Miri Kim Sogang University mirikim@sogang.ac.kr
Jaeki Song Texas Tech University
jaeki.song@ttu.edu
Jason Triche Texas Tech University
jason.triche@ttu.edu ABSTRACT
The current trend shows that the world economy has moved from a product oriented economy to a service oriented economy. Therefore, understanding service innovation provides opportunities for firms to continuously obtain or sustain competitive advantages by offering innovating services. This study aims to contribute to service innovation in mobile industry through a theoretical formulation of a research framework in which we posit how firms implement better services from a dynamic capabilities framework. Our framework has potential to provide new insights by suggesting the basis for new discourse in IS for service innovation.
Keywords: Value co-creation, dynamic capabilities, resource-based view, service innovation 1. INTRODUCTION
Today’s organizations consider the ability to develop innovations as one of their top priorities (Thomson Reuters, 2011). Especially, services operate in a complex and dynamic environment with respect to open characteristics of the markets where emphasized linkages between service providers and recipients are important. These actors perform at designing, producing, and delivering processes together for supporting the high quality products and services to the market.
Such involvement outside the firm that leads to service innovations are new developments in the core offerings of service companies that tend to create new revenue streams (Oke 2007). In some cases, these new developments can fundamentally change the way a company does business. As innovation plays a critical role in highly competitive markets, the innovation performance has received great attention to both practitioners as well as researchers.
Predominant studies in management literature have demonstrated how outcomes of innovations can be improved. However, we focus on firm’s resource and capabilities, which are distinguished by tangible and intangible characteristics in the service sector and dynamic capabilities as a black box of the co-creation process in order to enhance the service offerings. Such market-driven knowledge becomes one of the most critical factors in creating service innovations by integrating firms’ heterogeneous resources with their capabilities (Eisenthardt and Martin, 2000). In this study, we aim to provide a framework that explains the effects of firms’ resources and market-driven interactivity on their capabilities and, in turn, the impact of capabilities on their outcomes in mobile commerce service innovation.
2. Theoretical Backgrounds
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Dynamic Markets in Mobile Industry
According to the 16th Mobile Competition Report, mobile wireless industry is sufficiently complex and competes in dynamic markets in various aspects, such as types of services, geographic areas of the mobile network, etc. (Federal Communications Commission, 2013). To service firms in the mobile market, firms should formulate strategic approaches on how they can provide a better service than their competitors. The highly competitive businesses in the dynamic-technology industries such as telecommunications, information services, and software, challenges the assumption of the resource-based view (RBV) of the firm. To address this issue, we draw on dynamic capabilities by synthesizing resource-based view and value co-creation.
Dynamic Capabilities
The mobile industry is extremely active therefore any static theory, like resource-based view which is suited to stable environments, is not sufficient to explain dynamic phenomenon. Many previous studies have looked at only a single side of determinates for an innovative organization, or else have proposed a hidden aspect of innovation process, such as Kanter’snewstream (Lawson et al. 2001). The Dynamic Capabilities Framework addresses that internal technological, organizational, and managerial processes enable firms to gain economic rents in settings of rapid change (Baker et al., 1997). They have been defined by as "the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments" (Teece et al., 1997). Dynamic capabilities have emphasized the critical role of managerial capabilities rather than firm resources (as in the RBV). Dynamic capabilities enable a firm to adjust its strategy and resources to maintain and sustain competitive advantages (Wade and Hulland, 2004). Without such enduring dynamic capabilities, competitive advantage could erode quickly. Thus, proven organizational capabilities are valuable outcomes, such as creating effective innovation.
Resource-based View (RBV)
The resource-based view explains that competing firms possess heterogeneous sets of resources and capabilities (Wernerfelt, 1984). As conceptualized in this theory, valuable, rare, inimitable, and nonsubstitutable resources are the basis of a firm’s competitive advantage (Barney 1986).
The RBV applies very broad definition of resources, including such items as physical capital, human capital, and organizational capital (Barney, 1991). Capabilities are defined as competencies that are built by combining resources (Grant, 1991). Its resources create distinct strategic choices that could exploit markets in order to improve market position (Song and Zahedi, 2006). The RBV has been applied to explain that shared domain knowledge between business and IT managers help improve the quality of different outcomes (Kearns and Sabherwal, 2006-7), to explain how the strategy of a firm influences its productive interactions with other firms (Madhok, 2002), how applied to firms’ capability to address the rapid changes in markets in which firms have operated (Eisenhardt and Martin, 2000), and how information systems competencies affect process innovations within an organization (Tarafdar and Gordon 2007).
Value Co-creation
Dynamic capabilities emphasize the role of capabilities that react to dynamic external context which is directly related to value co-creation activities with external resources (Ramaswamy and
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Gouillart, 2010). In business relationships, value can be examined with customer, suppliers, and other entities including government and even competitors. Especially in the case of customer involvement, the literature suggests that increase of value co-creation activities between a firm and customers provides unique and inimitability of the firm’s knowledge and they become new sources of firms’ rents (Dierickx and Cool, 1989). In a complex and dynamic environment, ability to see the value creation relationships can lead to obtaining business opportunities because value is dynamic and changes over time (Forsström, 2005). Therefore, a firm’s network creates value by enhancing the creation of capabilities through combining the existing capabilities of firms in new value configurations (Ngugi et al., 2010). Furthermore, such value co-creation possibly produces high innovation, effectiveness, and creating more innovative products (Gilbert et al., 2000).
3. Research Framework
In this section, we develop propositions about the relationships between resources and capabilities, and in turn, capabilities and outcomes of service innovation. Our proposition and the links among the critical components are outlined in Figure 1.
[Figure 1] Research Framework Focal resource and Interactivity
An organizational routine, as defined in the dynamic capabilities literature, is a set of activities that are routinized such that the ability to continuously manipulate key capabilities and resources of their firmsinto new products, processes and systems for successful innovation (Lawson and Samson 2001, Agarwal and Selen 2009). More specifically, innovation capability is about synthesising these two operating paradigms: 1) focal resource and interactivity, and 2) process of value co-creation.
Although there are many heterogeneous resources across an organization, we suggest that they all can be categorized into focal resources and interactivity for co-creation. Focal resources must carry specific characteristics: valuable, rare, inimitable and non-substitutable, and must be
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appropriate to the firm (Arend 2006). Within service firms, innovative firms are able to link their core resources such as technical specializations, service intensity, managerial attitude, and knowledge sharing to their capabilities in processing value co-creations (Agarwal and Seldon, 2009; Lawson and Samson 2001; Wu 2010 ).
According to studies in dynamic capabilities, maintenance of relationships with partners such as suppliers, customers, and other key stakeholders is the fundamental logic of leveraging resources (Agarwal and Selen 2009). Especially, a firms’ relationship with its customers through its engagement becomes a co-creation process in the development, design, and delivery of innovative products and services (Agarwal and Selen 2009, Wu 2010). Also, service companies increasingly emphasize the partnerships with suppliers and other business partners (Howells 2000). Therefore, acquiring knowledge and information from their external resources becomes critical (Foss et al., 2011). Given the relationship between focal resources, external resources, and dynamic capabilities, we posit the following:
Proposition 1a: In the context of service innovation, increases in focal resources increase capabilities for producing value co-creation process.
Proposition 1b: In the context of service innovation, increases in external resources increase capabilities for producing value co-creation process.
Capabilities of Service Innovation: Process of Value Co-creation and Their Outputs
Firms that possess dynamic capabilities as integrating, re-configuring, and allocating by linking different levels of resources of firms for service innovation. There are three dynamic capabilities that link different levels of resources for firms that wish to innovate (Eisenhardt and Martin 2000). Integrative capabilities allow firms to combine operant sources (i.e., skills and knowledge) from different resources developed by various firms’ departments and external resources (Lawson and Samson 2001). Reconfigurative capabilities focus on transfer processes including replication and brokering the source within the firm. Allocative capabilities are related to distribution and patching the resources for co-evolving to create synergies. Firms build such capabilities to capture market opportunities and enhance or create new service innovation process (Agarwal and Selen 2009).
Firms may pursue a complex of service innovations that may target different type of outcomes.
We propose service innovation as implying new or enhanced service offerings and blended the different characteristics through the process of value co-creation (Gallouj and Weinstein 1997).
To take the specific characteristics of service, we leverage competency, technology skills, and outcome. Competency refers to the basis of unique value-creating in service innovation systems and direct mobilization of own competency (Gallouj and Weinstein 1997, Eisenhardt and Martin 2000). One of the major activities in service is the technologies embedded in the form of values (i.e., knowledge and skills) including tangible and intangible technical characteristics processes which directly provide a service innovation. Outcome refers to a prior product or service represented by a set of combination of competences and technology characteristics by firm or without non-combination of the characteristics in service innovation system. In terms of a process of dynamic capabilities, various modes of service innovation are highlighted by how
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three characteristics formulate in service innovation system (Gallouj and Weinstein 1997).
Given the relationship between dynamic capabilities and service offerings, we posit the following:
Proposition 2: In the context of service innovation, increases in dynamic capabilities enhance to offer better services (or new services).
4. Research Design
The context of this study is the mobile service industry. The mobile telecommunication industry is sufficiently complex and competes in dynamic markets in various aspects, such as types of services, and geographic areas of the mobile network. Moreover, mobile services providers supply customers with the ability to connect and communicate over their network, which at its core is the definition of service. We plan to analyze our model using data from the leading providers of mobile communication services in South Korea. In order to explore the data and have a more in-depth analysis, we employ content analysis as a research method. Content analysis is one of the empirical research methods that use existing data analysis methods in order to ensure objectivity and reliability. In addition, using content analysis allows us to explore the data, posit deeper insights, and provide a systematic procedure to discover richer, more textual information in the service innovation variables.
5. Conclusion
Our study provides potential benefits to academics in addition to businesses. Our framework sheds light on innovation literature by synthesizing dynamic capabilities with resource based view and value co-creation activities. Also, our framework is a testable model so that it provides solid foundation of theory in the literature. Our study also has some implications to managers.
Mangers could understand how they offer better services in terms of determining how to integrate and allocate their capabilities that are associated with their internal resources. In addition, firms can learn how to reconfigure external resources to maximize value creation from external resources.
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Full reference available upon request.
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