Customer involvement in service innovation- a study of the bank industry
Customer involvement in service innovation- a study of the bank industry
Customer involvement in service innovation– a study of the bank industry Authors: Jimmie Borgqvist, Master Programme Marketing Daniel Lindberg, Master Programme Marketing Tutor: Sarah Philipsson Subject: Service Innovation Level and semester: Advanced level, Spring 2011
Acknowledgement The area of customer involvement in the development of services in the bank industry has been an interesting subject to study. We would not have come this far without the help of a few people. We will start off by thanking our tutor Sarah Philipson, who has helped us with ideas and guided us throughout our thesis.
We will also like to thank Marcus Wideroth, Peter Svensson and Per Kristensson for taking part in our pre study, they gave us information about the industry, which helped us get valuable insights of how the services are developed today and possible future development. At last we would like to thank those 300 respondents that participated in our survey, their contribution made this research possible. Växjö 2011-05-27 Daniel Lindberg Jimmie Borgqvist
Abstract Thesis; Master Programme, Marketing Linnæus University, School of Business and Economics in Växjö Authors: Jimmie Borgqvist & Daniel Lindberg Tutor: Sarah Philipson Title: Customer involvement in Service Innovation – a study of the banking industry. Background/Problem: Services are commodities in most service industries and the companies are not putting enough into innovation of services to differentiate themselves from their competitors. Since the services are commodities it does not make the customers committed to a certain company nor does it make the customer chose the best service, since they are so much alike.
To be able to adapt the services to the customers the companies need to know what the customers want. This research is proposing that the way to find out what the customers want is through customer involvement in the service innovation process. Purpose: The purpose of this thesis is to identify opportunities for service companies to involve customers in the service innovation process.
Theory: The theoretical framework is built up out of the concept of customer involvement in service innovation, which is a research area that has been put aside for customer involvement for product innovation. Despite this the area has some interesting articles and this research is built up around Alam’s (2002) model of customer involvement. Research question: What preferences do customers have when interacting in service development and what kind of involvement is best suited for their needs? Method: The empirical study of the research was performed through a pre-study with semi- structured telephone interviews and the actual study consisted of internet surveys.
The telephone interviews were conducted with three experts in the area of customer involvement in service innovation and the banking industry. The surveys had 300 responses within the sample of the study. The sample consisted of Swedish bank customers in the ages of 18 to 25. Conclusion: Customers wants communication methods which are not involving face-to-face interaction. Instead they prefer mobile applications, social networks and the internet bank. Customers prefer to innovate together with other customers and employees of the bank.
Table of content 1. Introduction . 1 1.1 Background . 2 1.2 Problem discussion . 2 1.3 Purpose . 3 2. Theoretical Framework . 4 2.1 New service development vs. new product development . 4 2.2 Key factors of user involvement . 5 2.3 Overall view of the theory . 14 2.4 Theory discussion . 15 2.5 Theoretical Model . 16 2.6 State of the art . 17 2.7 Research Question . 17 3. Methodology . 18 3.1 Research design . 18 3.2 Population/Sample . 20 3.3 Operationalization . 22 3.4 Validity . 25 3.5 Reliability . 25 4. Empirical data . 27 4.1 Pre-study . 27 4.2 Cross tabulations . 28 4.3 Descriptive statistics .
32 4.4 Regression analyzes . 33 5. Analysis . 40 5.1 Purpose/objective of involvement . 40 5.2 Stages of involvement . 41
5.3 Intensity of involvement . 43 5.4 Modes of involvement . 44 6. Conclusion . 48 7. Reflections . 49 8. Further research . 49 9. References . 50 Appendix 1. Coding model . 54 Appendix 2. Interview guideline pre-study: semi-structured interviews . 56 Appendix 3. Crosstabulations . 57 Appendix 4. Deskriptive statistics . 66 Appendix 5. Frequency Table . 69
1. Introduction This chapter explains the introduction of the paper. It starts off with an introduction to the research area, continues with the background of the research and the problem discussion and it ends with the purpose of the paper.
The service sector in developing countries has become the most important factor in national economics. The sector is currently providing a larger turnover than the industrial sector, e.g. 70 percent of the gross margin in Organization for Economic Co-operation and Development (OECD) countries. In European countries two thirds of the working force is employed in the service sector and the contribution to economic growth is the highest of all sectors (Jiménez- Zarco et al, 2011). Most of the countries with a high income today are post industrialized, meaning that they are becoming less reliant on industry and more reliant towards services.
This development brings with it less demand for natural capital and more for human capital, which results in a higher demand for educated workers and less pressure on the countries national resources and the global environment (www.worldbank.org, 2009). The number of service businesses is not the only thing that has changed over the years. The services process it selves has changed, especially since computers and internet made its entrance into service firms. The consequences of this new technology were that many service firms lost their face-to-face interaction with their customers. In early days service companies had a close relationship with their customers; personnel knew their customers individually and knew exactly how to satisfy their needs, which created loyal customers.
However as soon as mass marketing and buying behavior were on the rise a close relationship was not as important for the customers as a low price. This resulted in the reducing of variety in service offerings (Pepperd, 2000). Nowadays companies have learned to take advantage of the new technology and to communicate with its customers, enabling companies to offer both low prices and a variety of personalized services. Presently these information and communication technologies have made it possible for the service sector to obtain and store knowledge about customers, making it easier to satisfy their needs and to develop new services according to their preferences (Chesbrough & Spohre 2006).
1.1 Background Innovation in Service companies is a very important activity, but until recent times there were not much innovation activities going on in service companies (Jiménez-Zarco et al, 2011). In this paper the concepts innovation and service development are not separated as well as customers and users are used interchangeably throughout the paper, meaning the same people. The innovation activity is very hard to measure and to recognize. The main reasons for this are the intangibility of services making it difficult to know the exact performance of a service and its special characteristics.
Other reasons are that it cannot be stored in warehouses for later use making the interaction between the service and its users constant and highly influential (Jiménez-Zarco et al, 2011). User innovation was introduced by von Hippel (1986); his concept was based on that the end user were responsible for a large part of new product and service innovations.
Matthing et al (2004 pp. 487) defines the process of customer involvement as following: “Customer involvement is the processes, deeds and interactions where a service provider collaborates with current (or potential) customers to learn about the market and alter organizational behavior”. Magnusson et al. (2003) state that; for service companies, to be competitive in a market the single most important factor is a successful development of innovative services. They continue by stating that it is crucial that these services are in line with customer’s value preferences and their needs and wants.
Because of the availability of today’s technology and the continuously increasing demand from customers, services are getting closer to commodities. A commodity market is offering very standardized products/services and in these markets is it hard to achieve competitive advantage (Knutsson et al 2011).
1.2 Problem discussion According to Levesque & Macdougall, (1996) Service companies has a problem with differentiating their offerings in commodity markets, services are highly imitable which competitors are taking advantage of. This has lead to that many companies are focusing their strategy on customer satisfaction, loyalty and the quality of the services instead of innovating new ones, which have made the services offered in the industry very standardized. The standardization of the services has made the companies vulnerable to any changes in their business landscape (Levesque & Macdougall, 1996).
In general there are no special departments in service firms which are focusing on innovation of services; service innovation is something that happens frequently in the service delivery process. The sources of innovation steams from the companies’ strategies of satisfying their current customers and keeping them loyal, but also from commerce activities and market demand (Chen & Lu, 2007). Traditionally the service provider has been the most logical innovator, services has been developed for the customer instead of with the customer. The reason for this lies in the financial incentives and that knowledge and capability to get a diffusion of the innovation is perceived higher for manufacturer than user innovators (Von Hippel 2001).
Despite this von Hippel (2001) argues that studies have shown that user-lead innovations can compete with commercial manufacturer’s innovation. He continues by claiming that the conditions are that there have to be an interest from the companies to embrace the customers’ knowledge and customers being willing to share their experiences freely.
Customer’s behavior, competence and attitude all have an effect on the innovation, throughout the whole process. As they interact they are customizing the offerings, making every step of the innovation process important for service innovators (Chen & Lu, 2007). The Information the users involved is sharing is not up to date for all eternity. Behavior, attitudes and habits of customers changes over time, which results in that if companies want to engage their customers the companies have to be through a process of several engagements over time (Von Hippel, 2001). The problem for service industry companies is how they could involve customers in the innovation process not only for the reason of increasing the loyalty or satisfaction but also to become differentiated from other companies and to be more attractive.
1.3 Purpose The purpose of this thesis is to identify opportunities for service companies to involve customers in the service innovation process.
2. Theoretical Framework This chapter explains the theoretical framework of the research. It starts off with a description of the differences between new service development and new product development. Then it proceeds with the key factors of user involvement in innovation, a theoretical overview and ends with a theory discussion a theoretical model, state of the art and the research question of the paper. 2.1 New service development vs. new product development New service development, NSD, do not have a long history. Innovation has mostly been associated with tangible products, making NSD a fairly unexplored area.
Whether to distinguish NSD from new product development, NPD, or not is something that is crucial to discuss and many argue that the literature of NPD does not cover the complexity, intangibility and heterogeneity of NSD (Alam & Perry, 2002). One major difference seems to be the importance and involvement of the customer in the processes. The role of the customer’s is more important in NSD. Therefore the usage of NPD models in NSD is debatable (Matthing et al. 2004). The involvement of customers in services involves a longer and more intimate relationship, not only through a purchase but through the whole consumption process, making the user’s knowledge and experiences more important for service companies than tangible product companies.
This creates major challenges for Service companies because new services must be more responsive to customers’ needs (Alam & Perry, 2002). To get the customer involved is by itself not an easy task. Nambisian (2002) stress the difficulty in identifying appropriate customers and giving them the right incentive for their participation and sharing their knowledge. Magnusson, et al (2003) claims through his research that past literature about NPD cannot be transferred and used in a NSD context, because of major differences between NPD and NSD. Therefore user involvement in NSD needs to be clearly defined.
Further on he states that the definition and model of Alam (2002) is a good start for the research of the area.
2.2 Key factors of user involvement The theoretical research in the area of customer involvement is mostly focused on product development and innovation rather than the development of services (Alam, 2002). However, Alam developed a framework that contained four different key factors for describing different sorts of user involvement (Magnusson, 2003). Alam’s (2002) key factors are: - Purpose/ objective of customer involvement. - Stages of involvement. - Intensity of involvement. - Modes of involvement. The first key factor, which is the purpose/objective of the customer involvement, refers to why the company should involve the customers in their service innovation.
The objectives could be to improve the relationships with the users, reduce the innovation time or to gain new ideas from the customers. He continues by stating that the second key factor, which is the stages of involvement, highlights where in the process of the service innovation the customers are involved. The third key factor of customer involvement, which is the intensity of the customer involvement, of course refers to how involved the customers are in the innovation process. The fourth and final factor of the customer involvement is the modes in which they are involved. The modes could for example be focus groups, face-to-face interviews, brainstorming etcetera (Alam 2002).
The four key factors described above have set the structure of the theoretical framework of this research. The factors are used as headings and are also the main parts from which the theories are discussed. Factor one: the purpose/objective of customer involvement To be able to innovate new services there are two main issues; the service companies need to know how to innovate but also what to innovate. Therefore it would be a major advantage for the company if they knew what the customers really need. With the help of that knowledge the company could develop a suitable method of developing the ideas (Lundqvist & Yakhlef, 2004).
The companies could use the customers in this process, not only for creating new ideas for services but also in the rest of the innovating process. The customers could help with the creation, the testing of the product as well as offering support to the end users (Nambisian, 5
2002). One of the main reasons for involving customers is to get hold of information about the user’s latent needs (Matthing et al, 2004). The latent needs are the values of the service or what they truly need but they have not realized it themselves and have therefore not experienced it or requested it (Senge, 1990). Since they do not request these services the companies and the developers within them cannot get access to that information (Matthing et al 2004). Von Hippel (1994) argue that the knowledge of user needs is tacit, which makes it difficult to transfer the knowledge from the customers to another actor.
Therefore, the users have exclusive access to the knowledge in question. This could explain why it was users who developed the radical new ideas and not the manufacturers in a study performed by Lettl (2007). Moreover, it is not sufficient enough to simply ask the customers for ideas; they have to be further involved (Magnusson et al, 2003). Therefore, if the service companies have an active strategy, which contributes to the involvement of customers early and intensively; they are gaining a greater knowledge about the customers and reduce the risk of being imitated by other companies by being on the cutting edge of their business area (Alam & Perry, 2002).
Ulwick (2002) state that the customers only have opinions on what they have experienced and cannot reflect on the using of emerging technologies. Furthermore, Prahalad & Ramaswamy (2000) argue that the customer’s role in the service innovation process is to share their knowledge, contribute with their skills and experiences but also to inform the company about his or her frustrations, problems, requirements and expectations. Furthermore; they state that the customers have to be ready to learn and experiment within the innovation process. Alam (2002) states that because of the structural changes in the service sector; there is a need to constantly create and develop new services which are suitable for the users in the industry.
Furthermore he argues that; those services have to reach the market at the right time and to reach these objectives; the customer involvement is an important factor for the companies to reflect upon.
Moreover, the collaboration between the users and suppliers could be beneficial for the company, because it can create a mutual understanding of the customer’s wishes and needs. Furthermore, it could create an understanding of the technological opportunities for the two actors. (Sinkula, 1994) Magnusson et al. (2003) agree with this stating that the ideas of the involved customers can be used for learning more about the customer and understanding their needs better. Matthing et al (2004) state that in service innovation; customer involvement can, if it is managed correctly, hold valuable information about the customers and it has a good 6
effect on the innovativeness of the ideas. Furthermore, Alam and Perry (2002) state that customer involvement could reinforce the public relations, which hopefully from the companies’ point of view will increase the loyalty of the customers as well as; help the company maintain their relationships with the users for a long time. Another advantage of customer involvement is that the development cycle in some cases gets shortened if an ongoing customer testing is used during the development (Gupta & Wilemon, 1990). Alam (2006) and Alam & Perry (2002) also highlight the shortening of the development cycle, which can results from customer involvement.
Wind & Mahajan (1997) argue that a shortened development cycle is not an advantage in all cases because sometimes the companies develop products with low quality or just incremental innovations if the development cycle is shorter. However Alam (2006) highlights that this might just concern product development and not be applicable for service innovations. He claims that if the companies collaborate with the customers in the front-end stages to create a faster cycle in new service development the firms can become first-movers which are developing pioneering innovations.
Sawhney & Prandelli (2000) argue that with the new technology it is time to change the perspective to a view where the customer and the company create knowledge together instead of the company merely exploiting the customer.
Moreover, McQuarrie & McIntyre (1986) argue that the users do not normally take part in the first phases of the creating of new innovative ideas, because the companies do not trust them in that area. They continue by stating that these phases are solely controlled by the professional designers of the company and users are not involved before the testing and evaluation of those ideas, where the customers are part of focus groups or some other form of testing. This despite that Magnusson et al. (2003) argue that the user’s ideas are more original and user friendly than the designer’s. The backside according to them is that the products are less producible.
Furthermore, they state that with the help of the customer’s ideas the professionals can create new services and that the ideas also can be used as an inspiration for the designers.
Alam & Perry (2002) argues that other advantages with customer involvement is that it can generate better and more differentiated services which are better suited for the customer’s wants and needs. They also state that user involvement can help the company educate the customers in using the new services as well as help the firm with the diffusion of the services, which can make the new innovations gain acceptance in the market faster. Furthermore, there 7
are different objectives of the customer involvement depending on which types of innovations the companies want to create (Lettl, 2007).
Factor two: the stages of innovation Alam (2002) has derived 10 different stages where users are involved in NSD: (1) strategic planning, (2) idea generation, (3) idea screening, (4) business analysis, (5) formation of the functional team, (6) service and process design, (7) personnel training, (8) service testing and service run, (9) test marketing and (10) commercialization. Lettl (2007) stresses that to develop radical innovations a service company is dependent on technological and market related capabilities. One of the most important capabilities, which the companies can gain from the market, is the ability to involve the right users at the right time in the right form.
The key factor is to identify which users that can contribute in which stages of the innovation process. Thereafter be able to establish a systematical way of finding and communicate with them in an effective way. Alam (2002) stresses although all steps are contributing for the development, the three first steps are more important when it comes to user input, this because the large number of new service ideas that needs to be generated. Further on user input in service and process design is also important because the development of differentiated and unique services. Alam & Perry (2002) adds that a constant flow of new service ideas are necessary to be successful, therefore the user should be involved in the innovation process as early as possible.
Alam (2006) describes that the first stages of the innovation process are in some contexts called the fuzzy front end of the process. The fuzziness comes from the imprecise and pragmatic decision processes that come into action in service innovation. These stages are important because they are the most information intensive and obtain the largest potential for possibilities of improvement. User involvement in the early stages are significantly influencing the performance of the service, the inseparability nature of services makes it even more important to involve users, this if the service is aimed to be differentiated from the rival companies’ services (Alam, 2006).
Magnusson et al (2003) focused his research on the idea generation stage and how users could come up with new service innovation ideas. The result showed that if users in this stage got a consultancy from a professional about underlying technology behind a service the ideas were more realistic and easier to commercialize, than if the users where unfamiliar with the capability of the technology, however this consultancy did have a negative effect on the originality of the users ideas. Customer’s knowledge can not only be implemented in the start 8
of an innovation process.
Nambisian (2002) stress their importance in co-creating innovations in the later stages, e.g. testing services and providing end support. He continues expressing the user’s role in testing and giving support to new services. One successful case of involving users in the later stages comes from the software industry were the use of beta services reduces the risks and investments for companies. If the users are capable of identifying unappreciated features or features of interest which not are applied, companies can reduce development costs and by involving different set of users a better understanding about different kinds of needs can be acquired (Nambisian 2002).
Later research in the area goes more deeply into the user’s exposure to new service innovations. Zolfagharian & Paswan (2010) states that a user which is exposed to a new service goes through a number of stages: (1) perceptual and evaluative processes for goal setting, (2) emotional acceptance and resistance, (3) coping responses and (4) adopting decision. The first stage gives indices to how much service attributes are different from a competing service and how they are compared. While the other stages deal with to what degree the user has control over the new process and how the users learn to adapt to new features (Zolfagharian & Paswan, 2010).
Alam (2006) states that to get the most accurate information, specific goals for the interaction needs to be set for each stage of the innovation process. Aiming to wide with user involvement will only lead to a fumbling in the dark for answers, user involvement should be dealt with the simplest way possible and solve specific problems. Factor three: the intensity of involvement To what extent and how much influence users should have in the innovation process is a contradictory matter. Lundqvist & Yakhlef (2004) stresses that service companies should try to involve their users into the process as fully legitimate actors, both when it comes to defining the meaning of services and the development of new ideas.
Some authors agree with this need of a high intensity of user involvement. Nambisian (2002) says that firms, to get most out of the user’s competence, need to involve them to that extent that they are considered employees. They need to be brought inside the organization and be granted a recognized voice to achieve the largest effect. Nambisian (2002) continues with saying that this process of interaction between the company and the customer also means a transformation of the user to a collective actor. Lettl (2007) states that early research on the intensity of involvement showed that users had a passive role in the innovation process, because of this Lettl (2007) focused his research on how suitable users can have a more active part in the process.
He continues by explaining that both active and passive users can be 9
problematic to handle, especially to identify these and to know if they are capable in contributing in a creative and innovative way. Further on he discussed on what interaction level a firm needs to engage the target user. This depends on the purpose of the interaction but for new innovations a face-to-face meeting with the user is the best alternative. Matthing et al. (2004) discuss the customer interactions and defines an active customer as one who in one way or another interacts with service personnel, the service script and supporting tangibles. He continues by saying that the interaction is the centre of a market oriented strategy, making the relationship with the customer highly important.
Nambisian (2002) states that interaction with customers can be costly and time consuming, therefore is it important that the interaction is overviewed and governed. The benefits of which a company gains from the interaction must outweigh the cost of man hour and support put in by the service firm. Matthing et al. (2004) stresses that if service innovation is to be better over time, with help of customers, a relationship must first be established. This will reduce costs and make it easier to attract the customers of interest in developing the services. Creating this relationship with customers are somewhat in line with Lundkvist & Yakhlef (2004) thoughts of involving customers as fully legitimate actors, a coherent believe among these seems to be that the intensity of customer involvement needs to be frequent and integrated within the companies’ “walls” to get the best and as much information from the customers as possible.
Alam (2006) also discusses the issue of relationship with users. He adds that interacting with a fairly new user could create a conflict of interests because of lack in mutual trust. However, he presents a negative aspect to interacting with loyal customers that already has a relationship with the firm. This group is motivated but seems unable to provide rich and diverse information. Information about service innovation could be sensitive for service companies. Therefore, companies prefer working with customers they know to not risk that new development information will reach to competitors.
Alam (2006) continues by stating that the major problems are identifying appropriate users and the lack of commitment and cooperation among these users. Many customers are expecting something tangible in return when giving ideas or taking part in surveys, therefore if there is no incitement they might not commit to fully to the assignment. Moreover, he is stressing the risk of involving the customers too much, which can result in too customized services. The best way is to focus on a few ideas and development projects and involving the users in the different stages. 10
Factor four: the modes of involvement Nambisian (2002) states that; firms are dealing with three big challenges when using customer involvement in innovation. The three different challenges consist of the problems to find appropriate customers to involve, finding the right incentives to make the customers willing to contribute and finally to capture the knowledge of the customer. It is the third and final challenge which deals with the modes of involvement. Lettl (2007) states that; it is important for the companies to find the right forms, in which to involve the customers. Modes of involvement deals with; how the companies can gain information and knowledge from the customers.
There are several ways of doing this i.e. brainstorming, focus groups and face-to- face interviews, where face-to-face interaction is considered having several positive effects compared to non-interaction. (Magnusson et al., 2003) Furthermore Alam (2002) identifies user visits and meetings, user’s observation and feedback, phone communication and email communication as other ways to perform customer involvement in the innovation process. Of course the modes of involvement are affected by the level of intensity the involvement has, i.e. a survey is one sort of low intensity mode while co-creation is much higher in intensity.
Sinkula (1994) argue that collaboration between users and suppliers could lead to a mutual understanding of the needs of the users. Therefore a mode with higher involvement might be more appropriate, than for example just handing out surveys. The low intensity modes should not be considered useless though, since Magnusson et al. (2003) regard the ideas of the users as a source of inspiration for the company and the ideas could be a fresh injection in the companies’ creative veins. However, Prahalad & Ramaswamy (2000) claims that users have the possibility to be involved during the development continually, by coming up with suggestions.
Another view of what is the best mode is Andreassen & Streukens’ (2009), which believe in the listening of online discussions as a form of involving the customers. The mode might not seem to be a traditional way of looking at customer involvement but they state that by having a proactive approach to the online discussions the customer’s ideas are involved in the innovation process and give the companies a substantial amount of feedback. Prahalad & Ramaswamy (2000) agrees with this to some extent by stating that the customer should be observed in their own environment more often; making interviews a less appropriate alternative.
The online listening might not be an observation but the discussions are generated by experiences the customers have in their own environment. Matthing et al (2004) also state that the involvement of the customers should be in a form where the customers are generating 11
ideas in their own environment. They propose that this should be done by letting the customers invent themselves and thereby discover the customer’s latent needs. However, they realize that that mode of involvement could interfere with the current company structure. Lundqvist & Yakhlef (2004) state that if the companies want to involve the customers in their organization they have to look at them as fully legitimate actors, which can be actively involved in the innovation of new services and come up with changes to the innovations. Nambisian (2002) agree with this when stating that if the companies want to involve the customers; they have to make them part of the development team or even see them as employees’ of the company.
Slater & Olson (2001) states that market-oriented companies does not involve the customers enough and that they often are satisfied by using verbal techniques for gathering customer knowledge such as surveys or focus groups instead of making them an integral part of the development process. Matthing et al (2004) argues the development of a cross-functional development process, which includes engineers, marketers, behaviorists and the involved customers instead of just engineers. Lettl (2007) states that to find the right mode of involvement the companies have to consider how many users they should involve in the innovation process and not solely focus on the level of interaction with the customers.
Another factor the companies have to consider is what time frame is appropriate for the customer involvement. Regarding the choice of mode of involvement Mathing & Sanden (2004) states that the result of their study, which made the customers innovate in their own environment, could never been achieved by an interview. Von Hippel (1994) agrees with this by stating that a deeper understanding of user needs is tacit, which makes it very difficult to transfer to other actors. Lettl (2007) believes that this might be the reason why users are developing much more radical ideas than the manufacturing companies.
Magnusson et al. (2003) argues that to come up with new innovations it is not enough to merely ask the customers for ideas, because in that case they would most likely just come up with ideas that are already known to the companies. He believes in going one step further and to involve them more in the process. As an extension to this idea Nambisian (2002) believes that customers could be a part of not just the idea generation process but in co-creating the innovations with the companies, testing the innovations and finally providing support for the end user. With the help of tool kits it would be easier to get help from the users in the innovating process.
Tool kits for user innovation are an alternative, which is emerging. This idea means that the manufacturers do not need to have a deep understanding of the user needs to be able to produce services which 12
are satisfying the user’s needs, because the users are coming up with the innovations themselves. The objective of the tool kits is to make the users handle the need-related innovation tasks, since they are more familiar with their needs and then let the companies deal with the solution-related innovation tasks, since the manufacturer are more familiar with how to solve and manufacture the innovation. (Von Hippel & Katz, 2002) Von Hippel & Katz (2002) state that; the tool kit approach is complementary to the lead user approach, where the companies are trying to find the customers who buy the cutting edge services or products and get information about their needs.
Alam (2006) argue that the lead user approach assumes that the average user has a hard time judging or coming up with new innovations since they are so far away from them in their real life. One question remains in the approach of letting customers create new innovations. Magnusson et al. (2003) face this dilemma in their study; should the companies give the customers any consultation in their process? The study shows that users created more original ideas themselves, while the ideas became more producible with the help of consultation. However the theories, of the most effective way to involve the customers, differ and Alam (2002) states that interviews and meetings with the customers are the most dominate ways of doing this, while phone and mail communication and focus groups are the least used.
Furthermore, he states that the different methods can be used in different stages of the innovation process. 13
2.3 Overall view of the theory Fig.1 Theory overview 14
2.4 Theory discussion The theories suggest many purposes, modes, stages and the intensity of user involvement in service innovation. Studies have been made on solutions best suited for the companies’ needs and goals, not mentioning the needs and preferences that users have on when and how this interaction should take place. Since the theories are positive about the advantages of user involvement, we see no reason not to involve them and let them have an opinion in what way they are most comfortable and effective in supporting the company.
Theories are describing difficulties in the user involvement; identifying the right consumers to take part in different activities and overcoming a lack of commitment (Alam 2006). Alam (2006) also says that lack of trust can result in conflicts between the user and the company. Nambisian (2002) adds that the process of involving the user can be costly and time consuming. This reveals a problematic area which could be understood better if the needs of the consumers are revealed. The following model explains the connections between the different areas of the customer involvement in service innovation, this to explain how they interact and are affected by each other.
2.5 Theoretical Model Fig. 2 Theoretical connections, based on Alam (2002) 1. If the customer involvement has no purpose there it is meaningless to involve them. The purpose has to be clearly defined to not lose track of why they are involving the customers. 2. The intensity is influenced by the purpose of the involvement. If the purpose is hard to achieve by just asking them questions, perhaps they need to be involved more. 3. The intensity does influence the mode of involvement to choose; companies can choose highly or less intense involvement.
The purpose of the involvement also affects what stages of the service innovation process the customers should be involved in. The purpose might just concern some of the stages. 5. The intensity of involvement can affect the stages in which the customers are involved in, since some stages might require a more active involvement than others. 6. The stages of involvement partly determine the mode of involvement the companies should choose, since some modes might be better in some stages. 7. The modes of involvement are affected by the purpose of the involvement. The mode must be suitable for reaching the purpose of the involvement.
2.6 State of the art The theory covers the area of user involvement in service innovation. This area is fairly new and as far as our literature review extended, we conclude that no theories that only deal with user involvement in service innovation have been validated to the extent that it could be called dominant. Alam (2002) did however set a new tone with the study over user input in different stages of service innovation excluding any theory from product innovation. Alam (2006) continued in the same line, but focused on the first stages of the innovation process, although none of these can be considered empirically validated.
Magnusson (2003) and Magnusson et al (2003) enhanced the understanding of the quality of ideas generated by users in focus groups, in comparison to professional developers or if they received help from professionals. This was also studied by Matthing et al (2004), whom confirmed that user’s ideas are more innovative in terms of originality and user value than professionals. Lettl (2007) confirmed what all the previous studies had stated, the fact that user involvement will have a positive effect on service innovation in some way or another, however what Lettl (2007) did different was that he distinguished active and passive users.
None of the theories of user involvement in service innovation is empirically validated. We found no research about customer preferences regarding user involvement; therefore we consider it to be a gap.
2.7 Research Question What preferences do customers have when interacting in service development and what kind of involvement is best suited for their needs? 17
3. Methodology This chapter explains the methodology of the paper. It starts off with the research design of the research, continues with the population/sample and operationalization. Finally, there is a presentation of the study’s validity and reliability. 3.1 Research design This is a qualitative research, which Bryman & Bell (2005) argue is often conducted to generate new theories. They state that qualitative research finds answers to questions on how and why something is performed in a certain way.
The difference between quantitative and qualitative research is that the quantitative method often focuses testing theories, looking for correlations and collecting numerical data, rather than gaining a deeper understanding of a subject. (Bryman & Bell, 2005) The qualitative method is more appropriate for this study, since the research is focused on new opportunities rather than collecting numerical data about the current situation.
Pre-study The possibilities of collecting data in a qualitative research are many; however this research uses semi-structured interviews for a pre-study, which was performed to determine different possibilities that later was used in a customer survey. The preparation for the interviews was the creation of an interview guide with the basic questions we were asking. However, a lot of focus was on asking follow up questions to get as much valid information as possible. Bryman & Bell (2005) state that the major advantage of semi-structured interviews is flexibility; to have the opportunity to continually ask follow up questions and propose new questions as the interview goes on depending on the answers from the respondent.
Furthermore, they highlight that two other kinds of interviewing techniques are available; structured interviewing and unstructured interviewing.
However, since the objective of the interview was to find ideas to use when creating the questions for the surveys as well as find answer alternatives for the closed questions, a semi- structured interview technique was arguably the most appropriate of the three techniques. This was based on the need of some kind of structure to keep the questions within the framework of this study combined with the possibility for us to explore the respondents more innovative and perhaps unexpected answers. The interviews were conducted over telephone, which of course has some advantages, in the form of convenience, as well as disadvantages.
The most 18
significant disadvantage is however the lack of personal contact between the interviewer and the respondent Bryman & Bell (2005). Customer surveys The actual study consisted of internets surveys. The surveys the customers answered consisted solely of closed questions with alternatives. Bryman & Bell (2005) state that surveys are similar to structured interviews, since the customer answers previously decided questions, but with a minor difference. Since there is no interviewer in the case of the surveys it is really important to formulate the questions so that they are easy to understand. Bryman & Bell (2005) state that the advantages of surveys, compared to structured interviews, are that they are cheaper than both face-to-face and telephone interviews.
Surveys also provide the possibility to get a lot of data in a short time, since surveys can be answered at the same time and no appointments has to be made.
Bryman & Bell (2005) continue by claiming that the removal of the interviewer effect and flexibility for the respondents to answer when they have the time is favorable for the research. However, they consider the disadvantages with surveys to be that there is often a lower response rate than in structured interviews, the interviewer cannot help the respondent interpret the questions, the interviewer cannot ask follow up questions and the researchers cannot control in which order the customers answers the questions. To receive as relevant answers from this survey as possible the authors first performed a pre-study.
Then the questions were carefully formulated, to avoid misunderstandings. The authors realize that the response rate of the surveys might be lower than for example an interview, but the aim was to push people as much as possible to get them to answer the questions. The main reason why a survey was chosen was to collect a lot of data in a short period of time. The survey was performed on the Internet, where the authors created a survey and sent a link to it to the respondents. Honakker & Carayon (2009) state that the advantages of internet surveys are that it is easy to reach a large population in a fast manner.
This is done at a reduced cost. They continue by stating that; all of these advantages are generated since the time it takes to send out the link to the survey or to send out the questions via e-mail is very short, the e-mails are free to send out and they are delivered immediately. There is also a reduced error in data entry, which stems from the fact that the information is not put in manually. It is not possible to answer the internet survey wrong since it is created so that it cannot be sent in if it is not correctly filled out. This also heightens the quality of the answers. Another advantage according to Honakker & Carayon (2009) is that the Internet surveys are 19
more flexible and easier to administrate, which depends on that the surveys are just formulated and then sent out, the surveys can be filled out where or when the respondent wants, as long as there is an internet connection available. However, Honakker & Carayon (2009) also state that there are some disadvantages; there might be a coverage error or a sampling error, since everyone is not an internet user. However, this research assumes that the internet usage of our segment is very high, making this problem a lot smaller. Honakker & Carayon (2009) states that; a sampling error might occur since only a part of the population is surveyed although the objective is to generalize the answers to the population.
In the case of this study, finding email addresses to such a large population is a challenge. They claim that there is large risk of the surveys not getting answered, with this approach. As well as there are problems with computer security and non-deliverability according to them. This is faced in this research since some of the email addresses receiving the link to the survey might not be valid anymore or might be perceived by the user as some sort of spam or virus. The questions used in the study was theoretically grounded according to the operationalization chapter, further on, as well as influenced by the pre study conducted with experts of service innovation and the financial sector.
The given answers for the closed questions were also created through a combination of the information from the theoretical framework and the empirical pre-study.
3.2 Population/Sample Pre study For the interviews the authors contacted people working in the financial sector which are familiar with service innovation in the bank industry, but also those who are familiar with customer involved service innovation in general. The selection of these people was done through an online research of suitable candidates. The criteria were as stated above that they had knowledge of one of those two areas or both. The online research made sure they met the criteria. The authors then contacted the selected candidates to arrange a telephone interview. The results of the selection of candidates were that we got three interviews.
Initially five experts were contacted and three of them had the opportunity to help this research at the time given.
The respondents were; - Marcus Wideroth, Vice President of Business Development at Visab Consulting. He is a Management Consultant. Moreover, he has had several statements about the financial market published in newspapers. The company at which he is employed, Visab Consulting AB, is a consulting firm within business change management, information management and business solutions. - Peter Svensson, PhD and Programme Manager of the financial market research programme at Vinnova, the Swedish governmental agency for innovation systems. - Per Kristensson, PhD and Associate Professor at Karlstad University.
He is currently conducting his studies on the development of technological services from a psychological perspective. One of the special areas of the research on Karlstad University is Service quality.
The authors thought that the titles and accomplishments these people have made them suitable respondents in our pre-study. Customer survey Melzer (2010) states that; in a historical perspective Swedish people rarely change banks, but as the situation is now more than 50 percent of the people are willing to change banks. The reason for this is according to him the bad interest rates, lacking in service, high fees and the unjustified bonuses claimed by the management of the banks. This makes the bank industry very interesting at the moment. However, Askåker (2006) is arguing that the willingness to change bank does not coincide with the youth segment, since investigations show that the youths do not make an active bank choice in a lot of the cases.
For example one of these investigations does according to her show that 49 percent of the customers between 19 and 25 years have the same bank as their parents. Therefore, the banks has to adjust their services to attract the youth segment and the way this research is proposing the banks to do that is by involving the customers in the innovation process. Furthermore, the involvement in the process might itself strengthen the relationship between the customer and the bank. Therefore, this study is conducted on Swedish bank customers in the ages between 18 and 25 with the objective of finding out how the customers want the innovation process to be performed.
This segment is the population of the study.