Radical Versus Incremental Innovation: The Importance of Key Competences in Service Firms

Studies of service innovation have increased along with the growth of the service sector, and they have emerged from being marginal and neglected to achieve recognition as an important field to study (Miles, 2000). Until recently, this research field has to a great extent been divided between two contrasting approaches: demarcation and assimilation (Coombs & Miles, 2000). The demarcation approach assumes that services as different from goods, and it is in need of its own theoretical framework to fully understand the concept and process of innovation in services. The assimilation approach, on the other hand, sees innovation (whether it is goods or services) within the same framework of understanding (Coombs & Miles, 2000; Drejer, 2004). However, these two traditions are the subject of ongoing debate, and a third perspective – the synthesis approach – has been suggested in the literature. The purpose of the synthesis approach is to create both a theoretical and an empirical approach to innovation that is able to capture all economic activities – both services and industrial activities – without favouring one over the other (Drejer, 2004). Therefore, the synthesis approach focuses on the need to study service innovation from a perspective that include the central aspects of service production at the same time, not just reflecting the manufacturing-service dichotomy (Drejer, 2004; Ordanini & Parasuraman, 2011). The perspective assumes similar underlying mechanism of innovation, though acknowledging that the importance of the dimensions may vary depending on context, both between and within the sectors (Nijssen et al., 2006). Given that the study of service innovation is still considered to be in a relatively early stage of development (Drejer, 2004), this article aims to gain more knowledge on innovation activities within the service sector. However, the study will be based on a model that is in line with Drejer (2004) and includes elements that are assumed to be of relevance regardless of industries, and thus aims to contribute to the synthesis approach. Today, innovation often takes place using open practices and relies on many sources for knowledge and information. The purpose of this article is to study how different knowledgebased antecedents influence the ability of service organizations to innovate. Using data about the Norwegian service sector from the 2010 Community Innovation Survey, we examined how three types of competence, namely R&D activities, employee-based activities, and customer-related activities, influence the propensity of firms to introduce radical or incremental innovations. The results show that R&D-based competence is important for service firms when pursuing radical innovations, whereas employee-based activities such as idea collaboration are only found to influence incremental innovations. The use of customer information was found to be an important driver for both radical and incremental innovations. The findings points to managerial challenges in creating and balancing the types of competence needed, depending on type of innovation targeted by an organization. A manager is responsible for the application and performance of knowledge.