Building Capabilities for Service Innovation

The service sector is the most dominant sector in every developed economy today. The ability to develop and successfully launch new services is crucial for service organizations to stay competitive and to adapt to the ever-changing conditions of the environment. However, up until now, a mismatch remains between the importance of service innovation for society and the attention given to it in both academia and practice. Existing research has compared the innovative output of service firms with manufacturing firms and found that the difference is one of degree rather than of substance. Studies which focus on the process instead of the output of service innovation, however, are still relatively scarce. This dissertation aims to help close this research gap by examining three service innovation processes in different contexts. First, it offers a theoretical illumination of service innovation with the help of knowledge creation theory. This is beneficial for defining service innovation more precisely. The second study is concerned with the influence of emotional factors on the development of dynamic capabilities in new ventures. It shows that young ventures which are able to deliberately switch between emotional and analytical modes of operation have a higher likelihood of success. The study compares the development of two service-oriented ventures with two product-oriented ones that are part of an accelerator program at the School of Design Thinking at Stanford University. The third paper is concerned with product-service strategies, or Servitization, and the relation to vertical integration and the coordination of innovation in downstream markets. The study shows that the Servitization development, i.e. the vertical integration of manufacturing firms into its users' operation, is a response to the failure of architectural innovation in more flexible buyer-supplier relationships. The study finds four different strategies for the service business of manufacturing firms based on case studies in the mechanical engineering, electrical engineering, and chemical industries. Overall, I am able to show that firms need to be able to build three distinct capabilities to master their service innovation efforts. First, they need to build up a capacity for innovation to gain economies from partial repetition of solutions. Second, firms need to have skills in place to create and manage boundary objects, especially at the client interface. Finally, they need to have capabilities to build up complementarities which help protect revenues from their service innovation initiatives.