Service Innovation Management

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Chapter XX

Service Innovation Management:

New Service Development Strategies in the Telecommunication Industry Test Template for Data Mining Publications Fotis C. Kitsios Technical University of Crete, Greece Panagiotis Tzortzatos Technical University of Crete, Greece Constantin Zopounidis Technical University of Crete, Greece

Abstract Nowadays that the world depends more and more in services, there is no issue more fundamental for service organizations than understanding the factors that separate success from failure in new service development. The new service process is not so well studied and researched as new product development, and as a result the failure rate is high. However in order to survive in the market place, service organisations need to make the most of all of their resources in order to introduce new services to market ahead of the competition. The purpose of this exploratory study is to investigate the factors that have impact on success and failure in new service development (NSD) in the telecommunication (TLC) sector. The results of the exploratory study are summarized in a conceptual model for further research.

Introduction In today’s increasingly competitive climate, more and more senior managers are having to update themselves on the range of factors that determine service innovation success (F. Axel Johne and Patricia A. Snelson, 1988).The critical role of innovation has long been recognized in physical goods; however, the development of innovative services has received much less attention(de Brentani, 1989).

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Service Innovation Management

The success rate for new service projects are on average 58 percent (Griffin, 1997), in other words four out of ten new services fail in the market place (Ottenbacher). Success factors for new services are in general similar to those for new product development, only the potency of the factors differ (Cooper and de Brentani, 1991). This can be explained by the nature of services, which are largely intangible, produced and consumed simultaneously, heterogeneous and perishable (Zeithaml and Bitner, 2000). In studies of services management in general, quality has become a central concept. Many quality problems are recurrent and may to a great extent be seen as results of shortcomings in the development processes of new services (Edvardsson and Haglund, 1994; Mattsson, 1995).

Background The majority of NSD research has concentrated on the financial service sector, and one of the largest industries world-wide, the TLC industry, has not been specifically investigated. Drawing from the research stream of new service development in other industries, such as financial (Brentani, 1990; 1991; Edgett, 1993; 1994; Cooper and Brentani, 1991; Parkinson, 1994), hospitality (Ottenbacher), tourism (Kitsios, 2005) etc., and using a comparative methodology of analysing successes and failures, some answers could be suggested to may what drives success in developing new services. The whole idea is to make a parallelism for TLC industry by using results of similar researches and the knowledge of some expertise. Generally, the critical dimensions that influence new service performance can be categorised into four clusters: (1) product-related, (2) market-related, (3) company-related, and (4) process-related (de Brentani, 1999).

Nature of the Industry The telecommunications industry is at the forefront of the information age—delivering voice, data, graphics and video at ever increasing speeds and in an increasing number of ways. Whereas wire line telephone communication was once the primary service of the industry, wireless communication services and cable and satellite program distribution make up an increasing share of the industry. During the late 1990s, the telecommunications industry experienced very rapid growth and massive investment in transmission capacity. Eventually this caused supply to significantly exceed demand, resulting in much lower prices for transmission capacity. The excess capacity and additional competition led to either declining revenues or slowing revenue growth, which has led to consolidation within the industry, as many companies merged or left the industry. The largest sector of the telecommunications industry continues to be made up of wired telecommunications carriers. Establishments in this sector mainly provide telephone service via wires and cables that connect customers’ premises to central offices maintained by telecom munications companies. The central offices contain switching equipment that routes content to its final destination or to another switching center that determines the most efficient route for the content to take. While voice used to be the main type of data transmitted over the wires, wired telecommunications service now includes the transmission of all types of graphic, video, and electronic data mainly over the Internet. These new services have been made possible through the use of digital technologies that provide much more efficient use of the telecommunications networks. One major technology breaks digital signals into packets during transmission. Networks of computerized switching equipment, called packet switched networks, route the packets. Packets may take separate paths to their destination and may share the paths with packets from other users. At the destination, the packets are reassembled, and the transmission is complete. Because packet switching considers alternate routes, and allows multiple transmissions to share the same route, it results in a more efficient use of telecommunications capacity as packets are routed along less congested routes. The transmission of voice signals requires relatively small amounts of capacity on telecommunications networks. By contrast, the transmission of data, video, and graphics requires much higher capacity. This transmission

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capacity is referred to as bandwidth. As the demand increases for high-capacity transmissions—especially with the rising volume of Internet data—telecommunications companies have been expanding and upgrading their networks to increase the amount of available bandwidth. One way wired carriers are expanding their bandwidth is by replacing copper wires with fiber optic cable. Fiber optic cable, which transmits light signals along glass strands, permits faster, higher capacity transmissions than traditional copper wire lines. In some areas, carriers are extending fiber optic cable to residential customers, enabling them to offer cable television, video-on demand, high-speed Internet, and conventional telephone communications over a single line. However, the high cost of extending fiber to homes has slowed deployment. In most areas, wired carriers are instead leveraging existing copper lines that connect most residential customers with a central office, to provide digital subscriber lines (DSL) Internet service. Technologies in development will further boost the speeds available through a DSL connection. Wireless telecommunications carriers, many of which are subsidiaries of the wired carriers, transmit voice, graphics, data, and Internet access through the transmission of signals over networks of radio towers. The signal is transmitted through an antenna into the wire line network. Other wireless services include beeper and paging services. Because wireless devices require no wire line connection, they are popular with customers who need to communicate as they travel, residents of areas with inadequate wire line service, and those who simply desire the convenience of portable communications. Increasing numbers of consumers are choosing to replace their home landlines with wireless phones. Wireless telecommunications carriers are deploying several new technologies to allow faster data transmission and better Internet access that should make them competitive with wire line carriers. One technology is called third generation (3G) wireless access. With this technology, wireless carriers plan to sell music, videos, and other exclusive content that can be downloaded and played on phones designed for 3G technology. Wireless carriers are developing the next generation of technologies that will surpass 3G with even faster data transmission. Another technology is called “fixed wireless service,” which involves connecting the telephone and/or Internet wiring system in a home or business to an antenna, instead of a telephone line. The replacement of landlines with cellular service should become increasingly common because advances in wireless systems will provide data transmission speeds comparable to broadband landline systems. Cable and other program distribution is another sector of the telecommunications industry. Establishments in this sector provide television and other services on a subscription or fee basis. These establishments do not include cable networks. (Information on cable networks is included in the statement on broadcasting, which appears elsewhere in the Career Guide.) Distributors of pay television services transmit programming through two basic types of systems. Cable systems transmit programs over fiber optic and coaxial cables. Direct broadcasting satellite (DBS) operators constitute a growing segment of the pay television industry. DBS operators transmit programming from orbiting satellites to customers’ receivers, known as mini-dishes. Establishments in the cable and other program distribution industry generate revenue through subscriptions, special service fees—primarily installation—and advertising sales. They also charge fees for services, such as the transmission of specialty pay-per-view or video-on-demand programs; these often are popular movies or sporting events. Some cable and satellite systems facilitate the transmission of digital television signals. Digital signals consist of simple electronic code that can carry more information than conventional television signals. Digital transmission creates higher resolution television images and improved sound quality. It also allows the transmission of a variety of other information. Digital television also uses compression technology to expand the number of channels. Changes in technology and regulation now allow cable television providers to compete directly with telephone companies. An important change has been the rapid increase in two-way communications capacity. Conventional pay television services provided communications only from the distributor to the customer. These services could not provide effective communications from the customer back to other points in the system, due to signal interference and the limited capacity of conventional cable systems. As cable operators implement new technologies to reduce signal interference and increase the capacity of their distribution systems by installing fiber optic cables and improved data compression, some pay television systems now offer two-way telecommunications services, such as video-on-demand and high-speed Internet access. Cable companies are also increasing their share of the telephone communications market both through their network of conventional phone lines in some areas and their growing ability to use high-speed Internet access to provide VoIP (voice over Internet protocol).

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VoIP is sometimes called Internet telephony, because it uses the Internet to transmit phone calls. While conventional phone networks use packet switching to break up a call onto multiple shared lines between central offices, VoIP extends this process to the phone. A VoIP phone will break the conversation into digital packets and transmit those packets over a high-speed Internet connection. Cable companies are using the technology to offer phone services without building a conventional phone network. Wire line providers’ high-speed Internet connections also can be used for VoIP and cellular phones are being developed that use VoIP to make calls using local wireless Internet connections. All of the major sectors of the telecommunication industry are or will increasingly use VoIP. Resellers of telecommunications services are another sector of the telecommunications industry. These resellers lease transmission facilities, such as telephone lines or space on a satellite, from existing telecommunications networks, and then resell the service to other customers. Other sectors in the industry include message communications services, such as e-mail and facsimile services, satellite telecommunications, and operators of other communication services, ranging from radar stations to radio networks used by taxicab companies. The central question is what strategy should network operators follow? Introduce the next generation services 3G at once or gradually improve the previous 2G networks? Of course, this decision depends on the position of the network operator. The majority of the European network operators followed an incremental strategy. They upgraded the 2G networks and prepared for the big leap forward by investing in UMTS later on. There are few operators that began from scratch i.e. do not have a previous generation network in operation. This does not imply that new entry will not be a successful strategy. In the next section, we will discuss this intriguing question in more detail, we close this section with some remarks. First, how to manage the risk of cannibalisation if 3G is introduced at once? The argument is that if 3G is competitively priced all potential demand for high quality mobile data services is attracted towards 3G. This potential demand consists of newly created demand and customers switching from 2G and 2.5 towards 3G. To decrease the size of the potential customer base non-3G operators apply all kind of lock-in costs: from SIM locks, to high costs for terminating the current (2G or 2.5G) contract before its expiry date. If these lock-in effects are substantial a new pure-play 3G operator gets a less significant first-mover advantage. Thereinafter, we are going to present a methodology which mainly refers to multinational companies that gather the big shares in the TLC industry and that gives them the opportunity to be more flexible and innovative in order to increase their market shares.

Economical sizes of Mainer TLC companies in Greece Before presenting the methodology, we will present some evidence (source: ICAP data) which show the progress and the huge amounts of profit in TLC industry. In Table 1 we are able to see the economical sizes of the four Mainer TLC companies, which are also entered to the Stock Market. In Table 1 we can also see a comparison between these four companies, which have the largest market shares in Greece. These enterprises need to increase or maintain their market shares and the solution is NSD. As we can see from Table 1, TLC is a very profitable industry and apart from technology, new services are the next most important key of success. The TLC organizations must invest in NSD in order to keep prospering. Now it is time to see what the methodology is.

The TLC case methodology The TLC segment represents one of the largest industries world-wide. Triad technologies of the Internet namely packet switching, Internet protocol and World Wide Web have fundamentally transformed the TLC industry (Christensen et al., 2001; Sherif, 2002; Trebing and Estabrooks, 1995). TLC segment had steady increased revenue from 1996 until 2002, whereas bankruptcy, debt and fraud are the major characteristics until nowadays (Frans-

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man, 2001; Economist, 2003). Spurred on by rapidly changing information technology, new customer needs, deregulation, and ever-increasing competitive threats, TLC institutions are responding with a plethora of new services. The critical question is what distinguishes the successful new services from the failures? Johne and Storey (1998) argue that it is important to investigate if the findings in the financial service sector are applicable to other service sectors. The first step of the research was to get a better understanding of the underlying factors and dimensions that describe NSD in the TLC industry. This research must have two parts: the micro (with case studies) study and the macro (theoretical embedded ness, comparing NSD researches and induction of key themes). In our case, the first step refers to macro study which was committed through exploratory research (see Figure1) by interviewing five TLC managers, who are knowledgeable of NSD. The interviews were very enlightening for the way they perceive new service process. The five managers agreed to several basic principles in order to have better and more indicating results in our research below, which are summarized as follows: • • •

Sustaining the region’s growth and development; Strengthening an open multilateral trading system directed towards forming a regional trading bloc; Recognizing the region’s diversity during informal consultations where dialogue and consensus have equal respect for all views;

Table 1. Comparison of mainer companies of telecommunication ΟΤΕ ΑΕ

COSMOTE AE

FORTHNET AE

LΑΝ-ΝΕΤ ΑΕ

thousands €

Change

thousands €

Change

thousands €

Change

thousands €

Change

1-6/07

1.318.400

-4,3%

825.956

5,6%

54.312

17,2%

28.808

4,8%

1-6/06

1.377.300

1-6/07

366.500

SALES PROFITS (DAMAGE) PRE TAXES

1-6/06

275.900

1-6/07

6.946.000

31/12/06

6.801.400

782.436 32,8%

212.311

2,1%

3.665.489

46.346

27.491

-6,3%

-21.686

-2.316

-12,4%

228.116

226.475

-6.910

-3.002 -3,5%

159.567

2,1%

TOTAL OF ASSET 1-6/07

3.295.600

31/12/06

3.249.700

1-6/07

2.191.900

31/12/06

2.202.900

4.185.773 1,4%

236.271

793.936

-10,9%

156.315

135.835

-10,3%

66.292

-3,4%

NET CONDITION LONG-TERM OBLIGATIONS SHORT-TERM BANKING OBLIGATIONS

1-6/07

17.500

31/12/06

16.100

TOTAL OBLIGATIONS

1-6/07

3.650.400

31/12/06

3.551.700

891.477 -0,5%

151.370

2.539.780

0,2%

6.677

-100,0%

30.909

2.535.361 8,7%

0

23.516

-9,1%

13.089

2.871.553

-12,8%

7,9%

21.800

34.000

3.294.296

37,0%

9.551

92.281

8,7%

84.901

93.275

6,3%

87.708

MARGIN OF MIXED PROFIT

1-6/07 1-6/06

MARGIN OF NET PROFIT

1-6/07 1-6/06

20,0%

28,9%

*

*

1-6/07

1,1

3,6

0,7

1,4

31/12/06

1,1

3,7

0,6

1,3

FOREIGNER/ PROPER FUNDS

--

47,3%

4.533

449.000 2,8%

68.607

31,6%

*

39,5%

--

30,6%

20,3%

55,2%

27,8%

25,7%

*

*

* Negative Indicator

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• • •

Focusing on economic matters rather than politics or security to advance common interests and foster constructive interdependence by encouraging the flow of goods, services, capital and technology; Complementing and drawing on existing regional organizations, and Assessing participation on the basis of economic linkages with the regions, extending participation by consensus.

As regards the micro study, it can be conducted in the future with an explanatory frame work after having taken the conceptual model from macro, and confirm the critical dimensions. Then the final results will indicate the relevance percentage between the service industries. Our cooperation with the TLC managers was very helpful, because without them it would have been impossible to compose the questionnaire.

Results of the exploratory research The exploratory study in the TLC study showed that most NSD are improvements and revisions of existing services but there are also and many new ones’. TLC managers argued that having a mixture of the aforementioned sorts of services reflects a healthy and well-organized firm. That statement reflects that TLC managers are not so conservative in their NSD approaches and that they take more risk than managers in other industries. In that decision, the advent of new technologies-both hardware and software- plays an important role as they say. It emerged from the interviews that the development of “totally” new services comes from the sector of communications networks where technology “moves” so fast that allows the development of new service process. In contrary, the supply and demand sector tries to gain new clients by improving existing services like new packages of subscription. The interviews showed that commitment and the motivation of the staff towards the new service project, input from employees, training of staff, internal marketing and front-line expertise were significantly associated with the performance of new services. The contribution of salespeople in NSD efforts is very crucial. Financial measures, like profit and total sales are used as a primary evaluation of new services. Further, customer satisfaction and salespeople feedback are very important measures of success in the TLC sector.

Conceptual Model There is no agreement in the NPD and NSD literature over the way in which success should be measured (Craig and Hart, 1992).Unfortunately, local policy makers tend to ignore telecommunications. As Graham and Marvin (1996, p 51) have pointed out, it is so bad that: “many city planners and managers do not even know what the telecommunications infrastructure is in their cities; very few have the power, influence, or conceptual tools to reshape it so as to have desired impacts.” Moss (1987, p 535) states also that: The telecommunications infrastructure—which includes the wires, ducts and channels that carry voice, data, and video signals—remains a mystery to most cities. In part, this is due to the fact that key components of the telecommunications infrastructure, such as underground cables and rooftop microwave transmitters, are not visible to the public. Unlike airports and garbage disposal plants, telecommunications facilities are not known for their negative side effects, and until recently, have not been the source of public disputes or controversy. If there is any chance to make telecommunications and information technologies more central and useful to community life, we have to find a way to make them more vital parts of the existing local public policy agenda. At least, we must start thinking about the information infrastructure of local communities and sub-state regions in the same ways they have viewed the more conventional elements of their infrastructure—both hard and soft. That is, they must begin to see the information technology and telecommunications capacities of communities and regions as key contributors to their vitality and essential to obtaining and sustaining the desirable qualities of life pursued within the community.

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Figure 1. Overview of the research process

The evaluation of new services and products are most frequently based on financial measures of performance (Montoya-Weiss and Calantone, 1994; Griffin and Page, 1993). Nevertheless, using only financial measures is too limited, because it neglects several aspects of benefits of the company (Storey and Easingwood, 1999). The findings of success studies in NPD and NSD showed that success on one specific dimension of performance does not necessarily mean success on the other performance dimension (de Brentani, 1991). Therefore, this conceptual model includes 18 dimensions, including financial, customer satisfaction and other benefit aspects (see Figure 2). In relation to success factors, the model includes four product-related factors, product advantage, technical quality, functional quality and innovative technology. The importance of product advantage (Easingwood and Storey, 1991; 1993; Storey and Easingwood, 1993; 1996; 1998; Edgett, 1994; Edgett and Parkinson, 1994; Cooper et al., 1994; de Brentani, 1991; 1993; Cooper and de Brentani, 1991; de Brentani and Cooper, 1992; Atuahene-Gima, 1996; de Brentani and Ragot, 1996), technical quality (Easingwood and Storey, 1991; 1993; Storey and Easingwood, 1993; 1996; 1998; Cooper et al., 1994; de Brentani, 1991; 1993; Cooper and de Brentani, 1991; de Brentani and Cooper, 1992), functional quality (Edgett and Parkinson, 1994; Cooper et al., 1994; de Brentani, 1989; 1991; 1993; Cooper and de Brentani, 1991; de Brentani and Cooper, 1992; Storey and Easingwood, 1993; 1996; 1998; de Brentani and Ragot, 1996; Easingwood and Storey, 1991; 1993) and innovative technology (Cooper et al., 1994; Easingwood and Storey, 1991; Storey and Easingwood, 1993) have been recognised in several NSD studies. Market features of the conceptual model are market synergy, market attractiveness and competition. Several empirical studies have outlined the importance of market synergy (Edgett, 1994; Edgett and Parkinson, 1994; de Brentani, 1991; 1993; Cooper and de Brentani, 1991; de Brentani and Cooper, 1992; Storey and Easingwood, 1996), market attractiveness (Cooper and de Brentani, 1991; de Brentani, 1991; de Brentani and Ragot, 1996; Edgett and Parkinson, 1994) and to a lower degree competition (Cooper and de Brentani, 1991; de Brentani and Cooper, 1992). 451


Figure 2. Overview of the conceptual model

The process dimension includes six aspects: sources that generate new ideas, pre-launch activities, salespeople involvement in the new service development process, launch preparation, effective marketing communication and NSD process management. The importance of pre-launch activities of the development process has been stressed in NSD studies (Edgett, 1994; Edgett and Parkinson, 1994; Cooper et al., 1994; de Brentani, 1991; 1993; Cooper and de Brentani, 1991; de Brentani and Cooper, 1992; Storey and Easingwood, 1996). Studies concerning the development process of new services suggested the involvement of employees (for example salespeople) in several development stages (Easingwood, 1986; Bowers, 1989; Scheuing and Johnson, 1989; de Brentani, 1989). The importance of launch preparation has been recognised in all NSD success studies on the project level (e.g. de Brentani, 1991). Effective marketing communication (Easingwood and Storey, 1991; 1993; Storey and Easingwood, 1993; 1996; Edgett, 1994; Edgett and Parkinson, 1994; Cooper et al., 1994) and NSD process management (including strategic finance management over the projects) (Kitsios, 2005; Atuahene-Gima, 1996; de Brentani and Ragot, 1996; Edgett, 1994; de Brentani, 1991) has been linked to NSD success. Reputation, overall synergy, strategic human resource management, selective staffing, training of salespeople, behaviour based evaluation, empowerment and formalisation represent the organisational dimension of the conceptual model. Several empirical studies showed that reputation (de Brentani, 1989; Storey and Easingwood, 1998) and overall synergy (Easingwood and Storey, 1991; 1993; Storey and Easingwood, 1993; 1996; Cooper et

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Figure 3. Main categories of strategies for success

Planning

Operations

Finance

Marketing

al., 1994; de Brentani, 1991; 1993; Cooper and de Brentani, 1991; de Brentani and Cooper, 1992; de Brentani and Ragot, 1996) have influence on the performance of NSD. Most importantly service products include close interaction with customers, and this is the distinguishing aspect of service offerings (Johne and Storey, 1998). Therefore, service firms have to develop a service product, but also an appropriate nature for interaction with customers (Johne and Storey, 1998). The human element in services means that service quality heavily depends on human resource strategies (Zeithaml and Bitner, 2000). The attitudes and behaviours of service employees can significantly influence customers’ perception of the service, and therefore, service organisations must find ways by which they can effectively manage their service employees attitudes and behaviours so that they deliver high quality service (Hartline et al., 2000). Organisational researchers have stressed that human resource planning is linked to strategic business planning (Schuler and Jackson, 1987) and organisations should view employees as a strategic resource (Huselid et al., 1997), which has become known as strategic human resource management. A customer-oriented firm will in general produce better service quality and create more satisfied customers (Kelley, 1992). However, in service firms, employees who have customer contact are responsible for translating a customer-oriented strategy into service quality, because customers often judge a firm largely on the service received from front-line employees (Johne and Storey, 1998). Therefore, it is important to understand how managers can encourage front-line employees to perform a customer oriented strategy. Hartline et al. (2000) suggests three aspects that management can control, in order to support a customer-oriented strategy: formalisation, empowerment and behaviour-based evaluation. However, some evidence suggests that there is considerable inertia in service organizations. Changes are needed in structures and strategy to facilitate new service development (Scheuing and Johnson, 1989).

The four primary domains of service provider strategies Figure 3 depicts the four primary categories of service provider (TLC companies) strategies. Within these categories there exist a lot of potential differentiation paths (many of these are shown in Figure 2) that are available to the service provider, in order to succeed. For each path, even before an initial market entry, and before each business planning development cycle, it is very important for TLC service providers to measure their current capabilities, the demands of the market, and the gap between them.

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The strategic planning process within each of these domains should include at least the following actions so as to be well-taken: • • • • •

A statement of the enterprise’s vision and fundamental values as it relates to the category of finance, planning, operations or marketing strategy. Measurement of the service provider’s existing capabilities and estimation of these that is willing to reach. A critical assessment of the strengths and weaknesses relative to competitors. An assessment of the most attractive markets regarding their “growth”, competitive dynamics and also the service provider’s competitive strengths. A final estimation of the future development and direction of the selected markets in the previous step.

Strategic planning is far more accessible and effective when the process that is referred previously, includes tools like SWOT and PEST analysis. When someone uses SWOT analysis, he takes as a result the evaluation of strengths, weaknesses, opportunities and threats (SWOT) and the consideration of the political, economic, social and technological factors (PEST) that are valuable to develop the strategic overview. Using tools for strategic planning is effective, but planners need to balance the framework of a particular tool against the need of the process to be as much creative as it is possible. There are many tools that enable innovation, but some primarily increase operational efficiency. A strategic planning tool is most advantageous when it identifies three potential types of improvements, and which are: Getting rid of unnecessary activities; Doing the existing activities more effectively; Finally identifying future opportunities that can not be predicted in everyday operations. The truth is that strategic planning, tools and innovation in services can and will make the difference between success and failure in TLC industry.

Financial Strategies Financial strategies are the most common between the four categories but the last years have also become very common in the TLC industry due to the fact that companies can gain competitive advantage and differentiation. The aim of these strategies is to maximize growth and profitability. Financial strategy demands considerable attention in order to be successful. Competitive markets will require a reassessment of financial goals and the development of new skills in management and differentiation. The paths to differentiation include business expansion, the use of innovative funding strategies, and cost leadership. The options for business expansion include vertical or horizontal integration, mergers or start-ups to create new scale or scope of business, territorial expansion, or outside investment for the sake of diversification in a cyclical industry like TLC. The rapid pace of industry consolidation demonstrates what service providers believe and that is the benefits of huge scale, which offset the management and integration challenges that come. Investors demand growth and the criteria for those people are the success of a company’s expansion mainly on its own growth and partly on its relative growth while the industry consolidates around them. Funding strategies have changed as much as any other aspect of the deregulated market, but they still can be barely visible in favour of more attractive business processes. Nevertheless, the provider that creates innovative funding and financial management can outpace the provider with higher gross margins and casual fiscal practices. Moreover, managing the revenue side of the income statement is popular for many reasons, especially in a booming economy, but some TLC service providers will succeed through their management of the cost side of the statement. Especially in a commodity marketplace, keeping costs as low as possible is a competitive advantage against the rest. The way to win a price war is to avoid having profit casualties. Eventually each differentiation path combines both a business process and a plan of action. For example, the business modelling process assesses the market opportunities and the skills residing in or available to the TLC provider and develops a sustainable value proposition on which to define the business. The plan of action contains the results of the business process. In fact the main part of the modelling process is to decide which of

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the differentiation paths will have the priority for the business model, due to the fact that resources for R&D are always limited. Thus reducing the emphasis on selected differentiation paths without destroying the resulting business model is one of the challenges of the process.

Planning Strategies The planning strategy encompasses a process where a set of decisions must be taken by the TLC provider so as to point out the probable way of success for the business. The process includes the business goals, investor and stakeholder requirements, human resources issues within the enterprise and also the environment surrounding the enterprise. The pre-referred function includes business modelling, an objective assessment of core competencies, and organizational strategies. These differentiation paths are the most important decisions that a TLC service provider must make before venturing into a business or before transforming into a competitive enterprise. The decisions in this phase not only affect the following choices but are likely to require significant changes among management and employees. Business modelling involves the development of a corresponding concept. A proper business concept will attract those customers that seek the characteristics in which the TLC service provider shows strength. On the other hand, the concept must eliminate these services where the provider is weak and exclude those customers, who seek such characteristics. When we talk about competencies, we mean the process in which the TLC service provider firmly reinforces its competitive advantages towards its opponents in the marketplace. This process needs a balance of resources because competencies demand investing in strategic differentiators requiring excellence, outsourcing or shaving down functions that require only adequacy, and eliminating those functions that are not profitable in the targeted markets. In addition, organizational strategies refer to the enabling techniques of a company to ensure that it uses its resources with the most effective way in order to meet the organization’s objectives. A TLC service provider can differentiate its services through its effective business processes, its efficient organizational structure, or its maximization of in-house talent.

Operational Strategies Operations constitute, for a long time, a workhorse of the TLC services and nowadays operational excellence is becoming noteworthy as a distinct competitive strategy. Customer’s lack of tolerance for much variation in the quality of TLC services creates a marketplace in which all service providers are trying to be good performers. If someone wants to achieve superior quality is quite difficult. What enterprises need, is a loyal customer base and premium prices. The differentiation paths of customer service, best in class performance and technology management represent opportunities within the operations domain. Many TLC service providers have stated their missions to differentiate based on customer service. This is an obvious path to differentiation for incumbent local providers, because they are well aware that commodity markets compete through low cost. Most incumbents do not yet support the cost profiles to position themselves as the low-cost providers in their territories, so they are seeking opportunities to command higher prices for superior service. Incumbents also appear to believe that their reputations and infrastructures create a branding opportunity, and this is born out by customer survey data. Many incumbent TLC service providers aspire to best in class performance because it melds well with their traditional corporate values. New entrants also view best in class performance as a potential differentiator in a crowded marketplace. This path to differentiators has many challenges, especially in the area of cost. While performance is undoubtedly important to customers, the standard is already too high and as a result prominence in the field is not easy. Furthermore, the areas, in which best of class performance is noticeable, generally require significant investment to participate competitively. Another way to differentiate through operations is to provide network services of perceptible superiority, and several TLC service providers are already mobilizing to take this approach. To accomplish this, service pro-

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viders will need to be particularly competent at technology management. Technology management can include proprietary innovations, but it can also differentiate through exceptional supplier management.

Marketing Strategies Marketing is one of the most important success factors and because of that enterprises realise the necessity of differentiation with other competitors. The paths of this marketing differentiation address to competitive parity, distribution strategies, and pricing. Marketing is the weakest capability of many incumbent providers and has opened lately a gateway for new entrants to gain market share. The conventional marketing mix contains the elements of product, packaging, price, and distribution. In an industry like TLC, where both the product and the packaging continue to be relative commodities, the distribution strategy and the pricing offer the best potential for differentiation and success. These practices comprise a partial innovation, which also leads to success if it is well used. Skills in managing competitive parity enable TLC service providers to maintain an acceptable level of profit and minimize the loss in customers, in an industry characterized by intense price competition and accelerating speed to market. Competitive parity skills notify the TLC service providers when to take a significant market initiative. Sometimes it is appropriate to lead in the marketplace, and sometimes a competitor’s action requires a competitive response. As TLC usage has proven to be elastic, lower prices result in more minutes of customer usage. Because customers are price-sensitive, a customer would be inclined to switch carriers if a matching decrease was not forthcoming from its current service provider. Distribution strategies enable customers to locate the services they seek and enable TLC service providers to locate and serve customers. Distribution channels begin at the supplier, traverse the TLC provider, and continue outward through in- house sales channels, agents, resellers, brokers and retailers. The value of a given distribution channel depends on a variety of factors. These include the profitability of the participants within the channel, the proper choice to connect with the targeted segment, and the customer’s access to product information and alternative channels. Pricing innovation is essential in the TLC services market. First, the services are near commodities, making customers very price-sensitive. Second, even in view of an explosive demand, the short-term threat of overcapacity is real, putting downward pressure on prices. Technology products tend to fall in price, and rising usage is crucial to any service provider whose investors need to see continual revenue growth. Last, new TLC service providers need to find profitable pricing structures to overcome historical pricing anomalies, such as below-cost services, complex pricing equations, and settlements between cooperating providers.

Conclusion For some years, a number of social, technological and economic trends have produced an environment which promotes the demand and distribution of mobile communication services. This causes a dramatic change of the mobile communications value chain. New actors (e.g. e-commerce firms, Internet portal providers) and new services (e.g. m-commerce, portal services) enlarge the value chain in both ways, functionally and institutionally. Mobile network operators can gain advantages out of the changed economic environment, through occupying the gatekeeper role. While their current revenue base, the transmission service, will shrink, they are well positioned to extend their revenue base to other segments of the value chain (e.g. advertising, revenue sharing with content providers). Activities like the grouping of different services, the access design via portals, the mediation of contents, pricing as well as billing for the different suppliers from other lines of business will be of essential importance for mobile network operators. Thus, based on their gatekeeper role, they have competitive advantages over other players (e.g. content provider like banks) so that they most likely will succeed. Increasing global competition, advances in technology and dynamic markets obligates TLC and other services, to focus more on new services as both offensive and defensive weapons: new services to maintain the current

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portfolio competitive and new services to gain competitive advantage and exploit new market opportunities. NSD has not been widely researched (Martin and Horne, 1993) so there exists a need for further research in this field (Johne and Storey, 1998). In the last four years very few academic studies have concentrated on this area (e.g. Storey and Easingwood, 1998), which means that the knowledge of NSD has not advanced very far. Many firms have found that new service success does not come easily. Telecommunications service is generally developed following several development stages: idea generation for new services, service development, service delivery, and life cycle management. For each development stage, a knowledge management system to check the likely success factors, learn from the specific cases but do not base on them exclusively, and propose possible risk management ideas would improve the quality of development process. Second, success cases can be incorporated and analyzed in addition to failure cases. The ultimate objective of the NSD process would be to include more success factors and eliminate failure factors in advance. Therefore, a study on the factors separating service success and failure would provide improve guidelines for the NSD process. TLC organisations have to continuously develop new services in order to be successful and the results of this empirical research of the success factors in NSD and further investigations will be of potential value to TLC managers, as it will enable them to focus on NSD more strategically and professionally.

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Key Terms Critical Success Factors: Success factors, determinants of success Service Innovation Management: New service development (NSD), innovation management in the service sector, new product development in the service sector, services management

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