Exploring Service Innovation

As the world is becoming more service oriented and the rise of service economies become more established, the study of service innovation will be increasingly important. Service innovation consists of three phases: improved efficiency, improved quality and new product. Improved efficiency leads to incremental process innovations such as improving the efficiency of service delivery, or increasing labor productivity and reducing cost. Improved quality leads to radical process innovation to improve existing offerings. Lastly, in the new products phase, competitive strategy shifts from cost advantage to differentiation; new products, new markets and new business opportunities (Barras, 1986).

Purpose & Problem

Chien-Liang Kuo & Chao (2014) highlighted service innovation design and strategies differ in larger firms referred to multinational enterprises (MNEs) compared to SMES due to resource limitations and market positioning strategies. More importantly, this study attempts to provide some insight into the service innovation practices and how they influence the relationships between R&D and IT enabled services (ITeS) in SMEs, which prior to this study has been vague at best. The authors chose the tourism and food service industry for the critical role that it plays in the Taiwanese and global economies. They also cited with a level of clarity not typical for scholarly articles, that the fundamental purpose is to offer tourism and food service business owners a deeper understanding of the activities that enhance competitiveness and favorably impact their contribution to the economy.

Chien-Liang Kuo and Chao (2014) attempted to shed light on service innovation trends, impacts, and outcomes for SMEs in the tourism and food service industry of Taiwan. They described the major advantages of service firms in general industrial terms as a producer of innovations, which have shown to contribute significantly to the evolution of economies. Service firms are also identified as a key player in the division of creative labor, meaning the subject matter experts, administrators, academics and laypersons that make up the workforce. The study of service innovation is usually compared to that of innovation in manufacturing firms through three conceptual perspectives: assimilation, demarcation, and synthesis. These concepts characterize the three ways innovation is compared between manufacturing and service firms; where assimilation = same, demarcation = opposite, and synthesis = highlight the similarities. However, what the authors are attempting to do is provide clarity as to how service innovation has impacted SMEs with regard to profitability. Chien-Liang Kuo and Chao broke down the problem into sub-questions:

  • Primary issue - understanding of service innovation and innovation processes as they pertain to SMEs.

  • Secondary issue - relationship between R&D and ITeS on service innovation.

Figure 1- Knowledge-intensive business services as co-producers of innovation., D. P. Hertog, (2000).

Global Implications

Although somewhat explicitly stated, the authors of this study give the impression that it was commissioned if not financially subsidized by the Taiwanese government. Service innovation provides attributes that are key to the survival, growth and development of service economies both domestic and globally. This would lead one to believe that understanding the trends associated with service innovations, including determinants, performance indicators, and impacts would provide the insight to improve eligibility criteria for opportunities to partner with governments and other entities to advance service innovation including projects like ASSTD. In addition, this effort will provide grant makers or investors with the quantitative data to make initial and renewal funding decisions which in turn will enhance the contribution of SMEs to a particular region’s economy. As previously mentioned, the data presented in this article is informative but lacks some depth in providing its readers with a greater perspective than those without the benefit of the findings.


The findings of the study reflect the focus of SMEs that have implemented service innovations. The results show slightly more than half of the service innovation projects focused on attracting and securing new customers and the remaining participants focused on penetrating new markets. The authors indicated that service innovations are key to