innovationsprozess – Rechnung zu tragen. Somit diente der konzeptionelle Teil der Doktorarbeit vor allem dazu, den Wirkungszusammenhang zwischen Dienstleistungsmerkmalen und Innovation eingehender zu prüfen und hierdurch ein Fundament für die empirische Erhebung zu schaffen.

Die Case Study wurde zusammen mit einem Schweizer Dienstleistungsunternehmen geführt und basierte auf der Analyse von sechs Innovationsprojekten. Die Studie hat gezeigt, dass es, um erfolgreich im Dienstleistungsbereich zu innovieren, nicht ausreicht, nur interne Prozesse und Ressourcen zu managen. Vielmehr hängt der Erfolg eines Innovationsprozesses zusätzlich noch von der Beschaffenheit der Dienstleistung selbst (also z.B. ihrer Komplexität) und den Anforderungen der potentiellen Kunden ab.

Darüber hinaus wurden im Rahmen der Arbeit fünf spezifische Massnahmen zur Steigerung der Erfolgsaussichten eines Dienstleistungsinnovationsprojektes identifiziert.

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Table of contents

Abstract ..................................................................................................................... V

Zusammenfassung .................................................................................................. VI

Table of contents .................................................................................................... VII

List of Figures .......................................................................................................... XI

List of Tables .......................................................................................................... XII

1 Introduction ....................................................................................................... 1

2 Conceptual background ................................................................................... 5 2.1 Services in research ............................................................................................... 5

2.1.1 Adam Smith and the service construct .............................................................. 6 2.1.2 The rise of services in marketing research ........................................................ 7 2.1.3 Towards a service-dominant logic .................................................................... 9 2.1.4 Characteristics of services .............................................................................. 12

2.1.4.1 Intangibility ................................................................................................................ 13 2.1.4.2 Inseparability of production and consumption ........................................................... 14 2.1.4.3 Heterogeneity ............................................................................................................ 16 2.1.4.4 Perishability ............................................................................................................... 18

2.2 New service development .................................................................................... 19 2.2.1 New service defined ....................................................................................... 19 2.2.2 New product - vs. new service development: assimilation or demarcation? .... 21

2.2.2.1 The assimilation perspective ..................................................................................... 22 2.2.2.2 The demarcation perspective .................................................................................... 22

2.2.3 The evolvement of NSD research ................................................................... 25 2.2.3.1 Articles ....................................................................................................................... 26 2.2.3.2 Journals ..................................................................................................................... 27 2.2.3.3 Impact ........................................................................................................................ 29

2.2.4 NSD success: determinants and measures .................................................... 31 2.2.5 Models of NSD processes .............................................................................. 33

3 Research methodology .................................................................................. 38 3.1 On case study research ........................................................................................ 38

3.1.1 Research philosophies ................................................................................... 38 3.1.2 Case study research ....................................................................................... 41

3.1.2.1 Case studies defined ................................................................................................. 42 3.1.2.2 The nature of inquiry ................................................................................................. 43 3.1.2.3 Number of cases ....................................................................................................... 45 3.1.2.4 On generalization from case studies ......................................................................... 48

3.2 Usage of case study research in this dissertation ............................................. 50 3.2.1 Details of the chosen case study design ......................................................... 50 3.2.2 Data collection ................................................................................................ 52

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3.2.2.1 Interviews .................................................................................................................. 53 3.2.2.2 Secondary data sources............................................................................................ 58

3.2.3 Data analysis .................................................................................................. 60

4 Case study at Service Corp ........................................................................... 64 4.1 Service Corp .......................................................................................................... 64 4.2 Service Corp’s business unit healthcare ............................................................ 66 4.3 Service innovation at Service Corp’s healthcare business unit ........................ 72

4.3.1 New service development without a process .................................................. 72 4.3.2 Issues related to the design of a new service ................................................. 73 4.3.3 Issues related to the analysis of a new service ............................................... 75 4.3.4 Issues related to the development of a new service ........................................ 76 4.3.5 Issues related to the launch of a new service ................................................. 78 4.3.6 Summary of results ......................................................................................... 80

4.4 Discussion of specific service innovations ........................................................ 82 4.4.1 Selection of cases .......................................................................................... 82 4.4.2 Regulatory ...................................................................................................... 85

4.4.2.1 Description and context of service ............................................................................ 85 4.4.2.2 Evolution of service ................................................................................................... 85 4.4.2.3 Key learnings ............................................................................................................. 87

4.4.3 Telemarketing ................................................................................................. 89 4.4.3.1 Description and context of service ............................................................................ 89 4.4.3.2 Evolution of service ................................................................................................... 89 4.4.3.3 Key learnings ............................................................................................................. 91

4.4.4 Market Entry ................................................................................................... 93 4.4.4.1 Description and context of service ............................................................................ 93 4.4.4.2 Evolution of service ................................................................................................... 93 4.4.4.3 Key learnings ............................................................................................................. 95

4.4.5 CTL ................................................................................................................ 97 4.4.5.1 Description and context of service ............................................................................ 97 4.4.5.2 Evolution of service ................................................................................................... 98 4.4.5.3 Key learnings ........................................................................................................... 100

4.4.6 CIM............................................................................................................... 102 4.4.6.1 Description and context of service .......................................................................... 102 4.4.6.2 Evolution of service ................................................................................................. 104 4.4.6.3 Key learnings ........................................................................................................... 106

4.4.7 E-commerce ................................................................................................. 108 4.4.7.1 Description and context of service .......................................................................... 108 4.4.7.2 Evolution of service ................................................................................................. 112 4.4.7.3 Key learnings ........................................................................................................... 117

4.4.8 Summary and discussion .............................................................................. 119 4.4.8.1 Key issues of NSD .................................................................................................. 119 4.4.8.2 The three levels of successful NSD ........................................................................ 121

5 General discussion ....................................................................................... 123 5.1 Summary of results ............................................................................................ 123

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5.1.1 Conceptual part of the dissertation ............................................................... 124 5.1.2 Empirical part of the dissertation ................................................................... 126

5.2 Practical contributions ....................................................................................... 128 5.3 Theoretical contributions ................................................................................... 130 5.4 Limitations and future research opportunities ................................................. 131

6 Conclusion .................................................................................................... 133

7 References .................................................................................................... 134

8 Appendix ....................................................................................................... 155

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List of Figures Figure 1: Structure of the dissertation ............................................................................. 4

Figure 2: NSD process cycle......................................................................................... 35

Figure 3: Data analysis approach .................................................................................. 60

Figure 4: Service Corp’s net sales 2011-2014 by region [in CHF bn.] ........................ 65

Figure 5: Service Corp’s net sales 2013/2014 by business unit [in CHF bn.] .............. 66

Figure 6: Organizational structure business unit healthcare ......................................... 67

Figure 7: Service Corp’s intermediary role in the healthcare value system ................. 68

Figure 8: Development of value added services (concealed) ....................................... 83

Figure 9: E-commerce penetration in SEA ................................................................. 109

Figure 10: Three levels of successful NSD management ........................................... 122

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List of Tables Table 1: Typology of new services ............................................................................... 20

Table 2: The evolvement of NSD research ................................................................... 27

Table 3: Top 14 Journals publishing NSD studies ....................................................... 28

Table 4: Positivism and interpretivism ......................................................................... 40

Table 5: Articles nominated three or more times in the AMJ board survey................. 42

Table 6: Overview of data sources used in this study................................................... 53

Table 7: Overview of informants .................................................................................. 54

Table 8: Snapshot of coding process ............................................................................ 62

Table 9: Reasons for why NSD is so important to Service Corp ................................. 71

Table 10: NSD key issues at Service Corp ................................................................... 81

Table 11: Relevant issues per NSD project ................................................................ 120

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1 Introduction

“Ideas are useless unless used. The proof of their value is in their implementation. Until then they are in limbo.”

Theodore Levitt

In today’s fierce market place, innovation is considered to be the holy grail of competitive advantage (Sutton, 2001). Successful innovations have the potential to disrupt markets, make or break market leaders or create new markets altogether (Tellis, Prabhu, & Chandy, 2009). Therefore, innovation remains a top priority for senior executives, and companies keep spending more and more on innovation (BCG, 2014). But “breaking through is hard to do” – as the Boston Consulting Group puts it in their yearly report on the most innovative companies (BCG, 2014, p.1).

Every year, companies spent billions of US Dollars (USD) in order to innovate; yet, despite these huge investments, innovations fail at a stunning rate: For new products, the failure rate is between 40% and 90%, depending on the industry (Gourville, 2006). For new services, the failure rate is about 40%; and while this number seems considerably lower than the failure rate of new products, any sense of pride or (false) security on the account of service innovators would be terribly misplaced, for truly innovate services are scarce (Bettencourt, 2010). But still, every year, companies take part in the innovation arms race.

For the last decades, academic researchers have responded to the managerial emphasis on innovation acceptance and developed a rich body of research to address the innovators’ struggle. For example, Henard & Szymanski (2001) identified more than 60 studies in leading management and marketing science papers dealing with the predictors of new product performance. Research on product innovation is ample – but what about service innovation?

Many authors have pointed out that innovation research is strongly biased towards products, neglecting services to a large degree (see, e.g., Biemans, Griffin & Moenaert, 2015; Fitzsimmons & Fitzsimmons, 2000). Why so? This question becomes even more pressing when we look at products and services from the broader perspective of overall economic output.

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The world economy is dominated by services. About 70% of the world GDP is contributed by services (Storey, Cankurtaran, Papastathopoulou & Hultink, 2015); and for some countries (e.g. the US), projections see this quota rising up to 90% by 2050 (Vilko & Ritala, 2014). Even companies that had traditionally been focused on products have started to augment their offerings with services – a trend referred to as “servitization” (Storey, Cankurtaran, Papastathopoulou & Hultink, 2015). Just twenty years ago, according to data provided by the World Bank (2016), services represented only 58% of world GDP. In short, the economic reality has changed. Services outweigh products in terms of their economic importance – but scientific research has not kept up with this landslide, as will be shown in the following.

Service markets are no less competitive than product markets. In fact, in some regards they might be even more competitive. Riedl, Leimeister & Krcmar (2009, p.3) found that “[a] differentiation strategy is difficult to attain as services can be copied easily and are not applicable to patent protection”. When it is that hard to compete based on what is already there, something new is needed. Therefore, innovation is a key priority in service markets. Along this line of reasoning, O’Cass, Song & Yuan (2013, p. 1061) concluded: “while substantial growth has occurred in services from an economic viewpoint, managing services innovation remains one of the most important challenges to business strategy in the services economy.” But apart from being an important challenge, it is also a poorly understood one (Maglio & Spohrer, 2008).

Despite the undisputable relevance of service innovation for businesses and economies around the globe, the academic world has long favored research on new product development (NPD) over research on new service development (NSD). This is not only a drastic misrepresentation of economic realities; it has also left managerial decision makers, who seek advice on how to optimize their new service development efforts, with little guidance. Biemans, Griffin & Moenaert (2015, p.1) consider the new service development literature to be highly fragmented and, thus, incapable of providing managers with a set of “generally accepted tools and guidelines for success”.

Therefore, the calls to address – and fill – this gap in the existing body of knowledge have been plenty (see, e.g., Bitner, Patricio, Fisk & Gustafsson, 2015; Biemans, Griffin & Moenaert, 2015). In particular, little is known about how to successfully manage new service development: “Because of the failure to build a cumulative body of knowledge, key questions such as ‘What does the NSD process look like?’ and ‘How can NSD be effectively managed?’ remain largely unanswered” (Biemans, Griffin & Moenaert, 2015, p. 14). At the very beginning of this chapter, Theodore Levitt’s quote cautioned us that it is only through implementation that we see the real value of an idea. Yet, as

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this chapter has shown, this is where research on NSD fails us: Providing guidance for how to successfully implement ideas. It is the research goal of this dissertation to investigate how new service development can be successfully managed. Thus, this study will not only contribute to the limited theoretical understanding of new service development, but also provide specific, actionable advice to managerial decision makers. To achieve this research goal, the dissertation will seek answers to the following two research questions:

Research question 1:

Which are recurring hurdles along the new service development process that aggravated the successful development of new services?

Research question 2:

Which key activities along the new service development process increase the odds of successful new service development?

In order to answer these research questions, the dissertation will be structured as follows: Chapter 2 provides the conceptual background of this study. As such, the specific nature of services will be analyzed to identify important key characteristics that need to be addressed in new service development. Further, the existing body of knowledge on NSD is reviewed to gain a more sophisticated understanding for the shortcomings of the literature – and their underlying reasons. The subsequent Chapter 3 discusses the research methodology. This chapter explains why a case study approach was chosen for this dissertation, why the particular case organization was chosen and how both data collection and data analysis were approached. Beyond that, the actual approach to data collection and analysis is explained. Chapter 4 encompasses the empirical case study. Hence, this section introduces the case organization and presents the findings of the case. Next, Chapter 5 provides a discussion of the case findings and examines both the practical and the theoretical contributions of this dissertation. Finally, Chapter 6 ends with a summary. Figure 1 illustrates this approach.

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Figure 1: Structure of the dissertation

Figure 1: Structure of dissertation

Source: own illustration

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2 Conceptual background This chapter will provide the conceptual foundations of the study. More specifically, services and, in particular, new service development will be discussed from a theoretical point of view. According to Martin and Horne (1993, p. 62), “the process [of NSD] is not well defined and does not adhere to conventional empirical mechanisms. Yet, new services come onto the market every day. ‘How?’ remains the critical question”. Given that the failure rate of new services withdrawn from the market due to low sales is a staggering 43%, this question is indeed critical for service companies. Therefore, this question – how do companies (successfully) develop new services? – is at the very core of this study. To provide an answer, the following chapters will look into what we currently know about services and the process of new service development.

Menor, Tatikonda & Sampson (2002, p. 136) have pointed out that “[u]ntil recently, the generally accepted principle behind NSD was that ‘new services happen’ rather than occurring through formal development processes”. It will be argued that successful new service development is often hindered by this limited, fragmented and unsystematic knowledge of new service development. This lack of a consistent body of knowledge regarding new service development is largely due to the fact that marketing- and innovation-research have been operating under a goods-dominant logic. Thus, in comparison to new product development, new service development has been severely neglected and the effect of services’ particular characteristics on innovation efforts have often been ignored. To lay out this argument, this chapter will be structured in two parts: The first part of this chapter will discuss the service construct in academic research. To that end, the evolvement of service research, the peculiarities of services (as opposed to products) and the relationship between services- and goods-research will be analyzed. The second section of this chapter will then proceed to review the existing literature on new service development. As such, that section of the dissertation will trace back the evolvement of new service development scholarship, explore the relationship between new service development and new product development and assess the current state of new service development research, in particular regarding its impact.

2.1 Services in research

In their paper “Marketing Malpractice: The Cause and the Cure” Christensen, Cook and Hall (2005) asked a profound question: Why is it that – despite all the effort marketing researches and experts put in – so many innovations fail in the market place? Their answer is swift: The longstanding product-centricity of marketing research is the root-

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cause for the diminishing guidance the discipline can provide to management and decision makers in today’s world.

Looking at the economical facts, we live in a service-dominant world (Ostrom, Bitner, Brown, Burkhard, Goul, Smith-Daniels, Demirkan, Rabinovich, 2010): Services account for more than 70% of the GDP in developed economies; and cases like China, where services contribute about 40% to the GDP, illustrate that even in economies that have long been dominated by products, the importance of services is growing.

Yet, it has only been recently that services began to play a more vital role in marketing research. Traditionally, marketing research was heavily focused on products, while services played only a minor role (see, e.g., Vargo & Lusch 2004; Savitt, 1990). Strongly influenced by its roots in economic science, marketing research was operating under the assumption that economic value is embedded in physical goods (Vargo & Lusch, 2004). Services, on the other, were either neglected or reduced to auxiliary support functions for the production and sales of goods (Fisk, Brown & Bitner, 1993). Uncovering the origins of the service construct will help us to better understand this misrepresentation.

2.1.1 Adam Smith and the service construct

Where does the service construct originate? According to most scholars, the service construct can be traced back to Adam Smith, whose seminal work on “Wealth of Nations” ([1776] 1904) is widely regarded as the nucleus of modern economics (Vargo & Morgan, 2005). For Smith, nations created wealth through the production of tangible outputs (Vargo & Lusch, 2007). More specifically, value was defined in terms of tangibles outputs – “derived from the rent of land, capital, and labor” (Vargo & Morgan, 2005, p. 43).

By this definition, services, since they did not yield tangible outputs, could not be deemed productive. Therefore, Smith ([1776] 1904, p. 330) distinguished between productive and unproductive labour:

“There is one sort of labour which adds to the value of the subject upon which it is bestowed; there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials he works upon […]. The labour of a menial servant, on the contrary, adds to the value of nothing.”

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While Smith appreciated the honorable, useful and necessary nature of the services provided by, for instance, army officers, churchmen, physicians and lawyers, they were unproductive in that the output of their labour was perishable:

[…] The labour of the latter [the servant], however, has its value, and deserves its rewards as well as that of the former [the manufacturer]. But the labour of the manufacturer fixes and realizes itself in some particular subject or vendible commodity, which lasts for most time at least after the labour is past. […]The labor of the menial servant […] does not fix or realize itself in any particular subject or vendible commodity. His services generally perish in the very instant of their performance, and seldom leave any trace or value behind them for which an equal quantity of service could afterwards be produced. […] The protection, security, and defence of the commonwealth, the effect of their [the servants’] labour this year will not purchase its protection, security and defence for the year to come.” (p. 330-331)

Smith ([1774] 1904) rendered services somewhat useful to individuals and society, but for him value was exclusively created by and in the form of tangible products. This product-centric view had a tremendous and long-lasting impact on the evolving field of economic science. Classical and neo-classical economics mainly dealt with optimization problems in a product-centric world (Vargo & Morgan, 2005). Moreover, marketing science, which evolved more than 100 years after the “Wealth of Nations” was originally published, “inherited the view that value (utility) was embedded in a product from economics” (Vargo & Lusch, 2004, p. 5).

2.1.2 The rise of services in marketing research

By the early 1990’s, service marketing had been successfully establish as a legit filed of research. Yet, service marketing had had to travel a long and windy road to get to this point. This journey can be divided into four phases;

Phase 1: Birth of the marketing science

Marketing science, as we commonly refer to it, evolved around the beginning of the 20th

century (Converse, 1945): In 1901/1902 the Universities of Illinois and Michigan were the first to offer marketing courses on university level; in 1911-1915 the first marketing text books were published.

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The marketing discipline was strongly rooted in the fields of economics and, therefore, heavily influenced by its ideas and concepts in its nascent days. Thus, at that point, the upcoming marketing discipline was mainly concerned with facilitating the distribution and exchange of tangible goods (Converse, 1945; Vargo & Lusch, 2004).

Phase 2: First steps of services marketing

Services had already contributed more to the GDP of the US than products by the mid-1940s. Despite that, it took marketing scholars roughly ten more years until the first service-focused study was published in 1953 (Fisk, Brown & Bitner, 1993). And yet, still more than a decade later, John Rathmell (1966) not only called for more attention to service research, but also criticized the lack of proper conceptual understanding for services.

Phase 3: The evolution of services marketing

The course of the following decades (up until the early 1980s) was a defining phase for service marketing: Academic work published in this period was mainly conceptual in nature and dealt with the fundamental question of the legitimacy of an emerging services marketing discipline – i.e., is services marketing different from goods marketing and, thus, legit as a separate field (Fisk, Brown & Bitner, 1993)?

Interestingly, a decisive article in making the case for the services marketing discipline came from outside the academic camp (Fisk, Brown & Bitner, 1993): In her 1977 Journal of Marketing paper “Breaking Free From Product Marketing” Lynn Shostack (Vice President at Citibank) called upon marketing researchers to offer more relevant insights to the services industry by providing paradigms specific to the nature of services:

“The fact remains that service markets are in urgent need of concepts and priorities that are relevant to their actual experience and needs, and that marketing has failed in evolving to meet that demand. However unorthodox, continuing exploration of this area must be encouraged if marketing is to achieve stature and influence in the new post-Industrial Revolution services economy.” (Shostack, 1977, p. 80)

Arguably, setting apart services and products was the major achievement of the first three decades of services marketing (Fisk, Brown & Bitner, 1993).

Phase 4: Explosive growth of service marketing

Fisk, Brown & Bitner (1993) described the following decade (from 1980 to the early 1990s) as a “period of explosive growth in numbers of publications” (p. 74). While in

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the first thirty years of services marketing research (until 1980) only 120 service-related publications (journal articles, books, proceeding papers & book chapters, dissertations) had been published, this number rose to 907 until the early 1990s.Vargo and Morgan (2005) attributed the growing interest in services over the last decades to the shift in developed economies from a product-centric to a service-centric model.

In short, many scholars have come to the conclusion that service marketing was successfully established as a well-developed discipline next to goods marketing by the early 1990’s (see, e.g., Fisk, Brown & Bitner, 1993; Berry & Parasuraman 1993).

2.1.3 Towards a service-dominant logic

Against the backdrop of the growing importance of the service sector for economic growth in the late 1990’s and early 2000’s (see, e.g. OECD 2000), the interest in service research had not faded and let to discussions about how to evolve the service research discipline – in the form of both conferences (e.g., 2002 Service Frontiers Conference in Maastricht; 2003 AMA ServSig Conference in Reims) and journal articles.

In 2004, one of the most influential articles resulting from this discussion was published by Vargo & Lusch in the Journal of Marketing on service-dominant logic (SDL). The then editor of the Journal of Marketing, Ruth Bolton, expected that “[t]he ideas expressed in the paper […] will undoubtedly provoke a variety of reactions” (Bolton, Day, Deighton, Narayandas, Gummesson, Hunt, Prahalad, Rust, & Shugan, 2004, p. 18).

Vargo & Lush (2004; and thereafter: 2006; 2008a; 2008b; 2008c; 2011) called for a paradigm shift in the marketing field by suggesting that “service provision rather than goods is fundamental to exchange” (Vargo & Lusch, 2004, p. 1). Thus, this call for a new dominant logic claimed that services, defined as “the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself” (Vargo & Lusch, 2004, p. 2) is the fundamental unit of exchange, while goods function as a mere surrogate for direct service provision. According to this logic, all providers (goods manufacturers and service companies alike) were, at their core, service providers. Put bluntly, SDL claimed nothing short of discarding the goods-service-dichotomy.

Despite the ever growing body of research on services, Vargo & Lusch (2004) argued that, by still treating services and goods as two separate concepts, marketing research was still operating on a thought model that was heavily shaped by a goods-dominant logic as it defined services mainly by illustrating what set them apart from goods. To

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advance services and marketing research, Vargo & Lusch (2004) called for abandoning this view:

“Increasingly, marketing has shifted away from the exchange of tangible goods (manufactured things) and toward the exchange of intangibles, specialized skills and knowledge, and processes (doing things for and with), which we believe points marketing toward a more comprehensive and inclusive dominant logic, one that integrates goods with services and provides a richer foundation for the development of marketing thought and practice.” (p. 1-2.)

What was rather cautiously implied in this statement taken from their first article on SDL, was formulated more explicitly in one of their follow-up papers on SDL:

“[…] goods and service are not alternative forms of products. Goods are appliances (tools, distribution, mechanisms), which serve as alternatives to direct service provision. Service, then, represents the general case, the common denominator, of exchange process; service is what is always exchanged. Goods, when employed, are aids to service-provision.” (Vargo & Lusch, 2008b, p. 26)

In short, Vargo & Lusch saw no need to hold on to the differentiation between services and goods. This line of reasoning was based on, inter alia, Gummesson (1995), who argued earlier:

“Customers do not buy goods or services: they buy offerings which render services which create value. […] The traditional division between goods and services is long outdated. […] activities render services, things render services.” (pp. 250-251)

But this thought model leads to a fundamental question – a question with far-reaching consequences for marketing science: Should services and goods be treated the same way?

As Bolton et al. (2004) had righteously expected, SDL provoked plenty of reactions –and, as Bolton et al. (2004) also expected, these reactions were disparate. In their extensive literature review on SDL, Kryvinska, Olexova, Dohmen & Strauss (2013) identified 140 papers that were published in response to SDL between 2004 and 2013. Many of these reactions were positive. They picked up and enhanced research on the reasoning of SDL (see e.g. Edvardsson, Holmlund, & Strandvik, 2008; Edvardsson, Tronvoll, Gruber, 2011; Gummesson, 2008; Gummesson & Grönroos, 2012). Yet, other

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reactions were less consenting (Deighton & Narayandas, 2004; O’Shaughnessy & O’Shaughnessy, 2009; 2011; Moeller, 2010; Rust & Chung, 2006).

O’Shaughnessy & O’Shaughnessy (2009; 2011), for example, criticized the singular perspective of SDL on goods and services for being too shallow in its explanatory power. More precisely, they argued that this perspective, embracing both goods and services under one umbrella and treating them alike, was too broad to yield meaningful findings. Instead of wrongfully implied commonalities between goods and services, O’Shaughnessy & O’Shaughnessy (2011) encouraged more refined distinctions between the two in order to enable a more sophisticated body of knowledge – i.e., the exact opposite of what SDL has stood for:

“Viewing all businesses as service providers and developing a new logic for marketing on that basis, is a backward step because the more general we seek to be (as in classifying everything under service) the less the depth and richness of what we can say about the overall service category.” (p. 1312)

Further, by pointing out how diverse the service industry by and in itself is – “from restaurant to transport companies” (O’Shaughnessy & O’Shaughnessy, 2011, p. 1313) – the authors supported their claim for why Vargo & Lusch’s singular approach falls short: Not all services are alike; they differ on various levels – e.g. their degree of sophistication, involvement of technology, efforts of customer involvement, separation of time and space, nature of the service and its direct recipient, degree of separation between production and consumption, etc. (for a more detailed overview, see Battisti, Dwivedi, Kuah, Lages, 2013). In short: different types of services need to be treated distinctively. If even within the service category more nuanced approaches are called upon, so their argument, how could services and goods be treated equally?

Moeller (2010) established a similar line of reasoning, using car ownership and -rental as an example:

For implementation and thus the interaction and relationship with the customer[,] producing a car or offering a rental car service makes a substantial difference. (p. 365)

In short, both O’Shaughnessy & O’Shaughnessy (2009, 2011) and Moeller (2010) made a compelling case for why SDL’s singular perspective on services and goods is too narrow an approach to yield informative findings.

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Arguably, in their elaborations on SDL, Vargo & Lusch (2004) may had been preoccupied with what services can do to customers and how customers might rather think about outcomes than about a (theoretical) goods-service-divide – to an extent that “conclusions for marketing management have been drawn from this perspective” (Grönroos, 2008, p. 299). Nonetheless, as researchers we should not only be concerned with the perspective of consumption, but also with the perspective of provision (Grönroos, 2008; Moeller, 2010).

By making the point for why goods and services are different – hence opposing SDL in this regard – this study does not aim at discarding each and every facet of SDL. The singular perspective on goods and services is only one component of SDL, albeit a very fundamental one. In total, Vargo & Lusch have develop eight1 “foundational premises” for their service-dominant logic. This study fully encourages SDL when Vargo & Lusch (2004, p. 12) posit that:

“[…] the goals [of SDL] is to customize offerings, to recognize that the consumer is always a coproducer, and to strive to maximize consumer involvement in the customization to better fit his or her needs.”

Ultimately, providing more relevant solutions to customers should be a key goal to advances in service research. Although this study fully endorses this final claim made by Vargo & Lusch (2004), it still insists that services and goods cannot – and should not – be treated alike. Because of the differences in the very nature of goods and services, managing services and managing goods is not the same (Rust & Chung, 2006).

The characteristics that make managing services different from goods will be examined in the following chapter.

2.1.4 Characteristics of services

Services dominate most economies, provide the majority of jobs and entail a variety of industries (Bettencourt, 2010): transportation and logistics, education, real estate management, insurance and banking, media and entertainment, security, retail and wholesale, health care, professional services like accounting – the list goes on and on.

Moreover, there is a growing trend towards “servitization” (see, e.g., Neely 2009), which will have even more companies venture into service industries: By offering complementary services to their goods, manufacturers try to add value to clients and,

1 The initial eight foundational premises have been amended by two additional foundational premises in Vargo &

Lusch (2008a)

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thus, gain a competitive advantage (Battisti et al., 2013). IBM, for instance, used to be a computer manufacturer; nowadays, the company also offers a broad range of consulting services (Bettencourt, 2010). Examples like that are numerous and can be found across industries.

From an academic’s point of view, the broadness of the service industry leads to a major challenge: how can services be defined? Services are not only different from products (see Chapter 2.1.3. above); they are also different from each other (see, e.g., Edvardsson, Gustafsson & Ross, 2005). While the body of research on services has been growing consistently over the previous decades (see Chapter 2.1.2 and Chapter 2.1.3), there is still a lack of standardized and agreed-upon definitions and classifications of services (Battisti et al., 2013; for an overview, see Bergholtz, Johannesson, & Andersson, 2011).

While agreeing upon what precisely defines a service is (still) difficult, there is some common ground in the literature regarding the characteristics of services: Since the 1980’s, four characteristics have been repeatedly suggested as the defining traits of services (see, e.g., Zeithaml, Parasuraman, Berry, 1985; Nijssen, Hillebrand, Vermeulen, & Kemp, 2006; Fitzsimmons & Fitzsimmons, 2010; Ostrom, Parasuraman, Bowen, Patricio, Voss & Lemon, 2015):

1. Intangibility: Services are acts and performances which do not necessarily have a physical existence.

2. Inseparability: Service production and consumption happen at the same time and cannot be divided.

3. Heterogeneity: It is difficult to standardize the performance and outcome of services.

4. Perishability: Services cannot be saved or stored for consumption at a later point in time.

The rest of the chapter will explore these four attributes in more detail. Moreover, criticism aimed at these attributes will be reviewed and discussed, too. In doing so, this part of the thesis will provide a thorough examination of the distinctive nature of these attributes, their validity and their subsequent challenges – thus, this section will lay the ground for the ensuing analysis of new service development literature.

2.1.4.1 Intangibility

Intangibility has often been considered as the universal difference between goods and services (for an overview of early works, see Zeithaml et al., 1985; further, e.g., Zeithaml & Bitner, 1996; Bebko, 2000). Services lack physical presence and, thus, it is

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impossible to see or touch them; rather, services are rendered; they are experienced (Shostack, 1977).

This lack of physicality is a key challenge for marketing services (Shostack, 1977; Moeller, 2010): While products can be seen, touched and tasted before buying them, services lack this proposition. Therefore, the degree of uncertainty involved in the buying decisions is tremendously higher for services.

The notion of intangibility being a key attribute of services has been challenged on the ground that tangible elements can be involved in services. For example, Gummesson (2000) questioned the classification of airlines as services companies – and, more broadly, the attribute of intangibly in general – based on the tangible nature of the aircraft one sits in, the food and the drinks one consumes and the staff one interacts with.

Although it is true that tangible elements may be involved in services, this does neither make an airline a goods company, nor is it a sound argument to discard the notion of intangibility of services. Put short, Gummesson’s (2000) claim is over-simplified.

Rejecting Gummessons’s claim is supported by the literature. Lovelock, for instance, argued: “Although services often include tangible actions […] the service performance itself is basically an intangible” (1992, p. 6). Further, Moeller reminds us that “the process of educating or operating is intangible and not the teacher, the books or the instruments” (2010, p. 362).

As opposed to tangible goods, the service promises made by, e.g., hairdressers, teachers, or consulting companies cannot be displayed or tried upfront – for they are intangible (Moeller, 2010). This is a key challenge that is mostly unique to services. The fact that the service delivery process may involve varying degrees of tangible elements does not undermine this notion or make the service promise itself more tangible (Ritala, Hyötylä, Blomqvist & Kosonen, 2013; Vilko & Ritala, 2014).

2.1.4.2 Inseparability of production and consumption

The second distinctive characteristic of services is the notion of inseparability, which refers to the simultaneous production and consumption of services (Zeithaml et al., 1985). Kotler (1982) emphasized:

“A service is inseparable from the source that provides it. Its very act of being created requires the source, whether person or machine, to be present. In other words, production and consumption occur

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simultaneously with services. This is in contrast to a product which exists whether or not its source is present.” (p. 478)

Typically, goods are first produced, then sold and, lastly, consumed; services, on the other hand, are first sold and then produced and consumed at the same time (Zeithaml et al., 1985; Moeller, 2010; Vilko & Ritala, 2014).

Most services demand – at least to some degree – the interaction and collaboration between the service provider and the customer (Tether & Hipp; 2002). As was shown earlier (see above Chapter 2.1.4.1), services are intangible deeds that are rendered and that have to be experienced. More precisely, services are rendered to the beneficiary. Therefore, the notion of inseparability demands that both the service provider and the customer have to be involved in the service performance (Orsini, 1987). Thus, services are dynamic co-creation processes that entail both the producer and the customer (Ritala et al., 2013). The more complex the service is, the higher is the need for co-creation (Jaakkola & Halinen, 2006).

Lovelock & Young (1979) have published one of the first articles on co-creation2. They have argued that firm productivity could be increased by involving customers more in the production, letting them take over tasks that have been traditionally performed by employees – e.g., by using ATMs or self-servicing gasoline stations.

Since then, a considerable body of literature on customer co-creation has evolved which examined both the productivity benefits as well as the challenges that result from turning customers into quasi-employees (see, e.g., Benapudi & Leone, 2003; Edvardsson, Gustafsson, Johnson, Sandén &Johnson, 2000; Firat, Dholakia & Venkatesh, 1995; Namisvayam, 2003).

While elements of co-creation can be found and used in almost any service, co-creation is of particular significance in the so-called knowledge-intensive business services (KIBS) – e.g., IT-outsourcing or business consulting (Bettencourt, Ostrom, Brown & Roundtree, 2002). In the case of KIBS (mostly relevant in a business-to-business context), the service provider needs to have a deep understanding of the client’s business model, his customers and his processes and procedures (Bettencourt et al., 2002). KIBS are highly complex service encounters in which the client plays a crucial role as value co-creator – e.g., by dedicating resources, providing information, etc. Production and consumption of the service are inseparably linked in these cases.

2 This thesis will use co-production/ co-creation interchangeably. Both terms are used in the literature and refer to the same phenomenon.

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Yet, the notion of inseparability has been criticized in the literature, too. Mainly, this criticism was based on the claim that there were a lot of services that could be performed without the customer being present. For example, Lovelock & Gummesson (2004) suggested:

“Simple observation will show that numerous widely used business and consumer services delivered to customer’s possessions – such as transporting freight, laundering clothes, and undertaking routine cleaning […] are most commonly performed in the customer’s absence.” (p. 29)

While Lovelock & Gummesson (2004) are right in pointing out that there are services that can be performed in the absence of the customer, the notion of inseparability is not weakened by that. This is mainly due to two reasons.

Firstly, Lovelock & Gummesson’s (2004) understanding of inseparability is too narrow. For them, inseparability is tied to the customer being personally present during the service delivery. Yet, services are not necessarily related to the customer himself; they can also be related to the customers’ resources – i.e., the freight to be transported, the clothes to be laundered and the flat to be cleaned (Moeller, 2010). Consequently, production and consumption also happen simultaneously in these cases. With the customer providing access to his/her resources, the notion of co-production is still fulfilled. Ergo, Lovelock & Gummesson’s (2004) objection is not valid.

Secondly, as was shown above in the case of KIBS, for some types of services the close-knit cooperation between service provider and customer is a mandatory prerequisite for a successful service provision. Production and consumption have to be intertwined by the very nature of these services.

2.1.4.3 Heterogeneity

Heterogeneity is the third distinctive attribute that distinguishes services from products. It refers to the fact that it is difficult to standardize services and provide a uniform output (Edgett & Parkinson, 1993; Lovelock & Gummesson, 2004). Zeithaml et al. (1985, p. 34) offered a substantial definition for heterogeneity in a service context:

“Heterogeneity concerns the potential for high variability in the performance of services. The quality and essence of a service (a medical examination, car rental, restaurant meal) can vary from producer to producer, from customer to customer, and from day to day. Heterogeneity in service output is a particular problem for labor intensive services.”

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Having a closer look at this definition, we can identify two different levels on which heterogeneity affects service provision (Edvardsson et al., 2005):

1. Between-firm-differences: Service providers and their respective business process and procedures tend to be different. For example, when looking at two different car rental companies, customers might realize that both, in the end, provide a rental car, but the quality and essence of their service may vary tremendously.

2. Within-firm differences: But also within a given company, service performance may vary considerably “due to employee-induced variation and variation among customers in terms of needs and expectations” (Edvardsson et al., 2005, p. 117).

This lack of standardization results in major challenges when it comes to marketing services: Compared to products, customers perceive a higher risk when purchasing services (Guseman & Gillett, 1981).

But, as Nicoulaud (1989) emphasized, heterogeneity not only creates problems for the actual service provision, it also affects the entire service development process and its eco-system – including the entire supply chain. In fact, Vilko & Ritala (2014) considered the heterogeneity of services to be a major force behind the high degree of complexity and risk in service supply chains (as opposed to product supply chains):

“[…] in service supply chains both the individual actors (and their personnel) as well as the supply chain processes are much more heterogeneous than in product-dominated supply chains. This means that there are no standard inputs or outputs in the supply chain, and therefore, there is major variance in terms of quality, risks, and management processes in general. The higher the number of actors throughout the service supply system, the greater such heterogeneity becomes since there are not only heterogeneous actors, but also more idiosyncratic linkages between them.” (Vilko & Ritala, 2014, p. 116)

In addition to that, the co-productive nature of services (as discussed above in chapter 2.1.4.2) considerably adds to the heterogeneity of services – and further increases complexity. With the customer being a co-producer in the dynamic service environment, and the service outcome often being depended on his/her input and participation, the standardization of services is a huge challenge for service companies (Lovelock & Gummesson, 2004).

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In short, standardizing the production as well as the outcome of services is a hard thing to do; and successfully managing the high degree of variability involved in service production and provision is a key challenge for service companies.

2.1.4.4 Perishability

Perishability, the fourth and last distinctive attribute of services, refers to the fact that services cannot be saved or stored to be consumed at a latter point in time (Grönroos, 2000; Zeithaml et al., 1985; Vilko & Ritala, 2014)). Already Adam Smith ([1776] 1904, p. 351) noted that “[…] services perish in the very instant of their performance”. For example, lost revenue from hotel rooms not occupied, airplane seats not sold, or billable hours not charged to clients are forfeited for good. According to Rushton & Carson (1985), perishability of services makes capacity management a key challenge of services:

Services cannot be produced before required and then stored to meet demand. If a service is not used when available then the service capacity is wasted. (p. 23)

Products can be stored for sale and consumption at a latter point in time. This makes it easier to manage fluctuations in demand. Service organizations, on the other hand, are perishable and cannot not be stored – which makes them more prone to suffer from fluctuations in demand (Edgett & Parkinson, 1993).

Yet, the notion of perishability has also been criticized (e.g., Edvardsson et al., 2005), some even calling it “nonsense” (Gummesson, 2000, p. 124):

“The claim that services cannot be stored is nonsense. Services are stored in systems, buildings, machines, knowledge and people. The ATM is a store of standardized cash withdrawals. The emergency clinic is a store of skilled people, equipment and procedures. The hotel is a store of rooms.”

In other words, Gummesson (2000) claimed that there were way too many services that could be stored to justify the generalization that perishability is distinctive to services. To some extent, his observation is sound: elements involved in the service provision (e.g. equipment or labor) can be stored. Yet, his conclusion is flawed: As was discussed above (see Chapter 2.1.4.1), services are intangible deeds that are performed in a co-productive setting; therefore, services cannot not be stored and are, thus, perishable. Lovelock & Wright (2001) built a similar argument when they argued that productive capacity needed for service provision can be stored, but not the product itself:

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“Because services is a deed or performance rather than a tangible item the customer keeps, it is “perishable” and cannot be inventoried. Of course, the necessary facilities, equipment, and labour can be held in readiness to create a service, but these simply represent productive capacity, but not the product itself. (Lovelock and Wright, 2001, p. 12)

This detailed discussion of services’ distinct factors – the so-called IHIP characteristics – leads to an unequivocal conclusion: Services need to be treated differently from products. Further, this discussion provides plenty of insights to inform the enfolding discussion of new service development.

2.2 New service development

2.2.1 New service defined

A new service3 is defined “as an offering not previously available to customers that results from the addition of offerings, radical changes in the service delivery process, or incremental improvements to existing service packages or delivery processes that customers perceive as being new” (Johnson, Menor, Roth, & Chase, 2000, p. 2). As Johnson et al. (2000, p. 4) pointed out, this definition is based on two key aspects: First, the definition differentiates between incremental innovations (that is, “changes to offerings previously available to an organization’s existing customers”) and radical innovations (that is, “offerings not previously available to an organization’s existing customers”). Second, the definition covers both the service itself and the process of service delivery.

In appreciating the fact that new services vary in degree (incremental vs. radical) and can result from various dimensions, Johnson et al.’s (2000) definition properly mirrors the existing literature. For example, den Hertog (2000) introduced a four dimensional model of service innovation, with innovation stemming from one or more of the following four dimensions: (i) the service concept, (ii) the client interface, (iii) the service delivery system and (iv) technological options. Further, Avlonitis, Papastathopoulou & Gounaris (2001) provided a comprehensive literature review that

3 In previous studies, various terms (e.g., “service innovation”, “service development”) have been used interchangeably (see, for example, Menor, Tatikonda, & Sampson, 2002). The study at hand will use the same approach and use these terms interchangeably; yet, mainly the terms “new service” or “new service development” will be employed.

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covers ten “key typologies of new product/service innovativeness” (p. 327); two out of this ten typologies are solely focused on services:

1. Gadrey, Gallouj, & Weinstein (1995) identified four potential sources of service innovation: (i) the service itself, (ii) bundling or un-bundling existing services, (iii) modification of existing services, (iv) innovation with regards to how a pre-existing service is provided.

2. Debackere, Van Looy, & Papastathopoulou (1998) determined three available origins of service innovation: (i) new services, (ii) fundamental changes to already existing services or processes and (iii) improvements to existing services.

Table 1 illustrates the spectrum of incrementally and radically new services and introduces specific examples. As den Hertog (2000) rightfully admits, one can always argue about boundaries of such dimensions or the degree of newness of a given innovation – for him, these are common, thorny problems in innovation research and judgements will inevitably vary. In reality, as de Jong & Vermeulen (2003) put it, “most new services will involve a combination of changes in various dimensions at once” (p. 846).

Table 1: Typology of new services

Table 1: Typology of new services New service category Description Example

Radical innovations

Major innovation New services for markets as yet undefined; innovations usually driven by information and computer-based technologies

Wells Fargo internet banking launched in May 1995

New services for the market presently served

New service offering to existing customers of an organization (although the service may be available from other companies)

Free-standing bank branches or kiosks in supermarkets or other retail establishments (e.g. Wells Fargo kiosks in Starbucks coffe shops)

Incremental innovations

Service line extensions Augmentations of the existing service line such as adding new menu items, new routes, and new courses

Singapore Airlines’ first-class airport check-in in a special exclusive lounge

Service improvements Changes in features of services that currently are being offered

Delta Airline’s use of ATM-like kiosks to distribute boarding passes to passengers

Source: based on Johnson, Menor, Roth, & Chase (2000); Lovelock (1984); Heany (1983)

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As the above shows, executives and innovators have a plethora of options at hand to develop new services. But despite the indisputable importance of new services in today’s competitive markets, we seem to know too little about the actual process of developing new services: Rather than being the outcome of a well-structured, systematic process, innovation in services has long been perceived as something that just “happen[s] as a result of intuition, flair, and luck” (Menor et al., 2002, p. 136). In fact, some authors have even concluded that the existing body of knowledge on service development is decades behind comparable research in new product development (Cooper & de Brentani, 1991). The question then is, can new service development learn from new product development research?

2.2.2 New product - vs. new service development: assimilation or demarcation?

When talking about new product development (NPD) and new service development (NSD), 4 the nature of their relationship has to be investigated. That is, are theories and models developed for either one suitable to help us get a better understanding for the other one? Or does either one ask for individual treatment?

It has been well established that services – due to their distinctive characteristics of intangibility, heterogeneity, inseparability and perishability – differ from products and, thus, need to be marketed differently (de Brentani, 1991; see also Chapter 2.1.4 above). Yet, scholars have been divided on the relationship between models and theories for NPD and NSD. Building on the often cited approach by Coombs & Miles (2000), two broad perspectives can be identified in the literature: (i) The assimilation perspective and (ii) the demarcation perspective (see, e.g., Carlborg, Kindström, & Kowalkowski, 2014; Nijssen, Hillebrand, Vermeulen & Kemp, 2006; Ordanini, Parasuraman, 2010; Gremyr, Witell, Löfberg, Edvardsson & Fundin, 2014; Droege, Hildebrand & Heras Forcada , 2009).5

To derive an answer to the above stated question of whether product innovation and service innovation need to be treated differently, both perspectives will be discussed in more detail.

4 This study will use the terms “new service development” and “service innovation” interchangeably. This approach is in line with the main body of literature on service research (see, e.g., Biemans, Griffin & Moenaert, 2015). 5 Some authors also discuss a third perspective – the so called “synthesis” perspective. Yet, so far, this perspective has mainly been developed theoretically and needs more empirical validation (Droege, Hildebrand, Forcada, 2009). Moreover, for the purpose of this study, the pressing question is whether NPD and NSD should be treated alike or not.

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2.2.2.1 The assimilation perspective

Advocates of the assimilation perspective posit that product innovation and service innovation are similar. Thus, according to this perspective, innovation theories and -models developed for manufactured goods can be transferred to service innovations (Coombs & Miles, 2000).

In fact, several studies emphasized that successful NPD and NSD firms share similarities (see, e.g., Griffin, 1997; Sirilli & Evangelista, 1998; Hughes & Wood, 2000). Some of these similarities are:

• A high strategic fit between the innovation projects and the overall firm strategy • Top management support for innovation projects • Innovation project teams with a multi-functional background • Availability of substantial funding for the innovation projects

However, studies based on the assimilation approach have been criticized for being too narrow in their focus to properly capture service innovation (see e.g., Drejer, 2004). More precisely, through its underlying assumption that products and services can be treated equally, the assimilation perspective neglects the distinct characteristics of services.

Arguably, the assimilation perspective is a direct consequence of the evolutionary history of service research in general. As discussed earlier (see Chapter 2.1), research has traditionally been heavily focused on products, while services played only a minor, often mere auxiliary role. Therefore, it should not come as a surprise that innovation concepts have been primarily developed in a product context – putting (dedicated) service innovation research in a subordinate position (Djellal & Gallouj, 2001).

2.2.2.2 The demarcation perspective

In contrast to the assimilation perspective, the demarcation perspective stresses the differences between products and services. Therefore, this perspective posits that service innovation needs distinct theories and models (Coombs & Miles, 2000; Menor, Tatikonda & Sampson, 2002).

It is the main focus of demarcation studies to explore the distinct features of service innovation (as opposed to product innovation); nonetheless, these studies do not entirely neglect useful insights from product innovation (Droege et al., 2009).

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According to the literature, the differences between NPD and NSD result from the unique characteristics of services – that is, intangibility, heterogeneity, inseparability, perishability (Fitzsimmons & Fitzsimmons, 2000).

The role of intangibility in NSD

Services are rendered and experienced, they lack physicality and cannot be touched (see Chapter 2.1.4.1) – this leads to substantial risks for the customer when it comes to innovation. While services may be linked to some sort of physical elements, the service provision itself is intangible and “customers must risk buying an eventual outcome and/or an experience which they cannot fully assess prior to purchase” (de Brentani, 1991, p. 36). Hence, buying a new service (as opposed to a new product) comes with a higher uncertainty for customers – something that needs to be kept in mind all along the NSD process.

Further, apart from the aforementioned risk on the customer’s side, intangibility also complicates NSD internally. More precisely, due to not having a tangible prototype (as it is mostly the case for NPD), it is more difficult for internal stakeholders to derive a common understanding of the new service concept. This, in turn, may burden the communication and cooperation between those who are involved in the process – e.g., operations, marketing, management (Tatikonda & Zeithaml, 2002).

Moreover, due to their intangibility, the development and launch of a new services does typically not involve high investments (both in terms of time and capital) in physical prototypes, plants, or patent applications (de Brentani, 1991). Thus, for many service companies, NSD becomes a process of informal, ongoing, on the spot initiatives that are mainly driven by customer demand or in response to competitors (Liu, 2012). Yet, this perceived ease of innovation comes at a high cost for service companies: First, as (innovative) services typically do not demand high up-front investments and cannot be protected by patents, it is easy for competitors to copy them – thus, gaining a defendable, lasting competitive advantage on the grounds of innovative service is a hard thing to do (Coombs & Miles, 2000). Second, service companies may approach innovation efforts too casually, lacking a deliberate, well-structured process – which jeopardizes the success of new service development (de Brentani, 1991). In fact, no matter how simple a service may seem, its success most likely depends on the interaction of various operations, technologies, interfaces and customer input (den Hertog, 2000).

The role if inseparability of production and consumption in NSD

As shown in Chapter 2.1.4.2, the production and consumption of services is inseparable, the customer is most often present when the service is provided and/or his cooperation

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is required. This leads to a critical difference between NPD and NSD: The customer’s response is not only determined by the outcome (consumption of service), but also by the way this outcome is generated (production of service) (de Brentani, 1991).

New products are developed, produced, sold and then consumed. That is to say that what the consumer will hold in his hands is “a fully developed physical entity” (Tatikonda & Zeithaml, 2001, p. 202). The consumer’s response to this new product will be mainly driven by the product itself, for he is not (or only barely) in touch with the R&D, production and distribution process behind the product. (Nijssen et al., 2006).

New service development, on the other hand, produces not the service itself but rather the preconditions for the service (Edvardsson & Olsson, 1996). Put differently, the NSD process will yield a “fully developed service-delivery process” (Tatikonda & Zeithaml, 2001, p. 202), which is basically a documented step-by-step system and its supporting documents. The actual service provision happens together with the customer in a co-creative manner. And with production and consumption being inseparable for services, the consumer’s response will be influenced by both.6 Therefore, there is a strong interdependency between new service development and service provision, one that is incomparably stronger than the relationship between R&D and production in a goods context (Tatikonda & Zeithaml, 2001).

The role of heterogeneity in NSD

For services, due to their heterogeneity, the potential for variability in their outcome is higher than for products (see Chapter 2.1.4.3). Services and their outcome can “vary from producer to producer, from customer to customer, and from day to day” (Zeithaml et al., 1985, p. 34). Seen in a positive light, this means that there is more capacity for tailoring services towards specific customer needs. Yet, on the downside, the already higher uncertainty resulting from a new service’s intangibility is further increased through its heterogeneity. While customers already perceive uncertainty to be high for new products, it may be perceived as even higher for new services (de Brentani, 1991). Hence, Tatikonda & Zeithaml (2001, p. 202) concluded: “There is a non-trivial variety in the process of providing the service and in the perception of quality of the service”.

The role of perishability in NSD

Chapter 2.1.4.4 has introduced the notion of perishability, which refers to the fact that services (as opposed to products) cannot be stored and saved for later to better respond 6 While this is not in scope for this thesis, there is a substantial body of research dealing with the importance of the actual service encounter and the parties involved in it – e.g. on the role of service employees (e.g., Bitner, Booms, Tetreault, 1990; Bittner, 1990).

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to fluctuations in demand. Providing additional human resources in times of (unexpected) peak demand is costly; bearing underutilized human resources is costly too; and getting back forgone revenue for services not sold on a given day is impossible (Aas, 2010).

Johnson et al. (2000) summarized the role of the aforementioned service characteristics and make a compelling case for the demarcation perspective that calls for distinct NSD models and services:

Given the inherent difference between the production of goods and services, particularly the role of customer contact in service delivery [i.e., inseparability], intangibility, and heterogeneity of demand, the application of NPD models to services might not suffice in adequately describing how new services are optimally developed. (p. 2)

This chapter of the dissertation has contrasted two schools of thought on the relationship between NPD and NSD – the assimilation perspective and the demarcation perspective. Services are characterized by unique features that make them distinct from products. It is for these very characteristics, and the challenges resulting from them, that NPD models and theories cannot simply be transferred to NSD. Having established that NSD calls for separate treatment, we will now look into what we currently know about NSD.

2.2.3 The evolvement of NSD research

The first research articles devoted to new service development were published in the 1980’s (Papastathopoulou & Hultink, 2012). Since then, the body of research on new service development has been growing considerably over the last thirty years.

In the light of this growth, some authors have claimed that service innovation research has reached a level of considerable maturity (see, e.g., Bryson & Monnoyer, 2004; Cainelli, Evangelista & Savona, 2004). Yet, the majority of scholars still considers NSD to be an underdeveloped area that needs more research (for an overview, see Biemans, Griffin & Moenaert, 2015). According to Storey & Hull (2010, p. 140) “NSD remains among the least studied and understood topics in both the service management […] and the innovation literature”. Kuester, Schuhmacher, Gast & Worgul (2013, p. 533) re-emphasized this notion by finding that “this area [NSD] is still underutilized”. Most recently, Bitner, Patricio, Fisk & Gustafsson (2015) have called for more research in the field of service innovation in order to expand the existing body of knowledge.

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Before going ahead and looking for ways of how to contribute to the development of this research field, it is worth going one step back, looking at how the literature on NSD has evolved over the course of the last thirty years.

By studying the existing literature, we can determine key patterns in NSD research and identify areas that have been neglected. To that end, this chapter will look into three topics: (1) How the number of NSD specific research has evolved over time; (2) which journals have published the most articles on NSD research; (3) how impactful the NSD literature has been so far.

2.2.3.1 Articles

The most recent and extensive review of NSD literature has been published by Biemans, Griffin & Moenaert (2015). Their work was built on and extended an earlier study by Papastathopoulou and Hultink (2012). Between them, they have identified 230 (201 respectively)7 empirical articles on NSD since the first NSD-specific paper was published in the 1980s.

As for how the number of articles evolved over time, Biemans et al. (2015) looked at a sample of 201 articles. These 201 articles can be divided into four periods, Table 2 gives an overview over these periods.

7 The number(s) were subject to the specific step of analysis Biemans, Griffin & Moenaert (2015) conduct – hence, they either referred to 230 or 201 articles. They argue that this variation is due to the fact that some studies use the same data samples. Therefore, when analyzing the content of the articles, they use a set 201 articles; for the journal analysis they use a set of 230. It has to be noted that when discussing the evolvement of articles over time, the authors build on the set of 201 studies instead of 230 studies. Yet, building on the set of 230 articles would be more in line with the above mentioned reasoning for the sample reduction. The author of this dissertation has noticed this inconsistency and pointed it out to the lead author of the said article (W. Biemans). While W. Biemans got back to the author of this dissertation, he did not elaborate sufficiently on this inconsistency.

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Table 2: The evolvement of NSD research

Table 2: The evolvement of NSD research Period Label8 Number of articles

1985-1995 “The early writing” 22

1996-2001 “Advancing the literature” 24

2002-2008 “The recent works” 65

2009-2012 “The additional years” 90

Source: Biemans, Griffin, & Moenaert (2015); Papastathopoulou & Hultink (2012)

The growing interest in NSD research was clearly reflected by the thriving number of publications over time. While in the first 15 years of NSD research less than 50 empirical studies were published, the comparable short period from 2009-2012 yielded 90 studies. NSD research, beyond any doubt, was growing considerably and steadily over time.

2.2.3.2 Journals

Both Papastathopoulou & Hultink (2012) and Biemans et al. (2015) have looked into the distribution of NSD articles within academic journals. To that end, Biemans et al. (2015) took 230 articles into consideration. These articles had been published in 50 journals. Two findings of Biemans et al. (2015) are striking.

First, just a few journals account for the majority of NSD publications. More precisely, only about 30% (14 out of 50) of the journals have published about 80% (180 out of 230) of these publications. Moreover, the top 3 journals (measured in terms of numbers of NSD articles) account for about 33% of the NSD studies. Table 3 presents these findings.

8 The first three periods have been labeled by Papastathopoulou & Hultink (2012). The fourth period was added by Biemans, Griffin & Moenaert (2015). Biemans et al. (2015) build on the logic of Papastathopoulou & Hultink (2012) and expanded their study.

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Table 3: Top 14 Journals publishing NSD studies

Table 3: Top 14 Journals publishing NSD studies

Rank Journal Number of articles

Percentage of articles

1 The Service Industries Journal 32 13.9

2 Journal of Service Management 31 13.5

3 Journal of Product Innovation Management 23 10.0

4 Journal of Service Research 15 6.5

5 International Journal of Bank Marketing 14 6.1

6 Journal of Services Marketing 12 5.2

7 Managing Service Quality 10 4.3

8 European Journal of Innovation Management 8 3.5

9 Industrial Marketing Management 7 3.0

10 European Journal of Marketing 6 2.6

11 Journal of Business Research 6 2.6

12 Research Policy 6 2.6

13 Technovation 6 2.6

14 Journal of Marketing Management 5 2.6

Source: Biemans, Griffin, & Moenaert (2015)

Upon closer examination of Table 3, the second striking finding is revealed: The modest amount of prestigious journals on this list. Biemans et al. (2015) found that none of the above mentioned journals made the Financial Times Journal List – which, arguably, is the most important journal ranking for the U.S. For the matter of comparison, looking at the Handelsblatt-Ranking Betriebswirtschaftslehre – which is the most influential journal ranking for the German speaking research community – the overall picture, albeit slightly better, is roughly the same: While influential A ranked journals can be found above (Journal of Product Innovation Management, Journal of Service Research, Research Policy), none of the most influential A+ papers made the list. In particular, as Biemans et al. (2015) pointed out, none of the top-ranked marketing journals Journal of Marketing, Journal of Marketing Research and Marketing Science have published NSD-specific papers. In contrast, NPD-related studies have been posted frequently in the leading A+ graded marketing journals (see, e.g., Chandi & Tellis, 1998; Sethi, Smith & Park, 2001; Tellis, Prabhu & Chandy, 2009).

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It has only been for the last few years that the first studies on service innovation have been published in A+ journals (see, e.g., Dotzel, Shankar, & Berry, 2013). Nonetheless, NSD research seems to have had a hard time gaining a foothold on A+ journals. This points towards a major disconnect between the academic agenda and the economic reality: Service innovation is a major driver of economic prosperity and firm value (Storey, Cankurtaran, Papastathopoulou & Hultink, 2015; Dotzel et al., 2013; Gallouj, 2002); yet, service innovation has not yet managed to break into the highest ranked academic journals. Biemans et al. (2015) note on that matter:

“While modern economies are service driven, the body of innovation knowledge being produced and consumed by the scholarly community remains product driven.” (p. 13)

What does this disconnect mean for the state of NSD research and its impact – in particular with regards to managerial decision makers?

2.2.3.3 Impact

For service companies and their (senior) executives, innovation is a top priority (Bettencourt, 2010). Innovation done wrong or failed may lead to severe consequences like “lost investments, lost customer goodwill, and potential damage to the corporate brand image” (Bettencourt, 2010, p. xix).

NSD scholarship is supposed to shed light on how to successfully innovate in a service context, and, thus, provide actionable advice to decision-makers in the service sector. Does it manage to do so?

Storey et al. (2015, p. 2) provide an answer to this question that does not evoke confidence: “[…], despite the acceleration of service innovation research […], there is no evidence that service firms are getting any better at innovation.” This statement gives room to two interpretations: Either, companies fail to properly follow the advice given by NSD research, or NSD research fails to provide proper advice. Towards this, Bettencourt (2010, p. xviii) has an unambiguous stance: “Innovation is a top priority for senior executives, but they lack the guidance required to innovate in a meaningful way”. In other words: NSD research has failed to provide proper advice. This is due to a lack of a generally accepted, cohesive body of knowledge in the field of NSD. Biemans et al. (2015, p. 13) noticed that “[i]n sharp contrast to the field of NPD, the increased level of NSD publications has not resulted in an integrated, holistic body of knowledge”.

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When looking for the root cause of this failure, no single aspect can be blamed; rather, this failure is subject to a plethora of reasons. These multiple causes have been pointed out by various authors and studies – most commonly, the following reasons were named:

• The lack of a longstanding, full-fledged NSD scholarship with its own theories and models due to the lengthy dominance of product-centered innovation research (see, e.g., Storey et al., 2015).

• A bias towards certain industries (e.g., most of the existing literature deals with financial services) that does not sufficiently account for the variations in services and their impact on the NSD process (see, e.g., Biemans et al., 2015).

• The challenging nature of developing and executing concrete research approaches in the service field as a result of the intangibility of most services (see, e.g., Ostrom et al., 2010).

As a consequence, key questions of innovation research remain unanswered – or at least poorly investigated. Biemans et al. (2015, p. 14) note on that matter:

“[…] Because of the failure to build a cumulative body of knowledge, key questions such as ‘What does the NSD process look like?’ and ‘How can NSD be effectively managed?’ remain largely unanswered.”

This thesis will address these very questions and, thus, contribute to filling these voids. But in order to do so, we first need to develop a more comprehensive understanding of the shortcomings of the existing NSD research. To that end, the following chapter will look into what we currently know about NSD success factors (Chapter 2.2.4 below) and the NSD process (Chapter 2.2.5 below).

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2.2.4 NSD success: determinants and measures

de Brentani’s (1989) study titled “Success and failure in new industrial services”, published in the Journal of Product Innovation Management, is oftentimes considered to be the first comprehensive empirical investigation into the antecedents of successful new services (Storey, Cankurtaran, Papastathopoulou & Hultink, 2015). Based on a sample of 115 companies from 4 different sectors, de Brentani (1989) studied the measurement and antecedents of new service success.9

The said study and de Brentani’s (1995) follow-up study laid the foundation for various investigations into the success factors of new service development. More specifically, de Brentani (1995) has identified four key success categories, which have been confirmed over and over again in subsequent studies. While the relevance of particular factors may have varied across studies, the overall categories have repeatedly been reaffirmed (see, e.g., Johnson, Menor, Roth & Chase, 2000; Storey, Cankurtaran, Papastathopoulou & Hultink, 2015). The four categories are:

1) Nature of service: This category encompasses factors like the extent to which a new service is (primarily) based on people or equipment, the level of its complexity, its costs, the uniformity of the service process, the service’s innovativeness, the effort put in enhancing the service experience as well as the provision of physical evidence of the service’s quality (de Brentani, 1995). As such, this category refers to the value a service or service provision creates for customers; thus, giving the provider a competitive edge over its competition (Johnson, Menor, Roth, & Chase, 2000).

2) Market characteristic:10 This category refers to market characteristics such as the overall fit between a new service and its target market, the attractiveness and competitiveness of the market, and the degree to which the service satisfies the need of different market and client segments (de Brentani, 1995). It should not come as a surprise that correctly assessing the market potential of a new service is imperative for its success; a new service will not be successful as long as it does not satisfy customer

9 de Brentani (1989) found that companies mostly relied on sales measures (sales and market share performance) to determine new service success. Interestingly, present studies and meta-studies of new service success factors still rely mainly on these criteria (e.g., most recently Storey, Cankurtaran, Papastathopoulou & Hultink, 2015), while it could be argued that sales measures provide, at best, only an inaccurate representation of the NSD effectiveness, because they not only account for the NSD process itself but also for the performance of an organization’s sales force. 10 de Brentani (1995) referred to this categories as “product-market characteristics” (p. 94). In the light of the above discussion about the need for a more strict differentiation between products and services, the term product is drop at this point

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needs, responds to changes in what customer wants and is compatible with customers’ expectations (Johnson, Menor, Roth, & Chase, 2000).

3) Project synergy: This category refers to whether the new service project is synergetic with the already existing capabilities, knowhow and resources (technical-, capital-, human- and financial-resources); further, project synergy refers to whether a new service project uses existing excess capacity and fits a company’s current service offerings (de Brentani, 1995; Johnson, Menor, Roth, & Chase, 2000). Several authors have pointed out that this types of synergies are crucial for the success of new services, for they allow companies to make best use of their existing strengths (see, e.g., example Cooper & de Brentani, 1991; Edgett, 1994).

4) New service proficiency: According to de Brentani (1995), this category refers to the degree to which the activities necessary for the development and launch of a new service have been effectively carried out. Put differently, the fourth success category is the development of new services along an effective new service development process. As a matter of fact, studies on new service success factors – from various authors and over decades – commonly named a structured NSD process as a key success factor, some of them had even pointed to the NSD process as the most important success factor (see, e.g., Storey, Cankurtaran, Papastathopoulou & Hultink, 2015; Johnson, Menor, Roth & Chase, 2000; Cooper, Easingwood, Edgett, Kleinschmidt & Storey, 1994; Edgett, 1994).

At this point, a paradoxical finding emerges: Repeatedly, a proficient new service development process has been named as a – or even the – key determinate of successful service innovation; yet, we seem to know too little about what constitutes a successful new service development process. In fact, Menor, Tatikonda & Sampson (2002, p. 136) pointed out that “[u]ntil recently, the generally accepted principle behind NSD was that ‘new services happen’ rather than occurring through formal development processes”. Merely identifying the determinants of successful new services development may provide some value to the academic discussion; but without actionable advice on how to do things, little is done to help practitioners (Johnson, Menor, Roth, & Chase, 2000). To make matter worse, the number of studies related to NSD process has been in steady decline: Between 1982 and 1995, 30% (15 out of 50) of NSD related studies focused on NSD process models and/or stages; in the period from 1996 until 2001 this share was reduced to 24% (11 out of 46); and it further declined between 2002 and 2008 to a mere 18% (9 out of 49).

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2.2.5 Models of NSD processes

To get a better appreciation for why the existing body of knowledge on the NSD process has been repeatedly considered inadequate to provide actionable guidance, this chapter will review the related literature.

Johnson, Menor, Roth & Chase (2000) have provided an overview over the most influential and representative NSD process models, which were divided into three groups: Partial models, translation models, comprehensive models.

1) Partial models

Partial models deal with only a part of the entire NSD process. Shostacks’s Model of NSD (Shostack, 1984) and Shostack and Kingma-Brundage Planning/ Development Model (Shostack & Kingma-Brundage, 1991) are two of the most influential partial models. Both models concentrated on providing an approach for defining a new service conceptually and operationally in order to facilitate its subsequent implementation – also referred to as service blueprinting (Shostack, 1984; Johnson, Menor, Roth, & Chase, 2000). Service blueprinting is considered to be a key method in designing successful services (Fliess & Kleinaltenkamp, 2004). Hence, these models considerably contributed to NSD process research. Yet, they only centered on portions of the NSD process and, in particular, the second study by Shostack & Kingma-Brundage (1991) was entirely conceptual in nature.

2) Translation models

Translation models are based on NPD process models and seek to transfer these models to NSD. Largely, translation models are based on the seven-step BAH model by the US-based consulting company Booz, Allen & Hamilton (1982). The BAH model is an advancement of the initial six step model from 1968 (Booz, Allen & Hamilton, 1968), which was developed based on a survey studying the new product development practices of companies in the US manufacturing industry (Scheuing & Johnson, 1989). The model itself is rather generic in nature, comprising the following seven steps: (i) NPD strategy, (ii) idea generation, (iii) screening and evaluation, (iv) business analysis, (v) development, (vi) testing, (vii) commercialization (Booz, Allen & Hamilton, 1982).

Johnson, Menor, Roth & Chase (2000) have pointed out that several authors translated this model to services, some of them directly, using the exact same process format (e.g., Donnelly, Berry & Thompson, 1985; Johnson, Scheuing & Gaida, 1986), others extending it (e.g., Bowers, 1985), or compressing it (e.g., Anderson & Pennington, 1992).

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As was established earlier (see Chapter 2.1 and Chapter 2.2 for a detailed discussions), products and services are not alike. More precisely, it is their intangible, heterogenic, inseparable and perishable nature that distinguishes services from products (Papastathopoulou & Hultink, 2012):

• Due to their intangibility, new services stay conceptual throughout the entire development process, which increases uncertainty about their exact nature.

• Due to their heterogeneity, the complexity in the service delivery process is tremendously higher than for standardized products.

• Due to their inseparability, the interaction with clients and customers is a critical, yet hard to plan for, success factor.

• Due to their perishability, considerations of over- and under-capacity are far more critical for services.

Hence, product-based innovation models can provide only little value, if any, to developing a better understanding for successful new services development processes. Rather, innovation processes and models are needed that better account for the specific characteristics of services.

3) Comprehensive models

In trying to account for the particularities of services and, thus, remedy the shortcomings of translation models, comprehensive models holistically discuss the entire NSD process chain. Scheuing & Johnson (1989) pointed out that too little was known about how to successfully developed services and, further, there was a need for models specifically catering to the needs of services (as opposed to products). Therefore, they developed the Scheuing & Johnson Model for Service Development (Scheuing & Jonson, 1989). While the body of knowledge on new service development is still limited today (see discussion above), there was barely any research on new service development at the time the Scheuing & Jonson (1989) model was developed. Thus, this model added to the existing body of knowledge in substantial ways: As Scheuing & Johnson (1989, p. 28) stressed, their “model takes into account the complexity of service design and the many iterative steps involved in NSD”. In particular, this model stressed the numerous sequences of internal and external iterations (across various functions and personnel) that are needed for successful new service development.

Yet again, about a decade later, Tax & Stuart (1997) complained about the (still) limited understanding of new service development, resulting from “the adaptation of models that fail to consider important aspects of service planning” (p. 105). In particular, they emphasized that too little was known about how new services impact and interact with

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the pre-existing service system. Hence, these authors provided a model that was heavy on assessing the interplay between a new service and the existing service system (Tax & Stuart, 1997; Johnson, Menor, Roth, & Chase, 2000).

Subsequent models and studies have tried to summarize and/or extend previous research on new service development, with some of them strongly focusing on particular features of the NSD process – for example, Johnson and Menor`s Generic Integrative Model (Johnson & Menor, 1997) stressed the critical need for building feedback loops into the NSD process in order to better account for the intangible aspects of services (Johnson, Menor, Roth & Chase, 2000). Most recently, Johnson, Menor, Roth & Chase (2000) presented a process cycle consisting of four broad phases – these are: design, analysis, development and full launch (each with several sub-steps). By being set-up as a cycle, as opposed to a linear process, the model is supposed to emphasis the non-linear nature of NSD.

Figure 2: NSD process cycle

Figure 2: NSD process cycle

Source: Johnson et al. (2000)

A short summary on the evolvement of NSD process models will help us with assessing their contribution:

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• First, partial models, devoted to particular steps of NSD, have yielded valuable insights into specific key activities of new service development. Yet, these models failed to provide a holistic view of the NSD process.

• Second, while translational models looked at the entire process chain holistically, these models were grounded in NPD processes. Hence, translation models did not sufficiently accounting for the particular challenges of services and their characteristics.

• Third, comprehensive models looked at NSD process holistically and shed more light on how innovation processes should be set up to specifically cater to the very nature and challenges of services. Yet, the question remains, can these models provide actionable advice on how to best execute NSD?

As de Brentani (1995, p. 94) put it, “the notion that all new product situations are similar seems somehow counterintuitive”. Looking at the inherent differences between products and services, this statement is clearly true. But this observation is also valid for within the service domain: Given their variety (e.g. regarding complexity, level of automation, etc.), not all services are alike. Edvardsson, Gustafsson & Roos (2005) concluded that services are as different from each other as they are from products. Thus, not all services can be treated equally when it comes to new service development. MacCormack and Verganti (2003, p. 217) claimed that “different types of projects carried out in different environments are likely to require quite different development processes if they are to be successful”. Further, Biemans, Griffin & Moenaert (2015, p. 1) emphasized most recently: “There are many different types of services, but it is not clear how the service context impacts the new service development process”. Along this line of reasoning, Zomerdijk & Voss (2011) concluded that this contingent view of new service development calls for a more sophisticated, attuned approach towards NSD; one that accounts for the specific contexts and characteristics of the services that are studied.

Further, while past research has provided us with some important insights into how NSD processes should be structured, this is particularly true for comprehensive models, we still know too little about critical activities and pain points along the NSD process chain (see, e.g., Menor, Tatikonda & Sampson, 2002). Put differently: While we have managed to improve our understanding of what the NSD process and its stages should look like, the question of “what activities are necessary for successful NSD execution” (Menor, Tatikonda & Sampson, 2002, p. 151) is still largely unacknowledged.

These two issues just discussed – (i) the limited scale of NSD process research attuned to specific services, their context and characteristic as well as (ii) the lack of insights

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into key activities of successful NSD execution – have severely contributed to the lack of a cohesive body of knowledge on NSD, which has been moaned by various authors (most recently Biemans, Griffin & Moenart, 2015). Subsequently, decision makers who want to improve their firm’s NSD capabilities are left with little valuable advice (Biemans, Griffin & Moenart, 2015). The dissertation at hand will contribute to filling this void.

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3 Research methodology Chapter 2 provided an overview over the existing literature on new service development and pointed out gaps in the current body of knowledge. In particular, knowledge gaps exist with regards to what the new service development process looks like and how it can be successfully managed. This dissertation is set to contribute to closing this gap by enhancing our understanding of the new service development process. To that end, the research methodology utilized in this thesis was an in-depth single case study. Chapter 3 will discuss this research methodology in more detail. Hence, this chapter will be structured as follows: The first part (Chapter 3.1) will be rather conceptual in nature and offer an introduction into the theory and background of case study research; the second part of this chapter (Chapter 3.2) will build on this theoretical underpinning and illustrate how case study research was applied in this dissertation.

3.1 On case study research

3.1.1 Research philosophies

The goal of research is to create knowledge and further our understanding of the world we live in (Booth, Colomb & Williams, 2003); and it is through scientific methods that we generate knowledge. Yet, the usage of these methods is influenced by our basic assumptions about reality, knowledge creation and behavior (Doolin, 1996). Hopper & Powell (1985, p. 429) put it bluntly: “[T]here is no such thing as a totally objective or value free investigation.” Therefore, we should seek to understand the nature of these underlying assumption and how they influence research. In doing so, we follow Isaiah Berlin, the British philosophy and social theorist, who posited: “The first stop to understanding of men is the bringing to consciousness of the model or models that dominate and penetrate their thought of action.” (Berlin, 1962, p. 19)

What we consider to be an appropriate methodological approach towards a phenomena is shaped by two things (Dooling, 1996): (1) Ontology, that is, our assumptions of the nature of realty (both physical and social); and (2) epistemology, that is, our assumptions of how knowledge is created.

With regards to these two dimensions, two broad research philosophies can be distinguished: Positivism and interpretivism (see, e.g., Abbott, 2004).

1. According to positivism, an objective, a priori reality exists independently from human knowledge (Doolin, 1996). Based on this ontology, the goal of research

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is to uncover this objective reality (Gephart, 2004). As for its epistemology, positivism follows a logic of testability. To increase our understanding of the social and physical world we live in, propositions, hypothesis and, ultimately, theories are tested, mostly on the grounds of measurable variables (Orlikowski & Baroudi, 1991). Thus, positivism puts much emphasis on quality criteria borrowed from natural science – i.e., controlled observations and deductions, replication and generalization (Lee, 1989). Under a positivist paradigm, the researcher is assumed to be detached from the phenomenon he/she investigates, in order to not jeopardize the objectivity and neutrality of the inquiry (Darke, Shanks, & Broadbent, 1998).

2. Interpretivism, on the other hand, is not based on the ontological notion of an objective, a prior reality that can be investigated. Rather, reality and human knowledge are seen as subjective constructs, created through social interaction (Doolin, 1996; Darke, Shanks, & Broadbent, 1998). Since reality is created through social interaction, it cannot be analyzed independently from the social actors constructing it – put differently: there cannot be meaning in the abstract (Doolin, 1996; Abbott, 2004). Following this notion of reality as a product of “ongoing social interaction” (Doolin, 1996, p. 22), reality itself cannot be discovered but merely interpreted (Orlikowski & Baroudi, 1991; Doolin, 1996). Therefore, interpretivism seeks to “understand phenomena through accessing the meaning that participants assign to them” (Orlikowski & Baroudi, 1991, p. 5). As such, form an epistemological point of view, knowledge is not created through uncovering testable and repeatable laws. Rather, it is the deep and profound understanding of a phenomenon, which can then be used to inform other settings, that creates knowledge (Darke, Shanks, & Broadbent, 1998; Orlikowski & Baroudi, 1991). Interpretivism does accept that the researchers’ subjectivity affects the interpretation of phenomena and, thus, does not believe in the notion of value-free research (Darke, Shanks, & Broadbent, 1998).

In short, positivism believes in an objective reality that can be explored through objective testing and measurements. Interpretivism, to the contrary, sees reality as socially constructed and subject to interpretation. Table 4 summarizes the findings of the above comparison.

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Table 4: Positivism and interpretivism

Table 4: Positivism and interpretivism

Positivism Interpretivism

Reality Objective, a priori given reality that can be investigated and understood

Reality as a social construct that is created through social interaction

Goal Discover truth Describe meanings, understanding

Approach Replication and generalization Interpretation and observation

Researcher Objective, value-free researcher Subjective researcher

Source: Gephart (2004); Doolin (1996); Orlikowski & Baroudi (1991); Darke, Shanks, & Broadbent (1998)

By its very nature, qualitative research has commonly been described as an interpretative approach that puts the researcher in a position well suited to gain deep insights into complex social problems (Snape & Spencer, 2003). Denzin & Lincoln (2000, p.3) note on that matter:

“Qualitative research is a situated activity that locates the observer in the world. It consists of a set of interpretive, material practices that makes the world visible. These practices [...] turn the world into a series of representations including fieldnotes, interviews, conversations, photographs, recordings and memos to the self. At this level, qualitative research involves an interpretive, naturalistic approach to the world. This means that qualitative researchers study things in their natural settings, attempting to make sense of, or to interpret, phenomena in terms of the meanings people bring to them.”

It is this very approach – naturalistic and interpretive – that enables qualitative research to provide insights that cannot be generated by quantitative research and its natural science inspired methods (Gephart, 2004). This is why qualitative research has been very popular within disciplines like sociology or anthropology to study complex communities or native populations (Snape & Spencer, 2003). And in spite of having been criticized for being too vague, too soft, and too unscientific for quite some time, qualitative research has been established as an important contributor to the advancement of management science, too (Snape & Spencer, 2003; Gephart, 2004).

In a 2004 From the Editor column published in the Academy of the Management Journal, Bob Gephart (2004), an outstanding contributor and reviewer of qualitative

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research to the Academy of Management Journal, outlines his argument for what qualitative research adds to scientific research:

“In brief, it provides insights that are difficult to produce with quantitative research. For example, qualitative research can provide thick, detailed descriptions of actual actions in real-life contexts that recover and preserve the actual meanings that actors ascribe to these actions and settings. Qualitative research can thus provide bases for understanding social processes that underlie management. Qualitative research can also provide memorable examples of important management issues and concepts that enrich the field.” (p. 455)

The term qualitative research11 encompasses a broad spectrum of different methods – including, inter alia, ethnography, phenomenology, content analysis, and many more. Within this broad spectrum of qualitative methods, case study research has become particularly popular across disciplines to study phenomena on individual-, group-, organizational- or societal level (Yin, 2003). Case study research has yielded some landmark pieces of scientific research for their respective disciplines: Graham Allison’s (1971) political science case study analyzing the 1962 Cuban missile crisis, William Whyte’s (1943) case study on social structures of troubled neighborhoods, or Scoville & Milner’s (1957) neuroscience study on the effect of the hippocampus on memory formation – to just name a few.

Today, case study research is also one of the most popular research strategies in management scholarship (see, for example, Eisenhardt & Graebner, 2007). Therefore, the next chapter will discuss the case study method more closely.

3.1.2 Case study research

In 2004, The Academy of Management Journal conducted a survey that involved 67 editorial board members, asking “what makes management research interesting, and why does it matter?” (Bartunek, Rynes & Ireland, 2006). 160 papers, from various journals, had been nominated as being good examples for interesting research, due to reasons like being counterintuitive, offering new theory and/or practical implications, being well written, etc. (Bartunek, Rynes & Ireland, 2006). Only 17 out of this 160 articles received two or more nominations; and looking at the top 5 articles (the ones,

11 It is not within the scope of this dissertation to provide an overview and discussion of all the qualitative research methods that are available to a scholar. Yet, plenty of introductory handbooks are available on this matter – for example, Denzin & Lincoln (2003).

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which received 3 or more nominations) reveals an interesting finding (see Table 5): 3 out of the top 5 articles were based on a case study approach. Therefore, it is safe to say that case studies are considered to be some of the most interesting and impactful pieces of management scholarship.

Table 5: Articles nominated three or more times in the AMJ board survey

Table 5: Articles nominated three or more times in the AMJ board survey

Number of nominations

Article Approach

5 Dutton, J. E., & Dukerich, J. (1991). Keeping an eye on the mirror: Image and identity in organizational adaptation. Academy of Management Journal, 34, 517-544.

(Single) Case study with the New York Port Authority

4 Barley, S. R. (1986). Technology as an occasion for structuring: Evidence from observations of CT scanners and the social order of radiology departments. Administrative Science Quarterly, 31, 78-108.

(Multiple) Case study with two radiology departments

3 Barley, S., Meyer G., & Gash, D. (1988). Cultures of culture: Academics, practitioners, and the pragmatics of normative control, Administrative Science Quarterly, 33, 24-60.

Quantitative analysis of 192 papers

3 Eisenhardt, K. M. (1989). Making fast strategic decisions in high-velocity environments. Academy of Management Journal, 32, 543-577.

(Multiple) Case study of 8 microcomputer firms

3 Huselid, M. (1995). The impact of human resource management practices on turnover, productivity, and corporate financial performance. Academy of Management Journal, 38, 635-673.

Quantitative analysis of data from 3.452 companies

Source: based on Bartunek, Rynes & Ireland (2006)

Another interesting conclusion can be drawn from this sample: While these case studies vary with regards to the phenomena they investigated, they had one key element in common: They provided an in-depth investigation of the structure, dynamics and meaningful attributes of a complex, real-life setting. This is, according to Yin (2003), the very nature of case study research.

3.1.2.1 Case studies defined

Yin (2003, p. 13) defined case studies as “an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially, when the boundaries between phenomenon and context are not clearly evident”. Where experiments purposely separate a phenomenon and its context through a controlled laboratory

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environment, case study research underscores the “rich, real-world context” of a phenomenon (Eisenhardt & Graebner, 2007). This rich context helps to better understand why certain decisions have been taken, how they have been implemented, and how they have turned out (Yin, 2003). Case study research has been deemed to be especially suited for answering questions of “how” and “why” (Yin, 2003). Further, Eisenhardt & Graebner (2007) reemphasized the importance of the real-life context for case study research by pointing out it is this richness of empirical data that tremendously increases the odds of discovering accurate, relevant and interesting findings.

Referring back to Table 5 and the broad spectrum of topics and settings covered by this small sample of case studies, two dimensions, along which case studies can be classified, emerge: The nature of their inquiry and the number of cases involved (Yin, 2003).

3.1.2.2 The nature of inquiry

Case study research has been used to answer a variety of research questions and achieve different research goals: Discovering and describing a phenomenon, mapping and building relationships, developing and/or testing theory as well as revealing needs for further research (Darke, Shanks, & Broadbent, 1998; Vissak, 2010). Despite that, case studies have long been perceived as merely being suitable for preliminary stages of research that explore new phenomena, while only surveys and experiments could provide meaningful descriptions and explanations of a phenomenon (Yin, 2003). But, as some of the most famous examples show, case studies are a well fitted tool to provide rich descriptions of a phenomenon, or even explain it (Yin, 2003). The previously mentioned cases of the Cuban missile crisis (Allison, 1971) and community sociology (Whyte, 1943) support this claim: While the first explained the outcome of the Cuban missile crisis based on a comparison of competing theories (Yin, 1981), the latter provided a rich description of a troubled community (Yin, 2003). Yin (2003), claimed that three types of inquires can be identified – which will be discussed below. Yet, beyond providing a mere description of these three types, it will be argued that this proclaimed trisection is rather a matter of degree than a matter of nature.

1. Explorative case studies: Explorative case studies are often considered to be the traditional, most common use cases for case study research (see, e.g., Schell, 1992; Pan & Tran, 2011). These “phenomenon-driven” cases investigate an important matter that is not sufficiently covered by previous research and, thus, lacks theoretical underpinning (Eisenhardt & Graebner, p. 26). The goal, hence, is to inductively develop theories or propositions for further investigation of the

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phenomenon at hand – which is often done in an iterative process, going back and forth between empirical data and relevant existing theory (Yin, 2003; Eisenhardt, 1989; Pan & Tan, 2011, Siggelkow, 2007). Eisenhardt (1989) explained that the “final product of building theory” can vary from concepts and conceptual frameworks to propositions and mid-range theories. Given the flexibility the researcher needs in such a case setting, the research question is typically rather broad.

2. Descriptive case studies: This type of case study provides a rich description of a phenomenon and elaborates thoroughly on its structures and processes (Yin, 2003). Yet, Siggelkow (2007) argues, and rightfully so, that purely descriptive case studies “will be a hard sell” (p. 20), for they do not expand existing (theoretical) knowledge (Pan & Tan, 2011). Moreover, upon closer examination of what Yin (2003) pointed out to be a “famous descriptive case study”12 (p. 4), questions do arise. Yin (2003, p. 4) argues that this study – Whyte’s (1943) “Street Corner Society” – was a “classic example of a descriptive case study” because “[i]t traces the sequence of interpersonal events over time, describes a subculture that had rarely been the topic of previous study […]”. So far, the argument of this case being descriptive in nature seems plausible. Yet, Yin (2003, p. 4) goes on “[…] and discovers key phenomena”. Discovering key phenomena goes above and beyond mere descriptions – and it is this very contribution that had made the said case study a hallmark piece of community sociology.

3. Explanatory cases studies: According to Yin (1981), this type of case studies aims at building explanations for a phenomenon. Explanatory case studies consist of three elements: (i) an accurate description of the facts and the outcome of a case – herein the boundary between explanatory and descriptive gets blurred; (ii) the consideration of alternative explanations for the actual outcome; (iii) an explanation for the outcome that is based on the single explanation that best fits the facts (Yin, 1981).

At this point, it should be noted that Yin (2003) himself mentioned that there are no sharp boundaries between the three strategies and, in reality, large overlaps among them will exist. Therefore, it is argued, that due to the very nature of case research – which is built on providing rich, detailed information on both the phenomenon and its context (see above) – each and every case study will per se entail descriptive traits, but should not be limited to them. Rather, case studies will either be explorative-descriptive, or

12 Whyte, W. F. (1943)

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explanatory-descriptive. This claim is also supported in the literature (see, e.g., Schell, 1992; Pan & Tan, 2011).

Apart from the nature of inquiry, case studies can also be classified by the number of employed cases.

3.1.2.3 Number of cases

Table 5 above encompasses an example of a single-case design as well as two examples of a multi-case design. With both types of case designs being present in the top 5 of the AMJ’s most interesting and influential articles (Bartunek, Rynes, Ireland; 2006), the first conclusion to be drawn is that neither of the two designs is inherently better than the other. Put differently – in the words of Dark, Shanks & Broadbent (1998, p. 281): “There is no ideal number of cases.” Both types have their inherent advantages and disadvantages; both should be preferred in different research settings and questions; and both types, done properly, can yield insightful, worthwhile pieces of research. Langley & Abdallah (2011, p. 212), therefore, emphasized that “comparative studies [multiple-case study] and single case analyses have very different objectives and make different kinds of theoretical contributions, valued for different reasons”.

Single-case study

When the researcher has access to a rich amount of data that can potentially yield revelatory insights, a single-cases study should be chosen (Langley & Abdallah, 2011). Yin (2003) builds on this revelatory and data rich notion of single-case study design and identifies five circumstances under which a single-case study should be applied:

1. As a critical case for testing existing theory – that is, challenging, confirming, or expanding it. The critical case is employed to challenge the assumptions and propositions of a theory and, thus, contribute to theory building. For example, through studying the innovation capabilities of a single school that was renowned for its innovation capabilities, Gross, Giacquinta & Bernstein (1971), building on a single-case study, discovered the critical effect of implementation processes on the success rate of innovations. This aspect had been neglected in prior studies, which mainly sought to find ways for how to overcome a prior barriers to innovation. As such, this single-case study was a “watershed in innovation theory” (Yin, 2003, p. 41).

2. Further, single-case studies might be used to illustrate an extreme, unique case. This approach is particularly popular in clinical psychology to investigate rare disorders or illnesses – as, for example, in the single-case study by Scoville &

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Milner’s (1957) mentioned earlier (see above Chapter 3.1.2), the authors examined the effects of hippocampal damages based on one patient with a rare disorder: Henry Gustav Molaison lost his ability to form new memory after a surgery which was intended to cure him from epilepsy. Studying his case intensely led science to understand the effect of the hippocampus on memory formation (Hardt, Einarsson, Nader, 2009).

3. On the other hand, single-cases can also be employed to function as a representative, typical case for a common, frequent situation or challenge. Here, the logic is to use the findings from the single-case study to inform similar settings – for example, other companies within a given industry that are likely to face a similar challenge.

4. The so-called revelatory case is another rationale for using a single-case study design. It refers to a situation in which the researcher has the opportunity to access and study a phenomena that was “previously inaccessible to scientific investigation” (Yin, 2003, p. 42). For example, a recent MIS Quarterly study by Sarker, Sarker, Sahaym & Bjorn-Andersen (2012) examined the value cocreation process in an information systems context based on a revelatory single-case study. To conduct their study, the authors had gotten access to a globally renowned ERP company and its B2B network – something that could not or had not been tapped into by previous research.

5. The fifth and last rationale for a single-case design pointed out by Yin (2003) is the longitudinal case, which studies one specific case over the course of time. For example, this approach would look at how a specific program or intervention may have affected an organization at different time points.

While these five settings represent key rationales for employing a single-case study design, this list is not necessarily exhaustive, as mentioned by Yin (2003) himself. Other rationales may exist and more than one of the above may apply for a given singe case.

Multi-case study

When a study involves more than one case, it is referred to as a multi-case study (Yin, 2003). For example, Table 5 above (see Chapter 3.1.2) includes two multi-case studies: Barley’s (1986) study of how new technologies can alter established roles and patterns in organizations involved two cases (that is, two radiology departments); Eisenhardt’s (1986) investigation of strategic decision making in fast-paced environments encompassed eight cases (that is, eight microcomputer firms). This shows that the number of cases involved in a multi-case design can vary considerably, starting with two and even going beyond the eight cases of Eisenhardt’s (1989) study – for example,

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Bettenhausen & Murningham (1986) studied 19 laboratory groups to investigate how social norms are formed in groups. According to Eisenhardt (1989, p. 537) the appropriate selection of cases enables the researcher to control for “extraneous variation and helps to define the limits for generalizing the findings”. As such, the question of how to choose the different cases that will be integrated in a multi-case study, referred to as replication, is critical (Yin, 2003)

Two types of replication logics can be distinguished (Yin, 2003): literal replication and theoretical replication. Literal replication refers to choosing cases that are placed in similar settings and, thus, expected to yield similar results (Shakir, 2002). Theoretical replication, on the other hand, occurs when cases from different settings are chosen so that predictably contrasting results are yielded (Yin, 2003).

Apart from the question of how to replicate (that is, literal vs. theoretical replication), another questions arises: how many cases should be included? As shown above, the number of cases employed in one study can vary substantially. In short, there is no such thing as an ideal quantity of cases (Darke, Shanks, & Broadbent, 1998). While numbers can be found in the literature, for example, Eisenhardt (1989) recommends a number of four to ten case for theory building, there is no agreed upon number to emerge from the literature (Patton, 1990). Rather, the prevailing approach is to choose the number of cases based on theoretical saturation (see, e.g., Glaser & Strauss, 1967; Vissak, 2010; Shakir, 2002; Cho & Lee, 2014); and also Eisenhardt (1989) herself mentioned that the case selection should be guided by theoretical saturation. Theoretical saturation is reached when the integration of another case – and the resulting data thereof – only provides minimal “incremental learning” (Eisenhardt, 1989, p. 545).

Yin (2003) compared the replication logic of case studies to the logic which underlies multiple experiments, in which “a second, third, or even more experiments” (p. 47) are used to identify the most critical conditions for the original findings. All this is aimed at developing “a rich theoretical framework” (p. 47) that identifies the conditions and limitations of a particular phenomenon.13

Yet, case study research has long been confronted with the notion of not providing generalizable results – and this accusation has been made against both single-case and multi-case design (for a more detailed of overview see, e.g., Vissak, 2010; Yin, 2003)

13 The so called “Eisenhardt Method” (Langley & Abdallah, 2011, p. 203) has emerged over the last few years as a template to conduct multi-case studies. With this dissertation being built on a single-case study design, no lengthy explanation of the “Eisenhardt Method” will be provided here. Nonetheless, studying this template is highly recommended for conducting multi-case research.

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3.1.2.4 On generalization from case studies

In his 2007 Academy of Management Journal article Nicolaj Siggelkow provided a vivid description of this challenge:

“The goal of every author is to write a paper that readers (and reviewers) find convincing. Since writers of papers based on case research do not have recourse to the canonical statement ‘results are significant at p < 0.05’ that helps assuage readers' skepticism of empirical papers, researchers using case research often feel they are fighting an uphill battle to persuade their readers.” (Siggelkow, 2007, p. 20)

Siggelkow (2007) pointed to what Patton (1999, p. 1207) called “seductiveness of numbers in modern society”; that is, a tendency to automatically rely on the assumed accuracy of numbers – oftentimes without sufficiently questioning the reliability, validity and meaningfulness of how these numbers had been collocated (Patton, 1999).

Put differently, findings derived from statistical analysis may appear more convincing and seem to lend themselves more to generalization. For case studies, on the other hand, generalization cannot be done statistically; rather, it must be done analytically, derived through reasoning (Yin, 2003). This can be achieved deductively, inductively or through combining both approaches (Johansson, 2003). Eisenhardt & Graebner (2007, p. 25) actually saw both approaches as “mirrors of one another” – the one (inductive research) builds new theory from data, while the other (deductive) tests and extends already existing theory.

Hence, as Johansson (2003) elaborated, generalization through a deductive approach is built on testing hypotheses, and, thus, similar to conducting an experiment. More precisely, existing literature and the expected findings that can be deducted from it function as a template with which the empirical findings from the case study are tested – ultimately with the goal of supporting or falsifying existing theory (Yin, 2003). As such, theory development is done by either expanding the boundaries of existing theory, or identifying the limits of its validity (Johansson, 2003).

In contrast, generalization through an inductive approach is more suitable when existing knowledge about the research phenomenon at hand is limited (Elo & Kyngäs, 2008). More specifically, Eisenhardt & Graebner (2007) argued that inductive theory building is warranted when prior research does not at all – or only inadequately – address a relevant research question. Inductive generalization builds theory through case data by identify constructs, relationships and patterns within (Johansson, 2003; Eisenhardt &

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Graebner, 2007). As such, case data is not tested along and compared with a priori expected findings from existing theory; rather theory is created from within case data.

Analytical generalization – both inductively and deductively – can be achieved regardless of the number of cases involved, that is, for both single- and multi-case study design (Yin, 2003).

Based on the above theoretical outline of how a case study can be designed, the following chapter will discuss how the case study used in this dissertation has been set up.

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3.2 Usage of case study research in this dissertation

While Chapter 3.1 provided a general introduction into the research strategy of case study research, this chapter will outline how case study research has been applied in the study at hand. To that end, this chapter consists of four parts, which will each answer specific questions relevant to the methodological approach of this dissertation: First, the overall research design will be explained (why has a single-case design been chosen for this dissertation?); second, the process of data collection will be outlined (how was data collected?); third, the process of data analysis will be illustrated (how was the data analyzed?); finally, considerations of validity and reliability will be discussed.

3.2.1 Details of the chosen case study design

The discussion of the existing literature on new service development in Chapter 2 (see above) revealed that the current body of knowledge on new service development is limited, fragmented, and, thus, not suited to provide meaningful guidelines and recommendations to managerial decision makers. Therefore, this dissertation aimed to expand the knowledge on how companies successfully develop new services in order to close this gap in current knowledge.

A single-case design was chosen to achieve this research goal. Based on this choice, two questions arise that will be answered in the course of this chapter: First, why, generally speaking, was the case study method chosen for this study? Second, why, specifically, was a single case study – involving Service Corp – chosen?

(i) Why the case study method?

To contribute to and expand the limited knowledge on new service development, this study aimed to shed light on how new services can be successfully developed and why certain approaches to new service development work better than others. Put differently, this dissertation examines the process of new service development. Due to the richness of data used, case study research is particularly well suited to examine complex processes and answer these how and why questions (Yin, 2003; Gephart, 2004; see also above Chapter 3.1.2.2).

Further, this study wanted to provide remedy to the lack of actionable knowledge in the new service development literature by providing actionable findings. As shown previously (see Chapter 3.1.2.2 above), case study research sheds light on the real-world context of a phenomenon (Eisenhardt & Graebner, 2007), hence yielding rich insights that help to better grasp why certain decision have been taken, under which

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circumstances they have been taken and, finally, how they turned out. This richness of empirical data increases the odds of providing insightful findings that are interesting and relevant from both a theoretical and, in particular, a managerial point of view (Yin, 2003; see also above Chapter 3.1.2.2).

To sum it up, the case study method was particular well suited to achieve the goals set out for this study.

(ii) Why a single-case design involving Service Corp?

As was shown previously (see Chapter 3.1.2.3 above), a single-case study should be chosen when the researcher has access to a rich amount of data that can potentially yield interesting, revelatory insights (Langley & Abdallah, 2011) – this was true for Service Corp. To further elaborate on that, two conditions will be discussed in more detail: (a) The accessibility of data made possible by Service Corp and, moreover, (b) the interesting and insightful nature of this data:

a. Service Corp provided access to the required vast amount of data: Case study research benefits from the richness of data it provides. Yet, oftentimes this data – or, to be more precise, the access to this data – does not come easy. Gaining access to an organization that is well-suited and willing to function as an interesting and insightful case partner is a key challenge of case study research. To meet this challenge, Pettigrew (1990, p. 274) suggested an approach of “planned opportunism” – that is, case selection should be guided by a combination of interest, funding and access. The author of this dissertation was granted a research fellowship by Service Corp that supported his research in the area of new service development. Support through the top management of Service Corp was one of the key benefits of this fellowship. Thus, access to data – both in the form of interview partners as well as internal data, documents and other complementary data sources – was considerably eased. In short, Service Corp could not only provide the vast amount of data needed for a single-case design; it was also willing and open to do so.

b. Service Corp not only made a plethora of insightful data accessible, it also constituted an interesting research setting – one that is, normally, not easy accessible. Service Corp is a Switzerland-based, internationally renowned provider of market entry and expansion services to global players from various industries. More specifically, Service Corp functions as a key intermediary between manufacturers and retailers, bringing products from the former to the latter. As such, Service Corp’s key value proposition is to allow companies to

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tape into new, attractive – and potentially remote – markets which these companies could otherwise not access without considerable prior investments. While Service Corp’s business has been growing for years (e.g. measured in sales), in particular in its core market Asia, Service Corp has been in an ongoing process of strengthening its market position through innovation – both with regards to its service portfolio and channels. Hence, doing research with Service Corp meant to get access to data and insights from an industry leader that has been dealing with complex business operations in some of the most dynamic markets; and, in addition to that, Service Corp wanted to heavily strengthen its innovation capabilities. To sum it up, Service Corp was an ideal case partner, for it provided a promising research setting through giving access to a rich body of interesting and insightful data.

Darke et al. (1998, p. 281) pointed out that “single cases provide for in-depth investigation and rich description” of a research phenomenon – assuming that the researcher is able to get access to the vast and rich amount of data needed. In summing up the above mentioned, Service Corp was both able and willing to grant this access.

3.2.2 Data collection

As case studies aim to provide interesting, revelatory insights based on rich data, interviews are commonly seen as the primary and most important source of data for this type of research. Pan & Tan (2011, p. 167) noted on the relevance of interviews for case study research: “they [interviews] provide the case researcher, who is external to the organization, with access to the views and interpretations of the informants”. Thus, interviews also played a crucial role in the data collection process of this study. Nonetheless, other data sources were incorporated as well.

Eisenhardt (2007, p. 28) highlighted that “case studies can accommodate a rich variety of data sources, including interviews, archival data, survey data, ethnographies, and observations” – the applicability of these data sources will usually vary from study to study and is subject to considerations of relevance and accessibility. Yet, the key point in Eisenhardt’s (2007) statements is to integrate more than one type of data source; doing so is not only feasible or desirable, it is strongly advisable to strengthen the findings of a given study (see, e.g. Yin, 2003).

This process of building on more than one source of evidence is often referred to as “triangulation” (see, e.g. Darke, Shanks, & Broadbent, 1998; Jick, 1979; Patton, 1999; Woodside & Wilson, 2003). The term itself is borrowed from navigation, where the

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usage of various reference points leads to greater accuracy in determining the exact location of an object. (Jick, 1979). Likewise, as Jick (1979, p. 602) stressed, “organizational researchers can improve the accuracy of their judgments by collecting different kinds of data bearing on the same phenomenon”.

Triangulation allows the research to look at the same phenomenon from different angles – that is, through different sources of data. Thus, the researcher is not only enabled to provide a more compelling account of the phenomenon; he/she can further challenge and converge information from different sources and, thus, mitigate potential biases in collecting and analyzing data (Darke, Shanks, & Broadbent, 1998; Yin, 2003).

As such, this dissertation was not built on a single source of data, but blended a variety of data. While interviews were of crucial importance for this study, secondary data sources like internal records, annual reports, workshop minutes, etc. were collected as well. Table 6 below provides an overview of these data sources.

Table 6: Overview of data sources used in this study

Table 6: Overview of data sources used in this study

Data source Details Extent

Interviews • 18 expert interviews with informants spanning different functions, regions and hierarchical levels

• About 300 pages of transcripts • About 70 pages of fields notes

Secondary sources

• Internal documents & reports, workshop- & meeting records, publications & financial information

• More than 300 pages of data (from 2012 until 2015)

Source: own illustration

The process of data collection for the multiple sources of data will be discussed in the following.

3.2.2.1 Interviews

Expert interviews were the primary source of evidence for this study. Through interviewing 18 key informants, a rich amount of data was gathered, yielding about 1.280 minutes of interview time (interviews lasted from about 30 to 180 minutes) and about 370 pages of interview transcripts and field notes – shown in Table 7 below.

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Table 7: Overview of informants

Table 7: Overview of informants

Informant Job title/Function Level/Location Interview duration

Informant 1 Senior Manager Regional Business Development

Regional (Thailand) ~ 180 mins*

Informant 2 Product Manager Regional (Thailand) ~ 80 mins

Informant 3 Business Development Director Asia Pacific Region

Regional (Thailand) ~ 50 mins

Informant 4 Regional Business Development Director Pharmaceuticals

Regional (Thailand) ~ 60 mins

Informant 5 Manager Digital Business Regional (Thailand) ~ 90 mins

Informant 6 Assistant Manager Regulatory Affairs Country (Hong Kong)

~ 30 mins

Informant 7 Director Business Intelligence Regional (Thailand) ~ 70 mins

Informant 8 Manager Group Strategy Regional (Switzerland) ~ 50 mins

Informant 9 Business Development Director Asia Medical Devices

Regional (Thailand) ~ 60 mins

Informant 10 Manager Services Country (Vietnam)

~ 40 mins

Informant 11 Supply Chain Director Country (Vietnam & Malaysia)

~ 50 mins

Informant 12 Manager Healthcare Country (Cambodia)

~ 30 mins

Informant 13 General Manager Medical Devices Country (China)

~ 40 mins

Informant 14 Digital Business Manager Regional (Hong Kong)

~ 120 mins*

Informant 15 Director Medical Devices Country (Taiwan)

~ 30 mins

Informant 16 Manager Client Management Country (Malaysia)

~ 60 mins

Informant 17 Senior Business Development Manager Country (Vietnam)

~ 60 mins

Informant 18 Vice President Group Strategy Regional (Switzerland)

~ 180 mins*

*) split over two or more interviews

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Determining the sample size

A rich set of data, as previously discussed, is paramount for insightful case study research. Thus, determining the right sample size – that is, the number of interviews to be conducted – is a key issue for case study research. Although the importance of this issue has repeatedly been stressed by researchers, there is barely any practical guidance as to how many informants are enough (see e.g. Mason, 2010). The few specific recommendations that are available vary considerably, with the minimal acceptable number of informants ranging from 5 (Cresswell, 1998) to 15 interviews (Bertaux, 1981).

In determining the number of interviews, this dissertation followed an approach proposed by Glaser & Strauss (1967, p. 61): Reaching a point of “theoretical saturation”. Theoretical saturation is reached when adding new informants does not yield new insights, but merely results in redundancy (Glaser & Strauss, 1967). In their paper on the function of parting ceremonies for dying organizations, Harris & Sutton (1986) put the concept of saturation bluntly: “we stopped interviewing additional people when we began to hear the same stories repeated over and over” (p. 9). Mason (2010) refers to this as “a point of diminishing returns [in] a qualitative sample”, which is rooted in the nature of qualitative research: Qualitative research (as opposed to quantitative research) is primarily concerned with the occurrence of a piece of information, not so much with its frequency. For example, Yanamandram & White, who studied “switching barriers in business-to-business services” (2006, p. 158), reported to have this saturation after about 20 interviews.

For this study, more than 20 interviews were originally scheduled for the data collection process. Yet, saturation was reached at around 15 interviews, when the interviewer – quoting Harris & Sutton (1986, p. 9) again – started to “hear the same stories repeated over and over”. Nonetheless, 3 additional interviews, functioning as a safety margin, were included. Thus, the total of 18 interviews was reached.

Mitigating the risk of biases

As Eisenhardt (2007, p. 28) observed, interview data faces the key challenge of being potentially biased – e.g. through one-sided selection of informants or “retrospective sensemaking” and “impression management” on the account of the informants. This risk is best mitigated by relying on an insightful and diverse set of informants, representing different levels of the company’s hierarchy, functions, geographies, etc. (Eisenhardt, 2007).

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Table 7 above demonstrates that this call for diversity was taken into account when selecting the interviewees for this study: The informants cover a broad range of functions and hierarchical levels; further, informants were taken from both regional level (i.e., working across several countries) and country level (i.e., working exclusively in one or two countries).

Conducting the interviews

In conducting the interviews, this dissertation followed a sequential approach suggested by experienced case researchers (see, e.g., Eisenhardt, 1989; Pan & Tan, 2011): First, initial interviews (n=2) were conducted to optimize the questionnaire and prepare the following interviews; second, semi-structured interviews (n=16) with the remaining informants followed. Pan & Tan (2011, p. 167) elaborate on the importance of initial interviews:

“The first interview, in particular, should be with an informant who can provide an overview of the phenomenon under study. This allows the researcher to validate and, if necessary, modify his/her mental concept of the phenomenon at the earliest available opportunity. While the first informant does not need to have detailed knowledge of all aspects of the phenomenon under study, he should have a good idea of who the researcher can interview subsequently to obtain the required pieces of information.”

As such, the two initial interviews not only helped to optimize the interview guideline in terms of its scope; based on the compiled set of questions, the most promising informants could be identified and approached – a sampling process referred to as “chain referral” (Biernacki & Waldorf, 1981, p. 141). Both the initial interviews and the semi-structured interviews will be discussed in more detail.

Initial interviews

Initial interviews were conducted with Informant 1 and Informant 18, using a first version of the semi-structured interview guideline. The former, being Senior Manager Business Development, is responsible for coordinating and driving new business from new services; the latter, being Vice President Group Strategy, sets the main directives for the development of new services; both operate on a regional level – Informant 1 out of the company’s regional headquarter in Thailand, Informant 18 out of the company’s global headquarter in Switzerland. By virtue of their functions and geographical responsibilities, these two informants were best fit to provide a broad, yet profound picture of the research focus.

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The initial interviews started off with asking both informants to describe the state of new service development activities at Service Corp. Each informant was then asked to point out the most common pain points and hurdles they have encountered in developing and rolling out new services. Following that, both informants were asked to name specific new services that have been developed and introduced within the last few years, which were either considered successful or unsuccessful14. Hence, we were able to decide which specific services to study more comprehensively and, thus, how to proceed with the interviews – that is, whom to interview. In selecting the informants, special attention was given to avoiding potential biases, as mentioned earlier, by choosing employees from different functions, geographies and hierarchical levels.

Semi-structured interviews

The initial interviews were followed by semi-structured interviews with 16 additional informants. The questionnaire used for these interviews consisted of 20 open- and closed-end questions (see Appendix). As suggested by various researchers (see, e.g., Eisenhardt, 1989; Vissak, 2010), the course of the conversation was not strictly dictated by the questionnaire, it rather served as a guideline to direct the conversation; if additional, promising aspects or questions came up during the course of the interview, they were pursued; further, based on the knowledge of a specific interviewee or pieces of data obtained by previous interviews, some questions were reformulated or skipped, in order to not waste valuable interview time. Thus, data collection and (initial) data analysis overlapped: Data that was already collected informed and shaped further data collection (for authors encouraging this approach, see, e.g., Yin, 2003; Vissak, 2010; Gioia, Price, Hamilton, & Thomas, 2010; Miles & Hubermann, 1994). Eisenhardt (1989, p. 539) refers to this procedure as “controlled opportunism” which allows the researcher to “take advantage of the uniqueness of a specific case and the emergence of new themes to improve resultant theory”. Eisenhardt (1989, p.539) encouraged these alterations for studies that seek to build theory (rather than testing it), because their “goal is not to produce summary statistics about a set of observations”. Most of the interviews lasted from about 30 minutes to 90 minutes, while some were up to 180 minutes long (in these cases, the interviews were spread over more than one session).

Each interview was dived into three parts. First, the informants were asked to elaborate on the importance of new service development within their industry and compare

14 A side-note on “successful” and “unsuccessful” in this context: At that time, Service Corp did not have an elaborate system of success or failure metrics. Basically, the success of a new service was only measured by one metric: the revenue the service generated. No other metrics, especially along the development process, were in place.

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Service Corp’s innovation capabilities to its competitors. This first step helped to better understand the context and relevance of new service development for Service Corp. In the second part of the interview, several questions were asked regarding the currents status of the new services development process and its key challenges. Thus, a general understanding of the new service development process within Service Corp was derived. In the third and last part of the interviews, one or two specific new services, which have been predefined through the initial interviews (see above), were targeted. Hereby, vital information regarding success factors and pain points related to these specific services could be identified; further, these service-specific insights could then be compared with the general findings derived from part two of the interviews. Moreover, as stated previously, having multiple informants from different positions, regions and hierarchical levels comment on the same phenomenon mitigated the risk of biased responses and, overall, led to a more vivid set of data. While open- and closed-end questions helped to derive a better understanding of the nature, prospects and shortcomings of the new service development process at Service Corp, courtroom questioning (see, e.g., Eisenhardt, 1989; Langley & Abdallah, 2011) techniques – e.g., “when did XYZ happen”, “who was involved”, “what was done in response” – was used to find facts and accurate accounts of past events.

To actually collect the data, most interviews were audio recorded, given the interviewee’s prior consent. These audio recordings were then later transcribed verbatim by a professional transcription services provider. Further, extensive field notes were taken, covering both information provided by the informant as well as impressions and thoughts the interviewer had during the interview. To ensure that information was correctly understood and processed, key informants have been approach in the aftermath of their interview sessions for the purpose of validation – this approach is proposed by various case researchers (see, e.g., Vissak, 2010).

3.2.2.2 Secondary data sources

Besides interviews as the primary source of evidence, more than 300 pages of secondary data sources were screened and analyzed over the course of this study – mostly for the purpose of data triangulation. These data sources can be subdivided into three types:

1. Contextual information: This type of data source encompassed industry reports and news reports by third parties as well as public records and financial information (e.g., annual reports) published by Service Corp or its competitors.

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Primarily, this evidence helped to put the information gathered from the interviews into context.

2. Documents targeted at insiders: Internal records, presentations and meeting minutes dealing with new service development or specific new services developed at Service Corp and (primarily) intended to be only read by people from within the organization, were also studied. This piece of data helped to augment data from interviews and provided fruitful points of discussion for within the interviews.

3. Documents targeted at outsiders: Third, and last, documents targeted at outsiders – typically, intended for clients and customers – were gathered, too. This included mainly sales material (documents and presentations) explaining specific services and the advantage they would provide to existing or prospective business partners.

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3.2.3 Data analysis

The conceptual part of the dissertation has shown that previous research on NSD is highly fragmented. In particular, important questions regarding how service companies can successfully innovate have been largely ignored. This study aims at addressing this void by identifying emergent themes of successful new service development (e.g., key success activities). Thus, the explorative single-case study at hand is “phenomenon-driven” (Eisenhardt & Graebner, 2007, p. 26) and seeks to build theory – as opposed to testing existing theory (see Chapter 3.1.2.4 above for a detailed discussion of this dichotomy). This calls, according to Eisenhardt & Graebner (2007), for an inductive approach to data analysis. The inductive approach to data analysis used in this dissertation will be describe in the following.

As discussed above (see Chapter 3.2.2), data was collected on both the NSD system in general and specific NSD projects (to account for their unique features). Hence, the study used an embedded design. This rich set of data was analyzed in three steps, as illustrated by Figure 3 below: 1) Familiarization with transcripts, 2) Narrative write-ups, 3) Open coding.

Figure 3: Data analysis approach

Figure 3: Data analysis approach

Source: Own illustration

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1) The first step of the data analysis was the familiarization with the transcripts, in order to “acquire a sense of direction for the analysis” (Cho & Lee, 2014, p. 8). Transcribed interviews were the primary source of data for this study. In the light of this importance – and also considering the sheer volume of several hundred pages of transcribed interviews – this was an important first step of the data analysis. In addition, the field notes, which were taken during the interviews, were also considered in this step of the analysis (Eisenhardt, 1989).

2) Narrative write-ups formed the second step of the data analysis. For each of the six NSD projects that were analyzed in the course of this study a narrative write-up was compiled. While “write-ups are often simply pure descriptions, […] they are central to generation of insights” and help the researcher “to become intimately familiar with each […] entity” Eisenhardt (1989, p. 540). In fact, these write-ups helped a great deal in organizing and structuring the huge amount of data, and they further eased deriving first insights regarding the subject matter. Additionally, data triangulation was used in this phase of the data analysis to challenge or augment interview data.

3) The next step in the data analysis process was open coding. This is, according to Corbin & Strauss (1990, p. 12) “the interpretative process by which data are broken down analytically”. Through coding, data is ordered and systematized to identify patterns (Saldana, 2016). Hence, coding enables the researcher to derive ideas from data (Richards & Morse, 2012). Basically, this is done by attaching a word or short sentence (the code) to a portion of text; the code, in turn, represents the meaning of this portion (Saldana, 2016). Generally speaking, coding can be performed computer-based, with a specific software, or manually, with pen and paper. While the usage of computer software may ease the process, neither of the two approaches is inherently better than the other, because coding is rather an act of interpretation than an exact science (Saldana, 2016). In this study, interview transcripts were coded manually. More specifically, coding was done in three steps (Langley & Abdallah, 2011; Strauss & Corbin, 1990): First, in vivo codes, using quotes of informants, were generated. Second, these in vivo codes were summarized in first order groups. Third, in order to further abstract these findings, connections between first order groups were identified and organized into second-order groups. Table 8 below illustrates this approach by providing a snapshot of the coding process.

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Table 8: Snapshot of coding process

Table 8: Snapshot of coding process

Quotes* First order group Second order group

“We do not track what we have tried in the past” (Informant 1)

Lack of learning from failure Knowledge sharing

“[…] they failed with this project, but I don’t know why. […] There is so much we could learn out of that.” (Informant 2)

Lack of learning from failure Knowledge sharing

“[…] a more systematic way of understanding which services have been developed where, […] which failed and why.” (Informant 8)

Lack of learning from failure Knowledge sharing

“[…]then they would say: ‘We actually do that already for XY client’ […]” (Informant 1)

Communication gap Knowledge sharing

“There is a lack of communication. We are not aware of what is happening in the individual countries” (Informant 2)

Communication gap Knowledge sharing

“There is no central, regional role taking care of knowledge sharing and informing back to the countries.” (Informant 7)

Communication gap Knowledge sharing

Source: own illustration. *) Quotes are shortened for the purpose of illustration

After having discussed how this dissertation approached both data collection and data analysis, the section will close with a short discussion of reliability and validity.

The constructs reliability and validity have been identified as key tests for the quality of any research (see, e.g., Yin, 2003). Throughout the data collection and data analysis, this dissertation has used different means to ensure reliability and validity of its findings. The most important measures were:

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• A rich and think description of the phenomenon, the data collection and data analysis processes.

• A chain of evidence through audio records and verbatim transcription of the interviews.

• Data triangulation to challenge and augment different sources of evidence for this case study.

• Review and discussion of findings with key informants from within the case study company (Service Corp).

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4 Case study at Service Corp

4.1 Service Corp

Service Corp 15 is a stock-listed service provider for the business-to-business market (B2B) with operations in 36 countries around the globe. While the company is headquartered in Europe, its business activities are mainly focused on Asia – with 740 out of its 770 business locations being based there. Service Corp offers market entry and market expansion solutions to its clients. While Service Corp’s core business is providing distribution and logistics solutions, so that clients do not have to invest in building their own logistics infrastructure before entering a new market, Service Corp provides a variety of other services along the entire value chain: Regulatory and compliance services (e.g. product registration), sourcing, research and analysis on markets and competitors, marketing, IT-services, after-sales, etc. Some clients choose to have Service Corp perform only specific services for them (say, logistics and distribution for a given product in a given market), while still taking care of the rest of their value chain themselves; other clients may choose to have Service Corp establish their brand in one or more markets without having an own, local presence – effectively handing over their product and letting Service Corp take care of the rest of the value chain. In short, the degree of engagement may vary from client to client. As such, Service Corp does not position itself as a provider of mere cost-cutting or logistics services, but rather as a business partner that helps companies to grow and expand their business through a diversified service portfolio.

As of 2014, Service Corp had more than 27.000 employees and generated sales of CHF 10.2 billion; in fact, as Figure 4 below shows, sales had been growing for years with a compound annual growth rate (CAGR) of 12% from 2011 to 2014. As stated previously, Service Corp’s business is mainly focused on Asia. This is also reflected in the break-down of net sales by region: more than 90% of its sales were generated in Asia. The two biggest markets, Thailand and Greater China, account for about 66% of net sales; and Thailand alone yields more than 33% of net sales.

15 Due to reason of confidentially, company records cannot be disclosed and are not specifically referenced in this thesis. Yet, further information can be provided upon request – subject to Service Corp’s approval.

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Figure 4: Service Corp’s net sales 2011-2014 by region [in CHF bn.]

Figure 4: Service Corp net sales 2011-2014 by region [in CHF bn.]

Source: based on Company records (2015);*) per country information for 2011 was not available

In order to cater to different industries and provide specialized services, Service Corp has four business units (BU):

1. Consumer goods: The business unit consumer goods provides services to manufacturers of fast moving consumer goods, food and beverage, luxury goods, fashion and lifestyle goods as well as cosmetic products. Typical services this BU provides to its clients are feasibility studies, registration and importation, customs handling, marketing and sales, warehousing, logistics and distribution, invoicing and after-sales. Through its 14.700 employees and 680 locations in 20 countries, this BU serves 310.000 retail outlets.

2. Healthcare: The BU healthcare engages with manufacturers of pharmaceuticals, medical devices and over-the-counter-products. Services commonly offered to clients include dealing with regulatory matters, providing distribution and logistics services, marketing and sales, redressing (that is, repacking of drugs, devices or other products in accordance with the regulatory requirements and in the native language of the target market), cash collection, etc. This BU employs about 9.600 specialists, who serve more than 150.000 customers.

3. Performance materials: The BU performance materials mainly provides sourcing, marketing and distribution services in the field of chemicals and food ingredients. Its 970 employees work for more than 20.000 customers in 30 countries.

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4. Technology: The business unit technology offers services like market research, market entry consulting, marketing and sales, sourcing and maintenance in the field of investment goods and analytical instruments – e.g., semiconductor, precision machinery, photovoltaic, electronics. With operations in 18 countries, this BU’s 1.370 employees serve more than 25.000 customers.

Figure 5 shows that the overwhelming majority of Service Corp’s net sales (in fact, more than 85%) is yielded by two business units: Consumer goods and healthcare. Further, with a year over year growth rate of 11.1% from 2013 to 2014, healthcare has recently been the fastest growing BU for Service Corp.

Figure 5: Service Corp’s net sales 2013/2014 by business unit [in CHF bn.]

Figure 5: Service Corp’s net sales 2013/2014 by business unit [in CHF bn.]

Source: based on Company records (2015)

The data collection for this thesis was conducted in cooperation with the BU healthcare. Therefore, the following chapter will discuss this particular business unit and its business environment in more detail. In doing so, necessary background information for the challenges of new service development in this specific context will be provided.

4.2 Service Corp’s business unit healthcare

Service Corp’s BU healthcare operates across 13 countries in Asia, with each country having its own P&L. Yet, the country units report to BU’s regional headquarter, which is based in Bangkok, Thailand. Figure 6 below outlines the BU’s organizational structure in Asia.

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Figure 6: Organizational structure business unit healthcare

Figure 6: Organizational structure business unit healthcare

Source: based on company records (2015)

The BU healthcare provides a variety of services to its clients (that is, manufacturers of drugs, medical devices, etc.) and customers (that is, hospitals, pharmacies, etc.). Thus, Service Corp plays a vital role in the healthcare value chain. The notion of the value chain was introduced by Michael Porter in 1985, as a key concept for analyzing how companies can create competitive advantage. According to Porter (1985), a value chain is the representation of all the activities “performed to design, produce, market, deliver, and support its products” (p. 36). These activities, done rightly, can lead to cost advantages and opportunities for differentiation.

A firm’s value chain, Porter (1985) argued, is part of a bigger (industry) value system made up by suppliers, distributers, buyers; these other players interact with a firm’s value chain and have the potential to considerably shape its performance. Thus, competitive advantage is not only created from within a company; it is also affected by the interaction with the broader value system.

This interaction is characterized by the term vertical integration. Porter (1985, p.55) explained:

“Vertical integration defines the division of activities between a firm and its suppliers, channels, and buyers. A firm may purchase components rather than fabricate them itself, for example or contract for service rather than maintain a service organization. Similarly, channels may perform many distribution, service, and marketing functions instead of a firm.”

Vertical integration is low, for example, when a manufacturer decides to not deliver its products to its customers through its own distribution network, but rather have a specialized service firm take care of the distribution (Burns, DeGraaff, Danzon, Kimberly, Kissick & Pauly, 2002). This is mainly done because the manufactures

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believe that such a “buy” solution is the cheaper alternative to “making” it in-house. Burns et al. (2002) explained:

“Vertical integration is low because manufacturers believe that the costs of transacting with the marketplace for distribution and delivery are much less than the costs of attempting to take distribution in-house […]. That is, manufacturers believe that it is cheaper for them to “buy” distribution services […] rather than “make” distribution services in-house.” (p. 8)

Put differently, manufacturers rely on the services of an intermediary to bring their products to their end customer – which is an important function in within an industry’s value system.

Cut to its essence, the healthcare value system is made up of three types of players (Burns, 2002): (1) producers (e.g. drug or devices manufacturers – referred to as “clients” by Service Corp), (2) intermediaries (e.g. distributors – such as Service Corp), and (3) healthcare providers (e.g. hospitals – referred to as “customers” by Service Corp). As such, intermediaries like Service Corp play a crucial role in the healthcare value system, for they link the producers (and their products) to the healthcare providers, who treat the patients – this is shown by Figure 7.

Figure 7: Service Corp’s intermediary role in the healthcare value system

Figure 7: Service Corp’s intermediary role in the healthcare value system

Source: based on company records (2015);*) Service Corp. refers to producers as “clients” and to healthcare providers as “customers”

With being the intermediary between some 380 client accounts and about 150.000 customers, Service Corp operates in a very complex business environment. “We do not talk about one to one or one to many relationship, but many to many. […] Complexity is what we need to learn how to manage well” (Informant 14). Fauska, Kryvinska & Strauss (2013, p. 44) provided a fitting frame for the business environment Service Corp

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operates in, when they describe B2B markets as “networked organization operating in a complex environment”.

According to company records, logistics and distribution are still Service Corp’s core offering in the healthcare industry. On the one hand, its well-develop, capillary distribution network, which spreads across its Asian markets, is a huge competitive advantage for Service Corp:

“When it comes to our competitors, one thing that we do have an advantage in is size. […] Someone has to own and distribute goods. For new competitors that is the biggest issue; that is the largest barrier to entry. New competitors would need a lot of capital to build that up.” (Informant 14)

On the other hand, Service Corp struggled with being perceived as a mere logistics provider: Informant 13 emphasized: “We do not want the client to see us as the driver of his trucks or the mover of his boxes”. As a matter of fact, Service Corp needed to expand its business activities beyond logistics and distribution – which had traditionally been its core business.

“New additional services are important. As the market gets more competitive, our margins are under pressure [in the core business]. That means we have to innovate services to make up for some of what we lose through this margin-eroding process. […] We need to focus more on what gives us a better return on our money and helps us to compensate for what we lose in our core business.” (Informant 11)

Informant 3 also related to this reason for developing new services, when he reported that “there is continued pressure on the margin for traditional services, which is mainly distribution. We have to provide more services on top of that”.

Informants repeatedly pointed out that being innovative and, thus, developing new services was imperative. Especially in a market that “is getting very competitive […] and where competition is moving faster” (Informant 11) than Service Corp’s healthcare unit in some cases. New services could help to strengthen Service Corp’s competitive position in its markets:

“If we have a unique service, it is very hard for our clients and customers to go to our competitors. New services can make us more ‘sticky’ and help us to get a competitive edge and to create a situation where our clients

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need us as much as we need them and to increase exit barriers.” (Informant 4)

Auxiliary and/or stand-alone services, which could be offered in addition to Service Corp’s core distribution and logistics services, had been identified as a promising field to develop these highly needed service innovations. Informant 1, for example, explained:

“We do everything from registration of a product in a country, and then from clearing it at customs to collecting the money once the product is sold. That is just a very, very long value chain. And for every step along this value chain you have opportunities to add things on top and to build service innovations around it.”

At Service Corp, these so-called value added services (VAS) typically come in either of two forms:

(i) Auxiliary VAS are service that are directly linked to core services and yield extra charges. This type of VAS is not stand-alone; that is, they are linked to a distribution/ logistics contract. This could be, for example, the fulfillment of urgent delivery requests that go beyond the regular core distribution contract with a client/customer.

(ii) Core VAS are stand-alone service offerings that are not necessarily linked to a core service or contract. Rather, these services are innovative service offerings that cater to various client needs. For example, Service Corp might provide assistance with managing the complex regulatory process of product registration – a service that can be bought by clients/ customers without (necessarily) having to engage in a core service contract, although this might be desirably from Service Corp’s point of view.

Apart from the direct effects these services can have – that is, yielding revenue and (potentially) increasing client retention – they may also serve another purpose: Value added services, and in particular core VAS, may function as a gateway to expanding business with clients. Informant 1 noted on that matter:

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“In the case of CIM16, we would manage a specific type of inventory in the hospital for one specific client. And then we would try to manage the entire inventory and thus expand our scope in terms of volume and size.”

From the information gathered through the interviews, three main reasons were identified for why bringing new services to the market is so important to Service Corp – as shown in Table 9 below.17

Table 9: Reasons for why NSD is so important to Service Corp

Table 9: Reasons for why NSD is so important to Service Corp

Reason Representative quotes

New services yield higher margins and, thus, help to battle the eroding margins in Service Corp’s core distribution and logistics business

• “New additional services are important. As the market gets more competitive, our margins are under pressure [in the core business]. That means we have to innovate services to make up for some of what we lose through this margin-eroding process. […] We need to focus more on what gives us a better return on our money and helps us to compensate for what we lose in our core business.” (Informant 11)

• “There is continued pressure on the margin for traditional services, which is mainly distribution. We have to provide more services on top of that.” (Informant 3)

New services can help to increase client retention

• “The question we need to ask ourselves with regard to service innovation is ‘how sticky does it make us?’. If we have a unique service, it is very hard for our clients and customers to go to our competitors. New services can make us more ‘sticky’ and help us to get a competitive edge and to create a situation where our clients need us as much as we need them and to increase exit barriers.” (Informant 4)

New services can be used to strengthen and expand client relationships

• “In the case of CIM18, we would manage a specific type of inventory in the hospital for one specific client. And then we would try to manage the entire inventory and thus expand our scope in terms of volume and size.” (Informant 1)

Source: own illustration

Yet, despite the frequent calls for the importance of NSD within Service Corp, the company was lacking a formal innovation process. A phenomena that is mentioned in the literature on NSD, too: Some companies seem to think that innovation “just

16 CIM: Consignment Inventory Management. The topic of CIM will be discussed in more detail in Chapter 4.4 below. 17 While more than the abovementioned informants have named these reason in their individual tone, only a few representative quotes are used at this point for reasons of space. 18 CIM: Consignment Inventory Management. The topic of CIM will be discussed in more detail in Chapter 4.4 below

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happens” (Menor, Tatikonda & Sampson, 2002, p. 136) and does not require a formal process. As one informant put it: “It is not in our DNA to innovate. This is not to say that people are not innovative; but it is something that is not pushed and encouraged.” (Informant 14)

4.3 Service innovation at Service Corp’s healthcare business unit

Although Service Corp was clearly aware of the relevance of NSD, no formal NSD process was in place. This is not to say that Service Corp had not innovated in the past. In fact, there were several examples for new services that had been developed at Service Corp. Some of these new services will be discussed in the following chapters to derive an even more sophisticated understanding for the key success drivers – and pitfalls – of NSD at Service Corp. But before looking into these specific examples, this chapter will discuss general issues related to new service development, which were collected through the interviews.

4.3.1 New service development without a process

While Service Corp had managed to innovate in the past (with some of these new services having being rather successful, as will be shown later on), it was surprising to find that a company of the size of Service Corp – by any measure (number of clients, sales, etc.) – did not follow a structured innovation process.

“At the moment there is no such standardized [new service development] process. There is definitely nothing across business units. Within healthcare, there is definitely no standard across the region. In some countries, which are innovative – Vietnam, for example – they do probably have some internal materials; but I have not seen or received any of that. There is definitely no standardized process across the organization.” (Informant 1)

At Service Corp, new service development was mainly managed on a country-by-country basis and driven in response to specific client/customer requests. Informant 2 noted on that matter: “We have as many service development processes as we do have countries” – again pointing to the lack of a standardized NSD process. Informant 1 explained the status quo of NSD in more detail:

“It usually works that way: we would have a client or customer approaching us with a need or a concrete demand for a specific service and he would ask

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us whether we are capable of providing it. Our general answer as a service provider is generally more on the side of ‘yes, we look into it’. What often happens next is that there is no real evaluation whether this new service a client is demanding is going to be profitable in the long run, whether it is worthwhile to invest into it, it is more a question of whether we can provide and develop it rather quickly; and then basically serving this need of one specific client and then once this project is done, we would either reactively hope that there are other clients who have this need or proactively create some materials around it […] and talk to a few others of our clients to see if they are interested as well.”

This assessment, provided by Informant 1, who had recently been tasked with setting up a more structured approached towards new service development, already revealed two key issues of new service development at Service Corp: (i) Idea generation was mainly outside-in driven (that is, by clients and customers); (ii) too little time and effort was spent on analyzing – upfront – whether it is viable to go ahead with the development of a new service or not. These had not been the only issues related to NSD that were identified through the interviews. As Service Corp lacked a formal NSD process along which these issue could have been discussed in a more structured way, the four broad NSD steps of the NSD process cycle (Johnson et al. 2000), which was introduced in chapter 2.2.6 (above), was used. The steps were: (i) Design, (ii) analysis, (iii) development, (iv) full launch. Hence, these first insights could be arranged in a more systematic way, in order to better inform the subsequent steps of data collection.

4.3.2 Issues related to the design of a new service

The first step in Johnson et al.’s (2000) NSD process cycle is Design. This step encompasses the following activities:

• Formulation of new service objective/ strategy • Idea generation and screening • Concept development and testing

Informant 1, as quoted above, raised concerns regarding idea generation. Ideas for new services, as Informant 1 pointed out, had been mainly driven by clients and customers, not by Service Corp itself. Informant 4, who oversees regional business development for pharmaceutical clients, reinforced Informant 1’s assessment. While, according to Informant 4, “innovation is important in our industry”, Service Corp did not approach idea generation actively enough: “As of now, they [clients and customers] are more the

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key innovators; and we are based in the middle and don’t have this new to the world innovation” (Informant 4).

The limited degree to which Service Corp had been generating new service ideas autonomously led to two key problems: (1) a lack of focus in regards to new service development and (2) the danger of falling behind competitors in terms of innovativeness.

Lack of focus

As Informant 1 has pointed out earlier, Service Corp often picks up the ideas for new services addressed by clients or customers. Mostly, this happens on the country-level, not on the regional level. By the nature of its business model – that is, being a key intermediary in the healthcare value chain – Service Corp works closely with its clients and customers on a country-by-country basis. Informant 4, hence, emphasizes: “Currently, most of the innovations come from a country level […] the innovation more often comes from countries themselves than from the region.” This means that each and every country unit of Service Corp is (potentially) flooded with a plethora of requests or new ideas for services; but these initiatives are seldom coordinated form a higher echelon – that is, the regional level. Hence, various team (on a country-by-country basis) will work on different ideas, one probably not knowing what the other is doing. Informant 2 put it that way: “There is a lack of communication. We are not aware of what is happening in the individual countries.” This lack of coordination, in turn, leads to a lack of focus, as Informant 1 explains:

“As a service provider we have this mind set to try to provide to our business partners whatever is possible. This might lead to the problem that we do a bit of everything and try to make it right for everyone. That way, we do not get to the next level.”

Arguably, this lack of focus weakens Service Corp’s position towards its competitors in terms of service innovativeness.

Falling behind competition

With Service Corp’s innovation efforts being mainly centered on responding to requests uttered by clients and customers, real innovation fell short – and competitors may eventually outrun Service Corp. Informant 8 on that matter:

“A lot of times, we look to see whether or not a competitor has developed something similar before we do something. A lot of times, the answer is yes. Not just one, multiple competitors already have something. […] I feel like we are following with regards to a lot of these [new services].”

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For example, as Informant 14 explained, Service Corp had been late with driving important innovations like e-commerce platforms19:

“When we look at some competitors, they do very innovative stuff. They have some online platforms they sell their products through, which we try to replicate. We try to come up with something that looks like it, but we are 2-3 years late”. (Informant 14)

Rather than being innovative and providing the sticky services that would make Service Corp an indispensable partner to its clients and customers, as mentioned by Informant 4 (see above), Service Corp risked falling behind competitors. Informant 11 put it as follows:

“Today, we are a good service provider. But the question is: will we still be in five years from now; or in ten years? Are we staying ahead of the emerging trends, or are we just going along?”

4.3.3 Issues related to the analysis of a new service

The second step in Johnson et al.’s (2000) NSD process cycle is Analysis. This step encompasses the following activities:

• Business analysis • Project authorization

As Informant 1 pointed out (see above), “there is no real evaluation whether this new service a client is demanding is going to be profitable in the long run”. Put differently, new service ideas were often times pursued without sufficient upfront analysis of whether (i) this service is viable and (ii) expandable to other clients and country operations. This lack of proper upfront analysis had critical implications for new service development. In fact, according to Informant 3, Service Corp often acted to quickly on new ideas:

“To me, one of the most important things would be to have a more robust kind of vetting process for these [new] services. And, not to be just jumping in feet-first in everything. That would be the big thing that I have noticed in the couple of years that I’ve been here, actually.”

Informant 3 had also observed a tendency to rush into new service projects too hastily, when saying “sometimes, we don’t see it [new service ideas] through to the end. We

19 A detailed discussion of the e-commerce will follow in Chapter 4.4.

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sometimes don’t do [enough] pre-analysis.” Failing to do a diligent upfront analysis of a prospective new service, can (potentially) cost Service Corp dearly. For example, if too little time is spent on understanding differences in market structures and regulations between countries, the roll-out of a service is likely to be more costly, tedious or even ill-fated20. Informant 13 gave an account of that:

“Developing a new service is critical for us, but we are rather reactive than proactive. Normally, we engage with clients in the core service – that is mostly distribution. And then, when the client mentions he needs this or that, we evaluate on a country level whether we can provide this or not.”

Yet, as Informant 7 pointed out, the viability of a new service idea should not be analyzed on a country-by-country basis, because this will only provide limited information regarding the idea’s prospect and scalability:

“Oftentimes a service is very specific to one country. If this client [in that one country] does not exist in another country, the service may not be applicable for another country at all. Thus, it is only applicable to this client and hard to roll out. […] Scaling a service heavily depends on the local market structures.”

Hence, elaborating on the viability and scalability of a new service idea timely and holistically – that is, from the perspective of more than just one country – is utterly critical. Given the importance of this step in the NSD development process, Informant 7 sees the need to act:

“What I would change about new service development: Do more data gathering upfront. For example, I would go to the field, observe, talk to many people at the client and then set up the service, after really understanding what they ask us to do.”

4.3.4 Issues related to the development of a new service

The third step in Johnson et al.’s (2000) NSD process cycle is Development. This step encompasses the following activities:

• Service design and testing • Process and system design and testing • Marketing program design and testing

20 For example, this will be a recurring topic in the discussion of specific service innovation projects latter on.

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• Personal training • Service testing and pilot run • Test marketing

When we look at actually setting up a new service offering, a key issue that was repeatedly stated by various informants was the lack of sufficient knowledge sharing within Service Corp. Learning from previous successes or failures could (potentially) ease and accelerate the development and rollout of future new services to a tremendous degree – in particular, regarding steps like designing the actual service (e.g., defining its value proposition) and its underlying process (i.e., what has to be done by whom). While there is a lot to be learned from previous service development projects – and failures in particular, this type of learning actually has to be enabled. Yet, as it turned out, this had been somewhat of a challenge for Service Corp, too. According to Informant 1, Service Corp did not, for the most part, actively keep track of its NSD failure, nor analyze these failures to learn from them: “We do not track what we have tried and failed with in the past.” This particular issue – that failure to keep track of past miscarriages – was just one manifestation of a broader problem: The lack of knowledge sharing, which leads to enormous inefficiencies when it comes to new service development.

Informant 8’s verdict on this matter supported this claim: “I don’t think there is enough knowledge sharing between countries”. Informant 2 provided a specific account which highlighted this matter:

“I am thinking about a project Thailand tried to develop a few years ago. It was basically to be able to gather all the data from our customers. They [Service Corp Thailand] started to contact all the pharmacies to set up a new type of scan which you use to scan all the products you sell and, thus, get the data. I think the idea was great. They failed with this project, but I do not know the reason why. They failed, but this doesn’t mean that it was a bad idea. There is much we could learn out of that.”

Arguably, the service idea described by Informant 2 above could have made sense for Service Corp and for both its clients and customers. Hence, some interesting and potentially insightful questions arise: Why was the idea not pursued? When was the decision taken to not go ahead with this idea, etc.? The answers to these questions might provide valuable insights for future new service development projects; yet, these questions have either never been asked, or the answers have not been kept, nor shared within the organization – hence, nothing could be learned from this failure. And this

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case was by no means an exception, as can be inferred from what Informant 1 had to say on that matter:

“What I do is that I reach out to a specific country organization, for example, Thailand, and tell them: ‘Look guys what we have just done in Vietnam, there is a new service we developed for a client, maybe you see potential to use it for your clients. Then they [Thailand] would say: ‘We actually already do that for XY client’. Or you would hear the answer: ‘We did something like this years ago, but the person who did it on our side isn’t any longer with us and so we don’t know exactly what has been done.’”

Informant 7 summarized the issue; according to him, the lack of a centralized position or role which is responsible for enabling knowledge sharing – both between countries and between countries and the regional level – is to be blamed for this deficiency: “There is no central, regional role taking care of knowledge sharing and informing back to the countries.”

4.3.5 Issues related to the launch of a new service

The fourth and final step in Johnson et al.’s (2000) NSD process cycle is Full Launch. This step encompasses the following activities:

• Full-scale launch • Post-launch review

Put differently, and chronologically speaking, this step in the NSD process deals with matters related to the launch itself and the review after the new service was launched. With regards to both phases, issues had been identified at Service Corp.

The launch itself

Service Corp, as was explained earlier, operates in a complex business environment. The company is dealing with a tremendous amount of client- and customer accounts across several countries – oftentimes with utterly distinct market characteristics or regulatory bodies. In addition to this external complexity, there is also a tremendous internal complexity at Service Corp, as Informant 1brought up:

“A major challenge is that we as an organization, historically, have been growing as country-by-country organizations, and every country is in a way like a stand-alone business to a certain extend. Then you have people

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like me being in a regional function who try to align and coordinate the countries across the region.”

Under these conditions, a structured approach towards rolling out a new service across several countries would be of particular value. Yet, there is no such process at Service Corp, as Informant 7 emphasized: “There is no proper structure for rolling out services from one country to another”.

After the launch

While the lack of knowledge sharing was already discussed above, this issue also relates to this step in the NSD process cycle – more precisely, it is of particular importance when talking about the post-launch review. In the theoretical part of this study, the iterative nature of the NSD process cycle was reviewed (see Chapter 2.2 above). The idea, in a nutshell, was that NSD is an iterative process, going back and forth between steps in the development cycle to optimize a new service as far as possible. Hence, the post-launch review is a critical aspect. Specifically, critically reflecting on how a new has been developed and how it has performed in the marketplace most likely yields valuable insights for future NSD endeavors. Yet, the aforementioned lack of knowledge sharing also interfered with this step. Informant 1 acknowledged: “Often previous failures are not documented and we make the same failure twice and we don’t really share or document failure”. Further, Informant 8, when asked for a key element that should be improved in terms of NSD at Service Corp, pointed to this very matter:

“[…] maybe a more systematic way of understanding which services have been developed where, which succeeded and which failed and why. Just so that people have an idea of what we’ve done before so we aren’t always reinventing the wheel.”

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4.3.6 Summary of results

The analysis of both the importance of NSD for Service Corp and commonly encountered issues related to NSD comprised the first two (general) parts of the interviews. The third part, which covered the discussion of specific new service development projects, their pitfalls and success factors, was still to come. Nonetheless, valuable insights could already be generated up to that point. Further, these findings also provided a sound basis for the subsequent investigation of NSD projects. Table 10 below summarizes the issues identified above.

Service Corp’s healthcare unit reckoned that the absence of a structured NSD process has led to inefficiencies (as discussed above) and – even – failure of new services. “I think we really need such a process [a structured process for NSD].” (Informant 4). Informant 4 repeatedly emphasized that more alignment is needed for Service Corp’s NSD effort: “We are not very good at building the right processes and capabilities in our markets to drive and sustain service innovation.” Further, the implementation of new services suffered from lacking a structured new service process, as Informant 11 emphasized when he said: “We need to get better at turning good ideas into reality”. Moreover, as Informant 4 claimed, without a structured approach, there is a lack of responsibility for oversight: “Most clients will sign contracts on the regional level – for several countries. Someone needs to interact with clients on a higher level. […] We need someone to drive our [innovation] efforts regionally.”

In short, up to this point, the dissertation had identified a plethora of (specific) NSD-related problems. Thus, the pressing question was: How can these problems be addressed? Through reviewing the previous literature on NSD, this study had found that the existing body of knowledge is utterly weak on understanding key activities of successful new service development. Hence, little help could be expected from this direction. Therefore, the subsequent investigation of specific NSD projects was intended to provide remedy.

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Table 10: NSD key issues a t Service Corp

Table 10: NSD key issues at Service Corp

Process cycle* Identified issues** Representative quotes

Design Lack of focus regarding NSD

• “As a service provider we have this mind set to try to provide to our business partners whatever is possible. This might lead to the problem that we do a bit of everything and try to make it right for everyone. That way, we do net get to the next level.” (Informant 1)

Falling behind competition in terms of NSD

• “A lot of times, we look to see whether or not a competitor has developed something similar before we do something. A lot of times, the answer is yes. Not just one, multiple competitors already have something. […] I feel like we are following with regards to a lot of these [new services].” (Informant 8)

• “When we look at some competitors, they do very innovative stuff. They have some online platforms they sell their products through, which we try to replicate. We try to come up with something that looks like it, but we are 2-3 years late”. (Informant 14)

• “Today, we are a good service provider. But the question is: will we still be in five years from now; or in ten years? Are we staying ahead of the emerging trends, or are we just going along?”(Informant 11)

Analysis Lack of vetting process for NSD ideas

• “To me, one of the most important things would be to have a more robust kind of vetting process for these [new] services. And, not to be just jumping in feet-first in everything.” (Informant 3)

• “What I would change about new service development: Do more data gathering upfront. For example, I would go to the field, observe, talk to many people at the client and then set up the service, after really understanding what they ask us to do.” (Informant 7)

Lack of cross-country view

• “Developing a new service is critical for us, but we are rather reactive than proactive. Normally, we engage with clients in the core service – that is mostly distribution. And then, when the client mentions he needs this or that, we evaluate on a country level whether we can provide this or not.” (Informant 13)

• “Oftentimes a service is very specific to one country. If this client does not exist in another country, the service may not be applicable for another country at all. […] Scaling a service heavily depends on the local market structures.” (Informant 7)

Development Lack of failure analysis (in the development stage)

• “We do not track what we have tried and failed with in the past.” (Informant 1) • “I am thinking about a project Thailand tried to develop a few years ago. It was basically

to be able to gather all the data from our customers. […] I think the idea was great. They failed with this project, but I do not know the reason why. They failed, but this doesn’t mean that it was a bad idea. There is much we could learn out of that.” (Informant 2)

Lack of cross-country knowledge sharing

• “I don’t think there is enough knowledge sharing between countries.” (Informant 8) • “What I do is that I reach out to a specific country organization, for example, Thailand,

and tell them: ‘Look guys what we have just done in Vietnam, there is a new service we developed for a client, maybe you see potential to use it for your clients. Then they [Thailand] would say: ‘We actually already do that for XY client.’” (Informant 1)

• “There is no central, regional role taking care of knowledge sharing and informing back to the countries.” (Informant 7)

Launch Lack of coordination for cross-country rollouts

• “A major challenge is, that we as an organization, historically, have been growing as a country-by-country organizations, and every country is in a way like a stand-alone business to a certain extend. Then you have people like me being in a regional function who try to align and coordinate the countries across the region.”(Informant 1)

• “There is no proper structure for rolling out services from one country to another.” (Informant 7)

Lack of failure analysis (in the post launch stage)

• “[…] maybe a more systematic way of understanding which services have been developed where, which succeeded and which failed and why. Just so that people have an idea of what we’ve done before so we aren’t always reinventing the wheel.” (Informant ()

*) Johnson et al. (2000) **) inductively derived

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4.4 Discussion of specific service innovations

This chapter will discuss specific service innovations that have been develop and introduced by Service Corp within the last 2 years. Thus, challenges, key success factors and major shortcomings in Service Corp’s innovation activates will be examined based on concrete examples. Firstly, an overview over the selected cases will be provided. Subsequently, each service, its development and roll-out will be discussed in more detail.

4.4.1 Selection of cases

Previous research has shown that not all new services are created equally. Put another way, different types of services and the individual circumstances of their development most likely emphasize different issues along the NSD process (Biemans, Griffin & Moenaert, 2015; MacCormack & Verganti, 2003). Solely discussing NSD from a general, project-unrelated level would not have done justice to the matter at hand. Hence, the general discussion of NSD at Service Corp, which was undertaken in the previous chapter, will be augmented by the discussion of different NSD projects. By analyzing the evolvement of specific NSD projects, the general insights are considerably enhanced – both in terms of their scope and level of detail. Before discussing the individual NSD projects, this chapter will give a short overview over the sample of NSD projects.

While there has been no structured NSD process in place, Service Corp had nonetheless innovated over the course of the previous years. Yet, as was discussed above, the success of these innovation was seen critically by the informants. In order to get a better understanding for the challenges that had been encountered, this chapter will look into 6 service innovations (referred to as value-added services, VAS, by Service Corp) that had been developed within the last two years:

1. Regulatory: Providing support in or taking over regulatory duties for clients (e.g., product registration or customs clearing).

2. Telemarketing: Using Service Corp’s own call centers to make outbound calls on behalf of clients in order to market and sell their products to customers.

3. Market Entry: Creating market- and competitor reports for clients so that they can assess the prospect of entering a new market.

4. Clinical Trail Logistics (CTL): Providing complex distribution and logistics services in the context of clinical trials for drug development.

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5. Consignment Inventory Management (CIM): Managing consigned inventory for hospitals (high value medical devices that are part of a hospital’s stock, but are only paid after they were actual used, e.g., in surgeries).

6. E-commerce: Providing e-commerce platforms and other online-channel-related services to clients and customers.

As shown previously, Service Corp measured the success of a new VAS primarily based on the annual revenue it generated; and while none of these services has been considered to be an outright failure by the informants, some of these services had managed to attract more clients and revenue than others – as can be seen in Figure 8 below, which illustrates the development stage of these services based on a maturity rating set up by Service Corp.

Figure 8: Development of value added services (concealed)

Figure 8: Development stage of value added services ( concealed)

Source: Company records (2015) [CN= China; KR= Korea; TW= Taiwan; HK= Hong Kong; LA= Laos; KH= Cambodia; MM= Myanmar; VN= Vietnam; TH= Thailand; MY= Malaysia; SG= Singapore; REG= Regional];

Looking into each service individually will enable us to identify the factors that have eased or aggravated the development of any given service. In doing so, issues that were identified in the general discussion of NSD at Service Corp (Chapter 4.3 above) will be revisited. Based on the cumulative insights that will thus be generated, recommendations for how to successfully approach NSD will be derived.

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While common themes across these 6 services will emerge, it is important to note that not all services will feature the same issues. Rather, the value of this sample lies in the fact that each of these services will highlight very distinct challenges and success factors – some of these issue will be found in just one or two services, while others will be found across several services. Ultimately, it will be the combination of these insight that will provide a rich set of identified challenges and approaches to mitigate these challenges.

The selected services will be discussed as follows: First, each service will be introduced by explaining its context and value proposition. Second, the evolution of each service will be laid out. Third, key learnings with regards to NSD from each service will be identified.

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4.4.2 Regulatory

4.4.2.1 Description and context of service

Healthcare products (e.g. pharmaceutical drugs, medical devices, supplements) that are intended to be sold in a country they have not been manufactured in need to be licensed in that country first – otherwise, they cannot be sold. For example, Thailand’s Food and Drug Administration body requires any party that intends to sell, produce or important healthcare products into Thailand to obtain a license to do so. While the particular procedures may vary, other countries have similar regulations in place. The complexity of this registration process depends on two things: First, the complexity of the product itself; and, second, the specific legal code of the target country. Typically, these registration processes take several months, if not years.

In addition to this one-time, upfront registration process, recurring regulatory requirements add to the complexity: Every few months, manufacturers have to provide updates on so-called “variations” – for example, any changes, even if marginal, related to the production process, the naming, the labeling and even the packaging have to be reported to the authorities. Further, about every 3-5 years, depending on the country, manufacturers are asked to re-new the licenses for their products. Thus, according to Informant 1, only about 30-40% of the effort related to registration results from licensing new products; most of it is caused by fulfilling ongoing regulatory demands.

In the light of this complexity, companies that intend to enter new markets with their healthcare products often seek advice from third parties familiar with these matters and regional/local market knowledge. Through its VAS Regulatory, Service Corp offers support in these regulatory affairs. More specifically, Service Corp provides pre-registration consulting (that is, regulatory feasibility assessments), product registration with local authorities, post-marketing services such as MA holding and transfer,21 variations and renewal of MAs as well as further specialty regulatory services.

4.4.2.2 Evolution of service

Up until 2012, Service Corp had been dealing with these regulatory and licensing issues on a country-by-country and ad-hoc basis. Depending on the number of clients that asked for these services and the complexity of these engagements, the number of employees responsible for this service ranged from 1 or 2 up to about 10 people per

21 MA= marketing authorizations; that is, the approval to market healthcare products in a given country.

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country – all of them with a background in the healthcare industry and proficient knowledge of regulatory affairs. Alternatively, in some markets, Service Corp relied on third-party providers to perform licensing work on their behalf.

According to Informant 1, clients had repeatedly mentioned that they would prefer a “regional one stop” approach to this matter. That is, engaging with Service Corp on a regional level for more than one country at a time, rather than mandating Service Corp on a country-by-country basis. Obviously, this solution would have meant far less complexity for clients; especially because clients exporting their healthcare products to Asia normally intend to break into more than one country sooner or later.

Based on these client demands, Service Corp set out to develop a regional regulatory service offering. In 2013, the regulatory experts from each country were brought together in a joint workshop in Bangkok. The goal of this workshop was to harmonize the different regulatory offerings that had existed across countries (e.g., concerning the scope of the service or key contractual terms) and develop the new regulatory service offering. This workshop then led to the development of four specific and unified offerings for regulatory services, which helped to “considerably boost our regulatory service offering” (Informant 4):

1. Pre-registration: Through this first step, Service Corp provides an assessment to whether a given product can be licensed in a target country, how long this process is about to take and what information and data will be needed for the licensing processes.

2. Registration: The second step entails the actual licensing of the product with local administrative bodies.

3. Post-Marketing: The third step covers all the necessary regulatory work related to the product after it has been introduced in a country (as described above).

4. Auxiliary services: The fourth and last steps covers additional support steps like translation of documents, certifications, or the importation of samples for testing through local authorities (if need be).

Beyond defining the service offering in this structured way, the workshop also enabled Service Corp to develop a coordinated approach to business development – that is, selling the service to clients. To that end, a unified “business development deck” (Informant 1) was drafted. This slide deck outlined the value proposition of the service and could henceforth be used by all countries to approach clients.

Looking at Figure 8 above, the VAS Regulatory is the most mature service out of the chosen VAS sample. By its internal standards, Service Corp considers Regulatory to be

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a “well established service offering”. In fact, the service is offered in 10 out of 12 countries Service Corp operates in; and in each of this 10 countries, there is a well-established client base for this service. The 2 countries in which the service is currently not on offer are Korea (where the service is provided by a third party) and Taiwan (where service capabilities are under development).

The orchestrated approach to setting up Regulatory as a unified service offering across the region yielded fruits: The number of licensing engagements (i.e., engagements for which VAS Regulatory is used) has been growing more the 50% over the last two years, according to Informant 1.

4.4.2.3 Key learnings

In the case of Regulatory, new service development was driven by client requests. While Service Corp had offered country-by-country approaches to registration and other regulatory matters, a homogenous service offering for clients across the region was not available. In order to provide such a unified solution, Service Corp had to harmonize its country-by-country offerings. This was achieved, mainly, through a multi-day workshop in Bangkok, Service Corp’s regional HQ.

Previously (see Chapter 4.3 above), it has been shown that Service Corp used to suffer from both a lack of knowledge sharing when designing new service offerings and too little coordination between countries regarding the market launch of new service offerings. Both issues had to be managed in order to be able to provide what clients had been asking for. A harmonized, regional approach to regulatory matters, which still accounted for local market structures and legislation, was needed. This was achieved through three key activities:

1. Participation of local experts: In setting up the new Regulatory service offering, Service Corp had experts from every country participate. Hence, each and every member could contribute their expertise regarding local regulations and share previous experiences with how their respective country organization had approached regulatory services.

2. Definition of a harmonized service offering: In order to be able to offer a seamless service experience to clients, Service Corp defined four key steps that made up its regulatory service offering – across all countries of its operations. Hence, Service Corp ensured that its regulatory offering, as well as the underlying process, was provided to clients in a uniform manner across the entire region.

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This helped to tackle the danger of heterogeneity in service provision, which is inherent to services.

3. Development of a unified business development approach: Lastly, Service Corp developed a unified approach towards selling the regulatory service offering to clients. With the help of a business development sales deck, which was jointly develop with the country experts and encompassed the service’s value proposition, approaching clients had been considerably eased. The intangibility of services, as was discussed earlier on (see Chapter 2.1.4 above), is one of the key challenges of new service development – both internally and externally. Internally, intangibility makes it harder for employees involved in the service development to always have the same understanding of what the service is – this is all the more true in an organization as complex as Service Corp. Externally, a service’s intangibility makes it harder for prospective clients to properly grasp what the service will specifically entail and how it is going to help them – put bluntly: intangibility makes it difficult for clients to know what they will get. But by developing a sales deck that specifically entails the service’s value proposition and key activities, the internal and external challenges of intangibility were successfully mitigated.

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4.4.3 Telemarketing

4.4.3.1 Description and context of service

As was stated earlier, Service Corp functions as a key intermediary in the healthcare value chain, linking manufacturers (referred to as clients by Service Corp) and retailers (referred to as customers by Service Corp) by bringing products from the former to the latter. Broadly speaking, Service Corp used to offer two ways for customers to order healthcare products. First, through directly placing orders with Service Corp’s sales representatives, who periodically visit customers. Second, through calling Service Corp’s call center, which then processes the orders.

Service Corp operates these call centers in every one of its markets and up until recently their function was passive in nature. Their sole purpose was to process incoming calls from customers, or from Service Corp’s own sales representatives on the customer’s behalf. Yet, this was changed with the introduction of the VAS Telemarketing, turning call centers into a proactive means of sales, by having these call centers actively reach out to customers in order to market and sell healthcare products to them (as opposed to merely taking inbound calls).

More specifically, the VAS Telemarketing encompasses out-bound call services to customers/retailers paid for by clients/manufactures to increase sales and brand awareness for the latter. Hence, Telemarketing flanks traditional sales channels: “It’s an innovation that is welcomed by our clients, because it augments nicely our face-to-face visits” (Informant 4). For example, this service could be used when a client wishes to boost the sales of a specific product. In such a case, Service Corp’s call center would then call relevant customers – say, the biggest pharmacies – to promote this product.

4.4.3.2 Evolution of service

The new service Telemarketing originated in Vietnam and was driven by clients, who had specifically asked for it:

“A good example [for a new service developed based on a specific customer need] is Telemarketing in Vietnam. The clients asked: ‘Why don’t you start doing outbound calls instead of just having inbound calls to your call center?’” (Informant 4)

The repeated enquires from different clients to provide this service as well as a general “can-do-mentality” (Informant 7) towards clients’ requests led Service Corp’s unit in

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Vietnam to look into this idea more elaborately. To ease the setup of this service and to gain quick wins early on, Service Corp Vietnam did not start hiring new employees for outbound calls right away – which would have required additional investments in labour. Rather, the local decision makers assessed if the additional workload resulting from outbound calls could be managed by the existing staff. To that end, as Informant 1 explained, the incoming call traffic was analyzed. This analysis yielded an interesting finding: Most of the inbound calls were received in the morning hours and/or right after lunch time; in the afternoon, however, very few calls were received. Thus, the afternoon hours were identified as the ideal period to make outbound calls. Further, the employees who were put in charge of making these calls were prepared to do so: Firstly, by being educated about the specific healthcare product(s) they were asked to promote and, second, by being given call scripts. Gradually – and only after having achieved traceable success with this new service offering – dedicated sales employees for outbound calls were hired.

After the new service was successfully established in Vietnam, Telemarketing grew quickly across the region. Not only was it rolled out across more countries, but also the regional HQ in Thailand, discerning the service’s potential, began to orchestrate the roll-out. This was due to three reasons: First, the person who had been in charge for setting up Telemarketing in Vietnam got promoted to a regional role and, thus, helped to elevate the new service to the regional level. Second, early on, this service created considerable revenue streams in Vietnam – and in other countries where it was subsequently set up; hence, its roll-out was deemed reasonable by the relevant decision makers at Service Corp. Thirdly, in markets where this service had not yet been offered (e.g., Hong Kong, Malaysia, Thailand), clients kept approaching Service Corp, asking for such a service to be provided.

To ease the roll-out of Telemarketing across countries and the region, a workshop was held in Bangkok in August 2015. Experts from Vietnam, familiar with the service and its setup, were flown in to explain to other country representatives how the service had been developed. Two major outcomes were achieved through this workshop. First, a service blueprint was compiled – that is, a definition of what the service entails, its value proposition and how it shall be performed. Second, a roll-out roadmap, which included (inter alia) a resource plan, was drafted. To further support the roll-out process, joint update calls and regular meetings for best practice sharing between the countries that were involved in Telemarketing was devised. Informant 4 outlined the approach as follows:

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“To expand that service, we did a regional workshop [in Bangkok] and invited the other countries to come and show them the process; to expose them to how Vietnam is doing it. Each of them will get back to their countries with a certain understanding of the service, our recommendations and action plan for establishing the service in their country.”

Overall, according to Informant 1, who oversees Telemarketing regionally, Service Corp is content with the progress of the roll-out. As can be seen in Figure 8 above, the service is welcomed by clients across various countries and evolved utterly fast in Malaysia. Already in some countries, where Service Corp’s sales force and network is not big enough to approach all customers, Telemarketing has become an important means for Service Corp to cover more customers for its clients. Telemarketing provides an opportunity to get in touch with remote customers without having to be physically present.

Nonetheless, the service has not yet expanded into all of Service Corp’s markets and challenges do exist. One of these challenges is local regulations. Informant 4 described this matter based on the example of Thailand:

“I think some regulation in some country may be an issue. In Thailand, for example, you cannot reach out to the healthcare professionals.”

Another challenge to pushing the Telemarketing service further across the region stems from disparate market structures:

“The structure of the markets vary considerably. The telemarketing service, as of today, is very pharmacy driven. Vietnam is a market where the pharmacy channel accounts for a high share of the market (about 40%). However, if you take a market like Taiwan, the pharmacy accounts for only 10%; in Thailand it’s about 15%. Because of the differences in the markets, the importance of certain services varies.” (Informant 4)

4.4.3.3 Key learnings

The new service Telemarketing, was originally driven by a client request. Yet, as opposed to the Regulatory service that was discussed above (see Chapter 4.4.2), in this case, the request did not come from many but from a single client – in a single market: Vietnam. Looking at how the service has evolved, a lot can be learned from it, in both a positive and a critical way.

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On the one hand, Telemarketing is a good example for how a new service idea can be implemented quickly and how an orchestrated approach can ease the subsequent rollout to other countries. By analyzing the distribution of incoming calls and, thus, identifying periods when existing employees could be used for conducting outbound calls, Service Corp Vietnam found a way to provide Telemarketing services merely by rearranging available resources – without having to invest in new employees. Further, Service Corp used a structured, orchestrated approach towards rolling out the service to other countries. Building on the previous experience made in Vietnam (knowledge sharing), defining a clear value proposition and drafting a rollout roadmap have arguably considerably contributed to how quickly Telemarketing has been picked up in some markets.

On the other hand, the expansion of Telemarketing has been stalling in some markets recently – in Thailand, for example, where local regulations and market structures make it most unlikely that the outlook will brighten up in the foreseeable future. Arguably, this is something that could have and should have been considered in the first place: How viable is the service beyond its pilot market? The often mentioned lack of upfront analysis (see above Chapter 4.3) can been spotted in this instance, too. Surely, Service Corp was able to set up the new service with limited investments, primarily by reorganizing existing capabilities, and created revenues; but then again, quick wins can be deceiving and may obstruct the critical analysis of a new service’s viability.

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4.4.4 Market Entry

4.4.4.1 Description and context of service

Entering into new markets can be a challenging, risky and costly endeavor for companies seeking to expand their business – even more so if the structures and regulations of a target market are barely known to them. While these risks can be considerably mitigated by a due diligence, sometimes even this process is hard to conduct for the lack of relevant market knowledge. This is where Service Corp’s Market Entry service comes into play.

The VAS Market Entry refers to consulting services for clients who want to enter new markets in Asian and have little or no prior experience. More precisely, on the account of the client, Service Corp assess the feasibility and commercial outlook for introducing a new healthcare product in one or more Asian markets. As said, Market Entry is mainly geared towards clients that are new to Asia and, hence, both a legal and a commercial due diligence are provided. Thus, Market Entry services provides a broad spectrum of information to clients, ranging from market attractiveness, competitor analysis, channel usage and regulatory concerns to recommendations regarding the marketing and distribution of products (for example, which claims can legally be used for the product in a specific country, does the product need a prescription or can it be sold over the counter, etc.).

4.4.4.2 Evolution of service

Originally, as Informant 1 explained, the development of the Market Entry offering was driven by client requests. Over and over again, clients asked for feasibility studies and commercial assessments before introducing a new product – e.g., a medical device or pharmaceuticals – in a given market. Given the recurring client requests in this matter, Service Corp decided to look into developing such a service offering.

Service Corp realized quickly that the necessary pre-requisites to offer this type of service were readily available – but had not been used yet. Hence, the decision to go ahead and develop this service was taken swiftly. Thanks to the sheer scope of its operations (as stated above, Service Corp has been contracting with more than 150.000 customers and clients in 13 countries all over Asia), Service Corp had extensive market knowledge, experience and a vast amount of market data at hand – even if scattered across the organization.

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In order to actually set up the service, Service Corp went with a three-folded approach: First, the clients that had already approached Service Corp in search of this service were integrated in the development process early on to identify their specific needs and requirements. Specifically, these clients were asked what type of information, in what format they needed. A list of relevant market assessment questions was hence jointly forged by Service Corp and the clients. This, in turn, led to the development of customized reports for the clients. Thus, by asking clients for their requirements, Service Corp was gradually able to build a good understanding for the most pressing client questions over time.

Second, Service Corp could utilize the vast amount of client-, customer- and trading data that was at its disposal for developing insightful market reports. Informant 7 noted on that matter: while this data “was originally generated for internal reporting from country level to regional level […] it could also be useful for clients”. Thanks to the availability of rich market data, developing the Market Entry service was considerably eased.

Third, in cases in which Service Corp was lacking the relevant data needed to provide a specific market assessment for a client – for example, because the request was highly unique or little data was available for a given country, Service Corp cooperated with external consulting companies specialized in primary market data research. In such a setting, Service Corp and the consulting company would work together on a client engagement that was acquired by Service Corp – with each party contributing to the market entry assessment the parts of the analysis they were best fit to provide. In doing that, Service Corp had been able to further strengthen its own data capabilities, thus, reducing its dependency on external consulting companies.

Putting all this together, the outlined approach allowed Service Corp to develop the Market Entry service fast and in a cost-efficient manner. Service Corp benefited from this new service in three ways:

a) Providing feasibility studies as a stand-alone, billable service enabled Service Corp to find a solution for a costly problem: Prior to Market Entry, Service Corp mainly assessed the viability of products in the light of potential distribution or marketing contracts with its clients. When Service Corp, after having done its due diligence, came to the conclusion that the product at hand was just “another paracetamol or fish oil supplement with no real prospect” (Informant 1) and, thus, not a viable business to engage in, no contract with the client was signed. Hence, the effort, time and money Service Corp had already invested in assessing the

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market outlook of this particular product was in vain. With Market Entry, however, Service Corp was enabled to bill this effort to clients – irrespective of the outcome of this assessment.

b) Second, beyond the direct revenues generated, Market Entry also serves another important purpose for Service Corp: It is a door opener for further services. As Informant 1 mentioned, all of the clients who mandated Service Corp to perform the Market Entry service subsequently engaged in other contracts with Service Corp.

c) Third, through this service, Service Corp taped into a new, lucrative market. The data consulting market has a huge financial potential and is, relatively speaking, low in competiveness, as Informant 2 pointed out:

“We are talking about a huge market. The market for market data consulting for pharmaceutical companies in Asia amounts to about 2 bn. USD; and currently, you only have a few players, the big guys like IDC or Euromonitor. Even if we can only tape into one percent of this market due to our network, this would be a great case.”

4.4.4.3 Key learnings

While the development of Market Entry had also been driven by specific client requests, like the two service innovations discussed beforehand, the development process of this service helps to not only re-emphasize success factors that have previously been discussed, but also touches on new issues.

At its core, the Market Entry service has been built on previously existing capabilities (in this instance, most notably the availability of rich market data), which have been re-arranged in a meaningful, value-adding manner. In determining what meaningful and value-adding is, cooperations with both clients and third-party providers played a crucial role.

In developing the Market Entry service, client feedback played a crucial role – this was particularly the case for defining the value proposition and key elements of the service. While Service Corp knew that it had a plethora of market data at hand which was potentially valuable to clients, two key questions had to be answered for this data to be used in a meaningful way: (i) which data to use and (ii) how to present this data? With market entry and data consulting not being necessarily within the scope of Service Corp’s core business and expertise, solely trying to answer these questions from within Service Corp would surely not have been the most promising approach. Hence, Service

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Corp decided to closely cooperate with potential clients, asking for their specific input on what they would like the market entry reports to cover and how they should be presented. The subsequent reporting templates, which resulted from this approach, made sure that relevant, sought-after information was provided. Hence, these templates also helped to reduce the uncertainty regarding the scope of the service, which normally results from a new service’s intangibility (see Chapter 2.1.4 above).

Beyond all the above mentioned, Market Entry helps to illustrate another interesting proposition: The degree to which a new service is independent from a client’s or customer’s value chain determines how seamlessly this service can be standardized. More precisely, the more a new service would (potentially) be intertwined with a client’s value chain and his processes, the harder it is to standardize this process. This is mainly due to the high degree of inseparability of production and consumption that typically characterizes services (as discussed in chapter 2.1.4 above).

Market entry is an a priori assessment, thus, compared to other services, it is not directly intertwined with the client’s operations and processes. Hence, the inseparability of production and consumption is tremendously reduced in this case. In addition to that, this service comes in the form of a temporary engagement. Other services, like regulatory or Service Corp’s core distribution and logistics services, have to be performed on an ongoing basis. This not only further limits the operational complexity of Market Entry, but also reduces requirements with regards to resources and employees. This makes the Market Entry service – comparably – easy to standardize.

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4.4.5 CTL

4.4.5.1 Description and context of service

Drug development is “a very high stakes game” for pharmaceutical companies (Holland & Bátiz-Lazo, 2004, p. 20). Successful drug research and development can lead to disease-beating and staggering financial rewards for the manufacturer. Yet, successful drug development is not an easy thing to do. In fact, the pharmaceutical industry is shaped by risky, lengthy and costly R&D processes, rigorous regulation and fierce competition for intellectual property (Holland & Bátiz-Lazo, 2004).

According to a McKinsey study (McKinsey & Company, 2010a), the development of a new drug – until it is finally approved – costs manufactures about USD 1.6 billion on average. The percentage of potential new drugs that do not even reach approval is staggering; and even if they do reach approval, they often fail in the market place. According to the same study (McKinsey & Company, 2010a), only 1 in 3 drugs that make it past approval recovers the costs invested in its development. Moreover, there is barely any industry with a lengthier product development cycle. From discovery to market launch, it takes about 14 years to develop a drug. (McKinsey & Company, 2010a). Both the costs and duration of drug development are mainly driven by clinical trials, in which drugs are tested on human subjects:

“Clinical trials are costly and complex undertakings for pharmaceutical companies. A trial can cost hundreds of millions of dollars and require the coordination of many patients, physicians, and regulatory agencies for up to seven years.” (McKinsey & Company, 2010a, p. 33)

Clinical trials are divided into different stages – referred to as phases. Phase 1 assess whether a drug is safe and which side effects it (potentially) causes; Phase 2 aims at substantiating efficacy; and Phase 3 is intended to prove superiority over existing treatments (e.g. more effective, less side effects). While Phase 1 trials are typically conducted with just a small number of human volunteers (less than 100), Phase 2 and 3 involve much larger samples: Phase 2 trials may range from 100 to 500 participants; Phase 3 trials may call for up to 5000 patients across various clinical sites – some of them even on a global scale (see, for example, FDA, 2016).

With the growing number of participants involved, the costs for each phase increase, too. The challenges and complexity of conducting and managing the numerous sites, organizations, and data systems involved in today’s large, multinational Phase 3 clinical trials are tremendous. These complex clinical trials require both global clinical resources

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and robust technology to recruit patients efficiently, set up testing sites quickly, and provide cost-effective study management.

Time is another critical component during these trials. According to McKinsey & Company (2010a, p. 3), even a delay of only six months can cost the manufacturer up to USD 100 million in profit. There is no room for failure and delays in clinical trials – hence, the pressure on the supply and logistics side is tremendous. In a complex global environment, which involves country-by-country regulations, shipping and logistics nuances, supply management, material stability, cool chains and partnering with third parties, reliable logistics can be a huge challenge. Informant 11 on that matter:

“The clients need very specialized services from established, reliable and consistent service providers who can manage complex end-to-end solutions for them. These shipments are very small in scale, but the impact of these shipments could be very high. The hospitals need the products in perfect quality and on time for running complex and expensive trials.”

In response to this logistical challenge, Service Corp offers its VAS Clinical Trial Logistics (CTL), which encompasses logistics services including importation and customs handling, storage, site delivery, return management as well as disposal and destruction for every stage of human trials (Phases 1-3).

4.4.5.2 Evolution of service

For CTL, the study will specifically look into how this service was set up in Vietnam, because this process highlights valuable insights into how new services can be developed in one country and subsequently expanded to others.

CTL originated in Vietnam in 2013, and was driven by a client’s request. This client was in need of a reliable partner for supplying one of its clinical trials in Vietnam. After having had some follow-up talks to get a better understanding for the client’s specific needs, the question was how to best set up this service, which was potentially far more complex than standard logistics services. Informant 11, who was originally approached by the said client and in charge of the supply chain in Vietnam, commented:

“I thought it will take probably 6-7 months to establish the process. What I did was starting to contact other operations to see if anyone had already implemented the service. That’s when I was learning that this process was already established in Taiwan and Malaysia. I was not aware of that in

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the first place. Only when I started to get information on CTL, I learned about that.”

Surprisingly, while services to support clinical trial logistics had already been established by Service Corp in other countries, the responsible person in Vietnam did not know about this in the first place. Yet, after he had learned about the service’s existence in other countries, the development of CTL in Vietnam could be done significantly faster than originally expected. Service Corp Vietnam was able to build on the experience that other markets had gained with their version of the CTL service and use this knowledge for developing CTL in Vietnam. Informant 11 noted:

“Malaysia took almost a year to implement CTL because of all the complexities related to the service; and we implemented that in Vietnam in three months. This was because we could learn from practices of what other countries had done and what were some of the things they had to go through. It tells how fast you can develop a service if it already exists somewhere. If this knowledge is shared across our operations, you can leverage it.”

To set up the CTL service in Vietnam, the regional office played a crucial role by enabling Vietnam to learn from the previous experiences of other countries. More precisely, the regional office provided guidelines and templates, expert support through joint workshops and contract templates, which were particularly valuable in the case of CTL due to the legal complexity of the service. These templates could be used as the basis for setting up the contracts in Vietnam. Informant 11 repeatedly stressed the importance of contracts for CTL:

“The contract is the biggest part in CTL; it really has to be bullet-proof, because there are so much hidden liabilities in it. […] We got the contract from Malaysia, had it reviewed by legal in Vietnam and adjusted it to the local legal perspective.”

Soon after setting up CTL for the first client, two more clients had successfully been acquired in Vietnam. Despite these successes, the status quo of this service is seen critically within Service Corp. Informant 4 expressed concerns over the lack of a coordinated expansion of this service on a regional level:

“The service [CTL] has been there for a while and it was sold when clients asked for it, but there is no one to really drive this topic regionally. In clinical trial logistics you have a lot of different levels of contacts and we are at the very end right now. Currently, we provide the service for clients

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locally when they ask for it. However, the majority of CTL is actually not driven locally by clients, but centrally or regionally. Basically, it’s a question of level of engagement. You might be looking into some of your clients locally, but it may not be their decision on big clinical trials. We need to get more exposure higher up the ranks. We will have a hard time if we continue operating the way we work; we might grow this service a bit in size incrementally, but we will not be able to bring this service to the next level.”

While Informant 11 looked at this matter from a different angle – that is, from a country level rather than from a regional level, he came to the same conclusion:

“I am not very happy with where we are standing right now with CTL. The reasons are the following: I need a much bigger organizational support. At a country level, you can normally influence client’s operations in this country; but clinical trials are normally rolled out on a much, much higher level – basically, that means it’s above their [decision makers on the country level] decision. The country where it [the trial] is happening is only the receiving end. But decisions where it is going to be run, when it is going to be run, how it is going to be run, are very corporate driven decisions – not country level – because this is closely related to R&D; and R&D is normally at corporate level.”

4.4.5.3 Key learnings

The case of CTL in Vietnam provides valuable insights into how the development process of a new service can be considerably accelerated through knowledge sharing. While the team tasked with setting up a CTL service in Vietnam expected that the development process, due to its complexity, might take up to one year, the service could, in fact, be provided within 3 months. This was largely due to the fact that Service Corp Vietnam could benefit from best practices and experiences made in other countries, where CTL had already been successfully developed. In particular, having guidelines, templets and expert support proved invaluable in setting up the service as fast as possible.

However, while this case highlights how helpful knowledge sharing is, it also shows that knowledge sharing has to be organized in helpful manner. As Informant 11 explained, he had to actively look for people with CTL-relevant experience within Service Corp, not knowing at all that other country units had already developed such a

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service. Put differently, if it had not been for Informant 11’s personal commitment, Service Corp Vietnam would have (most likely) tried to develop a CTL service offering by itself – through a costly and lengthy process with an outcome that, for the lack of experience, might have been error-prone. If a new service is to be developed to cater to existing client needs (as it was the case with the CTL services in Taiwan and Malaysia), such a service might also be relevant to other clients in other countries. Hence, a structured approach to sharing this knowledge across country units is needed.

Further, this service is different from others discussed before in that it is deeply intervened with a client’s value chain. As discussed above, logistics and supply chain are critical matters in clinical trials and have (potentially) a huge impact on a client’s R&D – with considerable investments being on the line. This leads to another interesting finding: Due to their outstanding importance, clients typically do not organize clinical trials on a country-by-country basis; they rather approach clinical trials through centralized planning. Yet, Service Corp’s service offering does not match the clients’ needs in this regard: CTL services have been scattered over different countries, and regional CTL capabilities are still in the making. As a result, Service Corp has not yet been able to fully realize the potential of this service. The takeaway from this is the following: When developing new services, a diligent understanding of the clients’ value chain and (local vs. regional) decision making processes is imperative.

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4.4.6 CIM

4.4.6.1 Description and context of service

Around the globe, healthcare costs have been on the rise for years: According to Deloitte’s annual “Global healthcare outlook” (Deloitte, 2015a), which is largely based on data provided by The Economist Intelligence Unit and the World Health Organization, global healthcare expenditure amounted to USD 7.2 trillion in 2013 – which equals 10.6% of world GDP. This growth has been expected to further accelerate: The Economist Intelligence Unit forecasted an average annual growth rate of 4.3% for global healthcare spending until 2019. This increase in global healthcare spending has mainly been driven by a growing and aging population, the advancement of chronical diseases like diabetes, an increasing demand for quality, tightening regulation and costly new treatments (Deloitte, 2016). In regions like Asia, where private and public healthcare systems still have plenty of room to catch up,22 this trend has been even more severe: According to Forbes (2014a), healthcare costs in the Asia Pacific region were expected to grow at a staggering 10.5% on average until 2018. And even in a country like Singapore, which, compared to most of the other countries in the region, has a well-developed and advanced healthcare system, healthcare costs are on the rise: Healthcare spending by the Singaporean government has more than doubled from SGD 4.7 bn. in 2012 to SGD 11.0 bn. in 2016 (The Straits Times Singapore, 2016).

Providing healthcare that is “accessible, affordable and of high quality” has been identified as a key challenge by Singapore’s Prime Minister Lee Hsien Loong (Lee, 2013) during a speech at the World Health Summit Regional Meeting in Asia. With healthcare costs ballooning, new ways to control costs need to be found – in particular for hospitals, which, according to a McKinsey study (McKinsey & Company, 2010b, p.19), “account for almost half of all spending in most health systems”. According to the same study, optimizing hospital supply chain and inventory is one of the most effective levers to quickly reduce hospital costs. This may certainly be true from a financial point of view, but it may conflict with the goal of providing high quality healthcare to patients.

While it is true that high inventory levels reduce working capital and lead to increased inventory costs, having additional buffer items is necessary from a medical point of

22 Although healthcare expenditure has been growing rapidly in the region, it is (for most countries) still far behind

OECD levels. For example, in Southeast Asia, healthcare expenditure has been growing by 250% from 1998 to 2010, bringing per capita healthcare spending up to about 4% of GDP; this is still far from the global average of 10% (Deloitte, 2015b)

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view: Oftentimes, surgeries involve high-value implants (for example, coronary stents, intraocular lenses, knee or hip joints). Yet, even if the surgery is planned, the surgeon most likely will not know the exact attributes needed (e.g., the size of an implant) until the operation started – even more so in the case of an emergency surgery. Hence, buffer inventory is need to deal with this uncertainty (Perry & Perry, 2014).

Overall, balancing cost optimization through inventory reduction with the goal of providing high quality healthcare to patients is not an easy thing to do. As Deloitte put it in their 2015 “Global healthcare outlook” (Deloitte, 2015a, p.1):

“Across the globe, governments, health care delivery systems, insurers, and consumers are engaged in a persistent tug-of-war between competing priorities: meeting the increasing demand for health care services and reducing the rising cost of those services.”

Consignment inventory (CI), which is provided for frequently needed medical devices such as the ones described above, helps hospitals to better deal with this challenge (Gümüs, Jewkes, Bookbinder, 2008): Goods under consignment are stored at the customer’s site (e.g., the hospital), but the customer will not have to pay for these goods before having used them. Put differently, under consignment, goods are still owned by the vendor (i.e., the medical device manufacturer) up until they have been used by the customer (i.e., the hospital). This approach not only provides hospitals with the necessary buffer inventory, it is also easy on their balance sheet and working capital. Due to the growing cost pressure on hospitals, the demand for CI has been on the rise – and manufactures have responded to this demand by providing hospitals with CI.23

As part of its service portfolio, Service Corp offers consignment inventory management (CIM) of medical devices at hospitals to its clients (i.e., manufactures of medical devices). This service encompasses the initial setup of CI, the actual inventory management (real time stock tracing, timely replenishment, etc.) and reporting. Obviously, managing CI stocks is both complex and time consuming and, thus, a tremendous burden for manufacturers – if they were to do it themselves. Outsourcing this task to Service Corp, by engaging in its CIM service, frees up resources on behalf of manufactures and allows them to focus on their key tasks: marketing and selling medical devices to hospitals.

23 According to Service Corp’s company records (2015), “Consignment ranges between 55-90% in target segments and the use of consignment is a growing trend in Asia”, which is to say that, depending on the segment, every customer or every other customer uses consignment inventory.

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4.4.6.2 Evolution of service

Prior to 2014, Service Corp had already managed consignment inventory for clients across different countries. Yet, this had been done on a country-by-country and ad-hoc basis, since there was no actual service Consignment Inventory Management (CIM) up to that point. Hence, each country unit had been operating on different pricing logics and different operational approaches. Obviously, this had led to operational inefficiency and lost business opportunities – especially, when Service Corp had been dealing with clients across countries and was not able to provide a consistent, reliable service.

To give remedy to this issue, Service Corp undertook an orchestrated effort to set up CIM as a new, unified service offering for clients. Therefore, experts with different backgrounds (business development, operations) from both the regional- and country-level were brought together in Kuala Lumpur for a three-day workshop. Inter alia, this workshop covered the following key aspects:

• Assessment of process: A joint assessment of the consignment inventory process. That is, identifying client needs, critical steps in the CIM process, how to best fulfill client needs and how to set up a reliable process to do so.

• Definition of service: Translation of this process into a comprehensive CIM service offering. To that end, the key activities of the to-be-service and their sub-steps had to be defined. As Informant 9 put it: “We don’t provide a process but a service”.

• Definition of value proposition: Identification of relevant external stakeholders and definition of a compelling value proposition for these stakeholders (e.g., less stock losses, write-offs and expired items as specific selling messages to finance departments).

• Identification of prospective clients: Identification of potential targets and business opportunities. Relevant potential clients were identified and a first estimate of the service’s sales potential was developed.

• Development of selling tools. To ease selling the new service to potential clients, a toolkit was developed which included, inter alia, an outline of the process for clients, a sales deck, pricing templates and contract templates. Moreover, a four-step selling process (e.g. “identifying the target’s specific needs”, “acquire the client”) has been developed, which covers key activates

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and provides supporting material – and, thus, eases an orchestrated launch of the service.24

While much time and effort was devoted to transferring existing knowledge for setting up CIM, another critical aspect had to be master in order to successfully launch this new service: Adjusting the service to local market structures. This challenge will be discussed based on the example of setting up the CIM service in Malaysia.

Taiwan was the first country in which the newly developed CIM service had been set up successfully. Based on this success story, the service was poised to also be rolled out in Malaysia; and the Taiwanese approach was supposed to function as the blueprint for the rollout in Malaysia. Yet, the roll-out in Malaysia turned out to be more troublesome than expected. Shortly after the service was introduced, critical differences between the Malaysian market and the Taiwanese market had surfaced. This threatened the successful launch of CIM in Malaysia, and adjustments to the service and its underlying process were inevitable. As Informant 16, a Service Corp Healthcare Manager from Malaysia, put it:

The roll-out was designed in a way that we pick up whatever Taiwan was doing – and do it in a way that it was done in Taiwan. That’s because we were operating on a very tight schedule of only 3 months overall – from zero to launch. Thus, we did not have enough time to look at gaps and how to fill these gaps. In the end, we had to make changes to the service after the actual roll-out. The adjustments we made costed us further development man-days. Though we tried explaining to clients and customers that we should change the consignment model, resistance was unavoidable from both parties […].

CIM had been set up successfully for a client in Taiwan; Service Corp Malaysia aimed to replicate this model and implement CIM for the same client in Malaysia. While the overall processes and mechanisms were similar, the way how customers approached the ownership of consignment inventory was different in the two countries – ultimately, this led to problems.

Hospitals in Taiwan had been used to run on a consignment-only model for certain types of high-value medical devices. The market in Malaysia, on the other hand, operated on a mixed model. Malaysian customers had been used to purchasing inventory for surgical use, while, in addition to that, also having consignment inventory in their premises.

24 Due to nondisclosure, the selling process cannot be described in more detail.

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These two models were clearly different and required distinct underlying processes with regards to inventory management (affecting, e.g., stock counting, replenishment, invoicing, etc.). Informant 16 on that matter:

“This key difference was not captured accurately during the initial project scoping and had caused some delays in producing a better solution within the CIM platform. Although CIM is a powerful enough tool to manage both models, certain tweaks and adjustments had to be made to the Taiwan version. This effectively caused the delay in full implementation and resolving any operational challenges we had at that time.”

Interestingly, insights regarding the different market structures – and in particular, regarding how customers had perceived consignment inventory ownership – had been collected during an earlier project stage; yet, these insights had not been shared properly:

“To be fair with the team responsible for the interviews with initial clients and customers, insights with regards to differences in the market structures have been collected, but this information was not shared across all the countries that set out to implement the service.” (Informant 16)

Making these insights accessible early on and looking into them – in particular, having people with expertise in the challenges of handling medical devices involved in this process – could have saved valuable time and effort when rolling out this new service offering. Informant 9, who is responsible for business development across several countries in Asia, acknowledged the huge potential of this service; yet, when he was asked for why the expansion was not going as smoothly as expected, he pointed to “operational problems between countries” – referring to the issues mentioned above. Informant 7, responsible for business intelligence, criticised that the rollout might have been approached too hastily: “We did not spend enough time with the preparation of the service”.

4.4.6.3 Key learnings

Similar to the CTL example above (see Chapter 4.4.5), different consignment inventory solutions had been provided across different countries. Bringing together a set of interdisciplinary experts (operations, business development, etc.) from across Asia and having them develop a new service offering through a joint, multi-day workshop, enabled the development of a unified, new CIM service offering.

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Arguably, setting up CIM followed an even more structured approach than the other new services that have been discussed above. This certainly eased the development of the service and accounted for the complexity involved in managing consignment inventory. In a joint effort, clients’ and customers’ needs were identified, the underlying processes were assessed, the actual service offering was defined, stakeholder-specific value propositions were developed, prospective clients were identified and a step-by-step selling process was established. Based on this, successfully signing the first client was quickly achieved.

While a best practice example in many ways, the CIM example also functions as a cautionary tale regarding the importance of adjusting new services to local market structures. The lack of sharing relevant market insights from Malaysia, albeit they had been gathered, had obstructed the rollout in Malaysia. As the rollout in Taiwan was done fast and successfully, other countries were supposed to mirror this rollout under “a very tight schedule” (Informant 16). Along the way, prior collected market insights were not sufficiently taken into account.

Considering and adjusting for local market structures and peculiarities is indispensable when developing new services. This is largely due to the inseparability of consumption and production in services. More specifically (as was discussed in Chapter 2.1.4 above), services are dynamic co-creation processes that entail both the producer and the customer (Ritala et al., 2003). The more complex the service is, the higher is the need for co-creation (Jaakkola & Halinen, 2006). Arguably, CIM is a rather complex process, and, hence, the need for co-creation is high. What does this mean for the present case? The service (CIM) has to be provided in close proximity to the client, the customer and their operations. Only if the service meets their specific requirements, it will provide value to them. Hence, knowing what the clients and customers need – and acting upon this knowledge – is indispensable.

To sum it up, developing a sound (pilot) service concept upfront is a first and important step to successfully executing and launching new services; yet, this alone does not suffice. For the launch of a complex service to be successful across countries, knowledge of and adjustment to local market requirements is imperative.

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4.4.7 E-commerce

4.4.7.1 Description and context of service

Since 2014, Service Corp has been providing e-commerce solutions for its clients, which (as of end 2015) have mainly included virtual market places. Hence, Service Corp augmented its traditional, “brick and mortar ecosystem of pharmacies, drugstores, supermarkets, etc.” (Informant 3). With these virtual market places – which have either been set up by Service Corp itself or in cooperation with incumbent online retailers – Service Corp helps clients to “grow their business through the online channel” (Informant 5).

Before 2014, Service Corp had not been operating any type of e-commerce business. Put differently: neither clients, nor customers could engage with Service Corp through the online-channel. But given the radical changes in Service Corp’s business environment resulting from the growing e-commerce penetration in Asia, developing its own e-commerce capabilities had been inevitable for Service Corp.

The discussion of how Service Corp has set up its own e-commerce service offering will start with some background information on the general development, importance and impact of e-commerce in Asia. This will provide the necessary contextual information for better understanding why and how Service Corp’s e-commerce offering was built.

The Asian middle class is on the rise. According to Marrio Pezzini, Director OECD Development Centre (Pezzini, 2012), the global middle class, which amounted to 1.8 billion people in 2009, will swell up to 4.9 billion people in 2020. In the course of this, the Asian middle class will expand over-proportionally. While it accounted for about 1/3 of the global middle class in 2009, its share will rise to about 2/3. The growth of its middle class, with its subsequent surge of disposable income, has been a key driver of the expansion of e-commerce all over Asia.

China, for example, is currently home to the world’s largest e-commerce market. According to McKinsey (McKinsey & Company, 2015), annual e-commerce sales in China had overtaken those in the US already in 2013 and will surpass those of the US and the EU combined in 2018 – then amounting to about USD 610 bn. China’s e-commerce market has been setting record after record, and was, thus, flooded with media attention. 25 But other markets in the region are on the rise, too.

25 For example, Alibaba reported a staggering USD 14.3 bn. in sales on a single day (Techinasia, 2015a) and its trade volume surpasses that of Amazon and ebay taken together (Forbes, 2014b).

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The importance of digital commerce has also been growing rapidly in Southeast Asia (SEA). According to a joint study done by Bain and Google (Bain & Company, 2016), e-commerce in SEA is on the verge of a boom. Compared to the US and China, SEA’s overall e-commerce penetration is still low (3% online retail penetration in SEA compared to 14% in both the US and China). Yet, there a plenty of indicators pointing towards a flourishing e-commerce market in the region: Out of SEA’s 400 million population aged 16 or older, 150 million have already researched products online and 100 million have already purchased products digitally (see Figure 9).

Figure 9: E-commerce penetration in SEA

Figure 9: E-commerce penetration in SEA

Source: Bain & Company (2016)

Also Service Corp had realized that e-commerce offers huge business potential, and that the aforementioned developments require action. Hence, Informant 14 noted: “There [relating to e-commerce] is definitely a growth opportunity where a lot of other channels have stagnated. E-commerce is starting to become a growth generator.”

To sum it up, the shopping behavior across Asia has undergone drastic changes in recent years and all indicators point towards a continuation of this trend. Hence, e-commerce players like Alibaba have already become a dominant force in the region – and they have started to reshape markets. This is briefly illustrated by the following two examples:

1. In late 2015, the world’s biggest food retailing company, Nestle, struck a strategic partnership with Alibaba to further push its online sales in China. Already the

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year before, Nestle had generated 50% its total sales online (The Economic Times, 2016).

2. In Japan, drug manufactures will soon be allowed to have their logistics provider ship prescription drugs directly to patients, who have ordered medication online (The Korea Economic Daily, 2016). According to Informant 3, Rakuten, the e-commerce powerhouse from Japan, has “successfully lobbied the government in Japan to provide prescription medicine to patients through an e-commerce platform”.

Besides depicting the overall changes in Asian markets due to the growing importance of e-commerce, these two examples highlight a particular – and growing –threat to Service Corp’s business model: Disintermediation.

Disintermediation refers to the elimination of members from a given supply chain (Menor, Tatikonda, & Sampson, 2002). Thanks to the online channel, manufacturers and (online-) retailers could potentially contract directly and, thus, eliminate any intermediary (e.g., distributors like Service Corp) from the supply chain. Traditionally, with having been placed between clients (i.e. manufactures) and customers (i.e. hospitals, pharmacies, etc.), the threat of being cut out through direct contracting between client and customer had been a constant one to reckon with at Service Corp. Yet, the size and magnitude of its logistics and distribution network (as discussed earlier) have shielded Service Corp from this threat for a long time – especially in the field of healthcare, where clients and customers had depended on quick and reliable services that keep up with the ever growing complexity driven by regulatory demands.

To be able to compete with Service Corp’s distribution network, potential competitors would have needed to invest heavily in warehousing, infrastructure, reliable distribution networks, etc. At the same time, logistics, if not done on a huge scale, feature only small economic returns. Therefore, pure online retailers, which had been used to operate on inexpensive supply chain models like drop shipping,26 had long been hesitant to target this function. This was also stressed by Informant 14, who suggested the following about the role of a large distribution network:

“That is the largest barrier to entry. You can have a new competitor that is small and young and wants to fight, but they still need capital [to build

26 Under a drop shipping model “a retailer simply forwards customers’ orders to the manufacturer who fills the orders directly to customers [or, in turn, contracts a third party fulfillment provider] and is paid a predetermined price by the retailer. Advantages of drop shipping include lower costs of holding inventory, materials handling, and obsolescence.” (Khouja 2001, p.109).

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such a distribution network]. That is going to be a barrier. Being a distributor is not sexy.”

While Service Corp had been fairly well protected by this barrier to entry for quite a while, the danger of big online players expanding their logistics and distribution capabilities in the future is real and imminent.

For example, since 2015, Alibaba holds a 14.51% stake in SingPost, Singapore’s national postal service (Techinasia, 2015b). After its initial USD 250 mio. investment the year before, Alibaba had put another USD 138 mio. in SingPost in 2015 (Techinasia, 2015b; Techinasia, 2014a). To make up for the losses from the soaring mail business, SingPost had successfully transformed itself from a traditional postal company into modern e-commerce player in its own right (Techinasia, 2014b). But there was one thing that had really set SingPost apart from most of its online competitors: Its sophisticated distribution and logistics network. Through investments like these, the likes of Alibaba strengthen their logistics capabilities – and, thus, the danger of disintermediation for intermediaries like Service Corp is growing.

While, back in 2014, it was not clear for Service Corp how these drastic changes – with both their promising opportunities and considerable threats – would manifest themselves in the long run, one thing was certain: Doing nothing was not an option anymore, as Informant 3 put forward:

“There’s change in the air. What exactly it is going to be, nobody necessarily knows, but everybody kind of realizes that they have to have a strategy, a plan, a foot in the water, something.”

Further, also Informant 5 repeatedly stressed the importance of engaging in e-commerce, for otherwise “we [Service Corp] will lose our relevance with clients. […] in China, about 30% of any client’s business comes from online. If we don’t have any capabilities there [e-commerce], we will be in trouble”. Beyond that, he added on the consequences of not getting into e-commerce:

“Potentially, we will lose business, we will lose our relevance and we lose the opportunities. I mean, more than anything else, I think we [would] lose the opportunity to position ourselves as a true […] omnichannel service provider.”

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4.4.7.2 Evolution of service

In 2014, Service Corp had realized that the emerging relevance of the e-commerce market, its own absence from this market, and the growing capabilities of e-commerce firms to potentially cut Service Corp out from between manufactures and retailers had become a growing threat – one that called for action.

As was discussed above and shown by the evolvement of the new services discussed previously, new service development at Service Corp had mostly been driven by client- and/or customer-requests. In the case of e-commerce, however, things were different: Service Corp’s top management team felt that building up e-commerce capabilities was a strategic priority for the company – hence, they put this matter forth on the corporate agenda. Service Corp’s digital offering was developed in a coordinated top down effort – in contrast to the other new services discussed earlier, which had been driven, at least in their nascent stages, by specific client requests or the individual activities of a country unit. As a consequence, the service development process for e-commerce was more conceptual in nature than for other services, for which relevant capabilities and/or basic processes had already existed.

On the outset, Service Corp was lacking experience, expertise and capabilities in the field of e-commerce. Informant 14 mentioned that, initially, Service Corp “had a hard time understanding what we need to do for the client” when it comes to e-commerce. Further, he added, “the other challenge that we had, internally, was to have the necessary resources and knowhow”. In acknowledging the lack of experience and expertise, Informant 5 commented: “[…] in terms of how we worked with offline retailers, it’s very different when it comes to online”. To solve these issues, Service Corp did three things: (i) Knowledgeable experts were hired, (ii) a structured service concept was developed and (iii) internal incentive systems were adjusted. All three aspects will be discussed below.

(i) On hiring knowledgeable experts

A crucial step in setting up Service Corp’s e-commerce offering was to hire knowledgeable people with e-commerce expertise. Informant 5 recalled:

“We were hiring people from those kind of companies [e-commerce players]. People from Lazada, people who have run an e-commerce business before; we have hired them for the business. Even myself, I used to come from Alibaba.”

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After having successfully hired experienced personnel, Service Corp set up a dedicated, Asia-wide team of digital experts, which was supposed to guide and support local teams in their efforts to develop e-commerce business in their respective markets. On the outset, this expert team, also referred to as “Center of Excellence Digital Business” (COE), was made up of two e-commerce experts; their responsibilities included:

1. Train and coach: Develop training programs to enable teams to build digital capabilities.

2. Support and consult: Support countries in assessing and realizing digital opportunities.

3. Manage partnerships: Identify, negotiate and manage strategic partnership with key players in the digital space.

4. Drive projects: Provide guidance to drive local projects.

Moreover, “digital champions” were nominated in each country to ease the exchange of information between countries and between countries and the regional HQ. Within each country, the local “digital champion” was the focal point for any e-commerce related questions.

(ii) On developing a structured service concept

The second thing Service Corp did to build its e-commerce offering, was to develop a roadmap for how to set up its future digital service offerings. This helped Service Corp to get to a better understanding for how value could be added to clients and customers in the realm of e-commerce. The roadmap was developed over a course of several workshops that brought together e-commerce specialist – who had been hired before –with other relevant stakeholders from within Service Corp. The head of strategy at Service Corp “was very, very involved in this” as well, Informant 3 explained.

The roadmap identified four key levers – also referred to internally as “the 4 pillars” – for how to provide value-added services to clients and customers in an e-commerce environment:

1. Online channel management: The goal of this pillar was to identify and attract relevant e-retailers as new customers and, thus, help clients to expand their reach and enhance sales.

2. Digital full-services: The next step would then be to develop an end-to-end digital value chain for clients, covering all front- and back-end activities – including, inter alia, web shop development, data management, digital marketing, e-fulfillment, customer service. Hence, combing Service Corp’s core strength – its distribution and logistics network – with newly build online capabilities.

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3. Digital platforms: The third pillar was about building a dedicated B2B online platform that connects clients and customers and allows for online order- and sales management.

4. Digital value added services: The fourth and last pillar encompassed auxiliary services, which could be built around the aforementioned e-commerce offerings – for example, data mining and analytics services.

This orchestrated approach helped with setting up the service concept and provided a sound foundation for the rollout of the e-commerce service offering, as Informant 3 confirmed. Yet, there was another hurdle that had to be kept in mind: Dealing with limited resources.

(iii) On adjusting incentive systems

Commonly, organizations have to operate in a world with limited resources. Introducing and pushing a new business offering, like building up e-commerce capabilities, requires a considerable amount of resources. Primarily, this means employees and funding. While Service Corp hired some experts, as discussed above, their number was rather limited, for they were supposed to act as enablers and multipliers. It was mostly pre-existing personnel that was supposed to build Service Corp’s e-commerce offering. This, in turn, asked for reallocating personnel from other priorities.

More specifically, in any given country, Service Corp had only so many resources (people, funding) available. Given their incentive structure and targets, country managers may have been more inclined to focus their personnel on driving sales, business development and customer retention/ penetration for existing services to grow their bottom line. Setting up new service offerings – in particular, building an e-commerce offering from scratch – may have been a considerable investment of time, money and personnel with an uncertain outcome and a limited revenue prospect for the near future. “Alignment of priorities with local decision makers” was a challenge, as Informant 5 mentioned. He went on: “[For] a lot of the people on country level, their focus is solely on revenue”.

Thanks to the top-management-support the digital initiative had, this challenge could be faced by a simple mechanism, as Informant 5 explained: Digital KPIs (for example the number of digital projects running) were established for country managers to make them drive the digital enhancement of Service Corp in their respective country.

The combination of these three steps (hiring experts, developing a structured service concept, adjusting the incentive structure of country management) was seen as a “gold standard” approach by Informant 3. Nonetheless, all of that was conceptual in nature.

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Actually undertaking all of these steps – and dealing with their growing complexity – was still a far cry in 2014.

China – the pilot country

Due to the maturity of its e-commerce landscape, China was an obvious choice for Service Corp to start its digital offering. Despite all the planning, every beginning is hard – as Service Corp had to learn soon. Informant 3, who was in charge of developing the new e-commerce service offering in China, recalled that getting started was everything but easy:

“[…] my job was very difficult. I was trying to convince clients, but it was kind of a vicious circle situation that I found myself in. You cannot increase the coverage until you get the clients, but you cannot get the clients until you increase the coverage”.

Since the approach of trying to sell clients directly did not yield any success at that time, Informant 3 and his team shifted their attention towards the already existing eco-system of e-retailers in China (as discussed in the “4 pillars” above):

“I was thinking, since there is this high e-commerce penetration in China, we could set us apart by engaging with existing e-retailers. So that’s kind of where we got going.”

According to Informant 3, Service Corp was able to engage in these cooperations, because, thanks to its vast logistics and distribution network, it could help e-retailers to drastically reduce their own distribution costs.

“CH Healthy Family” was one of the first cooperations of this kind. With this platform, Service Corp provided a single website where all its brand and product information for its consumer healthcare products in China were combined. The site provided a direct link to T-Mal, one of Alibaba’s e-commerce platforms. To create awareness for this platform, digital campaigns and promotional activities on social media platform – such as Weibo – were used. Invoices could be paid safely and efficiently through access to Alipay, which provided an even more convenient experience to buyers. Thanks to this single, integrated platform, Service Corp was able to increase sales and provide greater brand exposure for its clients – thus, successfully unlocking new business opportunities through the online channel.

Further, in parallel to cooperating with e-retailers and online market places, “we started trying to sell the concept e-commerce right to the clients” (Informant 3) – but now with

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a stronger and more compelling pitch to clients, thanks to a growing e-commerce track-record gained from cooperations like “CH Healthy Family”.

When Service Corp set out to build its digital offering in 2014, its dedicated e-commerce team consisted of three people. Towards the end of 2015, the digital team grew to ten people and about fifty e-commerce projects across Asia. Informant 5 put it this way:

“I think the progress we have made is really quite commendable. Because if we look at where we are now versus ten months ago when we were three people. Now we have expanded the team to about ten people dedicated for e-commerce. So, in a span of ten months, we have expanded the team like three times.”

This growth trajectory illustrates that Service Corp has been able to tap into unfulfilled client and customer needs. While first wins have been achieved, there is still a long road ahead. In particular, patience and growth are needed, as Informant 14 stressed:

“When you look at the big players, take for example Rocket Internet, they are not making money, but their strategy is simple. If they blanket the market so that there is nobody else that can enter it, then they turn it positive afterwards.”

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4.4.7.3 Key learnings

The development of Service Corp’s e-commerce service offering is an insightful and, compared to the other services discussed above, unique affair. While the other services, at least to some extent, have been developed in response to specific client requests and involved the re-arrangement or supplementation of pre-existing capabilities, Service Corp’s e-commerce service offering was driven by a top-down management decision and required developing utterly new capabilities. It is worth noting that the development process can only be judged up to this point. But having been able to grow the dedicated e-commerce team from 3 to 10 people within one year and accommodating about 50 e-commerce projects indicates a positive growth trajectory. This chapter will discuss the key elements that have contributed to this accelerated growth.

Firstly, the lack of capabilities and expertise was overcome by hiring e-commerce experts. Bringing in knowledgeable personnel – which could then drive the development of e-commerce as well as coach and support other teams within Service Corp – surely contributed the fast-paced development. Setting up the so-called “Center of Excellence Digital Business” (COE) provided an institutionalized approach to knowledge sharing. Put bluntly, employees knew whom to contact whenever they had e-commerce related questions. This also served another purpose: Thanks to the COE, Service Corp could collect information regarding the progress of e-commerce related activities across the region. Further, on the country level, “digital champions” served as (i) key contacts for e-commerce related issues and (ii) links to the regional COE. In short, a cascading information chain had been set up to help e-commerce knowledge spread across the organization as smoothly as possible.

Second, involving key personnel (e.g., the head of strategy) in defining the e-commerce strategy and roadmap (the so-called “4 pillars”) helped to develop an actionable e-commerce strategy which had the necessary backing from within the organization. As was discussed above, balancing short-term, revenue-oriented goals with the need for long-term investments was a potential challenge for the development of e-commerce services. Developing accountability through implementing mandatory e-commerce KPIs for country heads was a needed step – one, however, that could only be taken thanks to top-management support.

Thirdly, for the first rollout, Service Corp focused on one pilot-country and closely cooperated with other incumbent players in the existing e-commerce eco-system. This lean approach allowed Service Corp to achieve quick wins. Further, this approach also provided a valuable testimonial for subsequent business development. When the initial

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attempts to directly sell e-commerce offerings to clients failed, Service Corp changed its approach: Rather than trying to provide a standalone solution to clients, Service Corp pursued cooperations with established e-commerce players, asking itself, how – and what – it could contribute to the already existing eco-system. This enabled Service Corp to successfully enter the e-commerce market and gain both experience and credibility.

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4.4.8 Summary and discussion

This explorative case study investigated new service development at Service Corp, a company that operates in a complex, cross-country B2B environment: Service Corp is the intermediary between hundreds of clients and thousands of customers across a dozen countries. In addition to that, it is the very nature of services that further increases complexity – in particular, their intangibly, heterogeneity, inseparability and perishability. Innovating in an environment like this brings tremendous challenges. The purpose of this study was to explore these challenges and identify measures for how to successfully address them. In order to achieve this goal, this chapter will first outline the most pressing issues of NSD that have been identified; following that, a model to structure these issues will be introduced.

4.4.8.1 Key issues of NSD

NSD at Service Corp was discussed from both a general perspective (Chapter 4.3 above) and a project-specific perspective (Chapter 4.4 above). Based on this approach, five main hurdles of successful NSD at Service have been identified. While some of these hurdles impaired all of the above discussed projects, others were particularly pressing in individual cases:

1. Lack of viability assessment: Failing to adequately assess the demand for a new service beyond one or a few initial clients/customers might lead to stalling. Such was the case, for example, with Telemarketing which could not be expanded to important, big markets like Thailand due to local regulations.

2. Lack of knowledge sharing: Failing to share relevant knowledge across the organization may obstruct new service development. For example, when CTL was developed in Vietnam, relevant knowledge about comparable services from other countries (e.g. Service Corp in Taiwan) was not readily accessible. It was only due to the personal effort put in by employees from Vietnam that this knowledge could be made accessible – which considerably accelerated the NSD process.

3. Lack of standardization: Overall, the case study brought to light that harmonizing new service offerings across countries was a tremendous challenge for Service Corp. For example, in the cases of CTL or CIM, some rudimentary or partial versions of these services had been offered to clients/customers in some countries, this was done on an ad-hoc basis. Hence, in both cases, considerable time had to be spent on developing standards – e.g., regarding the new services’

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value propositions, sales materials, etc. Judging by the NSD projects that have been analyzed as part of this case study, establishing standards has considerably boosted to the development and rollout of new services.

4. Lack of adjustment to local market needs: While it is necessary to achieve a certain level of standardization for a NSD project to succeed, failing to adjust for local market needs – be it specific client/customer requests, regulation, etc. – will severely impair the prospect of a new service. For example, in the case of CIM, Service Corp failed to adjust their new CIM service to local market characteristics in Malaysia – which delayed the development process.

5. Lack of capabilities: Lastly, not being able to develop a new service may also be the result of not having the necessary capabilities at one’s disposal. For example, this could be a lack of relevant expertise or technology. This was a challenge Service Corp had to face when building its e-commerce service offering. With not having any prior experience in this field, investments in skilled personnel were needed to fill this void.

Table 11 below illustrates which of the above discussed issues played a critical role in the NSD projects analyzed in this dissertation.

Table 11: Relevant issues per NSD project

Table 11: Relevant issues per NSD project

Relevance per NSD projects

Issues Regulatory Tele-

marketing Market Entry CTL CIM

E-commerce

Lack of viability assessment

Lack of knowledge sharing

Lack of standardization

Lack of client/ customer integration

Lack of adjustment to local market needs

Lack of capabilities

Source: Own illustration

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4.4.8.2 The three levels of successful NSD

Discussing NSD from both a general and project-specific perspective not only provided a rich set of data regarding challenges and enablers of NSD; it also helped to identify a structured way to discuss these challenges. Due to Service Corp’s complex business environment, the success of a given NSD project was affected by three levels (as shown in Figure 10 below):

a) Service specific issues: The first dimension encompasses issues that are inherent to the service which is to be developed. The case study has shown that the timely assessment of a service’s viability is imperative for its successful development and launch. Further, the development of a new service is considerably eased by providing a compelling, graspable value proposition to clients/customers. Moreover, a structured, orchestrated approach to business development eases the launch of a new service. Increasing a service’s tangibility – for example with the help of sales decks and other physical material that can be shared with prospective clients/customers – further enhances a new service’s prospect.

b) Engagement specific issues: The second dimension refers to issues that are inherent to the provision of a given new service to clients/customers. The case study has shown that the creation – and subsequent implementation – of client/customer insights is critical for the success of new services. While a certain degree of standardization – as discussed above in the form of a specifically defined value proposition, underlying processes or unified sales material – is inevitable for the scaling of a new service, it is imperative to adjust new services to local market needs and client/customer demands. Even more so, when a new service is deeply intertwined with the client’s/customer’s value chain. Theoretically speaking, it is the inseparability of production and consumption of a service that requires these adjustments.

c) Provider specific issues: The third and final dimension encompasses issues that

are specific to the service provider itself – in this case, Service Corp. More specifically, this dimension involves the processes and capabilities of the service provider. The case study has shown that the prospect of a new service development project heavily depends on the availability of necessary capabilities. The case study further illustrated that needed capabilities, if not readily available, do not necessarily have to be built in a costly manner (for example, trough hiring); it might be sufficient to re-arranging existing capabilities in a meaningful

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way. Moreover, on the process side, one aspect was of particular, repeated importance: Knowledge sharing. Service Corp had no processes or other formalized mechanisms in place to share best practices or knowledge related to previous – or failed – NSD projects. Yet, whenever knowledge sharing was done, e.g., driven by individual efforts, the development of a new service was considerably eased.

The empirical study has also shown that these three levels tend to affect one another. More specifically, managing one level properly will not only help to keep challenges from within this level at bay; rather, other levels will be positively affected, too. For example, having established a structured and transparent process for knowledge sharing within the provider’s organization will result in a positive spill-over effect on both the service-specific level (e.g., by making best practices and learnings from previous NSD projects readily available) and engagement-specific level (e.g., through the increased accessibility of local market insights).

Overall, these findings suggest that new service development is a complex endeavor; and doing it successfully requires managing activities across different levels.

Figure 10: Three levels of successful NSD management

Figure 10: Three levels of successful NSD management

Source: Own illustration

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5 General discussion The goal of this dissertation was to provide a better understanding for how services can be successfully developed. Based on this purpose, the following research questions were defined:

Research question 1:

Which are recurring hurdles along the new service development process that aggravated the successful development of new services?

Research question 2:

Which key activities along the new service development process increase the odds of successful new service development?

To answer these questions, the dissertation critically reflected on the theoretical underpinnings of service research in general and new service development in particular. Further, a rich and insightful set of empirical data on new service development was gathered through an explorative single-case study with a leading Swiss service company. This chapter will recapitulate, discuss and condense both the theoretical and empirical findings of this dissertation. To that end, the chapter will be structured as follows: The first section will provide an overview of the dissertation’s key findings. The subsequent sections will present both the managerial and theoretical contributions that can be derived from these findings. The final section will elaborate on the limitations and potential avenues of future research that arise from this dissertation.

5.1 Summary of results

This section will summarize both the theoretical and empirical findings of the dissertation and present the (condensed) key results for each chapter. First, the theoretical findings will be recapitulated.

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5.1.1 Conceptual part of the dissertation

In order to answer the above described research question, the dissertation started by approaching new service development from a theoretical perspective. Yet, before discussing the existing scholarship on new service development, it was deemed necessary to develop an adequate understanding of service research in general. Hence, the dissertation examined the evolvement of service research in economics and business scholarship, dating back as far as Adam Smith’s “Wealth of Nations” ([1776] 1904) (Chapter 2.1.1). This yielded a fundamental insight: Traditionally, research had been operating under a goods-dominant logic and was, thus, more concerned with products than services. It was only in the 1990’s that service research had been finally established as mature field of research (Chapter 2.1.2 & Chapter 2.1.3).

After having established that service- and product-scholarship constitute two distinct fields of research, it was argued that it is for the so-called IHIP characteristics (intangibility, heterogeneity, inseparability and perishability) that services need to be treated differently from products (Chapter 2.1.4).

Building on this fundamental understanding of services, the theoretical focus narrowed towards new service development. As such, the dissertation went on to provide conceptual background on new services, defining them as “an offering not previously available to customers that results from the addition of offerings, radical changes in the service delivery process, or incremental improvements to existing service packages or delivery processes that customers perceive as being new” (Johnson, Menor, Roth, & Chase, 2000, p. 2).

The following chapter of the dissertation (Chapter 2.2.2) investigated the relationship between new product development (NPD) and new services development (NSD). The literature identifies two broad schools of thought on the relationship of NSD and NPD: The assimilation perspective, which argues that NSD and NPD can be treated equally, and the demarcation perspective, which argues that NSD and NPD need to be treated differently. Relating back to services’ inherent IHIP characteristics, it was argued that services need to be treated differently from products, which, in turn, led to the conclusion that NSD and NPD demand distinct approaches, too. Hence, this dissertation followed the demarcation perspective.

Building upon these findings, the dissertation discussed the evolvement of NSD research. A previously found pattern emerged once again: Also in the realm of innovation scholarship, research is strongly biased towards products, neglecting new service development to a large degree. While a growing interest in NSD was identified,

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reflected in the growing number of NSD-related publications over the last decades, it has also been found that this growth had not resulted in a generally accepted and cohesive body of knowledge on NSD. Thus, as Chapter 2.2.3 concluded, NSD research has failed to provide actionable advice to managerial decision makers, and key question regarding the successful management of NSD remained mostly unacknowledged.

This dissertation set out to fill this void, but before doing so, the status quo on NSD-knowledge had to be determined. The subsequent section of the study (Chapter 2.2.4) found that a proficient new service development process has been named as a – or even the – key determinate of successful service innovation by various studies. Yet, paradoxically, the existing body of NSD research has barley addressed what constitutes a successful new service development process. In fact, as Menor, Tatikonda & Sampson (2002, p. 136) pointed out, “[u]ntil recently, the generally accepted principle behind NSD was that new services happen rather than occurring through formal development processes”. In addition, and to make matters worse, it was further found that – while the overall number of NDS-related publications has been growing – scholarship on the NSD process has actually been in decline.

To get a better understanding for why the existing body of knowledge on the NSD process has been repeatedly considered inadequate to provide actionable guidance to decision makers, the subsequent section of the dissertation (Chapter 2.2.5) reviewed the related literature. The analysis revealed that while we have managed to improve our understanding of what the NSD process and its stages should look like, there is still too little understanding for the necessary activities that contribute to successful NSD. Further, it has been found that many of the established NSD process models were conceptual in nature and did not account for the specific characteristics and/or contexts under which different new services were developed.

To sum it up, the conceptual part of the dissertation concluded that the previous literature on NSD has not been able to form a cohesive body of knowledge on NSD that would be adequate to inform managerial decision making on NSD execution. Two major shortcomings have contributed to this deficit: First, the limited scale of NSD process research attuned to specific services, their contexts and characteristics; second, the lack of insights into key activities of successful NSD execution. Therefore, the existing NSD scholarship has left decision makers who want to improve their firm’s NSD capabilities with little actionable advice (Biemans, Griffin, Moenart, 2015).

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5.1.2 Empirical part of the dissertation

To provide remedy and fill this gap in NSD knowledge, this dissertation investigated new service development based on an exploratory single-case study design. On the outset of the empirical part, the case company, Service Corp, was introduced (Chapter 4.1.). It was found that Service Corp, with being the intermediary between 380 clients (that is, manufacturers of medical devices and pharmaceutical companies) and their 150.000 customers (that is, hospitals, retailers, etc.) across various countries in Asia (Chapter 4.2), operates in a complex and dynamic business environment. Further, a first key insight from the interviews was the absence of a formal NSD process at Service Corp; although the importance of being innovative, in order to battle the margin eroding process in Service Corp’s key distribution and logistics business, was repeatedly stated.

Chapter 4.3 revealed that, due to the lack of a formal NSD process, innovation mostly happened on a country-by-country and ad-hoc basis. Inevitably, as was shown, this lead to considerable inefficiencies in NSD. Specifically, key informants reported competitors were more innovative than Service Corp and that the development of new services was oftentimes plagued by a lack of knowledge sharing across countries. Successfully developing and launching a new service in several countries was identified as a key challenge for Service Corp.

Building on these first insights, the following section (Chapter 4.4) formed the empirical core of the study. It discussed six new service development projects, their backgrounds and evolvements in detail. Hence, a rich set of data on factors that either hinder or ease new service development was generated. Combining the insights from these NSD projects, five overarching hurdles were identified – each, in turn, encompassing a variety of individual issues. These hurdles considerably (yet to a varying degree) affected the development of the analyzed new services:

• Lack of viability assessment (e.g., was the economic outlook of the new service diligently assessed?)

• Lack of knowledge sharing (e.g., does relevant prior knowledge regarding the development of a new service exist within the organization and is it accessible?)

• Lack of standardization (e.g., is standardized material like a defined value proposition or sales material available to ease development?)

• Lack of adjustment to local market needs (e.g., have local market structures and requirements been adequately considered in the NSD process?)

• Lack of capabilities (e.g., are the necessary capabilities available to develop a new service in the first place?)

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By identifying these hurdles and, at the same time, establishing measures for how to successfully overcome them, this case study derived a plethora of concrete, actionable levers to increase the prospect of new service development projects. In doing so, the study also accounted for the role of services’ distinguishing IHIP factors: It was shown how the challenges resulting from a service’s intangibility, heterogeneity, inseparably and perishability can successfully be addressed.

Lastly, the study established that the aforementioned issues can have their roots in various dimensions: They may be the results of a specific service’s complexity, be driven by individual client requirements, stem from Service Corp’s internal process, etc. To structure these findings, Chapter 4.5 developed a conceptual model which identified three levels along which issues hindering the successful development of a new service can arise: (i) Service-specific level – i.e., issues that are inherent to the service. (ii) Engagement-specific level – i.e., issues resulting from engaging with a particular client/customer. (iii) Provider-specific level – i.e., issues that are inherent to the service provider’s organization, its capabilities and/or processes. Successfully executing NSD projects requires managing NSD across these three levels.

The findings from this exploratory case study provide specific, actionable advice to managerial decision makers who seek to increase the prospect of their new service development projects. Hence, the following chapter will discuss the practical contributions of this dissertation.

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5.2 Practical contributions

Repeatedly, scholars have pointed out that the existing body of knowledge on NSD is scattered and does not provide managerial decision makers with practical, actionable advice on how to successfully execute NSD projects. More specifically, too little was known about critical activities and pain points along the NSD process. This is where the dissertation at hand will contribute.

The case study, conducted with Service Corp, shed light on a variety of specific NSD problems, their root causes and how to provide remedy. By no means does this dissertation claim to have identified all the relevant issues, and their respective treatment, along the NSD process chain – this would lie beyond the focus and scope of a single dissertation. Nonetheless, this study has presented a range of NSD-related problems and solutions that provide valuable advice to NSD practice. Based on the findings this study has yielded, five broad success factors for NSD are proposed to decision makers:

1. Conduct a diligent viability assessment of a new service idea. This study has revealed that a timely and diligent assessment of a new service’s viability is key for its success. Hence, before actually developing a new service, its prospect needs to be assessed. The following key question needs to be answered: Is there a viable business case for this service, one that goes beyond a mere handful of clients so that the service can potentially be scaled?

2. Share best practices and past failures. Sharing knowledge – be it on how to do things right or how to not do them – increases the odds of successful new service development. The case study has shown that access to relevant knowledge – both in terms of best practice sharing and insights from past failures – enhances new service development. Ideally, this kind of knowledge sharing is done in a well-structured, easy accessible way. Oftentimes, as was illustrated by the example of Service Corp, relevant prior knowledge is not necessarily lacking, but rather scatter across the organization.

3. Integrate clients/customers in the NSD process. Clients/customers can play a key

role in new service development, by integrating them in the development process. Having clients/customers contribute to new service development by providing relevant input (for example, in terms of their expectations towards the service or specific insights regarding their own value chain) heavily contributes

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to a new service’s success. As was explained in the conceptual part of this dissertation, production and consumption of a service are inseparably linked. Hence, a new service, especially in complex industries like the one Service Corp is operating in, has to be compatible with a client’s/customer’s value chain. Identifying their needs early on and taking them into account when developing a new service for them considerably enhances the prospect of a new service.

4. Define and standardize your service offering. Services are not necessarily easy

to standardize. Due to their specific characteristics (intangibility, heterogeneity, inseparability and perishability) standardizing services is tremendously more complex than products – and, in fact, not even always desirable. Nonetheless, a certain degree of standardization eases development of a new service and enhances its outlook in the market place. This is particularly true when a service provider is operating in a demanding business environment and dealing with multiple clients across several countries. Clients/customers expect a reliable service experience – no matter where they are. The case study has shown that a structured approach defining a new service offering boots its success. This entails, inter alia, a well-defined value proposition, standardization regarding internal process of service development and delivery, a structured and standardized approach to business development, tangible service material which can be handed to clients, etc.

5. Adjust services to local market requirements. While a certain degree of service

standardization is desirable, it is also indispensable to adjust services to the requirements of the target markets. Failing to adjust a service to local market requirements can have severe consequences for a new service’s viability, ranging from delays in the development process right up to blunt failure. The need to adjust a service can be due to a variety of reasons. Common reasons are local regulation or specific market structures – as was shown in the case of Service Corp. For a new service to be successfully developed and launched, these requirements need to be identified and considered.

Beyond these actionable, tactical suggestions, this dissertation also provides an important strategic advice to managerial decision makers. For new service development to be successful, it has to be managed across three levels: The service-specific level (e.g., have we developed a compelling, tangible value proposition for prospective

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clients?), the engagement-specific level (e.g., do we have a clear understanding of the client’s requirements?) and the provider-specific level (e.g., do we have the necessary capabilities in our organization?). Without paying attention to all of these three levels, NSD success will be impaired.

5.3 Theoretical contributions

This study expands existing NSD scholarship in three meaningful ways. First, it contributes to a better understanding of the NSD process. Second, it demonstrates how services’ inherent characteristics (IHIP) affect new service development. Third, it provides first insights into how the context of a service affects NSD.

Contribution 1: Better understanding of NSD process

Despite the growing interest in NSD research, the existing scholarship on NSD has been highly fragmented. Hence, key question regarding the successful management of NSD remained mostly unacknowledged. In particular, barely any insights into what challenges and activates affect successful NSD have been provided (Menor, Tatikonda & Sampson, 2002). This dissertation addressed this void by empirically studying new service development based on a single-case study. According to the explorative nature of this case study, which aimed at identifying emergent themes, the key issues and success factors that have been found add to the existing body of knowledge on new service development. Thus, this dissertation helps to better or understanding of NSD and expands existing models by adding another layer – that is, key activities of successful NSD.

Contribution 2: The effects of services’ inherent IHIP characteristics on NSD

The existing service innovation literature provides hardly any guidance on the extent of the interdependency between NSD and services’ so-called IHIP characteristics. Most recently, Biemans, Griffin & Moenaert (2015, p. 13) stressed that “although it [NSD literature] emphasizes the familiar characteristics of services (intangible, heterogeneous, inseparable, perishable), it fails to describe their role in and impact on NSD”. This study enhanced the understanding of the relationship between IHIP and NSD. More specifically, it created links between individual characteristics and different key activities (or issues) along the new service development process. Further, potential measures to mitigate NSD complications resulting from IHIP have been identified.

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Contribution 3: The effects of services’ context on NSD

Lastly, this study followed the call of other researchers to examine the relationship between NSD and its context (see, e.g., Zomerdijk & Voss, 2011). Biemans, Griffin & Moenaert, 2015, p. 1) maintained: “There are many different types of services, but it is not clear how the service context impacts the new service development process”. Indeed, many authors noted that NSD studies rarely investigate the effect of a certain industry’s environment on NSD (Biemans, Griffin & Moenaert, 2015; Kuester et al., 2013; Storey & Hull, 2010). This explorative case study investigated new service development at Service Corp, a company that operates in a complex, cross-country B2B environment. It was shown that many of the NSD-related problems that have been encountered were tied to this complex business environment – and, thus, subject to the context of NSD.

5.4 Limitations and future research opportunities

Limitations are inherent to scientific studies – no matter if empirical or conceptual in nature. Hence, also the study at hand is afflicted with limitations. Discussing these limitations is inevitable for a critical appraisal of the own research. At the same time, limitations also offer opportunities for future research. Both limitations and future research opportunities will be discussed in this chapter.

Various measures were used throughout both the data collection and data analysis process to ensure validity and reliability of the findings (see Chapter 3.2 above). Nonetheless, the exploratory single-case design that was chosen for this study bears potential limitations. The generalizability of inductive case research – in particular, when based on a single-case design – can be questioned (Gioia, Price, Hamilton & Thomas, 2010). One of the key findings of this study was the insight that the context in which a new service is developed affects the development process itself. Hence, it could be argued that, for example, the proposed success factors were strongly determined by the very environment in which the case organization operates and can, thus, not be transferred to other settings. While this objection cannot be entirely shattered, it might be worth reframing it: Yes, the findings which this study yielded are strongly grounded in the business context of the case organization. But beyond that, they are also strongly grounded in theoretical findings on new service development and the distinct characteristics of services. Hence, adjustments might be necessary, but overall, the findings from this study can, as the author sees it, very well inform organizations in business environments different to the one investigated in this study.

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The use of retrospective data could be seen as a second limitation (Pan & Tan, 2011). More specifically, the data that was gathered could be biased in that informants might not give a representation of the events as they evolved, but be affected by “impression management and retrospective sensemaking” (Eisenhardt, 2007, p. 28). This potential bias was mitigated by collecting data from a diverse and highly knowledgeable sample of informants. Hence, grave misrepresentations of past events would have most likely been uncovered through the data from other interviews.

As stated above, limitations also offer potential for future research. In fact, the first limitation provides ample avenues for studies to come: It might be worthwhile for future research to study NSD – and its success factors – in other B2B environments; or even extend the scope to the B2C environment.

Further, due to the explorative nature of this study, various promising topics have been identified which might also provide interesting research opportunities. For example, while this study found that integrating clients/customers in the process eases new service development, future studies could investigate this co-creative process more thoroughly and embark on questions like the following: how can we motivate our clients to engage?; at which points along the NSD development should clients be integrated?; can too much co-creation do more harm than good?; etc.

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6 Conclusion Fundamentally, the goal of this dissertation was to provide a better understanding for how services can be successfully developed.

A review of the existing literature on services (in general) and new service development (in particular) provided a sound foundation for this study. This part of the dissertation not only demonstrated that services and products are distinct categories which, in turn, ask for distinct treatment. The analysis also explored how services’ distinguishing factors – i.e., intangibility, heterogeneity, inseparability and perishability – influence new service development.

Further, it was found that in the realm of innovation scholarship, research has been strongly biased towards products, neglecting new service development to a large degree. While an expanding interest in NSD was identified, reflected in the growing number of NSD-related publications over the last decades, it has also been found that this growth had not resulted in a generally accepted and cohesive body of knowledge on NSD. Thus, NSD research had failed to provide actionable advice to managerial decision makers, and key question regarding the successful management of NSD remained mostly unacknowledged.

Based on an exploratory single-case study, this dissertation aimed to fill this void. More specifically, through the extensive analysis of different new service development projects at a leading Swiss B2B services company, this study yielded 5 implementable success factors for new service development: (i) a timely viability assessments of a new service idea, (ii) sharing of best practices and past failures, (iii) integrating clients/customers in the NSD process, (iv) defining and standardizing the core service offering, (v) while, at the same time, adjusting services to local market requirements. In addition, the study found that threats to successful new service development can arise on three levels: The service-specific level (issues inherent to the service), the engagement-specific level (issues that result from the interaction with a specific client/customer) and the provider-specific level (issues that originate from within the service provider).

Due to the nature of an exploratory single-case study, further studies will be needed to test and expand these findings. In particular, it was found that the context of new service development has a considerable effect on the new service development process. Nonetheless – and already at that point – the author of this study is certain that being sensible to the issues discussed throughout this study and following the proposed recommendations will considerably increase the prospect of new service projects.

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8 Appendix

New Service Development

at

Service Corp

Interview guide

(2015)

Josef Frischeisen Center for Customer Insight

Bahnhofstrass8

CH-9000 St.Gallen

University of St.Gallen

Josef.Frischeisen@unisg.ch

156

DATE:

RESPONDENT:

FUNCTION:

Introduction

• Explanation of the project • Background of the research • Goals for this interview

Confidentiality

All information provided is handled with utter confidentiality towards third parties. As such, results and information will only be shared with respondents and within Service Corp. Findings will be reported in a way that masks the identity of specific individuals that participate in the study.

Recording of interviews

In order for the interviewer to be able to focus thoroughly on the discussion with the interviewee, the interview will be recorded.

Note: Subject to interviewee`s permission

157

PART 1

1. Relevance of NSD in the industry Note: To get a profound understanding of NSD, the interview starts with some background questions on the relevance and state of NSD in the overall industry, before it specifically addresses NSD at Service Corp.

• What is your opinion on the following statements:

"Totally

disagree" "Totally agree"

1 Innovation and the development of new services is very important within our industry (to gain a long-term competitive advantage)

1 2 3 4 5

2 With regards to new service development we are doing better than our competitors

1 2 3 4 5

158

2. New Service Development at Service Corp Note: In order to derive a comprehensive understanding of NSD at Service Corp, this section will address three dimensions: Organizational insights, challenges and co-creation.

1// Organizational insights

• When you think about NSD, is there a “standard” or “typical process” at Service Corp in place? Is it unified across BUs and/or regions?

• Which of these organizational mechanisms does your company currently have in place to facilitate and orchestrate NSD [“yes” or “no” – multiple answers possible; Note: subject to previous answer]

(i) No organizational mechanisms in place (ii) A council or committee that reviews and coordinates

initiatives and their progress (iii) A central research department or NSD incubator

• Looking at the portfolio of new services at Service Corp, what quotas (in

%) have to be allotted to the following types: (i) Service enhancement; (ii) service expansion; (iii) service innovation. (Note: Question subject to availability of insights)

• Which of these types should gain less/more attention? (Note: Question subject to availability of insights)

• Does Service Corp have uniform metrics in place with which the success of new services is assessed?

• When do you stop a NSD-project? Are there pre-defined failure criteria?

159

2// Challenges

What is your opinion on the following statements:

"Totally

disagree" "Totally agree"

1 We have enough good ideas in our pipeline 1 2 3 4 5

2 Sometimes we seem to have too many ideas and identifying/prioritizing the most promising ones is hard thing to do for us

1 2 3 4 5

3 We execute well on the ideas we have (e.g. commercialization, scaling and roll-out)

1 2 3 4 5

4 We have a culture that foster new ideas and trying something new

1 2 3 4 5

5 We learn from our failures 1 2 3 4 5

6 You can make mistakes without having to fear for your career development

1 2 3 4 5

7 On top of our day-to-day business operations we are expected to provide new ideas

1 2 3 4 5

What do you consider to be the main challenge(s) with regard to: (Note: Depending on the previous answer; additional points the interviewee might want to add, if not yet covered throughout the previous discussion)

• idea generation (e.g. effective process for idea generation; share of top-down vs. bottom-up ideas; underutilized sources of ideas)

• concept (e.g. Assessment of market and/or feasibility, knowledge sharing and learnings from prior services; rating and prioritization of ideas; availability of necessary resources)

• execution (e.g. clear roles and responsibilities; different processes for different types of NSD; proven, repeatable model that is applied consistently in different regions and categories)

• innovation culture (open-mindedness; learning and new ideas are encouraged; “done is better than perfect”; open sharing of ideas)

160

3// Co-Creation

• How important do you consider input/insights/feedback from clients/ customers to be for a successful NSD process?

• How do you integrate clients/customers into NSD processes? (Organizational procedures, at which stages of the process, responsibility, type of input, etc.)

• Do you have effective feedback loops between your organization and the client(s)/customer(s) throughout the innovation process?

• From your point of view, what are key success factors for integrating clients/customers?

161

PART 2

• Can you please give a short description of the service and how it adds value to your clients/customers?

• How did the service originate?

• How did it evolve (idea generation and concept)? Was it successfully diffused (execution)? If so, how? If not, why not?

• What have been major challenges in developing and diffusing the service? How have they been addressed?

• What is the current status of this service within your service portfolio?

• Looking back, what could have been done differently/better?

• Looking ahead, what would you wish for in a future innovation process (idea generation – concept – execution) that would make it easier to successfully develop and implement new services?

162

Curriculum Vitae

Name Josef Frischeisen

Date of Birth 27th of May 1986 in Kelheim, Germany

Education

2013-2016 University of St. Gallen, Switzerland

Doctoral Candidate in Business Administration

2009-2010 ESCP Europe Berlin, Germany and London, United Kingdom

Master’s in Business Administration

2006-2009 University of Passau, Germany

Bachelor’s in Governance & Public Policy

1996-2005 Pindl Gymnasium Regensburg, Germany

Abitur

Work Experience

2013-2016 Institute for Customer Insight, University of St. Gallen, Switzerland

Research Associate

2010-2013 Horváth & Partners Management Consultants, Munich, Germany

Consultant

2010 Auctus Capital Partners AG, Munich, Germany

Internship