Bank of Scotland Case
The factors for success in new product development range from large-scale macroeconomic considerations to specific organizational values and even individual leadership capabilities. There must be a real market for the product being developed, and this product must be able to be produced/offered in a manner that is cost-effective enough to create real demand based on available levels of supply. In addition, new products must fit in with the current product offerings, innovative trends, and culture at a given organization. Team members and leaders involved in new product development must also have the right level of knowledge and be aware of their knowledge limitations and other resources they can turn to.
There are definitely some differences when a new service is being developed rather than a new physical product, though most of the above still remains true. Supply and demand works differently, especially for financial instruments, as “production” costs are minimal and do not really limit supply or change pricing on individual or small-scale levels. Quality control — ensuring that each service is provided according to the standards to which it was designed — also becomes more complex and involved for service creation and provision. These changes all represent adjustments to the challenges of new product development rather than wholly different considerations, it should be noted, demonstrating the similarity of such developments.
Success and failure in service industries are driven by much the same factors as in product-oriented businesses: price competition, the quality of the service being delivered, marketing efforts, and the real capability to provide the service as designed and advertised are all primary drivers of the success in service industries. Innovation is actually sought less in service industries, it would appear, than in most product lines; people seek new and better cars, but not really new and better ways of fixing them. The relative lack of diversity in mortgage products given how long they’ve been around as a general class is demonstrative of this assertion; even though innovations can cause demand, they are not as sought after by consumers.
Instead of moving ahead with issuing SAMs 5 and 6 so rapidly and hoping that this revived interest and profitability in the product/service, the slowdown that was observed in SAMs 3 and 4 should have signaled the banks to hold off and attempt to build momentum back up with their existing products. The decision that was made amounts to throwing good money after bad in an attempt to turn around the fate and fortune of the SAM vehicles, when the banks really should have invested a bit of time and energy into fixing some problems and then quietly abandoning the endeavor if it seemed that these problems couldn’t be fixed.
From the Bank of Scotland’s perspective, the product/service was a moderate success, and could potentially have been more successful had the level of demand for SAMs 1 and 2 been more accurately predicted. From UBS Warburg’s perspective, the product really didn’t bring anything to the company other than additional stress and resource utilization, without any significant level of return. Taken as a whole, better planning and control over the product could have made it more successful, but it is unclear that returns would ever make them worth the hassles of development or management.
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