Although service innovation is not a new concept, however, the concept of service innovation is “loosely defined and needs further exploration and development” (Morrar, R. 2014). The vagueness in the understanding of service innovation stems from the fact that the term is used interchangeably for the use of new service development and the acknowledgement of a new service (an invention not introduced in the market). Similarly, because the term service innovation entails intangibility and an unstable character of a service, it has been difficult to define it. Henceforth, different definitions for social innovation exist. Furthermore, while innovation has been studied extensively, with “almost 300 publications using innovation in their titles being recorded in 1970 alone, and almost 500 in 1975 alone”, most of the literature has focused primarily on the innovation in manufacturing industries. Consequentially, little attention has been paid to the understanding to services as a whole, or even to a broad range of types of service industry. Additionally, scholars have designed analytical tools that fall under the traditional view of innovation. Such analyses have led to the misunderstanding and the underestimation of innovation activities in services. Majority of the researchers during the formation phase of service innovation adopted the strong demarcation perspective. To name a few, Edvardsson and Olsson (1996) and Sundbo (1997), were pioneers in establishing service innovation as a distinct research area, separate from product innovation. Additionally, Gallouj and Weinstein’s research helped to understand the importance of the synthesis approach. Their article on innovation processes in the service sector encompassed both “technological and non-technological forms of innovation”. From an evolutionary perspective, research in service innovation began from assimilation perspective, in which innovation seemed generic, through a demarcation perspective, which regarded service innovation to be differentiated from product innovation, and finally into a synthesis perspective.
Most of the knowledge of the innovation process at the micro level is derived from manufacturing industry. Specific investigations of innovation began in the 1990s with the success of information technology which stimulated innovation in the service sector. Coombs and Miles group research contributions on service innovation fall into three categories namely Assimilation, Demarcation and Synthesis. Overtime as the significance of service has risen, so has the attention towards innovation involving services. In the contemporary century the importance of services has become paramount, especially in the developed countries. The service sector in the developed countries dominates their gross domestic products, and its share continues to grow. Therefore, both services and service innovation represent central drivers of broader economic growth and innovation.
The following essay will analyze the three approaches that form a part of the conceptual frameworks for innovation in the service sectors. The aim of the essay is to elucidate the merits and demerits of each of the aforementioned approaches so that it can be deduced whether these approaches are applicable and relevant today.
Coombs and Miles’ idea of assimilation reflects the point of view that draws a similarity between the economic attributes of services to those of manufacturing sectors. This idea is further reinforced in the discussion of services as merely “intangible goods” and the claim that service trade can mainly be thought of in terms similar to those of manufacturing trade (and investment, since this is a major form of service internationalization). What differences exist are more a matter of (often relatively minor) quantitative variations rather than qualitative distinctiveness.
The assimilationist suggest that both “services and manufacturing can be effectively studied and statistically documented using the same, familiar, theories, concepts, methods and tools – typically ones that have been developed in the context of manufacturing”. Followers of the assimilation approach presume that the service sector is “Supplier-dominated” in terms of its innovation activities. Therefore, service companies are regarded as recipients of innovation and technologies developed by other industries.
The merits of this approach are of course are that the insights from the studies on innovation in the manufacturing industry can be translated directly to the service industry without any adaptation. For example, in many mainstream accounts of topics such as trade and productivity, it is suggested that existing instruments will work effectively to describe the service economy and thus can be used strategically for improvement. However, on the contrary because the service sector, as mentioned before, is seen to be a ‘recipient’ of innovation, it is usual to see low rates of adoption of new technology in services, which in turn accounts for many service industries displaying lower productivity growth as compared to manufacturing. The assumptions of low productivity therefore fails to “reveal the striking differences in the ways manufacturing and service firms set about innovating”. Moreover, the assimilation approach ignores other non-technological or invisible modes of innovation like “social innovations, organizational innovations, methodological innovations, marketing innovations, innovations involving intangible products or processes, etc.”.
The demarcation approach does not support the assimilation stance. It finds it inappropriate to study service innovation activities by only mobilizing conceptual and empirical tools that are mainly developed for technical-based activities (e.g., R&D, patents, and accumulation of capital). Thus, the concept of demarcation is completely opposite to assimilation. It argues for the need for concepts that take into account the specificities of service products and processes. This understanding emanates from the fact the dynamics and features of services require novel theories and instruments. Scholars that follow this approach believe that the traditional measurements of “innovation activities such as R&D staff and spending lead to the underestimation of innovation activities in the service sector”. The base idea is to recognize the service activities as being highly distinctive. For scholars who value the demarcation approach, focus on “non-technological (service-based) and invisible innovation output (e.g., service customization, problem solving, new solutions, new methods, and new organizational structures) is essential”. This is because scholars believe that a proper understanding of innovation activities can help understand their contribution to economic development.
The demarcation approach has been displayed in many case studies of service activities. At one end it suggests that new instruments are required for the examination of service activities, and on the other it also focuses on the need for interpreting the results of established instruments in new ways. For example, services do not conduct a lot of R&D. On this basis, “R&D-intensity is a poor indicator for identifying “high-tech” or “knowledge-intensive” services, and new approaches are required (e.g. skill profiles of the workforce)”. Furthermore, investment, franchising and partnerships rather than conventional exports make up service internationalization, therefore the analysis of services “trade” has to pay more attention to such modes of presence. Features of services include the intangible and unstoreable products, and high degrees of interaction with customers (up to the point where consumers are often seen as “coproducing” services). Such features reiterate the fact that services industries lack the real focus and the types of innovation and innovation management processes are very different from those seen in manufacturing. Service marketing literature and productivity analysis propagate for the case of demarcation. Some studies of productivity analysis also point to particular problems in assessing service productivity in conventional terms.
The merits of this approach is that it leads to the production of new typologies for innovation in services; these typologies are innovation indicators dedicated to services that include non-technological types of innovation such as organizational innovation, ad-hoc innovation, and marketing innovation. A relevant example in this regard is Gadrey and Gallouj (1998) who are known for developing a new topology for consultancy The typology “breaks down the product/process technological taxonomy for service innovation and includes three service specific types of innovation: ad-hoc innovation, new-expertise fields of innovation, and formalization innovation”.
The synthesis approach highlights the increasing complex and multidimensional character of modern services and manufacturing, including the increasing bundling of services and manufacturing into solutions. While assimilation and demarcation have particular sides in the field of service innovation, the synthesis approach encompasses both services and goods and technological and non-technological modes of innovation.
For scholars who support the synthesis approach, studies of services bring forward the issues that require examination. However, this means that the issues might not only be exclusive to service industries and organizations. Thus studies of service innovation have aided in understanding the features of innovation that are mostly sidelined in the analysis of manufacturing innovation. Instead, a comprehensive analysis and sufficient indicators are believed to be essential in providing an enriched understanding of innovation right across the economy. By doing so, the service activities of manufacturing firms as well as the variations within and across goods and service innovation are taken into consideration.
The base for understanding why synthesis approach can be promising is simple. The importance of the synthesis framework associated with the fact that the lines between goods and services have become blurred. The convergence between service and manufacturing has become of such nature where the distinction between innovation in services and manufacturing is becoming more difficult due to the service dynamic and innovation blurring. Manufacturing firms sell both good and services and additionally they also produce a few services for internal and external use. Innovation in conventional manufacturing product and process will be different from the innovation in the services activities. For example, the web portal of a manufacturing firm may be along similar lines and issues as that of a service firm. There is no doubt that certain point of convergence exists; there can be a great resemblance between the traditional view of service and manufacturing. For instance, large firms standardize and mass produce services. Additionally, manufacturers also place huge importance on services. In light of this, Howells is one of the researchers who studied the concept of “servicization” of manufacturing firms. Firms see higher portions of their turnovers being achieved through selling services. This essentially means that manufacturing firms producing goods provide services that may be a part of the production process or product services. Services may include after-sales support, or other ways of redefining the product that is sold to include, or even to consist of, services, rather than merely the delivery of a material artifact. Sometimes, servicization may also be complimentary to the production of goods. For instance, these may be finance, insurance, maintenance, software, etc. Additionally, firms may even shift their focus to services where the firm provides a valuable service rather than the good. A good example relevant to such a scenario is that of Rolls-Royce. Rolls-Royce supplies hours of flight time rather than aircraft engines; and the efforts by computer companies to sell cloud-computing services rather than a computer kit itself can be seen in a similar light. Strategies of such a nature are bound to impact the innovation pathways. Under such circumstance manufacturers usually pay close attention to the ways that the good may be used because the goods may in turn create new services. An example of this can be the monitoring of usage through new sensors and software that might promote new product services in providing customer support and equipment maintenance and disposal.
The proponents of the synthesis approach not only support the comparative studies of manufacturing and service sectors and examination of the service activities of manufacturing sectors but also for a close examination of innovation in services and service innovation. The merits of such an approach is that it places a huge importance on the insights from studies of both manufacturing and service industries, including both techno- and servo-approaches, to build a common conceptual framework, articulating an enlarged view of different types of innovation in different types of social and economic activity and organization. Reflectively, this means that the use of synthesis approach calls for a comprehensive analysis of innovation right across the economy. In comparison to the approaches mentioned above, the synthesis approach stands strong as it accounts for the variations across both goods and also values insights that the assimilationist and demarcationist approaches might overlook. However, some scholars estimate that they still do not know enough about the innovation patterns in the services sector to “synthesis” both perspectives to one single perspective.
Relevance of innovation approaches in contemporary times
The three approaches to service innovation have definitely helped in clarifying its evolution, which in turn has provides a clearer view of how the field has developed. As services continue to diversify, service innovation is becoming all-encompassing, thereby making the exact loci of service innovation research becomes more difficult. Over the past few decades, multiple industries have experiences considerable deregulation, especially in the field of information and communication technology. If industries continue to grow, which is the most likely the case, technological development is likely to blur the lines between service and manufacturing sectors further, enabling further service growth and thus more service innovation.
There is no doubt that services are gaining importance at very fast pace. Comprising of a huge chunk of the economy, the service sector has seeped into almost all economic activities. The growing significance of services in the economy has led to improvement in standards of living, productivity, and creation of jobs in the service sector. Whereas the service sector has often been characterized as a locus of low wage, unproductive, and un-innovative jobs, recent evidence gained through innovation surveys and better statistical data discredits this view, confirming that services are indeed innovative and, in some areas, more innovative than manufacturing. Such developments only signal the need for understanding service innovation at all fronts.
Although service innovation is seen as a “new service” there is a lack of evidence that suggests
that all firms develop service innovations. From a theoretical, practical or policy perspective it is not productive to assert that all firms are innovators, since it does not help an individual to understand how innovations can help to build brands, firms or societies. For example, in the assimilation perspective, innovation often means “radical technical innovation”; in the demarcation perspective, it often means “small process adaption” for a firm; in the synthesis perspective, it often refers to skills in new service development. Sharing an overall view of service innovation enables theory building and research to better operationalize service innovation in further empirical studies. Each of the approaches mentioned above reflect on how there is a dearth of knowledge with respect to the development of services. Innovation requires updates strategies and with the growing convergence between the manufacturing and services sector, this need has become even more pertinent. Thus there is a dire need to explore innovation processes and trajectories that cover a very wide range of activities. From a critical point of view, following one of the approaches will not suffice. Researchers must pay attention to the rapid developments in both manufacturing and service sectors and work on ways of how service innovation can be aided through new concepts and strategies over the coming years.