Key Concepts For New Service Development: Bo Edvardsson and Jan Olsson
Key Concepts For New Service Development: Bo Edvardsson and Jan Olsson
Key Concepts For New Service Development: Bo Edvardsson and Jan Olsson
Bo Edvardsson is Associate Professor ot" Business Admdinistration and Director of the Service
Research Center, University of Karlstad, Karlstad, Sweden.
Jan Olsson is a consultant within Swedish Telecom on matters of quality assurance.
QUALITY
FIGURE I
THE CUSTOMER-PERCEIVED RESULT CLASSIFIED IN TERMS OF THE VARIABLES LASTINtl -
TEMPORARY AND TANGIBLE - INTANGIBLE
Temporary
I
Lasting
Tangible Intangible
In the two previous sections we have highlighted two sides of the concept
of service based on ihe customer perspective: the customer outcome and the
customer process. The customer as the recipient and judge of the service in
terms of added value and quality - the customer outcome; and the customer
as co-producer of the .service in his partially unique manner - the customer
process. In quality terms we may speak of outcome quality and process
quality. In this section we highlight a third aspect of the service concept.
Our perspective is now that of the service company.
The customer's total perception of a certain service is thus based on his
perception of the outcome and the process. The customer outcome and the
customer process are, in their turn, dependent on the prerequisites in the
fonn of resources which have been built up to provide the service or, in
other words, to make the service possible.
FIGURE 2
THE CONCEPT OF SERVICE AS CUSTOMER OUTCOME. CUSTOMER PROCESS AND THl-
PREREQUISITES FOR SERVICE
KEY CONCEPTS FOR NEW SERVICE DEVELOPMENT 147
We maintain that the service company does tiot provide the service but the
prerequisites for various services. The company does not sell services but
opportunities for services which are generated in partially unique customer
processes with partly different customer outcomes. A logical consequence
of our reasoning is that the most central goal of service development is to
develop the best and right prerequisites for well-functioning customer
processes and attractive customer outcomes. By attractive customer
outcomes we mean that, in the eyes of the customer, the service is associated
with added value and quality. Naturally, a prerequisite for this is that it may
be achieved with some profitability for the company and that the needs and
expectations of the staff are reasonably satisfied.
We mean by the prerequisites for the service, for instance, the technical
resources, the administrative routines and procedures which customers must
understand and apply. We will discuss this in more detail and present a
model of the prerequisites for the service in the next section.
If we assume that the customer is co-producer, this means thai the
customer is either an asset or a 'disruptive factor' in the set of resources
providing the prerequisites for the service. This also means that some of the
prerequisites are outside the service company, at the customer's or
supplier's/partner's and therefore generally cannot be influenced or
controlled. Let us exemplify this with Swedish Telecom's services (see
Figure 3). The prerequisites might entail the equipment in the form of the
telephone exchange and telephones the customer has. Other factors are the
knowledge and experience the customer possesses, e.g., in the use of
telecommunication equipment.
A strategic issue is how that customer's various resources should and
can be utilised. It would seeni to be a major strategic task in service
development to answer this question. At the same time there would
probably be greater risk in that more of the prerequisites for the service were
not directly under the control of the company.
Let us relate the discussion in this section with the arguments in the
previous ones. A service means creating added value. Added value refers to
the customer's perception of the relation between quality and cost. The
customer assesses added value on the basis of the outcome he perceives.
This outcome is created and interpreted during the customer process. This
process does not occur in a vacuum but is dependent on resources. These
have been developed and organised by the service company. The company
provides the prerequisites for the service. The condition for good services is
provided by the prerequisites in the service company, its partners/suppliers
and customers. Creating the right prerequisites for a good customer process
and a good customer outcome is the main task of service development.
148 THE SERVICE INDUSTRIES JOURNAL
FIGURE .1
THE PREREQUISITES FOR THE SERVICE INCLUDE BOTH WHAT EXISTS WITHIN SWEDISH
TELECOM AND AT PARTNERS'/SUPPLIERS' AND CUSTOMERS' PREMISES
The prerequisites for the service are the end result of the .service
development process. The goal (the right prerequisites) is described by
means of a model with three basic components; service concept, service
process and service system fEdvardsson, 1991 and Edvardsson and
Mattsson, 19921. The term service concept refers to the description of the
customer's needs and how they are to be satisfied in the form of the content
of the service or the design of the service package. Correspondence or
agreement between customer needs and the service offer is essential. The
outcome the customer perceives (cf. the discussion in the previous section
on service as customer outcome) determines the customer's perception of
the quality of the service.
Service process relates to the chain of activities that must function
properly if the service is to be produced. Certain activities are more
problematic or critical than others. Special attention should be paid to these
so that the customer process and the customer outcome achieve the right
quality at reasonable cost. The service process is the prototype for every
customer process (cf. the discussion in the previous section on service as a
customer process. The service process consists of a clear description of the
various activities needed to generate the service [Shostack, 1984, and 19871.
The service system constitutes the resources that are required by or are
available to the .service process in order to realise the service concept. It may
KEY CONCEPTS FOR NEW SERVICE DEVELOPMENT 149
Service Concept
Service concept refers to the prototype for the service, i.e., the customer
utility and the benefits (value for the user) which the service and its various
sub-services are intended to provide and convey to the customer. The
service concept covers both the description of the customer needs to be
satisfied and how they are to be satisfied in the form of the content of the
service or the design of the service package, e.g., expressed in terms of core
service and supporting services. The service concept is a detailed
description of what is to be done for the customer (= what needs and wishes
are to be satisfied) and how this is to be achieved (= the service offer).
The service concept specifies the domain of needs with respect to extent
and nature (= both primary and secondary customer needs) and the service
offer (= both core service and supporting services) to meet this domain.
Correspondence between customer needs and service offer is crucial. The
service concept forms the point of departure and defines the demand for the
prerequisites that must be present for a service with the right quality to be
realised.
When discussing customer needs, it is useful to make a distinction
between primary and secondary needs [Edvardsson, 1991]. Primary needs
are those which act as a 'trigger', i.e., the reason why the customer
experiences a certain need; for instance, it might be the need to contact a
person in the UK. This need can be satisfied in various ways: by phone,
telefax, letter, telex or telegram, and so on. Different customers want to
satisfy this need in different ways depending on how urgent it is to reach the
person quickly and the customer's perception of the advantages and
disadvantages of the various alternatives. Let us assume that the customer
prefers the telephone. When the customer has decided to make a phone call,
further needs arise: how to gain access to a telephone, the telephone number
to the person in question, the number for the UK, and so on. These needs
are a function or result of the chosen service and are termed secondary
needs. Let us call the chosen means of communication the core service . If
the customer had chosen to write a letter, other secondary needs would have
arisen.
To satisfy these secondary needs, other services are needed, apart from
the telephone service, the core service. We have chosen to call these
services supporting services. In the case in question., directory enquiries is a
supporting service.
150 THE SERVICE INDUSTRIES JOURNAL
I'IGURE 4
MODEL OF THE SERVICE CONCEPT
f Supporting
Both primary and secondary needs (both explicit and implied) must be
dealt with for the customer to be satisfied. Studies show that the customer
expects this, and that high customer-perceived quality is based on the tact
that, apart from the core service, the service offer also includes a relevant
set of supporting .services of the right quality, as seen from the customer's
perspective. What distinguishes the successful service companies with
respect to customer-perceived quality and profitability - from the less
successful ones is often related to the extent and quality of the .supporting
services. Quality means both that the service represents added value for the
customer and that the customer finds it easy to use.
Several of the secondary needs are implied, i.e., the cu,s(omer assumes
that various services are available which will satisfy even secondary
customer needs in a reasonable manner. When the service concept is being
formulated and the service developed, it is necessary to identify and
understand these implied needs, wishes and expectations as well. This
requires information on and a thorough understanding of the customers to
be served by the service in question. When developing the service concept,
attention should be given to the fact that individual services often form part
of a system together with other services, existing and/or new. To achieve the
right quality and high productivity, these 'system aspects' should also be
taken into account.
systems must function separately but also together with other sub-systems.
In our model the various sub-systems of the service system or, put in other
terms, the resource structure is made up of the service company's svaff, the
customers, the physical/technical environment and organisation and control.
In the following we describe each of these resource categories.
The service company's staff. The staff are usually seen as the service
company's key resource. We believe it correct to focus on the staff in this
way when developing services. There are, namely, studies which show that
the customer's perception of the quality of a service depends lo a great
extent on how he perceives the staff as regards, for instance, their
knowledge and commitment [see. e.g.. Crane and Clarke, 19881. For many
customers, individual staff are by and large synonymous with the service. If
we assume this is the case, then we should consider the staff as more than a
resource, we should see them as part of the service. The intangible service
becomes tangible for the customer in the encounter with individual staff. It
is in this interplay between staff and customer, the process of truth, that
many services arise and become tangible.
If we see the staff not just as something one resource among others but
as the critical or decisive factor enabling the customer to perceive that he is
receiving a service of the right quality, it is natural to adapt techniques,
systems, routines and other resources to human logic, i.e., the customers'
and staff's natural way of behaving. Thus, we cannot simply specify the
demands on system and processes lor a new service on the basis of the
service concept. We must also understand how individuals and groups of
staff can be encouraged to work in the best manner. We must take their
special needs, demands and wishes into account - not just those of the
customers. To do a good job, the staff, in the company and the company's
partners, must be knowledgeable, motivated and committed.
Knowledge and experience alone have proved to be insufficient for high
performance in service companies. Motivation and enjoyment in work arc
also necessary. Motivation is primarily achieved through work content,
relations with fellow workers and one's immediate supervisor, and relations
to customers. If we are successful in designing attractive jobs and a
stimulating work environment, this will probably be the most important
quality-creating factor in service development.
It is a reasonable assumption that the choice of staff (those who are to
help provide the service) and their training/education should be an integral
part of the development of new services. The staff are often the crucial
factor for customer-perceived quality but in some cases they are also the
dominant factor on the cost side. Wage costs are on average much higher in
service companies than in manufacturing companies. This is a further
152 THE SERVICE INDUSTRIES JOURNAL
important reason why staff should be given special status when designing
new services. The production system becomes a socio-technical system
with the focus on Ihe staff, which should result in the right service and high
productivity. The recruitment, training, development and outplacement of
stalf arc often not handled in a systematic and professional fashion in
Swedish service companies. Furthermore, the analysis of work content and
job design, tasks and reward systems are important but often neglected areas
in .service development.
The customers. Naturally the customers have a key role. The customer - a
company or private individual/household - is part of the service system. It
is not just a matter of the customer's knowledge and his ability to assimilate
information but also, for instance, the equipment he uses and the
administrative routines employed in the customer company. All this is pan
of the .service system and thus influences the prerequisites for the service.
Marketing plays a central role in relations with the customer in establishing
quality from the outset. Marketing consists of establishing and developing
mutually trustful and profitable customer relations. Marketing is much more
than advertising and sales visits. It also includes the design of invoices,
dealing with customers on the telephone, information material, the image
the media project of the company, but above all the perception of the
customer outcome and the customer process.
In t)rder to give the right promises, one must understand customers
needs, wishes and expectations and co-ordinate one'.s markeiin^
accordingly. One must not promise more than one's competence or capacity
to deliver. The company mu.st have both the will and the ability (ti provide
the services that the customers need and expect.
We believe that an important but often neglected task in marketing - in
particular when introducing new services on the market - is to infonn the
customer and 'train' him in the role of co-producer. This emerges as a major
factor in the introduction of new services.
The service system should be so designed that it is easy for the customer not
only to take part in but also to actively contribute to the p(X)cess. When
developing new services, it is necessary, we have found, to organise the
following: firstly, interaction between customers, e.g., a queue system when the
service is overloaded; secondly, the customer's relationship with the company's
organisation as regards routines; thirdly, the interaction between customers and
staff; and fourthly, the interaction with the physical/lechnica! environment.
The exchange, with the customer in the centre, should be organised so
that the customer can make the best contribution both by providing
information and by performing various parts of the service process.
KEY CONCEPTS FOR NEW SERVICE DEVELOPMENT 153
service companies are designed is often of much greater importance for the
prerequisites for a service than most people realise, in connection with
service development even the administrative systems must be adjusted or
complemented to produce a workable service.
Thirdly, the interaction, dialogue with customers and other interested
parties - in the first place, partners and suppliers - is an important part of
the organisation and control of the service system. This includes, for
instance, how feedback is achieved, how complaints and customer
dissatisfaction are handled but also opening hours, telephone times and the
possible VIP treatment of major or faithful customers. One aspect is how
easy it is for customers to contact the company, a specific department or
individual in the company; for example, is it easy to find the person
responsible for a certain task, the person or department one wants, or does
the company provide parking for visitors?
The fourth aspect we include is the organisation of the various activities
connected with marketing. There are three important tasks in marketing that
need to be organised and controlled. Eirstly, using market and customer
analyses to understand the competitive situation, customers' needs and
demands, and customer logic. Secondly, ensuring that realistic e.xpectations
are created. Thirdly, teaching customers how to actA>ehave in the role ot co-
producer. Before approaching customers on the market, it is essential to create
the right internal conditions and understanding by means of internal markeling
to staff and partners. Internal marketing first and then external marketing.
Our model of the service system is presented in Figure 5.
FIGURE 5
MODEL OF THE SERVICE SYSTEM
Physical/
technical
environment
FIGURE 6
THE SERVICE PROCESS
Customer
During the process various parts of the service system are utilised. The
system i.s static, it provides the necessary resources, whilst the process i.s
dynamic, consisting of activities which are linked in microprocesses to form
the service process. This process should be designed to utilise the
possibilities of the system, not least the service company's staff, and to
handle its limitations in the best way. Many new services are more or le.ss
dependent on the conditions in the existing system. This means that staff
with knowledge and understanding of the possibilities and limitations of the
service system, not just at a general level but also in detail, should be
involved in service development. Without this contribution it is difficult to
see that the service system will support the service process, which is our
point of departure.
An important aspect of the service process is the so-caDed line of
visibility, i.e., which parts of the service system the customer should and
should not see during the customer process. Seeing the restaurant's kitchen
and perhaps the raw materials, and experiencing the smells may influence
the customer-perceived quality positively or negatively. Standing in a queue
at a bank and, at the same time, seeing the staff behind the counter taking a
break is an indication that the line of visibility is poorly drawn.
Studies show that in many instances the service system has in-built
recurrent defects, which create more or less serious problems in the service
process [see, for instance, Norling, Edvardsson and Gummesson, 1992]. In
some cases it may be said that the system puts a spoke in the wheel of the
service process, which, of course, was not the intention. We must conclude
KEY CONCEPTS FOR NEW SERVICE DEVELOPMENT 157
from this that the service process and service system should be developed
interactively on the basis of the possibilities and limitations of the latter. The
service system may need to be changed and developed but the consequences
of these changes for other parts of the system must be simultaneously taken
into account.
In Figure 7 below we present a model of the prerequisites for the service
based on the three components: service concept, service system and service
process.
FIGURE 7
MODEL 01- THE PREREQUISITES OF THE SERVICE
from the customer the service will not be initiated. The wording in ISO is
an indication that its approach to reality is still informed by the logic of
industrial production rather than that of service production.
However, the ISO standard has adopted a process approach. Developing
services is thus a matter of creating conditions for producing added value
for the customer. ISO points out that the development of flow charts is a
useful method of specifying activities, relations and dependencies in the
service process. The process is termed 'service delivery' which implies
'supplier activities necessary to provide the service'.
ISO defines customer as 'the recipient of a product or service'. They
have still not learnt that, apart from being the recipient of the service, the
customer (if not in all service production) can be co-producer - to a greater
or lesser extent.
FIGURE 8
MODEL OF THE SERVICE DEVELOPMENT PROCESS
Development of the service concept. The idea for the new service is
systematically and critically evaluated, taking into account the external and
internal, as detailed above. Further, a commercial assessment is made by
means of a general cost and income analysis. The concept is developed with
the aid of experienced people in the field, both staff from the service
company and demanding/knowledgeable customers. The aim is first to
decide whether or not to proceed with the idea and then, given a go-ahead
decision, to determine the key factors influencing the quality of the service
and its vaiue for the customer. This should result in a preliminary concept
for the service and details about the customers to whom the service is to be
offered - the target market. The new service is compared with existing
services and the feasibility of producing it within reasonable technical and
economical limits examined. As a basis for the economic assessment, a
rough estimate of the cost is made and a preliminary, value-based price set.
With the primary and secondary customer needs as a basis, the service
offer, namely the core service and support services, is specified. Further, it
is important to see how well the service offer corresponds to customer needs
and how well the projected service fits into the assortment. A crucial point
here is to determine the extent to which the existing service system may be
used.
Naturally, concept development requires good information. To achieve
this, it is most probably necessary to conduct an external analysis of the
market conditions and an internal analysis of the strengths and weaknesses
of the company. Externally the idea for a new or changed service is
evaluated and specified by means of an analysis of customers, competitors
and institutions. In the customer analysis the idea is related to the
customers' needs, wishes, expectations and behaviour - customer logic. The
presumptive clientele's grounds for assessment and links with existing
service providers, and the size and development of the market are taken into
account.
The competitor analysis identifies the competition both from
competitors in the same trade and competitors from 'outside', so-called
invaders. Existing services offered by competitors, their strategies and
possible new services which may be introduced etc are studied. The
strengths and weaknesses of competitors are identified and assessed.The
institutional analysis may, for instance, cover legal demands and conditions,
ethical or moral aspects and political conditions. The analyses of customers,
competitors and institutions are integrated by specifying and evaluating
market conditions in the form of threats and possibilities.
Internal resources are required in order to take advantage of the
possibilities offered by the market. These may be technological, financial,
knowledge related and organisational. The internal analysis results in a
KEY CONCEPTS FOR NEW SERVICE DEVELOPMENT ]61
FIGURE 9
MODEL OF THE SERVICE DEVELOPMENT PROCESS AND THE PREREQUISIIK-S
FOR THE SERVICE
CONCLUSION
In this article a new frame of reference for new service development has
been presented. The focus is on designed quality. To maintain the viability
and profitability of a service company, we argue that it is essential to
develop and provide services of the right quality in a resource-effective
manner. The quality of the services governs the customer's perception of the
company in the market.
The service is produced in a customer process where customer, company
and sub-contractors are actors. The quality of the process is controlled by
KEY CONCEPTS FOR NEW SERVICE DEVELOPMENT 163
the prerequisites each actor takes with him into the customer process. These
prerequisites are governed by the company's service concept, service
process and service system. The service company must develop and offer a
service concept which is appropriate to the customer's needs and which
contains attractive added-value and a 'customer-friendly' and generic
service process. The service system must provide the necessary resources
for the service process.
FIGURE 10
THE IMPORTANCE OF SERVICE DEVELOPMENT FOR THE SERVICE COMPANY'S INTERNAL
FFFICIENCY AND THE CUSTOMER-PERCEIVED QUALITY OF A SERVICE
Service Development
Service Prerequisites
REFERENCES
Conli, T 1989, 'Process Management and Quality Function Deployment' Oualiiv Provras
VoI.22,No.l2,pp.45-5I.
Crane, FG. and TK. Clarke. 1988, 'The Identification of Evaluative Criteria and Cues used in
Selecting Services', Journal of Services Markeling, Vol.2. No.2. pp.53-9.
Crosby. P.B. 1989, let's Talk Qualiry, New York: McGraw Hill.
164 THE SERVICE INDUSTRIES JOURNAL