CHAPTER 1. INTRODUCTION
1.2. Research Question & Objectives
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models not appropriate for SME’s situation (Kaufmann & Todtling, 2002).
Considering the great share of GDP that SMEs are holding, supporting SMEs develop their own innovation compatibility has become critical (Hoffman et al, 1998).
We’ve briefly introduced the current situation of existing service innovation’s theories in this section and two statements are given: (1) service innovations are different from goods innovations, while most theories and businesses are still using the old-fashioned goods point of view still, improvement is needed (2) service innovations are different for big companies and SMEs, since existing theories are putting more emphasis on innovation for big companies, supports for SMEs are still way to go. Combining the two becomes our intended contribution for this research - provide a service innovation theory that can avoid the shortcomings of preceding goods dominate logic, and support SMEs use with ease.
1.2. Research Question & Objectives
A notion called service system proposed by Aronson (1997) - a service was created during interactions between actors under a governing mechanism - was giving a good point to start on understanding the difference between goods and service innovation.
In service system researches, researchers focus on the interactions between multiple actors that creates values for interacting parties, the notion was closed to the concept of the service dominant logic (Vargo & Lusch, 2004) which states that – in service, resources like alliance partners and end customers are operant resources, can be influenced by and influencing other resources to co-create value; while in goods, alliance partners and end customers are operand resources, passively influenced by other resources, like the manufacturer – thus service system provides a concrete theory architecture for successor to take hands on.
In a service system, the final outcome is produced and decided by the interactions
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between entities, like a barber interacts with its customers to deliver the hair-cutting service. The final hair style is not only based on barber skills, but also must take the customer’s hair’s status and the entire circumstances into account. In different salon and with different customer, the outcome hair style could vary, and while customer has different tastes, a same style might have totally different customer satisfaction. It is important to have this in mind before doing any further studies of service innovations.
Another excellent example is given by Aronson(1997) to show how could system thinking be useful in service innovation. In a given agricultural case, Aronson described that when a special species of harmful insects appears, it is easily for farmers to seek for new pesticides to eliminate the new incomers. However, if the new insects (insect A) are very resistant to pesticides, then the farmer needs to use a stronger pesticide to achieve the desired result. The problem in using the new pesticide arouses – it might kill other insects (insect B) that could kill insect A. If the number of insect B decreases more than insect A, than the new pesticide could possibly cause a totally negative effect to the crops. Hence, the farmer shall consider not only about harmful insect A, but shall also think about any other factors or entities that are involved within the system (the farm).
The following Figure 1.1 from Demirkan (2011) can explain the concept of the service system more clearly. An entity in a service system could consider as an actor, who can have actions influencing others, and the interaction is how multiple entities working together, the outcomes are created during the interaction. Following this concept, we could consider that any service innovation is an attempt to change the service outcome of a system to a more innovative aspect; accordingly, it will be useful and important to understand the whole system to see the big picture of the service innovation. To examine the system thoroughly, one must figure out not only who
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those entities are and what’s their outcome, but more importantly how they interact.
By understanding the way they interact, we could knew the system better, and come up with solutions to change their interactions, and thus alternates the final service outcome of a same set of entities.
Figure 1.1 Ten core concepts of service science (Demirkan, 2011)
However, while we are saying service innovation as an innovative change in the outcome value of a service within two entities: provider and consumer, and interaction is how the outcome created, we are actually indicating an even more important notion:
interaction is the key of service innovation. Reasons are that if all the values are created by the interactions of entities, then it is suggesting that any service innovation in the system is actually derived from the change in interaction, since innovation is a type of value changing. For example like Apple’s Ipod, it is changing the way how a mp3 manufacturer interacts with its customers - from product provider to a music service facilitator; another example is like Dell’s up-to-build service is actually altering the density and purposes of customers interactions with the company, and also it changes the interaction of Dell and equipment manufacturer. Accordingly,
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when the interaction is changed, and changed to a more innovation-friendly state, we could possibly expect the innovation within the system will be more likely to happen, and it breeds the concept of the possibility to do service innovation by interaction manipulating.
After understanding the way how service is provided by business and why system thinking provides good support in studying it, we could embrace the concept of the importance of interaction and use it as our theory foundation to find possible service innovations. The next question to solve is how to generate adequate service innovation recommendations from system thinking without incomprehensible mechanism, and how SMEs could follow the recommendations by themselves with ease.
Concluding, the issues this research aims to solve lies under:
1. To discover the possibility and effectiveness of using interaction as a foundation to create a service innovation theory.
2. To develop a service innovation theory which is based on the interaction-centric notion while remains an easy-to-adopt feature and good guidance for SMEs.
3. To implement a prototype system to demonstrate the feasibility and practicability of the .