Module II

New Service Development (NSD)

New-service Overview
New services
drive sales and
profit growth.

New service
Failure Rate
May Be 80% New services
may gain market share
from competitors.

Types of New services

New to the World services
New Category Entries

Additions to service Lines

service Improvements
Repositionings

Technology Management & NPD

New service development (NPD) - complete
process of bringing a new service to market

NPD & technology management - significant in

obtaining firms' competitive advantage

NEW Service
New-to-the-World services(10%)
New service Lines/Functions/Applications
(20%)
Additions to Existing service Lines(26%)
Improvements and Revisions of Existing
services(26%)
Repositioning(7%)
Cost Reductions(11%)

Clear strategic direction

NPD strategy must:

Fit with company strategy

Fit with company skills and capabilities

Fit with company ethos/style

Danger of new services NOT fitting

strategy/capability/style

NPD is risky enough anyway, why make it riskier?

Opportunity cost is high : resources are finite

Existing customers may be alienated

Industry Types
Market Driven Modifier
High

Food companies eg Amul, Nestle

Consumer Goods eg P&G
Japanese cars

Leadership
in
InnovationFast Follower
Low

Fashion eg M&S, Zara

Electronics eg Matsushita
Fast Food eg Burger King

Next Generation Innovator

Electronics eg Sony
Pharma eg GSK
Software eg Microsoft
Acadaemia eg Cambridge
University

Acquirer
Electronics eg Marconi
Software eg Microsoft

Low
Barriers to Followership

High

Sources of New services

External
Sourcing

Internal
Development

Collaborative
Venture

SWOT Analysis
SWOT

Strengths

Weaknesses

Internal

Opportunities

Threats

External

New-service Development Process

Idea Generation

Prototype
Development
Idea Screening
Test Marketing
Concept
Development
& Testing
Commercialization
Business
Analysis

New-service Development Approaches

How is it Done?
Market facts
& ideas
Technical
facts &
ideas

Activities

Phase I

Phase II

Phase III

Concept
Generation

Business
Proposition
Development

Launch
Preparation

Gather ideas
Conduct
demand
research
Develop
project briefs

>>>>>>>>>

Launch/
Rollout

Build total
proposition

Organise
logistics

Launch marketing
campaign

Determine,
test, refine
components
(packaging,
name, etc)>>>>>>>

Prepare
marketing
campaign

Distribute service
Monitor progress

Brief salesforce

ITERATIVE

Phase 1: Concept Generalisation

Cross functional inputs required:
fusion of ideas from R&D, marketing,
logistics
open sharing of ideas
formal and informal interdisciplinary
forum

Phase 2: Business Proposition

Development
Change from concept to sound business
propositions:
Prototyping
Market research
Test marketing
Pre-serviceion engineering and costing
New service business plan/proposal

Phase 3: Launch Preparation

Close multifunctional approach required:
Establish marketing mix (4Ps)
Packaging development
Market testing
service refinement
Sourcing
serviceion engineering
Begin manufacture

Launch
Put marketing mix (4 Ps) into
practice
Monitor progress
Log successes and failures
Redeploy team thoughtfully

New service Development Stages

Motorola 4 stages
service Definition
Contract Development
Development through manufacturing start-up
Program wrap-up

New service Development Stages

Kodak- 6 stages
Customer mission/vision
Technical demonstration
Technical operation/feasibility
Capability demonstration
service/process design
Acceptance and serviceion

New service Development Stages

Xerox - 7 stages
Pre-concept
Concept
Design
Demonstration
serviceion
Launch
Maintenance

New service Development Stages

Get an idea
Prove it works
Develop and test it
Scale it up
Launch it
Monitor things

Keep iterating

Generic

Approximate Costs of NPD: %

Stage

Consumer Goods

Opportunity
Identification
Design
Testing

2
3

28

16

Launch

Total
100% =

Industrial Chemicals

$12.6m
Source:McKinsey analysis

13
79

57

100

100
$4.7m

Who Does NPD and What Do They Do?

R&D

Senior Management

Manufacturing

Investigate emerging
technologies re: new
services

Evaluate fit with

corporate strategy

Ensure the service

can be manufactured
at economic cost

Design new services

Hold the purse strings

Establish serviceion
line

NPD

Marketing

Legal

Finance

Discover what the

customer wants/needs

Apply for service patent

Evaluate financial
impact of NPD on
cashflow of business

Design marketing mix

Check service liability

Conduct NPV
calculations

NPD & Technology

Extensive use of technology (eg CAD/CAM)

Manufacturing: Efficiency of
Process
JIT Just in Time
Pull inventory through system
Produce on schedule, not +/ Focus on quality via visibility

TQM Total Quality Management

Emphasis on quality throughout
Culture change from inspection to prevention
Employee awareness and motivation key
All responsible for satisfying customer

Organisational Options for NPD

As part of R&D
As part of marketing
Within its own department
Throughout the organisation

Via NPD committee

Via new service task-force
Small permanent staff
Matrix organisation
Entrepreneurial division
Alliances

Common options

Less frequently used options

Description of Rugby vs Baton

Approach
Hand picked,
multidisciplinary
team
Members work
together
throughout
Phases overlap
and merge

Rugby Approach vs Baton Approa

Baton
Phase

Rugby 1

Phase

Rugby 2
Phase

Pros and Cons of Rugby vs Baton Appr

Direct benefits

Direct problems

Faster development
Increased flexibility

Communication throughout
large team
Maintaining cohesion
Heightening tension

Indirect benefits

Indirect problems

Shared responsibility and

cooperation
Lasting understanding of others
agendas
Diversified skills
Wider problem solving
capabilities

Resentment of other
departments (?)
Erosion of specialist skills(?)

R&D and Manufacturing Working

Together-Example
IBM Dot Matrix Printer
Needed cheap effective
printer
Small team of R&D and
manufacturing
Result:
Mandate: work together to
150 parts down to 60
simplify service with tight
Developed in half normal time
deadline
Very reliable service

Became market leader in 5 months

Time is money
33%

3.5%

Profit lost when service

shipped 6 months too late
Source:McKinsey analysis

Profit lost with 50%

overspend on budget

CAUSES OF NEW service FAILURE

Failure in Market Research Findings

Overestimated Demand and Size of Market
Design Failure
Positioning Problem
Ineffective Communication/Promotion
High Development Cost/ Price
Pressure from Competitors
Poor Timing

CAUSES OF NEW service SUCCESS

Technological Superiority
Easy of Market Entry
Competitive Advantage
Size and Speed in Market growth
Identifying Needs/Wants and Good Timing
Effective Promotion/Communication
Uniqueness of the Concept/service
Marketing and Managerial Synergy/Team Effort

CHALLENGES IN NEW service

DEVELOPMENT

Shortage in New service Ideas

Fragmented Markets
Social and Governmental Constraints
High Development Cost
Shortage of Cash/Capital
Faster Development Time
Shorter service Life Cycle

EFFECTIVE ORGANIZATIONAL
ARRANGEMENTS
Top Management:
R&D Budget.

Organization for New-service Development:

service managers
New service Managers
New service Committee
New service Departments:
R&D.

New service Venture Team

service Design Parameters