The development of innovation capability in services: research propositions and management implications

Abstract

How service companies can develop an ability to innovate within their operations and use this to help formulate business strategy is still largely unknown. In this paper we report findings from exploratory, case study research conducted at five service companies. At three of the companies studied, service operations made year-for-year innovations in support of company performance but had no influence on strategy. The other two companies were significantly different. The way in which their innovation capability developed not only supported current performance but also opened new strategic directions for their organisations. From our cross-case analyses, four propositions are offered to explain how this can occur: First, profit instability leading to the restructuring of service operations is more likely to lead to the development of a service innovation capability that can help formulate business strategy than profit stability. Second, the attainment of improved technical competencies by service operations’ employees is not sufficient to lead to the development of an innovation capability that can help formulate business strategy. Third, when employees develop behavioural competencies in addition to technical operational competencies, this combination leads to the development of innovation capability that can help formulate business strategy. Finally, recognition of the potential of service operations is necessary before new competencies can help formulate business strategy.