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The Usage and Effectiveness of New Service Development Tools (by Dayu JIN)

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The purpose of this study is to estimate the usage and effectiveness of NSD tools adopted by Singapore financial service institutions. Specific objectives include: (1) analyze NSD tools usage pattern; (2) assess NSD performance and its measurement; (3) estimate the impact of NSD tools on NSD performance; (4) estimate the influence of NSD innovativeness on the choice of NSD tools.

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The Usage and Effectiveness of New Service Development Tools (by Dayu JIN)

  1. 1. Executive Summary ReportThe Usage and Effectiveness ofNew Service Development ToolsEngineeringManagementResearchGroup
  2. 2. The Usage and Effectiveness of New Service Development ToolsMay 2011________________________________________________________________________________________________________________________________________Jin Dayu1, Chai Kah Hin2, Tan Kay ChuanThe research team would like to thank all participants, contact persons, and secretaries whohad taken the extra mile to help make this study possible.If you have any enquires and comments, please feel free to contact Mr. Jin Dayu atdayu_jin@nus.edu.sg or visit service research blog at http://servicesresearch.blogspot.com.1Jin Dayu is a PhD student at Industrial & Systems Engineering, National University of Singapore2Chai Kah Hin and Tan Kay Chuan are supervisors of Jin Dayu, and they both are associate professors at Industrial & SystemsEngineering, National University of SingaporeEngineeringManagementResearchGroup
  3. 3. EngineeringManagementResearchGroupTABLE OF CONTENTSEXECUTIVE SUMMARY...........................................................................................................................................1INTRODUCTION TO NSD TOOLS........................................................................................................................3SURVEY RESULTS AND MAIN FINDINGS........................................................................................................4NSD Tools Usage Pattern..................................................................................................................................4Tools Usage among Contemporary Financial Institutions ...............................................................4Tools Usage across 5 NSD Stages...............................................................................................................6Tools Usage across Financial Service Industries ..................................................................................7NSD Performance and Its Measurement....................................................................................................9NSD Performance Rating..............................................................................................................................9NSD Performance Measurement.............................................................................................................11NSD Tools Effectiveness.................................................................................................................................13Impact of NSD Tools on Market Performance....................................................................................13Impact of NSD Tools on Operational Performance ..........................................................................15NSD Innovativeness.........................................................................................................................................17NSD Innovativeness across Industries...................................................................................................17Impact of Firm Familiarity on Tools Usage.........................................................................................18Impact of Firm Fit on Tools Usage..........................................................................................................19Impact of Customer Experience on Tools Usage................................................................................20Impact of Behavior Change on Tools Usage........................................................................................21CONCLUSIONS.........................................................................................................................................................22APPENDIX - SURVEY APPROACH AND METHODS ..................................................................................23A Preliminary Analysis of Demographics ...............................................................................................24
  4. 4. 1EngineeringManagementResearchGroupExecutive SummaryEXECUTIVE SUMMARYGrappling with fierce competitions and economic instability, financial serviceinstitutions invest a lot in new service development (NSD) in an attempt to attract newcustomers and gain competitive advantage. However, to their dismay, NSD success rateis on average 58%3. To turn things around, a number of NSD tools have been proposedto facilitate development efforts.The purpose of this study is to estimate the usage and effectiveness of NSD toolsadopted by Singapore financial service institutions. Specific objectives include: (1)analyze NSD tools usage pattern; (2) assess NSD performance and its measurement; (3)estimate the impact of NSD tools on NSD performance; (4) estimate the influence of NSDinnovativeness on the choice of NSD tools.This report is based on information collected from 34 NSD projects in a mailed survey of532 Singapore financial institutions. The results for each objective are presented in thefollowing sections.NSD Tools Usage PatternNSD tools are classified into market tools (to encourage customers’ input) anddevelopment tools (to facilitate technical development and testing). Their usage isinspected by looking into different development stages and industries.• Market tools are used more frequently than development tools. Top 3 market toolsare brainstorming, benchmarking, and scenario planning. Top 3 development toolsare concept testing, structured analysis and design, and service blueprint;• Most market tools are used in NSD stages with intensive customer interaction whilemost development tools are employed in the design and testing stages;• Fund management firms utilize more market tools than other industries, and banksmore development tools.3Griffin, A. (1997). "PDMA research on new product development practices: updating trends and benchmarking best practices."Journal of Product Innovation Management 14(6): 429-458.
  5. 5. 2EngineeringManagementResearchGroupExecutive SummaryNSD Performance and Its MeasurementNSD performance is assessed by differentiating market performance (commercialoutcomes) from operational performance (project execution outcomes). Performancerating and importance attached to specific measurement are evaluated across variousindustries.• Financial service institutions obtain better market performance than operationalperformance. Specifically, real estate firms and banks report above-averageoperational and market results, and insurance firms achieve above-average marketresults;• Firms emphasize more on market outcomes than operational outcomes. PrevalentNSD performance measurements include obtaining high product quality, achievingcompetitive advantages, and satisfying customer needs;• The more the importance is attached to certain performance measurement, thebetter the performance is reported.NSD Tools EffectivenessEach NSD project is labeled as either success or failure according to its marketperformance and operational performance. The tools usage in successful projects iscompared to that in failed projects.• Market tools have a positive impact on operational performance, but not on marketperformance;• Development tools have a positive influence on market performance, but not onoperational performance.NSD InnovativenessNSD innovativeness is mapped along four independent dimensions—firm familiarity,firm fit, customer familiarity, and customer behavior change. Tools usage is comparedbetween projects with higher and lower rating on each dimension.• Most financial products are modifications and extensions of existing products.• Firms are inclined to develop services that are compatible with existing resourcesand are familiar to customers.• NSD tools are used more frequently when (1) service concepts are new to firm; (2)service concepts are new to customers; (3) firm has sufficient capital and humanresources; and (4) behavior change is required for customer consumption.
  6. 6. EngineeringManagementResearchGroupIntroduction toNSD Tools3INTRODUCTION TO NSD TOOLSNSD tools are defined as precisely described methods or procedures for supporting andimproving NSD processes. By referring to the contention that innovation success arisesfrom a combination of technical feasibility and market demand recognition4, we classifiedNSD tools to market and development tools. Market tools are used to engage customers for abetter understanding of their needs and commercial potentials, and development toolssupport development efforts of technical design and testing.Each tool has its own strengths and is intended to tackle with particular issues. Figure 1lists the 13 NSD tools inspected in this study, along with their main and supporting roles. Allof them meet the following criteria: (1) appear most frequently in NSD literature; (2) havebeen applied to real service context; and (3) implementation does not require huge amountof investments.Figure 1: List of tools in this study and their roles in projectsStrategicplanningNeedsidentificationRequirementspecificationServicedesignTrouble-shootingMarkettoolsBenchmarking ●Scenario planning ●Affinity diagram ● ●Brainstorming ● ●Conjoint analysis ● ●Focus group ● ●Lead users ● ●DevelopmenttoolsConcept testing ● ●Quality function deployment ● ●Service blueprint ● ● ●Structured analysis and design ● ● ●Failure modes and effects analysis ●Root cause analysis ●● = main role ● = supporting role4Tatikonda, M. V. and M. M. Montoya-Weiss (2001). "Integrating Operations and Marketing Perspectives of Product Innovation: TheInfluence of Organizational Process Factors and Capabilities on Development Performance." Management Science 47(1): 151-172.
  7. 7. EngineeringManagementResearchGroupSurvey Resultsand Main Findings4SURVEY RESULTS AND MAIN FINDINGSThe following sections elaborate on main findings, based on Facts, Analysis, and Tip.Facts list results in the form of tables and figures. Analysis is a detailed explanation ofthe phenomenon behind Facts. Tip offers managerial recommendations.NSD Tools Usage PatternThe first part discusses overall NSD tools usage, together with usage differences acrossNSD stages and industries.Tools Usage among Contemporary Financial InstitutionsThis section reports overall market and development tools usage.Figure 2 describes the percentage of firm using market tools. Brainstorming,benchmarking, and scenario planning stand out to be the top 3 market toolsused by financial institutions, with more than 50% usage.Figure 2: Percentage of financial institutions using market toolsBrainstorming tops the tools for needs identification owing to itsinexpensiveness and easy-to-use. The high usage of benchmarking showsfirms’ eagerness to get input from competitors, indicating that one of themost used strategies for service firms is to imitate lucrative products from0.910.740.560.470.380.320.240.000.200.400.600.801.00%offirmusingtools
  8. 8. EngineeringManagementResearchGroupSurvey Resultsand Main Findings5others5. Scenario planning is useful to strategically position a company andits services in the marketplace. Struggling with economic stagnation, servicefirms become more prudential, thus putting more weight on strategicplanning. Although scholars advocate the use of lead users and focus group,the high investment required as for capital and time may serve as obstaclesto their adoption.Figure 3 shows the percentage of firm using development tools.Development tools are relatively less utilized, compared to their market toolcounterparts. Top 3 most frequently used tools are concept testing,structured analysis and design, and service blueprint.Figure 3: Percentage of financial institutions using development toolsConcept testing helps firm filter service ideas so that limited resources canbe allocated to those most promising service concepts. Structured analysisand design and service blueprint facilitate formal service design procedures,but it seems that not so many firms are making advantage of them.Surprisingly, tools for trouble-shooting draw very few attentions.Consequently, the disappointing NSD success rate partially attributes tofirms’ unwillingness to detect potential failure and problems.5Semadeni, M. and B. S. Anderson (2010). "The Followers Dilemma: Innovation and Imitation in the Professional Services Industry."Academy of Management Journal 53(5): 1175-1193.0.50 0.500.440.350.21 0.210.000.200.400.600.801.00ConceptTestingStructuredAnalysis andDesignServiceBlueprintQualityFunctionDeploymentFailureModes andEffectsAnalysisRoot CauseAnalysis%offirmusingtools
  9. 9. EngineeringManagementResearchGroupSurvey Resultsand Main Findings6Tools Usage across 5 NSD StagesThis section reports tools usage difference across 5 NSD stages—idea generation andscreen, business and market analysis, service design, testing, and launching6Table 1 describes the percentage of firms who apply certain tool in specificNSD stage. We can see that tools are not used only in stages that match theirmain and supporting roles; rather, a more dispersed manner is observed..Table 1: Percentage of firms that apply NSD tools in each stageIdeagenerationand screenBusinessand marketanalysisServicedesignServicetestingServicelaunchingMarkettoolsBenchmarking (25) 44% 76% 60% 28% 24%Scenario planning (19) 42% 74% 53% 32% 16%Affinity diagram (8) 13% 50% 38% 13% 0%Brainstorming (31) 77% 58% 74% 13% 35%Conjoint analysis (11) 27% 36% 73% 36% 9%Focus group (16) 50% 56% 63% 50% 50%Lead users (13) 23% 38% 77% 69% 38%DevelopmenttoolsConcept testing (17) 47% 24% 41% 47% 29%Quality function deployment (12) 17% 25% 83% 25% 8%Service blueprint (15) 20% 27% 80% 60% 33%Structured analysis and design (17) 29% 47% 82% 41% 24%Failure modes and effects analysis (7) 29% 43% 71% 57% 14%Root cause analysis (7) 43% 57% 29% 43% 57%■ Significantly higher than usage in other NSDstages (p<.05)■ Significantly lower than usage in other NSDstages (p<.05)Note: Parentheses indicates the number of firms using that tool.Generally, most market tools are used in stages with intensive customerinteraction while most development tools are employed in the design andtesting stages. One interesting finding is that two testing tools—failuremodes and effects analysis and root cause analysis—are not significantlyused more frequently in the testing stage. This indirectly confirms thatfinancial service firms may not have rigorous development procedures.Another finding is that the tools usage in service launching stage is6Song, L., M. Song, et al. (2009). "A Staged Service Innovation Model." Decision Sciences 40(3): 571-599.
  10. 10. EngineeringManagementResearchGroupSurvey Resultsand Main Findings7significantly lower than the usage in other stages, this can be contributed tofirms paying fewer attentions to service launching in NSD projects.Service firms should follow a formal NSD process— idea generation andscreen, business and market analysis, service design, testing, and launching.In this way, roles and responsibilities of each functional department becomeclear and suitable NSD tools can be applied to each stage.Tools Usage across Financial Service IndustriesThis section looks into tools usage difference across financial service industries.Table 2 maps tools usage across several financial service industries. Fundmanagement firms utilize more market tools than banks and insurancecompanies, and banks use more development tools than other industries.We should be cautious about real estate sample in that it comprises only twofirms.Table 2: Percentage of firms from each service industry that apply NSD toolsBank(8)Fund mgmt(11)Insurance(8)Real estate(2)Other(5)MarkettoolsBenchmarking 75% 82% 62.5% 100% 60%Scenario planning 50% 55% 62.5% 50% 100%Affinity diagram 0% 36% 37.5% 0% 20%Brainstorming 87.5% 91% 100% 100% 80%Conjoint analysis 25% 45% 37.5% 0% 20%Focus group 62.5% 36% 25% 100% 60%Lead users 37.5% 27% 25% 100% 60%DevelopmenttoolsConcept testing 50% 36% 75% 0% 60%Quality function deployment 37.5% 36% 50% 0% 20%Service blueprint 50% 36% 50% 0% 60%Structured analysis and design 62.5% 36% 50% 100% 40%Failure modes and effects analysis 25% 27% 0% 0% 40%Root cause analysis 25% 27% 12.5% 0% 20%■ Significantly higher than usage in otherindustries (p<.05)■ Significantly lower than usage in otherindustries (p<.05)Note: Parentheses indicates the number of firms from that industry.
  11. 11. EngineeringManagementResearchGroupSurvey Resultsand Main Findings8All financial institutions rely heavily on benchmarking and brainstormingfor market and competitor information. These tools help generateinnovative ideas that meet customers’ changing needs and industrialstandards. More banks harness focus group. This is most useful when theywant to thoroughly understand customer needs of a specific target group.With regard to development tools, banks make the most use of structuredanalysis and design and service blueprint, and this means that they attachmore emphases on service design than other industries. Insurancecompanies utilize significantly more concept testing tools, reflecting theirdiscretion in judging new service ideas. Fund management companies rankbelow average as for development tool usage. One explanation is that theirbusiness decisions relate largely to investment, which requires less efforts inservice design and testing.Banks and insurance firms can consider using more market tools to solicitcustomer preferences and needs. While service imitation is the rule of game,developing services outperforming competitors is a more effective way toachieve competitive advantage.Service failure could drive the reputation down and make customers shift toother service providers. Financial institutions, especially insurancecompanies and fund management firms, should utilize more developmenttools so that potential problems can be detected before services arelaunched to market.
  12. 12. EngineeringManagementResearchGroupSurvey Resultsand Main Findings9NSD Performance and Its MeasurementThe second part discusses NSD performance rating and importance attached to eachmeasurement. Two independent performance categories are referred to—marketperformance assesses the commercial outcome after service is launched to the marketand operational performance describes how NSD project is executed andoperationalized7.NSD Performance RatingThis section reports NSD performance rating of each industry.Figure 4 describes operational and market performance across industries ona 1-7 scale (1=much worse than targeted, 4=exactly on target, 7=muchbetter than targeted). On the whole, firms achieve better marketperformance than operational performance. Specifically, real estate firmsand banks report both above-average operational and market performance,and insurance firms achieve above-average market performance.Figure 4: Overall NSD performance across industriesIt is possible for a new service to achieve market success in terms of marketshare, but it may incur substantial development costs and time, so it isimportant to distinguish both. This explains why operational and marketperformance differ.7Blindenbach-Driessen, F., J. Van Dalen, et al. (2010). "Subjective Performance Assessment of Innovation Projects." Journal ofProduct Innovation Management 27(4): 572-592.4.464.794.244.414.255.025.00 4.923.804.40Operational performance Market performanceBank Fund Mgmt Insurance Real estate OtherMean4.27Mean4.67
  13. 13. EngineeringManagementResearchGroupSurvey Resultsand Main Findings10Table 3 further details on NSD performance rating. Fund management firmsrank the highest regarding cost objective, but the lowest as for time-to-market objective. Real estate companies rank the highest with respect toquality and market-opening objective.Table 3: Break-down of NSD performance across industriesBankFundmgmtInsu-ranceRealestateOtherOperationalTime-to-market objective met? 4.00 3.18 3.63 4.50 3.60Project cost objective met? 4.50 4.64 3.75 4.50 3.40The product was of excellent quality. 4.88 4.91 5.38 6.00 4.40MarketProfit objective met? 4.00 3.82 4.75 4.00 3.60Revenue objective met? 4.25 3.73 4.63 4.00 3.60Market share objective met? 3.88 3.45 4.38 4.00 3.40The product provided firm a competitive advantage. 5.38 5.09 5.88 5.50 5.40The product satisfied customers’ needs. 5.63 5.18 5.50 5.50 4.80The product opened up a new market for our firm. 5.63 5.18 5.00 6.50 5.60■ Significantly better than performance ofother industries (p<.05)■ Significantly worse than performance of otherindustries (p<.05)Interestingly, all firms report higher scores for the last three marketperformance measurements, which are more subjective. This reminds usthat managers tend to exaggerate subjective ratings, so companies shouldkeep an eye on such measurement’s limitation.Accurate assessment is crucial to allocate key resources and to abandonunfavorable projects. When evaluating NSD projects, companies are advisedto devise a rigorous measurement system. NSD project should be evaluatedby covering both operational and market performance. Also, subjectivemeasurements should be used with cautions because managers are tendedto exaggerate such ratings.
  14. 14. EngineeringManagementResearchGroupSurvey Resultsand Main Findings11NSD Performance MeasurementThis section reports the importance attached to each NSD performance measurment.Figure 5 demonstrates the importance attached to performancemeasurement on a 1-7 scale (1=not important at all, 4=neutral, 7=veryimportant). In general, firms emphasize more on market than operationaloutcomes. Banks and real estate firms attach above-average importance toboth operational and market performance.Figure 5: Importance attached to NSD performance across industriesRecalling the data presented in Figure 4, we discover that—the more theimportance is attached to certain performance measurement, the better theperformance are reported. The reason for this is that companies will commitmore resources to tackle areas that they want to address, and this will resultin the better performance in these areas.Table 4 illustrates the weights assigned to individual measurement. As foroperational performance, all industries underline the importance of productquality. Achieving competitive advantage and satisfying customer needs arethe top market related priorities among all industries. For respectiveindustry, banks emphasize the most on time-to-market objective, while realestate firm stress the most on profit and revenue targets.5.465.714.885.114.625.235.676.174.735.57Operational performance Market performanceBank Fund Mgmt Insurance Real estate OtherMean4.98Mean5.41
  15. 15. EngineeringManagementResearchGroupSurvey Resultsand Main Findings12Table 4: Importance attached to individual measurement across industriesBankFundmgmtInsu-ranceRealestateOtherOperationalTime-to-market objective met? 5.50 4.45 3.88 5.00 4.60Project cost objective met? 5.13 4.82 4.25 5.50 4.20The product was of excellent quality. 5.75 4.36 5.75 6.50 5.40MarketProfit objective met? 5.63 5.00 5.25 6.50 5.20Revenue objective met? 5.63 4.91 4.63 6.50 5.40Market share objective met? 4.75 4.00 4.13 5.50 4.40The product provided firm a competitive advantage. 6.13 5.64 6.13 6.50 6.00The product satisfied customers’ needs. 6.38 5.73 5.88 6.50 6.00The product opened up a new market for our firm. 5.75 5.36 5.38 5.50 6.40■ Significantly more weight than otherindustries (p<.05)■ Significantly less weight than other industries(p<.05)Firms are recommended attaching importance not only to market outcomesbut also to operational results. Cost efficiency, market responsiveness, andquality orientation are especially important at a time when economicturmoil continues and business development is largely constrained bylimited resources.
  16. 16. EngineeringManagementResearchGroupSurvey Resultsand Main Findings13NSD Tools EffectivenessThe third part discusses whether NSD tools usage associates with improved NSDperformance.Impact of NSD Tools on Market PerformanceThis section reports the relationship between NSD tools usage and market performance.The sample is split into two groups based on market performance. Projects labeled assuccess are those with mean higher than 4.00. This results in 19 successful projects withmean of 5.38 and 15 failed projects with mean of 3.78. The differences noted in twosamples are statistically significant (p<.05).Figure 6 describes the percentage of firms using market tools from bothsuccess and failure groups. Generally speaking, market tools usage does notsignificantly differentiate market success from failure. Benchmarking andleader users are the tools that associate with 10% more usage in successfulprojects. All other tools do not manifest themselves in a significant way, withless than 10% usage difference.Figure 6: Impact of market tools on market performance0.930.780.560.41 0.410.330.220.860.57 0.570.710.29 0.29 0.290.000.200.400.600.801.00%offirmusingtoolSuccess Failure
  17. 17. EngineeringManagementResearchGroupSurvey Resultsand Main Findings14The higher utilization of benchmarking in successful projects points out thatimitating competitor services is one of the effective NSD strategies. Leadusers is most useful to dig deep into customers’ unspoken needs so that newservice will stand a high chance to delight its users. Notice that focus grouphas a large popularity among failed projects. This does not necessarily meanthat it impose negative impact on performance. One possibility is that firmsare not making full advantage of its benefits.Figure 7 illustrates the percentage of firms using development tools fromeach group. It is safe to draw the conclusion that development toolsinfluence NSD performance in a positive way. The most effective tools areconcept testing, service blueprint, and quality function deployment.Figure 7: Impact of development tools on market performanceBoth concept testing and quality function deployment assist companies infiltering service ideas and translating them into development specifications.And as a result, resources can be committed to the most promising projects.Service blueprint helps to map out service delivery processes so thatpotential problems can be identified and solved before final roll-out. In spiteof their effectiveness, development tools are utilized by less than 50% firms(refer to Figure 3). We suggest service firms recognizing their value andtrying to apply them to NSD projects.0.560.52 0.520.410.22 0.220.290.140.430.14 0.14 0.140.000.200.400.600.801.00ConcepttestingServiceblueprintStructuredanalysis anddesignQualityfunctiondeploymentFailuremodes andeffectsanalysisRoot causeanalysis%offirmusingtoolSuccess Failure
  18. 18. EngineeringManagementResearchGroupSurvey Resultsand Main Findings15Impact of NSD Tools on Operational PerformanceThis section reports the relationship between NSD tools usage and operationalperformance. We divide samples into successful and failed projects according tooperational performance. Those projects with mean higher than 4.00 are rated assuccessful. This leads to 19 successful projects with mean of 4.81 and 15 failed projectswith mean of 3.60. The differences noted in two samples are statistically significant(p<.05).Figure 8 presents the percentage of firms using market tools from twogroups. One the whole, successful NSD projects use market tools morefrequently. The most effective tools are benchmarking, scenario planning,and lead users.Figure 8: Impact of market tools on operational performanceCompared to the result shown in Figure 6, scenario planning seems to playan important role in enhancing operational performance. The reason is thatit helps firm forecast situational factors surrounding a new service, lowingdevelopment risks. On the other hand, focus group and conjoint analysiscontribute negatively. One explanation is that the use of focus groupnecessitates quite a lot of implementation time, and this prolongs thedevelopment time and leads to lower operational performance. Therefore,it’s crucial to carefully pick tools that meet real NSD needs.0.950.840.630.470.370.26 0.260.870.600.470.270.600.200.400.000.200.400.600.801.00%offirmusingtoolSuccess Failure
  19. 19. EngineeringManagementResearchGroupSurvey Resultsand Main Findings16Figure 9 describes the percentage of firms using development tools fromtwo samples. To our surprise, development tools, which are intended tofacilitate operations efforts, do not show their values in improvingoperational performance. The relatively effective tool is root cause analysis.Figure 9: Impact of development tools on operational performanceThis can be the result of limited number of tools that are used. Figure 3indicates that less than 50% of the firms use development tools, so it isdifficult to detect differences basing on such a small sample. Also, it ispossible that tools usage requires allocation of additional resources andefforts, such as time and costs.Brainstorming, benchmarking and lead users are market tools which proveto be effective in enhancing both market and operational performance.Firms that have not employed them yet are thus recommended using themin future projects.All development tools listed in this study have positive impacts on marketperformance. Besides, quality function deployment, root cause analysis, andfailure modes and effects analysis are also effective in strengtheningoperations capability. Considering their low usage, we propose thatmanagers should consider adopting them in future projects.0.47 0.470.420.370.260.210.53 0.530.470.330.130.200.000.200.400.600.801.00ConcepttestingStructuredanalysis anddesignServiceblueprintQualityfunctiondeploymentRoot causeanalysisFailuremodes andeffectsanalysis%offirmusingtoolSuccess Failure
  20. 20. EngineeringManagementResearchGroupSurvey Resultsand Main Findings17NSD InnovativenessThe forth part reports NSD innovativeness across different industries and discusses theinfluence of NSD innovativeness on the choice of NSD tools.NSD Innovativeness across IndustriesThis section reports NSD innovativeness along its four dimensions8Figure 10 depicts service innovativeness on a 1-7 scale (1=least innovative,4=neutral, 7= most innovative). On the whole, financial service products arenot innovative. The most innovative products are from real estate firms.Services from other industries have innovativeness less than 4.00 (neutral).. Firm familiaritystands for the extent to which firms are familiar with market needs and technologyinvolved. Fit indicates the synergy between firms’ internal resources and therequirements for the NSD project. Customer experience refers to the experience thatcustomers will have in getting and using the services. Behavior change reflects theextent to which changes of consumption patterns are needed for customers.Figure 10: Service innovativeness across industries8Danneels, E. and E. J. Kleinschmidt (2001). "Product innovativeness from the firms perspective: its dimensions and their relationwith project selection and performance." Journal of Product Innovation Management 18(6): 357-373.Calantone, R. J., K. Chan, et al. (2006). "Decomposing Product Innovativeness and Its Effects on New Product Success." Journal ofProduct Innovation Management 23(5): 408-421.3.831.712.583.423.451.912.763.393.671.673.213.174.672.833.504.003.402.402.803.33FirmfamiliarityFitCustomerexperienceBehaviorchangeBank Fund Mgmt Insurance Real estate Other
  21. 21. EngineeringManagementResearchGroupSurvey Resultsand Main Findings18The results show that most new services are just modification of existingservices. Given innovativeness dimensions, most firms are inclined todevelop services that are compatible with current capital and humanresources and they are reluctant to launch services that are unfamiliar tocustomers. Comparatively, companies are more flexible as for firmfamiliarity and customer behavior change.Financial institutions should step out of the box and provide moreinnovative products. While services are easily copied, first mover in financialservice industry enjoys benefits such as lower costs and better reputation9.Impact of Firm Familiarity on Tools UsageThis section discusses the impact of firm’s familarity on NSD tools usage. Each project isclassified into one of the two groups basing on whether its familarity rating is higher orlower than overall familarity mean (3.66).Figure 11 describes the percentage of firms using tools when the serviceconcept is either new or familiar to them. Generally, more firms tend to useNSD tools for projects with service concept that are new to them.Figure 11: Tools usage in projects with different degree of firm familiarity9Tufano, P. (1989). "Financial innovation and first-mover advantages." Journal of Financial Economics 25(2): 213-240.0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00Failure modes and effects analysisRoot cause analysisAffinity diagramConjoint analysisQuality function deploymentService blueprintScenario planningFocus groupLead usersConcept testingStructured analysis and designBenchmarkingBrainstormingService concept new to firm Service concept familiar to firm% of firm using tools
  22. 22. EngineeringManagementResearchGroupSurvey Resultsand Main Findings19Market tools, such as brainstorming, benchmarking, lead users, focus group,and affinity diagram, are more frequently utilized in innovative projects.They provide firm a better understanding of customer needs. As fordevelopment tools, structured analysis and design, concept testing, andquality function deployment are more frequently used. On the contrary,scenario planning, conjoint analysis, root cause analysis, and failure modesand effects analysis are less used in more innovative projects. Oneexplanation is that firms are unable to conduct rigorous service testing andaccurate forecasts when they are unfamiliar to service concepts.When the service concept is new to firm, market tools should be used morefrequently to get a better understanding of customer needs.Impact of Firm Fit on Tools UsageThis section discusses the impact of firm’s fit on NSD tools usage. Each project isclassified into one of the two groups basing on whether its fit rating is higher or lowerthan overall firm fit mean (1.93).Figure 12 describes the percentage of firms using tools when they possessenough or inadequate resources. The result shows that when companies areequipped with enough resources, they are more likely to employ NSD tools.Figure 12: Tools usage in projects with different degree of firm fit% of firm using tools0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00Failure modes and effects analysisAffinity diagramConjoint analysisRoot cause analysisQuality function deploymentService blueprintLead usersConcept testingScenario planningFocus groupStructured analysis and designBenchmarkingBrainstormingFirm with inadequate resources Firm with enough resources
  23. 23. EngineeringManagementResearchGroupSurvey Resultsand Main Findings20This reminds managers that resource commitment is one of the key factorsthat affect tools usage. If companies want to reap the benefits of NSD tools, itis important to enhance empowerment of NSD team by committing enoughcapital and human resources. As for market tools, firms with adequateresources tend to use more brainstorming, benchmarking, conjoint analysisand scenario planning. Concept testing, service blueprint, and qualityfunction deployment are frequently used when project shows a bettercompany-project fit.The lack of resource commitment imposes a constraint feeling todevelopment teams. In order to fully harness NSD tools, management shoulddevote enough capital and human resources.Impact of Customer Experience on Tools UsageThis section discusses the impact of customer experience on NSD tools usage. Eachproject is classified into one of the two groups basing on whether its customerexperience rating is higher or lower than overall customer experience mean (2.87).Figure 13 depicts the percentage of firms using tools when service concept isnew or familiar to customers. The result manifests that projects whoseservice concepts are new to customers are associated with higher toolsusage, especially service blueprint, lead users, and root cause analysis.Figure 13: Tools usage in projects with different degree of firm fit% of firm using tools0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00Affinity diagramFailure modes and effects analysisConjoint analysisRoot cause analysisQuality function deploymentConcept testingFocus groupLead usersStructured analysis and designScenario planningService blueprintBenchmarkingBrainstormingService concept new to customers Service concept familiar to customers
  24. 24. EngineeringManagementResearchGroupSurvey Resultsand Main Findings21Lead users is one tool that can be used to solicit latent customer needs. In asituation where most customers are unfamiliar with the service concept, it isuseful to resort to a small number of customers whose needs will becomepopular in the near future. Service blueprint and root cause analysis areused more frequently in innovative projects because firms want to makesure that potential service failure is lowered to minimum so as not to add upto existing risks associated with customer unfamiliarity.Service firms should take more responsibilities in visualizing customerneeds and testing prototypes when customers are unfamiliar to the serviceconcept. Tools like service blueprint, lead users, and root cause analysis arethe most frequently used tools in such situation.Impact of Behavior Change on Tools UsageThis section discusses the impact of customer behavior change on NSD tools usage. Eachproject is classified into one of the two groups basing on whether customer behaviorchange rating is higher or lower than overall bahavior change mean (3.37).Figure 14 illustrates the percentage of firms using tools when serviceconsumption requires high or low degree of behavior change. The resultsshow that when more behavior change is required, firms tend to use moretools, especially market tools like brainstorming, benchmarking, lead users,focus group, and conjoint analysis.Figure 14: Tools usage in projects with different degree of behavior change0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00Failure modes and effects analysisAffinity diagramRoot cause analysisConjoint analysisQuality function deploymentService blueprintStructured analysis and designScenario planningFocus groupLead usersConcept testingBenchmarkingBrainstormingConsumption requires more behavior change Consumption requires less behavior change% of firm using tools
  25. 25. EngineeringManagementResearchGroupSurvey Resultsand Main Findings22The result provides support to the fact that more firms will use NSD tools todevelop services whose consumption requires more behavior change.Especially, financial service firms intend to use more market tools, such asbrainstorming, benchmarking, lead users, focus group, and conjoint analysis.Most customers are reluctant to adopt services which will change theirconsumption patterns, so this propels firms to use more make tools to figureout the trade-offs. One interesting finding is that services with highinnovativeness are less likely to undergo testing through tools, such as rootcause analysis and failure modes and effects analysis. Perhaps it is difficultto find customers to test a service which is out of their frame of reference.Bigger role has to be taken by firms when the service consumption requiresmore behavior change. Tools, such as benchmarking, lead users, and focusgroups, are used more frequently by firms facing such scenario.CONCLUSIONSThis study looks into the usage and effectiveness of NSD tools by surveying Singaporefinancial service institutions.Our analyses confirm the relationship between NSD tools usage and improved NSDperformance. Despite the high usage of market tools, less development tools are used. Wesuggest firms adopting more development tools because they are useful in reducing risks.Financial service firms pay more attention to market performance though; equalimportance should be attached to operational outcomes in the face of current economicstagnation.Most of the new services are just modification of existing ones. To achieve sustainablecompetitive advantage and good reputation, firms should consider taking the lead indeveloping more innovative services. Firms are recommended using more tools whenengaging in innovative projects.
  26. 26. 23EngineeringManagementResearchGroupAppendixAPPENDIX - SURVEY APPROACH AND METHODSSurvey method was used in this study. A company list was constructed by combiningfinancial institutions directory from Monetary Authority of Singapore10 and thecommercial database provided by OneSource11. Chief executive officer or principalofficer from each company was requested for information about one NSD projectconducted in the recent 3 years. Table 5 presents a summary of demographics.During November 2010, 555 invitation letters were sent out, and 23 firms declinedparticipation. One week later, survey packages with cover letter and questionnaire weremailed to the rest 532 companies. Reminder letters were sent out two weeks afterwards.During the end of December 2010, phone calls were made to those who did not respond.By the mid of February, 68 companies declined participation through emails or phonecalls, and another 34 were undeliverable due to wrong addresses.Table 5: Demographics of responses from postal mailWith NSD (34) Without NSD (29)IndustryBanks 24% (8) 34% (10)Fund mgmt 32% (11) 17% (5)Insurance 24% (8) 21% (6)Real estate 6% (2) 3% (1)Trust 0% (0) 0%Other 15% (5) 24% (7)# of employeein Singapore *<100 56% (19) 83% (24)100-499 36% (12) 10% (3)500-999 3% (1) 7% (2)>1000 6% (2) 0%Business typeB-2-B 41% (14) 59% (17)B-2-C 32% (11) 21% (6)Mix 26% (9) 21% (6)OwnershipLocal 38% (13) 17% (5)Foreign 59% (20) 83% (24)Joint-venture 3% (1) 0%Revenue *<$24M 47% (16) 69% (20)$25-99M 18% (6) 17% (5)$100-499M 12% (4) 10% (3)>$500M 24% (8) 3% (1)Note: Parentheses indicates the number of respondents.* indicates two samples are significantly different (p<.05).10http://www.mas.gov.sg/fi_directory/index.html11http://www.onesource.com/
  27. 27. 24EngineeringManagementResearchGroupAppendixIn total, 99 responses—34 via phone call 65 via postal mail—were received, resulting ina response rate of 18.6%. 63 responses indicating no NSD activities were exclude fromfurther analysis, together with the two that provided incomplete NSD data. Therefore,following sections in this report are based on the 34 usable responses.A Preliminary Analysis of DemographicsThe sample with NSD is largely comprised of banks (24%), fund management firms(32%) and insurance firms (24%). Nearly half of them have less than 100 employeesand generate less than $24 million revenue, implying that they are mainly SMEs (Smalland Medium Enterprise). However, a close look on the ownership data shows that 59%of them have foreign ownership. This means that they are most likely to be branches oflarge MNCs (Multi-National Company), so our data do not bias towards SMEs.We conducted T-test between the two samples with NSD and without NSD activities.Significant differences are reveals in terms of employee number and revenue. For firmswith employee number less than 100, only 44% (19/43) of them had NSD. On the otherhand, for firms having more than 100 employees, 75% (15/20) of them conducted NSD.This shows that large financial service firms are more likely to implement NSD projects.The reason is that they usually enjoy more capital and human resources than smallerfirms.

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