International Journal of Service Industry Management

Emerald Article: New service development: learning from and with customers Jonas Matthing, Bodil Sandn, Bo Edvardsson

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To cite this document: Jonas Matthing, Bodil Sandn, Bo Edvardsson, (2004),"New service development: learning from and with customers", International Journal of Service Industry Management, Vol. 15 Iss: 5 pp. 479 - 498 Permanent link to this document: http://dx.doi.org/10.1108/09564230410564948 Downloaded on: 19-01-2013 References: This document contains references to 76 other documents Citations: This document has been cited by 58 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 6670 times since 2005. *

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Jonas Matthing, Bodil Sandn, Bo Edvardsson, (2004),"New service development: learning from and with customers", International Journal of Service Industry Management, Vol. 15 Iss: 5 pp. 479 - 498 http://dx.doi.org/10.1108/09564230410564948 Jonas Matthing, Bodil Sandn, Bo Edvardsson, (2004),"New service development: learning from and with customers", International Journal of Service Industry Management, Vol. 15 Iss: 5 pp. 479 - 498 http://dx.doi.org/10.1108/09564230410564948 Jonas Matthing, Bodil Sandn, Bo Edvardsson, (2004),"New service development: learning from and with customers", International Journal of Service Industry Management, Vol. 15 Iss: 5 pp. 479 - 498 http://dx.doi.org/10.1108/09564230410564948

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New service development: learning from and with customers

Jonas Matthing, Bodil Sanden and Bo Edvardsson
Service Research Center, Karlstad University, Karlstad, Sweden
Keywords Customer service management, Market orientation, Market research, Customer information, Learning, Sweden Abstract New service development relies on the complex task of understanding and anticipating latent customer needs. To facilitate proactive learning about the customer, recent ndings stress customer involvement in the development process and observations of customers in real action. This paper draws on theory from market and learning orientation in conjunction with a service-centered model, and reviews the literature on customer involvement in innovation. A eld experiment was conducted in Sweden with end-user mobile phone services. The design departures from the nature of service that precepts value-in-use and by borrowing from relevant techniques within product innovation that supports learning in customer co-creation. The experiment reveals that the consumers service ideas are found to be more innovative, in terms of originality and user value, than those of professional service developers.

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Introduction Market-oriented companies have mainly focused on satisfying expressed needs of the customer, typically by using verbal techniques such as focus groups and customer surveys, to gain understanding of the use of current products and services (Dahlsten, 2003; Slater, 2001). The problem is, however, that those techniques tend to result in minor improvements rather than innovative thinking and breakthrough products (Harari, 1994). This problem arises because customers have trouble imagining and giving feedback about something that they have not experienced (e.g. Leonard and Rayport, 1997; Ulwick, 2002; Veryzer, 1998; von Hippel, 1986). Organizations simply cannot access, understand, and meet latent needs of the customers by only using surveys and interviews. Latent needs can be referred to as what customers really value or the products and services they need, but have never experienced or would never think to request (Senge, 1990). Recently it was reasoned that a market-oriented and learning organisation is compatible with, if not implied by, the service-centered model (Vargo and Lusch, 2002, p. 6). The service-centered view of marketing is customer-centric (Sheth et al., 2000) and market-driven (Day, 1999). This means more than simply being consumer-oriented; it means continually collaborating and learning with customers in order to respond to their individual and dynamic needs. Service-centered logic implies that value is dened by and co-created with the consumer and determined by the customer on the basis of value-in-use, rather than being embedded in predened output (Vargo and Lusch, 2002). Thus, from a new service development perspective, the customers become not only a necessity, but also an opportunity. Most scholars argue that services are activities, deeds or processes and interactions (Solomon et al., 1985; Lovelock, 1991; Zeithaml and Bitner, 2000) where the customer plays the complex role of both contemporary consumer and producer (Normann, 1984; Tofer, 1980). Because this process of customer-company interaction often occurs at

International Journal of Service Industry Management Vol. 15 No. 5, 2004 pp. 479-498 q Emerald Group Publishing Limited 0956-4233 DOI 10.1108/09564230410564948

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the same time as the customer experiences the service, it is problematic to obtain relevant feedback from customers in advance. Adding to the complexity is the fact that many services today are interactive, technology intensive, and embedded in relationships. Altogether, new service development relies on the difcult task of understanding and anticipating changing customer needs, with little help from traditional market research. In addition the nature of services clearly adds to the complexity. To facilitate proactive learning about the customer in order to uncover latent needs, recent ndings stress customer participation in the development process or observations of customers in real action (Deszca et al., 1999; Martin and Horne, 1995; Leonard and Rayport, 1997; Prahalad and Ramaswamy, 2000; Thomke, 2003). Literature holds a limited number of articles on customer involvement in new service development (Alam, 2002). Hence, the aim of this exploratory study is to examine new approaches that facilitate learning from and with the customer in new service development. The article starts with an outline of a market-oriented and service-centered perspective on innovation. These concepts are then examined by the practical manifestation of customer involvement, which forms the basis for the design of a eld experiment. In the customer involvement experiment we compare customers and professionals contributions to innovative services. The results and learning process of the experiment are analyzed, and the nal section is devoted to a discussion on the theoretical and managerial aspects of the study and suggestions for future research.

Theoretical framework Market and learning orientation in innovation The service-centered model (Vargo and Lusch, 2002) describes an active customer that interacts with personnel, the service script and/or supporting tangibles. This implies the need to develop close and trusting relationships to increase customer perceived value. Such relationships are fostered by a market orientation. Market orientation, as an implementation of the marketing concept, entails learning about customer needs, the inuence of technology, competition, and other environmental forces, and acting on that knowledge in order to become competitive (Slater and Narver, 1995). The perspective on market orientation as mainly a business philosophy (Kohli and Jaworski, 1990; Narver and Slater, 1990) has gradually shifted toward including a behavioral element of organizational learning. Accordingly, market orientation is viewed as an organizational learning capability consisting of cognitive associations (e.g. shared beliefs, values, and norms) and behavioral outcomes reecting these cognitions (Kok et al., 2003). Day (1994a, b, 2002) maintains that organizations continuously learn about their markets through the linked processes of market sensing and sense making, which follow the usual sequence of information-processing activities. Market sensing includes the collection and distribution of information about the needs, expectations, and requirements of customers through open-minded inquiry. Sense making includes the interpretation and utilization of the collected information. Further learning is achieved when an evaluation of the outcomes is done. The overall learning process generates a context for market information, and converts it into knowledge about the customer (Kok et al., 2003).

Morgan et al. (1998) showed that rms with high market orientation possess a greater organizational learning capability. Furthermore, Hurley and Hunt (1998) proposed that market and learning orientation are antecedents to innovativeness. They argue that learning facilitates behavioral change, which leads to improved performance. This is supported by Han et al. (1998) who showed that market orientation facilitates organizations innovativeness, which, in turn, positively inuences performance. Organizational learning is valuable to a rm and its customers because it is said to support the understanding and satisfying of customers expressed and latent needs through new products, services, and ways of doing business (Day, l994a; Sinkula, 1994). Organizational learning makes it possible not only to create products ahead of competitors, but also to create them before the recognition of an explicit customer need (Hamel and Prahalad, 1991; Slater, 2001). Consequently, it is argued that a rms long-time performance is dependent on both customer satisfaction with the present offering, as well as the development of new products and services (Flint, 2002; Slater and Narver, 1995). According to Senge (1990) organizational learning involves two distinct types of behavior: adaptive and generative learning. Adaptive learning focuses the organization on adjusting to serve the present market. With a continued focus on the present market, it is possible that these core capabilities can dominate the direction and development of the rm, and thus constrain it. They would become core rigidities that inhibit innovation (Dahlsten, 2003; Hamel and Prahalad, 1991; Slater and Narver, 1995). In contrast, generative learning requires an organization to challenge its own assumptions about its mission, customers, competitors, and strategy (Slater and Narver, 1995). If a company can look at its environment beyond its familiar assumptions, it may be able to discover new directions and new possibilities, and thus create new innovative services. The product and service development literature also emphasizes the importance of market orientation (Alam and Perry, 2002; Atuahene-Gima, 1996; Johne and Storey, 1998; Montoya-Weiss and Calantone, 1994). Even though research supports the signicance of market-oriented innovation, there is little research about how to operationalize and implement market-oriented innovation, i.e. what needs to be changed and completed (Kok et al., 2003; Day, 1994b). Vast criticism has been aimed at traditional market research techniques that they cannot deliver information about customer latent needs (Grifn and Hauser, 1993; Leonard, 1995). Even though new approaches and techniques are evolving to elaborate on customer latent needs in order to foster organizational innovativeness, most companies still focus on satisfying expressed needs of the customer by using focus groups and customer surveys (Dahlsten, 2003; Flint, 2002; Slater, 2001). The demand for a market and learning orientation, in conjunction with the incapacity of traditional market research techniques to anticipate customer latent needs, has implications for new service development. It is suggested that the customer ought to be observed more closely in the customers own environment, and/or more involved in the development process (Deszca et al., 1999; Martin and Horne, 1995; Prahalad and Ramaswamy, 2000). Alam and Perry (2002) even argue that the service-centered model (e.g. Langeard et al., 1986; Normann, 1984; Vargo and Lusch, 2004) suggests that customer involvement should play a more important role in service rms than in tangible product rms. It is alarming, therefore, that customer or user

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involvement in new service development is an underdeveloped research area (Alam and Perry, 2002; Johne and Storey, 1998). Further, it is almost a paradox how studies on customer involvement and techniques that support a service-centered model are found in the product development literature (e.g. Alam, 2002; Kaulio, 1998).

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Customer involvement in new service development Customer involvement is suggested to results in important benets such as reduced cycle times, superior services, and user education (e.g. Alam, 2002). However, how companies achieve these benets is less known. Our objective is to examine new approaches that facilitate learning from and with the customer. We must examine the processes that result in nding accurate and latent needs, which will lead to benets such as reduced cycle times. Hence, we did an extensive literature search (in the databases Business Elite Source, EBSCO HOST, and Emerald) on customer involvement in new service development, as well as related notions and research areas. The search showed (see Table I) that customer involvement in innovation can be characterized as truly interdisciplinary, involving cognitive psychology, design theory, engineering design, human-computer interaction, marketing, organizational theory, product development management, and quality management (Alam, 2002; Kaulio, 1997). Consequently, reviewing previous research is difcult. Our strategy involves a problem-based approach. We build rst and foremost on the marketing aspects of service and product development. Research contributions from other disciplines, however, can also be found. This approach allows us to build a more comprehensive framework of customer involvement in new service development. Previous marketing research about service development is limited: therefore the number of references to build from as well as the conceptual variety is drastically reduced. Articles were selected based on two criteria: the main focus of the article should be activities or processes of customer involvement, or market research techniques that support learning from and with customers. Table I provides an outline of previous research on customer involvement in new product and service development. This outline also supports the statement that research into customer involvement in innovation is interdisciplinary. The literature states a number of strongly allied concepts of customer involvement, e.g. lead user method (von Hippel, 1986), co-development (Anderson and Crocca, 1993; Neale and Corkindale, 1998), co-opting customer competence (Prahalad and Ramaswamy, 2000), user involvement (Alam, 2002), consumer involvement (Pitta and Franzak, 1996), and customer interaction (Gruner and Homburg, 2000). Surprisingly, explicit denitions of these concepts are often absent. A number of different parameters are used to describe these concepts, e.g. degree or intensity of customer involvement (Alam, 2002; Gruner and Homburg, 2000; Kaulio, 1998; Martin and Horne, 1995; Shaw, 1985; Voss, 1985), customer characteristics (Gruner and Homburg, 2000; von Hippel, 1986), objectives of customer involvement (Alam, 2002; Anderson and Crocca, 1993), phases of the innovation process (Alam, 2002; von Hippel, 1986; Mullern et al., 1993), customer role in the process (Mullern et al., 1993; Wikstrom, 1996), modes of customer involvement (Alam, 2002; Ciccantelli and Magidson, 1993; Durgee et al., 1998; von Hippel, 1986, 2001; Gustafsson et al., 1999; Leonard and Rayport, 1997; Pitta and Franzak, 1996; Thomke, 2003; Ulwick, 2002), contributions

Authors Review of literature and case study research Anecdotal evidence B2B, software development, USA B2C, multiple industries, USA 12 case programs, 48 new service projects and 36 in-depth interviews N.A. B2B, nancial services industry, Australia User involvement is more intense at initial stages of idea generation and screening and the later stages of test marketing and commercialization. Six objectives were reported, including rapid diffusion and decreased time-to-market

Primary focus

Type of study

Sample/data

Context

Denition of customer involvement and summary of comments and ndings

Alam (2002)

Objectives, stages, intensity and modes of user involvement

Anderson and Crocca (1993)

Learning from a joint co-development project Empirical: case study research N.A.

Ciccantelli and Magidson (1993)

Consumer idealized design

Durgee et al. (1998)

Mini-concepts

Empirical: interviews

30 mothers

B2C, foodprocessing technologies USA B2B, machinery industry, Germany

Gruner and Homburg (2000)

The impact of customer interaction: A) intensity and B) customer characteristics

Empirical: interviews and statistical analysis

n 1; 219 (answers 310, response rate 25.4 percent)

Co-development is when a company, together with its customer users, evaluates a new technology together with established work practice. Direct collaboration around the use of technology in actual work settings enlarges and enriches the work practice of both parties Consumer idealized design is a supporting method of customer involvement. Customer involvement often has not produced the expected results. Six principles have come out of examination of successful and failed efforts including, for example, probe for the reasons why consumers want what they want Mini-concepts is found to be a supporting method of customer involvement. Given the diversity of the target consumers, it might be better to expose them to a long list of functions than to expose a short list and try to nd a function that gets high rating across most of the sample Results indicate that customer interaction in certain stages has a positive impact on new product success. Financially attractive customers or lead users have also a signicant effect on new product success

(continued)

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Table I. Studies on customer involvement in new product or service development

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Authors Empirical: case study research Conceptual and anecdotal Conceptual and anecdotal Conceptual: review of literature Anecdotal evidence N.A. B2B and B2C, multiple industries N.A. N.A. N.A. B2B, B2C, multiple industries N.A. B2B and B2C N.A. B2C, airline industry, Scandinavia

Gustafsson et al. (1999)

von Hippel (1986)

von Hippel (2001)

Kaulio (1998)

Leonard and Rayport (1997)

Martin and Horne (1995)

Table I. Type of study Sample/data Context Denition of customer involvement and summary of comments and ndings Empirical: interviews, group discussions and survey 80 senior level executives, 25 groups with 378 executives and 470 (88, 18.5 percent) B2B and B2C, multiple industries, USA Observation is a supporting technique of customer involvement. This approach helped SAS in developing a series of innovations complementing one another to form a holistic travel experience, based on the individual needs of the customers during the travel process Lead users are users whose present strong needs will become general in a marketplace in the future and are positioned to benet signicantly by obtaining a solution to those needs Toolkits for user innovation are a supporting technique of customer involvement. As toolkits are more generally adopted, users will increasingly be able to get exactly the products and services they want Customer involvement is dened as the interaction between customers and the design process. Three types of involvement are identied: design for customers, design with customers and design by customers Empathic design is a supporting technique of customer involvement. A ve-step process is presented: 1. Observe your customers 2. Capture data 3. Analyze and reect 4. Brainstorm for solutions 5. Develop prototypes Customer participation is dened as the direct. overt participation by the customer; their overall involvement. There is more direct customer participation for more successful service innovations (continued)

Primary focus

Observation of customers in their real environment

Launch the concept of lead users and a method

Toolkits for user innovation

Intensity of customer interaction

Empathic design, based on observation

Examination of most successful versus least successful innovations within the same rm

Authors Empirical: case study Conceptual N.A. N.A. N.A. N.A. B2B, consultant services, USA

Primary focus

Type of study

Sample/data

Context

Denition of customer involvement and summary of comments and ndings

Martin et al. (1999)

Customer-input uncertainty

Mullern et al. (1993)

Neale and Corkindale (1998) N.A.

Taxonomy of participatory design Co-development

Input uncertainty in terms of diversity of customer demand and customer disposition to participate has the potential to interfere with the success of reciprocal B2B service innovation Participatory design is a process at the earliest stages of a joint development project where the customer is highly involved as a member of a team Co-development is the process where the technology originator and the customer become intimately involved in an integrated or joint development project

Olson and Bakke (2001)

Implementation and follow-up on the lead user method

Review of literature and anecdotal evidence Empirical: longitudinal case study

B2B, electronics industry, Australia B2B, IT industry, Norway

Pitta and Franzak (1996) Anecdotal evidence N.A. B2B and B2C, multiple industries

Prahalad and Ramaswamy (2000)

Organisational learning and techniques for consumer involvement Co-opting customer competence

Conceptual and anecdotal

N.A.

B2C

Lead user method resulted in protable products and services; however, for example, time pressure, personnel turnover, limited pressure to continue due to already excellent performance, and that engineers saw it as not prestigious enough to work with customer, led to implementation failure The presented methods offer the potential of learning consumer wants and needs in great detail. The best method is to involve the consumer in each step. Early and ongoing consumer input distinguishes successful from unsuccessful products Customer competence is a function of the knowledge and skills they possess, their willingness to learn and experiment, and their ability to engage in an active dialogue. Co-opting concerns, e.g. engage customers in an active dialogue, manage customer diversity (continued)

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Table I.

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Authors Empirical: interviews and statistical analysis Empirical: case study Conceptual and anecdotal N.A. N.A. 34 innovations in 11 companies B2B, medical equipment industry, UK

Shaw (1985)

Thomke (2003)

Ulwick (2002)

Wikstrom (1996) N.A. Interviews: 18 innovations, survey: 115 (46, 40 percent) Empirical: case study research Empirical: interviews and survey

Voss (1985)

Table I. Type of study Sample/data Context Denition of customer involvement and summary of comments and ndings B2C, nancial services industry, USA B2C, B2B, multiple industries, USA B2C, multiple industries, Sweden B2B, application software industry, UK User-dominated where the user perceives the need for the product, conceives of a solution, builds a prototype and proves the value of the prototype by using it. A total of 76 percent of innovations were developed through continuous interaction with users resulting in 65 percent of these being successful Experiments with new services are most useful when they are conducted live with real customers engaged in real transactions Provide a supporting technique. Presents a ve-step process to outcome-based interviews: 1. Plan outcome-based interviews 2. Capture desired outcomes 3. Organize the outcomes 4. Rate outcomes in terms of importance and satisfaction 5. Use the outcomes to jump-start in-house innovation Given the programmed procedures for interacting with customers in the, very little learning adaptive or generative is likely to accompany the interaction If the user formulates an idea, distinguish between user-active from supplier-active. Innovative solutions can be developed by users, even if they do not have a computer department, provided that they can maintain at least a modest familiarity with new technology

Primary focus

Level of customer interaction

Service experiments conducted live with real customers Presents a methodology that focus on outcomes rather than solutions

Customer as co-producer

The role played by users based on their degree of participation in the innovation process

(Neale and Corkindale, 1998, Prahalad and Ramaswamy, 2000), and inhibiting factors of customer involvement (Martin et al., 1999; Olson and Bakke, 2001). The review of literature exposes a limited number of studies focusing primarily on customer involvement in the product or service innovation process. As previously stated, a majority of these studies is founded on research about new product development (e.g. Anderson and Crocca, 1993; Ciccantelli and Magidson, 1993; Durgee et al., 1998; Leonard and Rayport, 1997; von Hippel, 1986, 2001). Only four studies have a primary focus on customer involvement in new service development (i.e. Alam, 2002; Martin and Horne, 1995; Martin et al., 1999; Thomke, 2003). In terms of supporting techniques, e.g. lead-user method (von Hippel, 1986), and tool kits for user innovation (von Hippel, 2001), these are rst and foremost developed and tested in a product context. Furthermore, even though several studies and techniques implicitly report on learning from and with the customer (e.g. Anderson and Crocca, 1993; von Hippel, 2001, which builds on learning by doing from von Hippel (1994) and Tyre and von Hippel (1997)), few studies make an explicit connection between customer involvement and learning (i.e. Pitta and Franzak, 1996; Wikstrom, 1996). Building on previous denitions and theories of market and learning orientation (e.g. Day, 1994a, b, 2002, Sinkula, 1994), we argue that customer involvement aims to facilitate the process of market sensing (Day, 1994b, 2002), that is, the generation and dissemination of market intelligence and the organisation-wide responsiveness to it (Kohli and Jaworski, 1990). We dene customer involvement as the processes, deeds and interactions where a service provider collaborates with current (or potential) customers to learn about the market and alter organizational behavior. Following this, customer involvement in service innovation is dened as those processes, deeds and interactions where a service provider collaborates with current (or potential) customers at the program and/or project level of service development, to anticipate customers latent needs and develop new services accordingly. In summary, extant literature provides important insights into customer involvement in product and service development. The literature is scattered and there are few attempts to present a profound picture of how knowledge is created and learning is achieved with real (or potential) customers and then transferred within the organization. Customer involvement especially devoted to service research is preached but not practised. An empirical experiment of customer involvement The basis for the design of our eld experiment is the idea of market and learning orientation manifested by customer involvement practices and research. When previous research is used either for inspiration or to simulate the design of the experiment, we have put see in brackets together with the reference in point. Experiments with users for new ideas Together with TeliaSonera, a large Swedish telecom operator, we arranged a eld experiment to examine processes for enhanced learning, and the basic principle was to emulate authentic conditions, and a real world test (see Prahalad and Hamel, 1990; Narver et al., 2000; Senge, 1990; Thomke, 2003). The study was designed as a classical experiment including a control group, treatments, and independent judges to evaluate the outcome, where customer involvement was compared to the normal working

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routines (e.g. getting customer information from the marketing department). The experiment trials were followed by interviews with all the participants where we could probe the ideas and prototypes created (see Lynn et al., 1997), in order to understand in more detail how learning may occur (see Tyre and von Hippel, 1997). A number of group meetings with the research and development (R&D) department from the telecommunications company were also held to discuss the study, its results and the insights from a learning perspective (see Olson and Bakke, 2001). We focused the study on information-processing activities (Day, 1994a) in the initial phase of the innovation process, as this have been emphasized as perhaps the most important (e.g. Alam and Perry, 2002; Cooper, 1993; Martin and Horne, 1993), and also a determinant of later market success (Goldenberg et al., 2001; Lilien et al., 2002). Services are mainly perceived as ideas or concepts (rather than a tangible entity). The more ideas a rm can generate, the greater is the probability of pursuing an idea to success (Alam, 2002). Services are unique in that they cannot be tested in advance. They are abstract, like an idea, until they are realized (Thomke, 2003). The context The context chosen was an end-user service for mobile telecommunications known as SMS. We assumed that this new type of technology-based service (Bitner et al., 2000) was not only of general interest for service research, but also we could test the inherent problems of market research on consumers, where lack of experience is central (see Leonard and Rayport, 1997; Ulwick, 2002). An R&D department provided a technical platform called Unied ServicesTM (US), which enabled access to information on the Internet from the mobile phone through sending and receiving SMSs. A mobile phone can also be employed as a remote control via the service, e.g. switching on and off home lighting, a radiator in a building or checking whether or not a door is securely locked. The sample Altogether 86 persons, 57 men and 29 women, participated in the experiment. The mean participant age was 26.4, with a range of 19 to 54, and 57 percent were between 21-24 years of age. We sought participants that were current or potential customers of the company and frequent users of mobile phone communication. A majority of the people that voluntarily participated in the experiment were university students. In Sweden, students represent a frequent user group of advanced GSM services other than voice, and therefore were familiar with the context (see von Hippel, 1986). Hence, the sample of consumers was expected to incorporate plausible customers of future applications. The customer involvement process The eld experiment included three phases: initiation, idea generation, and completion. At the initial meeting, we aimed to motivate the participants by establishing a creative tension (see Senge, 1990). The requirement for creative tension was an introduction to the scope of the study and a basic lecture on the US platform. Then, a user toolkit for innovation including mobile phones that carried a special account giving access to the US platform, was demonstrated and handed out (see can be applied to both physical goods as well as information goods and associated services such as custom telephony

software and the services it generates (von Hippel, 2001, p. 254)). To increase the creative tension all user participants were given the task of inventing new service ideas that would provide them with added value, and the professional service developers were instructed to design services that they thought would bring value to the customers. To expand the participants vision of the future and range of possibilities, they were given access to a sample of ten services on US that the R&D department had used for experimentation. They also received hands-on training on how to use them. Hence, the participants had access not only to the current reality, but also to the vision and tools that would enable them to come up with innovative ideas (see Senge, 1990). Similar to someone involved in consumer idealized design, the participants were encouraged to imagine that the existing services with which they were familiar were not the limitations, but that they had the opportunity to create something new (see Ciccantelli and Magidson, 1993, p. 343). All participants were informed that high-quality contributions would be rewarded with a cash prize of e125 and cinema tickets. We hoped, however, that the participants intrinsic motivation to try out futuristic services would prevail (see Olson and Bakke, 2001; Prahalad and Ramaswamy, 2000). The idea generation phase lasted for 12 days. The task did not focus on any special problem, but instead sought to capture how people could imagine the use of technology to create services that would help them achieve goals in their private and professional lives (see Ulwick, 2002). During this time a help-desk was at their service (see Anderson and Crocca, 1993) and after six days we checked how work was proceeding via the mobile phones. To acquire information about the idea creation process the participants were given a diary and instructed to describe their processes, and whether or not problems had interfered with the processes. We were interested in what the customers were doing and how they were thinking, in order to learn more about how this process could be effectively designed (see sticky information (von Hippel, 1994)). A meeting initiated the third and nal phase. All equipment was returned and the participants were asked to write down descriptions of their generated service ideas in a pre-dened service description format. Due to the nature of mobile phones and limited resources, we or the service developers, did not have the opportunity to learn from customers behavior by direct observation. This left us with a relative black box of the customers world. To compensate for lack of observations and to get an indirect access into real customer environments, information was acquired through the use of interviews and diaries. During the interview, we discussed all of their created services, as well as their documentation of the idea creation processes and service descriptions. Based on the acquired information, we attempted to form a shared interpretation of what happened when the participant used the toolkit in his or her own environment. Even though observation was impossible in this case, it could be included in other contexts and situations. The important question is not if observation should be used, but rather to make sure to create prerequisites for the service interaction (i.e. value-in-use), and then perform complementary techniques in order to learn from that interaction. The evaluation process To objectively determine the performance, the evaluation process was based on the Consensual Assessment Technique (CAT) (Amabile, 1996). This technique makes

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possible the comparison of different designs, independently judging and ranking them relative to each other. Independent judges evaluated the innovative outcomes in terms of ideas for future mobile phone services. The rst panel included internal service developers at the R&D department involved in the study, while the second panel could be referred to as external technology consultants, who were very knowledgeable in telecommunications. The third panel consisted of internal sales and marketing people, and a fourth panel was composed of customers. The panels thus covered the various aspects within a company, as well as the voice of the customer. Panels one, two and three were composed of three judges each, while the customer panel was comprised of six persons, reecting the fact that they were not experts within the given domain (Amabile, 1996). Im and Workman (2004) have suggested that creativity is a mediator between market orientation and new product success. Creativity has also been viewed as a construct that precedes innovation. Besides the dimension of uniqueness, to be creative an idea needs to be useful and actionable. Thus, in accordance with creativity research (e.g. Amabile, 1996; Besemer and OQuin, 1987; Im and Workman, 2004), the dimensions of originality and user value were used to measure the innovative performance of the participants in the experiment. Before evaluating the created ideas, the scoring system was described verbally, supported by a description in print. A ten-point scale was used for rating the services. Using the service description, every judge had to score at least one idea as a one-point service and one as a ten-point service, and then rank the rest comparatively on the scale, both for originally and user value. Results: customer ideas are more innovative In Table II the measure of innovativeness (mean of originality and user value) is presented for the professional service developers and the customers from the four panels respectively. The data show that the panels in general assign a higher score to the customers ideas, which in all cases but one are statistically signicant differences. Hence, in terms of innovativeness, the process of customer involvement seems clearly to benet services ideas with a greater potential, compared to the professional service developers normal working routines. The process of involving the customer thus creates a situation for learning about the customer latent needs.

Panel R&D Techn. consult. Marketing Table II. The four panels evaluation of service ideas in terms of innovativeness Customers

Group Service developers Customers (74) Total Service developers Customers (74) Total Service developers Customers (74) Total Service developers Customers (74) Total (12) (12) (12) (12)

n 55 374 429 55 374 429 55 374 429 55 374 429

M 3.254 3.818 3.745 4.141 4.590 4.533 4.606 4.859 4.826 4.750 5.165 5.112

SD 1.392 1.588 1.574 1.135 1.429 1.401 0.9525 0.9931 0.9905 1.032 1.133 1.128

Sig.

0.013 0.026 0.105 0.011

Analysis: the enhanced learning process A deeper and better understanding and shared interpretation (Sinkula, 1994; Day, 1994a) of attitudes, needs, and behaviors could further be obtained by asking the customer to assist in interpreting information and/or situations. For example, the participants were asked to explain what triggered an idea, i.e. in what type of situation the idea occurred. We also probed why the idea was relevant to a persons life, in order to discover a latent need. The service descriptions showed that unique ideas (with high scores) were produced at unexpected times. The participants were often triggered by a sudden experience, and then understood how they could use their toolkits to solve a problem or utilize a possibility. The idea that emerged would have been impossible to imagine in an interview, or while answering a survey. This shows that customers can access latent needs under certain circumstances. Customer involvement activities and processes designed to facilitate learning thus have a chance to guide users toward innovative thinking. The data showed that the professional service developers normally do not have access to customers environments and latent needs. Their suggestions simply do not match the customers in quality, because they do not match the customers needs to the same extent. One example is a service named Verdict of the day. In this case, the customer was a person with no clear insights into his nancial status and was therefore stressed. The idea occurred as he was walking towards an ATM to get, as he felt it, his verdict of the day. He passed McDonalds and he heard someones phone beep receiving a SMS. Then he realized that it would be very handy to get the balance of your account through the mobile phone once a day, and that the beep could be replaced by a McDonalds jingle. In that way he would be in better control of his money situation, and McDonalds could sponsor and pay for the service, as they would receive more advertising. The interview with the customer showed that this idea was an expression of the latent need of getting information in real time. The situation added the feature of a service free of charge by matching his need with an opportunity for a company. This example shows that the experimental method used in the eld (Thomke, 2003), together with the design of active customer involvement, offers possibilities for new insights because the customers were put in a new set of conditions (Ciccantelli and Magidson, 1993). Our insights from the service descriptions and interviews were discussed during a few informal meetings with the engineers from the R&D department. These meetings had the original intention of distributing the acquired information (Day, 1994a; Sinkula, 1994) in terms of results and feedback, to those who were involved in the study. We thus made an effort to avoid a traditional market research report. These meetings revealed some interesting experiences. At rst, the engineers were opposed to ideas that had received high innovative scores (even though they themselves participated as judges). After a brief discussion about what they at rst perceived as outlandish ideas the discussion triggered an increased understanding of what actually caused the idea which was a latent need. A rst glance a mediocre idea could, by the help of need-related information in service descriptions and interviews, capture information about the interaction with the technology and a persons environment that was interesting. If there was a sound reason behind the idea, it could be potentially developed into a service. Hence, the engineers reached a deeper customer

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understanding and shared customer interpretation, and then could use their knowledge of expertise to leverage the idea into a service that encompassed a latent need (Lynn et al., 1997; Sinkula, 1994). The engineers were surprised, but they also became seriously engaged. The discussions with the R&D department showed that the idea previously mentioned provided a new market as it could be applied to other situations, e.g. if you use Britney Spears latest hit on the phone as a ring signal you could get a discount on her album, which by the way you download and pay for via the phone . . .. We need to remember that the experiment took place two years ago, at a time when these types of services were not available in Sweden. In summary, the only limit for using the customers creative imagination is the imagination of the professional service developers. The customer involvement and creative tension had facilitated generative learning (Senge, 1990). For this to happen, continuous customer input is required which goes beyond traditional questions and answers (Pitta and Franzak, 1996). The experience of the experiment tells us that there must be incentives for company staff to involve and work together with the customer. Although the experiment yielded over 400 new service ideas, some of which were found highly innovative and even producible, the utilization and evaluation of market information (Day, 1994a) was limited within the company and among the professional service developers. Two years after the experiment the whole site, whose main function was R&D, was closed down. Discussion, implications and future research A service-centered view on new service development and focus on value-in-use can be captured by customer involvement. We argue that the inseparable nature of customers as both producer and consumer and the tendency of service development to fall back on informal and ad hoc efforts (Kelly and Storey, 2000; Thomke, 2003) make it natural and vital to include the customer in the innovation process. By adopting a proactive approach and involving customers early and intensively, service rms can facilitate learning and reduce the risk of being imitated and surpassed by competing organizations. In this article, we argue that interaction is not only the focal point of services, but also the essence of customer involvement. Emphasis is put on supporting techniques as these are the means by which customer information and knowledge are created. The techniques and ways of working must be prerequisites for customer interaction and be designed to facilitate the systematic learning required to support and strengthen service innovation over time. The eld experiment helped increase our understanding of the learning process and how knowledge is created from and with potential customers, and then transferred within the organization for new service development. The role of the customer in service innovation should be contributing knowledge, skills and experiences, his or her willingness to share frustrations, requirements, problems and expectations, and his or her readiness to experiment and learn (Prahalad and Ramaswamy, 2000, p. 80). From the case study and previous research, however, we have learned that there are several problems associated with customer involvement. Even though results displayed 429 service ideas and the customers ideas were found to be more innovative, TeliaSonera did not implement this way of working. One reason could be that the companys current structures, processes, and culture prevented them from continuing with customer involvement in its current form. In a follow-up study of a successful lead

user project, Olson and Bakke (2001) make some suggestions as to why the company did not continue to use the method. Management explained that product concepts, generated by lead users, were seen as ambiguous and overly simplistic and therefore less valuable by the new product development personnel. The technical language spoken by the new product personnel increased the inertia of old technology push by making it more prestigious and comfortable to plan new products with their technology suppliers. Furthermore, there was no pressure from market conditions, the rms nancial status, or management to make permanent changes to established routines. Anderson and Crocca (1993) learned from their co-development project that there were communication barriers between users and developers and that the attitude of product developers made customer involvement difcult. Additional problems with customer involvement reported in literature are time-consumption and increased efforts, low organizational t (Lilien et al., 2002), and increased uncertainty (Larsson and Bowen, 1989; Lengnick-Hall, 1996; Martin et al., 1999; Nambisian, 2002). In addition, Nambisian (2002) identies tree important challenges of customer involvement: the difculty in identifying an appropriate set of customers, the difculty in creating appropriate incitements for participation, and the difculty of capturing the customers knowledge. Perhaps due to the problems and uncertainties associated with customer involvement, in practice, traditional market research still dominates. Slater (2001) argues that the pursuit of customer satisfaction involves a set of difcult problems. The rst concern is the development of a valid measure. A second problem is that these measures might overwhelm other strategic performance indicators such as those concerned with new product success or organizational learning and this might lead to only a short-term focus. Christensen (1997) reported that lead rms with a strong customer focus can allow strategically important innovation to languish because customers initially reject them due to lack of knowledge about how to use the products or services. Dahlsten (2003) reports that Volvo has historically focused on xing what has gone wrong, i.e. avoiding dissatisfaction, rather than developing what will go right by focusing on the actual customer experience. The purpose of this study was to examine new approaches that facilitate learning from and with the customer in new service development. By fullling this purpose, the study makes signicant contributions to several important and interrelated research elds such as product and service innovation, market research and adherent techniques, market orientation, and organizational learning. First, it offers one way to operationalize and implement market orientation and organizational learning in a technology-intense service innovation context. Second, current research on customer involvement in product and service innovation was reviewed and summarized. Based on this and conclusions from research on market orientation and organizational learning, a denition of customer involvement in service innovation was proposed. Third, based on previous research on customer involvement, we designed and tested a customer involvement procedure, using experiment, diaries, and interviews that strive to capture latent customer needs. Finally, we also display results to support the belief that customer involvement in service innovation, if properly managed, obtains valuable customer information and has a positive effect on the innovativeness of the created service ideas. Overall, this study provides a more convincing understanding of

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the contribution made by end users in the generation of new ideas for technology-based self-service. The ndings of this research should assist the managers of service rms in their search for breakthrough services. First, managers are advised to adopt a proactive approach and involve customers early in the innovation process. A service is generally perceived as an idea and a continual ow of service ideas is necessary in order to succeed. Second, a focus should be put on capturing latent needs. Customer solutions, however, should not be dismissed as too original or unrealizable. Behind the solution, there might be an interesting yet unfullled need. Third, although service rms can obtain customer input using several other means, they should consider the techniques and ways of working highlighted in this research as they strive to uncover customer latent needs. Finally, innovation should not be left solely to engineers. The R&D function should be developed to a cross-functional site including marketers, engineers, behaviorists etc. Different knowledge and skills are needed to identify latent needs and to learn from customer behavior, experiences and preferences. Even though our study provides important implications for research and practice, the ndings also raise new issues to address in future research. In particular, empirical research is needed to discover the depth of customer involvement in innovation and to investigate the relationship between customer involvement and new service success. Future studies of customer involvement should develop a valid measure based on the theory and variables developed and tested through large-scale quantitative surveys in various service contexts. The construct of customer involvement needs to be included in the measures of customer and market orientation to distinguish between reactive and proactive approaches. This is in line with MSIs list of highly important topics that deserve intensive research attention, where assessing marketing productivity and marketing metrics are number one on the list.

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