Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
A Critical Review of the factors for assessing Service
Innovations success in services organizations
Muhammad Aamir Khan, Eric Tsui and W.B. Lee
Services are increasingly been seen as the key factor of growth in current economies.
As the significance of developing competitive services has grown considerably owing
to economic and social needs, the approaches to deliver service innovations have
become a significant issue for growth of organization. Regardless of various
researches for the understanding of factors which affect the success of service
innovation, research on how strategic, market-related, development process and
organizational factors contribute to success of service innovation still remain unexplored. The goal of this research paper is to consolidate the strewn research
findings in this area by comprehensively review the literature which were available on
factors which affects service innovation. An integrated framework incorporating
success factors for service innovation is developed; this framework not only helpful
for researchers but also for practitioners who want to develop innovative services for
their customers. Simultaneously, research gaps and potential directions for future
research have also identified.
Field of Research: Management
Keywords Service, Service Innovation, success factors
1. Introduction
It is clearly noted that services are considerably act as the key factors of growth in
current economies. As the significance of developing competitive services has grown
considerably and response to socially and economically, the approaches to attain
service innovations have converted a significant matter for growth of organization
(Howells, 2010). Current economies of developed countries are rightfully showing
service economies as activities of services deeply penetrate every core of value
addition, value creation and employment services (Salter and Tether, 2006;
Chesbrough and Spohrer, 2006; Vargo and Lusch, 2008). In fact, in developed
countries, service economy is having a share of greater than 80% of GDP and their
employment (Salter and Tether, 2006; Chesbrough and Spohrer, 2006). Services
have been a part of the system of our economy for a long time but today their
ubiquitous integration of delivery mechanism and variety of communication has redefined the power of service ecosystem. Most of the companies in the developed
countries have gradually converted themselves to service providers from
manufacturing enterprises or a mixture of both. It is now common observation that
process of innovation today builds on the understanding that organizations does not
innovate themselves and the process of innovation very much seen as an
interactions among industries, end-users and suppliers (Laursen & Salter, 2006;
Piller, Ihl, & Vossen, 2010; Sofka & Grimpe, 2009).
_____________________________________________
KHAN, Muhammad Aamir; The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong;
muhammad-aamir.khan@connect.polyu.edu.hk
Tsui, Eric; The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong;
eric.tsui@polyu.edu.hk
Lee, W.B.; The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong;
wb.lee@polyu.edu.hk
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Berry et al (2006) mentioned that service innovation must take a generalize
perspective. They suggested various factor for service innovation which are:
investment in employee performance, superior customer benefit, scalable business
model, brand differentiation, comprehensive customer experience management,
continuous operational innovation, affordability and continuous strategic innovation,
an innovation champion.
2. Literature Review
According to Lusch and Vargo (2004), services are the competencies or capabilities
which any individual, enterprise, organization, or system gives for another. From the
customer perspective, a service is an intangible and time-perishable experience
executed for a customer as per their requirements acting as a role of a co-producer
during service delivery (Fitzsimmons & Fitzsimmons, 2006). As per above definitions
of service, it is clearly explained that services are the major tool to get value for an
organization either it can get from customers or from enterprises. It is unavoidable
that service sectors are changing quickly and catering to numerous individuals and
somehow similar services can be generated, which directed to innovation in services.
The major research in service innovation is basically focused on description of
service concept (Goldstein & Jonhson, 2002). Olsson and Edvardsson (1996)
described the concept of service as “design of the service, covering the needs of the
customer and prototype for service”. Furthermore, the concept of services explains
comprehensive details of customer requirements and how enterprises will manage to
deliver the service (Victorino et. al., 2005). Up till now, innovation in services has
seemed; particularly innovation has been highlighted on the first place. Innovation is
widely described as the mixture of ideas, creativity and their implementation (West,
2002). Gadrey et al. (1995) mentioned that innovation in services as organizational
innovations and processes innovations for already existing products of service.
Therefore, it can be elaborated as new advancements in processes to give major
service products like to generate such major service products to attract more
customers. Such advancements lead to involve customers‟ participation and can be
linked with either existing or new service products.
However, there are numerous researchers who did researches through empirical
methodologies on innovation in different sector of service. Like, Hipp et al. (2003)
investigated innovative activities of one of the German service organization and
concluded that innovations in services related to process innovation ensured a
significant effect on the services given to the customer. Tether (2003) conducted an
empirical research on 13 Schengen countries which shows that there is definite intra
and inter-sectoral differences exist in behavior of innovation in services. Nightingale
(2003) conducted research in banking services innovation and Salter and Gann
(2003) investigated innovation in engineering, design, and services in project
management.
Traditionally, service innovations seems that it
technologies which are externally that enhance
increase productivity of services (Tether, 2003).
Weinstein (1997), Gallouj (2002) and various
basically focuses on accepting
innovative service offerings or
Other scholars like Gallouj and
others mentioned that service
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
innovation is very much different in nature with respect to innovation in
manufacturing. They also mentioned that services must be produced with the active
participation and interaction with the customers. Since service is vibrant in nature, it
should be delivered with a combination of human knowledge and technological
equipment (Tether, 2003).
According to the several researches related to identification of success factor of
service innovation, Montoya-Weiss et al (1994) classifies the factors of service
innovation in four broad categories which are Strategic factors, Market-related
factors, Development Process factors and Organizational factors. Strategic factors
refer to Product Advantage, Marketing synergy, Technological synergy, Strategy and
Company resources. Market-related factors refer to Market Potential, Market
competitiveness and Environment. Development Process factors refer to Protocol,
Proficiency of Predevelopment activities, Proficiency of Market-related activities,
Proficiency of Technological activities, Top Management support, control and skills,
Speed to Market, Costs and Financial/Business analysis. Organizational factors refer
to Internal communication, External communication and Organizational-related
matters.
3. Success Factors for Service Innovation
3.1 Strategic Factors
Advancements in services are basically introduced to raise the profitability, answer
the actions which competitor takes and align with already existing portfolio of product.
In the financial sector, the most vital sources of innovative ideas are originated from
competitive actions. Innovative ideas for service innovation are also originate with
the sources of marketing and with the help of top management. Specialists of
marketing were making important contributions to create innovative ideas but their
expertise did not completely exploited (Johne, 1993). Conversely Drew (1995) stated
that firms which are less successful use the function of marketing as their key driver.
Strategic component of service delivery are not very much focused by the service
researchers and therefore it cannot be considered as a significant factor of service
innovation.
3.2 Market-related Factors
Atuehene-Gima (1996a) stated that market synergy and launch effectiveness are the
most important indicators of success. Insufficient research towards customer
requirements and inadequate market testing shows the difficulties for innovative
ideas after their launch. It must be ensuring that services must target the specific
market segments with unfulfilled customer requirements (Bortree, 1991).
For financial products, it was realized that services usually does not satisfy
requirements of customer and consequently, a customer perspective is identified as
an important factor (Berry and Hensal, 1973). In the most effective scenarios, there
is a highly involvement of customers during innovative services and products (Martin
and Horne, 1993). Information from customers are widely used during various stages
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
of the innovative process which involves generation of ideas, evaluation of
businesses and preparation of marketing plans (Martin and Horne, 1995).
Benefits of innovative services can be easily get from effective customer
communications (Berry and Hensal, 1973). Low rate of induction or offering free
trials can be reduced the risk perception of the customers. It is highly important to
clearly communicate the relative advantages and decrease the product complexity
and perceived risk. Risk free trial should be proposed for innovative services as
customers are very much reluctant to adopt new services that include new
technologies because it needs changes of behavior (Berry and Hensal, 1973).
Main drivers for changes were identified as senior management not marketing in
already existing products and services as „marketing is very much required to be
dependent on the marketing department‟. Highly innovative and successful banks
are usually drive by vision of market instead of innovative ideas from „rocket
scientists‟ so Johne (1994) stated that highly successful innovators of services
initially must understand the „market voice‟ before taking into account the „company‟s
voice‟.
3.3 Development Process Factors
Even though several scholars has identified various factors for the success of
service innovation but still research on development process factors are underresearched (Frambach et al, 1998).
A definite process of development, particularly with an aim of the new service
development (NSD) is necessary to hinders mistakes which can be happen later
(Grden-Ellson et al, 1986). Service organizations usually identify incomplete NSD
and the related activities are not broadly applied therefore it is very challenging to
categorize key activitied in NSD (Johne, 1993). Generally, new service activity is
inadequate in financial services. Activities that found to be deficient include testing,
service development and generation of formal ideas (Easingwood, 1986). Activities
that found to conduct regularly include commercialization and business analysis
(Bowers, 1989).
Service organizations that are successful basically follows a definite and active
approach to new services development, they spend sufficient amount on developing
new services and links their outputs to performance (Drew, 1995). But later, Drew
(1995) identified that such successful service organizations do not use much time for
development activities.
The service process which is robust delivers better services according to customers‟
requirements, decreases the budget of developing new services which ultimately
leads to increase in developing new services (Easingwood, 1986). An efficient new
service development process generates in-direct benefits to an organization like
increase company‟s reputation, increases existing products adoption, enhance
capability of new product development, increase loyalty, gives new and broader
directions to an organization (Easingwood & Percival, 1990).
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
The amount of sufficient time that organizations spend at several phases was
identified by Reidenbach et al, (1986). Test marketing and testing of services
basically utilized 20% of the time. The phase of service development and stage of
idea generation were considered to be the least significant however evaluation and
service specifications development were considered to be the most significant
(Reidenbach et al, 1986).
Zack and Meyer (1996) developed a framework for the information of services that
were basically made of the advancements of platforms. All services must be
generated as a high-tech platform to make sure that incremental services can be
generated quickly and potentials of market are fully exploited. Additionally, it is also
advised that platform must be considered to be continuous with definite procedures
to verify that the cost of developing innovative services should be remain economical.
Obstacles in the innovation of services are considered by sluggish and intransigent
organizational and procedural systems (De Brentani, 1993). Staff who deals with
customers day-to-day having not enough skills hinders the innovations in services.
However, this obstacle can be overcome by providing significant training to staff
(Drew, 1995). Internal marketing was considered an important aspect to get the
support from the staff on the front-line and give them enough knowledge to vend the
service to their customers (Gden-Ellsoin et al, 1986).
The particular areas where scholars have realized to consider mutual consent on is
to invest in a more formal process of new service development which ultimately
advances innovative services.
3.4 Organizational Factors
The most important effects of service innovation in organizational perspective are
organizational structure, generation of ideas, style of management communication,
leadership, vision and development activities. Major belief on employee
effectiveness, market knowledge, product champions, market functions, technology
and risk management were described as supplementary organizational influences
(Thwaites, 1992).
For innovative services, it is necessary that the strategy of human resource must be
aligned with the good teamwork and product development ((Atuehene-Gima, 1996).
The amount of new service developments can be expedited by joining structures of
reward to performance and confirming that a distinct department is responsible for
development of innovative services (Drew, 1995).
Major difficulties that show the delays in projects are lack of communication between
cross-divisional functions and line, the struggle for power between functions and
intra-organizational conflicts. Scarborough et al, (1989) mentioned that in the
concern of using better strategic innovations, it is compulsory that management
should monitor „blinkered perceptions‟ and „structural inertia embedded in inner
radical forces‟ due to „limited rationality‟.
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
The key problems that hinder that innovation rate are a lack of focus and a lack of
top management support (De Brentani, 1993). Active participation in discussing
innovative ideas by senior management and increase of staff are the potential
reasons of success of products and services (Martin and Horne, 1995). Few top
managers provided active support that can be estimated as envisioning, enabling
and energizing (Johne, 1993). Structure of organization and culture and be altered
by re-arranging potential activities and strong commitment to empowerment and
teamwork (Drew, 1995b).
There are some differences exist between less active innovators and active
innovators. Active innovator has low centralization, high functional specialization and
a compact structure for product and services development which does not have in
less active innovations. Active innovators shifts their ideas of innovation from lose
control on the beginning phase to fitted control in the phase of implementation.
Innovators which are less active are dependent on top management and generalist
to close controls through development cycle (Johne, 1993).
4. Conclusions
This research paper conducted a comprehensive review of literature which
discusses the success factor for service innovation. A primary framework consists of
four dimensions is referred to merge and assimilate such success factors: strategic
factors, organizational factors, development and process factors and market factors.
Even though numerous researches has been done and plenty of research material
exists on success factors of product innovation but still limited research found which
shows the success factors in service innovation. Generally, it is quite clear that a
significant gap still exists in the present literature of service innovation. Mostly
researchers and innovation success models discusses about few variables, and
none basically deals that discusses almost all or major success factors.
Though, limited number of researches could be identified related to success factors
in service innovation, it shows that researchers developed a wide range of variables
in four groups during their research. It also shows that due to the complexity of
services, it requires more variables to be considered rather focusing on few major
variables. However, strategic factors in success of service innovation have shown
fewer variables.
The review of such diverse knowledge of success factors related to service
innovation should have significant importance to researchers, practitioners and
students in the area of service innovation.
Further investigations should be done in order to show additional related variables
for service innovation. It also shows that importance of such success factors is
extremely context-dependent. Thus, meta-analysis of various case studies on
service innovation could significantly lead to a definite contingency framework.
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
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