Fast New-Product Development at
Service-Sector Companies

by Philip A. Himmelfarb, Ph.D.

Whether developing a new service or a new manufactured product,
companies should use a parallel approach to product development.

The service sector continues to grow at an ever-accelerating pace in this country. An important aspect of its growth is its ability to develop credible new products and new ways of delivering them to the marketplace as quickly as possible.

Many manufacturing people think they are the only ones who develop new products. Yet people in the service sector develop products all the time and are often very creative and successful at it. The fact is, no matter who develops it, a new product is something that satisfies customer needs in a new way, be it manufactured or a service that is delivered.

As examples of new products in the service sector, we only need to think of the constant flow of new insurance policies that meet special needs, new banking and credit card products, new telephone services and faster and more reliable package delivery.

Here are some exciting new products that were developed by the service sector:
Citibank-In the late 1980s, Citibank completely redid its procedures for approving home mortgage loans, moving from being an also-ran to a market leader. The company reasoned that consumers would want to do business with a lending institution which gave them fast turnaround of a loan application. Citibank's new mortgage approval procedure went from a lengthy turnaround time of 45 days to just under 15 days.
FedEx-FedEx started out by promising overnight delivery of a letter or package by noon the next day. Later, it figured out how to promise overnight delivery by 10:30 a.m., their Priority Delivery. After FedEx had captured significant market share with fast, dependable service, it developed real-time tracking of any package in the FedEx system and gave customers a choice of two classes of delivery, Priority Overnight and Standard Overnight. FedEx has consistently developed new products that enable it to achieve and maintain a prominent position in the marketplace.
Courtyard by Marriott-In 1983, Marriott opened up the Courtyard hotels, its version of a moderately priced hotel chain. When it went after this niche opportunity, Marriott did a good job of identifying customer needs and wants. It empowered a cross-functional team to develop the new product, which first appeared as a prototype hotel in Gaithersburg, Maryland. After a successful test marketing of the new hotels in Atlanta, Courtyard has become an important addition to the Marriott product line, with more than 200 units around the country.


There are many other examples. Insurance companies never stop developing new products to meet customers' emerging needs. Their new products range from long-term home health care to variable and fixed annuities to flood insurance. The same is true with banks; extensive ATM services, credit cards with photo IDs, new types of bank accounts and home equity loan packages are all new products that have been niche-marketed.

McDonald's, The Limited, Lands' End, L.L. Bean, Toys 'R' Us, Pizza Hut and Four Seasons Hotels are other service-sector companies that have developed outstanding and successful new products and services.

How good companies achieve success

The surest way to promote fast product
development is to plan how it will
be done.

Whether developing a new service or a new manufactured product, companies should use a parallel approach to product development. Parallel product development can bring products that meet customer needs into the marketplace quickly by integrating design and manufacturing capabilities and marketplace information. It's not based on one element or magical formula; rather, it is a collection of principles that must be practiced together. It is parallel in two ways: It relies heavily on the use of multifunctional teams who work in parallel, and the teams perform as many tasks in parallel as possible. Successfully done, it's the best way for a company to conduct its major new-product development projects.

The most important elements of parallel product development are:
Multifunctional teamwork-Multifunctional teams make fast parallel product development possible. They are made up of people from all key functional areas who can contribute to and have a stake in the project. The team members are all involved in the project from the start and they select their own leader. Key suppliers and customers are often development team members.
The teams are empowered to make decisions and draw upon company resources as needed. They are allowed to make critical decisions, and they have adequate resources and incentives.
Facilitated front-end project planning-The surest way to promote fast product development is to take the necessary time at the front end of the project to plan how it will be done. This is the time for a multifunctional team to use a trained facilitator to:
·List key assumptions.
·Set project mission and objectives.
·Select a team leader by consensus.
·Generate a critical path chart.
·Identify project risks.
·Determine required resources.
·List preliminary product features.
·Prepare for a presentation of the plan to senior management.


The time taken at the front end of a project by the development team will be more than repaid by faster cycle times, higher-quality products, fewer design flaws and more enthusiastic teams. Employing a skilled and trained facilitator at the beginning of the project is an important aspect of the parallel development process.
Parallel tasking-Once a multifunctional team is in place and a detailed project plan has been approved by senior management, a development team can save time by doing as many tasks in parallel as possible. This involves a degree of risk, risk that is calculated and understood.
Good product definition-A clear product definition is an essential aspect of any development project. The product definition addresses the following questions:
·Who are the customers?
·Who else has a vested interest in the product?
·What do we know about the cus-tomers?
·How will the product be positioned in the marketplace?
·What are the product's competitive advantages?
·What customer needs will this product satisfy?
·How much are the customers willing to pay for this product over time?
·When is the product needed?
·How will we reach the customers with the product?
·How will we promote the product?
·What reliability level is needed with this product?
·What is the use environment of the product?


The product definition ultimately leads to a list of product features-those product attributes and benefits that the customer is willing to pay for. Other good product development practices are:
Senior management of the development process
Strategically driven product planning
Adequate market research
Product features frozen early and kept frozen
Computer-driven critical path project management
Fast prototyping
Adequate preproduction piloting and testing

Management tips
When developing a new product, a parallel approach to product development should be used. It is parallel in the sense that it relies on multifunctional teams that work in parallel, with the teams doing as many tasks in parallel as possible.
Make sure there is a companywide system for doing parallel product development. Such a system requires senior management involvement and buy-in.
Do everything you can to ensure middle-management buy-in. Also ensure that middle managers understand that their role in the product-development process is primarily supportive.
Communicate the message that speed isn't enough. New products must also meet customer needs in a superior way and must have high perceived value.
Make sure that multifunctional teams have all the key players on the team from the very beginning of the project, including key suppliers and customers when appropriate.
Encourage development teams to do as many tasks as possible in parallel, at least to a degree consistent with the amount of risk the company is willing to tolerate.

When it comes to product development, it doesn't matter whether a company is in the service sector or a manufacturer of products. The principles of good product development are the same. As is the case with manufacturing companies, there are plenty of examples where service-sector companies have developed excellent products. Companies that practice a parallel approach to product development will do best in the long run.

About the author . . .
Philip A. Himmelfarb, Ph.D., is president and founder of Philip Adam & Associates, a Milwaukee-based consulting firm specializing in the evaluation, fine-tuning and strategic planning of new-product development, the presentation of in-house training seminars and the facilitating of start-up and ongoing development projects.

Himmelfarb has had more than 30 years of successful consulting and hands-on managerial experience in the creation and management of new-product development projects for many corporations. His clients have developed and introduced a wide array of successful new products.

Prior to founding PA&A in 1982, Himmelfarb worked at the Jos. Schlitz Brewing Co.. Earlier, he worked at Monsanto Chemical Co. and was a senior consultant at Arthur D. Little Co., specializing in new-product development and R&D management.