Vinnova: Promoting Sustainable Growth in Sweden

is on improving work organization, management, and leadership to foster a sustainable working life in the long run. The ultimate goal is to achieve global competitiveness.

The number of companies that supply services is increasing, making services an increasingly important part of the labor market and contributing to Sweden's growth potential. The current understanding of work organization and leadership in business development and innovation is mainly based on experiences from larger Swedish industrial companies. However, there are knowledge gaps in the scientific literature regarding how service work can be organized and led to enhance employee innovation potential. This literature review is conducted by two scientists, Annika Schilling, an Assistant Professor in Business Administration at the Stockholm School of Economics and Uppsala University. Schilling's previous research includes studying the significance of identity in a merger between consultants, as well as focusing on communications consultants in medialized businesses, HRM in professional services, and innovation in service companies.

Andreas Werr, an Associate Professor and the acting head of the Center for People and Organization at the Stockholm School of Economics, primarily conducts research on various aspects of management consulting, knowledge work, and professional service firms. His ongoing projects center around knowledge integration in knowledge-intensive services, innovation through solutions-oriented services, and HRM in professional service firms. His research papers have been published in different sources.

The authors of Organizations Studies, Organization, and the Sloan Management Review argue that there is a significant lack of knowledge and a strong need for research on how service work can be designed, organized, and led to enhance employee innovation potential. Schilling and Werr have identified and explored the following gaps in knowledge and research needs:

the dynamics of the service innovation process, contextualized models of service innovation, different types of service firms, service innovation in business networks, knowledge and knowledge processes in service innovation, an innovative climate and HRM practices, communication and "talk" in service innovation, power and politics in service innovation, and gender studies of service innovation. In spring 2009, Vinnova will allocate nearly 40 million towards research and development to address some of these identified gaps in knowledge. This literature review is part of the preparatory work for the announcement.

Furthermore, a spring release of an interview study is being initiated by Vinnova in February 2009. Par Larsson and Kerstin Waldenstrom, programme managers at the Working Life Department Content Services, highlight that services are becoming increasingly important in the economy and serve as a major source of employment worldwide. While new product development in traditional industrial firms follows well-organized processes supported by extensive research, the development of new services in service firms tends to be more spontaneous. Despite significant growth in research on service innovation and new service development over the past two decades (see Figure 1), there has been limited investigation into understanding and developing the processes through which new services emerge within service firms. This shift towards recognizing services' potential for innovation has been driven by information technology (Miles, 2000). Services possess distinct characteristics such as intangibility, heterogeneity, inseparability, and perishability (Johne & Storey, 1998), which present specific challenges when developing new offerings.

Intangibility is the characteristic of services being composed of ideas and experiences instead of physical artifacts. Services revolve around processes rather than tangible objects. This means that service innovations are difficult to safeguard against competition,

and they can also be challenging for customers to assess and evaluate, as well as to test in their conceptual form. Moreover, services are typically generated through interactions with customers, frequently taking place within the customers' local and diverse circumstances, resulting in services being heterogeneous.

Every service provided is unique and controlled by service workers, while also considering the importance of consistency in service quality. Managing the stability, change, and development of the service offering presents a challenge. Additionally, the production and consumption of services are closely intertwined, with customers playing a crucial role in creating new services. Due to this integrated nature, services cannot be stored and are therefore perishable.

Planning for capacity in service industries is crucial and challenging since services cannot be produced in advance and stored for later sale. The distinctive characteristics of services, however, have raised questions about the clear distinction between products and services. Recent developments propose a "service-dominant logic" that goes beyond this distinction and recognizes the firm and its partners as contributors to the co-creation of value through reciprocal service provision (Vargo ; Lusch, 2004, Lusch et al. , 2007).

According to Prahalad and Ramaswamy (2004, p5), the exchange of goods, services, or money is centered around the application of specialized skills and knowledge. This exchange involves not only the customer but also other stakeholders who play a vital role in co-creating value. Both perspectives emphasize the importance of individuals' knowledge, skills, and motivation in delivering services and determining their perceived value. These factors are also critical for developing and introducing new services (Johne & Storey, 1998; Edvardsson et al., 2006). In recent years, there has been increasing research focus

on service innovation and creating new services within service firms. Innovation refers to the creation of something novel - whether it be an artifact, idea, or method - that is then put into practice. This article examines research specifically addressing the development of new services or work processes within service firms.

The field of service innovation and new service development has experienced significant growth in research activity since approximately 2000. This literature review focuses on the utilization of service workers' ideas and knowledge in service firms for creating new services, examining the number of articles in the EBSCO literature database that include terms such as "new service development" or "service innovation."

Purpose

The purpose of this study is to review scientific literature on service innovation and new service development, with a specific focus on the role of service workers in the innovation process and the organizational and management practices that enable their knowledge to be utilized in developing new services. The review provides an overview of the literature, analyzes key themes, identifies research gaps, and suggests further areas for investigation. The study conducted a search of the EBSCO journal database over an 11-year period (1998-2008) and reviewed 10 scientific journals from different fields, identifying a total of 74 relevant articles. Additionally, a systematic search was conducted for dissertations published in Sweden on this topic within the past 11 years alongside the journal articles.

Through this search, five relevant dissertations were identified.

Limitations

The review specifically examines service innovations in firms that primarily provide services and are typically referred to as service firms. This scope excludes studies on service innovations within traditional product-oriented organizations or other types of service organizations like healthcare

and the public sector, unless they are included in the service firm category. Additionally, the review focuses on the involvement of service workers' knowledge and ideas in the development of new services.

This text excludes studies that primarily focus on technology or marketing as the main drivers of service innovation. The focus here is on organizational and processual aspects of service innovation and new service development. Studies primarily focused on corporate strategy aspects of innovation in service firms are also excluded. Only studies related to service innovation and the development of new service offerings are included.

Approach

The literature review primarily uses articles from scientific journals. Additional sources were found through a search for relevant Swedish dissertations. The review of journal articles was conducted in four steps.

Initially, the EBSCO database was used to search for articles from 1998 to 2008. The keywords "service firm" were combined with "innovation", "new service development", "human resource management", "knowledge management", and "learning" to ensure a comprehensive search. This wide-ranging search aimed to include topics such as knowledge management, learning in service firms, and HRM in general, aligning with our interest in utilizing service workers' knowledge and ideas during service development.

Based on the outcomes of this broad search, 10 journals were selected for further analysis. These journals were chosen because they contained a significant number of articles related to new service development and the role of service workers in this process. The selected journals encompassed various disciplines and approaches including service management, innovation management, human resource management, and organizational behavior and psychology.

The analysis revealed that three journals largely dominated the literature on this topic – the Service Industries Journal, International Journal of

Innovation Management, and the Journal of Product Innovation Management. These journals are highly specialized and specifically focus on the service industry and innovation.

The study aims to address the lack of research in organizational or HR perspectives by including the Human Resource Management Journal. The first search identified articles on service work, but none specifically discussed innovation or new service development. A more detailed review of journals from 1998-2008 uncovered additional relevant articles that may have been missed in the initial search. An annotated bibliography was created summarizing each article. Themes regarding important enablers and aspects of new service development were identified after reading and summarizing the articles.

Within this report, ten main themes were identified, serving as the foundational structure. These themes are explored further in section 5. In addition to examining scientific articles, dissertations from Swedish universities between 1998 and 2008 were also analyzed to broaden the sources within the review's scope. The focus was on learning from members and utilizing tools for strategic positioning and service innovation within trade unions. This research was conducted by Patrik Gottfridsson at Stockholm School of Economics, EFI.

Smaforetags tjansteutveckling - en studie av hur smaforetag utvecklar individuellt anpassade tjanster. Stockholms universitet, Foretagsekonomiska institutionen. Magnusson, Peter. (2003).

Customer-oriented product development: Experiments involving users in service innovation. Stockholm School of Economics, EFI. Matthing, Jonas. (2004). Customer involvement in new service development.

Karlstad University, Division for Business and Economics Service Research Center. Sonesson, Olle. (2007). Tjansteutveckling med personalmedverkan. Karlstad university, Fakulteten for ekonomi, kommunikation och IT. Learning from members as a tool for service innovation in trade unions Development of customized services in small service firms Experiments and interviews Telecommunication Customer involvement in

new service development Experiments Telecommunication Customer involvement in new service development Interviews

Financial services

Front-line employee involvement in new service development 12 3 An overview of the field of research Research on the service workers’ role in new service development and service innovation has been carried out from different perspectives using different approaches and covered different kinds of services.

Our review indicates a slight inclination towards quantitative methodologies, specifically the use of questionnaires or database data for regression and cluster analyses. Most of these studies focus on the overall innovative behavior of service firms within industries or nations, as well as the connection between innovative behavior and performance. Just under half of the studies analyzed were based on quantitative data. Approximately one third of the articles and dissertations employed a qualitative approach, primarily presenting single or multiple case studies. The remaining articles utilized a combination of qualitative and quantitative methods or consisted of literature reviews and conceptual discussions.

Secondly, the research field can be examined by the types of services that are studied. Although we have discussed several common characteristics of services, there can be significant variations beyond these general similarities. Schmenner (1986) distinguishes four types of service operations based on the level of labor intensity (defined as the ratio of labor cost to the value of plant and equipment) and the degree of customization and interaction with the customer. These four types are the Service Factory, Service Shop, Mass Service, and Professional Service.

Different types of service operations (based on Schmenner 1986):

1. Service Factory (Low degree of interaction and customization):
- Airlines
- Trucking
- Hotels
- Retail banking

2. Service Shop (High degree of interaction and customization):
- Hospitals
- Auto repair
- Other repair

services

3. Mass Service (Degree of labor intensity not specified)
- Retailing
- Wholesaling
- Schools

4. Professional Service (High degree of interaction and customization):
- Doctors
- Lawyers
- Accountants

In addition to these categories, other dimensions commonly used to differentiate types of services include capital intensity, knowledge intensity, people connection, technology connection, and customer participation (Edvardsson et al., [year]).

The new service development process is influenced by various dimensions, which result in different conditions. In terms of research, there is a bias towards certain service industries. Telecom and IT services are the most prominent, followed by financial services including insurance and reinsurance services, as well as knowledge-intensive service firms. This dominance suggests a primary focus on technology and knowledge-intensive services, while less knowledge-intensive services have received less attention in the research.

In Schmenners's (1986) terminology, the focal point of current research has predominantly been the examination of extreme types of service businesses – namely, Service factories with low customization and degree of labor, and Professional services with high customization and degree of labor. However, there has been relatively limited study on innovation in mass services and service shops. The number of articles addressing various service sectors and the innovation within them is noteworthy.

In this section, we will provide an overview of the previous research's conceptualizations of service innovation in a general sense. These conceptual patterns will serve as a foundation and reference point for the subsequent section, which will identify several themes in the research pertaining to the management and organization of the service innovation process. Notably, two conceptualizations will be explored in greater detail: typologies that characterize different types of innovations in service firms, and innovations within different service sectors. Furthermore, we will

make some remarks on studies that investigate the performance benefits resulting from innovation in service firms.

The text discusses various types of innovation in service firms. Several articles propose typologies for understanding the concept of "innovation" in these firms. One typology, presented by Hipp et al. (2000), distinguishes between three types of innovations:

• Service innovations, which involve introducing new or significantly improved services;
• Process innovations, which involve implementing new and improved work methods in the production process of a specific service;
• Organizational innovation, which encompasses significant improvements in broader organizational structures or processes, going beyond the individual service production process.

Similar typologies can be found in other articles. These alternate typologies refer to "service innovation" as product innovation (Damanpour ; Gopalakrishnan, 2001), service product innovation (Oke, 2007), and innovation in the service concept (den Hertog, 2000). However, these typologies do not differentiate between innovations specific to the service process and innovations affecting the entire organization.

The two types of innovation, process and organizational innovation, are sometimes combined and referred to as process innovation (Damanpour; Gapalakrishnan, 2001), service innovation (Oke, 2007), or innovation in the service delivery system/organization (den Hertog, 2000). However, for the sake of simplicity, Hipp et al.'s typology of service innovation, process innovation, and organizational innovation can be considered to encompass the fundamental distinction between different types of innovation discussed in the literature. Hipp et al.'s (2000) typology can also be correlated with three different modes of innovation activities identified by Tether and Tajar (2008).

The text explains that activities focused on creating new products/services,

related to service innovation, fall under the product-research mode of innovation. Similarly, activities focused on developing new production processes, related to process innovation, fall under the process-technologies mode of innovation. Lastly, activities focused on organizational change, associated with organizational innovation, fall under the organizational-cooperation mode of innovation. Tether and Tajar refer to the first two modes as forms of technical innovation and the third mode as a form of organizational innovation. The mode of innovation can also take different forms such as ad hoc processes, expert-driven processes, or formal processes (Gadrey and Gallouj, 1998).

Some articles primarily concentrate on advancements in technology that support the production of services, particularly process innovations. For instance, Bower et al. (2000) explore innovations in information and communication technologies within healthcare services, while Wyatt (2000) examines endeavors to establish information networks in government administration. Uchupalanan (2000) discusses innovations centered around information technology, covering both service and process innovations. Alternatively, other articles predominantly center on organizational innovation.

McCabe (2000, 2002) has studied organizational innovation in the financial sector, specifically focusing on new methods of management control such as TQM and BPR (McCabe, 2000). Another recent method for management control in service firms could be the service management model "lean services". According to Van der Aa & Elfring (2002), organizational innovations are crucial in services, alongside technical innovations. They identify three forms of organizational innovation: multi-unit organizations, new combinations of services, and customer as co-producer. Multi-unit organizations involve reproducing a management system used in one part of the organization in multiple units. New combinations of services involve creating new combinations of service activities, parts, and segments. The concept of customer as co-producer involves redefining

the role of the customer as a co-producer of services. Additionally, some studies highlight the significance of innovations in the customer relationship.

The innovation in service delivery can either pertain to meeting customer needs or improving interaction processes with customers. According to den Hertog (2000), innovations in the client interface are considered as one type of innovation in service firms, along with service innovation, process innovation, and organizational innovation. Similarly, Osborne (1998) identifies four archetypes of change in social policy implementation, three of which are defined as innovative. These 18 archetypes are visually represented in a diagram based on the extent of change in service and the extent of change in customer relationships. Total change encompasses introducing new services and modifying customer relationships, while expansionary change only involves altered customer relationships without changes to services provided.

Evolutionary change in the context of service firms refers to the introduction of new services while maintaining the existing customer relations. On the other hand, developmental change, which is not considered as innovative, involves neither changes in services nor customer relations. A study conducted by Damanpour and Gapalakrishnan (2001) observed that service firms, similar to manufacturing companies, prioritize the adoption of service innovations rather than process innovations. Service innovations are implemented more quickly and frequently compared to process innovations. Additionally, it is likely that an innovation in service is followed by a subsequent innovation in the service process. Moreover, Oke (2007) discovered that the telecommunications and financial sectors place greater emphasis on service innovations, while the retail and transport sectors focus more on process innovations. Past research has also explored various innovative strategies employed by service firms.

The text emphasizes that service

firms differ in their level of innovativeness in service development. Tether (2003) found a significant difference among service sectors in terms of their innovation levels, engagement in R&D, and collaborative arrangements for innovation. Different typologies classify innovations based on their level of novelty. The most commonly used typology includes six types of innovation, ranging from highest to lowest innovativeness: new-to-the-market services, new-to-the-company services, new delivery processes, service modifications, service line extension, and service repositioning (Avlonitis et al., 2001 and Alam, 2006a).

Other typologies discuss a scale between radical innovation and incremental innovation (Oke, 2007) or differentiate between really new and incrementally new services (de Brentani, 2001).Based on Alam's (2006) research, less innovative strategies, including new-to-the-company innovations, are considered to be more cost-effective and less risky compared to highly innovative "new-to-the-world services". Consequently, non-radical innovations are often perceived as the most popular choice. However, Oke (2007) has discovered that formal management practices in service firms are inclined towards promoting radical innovations rather than non-radical incremental innovations.

Some articles have focused on less innovative new service development. Berry; Lampo (2000) examine how service firms can be innovative through service redesign. They identify five approaches to service redesign: 1 2 3 4 self-service, where the customer assumes the role of producer, direct service, where the service is delivered to the customers’ location, pre-service, where the activities of the service are streamlined, bundled service, where multiple services are combined into a package and 5 physical services, where tangibles associated with the service are manifested. Atelier; Kubarek (2008) study design reuse in both manufacturing and service firms. They found that unlike manufacturing firms, service firms may produce novel services despite a high

percentage of design reuse. In summary, past research distinguishes between different types of innovation in service firms and new services with varying degrees of innovativeness.

The text emphasizes the importance of discussing three types of innovations in service firms: service innovation, process innovation (including innovations in supporting technology), and organizational innovation. The level of innovativeness can range from radical/new-to-theworld innovations to incremental changes in services, supporting processes, and organization. One aspect that has not been explored in the service innovation literature is the distinction between innovation patterns in smaller and larger service firms. Only Gottfriedsson (2001) has considered firm size as a relevant variable in his study. Examining service firms of different sizes when studying service innovation is significant because it is reasonable to assume that small, medium, and large service firms may have different approaches towards organizing the innovation process.

Future studies should consider the size of the service firm when examining innovation in different service sectors. Many previous studies suggest that service firms in different sectors exhibit unique innovative behaviors. Some studies also indicate notable differences between service sectors. For instance, Tether (2003) conducted a study on innovation patterns in five service sectors: wholesales trades, transport services, financial services, computer services, and technical services. The findings reveal significant variation in the level of innovation and engagement in innovative activities among these sectors. Additionally, Camacho Rodriguez (2005) identifies three clusters of sectors that differ in the extent of innovation.

The argument made is that service firms that prioritize research and development, software, and other computer activities are considered highly innovative. Medium levels of innovation were found in service firms in the telecommunications, financial services, and other business

services industries. Among service firms with low levels of innovation, wholesale, transportation, and public services were identified. However, Tether (2003) also discovered significant differences within different sectors. This indicates that even though there are variations between sectors, they should not be regarded as uniform.

While there are more studies comparing different sectors, there are also articles that concentrate on innovation patterns within a specific service sector. The four sectors that have garnered additional attention in these articles are financial services, knowledge-intensive services, telecommunications and IT services, and public services/health care.

The articles on service innovation in different sectors tend to discuss various aspects of service innovation, depending on the dynamics of service delivery in each sector. In the financial service sector, some articles focus on different types of innovation and the process of innovation adoption. Other studies highlight the significance of communication and the use of cross-functional teams.

, 2000) and involving both customers (Alam, 2006b) and front-line employees in developing new bank services (Sonesson, 2007). Within the group of articles focusing on knowledge-intensive business services, other issues were explored. For instance, we came across several articles (21 in total) examining knowledge creation and learning in the innovation process (Anand et al. 2007; Leiponen, 2005, 2006), as well as the commoditization of knowledge-intensive services (Heusinkveld & Benders, 2005). Additionally, some studies delved into the drivers of innovative behavior among individual employees (de Jong & Kemp, 2003), and the interaction between the customer and service provider in a(p).