Advances in Services Innovations || Service Engineering: State of the Art and Future Trends

Service Engineering: State of the Art and Future Trends

Klaus-Peter Fähnrich1, Thomas Meiren2

1Chair of Business oriented Information Systems, Institute for Computer Science, University of Leipzig, Germany 2Fraunhofer Institute for Industrial Engineering IAO, Germany

1 Introduction.........................................................................................................41.1 Standing out from the competition through innovative services ...............41.2 Services as an R&D object ........................................................................5

2 Fundamental aspects of developing a service ...................................................72.1 Model for developing services ..................................................................72.2 Use of methods and tools ..........................................................................9

3 Organisation of service development ..............................................................113.1 Basic organisational alternatives .............................................................113.2 Dissemination in practice ........................................................................12

4 Outlook ..............................................................................................................14

References.............................................................................................................14

4 Klaus-Peter Fähnrich, Thomas Meiren

1 Introduction

1.1 Standing out from the competition through innovative services

As the significance of the service sector has grown, competition in many service markets has increased markedly over the last few years. Markets that used to be sluggish have transformed themselves and new players have come onto the mar-ket: there is no question that the marketplace is becoming more dynamic. When one considers the causes for the more intense competition, the following factors apply in particular:

Increased deregulation, The entry of new competitors, Multiplication of successful service concepts, Increasing market saturation, Strategic overcapacity.

Against this background, service companies are no longer able to raise their profile simply by emphasising cost, image or quality advantages. On the contrary, differentiation through innovative service offerings is developing into a key unique selling point for them to set themselves apart from their competitors. The central challenges compel them above all to offer continuously improved and new services in the marketplace, to always remain one step ahead of the competition and at the same time to comply exactly with customer needs and expectations.

However, many companies are today facing the problem that their present structures and processes become unsuitable both for developing new services effi-ciently and for positioning them in the marketplace. Moreover, adequate instru-ments for operative planning of processes to develop services are lacking. Very often the roots of the difficulties lie in the fact that the services offered by the companies are not clearly defined, i.e. there are no clear descriptions of what the service entails, the relevant processes and the resources required (Bullinger et al. 2003).

Even in research, the development of new services has been addressed inten-sively at a relatively late stage. Although service development is now a high-priority topic (refer to the findings of an international expert survey in Ganz and Meiren 2002), in the past it was never a prominent focus of either business or en-gineering research. By simply emphasising the importance of developing new ser-vices, most of the work published to date fails not only to offer concrete support but also to anchor this process in strategic and operative enterprise management.

Although ‘New Service Development’ began to find its way into Anglo-American research literature as early as the 1970s and 1980s, it was at a somewhat rudimentary level (Bowers 1985). This research focused particularly on the basic underlying conditions, success factors and obstacles preventing the development of new services but the results only very rarely delivered concrete instruments that could be applied in practice. Looking at the present situation, it can be seen that at least considerably more attention is being paid to this subject, as illustrated by an

Service Engineering: State of the Art and Future Trends 5

increasing number of publications (e.g. Cooper and Edgett 1999; Edvardsson et al. 2000; Fitzsimmons and Fitzsimmons 2000).

In contrast to highly marketing-oriented New Service Development, Service Engineering entails applying the appropriately modified engineering know-how established in the field of conventional product development to the development of services. Service Engineering can thus be defined as the systematic develop-ment and design of services using suitable models, methods and tools. Despite the fact that the term ‘Service Engineering’ was first coined in the literature as early as the mid-eighties (Shostack 1982), Albrecht and Zemke commented at the time: ‘The developing art/science of service engineering is so new that it really hasn’t an agreed-upon name, much less an established body of principles and techniques’ (Albrecht and Zemke 1985). It was only in the mid-1990s that service engineering began to attract greater attention, not least thanks to research initiatives in Ger-many and Israel. A wealth of experience has since been accumulated with proven guidelines and instruments (refer also to Meiren and Barth 2002, Bullinger and Scheer 2003).

Apart from New Service Development and Service Engineering, the term ‘Ser-vice Design’ also appears in the literature. If one looks at these concepts more closely, Service Design primarily covers the perceptible elements of a service (e.g. colours, sounds, smells) at the direct interface to the customer (Erlhoff et al. 1997). However, Anglo-American researchers, in particular, interpret this term more broadly. In these countries, ‘Design’ traditionally encompasses all aspects of the actual design of a product and consequently Service Design primarily concerns procedures and methods for developing new services. In terms of what it actually involves, this work is very similar to Service Engineering (Ramaswamy 1996).

1.2 Services as an R&D object

The common factor in all scientific approaches is that they must answer the cen-tral question about how services can be developed across the board. It will be nec-essary to clarify which aspects of a service can actually be developed and how these aspects can be structured in a suitable way.

A more pronounced product-orientated view may be helpful to develop the ar-gument at this point and this means that services must be seen more as separate products than they have in the past. In this context, the term ‘Product’ is deliber-ately used as the superset for all objects – goods, services, software etc. offered by the company in the marketplace (Sabisch 2000). In particular, these are products that form the interface between the company and customers. A clear product defi-nition remains the fundamental prerequisite for the development, manufacturing and marketing of services. The consequence of applying a modern product defini-tion to services is that these are no longer viewed as a sort of ‘black box’ but in-stead are viewed as a designable part of business activities (Fähnrich et al. 1999).

The starting point is the approach for designing services presented below. Here an important role is played by what are termed external factors, i.e. persons, ani-mals, goods, rights and information, which are directly integrated in the provision


of services by the party making the request as opposed to those aspects that relate to the manufacture of the goods themselves. A typical service can thus be said to be characterised by three different dimensions:

A structure dimension (the structure determines the ability and willingness to deliver the service in question), A process dimension (the service is performed on or with the external factors integrated in the processes), An outcome dimension (the outcome of the service has certain material and immaterial impacts for the external factors).

An examination of the subject in this way produces three dimensions (structure, process, outcome), which are characteristic for a service and which ought to be taken into account during development. It is now sensible to elaborate appropriate outcomes for each of these dimensions in the development process, i.e. the results of service development are resource models, process models and product models (Fähnrich et al. 1999; Bullinger and Meiren 2001). Figure 1 illustrates the rela-tionships.

Resource model Process model Product model

Service concept

Service providers are willing and able to provide a

service

(Structure dimension)

The provision of a service is depicted as a process

(Process dimension)

Services have material orimmaterial consequences as a result of rendering a

service(Outcome dimension)

Customers requesting the services involve

themselves or an object in the process

(external factor)

Fig. 1. Services as an R&D object

The term resource models groups together development tasks which describe the provision of services. Here the key aspect is the planning of resources, needed for the subsequent provision of services. These include, in particular, the produc-tion of concepts for human resources (primarily relating to the selection and quali-fication of personnel) but also the planning of material resources and the concept


for the information and communications technology that will be used to support the service.

A further development task involves the preparation of process models for the provision of the service developed. Here processes are documented with the aim of creating transparency at an early stage and achieving the greatest possible proc-ess efficiency before the service is actually offered. The aim is to eliminate activi-ties that do not add value and remove unnecessary interfaces and media disconti-nuities.

Apart from process models, product models are also to be prepared when de-veloping services. These provide a description of the characteristics of the service: in particular, a definition is required of the service content and outcomes. Quality and performance standards for the new service are to be defined both for external and internal purposes.

The approach presented for putting the service, as an R&D object, on a system-atic basis can be applied to the vast majority of services on account of the generic character of these services. However, this approach must be integrated in specific processes and suitable methods applied, if the service is to be developed and de-signed so that it is suitable for application in practice.

2 Fundamental aspects of developing a service

2.1 Model for developing services

Apart from the fundamental aspects of developing services, the sequence in which certain activities are to be undertaken during the development process is of special interest. Particularly those companies which regularly develop new services are seeking ways to eliminate redundant work, prevent past mistakes from being re-peated and reuse existing know-how. The first step towards achieving this objec-tive is generally to describe the development processes concerned and then to formalise the individual R&D steps up to a certain point (Fähnrich et al. 1999; Bullinger and Meiren 2001).

Development processes designed in this way can be based on so-called process models. Process models document project activities and project responsibilities in detail, enabling them to support project planning, project steering and controlling. Until now, such models have been found mainly in traditional product develop-ment and software engineering, yet the basic principles behind them mean they can also be effectively applied to the field of service development (Hofmann et al. 1998). Process models for service development

Define the activities that are necessary to develop services and the sequence in which these activities are undertaken, Create the prerequisite for successful and efficient positioning of new services in the marketplace by systematising service development,


Integrate customers into the development process at an early stage in order to satisfy the specific characteristics of services.

Many different process models are familiar from product and software devel-opment. But which of these process models is most suitable for services? For vari-ous reasons, there is no all-encompassing answer to this question. Firstly, the se-lection of a suitable process model depends on the type of service to be developed. Secondly, to date very little practical experience has been gained in the use of dif-ferent process models. However, some authors point out that it is primarily water-fall models, which are characterized by the sequential arrangement of develop-ment tasks that have been most prevalent in both scientific and practical environments (e.g. Sontow 2000).

A process for the development of services is explained below. This is based on the waterfall model set out in the DIN report on Service Engineering and is di-vided into the phases of idea management, the requirements analysis, conceptuali-sation of the service, implementation and market introduction. If one links this wa-terfall model to the dimensions presented in the previous chapter, it produces the model shown in Fig. 2 on the development of services.

Fig. 2. Model on the development of services (Meiren 1999, Meiren and Barth 2002)

In addition to the three ‘constitutive” dimensions for the structure, process and outcome, this model also contains a further dimension – the market dimension. The consideration behind this was that modern development processes must al-ways be guided by market requirements, if not, there is a danger that newly devel-oped services will ignore the customers' actual needs, leading to their inevitable failure in the marketplace. What being guided by the market actually means in this context is that, around the time when the development work starts, the services need to be coordinated with the actual situation in the market place and market re-search needs to be carried out to assess whether the new services are likely to be successful or not. In addition to this, the marketing concepts and how these will be implemented during the market launch of new services need to be drawn up.

Ideamanagement

Requirementsanalysis

Serviceconceptualisation

Serviceimplementation

Marketlaunch

Structuredimension

Processdimension

Outcomedimension

Marketdimension


2.2 Use of methods and tools

In practice, developing successful services entails more than simply carrying out development work as efficiently as possible. Operational support in the shape of suitable methods and adequate (software) tools is essential (Bullinger et al. 2003). Although a rich stock has been built up as a result of product and software devel-opment, these methods and tools cannot be transferred indiscriminately to the ser-vice sector. Particularly in the case of services which exhibit a high degree of in-tangibility, or where the interaction of customers and employees is crucial, ill-considered attempts to apply classic product development methods are likely to be quickly doomed to failure.

It is a sensible course of action here to establish characteristic ‘types’ of ser-vices and use these as a basis for further consideration in order to carry out suit-able analyses and make recommendations on what action to take. To date, scien-tists have developed a series of what are termed typologies for the service sector but only very rarely have these been within the context of the development of ser-vices. The typologisation approach developed by Fähnrich et al. (1999) is an ex-ception here and it also has the advantage that it has been derived empirically from a survey of 282 companies, thus giving it a strong practical bias. A factors analysis highlighted that contact intensity and variety were the crucial typologisation cate-gories (Fig. 3).

Fig. 3. Service typology (based on Fähnrich et al. 1999)

Here contact intensity can be seen as a yardstick of the interaction between em-ployees and customers, whereas variety describes the number of variants in ser-

Process-focused services

Examples:Automatic car wash Online banking

Flexibility-focused services

Examples:Life insuranceIT outsourcing services

Customer-focused services

Examples:Call centerRetail trade

Knowledge-focused services

Examples:ConsultingMarket research

low

high

Con

tact

inte

nsity

low high

Variety


vices as they pertain to the product. The four service types below are based on these two typologisation categories:

Process-focused services of which low contact intensity and low variety are a feature, making it particularly suitable for process-orientated standardization measures, Flexibility-focused services with low contact intensity and high variety, whereby from the developer's point of view the emphasis is on the systematic variant creation aspect, Customer-focused services which are typified by high contact intensity and low variety and essentially consist of a clearly defined standard service but which may be influenced by customers within certain limits, Knowledge-focused services distinguished by high contact intensity and high variety, which typically necessitate a considerable amount of customizing.

It would be interesting at this stage to consider which methods are preferred for developing which service types. A series of methods familiar from traditional product development is evidently used in practice for services with a relatively low contact intensity. These include Quality Function Deployment (QFD), Struc-tured Analysis and Design Technique (SADT), Failure Mode and Effects Analysis (FMEA) and, in particular, various product and process modelling methods. The latter methods also include advances, which were specifically implemented for the services sector. These include Service Blueprinting, which primarily separates the process steps into those steps that are visible to the customer and those that are not visible (Shostack 1984). If one looks at all this methods, one possible explanation for their application might be that the performance of a small number of contact-intensive services is only influenced to a very limited extent by customer-imposed variances, so that the characteristics exhibited by these services bear numerous re-semblances to those of physical goods and the services concerned can conse-quently be developed using similar methods.

Whereas engineering methods are relatively widespread as instruments for de-veloping services with a low contact intensity, their relevance for the development of contact-intensive services is considerably less (Fähnrich et al. 1999). Business and recently also a few service-specific methods predominate here – especially when it is important to ensure that customer retention is systematically built into the service development process. Factors that also come into play in the case of knowledge-focused services are social and behavioural science methods, tailored to qualifying employees or shaping customer interaction. It therefore appears that it is specifically the criterion of contact intensity that provokes a split when it comes to the methods preferred in practice: ‘It is evident that, particularly with service types where so-called soft factors play a vital role, traditional product de-velopment methods are no longer transferable and approaches originally devised by other scientific disciplines are demanded more and more frequently’ (Bullinger and Meiren 2001).

Finally, at this point it is appropriate to highlight a further difference from product and software development. Although the methods that are used to develop services are now increasingly being targeted, there is no seamless link between


these methods and no integrated software support (Freitag 2002). Although a few initial approaches have been made (Herrmann et al. 2003; Fähnrich and Meiren 2004), development platforms that compare with the Computer-Aided Design Tools (CAD) in product development or Computer-Aided Software Engineering Tools (CASE) for software development will not be available for a long time yet.

3 Organisation of service development

3.1 Basic organisational alternatives

Experience has shown that one of the questions that first confronts companies which increase their investment in the development of new services is who in the company can actually take on this task and which organisational units in the com-pany are to provide support. For example, the rising cost of development prompts the question of whether it is sensible to create a separate department for service development. When deciding how to organise responsibilities for developing services, the fol-lowing four alternatives can be considered (Bullinger and Meiren 2001):

Establish a separate organisational unit for developing services (e.g. Service Development), Tasks taken over by organisational units that already exist (e.g. Marketing, Sales), Form special project teams to work together temporarily to develop services, Outsource the development of services to an external partner.

A separate organisational unit to develop services can be created, the aim be-ing to anchor service development permanently within the company. This can, for instance, take the form of a management team, a group, a department or even a centre (Luczak et al. 2000). These organisational forms offer the advantage that development work is then distinct from day-to-day operations and expertise can be specifically developed and is available to access when required. However, the as-sociated expense is a disadvantage. Under certain circumstances, capacity may be kept ready for deployment but it may remain under-utilized at times because of the sporadic nature of service development activities.

Another option is for tasks relating to service development to be handled by ex-isting organisational units (more or less as an ‘additional task’). This has the ad-vantage that although specific knowledge on development is always available in a clearly defined organisational unit, the capacity of this unit's members can be con-trolled more effectively (assuming that these employees can be flexibly deployed both for service development as well as for their normal duties). However, service development is often not seen as a core competence in such organisational units and thus only remains one activity among many.

Another possible alternative is also the development of services in the form of a special project team. This solution minimises the structural changes that compa-


nies have to make and the members of the project team can be selected to suit the required terms of reference. A disadvantage of this is nevertheless that the exper-tise built up during such projects is often lost after the end of the project, when the employees involved return to their original departments and turn their attention to their former duties again. This is one reason why the establishment of a cross-departmental working group must be listed as an interesting special case. Here employees from various divisions of the company work together with the aim of developing new services and they continue to work together permanently even when the individual development projects have been completed.

The fourth basic option is to outsource the development of services to an exter-nal partner. This is a particular advantage if there is no expertise whatsoever within the company with regard to developing services or if this is not seen by the company itself as a core competence. A disadvantage that should, however, not be underestimated is the effort required to adapt service concepts developed by out-side organisations to the specific environment of the company. Over and above this, it will probably also not be easy to find suppliers capable of undertaking the work required to develop new services.

3.2 Dissemination in practice

Whereas all major industrial companies generally have clear arrangements in place for developing products and have their own Research and Development De-partment, it is to date very rare to find comparable teams for the systematic gen-eration and implementation of service innovations. A look at the business practice in German companies showed that only a comparatively small proportion (9 per-cent) already have their own organisational department to develop services (Mei-ren 2004, see Fig. 4). Similar studies (e.g. Spath and Zahn 2003) also show that these organisational units generally entail a group reporting to management and are only rarely any more than a team.

external developmentof new services

new service developmentby specific project teams

existing organizational unitto develop new services

special organizational unitto develop new services

8

60

83

9

answering companies (per cent)multiple responses has been possible n = 184

Fig. 4. Organisation of service development (Meiren 2004)


In most cases (83 percent), service development tasks are undertaken by other organisational units. In the study, management (61 percent), followed by Sales (53 percent), Service (47 percent) and Marketing (38 percent) were mentioned. Whereas in small companies, in particular, new services are developed by the management, indicating that services are developed on an ad hoc basis rather than systematically, Sales, Service and Marketing are divisions in the company that are close to customers. In the companies surveyed, this appears to be an important cri-terion for delegating the task of service development.

A further option regularly practised is the formation of project teams, which are specifically established to develop new services. When it comes to the composi-tion of the project teams, it is again the management and organisational units that are close to customers that play the major role. External cooperation partners and advisors are comparatively often involved in such project teams.

Complete development of services by outside organisations is the situation that is least common. Only 8 percent of the companies surveyed said this was a practi-cable alternative. This is not particularly surprising because – even in the field of conventional product development – it is rare for development tasks to be out-sourced in their entirety to external partners.

All that can be noted is that the situation on the ground with regard to the or-ganisational form for service development is that there does not appear to be any clear ‘one best way”. Consequently, a number of different options are selected in companies and these often operate in parallel.

Also of interest here are the results of a survey of business experts. When one looks at the factors that point to successful organisation of service development, it can nevertheless be seen that there are a series of common factors across compa-nies. It became apparent here that the following four factors were listed by more than half of the companies surveyed in each case (Meiren and Liestmann 2002):

Involvement of operative divisions in development activities, in particular utili-zation of the know-how of the employees on the spot, Involvement of people to promote the idea, particularly from the company management but also those representing interest groups within the company, Involvement of external partners, both for their specialist knowledge and also to benefit from the moderating effect they will have on those who work within the company, Involvement of Sales and Marketing to ensure that the services developed are suitable for the market.

A final consideration of the organisational forms selected by companies and the success factors clearly illustrate that the development of services is a task that af-fects many areas both within and outside the company. With this in mind, it can be seen that one of the main business challenges is definitely to find suitable organ-isational forms – in particular with regard to working in networks and dealing with interfaces – that will allow the existing complexity to be controlled and thus to es-tablish what is actually essential for fast and efficient development of services.


4 Outlook

Many service providers are increasingly under pressure to differentiate themselves from their competitors by means of new, innovative services and unique selling points. As a result of this need for concrete action in practice, service research is also increasingly addressing various issues relating to the development of services. In particular, systems and processes are being examined and developed which will enable new services to be launched on markets efficiently and, ultimately, profita-bly and yet still meet customer and employee needs appropriately.

As the development of services is a comparatively recent field of study, which will benefit in particular from bringing together multi-disciplinary approaches, progress across the board can be expected in the future. A key area here will be the development and application of integrated methods and tools. In addition to the obvious consideration given to modelling services, the aspects that are particu-larly relevant here are the provision of integrated IT platforms for services along the lines of computer-aided service engineering tools.

Further progress can be expected with regard to the design of development processes. It can therefore be assumed that the prototyping models for services which, to date, have only existed in a rudimentary form, will be developed further and take on greater significance. Generally prototyping involves a first version (‘Prototype’) of a new service being developed. This is then used to examine the important attributes of the service at an early stage and these features are then re-fined. Typically, the development steps of prototyping models are not discrete and may be partially overlapping.

Issues relating to the testing of services are closely linked to prototyping. Only if it is possible for services to be fully or partially tested before their actual market launch will it be possible for new concepts to be evaluated at an early stage, im-proved and then implemented so that they are suitable for customers and employ-ees. Research on visualising and staging services plays a special role here. It is precisely the processes of Virtual Reality and Service Theater used here that dem-onstrate that a number of different scientific disciplines benefit the development of services in many way and the view at the present time is that a number of trend-setting results can be expected.

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Advances in Services Innovations || Service Engineering: State of the Art and Future Trends