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As innovation in manufacturing, innovation in services is essentially about change and renewal (Jong et al., 2003). Nonetheless, because of the characteristics of services, theories on innovation in the manufacturing context have been shown to not be fully applicable to the service environment (e.g., Bryson et al., 2012; Coombs & Miles, 2000; Gallouj & Savona, 2008). At first, however, scholars argued for services being just another offering fully comparable with tangible goods (e.g., Cooper & de Brentani, 1991; Evangelista & Savona, 2003; Evangelista, 2000; Menor, Tatikonda, & Sampson, 2002; Miozzo & Soete, 2001; Scheuing & Johnson, 1989; Tidd, Pavitt, & Bessant, 2001). Research within the so-called assimilation—or technologist—approach, therefore, attempted to assimilate services within the consolidated framework used for manufacturing and technological sectors. Such approach was based on the argument that innovation in services is primarily driven by the adoption of technologies and capital equipment, with non-technological innovation being present but marginal (Gallouj & Savona, 2008). Scholars (e.g., Evangelista & Savona, 2003; Evangelista, 2000; Miozzo & Soete, 2001; Soete & Miozzo, 1989) drew inspiration from Pavitt’s taxonomy of innovation (Pavitt, 1984) to classify innovation in the service context. While this work has been criticised for being reductive (Djellal & Gallouj, 1999), it has shown how innovation in service include non-technological as well as technological traits and processes.

Within the assimilation approach, as reported by Bryson et al. (2012), three fundamental differences were outlined, which argued for non-compatibility of goods-derived theories to the service context (e.g., Cooper & Edgett, 2008; Gallouj, 2002):

1. Innovation in services requires simultaneous innovation in products and processes, meaning that the differentiation between product and process innovation is less accentuated in the service context;

2. There is no actual separation between product innovation and organisational innovation in services;

3. There is no distinction between the creation of a new service offering and its implementation and commercialisation (Callon, Laredo and Rabeha, 1997 in Bryson et al., 2012).

This led to the development of a differentiation—or service-oriented—approach to innovation that treated innovation in services as an independent phenomenon. The differentiation approach required theories and literature that would emphasise the complex process based on non- technological drivers that was presented as typical of services (Cooper & Edgett, 2008; Gago & Rubalcaba, 2006; Howells, 2001). Barras (1986, 1990) adopted the industry life-cycle framework by Abernathy and Utterback (1978) to develop a dynamic model of innovation in services, i.e., the reverse product cycle model. According to his model, information and communication technologies (ICT) are the enabling technology that, when adopted by service sectors, accounts for their innovation potential (Barras, 1986, 1990). Barras' work, however, was criticised for building only on the technological characteristics of innovation, thereby underestimating the non- technological innovation that takes place in the service industries (Gallouj & Weinstein, 1997).

As a consequence, scholars that adopted the differentiation approach rejected the typologies and characterisations previously developed, and stressed (1) fuzziness and (2) interactivity of the process, as well as (3) subjectivity of perceptions of the outcome that characterises services and innovation within such context (e.g., Djellal & Gallouj, 1999; Edvardsson & Olsson, 1996; Gadrey & Gallouj, 1998; Gallouj & Savona, 2008). In this view, not only does a service not have an autonomous existence defined by its technical specifications, but also it is consumed while it is produced, meaning that the customer might and in fact should be involved in the production and in the innovation process (Djellal & Gallouj, 1999). Also, the service context is extremely diverse, and so are service customers and their perceptions. This implies that each service and service innovation might be interpreted in a different way by each individual customer, hence the heterogeneity of services (e.g., Edvardsson & Olsson, 1996). The innovation process in the service context was therefore recognised as a complex process based on both technological and non-technological drivers (Gago & Rubalcaba, 2006; Howells, 2001).

Based on these arguments, differentiation-oriented scholars proposed typologies of innovations that were specifically derived within the service context (e.g., Djellal & Gallouj, 1999; Gadrey & Gallouj, 1998). Gadrey and Gallouj (1998), for instance, distinguished between (1) ad hoc innovation, i.e., unique solutions, co-produced specifically to address a customer’s problem; (2) new expertise-field innovation, i.e., involving new knowledge and expertise that resolves in opening of new markets, diversification or renewal of existing offering, and creation

reduce the fuzziness and intangibility of the service output. Such typologies have been recognised to represent a significant step forward towards the identification of non-technology trajectories and innovation performance in the service context (den Hertog, 2000; e.g., Gallouj & Savona, 2008). Nonetheless, the differentiation approach has been criticised for not being rich enough, thereby failing to incorporate the full breadth of innovation in services (e.g., de Vries, 2006; den Hertog, 2000; Gallouj & Savona, 2008; Gallouj & Weinstein, 1997; Windrum & Garcıa-Goni, 2008).

A synthesis—or integrative—approach has thus been proposed, with the aim of taking into consideration the emerging process of convergence between tangible goods and services (Bryson et al., 2012; Gallouj & Savona, 2008; Gallouj & Windrum, 2008). The synthesis approach is not limited to being an intermediate point between the assimilation and differentiation perspectives, but it rather involves exploring new ways of thinking about services as making important contribution to economic and social life (Bryson et al., 2012). In fact, a clear cut between tangible goods and services would not allow investigating innovation in its integrity (Bryson et al., 2012; Carlborg, Kindström, & Kowalkowski, 2014; Toivonen & Tuominen, 2009). Manufacturing and service activities should thus be considered in a more integrative light (Drejer, 2004; Hipp & Grupp, 2005), borrowing from each other and allowing for multi-dimension and multi-disciplinary research (Carlborg et al., 2014). In other words, the synthesis approach combines the assimilation and differentiation approaches and considers innovation in services in its integrity, by including both technological and non-technological aspects, as well as all different types and degrees of innovation.

The characteristics-based approach by Gallouj and Weinstein (1997) represents one of the first steps towards the synthesis perspective. In fact, it depicts innovation in services as a complex process rather than an outcome, and proposes a model, in which technological and non- technological aspects of innovation in services are grouped into three sets of characteristics:

1. Final or service characteristics: describe the utility, i.e., the benefit, that is linked to the service provided to the customer;

2. Technical characteristics: describe the organisation’s tangible and intangible systems (including processes) that are used to provide the service;

3. Competence characteristics: relate to the individual skills of both the service provider and the customer that relate to each other during the innovation process (Gallouj & Weinstein, 1997).

Based on the different combinations of these three groups of characteristics, Gallouj and Weinstein (1997) distinguished between six types of innovation in services, as depicted in Table 4.

Table 4: Types of innovation in services (Adapted from Gallouj and Weinstein, 1997).

Types of innovation in services Definition

Radical innovation In the new service, a totally new system of final, technical, and competence characteristics replaces the old one.

Improvement innovation In the new service, improving technical or competence characteristics increases the value of the final characteristics.

Innovation by addition or substitution

In the new service, one or more new elements are added or subtracted to the technical characteristics, which in turn generates an adjustment in the final and competence characteristics.

Architectural innovation In the new service, the characteristics of two or more services are combined to create value, or an existing service is split into new services.

Formalization innovation In the new service, the relationship between technical and final characteristics is made more formal to increase reproducibility.

Ad hoc innovation The new service is developed in response to a specific request or need by

the client.

Several attempts have been made to operationalize and further develop the characteristics-based approach by Gallouj and Weinstein (see, e.g., de Vries, 2006; Windrum & Garcıa-Goni, 2008). Den Hertog (2000), for instance, has tried to develop a comprehensive model to conceptualise what he defines as innovation in services, i.e., change in the service offering and/or related processes of distribution, client interaction, quality control and so on. Den Hertog's (2000) model includes four dimensions of innovation in services, as visualised in Figure 1: (1) new service concept; (2) new client interface; (3) new service delivery system; (4) technological options. Every innovation in the service context, according to this perspective, consists of a combination of these dimensions and relative degrees. This implies that when talking about innovation in services, we do not only refer to new services, but also to new organisational settings, processes and technologies, which allow the service provision (Drejer, 2004).

Figure 1: Dimensions of innovation in services (adapted from den Hertog, 2000).

In addition, services have been found to play an emerging role in the development of new ways of organising the production of goods, services and hybrids, as well as of new business models, calling for further research within the synthesis approach (Bryson et al., 2012). More specifically, innovation in services has been defined as being multi-dimensional, thereby concerning issues such as strategy and policy issues, as well as technology, organisation and business models (e.g., Amara, Landry, & Doloreux, 2009; Hertog et al., 2010; Maglio & Spohrer, 2007; Rubalcaba, Gallego, & Hertog, 2010; Spohrer & Maglio, 2008; Toivonen & Tuominen, 2009). This explains why, in this dissertation, I choose to use the construct innovation in services rather than service innovation, as the first includes not only innovation in the service offerings and related processes, but also in the organisation and business model behind them. Innovation in service is thus broadly defined as all types of innovation that take place in service firms, sectors and industries, as inspired by Miles and Tether (2003).

To summarise, in Figure 2 I visualised the evolution of the research on innovation in services from the assimilation to the synthesis approach, along with some of the most significant references for each perspective. Please notice that the arrow does not correspond with actual time, as the perspectives chronologically overlap, but it is rather meant to represent the development of literature and theories on innovation within the service context.

Figure 2: Evolution of the literature on innovation in services.