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chapter 3
New Product and Service
Development, and Process
Selection
© The McGraw-Hill Companies, Inc., 2003
PowerPoint
Presentation
by
Charlie
Cook
Managerial Issues
• Product life cycles becoming shorter.
–The need to bring products to market more
quickly and efficiently.
• Conducting product development on a
continuous basis.
–New products may represent a majority of sales
and profits.
–3M an innovative company, having strength to
introduce new products in the market at a faster
pace with a great success record.
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Why the Emphasis on New
Goods and Services
• Increased Competition
ØAdvances in worldwide telecommunications
ØLower trade barriers (import duties and tariffs) and the
creation of trade organizations (NAFTA and European
Union)
ØFaster transportation of goods
• Advances in Technology
ØProducts become obsolete faster.
ØCell Phone sizes & features and PC’s speed and storage
are good examples.
ØImproved manufacturing processes (CAD and CAM and
industrial robots)
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The Benefits of Introducing
New Products Faster
• Greater Market Share
ØEarly entry captures large initial market share.
ØSemi-conductor industry – first two entrants share
majority of market
• Price Premiums
ØAbility to initially charge more for new products.
ØProducts that are late to market have a –ve impact on
profitability in terms of cost overruns.
• Quick Reaction to Competition
ØRapid response to competitor’s new products.
• Set Industry Standards
ØInitial product sets market/industry standards (entry
barriers).
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The New Product
Development (NPD) Process
• New Product Development Process
ØThe method by which new products evolve from
conceptualization through engineering to
manufacturing and marketing.
• Market Success Depends on NPD
ØContinuously generate new product ideas.
ØConvert ideas to reliable functional designs.
ØEnsure that the designs are readily producible.
ØSelect the processes most compatible with
customer needs.
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The New Product
Development (NPD) Process
• Concurrent Engineering
ØThe simultaneous and coordinated efforts of all
functional areas which accelerates the time to
market for new products.
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Concurrent Engineering Approach to NPD
Exhibit 3.4
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The New Product Development
(NPD) Process (cont’d)
• Idea Generation
ØMarket pull: the “voice of the customer” in providing
feedback to determine product specifications.
ØTechnology push: a product developed by the firm’s R&D
is “pushed” into the market. Polaroid Cameras, PCs and
3M’s Post-it Notes are examples
• Concept Development
ØInitial product design developed and tested.
ØAnalysis of the market and customer requirements.
ØBusinesses today recognize the need to involve their
customers in all aspects of design, production and
delivery of goods and services.
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The New Product Development
(NPD) Process (cont’d)
• Quality Function Deployment (QFD)
ØThe process for translating customer requirements into a
product’s design.
• Voice of the Customer
ØCustomer feedback is used in QFD process to determine
product specifications.
ØCustomer attributes:
• Product needs
• Product preferences
ØAttributes are weighted based on their relative importance
to customer.
ØConsumer is asked to compare and rate the company’s
products with those of its competitors.
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The New Product Development
(NPD) Process (cont’d)
• House of Quality
ØThe part of the QFD process that uses customer
feedback for product design criteria.
ØUse of QFD teams
• Identify important customer attributes.
• Design superior product.
• Shorten product design time.
• Facilitate inter-functional cooperation.
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The New Product Development
(NPD) Process (cont’d)
• New Product Planning
1. Build models of new product.
2. Test new elements and components.
3. Conduct detailed investment and financial
analyses of product’s anticipated life cycle.
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The New Product Development
(NPD) Process (cont’d)
• Design for Manufacturability (DFM)
ØChoosing manufacturing methods and
materials.
ØMinimizing the number of individual parts:
• Reduces assembly time.
• Increases reliability.
Ø Setting product specifications.
• Output from the design activity that states all
criteria for building a product.
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Process Selection in Manufacturing
• Types of Processes
–Project process
• Process that focuses on making one-of-a-kind
products.
–Intermittent process
• Process that produces products in small lot sizes
(e.g., job and batch operations).
–Line-flow process
• Continuous process that produces high volume,
highly standardized products (e.g., assembly-line
and continuous operations).
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Process Selection in Manufacturing
• The Product-Process Matrix
–High production volumes and narrow product
lines make specialized equipment and
standardized materials economically feasible.
• Remaining in a process niche after the product
cycle has advanced to its next stage dooms a firm
to market failure.
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New Service Development
Types of Incremental and New Services
Exhibit 3.10
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Categories of New Services
• Incremental services
– Service line extensions
• New services that augment current services.
– New items on restaurant menu, new airline routes.
– Service improvements
• New services in which features have changed relative to
existing services.
– E-ticketing for airlines.
– Style changes
• Modest forms of new services that change only the
appearance of the service.
• Aimed to impact the customer’s perceptions, emotions
and attitudes.
– Renovation of a restaurant, exterior painting of airplane with a new
logo.
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Categories of New Services (cont’d)
• Radical
– New service offerings that were not previously available
or new delivery system for existing service
– Major innovations
• New services in markets not fully defined. Often driven
by computer and information technology.
– Internet banking
– Start-up services
• New services in established markets already served by
existing services.
– Development of SMART card for retail transactions, customer
loyalty card by Lahore Chatkhara.
– New services for current markets
• Added services to current customers.
– PICIC Bank’s kiosk in PC Lahore.
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Categories of New Services
Service Category
Content Change
“Window Dressing”
Not significantly different from other
services
Delivered in similar fashion
Breadth of Offering
Significant design change in content of
service
Delivered in similar fashion
Revolutionary
New in both content and delivery
method
Channel Development
Delivery of same/existing service
through a different/new channel
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Categories of New Services – Contd.
Service Category
Examples
“Window Dressing”
New courses at college
Could be brought into market in a relatively
short period of time.
Breadth of Offering
Marriott has variety, e.g., Fairfield Inns,
Residence Inns, Marriott Courtyards and
Marriott Suites.
Delivered in similar fashion but content is
different
Revolutionary
Overnight delivery service of FedEx using
airplanes
Channel Development
ATM Machines of banks
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New Service Development Process
• NSD is very similar to NPD.
• Designing of Product and Process is carried
out simultaneously.
• It is impossible to separate product from
process.
• The process starts with IDEA.
• R & D in services occurs primarily in the
operations process w.r.t. how the service is
delivered.
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New Service Development (NSD) Process – Contd.
Stage
Activity
Design
Formulating the objectives and strategy of the
new service.
Analysis
Considering the financial implications of the
new service.
Examining supply chain issues for delivery of
service.
Development
Testing the service design, training
personnel, conducting pilot runs.
Full Launch
Releasing the service to the market place.
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The Customer Contact Approach to
Designing Service Processes
• Service systems are generally classified along
industry lines
– Financial services, health services, transportation and etc.
– Such classification does not mention much about process
• Customer Contact
– The presence of the customer in the system.
• Extent of Contact
– The percent of time the customer is involved relative to
the time required to deliver the service.
• Creation of the Service
– The work process involved in providing the service.
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The Customer Contact Approach to
Designing Service Processes
High Degree
of Customer
Contact
High
Low Degree
of Customer
Contact
Percentage of customer contact
(customer influence on the system)
Difficulty in managing system
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Customer Contact Approach – Contd.
• Degree of customer interaction and customization, closely
parallels the degree of customer contact.
• The degree of labour intensity to deliver service is also important
• Service Factory
– Low degree of labour intensity and low degree of customer
interaction and customization
• Service Shop
– Low degree of labour intensity but higher degree of customer
interaction and customization
• Mass Service
– High degree of labour intensity but has a relatively low degree of
customer interaction and customization
• Professional Service
– High degree of labour intensity as well as higher degree of
customer interaction and customization
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Generic Strategies for Service Organizations
• Low Degree of labour intensity
ØCapital intensive with high fixed costs.
ØCan’t easily adjust capacity to meet changes in
demand
ØMust attempt to smooth out demand during
peak periods by shifting it to off-peak periods
• High Degree of labour intensity
ØWorkforce management is paramount.
ØEmphasis should be on hiring training and
scheduling
• Benchmarking of best-in-class companies
could help
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Designing a New Service Organization
• “Service Vision” (Heskett)
–Identification of the target market
• Who is our customer?
–Defining the service concept
• How do we differentiate our service in the market?
–Developing the service strategy
• What is our service package and its operating
focus?
–Creating the service delivery system
• What processes, staff, and facilities are needed?
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Designing a New Service Organization – Contd.
• The process and the product must be developed
simultaneously.
• Service operation itself lacks the legal protection,
commonly available to goods production.
• Service package constitutes the major output of
development process.
• Many parts of the service package often are defined
by training individuals receive before they become
part of organization.
– Professional service organizations, e.g. law firms,
hospitals require certification prior to hiring
• Many service organizations can change their service
offerings virtually overnight.
– Barber shops, retail stores and restaurants
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Service-System Design Matrix – Contd.
• Buffered Core – physically separated from the
customer.
• Permeable System – customer can penetrate via
phone or face-to-face contact
• Reactive System – Penetrable and reactive to
customer requirements
• Greater the amount of customer contact, the greater
the opportunity to generate additional sales.
• Face-to-face loose specs
– Fast food restaurants and Disneyland, neither customer
nor server has much discretion on creating the service
• Face-to-face total customization
– Where the specs. to be developed through some
interaction b/w customer and server, e.g., legal and
medical services
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Strategic Uses of the
Service-System Design Matrix
1.
2.
Enabling systematic integration of operations and marketing strategy.
Clarifying exactly which combination of service delivery the firm is actually
providing.
Ø
3.
Permitting comparison with other firms in the way specific services are
delivered.
Ø
4.
This helps to pinpoint a firm’s competitive advantage.
Indicating evolutionary or life cycle changes that might be in order as the firm
grows.
Ø
5.
As the company incorporates the delivery options (listed on diagonal) it is
becoming diversified in production process.
The evolution of service delivery could move in either direction, unlike to
that in manufacturing where from intermittent operation, movement is
towards continuous operation.
Providing flexibility.
Ø
One can go into depth, placing particular service products of a small firm or
cover a large service organization at more aggregated level.
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Process Selection in Services
• Types of Service Organizations
– Service businesses
• Facilities-based services that provide assistance to
customers who come to the service facility. Banks,
hospitals, law firms.
• Field-based services that provide on-site services to
customers. Cleaning and home repair services.
– Customer support services
• Provide product information and services to current
external customers. Product repair and maintenance
services.
– Internal services
• Provide services for other internal organizational units.
Functions such as, maintenance, accounting.
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Process Selection in Services (cont’d)
• The Production Line Approach
ØOrientation is toward the efficient production of results—
precisely controlled execution of the “central function”.
ØMcDonald’s Big Mac
ØBesides marketing and financial skills, the company carefully
controls the execution of each outlet’s central function – the
rapid delivery of a consistently uniform, high quality mix of
prepared food in a clean environment, with cheerful courtesy.
ØThe systematic substitution of equipment for people,
combined with carefully planned use and positioning of
technology enables McDonald’s to attract customers in unprecedented manner.
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McDonald’s Production Line Approach
ØThe McDonald’s french fryer allows cooking of the optimum
number of french fries at one time.
ØA wide-mouth scoop is used to pick up the precise amount of
french fries for each order size. (The employee never touches the
product)
ØStorage space is expressly designed for a predetermined mix of
pre-packaged and pre-measured products.
ØCleanliness is pursued by providing ample trash cans in and
outside each facility. (larger outlets have motorized sweepers for
parking areas)
ØHambergers are wrapped in color coded paper.
ØThrough painstaking attention to total design and facilities
planning, everything is built integrally into the (McDonald’s)
machine itself – into the technology of system. The only choice
available to the attendant is to operate it exactly as the designer
intended.
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Process Selection in Services – Contd.
• The Customer Involvement Approach
ØHaving the customer take a greater
participatory role in the production of the
service.
• ATMs, self-service gas stations, salad bars, inroom coffee-making equipment in hotel rooms.
ØThis turns customer into partial employees,
who must be trained in what to do and be
compensated primarily through lower prices
that are charged for service.
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Process Selection in Services – Contd.
• The Personal Attention Approach
ØThe central focus is complete customer
attention and satisfaction at all times.
ØIt is the concept of mass-customization, applied
to services.
ØEach customer is treated as an individual, with
the service firm often maintaining a database of
each customer’s likes and dislikes.
ØThis information may be available within one
particular facility or for all facilities of that
organization.
ØRitz-Carlton does it for all of its guests.
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Common Characteristics of
Well-Designed Service Systems
1. Each element of the service system is consistent
with the operating focus of the firm.
2. It is user-friendly—customers can interact easily.
3. It is robust—capable of coping with variations in
demand and resources availability
4. It is structured so that consistent performance by its
people and systems is easily maintained.
Ø
Supportive technologies are truly supportive and
reliable.
5. It provides effective links between the back office
and the front office so that nothing falls between the
cracks.
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Common Characteristics of
Well-Designed Service Systems (cont’d)
6. It manages the evidence of service quality in such a
way that customers see the value of the service
provided.
Ø
This is particularly true where a service improvement
is made. Unless customers are made aware of
improvement through explicit communication about
it, the improved performance is unlikely to gain
maximum impact.
7. It is cost-effective—there is a minimum waste of time
and resources in delivering the service.
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