Service versus Manufacturing Innovation^*

Abstract

This article describes how service and manufacturing firms are different when it comes to innovation, based on a survey of firms in both sectors. Overall, four of the five hypotheses developed for comparative study of new offerings were supported by the analyses of 38 new products and 29 new services. First and foremost, there appear to be real differences between how manufacturing and services approach the innovation process, primarily because of the way organizations formalize development of new offerings in these two sectors. Manufacturing is more likely to report the need for new strategies and structures when products are new to the industry or new to the firm. However, services are more likely to convert novelty into success. Services are significantly more likely to have a short beta testing process and to exploit general manager (internally sourced) ideas for new offerings as an alternative to formal innovation structures. However, manufacturing and services exhibit a similar tendency to exploit customer (externally sourced) ideas for new offerings.The potential contribution of this study is to point the direction for future work in the nascent research stream of service innovation, highlighting areas where there appear to be fundamental differences between the innovation process in services and other sectors of the economy. Key differences appear to be the alternative ways services formalize the innovative process, the unique way services test customer concepts, and the combined role of general managers and professionals in the development process. These differences have managerial implications. Working closely with customers, service managers should proceed with their own unique approach to the innovative process, especially with respect to prototyping and beta testing. Senior managers in service organizations should participate in the ideation process for successful new service offerings, as part of their strategy-making responsibilities.

On Service Innovation and Realization in Manufacturing Firms

“…For example, scholars indicate that services have higher margins than products (Anderson, Fornell, & Rust, 1997), and a more stable source of revenue and more resistant against fluctuations compare with products (Quinn, 1992). Therefore, manufacturing firms develop offerings (and form value propositions that are reciprocal promises of value between firm and customer (Ballantyne & Varey, 2006)) through for example pro-active maintenance, upgrades, performance-based contracts and consultant-services (Brax, 2005;Gebauer et al, 2012;Penttinen & Palmer, 2007;Windahl & Lakemond, 2010) and also involve the customer in the innovation process to identify current and future customer needs to develop offerings (Ettlie & Rosenthal, 2011;Noordhoff, Kyriakopoulos, Moorman, Pauwels, & Dellaert, 2011). Researchers suggest that innovation in general is becoming a major factor for a firm's competitiveness (Fitzsimmons & Fitzsimmons, 1999), with service innovation being particularly advantageous (Bettencourt, Brown, & Sirianni, 2012).…”

Innovation activities of firms: the case of 8 cis waves in the Czech industry between 2001 and 2014

“…The probability to innovate is higher in the manufacturing industry in comparison to services and other industries such as trade. The differences between these two sectors are described in literature [15] and it is suggested to analyze these sectors separately.…”

Mixing rich and asynchronous communication for new service development performance

“…Service innovation is vital to developed economies (Ettlie and Rosenthal, 2011;Song et al, 2009). Even established manufacturing and technology companies are seeking to develop service-based revenue streams (Kowalkowski et al, 2012).…”

“…Researchers have highlighted differences between the new product and the new service development (NSD) process (e.g. Cooper et al, 1994;Ettlie and Rosenthal, 2011). NSD is less formal, less structured and more iterative than product development (Voss, 1994;Menor et al, 2002).…”