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Research Report
Demand as a driving force of Service
Innovation
Research on the determinants of innovation linked to the local demand in
services, the international demand and the information and communication
technologies
Cristina Castro-Lucas,
Mbaye Fall Diallo,
Pierre-Yves Léo,
Marie-Christine Monnoyer,
Marina Figueiredo Moreira,
Jean Philippe,
Elaine Tavares,
Eduardo Raupp de Vargas
- January 2012 -
DEMAND AS A DRIVING FORCE OF SERVICE INNOVATION
Abstract
This report presents the results of a research carried out to investigate the
relationship between the demand and service innovation in three dimensions: the
international demand, the public demand through public tender and the technological
demand through service linked to new products.. As different research teams have
worked on this project, the methods are not always the same.
Two of these teams have tested a theoretical model. The first one explains how firms
achieve international performance; the second one supposes that MICTs would
positively influence market and procedures innovation capabilities. The data used
were obtained by a specific survey answered by 51 top managers of business service
firms and analyzed by the Partial Least Square method. The third one realized a
study of multiple cases with ten analysis units conducted using semi-structured
interviews with professionals in the companies.
Some relationship could so be highlighted:
- As it is usually stated, service innovation plays a significant role in international
performance but far less than international experience. More upstream factors,
mainly the resources and capacities of the firm, exert also direct or indirect
influence.
- The ability of the firm to use ICT plays an interesting role as it simultaneously
helps international development and service innovation. Innovation appears also
to be enhanced by international competence of the firms’ personnel.
- Although MICT do not affect directly innovation capacities, they can influence
this variable trough the development of internal and market capabilities. This will
vary according to what type of mobile device is used.
- Innovations are identified in three steps: pre-sale, service providing, and postsale. It confirms the induction of innovations by governmental clients. Even though
this induction is not intentional, it meets the main trajectory presented in the
Chain-Linked Model.
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DEMAND AS A DRIVING FORCE OF SERVICE INNOVATION
Authors
Cristina Castro-Lucas,
M.Sc.
Marina Figuereido Moreira,
Post graduation in management,
University of Brasília, and
CERGAM-MI/Université Aix-Marseille III
15-19, allée Claude Forbin
13627 Aix-en-Provence cedex-1E-mail: cristinaclucas@yahoo.com.br
University of Brasília, UnB
Campus Darcy Ribeiro, ICC Norte, s. B1-576 - CEP:
70910-900 - Brasília - DF - Brasil
E-mail: marinafmoreira@terra.com.br
Mbaye Fall Diallo,
Ph.D, M.Sc.
Jean Philippe,
Ph.D., Management professor
CERGAM-MI/Université Aix-Marseille III
15-19, allée Claude Forbin
13627 Aix-en-Provence cedex-1
E-mail: mbayediallo2003@yahoo.fr
CERGAM-MI/Université Aix-Marseille III
15-19, allée Claude Forbin
13627 Aix-en-Provence cedex-1 –
E-mail : jean.philippe@univ-cezanne.fr
Pierre -Yves Léo,
Senior research fellow
Elaine Tavares,
Ph.D
CERGAM-MI/Université Aix-Marseille III
15-19, allée Claude Forbin
13627 Aix-en-Provence cedex-1 –
E-mail : pyl199@gmail.com
EBAPE/FGV
and CERGAM/Université Aix-Marseille III
15-19, allée Claude Forbin
13627 Aix-en-Provence cedex-1E-mail: elaine.tavares@fgv.br
Marie-Christine Monnoyer,
Ph.D, Management professor
Eduardo Raupp de Vargas,
Ph.D, Professor
CRM, Université Toulouse I Capitole, IAE
2 rue du Doyen Gabriel Marty31042 Toulouse
E-mail : marie-christine.monnoyer@univ-tlse1.fr
University of Brasília, UnB
Campus Darcy Ribeiro, ICC Norte, s. B1-576 - CEP:
70910-900 - Brasília - DF - Brasil
E-mail : ervargas@unb.br
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Synopsis
Page
Introduction …………………………………………………………………………………........ 4
Chapter 1:
Business Service Innovation through Internationalization …………….......…………………… 13
1. Business service innovation and internationalization .................................................... 14
2. Key variables and theoretical model ………………………………………...……....... 18
3. Data analysis and results ............................................................................................... 22
4. Conclusion ...................................................................................................................... 27
Chapter 2:
The Influence of Mobile ICT Use on Service Innovation Capabilities ……...……………….... 29
1. Theoretical Background ................................................................................................. 30
2. Model and hypothesis ..................................................................................................... 33
3. Results ............................................................................................................................ 35
4. Findings and Managerial Implications ……………………………………………….. 41
Chapter 3:
When the Government is the Market: Public Procurement and Innovation in Software Services 46
1. Innovation in services ..................................................................................................... 47
2. Innovations induction: public procurement in the Chain-Linked Model ....................... 49
3. Purchases for the innovation in software service .......................................................... 52
4. Method and cases results ............................................................................................... 53
5. Conclusions .................................................................................................................... 55
References .................................................................................................................................... 57
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Introduction
In most developed countries innovation policies have been under critics for their weak
achievements: in France innovation is still a laggard policy; in Europe the Lisbon strategy is
considered as a failure apart for Sweden and Finland. Innovation policies are under scrutiny
because governments are reluctant to fund programs which are not dedicated to the satisfy
demands coming from consumers or from firms. Our research is in line with this stream of
thought looking at the determinants of innovation located in services offered with products or in
the service activities themselves, particularly under the influence of the international demand and
of the information and communication technologies facilities.
Service innovation has mainly been studied as resulting from R&D processes inside firms, or
ongoing transformations in the services offered. The role of demand, although recognized, has
never been thoroughly investigated. Our objective is precisely to establish the link between the
demand and service innovation which can be observed in three separate domains: the
international demand, the technological demand (through services linked to new products) and
the public demand through public tenders. The linkages between demand and innovation are
obvious when we observe firms behaviors: firms have to satisfy hard-to-please clients, private or
public, in a global competitive context. Our objective is to build and assess a model of
determinants to measure their relative impact on innovation. We need therefore to create a data
bank with a survey realized in France and ten Brazilian case studies. The four following points
will be now developed in order to introduce our report: the new innovation context service firms
are facing today, the necessity to establish a link between the numerous researches on service
innovation and the three domains of the demand we have identified, our research template and
lastly the methodology used.
1 - The new innovation context for service firms
Most developed countries have experienced a dramatic shift from goods to services: service is
now a dominant sector in terms of value added and employment. However, most analyses of
innovation still focus on goods and not on services. Therefore it is necessary to update our
research agenda to complete our knowledge on service innovation. To do so, we need to enlarge
our vision of innovation enabling us to take into consideration the role of demand.
This new approach has been resumed by the ‘Ten Types of Innovation’ model due to Larry
Keeley in the USA and reframed by the TEKES institute in Finland (2007). This model classifies
innovation into two main categories: the first one, ‘From the firm to market’ includes innovation
in the service process and in the service offering. The second category, ‘From the market to
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firms’ includes financial and delivery aspects. These classes group together different elements.
As shown in table 1, the first category (From the firm to market) is similar to the traditional value
added analysis and is meant to identify the strategic advantages and competences of the firm.
Other innovations done to satisfy clients or to participate in networks to build external relations
constitute the second category (From the market to firm).
Table 1: The ‘Ten Types of Innovation’ classification
‘From Firm to Market’
PROCESS
Innovation process
Core process
1st Category:
How a company
organizes to
support innovation
2nd Category:
Proprietary
processes that
add value
Product/service
performance
Basic features,
performance, and
functionality
‘From Market to Firm’
DELIVERY
Channel
Brand
How to connect
your offering to
clients
How to express
your offering’s
benefit to
customers
OFFERING
Service system
Extended
system that
surround an
offering
Customer
service
How your
service
satisfies your
customers
FINANCE
Customer
experience
How to create
an overall
experience for
customers
Business model
Value networks
How the
enterprise makes
money
Enterprise structure
and value chain
Product-centered firms spend the majority of their innovation effort on product performance and
on the associated elements. Conversely, a lower emphasis is put on finance and delivery.
Empirical observation show that for service firms the ‘market to firms’ context is predominant
with innovations on the customer experience, valued networks, business model and brand.
The TEKES Institute’s analysis (2007) on US innovation during the 2005-2007 period shows a
certain number of key elements:
-
Customer is the new central point of innovation and has taken the place of competitors to
settle the overall strategy and the innovation strategy of firms.
Entrepreneurship is a driving force of innovation in service sector where the capitalistic
needs are less important than in manufacturing.
Most innovations are substitute for others tasks in the value chain.
Communication and information technologies play an essential role for service
innovation.
Others researches on innovation have identified the tendency to mix innovation in goods and in
services and the growing blurring of frontiers between the manufacturing sector and the service
sector, particularly for producer services. This is a locus of a debate between pure theory on
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service innovation tenants and theory of assimilation of services to goods researcher. To go into
in this debate is out of our project but it is necessary to pinpoint that this context creates a real
difficulty for firm to assess service innovation value. As for innovation policy (Evangelista,
2006), we have to admit that there are only few public programs aimed to promote specifically
service innovation but all innovation policies admit the blurring of frontiers between goods and
services.
2 - Three domains in which innovation is linked to demand
As stated before, we identified three domains in which the demand from users or clients can exert
a driving force on service innovation: international development, mobile technology use and
governmental tenders.
2.1 - Service innovation and internationalization
In this research we will define and assess a theoretical model in order to identify and measure the
linkages between service innovation and internationalization. The contemporary
internationalization of firms is an economic context which generates a high pressure to innovate.
We propose to study the connections between innovation in service firms and their international
development. Innovation and internationalization have always been considered as two separate
axes for developing a firm. Bringing them together enables us to understand better, from the
conceptual and managerial point of view, the relationships which these two dynamics share.
Service innovation obviously has consequences for the international development of service
firms. But internationalization is also a powerful driver for service innovations and notably so in
business to business services.
Research on innovation in services has shown up the role of technical systems as a source of
innovation, but also the importance of innovations in methods and organization (Gallouj, 2002 &
2003). From a methodological perspective, these research works had to overcome analytical
difficulties specific to services due to the immaterial nature of their production, to their
interactivity and to the contribution of clients to the final outcome of the service delivery. These
works identified several types of innovation: radical, improvement, incremental, ad hoc,
recombination and formalization.
Also faced with a great variety of forms, research on service internationalization used a quite
similar approach. The first step was to describe the different types of internationalization: role
and type of international networks, solutions adopted to master the difficulty to keep high quality
standards in different cultural environments, use of information and communication technologies
(ICTs), replacing or simply supporting traditional networks, have been highlighted, and so have
the firm’s strategies concerning what service they offer abroad, but also how they organize their
relations with clients.
The connection between innovation and internationalization becomes evident when observing the
business world: globalization is the rule, whether it is commanded by markets or competition.
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Business to business services must satisfy increasingly “worldwide” clients by tackling
international competition stirred by the generalization of deregulation policies. In such a context,
the ability to master the running costs becomes essential and is often supported by innovation in
methods but is reinforced by growing internationalization, which may well entail some scale
economies (Ghemawat, 2007). The search to standardize offers is a very similar process. The
quest for reducing costs is a tendency which remains fundamental for firms, but some changes in
the market can provoke more basic innovations. New countries are emerging on the world’s
economic scene, and expectations for better adapted, more “localized” offers can be observed. A
new dialectic may therefore exist, inducing more radical innovations to be implemented.
Our contribution intends to analyze the relationships between these drivers of the transformation
of firms and offers, to distinguish clear profiles and specific contexts and draw up the managerial
implications from them.
2.2 - New mobile technologies and service innovation
In order to achieve flexibility, many companies adopt information and communication
technologies that support mobility, context and location-awareness as well as networking. Mobile
information and communication technology (MICT) includes technological infrastructure for
connectivity such as Wireless Application Protocol (WAP), Bluetooth, 3G and General Packet
Radio Service (GPRS), as well as mobile information appliances such as agendas, smart phones,
mobile telephones, notebooks and tablet PC (Nah et al., 2005).
By extending the use of computers and the Internet into the wireless medium, mobile technology
allows users to have at anytime and anywhere access to information and applications. This
provides greater flexibility in communication, collaboration and information sharing (Sheng et
al., 2005; Chen & Nath, 2008). These environments facilitate access to enterprise resource
planning systems and to productivity tools, such as email and scheduling (Cousins & Robey,
2005). The organizations that operate in these environment not only provide their employees with
nomadic computing capabilities, but they also design their business processes, operational
procedures, organizational structure, and reward systems around the needs of nomads (Chen &
Nath, 2008).
This can result in the gradual improvement of existing working practices, enabling, for example,
efficiency gains and flexibility. However, mobile IT also has the potential of being a disruptive
technology, supporting a transformation of the way decisions are made, innovations carried out or
services delivered (Sørensen et al., 2008). This disruptive technology may offer changes in the
organizational process for many tasks (Boutary & Monnoyer, 2008).
In other words, mobile information technology in general will play a significant role in
organizational efforts to innovate current practices. Enterprise mobility signals new ways of
managing how people work together using mobile information technology and will form an
integral part of the efforts to improve the efficiency and effectiveness of information work
(Sørensen et al., 2008; Alonso et al., 2010; Zhang, 2011). The rapid pace of adoption and
advancement of mobile technology also creates opportunities for new and innovative services
provided through mobile devices (Sheng et al., 2005).
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2.3 - Service innovation and governmental demands
Using its purchasing capacity directed to innovations contractions, the State plays the role of a
consumer capable of establishing purchase requirements which will impact on the products and
services contracted. It is believed that they lead to innovative solutions. It means: to induce the
generation of innovative products and services in the suppliers. The role of the State would then
be the one to effectively define the requisites and parameters of the public purchasing capable of
inducing the generation of innovations in the suppliers.
In 2004, Brazil formulated its own Policy for Technology, Industry, and Foreign Commerce,
which has the support to innovation as one of its goals and set some strategic sectors. Software
production is one of the target sectors, being considered as the sector that most improved
regarding Brazilian Information Technology Industry. In 2008, Brazilian government announced
the use of public procurement as a priority tool to impulse the economy, inserting information
science sector among the most supported ones. It seems to us it was a quite interesting
opportunity to focus on this activity, to analyze the link between public demand and innovation.
3. - Research template
Our general approach is a conceptual and exploratory one.
We have already conducted two surveys to better understand service firms’ internationalization
(Philippe & Léo, 2010). A systematic survey of scientific publications issued between 2005 and
2011 which were simultaneously dealing with service innovation and internationalization was
then realized. Concerning ICT and service firms’ organization, some previous researches had
been done (Monnoyer et Omrane, 2003; Monnoyer & Madrid, 2007; Boutary & Monnoyer,
2008). However, most papers are not focused on mobile technologies, which seem to have
particularities associated to the nomadic computing capabilities. A first exploratory survey was
then conducted on a ten firms sample size, dealing with these two subjects.
This survey allows some preliminary findings that we can sum up as followed:
-
Service innovation is often perceived as an antecedent factor of internationalization
The design of innovation is an application of the knowledge of entrepreneurs
Professional standards have a positive impact on firms performance
Innovation and internationalization need a networking support process
Innovation does not solve international contact constraints and international dynamism
seems to be better when the network is built with subsidiaries
ICT offer powerful means to guarantee the service quality,
The appropriation of MICT depends on how strong the user is embedded in his or her
responsibilities.
This constitutes a preliminary set of hypothesis on the entrepreneur behavior, the innovation
process performance linked to internationalization, the link between innovation and R & D, the
role of networks in the internationalization process, the joint benefits brought by innovation and
internationalization and the benefits brought by the ICT to sale or deliver services in foreign
markets. A quantitative systematic survey with a questionnaire was passed to 807 managers of
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service firms (Altares data base) to confirm our hypotheses about the relationship between
innovation and internationalization, and about the influence of mobile ICT on service innovation
capabilities. The interviewed managers were selected in the data base according to the firm’s
main activity and its international development as it could be anticipated by some indicators
given in the Altares data base. The questionnaire and the method we used are presented in detail
below (4.1).
The link between public demand and innovation in services firms has not been largely studied
until now, as shown by our literature review. So we will propose a development of the model
proposed by Kline and Rosenberg (1986). We conducted a descriptive qualitative study based on
multiple cases in order to assess whether and how far the requirements set of public procurement
induce innovations in software enterprises. Ten cases of software enterprises supplying the
federal government were extensively analyzed. They were selected according to the main activity
of the firm which had to be in software services and also to the dedication of these firms in
supplying software services solutions to the federal government.
The data collection was conducted through a two step survey. Firstly, a semi-structured
exploratory survey conducted by a government official in charge of the software department –
from its application, data have been collected on the innovation process of the enterprises, in
which the types of innovation are considered as well as the time they had happened. This
interview was conducted aiming to reassure the construction of the second instrument, which
consists of a semi-structured interview guide applied to professionals with three profiles in the
selected cases: in charge of the preparation and participation of the enterprises in the processes of
public tender for government supply, professionals with a technical profile for software services
providing, and professionals in charge of ongoing project management. Afterwards, the aim is to
identify the rising of innovation at these three different stages of the software service delivery to
the federal government: pre sale, service providing, and post sale.
4. Statistical methodology
4.1- Questionnaire, survey and sample
The questionnaire was set up in order to obtain the needed information and the meanings from
firms’ head manager after a 10-12 minutes phone interview. It was organized into two main parts:
the first one aims at describing and measuring the innovation in service activity, and the second
one at evaluating the international development, performance and assets. In order to comply with
the short time of interview, very few questions had free answers. Thus the questionnaire was first
submitted to a small sample of people in order to test and verify if every questions were similarly
understand and easy to answer. Most of the questions were designed in such a way that the
responding person had to give her/his assessment on a five points Likert scale. As much as
possible, the wording of items refers to those already used and tested by previous studies on
innovation and international development that were found in the literature survey.
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A sampling list was set up with the intention of pre-selecting French business service firms which
had already developed markets abroad. According to these criteria, we selected in the “Altares”
data base around 2000 firms but this number falls to 1025 firms truly belonging to the business
service sector; among them, some were not suitable for our questionnaire, whether because they
are specialized subsidiaries of very large corporations, providing services mainly inside these
organizations or, on the opposite, very small firms with less than 5 employees with highly limited
organizational capabilities. A few more had to be dropped from the phoning list, due to missing
phone numbers which couldn’t be found on the Internet websites. Lastly, the operational list
sums up to 807 firms which were systematically contacted by phone by professional interviewers
(Mars-Marketing, Marseille) during the months of May and June 2011.
361 responses were obtained, amongst which surprisingly 271 answered they didn’t export any
service and 38 others claiming no international activity at all. One answer had also to be deleted
as it contained too many missing values. This left only 51 responses from business service firms
which were exploitable for our study; this 6 percent answering rate is clearly a low one that can
be attributed to the need we had of getting answers from the top managers. The high number of
the answers claiming to be out of the target can indeed be considered as a pretext given by
overbooked managers to definitely avoid the interview. If not, it would mean that the commonly
used “Altares” data base is of poor quality, as far as service firms are concerned.
Nevertheless, these answers can be usefully analyzed, even if any generalization of the observed
results should be done very cautiously. As shown in table 1 the responding firms do belong to
two main kinds of activities: logistical services and engineering consultancy. It is worth to
observe that amongst the hundred of software industry firms contacted only two gave a complete
answer. Almost no management consulting firm answered our questionnaire as didn’t also
operational services or research enterprises. Moreover, when considering what services are
mainly sold abroad by the respondents, the sample splits simply into two parts: logistic services
or technical studies.
29 firms (57 percent) which answered our questionnaire are independent and among the 22
others, which are belonging to larger organizations, only 12 are subsidiaries of very large
corporations. Thus, most managers interviewed have full authority on their enterprise which
remains small or medium sized: 27 ranging from 10 up to 70 employees, six between 100 and
200 and six others, very small with only six or seven employees. All these firms are widely
spread over the national territory, 15 being located in the main French region around Paris, the
other 36 in most of the 21 French regions, with a maximum of 5 in the Marseille-Nice region.
Due to its rather small size, this sample deserves to be more precisely described. These service
firms have been opened to international markets for long and therefore benefit from a long lasting
international experience: only one has begun that strategy less than five years ago, five between
five and 10 years. The remaining are 11 with a 10 to 15 years experience, 13 with a 15 to 25
years one and for 21 the experience is even longer. As we have already observed with other
exporting business service firms samples (Léo et al., 2006), the use of a delivery network abroad
is a choice that takes time. Effectively, only a minority (17) has not yet developed any delivery
network abroad. 82 percent of the 34 others have built their international network with
subsidiaries (or at least one). This is remarkable for these rather small firms because a subsidiary
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appears to be the most expensive kind of outlet, even if it is probably the best suited for service
firms (Philippe & Léo, 2010).
Table 2: The sample’s main characteristics
Sampling list %
Main activity:
Logistics & transport
137
17.0
Computer software
103
12.8
Engineering
274
33.9
Research
46
5.7
Management consulting 156
19.3
Operational services
91
11.3
Size & category of firm:
Large corporation subsidiaries
Small or medium size groups
Medium size firms (100-200)
Small firms (10-70)
Very small firms (6-7)
Location:
Ile de France (Paris)
357
44.2
Extended Parisian basin
56
6.9
South (PACA, Languedoc) 73
9.0
South West
62
7.7
North West
61
7.6
North East
78
9.7
Centre
117
14.5
Other (overseas)
3
0.4
Total
807 100.0
Answers obtained %
28
2
19
1
1
2
54.9
3.9
37.3
2.0
2.0
3.9
12
10
6
17
6
23.5
19.6
11.8
33.3
11.8
15
8
8
4
5
6
4
1
51
29.4
15.7
15.7
7.8
9.8
11.8
7.8
2.0
100.0
answer rate (%)
20.4
1.9
6.9
2.2
0.6
2.2
4.2
14.2
11.0
6.5
8.2
7.7
3.4
33.3
6.3
Answering firms show a rather high international involvement: according to their evaluations, the
mean share of international turnover (that is the firm’s exports plus the turn over of foreign
subsidiaries) in the total turnover (firm’s turnover plus foreign subsidiaries’ one) reaches 66
percent for the 50 firms having given these data. 10 do not have any domestic turnover and are
therefore totally specialized in international service delivery. 14 others have a similar
involvement with international turnover ratios between 80 and 99 percent. Less involved on
international markets, 13 have nevertheless ratios from 50 to 75 percent and 10 others from 20 to
45 percent, which remain fairly honorific scores. Only 3 firms rank far behind with 5 to 10
percent of general turnover obtained from foreign markets. The same very internationalized
profile is obtained with the number of countries where international sales are obtained: 16
countries on average but 10 for the median, a score less influenced by possible outliers: this
describes a sample of service firms widely open to international development. 12 have a very
large geographic extent with 20 up to 60 countries, 17 have between 10 and 15, 8 between 5 and
8 foreign countries. The remaining 9 show a limited extent, most of them being however in 3 or 4
foreign countries.
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4.2- The PLS modeling tool
The use of structural equations modeling allows studying relations between variables which are
not directly observable. Several methods are used to generate structural equations, however PLS
has been acknowledged to be a robust one (Chin, 1998). Its algorithm is rather simple to
understand and requires a very limited number of probabilistic assumptions. PLS does not need a
large size of the sample and can also accept a small number of scales of measurement. Due to the
exploratory context of this research and to the limited size of the sample which counts only 51
respondents, the PLS was a well appropriate technique to analyze the data. Partial least squared
(PLS) path modeling is a multivariate technique to test structural relationships and a general
method to estimate models with latent variables measured by many items. This tool has as a main
objective, the causal predictive analysis when problems are complex and the theoretical support
is very limited (Wold, 1982). It is now used by a growing number of researchers from various
disciplines such as strategic management, management information systems, marketing, etc.
(Henseler et al., 2009).
Basically, the objective of the PLS modeling is to predict dependent variables, latent or manifest,
maximizing the Explained Variance (R²) of the dependent variables. The PLS method differs
from models based on Structure Equation Modeling according to the optimization method which
depends on the pursued objectives. The PLS is more suitable to predictive applications and theory
development (Exploratory Analysis) while SEM methods are more suitable to confirmatory
analysis (Lévy-Mangin & Varela-Mallo, 2006). Besides, the PLS doesn’t require any parametric
conditions, so this technique is particularly appropriate in the case of small samples with nonnormal data (Chin, 1998. Vinzi et al., 2010). In spite of the limited size of the sample, we can
evaluate the quality of the model’s estimates by using the bootstrap process: we launched 1000
bootstrap samples based on the 51 cases and calculated the Student’s T for the coefficients
associated to each relationship taken into account by the model.
5. – Plan of the report
Three domains have been selected as potentially interesting for the questions we investigated:
international development, mobile technology use and governmental tenders. The results
obtained in each one of these three domains will be extensively presented in each of the three
chapters of the present report.
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Chapter 1
Business Service Innovation through Internationalization
Cristina CASTRO-LUCAS
Mbaye Fall DIALLO
Pierre-Yves LEO
Jean PHILIPPE
Many research found innovation, and more specifically product innovation, to be an important
factor in explaining the entry and success in the export markets: successful innovation may push
productivity or help to find a greater demand in foreign countries. We intend to test the
relationship between innovation and international performance, assess the impact of innovation
compared to international specific resources; in others words study the combination of innovation
and international capacity to explain the performance on international markets. But, as we are
dealing with services, we can also consider the internationalization process as a powerful driver
of innovation for the service firm. We also have to consider the impact that may have the
Information and communication technologies (ICT) which are of paramount importance for
services and may influence simultaneously the firm’s innovation and its international
performance.
Service innovation has mainly been studied as a resulting process of R&D, or ongoing
transformation in service offer. The role of internationalization in the adaptation of service,
although recognized, has never been thoroughly investigated. On international markets, service
firms have a priori the choice between two main alternatives: they can either adapt their service
or standardize it. Adapting a service is a natural way to cope with the differences between a local
foreign context and the domestic market; a correctly adapted service will be more easily
assimilated and accepted by foreign clients. On the opposite, standardization often compels the
firm to redefine its core service concept even on its home market; but a standardized service will
significantly facilitate further international development with a better remote control of the
homogeneity and quality of the services delivered. Consequently, internationalization makes
firms come to terms with options of innovation which are obviously strategic as they directly
affect the firm’s offer. Of course, these options may also depend on the type of service activity
and on other strategic variables such as the type of organization chosen to develop abroad or the
experience acquired on foreign markets. The positive association between exporting and
performance increase has been explained by learning-by-exporting, selection mechanism in favor
of the more international firms, but has been rarely explained by a systematic innovation policy,
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and the mix of innovation and international strategies. Our objective proposes first to explain
service innovation by technological, organizational, relational, ICT and expertise capacities.
Service innovation mainly gives the firm a service advantage which may generate international
performance. Moreover another factor, namely the international experience, can also explain the
international performance. International experience produces mainly marketing advantages in the
foreign markets and is driven by international organization capacity and international staff
specific knowledge. According to our hypothesis, learning-by-exporting should also impact the
firm’s service innovation. This study is conducted within the framework of the resource-based
theory.
Our objective is to build and assess a model of determinants including innovation to measure
their relative impact on international performance. This chapter proceeds as follows. We will
investigate first what conceptual framework can be used to deal with the specific problems
arising when analyzing the linkages between service innovation and internationalization. The
second part describes the key variables and the theoretical model. The third section provides the
results of the empirical analysis presented in the introduction and discusses the main findings as
well as the conclusions and the managerial implications that can be drawn.
1 - Business service innovation and internationalization
The connection between innovation and internationalization becomes evident when observing the
business world: business to business services must satisfy increasingly “worldwide” clients or
“domestic” client demanding world prices stirred by international competition. In such a context,
the quest for lower costs is often supported by innovation in methods but is reinforced by the
growing internationalization, which may well entail some scale economies (Ghemawat, 2007).
The search to standardize offers is a very similar process. The quest for reducing costs is a
tendency which remains fundamental for firms, but the changes in the market can provoke more
basic innovations. New countries are emerging on the world’s economic scene, and expectations
for better adapted, more “localized” offers can be observed. A new dialectic may therefore exist,
inducing more radical innovations to be implemented.
Our contribution intends to analyze the relationships between these drivers of the transformation
of firms. In manufacturing, product innovation has been recognized as a powerful tool to enter
international market. Vernon (1966, 1979) has proposed a framework for the internationalization
process of product and firms based on product innovation. The sequential process of the product
life cycle starts from home-based product innovation to gradually reach export markets and
eventually foreign direct investments. Exports bring increasing sales, contributing to the
spreading of innovation costs. There is also the possibility of learning-by-exporting: exporters
gain greater ability to adapt to changing markets, (Salomon & Shaver, 2005), to adopt new
production technologies and enhance productivity (Cassiman & Golovko, 2011). For goods, there
is still a debate about the impact of product and process innovation on productivity (Griffith et
al., 2006), but recent studies seem to acknowledge a larger effect of product than process
innovation on firm productivity and performance.
In service analysis, we don’t have reached yet such a complete view of the question. Service
innovation analysis is developing in complexity and thoroughness since Barras (1986) inversed
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product life-cycle model and Soete & Miozzo’s (1990) technological trajectories. Innovation in
services is strongly linked to technology and in particular to ICT. Barras’ model describes a
sequence of transformation for services which is the opposite of the traditional cycle of
innovation for production in the manufacturing industry. The cycle starts in the back office with a
phase of incremental innovations on methods (computerization of procedures, for example),
continues in the front office with a phase of radical methodological innovations (for example,
installation of automatic cash machines by banks) and ends up with “product” innovation, when
the firm is able to propose new services to its clients. This analysis shows that service innovations
are not situated in the technical systems themselves, but in the changes which are made possible
by them. The main criticism on this model, as expressed by Faïz Gallouj (1994, 2003) or by
Camal and Faïz Gallouj (1996) is that it tends rather to represent a diffusion model for technical
innovation originating from industry into services, more than a real theory on service innovation.
In particular, it does not take into account non-technological service innovations, for example
organizational ones.
Barras’ model is completed by the taxonomy of service sector technological trajectories which
isolate three kinds of activities: low innovation activities which are dominated by technology
suppliers; they can be found in services to persons sectors and in public or social services.
Network services whose overriding strategy of lowering networks’ running costs imposes upon
technology suppliers, specifications adapted to their organization. The third category concerns
knowledge intensive services with an offer founded on science; in this case, firms may be highly
innovative and they may well demand that their suppliers meet their very specific needs. This
taxonomy underlines the heterogeneous behavior of services property but it presents some
weaknesses pointed out by the analysts of service innovation: the concept of trajectories seems to
be too deterministic and univocal, excluding the possibility for a firm to belong simultaneously to
two of them. Otherwise, as with Barras’ model, non-technological trajectories are clearly omitted.
In his research on service innovation theory, Gallouj (2002) proposes a representation of service
as the simultaneous mobilization of technical characteristics (material or immaterial) and internal
(the provider) or external (the client) skills, to produce a service with clearly defined
characteristics. Then he defines innovation as being any change affecting one or several terms of
one or several vectors of these characteristics (technical, service) or skills. The forms of change
are manifold: evolution or variation, extinction, emergence, association, dissociation, formatting.
Innovation is not considered as a result, but as a process leading to “modes” which may be
described by the particular dynamics of characteristics. Radical innovation can be observed when
a new set of characteristics is created; improvement innovation, when the “weight” of certain
characteristics is increased; incremental innovation operates by adding or suppressing
characteristics, but maintaining the general structure; ad hoc innovation consists in offering an
original solution for a specific problem, modifying the skills and technical characteristics; a “recombining” innovation keeps the characteristics and skills unchanged but associates and/or
dissociates some of them differently; and lastly formalization innovation aims at better quality
control but it also reduces the flexibility of the organization by formatting and standardizing the
characteristics.
This representation of services as vectors of skills and characteristics can be applied to any major
questions concerning service dynamics and notably to internationalization, which is going to
affect certain characteristics of the offer. Unfortunately, the Gallouj’s model of service
innovation remains silent about the question of the hierarchy of forces which can generate
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innovation: is it R & D, innovative capacity of the personnel, its competence, organizational
capacity of the firm or its relational capacity that makes work together all the elements of the firm
in order to bring about service innovation? We don’t know which one has the leading influence
on the firm performance.
In a sense, according to Gallouj’s definition, internationalization could be considered as a specific
case of innovation. But such an interpretation would be far too reducing because
internationalization is not only an innovation for the firm: it has direct and relatively rapid
consequences in terms of turnover, operations, costs and benefits (Farrell, 2004. Gottfredson et
al., 2005). The main difference with innovation lies in the extent of changes, probably more
limited in the case of internationalization because of the quest to cut costs and the risk associated
with new markets. Välinkangas and Lethinen (1994) identified three main strategic axes for
international development: standardization, specialization and customization. Standardization
resides in the pursuit of scale economies, aiming the service at the widest ranging market
possible. With specialization the firm seeks to take advantage of one single and unique service,
totally differentiated from those of competitors. Customization is akin to adaptation. Analyzing
the dominant strategy, Philippe and Léo (2010) find that most internationalized business firms
associate two different approaches: on the one hand, they are trying to be closer to their clients,
by offering customized services to each kind of circumstance, which leads them to widen their
range of offers. On the other hand, they seek internal efficiency by the improvement of their
procedures and often by quality certification.
Within the development strategies of firms, internationalization and innovation occupy the front
line, sometimes in a complementary manner because the two strategies have identical elements in
common: creativity, growth, but also risk. However, the two strategies are rarely conducted
together by firms because each one is increasing the diversification which comes up against the
knowledge system of the management and the dominant logic of resource allocation (Prahalad &
Bettis, 1986). We have conducted a systematic survey of scientific publications on service
innovation and internationalization and issued between 2005 and 2011(databases used: ABI /
Inform Global (ProQuest), Emerald, JSTOR, Sage Journals Online, EBSCO, Oxford Journals,
SciELO and Redalyc ). This search pointed out that, in spite of numerous research works
conducted and published on the two fields taken separately, very few had been conducted on the
possible relationships between these two strategies as far as service firms are concerned. Only
few articles could be identified as paving the way for our own research.
Most of the selected research works are essentially aimed to examine how the internationalization
process contributes (either directly or indirectly) to the development of innovations in service
companies. They stress the importance of relations within established networks. Other articles
investigate the impact of firm performance by examining the contribution of formal and informal
innovation in services through the concept of strategy. Some other texts try to assess needs of
internationalization as a process of acquiring and transmitting knowledge from the investment of
resources.
Frenz et al. (2005) aimed to identify the relationship between internationalized companies and
the propensity to innovate. They first observed that it was mainly the case for firms operating as a
group. To belong to a group leads to a greater potential for innovation, since each part of the
group learns about the environment in which it operates and may transmit this knowledge within
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the whole group (Zanfei, 2000). More interesting for our problematic, they observed that other
companies have the opportunity to learn from different innovation systems and cultures, when
they are operating in different countries, thus impacting positively their innovation potential. A
similar survey was conducted by Lavie and Miller (2008) which focused on the structural and
relational aspects of organizational networks, looking at their immediate impact on the
performance of the firm. This relationship is attributed by the authors as effects of a learning-bydevelopment process.
Meliá et al. (2010) have collected data from small and medium service companies in the
perspective of international entrepreneurship. They intend to demonstrate that the innovation
approach speeds up production time: firms that internationalize can perform more activities and
choose to control modes of entry into foreign markets. The results presented by these authors
suggest that two different models of internationalization can be found within the service sector: a
gradual one and a far more rapid one. The study by Peng et al. (2008) discusses the idea of
institution-based international strategy, positioning itself as one of the feet that help sustain the
"tripod" of organizational strategy (the two others being the industry and the resources invested).
According to the authors, this tripod provides new strategies and allows firm performance.
Racic et al. (2008) explore the main processes and determinants of the internationalization of
Small and Medium Enterprises (SME’s) in Croatia and analyze the data obtained through the
SME Exporters Survey for the period between 1999 and 2004. They examine the growth
strategies of SME’s, emphasizing factors such as innovation and export orientation, which is
partially supported by the results presented in the survey. The authors observe that the "ideal
type" of a Croatian export-oriented SME tend to operate in medium and high-tech industry or in
services, with specific market niches. As such, this research illustrates the classical relationship
identified between innovation and export, the first being a driver for the second, even for service
activities.
Park & Mezias (2005), wanted to see how the dramatic changes in the availability of resources in
the sector had affected the stock exchange evaluation of inter-firm alliances. From a survey of 75
e-commerce companies in the period 1995-2001, they noted that the stock market had responded
more favorably when alliances had been concluded during a less generous period. This research
work stress the importance that may take the environmental context for strategies of firms
involved in highly innovative and internationalized sectors.
Nachum and Zaheer (2005) focused on the resource availability of the service sector, in order to
understand why companies settle abroad even when technology allows easily trading at a
distance. The authors note that the cost of distance is differentially perceived by firms. Search for
knowledge or quest for efficiency are identified as the two most important factors taken into
account by service firms, when choosing their entry modes in foreign markets. On the one hand,
they are seeking to establish export platforms with low investment of organizational resources,
and on the other one, they are trying to gain knowledge from the variety of environments offered
by international settlements.
Martinez-Gomez et al. (2010) relate the research works focusing on networks with the ones
focusing on strategies. They intend to understand the relationship between globalization or
internationalization strategies and the dependence of knowledge intensive service firms on
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innovation networks. Thus, they highlight the characteristics of internationalized companies
seeking innovative actions.
The articles collected in this study help to bring more evidence to the characteristics of field
studies on the relationship between internationalization and innovation in services. One of the
limitations common in the reviewed studies relates to the lack of statistical validation of the
questionnaires used. Although only a few articles have adopted a tool for data collection, these
were not validated. Few articles detailed the adoption of methodological care in formulating the
items of the survey instrument used. Another common limitation in these research works
concerns the fact that the authors based their surveys mainly in networking concepts, strategy and
resources. They seem to have overlooked other aspects that can determine the relevance of the
relationship between innovation and international development, such as learning theory, or
behavioral theory, which try to explain some factors of the managers’ motivation. Moreover,
these research works seem to have limited themselves to the identification of competencies to
address this important relationship. In this sense, these texts state that innovation is the main
initial process for internationalization of continuously innovating companies. This statement is
mostly backed by three theoretical approaches: networking, strategy and resources (material or
immaterial).
This relationship can also be analyzed as a feedback process: operating in different countries,
may create constant stimuli to the process of innovation in service companies. For example, the
opening of new markets generates more diversity in business activity which has to deal with a
new economic and cultural context: new processes, new ways to contact clients, etc. have to be
set up and this feeds cyclically future innovation. Thus, the knowledge acquired by the company
that goes international often entails a reformulation of the use of resources and services which in
turn enhances its innovative actions.
2 - Key variables and theoretical model
As said before, we have already conducted surveys on the subject of innovation and
internationalization (Philippe & Léo, 2010). We have drawn from them a certain number of
conclusions which constitute the basis of our present survey. First of all, we found that a fair
proportion of exporting firms declare having a R & D department but this one, strictly speaking,
doesn’t work on the renewal of the service concept which is offered to the client or on the
technology used to deliver quality services. The main domains of innovation which are developed
concern procedures and relations. Innovative exporters present a specific competitiveness profile
which can be distinguished from non-innovative exporters. Search for quality is certainly among
their first preoccupations. The second important lever is the manpower skills: It is evident that the
impact of a service firm depends first and foremost on this factor associated to its workforce, but
also to the technology they are able to use.
According to the common idea, innovative service firms developing abroad should better perform
on international markets and this has to be verified. Thus, international performance is the
variable this research tries to explain. The first question that rises is to define what international
performance is and how it can be measured. Most of the numerous studies that have given their
specific answers to this problem were developed in the context of exporting small or medium
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sized firms and have been extensively analyzed by Luong (2009). Generally speaking,
performance can be evaluated according to two separate approaches, either by calculating ratios
based on the firm’s accounts or by asking its own assessment to the top management. As anyone
could expect, the two measures appear to be quite well correlated in Luong’s sample but
unfortunately not enough to be synthesized in a single latent variable. Actually, the first method
should give unbiased evaluations but they don’t take into account the achievement of the
objectives set up by the management (Diamantopoulos & Kakkos, 2007).
Moreover service activities’ performance on international markets is rather hard to calculate
because some firms have set up subsidiaries abroad when other are simply exporting; many
intermediate situations can also be observed that should entail specific calculations (Léo &
Philippe, 2011). In the limited time of a phone interview, the manager’s assessment is probably
the best evaluation that can be obtained on how the firm is performing on international markets.
As for any measure constructed from an expressed opinion, that question was asked in different
terms in order to let emerge a latent variable: firstly his global satisfaction about the results
obtained by his firm on the international markets since the last three years (answer on a five
levels scale varying from highly dissatisfied to highly satisfied); then the same question was
asked from different specific points of view: growth of international sales, profitability of
international activities, international market shares, geographical expansion (number of market
countries) and steadiness of international turnover.
According to the resources based theory, international performance depends on specific resources
that are more or less available to service firms. Two of them have appeared to us particularly
sensible for service firms as their core competence is narrowly tied to the human resource: the
international competence of the staff on the one hand and on the other the international
experience obtained from long lasting involvement in foreign countries. The human competence
of the staff dealing with the very various environments encountered at international level was
assessed by the managers which were asked to select an answer on a five point scale (from “no
specific competence” to “excellent competence”). Five domains of competence were proposed:
Foreign rules, regulation and legislation; Commercial ways and customs in common use in
foreign countries; Culture and civilization of foreign countries; Administrative and technical
aspects which are compulsory for international trade; Foreign language knowledge and mastery.
As observed by many authors (Laghzaoui, 2009) the international experience acquired by the
firm is poorly evaluated by the geographical extent, the variety and the duration of its
international development. We tried to measure it through direct questions asked at the end of the
interview: three sentences (that can be found in appendix) were proposed to the manager who had
to express his degree of agreement on a five points Likert’s scale.
Our literature survey has shown that service companies may choose different ways to conduct
their innovative actions and will attain different levels in these processes. Measuring how far a
firm is innovative is a real difficulty and the previous studies often choose upstream indicators
such as availability of R & D department, importance of R & D expenses, patents or downstream
ones such as the share of new products in total sales. These indicators have been severely
criticized and the problem is increasing when dealing with service innovation which has been
very broadly defined in Gallouj’s approach (2002).
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In this study, we have chosen to evaluate service innovation by the intensity of the changes
having been accomplished during the last three years according to eight different dimensions of
the service activity: The internal procedures set up to perform the service; The way the service is
made available for clients; The service business model; The legal environment of the services
(brand, labels, certifications); The technology used to accomplish the service (soft or hardware);
The main kind of clients that is targeted; The content of main services offered; and the content of
peripheral associated services. These items are based on the classification of the innovation types
proposed by Tidd et al. (2008) and the last two refer to Eiglier’s proposal (2004) to distinguish
radical innovations (affecting the core service) from incremental ones (concerning the associated
peripheral services). As Barras’ model had highlighted the importance of technology as main
driver of service innovation we also asked how the firm could be positioned in respect to its main
competitors from the technological point of view: backward, ahead or at the same level. It was
also asked what share of the general turnover was obtained by recently (i.e. since three years)
developed service activities; the answers were converted into a 5 levels scale.
In order to explain the innovation intensity we refer to the resource and competence theory and
try to measure the firm’s capacities acquired in different fields that can be considered as drivers
for the innovative process. The mainstream of service innovation studies points out the R & D
department as the main driving force of innovation in service firms. Thus we consider first the
capacities that the firm may have in this domain. The managers were asked to assess the
efficiency of their organization and of their personnel from the innovation capability point of
view on a five point scale. The five items are presented in appendix. Research works on
innovation also highlight the prominent role played by fluent communication either within the
firm or between the firm and its external stakeholders (clients, suppliers, partners, consulting
advisers, and even with possible competitors). Therefore questions were asked in order to
measure what could be designed as the relational capability of the firm: five items were so
proposed, according to the same frame as the previous ones. They can also be found in the
appendix. As far as services are concerned, there is another capacity that should play an
important role in innovation as well as in international performance: the capacity of a firm to use
ICT for various purposes. This capacity is obviously tied with the relational capability but it also
entails the mastering of a technology which may generate new services, new delivery modes and
as such it should be also a driver for service innovation.
Thus, we propose the following theoretical model which should allow well to assess the different
ways that takes the relationship between service innovation and internationalization. The main
hypothesis of this research and the theoretical model, illustrated in figure 1, is that service
innovation impacts international performance. The works of Bartlett and Ghoshal (1990) and,
more recently, those of Jeong (2003) clearly highlight that the relationship between innovation
and internationalization represents a strategic focus for the firms. Dib (2008) in his studies reports
that companies with greater capacity for innovation than their competitors (evaluated by R & D
expenditures on total expenditures) tend to follow an international trajectory. This statement
clarifies the first hypothesis of this study (H 1): innovation should exert a positive influence on
the international performance of service companies. These authors also show that the entry into
new markets may induce incremental innovation strategies as well as more radical ones. This
“feedback” relationship is taken into account by the second main hypothesis of the model (H 2).
It states that international competences acquired throughout the internationalization process exert
a positive influence on service innovations.
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Figure 1: The theoretical model
R&D capability
(organizational)
H3
Service
innovation
H4
H1
Relational
capability
H6
International
performance
H5
H7
ICT capability
H2
H8
H 10
International
competence
H9
International
experience
As Dosi (1988) points out, innovation is increasingly based on science, R&D and new products
are more knowledge-intensive. New innovations are demanding more specialized knowledge
which becomes more complex and fragmented. Firms with employees able to master the newest
technology (whether it is in the software or in the hardware domains) hold a technological
advantage on others. Nevertheless they have to set up organizational means, as an R&D
department, in order to put their innovative capacities in a concrete form. Thus, our third
hypothesis (H 3) states that R&D capacity is positively tied with service innovation.
For McGee et al. (1995) the relationship within organizational networks, increasingly levers up
the technological potential of companies, because partners and cooperative activities contribute to
the competitive advantage of firms. According to Fleury & Fleury (2003), these new
organizational networks, are associated with an increased globalization of firms which position
themselves in these new international inter-organizational networks. Thus, Freeman (1991)
explains that innovation results from the combination of different kinds of networks: internal
ones (communication and integration of activities between departments) but also external
networks (with universities, consumers, professionals, other organizations, etc.); these networks
may be highly formal or totally informal according to each situation and what is judged as the
most suitable by the promoters. Nevertheless the usefulness of these networks depends on the
capacity of the firm to well communicate within these networks. Therefore the relational capacity
of a company should positively influence his service innovations (H 4).
The capacity to use ICT plays a very peculiar role in this model. It probably impacts the
relational capacity, inferring that the ICT does not reduce costs in acquiring information and
knowledge, but they generate for the organization new resources from networks cooperation or
strategic alliances (H 5). The dynamic power of this new technology for services explains that we
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add another hypothesis (H 6) stating that ICT capability should directly impact service
innovation. According to Kon (2006, p. 53), the impact of competitive pressures imposed by the
reformulation of organizations, aimed at a new production process and organizational
information service and communication, “leads for the service sector, as well as for other
sectors, to labour productivity and capital growth”, having a direct relationship with firm
performance. In this research, we propose the (H7) hypothesis that capacity of ICT use has a
direct relationship, with the international performance in service companies.
The bottom part of the model as shown in figure 1 is dedicated to better explain international
performance. The International Competence directly influences the international performance.
We propose this hypothesis (H8) and also the hypothesis (H9) stating that international
competence influences the international experience. These two hypotheses lead to a reflection on
the effect on interactions between the various actors in the organizational environment: it
generates the acquisition of a specialized knowledge to deal with unstable markets, resulting in
gains in competitiveness and playing an important role in creating and transferring knowledge,
and thus favoring international adaptation. Still trying to understand the complex nature of these
relationships, Chandler (1962) identifies the international diversification as a growth strategy that
significantly impacts the strategies of the firm. However, as reported by Léo and Philippe (2008),
this relationship between diversification and performance does not concern all business service
firms. In this study we propose the hypothesis (H10), stating that the international experience
impacts positively international performance, which makes us infer that the international
experience supports a high level of international diversification and impacts the bottom line of
firm.
3 - Data analysis and results
The first result of the empirical testing of our model was to reject the idea that a unique variable
could synthesize service innovation: The ten indicators are not describing a single latent variable
but at least two dimensions should be retained. The first dimension is build from four items and
describes quite well an innovative process in the back office that determines scripts, procedures
and the general business model of the firm. The second dimension clearly points to the fact that
some other innovations are market driven: this dimension associates the search for new clients to
be targeted and the share of sales obtained by newly developed services. It is worth to note that
none of the remaining questions can be associated with these two main dimensions. Moreover,
when we introduce these two dimensions into our research model, its global quality is deeply
deteriorated. This shows that only the main dimension of innovation, the procedure oriented one,
plays a significant role towards international development. This result rejoins the previous
observations that innovation in service activities is mainly oriented towards procedures and
service delivery organization than in the creation of fully new service concepts which remain
quite rare.
The individual reliability was studied for each variable of the model, given by loadings or
correlations between the items and the construct. As proposed by Falk and Miller (1992) we
consider that a variable presents an acceptable convergent validity when the loadings of the
contributing items are greater as 0.55. The items which didn’t comply with this prerequisite were
dropped from the calculations. Table 4 given in Appendix recapitulates the different variables
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and the items which could be used in order to measure each of them. Standardized loadings are
given in the same table for each selected item. The 12 following items had to be excluded:
 The international performance can not be measured by the six proposed items, two having
to be dropped: ‘international market share’ that some respondents seem to have
understood differently than others and ‘steadiness of international turnover’ which is not
discriminating in our sample where most firms have already developed abroad for long.
 The international experience is consistent with only two of the three initial items:
‘experience allows developing anywhere in the world’, has to be suppressed from the
analysis, as it is probably considered exaggerate for all respondents.
 The international competence of the staff is correctly estimated by all items but one:
‘Foreign language of market countries’. This reveals that in the managers’ mind, the
international trade knowhow and the mastering of foreign languages are tightly separated.
 The R & D organizational capacity loses 3 items from the 5 initially foreseen: two
concerning the personnel’s quality and the other the financial capacity to invest. The first
theme receives often high ratings as it implies an indirect evaluation of the manager’s
efficiency. It is also often hard to obtain sincere answers on financial questions which are
perceived as very sensible by the managers.
 The relational capacity was expected to be measured by four items but two have to be
excluded: ‘communication with partners’ and ‘cooperation with possible competitors’.
 At last, the ICT use capacity limits to 4 items, 3 being too independent to be associated in
the same variable. These excluded items concern the use for communicating with clients,
for training partners or clients and for payment purposes.
Another result of our first model trials is to reject one of our initial hypotheses (H 8) by which we
assumed that international competence had a direct impact on international performance.
Competence is an asset which has to be put in motion to impact performance. Model variants
including this relationship do not give good results and its deletion enhances all the quality tests.
This means that the data collected privilege two indirect relationships: on the one hand,
International competence impacts international experience which in turn affects international
performance, on the other one, it influences service innovation and has therefore a second
indirect effect on international performance. Thus, the theoretical model presented next examines
the validity of the remaining 9 hypothetical relations.
From a methodological point of view Hair et al. (1998) suggest adopting a two stages analysis for
structural equations modeling. The measurement model should be evaluated before looking at the
theoretical model. The measurement model examines the quality of each latent variable according
to the items that correspond to it. The theoretical model estimates the relationships that are
supposed to exist between the different variables of the model. The logic of this Two Steps
approach is to ensure that the structural relationships will be extracted from a set of measuring
instruments with desirable psychometric properties.
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3.1- The measurement model
Using Smart PLS 2.0 the measurement model was evaluated in terms of internal consistency,
convergent validity, and discriminating validity. The set of indicators is given in Table 3. Internal
consistency is examined by the Cronbach’s alpha (Nunnally, 1978) and by the composite
reliability indicator (Jöreskog Rho) which has to be greater than 0.7. Convergent validity is
assessed by the average variance extracted (AVE) which must be higher than 0.5 (Fornell &
Larcker, 1981). Discriminating validity is tested by checking whether the AVE for each construct
is greater than the squared correlations between constructs (Fornell & Larcker, 1981).
Table 3: Performance of the measurement model for the 51 internationalized service firms
AVE
(Rho
CV)
Composite
Reliability
(Jöreskog
Rho)
Discriminating validity
(squared correlations between variables)
(AVE is given in the diagonal for comparison)
Cronbach’s
Alpha
R&D
Capa.
Rel.
Capa.
ICT
Capa.
Inter.
Comp.
Inter.
exper.
Serv.
Inno.
R&D
Capability
0.740
0.849
0.673
0.740
Relational
Capability
0.796
0.886
0.751
0.101
0.796
ICT
Capability
0.593
0.853
0.771
0.074
0.305
0.593
International
Competence
0.715
0.909
0.866
0.116
0.101
0.167
0.715
International
experience
0.860
0.925
0.838
0.091
0.039
0.046
0.531
0.860
Service
innovation
0.557
0.834
0.734
0.199
0.164
0.061
0.358
0.178
0.557
International
Performance
0.622
0.868
0.798
0.189
0.071
0.202
0.363
0.382
0.247
Inter.
Perf.
0.622
All our latent variables but one meet these requirements as it can be seen in table 3: the R & D
capacity, with a 0.67 alpha value is somewhat weak and we may consider this construct as just
acceptable as many social science studies accept a 0.6 value as the lower threshold authorized for
an exploratory study (Pasquali, 1999). Thus we can conclude that our measurement model is
fairly acceptable as it meets all required conditions.
3.2- Results and discussion
The software Smart PLS 2.0 was also used to assess our structural model. Figure 2 presents
overall explanatory power and estimated path coefficients. The oval forms represent the latent
variables and the coefficients written inside are the R² obtained from the whole model in
explaining each totally or partially endogenous variable. Fully exogenous variables can therefore
be identified as they exhibit a null value. The items connected to the latent variables are in
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rectangular forms. The coefficients associated to the relationships are the path coefficients. It may
be noticed that all but one have positive values giving a first confirmation of the hypothetical
relationships. The negative relation has a low value, not really differing from zero.
Figure 2: The structural model
Capa1
0.937
CAPORG
Capa9
0.776
Innov1
Innov2
0.693
0.742
Innov3
0.787
Innov4
0.760
INNOV
0.237**
0.471
0.263*
Capa4
0.852
Capa5
0.930
0.231**
0.871
CAPREL
0.775
0.305
0.502***
CapTic1
SatisInter2
PERFINT
-0.167
0.552***
SatisInter1
0.529
0.780
SatisInter3
0.293***
0.722
0.806
SatisInter5
0.458***
CapTic2
0.700
CAPTIC
0.729***
CapTic3
0.765
0.804
CapTic5
EXPINT
COMPINT
0.778
CompPers1
0.877
CompPers2
Variable names:
INNOV = service innovation.
EXPINT = international experience
PERFINT = international performance
COMPINT = international competence
CAPORG = R&D capability
CAPREL = relational capability
CAPTIC = capability to use ICT
0.873
CompPers3
0.531
0.851
CompPers4
0.988
ExpInter1
0.916
ExpInter2
Coefficients precision:
(According to the bootstrapping method)
*** = probability for the null hypothesis lower than 0.01
** = probability for the null hypothesis between 0.05 and 0.01
* = probability for the null hypothesis between 0.10 and 0.05
The directly measured items are given in Table 3 in appendix
The statistical significance of these path coefficients which are standardized coefficients are not
given with the Smart PLS standard algorithm. Fortunately the bootstrapping technique available
in the smart PLS 2.0 allows us to assess their statistical significance. This technique, as opposed
to traditional T-tests, permits significance tests of parameter estimates from not normally
distributed data. In this case, 1000 sub-samples were created by randomly removing observations
from the total dataset. PLS estimates the parameters of each sub-sample and ‘pseudo values’ are
calculated by applying the bootstrap procedure. Among the 9 relationships structuring our model,
8 appear to be significantly differing from zero and all but one of these 8 relations are beyond the
95% confidence interval recommended as lowest limit by Cheung and Lau (2008). Thus the
corresponding hypotheses are not infirmed by the data:
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 The international performance appears to be significantly explained by service innovation
(H 1), the bootstrapping t-value estimated is 1.997 which lets a 0.05 probability for the
null hypothesis.
 The international performance is also significantly explained by international experience
(H 10), with a bootstrapping t-value of 3.389 (probability for the null hypothesis 0.01).
 A third variable explains directly international performance: the capacity of using ICT (H
7), with a bootstrapping t-value estimated is 3.255 (probability for the null hypothesis
0.01).
 The Service innovation is explained by R&D capacity (H 3), the bootstrapping t-value
estimated is 1.978 (probability for the null hypothesis 0.05).
 The Service innovation is also explained by relational capacity (H 4), the bootstrapping tvalue estimated is 1.810 (probability for the null hypothesis 0.10).
 The Service innovation is at last explained by international competence (H 2), the
bootstrapping t-value estimated is 4.461 (probability for the null hypothesis 0.01).
 The relational capacity is explained by the capacity of using ICT (H 5), the bootstrapping
t-value estimated is 5.106 (probability for the null hypothesis 0.01).
 The international experience appears to be significantly explained by international
competence (H 9), the bootstrapping t-value estimated is 8.837 which lets a 0.01
probability for the null hypothesis.
The direct influence that could be exerted by ICT capacity on service innovation is not confirmed
by the data. Its absolute bootstrapping t-value of 1.076 is too low and therefore we cannot say
that such a relationship exists. Nevertheless it has to be mentioned that the existence of an
indirect relation via the relational capacity is confirmed by the model; these two ties seem to have
exhausted all the contents of this relationship. Nevertheless, the model gives better results when
we keep this vanishing relationship. We can therefore understand it just as a simple correcting
effect to the overwhelming weight of the indirect causality.
On the whole the explanatory power of the research model appears fairly good. It accounts for 53
percent of the variance in international performances and 47 percent of the variance in services
innovation. It shows that service innovation exerts a positive influence on international
development and that in turn international competence acquired on foreign markets impulse new
innovation dynamics in the service firm. It can be inferred that there is always something to gain
from the contact with another cultural system. But service activities seemingly don’t obey to the
same dynamic rules as in manufacturing where product innovation seems to be the main driver of
long term international growth: service innovation plays a role in international performance but
appears to be far less important than the experience acquired on these markets. We can say that
services are more sensible to cultural specificities which are better taken into account by
experience.
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Another interesting result is the confirmation of the central role played by the capacity to use ICT
which simultaneously affects service innovation and international performance as it has been
already stated by other research works (Léo & Philippe, 2012). It is also worth to note that ICTs
play a more discriminating role when they are used in order to build a closer relationship with the
market and to boost exchanges with the firm’s network.
Service innovation is mainly oriented towards the commercial side of the service activity:
procedures to accomplish, means for service delivery, business model (which also means pricing
strategy) and legal environment which build the image of the service and gives quality insurance
for the client. Relational capacity concern also mainly clients and network. Thus we can infer that
the coupling of innovative and international strategies is more effective when the problem is to
satisfy clients’ needs, which are best identified by close contact and experience.
4 - Conclusion
We proposed in our project to define and assess a theoretical model to identify and measure the
determinants of the linkages between service innovation and internationalization. These two axes
of development have always been considered separately. Bringing them together enables us to
understand better, from a conceptual and a managerial point of view, the relationships which
these two dynamics share. Service innovation obviously has consequences for the international
development of service firms But internationalization is also a powerful driver for service
innovations trough international competence, notably so in business to business services. The
actual internationalization of firms is an economic context which generates a high pressure to
innovate. Our research puts also in evidence the use of information and communication
technologies (ICTs), Innovation does not solve international contact constraints: ICT have a
pervasive role to generate innovation and at the same time to organize the relations within the
firms’ network and with their clients.
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Appendix, chapter 1:
Table 4: Recapitulation of variables and measuring items (standardised loadings in brackets)
PERFINT: Degree of satisfaction with firm’s international results since last three years
concerning:
1 Highly dissatisfied to 5 highly satisfied
SatisInter1: International service activities, on the whole (0.87)
SatisInter2: Growth of international sales (0.77)
SatisInter3: Profitability of international service activities (0.78)
SatisInter5: Geographical expansion (number of foreign market countries) (0.72)
Empirically rejected: SatisInter4: International market share
Empirically rejected: SatisInter6: Steadiness of international turnover
EXPINT: International experience
1 totally disagree to 5 totally agree
ExpInter1: Our experience allows us to well control our international development (0.93)
ExpInter 2: We have a first class international experience at our disposal (0.91)
Empirically rejected: ExpInter3: Our experience allows us to develop anywhere in the world
COMPINT: International competence of personnel
Assess your staff’s competence on these domains:
1 no specific competence to 5 excellent
CompPers1: Foreign rules, regulation and legislation (0.77)
CompPers2: Commercial ways and customs in common use in foreign countries (0.87)
CompPers3: Culture and civilisation of foreign countries (0.87)
CompPers4: Administrative or technical tasks for international trade (0.85)
Empirically rejected: CompPers5: Foreign language knowledge and mastery
INNOV: Service innovation
Changes that occurred in your service activity since the last three years: 1 (no change at all) to 5 (very deep change)
Innov1: The internal procedures set up to perform the service (0.69)
Innov2: The way the service is made available for clients (0.74)
Innov3: The service business model (0.78)
Innov4: The legal environment of the services (brand, labels, certifications) (0.76)
Empirically rejected: Innov5: The technology used to accomplish the service (soft or hardware)
Empirically rejected: Innov6: The main kind of client targeted
Empirically rejected: Innov7: The main services offered
Empirically rejected: Innov8: The associated peripheral services
Empirically rejected: TechAdv: Regarding competitors, your technology is : 1 (backward) 3 (at same level) 5 (ahead)
Empirically rejected: Poursn2: Share of the sales obtained by new (since 3 years) services
Percentage converted into a 5 levels scale
CAPORG: R&D organisational capability
1 poor efficiency to 5 excellent efficiency
Capa1: R&D department or any other department or cell in charge of driving the changes (0.93)
Capa9: Ability to master new technology (soft or hardware) (0.77)
Empirically rejected: Capa2: Technical competence of staff in charge of new projects
Empirically rejected: Capa3: Adaptability of the whole personnel to changes
Empirically rejected: Capa8: Financial capacity to buy new equipment (soft or hardware)
CAPREL: Relational capability
1 poor efficiency to 5 excellent efficiency
Capa4: Ability to communicate with clients (0.85)
Capa5: Ability to communicate within your own network (0.93)
Empirically rejected: Capa6: Ability to communicate with partners or advisers
Empirically rejected: Capa7: Ability to cooperate with potential competitors
CAPTIC: Capability of the firm to use ICT
1 poor capability to 5 excellent capability
in the following domains:
CapTic1: Information for clients or partners (0.80)
CapTic2: Prospecting and watching (0.70)
CapTic3: Service delivery to clients (0.76)
CapTic5: Communication within your own network (0.80)
Empirically rejected: CapTic4: Communication with clients
Empirically rejected: CapTic6: Training for clients or agents members of the network
Empirically rejected: CapTic7: Payment
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Chapter 2
The Influence of Mobile ICT Use on Service Innovation
Capabilities
Elaine TAVARES
Mbaye Fall DIALLO
Pierre-Yves LEO
Marie-Christine MONNOYER
Jean PHILIPPE
Considering the strategic importance of innovation for services competitiveness, organizations
need to establish how mobile technology use can lead to improvements in the way work is done.
Since mobile technology is a fairly new phenomenon, its organizational and strategic
implications have not been systematically studied (Sheng et al., 2005) and this new phenomenon
needs to be better understood. In this context, the aim of this paper is to investigate the
relationship between the adoption of MICT and service innovation capabilities.
This research is motivated by two main factors. First, some researches have been done to
examine theoretically and empirically the link between IT capabilities and firm innovation (e.g.,
Holsapple & Singh, 2003; Tippins & Sohi, 2003; Sabherwal & Sabherwal, 2005; Joshi et al.,
2010; Zhang, 2011). Furthermore, previous researches have focused on information technology
impact on product innovation (Henard & Szymanski, 2001; McCormack et al., 2001; Nambisan,
2003; Pavlou & El Sawy, 2006; Alonso et al., 2010). MICTs relations with services innovations
remain scarcely studied. It is yet worth to recognize that service firms may be more deeply
affected by introduction of MICT owing to some differences between goods and services. De
Bandt and Gadrey (1994, p. 14) have pointed out how far they differ in their operational process,
as well as in the co-production relationship they have to tie between client and producer.
To bridge the gap in the literature, we draw on absorptive capacity (ACAP) theory to examine
whether and how the adoption of MICT affects firm innovation. We argue that MICT should
enhance firm innovation capabilities by the acquisition of internal and market capabilities. The
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remainder of the chapter is organized as follows. We begin by discussing the theoretical
underpinning of our research model. We then describe our research model. At last, we present the
results obtained from the empirical survey and we conclude the paper, presenting the managerial
implications that may be drawn from this research work.
1 - Theoretical background
Our research is based on four streams of the literature and we will now present our
understandings regarding innovation, services innovations, dynamic knowledge capability and
social integration capability.
1.1 - Innovation
Innovation is commonly analyzed as resulting from the ability to establish relationships, identify
opportunities and take advantage of them (Tidd et al., 2008, p. 23). The innovation process
depends primarily on the cognitive abilities of individuals. This means thinking about innovation
as a solution to problems, or as a result of a sum of variables (internal and external to the
organization), that is responsible for new directions of development paths for a company. The
creation of new things is related to the cluster of information relevant and recognized, allowing
further development, including dictating market rhythms (Freeman & Soete, 2005, p. 19).
Schumpeter (1985) relates innovation with the strategic advantages of organizations, arguing that
entrepreneurs would use technological innovation to organizational development. The
Schumpeter concept of innovation is associated with something that differentiates and creates
value for a business. This includes thinking about new products, new markets or new processes,
which allow the organization to be perceived as different from other competitors.
For Tidd et al. (2008), there are four basic types of innovation. The first is the product innovation
- the change in the things that the company offers and sells (products / services). The second type
of innovation is the process one, which reflects the change in the way that the products / services
are created and delivered. With the third type, innovation produces a change in the context in
which the product / services are introduced. These changes occur in the management structure of
the company, in the form of articulation of different areas, specialization of workers,
relationships with suppliers and customers, among others. The last type of innovation is the
paradigmatic one, in which change occurs in the mental models that guide the future paths for the
organization.
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1.2 - Service innovation
Three main theoretical approaches can be found in the services innovation literature: the
“technicist” stream of thought, the service based perspective and the integrated one (Gallouj,
1994). In this research we revisit the first one – the Barras’ model (1986), which had restricted
the analysis of services innovation to the impact of new technologies, especially new ICTs. We
also incorporate the integrated perspective from Gallouj (1994), which perceives service
innovation as an interactive process, in which the company maintains internal and external
connections that lead to innovation. These perspectives are presented bellow.
The origin of the “technicist” approach, based on the work of Richard Barras (1986), is the
attempt to develop a theory of innovation specifically devoted to service activities. As major
disruptions or incremental improvements, innovative services would only result from the
adoption of new technologies by service firms. The Barras’ model maintains the primacy of the
technological processes as determinant of innovation and restricts, therefore, the analysis of
innovations in services to the impacts of new technologies, particularly new information
technologies and communication.
In reaction to the technical focus of the pioneering studies of Barras, a new line of research works
were conducted proposing a far more broad conception: the Service Based Perspective. The
central idea is that the user-producer relationship, which constitutes the service relationship as
defined by Gadrey (1994), offers huge opportunities for innovation that are more important than
any technological innovation, even if we consider that this service relationship may vary in its
intensity from an activity to another.
Lastly, the integrated approach aims to reconcile goods and services, integrating them into a
single definitive theory of innovation. It believes that innovation involves generic characteristics
and that the emphasis will be on some peculiarities for the manufacturing or for the services,
according to the intensity of user-producer relationship found in each specific market.
Each product could be interpreted as a system combining the technologies deployed (tangible or
intangible) and the skills needed for their production (producer's skills) and use (client's skills).
Thus, innovation can be defined as any change affecting one or more terms in one or more
characteristics vectors belonging to any domain: technical, service or skills (Gallouj & Weinstein,
1997, p. 547). The trajectory of innovation in services may result from the combination of
different service operations which, in turn, seek to meet the expectations generated by the type of
service (Gallouj, 1999).
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1.3 - Dynamic Knowledge Capability
Considering the relationship between knowledge and innovation, we draw on absorptive capacity
(ACAP) theory to examine whether and how the adoption of a MICT will affect firms’ dynamic
knowledge capability and enable innovation.
ACAP is often viewed as a dynamic capability of processing knowledge that enhances firm
innovation (Zahra & George, 2002). ACAP literature argues that a set of organizational routines
and processes, by which firms acquire, assimilate, transform, and exploit knowledge, can produce
dynamic capabilities (e.g., Mowery & Oxley, 1995; Zahra & George, 2002). ACAP theory is
aligned to the vision that among the organizational resources that might differentiate firms’
ability to develop and deploy an Information System (IS) for product innovation successfully are
the knowledge resources (Zhang, 2011). Information and Communication Technologies enables
the creation, dissemination, and use of knowledge, thus greatly augmenting and enabling firms’
knowledge capabilities (Alavi & Leidner, 2001). Firms increasingly depend on their knowledge
capability to continuously innovate (Leonard-Barton, 1995; Alavi & Leidner, 2001; Sabherwal &
Sabherwal, 2005).
It is well recognized in the product innovation literature that information and knowledge about
the firm’s customers, suppliers and internal processes and capabilities play a pivotal role in new
product development (Hong et al., 2004; Sørensen et al., 2008). Hong et al. (2004) argue that the
essence of new product development is about matching customer needs with the engineering and
manufacturing capabilities of a firm and its suppliers.
What is required by customers? In which fields of design and production is the firm able? What
are the capacities of the firm’s suppliers and partners? What kind of new organizational process
can be realized by the firm and its employees? These four questions seem to be therefore critical
for the effectiveness and efficiency of the new product development process. Furthermore, the
idiosyncrasy of a firm’s information and knowledge about its customers, suppliers and internal
capabilities may make the firm’s information system support for product innovation more
valuable. Although many firms may potentially develop and use similar technological devices to
pursue product innovation, only firms with unique market information and knowledge are in a
better position to acquire and to maintain competitive advantage from IT-based product
innovation (Feeny & Ives, 1990).
1.4 - The Social Integration Capability
Social integration mechanisms are structures that build firms’ social capital (Zahra & George,
2002). These structures promote connectedness, interaction, coordination, and communication
among members of firms by creating seamless networks of people and knowledge.
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ICT can support and cultivate knowledge synergies by creating electronic networks of alliances
and collaborations which can facilitate cross-firm socialization, essential for knowledge
integration (Tippins & Sohi, 2003). Social processes are important for the workers’ learning and
understanding (Lundin & Magnusson, 2003). As a social integration mechanism, MICT can
provide a capability to enhance firms’ social capital and to support direct interactions among
members of the firms.
If organizations aim at softening the boundaries to customers and associates in order to better
understand and involve these stakeholders, then one of the primary means may just be a MICT. If
Internet users are keen to helping companies supporting customers with deep questions about its
products through posting their knowledge on discussion forums, some of this energy may in
different forms be harnessed and adopted to the context of mobile technology use (Sørensen et
al., 2008).
The social integration capacity is especially relevant for services firms: the client's participation is
an essential element of the production process for many business services specially consultancy
services. The building of service relationship involves direct interactions which may be facilitated
by mobile ICT.
2 - Model and Hypotheses
First of all we had to define the model we needed to test in order to correctly assess the influence
of mobile technology on service innovation. This model led to specific questions that were
included in our questionnaire enabling measurement of the different variables we had identified.
2.1 - Model
We started the development of the theoretical model with the perspective from Gallouj (1994),
where each product or service is considered as a system that results from the combination of
technologies applied (material and non-material) and the competences needed to its production or
use. As MICT has at start a technological dimension, we focused on this aspect and on the
capabilities that could influence the service development and innovation.
In order to assess the possible existence of a specific attitude towards mobile technology that
could have been developed by the interviewed top managers, we asked how they perceived the
utility for their organization of four types of technologies: (i) Smartphone; (ii) Mobile phone; (iii)
Notebook; (iv) Tablet PC. A negative attitude certainly would hinder the adoption of mobile
technologies, when a positive one would speed it up.
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We have to identify elements associated to the producer capabilities. In Gallouj’s perspective,
service innovation is perceived as an interactive process, where the company maintains internal
and external connections that lead to innovation. There are two different types of elements
associated to the producer capabilities: internal ones and market capabilities. We selected the
following items to measure internal capabilities: (i) Better organize the work of travelling
employees; (ii) Better develop employees’ information and competences; (iii) React faster when
facing problems or opportunities; (iv) Better use of the competences throughout the firm; (v)
Better diffuse information inside the enterprise; (vi) Better develop the firm’s information
systems. Market capabilities were approached through six other items: (i) Better develop
relationship with clients; (ii) Better inform clients about other services or products the firm
offers; (iii) Better develop clients’ portfolio; (iv) Better develop relationship with suppliers and
partners; (v) Better explore customers needs; (vi) Better knowledge about the competitors offers.
The innovation capabilities were here evaluated by the intensity of the changes having been
accomplished during the last three years in seven different dimensions of the service activity: (i)
The internal procedures set up to perform the service; (ii) The way the service is made available
for clients; (iii) The service business model; (iv) The legal environment of the services (brand,
labels, certifications); (v) The targeted market; (vi) The content of main services offered; and
(vii) the content of peripheral associated services. These items are based on the classification of
the innovation types proposed by Tidd et al. (2008). It was also asked what share of the general
turnover was obtained by recently developed service activities; the answers were converted into a
5 levels scale (viii). We split these items into Procedures Innovation Capabilities (i, ii, iii, iv) and
Market Innovation Capabilities (v, vi, vii and viii).
Having identified the variables, we propose a theoretical model that characterizes the
relationships between the adoption of MICT and innovation capabilities.
Figure 3: Theoretical model
Market
Capabilities
H3
Adoption of
mobiles
technologies
H5
Market
Innovation
Capabilities
H1
H2
H4
Internal
Capabilities
H6
Procedures
Innovation
Capabilities
The main hypotheses of the model illustrated in figure 3 associate the adoption of MICT directly
to firm’s innovation capabilities (H1 & H2):
H1: The adoption of mobiles technologies positively affects market innovation capabilities.
H2: The adoption of mobiles technologies positively affects procedures innovation capabilities.
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It is also supposed that the adoption of MICT also influences internal and market capabilities:
H3: The adoption of mobiles technologies positively affects firm’s market capabilities.
H4: The adoption of mobiles technologies positively affects firm’s internal capabilities.
Finally, these internal and market capabilities should also influence firm’s innovation
capabilities:
H5: Market capabilities positively affect market innovation capabilities.
H6: Internal Capabilities positively affect procedures innovation capabilities.
2.2 – Questionnaire and measurement
The questionnaire was structured into four sections:
 The first one had the purpose to obtain general information on the firm: activity sector,
size, ownership.
 The second one aimed to identify the innovation capacity of the firm, asking which kind
of changes the organization had introduced in the last three years. As stated before, seven
separate domains were proposed. These questions are related to the items of market and
procedures innovation; the scale of measure is a five points Likert scale, where 1 means
that a small change had been conducted and 5 means that a deep change has been done.
The answer that no change has occurred in this domain was also possible.
 In the third part, the uses of four types of MICT were investigated. It questioned the utility
of the technology for the enterprise, with a 5 points scale, were 1 means that the utility is
limited and 5 means it is extremely useful. It was also possible to choose an option that
revealed that this MICT did not have application for that enterprise.
 The last part presented the items associated to internal and market capabilities. It was
investigated the utility of MICT to the development of these capabilities, in a scale from 1
to 5, measuring the level of agreement with the positive propositions submitted
3 - Results
The first research result was to reject the idea that a unique variable could express a possible
global attitude of the managers towards the mobile technologies. It shows that a global ‘mobile
technology’ concept does not have any meaning to most of the managers: they evaluate each type
of application and equipment as useful or not in their given professional context. Four separate
variables had therefore to be kept and we developed one model for each mobile technology, taken
separately. We present here these models for: (i) Smartphone; (ii) Mobile Phone; (iii) Notebook;
(iv) Tablet PC.
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Nevertheless we have to examine first the individual reliability for each item, given by loadings
or correlations between the items and the construct. The convergent validity of each construct is
commonly considered as acceptable for a loading greater than 0.55 (Falk & Miller, 1992). Only
the items complying with this prerequisite could be incorporated. This resulted in the exclusion,
for all four models, of the eight following items:
 The ‘Better use of the competences throughout the firm (iv)’, ‘Better diffuse information
inside the enterprise (v)’ and ‘Better develop the firm’s information systems (vi)’ had to
be dropped from the internal capabilities, which was measured by the three remaining
items.
 The market capabilities could not be measured by the six items, two having to be dropped:
‘Better develop relationship with clients (i)’ and ‘Better explore customers needs (v)’.
 The Market innovation capability was consistent with only two of the four initial items:
The two others, - ‘The content of main services offered (vi)’; and ‘The content of
peripheral associated services (vii)’-, had to be suppressed from the analysis.

The table 9 given in Appendix 1 of the present chapter recapitulates the different variables and
the items which were used in order to measure them.
3.1 – The Smartphone Model
Following the two-step analytical procedures (Hair et al., 1998), we first examine the
measurement model and then the structural model. The rationale of this two-step approach is to
ensure that our conclusion on structural relationship is drawn from a set of measurement
instruments with desirable psychometric properties. The measurement model was evaluated in
terms of internal consistency, convergent validity and discriminating validity. Table 10 (see
Appendix 2) presents the average variance extracted (AVE), the composite reliabilities, the
Cronbach’s alpha and the discriminating validity for the Smartphone model.
In assessing the internal consistency for a given block of indicators, we have calculated the
composite reliability, which should be greater than 0.7 (Nunnally, 1978). This condition is met in
the collected data. Additionally, the Cronbach’s alpha coefficients were computed (Cronbach,
1951). Typically, these coefficients should fall within a range of 0.70 to 0.90 for narrow
constructs, but coefficients superior to 0.60 are also accepted in social sciences (Pasquali, 1999).
All the coefficients for the variables ranged between 0.69 and 0.78. Thus, the reliability test
works out successfully.
Convergent validity indicates the extent to which the items of a scale that are theoretically related
should correlate highly. The average variance extracted for each construct should exceed the
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variance due to measurement error for that construct (i.e. should exceed 0.5). All the measures
fulfill the recommended levels.
In order to verify the discriminating validity, all AVE scores were compared to R² values. Since
the AVE scores are bigger for all cases, this test also works out successfully. Figure 4 depicts the
estimated structural model, fit statistics, overall explanatory power and estimated path
coefficients.
Figure 4: The Structural Model for adoption of Smartphone
UtiMob1
UtiMob3
UtiMob7
0,766
0,825
0,711
1,000
TecMob1
0,179
Adoption of
mobiles
technologies
0,000
UtiMob9
0,737
0,370
Market
Capabilities
0,032
0,197
Market
Innovation
Capabilities
0,202
0,941
Innov6
0,788
Innov7
Innov1
0,244
Internal
Capabilities
0,059
0,732
UtiMob4
0,697
0,203
0,827
UtiMob5
0,364
0,886
Procedures
Innovation
Capabilities
0,210
0,696
Innov2
0,790
Innov3
0,797
UtiMob6
Innov4
To assess the statistical significance of the path coefficients, which are standardized betas, a
bootstrap analysis was performed. The use of bootstrapping, as opposed to traditional T-tests,
allows the testing of the significance of parameter estimates from data that are not assumed to be
multivariate normal. In this case, 1000 sub-samples were created by removing cases from the
total dataset. PLS estimates the parameters of each sub-sample and ‘pseudo values’ are calculated
by applying the bootstrap formula.
To be significant the Student T measure should be greater (in absolute terms) to 2.58 (the null
hypothesis probability is then lower or equal to 0.01); With an absolute value of the T measure
between 1.96 and 2.58, the null hypothesis will have a probability of about 0.05, which is still
acceptable according to Cheung and Lau (2008) who recommend to chose a 95% confidence
interval. With a T measure (in absolute terms) between 1.64 and 1.96 the probability of the null
hypothesis will climb up to 0.10, which could only be accepted, if need be. Student T’s have been
calculated after computing a bootstrap in order to validate all model’s relationships. Table 5
shows that two paths prove to be significant, supporting the hypotheses 5 and 6:

Internal Capabilities impact Procedures innovation capabilities (at a 0.01 level)

Market Capabilities impact Market innovation capabilities (at a 0.05 level)
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Table 5: Student T for Smartphone Model
ADOPS CAMARK CAINT INNOVM INNOVP
1,162799 1,601295 1,389678 1,258589
ADOPS
2,320784
CAMARK
2,711326
CAINT
Finally, the results from the analysis show the explanatory power of the research model. It reveals
that the proposed model accounts for 20 percent of the variance in Market Innovation
Capabilities and 21 percent of the variance in Procedures Innovation Capabilities. The internal
capabilities exhibit direct effect on Procedures Innovation Capabilities and market capabilities
exert direct effect on Market Innovation Capabilities. The other effects investigated are not
significant. Thus, the adoption of Smartphone doesn’t appear to exert any significant influence on
the studied variables.
3.2 – The Mobile Phone Model
The main tests of the measurement model – the internal consistency, including the reliability, the
convergent validity and the discriminating validity tests, work out successfully, according to the
same criteria used in the measurement model described for Smartphone model. The syntheses of
the average variance extracted, the composite reliabilities, the R square and the Cronbach’s alpha
for the mobile phone model is presented in Table 11, from the appendix 2. Figure 5 illustrates the
values taken by fit statistics, overall explanatory power and estimated path coefficients when the
adoption of Mobile Phone is concerned.
Figure 5: The Structural Model for adoption of Mobile Phone
UtiMob1
UtiMob3
UtiMob7
0,766
0,825
0,711
1,000
TecMob2
0,179
Adoption of
mobiles
technologies
0,000
UtiMob9
0,737
0,370
Market
Capabilities
0,032
0,197
0,941
Innov6
0,788
Innov7
Innov1
0,732
UtiMob4
0,697
0,203
0,244
Internal
Capabilities
0,059
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Market
Innovation
Capabilities
0,202
0,827
UtiMob5
0,364
0,886
UtiMob6
Procedures
Innovation
Capabilities
0,210
0,696
Innov2
0,790
Innov3
0,797
Innov4
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The statistical significance of the path coefficients was also evaluated thanks to the bootstrap
analysis with 1000 sub-samples. Table 6 shows that three paths prove to be significant,
supporting the hypotheses 4, 5 and 6:
 Internal Capabilities impact Procedures innovation capabilities (at a 0.01 level)

Market Capabilities impact Market innovation capabilities (at a 0.05 level)

Adoption of mobile phone impacts Internal Capabilities (at a 0.10 level)
Table 6: Student T for Mobile Phone Model
ADOPS CAMARK CAINT INNOVM INNOVP
1,165591 1,653967 1,419197 1,193931
ADOPS
2,112432
CAMARK
3,026748
CAINT
The results from the analysis reveal that the proposed model accounts for 20 percent of the
variance in Market Innovation and 21 percent of the variance in Procedures Innovation. The
adoption of cell phone exhibits direct effect on market capabilities, the internal capabilities has a
direct effect on Procedures Innovation and market capabilities exhibits direct effect on Market
Innovation. The other effects investigated are not significant. Thus, the adoption of mobile phone
exerts an indirect influence on the market innovation capabilities, by the mediation of market
capabilities. However it has no significant influence on the procedures innovations.
3.3 – The Notebook Model
All tests developed – the internal consistency, including the reliability, the convergent validity
and the discriminating validity tests, have the necessary conditions satisfied, according to the
criteria presented in the measurement model for Smartphone. Table 12 from the Appendix 2
summarizes the average variance extracted, the composite reliabilities, the R square and the
Cronbach’s alpha for the notebook model. Figure 6 depicts fit statistics, overall explanatory
power and estimated path coefficients.
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Figure 6: The Structural Model for adoption of Notebook
UtiMob1
UtiMob3
UtiMob7
0,784
0,849
0,706
1,000
TecMob3
0,372
Adoption of
mobiles
technologies
0,000
UtiMob9
0,690
0,370
Market
Capabilities
0,139
0,112
Market
Innovation
Capabilities
0,180
0,958
Innov6
0,754
Innov7
Innov1
0,236
Internal
Capabilities
0,056
0,778
UtiMob4
0,776
0,185
0,894
UtiMob5
0,375
Procedures
Innovation
Capabilities
0,208
0,807
0,669
Innov2
0,776
Innov3
0,735
UtiMob6
Innov4
Student T’s have been calculated after computing the same bootstrap in order to validate all the
model’s items. Table 7 shows that four paths prove to be significant, supporting the hypotheses 3,
4, 5 and 6:

Adoption of notebook impacts Market Capabilities (at a 0.01 level)

Market Capabilities impact Market innovation capabilities (at a 0.01 level)

Internal Capabilities impact Procedures innovation capabilities (at a 0.01 level)

Adoption of notebook impacts Internal Capabilities (at a 0.10 level)
Table 7: Student T for Mobile Notebook
ADOPS
CAMARK
CAINT
ADOPS CAMARK CAINT INNOVM INNOVP
3,123968 1,807235 0,938597 1,396917
2,620550
3,129646
The results from the analysis reveal that the proposed model accounts for 18 percent of the
variance in Market Innovation and 20.8 percent of the variance in Procedures Innovation. The
adoption of notebooks has direct effects on market and procedures capabilities. The internal
capabilities exhibits direct effect on Procedures Innovation and market capabilities exert direct
effect on Market Innovation. Thus, the notebook adoption exerts significant indirect effects on
both innovative capabilities even if the direct relationships are not significant.
3.4 – The Tablet PC Model
Once more, the internal consistency, including the reliability, the convergent validity and the
discriminating validity tests work out successfully, according to criteria exposed. Table 13 in the
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Appendix 2 summarizes the average variance extracted, the composite reliabilities, the R square
and the Cronbach’s alpha for the Tablet PC model. Figure 7 depicts fit statistics, overall
explanatory power and estimated path coefficients.
Figure 7: The Structural Model for adoption of Tablet PC
UtiMob1
UtiMob3
UtiMob7
0,765
0,825
0,711
1,000
TecMob4
0,179
Adoption of
mobiles
technologies
0,000
UtiMob9
0,737
0,370
Market
Capabilities
0,032
0,197
Market
Innovation
Capabilities
0,202
0,941
Innov6
0,788
Innov7
Innov1
0,244
Internal
Capabilities
0,059
0,732
UtiMob4
0,697
0,203
0,827
UtiMob5
0,364
0,885
0,696
Procedures
Innovation
Capabilities
0,210
Innov2
0,790
Innov3
0,797
UtiMob6
Innov4
Table 4 presents the Student T’s calculated after computing the same bootstrap. They show that
only two paths prove to be significant, supporting the hypotheses 5 and 6:
 Internal Capabilities impact Procedures innovation capabilities (at a 0.01 level)

Market Capabilities impact Market innovation capabilities (at a 0.05 level)
Table 8: Student T for Mobile Tablet PC
ADOPS
CAMARK
CAINT
ADOPS CAMARK CAINT INNOVM INNOVP
1,174059 1,552015 1,427076 1,259769
2,371580
2,769496
The results from the analysis reveal that the proposed model accounts for 20 percent of the
variance in Market Innovation and 21 percent of the variance in Procedures Innovation. The
internal capabilities exhibit direct effect on Procedures Innovation and market capabilities exert
direct effect on Market Innovation. The other effects are not significant. Thus, the adoption of
tablet PC exerts no significant influence on the studied variables.
4 - Findings and Managerial Implications
This research was conducted in order to investigate the relationship between the adoption of
MICT and service innovation capabilities. It was based on the perspective that innovation is a
result of a sum of variables internal and external to the organization, which is responsible for new
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directions of development of the firm (Freeman & Soete, 2005, p. 19). It departs from the idea
that MICT would positively influence market and procedures innovation capabilities, directly,
and also through the development of internal and market capabilities.
Our findings did not support all the hypotheses appointed by our theoretical model. The direct
effect of MICT adoption on the innovation capacities is not significant in any of the four models.
Some reasons can explain these results:
 Previous researches had pointed out that employees can be reluctant to the use of MICT,
fearing that changes in the organizational processes may increase their work pressure
(Orlikowsky, 2000; Boutary and Monnoyer, 2008).
 Managers are sometimes more impressed by the “magic effect” of MICT than their
employees (Markus et al., 1997), but there is a large gap between MICT adoption and
MICT appropriation (Isaac et al., 2006). It seems that the first step of MICT appropriation
increases the quality of the relationship between the firm and its partners, and not the
innovation procedures (Ben Chehida, 2011). The gap between MICT adoption and its
appropriation is probably larger when MICT is used for an innovation process than it is in
a casual situation.
 As innovation capabilities are determined by numerous other variables not taken in
account in our model. The effects of MICT on these variables are still to be evaluated.
However, the relationships between internal capabilities and procedures innovation capabilities
and between market capabilities and market innovation capabilities are clear. For all types of
MICT investigated, the hypotheses 5 and 6 are confirmed. As pointed out by Feeny and Ives
(1990), internal and market capabilities, associated for example to knowing customers needs,
internal competences and suppliers capacities, are directly associated to innovation capabilities.
The first managerial implication of this research results from these findings: organizations should
develop internal and market capabilities, if they intend to be innovative. Therefore, using MICT
could be an interesting tool, though our analyses show that it shouldn’t be recommended as a
panacea: its efficiency probably depends on various contextual situations. It is relevant to observe
that the innovation capabilities are explained around 20 percent by the models. This percentage
seems to be significant, since innovation is a complex construct, which is explained by numerous
other variables. So, the investment in MICT to develop internal and market capabilities represents
an opportunity to develop innovation, but a realistic strategy has to sustain this technological
investment. It is quite significant to observe that 30 years after the first ICT implementations in
the firms, the question of strategic alignment still remains a matter of interest (Venkatraman,
1995; Tallon & Kraemer, 2003).
The results for each specific technology are also worth to be analyzed. Internal and market
capabilities are positively affected by the use of notebook, although they are not influenced by
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the use of Smartphone or Tablet PC. The use of mobile phone exhibits direct effect on market
capabilities, although it does not have any significant effect on internal capabilities.
We believe that the greater number of hypotheses confirmed by the notebook model is associated
to the fact that notebook is a technological device more complete, with more well known
functionalities. People should use it for different purposes, associated to both types of
capabilities. Smartphone and tablet PC, although more limited if compared to a notebook, do also
offer a great number of functionalities, but have been more recently introduced on the market.
The access to these functionalities may not yet be so practical or people may have the habit to use
them in more restricted ways. Organizations that invest in Smartphone and tablet PC can
stimulate users to play with more functions allowed by these devices with which information
systems may be simpler to use. Doing this will perhaps help to build the internal and market
capabilities that are necessary to develop innovations capabilities.
The fact that the adoption of mobile phones exerts a direct effect on market capabilities can be
attributed to the wide use made by employees of this device: to communicate, exchange
information or coordinate with clients, suppliers or other partners. This orientation to market
capability may be, in part, explained by the relevance of the client in the co-production process.
However the business service firms seem to be missing opportunities to use mobile phones to
develop internal communication or to better organize work.
The poor results obtained for Smartphone and Tablet PC, which did not reveal any influence in
internal or market capabilities, probably have specific causes. Tablet PC is a relatively new
technology and, as such, its use isn’t yet consolidated in business processes. The use of
Smartphone may be oriented by others productivity objectives, justifying the poor relationships
with internal and market capabilities. It is also logical to imagine that these MICTs can be used
together, each one for its purposes. Some of them are more oriented to market and internal
capabilities when others are to innovative capabilities.
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Appendix 1, chapter 2:
Table 9: Recapitulation of variables and measuring items
ADOPS: Adoption of one mobile technology
1 (low utility) to 5 (very usefull)
CAMARK: Market capabilities
Mobile technology allows to:
1 totally disagree to 5 totally agree
Utimob1: Better explore customers needs
Utimob3: Better inform clients about other services or products the firm offers
Utimob7: Better develop clients’ portfolio
Utimob9: Better knowledge about the competitors offers
CAINT: Internal capabilities
Mobile technology allows to:
1 totally disagree to 5 totally agree
Utimob4: Better organize the work of travelling employees
Utimob5: Better develop employees’ information and competences
Utimob6: React faster when facing problems or opportunities
INNOVP: Procedures innovation capabilities
Since last three years:
1 (not changed) to 5 (deeply changed)
Innov1: The internal procedures set up to perform the service
Innov2: The way the service is made available for clients
Innov3: The service business model
Innov4: The legal environment of the services (brand, labels, certifications)
INNOVM: Market innovation capabilities
Since last three years:
1 (not changed) to 5 (deeply changed)
Innov6: The targeted market
Poursn2: Share of the general turnover obtained by recently (since 3 years) developed services
Percentage converted into a 5 levels scale
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Appendix 2, chapter 2:
Table 10: Measurement model for Smartphone
ADOPS
CAMARK
CAINT
INNOVM
INNOVP
AVE
Composite
Reliability
Cronbachs
Alpha
1,000000
0,578409
0,667967
0,753163
0,557547
1,000000
0,845460
0,857120
0,858259
0,833867
1,000000
0,756559
0,783836
0,695399
0,734304
Discriminating validity
ADOPS
1,000000
0,179229
0,24392
0,2631
0,291773
CAMARK
CAINT
INNOVM
INNOVP
0,578409
0,421069
0,405087
0,146289
0,667967
0,249783
0,413748
0,753163
0,11723
0,557547
Table 11: Measurement model for Mobile Phone
ADOPS
CAMARK
CAINT
INNOVM
INNOVP
AVE
Composite
Reliability
Cronbachs
Alpha
1,00000
0,57841
0,66797
0,75316
0,55755
1,00000
0,84546
0,85712
0,85826
0,83387
1,00000
0,75656
0,78384
0,69539
0,73430
Discriminating validity
ADOPS
1,00000
0,03212
0,05950
0,06922
0,08513
CAMARK
CAINT
INNOVM
INNOVP
0,578409
0,17730
0,16410
0,02140
0,667967
0,06239
0,17119
0,75316
0,01374
0,55755
Table 12: Measurement model for Notebook
ADOPS
CAMARK
CAINT
INNOVM
INNOVP
AVE
Composite
Reliability
Cronbachs
Alpha
1,000000
0,577782
0,685095
0,742760
0,548113
1,000000
0,844608
0,866733
0,850611
0,828609
1,000000
0,756559
0,783836
0,695399
0,734304
Discriminant validity
ADOPS
1,000000
0,138744
0,055774
0,062255
0,074861
CAMARK
CAINT
INNOVM
INNOVP
0,577782
0,17465
0,169118
0,030641
0,685095
0,052311
0,175404
0,742760
0,018274
0,548113
Table 13: Measurement model for Tablet PC
AVE
ADOPS
CAMARK
CAINT
INNOVM
INNOVP
1,000000
0,578409
0,667967
0,753163
0,557547
Composite Cronbachs
Reliability
Alpha
1,000000
0,845460
0,857120
0,858259
0,833867
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1,000000
0,756559
0,783836
0,695399
0,734304
Discriminant validity
ADOPS
1,000000
0,032123
0,059497
0,069222
0,085131
CAMARK
CAINT
INNOVM
INNOVP
0,578409
0,177299
0,164095
0,0214
0,667967
0,062392
0,171187
0,753163
0,013743
0,557547
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Chapter 3
When the Government is the Market: Public Procurement
and Innovation in Software Services
Marina Figueiredo MOREIRA
Eduardo Raupp de VARGAS
Innovation has been placed in companies as a goal to assure competitiveness before competitive
markets. Initially as an objective of the company, the support to innovation becomes a
governmental challenge, considering its capacity to improve and move national economy as well
as impact the economic development of the countries. Governments are then compelled to search
for political alternatives to support innovation in their companies. Among the available
alternatives, the use of the “States procurement power” gains space as a political instrument for
the induction to innovations. Such option has already been adopted in European countries and
starts to exist in the Brazilian political schedule.
Using its purchasing capacity directed to innovations contractions, the State plays the role of a
consumer capable of establishing purchase requirements which will impact on the products and
services contracted. It is believed that they lead to innovative solutions. It means: to induce the
generation of innovative products and services in the suppliers. The role of the State would then
be the one to effectively define the requisites and parameters of the public purchasing capable of
inducing the generation of innovations in the suppliers.
Brazil set as a goal the support to the innovative capacity of the companies in their Industrial
Policy. For such, a specific legislation and other complementary measurements for the support to
innovation have been created. The alternative for the use of public procurement in applying
innovative solutions begins in this context and starts to be considered from 2008 on in the
policies formulation. Brazilian Industrial Policy considers the production in Information
Technology as a strategic sector, being software production one of the focuses. This sector is one
that presents more growing possibilities for Brazilian companies, including exportations. Within
software sector, the sector of services in software is highlighted as having one of the best
perspectives for national companies. In this segment, there are no monopolist positions of foreign
companies (Roselino, 1998), opening space for business with national companies.
Considering the governmental challenge of proposing requirements and effective parameters in
the induction of innovation in the contracted enterprises, especially in the context of software
services providers – which demands understanding of the specificities of the sector and the use of
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an effective approach for the comprehension of the innovation process in services activities –,
this study has as a general objective: to investigate whether the requirements established in public
procurements induce innovations in the software services providers. The following guiding
question is considered: “Do the established requirements for public procurement induce
innovations in software services providers?”
1 - Innovation in services
The concept of innovation initially proposed by Schumpeter leads to “keeping with new
combinations”, which would differ from the process of “producing other things or the same
objects through a different method, that means: combine such materials and forces diversely”
Schumpeter, 1982, p. 92). For the author, this process of making new combinations leading to the
configuration of new products or services – or even the production of products or services in a
different way – would constitute the principle of innovation. Schumpeter (1976) characterizes
innovation as the mechanism capable of increasing the process of economic development, being
the “The fundamental impulse that sets and keeps the capitalist engine in motion” coming from
“the new consumers’ goods, the new methods of production or transportation, the new markets,
the new forms of industrial organization that capitalist enterprise creates” (Schumpeter, 1976, p.
83).
In the context of services activities, the application of the innovation concept by
Schumpeter (1982) is compatible, whereas limited, considering the fact that in services the
distinction between innovation cases resulting in the generation of a new service from a new
process is not always clear. Due to such specificity of services activities, it is necessary to search
for a new concept in innovation which applies more directly to the sector. Considering the initial
concept presented by Schumpeter (1982), innovation follows its evolution with contributions
from the Neo-Schumpeterian authors, who “emphasize the relevance of innovation as generator
of instruments for better competitiveness in enterprises, enabling the appropriation of absolute
cost and quality advantages, leading to the improvement of their markets” (Kon, 2004, p. 86).
The characterization then, among Neo-Schumpeterian authors, is based on activities which might
contribute for the diffusion of knowledge in enterprises through information flow, directly
contributing for quality in entrepreneurial decision and consequently increase in competitiveness
capacity, element related to the rising of innovations (Kon, 2004).
Among the Neo-Schumpeterian authors, it is important to highlight the approach brought by Dosi
(1988), which point out innovation as a way of “solving problems”. The author highlights that
“innovative activities are strongly selective, directed to accurate and cumulative in the
acquisition of solving problems capacity” (Dosi, 1988, p. 1128). This conception considers
innovation as inserted in a certain technological paradigm, corresponding to the current standard
of solving technological problems. Currently, it is considered the information paradigm, in which
services have an emphasized role for its relationship with the capacity of improvement in
information flow, as exposed by Kon (2004).
The approaches for innovation process which keep their analyses in innovation technologies
constitute one of the ways to understand innovation in services context, whereas not the only one.
It is then necessary the development of alternative approaches, as exposed by Gallouj (2002),
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who aims to integrate the understanding of innovation in services and the other sectors of
economy, without leaving the analysis of the specificities in services.
Modern economy is defined by Gallouj (2002) simultaneously as services economy and
innovations economy. The author reports the existence of a paradox regarding the concept of
modern economies, even though marked by the presence of the services sector and innovation,
they are not characterized in general as services innovation economies. Mostly, the author
attributes such distortion to the existent myths of lack of productivity and the low intensity of
capital in the services sector as well as the wrong characterization of a services society as a
“society of servants” (Gallouj, 2002, p. xiii), it means, an economy in which the work demanded
would be of low quality.
The search for a theory in services innovation is reported by Gallouj (2002), distinguishing three
approaches commonly adopted. The first is called technologist approach, which “equates or
reduces innovation in services to the introduction of technical systems (...) into service firms and
organizations” having chosen such an approach (Gallouj, 2002, p. 1). This approach comes from
the principle that “innovation in services is the result of the adoption of technological innovations
developed by the sector of capital goods productions”, being in fact an analysis of the process of
diffusion of technological innovations in the industry for services activities (Vargas & Zawislak,
2006, p. 3).
The second approach identified in the studies on innovation in services is characterized by a
service-oriented approach that aims to “identify particularities in the nature and organization of
innovation in services” (Gallouj, 2002, p. 1,). Regarding these approaches, Vargas and Zawislak
(2006, p. 3) highlight the aim to assure innovation modalities that are specific for the services
sector, applying a user-producer relationship set as “the main distinctive characteristic of the
productive relations in services”, as a source of opportunities for innovation.
It is also feasible to identify the integrative approach that considering the approximation between
goods and services, “favors the analytical approach for the innovation in both cases”, the
author’s work is part of such approach (Gallouj, 2002, p. 1). Concerning this approach, Vargas
and Zawislak (2006, p. 4) point that it is a methodology that aims to “put goods and services
together, integrating them definitively in one only innovation theory”. The integrative approach is
marked by the search of a theory that considers an analysis not only on technological innovation,
but also analyses that might be applied to products economy regarding services economies.
Aiming to have a theory that enables to reach these objectives, Gallouj (2002, p. 25), says it is not
necessary to adopt different approaches for the consumption of goods and services: “a necessity
or a function might be fulfilled by the consumption of a good or a service. From this perspective,
it is not necessary to make any distinction between these two ‘products’, which allows
contemplating an integrative analysis”. In order to propose an extension of the Lancasterian
model to services economies, Gallouj (2002) says that “both for goods and services, the technical
characteristics are knowledge, competencies incorporated in tangible and intangible systems”.
The author then proposes an analysis model that considers goods and services as systems of
characteristics and competencies.
The model is based on vectors and considers the competencies of clients (vector C1), the
competencies of services providers (vector C2), the material and immaterial technical
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characteristics (vector T) and the final characteristics, corresponding to the service itself / final
good (vector Y). The rising of innovations might be understood in the light of the proposed
model: “summarizing, innovation may rise from the dynamics (positive or negative) of the
vectors in their many forms, [C], [C’], [T], [Y] or any combination of these many vectors”
(Gallouj, 2002, p. 68).
Investigating the characteristics of innovations Gallouj (2002, p. 70) proposes models that
“describe the particular dynamics of the characteristics”. They are not models restricted to the
analysis of innovations in services, but possibly extended to the analysis of goods. Six innovation
models are defined: Radical (corresponding to the creation of a new set of characteristics {[C’*],
[C*], [T*], [Y*]}); Ameliorative (happens with the increase in weight – quality – of the
characteristics); Incremental (addition or elimination of the characteristics); Ad hoc (production
of new competencies [C] or codification and formalization of [C], which is [C] made into [T] –
intangible technical characteristics); Recombinative (combination or fragmentation of a group of
characteristics); and Formalization (formatting and standardizing the characteristics).
2 - Innovations induction: public procurement in the Chain-Linked Model
The rising of an innovation is a phenomenon that might be studied in the light of different
analysis models. Three main models are presented in this study as well as the applicability to
services. The first proposal to understand science, technology, and their relation with economy
comes from the Linear Innovation Mode, in which innovation “started with basic research,
followed by applied research and development, ending up with production and diffusion” (Godin,
2006, p. 639). This model is criticized due to the fact that it considers innovation a linear
phenomenon with an only possibility of happening (from research and development). Kline and
Rosenberg (1986) criticize the model pointing the fact that innovations do not present a uniform
dimension, not always beginning by researching process and not being seen as well defined and
homogeneous elements inserted into economy from a specific moment. Innovation is then a
complex process, non-linear, with many different characteristics. A linear model would “distort
the reality of innovations in many ways” (Kline and Rosenberg, 1986, p. 286). Highlighting the
necessity of having an alternative model, Kline and Rosenberg (1986) propose a Chain-Linked
Model, which considers five elements in the innovation process: potential market; invention
and/or production of an analytical design; detailed design and test; redesign and production; and
distribution and commerce. As illustrated in figure 8 Kline and Rosenberg (1986, p. 289) say that
“there is no main activity path, but five”, with regard to the possible trajectories for the rising of
innovations.
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Figure 8: The Chain-Linked Model, information and cooperation flows
Source: Kline and Rosenberg (1986, p. 290).
Chain-Linked Model highlights the concept that the rising of an innovation might be activated by
a market demand. It is posed that an innovation must not only fulfill technical requirements, but
mainly market requirements. Market demands induce the creation of a new process of
development, which leads to a new product. This innovative product leads to the establishment of
new market conditions. Thus, “each market demand inserted in the innovation process leads to
the establishment of a new project design and all this new success project leads to the
establishment of new market conditions” (Kline & Rosenberg, 1986, p. 290).
In this study, the government position as a generator of demands for innovation is considered.
Wile setting the requirements for the purchase of products from companies, the government takes
a position that makes it not only a consumer for such products, but mainly a definer of parameters
and requirements which will guide the production steps of an analytical design, detailed design,
production and distribution/commercialization. This way, the government acquires the capacity
to interfere with the market from the setting of parameters for the production, which in the future,
according to what was proposed by Kline and Rosenberg (1986), will lead to the establishment of
new market conditions and the rising of innovations.
The demands set by the government impose to the developer companies the challenge to fulfill
the new established requirements, which means to adapt, adjust, or even develop innovative
solutions. In this process to supply the demand, a new space comes for the rising of not only
products – goods and/or services – offered, but also in the productive processes, the used
technologies, and the internal management of the companies.
The position of the government as a consumer market applied to the model of Kline and
Rosenberg (1986) allows the understanding on the way a government demand might induce the
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establishment of innovations in the entrepreneurial context – in this case, in the context of
Brazilian companies which main activity is providing goods or services to the government. The
figure displays the graphic representation of the application of the government positioning as a
consumer market and a consequent setter of parameters for innovative products as proposed for
the model of Kline and Rosenberg (1986). In despite of the alterations presented on the first stage
of the Chain-Linked Model, it is reaffirmed that the connections previously presented by Kline
and Rosenberg (1986) are fully kept in the proposed adaptation.
Figure 9: Government as a potential market in a Chain-Linked Model
Source: elaborated from Kline and Rosenberg’s Chain-linked Model (1986).
In the figure, the first stage originally presented in the Chain-linked Model changed its
nomenclature and now represents:
1. The government as a potential market to generate the requirements for the innovative
solutions in the companies;
2. The government as a generator of new market conditions from the establishment of
new requirements and parameters for the innovative solutions acquired for the
developer companies.
The search for a new innovation process follows with a proposition of an approach that aims to
comprehend the way other activities related might have an impact on the innovation processes.
Innovation systems then rise (or systemic innovation model), which presupposes that “companies
do not innovate isolated, but generally in the context of a net system, direct or indirect”,
considering other companies, researching and teaching institutions, etc. (Viotti & Macedo, 2003,
p. 60). Regarding software activities, Steinmueller (2004) highlights a hindrance to the adoption
of this approach concerning the intrinsic characteristics of the industry, reassuring the option for
the use of the Chain-Linked Model in this study. It is also highlighted the inaccuracy of this
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approach to the analyses in services activities, considering the fact that there is “no innovation
system for the services sector in general” (Vargas & Zawislak, 2006, pp. 9-11), bringing a
necessity for a “redefinition in the systemic focus to properly contemplate the heterogeneity and
specificities of the services”.
3 - Purchases for the innovation in software services
Throughout the past decades, public procurement, initially considered as a way to acquire
necessary goods and services, have been considered instruments for public policies, it means,
tools for the implementation of strategies and public decisions, with many registered uses to
reach political objectives within the history (Fraunhofer, 2005). McCrudden (2004) says that the
government is not only regulative and starts to play the role of a consumer, being the biggest
individual consumer of goods and services. Purchase decisions impact not only the purchased
products, but also their providers. Public procurement is not only seen as a supportive function
and assumes the condition of a strategic activity (Loader, 2007).
It is important to understand the use of public procurement as instruments to support innovation
in supplying companies. Such use is recorded in 2004 in the European Union, recognizing that
“public procurement might be used to provide pioneer markets for new products intensive in
innovation and research” (European Commission, 2005, p. 10). Public procurement are then
recognized as “one of the most direct forms to stimulate innovation through demand”
(Fraunhofer, 2005, p. 13) and are usually named as “procurement for innovation”. This study
considers the translated terminology – purchases for innovation – with the same goal. Purchases
for innovation refer to the “purchase of goods and services that still do not exist, or need to be
improved. It requires research and innovation to fulfill the necessities specified by the users” and
aim to “help people in charge of public policies to understand the potential and help
professionals to change their practices to get this benefit” (European commission, 2005, p. 5).
Concerning software services, it is necessary to consider such activities in the context of software
industry. Services activities might be seen as “an operation that aims to change the form of a
reality C, used by a consumer B, performed by a services provider A requested by B, and
frequently related to it, without reaching the production of a good that might economically
circulate independently from the support C” (Gadrey, 2001, p. 32).
Simultaneity sets services activities between providing and consuming, it means, the temporal
coincidence among the steps (Kon, 2004). In software services: capacitating, maintenance,
support or the full development of software; it is possible to identify such simultaneity. The
development of software services, set by the concept of a solution directed to a specific client has
clear characteristics of services provider. Steinmueller (1995, p. 3) differentiates software as
product or service, keeping the focus in the individual production: “a piece of software produced
only once might be seen as a services input, while a program which is produced dozens or
thousands of times has marketing and development characteristics strictly closer to manufactured
goods”.
Assessing software industry, the data presented by Fernandes et al. (2004) show that Brazil has
the biggest market in Latin America, presenting an annual average growth of 11% between 1995
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and 2002, representing a growth five times the expansion of the Gross National Product in this
period. The authors say it is the segment which is developing most in Brazilian Information
Technology Industry (hardware, services and software) and that services are in charge of the
biggest part of trade in Brazilian software market (Fernandes et al., 2004, p. 10). Thus, the use of
public procurement for innovation in software services has the challenge of inducing innovations
in an activity with great potential for the action of Brazilian enterprises, constituting a
governmental strategic action impacting in competitiveness of the national companies in a market
knowingly taken by foreign ones.
4 - Method and cases results
The analysis of the data collected considers the information obtained from the application of the
second instrument with the selected cases. The categories for analysis are: time of innovation,
types of innovation in pre sale stage, requirements that induce innovations in providing service,
characteristics of the service to the government, types of innovation in the post sale, and impact
of the supply to the government. The study ends with an analysis on the role of the requirements
in the induction to the innovations in the light of the Chain-Linked Model, the theoretical model
defined for the study.
The results obtained from the considered cases lead to the fact that the supply for nongovernmental clients is not, in general, object of a public policy rather than the supply of goods
and services necessary to the functioning of the public administration. In order to fit the
requirements in the process of public procurement, the supplying companies are compelled to
make alterations in its practices, products, and organizational structures that might end up with
the rising of innovations.
In the stage prior to the contract, it is highlighted the innovations conducted with the objective of
qualifying and preparing enterprises to get a contract. Innovations are mostly reported for
acquisition / improvement of employees – the case of ameliorative and incremental innovations;
innovations from the efforts to obtain quality certifications – considered as innovation of
formalization; innovations generated by the development of new technical solutions – assumed as
radical or ameliorative innovations in the developed software. The results display that the
demand for adequacy to new technological trends (platforms of development, programming
language and operational system) correspond to the main requirement for innovation in
enterprises at the phase prior to the contract.
The demand for adequacy to new technological tendencies is the main requirement for innovation
throughout this phase. It is not unanimous that there are differences in supplying the government
or private companies, but it is alleged that the private client is more flexible in the contract.
Government clients demand partnership with the traditional suppliers, while the private client is
more open to changes.
Due to the fact that they depend on bureaucratic parameters, it is pointed that the purchases from
government departments is slower and demand more accurate requirements not enabling
reevaluations of the necessities during the contracting process. Summarizing, the government
contract serves bureaucratic and processing requirements, while in private enterprises the
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requirements are for functioning and competitiveness of the product. The quality of the product
for the government is lower.
In the stage after the contract, in which there is space for the development of the contracted
software and the services, it is pointed that the demand for new functionalities which were not
initially available corresponding to the main requirement for innovation during the service
rendered. On the step of customer service, the main innovation reported in the cases refers to the
incorporation of functionalities already existent in a piece of software for the reuse of modules
considered as a recombining innovation. Innovations related to the rising of innovative solutions
with the original characteristics – radical innovations; innovations from the use of new languages
/ technical resources – considered as incremental innovations; innovations concerning
formalization; innovations from the adequacy and creation of development processes; and last,
innovations resulting from improvements in the software functionality and software evolutions /
languages used in the programming – ameliorative innovations.
Regarding the peculiarities in providing software services to government clients, it is pointed the
adequacy to fulfill the requirements as being tougher, but still advantageous by the enterprises
since government contracts last more and are more expensive. Services providing to a
government client is set by bureaucratic and service parameters, which restricts the rising of
innovative solutions and mainly the reuse with non governmental clients. For governmental
clients, the level of service demand is considered inferior, the management of the process is less
efficient and projects are less flexible since they do not change their scope. It is highlighted that
these clients require more than necessary initially due to the inadequacy of the planning in the
purchase processes. The results point no recognition of intentionality in hiring innovative
solutions by governmental clients.
It is reported that software development for government clients requires the development of new
products or services, besides the acquisition of technologies of support leading to the rising of
additional innovations. The use of innovative solutions developed by government clients with
private ones is limited, since many cases display characteristics intrinsic to the processes of
public procurement that are not extended to the private enterprises.
Considering the post sale period, the incorporation of innovations developed throughout pre-sale
and customer service to the productive structure of the enterprises and their organizational
practices. The results lead to the maintenance of these innovations. In this period, the
incorporation of innovative technical solutions generating increase on the productive capacity is
reported – being a case of ameliorative innovation. Innovations from the incorporation of new
quality patterns initially required by a client – formalization innovations; and the incorporation of
new processes and productive approaches – incremental innovations.
The results pointed to the raising of innovation in providing services to governmental clients
independently of the intentionality to the induction. The innovations reported in the fulfillment of
governmental clients’ requirements, being delimited by bureaucratic parameters not always
recognized positively by the market. The innovative solutions developed for these clients are
directed to the necessity of fulfilling the steps and bureaucratic processes rather than obtaining
economic benefit, restricting its diffusion in the market.
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The evidences reported in the case analyses point to the lack of public policies for the direction of
the contracts established in the considered cases. Even with the lack of formal policies for
supplier’s contracts, processes of innovation are identified in providing services. The analysis
highlights the lack of intentionality of governmental clients with regard to the induction to
innovations in the contracted processes.
The investigation of the requirements established by the clients that cause innovations in the
stage prior to the service are not unanimous. The lack of formal policies justifies the disparity
among the requirements studied. Considering the investigation of the requirements established in
the supplying processes that induce to innovations in the stage of the service is also not
unanimous. It is understood that the lack of formal policies for the motivation to innovation in
software development does not prevent the innovations, whereas contribute to the disparity in the
perception of the requirements induced by the suppliers. Innovations in this stage are induced by
different requirements established by governmental clients.
In the stage after the service providing, the analysis lead to the maintenance and incorporation of
innovations developed in the stages of presale and development to the productive structure of the
enterprises, pointing to its recognition by the market and confirming the condition of innovation.
The existence of the relation among the requirements established by governmental clients and the
induction to innovation, confirming what is assumed by the Chain-Linked-Model regarding the
establishment of market demands – in this case, the government – for the development of
innovations.
The analysis also confirms that there are differences in the innovations induced by governmental
and private clients even in the cases in which the requirements established for providing are
similar. This difference would be caused by the peculiarities in the development process for
governmental clients in fulfilling the bureaucratic parameters, which might also be understood in
the light of the Chain-Linked-Model considering the second trajectory previewed in the model
(set by feedbacks between the stages), leading to alterations in the initial design of the software.
This process would be part of the “cooperation among the product specification, development,
and productive processes” to fulfill client’s demand as stated by Kline and Rosenberg (1986, p.
289), confirmed by alterations in the demand in development processes in fulfilling governmental
clients’ specificities.
5 - Conclusions
Considering the political option of using public procurement as instruments for innovation, an
alternative that is gaining more and more space in Europe and Brazil, this study proposed an
investigation on the actual effectiveness of the innovation induction in software services
enterprises to governmental clients. The role of the established requirements has been analyzed
with regard to the induction to innovations in the enterprises. The results from the cases led to the
fact that providing governmental clients is not in general object of any public policy for the
direction (of any nature, conveying or not in support to innovation) of the contracting processes
established. It also points the non-intentionality of governmental clients to induce innovation in
the contracted processes. Still, innovations happen independently of the formal policies used for
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its support or the intentionality perception from clients for its induction. Such innovations are
identified in three moments: pre-sale, service providing, and post-sale.
The analysis on the requirements for providing governmental clients and its role in the induction
to innovations in the providing enterprises brings up the understanding that the lack of formal
public policies for the support to innovation in software development does not inhibit
innovations, but contributes to the uneven perception of the requirements by the providers.
Innovations then are induced by many established requirements, not being parameterized by
formal political policies.
The established requirements show peculiarities in governmental clients, besides the different
collaboration, follow-up, and participation in providing services. Even though governmental and
private clients establish similar requirements for a software development, the bureaucratic
demands to provide a governmental client have an impact on the final result of the induced
innovations. The innovations effectively developed for governmental clients might not be entirely
reused in a future service for private clients due to the direction given to the bureaucratic
specificities.
The study shows the existence of a relationship between the requirements established by the
government and the induction to innovations, confirming the fact pointed by the Chain-LinkedModel concerning the establishment of market demands – in this case, the government – for the
development of innovations. The differenced in innovation induced by governmental and private
clients would be caused by peculiarities in the development process to fulfill bureaucratic
parameters, which can also be understood in the light of the Chain-Linked-Model considering the
second trajectory of the model (marked by feedbacks between the steps), leading to changes in
the initial design of a piece of software.
It is understood that the discussion on the public relationships to be adopted in the support to
innovation must consider the necessity of the establishment of a formal political policy in the
government departments, generating impact in the innovations developed in the supplying
processes of the government and also generating conditions for the development of other
innovations.
Amongst the contributions to be developed for future studies is the study on the innovation
induction by governmental clients in the light of other theoretical models, with the example of the
systemic approach, which might bring contributions to the studies of innovation in services in a
perspective wider than the focus adopted in this study for the analysis of the relation between the
requirements of the clients and the induction to innovations. The study makes way to studies that
accept the challenge of proposing measures that allow the providing companies to induce
innovations that are not restricted to the governmental client service, but also bring effective
productivity gain for the providing companies in serving the market in a wider way, reducing the
hindrance pointed in this study for the innovations developed for governmental clients in future
services for private clients.
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