How does the development of physical products differ from development of services – or does it differ? In the context of New Product Development (NPD), portfolio management has been studied a lot during the past decades in order to optimize the product portfolio. However, I was interested in learning more about New Service Development (NSD), and noticed, that this area has been studied less.
I found an amazing article by Aas, Breunig and Hydle: Exploring new service portfolio management (International Journal of Innovation Management,2017) and wanted to reflect on the key insights via the blog! Based on the literature summarized by Aas et al., there are indeed some clear differences:
- New Service Development processes are often more incremental, informal and ad-hoc than New Product Development processes
- A higher number of stakeholders are involved from different units and functions during the new service development, than in NPD processes
- The effects of NSD on business performance have more intangible, strategic, long term and qualitative nature than the effects of NPD
Let’s have a look in more detail, what were the key lessons learned from the case study:
Many sources of ideas for new service concepts
Typically for new services, ideas come from a big number of different sources, such as customers, own employees from different units and functions, suppliers, competitors, and sometimes also from government. The ideas may be of different sizes, and of different nature ranging from development of new digital services to improvement of operational service process steps or compliancy to regulation or improvement of existing service offering. In the portfolio level, prioritizing such a wide range of different types of ideas from different sources is not always easy – how to compare ideas with can range from operational improvement to completely new service concepts?
Lessons learned 1: The recommendation from the article by Aas et al. (2017) was to exploit different sources of ideas and base New Service Development portfolio decisions on both strategic alignment and value criteria. This helps to create a balanced portfolio, and not to focus too much on just one type of ideas, e.g. ideas improving internal efficiency.
New Service Development is often hidden and based on small changes – creating transparency via NSD portfolio
New product development (NPD) has been traditionally executed via stage-gate projects ensuring all the needed steps to develop high quality products. Based on the study by Nijssen et el. (2006) New Service Development (NSD) is often ad-hoc and hidden – not clearly visible in the development portfolios. Continuous improvement is extremely valuable – however when developing a completely new type of service concepts or radical innovations, development work requires typically a lot of work across the organization and extensive resourcing.
Lesson learned: Accelerating new service development by transforming ideas into formal New Service Development projects, in the early phases of the development. Based on my own experience, a projectized approach often helps to create awareness in the organization, supports with the resourcing and systematic decision making. If development is happening via agile teams without projects, for a new service development, I have learned, that it is a good practice to have certain check points, to ensure end-to-end quality and readiness before Launch decisions. Creating overall transparency on ongoing NSD initiatives and their progress is also important in large organizations.
Flexibility in development process and decision making needed
In the study, one finding was, that NSD projects were often incremental by nature, and smaller than typical new product development projects. Larger NSD projects required also typically several decision gates, before Launch readiness, and project model was close to Cooper’s ‘state-gate-lite’. Also the NSD projects had a high level of heterogeneity, as the development ideas varied a lot, and one process did not fit all the different cases.
When developing new services, there may be changes in parallel in service concepts, technology, organization and processes. For example, when working with new digital services development projects, there has been a need to introduce new roles and processes to support the service management of the new services.
Lesson learned: The NSD portfolio process requires flexibility to successfully support the high heterogeneity in the new service development projects – one way does not fit all types of projects.
Involving many stakeholders
When developing new service concepts, support and participation from many different units and departments are needed. New service development often impacts long end-to-end value and process chains, and the alignment between different teams is important to create a successful concept. Based on the study, also in the decision making, representatives from different functions and units were involved in the NSD portfolio steerings.
Lesson learned from the study: NSD portfolio decisions need to be taken in collaboration by a group of managers representing different functional areas. I would also add, that involving stakeholders from different units during the project, creating alignment and awareness across different teams is super important, not only in the managerial level.
Developing a combination of products and services?
I have also worked with combination of products and services, for example solutions where a physical hardware is supporting a digital service. In these product-service-software solutions, complexity of both worlds are combined: there needs to be systematical way of working to support developing a high quality product, but the development process should also support iterative learning required in service development processes! These interesting product-software-service solutions would deserve an own blog!
References
Aas, Breunig, and Hydle: Exploring New Service Portfolio Management. International Journal of Innovation Management, 2017.
Nijssen, EJ, B Hillebrand, P Vermeulen and RGM Kemp (2006). Exploring product and service innovation similarities and differences. Research in Marketing, 23, 241–251.
Fuglsang, L and F Sørensen (2011). The balance between bricolage and innovation: Management dilemmas in sustainable public innovation. The Service Industries Journal, 31(4), 581–595.
Strategic Portfolio Management 