A service can be defined as an economic activity offered by one party to the other by employing time based performances to bring out desired results in recipients. Services are fundamentally different from products due to their many inherent characteristics like intangibility, inseparability, and persishability (Gallouj and Weinstein 1997). The importance of the innovation process in the longterm growth of a business and the prominent role being played by service activities in the global economy have made innovation in the service sector a matter of great importance.
INNOVATION IN SERVICES
The traditional view among researchers was that services were considered to be unproductive and of low capital intensity. Services were also considered to be incapable of innovating and just limit themselves to imitating or adopting the innovations originating in the manufacturing sector (Gallouj 2002). This myth on innovation in services was similar to the myth that service brands need to adopt the same positioning strategies as that of the brands for physical products (Baek and Kim 2010). This false myth regarding innovation in services made innovation in services to be under researched when compared to the research related to innovation in manufacturing. The unique nature of services when compared with products had lead to the development of a false myth among researchers and practitioners that services are not able to produce any innovations on their own or that they can’t do it autonomously in a visible way (Gallouj 2002). Basing mostly upon the past research in services, Gallouj (2002) say that it was wrong to see innovation in products and services as basically irreconcilable. According to an empirical study on innovation in the service industries by (Sundbo 2006) it was found that service firms do innovate by rarely have their own R&D departments. Innovation is generally done through a unsystematic search-and-learn process which gives a false notion to outside observers that service firms don’t innovate adequately. Research for the study was done through the development of a taxanomy of innovations in leading service firms of the world.
There is infact some fact in the argument as services are enormously diverse, occupy the top and the bottom of the economy, and provide the best and worst jobs in the economy. But many service firms are small and mostly compete in the local markets with other related firms. Their relatively smaller size when compared with their manufacturing counterparts make them unsophisticated with regard to their technology base, innovation strategies, and organizational arrangements. It was generally argued by researchers and analysts that smaller service firms are often locked into this situation by a combination of weak managerial and work force skills and undemanding customers who don’t expect too much from smaller service firms with limited resources to innovate further.
In contrast, some of the service firms are among the most sophisticated businesses in the world. These sophisticated service firms are generally bigger service businesses who have the resources to come out with their own innovations. For E.g. service firms like McDonald’s developed their service processes to serve their customers more efficiently. In a literature review of innovation in the service sector, Salter and Tether (2006) say that service firms who are at the forefront of new innovations can be classified into two types, viz. systems firms and knowledge intensive service firms. Systems firms are typically large service businesses in industries like banking, insurance, branded restaurant chains, airlines, and retailing businesses. These service firms are based on very detailed division of labor, have sophisticated operating routines, heavy dependence on technologies, and advanced use of logistics. New technologies developed by these service firms have drastically transformed these industries. For E.g. the introduction of direct selling of insurance products by a new firm ‘Direct Lane’ lead to the transformation of the industry in the late 1980s and 1990s. Knowledge intensive firms are at the heart of many path breaking innovations in the service sectors. These firms exist in service areas like engineering, advertising, accountancy, market research, and management consultancy. These firms are heavily reliant on the knowledge and expertise of their professional employees. They are generally project based and come out with solutions in close connection with their clients. Innovation activities of these firms generally tend to be open and networked rather than closed and restricted within a single firm. Another interesting feature of innovation in services is that it tends to be more open and distributed rather than being coming out of a single firm acting alone. Service industry generally builds up on the incremental innovations that are advanced by the multiple firms which form part of the industry. In other words, it depends on multiple firms acting in tandem. For example, the delivery of orders in the American fast-food industry was incrementally developed by multiple players in the industry working it tandem.Even though not being tangible with concrete, visible evidence, innovation in service firms has the potentiality to give excellent benefits to the firms that can put strong emphasis on it.
To conclude, there is no simple divide between manufacturing and services in the sense that there are two distinct manufacturing mode of innovation and services mode of innovation. There is an increased blurring of activities as many manufacturers seek to compete through provision of services and many service providers look to manufacturing as a means of generating efficiencies in their activities. The way in which innovations have transformed the service industry in the recent had certainly belied the false myth that major innovations don’t happen in the service industry. But in contrast to manufacturing sector, innovation in services is incremental and carried out by multiple firms working in tandem. Managers of service firms needs to understand the importance of innovation and try to come out with innovations which make sense for the businesses. Coming out with suitable innovations related to service firms involves thinking out of the box and not copying the innovations in the manufacturing sector. Proper adoption and use of latest technology is another key for coming out with proper innovations relevant to the service sector.