Addis Ababa University

College of Business and Economics

Department of Management
Ethiopia Legesse (D.Sc.)
Total Quality Management and Organizational
Excellence
MSc in Management
May 20, 2016
Service Quality Management

AAU, MSc in Management, Total Quality Management and Organizational Excellence, Service Quality Management, Ethiopia
1
Legesse (D.Sc.)

Chapter 8
SERVICE INNOVATION AND DESIGN

2 Ethiopia Legesse (D.Sc.)

AAU, MSc in Management, Total Quality Management and Organizational Excellence, Service Quality Management,

Learning Objectives
This chapters objectives are:
1. Describe the challenges inherent in service innovation and
design.
2. Present the stages and unique elements of the service innovation
and development process.
3. Demonstrate the value of service blueprinting and how to
develop and read service blueprints.
4. Present lessons learned in choosing and implementing highperformance service innovations.

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AAU, MSc in Management, Total Quality Management and Organizational Excellence, Service Quality Management, Ethiopia Legesse (D.Sc.)

Figure 5.6 Gaps Model of Service Quality

Expected
service

Customer

Perceived
service
Company

Gap 1

Service delivery
Gap 4

Gap 3

External
Communications to
customers

Customer-driven service
Designs and standards
Gap 2
Company perceptions of
consumer expectations

Source: Wilson, Alan et al (2013) SERVICES MARKETING: INTEGRATING CUSTOMER FOCUS ACROSS THE FIRM, 2nd Edition. McGraw-Hill
International (UK) Ltd.

Provider Gap 2
Customer

Company

Customer driven service

designs and standards

Service design and

standards gap
Company perceptions
of consumer
expectations

Source: Wilson, Alan et al (2013) SERVICES MARKETING: INTEGRATING CUSTOMER FOCUS ACROSS THE FIRM, 2nd Edition. McGraw-Hill
International (UK) Ltd.

Challenges of Service Innovation and Design

If you decide to start your own business, what can you do to protect
yourself as much as possible from failure?
An analysis of more than 60 studies on new product and service success
showed that the dominant and most reliable predictors of success for
new introductions relate to:
Product/ service characteristics: product meeting customer needs, product
advantage over competing products, technological sophistication.
Strategy characteristics: dedicated human-resources to support the
initiative, dedicated research and development (R&D) focused on the new
product initiative.
Process characteristics: marketing, pre-development, technological and
launch proficiencies.
Marketplace characteristics: market potential.

Frequently a good service idea fails because of development, design and

specification flaws
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AAU, MSc in Management, Total Quality Management and Organizational Excellence, Service Quality Management, Ethiopia Legesse (D.Sc.)

Challenges of Service Innovation and Design

The characteristics of services (intangible, variable, perishable, simultaneous
production and consumption) are the at the core of the challenge involved in
designing services.
Despite the dominance of services in the worlds economies, there is relatively
little formal focus on service research and innovation.
The Organization for Economic Co-operation and Development produced a
report in 2005 entitled Promoting Innovation in Services in which they stated:
Boosting innovation in services is central to improving performance of the
service sector ... the sector has traditionally been seen as less innovative
than manufacturing and as playing only a supportive role in the innovation
system. As the importance of service innovation becomes more and more
apparent, significant initiatives are beginning to emerge in countries around
the world.
In most advanced and emerging countries, governments all over the world are
funding service research with more emphasis on service growth and service
innovation (e.g. Germany, Finland, Untied States and China) .
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AAU, MSc in Management, Total Quality Management and Organizational Excellence, Service Quality Management, Ethiopia Legesse (D.Sc.)

New Service Development Processes

Despite the proven value of a structured and analytic approach to innovation

Often new services are introduced on the basis of managers and employees
subjective opinions about what the services should be and whether they will succeed
Rather than on objective designs incorporating data about customer perceptions,
market needs, and feasibility.
A new service design process may be imprecise in defining the nature of the service
concept because the people involved believe either that service processes cannot be
defined precisely or that everyone knows what we mean.
None of these explanations or defenses for imprecision or lack of planning are
justifiable, as it is illustrated in this chapters model for new service innovation and
development.
It is also critical that innovation and the new-service development process involve both
employees and customers.
Employees frequently are the service, or at least they perform or deliver the service, and
thus their involvement in choosing which new services to develop and how these
services should be designed and implemented can be very beneficial.
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AAU, MSc in Management, Total Quality Management and Organizational Excellence, Service Quality Management, Ethiopia Legesse (D.Sc.)

New Service Development Processes

Contact employees are psychologically and physically close to
customers and can be very helpful in identifying customer needs for new
services.
Involving employees in the design and development process also
increases the likelihood of new service success
Because employees can identify the organizational issues that need to be
addressed to support the delivery of the service to customers.
Because customers often actively participate in service delivery, they too
should be involved in the new service development process.
Beyond just providing input on their own needs, customers can help
design the service concept and the delivery process, particularly in
situations in which the customer personally carries out part of the
service process.
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AAU, MSc in Management, Total Quality Management and Organizational Excellence, Service Quality Management, Ethiopia Legesse (D.Sc.)

New Service Development Processes

Examples include:
1. IKEA: Well known for involving its customers in the design of its stores to
ensure that the layout will work for the shoppers and not just for the staff or the
architects who design the stores.
2. Banco Santander: A significant amount of market research was undertaken by
the UK arm of Banco Santander, in determining the future of its retail banking
branches. As a result, new designs have been developed, some of which
incorporate Costa Coffee outlets.
3. Starbucks: Operates a website called www.mystarbucksidea where they ask
customers to suggest ideas for improvements in their products and services:
You know better than anyone else what you want from Starbucks. So tell us.
Whats your Starbucks Idea? Revolutionary or simple we want to hear it.
Share your ideas, tell us what you think of other peoples ideas and join the
discussion. Were here, and were ready to make ideas happen. Lets get started.
Starbucks then use the site to inform customers which ideas they are going to
develop and take forward.
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AAU, MSc in Management, Total Quality Management and Organizational Excellence, Service Quality Management, Ethiopia Legesse (D.Sc.)

Types of New Services

Not all new services are new to the same degree. New service options can
range from major innovations to minor style changes:

Major or radical innovations: are new services for markets as yet undefined.

Past examples include the first broadcast television services and the creation of eBay
Internet- based auction sites.
Many innovations now and in the future will evolve from information, computer and
Internet-based technologies. Often these major innovations create brand-new
markets.

Start-up businesses consist of new services for a market that is already

served by existing products that meet the same generic needs.

Service examples include the creation of Amazon to provide an alternative to book

stores, online banking for financial transactions and door-to-door airport shuttle
services that compete with traditional taxi and limousine services.

New services for the currently served market represent attempts to offer
existing customers of the organization a service not previously available from
the company (although it may be available from other companies).

Examples include Tesco offering insurance services, a health club offering nutrition
classes and airlines offering tele- phone and Internet service during flights.
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Types of New Services

Service line extensions represent augmentations of the existing service line,

such as a restaurant adding new menu items, an airline offering new routes, a
law firm offering additional legal services and a university adding new courses
or degrees.
Service improvements represent perhaps the most common type of service
innovation.

Changes in features of services that are already offered might involve faster
execution of an existing service process, extended hours of service, or
augmentations such as added amenities in a hotel room (e.g. the addition of wireless
Internet connections).

Style changes represent the most modest service innovations, although they are
often highly visible and can have significant effects on customer perceptions,
emotions and attitudes.
Changing the color scheme of a restaurant, revising the logo for an
organization, redesigning a website or painting aircraft a different color all
represent style changes (e.g. similar to packaging changes in consumer
products).

12
AAU, MSc in Management, Total Quality Management and Organizational Excellence, Service Quality Management, Ethiopia Legesse (D.Sc.)

Stages in Service Innovation and Development

Because of the inherent characteristics of services, however, the development process

for new services requires adaptations.

Figure 8.1 shows the basic principles and steps in new service development. Although these steps may be
similar to those for manufactured goods, their implementation is different for services.

An underlying assumption of new product development process models is that new

product ideas can be dropped at any stage of the process if they do not satisfy the criteria
for success at that particular stage.

Figure 8.1 shows the checkpoints (represented by stop signs) that separate critical stages of the development
process.
The checkpoints specify requirements that a new service must meet before it can proceed to the next stage
of development.
Despite what Figure 8.1 suggests, however, new service or product development is rarely a completely
linear process.
Many companies are finding that to speed up new service innovation, some steps can be worked on
simultaneously, and in some instances a step may even be skipped, particularly for simple products and
services. The overlapping of steps and simultaneous development of various pieces of the new
service/product development process has been referred to as flexible product development
The process shown in Figure 8.1 is divided into two sections: front-end planning and implementation. The
front end determines what service concepts will be developed, whereas the back end executes or
implements the service concept.
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Figure 8.1 Stages in Service Innovation and

Development

Front-end
planning

Business strategy development or review

New service strategy development

Idea generation

Screen ideas against new service strategy

STOP

Concept development and evaluation

Test concept with customers and employees

Business analysis

Test for profitability anf feasibility

STOP

Service development and testing

Conduct service prototype test

Implementation

STOP

STOP

Market testing

Test service and other marketing mix elements

Commercialization
Post-introduction evaluation

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STOP
STOP

Stages in Service Innovation and Development

cont.
Sources: Booz-Allen & Hamilton, New Product Management for the 1980s (New York: Booz-Allen & Hamilton,
1982); M.J. Bowers (1985) An exploration into new service development: organization, process, and structure,
doctoral dissertation, Texas: A&M University; A. Khurana and S.R. Rosenthal (1997) Integrating the fuzzy front
end of new product development, Sloan Management Review (Winter 1997), pp. 10320; and R.G. Cooper
(2001) Winning at New Products, 3rd edn, Cambridge, MA: Perseus Publishing. (taken from: Wilson, Alan.
SERVICES MARKETING: INTEGRATING CUSTOMER FOCUS ACROSS THE FIRM, 2nd Edition. McGraw-Hill
International (UK) Ltd, 10/2013.

Front-End Planning

Business Strategy Development Review: A first step in new service development is to

review that mission and vision. The new service strategy and specific new service ideas
must fit within the larger strategic mission and vision of the organization.
Noted strategy researchers suggest four primary strategic orientations that are
taken by companies:
1. Prospectors: seek to be innovative, searching out new opportunities and taking on
risks.
2. Defenders: are experts in their own areas and tend not to seek new opportunities
outside their domain of expertise.
3. Analyzers: maintain stability in certain areas of operation but are open to
experimenting and seeking out opportunities on the margin.
4. Reactors: seldom make adjustments unless forced to do so by environmental
pressures.
1. Another noted management strategist suggests that firms can be distinguished by
whether they primarily pursue a cost-leadership strategy, a differentiation strategy
or a focused strategy.
. An organization's strategic orientation will affect how it views growth through new
service development.
16

Front-End Planning

New-service Strategy Development Research: suggests that without a clear new

product or service strategy, a well-planned portfolio of new products and services, and
an organizational structure that facilitates product development via ongoing
communications and cross-functional sharing of responsibilities, front-end decisions
become ineffective.

By defining a new service strategy (possibly in terms of markets, types of services, time
horizon for development, profit criteria or other relevant factors), the organization will
be in a better position to begin generating specific ideas.

Thus, a product portfolio strategy and a defined organizational structure for new product or
service development are critical and are the foundations for success.
The types of new services that will be appropriate will depend on the organization's goals,
vision, capabilities and growth plans.

For example, it may focus its growth on new services at a particular level of the described
continuum from major innovations to style changes.
Or the organization may define its new service strategy even more specifically in terms of
particular markets or market segments or in terms of specific profit-generation goals.

One way to begin formulating a new service strategy is to use the framework shown in
Figure 8.2 for identifying growth opportunities.
17

Figure 8.2 New Service Strategy Matrix for

Identifying Growth Opportunities
Markets
Offerings

Current customers

New customers

Existing services

Share building

Market development

New service

Service development

Diversification

Sources: Adapted from H.I. Ansoff (1965) Corporate Strategy, New York: McGraw-Hill.
(Wilson 204)Wilson, Alan. SERVICES MARKETING: INTEGRATING CUSTOMER FOCUS ACROSS THE FIRM, 2nd Edition. McGraw-Hill International
(UK) Ltd, 10/2013.

Front-End Planning

Idea Generation: The next step in the process is the generation of new ideas that can
be passed through the new service strategy screen described in the preceding step. Many
methods and avenues are available for services idea generation.
Formal brainstorming, solicitation of ideas from employees and customers, lead user
research and learning about competitors offerings are some of the most common
approaches.
Service Concept Development and Evaluation: Once an idea surfaces that is regarded
as a good fit with both the business and the new service strategies, it is ready for initial
development.
After clear definition of the concept, it is important to produce a description of the
service that represents its specific features and characteristics and then to determine
initial customer and employee responses to the concept.
The service design document would describe the problem addressed by the service,
discuss the reasons for offering the new service, itemize the service process and its
benefits and provide a rationale for purchasing the service.

19

Front-End Planning

The roles of customers and employees in the delivery process would also be
described.
The new service concept would then be evaluated by asking employees and
customers whether they understand the idea of the proposed service, whether they
are favorable to the concept and whether they feel it satisfies an unmet need.
Business Analysis: Assuming that the service concept is favorably evaluated by
customers and employees at the concept development stage, the next step is to estimate
its economic feasibility and potential profit implications.
Demand analysis, revenue projections, cost analyses and operational feasibility are
assessed at this stage.
This stage will involve preliminary assumptions about the costs of staff recruitment
and training, delivery system enhancements, facility changes and any other
projected operations costs.
The organization will pass the results of the business analysis through its
profitability and feasibility screen to determine whether the new service idea meets
the minimum requirements.
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Implementation

Once the new service concept has passed all the front-end planning hurdles, it is ready
for the implementation stages of the process.
Service Development and Testing: In the development of new tangible products, the
development and testing stage involves construction of product prototypes and testing
for consumer acceptance.
Again, because services are intangible and simultaneously produced, consumed and
frequently co-created, this step presents unique challenges.
To address these challenges, this stage of service development should involve all
who have a stake in the new service: customers and contact employees as well as
functional representatives from marketing, operations and human resources.
During this phase, the concept is refined to the point at which a detailed service
blueprint representing the implementation plan for the service can be
produced.
The blueprint is likely to evolve over a series of iterations on the basis of input from
all the involved parties.

21

Implementation
Finally, need to translate the final blueprint into specific implementation
plans for its part of the service delivery process.
All parties involved in any aspect of the new service must work
together at this stage to delineate the details of the new service.
Market Testing: Because new service offerings are often intertwined
with the delivery system for existing services, it is difficult to test new
services in isolation as tangible product might be tested in a limited
number of trading areas.
The new service might be offered to employees of the organization
and their families for a time to assess their responses to variations in
the marketing mix.
It is also extremely important at this stage in the development
process to do a pilot run of the service to be sure that the operational
details are functioning smoothly.
22

Implementation
Commercialization: In this stage, the service goes live and is
introduced to the marketplace. This stage has two primary objectives.
The first is to build and maintain acceptance of the new service among
large number of service delivery personnel who will be responsible day to
day for service quality.
The second objective is to monitor all aspects of the service during
introduction and through the complete service cycle.

Post-introduction Evaluation: At this point, the information gathered

during commercialization of the service can be reviewed and changes
made to the delivery process, staffing or marketing mix variables on the
basis of actual market response to the offering.
As no service will ever stay the same, changes will always occur.
There is a need for formalizing the review process to make those changes
that enhance service quality from the customers point of view is critical.
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Service Blueprinting
A stumbling block in service innovation and development is the difficulty of
describing and depicting the service at the concept development, service
development and market test stages.
One of the keys to matching service specifications to customer expectations is
the ability to describe critical service process characteristics objectively and
to depict them so that employees, customers and managers alike know what the
service is, can see their role in its delivery and understand all the steps and
flows involved in the service process.
What is a Service Blueprint?
A service blueprint: is a picture or map that accurately portrays the service system
so that the different people involved in providing it can understand and deal with it
objectively regardless of their roles or their individual points of view.
Blueprints are particularly useful at the design stage of service development.
A service blueprint visually displays the service by simultaneously depicting the
process of service delivery, the points of customer contact, the roles of customers
and employees, and the visible elements of the service (See figure 8.3).
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Figure 8.3 Service blueprinting

Process

Service
blueprint

Points of Contact

Service blueprinting:
A tool for simultaneously
depicting the service process, the
points of customer contact and the
evidence of service from the
customer\s point of view

Evidence

Source: Wilson, Alan. SERVICES MARKETING: INTEGRATING CUSTOMER FOCUS ACROSS THE FIRM, 2nd Edition.
25 McGraw-Hill
International (UK) Ltd, 10/2013.

Service Blueprinting
It provides a way to break down a service into its logical components
and to depict the steps or tasks in the process, the means by which the
tasks are executed and the evidence of service as the customer
experiences it.
Blueprinting has its origins in a variety of fields and techniques,
including logistics, industrial engineering, decision theory and computer
systems analysis all of which deal with the definition and explanation
of processes.
Because services are experiences rather than objects, blueprinting is a
particularly useful tool for describing them.

26

Blueprint Components
The key components of service blueprints are shown in Figure 8.4.
They are customer actions, onstage contact employee actions,
backstage contact employee actions, and support processes.
The conventions for drawing service blueprints are not rigidly
defined, and thus the particular symbols used, the number of
horizontal lines in the blueprint, and the particular labels for each
part of the blueprint may vary somewhat depending on what
you read and the complexity of the blueprint being described.
These variations are not a problem as long as you keep in mind the
purpose of the blueprint and view it as a useful tool rather than as
a set of rigid rules for designing services.

27

Blueprint Components
Physical evidence
Customer actions
Line of interaction

Onstage contact
Employee actions
Line of visibility

Backstage contact
Employee actions
Line of internal interaction

Support Processes

28 McGraw-Hill International
Source: Wilson, Alan. SERVICES MARKETING: INTEGRATING CUSTOMER FOCUS ACROSS THE FIRM, 2nd Edition.
(UK) Ltd, 10/2013.

Using Blueprints
Blueprinting applications in a variety of contexts have demonstrated
benefits and uses including:
Providing a platform for innovation
Recognizing roles and interdependencies among functions, people and
organizations
Facilitating both strategic and tactical innovations
Transferring and storing innovation and service knowledge
Designing moments of truth from the customers point of view
Suggesting critical points for measurement and feedback in the service
process
Clarifying competitive positioning

29

Building a Blueprint
Recall that many of the benefits and purposes of building a
blueprint evolve from the process of doing it.
Thus the final product is not necessarily the only goal.
Through the process of developing the blueprint, many
intermediate goals can be achieved. To name a few of them:
clarification of the concept
development of a shared service vision
recognition of complexities and intricacies of the service that are not
initially apparent
delineation of roles and responsibilities

Drawing or building a blueprint is not a task that should be left to one person or one
functional area.
Figure 8.7 identifies the basic steps in building a blueprint.
30

Building a Blueprint

Step 1
Identify the
process to be
blueprinted

Step 2

Step 3

Step 4

Step 5

Step 6

Identify the
customer or
customer
segment

Map the process

from the
customers point
of view

Map contact
employee
actions, onstage
and backstage,
and/or
technology
actions

Link contact
activities to
needed support
functions

Add evidence of
service at each
customer action
step

31 McGraw-Hill International
Source: Wilson, Alan. SERVICES MARKETING: INTEGRATING CUSTOMER FOCUS ACROSS THE FIRM, 2nd Edition.
(UK) Ltd, 10/2013.

High-Performance Service Innovation

How can a company decide which new offerings will likely be major
successes, and which may be less successful or even fail? How can they
decide which are worthy of investment and which are not?
Choose the Right Projects: Success with new services is going to be
determined by two things: choosing the right projects and doing the projects
right.
Researchers confirm that following the new service development process
discussed earlier in the chapter and illustrated in Figure 8.2 will help with
both these goals.
Service blueprinting, also presented in this chapter, will help as well,
primarily with the second goal.
Another concept, portfolio management for new products, is very useful in
helping companies choose the right projects in the first place.

32
AAU, MSc in Management, Total Quality Management and Organizational Excellence, Service Quality Management, Ethiopia Legesse (D.Sc.)

High-Performance Service Innovation

Using this approach, companies manage their product portfolio like they manage
their financial portfolio.
The approach helps companies prioritize projects, choose which ones to accelerate,
and determine the best balance between risk versus return, maintenance versus
growth and short-term versus long-term projects.
Methods for portfolio management include financial models, scoring models and
checklists, mapping approaches, and behavioral approaches.

Integrate New Services: Because of the nature of services they are

processes, typically delivered at least in part by people, consumed and
produced simultaneously any new service introduction will affect the existing
systems and services.
Unlike when a manufacturer adds a new product to its production facility, new
service introductions are frequently visible to customers and may even require
their participation.
Explicit recognition of these potential impacts, and planning for the integration of
people, processes and physical evidence, will facilitate success.
33

High-Performance Service Innovation

This recognition will help in both (1) deciding which projects to pursue sometimes
the disruptive effect on existing systems is too great to warrant the investment (2)
knowing how to proceed with implementation what elements of existing
processes, people and physical facilities will need to be adjusted, added or changed.

Consider Multiple Measures of Success: In predicting the success of a new

service, multiple performance measures may be considered .
First, and most commonly used, is near-term financial performance including
revenue growth, profitability, market share and return on investment (ROI).
In other cases, relationship enhancement may be a more appropriate measure of
success. This measurement might include:
1. The new services effect on customer loyalty,
2. Image enhancement
3. The effect on the success of other products and services.

34

High-Performance Service Innovation

Alternatively, success may be measured in terms of market development the degree

to which the new service opens up new markets or new customer segments.

Successful projects will lead to increases in one, or perhaps more than one, of these measures.

Maintain Some Flexibility: New service success depends on market-driven, customerfocused new product processes.
Emphasis on planning for and executing the launch; integration of services within
existing processes (including staff training); and strong marketing communications, both
external and internal.
Yet, firms must be cautioned about being too rigid in their service innovation approach.
Steps in the development process should be allowed some flexibility, and there will no
doubt be overlapping processes.

35

High-Performance Service Innovation

Maintain Some Flexibility (cont)
Initial service development, for example, can be occurring simultaneously
with additional gathering of customer information.
Because services, particularly business-to-business services are often very
complex, some creativity and out of order decisions will be needed.
There must be some elements of improvisation, anarchy, and internal
competition in the development of new services.
Consequently, the innovation and adoption of new services must be both a
planned process and a happening.

36