The structure of the informal innovation process of low-tech services

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The structure of the informal innovation process of

low-tech services

Master thesis

Student: Nadine Meger

Student number: 11087188

Institution: University of Amsterdam - Faculty of Economics and Business Program: MSc. in Business Administration - Entrepreneurship and Innovation Supervisor: Dr. A. Alexiev

Version: Final version

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Statement of originality

This document is written by Student Nadine Meger who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Abstract

Purpose – The purpose of this study is to identify the structure of the innovation process of low-tech services and examine how the process is managed. The aim is to develop an innovation model tailored for low-tech services.

Design/ methodology/ approach – This research represents a qualitative case study. In-depth interviews with managers and employees of low-tech services from health, fitness, beauty and hospitality industry were conducted.

Findings – An innovation model has been developed, illustrating the innovation process including all elements relating to the process and practical implications. It has been found out that the innovation process in low-tech services takes place in an entirely informal way. The level of internal communication within the staff is frequent and takes place on a regularly basis. Customer interaction during early stages of the process is very low. It is supposed that high customer involvement in early stages will have a positive effect on innovation outcome. Research implications/ limitations – Findings are just to a limited extend generalizable. In order to increase generalizability, further research is needed. Findings are based on interviews; Validity of results would increase through additional observation of the process over a certain period of time.

Practical implications – The developed model can be used to create awareness about the elements affecting the process, since it views the innovation process from a broader perspective. Thereby undetected potentials for improvements might get identified. The innovation model entails practical elements which can be applied by other low-tech services.

Originality/ value – The main contribution of this paper is that it reveals industry specific insights from low-tech services which can serve as a basis for further research.

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List of tables and figures

Table 1 Comparison of model stages ... 14

Table 2 Summary of NSD & Innovation models ... 15

Table 3 Summary of measurement tools for innovation in services ... 34

Table 4 Steps of innovation process identified by managers of low-tech services ... 37

Table 5 Innovation process involved people ... 38

Figure 1 NSD model by Bowers, 1989 ... 7

Figure 2 Value chain with three main-stages and six critical activities by Hansen, Birkinshaw, 2007... 8

Figure 3 NSD process according to Edvardsson and Olsson, 1996 ... 10

Figure 4 A five stage, five-gate system by Cooper, 2001 ... 11

Figure 5 Model of new service development according to Scheuing and Johnson, 1989. ... 13 Figure 6: Innovation model for low-tech service industry ... VII

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1 Introduction

Through evolving technology consumers gained enormous empowerment. Especially through the internet customer are able to access a wide range of offering and to compare those immediately with each other. Increased customer expectations, technological advances and new forms of competition lead to increased competition among service providers. Innovation became one of the most important elements to create competitive advantages and differentiation. (Labrecque et al, 2013)

Firms increase expenditure in R&D and extend their innovation departments in order to increase their innovation outcome. A formal, structured innovation process has been shown to lead to higher innovation results and a higher success rate. However, there are still a vast of industries, which do not conduct the process in a formal way (Oke, 2007). This might be due to the fact that the structure of the organization does not allow a structured, formal execution. A formal innovation process requires certain capabilities. Especially low-tech services often do not have these capabilities and are limited in their budged. Another reason might be that the organization does not have required experiences with formal innovation processes. Nevertheless, even those industries which do not have innovation as a main element in their identity and do not show a formal process, conduct innovation processes. Often it is an informal, ad-hoc process (Oke, 2007, Sundbo, 1997).

This research aims to explore the structure of the informal innovation process and give a deeper understanding of the steps conducted. The awareness and understanding of the process can help to increase innovation outcome and success rate of service innovation, by drawing attention to elements of the process which might be disregarded beforehand.

The research of this paper is designed to answer the following research question: How is the innovation process of low-tech services managed?

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To answer this question, formal innovation and new product development processes of the manufacturing and service firms are examined in order to gain a deeper understanding of the concepts and subsequently find out if they indicate similarities to the structure of the informal innovation process. A case study approach in combination with elite interviews is used in order to get profound insights into the innovation process of low-tech services. The purpose of this paper is exploratory, hence it focuses on elements that cannot be predicted purely from existing literature.

1.1 Relevance of this thesis

The results are of theoretical and practical relevance. The theoretical relevance concerns the existing literature in the field of service innovation. Existing literature in this area is very limited. Different service innovation models got developed, contributing to a deeper understanding and formalization of the innovation process in services. The majority of literature places emphasis on the high-tech and high-knowledge service industry (financial, consultancy and business-to-business services), because they show the highest level of innovation activities among the service industry. Furthermore, they show the highest rate of attempts to a systematic approach in innovation (Evangelista, 2000). Service innovation and NSD models got developed on the basis of research in high-tech services. Researchers have neglected personal, leisure and low-contact services (hairdresser, fitness center, painter, decorator and hospitality) (Evangelista, R. 2000; Barras 1994, 1996; De Jong, Vermeulen, 2003; Johne, Storey, 1997). It exists no literature on the particular field of low-tech service innovation processes. Therefore, this paper aim to fill the gap in current literature. This research provides new insights into process management of low-tech services.

In terms of practical relevance, this study delivers guidance concerning the issue about how low-tech services can structure their innovation process effectively and which elements

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it is important to first understand how the innovation process is managed in low-tech services in order to make attempts for improvements.

Low-tech service industry includes all services with a R&D rate lower than 2,5% (Kirner, Kinkel, Jaeger, 2009). Further this paper focuses on services with a small management structure. Mostly these services are seen in the leisure and craft industry. Examples are hairdressing studios, gyms, cafés and bars. They represent a broad industry with a high stream of revenues. However, due to the fact that they have little R&D expenditure, it has occurred, that they have not been very innovative in the past. Therefore, they carry a lot of potential in terms of innovation (Hirsch-Kreisen, 2008). Low-tech services do not attribute a high priority to innovation and innovation in low-tech industries is often seen as a contradiction, but exactly for that reason, because innovation activity has been low, there is a lot of unexplored potential.

1.2 Structure of this thesis

The first chapters provide a detailed literature review of relevant, related topics. Innovation management has been greatly influenced by innovation process- and NSD-models. Therefore, several models will be introduced, in order to understand the structure of existing formal innovation processes. A framework summarizes existing innovation models and points out gaps and limitation. Consequently, service specific characteristics are pointed out. The third subchapter of the literature review combines the former topics and is therefore specifically about innovation in services. It discusses barriers and success factors for innovation in the service industry. After reviewing the existing literature, the methodology and data collection approach are described and explained. Followed by a representation of the findings and a discussion. Lastly, managerial implication and further research areas are pointed out.

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2 Literature review

The following sections contain relevant literature concerning the research topic. It is clearly outlined what is existent in the literature and pointed out where the gap lies. Furthermore, it points out why the research topic is relevant for theory and practice. The first subchapter concerns innovation. It gives a definition of innovation and introduces and describes existing innovation and NSD models. Through a framework all described innovation models are summarized and analysed in terms of effectiveness, limitations and gaps. The following subchapter gives a review about services and its characteristics. The fourth subchapter combines previous subchapters and is therefore about innovation in services. It points out barriers and success factors, in order to understand what drives and hinders innovation in services.

2.1 Definition: (Service) innovation

Since innovation can be interpreted from different angles and there are several definitions existing, it is important to define in what way innovation is seen in this paper.

A very specific definition is the one of Den Hertog, Van der Aa and De Jong, 2010. The definition is tailored to services. The authors relate innovation to the creation of a new experience or solution to a problem. They define six dimensions which are relevant for innovation in services. A service innovation occurs when one or more of these dimensions’ changes.

“A service innovation is a new service experience or service solution that consists of one or several of the following dimensions: new service concept, new customer interaction, new value system/business partners, new revenue model, new organizational or technological service delivery system.” (Den Hertog, Van der Aa,

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A relative broad definition of innovation is the definition of Crossan and Apaydin (2010). They talk about innovation in a more general term and state that an innovation can take different forms. Interesting is that innovation in their point of view does not necessarily have to be the creation of an entirely novelty, but also can occur as adoption or assimilation.

“Innovation is: production or adoption, assimilation, and exploitation of a value-added novelty in economic and social spheres; renewal and enlargement of products, services, and markets; development of new methods of production; and establishment of new management systems. It is both a process and an outcome.” (Crossan, Apaydin, 2010)

Since the focus of this study does not lie on the types and dimensions of innovation, but rather on how innovations get conducted, innovation in this paper is appointed in a broad view. Therefore, the definition of Crossan and Apaydin will be set as a standard in this paper.

2.2 Innovation and NSD models

Innovation mostly occurs in a number of steps, also called stages. Researchers have found that innovation is most effective conducted in a structured, formal way (Bowers, 1989; Johne, Storey, 1998). Even though some researchers state criticism against this point of view and argue, that a formal innovation process slows down the entire process and restricts creativity (Dimitriadis, 2005), the majority still is in favour of a formalized process (Johne, Storey, 1998). There is a variety of innovation and NSD models in the literature. Practitioners and researchers have not agreed yet on one consistent model. This might even not be needed, since different industries show different characteristics and therefore need different approaches. The following chapter described various innovation and NSD models to generate a general understanding about how existing models work and for which specific needs and industries they got

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developed. It represents the basis for the conducted study. On basis of the gained theoretical knowledge and first-hand information from managers and employees of low-tech services an individual innovation approach for low-tech services is developed.

2.2.1 8-stages model

Early empirical work starting with Bowers (1985). He identified for the first time common stages in the NSD process. Even though he found out that the NSD process often is conducted in an informal way, he suggests to build a formal process. Therefore, he developed a model which leads through the whole process. According to Bowers, it is important to carry out each stage of this model (Figure 1 names the different stages). Special attention he devotes to the idea searching process, development & evaluation, and the testing phase. He states that it is important to have a formal idea generation process in order to keep track of the ideas generated and to enhance idea generation actively. Firms should look inside as well as outside the company for new ideas. The service development and evaluation phase carry some difficulties with it, since it is often not feasible to produce a prototype of the service and test it under real conditions. However, it is possible and even more important to test costumer reaction to the marketing mix for a new service. According to Bowers, a wrong marketing mix can carry even a higher risk for failure than a new service itself. Therefore, the testing phase carries the highest potential to increase innovation success. (Bowers, 1989)

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Figure 1 NSD model by Bowers, 1989

Origins, discussion and applicability

Bowers took the stages of a NDP (new product development) model of the manufacturing industry as basis and modified it, so that the activities were in line with those of the service industry. He focused on big service firms, such as banks, hospitals and insurance companies, because they have been shown high innovation activity. Low-tech services are not part of his study.

2.2.2 Innovation value chain

The innovation value chain is a method developed to enhance innovation outcome. It divides the innovation process into three main steps: idea generation, conversion, and diffusion. To these main steps six critical activities are assigned, which are: Internal idea sourcing, cross-unit idea sourcing, external idea sourcing, idea selection, idea development and spread of developed idea (Hansen, Birkinshaw, 2007). Figure 2 shows the three stages and its six critical activities.

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Figure 2 Value chain with three main-stages and six critical activities by Hansen, Birkinshaw, 2007

Hansen and Birkinshaw, 2007 state that all of these six steps need to be conducted for a successful innovation management process. The first stage, idea generation can be carried out internally; across different units of the firm; or externally. Often companies only look inside the own firm for new ideas. Hansen and Birkinshaw suggest that companies need to extend their view and look outside the company for new ideas in order to boost idea generation outcome. The second stage, idea conversion, determines how to develop an idea further. It includes screening, selection and development of ideas. Companies show to have problems in idea screening/selection as well as in idea development. The last stage, idea diffusion, concerns the issue that ideas which have been developed and financed successfully also need to be implemented successfully.

Companies tend to be not equally good in each stage. Therefore, firms actively need to find the weakest points and try to improve on it in order to enhance innovations success. The innovation value chain leads through the innovation process and helps to identify weak points within the process. Moreover, it gives practical help on how to identify weak elements and suggests how to improve weak stages. The six steps of the value chain approach have to be conducted sequentially.

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Origins, discussion and applicability

The innovation value chain approach got developed by analysing data derived from multinationals and corporate venturing units. It is not specifically discussed for which industry and firms the approach is supposed to be applicable. However, Hansen and Birkinshaw have noticed that every company has different innovation challenges and conclude that it is not advisable to propose just one way to manage innovation. Nevertheless, they propose a model which consists of three main stages and six sub-stages and state that ‘managers must perform six critical tasks’ (Hansen and Birkinshaw, 2007). The six critical task refer to the six sub-stages of their proposed model. They do not give reasons or any explanation, why the model consists of these six stages and why it is obligatory to conduct all of them. Their approach focuses on finding out which stage is the weakest in a company.

2.2.3 The service prerequisites model

Edvardsson and Olsen (1996) divide the NSD process into three parts; service concept, service process and service system. The service concept, specifies the customer needs and explains how these needs get satisfied through the service and supporting services. It entails an extensive internal as well as external analysis. The service system, entails all resources needed in order to set up the service and deliver it to the customer, such as human resources, knowledge, technological and environmental requirements. The third element, service process involves all activities necessary to produce the service. It can be seen as a description of the individual activities. The service process has a big impact on the final perception of the service quality, since it also includes the delivering process of the service and thereby direct customer interaction.

According to Edvarsson and Olsen, providing high service quality from the beginning on is the most important element. The customer and their needs are the centre of the development process. Therefore, it is important to involve the customer in the process from

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early stages. In order to deliver the right quality, not only the customer needs and expectation, but also the ones of staff and owners should be taken into account. Delivering the right quality is crucial for new service success. (Edvardsson, Olsson, 1996)

Figure 3 NSD process according to Edvardsson and Olsson, 1996

Origin, discussion and applicability

Edvardsson and Olsson designed their NSD process model for both, large and small changes in services. Nevertheless, they indicate that it best applies to large complex services. The model does not entail any description on particular activities and is therefore not very practical orientated.

2.2.4 Stage-gate model

The stage-gate model is an idea-to-launch system that provides a conceptual and operational map, supporting the new product development process. It leads decision maker and project team through the entire process (Cooper, 1990). Projects often fail by missing steps and activities, poor organizational design, poor leadership, inadequate quality of execution, unreliable data, and missed timelines (Kester et al. 2011). Therefore, the stage-gate-model provides a clear structure of how to organize the overall process without missing steps and activities. The whole innovation process gets divided into several sub-processes (stages). Each stage has a gate at which the decision maker has to make a decision about how to proceed with the project. The

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stages are there to reduce uncertainties and involved risk. With each stage further costs are increasing but risk is decreasing. (Cooper, 1990; Cooper, 2008).

The purpose of the stage-gate model is to improve the idea selection process and to help the team to get the needed resources. The traditional stage-gate model consists of five stages, however, it is flexible and non-linear. That means stages can be added or skipped if necessary. Furthermore, it is supposed to be a non-bureaucratic process. Figure 3 shows a typical stage-gate process.

Figure 4 A five stage, five-gate system by Cooper, 2001

The stage-gate model found applicability in various industries and areas. Initially it got developed for the manufacturing industry to improve portfolio management and decision making processes. Therefore, it does not entail any specific service elements. Nevertheless, the fact that it is a non-bureaucratic approach which is flexible in its number of stages, makes it in general applicable for low-tech services purposes. Presumably, a modified version of the traditional stage-gate model could be suitable for low-tech service purposes.

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2.2.5 Linear 15-stages model

According to Scheuing and Johnson (1989), new services do not merely occur but rather result from a structured carefully coordinated process. They developed a 15-stages NSD model which leads in detail through the entire new service development process taking into account different key influences occurring during the development process.

According to them a well-structured new service development process should start with formulation of objectives and strategy of the development process. It is important that senior management gives clear directions for new service development, otherwise processes often lead to failure. Furthermore, they attach a high importance to the specification of a clear new service concept and describe in detail how new service should work, which problem it solves and why it should be offered. Scheuing and Johnson assess the concept as a crucial factor for a new services success. Every employee has to be familiar with the new service and need to know how it should be delivered to the customer. Many new services fail, because the personnel did not receive proper training for a new service. (Scheuing, Johnson, 1989)

Scheuing and Johnson found that new service development processes are carried out often by project teams and that competitors are the most important driver for innovation in services. As a final implication for management they state that the process has to become more systematic and external sources should be used more often. Figure 4 shows the NSD model developed by Scheuing and Johnson.

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Figure 5 Model of new service development according to Scheuing and Johnson, 1989.

Scheuing and Johnsons model is based on data derived from members of financial institutions marketing association. Therefore, it can be inferred that mainly financial service provider got observed. These tend to have very complex service concepts and often conduct innovation in a formal and structured way. For that reason, Scheuing and Johnson innovation model might be just partly applicable for low-tech services. Furthermore, do they assign a crucial role to service concept and say that its best written down. This might be not necessary for low-tech services, since low-tech services often are low-knowledge services and show to have incomplex service concepts. Therefore, there might be no need to write down the concept explicitly. Moreover, it seems not feasible for low-tech services to build a project team specifically for a new service, as Scheuing and Johnson suggest, since low-tech services show to have small number of staff.

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2.2.6 Comparison of model stages 8-stages Bowers Innovation Value chain Service prerequisites model Stage-gate model 15-stages Scheuing & Johnson Formulation of new service

objectives and strategy

P

O

P

Idea Generation

P

O

P

Idea Screening

O

P

O

P

Concept development

P

Concept testing

O

P

Business analysis

P

O

P

Project authorization

O

P

Service design and testing

P

O

P

Process and system design and

testing

O

P

Marketing program design and

testing

P

O

P

Service testing and pilot run

O

P

Test marketing

O

P

Full-Scale Launch

P

Post-Launch review

O

P

Table 1 Comparison of model stages

A direct comparison of the stages of the reviewed models shows, that each models consist of different number of stages. The model of Scheuing and Johnson is the most extensive one with 15 stages. The innovation value chain entails the least stages. Furthermore, each model has a different focus and emphasizes different elements. The following framework summarizes each model shortly and points out the weaknesses and strengths of each model keeping in mind its usage for low-tech services.

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2.2.7 Summary of NSD and Innovation models Innovation/

NSD model

Description Gaps and Limitations Favourable elements

8-stages model (Bowers, 1985)

A formal process of 8 stages. Each stage is important and should be carried out. Model is based on NPD process. Devotes special attention to idea searching process, development + evaluation of the process and testing phase. Right marketing mix is crucial. Testing phase carries the highest potential to increase innovation success.

- Focus on big corporations (bank, hospitals, insurance companies)

- Sequential model - Very static model

- Each stage has to be carried out - No iteration possible

- No practical advices

- Not very specific (Does not address specific issues or give examples of situations)

+ Formal idea generation process in order to actively increase idea generation

+ Incorporates service specific challenges

Innovation value chain

(Hansen, Birkinshaw, 2007)

Sequential, formal innovation process with an integrated practical approach to identify weak points within the innovation process and suggestion on how to strengthen these weak points. Focus on identification of weak points. Model consists out of three main stages and six sub-activities which company has to carry out.

- No business analysis - No idea testing

- Idea screening is the only go/kill stage. Afterwards only development and implementation

- Does not discuss whether it would make sense to skip certain steps

+ Aware about the fact that every company has different innovation challenges

+ Favours a tailored approach for individual company + Very specific in idea generation phase (splits it into three sections)

+ Very practical approach

+ Explicitly states questions that helps to find out where weak points lie

+ Gives example of certain situation Service

prerequisites model (Edvardsson & Olsson, 1996)

Divides NSD process in three parts. The customers and their needs are the centre of the development process. Focus on development and delivery of right service quality.

- No description on particular activities

- Very broad and blurry, no specific naming of stages - No specification about who is involved in the process

(project team, senior management) - No practical advice

+ Customers and their needs as centre

+ Customer involvement as crucial factor for success

Stage-gate model (Cooper, 2008)

Five stages model leads management and involved team through the whole process. The model provides a clear structure for process management. Each stage has a gate to pass where a go/kill decision is made. At each gate certain criteria have to be fulfilled in order to pass on to the next stage.

- Many managerial obligations (certain deliveries have to be provided at each gate)

- Formation of project teams

- Each stage need to be completed before a new stage opens - Strict control and decision-making

+ Flexible in number of stages + Non-bureaucratic approach

15-stages linear model

(Scheuing & Johnson, 1989)

Sequential linear model consisting of 15 stages. Starting with Formulation of new service objectives and strategy and ending with post-launch review. To each stage influencing key elements are identified.

- Based on data derived from financial services - Extensive testing phase

- No practical advice how to carry out stage (e.g. Business analysis, concept testing)

+ Aware of need of personnel training + Takes different key-influences into account + Detailed process description (many steps)

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2.3 Service characteristics

Services are distinct to actual physical products in several aspects. One of the main difference is the intangible nature of services.

Intangibility: Service products are rarely tangible products, or physical “things”, rather are they processes and activities carried out only for one specific customer. As a consequence, on the one hand, new developed services are difficult to test, since it is just a process and the quality of delivering the process depends on several factors. On the other hand, an intangible product is more flexible than a tangible product and can be more easily modified, changed or extended. This can be considered as an advantages, because it makes the company very flexible in terms of its offering. Service companies are able to change their offering relatively quickly and easily through individual service workers. However, the intangible nature of service products also represents a disadvantage, since changes and modifications are very easy made, they can be easily get copied by the competitors. Copying is rarely preventable, since service processes are not patentable. (Johne, Storey, 1998)

Heterogeneity: The quality of services often varies, because services usually are produced and consumed simultaneously. This makes it hard to check the quality of the service before it gets consumed by the customer. Through standardization and training of employees, the level of quality can get aligned, however, a total elimination of quality differences is hard to achieve. (ibid)

Simultaneity: Services are typically produced and consumed simultaneously. This makes it impossible to storage them in stock. Therefore, capacity planning is very complex and needs to be highly agile, since demand may vary greatly. (ibid)

Because of the specific characteristics of services, researchers see a need for service specific approaches (Hertog, Gallouj, Segers, 2011). Another difference lies in the degree of interaction

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the service industries is indispensable. Service delivery presents an essential element. This means, not only the service itself has to be taken in consideration for new service developments but also the interaction with the customers. This makes the service development process and innovation more complex compared to new product development for tangible products (Johne, Storey, 1998).

2.4 Innovation in services

This chapter discusses barriers and success factors managers face conducting innovation in service organization. The knowledge about these factors is needed later on for the analysis and the development of an individual innovation model approach for low-tech services.

2.4.1 Barriers of service innovation

Despite the overall increased interest in service innovation, researchers did not pay much attention to understand specific innovation barriers in service industry yet. The majority of studies focuses on success factors (Lorenz et al., 2012; Oke, 2004). This might be due to the fact that the barriers vary from company to company (Hansen, Birkinshawn 2007). Nevertheless, it is important to be aware about innovation barriers in order to be able to improve on it. There are different barriers and problems stated in the literature. One problem mentioned is that service innovations are easier to imitate because they are simple to construct. Some banks mentioned that as a reason for the low number of innovations. They do not innovate, because they do not make much profit out of their innovations, since the competitors are copying it quickly. Copying is nearly not preventable because it is not possible to protect new services with patents, the motivation to generate ideas is lower (Oke, 2004).

Respondents of a survey conducted within UK service firms answered that a major problem is the development process itself and that it is hard to organize it effectively. Thus, the

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development of a new service is more time consuming and difficult (Edgett, 1996; Johne, Storey, 1998; Oke, 2004). This might be due to the complexity of services, which is be caused by the specific characteristics of services (Martin, Horne, 1993; Edgett, 1996).

Another reason mentioned is the lack of legacy, which might be the reason why the innovation process often is carried out in an unsystematic and chaotic way (Bowers, 1989; Scheing, Johnson, 1989). For a long time, innovation merely got associated with tangible products. Service managers find it difficult to implement innovation programs and to create an innovative culture (Oke, 2004). Furthermore, the lack of having good measures of innovation, getting top-management support and motivating employees to buy into innovation culture were mentioned as barriers to innovation. (ibid)

2.4.2 Success factors of service innovation

This subchapter is to understand which factors have been shown to have positive influence on the success of service innovation and NSD, as a formal process is not the only factor for success in innovation. The knowledge about these factors allows us to consider them in the analysis part of this paper.

Customer needs and requirements represent an important factor within the innovation process, especially for services, because customer interaction and customer contact is very high. Companies with a customer orientation have been shown to have more successful innovation outcomes. (Smith et al., 2007; Edvarsson, Olsen, 1996; Storey, Hughes, 2013)

Storey and Easingwood, 1993 investigated in the impact of different factors to success of innovation. One of their findings is that responsiveness and speed of development has a high impact on the success of innovation. It is important to respond quickly to arising opportunities as well as to develop and implement a new service quickly (Storey and Easingwood, 1993; Smith et al., 2007). Also, it has been shown that services often get copied, since it is difficult

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to develop new services quickly and to promote them right (Oke, 2004 and Cooper, 1990). Another factor is the awareness about the importance of innovation. Reidenbach and Moak (1986) investigated in the innovation process of American banks. They found that some banks were not aware about innovation as development factor and therefore did not organize innovation activities in a systematic way. Those which were aware of innovation, performed better than banks which were not. This finding indicates that awareness about innovation itself is an important factor for companies’ performance.

Several authors have identified a that the organizational structure and culture, as wells as senior management involvement has an impact on the success of innovation. Especially cross-functional teams have been shown to add a lot of value to the innovation process. (Storey, Hughes, 2013; Cooper, Kleinschmidt, 1995).

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3 Methodology

This section describes the research method and research design used in this paper. It explains the chosen case study approach and justifies why it was chosen. First, the research design is described and strength and weaknesses are pointed out. The following subchapter describes the data collection process and shows how and why cases got selected. The last subchapter explains how interviews were analysed.

3.1 Research design

This research aims to gain more insight into the innovation process of low-tech services and to answer the question how the innovation process in low-tech services is managed. Therefore, first-hand information from managers and decision-makers is needed. In order to obtain this information a multiple-case study approach in combination with semi-structured in-depth interviews is used. This decision is based on two reasons; first there is not much literature and research existent yet on the field of innovation process of low-tech industry. The qualitative research approach seeks to explore new phenomena that occur naturally in their environment and is therefore very suitable (Rynes, Gephart, 2004; Yin, 2014). Second, the complex nature of the innovation process claims the need for in-depth and detailed qualitative data. This can be achieved best through in-depth interviews (Boyce, Neale, 2006). Qualitative research explores a phenomenon from different angles. It provides a deeper understanding of actual human interactions and processes in real-life settings. Furthermore, it can provide thick, detailed descriptions of actual actions and explore the underlying reasons for those actions (Rynes, Gephart, 2004; Yin 2014). Case studies focuses on understanding the dynamics in a single setting. In this study the setting is represented through low-tech services. By examining the innovation process of multiple cases, a deeper understanding is obtained. A multiple case study

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results. A case study protocol is used in order to follow a consistent path and increase the reliability of the study. (Eisenhard, 1989; Yin, 2014)

The study follows a deductive approach. This involves testing of a theoretical proposition. Former findings concerning formal new service development approaches are considered in order to find out whether and where they show similarities and differences to the structure of the informal innovation process of low-tech services. Existing theory is used to address rival explanations as well as advocating explanations. By considering both, rival and advocating literature, the internal validity increases. (Yin, 2014)

3.2 Data collection

Six highly innovative organizations within the low-tech service industry were selected. The case-selecting process was divided into multiple steps. In the first step a pre-scanning process through the internet was carried out in order to find innovative low-tech service organizations. After analysing websites and offerings of these low-tech service organizations, the organization which appear high in innovation activity got be pre-selected. With those pre-selected cases non-structured interviews were conducted in order to ensure a that the amount of innovation activities in these organizations is high. For the purpose of this paper and to focus investigation, highly innovative organizations represent an appropriate choice, since these organizations are expected to provide more content compared to low-innovative organizations. The case characteristics can be found in Appendix A.

The industry of the selected organizations is not constrained; the organizations operate in different low-tech industries, such as fitness, hospitality, beauty and health. By not limiting the industry the external validity increases, which lead to a rise in the extend to which the study findings are generalizable (Yin, 2014).

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After choosing the six most innovative low-service organization, an analysis about the organization, its degree of innovation activity and type of innovation is carried out. For this purpose, secondary data such as website and social media sites are used mainly. Secondary data has the advantages that it is less time-consuming and costly to obtain the data (Collis, 2012). To gain more insights into the innovation process of low-tech services, information from the decision makers is needed. Therefore, in each organization two persons who are involved in the innovation process were interviewed. In order to increase the construct validity, the number of persons interviewed per organization is set to at least two. This increases accuracy of given responses and minimizes biased results. (Yin, 2014)

A semi-structured approach is used, because it gives respondents the possibility to delineate their views and practices freely and flexible. An interview protocol led through the interview to ensure a consistent pathway and increase reliability (Boyce, Neale, 2004). Open-questions were asked in order to explore the ways innovation processes take place. Additional questions about the organizational structure and strategy are implemented in order to provide an overall picture of the process. The interviews represent the main source of data collection, because they provide the most content contributing to the purpose of this study. Interviews were recorded and written down in a transcript.

3.3 Data analysis

In total, twelve face-to-face interviews were conducted. In each organization the manager got interviewed and in addition to that one of the employees. The interviews with the employees merely serve to prove correctness and accordance with the answers of the manager. Four of the interviews were done in German and eight in English. The interviews took place within the period from May – June 2016. Confidential content and names were anonymized while

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in order to get a general overview over the data. Data analysis was done manually by marking text passages in different colours and adding key words next to the paragraphs. Key themes were created and responses were categorized to these themes. Since the research approach is deductive, the coding themes derived partly from former literature, such as from the innovation models described in the literature review of this paper. Further coding themes derived after studying responses of the interviews in detail. The coding scheme used can be find in Appendix B.

As a next step, each interview was examined and its content assigned to a coding theme. The coding process enables to manage the amount of data and to present it in a structured way. This makes it possible to conduct a transparent, coherent analysis and interpretation of the data (O’Dwyer, 2004). The interviews were studied in detail in order to find out whether any meaningful patterns emerge. Emerging patterns were interpreted and rival and supporting literature was used either to support or contradict patterns. This provides a comprehensive view over the overall topic (Miles, Hubermann, 1984). Moreover, derived data was set into comparison to existing theory about formal innovation processes.

After assessing each interview individually, cross case analysis was conducted. Cases were compared to each other in order to find out if patterns show similarities. Through cross-case analysis the study aims to look beyond initial impressions (Eisenhardt, 1989).

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4 Results

The interviews were structured along four topics 1) Strategic orientation and organizational structure; 2) Types of innovation and measurement of innovation’s success; 3) Innovation process; 4) Structure of the process. These topics have been shown to have an impact or being related to innovation activities and the innovation process. The following subchapters will show the results and describe new insights gained through the conducted interviews. Furthermore, the relationship of each topic to the innovation process and their importance and contribution to answer the research question are explained.

4.1 Strategic orientation and organizational structure

This topic answers questions about the overall organizational structure and strategic orientation of the company and explores hierarchical structures within the company. Furthermore, it explores the knowledge base in the company by asking the background of the employees and company’s collaboration network. These factors represent surrounding factors influencing the innovation process, since strategic orientation often got mentioned as important factor of success for innovation in services (Storey, Hughes, 2013; Smith et al., 2007; Edvarsson, Olsen, 1996).

According to Dimitriadis (2005), organizational structure and service innovation processes are strongly dependent from each other. The strategic orientation of a firm and organizational structure serve as a guideline for new services and have to be considered for NSD. Innovations have been shown to be more successful when there is a fit between the organizational structure, the strategic orientation and the new service offering. (Smith et al., 2007; Dimitriadis, 2005)

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Organizational structure

The organization structure of a firm and especially the hierarchy has impact on the communication, coordination and control aspects. Cooper, Kleinschmidt, 1995 and Lievens; Moenart, 2000 have identified that communication, coordination and control play an important role in innovation. Especially cross-functional teams contribute a lot to the innovation outcome and its success. The responses of the interviewees have shown that low-tech services tend to have a flat hierarchy and people of different ‘areas’ exchange information on a regularly basis. One of the manager explained it as follows:

It's a quite simple structure. We have a booking office, with two people; we have a facility and house keeping that’s one person, house keeping itself, the cleaner, we hire from outside from an external company, because we need to be flexible in this area. And then we have the stuff in the restaurant. They are five people. The hierarchy is very easy as well. Me and my brother are the manger of the hotel, we make the last decision. All other employees are under us. They are all in the same position when it is about administrational issues. (I3, Manager Hotel)

We have three permanently employed people. One of them is responsible for the training, one for the service, this is his main function, but sometimes he also works as a trainer and one person who is only for service responsible. Moreover, we have in total 14 part time employees. These are service personnel, trainers, physiotherapists and rehab trainer. It is important for us that we cover different fields of education, in order to offer a lot to our customer. I have the most power in terms of decisions. Just when its about very big changes, I have to confirm it with the owner. (I2, Manager Gym)

The other four organizations gave similar answers. In average, there are 15 people employed and the hierarchy is very simple. The manger and owner are the decision makers. All the other employees are under the mangers and have the same position in the hierarchy. Furthermore, four of the six organizations emphasised that they find it important to hire people with different backgrounds in order to be able to offer a broad spectrum to the customers. One interviewee mentioned that he finds it important because it enhances the variety of ways of thinking:

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Having many people from different areas is also a kind of innovation, since not every gym offers this service. We are able to differentiate from other gyms and promote this fact. In addition, it is good to have people from different areas, as these also have different ways of thinking and thus many different angles get considered when we have to make a decision concerning our service offering for example. (I1, Manager Gym)

To summarize, the organizational structure is similar for all organizations interviewed and is in favour for innovation activity, since firstly, cross-functional teams have been shown to have a positive effect on innovation outcome and secondly, through the low hierarchy and small number of staff, communication within the team and control issues are not as complex as in a big corporation. This fact has a positive effect on innovation activity (Cooper, Kleinschmidt, 1995 and Lievens, Moenart, 2000). Therefore, these elements are implemented in the innovation model for low-tech services, which can be find in Appendix C.

The next section concerns the strategic orientation of the company, another important influencing factor for innovation behaviour.

Strategic orientation and culture

Having an entrepreneurial culture and learning culture have been shown to have a positive effect on innovation behaviour. Managers are more likely to take risk, explore and enter new markets, or try new products and processes (Storey, Hughes, 2013). As it represents an influencing factor to the innovation process and has the power to increases innovation outcome, it is seen as part of the innovation process in this paper and will be implemented in the low-tech specific service innovation model (see Appendix C).

All of the low-tech service organizations interviewed show a high entrepreneurial culture. When asked about the risk-return balance of innovation, a clear trend to risk prone behaviour is seen.

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I believe you always have to try things out. If you have an idea and you have the feeling it could be successful, you should try it. Usually there are signs on which you can assume in advance that your new service or new product will be successful or not. Also you can always start small and when it shows to be successful, you can extend the new service to the whole range of your business. This minimizes the risk. (I6: Manager Barber shop)

This quote reflects an entrepreneurial culture as well as learning culture. The manager is aware about the risk and illustrates an opportunity to minimize the risk through small-scale testing in advance. Another interviewee responded in a similar way and mentioned that the risk gets limited because they do research in advance. He responded the following when asked about how he assesses the risk and return balance of innovation:

Risk and return, I mean, that’s entrepreneurship. Of course you do your research first, you see there is a high demand. We are entrepreneurs, you have a gut feel for some things. Beside that you have data that you analyse. It’s basic information, not complex data. When we started for example, we knew how fast the student population is growing and we knew that there is not enough housing to satisfy the need. And the same for the start up industry. Of course there is risk, but it is limited, because you know upfront from your data, that your business is going to be alright. (I3, Manager Hotel)

The general sentiment in terms of risk and innovation can be described with the following:

I think the risk is higher, when you don’t innovate. Then the risk is higher that you will lose many members. I think there is always a risk when you invest money. For example, this e-gym costs about 100.000 euros’ investment. So, this is some kind of risk, because, if it won’t be successful, then it costs you a lot of money but don’t bring any new customer. But we believe in what we do and being innovative is part of our nature. So, we take the risk. (I4: Manager Health club)

All interviewed people see innovation as essential and do not attribute a high risk to innovation.

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When asked about innovation barriers, all of the respondents said that there are basically no barriers. This enhances the fact of an entrepreneurial culture existing in the interviewed low-tech firms. The flat hierarchy and easy decision making rules contribute to an entrepreneurial culture. One respondent stated clearly:

There are no barriers. Of course there exist companies with innovation barrier, such as insufficient capital for example. That’s an important point of course, but this is not the case for us. Another point is that in a gym innovations are bigger. Because of this you might have space limitations, but we didn’t have any problem yet with those issues. (I1, Manager Gym)

I don’t see any barriers. My boss is very open for everything. Of course we have to check if a new innovation is worth the money, but we never had problems with that yet. (I2, Manager Gym)

No, not really. We have a budget for new investments and if we found something we would like to introduce to our studio and it is over budget, there is always a way to do it anyway. (I5, Manager Spa)

Surprisingly, non of the innovation barriers summarized in the literature review of this paper (Chapter 2.4.1 Barriers of service innovation) got identified by the interviewed organizations. Next, interviewees where asked about the main driver for innovative behaviour and the reason why they conduct innovation in order to find out their strategic orientation and see if it is related to the way they conduct innovation. Responses about the main driver were mixed.

Two respondents identified the customer as well as competitors as main drivers for their innovation activities. In particular, customer retention was named as a reason for innovation. At the same time managers are aware of competitors. They see a need to differentiate from competitors, in order to stay profitable and survive. Two out of six organizations identified the customer as their main driver:

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It is important to be able to offer something new to clients. So we make sure that we offer always new things. The customer is the main reason. (I2: Manager gym) I have been in the advertising industry for 20 years. That has taught us to innovate from a completely different perspective, namely from a customer centric thinking. You don’t need an R&D department with 20 people, you just need a logic way to come up with solutions for problems that people have. Coming out of the advertising industry, that’s the way I was taught to think. Because when you have got clear insights, its easier to come up with a better solution, a more creative solution, a solution that is not based on revenues or business cases, but a solution that starts with solving some existing problems and truly make the customer happy. (I3: Manager Hotel)

Mainly, because we want to satisfy our customer. Our customer appreciate that our products and treatments are always up to date, that is why we are always trying to come up with new treatments and do a lot of research to see what is on the market. We try to offer something special to our customers, so that they have a special experience (I5: Manager Spa)

A customer centric view has been identified as very important factor, especially in the service industry. Because of the specific characteristics of services, customer contact is essential and nearly unavoidable in the service industry. This is due to the intangible nature of services, which requires customer interaction during the service delivery process (Smith et al., 2007; Edvarsson, Olsen, 1996; Storey, Hughes, 2013).

Others mentioned competitors as their main driver for innovation. In particular, keeping up with competitors and differentiation were mentioned as reasons.

It depends also on the subject. For example, if we introduce a new class, its mostly because we want to be different from other clubs. Or when we started with this e-gym project, we wanted to be different. We are the only club in Amsterdam that offers this. There are so many gyms around us. So, what do we have or what can we offer that is different. Why should people come here instead of going to the gym which is closest to them? (…) I don’t think you can survive without innovation. When you start your gym and you keep it like it is forever, it will be after a while too old, too boring. I think members will get bored. We find it important to innovate all the time. Many things are changing in the fitness sector in the past years, there so many new things coming up. (I4, Manager, Health club)

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You have to be different. It is hard to be successful if you are just doing what others next to you are doing. As soon as you are doing something different than the other, you attract attention. Every sort of attention is good for your business; as long as it is not something negative. But being different or doing things differently is a good thing and has to be proven successful in many cases. (I6: Manager Barber shop)

Only one organization mentioned both, customer and competitors as key driver:

In a gym, it’s generally the case that you have to bring regularly new things, new services or classes, because otherwise customer get bored and look for other interesting things. Also the competition is tough and you have to stand out somehow. (I1, Manager Gym)

Several researchers investigated impacts that strategic orientation has on innovation. It has been shown that consumer orientation in combination with competitive orientation and technology orientation leads to superior results for innovation in markets where demand is relatively uncertain and high growth markets (Gatignon, Xuereb, 1997). Moreover, it is important that the strategic orientation supports change and innovation (Storey, Hughes, 2013; Smith et al., 2007; Edvarsson, Olsen, 1996).

All six organisations have been shown to be aware of the need of innovation and see it as essential for long time survival and success. As main reason for their innovation activity, they mentioned new customer acquisition, customer retention, differentiation from competitors and attraction of attention.

4.2 Types of innovation and measurement of innovation success

The second topic concerns the current innovation activities of low-tech services. In order to set the stage for the exploration of the innovation process, managers first were asked to report about their innovation activities carried out in the past years. This includes information about how many innovations they have introduced what type of innovation and with what frequency. After

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innovation conducted was discussed in order to find out which measurement tool are used for the success analysis of new introduced innovation. Determination of the success of an innovation is important for the organization, since they need to know whether they should keep the innovation or remove it. It represents a factor of the innovation process and will be implemented to innovation model developed in this paper at the end of the following chapter.

Types of innovation

Interviewees were asked to tell about their recent innovation activity in order to see if there are any interesting finding or conclusion that might affect the analysis of this paper. As a next step, interviewees were asked to assess the success of those innovation.

The interview revealed that no specific type of innovation is preferred. Responses show that innovation conducted include all different kinds of innovation and varies from process-, to product-, organizational-, to marketing innovation.

We do a lot of things, for example the air condition is hanging here since 2 years. This area, was a super-food-centre, it was a little store one year ago, but it costs us too much money in the end. It was like a shop with different protein products, but also a bar where you could get a coffee or a juice or protein shake. In the last 7 years we had 3 different logos. The logo, the website, everything is kind of brand new, since January. Also this E-gym, is quite new, since January. (I4: Manager, Health club)

We have introduced last year a new massage bench and two solariums to our service offering. In addition, we have expanded our course program to the TRX course. Last year we had quite many new services introduced. Since the end of the year we also have a cross-fit area and vibration plates. (I2: Manager, Gym)

These two statements illustrate an example to the given answers. Since the question about the type of innovation merely serves as an introduction to the next topic it only gets elaborated briefly in order to provide an impression to the reader about the type of innovation the interviewees are talking.

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Success of innovation and measurement tools

Researchers found out that one of the main problems of innovation in services is the lack of appropriate measurement tools for the success of innovations (Oke, 2004). Therefore, this section aims to elaborate which role measurement tools play in the innovation process of low-tech services. It explores the attitude towards the usage of measurement instruments and shows whether measurement tools are used, and if so, which are used. An unexpected result is that the interviewed respondents do not state any problems in measuring the success of their innovation. That is in contrast to what literature found out for other services. Several interviewees outlined that they run statistics about their services.

For the services we offer, we have a software where we make all our appointments. We can run a statistic and see which service got booked how many times. If a service is not doing good, we remove it and offer something else. Same for the drinks and food. When we organize events, you see directly if it is successful or not. Some events go better than others that also depends on the season and some other factors. (I6: Manager Barber shop)

Innovations such as vibrating plates or the massage service have to be booked as a package in advance on a monthly basis. That means, we can measure very clear how many people have used it, how many are interested in it and how many have booked the package but have not used it yet. The wellness services usually are very successful. (I2: Manager Gym)

Four of six organizations illustrated the importance of feedback from the customers for the evaluation of innovation’s success. Through conversation with customer they get direct feedback. Another method is to compare it with other countries and try to assume its success beforehand. Some products/services have been shown to be successful in other areas or countries. Therefore, it can be kind of assumed that they will be successful in a different country as well.

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Yes, in principle we think in advance about how to measure if an innovation is worth its investment. For example the TRX course, which we offer at the moment four times per week. We can use our statistics to see how many people attend the class. The individual events, such as the Towel-day or Wellness-day, we have a lot of contact to the customer and talk a lot to them and get direct feedback from them. This gives a very well idea about the success. Cross-Fitness and TRX are originally from America and very successful there. It was just a matter of time when it comes to Germany. (I2: Manager Gym)

Attendees at events, Conversation through employees. Number of people checking in. Feed back through platforms:

The bar is very often very full, our guest like the events and regularly attend to them. Also our employees are talking to them a lot at the bar and ask them about how they like the events. We got very positive feedback. The people who visit our hotel always leave good reviews on online rating platforms. That’s also an indicator. (I3: Manager Hotel)

We see it usually on the numbers. For example, with the shop, we saw that it costs us quite a lot. That was a sign. So we started to look closer how much customer are buying from the shop and how much revenue it generates. In the end it cost more than we got profit out of it. So we decided to remove it. For the e-gym or a new class, we can see how many people register for the class. We check on weekly base how many memberships did we sell or how many members joint our new class. If its working good, we go on with the service and if not, we keep an eye on it for a little while more. Otherwise I have to talk to my colleagues and we have to come up with a new idea to make it better. (I4: Manager Health club)

Most of the interviewees stated that the close contact to their customer is very useful. Generally speaking, all interviewees stated that through interaction with the customer, observation, and other methods, the success of innovation becomes adequately visible to them. A summary of the tools mentioned can be find in table 3.

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Table 3 Summary of measurement tools for innovation in services

Innovation Measurement tool Consequence Respondent

New air condition Customer feedback through dialog, social media

- I4

New administration software

Feedback from colleagues, self-time management

Workshops in order to improve usage; Research about other alternatives

I4

New Fitness-classes, treatment-technique, treatment offering

Attendees, number of new subscriptions, Direct customer feedback through dialog, reviews on online platform

Remove classes/treatment; do more marketing; special price offerings

I1, I2, I4, I5, I6

New machines, products

Customer feedback through dialog, customer observation, revenues

Resell / replace machines or products

I1, I2, I3, I4, I5, I6

New branding, new logo

Feedback friends, social media - I4 New website Feedback friends and

colleagues, Clicks on site, Time spend on website

Modify website I1, I3, I4

Events Attendees, Facebook feedback, social media

Enhance marketing I3 Super food shop Revenues, costs, Strategic

alignment, amount of customer buying

Change products of shop or remove shop

I4

4.3 Innovation process

This part defines the steps carried out by the respondents which are according to them part of the innovation process. Furthermore, it contains information about how decisions concerning new services are made; who is involved in the process; which information are needed and which analysis are conducted during the process. The end of the block contains questions regarding the satisfaction over the process at the moment. Managers were asked whether they have suggestion to increase success rate of innovation and innovative outcome in general.

When asked to describe all steps of the innovation process from idea to implementation, interviewees responded as follows:

The structure of the informal innovation process of low-tech services