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JOSM RESEARCH DIRECTION ARTICLE

23,5
Shaping, organizing, and
rethinking service innovation:
696
a multidimensional framework
Received 12 May 2012
Revised 27 June 2012
Luis Rubalcaba
Accepted 1 July 2012 Department of Applied Economics, University of Alcala, Madrid, Spain
Stefan Michel
Department of Marketing and Service Management, IMD International,
Lausanne, Switzerland
Jon Sundbo
Department of Communication, Business and Information Technologies,
Roskilde University, Roskilde, Denmark
Stephen W. Brown
Center for Services Leadership, Arizona State University,
Tempe, Arizona, USA, and
Javier Reynoso
Service Management Research,
EGADE Business School – Monterrey Institute of Technology,
Monterrey, Mexico

Abstract
Purpose – The purpose of this paper is to review key research contributions that may be useful for
rethinking service innovation. Service innovation is not a monolithic construct; therefore, the
opportunities for further research are multidimensional and interdisciplinary.
Design/methodology/approach – A summary analysis of extant literature identifies valuable
contributions and fundamental methodological issues from various perspectives. The proposed
directions for future research entail where to innovate, how to innovate, and what to innovate in services.
Findings – The analysis and discussion lead to a multidimensional framework of service innovation,
with a particular emphasis on organizational and customer cocreation perspectives.
Practical implications – This article contains guidelines and real-world examples to help
practitioners and policy makers develop service innovation strategies through the consideration of
different levels, organizations, and perspectives.
Originality/value – This article offers a relevant source of ideas and guidance for anyone interested
in research and practice related to rethinking service innovation.
Keywords Service innovation, Strategic framework, Dimensions, Process perspective,
Customer cocreation, Innovation, Customer service management
Journal of Service Management Paper type Research paper
Vol. 23 No. 5, 2012
pp. 696-715
q Emerald Group Publishing Limited
1757-5818
Javier Reynoso would like to acknowledge the collaboration of senior researcher Karla Cabrera in
DOI 10.1108/09564231211269847 the preparation of this manuscript.
Introduction Rethinking
The complex field of service innovation represents a cross-road for various research service
interests from different academic disciplines that explore multiple dimensions, follow
unique approaches, build varied conceptual and analytical frameworks, and adopt innovation
distinct perspectives. This complexity continues to produce new trends, such that
service innovation is no longer relevant only for service organizations. Rather, it refers
more broadly to an innovation by any organization through service, as exemplified by 697
the evolution of service strategies in manufacturing (Gebauer et al., 2012).
Simultaneously, the service-dominant logic offers a new paradigm that invites a
focus on innovating customers, rather than services per se. With this perspective,
service innovation is not just a new offering but rather improved customer value
cocreation (Michel et al., 2008b; Ordanini and Parasuraman, 2011).
The emerging forms of evidence thus need to be collected, understood, and
synthesized to continue to make progress in this knowledge area. For example, the
Handbook of Innovation and Services (Gallouj and Djellal, 2010) reveals the service
innovation construct as multidimensional, without any dominant paradigm, despite
multiple attempts to create a convergent service innovation theory. These efforts also
imply the need to develop integrative frameworks that might provide simplified,
valuable guidance and also identify where additional research should focus.
In response, we offer a review of key research contributions on service innovation to
propose a rethinking of the concept. We begin by developing a multidimensional
framework, with the goal of simplifying and clarifying the complexity that marks existing
knowledge, such that we can determine where to innovate. In turn, we adopt a process
perspective for organizing service innovation issues; the resultant strategic innovation
model suggests how to innovate. In a third part, we propose customer cocreation logic as
an alternative perspective on service innovation, and we illustrate different options for
what to innovate. Finally, we discuss the future of service innovation research by
highlighting methodological issues, challenges, and limitations that are relevant to the
different dimensions and perspectives we have presented throughout this article.

Service innovation distinctiveness

Service innovation research comprises different approaches and perspectives.
To understand its nature and dynamic behaviors, we thus need a rather
comprehensive approach. An analysis of the distinctive characteristics of service
innovation reveals three different dimensions, as we illustrate in the framework shown
in Figure 1. First, the sectorial dimension refers to innovation applied to industries
within the service sector. Second, the activity or business dimension entails activities
related to service innovation, regardless of the type of sector in which they are located.
Third, an agent dimension implies that the service innovation is a result of some
coproduction among different agents. In addition, we identify key elements that
facilitate innovation through service and interact across dimensions.

Sectorial dimension
In our proposed framework, the sectorial dimension relates to innovation within the
service sector, whether public or private. Such innovations span macro- and
meso-economic levels, in that the service sector represents approximately 70 percent of
total employment and the number of enterprises in the European Union (EU), the USA,
JOSM
Sectorial dimension
23,5 Innovation in services
Service industries in private
and public sectors

Intersectional linkages Blurring sectorial frontiers &

Multi-agent cooperation services integrated in any
698 & coproduction economic activity

Innovation through services

Agent dimension Activity dimension

Service innovation Service-oriented
networks Innovation in business
Among different players Any kind of business

Figure 1.
Multidimensional Complementarities
framework of service among different agents.
innovation Open service innovation.
Social innovation

and other developed regions. The most advanced economies are service
sector-oriented, and innovation at this macro- or meso-sectorial level can affect the
bulk of societies. Innovation is key for services to overcome traditional myths (Gallouj,
2002) based on old theories (e.g. The Wealth of Nations in 1776) that assume their low
capacity for productivity, innovation, and trade. Service innovation also improves
public and social services (Windrum and Koch, 2008). In short, at an aggregated level,
service innovation implies innovation in the most important sector of both developed
and emerging economies.
Research on innovation in service industries also offers several key contributions to
the more general understanding of service innovation. For example, emerging
definitions of service innovation largely rely on definitions of the specific
characteristics of service innovation. Miles (1994, 2000, 2005), Tether (2005),
Evangelista (2006) and Howells (2010) note key specificities of service innovation, in
comparison with pure goods innovations, including modes of innovation, inputs,
outputs, risk, appropriation issues, and impacts. Rubalcaba et al. (2010b) demonstrate
the differences between service innovations and innovations in goods empirically,
using Community Innovation Survey data at the sectorial level. For example, the use of
formal R&D or patents systems are much less relevant in service-based firms than for
goods-based ones. Furthermore, heterogeneity arises across subsectors and indicators.
The characteristics we consider are valid for the full range of services as such, though
within service industries, diversity also stems from the different roles of
standardization and particularization (Tether et al., 2001).
Activity dimension Rethinking
The distinctive characteristics and specificities of innovation may change when we service
consider service-oriented business innovation. At this activity level, as shown in the
framework of Figure 1, the distinctions between service innovation and goods innovation innovation
blur and may become irrelevant, because the role of services goes beyond the boundaries
of the service sector at this micro level. As sectorial frontiers collapse, products
increasingly offer a mix of services and goods, and services are relevant dimensions of 699
economic activity in every sector, such as agriculture or manufacturing. This distinctive
characteristic of the new service economy (Rubalcaba, 2007) pushes service innovation
as a key issue for service research, as well as an essential component of manufacturing
and service firms’ efforts to become more efficient and competitive. Therefore, service
innovation in this dimension is just as important as that in the sectorial dimension;
it simply refers to a particular approach to business innovation. Because a
service-oriented innovation can be produced in any type of business or sector, in
contrast with the sectorial dimension, frontiers between industries no longer matter here.
This approach to service innovation started with Schumpeter (1934, 1942), who
considers innovation essential for evolving capitalism, for which an entrepreneurial
nature is central. Innovation leads to new products, new processes, new organizational
forms, new markets, and new sources of production inputs. Although Schumpeter does
not mention service innovation explicitly, he explains dimensions of the innovative
process that can integrate service innovation, because they include marketing and
organizational innovation. However, the coproductive nature of services has prompted
current definitions that are less supply and more demand oriented, such as that
proposed like the one given by Den Hertog (2010)[1].

Agent dimension
Most works defining service innovation and focusing on specificities adopt business or
firm perspectives. Yet service innovation also involves different agents, not just isolated
firms or public bodies. In this dimension, as shown in Figure 1, a service innovation can
be the outcome of innovation networks in which different agents cooperate to coproduce
a service-based innovation result. Various considerations of service innovation
networks rely on applications of multi-agent frameworks proposed by Gallouj (1994,
2002) or Windrum and Garcia-Goñi (2008), which also can be adapted to an evolutionary
view of service innovation (Windrum, 2009) that recognizes evolutionary efficiencies or
inefficiencies (Pyka, 2010). This theory deserves to be extended and tested from an
evolutionary perspective to reinforce service innovation knowledge.
In practice, the EU ServPPIN project has analyzed public-private service innovation
networks (Rubalcaba et al., 2011). These findings suggest that the agent dimension also
reflects the concepts of open and social innovation, as recently applied to services
(Chesbrough, 2011a, b). Both concepts highlight that service innovation must be
coproduced with end-users (i.e. user-driven innovation, see Von Hippel (2005)), as well
as other external sources of knowledge (Gallego et al., 2012). Yet open innovation
remains more a forthcoming trend than a reality, because traditional innovation inputs
still prevail, even in radical innovations (Windrum et al., 2011). For services, social
innovation may be a more appropriate concept; regardless of the specific approach
though, the key insight is the critical role of a customer’s cocreation perspective, as we
discuss subsequently.
JOSM Intersection of dimensions
23,5 At the intersection of the innovation in services (sectorial), service-oriented innovation
in business (activity), and service innovation networks (agent) dimensions of the
proposed framework, we also find elements that help promote innovation in all areas,
whether through services or a particular use of services. For example,
knowledge-intensive business services can explain innovation in services, service
700 innovation across economic activities, and service innovation networks (Rubalcaba and
Kox, 2007; Rubalcaba et al., 2011). New technologies and their associated services also
play an important role here. Despite the growing interaction with new technologies
(Gago and Rubalcaba, 2006), especially information and communication technologies
(ICT), most service innovation remains non-technical (Gallouj and Djellal, 2010).
Trends indicating a growing use of ICT appear consistent with the importance of
organizational innovation, closely related to service innovation, though it varies with
the size of the firm (Gallego et al., 2012). Another modern characteristic of service
innovation is its capacity to transform the value-added chain (Hipp et al., 2012) and
thereby generate new and better businesses. For example, service providers may be
essential to promote innovation changes and outcomes for clients, which enhance their
business performance.
A final characteristic of service innovation reflects its role in policy. That is, policy
makers are critical to service innovation, and its characteristics and transformative role
have attracted more of their attention. The EU and United Nations (2011) thus propose
frameworks for policy actions; countries such as Finland (Kuusisto et al., 2006;
Tanninen-Ahonen and Berghäll, 2011) are leading the way in developing service
innovation policies. Justifications for such policies note the threat of market and system
failures (Den Hertog et al., 2008; Rubalcaba, 2006, 2011; Rubalcaba et al., 2010a) and
suggest the need for a service innovation policy menu (Den Hertog and Rubalcaba,
2010). Such service-friendly policies can emerge from a consideration of service
innovation as a systemic dimension of any innovative system.
In summary, the three dimensions of the service innovation framework reveal some
of its distinctive characteristics, such as different modes of provision, relative
differences with goods innovation, complementarities with ICT and organizational
innovation, and spaces for specific policy actions. The service innovation field is rich and
diverse, and we highlight its distinctive, complex, and polyhedral nature (Gallouj and
Djellal, 2010; Gallouj and Savona, 2010). The various levels and approaches to service
innovation in turn underlie the research directions we discuss subsequently. We also
highlight that the three service innovation dimensions we identify in Figure 1 occur
simultaneously; they are systematically interrelated, without any particular hierarchy
among them.

Organizing for service innovation: a process perspective

As discussed earlier, the distinction of service innovation also appears at the firm or
activity level of analysis. Service firms develop both radical and incremental
innovations, which tend to involve improvements to existing service products, changes
to processes, or adjustments to personnel behaviors. We consider how firms carry out
such innovations by investigating a managerial framework for determining the
innovation process, a strategic innovation framework, and the way in which employees
drive the innovation process.
Strategic service innovation model Rethinking
Case study research has developed a general theoretical understanding of the organization service
of innovation activities in service firms, or strategic innovation theory (Sundbo, 1998,
2001). This general approach applies across service industries and regions, and even to innovation
manufacturing. However, it is particularly applicable to service firms, such that the
strategic innovation theory framework appropriately explains service innovations.
The presence of a stream of incremental innovations implies that a service firm’s top 701
management not only involves employees and managers in the innovation process but
also guides that process. That is, strategy frames the process. Strategic service
innovation theory thus describes innovation as a stream of incremental innovations that
emerge from the service firm’s employees, often as a result of their customer encounters,
or are initiated by the top management team. These many incremental innovations
must be coordinated, reproduced, and exploited, which becomes a management task.
In turn, service firms adopt a dual organization of innovation activities (Sundbo, 1998,
2001), involving both top-down and bottom-up processes. In the latter, employees and
managers develop ideas and attempt to promote them; top innovation management must
both induce and balance the innovation processes (Sundbo, 1996). The management
team uses a strategy to achieve this balance and decide which ideas to promote,
though the strategy is continuously evaluated, using assessments of implemented
innovations and market developments. The resulting strategic, reflexive process
involves many people in the organization (Sundbo and Fuglsang, 2002). We summarize
this process perspective of service innovation in the conceptual model in Figure 2.
Employee-driven innovation. Within the strategic model, employee-driven
innovation appears particularly important for services (Sundbo, 1998, 2008b). In a
sense, employees are equivalent to technology in manufacturing: they carry out the
acts that constitute the service “product,” and they have the knowledge needed to
perform those actions. Employees use technology but often in an auxiliary manner.
Their influence appears less in self-service scenarios, such as online service provision,
but even in these situations, communication between employees and customers is
important (Sundbo and Toivonen, 2011) and can enhance customers’ perceptions of
quality while also suggesting ideas that can lead to innovations.

Management
Strategy

Inducing - Balancing

Innovation
processes

Employees
Entrepreneuring - Implementing

Innovation Figure 2.
processes
Strategic innovation
model of innovation
Customers processes in service firms
JOSM Employees involved in user-based innovation. User- or customer-based innovation has
23,5 received significant emphasis in customer perspectives on service innovations
(e.g. service-dominant logic; Vargo and Lusch, 2006), yet employees remain important
in these settings (Sundbo and Toivonen, 2011). When customers participate as
coproducers, they might not easily offer ideas for innovations, because they rarely
know the solution to their problems. Instead, service firms can benefit from their
702 advantage over manufacturing firms, which stems from their personnel’s direct
interactions with customers. Service personnel gain knowledge about customers’ lives
and problems (whether consumers or businesses), such that they interpret the need
situation accurately and accordingly develop ideas for new services. However, this
situation also suggests that the innovation process meets internal organizational
barriers, such as conflicts, resistance, and an inability to perform multiple tasks
(e.g. if employees must perform their normal duties while also participating in
innovation activities). These hindrances can slow or stop the innovation process,
especially if management fails to make decisions at the right time (Sundbo, 2010).
Because employees and customers thus appear complementary for service
innovation, it is important to keep an employee perspective in mind, even when the
customer perspective is the focus.

Rethinking service innovation: a customer cocreation perspective

A traditional industrial logic applies principles developed in the product innovation
domain to service innovation, congruent with the conceptual heritage of the service
marketing field, which was developed on the basis of traditional distinctions between
products and services (Fisk et al., 1993; Zeithaml et al., 2005). Although a customer
orientation is integral to this view, the predominant focus has been on the offering, or
“new” service (for a review, see Audhesh et al. (2009)). Essentially then, this approach
represents a goods-dominant logic (Vargo and Lusch, 2004, 2008).
In contrast, the cocreation logic focuses not on the new offering but on improving
customer value (Michel et al., 2008a, b; Ordanini and Parasuraman, 2011), in line with the
two central propositions of the service-dominant logic (Vargo and Lusch, 2008, p. 7): “the
customer is always a cocreator of value” and “all social and economic actors are resource
integrators”. Accordingly, as Christensen et al. (2007, p. 2) put it: “The customer simply has a
job to be done and is seeking to ‘hire’ the best product or service to do it.” Because customers
are not passive recipients of value, but rather active cocreators who integrate value from
different sources, they are not interested in what the service is – that is, value in exchange –
but rather in what the service does in relation to their cocreation, which reflects the notion of
value in use. The proper unit of analysis for service innovation then is not the service
offering itself but rather the “service system, which is a configuration of resources including
people, information, and technology, connected to other systems by value propositions”
(Vargo et al., 2008, p. 145). The study of service systems or value constellations (Normann,
2001; Normann and Ramirez, 1993, 1994), which we consider synonymous in this article,
thus may offer promising developments for service innovation (Michel et al., 2008a, b).
This perspective on service innovation largely has resulted from case-based
research approaches that investigate only those innovations that:
.
significantly changed how customers cocreate value (value-in-use criterion); and
.
significantly affected market size, prices, revenues, or market shares
(value-in-exchange criterion).
These cases also display two types of analyses. First, some studies consider Rethinking
different cocreation roles, such as user, payer, and buyer. This typology applies to both service
individual and organizational customers, and depending on the context, the same person
might perform all three roles (e.g. a consumer who buys his or her own an airline ticket innovation
and then flies) or accept unique roles. If, for example, a mother buys a shirt for her son
with the money his grandmother gave him for his birthday, the mother is the buyer, the
son is the user, and the grandmother is the payer. In business markets, a manager might 703
buy a computer for his or her own use and pay for it from his or her own budget.
Alternatively, to acquire a fleet of computers, the firm might rely on a buying center
composed of separate users, buyers, and payers (for a detailed description, see Sheth
(2002) and Sheth and Mittal (2004)). A service innovation changes at least one of these
three roles, as the columns in Table I show. Second, other studies shift the unit of
analysis from the customer to the firm, which innovate customers’ cocreation roles
through smart offerings, value integration, and innovative value constellations, as the
rows in Table I indicate. The smart offerings increase the intelligence of the offering by
integrating expert knowledge; value integration changes the division of labor between
the provider and the customer; and innovative value constellations change the interplay
among more than three market players. In accordance with such inductive, case-based
research, Table I captures nine service innovation fields (Michel et al., 2008b). No
existing cases cover all nine cells, but each service innovation involves at least one cell.
This cocreation approach can explain service innovation in a very diverse set of
cases. For example, the role of the diabetes patient is significantly improved through a
smart offering, i.e. a glucose monitoring system. The University of Phoenix significantly
changes the student’s role of the user (i.e. the learning process) through a change in the
firm’s value integration. The content of the sessions are not shared in a physical
classroom with direct interaction, but through media over the internet. Note, however,
that the buyer’s role (admission process) and the payer’s role (tuition payment) is not
very different than traditional universities. In contrast, the initial value proposition of
Netflix, DVD rental by mail, has changed the user role, the buyer role and the payer role,
compared to the traditional Blockbuster model. Through the recommendation feature,
it is easier to find a good movie, and it is conveniently home delivered (buyer).
The subscription pricing avoids late fees and other surprises (payer). All together,
customers enjoy good movies whenever they want, without any time pressure (user).
Innovations in the payer role can also be found in the case of EZ-pay, where drivers
pay road toll monthly based on an electronic measuring system, and at priceline,
where companies offer discounts through reverse auctions. Cases of innovations of the
buyer role are smart shopping carts and multiplex cinemas, where with several screens

Unit of analysis: customer cocreation

User Payer Buyer

Unit of analysis: firm’s value

proposition
Smart offerings Glucose monitoring systems EZ-pay (road toll Smart shopping
pricing) carts Table I.
Value integration University of Phoenix (online Priceline Multiplex Rethinking service
teaching) cinemas innovation: the cocreation
Value constellation Netflix Netflix Netflix perspective
JOSM at the same location, moviegoers can decide on the spot which movie to watch, and do not
23,5 need to plan ahead anymore (Michel et al., 2008a, b). However, as a more important
contribution, it offers a starting point for systematically exploring service innovation
opportunities. Two additional cases might help clarify the difference between a
traditional innovation approach, which improves attributes and features of a service,
and the cocreation approach.
704 First, the dominance of Apple over Nokia in the mobile phone market might be
attributed to a better bundle of product offerings, such as iPhone’s touch screen, together
with improved designs and services, such as iTunes. But the cocreation perspective goes
further and acknowledges that Apple’s value constellation also encompasses many more
actors, including movie studios, musicians, universities, and software developers, through
its App Store and iTunes Store. Apple also successfully leverages customer resources.
Customers can compile their favorite playlists better than studio executives, which means
that the App Store, iTunes, and Apple hardware change users’ cocreation roles, enabling
them to combine different tasks simultaneously (e.g. taking pictures, using photo editing
software, posting pictures on a social network platform, and ordering a customized photo
book). Apple also has changed the payer role, because all financial transactions are routed
through an iTunes account. Finally, the buyer role becomes simplified, because all
applications are purchased in the Apple store.
Second, the Swiss company Bossard, a distributor of fasteners (e.g. screws, nuts,
bolts) provides a business-to-business case example. It has successfully defended its
superior margins, despite price pressures, because its innovation approach is not limited
to how to improve the service of delivering the right fastener at the right time for the
right price – which all its competitors already work to do. Instead, Bossard might help a
train manufacturer design, produce, and operate better trains, which implies an
innovation of the user role. Involving Bossard engineers in the R&D and design process
during the building of a new train model usually decreases the number of fasteners
required, which also innovates the buyer role. Finally, Bossard provides an estimation of
the savings achieved through logistics. If it cannot deliver these suggested savings, it
renegotiates the contracts, an innovation for the payer role.
In summary, the cocreation perspective on service innovation presented in Table I
considers innovative value cocreation with the customer, rather than on an innovative
service offering by the firm. It thus is congruent with the service-dominant logic paradigm,
in which cocreation does not simply mean that customers become actively involved in the
innovation process. Rather, it implies that ultimately value is always cocreated by
customers, and a service innovation improves at least one of the customer’s cocreation
roles, whether user, buyer, or payer.
The preceding discussion thus confirms that service innovation is a
multidimensional construct, without a dominant paradigm. That is, we have
considered three dimensions of service innovation, to address the question of “where
to innovate?” We also considered “how to innovate?” by offering a process perspective.
Finally, to answer “what to innovate?” this article has proposed a cocreation logic as an
alternative to the industrial logic. With these questions and answers in mind, we turn to a
discussion of continued research by highlighting the methodological issues, challenges,
and limitations that are most relevant to the dimensions and perspectives we have
presented herein.
Further service innovation research Rethinking
Although service innovation research is not new – studies began in the 1980s, service
and some recent publications offer good summaries of key issues (Gallouj and Djellal,
2010) – the space remaining for continued research is quite vast. innovation

Toward an open and social Agenda

With regard to the dimensions included in the framework of Figure 1 and summarized in 705
the first section of this article, we perceive four major research directions with great
promise. First, specific industry-based studies should address particular service sectors.
Although innovation in some service sectors (e.g. telecommunications, financial
services) has been widely researched, other sectors suffer from a distinct lack of research,
such as distributive trades, tourism, professional services, and public and social services.
Second, at the activity dimension, further research should determine how business
services might transform organization and their performance, as well as specifically
how various services contribute to these effects. For example, despite some compelling
contributions, research into the private, knowledge-intensive business service
subsector (Rubalcaba and Kox, 2007) is not comprehensive and still suffers from
gaps, such as those related to the explanation of links to final users. Furthermore, these
results might not apply to public service or services that involve non-market behaviors.
The limited research on service innovation in public services (Windrum and Koch,
2008) in particular requires extensions. We thus note and encourage the growing move
toward a more comprehensive, systemic, and social approach to service innovation,
such that research covers more social areas, different actors, and public sectors.
Third, in relation to the agent dimension, we call for research that clarifies the link
between service innovation and social innovation. Social innovation entails the full
integration of services into society, related not just to businesses and their innovation
processes but also users and other external sources. The BEPA-Hubert (2011) report
offers a good heuristic definition: social innovations are social in both their process and
their outcomes. Thus, the creation and implementation of social innovation should entail
new or improved services that result from interactive processes among different agents.
Fourth, beyond the specific dimensions, we perceive several key topics for further
research, some of which also were identified through the EU’s ServPPIN project
(Rubalcaba et al., 2011):
.
Identification of concepts and indicators of service performance and innovation
gaps.
.
Service innovation impacts, such as the transformative power of service innovation
in value-added chains and global systemic values; the role of services and service
innovation in emerging sectors such as the environment, digital economies, and
new social services; and measures and qualitative assessments of service and
organizational innovation.
.
Resources for service innovation, including new skills, competences, and
capabilities; business services and innovative interlinkages between services
and industry; standards; and ICT and complementarities between technical and
non-technical innovations.
.
Social innovation in services, such as open innovation and user-driven innovation;
disruptive changes in consumers’ behavior as drivers of service innovation;
JOSM service innovation and public procurement; service innovation and welfare;
23,5 and the role of quality and accessibility in addressing societal needs.

Particular attention should focus on the first of these topics, especially the role of
“invisible” performance and innovation, to address current gaps in service innovation
research (Djellal and Gallouj, 2010). What is visible is only a small part of the full picture
706 of service innovation. Knowledge gaps in service research run in parallel with statistical
gaps pertaining to how to measure nontraditional innovation and performance. These
methodological and statistical gaps both demand closure before we can deal fully with
service innovation topics.
Furthermore, the “hot” service innovation topics are so new that they demand new
methodologies, new theories, and new empirical settings. For example, should research
adopt an assimilation approach, and use the theories, tools, and methods that appear in
prior industrial innovation research, or should it follow a demarcation approach and
create new tools and methods to understand the specific nature of service innovation?
Most service innovation scholars (Den Hertog, 2010; Gallouj and Djellal, 2010;
Rubalcaba, 2011; Tether, 2005; Windrum, 2009) seem to prefer a synthesis approach,
such that they combine existing methods and tools with new and specific ones that
might offer a better view of the service innovation reality.

Focusing on organizational processes

In accordance with our organizational process model, we derive some key issues for
research, as well as some critical challenges that service firms face.
Systematic organization of innovation activities. Different approaches to traditional
innovation might be merged in a synthesis approach to service innovation (Gallouj,
1998). In this case, service and manufacturing firms both would make their innovation
processes more systematic, research-based, and focused on customers and employees.
In turn, research could address how firms should make their innovation processes
systematic. Yet science still lacks models and results to offer such insights, so service
firms are left to experiment with new forms of innovation, such as value chain
innovation (Sundbo, 2011) or service laboratories (Sundbo and Sørensen, 2013).
Even if service innovation processes get supplemented with “back office” processes,
customer and employee involvement should remain the focus (Sundbo, 2010; Sundbo
and Toivonen, 2011). Research into customer and employee involvement in innovation
thus may take new forms, not just based on a traditional service encounter logic but also
reflecting deeper psychological, anthropological, and sociological views on the
behaviors of users and employees in a service encounter. For example, efficient
innovation may require employees to understand customers’ overall situation,
according to an anthropological or business economic framework, such that their
user-based ideas arise from their interpretation of that situation (Sørensen et al., 2010).
Research also should address employees’ ability to exhibit social and economic
empathy, and service organizations’ ability to convert that empathy into innovation.
Even experience elements are important to customers, so creative and experience
activities should be part of any innovation organization (Sundbo, 2009; Sundbo and
Hagedorn-Rasmussen, 2008).
Organizing manufacturing firms’ innovation. Service functions within
manufacturing firms, or these firms’ redefinition as service firms – referred to
variously as servitization (Baines et al., 2009; Neely, 2008; Vandermerwe and Rethinking
Rada, 1988) and service-driven manufacturing (Gebauer et al., 2012) – pose new service
questions for service innovation research. We need models of innovation of services as
add-ons or supplements to goods delivery, as well as of the transformation into a service innovation
firm. Understanding the service functions within manufacturing firms, organizational
processes, and conflicting organizational cultures all represent relevant research topics.
Technology’s increasing role. Technology plays an increasing role in services, 707
especially knowledge-intensive ones, leading to increased self-service efforts and
pressures for service standardization and mass production (Sundbo, 1994, 2008a).
It also implies that more innovation is located in IT departments, characterized by a
manufacturing technology push and R&D. That is, data scientists adopt an
“engineering” approach to innovation, which influences the rest of the organization and
drives innovation toward more systematization with a back office base. The
organization of such innovation and the resulting character of IT-based self-services,
such as those provided through IT networks, remains an under-researched field. But
we predict that service firms are unlikely to imitate large research laboratories as we
know them, such as those in the pharmaceutical industry.
Quantitative measures of service innovation effort. Both service innovation research
and service innovation managers need to be able to measure the effect of innovation
investments. Not all innovation attempts lead to success; most of them likely entail some
waste of time or money. Innovation managers thus must “sell” their innovation projects
internally in their organization, which often focuses more on production problems than
innovation concerns. To do so, these managers need quantitative measures that can
demonstrate the benefits of innovation and determine which innovations are most
likely to succeed. Despite the difficulties facing such research, this effort also should
acknowledge “soft” measures, such as employee and customer involvement. Methods
and data sources should be developed through desk research, then tested in close
collaboration with practitioners. Researchers might find inspiration from prior attempts
to create systematic service innovation models and measure the macro impact of
innovation using statistics and surveys (Den Hertog et al., 2010).
Sociological and anthropological methods. Many research issues involve attempts to
systematize service innovation research into “schools” of thought; currently, service
engineering (Hefley and Murphy, 2008; Stauss et al., 2008) and service design (Lin et al.,
2011; Patricio et al., 2008; Von Stamm, 2004) are the most conspicuous fields. They
reflect the attempt to develop a general service science, but they also require
supplementation with sociological and anthropological theory and measurement
models (Sørensen et al., 2010; Sundbo, 2011; Sundbo and Sørensen, 2013).

Innovating customers’ cocreation

The two aspects that define the cocreation approach presented in Table I also reveal
several potential research questions. For example, what firm capabilities, processes,
and tools might support a better understanding and improvement of customers’ value
cocreation as users, payers, and buyers? In addition, which firm capabilities, processes,
and tools provide a better understanding of customers’ current value constellation and
ways to cocreate a better version?
Redefining the value proposition. According to a cocreation logic, firms only offer
value propositions (Vargo and Lusch, 2008); they cannot “deliver” value, because value
JOSM is always cocreated with the customer. If we accept this perspective, then the firm’s
23,5 offering might improve customer value cocreation in two ways: by relieving customers
of doing something or by enabling customers to do something (Michel, 1995; Normann,
2001; Ramirez, 1999). Many market offerings contain both relieving and enabling
elements simultaneously. For example, an advertising agency relieves its client from
booking media individually, and it enables the client to connect with the most promising
708 customers through an optimized media coverage algorithm.
However, some research favors enabling over relieving (Normann and Ramirez,
1994), with the claim that companies succeed only if they enable their customers to
perform better, because “As a consumer, I want options that enable me to co-construct
my own experience effectively, the way I want to do” (Prahalad and Ramaswamy,
2004, p. 44). Other researchers highlight real-world situations in which consumer or
business customers prefer to be enabled rather than relieved; IKEA, the Swedish
furniture company, does not relieve consumers of doing certain things but rather
enables them to perform acts (e.g. build a bookcase) they might never have done before.
On the other hand, pizza delivery services relieve customers from cooking and from
shopping for groceries. In business markets, companies might outsource their security
staff to relieve themselves from this task, but they still invest in firewalls and virus
scanners to be enabled to protect their own IT infrastructure.
Researching relieving and enabling functions can suggest unique customer
insights, which may help researchers and managers better assess and appreciate how
resources get exchanged, as well as how service innovation can improve that exchange
to benefit of all the actors involved. Therefore, we call for conceptual research that
develops methods and frameworks to define “relieving” and “enabling” functions.
Methodological research in turn should develop observation and survey techniques to
describe, analyze, categorize, and evaluate service innovations with respect to their
relieving and enabling superiority. Finally, empirical research should develop
managerial models that describe the antecedents, consequences, and boundary
conditions of innovations that improve customers’ value cocreation.
Redefining the value constellation. Service innovation relates to innovations of
value constellations, according to the foundational premise that all social and economic
actors are resource integrators. In other words, a service innovation provides new
resources, available to customers in value constellations. This perspective encompasses
rather narrow product/service innovations (e.g. new hotel concept), process innovations
(self-service channels), management innovations (empowering employees), and
business model innovations (free mobile subscriptions paid for by advertising).
However, business-to-business markets suffer from an apparent blind spot, such that
firms promise to offer “solutions” but fail to understand the customer context accurately
(Tuli et al., 2007) and therefore provide “bundles” instead (Roegner et al., 2001).
Additional research also might address the linkage between value cocreation and
value capture, in other words, the relationship between financial and
non-financial resource exchanges. Understanding and innovating the role of the payer
(one of the actors in the value constellation; Michel et al., 2008b) could trigger market
disruptions, as might changes to the price carrier (Michel, 2009; Normann, 2001). Thus,
service innovation also includes contract innovations (John, 2008; Pauwels and
Weiss, 2008), and conceptual research should find methods and frameworks to define
value constellations in the context of exchanging capabilities and other resources
(including money). Methodological research then could develop observation experiments Rethinking
and survey techniques to describe, assess, categorize, and evaluate innovative value service
constellations. Finally, empirical research should develop managerial models that
describe the antecedents, consequences, and boundary conditions of strategies to improve innovation
existing and develop new value constellations, with special consideration of ways to
redefine financial exchanges.
709
Conclusions
Service innovation is a rich, complex, dynamic field, in which new approaches and
contributions are constantly emerging. For this article, we have identified distinctive
service innovation characteristics across three dimensions, which reflect our claim that
service innovation is not solely relevant to service sectors or organizations anymore.
Furthermore, the increasing role of new partners in innovation agencies and networks
makes the complexity even greater.
Our multidimensional framework of service innovation delineates its distinctive
characteristics using distinct, supplementary perspectives. From an organizational
perspective, we note that service innovation generally is characterized by behavioral
developments (e.g. toward customers) but also is moving toward technology
development. It depends on open processes, often carried out in networks with external
actors, including customers, and involving various employees and managers through
both bottom-up and top-down processes. Service innovation requires managerial
guidance, which likely demands a firm strategy or business model as a guideline,
as long as it is based on the customer encounter and customer values. Although this
view highlights the importance of the customer, we also note the need to recognize the
evolution, from a passive to a more active role, of the customer. In this respect, the
service-dominant logic provides a new paradigm for innovating customers, rather than
services. However, important aspects of service innovation and the methods
that service firm managers, customers, and other key players can use to develop
innovation systems remain unclear. We thus outline research areas with the potential
for significant impacts on the development of this field.
Overall, this article represents a step toward a more coherent service innovation
theory. Researchers from different disciplines should work to identify and develop a
common and general determinant, such as R&D or open innovation, that reflects the
effort to create value for all parties: the service organization, customers, employees, and
society. Although each party may have different intrinsic values, service innovation
must combine value creation for all in a balanced way to be successful in the long run.
Ensuring this balance is the task of senior management, though the role of the public
sector remains relevant. Perhaps then the common determinant will not emerge from
a specific dimension or perspective but rather arise through interactions. In this
respect, the interdimensional elements of innovation that appear in our proposed
multidimensional service innovation framework might provide valuable insights for
exploring the next step in service innovation research in the years to come.

Note
1. For example, Den Hertog (2010) defines service innovation in four dimensions: new service
concept; new client interfaces; new service delivery systems and new technological options.
These dimensions establish five patterns of service innovation: innovation within services
JOSM (sectorial focus, e.g. new shop formula or a new saving scheme); supplier-dominated
innovation (mostly technological innovation, e.g. new ICT equipments); client-led innovation
23,5 (e.g. green banking services or door-to-door transport services); innovation through services
(by knowledge intensive services, e.g. engineering service design), and paradigmatic
innovations (complex service oriented products affecting all actors in value chain,
e.g. multifunctional chip cards). The framework shown in Figure 1 is useful to understand
these five patterns in correspondence with the dimensions discussed in this article.
710
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About the authors

Luis Rubalcaba is Professor of Economics, Department of Applied Economy, University of
Alcalá (Madrid-Spain), FidiPro-Visiting Professor at VTT (Finland), Honorary Scholar at the
University of Birmingham (UK) and Visiting Scholar at Boston University (US). He served as
President of RESER (European Association for Services Research) between 2004 and 2008, and is
the author of more than 100 publications, mainly on services and service innovation.
Professor Stefan Michel’s major research interests are in service innovation,
customer-focused marketing strategy, and pricing. At IMD, a world-leading business school in
Executive Education, he is the Program Director for Strategic Marketing in Action, and he
teaches in several open and customized programs. He is a Global Faculty at the Center for
Services Leadership at Arizona State University. Before joining IMD, he was Associate Professor
at Thunderbird, School of Global Management in Arizona.
Jon Sundbo is Professor in Business Administration and Innovation at Roskilde University,
Denmark. He has throughout his whole career been doing research in innovation and
entrepreneurship and has published articles and books about these topics, including The Theory of
Innovation and The Strategic Management of Innovation. His research interests are innovation
and entrepreneurship in services and the experience economy. He is Director of the Innovation
Research Group at Department of Communication, Business and Information Technologies,
Centre of Service Studies and Centre of Experience Research at Roskilde University.
Stephen W. Brown is the Edward M. Carson Chair and Professor of Marketing Emeritus in the
W.P. Carey School of Business at Arizona State University. He is also a Distinguished Faculty with
ASU’s Center for Services Leadership, where he served for 25 years as its founding Executive
Director. He has co-authored and co-edited over 150 articles and 22 books, and has been recognized
with two honorary doctorates from European universities, with the AMA’s Career Contribution
Award for Services Marketing and with the inaugural Educator of the Year Award from
the Association for Service Management International. He is a past President of the
American Marketing Association and serves on the boards of several companies and non Rethinking
profit organizations.
Javier Reynoso is a member of the faculty of EGADE Business School at Monterrey Institute service
of Technology (ITESM) in Monterrey, Mexico, where he designed and coordinated both the innovation
Bachelor’s and graduate certificates on Service Management. His main interest is to promote and
develop research and academic activities on service management in Mexico and Latin America.
He is co-author of the first text book on service management written in Spanish, and used in more
than 20 countries. In the years 1999 and 2005, he received the ITESM’s Teaching and Research 715
Faculty Award for his contributions in the service sector. Javier Reynoso is the corresponding
author and can be contacted at: [email protected]

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