Figure 1 ‐ Structure of the study
Chapter three leads to management of knowledge intensive work by reviewing knowledge management approach to strategic management. The chapter fur‐
ther sheds light on typologies of knowledge and organizational knowledge activi‐
ties and finishes in a state‐of‐the‐art presentation of knowledge integration prac‐
tices. Thereafter, in chapter four, the latest research contributions on service innovations and knowledge management are gathered together and a summary of the theoretical discussions is provided. As a result, the fourth chapter suggests a framework that is used in the empirical part of the study.
Chapter five outlines the research design and tactics and chapter six presents the data and findings with‐in cases. The analysis follows in chapter seven, where the cross‐case analysis and the results are presented. Finally, in chapter eight, the main question is answered and conclusions are presented.
REVIEWOFLITERATURE
2.SERVICEINNOVATIONS ANDSERVICE
DEVELOPMENT
3.KNOWLEDGE MANAGEMENTAND KNOWLEDGEINTEGRATION
4.RESEARCHGAPAND THEORETICALFRAMEWORK 1.INTRODUCTION
5.RESEARCHDESIGN 6.FINDINGSWITH‐INCASES 7.CROSS‐CASEANALYSIS 8.CONCLUSIONS
2. SERVICE INNOVATIONS AND SERVICE DEVELOPMENT
Service components are often intangible combinations of processes, people skills and materials. Innovations on services are therefore outcome of complex pat‐
terns of careful integration and combination of different actors knowledge to result a planned or designed service. (Goldstein et al., 2002)
The research on innovations on services has gained attention in the recent years and grown in several theoretical paths. It has also been noted as a multidimen‐
sional phenomenon (den Hertog et al., 2010). Distinctive paths and discussions on the field cover a variety of typologies and classifications. This chapter aims to shed light on the research of service innovations and service development. First, with an introduction to nature of services and explanation of the service innova‐
tion background theories to form an understanding of the different fashions and classifications to define service innovations. Second, the process of the service innovations development is assessed according to a few models that are sug‐
gested by latest research.
2.1 Nature of services
Different authors have suggested distinct definitions and emphasized different modes and contents of services. Services are, however, usually characterized by intangibility, heterogeneity, inseparability, and perishability – so‐called IHIP ‐ characteristics (Lovelock & Gummerson, 2004). Miles et al. (2005) describe in‐
tangibility of services as exchange of information combined with a set of physical operations that affect the state of person or a good. Heterogeneity means that each service provisioning process is different from the previous one and Perisha‐
bility that the service does not exist beforehand and it is provided in a unique process.
Gallouj (2002) stresses the uniqueness and inseparability of a service transaction by stating;
“Each service transaction is unique since it is produced interactively with clients, in response to particular (non‐standardisable) problems they have and in an environment that is always different.” (p.142)
Edvardsson & Olsson (1996) present that a service consists of three components:
service concept, service system and service process. The service concept is the detailed description of service contents and structure (Edvardsson & Olsson, 1996). The more extensive study on service concepts of Goldstein et al. (2002) admits that service concept includes the service strategy of what to deliver and how the service delivery system is designed. Furthermore, they present that ser‐
vice concept is the core element of service design, since it ensures integration between strategy and customer needs, as well as it works as a mediator between customer needs and strategic intents of the organization.
Service system embodies the structure of the system that generates the service, namely the organization and the environment (Edvardsson & Olsson, 1996). Ser‐
vice system contains the roles of the people (providing the service), technology, physical facilities, equipment, and the processes by which the service is created and delivered (Heskett, 1987; Chase & Bowen, 1991; Ref. Goldstein et al., 2002).
The service process is a description of the process and activities of how the ser‐
vice is produced and the roles of the provider and client (Edvardsson & Olsson, 1996).
Gadrey et al. (1995) suggest that:
“To produce a service is to organize a solution to a problem (a treatment, an operation), which does not principally involve supplying a good. It is to place a bundle of capabilities and competences (human, technological, organizational) at the disposal of a client and to organize a solution, which may be given to varying degrees of precision.” (p. 5‐6)
2.2 Assumptions in the background of service innovation theories
In service innovation studies the prime background focus seems to reside in dis‐
cussing how innovations on services differ from innovations in manufacturing (i.e. Coombs & Miles, 2000; Drejer, 2004) and in distinguishing the role of “tech‐
nology ‐ or not” as a part of a service innovation (Toivonen & Tuominen, 2009).
Coombs and Miles (2000) and later also Drejer (2004) have categorized these approaches into three groups. First, Assimilation/technological approach, which emphasize the role of technology in services and treats service innovations simi‐
lar to manufacturing innovations. Second, Demarcation/services oriented ap‐
proach, which argue that service innovation is distinctively different from innova‐
tion in manufacturing, and the focus on pure services excluding technology, and last, synthesis approach, which accepts and integrates both technology and ser‐
vice oriented approaches (see Figure 2).
Figure 2 ‐ Approaches to service innovation
Early theories on service innovations follow the assimilation approach and em‐
phasize the role of technological achievement as a main driver in the innovation process. Number of studies on this track have emerged from Barras’ (1986) thought of a “reverse innovation cycle”, in which the main idea was that a prod‐
uct innovation is antecedent to process innovation. Moreover one idea of Barras’
Technology orienta on (technology driver)
Service orienta on (non‐tech driver) Combina on
Assimila on approach Synthesis Demarca on approach
was that service firms adopt new technologies to increase efficiency and the out‐
come is a service innovation. Assimilation approach has nonetheless been ar‐
gued to be too narrow for the understanding of the dynamics on services and manufacturing (Drejer, 2004). Gallouj & Weinstein (1997) have also argued Bar‐
ras’ theory to cover only the diffusion of technology to service sector.
The background demarcation/services oriented studies, in turn, rely on Schum‐
peters’ (1934) broader definition of innovations and do not include a technologi‐
cal element as a necessary part of service innovation (i.e. Gallouj & Weinstein, 1997; Toivonen & Tuominen, 2009; van der Have et al., 2008).
The majority of service innovation studies seem to follow the synthesis ap‐
proach, which is also based in Schumperters’ ideas but does not exclude the role technology or stress service orientation in the sense that both technological and non‐technological forms of innovations are taken into account (Gallouj & Wein‐
stein, 1997). Latest service innovation theories remark the idea of service inno‐
vation as a reiterative process that requires cross‐functional activities (Toivonen
& Tuominen, 2009). To conclude Gallouj & Savona (2010) state that: Innovation in services or in service functions represents multidimensional characteristics, which involve both technological and non‐technological dimensions.
In this study the definition of service innovation follows Toivonen & Tuominen’s (2009, 14) definition that originates from Sundbo (1997, p. 437‐440):
“Service innovation is a new service or such renewal of an existing service which is put into practice and which provides benefit to the organization that has developed it; the benefit usually derives from the added value that the renewal provides to the customers.
In addition, to be an innovation the renewal must be new not only to its developer, but in a broader context, and it must involve some element that can be repeated in new situations, i.e. it must show some generalisa‐
ble feature(s). A service innovation process is the process through which the renewals described are achieved.”
The following sections will clarify the type and nature of renewal, and the impact of the novelty to provide framework for evaluation of service innova‐
tion.
2.3 Service innovation types and nature of renewal
Drawing back to the origin and Schumpeters theories, according to Toivonen &
Tuominen’s (2009) summary, Schumpeter, the pioneer in innovation research, identified five different forms of innovations:
1) Introduction of a new good or new quality of good
2) Introduction of a new method of production, including a new way of handling a commodity commercially
3) Opening of a new market
4) Discovering a new source of raw material 5) Establishment of a new organization
Schumpeter also emphasized the role of entrepreneurs in innovation activities.
One of the earliest well‐known typologies of service innovations is formed by Gadrey et al. (1995), who discuss and compare the differences of product inno‐
vations and service innovation characteristics and what modifications service sector requires to the classic typologies of innovations. They suggest that the classic innovation typologies concerning products could be modified to five cate‐
gories of innovations in service sector. They first present a division to modifica‐
tions in service product, architectural innovations, which bundle or unbundle existing service products and innovations concerning processes and organization of the production of service. Furthermore they provide a modification of Schum‐
peter’s categories towards five categories of service innovation. Product innova‐
tion, a new formula of methods and competences to manage and produce a ser‐
vice. Process innovation, new or streamlined process to exploit service. Organi‐
zational innovation, which affects the quality of service process. Market innova‐
tion, as opening up a new market, and finally ad hoc innovation, which refers to an innovation produced suddenly when producing a consultancy service.
A few years later Gallouj & Weinstein (1997) introduce a characteristics‐based service innovation model and innovation typology. Their idea follows the synthe‐
sis approach and the model is broadly acknowledged. The characteristic‐based model is further discussed in several publications i.e. Gallouj & Toivonen (2011).
However, Gallouj & Weinstein (1997) suggest that services basically consist of different characteristics that can be divided into three different types. The types of characteristics are competence, technical (including tangible and intangible) the final service characteristics. The tangible technical characteristics refer to technologies and techniques used in the service and the intangible characteris‐
tics the expertise and methods. The competence characteristics refer to the competences of combining the tangible and intangible characteristics. In the model each technical characteristic mobilizes one competence. Gallouj & Wein‐
stein (1997) conclude that innovation occurs when any change to the character‐
istics of the final service is made.
The typology Gallouj & Weinstein (1997) suggests different innovation types that are: Radical innovation, a totally new way to connect the different characteris‐
tics. Improvement innovation is a result of improving certain characteristics without changing the system. In Incremental innovation the service system is changed marginally by adding new elements. Formalization innovations takes place by clarifying the different characteristics, enhance the visibility and finally the concreteness of a service. Recombinative or architectural innovation occurs when existing services are bundled or unbundled in a new way. And finally they suggest Ad Hoc innovation, which refers to a tailor‐made solution to one cus‐
tomer, parts of which can be formalized later. (Gallouj & Weinstein, 1997; Gal‐
louj & Toivonen, 2011)
In contrast to the characteristics‐based innovation typology, den Hertog (2000) developed a four‐dimensional model to analyze service innovation. Her model
suggests that innovation in a service is result of one or more changes in four di‐
mensions, which are; New service concept, new client interface, new service delivery system and technological options. den Hertog (2000) does not present specific types of innovations but instead argues that innovations are combina‐
tions of these dimensions. den Hertog et al. (2010) define service innovation as follows:
“A service innovation is a new service experience or service solution, that consists of one or several of the following dimensions: new service con‐
cept, new customer interaction, new value system/business partners, new revenue model, new organizational or technological service delivery (p.
494)”
Table 1 ‐ Types of service innovations beneath illustrates the total of different definitions of service innovations types presented. The most cited authors seem to agree on several issues. First, they all make a distinction between services and tangible products.
Table 1 ‐ Types of service innovations
Author Focus Definition Service innovation types
Gadrey et al. (1995) New modes of innovation
den Hertog (2000) Dimension based model
Second, they all accept technology as a possible but not obligatory part of the service. Third, innovation on services requires some change in the service or de‐
signing of a totally new service. The types of innovations classified by the authors have emphasis on different levels of service innovations and the categorizations have overlapping definitions. To conclude, the service innovation type can be examined assessing the type of change in the service characteristics (Gadrey, 1995; Gallouj & Weinstein, 1997) and through evaluation of the dimension that the change impacts (den Hertog, 2000). In this study the typology for defining service innovation is following Gallouj & Weinsten’s (1997) contribution for the unquestionable reason that it is the most well grounded and most commonly used in service innovation research. Furthermore, the dimensional model of den Hertog (2000) is accepted and used for the following reasons: Firstly it is un‐
doubtedly inevitable that a change or renewal does not only touch one specific part of service and the outcome classified due the characteristic is quite narrow as the renewal type might impact a total dimension of a service or even few.
Secondly, the dimensional model has gained considerable attention and confir‐
mation as new different fashion to examine service innovation.
2.4 Novelty of innovation
It is claimed that the main part of service innovations are more incremental than radical, which follows the fact that services more often developed by small changes and adjustments (Ojanen et al., 2007). Consequently there are discus‐
sions on whether these changes should be referred to as inventions rather than real innovations.
The previously presented Gallouj & Weinstein (1997) characteristic‐based service innovation model considers the difference/dissimilarity interpretation of radical‐
ness of a service innovation. This view compares the new service produced in the innovation process with the starting point of the process. Another approach to interpret the degree of radicalness is to ask for whom is the renewal is new?
Hence the extent of situational context (new to firm, new to market or new to
region?) may define the radicalness of the innovation (Have et al., 2008; Johan‐
nessen et al., 2001). Nonetheless this is also strongly linked with the invention‐
innovation discussion, which argues that in a company incremental innovations should be considered mainly implementations or inventions if not brought to the markets (Toivonen & Tuominen, 2009). However, many studies that consider the radicalness of innovations seem to focus only on whether the application of the innovation is new to markets and ignore the “new to firm” perspective (van der Have et al., 2008; Toivonen & Tuominen, 2009) This leads further to considera‐
tion if the change of characteristics as Gallouj & Weinstein (1997) defined or evolving dimensions according to den Hertog (2000) in a new service is a suffi‐
cient level of evaluation to define an emergence of service innovation.
Toivonen & Tuominen (2009) point out, that in recent studies the authors do not specifically determine whether they study the innovation process or the innova‐
tion as outcome of that process. They further state that studies from both per‐
spectives are utmost important. However, when innovation is explored as inno‐
vation process the development starting from firm internal service development may further lead to concept that is further applied to markets (Nählinder, 2002).
Therefore it is not obvious, which future level of radicalness a service innovation will at last achieve, and whether a service development process from an inven‐
tion to market implementation will succeed.
However, in this study a broad perspective to service innovations is taken, where service development to an innovation is reviewed as an ongoing development process the output of which is one or more service innovations. The current state of innovative achievement is assessed and evaluated according to the character‐
istics and dimensions‐based approaches thus comprehending that factual radi‐
calness may be inspected only after the output is achieved.
Next the service development activities and patterns in development are de‐
scribed according to current state of understanding of where and how the ser‐
vice innovations are formed.
2.5 New service development activities
The research on how new services are developed (NSD) is fragmented and there is limited number of relevant studies and discussions of models in service devel‐
opment (Stevens & Dimitriadis, 2005). There are a few studies that aim to clarify the activities for developing new services. Stevens & Dimitriadis (2005) divide the models to sequential models and developmental models. Their sequential model approach underlines procedural stage‐by‐stage development activities, whereas developmental models highlight the organizational factors that would, as per, their suggestion determine the development activities.
Johnson et al. (2000) suggest an idea of non‐linear and iterative service devel‐
opment model. According to Steven & Dimitriadis (2005) the Johnson et al.
(2000) model would, however, belong to sequential models. Despite non‐
linearity the model has named steps that are repeated incrementally. Neverthe‐
less, the first two activities of the model design and analysis present the planning phase of the NSD process cycle and the final two activities, development and launch, represent the execution phase (Figure 3).
Figure 3 ‐ Service development cycle
In the execution phase, the authors claim that service delivery system design, use of enablers, and cross‐functional development efforts are critical managerial issues but later in the same discussion it is mentioned that all stages or phases of the NSD process are not critical. However, the criticality is explained to depend on the specific type of innovation. Radical or technology based service innova‐
tions would in their sense require greater competence during the planning and incremental innovations in the execution phase (Johnson et al., 2000). This leads eminently to a question of in what basis the model suggests that incremental innovations would postulate greater managerial challenges.
According Stevens & Dimitriadis (2005) the developmental models cover the or‐
ganization structure, for instance an autonomous team that is supportive for service development. They further present that organizational features, com‐
munication flows and informal structures contribute to innovativeness of a firm.
Their empirical research finally provide a model where occurrence of a cognitive conflict leads to interpretation of the risen problems and proceeds to building and re‐defining the initial ideas for the service until the final solution output is achieved, where the expertise of the total extend of the people included in the process is integrated, and the final result is shared by the organization. Their final conclusion is that development process results in organizational learning. They also refer to Garel (1999 Ref: Stevens & Dimitriadis, 2005) in notion that fast de‐
velopment, which is characterized by strong uncertainty the structures should support strong integration between different functions and enable fast decision making
Toivonen & Tuominen (2009) studied empirically fifteen service firms and found five different innovation processes. They suggest that the process type may change during the lifecycle of an innovation from one to another. Their sugges‐
tion for innovation processes is:
1) Internal processes without a specific project. These processes include the innovations that emerge unexpectedly often as a consequence of trans‐
formative management.
2) Internal innovation projects. These include planned innovation projects.
3) Innovation projects with a pilot customer. In these projects the idea usu‐
ally originates within the innovating company and a pilot customer is sought afterwards. The customers act as critical evaluators
ally originates within the innovating company and a pilot customer is sought afterwards. The customers act as critical evaluators