European Management Journal Vol. 25, No. 5, pp.
370383, 2007
doi:10.1016/j.emj.2007.06.007
New Service
Development: From
Panoramas to Precision
ANNE M. SMITH, Open University Business School, UK
MOIRA FISCHBACHER, University of Glasgow, UK
FRANCIS A. WILSON, University of Salford Business School, UK
New service development (NSD) is essential if
organisations are to survive and grow. Yet the pro-
cess can be complex, time consuming, costly and
often unsuccessful. Services involve customers as
co-producers i.e. they are present in the service sys-
tem/production process. Consequently effective
NSD focuses on designing service prerequisites
that meet consumer needs and requirements. Addi-
tionally, other stakeholder groups may have their
own expectations of the service. A number of mod-
els/approaches have been developed, however,
which can assist managers and others in developing
new and improved services. This paper argues that a
panoramic, or holistic, approach to NSD and a high
level of precision at the micro level, will combine to
provide a more successful service design and NSD
process. Five models from the new product/service
development literature are used to illustrate how
the approach can be applied to a complex multi-fac-
eted service such as a hospital.
! 2007 Elsevier Ltd. All rights reserved.
Keywords: New service development, Stakehold-
ers, Blueprinting, Quality function deployment,
Stage-gate, Prerequisites
Introduction
With the increasing importance of the service sector
to both developed and developing economies; atten-
tion has focussed on the problems of managing ser-
vice organisations. Not only do a vast range of
organisations, across both the public and private sec-
tors, offer predominantly a service product, but
those which offer tangible products also augment
these with after sales service, distribution services
370
! 2007 Elsevier Ltd. All rights reserved.
0263-2373 $32.00
etc. At the same time, increasing customer expecta-
tions, competition and speed of technological devel-
opment means that service organisations must
constantly look for new approaches to service design
and delivery. Service innovation is crucial for success.
New methods and technologies offer opportunities
for developing new and/or improved services. New
service development (NSD) is seen as essential for
enhancing profitability (or viability) of existing ser-
vices through cost reduction and increased sales;
attracting new customers/consumers and creating
loyalty amongst existing ones. Improvements in
organizational image, staff morale and overall organi-
zational health are also driven by innovation.
Additionally, experience of NSD builds key capabili-
ties for further development providing a platform
for future new products/services and opening
opportunities for repositioning and overall strategic
development such as diversification, new market
entry etc.
Many new services, however, fail to achieve their
financial, and other, objectives and/or result in cus-
tomer dissatisfaction with potential long-term conse-
quences. The NSD process itself offers considerable
scope for organisational conflict, inefficiencies and
poor decision making.
Research shows that service organisations do not
adopt formal processes (Kelly and Storey, 2000)
although these have been shown to increase the like-
lihood of success (Martin and Horne, 1995).
The purpose of this paper is to highlight some of the
tools, techniques and frameworks available to service
developers and managers as they develop new ser-
vices; to illustrate their interrelationships and to
advocate a stakeholder orientation to NSD by intro-
ducing a more recently developed stakeholder
European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
 NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION
model. In contrast to other NSD studies, which illus-
trate the application of a specific model, we draw on
five models to highlight two key issues. First, is the
need to focus on the service design itself. Central
to this is the prerequisites model developed by
Edvardsson and Olsen (1996) that we describe as
providing a holistic, or panoramic view, of service
design. Second is the need for development of pro-
cesses which enable successful NSD. Again a pano-
ramic view of such processes can be gained from a
stakeholder approach to NSD as illustrated in our
last model. Within these two frameworks however
there is a need to drill down to the individual service
encounter and to the individual activities required
and thus to build precision in to service design and
delivery. We discuss two models: service blueprint-
ing and quality function deployment (QFD) to illus-
trate the former and the traditional NSD stage gate
model for the latter. These combine to provide an
overview of the many issues involved in NSD and
the means by which both the NSD process and the
service outcome, as experienced by consumers can
be managed more effectively.
In order to illustrate the applicability of the five mod-
els/frameworks presented in this paper, we draw
throughout on a case study of the design and devel-
opment of a new community hospital. A brief discus-
sion of the case is presented in the next section.
Subsequent sections focus on service design and
NSD process models explored within the hospital
context. The final section assesses the contribution
which the adoption and implementation of the frame-
works/models can make to successful NSD in service
organisations. This is followed by a brief conclusion.
The Case Study
The case was developed as part of a broader UK
Design Council funded study looking at health and
financial services. Its usefulness here is determined
by the fact that it permits analysis of NSD from the
strategic, middle and operational levels (referred to
later as macro, meso and micro). In so doing, there is
opportunity to consider breadth in terms of the scope
of design activity and range of key players involved,
and depth in terms of the level of detail required, par-
ticularly at the middle and operational levels. The case
study was developed following 38 hours of interviews
over a period of 18 months with those involved in the
design (including clinicians and managers from
estates and buildings, finance and nursing, the techni-
cal team responsible for the physical hospital design,
and community practitioners).
This NSD case involved all aspects of the physical ser-
vice environment, infrastructure and clinical service
(see Figure 1). These included, for example, creating
ward areas that maximised bed capacity whilst ensur-
ing patient privacy; deciding on staffing levels for
European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
Rehabilitation
GP-led medium acute in-patient services
Consultant and paramedic outpatient services
Day hospital services for the elderly with
major physical disabilities, for the elderly with
mental illness (EMI) and for younger
physically disabled
Specialist-led continuing care for frail elderly
with major physical disabilities and for the
EMI
Specialist-led respite care for the frail elderly
with major physical disabilities and for the
EMI
Diagnostic, investigative and ancillary services
to support the above.
Figure 1 Community Hospital Services
porter and care assistant teams; and ensuring appro-
priate outpatient capacity for community referrals. It
also took account of the organisational and political
dynamics that influenced the design process. These
encompassed the health authoritys financial con-
straints, the need to respond to public consultation,
and management of diverse stakeholder interests in
relation to the location and purpose of the hospital.
Table 1 below indicates the type of issues addressed
at each of the three levels noted earlier.
It is important to note that at the time the research
was conducted there was limited scope for a precise
examination of micro level issues. Consequently we
also draw on other research for the service blueprint-
ing and quality function deployment models. Our
hospital case is analysed below within the context
of the service prerequisites model.
Service Design: The Prerequisites Model
Edvardsson and Olsson (1996), argue that the end
result, and main task, of service development is to
create the right generic prerequisites for the service
(p159). This model (Figure 2) provides a framework
for analysing large scale NSD as well as the impact
of smaller changes on the service prerequisites
described below. It allows developers/designers to
adopt a holistic, or panoramic, approach to NSD that
addresses (1) the service concept; (2) the service pro-
cess; and (3) the service system. This perspective is
effectively demonstrated when applied to a large,
complex service such as the design of a hospital.
The Service Concept
The service concept refers to the prototype for the
service i.e. the utility and benefits provided for the
customer. It specifies primary and secondary
371
NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION

Table 1 Key NSD Considerations at Macro, Meso and Micro Levels

Types of issues addressed Particular areas of complexity Interviewees consulted

Macro: the Health Authoritys Project Board

Commissioning the design; Local political tensions, Director of Public Health;
selecting a preferred provider; media involvement, Project Board Manager;
identifying stakeholder requirements stakeholder engagement. GP, Community Trust Chief Executive

Meso: the Community Health Care Trust

Developing a competitive bid;
encorporating stakeholder criteria;
navigating local politics;
ensuring financial accuracy;
encouraging creative design in a
constrained timescale; identifying
service prerequisites
Local politics associated
with simultaneously closing
existing facilities; meeting
deadlines set out within
the bidding process;
Trust Director of Community Care,
Estates & Facilities Director,
Finance Director; Finance Mgr,
Trust Vice Chairman; Architect;
Engineers; GPs

Micro:
Refining and implementing service
process, concept and system;
staff training in preparation for
service delivery.
Ensuring that referral patterns, Trust Director of Community Care,
patient transport, new staffing Architect; Engineers; GPs
arrangements are clarified,
communicated and agreed.

The Service System

The service system incorporates the resources avail-
able to the process for realizing the service concept
Concep t (p150). Edvardsson and Olsson (1996) identify a
range of resources that are encompassed within the
service system. They include (1) human resources
(skills and knowledge, staff needs and views on
Process new services); (2) customers (understanding their
wishes and expectations, identifying appropriate lev-
els of customer knowledge, effectively designing cus-
tomer interfaces (be they telephone, automated or
face-to-face)); (3) physical/technical (buildings, tech-
nology, location, and communications systems); and
(4) organisation and control (structures and hierar-
System chies, supply chain processes, customer relationship
management).

When designing an innovative new service, particu-

Figure 2 The Service Prerequisites Model (Source:
Edvardsson, B. and Olsson, J. (1996) Key Concepts for New
Service Development. The Service Industries Journal, 16 , 2, 140-164.
Reproduced with permission by Taylor and Francis Ltd, http://
www.tandf.co.uk)
customer needs and both the core and supporting
services that will fulfil those needs. Primary needs
in the community hospital setting included day hospi-
tal services for the elderly with major physical disabil-
ities. Related secondary needs were those of
information and advice for patients and relatives/
carers, follow-up/support in the home including
arranging physical adaptations. In order to meet those
needs, core diagnostic, and consultant services would
be needed, whilst counselling, information, and
rehabilitation services might support the secondary
needs.
lar implications for staff, customers and the physical
environment may arise. New health services may be
embedded within new health care philosophies (e.g.
patient-focused care). In these situations, particular
attention needs to be given to the fact that elements
of the service system may require fundamental
change in terms of job design (e.g. where nurses
clinical roles might be extended or team-based orga-
nisation may require professionals to work in a gen-
eric rather than discipline-specific capacity) or the
physical/technical environment (where, for example,
hospital layout may be altered in a manner that pro-
motes greater patient privacy or allows for recrea-
tional activities).
The Service Process
The service process refers to the chain or chains of
parallel and sequential activities which must func-

372 European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
 NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION
tion if the service is to be produced (p155). This
includes interfaces between departments, customers
and suppliers and requires detailed consideration
of processes and activities contributing to the service.
Process considerations in the hospital case included
aspects such as how patients are referred (inbound
logistics in the value chain terminology), how gen-
eral practitioners and hospitals would communicate
in relation to the patient, how patients would be
transported to the hospital, how they would be
received and routed through the clinic / diagnostic
services etc, and how they would be referred onto
follow up appointments and/or support services
such as counselling. In complex services where there
are a number of contributing departments (eg patient
transport, hospital records, hospital porters, radiol-
ogy) it is particularly important to work through
potential failure points and delays or negative exter-
nalities (eg, fatigue due to lengthy waiting times or
prolonged periods in hospital trolleys).
By identifying key areas of structure and process and
the interrelationships between all aspects of a new
service, the service prerequisites model enables an
analysis of the impact of NSD decisions on various
elements of the overall service. As with other models
the key focus is the consumer and an identification of
consumer needs is the main driver. The model, how-
ever, does not indicate detailed interrelationships,
trade-offs etc. and is therefore not prescriptive of spe-
cific actions and decisions since these will relate to
the individual context and situation. Rather, it pro-
vides a broad framework for analysis within which
other approaches can be utilised as illustrated below.
Developing the Service Prerequisites:
Quality Function Deployment and Service
Blueprinting
A range of tools and techniques are available for
developing the prerequisites described above. Two
particular approaches have been examined exten-
sively in the management literature and have been
applied in a variety of contexts including healthcare.
These are quality function deployment (QFD) and
service blueprinting.
Quality Function Deployment (QFD)
Originally developed, in Japan in the late 60s/early
70s, to improve the quality of product design and
the design process; a key function of QFD is customer
needs analysis which focuses product development
and quality management onto the voice of the cus-
tomer (VOC). Early developments in Japan and the
USA were followed by growth in the use of QFD in
many countries across a wide range of industries
European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
including many service sector applications. This has
resulted in a substantial resource base for managers,
designers and others including software packages
and online information (for a history of the develop-
ment of this technique and a review of relevant liter-
ature see Chan and Wu, 2002). QFD has also been
described as a technique for service positioning and
planning (Stuart and Tax, 1996) and has been applied
within a range of public sector services including
health (Dijkstra and van der Bij, 2002; Katz, 2004)
and specifically, hospital services (Lim and Tang,
2000). Our focus here is to illustrate how the approach
can be used to inform decisions relating to the service
system element of the prerequisites model.
The first phase of QFD requires the construction of a
house of quality (HOQ) (see Figure 3) where cus-
tomer needs are identified and, incorporating the
organisations competitive priorities, are converted
into appropriate technical measures to fulfil those
needs (Chan and Wu, 2005). The process is as
follows:
1. The first stage defines the service bundle (or con-
cept) in terms of key customer requirements or
attributes. For our hospital case, a range of ser-
vices would be offered. Some could be distin-
guished by target groups e.g. those specific to
the elderly; others by the means of delivery e.g.
GP-led medium acute in-patient services, others
by their primary or secondary nature e.g. clinical
services versus hotel services. In the following
example we focus on a hypothetical orthopaedic
service. The criteria (or service attributes) for each
service are determined by research. It must be
recognised that other stakeholders will generate
criteria, specifically in this example, those of
general practitioners (GPs) who refer patients to
a specific hospital. For the individual consumer/
patient, research has highlighted core evaluative
criteria as professional/technical competence
e.g. knowledge; interpersonal qualities, and con-
venience or accessibility of the service (Smith,
2000). These are illustrated in the first column of
Figure 3.
2. The second stage identifies the service encounters
or moments of truth. A service of this nature may
involve a wide range of encounters and a variety
of staff e.g. GPs, nurses, paramedics, consultants,
administrators. For illustration we have described
a simplified process relating to travelling to the
hospital and waiting for, receiving and finalising
treatment. The broad consumer evaluative criteria
are translated into more specific requirements (see
Figure 3: second column).
3. The third stage involves primary research with
consumers (and other stakeholders) to assess the
importance of attributes; perceived performance
levels and competitors performance. This can be
conducted through survey research, benchmark-
ing activity etc. and are illustrated in columns four
and five.
373
NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION

The House of Quality for

Orthopaedic Treatment

Strong positive relationship

Up to date medical
An efficient check-
Weak positive relationship

Staff knowledge

Patient transport
patient records

in/ registration
Computerised
Strong negative relationship

Staffing level
& skills level

equipment
Weak negative relationship
Importance Competitor
Assessment
Customer Attributes
Low High 1 2 3 4 5
Appropriate
Staff treatment 1 2 3 4 5 A/B
Knowledge Specialist available 1 2 3 4 5 A/B
Knowledge to answer
questions 1 2 3 4 5 A/B
Hospital Transport
Access / available
1 2 3 4 5 B A
Convenience Appointment timing 1 2 3 4 5 A B
Speed of Treatment duration 1 2 3 4 5 A/B
Service Wait on arrival 1 2 3 4 5 A B
Staff Inter- Helpfulness 1 2 3 4 5 A B
personal
Qualities Friendliness 1 2 3 4 5 A B
A Y N 5 4 4 Y
Competitive B Y Y 5 5 5 N
Evaluation Deployment X X X

Figure 3 The House of Quality for Orthopaedic Services (Developed from Stuart, F.I. and Tax, S.S. (1996) Planning for service
quality: an integrative approach. International Journal of Service Industry Management, 7, 4, 5877.)

4. The fourth stage assesses the resources required to tomer-focussed control measures. Relationships are
deliver on the customer attributes. In other words established between resource allocation decisions,
the service system prerequisites. Resources such customer satisfaction and competitive position. The
as staff numbers and skill levels; automated sys- unit of analysis is the individual service encounter,
tems; transport availability are highlighted at the and design is driven by the VOC at all stages of the
top of the third column. Their relationship with NSD process. QFD facilitates coordination and com-
the detailed customer attributes are then illus- munication, highlights interrelationships and creates
trated lower down the column. a common quality focus across all functions, usually
5. The HOQ is completed by further analysis of the requiring the formation of cross-functional teams.
competitive position and resource requirements, The visual display of a substantial amount of infor-
for example, increased staff recruitment and/or mation can aid in understanding between teams
training may be effective where the customer values departments and promotes creative thinking (Pull-
staff knowledge highly and where key competitors man et al., 2002).
are rated more highly. Within a hospital context,
there may be alternative services within the same It is however, as with many models, complex to use
geographical area; competition with specialist ser- and may require substantial culture change for
vices in the same or other geographical areas, or implementation. Data collection requires research
between the public and private sector. For many and possibly benchmarking with consequent prob-
of these decisions it may be the GP who is the lems of collecting such data, including subjectivity
key decision maker. Our criteria relate more directly of interpretation. Additionally, relationships
to the consumer/patient requirements of the between resource acquisition, such as hiring more
service. staff, and consumer satisfaction may be vague. There
6. Finally, control measures must be established is also an implicit assumption that consumers will
which focus attention on to those elements of the behave in a particular way e.g. perceptions of good
service system which contribute highly to cus- service will lead to repeat purchase (or in the case
tomer satisfaction with the service. of health services to compliance with prescribed
medication and behaviour) which is often not the
In summary, QFD provides a process for planning case. Changes in competitor activity can also change
and for formally recognising and managing trade- the underlying assumptions which are built into the
offs between service elements that will support model. Finally, as with many approaches, the whole
development of the service system including cus- process can be time-consuming and therefore costly.

374 European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
 NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION
As illustrated in our example the focus in service
system development is on the individual service
encounter. The next model drills down to a further
level of precision by blueprinting the detail of the
encounter as perceived by consumers.
Service Blueprinting
The process element of the Edvardson and Olsen
model focuses on consumer experiences of the ser-
vice and highlights the potential for failure points
and poor service delivery. Shostacks (1984) premise
is that unsystematic design and control lie at the root
of service failures, and as a result, service develop-
ment is usually characterised by trial and error rather
than by deliberate methods. This in turn is thought to
contribute to the majority of recurring service failure
problems with failure points having been designed
into the service. Building on the tools and tech-
niques of the operations side of service management
(e.g. time-motion engineering, PERT/GANTT chart-
ing and T.Q.M. approaches), Shostack suggests a
process of service blueprinting which is quantifiable
and non-subjective. The process is as follows:
Identify Processes
The first stage is to map the processes involved, high-
lighting those elements which are visible to the con-
sumer. Figure 4 illustrates the processes involved in a
visit to an outpatient clinic. Identifiable processes are
Line of Consultation
Interaction Arrive and book &
into clinic Diagnosis
Line of
Visibility
Appointment
& Records
checked FP
Line of Internal
Interaction
Support Medical Information
Processes Records Systems
Figure 4 A Service Blueprint of an Outpatient Clinic (Developed from Flie, S. and Kleinaltenkamp M. (2004) Blueprinting the
Service Company: Managing Service processes Efficiently. Journal of Business Research, 57, 4, April, 392404.)
European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
those associated with every stage of the patient jour-
ney from arrival at the hospital and waiting before
being called to the appointment, booking in through
an encounter with administrative staff, participating
in the clinical consultation and any related clinical
procedure, being provided with follow-up informa-
tion or onward referral information and where a
pharmacy is available, obtaining prescribed medica-
tion prior to hospital discharge. There are, of course,
a number of sub-processes within this outpatient
clinic blueprint. The intervention, for example, could
include a minor operation or other non-invasive but
nonetheless complex multi-stage process and would
need to be blueprinted separately to identify the
stages involved.
Isolate Fail Points
It is important to identify where problems may occur
and to design fail-safe processes to prevent these.
There are a number of potential fail points in the
example provided. An early failure point relates to
the reason for the visit. If the patient/carer and
administrative/clinical staff do not communicate
fully and effectively, there is the possibility that
information about the patients condition may be
omitted resulting in inappropriate decisions. Incor-
rect reporting, or under-reporting of, symptoms/
conditions may result in inappropriate prioritisation,
treatment and could ultimately have significant
adverse effects. Another failure point is in relation
to the procedures ordered and the actual interven-
tion. Service failures may arise as a result of several
Collect prescription /
FP Information / follow-up
Exit
Refer for
further
investigation
Undertake
FP investigations
FP FP
Organise Clinical team
X-Ray / Scan / Diagnosis
other & porter
Laboratory Porter Pharmacy
Processing Service
375
NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION
types of problem: inadequate treatment space due to
poor clinic management or inadequate resources
(infrastructure problem); incorrect procedures may be
ordered (human and/or IT communication/system fail-
ure); and/or clinical / human error may occur during
the diagnosis and/or intervention (an issue of under-
performance or a more embedded organisational problem
(e.g. stress at work, understaffing)).
Establish Time Frames
A standard execution time should be established for
the service and should include an allowance for devi-
ation(s) from a standard execution time under nor-
mal working conditions. This should take into
account the consumers acceptable time i.e. before
perceptions of quality decline. In the case of an out-
patient clinic, there is considerable scope for
extended execution time where clinics over-run,
patients fail to attend or are delayed, or where clinics
are understaffed and so waiting times build up. Stan-
dard execution times should, however, be calculable
given the planned nature of patient visits and the
specialisation of clinical conditions and associated
proceedures that occurs within the clinic. Other pro-
cesses supporting the outpatient clinic (such as med-
ical records and laboratory or pharmacy processing)
should be relatively straightforward to calculate for
standard execution times. This is in contrast to other
areas of a hospital (eg, emergency admission) where
the volume of patients, the nature of their conditions
and the resultant demands on support services is
unpredictable.
Analyse Profitability
These time deviations should then be assessed in
terms of their potentially negative impact upon cus-
tomer satisfaction and retention and ultimately on
profitability. For not for profit organisations such as
hospitals, objectives and performance indicators will
include efficiency targets / financial performance,
waiting times, patient throughput, staff recruitment
and retention and clinical effectiveness.
Delivering the service (the process and system
aspects of Edvardsson and Olsens model) will then
involve recruitment and staff training; considering
human versus technological means of execution
while weighing productivity increases against
changes in customer satisfaction levels. Research will
be necessary to monitor customer satisfaction with
aspects of the service.
The line of visibility (see Figure 4) differentiates
between actions that are visible and invisible to the
customer/patient. Often referred to as back office
processing these actions relate largely to the analysis
and processing of customer information where cus-
tomer involvement is not required. In the case of
376
health services, some invisible actions are increas-
ingly becoming more visible. Diagnosis, for example,
is increasingly discussed between clinical colleagues
in front of the patient, as is any proposed interven-
tion and follow-up procedure. However, it remains
the case that analysis of X-ray or scan information,
case discussions and specialist consultation would
rest mainly with the clinical and scientific staff prior
to discussion with the patient. The failure points that
occur behind the line of visibility may, however,
become visible if remedies are not in place to identify
and resolve problems prior to the patients subse-
quent involvement.
Developments of Shostacks original work serve to
illustrate the wider organisational context. Flie
and Kleinaltenkamp (2004) describe two further
stages. First, that of visualising the organisational
structure which shows the different departments
and employees carrying out the actions and tasks
within the service process . . .this will improve
internal coordination and cooperation by identifying
pitfalls in internal coordination, repeated actions,
particularly costly actions and showing sources of
transactions costs (p397). Second, the introduction
of new lines including:
v The line of interaction which separates the cus-
tomer from the supplier action area representing
the direct interactions between customer and sup-
plier. In Figure 4 this line of interaction separates
the patient actions of arrival and booking in, from
the employee actions of processing the patient in
terms of checking the appointment, the records,
and later any further investigations and tests.
v The line of internal interaction distinguishes
between front office and back office activities,
again in relation to Figure 4, this is identified as
the separation between the diagnostic processes
and actual intervention, and the support activities
of updating and maintaining patient records and
of preparing prescribed medicines.
v The line of implementation separates planning,
managing and controlling (management zone)
and support activities (support zone). Figure 4
does not identify the line of implementation.
However, in effect, the customer occupies the
top zone, management occupies the bottom zone
and service operations are sandwiched between
them.
Through systematic analysis and emphasis on control
this approach aims to eliminate one of the major prob-
lems of service delivery i.e. heterogeneity (or variabil-
ity) and thus standardisation can be achieved through
anticipating and eliminating potential problems in
the service design. Additionally the objectivity
of the process creates a common language and focus
for the various staff and functions involved including
those responsible for resource acquisition. The later
addition by other authors of an increased focus on
internal processes and identification of the layers of
European Management Journal Vol. 25, No. 5, pp. 370383, October 2007

activities which ultimately produce the service
encounter, highlights areas for increasing efficiency,
effectiveness and in particular error reduction. Prob-
lems however can arise if the decision to automate or
standardise human elements of the service leads to
the omission of service features which are important
to the consumer (for example, flexibility) although
the model does accommodate such deviations. Addi-
tionally, the emphasis on micro processes requires a
more complex consideration of the interactions
between individual encounters in a more extended
service experience as is the case for hospital services.
One difficulty in applying the model within a health-
care context is, however, that as emphasis grows on
the partnership between staff and patients, the line
of visibility becomes more blurred, and as patients
become increasingly involved in planning their care
(through care plans), so too is there a blurring of
the distinction between the management, customer
and service zones. The clean lines of separation will
be difficult to maintain in a blueprinting format and
so some adaptation of the blueprinting approach
may be required.
The NSD Process The Stage Gate Model
The previous sections have focussed on the design of
the service. The next two sections focus on the NSD
process and therefore the context within which the
design models are used. The first model (see
Figure 5), originally developed within a tangible
goods environment, has been applied extensively to
the development of services. Clearly defined stages
from idea generation through to pilot testing, launch
Second
Screen
Screen
Initial
G1 S1
Investigation
Ideation
Preliminary
Figure 5 A Stage-Gate Model of New Service Development (Source: Adapted from Cooper, R. (2000) Product Leadership:
Creating and Launching Superior New Products, Perseus Books, Cambridge, Mass. Used with permission.)
European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION
and review are separated by gates. The gates are
intended to focus the minds of designers onto the
financial and strategic considerations of progressing
to the next stage. Early ideas are evaluated in light
of business considerations (e.g. R&D funding avail-
able, consumer research, external and internal con-
straints) and are reduced continually until a limited
number of prototypes are developed, tested and
finally launched.
Crucial to these models are the overriding economic
rationale, the need for tight control of the process in
order to reduce NPD costs (Cooper, 1996) and efforts
to increase the speed of the NPD process to maximise
potential competitive advantage. Pressure to reduce
the timescale for NPD has increased as the ease
and speed with which me too products appear in
the marketplace has grown. Also important is the
need for test marketing. This involves a limited prod-
uct launch, often in representative geographical
areas. Alternatively laboratory testing (i.e. in a simu-
lated environment) will prevent potential competi-
tors from advance knowledge of the organisations
plans.
Benefits of this type of structured, tightly managed
approach include an apparently rational, sequential
process with emphasis on analysis of the products
fit with organisational objectives and resources. It
also provides a common focus and language for var-
ious departments/ teams and an implicit multifunc-
tional coordination since the various stages (e.g.
testing, business analysis etc.) would be conducted
within different organisational areas requiring
shared information. As with many models, the
apparent simplicity and therefore ease of under-
standing and application are benefits of this model
Pre-commercialisation
Post -Implementation
Post-Development
Business Analysis
Business Case
Decision on
Review
Review
G2 S2 G3 S3 G4 S4 G5 S5
(build business case)
Full Production &
Validation
Testing &
Development
Market Launch
Investigation
Detailed
377
NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION
and substantial reductions in new product failure
have been attributed to its use.
The catalyst for ideation in the hospital case was
government legislation concerning community care
such that increasingly, health services should be
provided in a community (rather than centralised
acute) setting. As this policy began to take effect
across the UK, health authorities formed their strate-
gic responses in terms of budgeting for service
change. Thereafter, ideation in relation to the specific
hospital design occurred in two key phases: (1) a
competitive bidding process where service providers
were invited to tender for service provision in the
area (thereby creating initial design specifications
for the hospital (referred to earlier as the macro
level); and (2) following the health authoritys com-
missioning decision, more detailed hospital design
ensued (meso level). In this sense, G1 above can be
understood to correspond to the Health Authoritys
initial scoping of potential sites and services for the
hospital and soundings of key stakeholders on the
matter while S1 corresponds to the option appraisal
in which each potential site and a range of possible
services were evaluated in terms of the World Health
Organisation Health for all criteria (equity, effi-
ciency, effectiveness, access, choice, comprehensive-
ness, appropriateness and flexibility). The second
gate (G2) would correspond to the Health Author-
itys decision to proceed to issuing an invitation to
tender.
S2 occurred simultaneously in each of the organisa-
tions deciding to submit a design proposal. Thus par-
allel design activities occurred in which during the
bidding phase (a short timeframe of only 6 weeks)
involved intensive activity to create architectural
and engineering drawings for the physical hospital
design, identify key service prerequisites, develop a
detailed costing for the project, and seek to develop
a competitive bid. The process, although compressed
in timescale, stimulated idea creation, the develop-
ment of core design concepts (e.g., in relation to
patient focused care) as well as the determination
of service prerequisites. G3 in this case was under-
taken by the macro level (Health Authority) through
comparing competitive design bids. Following the
bidding process, S3 became confined to the domain
of the community health care trust. All aspects of
the physical environment (building and infrastruc-
ture design) were worked out and the concomitant
staffing and service elements were worked through
in detail (all the dimensions of the prerequisites
model introduced earlier). This was an extensive,
costly and detailed process which incurred further
bidding activity (in terms of inviting European ten-
ders for building the physical hospital structure).
Thereafter, the design progressed directly to full
commercialisation and launch. There was no oppor-
tunity to test any of the services. In the public sector
setting an emphasis on equity at times precludes
pilot testing with a limited proportion of the popula-
378
tion and moreover, the set-up costs (e.g. equipment
and staffing costs) on a scale necessary for effective
testing render it infeasible. Even if some services
could have been tested, remedies, where they were
deemed not to be entirely effective or efficient, would
have been costly and politically problematic.
The Stage-gate model is particularly helpful in its
emphasis on decision points (gates) as the costs of
progressing service design (particularly in the case
here) without fully appreciating the impact of design
decisions would be significant. However, the model
does not convey the organisational levels at which
each stage / activity occurs. Ideation, for example,
occurs to an extent at different stages and not only
at the outset. Here, for example, ideation occurred
initially at the macro level but then as the detailed
design began, each potential service (see Figure 1)
began its own (meso-level) ideation process. There
is also no sense of the relative effort / scope of activ-
ity involved at each stage. In this case S1 occurred
over a lengthy period of time whereas S2 was rela-
tively brief and S3 longer again.
A further consideration is that the model tends to por-
tray a sequence of discrete and apparently finite activ-
ities which in practice are more likely to be iterative
and messy. In particular, information gathering
and analysis will be ongoing, reflecting both internal
and external environmental changes which can
impact on decision making. Consequently, although
this approach creates a degree of precision with
respect to sequence and identifiable decision points;
the final model returns to a more holistic, or pano-
ramic, approach by focussing on the various organi-
sational levels and giving explicit consideration
of the many stakeholders potentially involved in
NSD.
The NSD Process A Stakeholder Model
This final model/framework adopts a panoramic per-
spective and explicitly considers the wider range of
stakeholder groups who have an interest in the service
process and/or outcome. Both NPD and NSD studies
indicate the potential for involvement of many stake-
holders (i.e. any group or individual who can affect
or is affected by the achievement of the organisations
objectives (Freeman, 1984, p46)). This approach
requires the identification of key stakeholders, their
expectations of the NSD process and outcome and
their power to influence these. It also examines the
organisational levels at which their interests, and often
political intentions, are enacted. The need to consider,
potentially conflicting objectives and expectations of
various stakeholder groups is recognised. Conse-
quently, questions arise as to which stakeholder
groups influence the NSD process (and ultimately
the final service outcome) and whether their interests
reflect those of the final consumer.
European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
 NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION
Breadth of Focus Stakeholder
Level of Detail
in Design: Perspective:
Stakeholders
Low
& Criteria Outer
Environment
MACRO
Emergent
Phenomena
MESO
MICRO
Inner
High
Environment
Figure 6 The Multi-Level Service Sector Design Pro-
cess (Source: Fischbacher M and Francis A. (1999) Managing the
Design of Health Care Services. In Davies HTO, Tavakoli M, Malek
M, Neilson A, 1999 eds. Managing Quality: Strategic Issues in
Health Care Management. Ashgate Publishing: Aldershot, 20-38.
Reproduced with permission.)
The model (Figure 6) demonstrates that NSD occurs
at various organisational levels. Identified here as
macro, meso and micro, they can correspond to
inter-organisational (network) level, corporate level
and business unit level. In the hospital case they
might be inter-organisational (network)/Health
Authority; overall organisational Trust level; and
individual service level. The level of NSD detail
increases towards the micro level reflecting the inter-
ests of the respective stakeholders. Correspondingly,
the attention to internal factors also tends to increase
further down the levels of the organisation. Macro
interests included national health performance crite-
ria and health policy as well as strategic / regional
stakeholder relationships (the input of related service
organisations, views of local primary care agencies)
and the competitive bidding process between poten-
tial service providers. Meso level (Trust Head Quar-
ters) interests were those of ensuring that the
Community Health Care Trust was seen as securing
its position in the area by winning the tender; creat-
ing an innovative and cost effective design; securing
support from local stakeholders; identifying key ser-
vice prerequisites. Finally, the micro (hospital service
managers and staff teams) level concerns were those
of ensuring that the service design was effectively
implemented, that staffing levels and team working
were appropriate, that the service levels were satis-
factory, that service processes were effective (ie, a
focus on individual services which reflects the QFD
and blueprinting approaches).
Conflicting expectations and interests throughout the
process were readily identified. Primary care agents
expressed concern about geographical coverage with
hospitals moving from existing to new sites; political
battlegrounds were created and involved public
debate and media coverage about access to services,
equity, and decommissioning of existing services.
There was also debate about staffing: the use of
European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
upgraded nursing and care staff rather than medi-
cal staff central concerns focused on issues of
skills, cost, availability of staff and workforce
planning.
The double-headed arrows (Figure 6) denote that
the process is iterative in nature with NSD criteria
being continually revisited in light of decisions at
the various stages, and in light of what are termed
here emergent phenomena (i.e. influences that
become apparent from external and/or internal
sources and which ought to be taken into account
in the development/design process). This model
emphasises the benefits of stakeholder analysis,
highlighting the need to recognise and manage con-
flicting expectations in particular through a process
of communication. It also identifies a need to estab-
lish mechanisms for collecting and feeding back
information.
Stakeholder frameworks generally attempt to analyse
the various groups according to criteria that enable
mangers to identify their importance in a particular
decision. Agle et al (1999) for example, provide a clas-
sification based on the power, urgency and legiti-
macy of a particular group. For our case study, the
Health Authority was a key stakeholder (i.e. they
have power, urgency and legitimacy). They may
impose requirements on who leads service design,
what broad strategic criteria are relevant, and what
externalities might need to be taken into account
(e.g. closure of old services). Although this
approach may enable managers to recognise, foresee
and, to some extent, manage the variety of stake-
holder expectations the problems still exist of dealing
with conflict. Stakeholder approaches suggest, for
example, the establishment of hierarchies (e.g.
according to levels of power, interest and legiti-
macy); identifying common expectations, across
groups; aiming for a satisficing rather than optimal
solution. Responding to the wide range of interests
and expectations can however be a difficult process
requiring a substantial amount of time where the
emphasis on innovation is often one of speed.
Developing and Designing Successful
New Services: Benefits of the Five Models
Although definition of success is itself problematic
(Johne and Storey, 1998), a number of researchers
have examined the factors which lead to successful
innovation in service firms (see for example Cooper
and Edgett, 1996; de Brentani, 1991; Martin and
Horne, 1995; Storey and Easingwood, 1993). These
are assimilated below into seven criteria. The first
three relate more directly to the service design, or
outcome, and others to the NSD process. This final
section illustrates how the five models can help to
achieve these criteria.
379
NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION
Fit with Organisations Objectives and Strategies
The final service design must fit with the organisa-
tions strategies and objectives and in doing so the
interests and expectations of key stakeholders. In
our example, the hospital was to form the corner-
stone of the Trusts competitive strategy and the
focus of further developments in community health
and social care. The need to meet government and
health board criteria and key performance indicators
such as waiting times and health improvement tar-
gets, were explicitly considered at an early stage of
development. NSD requires a framework where the
objectives (and intended outcomes) of the service;
the resource requirements for design and delivery;
and the required service quality standards, are
clearly stated. The stage gate and QFD models in par-
ticular emphasise the need for these explicit and
measurable criteria. Identifying quality and perfor-
mance objectives (or service outcomes), however,
necessarily involves taking account of the expecta-
tions and requirements of various stakeholders as
highlighted in the stakeholder model and the
implied need for stakeholder analysis.
The Service Design Focus on the
Customer/Consumer
The emphasis of the pre-requisites model is that NSD
can only create the environment in which the service
takes place. Consequently the service system and
process development must focus on customer needs
and requirements. The three service design models,
i.e. prerequisites, QFD and blueprinting, all contrib-
ute, at the various levels, to integrating the VOC in
to the final service. Additionally, they emphasise
the need for customer-driven resource allocation;
customer focussed control measures; and continu-
ous improvement.
Flexibility and Responsiveness
The NPD/NSD literature places increasing recogni-
tion on the iterative nature of NSD highlighting the
need for decisions at one stage to be continually
reviewed and potentially revised in light of new con-
siderations (such as changes in the internal or exter-
nal environment). Responsiveness and speed of
development are key success factors (Storey and Eas-
ingwood, 1993). This is particularly apposite for
dynamic environments where stakeholders may alter
their requirements (or simply change the influence
they exert) according to the political climate. NSD
in public services is typically shaped by such
changes on an ongoing basis. The stakeholder model
emphasises the need for such iteration in the NSD
process. Additionally, QFD and blueprinting
approaches recognise the need to reassess service
design, through research and other feedback. Those
services delivered largely by people (health, educa-
380
tion, social care) are particularly relevant here.
Changes in the way in which customers might enter
the service, increases in the level of control ceded to
customers (e.g. initiatives to encourage the rights of
patients) may all have an impact on how a service
provider engages with the customer and thus may
well involve education, training, staff development
and alternative recruitment policies.
Customer/Stakeholder Involvement
The need to involve customers in the NSD process
has been a common theme throughout the discussion
and a key feature of all models. Customer research is
required for the development of service blueprints.
QFD emphasises the central role of the VOC to the
process and creation of the HOQ. The stage-gate
model identifies specific stages for consumer
involvement at the concept testing and test market-
ing stages. The need to involve a range of stakehold-
ers, including customer contact staff and managers at
various levels is also a feature and is most obviously
articulated in the stakeholder model of NSD.
Edvardsson and Olsen (1996) similarly emphasise
the need for the service prerequisites to satisfy the
expectations of staff and management since this will
impact directly on all aspects of their working lives.
A Structured NSD Process
Researchers (Kelly and Storey, 2000; Sundbo, 1997)
have identified the lack of formal, systematic and
structured NSD processes in many service organisa-
tions yet this has been identified as a key issue in deter-
mining success (Cooper and Edgett, 1996; de Brentani,
1991). Clearly the adoption of models such as those
outlined above will focus managers and others on to,
not only the requirements of the final service but also,
how these can be achieved through the adoption of
appropriate approaches and techniques.
Organisational Structure
As the number of relevant stakeholder groups
increases the complexity of organisational arrange-
ments grows. Both NPD and NSD studies emphasise
the role of communication, coordination and control
in successful innovation (Cooper and Kleinsschmidt,
1995; Lievens and Moenart, 2000). One essential con-
duit is the cross-functional team which is a feature of
both QFD and service blueprinting. Additionally
approaches such as these can provide a common lan-
guage and a shared visual platform as a basis for dis-
cussion and decision making. Katz (2004) suggests
that QFD is used in the early product definition
stage, intended as a device to get teams thinking dee-
ply. In addition to having interests in, and expecta-
tions of, the final outcome, stakeholder groups also
have expectations of involvement in the process so
European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
 NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION
as to enable articulation of their perspectives. Conse-
quently, coordinating structures (Smith and Fisch-
bacher, 2005) for example, a series of consultation
meetings, have to be established so that the various
voices can be legitimately heard. Stakeholder groups
may be empowered by increasing the level of consul-
tation and the stage at which they are involved in the
process or by engaging official representative bodies
(e.g. local patient forums or consumer panels).
Effective Leadership
The importance of senior management involvement
to the success of a wide range of organisational activ-
ities is well recognised and this is particularly true of
innovation and NPD/NSD. Johne and Harbone
(2003) emphasise the need to involve leaders from
a variety of organisational levels, a feature also made
explicit by the stakeholder model. Those managing
NSD must draw on their leadership capabilities:
political skills (in negotiating NSD requirements
and inputs), influencing skills (when involving those
with differing levels of power and interest), and pro-
ject management capabilities in order to meet the
NSD timescale and financial targets. The models play
an important role; not only for analysis and planning,
but also, as highlighted above for communicating
information and for illustrating how the various
organisational activities link so as to provide a cus-
tomer focussed service. Additionally, there is an
important role in developing an organisational cul-
ture where information and ideas flow freely creat-
ing a climate for continuous innovation which is
essential for success (de Jong and Vermeulen, 2003)
as new approaches, such as the models described
here, are integrated into the organisations NSD prac-
tices. When coupled with new service philosophies
(e.g. patient focused care) NSD may involve consid-
erable culture change in the minds of service provid-
ers and customers. Stevens and Dimitriadis (2004)
describe how the organisation can be transformed
by NSD and how the process involves learning at
the individual, group and organisational level. This
aspect of NSD is not demonstrated fully within the
models above, although it is perhaps most clearly
implied in the service pre-requisites model.
Conclusion and Implications
Typically, NSD studies focus on a particular model
to illustrate an application within a specific context
and usually these include those which we have
described as relating to precision i.e. the stage-gate,
QFD and blueprinting models. This paper has
argued that effective NSD requires a panoramic per-
spective coupled with a high level of precision in
both service design and the development process
itself. We have therefore aimed to illustrate the rela-
tionships between these models and to show how
European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
they can help to make sense of complex multifaceted
services such as a hospital by identifying the levels of
analysis and how they fit together. Further, we have
introduced a stakeholder model, developed more
recently, which emphasises the need to involve a
wide range of stakeholders in the NSD process and
to consider their expectations when developing
new services. Most NSD studies and models focus
on consumers and their needs. There is increasing
recognition, however, that a more stakeholder-ori-
ented approach to effective management decision-
making is required (see for example Greenley and
Foxall, 1998). Although this is particularly true of
public sector services, and the example presented
here, such an approach seems relevant to the broad
spectrum of services and service organisations.
Since services are produced as they are consumed,
and the consumer therefore acts as co-producer,
design and development are inextricably linked i.e.
the service continues to be developed as it is deliv-
ered. Consequently, precision in creating service
blueprints and resource allocation based on QFD will
aid in creating service prerequisites which deliver
quality services. This requires a combination of stan-
dardisation to prevent error, but at the same time
building in flexibility to adapt to customer needs. A
panoramic perspective allows managers, developers
and others to consider the impact of changes to one
element (e.g. service system) on others. As noted
above, this therefore draws attention (even if indi-
rectly) to the potential stakeholders in the NSD pro-
cess and the final service design. Hospital or health
centre services may result in building design,
engagement with private sector providers, consulta-
tion with the general public where related services
are decommissioned and close working with those
voluntary sector and other public sector organisa-
tions delivering related services or co-delivering
services.
The models described here can contribute to factors
which researchers have identified as necessary for
successful NSD. They can help to tangibilise and
visualise the elements of a service and how they
relate to the service as perceived by consumers. They
can also provide an important means of communica-
tion and coordination throughout the organisation.
By highlighting key decision points, relevant criteria
and the need for effective control measures in the
service design, they provide a basis for continuous
improvement and service re-design. As with all mod-
els, tools and frameworks their problems and limita-
tions must be acknowledged. Even where models
may seem more straightforward, the context in
which they are applied may be complex. Adoption
of these approaches often involves the need for cul-
ture change, for example, through increased cooper-
ation, communication and involvement, both within
the organisation and with external stakeholders. In
particular a customer focus is required which may
not be present in some organisations. As with other
381
NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION
initiatives such changes require leadership at a num-
ber of levels, the commitment of senior managers
and the allocation of resources, for example, for
research and staff training. Appropriate application
however can mean that the benefits derived from
increased customer (and other stakeholder) satisfac-
tion will far outweigh the costs.
Finally, although the primary focus of this paper is to
review and critique models of NSD rather than to
present research findings and set a research agenda,
it is important to note some potential research impli-
cations. In the same way that we have drawn atten-
tion to the need for both panorama and precision
in the practice of NSD, these dual perspectives are
also necessary in NSD research. Research is required
to examine how service organisations deal with the
tensions and potential tradeoffs which are made
explicit by these models; for example tradeoffs
between the need for stakeholder consultation and
cost and time constraints; between conflicting stake-
holder expectations and how these then translate
from the panoramic level to the detail of precision.
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European Management Journal Vol. 25, No. 5, pp. 370383, October 2007
 NEW SERVICE DEVELOPMENT: FROM PANORAMAS TO PRECISION

ANNE M. SMITH, The FRANCIS WILSON is

Open University Busi-
ness School, Centre for
Strategy and Marketing,
Walton Hall, Milton
keynes, England MK7
6AA, United Kingdom,
E-mail: annemsmith1@
hotmail.com
Anne M. Smith is Reader
in Marketing at the Open
University Business
School, Centre for Strategy and Marketing. Her
research interests are in the fields of new service
development; service quality measurement and man-
agement and cross-cultural service delivery. She is
particularly interested in public sector services.
Research has been published in the Journal of Business
Research, European Journal of Marketing, Service
Industries Journal, Journal of Marketing Management,
International Marketing Review and elsewhere.
a Senior Lecturer in
Information Systems at the
University of Salford
Business School. His
research interests are in
the development of system
design methodologies for
the organisation of effec-
tive service delivery. He
has published in variety of
management, information
systems and social science
journals including New Technology, Work and
Employment, The Journal of Strategic Information
Systems, Information Technology and People and The
Sociological Review.

MOIRA FISCHBA-
CHER is a Senior Lecturer
in Strategy at the Depart-
ment of Management,
University of Glasgow.
Her research interests are
in health care management
and organisation, in par-
ticular networks and part-
nerships. Research has been
published in the European
Journal of Marketing,
Financial Accountability
and Management and New Technology, Work and
Employment amongst others.

European Management Journal Vol. 25, No. 5, pp. 370383, October 2007 383
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