Proceedings of the Federated Conference on

Computer Science and Information Systems pp. 545551

ISBN 978-83-60810-39-2

Service Innovation Capability: Proposing a New Framework

Jens Pppelbu, Ralf Plattfaut, Kevin Ortbach, Andrea Malsbender,
Matthias Voigt, Bjrn Niehaves, Jrg Becker
European Research Center for Information Systems
University of Muenster
Leonardo-Campus 3, 48149 Muenster, Germany
Email: {jens.poeppelbuss, ralf.plattfaut, kevin.ortbach, andrea.malsbender,
matthias.voigt, bjoern.niehaves, joerg.becker}@ercis.uni-muenster.de

AbstractService organizations face the challenge of offering

their customers continuously improved or completely new services and, hence, require service innovations to sustain themselves in the market. We interpret the design and implementation of new or enhanced service offerings as a dynamic capability because the service organization is required to sense impulses for innovation, seize meaningful ways for change, and to
finally transform its operational capabilities to the desired state.
Accordingly, we propose a new framework which structures
service innovation capability into the areas of sensing, seizing,
and transformation. We further identify and describe the key
activities in all of these three areas based on an analysis of existing literature. With this conceptual paper, we contribute to a
better understanding of service innovation capability by
proposing a novel framework which is grounded in dynamic capability theory. This framework is beneficial to both practice
and academia. It offers an overview of service innovation capability areas and activities against which service organizations
can critically reflect their service innovation initiatives. As for
academia, it stipulates promising directions for future research.

I. INTRODUCTION

ERVICE organizations require service innovations in order to experience sustained growth, raise the quality and
productivity levels of services, respond to changing customer
needs and expectations, or stand up to superior competitive
service offerings [1][4]. They face the principle challenge
to offer the marketplace continuously improved, if not new,
services. [5, p. 275] Service innovations are value propositions not previously available to the customer and result from
changes made to the service concept and the delivery process
[6]. Researching the ways in which companies are innovating services is considered to be a top priority for the science
of services [7].
Several tools for service innovation or improvements have
been proposed, including, e.g., service blueprints [8], [9], six
sigma for service processes [10], and procedure models for
service design (e.g., [2], [11][13]). Still, the development of
new services is considered to be among the least understood
topics in the service management and innovation literature
[6]. What is lacking is a generic framework that depicts the
constituents of service innovation capability [7], [14], [15].

This paper was written in the context of the research project KollaPro
(promotional reference 01FL10004) funded by the German Federal
Ministry of Education and Research.

c 2011 IEEE
978-83-60810-39-2/$25.00

545

In this paper, we develop a generic conceptual framework

of service innovation capability. Thereby, we respond to the
call in the field of service science for general frameworks of
service innovation (see, e.g., [15, p. 181]). However, we do
not aim at adding another normative process model for service innovation, but draw on dynamic capability theory [16]
to describe what actually constitutes service innovation capability in an organization. Service innovation has recently
been studied from a dynamic capability perspective [14],
[17], [18] and we tie into this school of thought. The framework we propose abstracts from the many normative process
models for new service development (NSD) by identifying
three key dynamic capability areas and according activities
needed for successful service innovation.
The remainder of this paper is structured as follows. We
provide the theory background in the next section concentrating on both service innovation and the understanding of
service innovation as a dynamic capability. In section 3, we
develop our framework which outlines service innovation as
a set of abilities clustered in the areas of sensing, seizing, and
transformation. In the last section, we draw conclusions,
show the implications for research and practice, and provide
opportunities for future research.
II. THEORY BACKGROUND
A. Service Innovation
A service is the application of competences for the benefit
of another [19]. It is a time-perishable, intangible experience performed for a client who is acting as a coproducer to
transform a state of the client. [1, p. 240] Hence, the customer owns or controls inputs that the service provider is responsible for transforming according to mutual agreement [20].
The following characteristics are frequently mentioned
when defining services or distinguishing services from manufacturing. Services are intangible and perishable [2], [21].
Furthermore, the production and consumption of services is
not separable, i.e., both happen simultaneously because the
customer is involved as a co-producer [2]. Finally, services
are heterogeneous as they tend to differ in nature and quality
from time to time due to different employees as well as varying customer needs and input [21]. In addition, a distinctive
character of services is considered to be their process nature

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[9], [21]. However, our understanding of service innovation

is not limited by this perception. We agree with Vargo and
Lusch that goods and services are not necessarily mutually
exclusive [19].
Although early research on NSD frequently borrowed key
concepts from the tangible product development literature
[12], [15], [22], [23], it is argued that the development of a
new service is at least different if not much more complex
than the development of a new tangible product [13][15],
[24]. To give an instance, changes to the service concept
[25], i.e., the value proposition offered to the customer, and
changes to the service process are mutually interdependent
and considerably intertwined [26].
The management of service innovations comprises measures of both incremental (e.g., service enhancements or new
constellations of existing service characteristics) and radical
change (e.g., introduction of totally new services) [26][29].
Service concept and process changes can be driven by different causes, which include arisen or anticipated environmental
changes, market opportunities and internal capability evolution [22]. In this article, the term service innovation refers to
both the creation of a fundamental new service and the incremental change of existing ones. However, it excludes the
customization of service processes during an ongoing service
encounter.
The actual process of planning and implementing improved or new services is typically described as a deliberate
affair in which organizations follow a formal, methodological procedure with well-defined steps [15], [22]. In this regard, numerous normative procedure models have been suggested to guide service organizations in defining their approaches to service innovation [11], [13], [30]. Such models
comprise those activities, tasks, and information flows required of a service organization to conceptualize, develop,
evaluate, and prepare services for the market [6], [30]. Many
of these models outline a rather sequential process (e.g.,
[11], [30]) whereas other approaches emphasize the iterative
nature of service innovations that involves multiple circles of
process design and marketing program testing (e.g., [13],
[31]). Generally, it is expected that there is a performance
advantage for those service firms that have a formalized innovation process in place [6]. The actual take-up of normative NSD approaches in practice, however, is often considered to be limited [22]. Reports from practice show that
[service] innovation processes often gained a life of their
own which broke all planned organisational patterns [32, p.
445]. In the majority of service organizations, a distinct research and development (R&D) department does not even
exist [15]. In essence, the service innovation process tends to

be interwoven with the capabilities embedded in the processes and routines throughout an organization [14, p. 491].
Recently, some alternative frameworks have been suggested that aim at addressing the shortcomings of existing
service innovation models and the plethora of normative, sequential NSD models in particular. Stevens and Dimitriadis
[15], for instance, proposed a NSD model that focuses on organizational learning. Den Hertog et al. [14] draw from dynamic capability theory to identify six dynamic service innovation capabilities. Kindstrm et al. [18] and Fischer et al.
[17] also refer to dynamic capability theory in order to explain how manufacturing companies can extend their solution portfolio through service innovations.
B. Service Innovation as a Dynamic Capability
The Resource-Based View (RBV) of the firm argues that
organizations can be seen as collections of distinct resources
[33-35]. Following this perception, resources are most commonly framed as anything which could be thought of as a
strength or weakness of a given firm [33, p. 172], [33].
Moreover, we understand resources as an umbrella term covering both assets and capabilities. In this notion, assets are
anything tangible or intangible that can be used by an organization [34]. In contrast, capabilities refer to the ability of an
organization to perform a coordinated set of tasks for the
purpose of achieving a particular end result: a process [36].
An example could be an organization having access to gold
(asset), the machinery needed to mine gold (asset), and the
ability to use this machinery in an efficient and effective way
(capability). Hence, we understand capabilities as repeatable
patterns of action that utilize assets as input [34], [36], [37].
The RBV argues that organizations that have certain assets
and capabilities can achieve a competitive advantage as long
as these resources fulfill the VRIN conditions, i.e., they must
be valuable, rare, imperfectly imitable, and non-substitutable [38].
However, scholars argue that a mere focus on the VRIN
attributes is not sufficient for sustained competitive advantage, as this view might under-emphasize market dynamics.
A position of competitive advantage that an organizational
resource generates today cannot be sustained as changes in
the environment may lead to erosion of the resource or replacement by a different resource [39]. A stable resource
configuration cannot guarantee long-term competitive advantage as organizations have to adapt this configuration to the
market environment [40]. This argument is even stronger in
dynamic market environments where there is rapid change
in technology and market forces, and feedback effects on
firms [16, p. 512]. Hence, organizations need capabilities
that enable them to adapt their resource configuration. These
capabilities are called dynamic capabilities [16], [40][42].

JENS POPPELBUSS ET AL: SERVICE INNOVATION CAPABILITY

547

TABLE I.
SYNOPSIS OF SERVICE INNOVATION FRAMEWORKS

Source

Sensing Activities

Seizing Activities

Transformation Activities

[2]

Develop objectives for the service

process

Build and test a prototype of the

process
Implement the process

[11]

Formulation of new service objectives and strategy

Define process to be designed

Select design factors (i.e., process
type, layout, environment, capacity, quality, IT)
Idea generation
Idea screening
Concept development
Concept testing
Business analysis
Project authorization

[13]

Feedback and learning

Strategic assessment

[14]

Signalling user needs and technological options

(Un-)bundling
Co-producing and orchestrating
Dissonance

[15]
[30]

Develop a business strategy

Develop a service strategy

[31]

Audit the existing service system

Concept development
System design
Component design
Conceptualising

Interpretation
Test
Idea generation
Concept development and evaluation
Business analysis
Assess the new service concept
Define the new service system
processes and extent of change
Define the new service system
participants and extent of
change
Define the new service system
physical facilities and extent of
change
Problem resolution
Solution evaluation

[43]

Problem definition

Hence, scholars differentiate two types of capabilities

from one another: First, the basic functional activities of organizations are called operational capabilities. Such capabilities are, e.g., plant layout, distribution logistics, or marketing campaigns [39]. Operational capabilities are needed for
the operational functioning of the organizations and relate
closely to the original conceptualization of capabilities from
the RBV [41]. With relation to the understanding of operational capabilities as the ability to perform a coordinated set
of tasks for the purpose of the operational functioning of the
organization [36], [41], [44] we understand the provision of
services as an operational capability. Second, Teece et al.
[16] introduced dynamic capabilities as the abilities of an organization to integrate, build, and reconfigure operational capabilities as well as external competences to address rapidly
changing environments. Other scholars build on this conceptualization and argue that dynamic capabilities are a learned
and stable pattern of collective activity through which the organization systematically generates and modifies its operat-

Service design and testing

Marketing program design and
testing
Personnel training
Service testing and pilot run
Test marketing
Full-scale launch
Post-launch review
Implementation

Co-producing and orchestrating

Scaling and stretching
Learning and adapting
Implementation/Adoption
Routinization/Adaptation
Service development and evaluation
Market testing
Assess the impact of integrating
service systems
Assess the internal capability to
handle change

ing routines in pursuit of improved effectiveness [41,

p. 340]. Based on these arguments, we will understand dynamic capabilities as the firms ability to integrate, build, and
reconfigure operational capabilities for the purpose achieving a fit with the market environment. Building upon the understanding of providing services as an operational capability we can thus understand service innovation as a dynamic
capability enabling the adaptation of service processes to
changing environments.
Each dynamic capability contains sensing, seizing, and
transformation activities [16]. In the context of service innovation, sensing refers to the identification of the need to
change service operations or opportunities for service innovation, seizing refers to exploring and selecting feasible opportunities for change, and transformation is concerned with
the implementation of changed (or new) services in the organization. In line with this perception, we argue that scholarly
models for new service development, service engineering,
service innovation, or service design can be seen as specific

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descriptions of the dynamic capability service innovation.

Eventually, all phases of such models can be mapped in one
of the three classes of activities (Table 1).
III. SERVICE INNOVATION FRAMEWORK
We structure service innovation capability into three
classes of activities: sensing, seizing, and transformation.
Similar to recent research [45], we set out to identify different activities within each of these classes. For this purpose,
we consult existing literature on NSD, (service) innovation,
and organizational change.
Service innovation literature frequently suggests a
differentiation between ideas emerging within the early
phases of an innovation process (sensing) and concepts
which are relevant to a later stage of the process
(seizing/transformation) [11], [14], [30], [45][47]. In
contrast to this perception, we see idea generation and
concept development as being relevant for both sensing and
seizing and thus propose a differentiation based on
knowledge types. We refer to Berardi-Coletta et al. [48],
who, in their paper on metacognition and problem solving,
differentiate problem knowledge from solution knowledge.
From a dynamic capability perspective, sensing addresses
mostly problem knowledge due to its focus on identifying
that a service innovation needs to be achieved. In seizing, on
the other hand, primarily solution knowledge is of need
because the activities in this class focus on identifying how
this change is put forward within the organization. For the
transformation phase we adopt the concept of transformation
knowledge as presented by Pohl and Hadorn [49, p. 36] and
we thus refer to technical, social, legal, cultural and other
possible means of acting that aim to transform existing
practices and introduce desired ones.
In contrast to many of the available normative models for
NSD, we deliberately restrain from prescribing a sequence in
which the capability areas and activities should be linked to
each other. They are ordered in a way that is intuitively
comprehensible and may seem like the common waterfall
model [5]. However, we consider the capability areas and
activities of our framework to be relevant to all approaches
to service innovation, including, for instance, iterative
prototyping, as well as parallel or concurrent design
[5], [22].
A. Sensing
Sensing refers to the management of different sources of
information and knowledge that need to be translated into
leading problems and unmet service needs before a more
focused conceptualization of new service solutions follows
in the seizing phase [14]. Literature suggests that service
organizations should actively engage in sensing and establish
formal processes for this [30]. A general differentiation can
be made between sensing external and internal impulses for
service innovation. Service innovation is traditionally
considered to be triggered by a perceived gap between
market requirements and service delivery [22], [24] or the
option to translate technology developments into new service
propositions [14]. Moreover, competitors may serve as an
important source of ideas for new services [24]. The
externally stimulated identification of impulses for service
innovation focuses on market opportunities [50] and is in

line with the original understanding of sensing capability as

put by Teece [16]. In addition to this external perspective,
the internally stimulated recognition of needs for change is
also important [50]. The internal perspective implies that
inefficiencies in current service operations might exhibit the
need for change. Usually, such process weaknesses are
identified by the service personnel within the organizations
thanks to their direct involvement and comprehensive
process knowledge. Another internal impulse can be the
development of operational capabilities, sometimes even
accidentally, for which there is currently no estimable market
potential but which could be exploited by introducing new
marketing concepts [22]. The inward sensing of service
innovation impulses accordingly focuses on the avoidance of
internal operational losses (e.g., opportunity costs that would
occur if there are no returns from the operational
capabilities) [22]. Hence, sensing is not limited to the
outward look on customer needs, competitive service
offerings, and technological options but also covers the
recognition of internal deficiencies in service provision or
the exploitation of available operational capabilities. Both
the internal and external perspective of sensing mainly
include three key activities: 1) scanning, 2) evaluation, and
3) detailing.
Scanning has been described as a major driver for
innovation [14], [51], [52]. While most publications speak of
environmental scanning and thus take a rather external
perspective [14], we generalize this capability to comprise
the observation of both internal and external impulses.
Following Basadur et al. [53, p. 60] we define scanning as a
process of [] continuously and deliberately discovering
and surfacing new and useful problems to be solved. Den
Hertog et al. [14] refer to this activity as an intelligence
function, which typically resides in marketing, new business
development, innovation management or an IT department.
Scanning may require the constant dialogue with customers,
personnel, and technology providers [14].
Evaluating refers to the ability of an organization to
quickly screen a particular opportunity or need for service
innovation with regard to, for instance, the problem situation
as a whole [43], business objectives [13], [54] or general
feasibility [55]. This activity involves an initial decision
making whether a sensed impulse is worth further detailing
which is then followed by the development of possible
solutions [15]. Such a decision is typically made long before
an official development project is established [15].
The detailing activity refers to precisely defining the
problem and elaborating side conditions (e.g., technology,
legislation and cultural aspects) that need to be taken into
account within the development of possible solutions, e.g.,
by means of new service processes [52] or service concepts
[25]. Chai [43] refers to this step as problem modeling and
formation which includes the definition of an exhaustive set
of problem statements and the identification of functions that
the new service should fulfill for the customer.
All three sensing activities are not to be seen in strict
sequence as they may just as well be executed in an alternate
or iterative manner.
B. Seizing
As for seizing, we also identify three main activities from
literature: 1) solution development, 2) solution evaluation

JENS POPPELBUSS ET AL: SERVICE INNOVATION CAPABILITY

and selection, and 3) solution detailing. In service organizations, it is typically cross-functional teams that seize the opportunity for service innovation and jointly develop new services through cooperation [12], [15].
The activity solution development refers to the service organizations ability to generate different potential solutions
and thus to identify possible paths it could take in redesigning their service offerings according to the previously formulated problem. In service innovation literature this is referred
to by notions such as service process design [2], concept development [30], [46], [47], problem resolution [43], building
alternative solutions [15], or idea refinement [15]. The development of new solutions does not necessarily mean the
creation of completely novel service concepts but may also
consist in creatively rearranging existing services into innovative packages [30]. Basadur and Gelade [56] state that the
innovation process involves both convergent and divergent
thinking. Accordingly, we distinguish the rather divergent
task of coming up with options for new service development
(or packaging) from the more convergent activities of selecting a particular alternative. From this perspective, solution
development can be considered a more divergent activity.
On the other hand, the activity of solution evaluation and
selection is rather convergent in nature. Here, a company
needs established procedures that allow for informed decision making and thus for selecting the most adequate solution for a specific problem. Research found that, e.g., team
sizes and participation are important factors that influence
this ability [57]. Possible solutions, for instance, can be selected based on a comparison with an implementation-free
description of the [ideal] situation after a problem has been
solved [43, p. 54]. Estimates of the new service concepts
profitability usually also influence the selection to a large degree [46].
Similar to the third sensing activity, a detailing ability is
also required in seizing. Rough-cut service concepts that are
defined on an idea-level for new services are specified in detail. This involves the final determination of the to-be processes, procedures, facilities, information systems, participants, and behaviors that need to be put in place for the new
service offering [3], [15], [24]. Here, the development of a
comprehensive project plan for the implementation of the se-

549

lected solution needs to be put forward and implementation

project teams as well as control mechanisms have to be set
up [15], [54].
As with seizing, the activities of sensing will evolve in an
iterative process, stepwise refining and specifying the solution in actionable artifacts.
C. Transformation
Following Lewin [58], we divide transformation into the
three activities of unfreezing, changing, and (re-) freezing.
These activities are crucial as they path the way from ideas
and concepts to lived new service operations.
Unfreezing refers to breaking up existing work structures
which is an important aspect when implementing new service
processes and interfaces to the customer. Preparations have
to be made so that the acceptance of the new work practices
can be achieved, e.g., by actively communicating the
changes and benefits that result from them [59]. Furthermore, different types of resistance have to be addressed [60].
The changing activity refers to the actual implementation of
the new service offering. The key question here is how fast,
in which steps, at which locations and by what means new
work practices are to be adapted within the service organization and the distribution network [15]. Often, prototypes of
the new services are developed and tested before a full-scale
introduction to the public happens [30].
Finally, the freezing activity relates to all tasks necessary to
foster internalization of the newly implemented service processes. Here, for instance, continuous motivation [61] and
trainings [11] have been identified as possible drivers. For
the latter, Bashein et al. [62] state that once a new process is
established the people who will perform the processes need
training not only in the redesigned jobs but in new ways of
working together. Furthermore, the use of information systems (because software works in a defined way) and the use
of communication and promotion tools (through which customers adopt standardized expectations) can contribute to
freezing a new service [15]. The goal of this activity is to
achieve a routinization; this means that the personnel adopts
the new service offering and transforms the explicit knowledge about what the new service is like and how to deliver it
into tacit knowledge [15].

Fig. 1 Service Innovation Capability

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IV. CONCLUSION
Within this research, we proposed a comprehensive model
for understanding service innovation as a dynamic capability
of an organization. Based on a literature analysis focusing on
service innovation frameworks and procedure models for
NSD we were able to show that the majority of existing models comprise activities that can be mapped to the capability
areas of sensing, seizing, and transformation. Thus, dynamic
capability theory was confirmed as a valid perspective on
service innovation. We expect this new framework to offer
several benefits for both theory and practice.
From a practical point of view, the conceptualization of
service innovation as a dynamic capability helps to better understand the internal antecedents for service innovation
within an organization. The presented framework could enable managers to adequately assess and evaluate their service
innovation efforts with respect to their individual resource
endowments and the market environment. Furthermore, the
IT support for service innovation initiatives, which is considered to be lacking [5], could be adapted to fit the needs of
particular activities within the framework, or to provide more
general support for one of the capability areas of sensing,
seizing, or transformation.
As for theory, our research contributes to the field of services science in providing a solid framework for the analysis
of service innovation capability. A solid theoretical underpinning is oftentimes missing in related studies. Thus, understanding service innovation as dynamic capability is a valuable perspective, also for a wider array of research in this
area, e.g., on how to foster service infusion and growth, create and maintain a service culture, enhance service design,
and optimize service networks and value chains [7]. It opens
up several possibilities of applying proven models from
strategic management literature to the emerging and constantly growing research area of services science [1].
However, these contributions are beset with certain limitations. On the one hand, the presented research has to be classified as purely conceptual and, thus, lacks empirical evidence at this point in time. While the developed framework
is grounded in theory, we generally describe possible capability areas of service innovation and explicitly do not give
normative recommendations. As a theoretical model, the
framework raises the following questions which have to be
addressed in future empirical studies: What is the impact of
every single capability area on service innovation capability
as a whole? How can the success of service innovation as a
dynamic capability be adequately measured? What is the impact of the dynamic capability on the business success of service organizations? Moreover, service innovation capability
is reflected in collective activities. Hence, the aspect of collaboration shall be subject to further investigation. In this
context, concepts from boundary spanning theory could provide a differentiated perspective on collaboration [63].
Hence, future research could (and should) focus on evaluating the specific implementations of the described activities
in practice. In this regard, the support through IT and sys-

tematic methodologies that are possibly utilized for service

innovation are of particular interest. Furthermore, by comparing new service development efforts and service improvement endeavors within an organization, research could investigate possible differences as regards the relevance of certain
capability areas and activities.
V. ACKNOWLEDGEMENTS
This paper was written in the context of the research
project KollaPro (promotional reference 01FL10004) which
is funded by the German Federal Ministry of Education and
Research (BMBF).
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