Managing Knowledge for Innovation: The Case of Business‐to‐Business Services*

The present study builds a typology of organizational knowledge in business services and empirically examines the effects of knowledge on innovation performance. It is suggested that firms differ with respect to their knowledge creation approaches and that these approaches have implications for firms' innovation activities. A conceptual framework of knowledge assets with degrees of tacitness and collectiveness as the principal axes is used to ground the empirical analysis. The organizational knowledge framework is empirically operationalized using survey data from 167 business service firms and supplementary case study evidence from 16 other firms. It is found that business service improvements and new service introductions are significantly associated with collectively held knowledge, such as codified service solutions or team‐based competences and procedures. In contrast, relying solely on tacit knowledge held by individuals may hamper innovation. The results also suggest that tacit collective knowledge is more closely associated with new service introductions, whereas explicit collective knowledge is associated with service improvements. Tacit collective knowledge is thus conducive. A managerial implication is that new service introductions necessitate team competences and routines, whereas incremental service improvements are more likely if procedures are in place to codify services into explicit solutions or technologies. Thus, the knowledge management approach should depend on the strategic orientation of the service firm toward continuous improvement of existing services or development of completely new services.     

Leveraging ideas from user innovation communities: using text‐mining and case‐based reasoning

User innovation communities, where end users voluntarily share their ideas about new products or services, have become an important source of innovation. While efforts have been made to extract and develop ideas from these sources, existing studies have largely focused on company‐led efforts to facilitate user participation, rather than on voluntary user discussions within communities themselves. As a remedy, this research proposes to directly target those voluntary ideas from user innovation communities for product/service innovation. Because quantities of textual information within these communities are rather massive, we propose a modified and integrated approach of text‐mining (TM) and case‐based reasoning (CBR). Specifically, by constructing two casebases on ideas and existing products using TM and checking for overlap between the two using CBR, the approach enables the identification of opportunities for innovation and reference products for adaptation. We demonstrate the approach through a case of mobile apps in Apple App Store, and our findings suggest that the approach can help firms and users/developers broaden the source of ideas and leverage them into new product concepts.     

Success and Failure in New Industrial Services

The critical role of innovation has long been recognized in physical goods; however, the development of innovative services has received much less attention. The research described here reports on an early major study of success and failure in new industrial services. Building on her integration of two literatures on new product innovation and services marketing, Ulrike de Brentani reports how companies measure new service performance and the factors which are associated with success. She reports that new industrial services share some important success factors with physical goods, such as the firm's market orientation, a formal service development process, project synergy and a truly superior new service offering. Yet she finds that firms must adjust their approach to the distinctive character of services, including customer perceptions of service quality, features that successfully differentiate services in competitive terms and cost reduction.     

Differential Potency of Factors Affecting Innovation Performance in Manufacturing and Services Firms in Australia

Whether or not industrialized nations are experiencing a fundamental shift from a manufacturing- to a service-based economy may be a matter of debate. However, the service sector is clearly growing at an explosive rate, particularly in comparison with manufacturing. With this in mind, we need to better understand how the successful development of new services differs from that of new products. Such understanding requires identifying the critical success factors for new service development (NSD), as well as contrasting them with the factors underlying successful new product development (NPD). Kwaku Atuahene-Gima describes the results of a study comparing the innovation activities of Australian services firms and manufacturers. The study explores managers' perceptions of the factors necessary for successful NSD and NPD. In addition to comparing the differing perceptions of managers of services firms and manufacturers, the study highlights implications of these differences for managers striving for improved NSD. Services and manufacturing firms focus on similar factors for improving innovation performance. However, the relative importance of those factors depends on the type of firm. The critical factor for services—the importance accorded to innovation activity in the firm's human resource strategy—ranks third in importance for manufacturers. Manufacturers focus primarily on product innovation advantage and quality. In contrast, service innovation advantage and quality ranks third in importance for service firms. Surprisingly, technology synergy is found to have a negative effect on new service performance. If a new service is a close fit with a firm's current technologies, competitors will likely be able to quickly imitate the new service. As a result, NSD efforts based on technology synergy will not provide a competitive advantage. Compared to manufacturers, successful service firms must place greater emphasis on the selection, development, and management of employees who work directly with the customer. Through effective self management, these contact personnel shape the quality of the customer relationship. In addition, their close contact and potentially long-term relationships with customers make such employees an important source of new ideas in the firm's NSD process. Such relationships also cast contact personnel in a make-or-break role in the launching of new services.     

A service science perspective on business model innovation

Using four basic principles of service science, we systematically explore value-proposition design as one type of business model innovation. Service science combines organization and human understanding with business and technological understanding to categorize and explain service systems, including how they interact and evolve to cocreate value. Our goal is to apply a scientific approach to advance design and innovation in service systems. Our foundation is service-dominant logic, which provides perspective, vocabulary, and assumptions on which to build a theory. Our basic theoretical construct is the service system, entities that are dynamic configurations of four kinds of resources. Our core principles center on the way value is computed within and among entities, how interaction is based on access to resources and their capabilities, and on how value computation and interaction depend on symbol processing and language guided by mutually agreed-to value propositions. In this context, service science can inform and accelerate value-proposition design by systematizing the search for adaptive advantages that improve existing offerings, create new offerings, or reconfigure the value-creating ecosystem.     

Global Outsourcing Relationships and Innovation: A Conceptual Framework and Research Propositions

Increasing globalization and the rapid growth of information technologies, including the Internet, have resulted in drastic changes in international activities of companies. Once limited to manufactured goods, currently, global outsourcing encompasses a wide variety of knowledge‐based services, such as accounting, financial services, taxation, customer service, information technology, engineering drawings, human resources, research and development (R&D), data processing, and sales. The domain of outsourcing knowledge‐based services is the focus of this paper. Moving beyond the inevitability of global outsourcing, this research takes the perspective of the outsourcer and focuses on managing its transition to providers in the context of innovation. In addition to delivering projected cost benefits to outsourcers, effective transition management can facilitate the generation of innovations. This research attempts to extend the current academic research on global outsourcing in three ways: (1) It offers a framework for understanding the transition process in outsourcing and its relationship to innovation; (2) it takes a broader perspective of outsourcing, including globalization, knowledge‐based services, and core activities of the firm; and (3) using a parsimonious set of theoretical concepts based on control theory, it develops several research propositions to clarify the linkages between variables. Based on our theorizing, outsourcing top management should ask two questions when planning outsourcing of knowledge‐based services to generate innovations in a globalized world. These two questions are: (1) How close is the task to our core competence? And (2) how much tacit knowledge is involved in doing the outsourced task? Next, managers must identify global providers and then spend considerable thought in operational execution of the transition of the task for that is the only time that both complete teams will work together. For tasks that are close to core competence, rigid‐explicit behavioral controls should be put in place; however, for tasks that have high tacit knowledge content, high norms‐based relational control would be more effective. These different types of controls would lead to different innovation outcomes. Rigid‐explicit behavioral controls would produce incremental innovation while relational norms‐based controls would encourage radical innovation.     

NSD Processes and Practices in Experiential Services*

This paper examines new service development (NSD) in a distinctive set of services: experiential services. Organizations delivering experiential services place the customer experience at the core of the service offering. They focus on the experience of customers when interacting with the organization rather than just the functional benefits following from the products and services delivered. Increasingly, organizations are recognizing that managing customer experiences is a powerful way of differentiating from competitors, establishing emotional connections, and increasing customer loyalty. Studying experiential services sheds light on this highly intangible type of services and, by representing an extreme end of the service spectrum, can advance the knowledge on the wider area of new product and service development. This paper addresses three research questions: (1) What are the processes and practices used in the development and design of experiential services? (2) How are these processes and practices similar to or distinct from established NSD practices? (3) How do these findings reflect on the wider area of NSD? The study concentrates on five dimensions of NSD: (1) the process; (2) market research; (3) tools and techniques; (4) metrics and performance measurement; and (5) organization. For each of these areas propositions are formulated and refined with empirical data. Using the case research methodology, empirical data were collected in 17 case companies: experiential service providers, design agencies, and consultancies known for focusing on the customer experience. The main method of data collection was interviews with those involved in experiential service design, such as founders, executives, or experienced designers. The case data revealed a number of practices specific to experiential services. These include a strong emphasis on gathering customer insights, in several cases obtained through empathic research and ethnographic research techniques. Other specific practices for experiential services include mapping customer journeys or touchpoints and storytelling. The case study companies also revealed a trade‐off between relatively formal, tight methodologies and more flexible, loose methodologies in NSD. More research is required to investigate the contingency factors surrounding tight or loose methodologies. The results also revealed the use of more broadly used NSD practices, such as a systematic NSD process, multiple performance measures, cross‐functional teams, and front‐line involvement. The observations from this study are captured in a set of seven propositions concerning NSD in experiential services. Reflecting on NSD in general, this study highlights the important role of service process innovation compared with service product innovation and the importance of continuous innovation requiring NSD processes and practices that are more flexible, iterative, and nonlinear. The study also supports the argument that different types of services may require different NSD processes and practices.     

PERSPECTIVE: Creating a platform-based approach for developing new services

This article explores the design and renewal of services. We do this through the lens of methods and processes for developing product platforms for physical products. We first articulate principles for effectively developing next generation product lines using platform concepts, and illustrate these principles with examples drawn from computer and electronic products. These principles include creating new insights into a firm's market segmentation, understanding both the perceived and latent needs of users, and doing so for new as well as existing groups of customers. These platform principles also include the design and implementation of subsystems and interfaces that can be used across different products and across different product lines. Such subsystems and interfaces become the operational platforms for new product development purposes. An approach to platform-centric organization design is also presented.
We then make the extension to services by applying these principles to understand the innovations of a large international reinsurer. This company has resegmented its market to identify unfulfilled needs and growth opportunities. It also defined new service platforms, comprising operational activity areas that closely follow the value chain of how it wished to provide new reinsurance solutions to its customers. This reinsurer also had to organize differently to facilitate the development and deployment of the capabilities required for its new services. The analogies between these service innovations and those platform innovations of manufacturers are both clear and striking.
We conclude by considering the difficulties faced by firms seeking to transition from a single product, nonplatform focused approach to new product development to the platform-centric ones described here.     

Application and performance impact of stage–gate systems – the role services in the firm’s business focus

Although service innovation is important, knowledge of new product and service development, including the positive effect of stage‐and‐gate‐type systems, has been derived almost exclusively from studies in the manufacturing sector. In the present paper, we address two important questions: How do differences in the firm’s business focus, which describes whether a firm puts more emphasis on products or services in its business activities, influence the usage of such formal innovation processes? Is stage‐and‐gate‐type systems’ impact on innovation program performance contingent on the firm’s business focus? Unlike previous studies, we not only differentiate service and manufacturing by industry classification codes but also apply a continuous measure to take into account the blurring of boundaries between the manufacturing and service businesses. Based on a comprehensive discussion of service‐specific characteristics and their implications for innovation management and using a cross‐industry, multi‐informant sample of innovation programs from 272 firms with 1,985 informants, we find empirical support for firms with a stronger focus on the service business being less likely to use stage‐and‐gate‐type systems. Furthermore, the use of stage‐and‐gate‐type systems fosters innovation program performance, and this effect becomes stronger as the business focus shifts toward services. This result implies that service‐based firms can benefit from stage‐and‐gate‐type systems to a greater extent than product‐based firms. Our research also demonstrates the gap between the desired level of innovation process formalization and its current usage in practice, especially for firms with a dominating service business.     

Dynamic capabilities for service innovation: conceptualization and measurement

Although the development of new services is becoming a major concern for firms throughout the entire economy, there is only little insight in the organizational antecedents of service innovation. It is widely acknowledged that engaging in R&D is relatively uncommon for service providers, but there are also indications that the R&D concept is poorly applicable to service innovation in the first place. Therefore, attention is shifting toward the actual capabilities that allow a firm to source ideas and convert them into marketable service propositions. This paper provides the operationalization of a set of dynamic service innovation capabilities (DSICs) that is general enough to be relevant across different sectoral contexts. While the selected framework is found to consolidate earlier works on the specificities of service innovation, it also captures broad insights on the evolutionary properties of the creation of novel solutions. Thereby, it exemplifies how DSICs can be conceptualized according to the so‐called synthesis approach to service innovation. We operationalize a refined version of such DSICs and develop a measurement scale, using two multi‐industry subsamples from a dataset of 391 Dutch firms. The measured capabilities are found to correlate to different extents with performance measures. Our main contribution, a validated scale for five complementary DSICs, opens the way to comparative analyses regarding firm abilities for creating innovative services.     

Sectoral Heterogeneity in New Service Development: An Exploratory Study of Service Types and Success Factors

The service industry is of fundamental relevance for the economies of industrialized countries, as the service industry produces the highest growth in the gross domestic product. In this regard, new service development (NSD) represents a critical resource for competitive survival and a decisive factor of growth in the service industry. However, service firms across many industries are increasingly faced with the challenge of determining how best to manage their development of new service offerings. Although researchers have shown growing interest in NSD issues, this area is still underutilized. Furthermore, although the heterogeneity of the service industry has been emphasized for years, the current body of research on NSD mainly focuses on specific service environments, providing data that are often not comparable across different service sectors. Additionally, there is no study to date that comprehensively examines innovation activities and the relevance of service innovations’ success factors within different service industries. The aim of this exploratory study is to establish a more balanced picture of the nature of innovation activities in terms of NSD characteristics and success factors in the heterogeneous service industry. From this perspective, this paper begins with an examination of the factors that contribute to the success of NSD. Based on a meta‐analysis of new service success factor studies, 17 different success determinants are classified and aggregated to service‐related success determinants. Subsequently, a cluster analysis of 1016 service companies is used to identify different service innovation types. For the service sector, four service innovation types are determined: efficient developers, innovative developers, interactive adopters, and standardized adopters. Furthermore, based on interviews with service innovation managers, the previously identified success factors are examined for each innovation type using a standardized survey. Finally, based on the results of this exploratory study, the paper concludes with recommendations for NSD management and research propositions for each service innovation type. These propositions support innovation managers to successfully manage service innovations for the innovation type they are operating in.     

Innovation through Experience Staging: Motives and Outcomes

There is a growing recognition of the opportunities of innovation through experience staging. The literature, however, tends to focus on high‐profile examples of firms from largely hedonic sectors, such as entertainment and hospitality. These cases provide vivid and persuasive examples, but they fail to address how firms outside these sectors can join the experience economy—a term coined in 1998 by Pine and Gilmore—by developing new products and services with experiences at their core. The paper reports on two studies undertaken to examine why firms that do not belong to sectors that are largely hedonic innovate through experience staging and how they benefit from doing so. The first study is an in‐depth case study of 15 diverse firms, which examines these firms' motives for pursuing innovation through experience staging. The second study is a two‐year longitudinal quantitative survey of 131 small‐ and medium‐sized firms (SMEs) to address the question of the benefits that firms that do not have strong brands can gain by from innovation through staging experiences. The first study provides the basis for classifying firms along two dimensions depending on the nature of the new products or services (referred to collectively as offerings) they create. The first dimension has to do with whether new offerings have a functional or experiential core. The second dimension has to do with the degree of experiential augmentation applied to offerings. The first study suggests that firms adopt an experience‐staging strategy to innovation based on both outward‐facing and inward‐facing motives. The outward‐facing motives include improving a firm's image in its market, entering new markets, and attracting new customers. The inward‐facing motives include improving a firm's attractiveness to employees and increasing profitability. The results of the second study suggest that creating offerings with an experiential core can contribute to success by enhancing a firm's image, its attractiveness to employees, and its ability to enter new markets. Moreover, experiential augmentation contributes to profitability, new customer attraction, and employee attractiveness. This research has important implications for theory and practice. In the first place, this research extends existing theory about experience staging to firms outside sectors that are largely hedonic. In the second place, the managerial implications are that innovation through experience staging can be an effective way for SMEs, even those outside industries, such as entertainment or hospitality, to create competitive advantage.     

Organizing for solutions: How project-based firms integrate project and service businesses

Project-based firms (PBFs) increasingly provide comprehensive solutions that consist of products, product systems and services. In solution businesses, long-term collaborative relationships between solution providers and customers are essential. However, little is still known about how relationship marketing activities should be integrated across organizational units, particularly at the practical level of delivering individual projects and services belonging to complete solutions. In this study, based on a case study of a project-based firm and four of its system delivery projects, we identify eight micro-level integration mechanisms for integrating the activities of the project and service business units at the level of delivering a single solution. The joint participation of both project and service business units in project and service activities over the life cycle of a single delivered system enhances the management of customer relationships between the units, and ensures the continuity of the customer relationship over the system life cycle. The identified integration mechanisms also help PBFs to integrate services into their core business and overcome the problems arising from the discontinuous nature of project business.     

An empirically-based typology of product innovativeness for new financial services: Success and failure scenarios

During the last decade, an increasing number of studies have been concerned with the factors that lead to new service success. Quite a few studies, however, have examined the role of product innovativeness in new service development and performance. The present article aims to test empirically a widespread, yet under‐researched argument, according to which, different innovative types may be associated with different development patterns and performance outcomes. On the basis of a detailed literature review we designed the conceptual framework for the present study. More specifically, we propose that the performance outcome of a new service is the result of the development process followed, which, in turn, is influenced by the innovativeness of the new service. The development process is examined through three blocks of variables, namely new service development activities (i.e., the “what” component), process formality (i.e., the “how” component) and cross‐functional involvement (i.e., the “who” component). Performance is viewed in relation to both financial and non‐financial outcomes. The different dimensions of innovativeness form the basis of our classification scheme. To collect the data, we followed the “dropping off method. That is, we handed in self‐administered questionnaires to participants and, a picking‐up appointment was set. Respondents were NSD project leaders who were asked to select two financial services, one successful and one unsuccessful, that they had developed within the last three years and reply to all questions relating to the development and launching of these services. Overall, 84 financial companies participated in the study, providing data for 132 new financial services (80 successes and 52 failures) developed and marketed in Greece. Data analysis revealed that six distinct service innovativeness types exist. They can be represented in the form of a continuum depending on the degree of innovativeness that characterizes each type. At the most innovative extreme of the continuum we find the new‐to‐the‐market services followed by new‐to‐the‐company services, new delivery processes, service modifications, service line extensions, while at the least innovative end service repositionings are placed. These six types are found to be associated with different development patterns in terms of activities, formality and cross‐functional involvement as well as performance outcomes. Interestingly enough, our data suggest an almost inverted U‐shaped relationship between the degree of innovativeness of a new financial service and financial performance. On the other hand, the major service innovations make the strongest contribution on non‐financial performance, while “me‐too” offerings are the least successful ones. The study has a number of research contributions as well as implications for managers involved in new service development in the financial services industry. The conceptualization of the continuum of innovativeness helps disclosing the critical points of the NSD process and its structuring which, depending of the type of new service and the degree of innovativeness that characterizes it, ensures that the management's objectives regarding the performance of the new service are attained.     

Removing the fuzziness from the fuzzy front-end of service innovations through customer interactions

Customer interaction in new service development has a positive impact on the performance of new services. In addition, prior studies recognize the importance of the fuzzy front-end stages of new service development. Yet, the researchers have not taken the next step to explore the relationship between these two key areas of service innovation. To address this critique of the literature, the process of customer interaction in the fuzzy front-end of new service development is investigated by conducting a rigorous qualitative field research involving 26 financial services firms. The findings suggest that the fuzzy front-end can be much less ‘fuzzy’ if customers are involved in the front-end stages of new service development.     

Developing logistics value propositions: Drawing Insights from a distributed manufacturing solution

With a focus on supply chains as ecosystems of service exchange, our paper aims to explore how value propositions are developed and evolve via combinations of service innovation. A single longitudinal case study is presented. The units of analysis are different projects along a logistics service provider (LSP)’s innovation journey. The study explores how the case company identified innovation in logistics as a gap and developed a distributed manufacturing strategy with a unique business model involving a reallocation of production functions across a global supply network. Our contribution is two-fold. In terms of theory, we adopt a service-dominant logic perspective to investigate how companies' value propositions evolve over time. In terms of managerial contributions, our paper provides insights into how service providers can strategically integrate their resources with service ecosystem partners to provide competitive business propositions.     

Co‐creation in Radical Service Innovation: A Systematic Analysis of Microlevel Processes

This empirical paper presents the results of a detailed case‐study investigation of co‐creation in radical service innovation. The rationale for the paper is that detailed interventions must be tracked to offer a realistic account of how co‐creation occurs. This provides a strong empirical contribution to the emerging body of scholars developing the co‐creation paradigm, predominantly characterized by conceptual advances in service‐dominant logic. Our focus is on radical service innovation, which is disruptive in the sector. The overall aim of the paper is to unravel the nature of microlevel processes of co‐creation in radical service innovation. The study adopts sequential analysis to examine co‐creation. Patterns of sequences of actions and interactions associated with 40 incremental developments, involving multiple actors, are investigated. These co‐created innovative developments underpin the emergence of a radical telematics‐based motor insurance service. The findings suggest that the co‐creation path is not simple or uni‐faceted, and the paper unravels the nature of complex patterns of activities and interactions, Our in‐depth systematic analysis illuminates a combination approach with two main patterns of sequences: one dominated by ad‐hoc and enduring independent innovation activities by network actors and one dominated by lead‐firm innovation and interaction activity. The findings advance knowledge of the way co‐creation occurs in radical service innovation. The study results suggest that managerial attention be placed to, first, finding ways to induce independent innovative behavior from network partners and, second, to the development of interaction mechanisms to foster sharing and visualization of such innovation advances.     

Analysing an activity in context: A case study of the conditions for vehicle maintenance

The IMP approach is concerned with analysis of complex industrial networks. How to design case studies relying on these theoretical assumptions poses a challenge. In this paper we address this challenge by discussing a case study, focusing on the conditions for maintenance of heavy vehicles. The aim of the paper is to suggest an approach for analysis of embedded activities in industrial networks. The case study takes its starting point in the perspective of an actor considering how to develop vehicle maintenance services for its customers and points at the need to enable understanding of the conditions for vehicle maintenance, which necessitates identification and analysis of the variety across transport service settings.     

Strategy transformation through strategic innovation capability – a case study of Fanuc

This paper presents a theoretical framework under which large companies should be able to bring about strategy transformation. First, we present the concept of ‘strategic innovation capability’, a corporate system capability to achieve corporate strategy transformation by strategic innovation. Then, we consider strategic innovation capability by comparing it with previous theories (dynamic capability, major innovation, dynamic capability, breakthrough innovation capability). Second, we present the case example of strategy transformation at Fanuc, a company that holds the top global share in the numerical control (NC) market. In this case study research, we consider and analyze historically how the company aimed for new creativity in the NC market, developed innovative NC technology for the machine tool market, and used that technology energetically for commercialized products. From the strategic innovation capability framework, the core theory of this paper, we also analyze and consider how top management made conscious efforts to form a new development organization within the company, and the processes involved in achieving strategy transformation to establish competitive superiority in this field. Finally, we discuss the implications drawn from this case analysis, and the issues for future research.     

Open Service Innovation: The Role of Intermediary Capabilities

This study examines how intermediaries, in general, and those with digital service platforms specifically, engage with clients to help them innovate their services within their service ecosystem. Based on an embedded, longitudinal case study, the results reveal the cumulative development and deployment of technological, marketing, and co‐creation capabilities by intermediaries, and how these capabilities allow intermediaries to engage with clients, so as to enable clients’ open service innovation despite their internal challenges. In turn, this article extends theory on service innovation by clarifying the role and function of intermediaries in service ecosystems in enabling clients to leverage open service innovation. Second, this study contributes to resource‐based scholarship by clarifying how these three sets of capabilities and their micro‐foundations relate to each other. Despite the obvious importance of technological capabilities, online intermediaries are more than just “virtual” service platform providers. The intermediary’s technological and marketing capabilities assist clients in dealing with project‐related and organizational challenges to open service innovation. Acting as a higher‐order capability, co‐creation capabilities—through shaping marketing and technological capabilities over time and also through conditioning their deployment—improve the proficiency of these capabilities. The findings advance insights on the agential role of the intermediary’s co‐creation capabilities, purposefully developed and deployed to foster client engagement, and thus support service organizations in leveraging open service innovation.