services or processes, see e g. Herstatt et al. 2007b). ) Opportunities presented by the globalization and the entwined, simultaneous pressure to innovate,
For the purpose of this paper, we may regard innovation as invention and commercialization of new (or betterment of existing) products, processes and/or services (Tiwari, 2007.
For the increased competition is ultimately beneficial for the consumer in the form of cheaper and/or better goods and services.
New markets however (may) also require products and services which are adapted to the local needs and tastes of those markets.
and cost-effective production distribution and after-sales services; see e g. Dangayach et al. 2005) and Spielkamp & Rammer (2006.
and services faster Develop products and services cheaper Develop better products and services Improve competitive position Enhance profitability,
strengthen stability BARRIERS TO INNOVATION IN SMES: CAN THE INTERNATIONALIZATION OF R&d MITIGATE THEIR EFFECTS?
R. Tiwari and S. Buse (October 2007) Page 8 of 31 more informal manner and confronted with fewer intra-firm hierarchy levels than large firms,
and Services sector. To reduce the time needed to fill out the questionnaire, respondents could choose to answer only questions from modules which,
R. Tiwari and S. Buse (October 2007) Page 10 of 31 Services; 11%Electronics; 16%IT;
or services to meet new market demand, introducing new processes to improve productivity, developing or applying new marketing techniques to expand sales opportunities,
The present study is conducted in the context of Malaysian SMES using a sample of 870 SMES from both manufacturing and services sectors.
adaptation and utilization of a value-added novelty in trade and industry spheres, regeneration and expansion of product, services and markets, making of new ways of product development and establishing new Mathematical Methods
METHODOLOGY For the present study, sample consisted of SMES belonging to both manufacturing and services sectors.
Services SMES Sector Mean Std. Dev. Manufacturing 1. 5461 1. 28777 To replace products Services 1. 0696 1. 19622 To improve product Manufacturing 2. 3775 1. 04685 quality Services 1. 6917
1. 32562 To extend product Manufacturing 2. 2247 1. 11048 range Services 1. 5143 1. 26809 To open up new Manufacturing 2. 2989 1. 13428 markets
or increase market share Services 1. 6289 1. 27987 N 870 To assess whether the sampled SMES were involved in any activities related to R&d,
managers were asked about their response on a dichotomous scale. The result is shown in Table 3. Table 3 R&d Activities of SMES In-house R&d Outside Acquisition of R&d External knowledge Response Training%%%No 59.4 88.4 84.9
The results also suggest that the manufacturing companies are involved more in research and development activities than their counterparts in the services industry.
Development & Innovation environment for SMES, including through the establishment and facilitation of a range of support services,
processes, services, marketing etc.)is done. It launches companies into new markets, promote growth, and create high returns of investment.
which provide indirect support to SMES in the form of tailored services and projects (innovation management capacity building, IPR management,
IPORTA 2-Increasing the quality of IP advisory services to SMES...15 INNOSUP-4-2014:
27 1-Establishing services Enhancing the innovation management capacity of SMES in the Enterprise Europe Network...
and providing better innovation support services to SMES. In addition the analysis of current SME innovation activities and their future development are covered themes by innovation in SMES.
services, marketing etc.)is done. It will launch the company into new markets, promote growth, and create high return on investment.
which it is presented (new products, processes, design, services and technologies or new market applications of existing technologies).
and services as well as access to the financial facilities supported under Access to Risk Finance of this work programme. 5 For topic PHC-12-2014/2015,
subsidised loans, equity and a wide range of innovation support services. However, SMES receiving innovation support often remain dissatisfied with the services they receive;
while at the same time the public expects a higher return from the support provided. While major new drivers for SME innovation, like online collaboration or reverse innovation, are recognised hardly by the public support provided,
established support services assist mainly clearly defined technical projects within single enterprises. Public support pays much less attention to the creation of favourable ecosystem for SME innovation in which public enterprises, SME intermediaries, direct and indirect customers, end-users,
Where appropriate, a highly specialised support service may be established at European level to complement existing national and regional services.
and regions to enhance their services through collaboration, peer-learning and uptake of new approaches.
and services that require combining different competences and innovative solutions. The development of new industrial value chains calls for the collaboration and integration of different innovation actors, including large enterprises and especially SMES, across different sectors towards the implementation of a joint vision.
Provide a clear and measurable contribution to the innovation performance of the supported SMES in the short-term as revealed by indicators such as numbers of new or significantly improved products (goods and/or services), processes, new marketing methods,
In particular, the services offered by this helpdesk should follow closely the recommendations stemming from a document prepared as a follow-up of the external evaluation of the Helpdesk.
The services offered by this helpdesk should follow closely the recommendations stemming from a Commission document prepared as a follow-up of the external evaluation of the Helpdesk.
and should follow the target group's demand for initial IPR services as established e g. through analysis of helpline requests,
or feedback from trainings and from cooperating business services organisations. Depending on the demand of the target group the activities may be provided in the most demanded EU languages.
Establish support services and cooperation structures with intermediaries (like the regional consortia of the Enterprise Europe Network
IPORTA 2-Increasing the quality of IP advisory services to SMES Specific challenge: Managing Intellectual Property rights (IPR) is a difficult task, especially for Small, Medium and Micro Enterprises (SME) or individual inventors.
and 4. National Intellectual Property Offices (NIPOS) would provide better IPR services to SMES. Scope:
and provide better services to SMES, including providing information on the business use of European level rights (Unitary Patent,
or individual inventors and how to offer services to this target group. The initial pilot implementation of new services by NIPOS can be included as well as the update of the analysis of current SME needs for IPR support services.
The future beneficiary consortium should take care of the joint website www. innovaccess. eu. Upgraded or new services and trainings for the target group will be provided by the national IP offices to be implemented either by the NIPOS themselves or by the business support providers.
Where needed professional legal attorneys should be trained to tailor their advice and to build IPR strategies matching the needs
and expand business support service providers'intellectual asset services in conjunctions with NIPOS. 70%of the provided grant should be spent on joint actions described above directly with the national IP offices using the provisions of financial support
and exchange materials with other Commission services IPR projects: IPR helpdesks and the transatlantic portal.
Upgrade or create new services and trainings for the target groups according to the needs of SMES.
or indirectly benefitting from the upgraded or new services and trainings. Existing IP, like the common website (innovaccess),
skills and innovation support services from both public and private service providers across Europe more effectively accessible for SMES."
and award the label might provide services to participating managing entities of innovation voucher programmes which enhance the quality of delivery
and quality of services available to SMES, Enhance the opportunities of excellent researchers and other specialists to transfer their knowledge transnationally
and SMES benefitting from support the programmes still often remain dissatisfied with the services received15.
Innovation support services are addressing this challenge traditionally by two interventions that are combined often:(a) the provision of networking space for personal meetings
'Social media and other web-based services challenge these existing approaches and ask for their revision. The british‘connect'platform is the first publicly financed innovation platform on the web that creates a protected space for companies to display their competences, interest and skills,
In that respect they could benefit from a new generation of support services that assist to create value from online collaboration with a group of contacts
make such new services accessible for enterprises in sectors that are typically not yet benefitting from innovation support;
curriculum and training courses for staff currently providing brokerage services in established networks or SME agencies.
Tests of services shall be undertaken on platforms that are open and bring together already a critical mass of enterprises and innovation stakeholders.
New services assisting online collaboration for innovation help SMES to access a broader range of potential innovation partners and mobilise them in a timely manner for concrete projects.
but not limited to the services of Enterprise Europe Network is enhanced. Resources in public innovation support are reoriented from information and brokerage functions
and will be implemented by the Commission services. HORIZON 2020 WORK PROGRAMME 2014-2015 Innovation in SMES PART 7-Page 21 of 37 resource optimisation or networking (Vanhaverbeke et al.
and the services supporting them professionalised. At the same time financial and management reporting need to catch up with the logic of open innovation.
-initially proposed services to be developed to the target group and to a relevant part of the legal profession;
IPORTA 2-Increasing the quality of IP advisory services to SMES INNOSUP 6 2015: Capitalising the full potential of online-collaboration for SME innovation support INNOSUP-7-2015:
1-Establishing services Enhancing the innovation management capacity of SMES in the Enterprise Europe Network Lack of innovation management capacity is recognised as an important barrier to creating economic impact (competitiveness, growth and jobs
and coaching services to beneficiaries to address this need. The Enterprise Europe Network is a European-wide network of public
public-private and private providers of support services to SMES established for the period 2008-14 under the Competiveness and Innovation Framework Programme (CIP.
A large number of members in the network provide already a range of innovation support services.
The network is most well-known for services related to partnering for business and innovation. The Enterprise Europe Network is a
therefore a suitable structure to introduce services Enhancing the innovation management capacity of SMES and make available to SMES higher quality innovation support services where these are absent or unaffordable on local markets.
It is proposed that all information and partnering services of the network, including those specific to Horizon 2020,
will be financed under the COSME programme in order to reduce the administrative complexity of projects. A contribution of Horizon 2020 to the Network should exclusively be allocated to new and additional innovation support services,
like those enhancing the innovation management capacity of SMES. This action will establish and provide the above mentioned services addressing in general SMES with significant innovation activities and in particular the beneficiaries of the SME instrument.
The services will be provided in the current Enterprise Europe Network in the year 2014 and as distinct element of the Enterprise Europe Network (2015-21.
To that end the action is broken down in two elements: I. Service provision in 2014 In 2014,
a gap analysis and the provision of 5 days of targeted services to address recognised gaps.
This open call will include the requirement‘Provision of services to enhance innovation management capacity of SMES,
and its services in the regional ecosystem of SME support in order to minimize market distorting effects.
and profitability of SMES receiving the services as compared to a control group. Innovation processes will be conducted more efficient and more effectively.
Indirect impact is expected from the introduction of high quality innovation management capacity assessment and support services in all regions across Europe.
Several Member States have integrated services provided by the IMP rove academy in their national/regional SME support system
The IMP rove European Innovation Management Academy has the potential to assist the delivery of the coaching and mentoring services related to the SME instrument in three respects:
and the‘services enhancing the innovation management capacity of SMES'.'HORIZON 2020 WORK PROGRAMME 2014-2015 Innovation in SMES PART 7-Page 30 of 37 To cover specific costs of operation,
and the services‘enhancing the innovation management capacity of SMES'Furthermore the support provided would secure the quality of the benchmarking by accelerating the inflow of new data sets allowing to replace the oldest data collected in 2008/09.
Indirect impact is expected from the introduction of high quality innovation management capacity assessment and consulting services in all regions across Europe.
and methods for European innovation and SME internationalisation support agencies to provide better services to their clients that allow them to capture the potential of reverse innovation.
and services that are attractive to customers, and can make a business stand out among the competition.
Making such support services available more widely will improve business'ability to use design as a driver for innovation.
Enterprise and industrial innovation opportunities, in terms of products, services and organisational innovation, and innovation processes are getting more diverse by the integration of advanced IT and internet.
and trends in Europe as well as enhance learning across the EU, Associated Countries and between the relevant stakeholders (National authorities and support services).
and will be implemented by the Commission services. 22 This activity directly aimed at supporting the development
and will be implemented by the Commission services. HORIZON 2020 WORK PROGRAMME 2014-2015 Innovation in SMES PART 7-Page 34 of 37 Indicative budget:
processes and services developed by industry, SMES and first time industry applicants. This study will assess to what extent the pilot has been implemented in 2015, its first year,
and the impact of the Programme in terms of new products/processes/services introduced into the market two years after the project's completion.
markets concerned by the new products/processes/services, difficulties faced to go to the market. Moreover, the study will analyse the complementarities in terms of impacts for the participants in Eurostars-1 projects with other Horizon 2020 initiatives in particular SME Instrument Phase 2 projects and 25 Article 11.2
enhanced provision of services for consumers and businesses; and possibly, demonstration and motivational effects. Determinants of rates of enterprise creation at the local level include demographics, unemployment, wealth, the educational and occupational profile of the workforce, the prevalence of other small firms and infrastructure endowment.
Promote the diffusion of training programmes by stimulating the private market's supply of such services and providing hands-on focused courses.
They can only partly secure such access through markets for goods, services, intellectual property rights and human resources.
In addition, further examination of best practices and countries'experiences is suggested in such areas as the role of universities and knowledge-intensive services in cluster Figure 3. Types of innovative networks 1
regulatory frameworks and requirements, advisory services, markets and regulation, and dispute resolution processes. This will require active collaboration among governments, international agencies and the private sector to address issues,
and services geared to high-growth nascent and existing entrepreneurs. Promoting e-business adoption by SMES E-business offers great potential benefits to SMES,
advisory and support services for SMES and dispute resolution procedures. Enhance incentives for new public-private partnership initiatives that would help SMES reach global markets for innovative products and access foreign sources of advanced technologies and knowledge.
and effective use of broadband services require policies that: promote effective competition and continued liberalisation in infrastructure, network services and applications across different technological platforms;
encourage investment in new technological infrastructure, content and applications; and ensure neutrality across competing and developing PROMOTING ENTREPRENEURSHIP
AND INNOVATIVE SMES IN A GLOBAL ECONOMY 30 OECD 2004 and digital content, including increased use of e-government services,
Digital products, information services and interaction with government in areas such as procurement regulatory compliance and tax offer SMES important potential efficiency gains
and promote broadband competition and liberalisation in network services and applications. Where the needs exist,
E government services to enterprises should be used as a tool to improve efficiency of government interactions and operations with SMES.
Strengthen the business support system, through an intermediary role, by building capacity in business services, both public and private (e g. provision of market, product and process information,
and then to access the public and private support services they need. Offering some form of monetary incentive to multinational enterprises
Cross Cutting Review of Government Services for Small Businesses, Department of Trade and Industry, September 2002, URN 02/1324.
agencies (support services) 81 Department for Environment, Food and Rural affairs (grants, advice, in kind support) 3 120 Department of Transport
Census of Manufacturing and Services (2001) for the size distribution. Community innovation survey (CIS) for the presence of innovation activity (2002-2004). 95.0 4. 5 0 0. 5 0. 1 33 55 72 0
13 3. 2 Why Add Services?..13 3. 3 Definition of Services...14 3. 4 Types of Product-Related Services...
14 3. 5 Mini-Cases...18 3. 6 Differences between Products and Services...21 3. 7 Innovation in Product-Based Services...
22 3. 8 Role of Information technology (IT) in Product-Related Service Innovation...24 3. 9 Do Manufacturing
and Service firms Innovate Differently?..28 3. 10 The Customers'Role in Product and Service Development...
28 4. 0 INNOVATION MODEL AND TOOLS FOR TOTAL SOLUTION DEVELOPMENT...32 4. 1 Models for New Product Development and New Service Development...
Services Embedded in Product Sale...43 5. 2 Phase II: Services Provided to the Installed Base...
48 5. 3 Phase III: Services Based on Customer Relationship...49 6. 0 RECOMMENDATIONS FOR THE MEP NETWORK...
52 6. 1 Introduction...52 6. 2 Current Skills within the MEP Network...52 6. 3 Statement of the Key Problems...
17 Figure 3. 2 Market Penetration of Services...17 Figure 3. 3 Comparison of NPD, NSD and TSD Processes...
and medium-sized enterprises (SMES) develop new products and services. Our team extensively reviewed the literature for concepts and research on new product and service development.
SMES are starting to seek revenue growth from new products and services. They must offer their customers something different than their competitors offer
and services that allow more efficient and effective use of the products that they currently sell.
but offering new services is uncharted territory for most SMES. Their service experience is limited often to offering customers free
They must learn to offer services that can make their products yield greater total return over their useful life than can a competitor's products.
These services include customization of products to specific customer uses, training for optimal performance, product disposal,
The above mentioned services require SMES to form deep and trusting relationships with their customers
and implement ideas for new services. Our literature review led us to propose a total solution development model that synthesizes existing new product
or services of varying type and degree can be appropriate for different SMES in different industry sectors or product life cycle stages.
or productrelated services that complement the sale of a firm's current products. 2. 1 Generalizations about SMES and Innovation are Difficult to Make SMES vary in their interest and approach to innovation because of differences in their sources of capital.
or through distributors than do SMES that sell products or services directly to other businesses.
Thus, they may be receptive to outsourcing their in-house technical services, if convinced that a supplier can do a better job,
Small customers are candidates for services too. Ashton et al. 2003) advise SMES to consider segmenting their markets to identify small customers that lack the technical resources needed to effectively install,
Also, high-end specialty customers may value the SMES services more than low-end customers. 2. 2 Types of Innovation that SMES Undertake SMES can introduce process innovation to enhance the capability of their production processes
We return to the topic of business model innovation in section 3 where it relates directly to adding new services that complement existing products.
SMES can offer customers customized products perhaps supplemented with services. The same SME is unlikely to be nimble enough to modify its strategy to match the evolution of life cycle stages
Product customization and customer intimacy are ways to do this, especially in delivery of industrial services.
Nevertheless, this level of customer intimacy is especially appropriate for SMES that pursue industrial services to complement the sale of their products.
Another option for SMES is to perform industrial services that their customers currently perform or propose new services that will help them operate more efficiently.
The most well known industrial services are maintenance and provision of spare parts. We will provide a much longer list of such services in the next section of the report.
If SMES are allowed to work closely with their customers, they might be able to propose new services to perform by observing points of pain (Gustafsson and Johnson,
2003) that perplex and frustrate their customers when they use their product or other firm's products.
Lastly, new service revenue opportunities can be generated by thinking beyond the sale of the product and about its installation, operation and 12 disposal.
Gustafsson and Johnson (2003) suggest viewing products as services waiting to happen. The next section develops these themes further by exploring in depth one potentially attractive innovation path for SMES
namely the addition of services to product offerings. 13 3. 0 SERVICE INNOVATION IN MANUFACTURING COMPANIES 3. 1 Background The period from approximately 1985 to 2000 saw U s. manufacturers
) One way that SMES can achieve such growth is by adding services to or around their products and this section reports on such new opportunities.
and indeed a different organizational structure and culture both within the management of SMES and the consultants that can help them. 3. 2 Why Add Services?
There are many reasons why the addition of services can provide significant growth opportunities, greater stability,
Adding services can help consolidate and protect the core product businesses of an SME. Services can differentiate a company from competitors
and establish closer relationships with customers. It is relatively easy for a competitor to provide a better and/or lower cost product,
and because of recommendations to other potential customers. 3. 3 Definition of Services There are several different definitions of service found in the research literature.
2003). 3. 4 Types of Product-Related Services Servicing the Installed Base. In describing the service elements provided by manufacturing firms
industrial services, service strategy in manufacturing, product-related services, product-services, or after-sales services.
SMES are motivated to develop these services in order to complement their existing product base as well as to enhance revenues.
This is done by showing customers the importance of services during the life of a product.
In the past, many services have been offered as add-ons in order to make a sale, but the product was the main source of revenue.
Servicing the installed base requires firms to make services a higher priority. A firm's installed base (IB) refers to its products that are currently in use.
For example one of Hewlett-packard's installed bases is printers. Although Hewlett-packard's servicing is in terms of a product (i e.,
IB services include all services 15 that are needed to keep the product functioning properly throughout its life-cycle.
Focusing on servicing an IB is one way that a firm can develop new services for its existing market
The firm must collectively learn to value services and how to manage the service process.
The optimal agreement for the service provider is fixed a-price contract, covering all services over an agreed period.
This transfers the risk of equipment failure to the service provider and focuses on relationship-based services centered around the product and operational availability and response time in case of failure.
It is now pertinent to list the different classes of services that can be added around a product sale.
and are transactional onetime services. They may in fact be of considerable value to customers yet are bundled in free of-charge because of perceived or actual competitive pressures.
we arranged these services into four clusters (see Table 3. 1). These authors suggest that firms must master product-based services first before graduating to comprehensive and relationship-based services.
Firms that don't do this usually fail at transitioning to services. Two of these clusters involve migrating from a transactional to relationship-based approach with customers (vertical path)
and the other two involve migrating from selling services focused on single products to selling comprehensive services in
which the firm's products and ancillary products and services are embedded (horizontal path). As firms seek to increase their service offerings
Penetration of Services 18 3. 5 Mini-Cases The first mini-case illustrates how a supplier of a commodity product changed its business model to provide a complete service thereby satisfying previously unmet, indeed unvoiced, needs of its existing customers.
it buys support services in volume, and its database of trip costing enables the company to accurately quote on trips
Additionally, services can help to establish customer lock in. Customers, by foregoing certain tasks, increase their dependence on their suppliers.
and retain customers for later delivery of products and services. Mini-Case Example#2: General Fasteners, a supplier of components to the major automotive companies, had been squeezed more and more on price as the global competition in this sector became increasingly tough.
It provides both products and services. In addition, by taking over the front-end skilled design work, GF's customers have need no to retain these expensive skills in-house for occasional use
In many cases, the addition of complementary services such as scheduled maintenance, remote monitoring of performance, benchmarking,
Services demand closer relationships with customers, sometimes requiring regular on-site engagement. These interactions can uncover unmet needs,
or possible future demands for products and services that would not normally be encountered with a more arms-length product-sale relationship.
The company may also innovate entirely new services. The latest information technology standards and infrastructure can be used to provide services that were conceived not even by customers until their providers innovate.
For example, using advanced data collection and data mining tools, coupled with real-time data collection over the Internet may provide a whole new level of product and service reliability.
and environments (water is not just water), b) design new products, systems and services more effectively,
With all of these potential financial and strategic benefits available, we might expect that SMES would be readily adding services to their product portfolios.
However relatively few manufacturing companies have introduced services to their product offerings. There are some noticeable exceptions, such as IBM and GE of course.
and services and how innovation practices differ substantially between the two. As we shall see
when a company attempts a hybrid model of products plus services, where the organizational, cultural,
and Services As SMES are used to thinking in terms of physical products, it is useful to compare them with services.
Services are in fact inherently different from products in a number of key attributes (de Jong and Vermeulen, 2003;
de Jong et al. 2003): ) Intangibility: this characteristic best differentiates products from services. Services are intangible and often,
but not necessarily manifest themselves together with the customer. On the other hand, products are a) more often shipped to the customer,
b) are developed with limited customer input, and even then, at the formative stage of development, c) the supplier may have limited knowledge of how the customer actually uses the product
services tend to be heterogeneous; that is they are customized to the specific needs of the recipient.
Services are perishable and are created usually as they are used, whereas products can be made ahead of time and held in inventory or within a distribution supply chain.
Services can be combined more readily into customized packages compared with product features. This differentiates products from services
and makes them more difficult to imitate by competitors, thus increasing competitive advantage. When we categorize different classes of services,
it is seen clearly that, in many instances, they may be combined flexibly to meet the specific needs of a customer.
, at the hair dresser)( Kupper, 2001). 22 The distinction between products and services is often unclear.
and manufacturers increasingly offer products that are accompanied by services, such as repair and maintenance (de Jong et al.,
) Products and services can be viewed as a continuum because many products have embedded services in them and vice versa (Johne and Storey, 1998).
At one end of the continuum are physical products that are exchanged for payment. The relationship between buyer and seller starts and ends with the sale.
At the other end of the continuum are services that consist of dialogues between service providers and clients, e g.,
Services such as banking and insurance are further along the continuum because the client receives a product, e g.,
Services such as transportation, telecommunications and courier mail require systems that are designed developed, and optimized for performance
or delivery of the service. 3. 7 Innovation in Product-Based Services We have seen that services have a number of attributes that are inherently different from products.
Due to the labor intensive nature of services, typically service innovations require much less capital investment.
and licenses for the development of new services (Brouwer and Kleinknecht, 1997). Technology is also less important for the development in new service as many times the face-to-face relationship building component becomes more important.
which can have a larger influence on the success of new services than on new manufactured products.
Holland and Switzerland rather than in the U s. Research on hybrid innovation models combining services with products is limited extremely,
and using it to create unique services or products can be a powerful way of adding value and keeping out competitors.
the two brothers provide services in vegetation management to businesses rather than homeowners. DBI Services (www. dbi. com) learned by listening carefully to customers that businesses have greater and more complex needs than homeowners.
For example, Class I railroads are regulated by the federal government on the amount of vegetation that may grow on their rights of way.
and customized services supported with proprietary information systems. Source: Warren and Susman, 2004. Customer Lock in: Information can be shared between customers
funds the local marketing, sales and delivery services after paying an entry fee of about $1 million to Chemstation.
Also, the use of teams for NSD directly contributes to the overall effectiveness of developing new services.
accelerating the development of new services based on those ideas, and generally supporting the firm's goal of rapidly bringing new service offerings to market. 3. 9 Do Manufacturing
This shouldn't be surprising based on the specific attributes of services that were mentioned earlier (see section 3. 6), such as intangibility and imitatability.
This is because it is natural for service firms to incrementally improve their services based on customer feedback, etc.
and Service Development In order to develop services that customers find valuable, it is important to have customer input.
frustrations or unmet needs with existing products and/or services. Once these unmet needs are uncovered
and/or services that are valuable to the customer. It is critical that the firm realizes that regardless of how valuable the firm thinks the innovation might be,
or services that they don't find valuable for their firm. New products and/or services must be developed to add value to the customer.
Gordon et al. 1993) 29 Figure 3. 5 below is adopted from Gustafsson and Johnson (2003) and links the evolving relationship between the firm
Firms in the middle region of the figure offer discrete services usually on a fee-per-event basis (e g.,
Ideas for services may be offered to customers on a fixed-term contract basis. Customers are active participants in the NSD process and in service delivery.
In addition, new services may not have defined as clearly yardsticks, as new products do, against which a fixed gate could be associated.
In contrast to new product development, most new services are developed in an ad hoc fashion (de Jong et al.
for example,(1) new services can be imitated by competitors, and thus require a quick response and less formal process,(2) no natural milestones for review, unlike for new products.
but it does not limit its future innovation to either products or services; instead it posits that a firm should let customer needs dictate the type of innovation the firm should develop,
and they could certainly explore how to add new services to these products to address customer needs that products alone cannot address.
Unlike products, many services are delivered by individual employees and the quality of service can vary greatly depending on the training and experience of employees.
, patent search, new use of existing products/services, competitors, upstream and/or downstream channel members) or collaboration (e g.,
and then try to come up with new ideas for each component (sometimes borrowing from existing products/services that target a component,
and other characteristics of services. A solution involving product and service combinations should also take this into consideration.
but the products/services are delivered through (some) regular channels/contacts. This could include direct marketing, minimarket,
This is particularly true in new services, as they are much easier to imitate and subject to less legal protection.
Due to the nature of services, managers should be prepared to scale up quickly to preempt potential competitors
This section suggests potential paths that SMES may take to increase revenue from selling services. We will start by assuming that SMES have little initial experience with selling services,
so that we can discuss the entire journey that these firms may have to take. SMES with moderate experience in selling services can start the journey at their current level of capability
and take potential paths from that point forward. In all cases top management motivation and leadership are essential to decide on the path to take,
I Services embedded in product sale Phase II Services provided to the installed base Phase III Services based on customer relationship Path from Product-Centered to Service-Centered Business Transition Issues
Add product-centered services Consolidate services into a single unit Staff and train service sales force Develop incentives,
measures, rewards for selling services Build a servicedcentered culture Base business model on quick response and customization Shift downtime risk from customer to service supplier Transition from transactional to relational selling Base business model on low cost and convenience over product life Extend customer relationship deep
Services Embedded in Product Sale The journey from product-centered to service-centered offerings usually starts by adding product-centered services to the sale of existing products, e g.,
Experience in offering such services allows the firm to develop response capability, reputation and image with customers.
In order to assure that services receive the attention they deserve, firms should consolidate all services into a single department,
and give its manager profit and loss responsibility (Gebauer et al.,2005; Oliva and Kallenberg, 2003. Consolidation allows the firm to concentrate on developing a service-centered culture that emphasizes the firm's new values
therefore to recall the attributes that we associated 44 with such companies as they provide a guideline for SME managers that wish to add services to their business model.
but challenging number of services per month as a revenue goal, or socializing with x number of customers x times per month as a customer relationship building goal.
This means, that a service-centered firm's reward structure should focus on services and customer relationships.
resulting from understanding the benefits and results of pursuing services. Although employeepush might be sufficient initially,
In product-centered firms, sales people view products as the main source of revenue and services as add-ons that are obligatory
in a service-centered environment, sales people must view services as the main source of revenue;
services can no longer be performed for free, but must be priced according to the value they add to the customer (Oliva and Kallenberg, 2003).
Thus, sales people need to be trained to eagerly sell services, not just products (Johne and Storey, 1998.
External and interactive marketing are strategies that can help employees to sell services. External marketing is about portraying the firm's image to customers,
One of the most prevalent reasons for failure among firms focusing on developing new services is an inadequate assessment of customer needs and problems (de Brentani 1995).
New services cannot be developed effectively in isolation of customers. Front-line employees, the ones who commonly work the most closely with customers,
However, because of the inseparable nature of services, front-line employees shape the quality of a customer relationship. de Brentani (2001) concludes that having a highly trained workforce that has an intimate knowledge of the customer plays an important role in the success of new services.
Innovative new services can result from this. Similarly, information sharing among employees should be encouraged so as to generate more ideas to satisfy unmet customer needs (de Jong and Vermeulen, 2003).
Services Provided to the Installed Base The next step is to extend services from the sale of existing products to providing services to the firm's installed base or even to its competitors'products.
if competitors do not offer such services or offer inferior service. Potential service revenue from one's own and competitors'installed bases depends on how many generations of product are in it 49 (the older the product,
) The firm also can start to offer services where its installed base is most dense,
but supplement these services elsewhere with a 24/7 help desk and self-diagnostic software where applicable.
The move to Phase III should not be made until the firm has mastered thoroughly selling services with current sales
Firms can move from transactional to relational selling by offering their customers a fixed-term contract for services.
The firm might also consider offering consultation services to help its customers develop their own diagnostic and response capabilities. 5. 3 Phase III:
Services Based on Customer Relationship The next step is to shift from sale of individual products to sale of services embedded in products, comprehensive services or integrated solutions (Wise and Baumgartner, 1999.
which services that the customer previously performed are embedded now in the product or at the interface between simpler and previously isolated product components.
The second and third options require understanding the product's context of use and need for ancillary services,
and ancillary services that relate to the effective use of their products. This presents an opportunity for market segmentation and focus on customers with the greatest need for the firm's services.
Firms can recognize the need for new services by studying how the customer uses or consumes the firm's current product
and suggesting that they can perform these activities better than the customer can. It can do this by focusing on mastering these skills.
and transform them into new services (replaces or creates activities up and down the value chain). Firms that already have an effective NPD process in place can make the transition to NSD more easily,
or NSD because of the nature of the type of services that firms and their customers will co-develop
What can we learn about the development of new services from the five mini-cases discussed in section 3?
These are traditional services, but a natural offering for a company that sells such sophisticated equipment.
In particular, we have researched one specific major growth opportunity for such companies, namely the addition of complementary services around manufactured products.
All these stories were divided into four broad categories based on the type of consulting services provided by MEP Operational, Marketing, Funding,
We have seen also that the addition of services around manufacturing products can have major benefits in terms of increased revenues
Yet, although adding services may seem, at first, a rather easy expansion of current business, many companies have experienced great difficulties in managing these changes.
and managers of the potential of changing their business model to include services and all that it entails;
Maximizing the use of the scarce consulting resources available to help SMES Adding new skills via focused training of those local consultants who have the propensity to provide outreach services in the field of change management
Access to stories that illustrate clear cases that show how moving into services has been accomplished not only the successful parts but also the difficulties encountered.
"The Journal of Services Marketing 16 (6): 515-534. Discusses stages in new service development and the use of customer input.
"Designing services with function analysis."Hospitality Research Journal 20 (1): 73-100. Discusses the use of functional analysis in new service development.
"Developing new services for hospitals: A suggested model.""Journal of Health care Marketing 7 (2): 35-44.
"Developing New Services: Improving the Process Makes It Better.""The Journal of Services Marketing 3 (1): 15.
Discusses the new service development process in banks, hospitals and insurance companies. Branzei, O. and I. Vertinsky (2006."
"Innovative versus incremental new business services: Different keys for achieving success."The Journal of Product Innovation Management 18 (3): 169-187.
when offering services. Gordon, G. L p. F. Kaminski, R. J. Catalone C a. di Benedetto. 1993)."
and market services that create customer value. Gray, C. 2002.""Entrepreneurship, resistance to change and growth in small firms."
"Services innovation: Successful versus unsuccessful firms.""International Journal of Service industry Management 4 (1): 49-65.
Industrial services strategies: The quest for faster growth and higher margins. Provides an in depth discussion of industrial services.
Moore, G. 2004.""Darwin and the demon: Innovating within established enterprises.""Harvard Business Review 82 (7/8): 86-91.
"Managing the transition from products to services.""International Journal of Service industry Management 14 (2): 160-172.
Describes the extent of integration that is desirable for products and services. Also discusses implementation issues in transitioning from a product-only to a product/service firm.
Customer oriented industrial services, Helsinki University of Technology, BIT Research Centre. Discusses the creation of industrial service innovations that add value to the customer.
Services-based strategy.""Harvard Business Review 68 (2): 58-64. Discusses the need for services as well as strategy.
There needs to be a change in mindset from just manufacturing to manufacturing and services.
Quinn, J. B. and T. L. Doorley (1988.""Key policy issues posed by services.""Technological Forecasting and Social Change 34: 405-423.
Describes the issues relating to services and policy formation. Rae, J. M. 2005. Analysis of data from the U s. Bureau of Economic Analysis. A. Warren, Personal Correspondence.
Ratio of 82.5 is taken at Q1 in 2005. The 50%tipping point was 1987. Reinartz, W. and W. Ulaga (2006."
"Designing services that deliver.""Harvard Business Review 62 (1): 133-139. Discusses characteristics of services.
The reason that services fail is that there is a lack of systematic method for design and control.
Simon, H. 1992.""Lessons from Germany's midsize giants.""Harvard Business Review 70 (2): 115-123.
Tether, B. S. 2005) Do services innovate (differently? Insights from the European Innobarometer Survey, Industry and Innovation, 12,2), 153-184.
Discusses TRIZ (the theory of inventive problem solving) and its use in developing new services
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