Intern. J.

of Research in Marketing 23 (2006) 241 – 251

www.elsevier.com/locate/ijresmar

Exploring product and service innovation similarities and differences

Edwin J. Nijssen a,⁎, Bas Hillebrand b , Patrick A.M. Vermeulen c , Ron G.M. Kemp d,1
a
Nijmegen School of Management, Radboud University Nijmegen, P.O. Box 9108, 6500 HK Nijmegen, The Netherlands
b
Nijmegen School of Management, Radboud University Nijmegen, The Netherlands
c
Tilburg University, The Netherlands
d
EIM Small Business Research and Consultancy, Zoetermeer and Wageningen University, The Netherlands

Abstract

This paper aims to provide an initial step towards a synthesis of new service and new product development research. Using a baseline model of
innovation, applicable to innovation in general, we hypothesize differential context effects between new service and product development in order
to better understand their differences and similarities. We argue that R&D strength is more important for new product than service development,
while a company's willingness to cannibalize organizational routines and prior investments is more important in the case of new service than new
product development. The model and hypotheses are tested using data from 217 service-based and 105 product-based companies in The
Netherlands. The results provide initial support for the integrating perspective. Directions for future research are discussed.
© 2006 Published by Elsevier B.V.

Keywords: Innovation; New product development; New service development; Cannibalization; SMEs

1. Introduction service research. In a recent review of service versus manu-

The post-World War II era for Western economies has been
characterized by growing service and declining manufacturing
industries. Today most Western economies depend for the larger
part of their GNP on service sales. This has resulted in greater
interest in examining new service development and understan-
ding the antecedents of successful service innovations. Despite
this trend innovation research remains dominated by research
that is focused on products and systems rather than on services
(Meyer & DeTore, 2001). Although the body of research on
services has increased its theoretical foundations could be
strengthened (Drejer, 2004). As Johne and Storey (1998, p.201)
commented in their extensive review of the new service
development literature: “it is surprising that there has not been
more effort to develop a specific service development model”.
While developing a unique new service development model
is a possible avenue for further research, another more exciting
approach would seem to be a synthesis of new product and
⁎ Corresponding author. Tel.: +31 24 3611868; fax: +31 24 3612028.
E-mail address: e.nijssen@fm.ru.nl (E.J. Nijssen).
1
Present address: Netherlands Competition Authority, The Hague and
Wageningen University, The Netherlands.
facturing innovation research 2 Drejer (2004) notes that the
development of an approach that takes the blurring boundaries
between manufacturing and services into account, and over-
comes the traditional manufacturing–service dichotomy, is a
natural next step. According to her such a synthesis “can apply
findings from service innovation studies in bringing to the fore
aspects of innovation, which have hitherto been neglected in
relation to manufacturing innovation, but are in fact widely
distributed across the economy.” (p. 553). Such a synthesized
model assumes similar underlying mechanisms of innovation
but anticipates differences in the importance of its dimensions
depending on the manufacturing or service innovation context,
and thus would be consistent with e.g., results from the Product
Development Management Association (PDMA) studies that
show similar key success factors but different priorities for new
product versus new service development (Griffin, 1997).
The aim of this paper is to help resolve the age-old debate on
whether New Product Development (NPD) is different from
New Service Development (NSD) by researching the
2
Drejer (2004) uses the label manufacturing innovation which seems similar
to what others have called product innovation. We will use the terms
interchangeably.

0167-8116/$ - see front matter © 2006 Published by Elsevier B.V.

doi:10.1016/j.ijresmar.2006.02.001
242 E.J. Nijssen et al. / Intern. J. of Research in Marketing 23 (2006) 241–251
assumption that the drivers of innovation for NPD and NSD
may be the same, but that the relative importance of these
drivers may be different. To test this idea we will use a simple
baseline model of innovation. Similar to Drejer's (2004) notion
of a synthesized model, our baseline model includes elements of
innovation that are of relevance for both product and service
innovation. While the model presented in the paper is not the
most comprehensive model, it will help to focus on differences
and similarities among the drivers of innovation in products and
services, and thus explore differential effects.
The paper is structured as follows. First, we review the
innovation literature, and identify systematically the main simi-
larities and differences between NPD and NSD. Second, we
introduce the baseline model and develop moderating hypotheses
regarding the differential effects of new service and new product
contexts. Next, we report on the research method used to test the
model and hypotheses and present empirical evidence from 217
service companies and 105 product companies. We conclude with
a discussion of our results and implications for future research.
2. Previous research on NSD and NPD
There has been a lively debate in the literature about the
specific characteristics of services and products (Lovelock &
Gummesson, 2004; Vargo & Lusch, 2004a; Zeithaml, Parasura-
man & Berry, 1985) and implications for the marketing
discipline. Other authors (e.g. Griffin, 1997; Hughes & Wood,
2000; Johne & Storey, 1998; Sirilli & Evangelista, 1998) have
studied how service and product characteristics affect new
service and new product development (see Drejer, 2004 for an
overview). Two views exist in the literature on NPD versus
NSD. Proponents of an “assimilation approach” have argued that
the concepts developed in a product or manufacturing context
are easily applied in a service context because of their similarity.
Scholars taking a “demarcation approach” stress the unique
characteristics of services and subsequently the need for
concepts and models specifically designed for services (Coombs
& Miles, 2000). We will briefly synthesize and summarize the
key findings building on both perspectives and their research.
A review of the literature shows that many similarities between
NPD and NSD exist (Griffin, 1997; Hughes & Wood, 2000; Sirilli
& Evangelista, 1998). In general, successful NSD and NPD firms
share a strong commitment to innovation, have well structured
innovation efforts, and allocate substantial resources to their in-
novation efforts (e.g. Brown & Eisenhardt, 1995; Ernst, 2002;
Griffin, 1997; Tidd & Bodley, 2002). First and foremost these
firms display high top management involvement. As a result their
strategic objectives focus beyond short-term success and its em-
ployees clearly understand the types of new products and services
the organization is aiming for (Johne, 1993).3 Second, they tend to
align carefully their cultures and systems to their innovation
processes, so as to lend maximum support to the innovation efforts
(De Brentani, 2001; Johne & Storey, 1998). Third, their NPD and
NSD programs tend to be more formalized, better structured, and
3
With the antecedents of NPD well-reported in the literature we focus on
NSD references.
proactive compared to those of their less successful counterparts
(Easingwood, 1986; Johne, 1993). Fourth, high quality develop-
ment staff and other resources complement these successful
innovators' new product and service organizations (Drew, 1995;
Edgett, 1994; Johne, 1993; Johne & Storey, 1998).
However, the literature also shows that there are differences
between innovation processes of new product and new service
firms (Djellal & Gallouj, 2001; Gallouj & Weinstein, 1997;
Menor, Tatikonda & Sampson, 2002). These differences pertain
mainly to the specific characteristics of services i.e., their
intangibility, co-production with customers, simultaneity, hetero-
geneity and perishability (Fitzsimmons & Fitzsimmons, 2000)
that affect the development process of services and make them to
a certain degree unique. First, in service innovation “it is not the
service itself that is produced but the pre-requisites for the service”
(Edvardsson & Olsson, 1996, p. 1476). Due to services' real-time
production new services go hand in hand with modifications of
the service delivery process and changes in frontline employees'
skills. The interaction between new service development and
service delivery is therefore high, and stronger than the rela-
tionship between NPD/R&D and production in a product-manu-
facturing context (Tatikonda & Zeithaml, 2001). Second, because
“NSD [requires] integrating the needs of new service operations
and processes with those of existing business activities” (Johne &
Storey, 1998, p. 207) the fit between the new service and existing
systems is also more important than in a product-manufacturing
context. The front- and back-office functions must operate in an
integrated way trying to overcome differences in objectives and
time horizon between them. While a front-office is typically
designed to satisfy customer needs, a back-office's emphasis is on
maximizing operational efficiency and output (Menor et al.,
2002). This tension extends to new service development and
suggests that the influence of organizational inertia is more
important in the case of new service than product innovation. It
explains why “envisioning, energizing and enabling” capabilities,
sound communication/coordination, and reducing intra-organi-
zational conflicts and struggle of power have been identified as
fundamental and very critical, particularly for NSD (Edvardsson,
Haglund & Mattsson, 1995; Johne, 1993; Johne & Storey, 1998;
Lievens & Moenaert, 2000; Menor et al., 2002). A final important
difference between service and manufacturing firms involves
R&D expenditures. Study results suggest that R&D investments
are more strongly associated with successful manufacturing than
service innovation (Barras, 1986; Brouwer & Kleinknecht, 1996).
Contrary to manufacturing firms, most service firms are not
characterized by major R&D departments (Djellal & Gallouj,
2001). Service innovation involves the development of new
procedures and concepts rather than new core technology (Preissl,
2000). Together with the organization of NSD around customers'
market pull, this suggests a smaller role and influence of the R&D
department in service development.
In summary, the literature shows that NPD and NSD have much
in common but also that internal organizational factors seem to be
more important in NSD than NPD context. The R&D department
and R&D expenditures, on the other hand, seem to be more
important in a new product than service context. Before developing
hypotheses we will introduce a baseline model of innovation.
 E.J. Nijssen et al. / Intern. J. of Research in Marketing 23 (2006) 241–251
3. A baseline model of innovation
Aware of the debate and controversy about the antecedents of
new product and service development, our aim is not to add to
this debate but rather to adopt a baseline model for innovation to
explore and better understand the differential effects of product
versus service development. In order not to detract from the
objective of investigating such differential effects we introduce a
simple baseline model that is expected to apply equally well to
product and service innovation contexts. This baseline model
builds on recent contributions in the management and strategy
literature that combine a mechanism of differentiation and a
mechanism of organizational inertia to explain organizational
outcomes (Chandrashekaran, Mehta, Chandrashekaran & Gre-
wal, 1999; Deephouse, 1999; Laurila & Lilja, 2002; Oliver
1997).
Firms face pressures to differentiate themselves in the mar-
ketplace by being innovative. They try to make rational decisions
regarding the identification, selection, and use of resources to
make differentiated new products and services that will lead to
superior profits. R&D expenditures, and in particular a firm's
R&D strength relative to its main competitors, may be considered
to play a key role in this process. R&D strength drives innovation
and innovation process outcomes. The higher a company's R&D
strength the more innovative new products and services it will
develop and launch (Li & Calantone, 1998; Thomke, 2003).
However, firms also are confronted with institutional
pressures that create organizational inertia and must be over-
come in order to safeguard the necessary change and innovation.
Managers' tendency to conform to corporate history, traditions,
rules and procedures, is likely to generate and legitimize
economically suboptimal resource choices due to cognitive sunk
cost, i.e. the social and psychological cost associated with
altering company habits and routines. Furthermore, resource
path dependencies may develop because longstanding core
competencies become taken for granted as indispensable assets
(Oliver, 1997). While inertia has been studied in various
domains, we will focus on the role of inertia in innovation
processes. The stronger the inertia, the less innovative a firm will
be, and thus the fewer innovative new products and services it
will develop and bring to market.
Chandy and Tellis (1998) proposed an inertia-related, but
more specific concept of innovation processes which they call
‘willingness to cannibalize’. They define it as the extent to
which firms are prepared to reduce the actual or potential value
of their investments for creating and introducing new products
and services (Chandy & Tellis, 1998). Recently, Nijssen,
Hillebrand and Vermeulen (2005) expanded this framework,
identifying 3 dimensions of ‘willingness to cannibalize’ in order
to better describe the different organizational aspects involved.
They also provided evidence for these dimensions' convergent
and discriminant validity. These three dimensions are:
A company's willingness to cannibalize:
1. current sales, i.e., its disposition to introduce new products/
services that will diminish the sales of its current products/
services.
243
2. prior investments, i.e., its disposition to introduce new
products/services that will make previous investments
obsolete, and
3. organizational routines, i.e., its disposition to introduce new
products/services that will make current organizational skills
and routines obsolete.4
These dimensions refer to an organization's general dis-
position toward change and creating new products and services,
i.e. its propensity for innovation, which may be conceptualized
as a second-order construct. Companies with a high propensity
to innovate will develop and introduce more innovative new
products and services than companies with a low propensity to
innovate. Including the three dimensions of willingness to
cannibalize and the influence of propensity for innovation in our
baseline model, next to R&D strength, is important because it
gives us the opportunity to take into account the organizational
dimensions that bring to the fore some of the neglected or less
emphasized elements of innovation that are particularly im-
portant for understanding service innovation processes.
The full baseline model is shown in Fig. 1. Consistent with
the above discussion it includes the two central mechanisms that
explain the degree to which a company develops innovative new
products and services. First, it has the mechanism of differ-
entiation involving R&D strength. A positive relationship bet-
ween R&D strength and new products and services is anticipated
(Cooper, 1983; De Brentani, 2001; Drew, 1995; Li & Calantone,
1998). Second, there is the mechanism of organization con-
textual influence. It involves a company's propensity for
innovation, which is based on the organization's willingness to
sacrifice current sales, organizational routines, and prior invest-
ments (Chandrashekaran et al., 1999; Chandy & Tellis, 1998).
Propensity for innovation influences the level of innovativeness
of the new products and services developed. Finally, the level of
innovativeness is anticipated to positively affect company per-
formance (Avlonitis, Papastathopoulou, & Gounaris, 2001; De
Brentani, 2001; Griffin, 1997). Radical new products and
services involve new superior solutions to current and future
customer needs and may help to redefine competitive rules and
thus improve a company's competitive position and performance.
We will now develop our hypotheses. Because all relation-
ships of our baseline model are well-researched,5 we will only
retest these relationships and focus on the hypotheses and
results of the anticipated differential effects based on service
versus product context.
4
Nijssen et al. (2005) labeled this dimension ‘willingness to cannibalize
organizational capabilities’. Our conceptualization of this dimension is more
focused.
5
For empirical support for the relationships in a NPD context see Atuahene-
Gima (1996), Chandy and Tellis (1998), Cooper (1983), Kleinknecht and
Mohnen (2002), Griffin (1997), Li and Calantone (1998), Nijssen et al. (2005),
Tidd and Bodley (2002). For empirical support for the relationships in a NSD
context see Atuahene-Gima (1996), Avlonitis et al. (2001), De Brentani (2001),
Drew (1995), Froehle, Roth, Chase, and Voss (2000), Griffin (1997), Menor et
al. (2002), Storey and Easingwood (1998), Tax and Stuart (1997), Thomke
(2003).
244 E.J. Nijssen et al. / Intern. J. of Research in Marketing 23 (2006) 241–251
4. Hypotheses regarding product and service context
Thomke (2003) argued that firms that are truly innovative
invest heavily in new technology and formalize their R&D
functions. R&D expenditure relates positively to the number of
patents and the percentage of sales coming from products/
services introduced over the past 3–5 years (Kleinknecht &
Mohnen, 2002). Although this is true for manufacturing and
service firms, several authors found that manufacturing firms
are more technology oriented and spend more on developing
new technologies than their service firm counterparts (e.g. Alic,
2001; Barras, 1986; Brouwer & Kleinknecht, 1996). This
suggests that R&D expenditure and strength are more important
for new product than new service development. Therefore, we
expect a stronger relationship between a firm's R&D efforts and
innovation outcome in product than service context. Hence,
H 1. R&D strength has a stronger effect on radicalness of new
products/services in a new product context than in a new service
context.
More than in a new product context, organizational aspects
have been found to play a pivotal role in the development
process of new services. First, the specific characteristics of a
service (its intangibility, simultaneity of production and
consumption, heterogeneity and perishability) affect the level
to which service, service delivery, and service organization are
interwoven (De Brentani, 1991, 2001; Tatikonda & Zeithaml,
2001). Second, the service delivery process has been identified
as a key variable of new service development in general and for
the introduction of radical new services in particular (Edvards-
son & Olsson, 1996; Shostack, 1987). New service develop-
ment is new service delivery is the message from these studies.
Consequently, we expect that the organizational dimension of
Fig. 1. Conceptual model utilized to examine the differences and similarities between NPD and NSD.
innovation will be more critical for developing radical new
services than new products. Hence,
H 2. Propensity for innovation has a stronger effect on radi-
calness of new products/services in a new service context than
in a new product context.
In accordance with the above we also expect differential
effects regarding the three dimensions of propensity for
innovation. Willingness to cannibalize prior investments in
production- and delivery-like systems (e.g., machines and
software) and organizational routines will be more important for
a new service environment rather than in a new product
environment. Because of the intangible nature of services, a
new service generally requires frontline employees to learn new
skills to make and deliver the new service (Easingwood, 1986).
Compared to a new product a new service more often requires
modified or new organizational routines also (Edvardsson &
Olsson, 1996). This is consistent with Atuahene-Gima's (1996)
observation that service firms experience greater incompatibil-
ity between their innovations and current organizational skills
and procedures than manufacturing firms.
Along similar lines we anticipate that willingness to make
changes to the production or delivery systems is more important
for new services than new products. While a physical product is
often seen as a system of parts that must work together, a new
service is considered a system of parts that comprises a func-
tioning service delivery process (Menor et al., 2002; Tatikonda
& Zeithaml, 2001). As a result investments in systems are
anticipated to be more important for a service context than for a
product context (Edvardsson & Olsson, 1996). In other words,
developing a new service is likely to require new investments in
delivery systems, making the old ones obsolete, whereas new
products and their manufacturing are less restricted by previous
 E.J. Nijssen et al. / Intern. J. of Research in Marketing 23 (2006) 241–251 245

investments and thus generally can use existing systems. Re-
search on the use of IT provides further support for these ideas.
IT frequently plays a vital role in service production and de-
livery processes (Froehle et al., 2000). New services often
require serious modification and changes in IT infrastructure for
delivery (Tatikonda & Zeithaml, 2001). As a result service
organizations' inertia towards changing their delivery systems
plays a more critical role in their innovation processes. Hence,
we expect a moderating effect of NPD/NSD context for will-
ingness to cannibalize previous investments on propensity for
innovation.
No difference is anticipated for the effect of willingness to
cannibalize sales. Radical new products and services may or may
not affect current sales levels. As radical new products or services
generally tend to incorporate current and some new functions,
some degree of cannibalization will typically be present. How-
ever, the extent of this effect will depend on the nature of the new
product/service rather than on their differences; both service and
manufacturing firms may be equally reluctant or willing to
supersede their own portfolio of services or products respectively.
Hence,
H 3. Willingness to cannibalize organizational routines has a
stronger effect on propensity for innovation in a new service
context than in a new product context.
H 4. Willingness to cannibalize prior investments has a stronger
effect on propensity for innovation in a new service context than
in a new product context.
H 5. The effect of willingness to cannibalize sales on pro-
pensity for innovation does not differ between a new service
context and a new product context.
Because we are unaware of evidence that service firm inno-
vations are more or less profitable than manufacturers' inno-
vations we will not formulate any moderating hypotheses for
this relationship up front.
5. Method
as solutions for customer problems characterized by high
intangibility, co-production with customer and perishability.
Products were defined as solutions that are highly tangible,
manufactured and can be stored (Shostack, 1987; Zeithaml et
al., 1985). Of the companies, 331 and 145 cooperated re-
spectively, providing us with a response rate of 82% for services
and 78% for products. Due to missing values in one or more of
the constructs several cases had to be deleted, leaving us with a
net sample size of 217 service and 105 product-oriented SMEs.
Table 1 shows the profile of the companies included in the
sample. In accordance with the panel-structure we find all
industries present in our data but not completely to the same
degree, which is probably due to using innovation during the
past 3 years as a qualifying criterion. Further, the product/
manufacturing companies in our sample are distributed across
more different categories than the service firms. Two thirds of
the companies had been in business for over 10 years and over
90% had fewer than 100 employees.
5.2. Measurements
Given the constraints of the telephone panel research setting
we were limited in the number of items per construct. First,
based on a careful evaluation the number of items was reduced
and limited to two or three items per construct. Next, a pretest of
60 product and service companies was used to determine the
final set of items. It resulted in several changes and some minor
modifications. Based on the pretest the two best scoring items
per construct were selected. All items were measured using a 5-
point “strongly agree”–“strongly disagree” scale. Appendix A
provides the operationalizations of the study constructs. The
measures used will now be discussed.
The three facets of willingness to cannibalize were measured
using items adapted from Nijssen et al. (2005) and Chandy and
Tellis (1998). The second-order construct of propensity for
innovation was measured using a single item that addressed
organizational focus on innovation considering organizational
constraints (cf. Klein, 2002; Klein, Ettenson, & Morris, 1998).

5.1. Sample Table 1

Demographic profile of sample (all numbers are in percentages)
The model was tested in the Netherlands using a semi- Industry Company age Company size
governmental agency's panel of small- and medium-sized (# employees)
service and product enterprises, so-called SMEs. The overall Services
panel includes approximately 1500 companies from eight major Trade and repair 16.1 ≤10 years 24.8 ≤9 22.1
industries and forms a representative sample of the Dutch Hotel and catering 5.9 11 ≤ 25 years 28.9 10 ≤ 49 32.6
Transport 10.0 26 ≤ 50 years 18.0 50 ≤ 99 38.8
populations of small- and medium-sized organizations. The
Rental services 13.4 51 ≤ 75 years 9.3 >100 6.5
panel is surveyed bi-annually using CATI (Computer Aided Financial services 14.6 >75 years 14.3
Telephone Interviews). Consistent with this approach ques- Other services 6.5 Unknown 4.7
tionnaires are always short and the interview time is limited to Products/manufacturing
15 min. Next to standard questions regarding general firm Construction and building 10.9
materials
characteristics (e.g., employment) and financial performance, a
Chemical/rubber, glass, and 6.5
small set of additional questions addressing one or more specific metal
topics is included. Machinery, and electrical and 5.6
Of the companies of the panel 405 service and 185 product- optical tools
oriented SMEs met the criterion of having introduced new Wood, paper, and textile 3.4
Other 7.1
services/products in the last three years. Services were defined
246 E.J. Nijssen et al. / Intern. J. of Research in Marketing 23 (2006) 241–251

Including this item facilitated the estimation of each of the
willingness to cannibalize construct's dimensions. The ques-
tions for R&D strength of the company were based on a scale of
Li and Calantone (1998). An item regarding R&D expenditure
was included. The items for measuring the level of radicalness
of new products and services developed were adapted from
Chandy and Tellis (1998). Two items were used to operatio-
nalize general firm performance. The items focused on the
firm's overall and financial performance from the previous year
and used its main competitor(s) as a point of reference
(Robinson & Pearce, 1988).
5.3. Method of analysis
The data were analyzed in two principal stages using SPSS
11 and Lisrel 8.5. First, the internal consistency of the constructs
was examined based on exploratory and confirmatory factor
analyses and Cronbach's α. The exploratory factor analyses
with Oblimin rotation of the 6-items of the willingness to
cannibalize scale resulted in three clean factors, all items
loading on their anticipated factor and with minimal cross
loadings (all smaller than 0.28). The Cronbach's α's of the
constructs ranged between 0.68 and 0.86, indicating acceptable
levels of internal consistency. Next, the correlation coefficients
for all the constructs in the study were examined for potential
interrelationships among the variables. The correlation matrix
for all constructs and some measurement properties are shown
in Appendix B. The correlations were low to moderate with
highest correlation found between R&D strength and radical
new products/services (0.51). The nature and distribution of
radical innovation scores for each of our two sub-samples was
then studied. The median in both samples was 3 (on a five-point
scale) and 25% of the service and product firms scored 4 or
more. This suggests that an adequate variation in the level of
radicalness of both service and product innovation was present.
Examples of innovations in the sampled companies varied from
innovative new retail concepts, electronic financial services,
and digital property evaluations in services, to new ground
stabilization machines for road construction, new glass-like
polyesters, and high efficiency improved gas turbines for the
product firms in our sample.
In the second phase, the data were analyzed with path analysis
using standardized data and a multigroup approach. First, a
multigroup confirmatory factor analysis with the software Lisrel
was used to further test the measurement model and also evaluate
the similarity in factor structure between the two groups. Fol-
lowing Steenkamp and Baumgartner (1998) we tested for metric
invariance and factor variance invariance. The related χ2-
difference tests showed that allowing for differences between
the two groups (i.e. freeing factor loadings and factor variance)
did not result in a significant better model fit ( p > 0.05) suggesting
that the measurement model is the same for both groups. Second,
the model of Fig. 1 was analyzed also using a multigroup struc-
tural equation modeling approach, estimating simultaneously the
equations across the two contexts, i.e. groups. Third, the differ-
ences in the coefficients between the two groups were assessed.
Because of the unequal sample sizes of the groups we used a T-
difference test instead of the LaGrange test for a reliable eval-
uation of the differences in path coefficients between the two
groups.
The appropriateness of using the second-order construct of
propensity for innovation also was explored. An alternative
model including the direct effects of the individual dimensions
of willingness to cannibalize on radicalness (next to the indirect
effect via propensity for innovation) was estimated and
compared with our original model. The alternative model fitted

Table 2
Results of the estimated coefficients for NPD and NSD
Independent constructs Dependent constructs Second-order construct
Firm general performance Radicalness Propensity for innovation
B (S. err) T-value B (S. err) T-value B (S. err) T-value
Group 1: NSD/new services (n = 217)
Radicalness 0.34 (0.08) 4.4 – – – – – –
R&D strength – – – 0.70 (0.21) 3.4 – – –
Propensity for innovation – – – 0.38 (0.11) 3.3 – – –
W2C routines – – – – – – 0.49 (0.08) 6.3
W2C investments – – – – – – 0.32 (0.07) 4.6
W2C sales – – – – – – 0.39 (0.08) 5.2
R2 0.14 0.62

Group 2: NPD/new products (n = 105)

Radicalness 0.17 (0.10) 1.8 – – – – – –
R&D strength – – – 0.15 (0.27) 0.5 – – –
Propensity for innovation – – – 0.68 (0.14) 4.7 – – –
W2C routines – – – – – – 0.30 (0.10) 3.0
W2C investments – – – – – – 0.41 (0.10) 4.3
W2C sales – – – – – – 0.47 (0.10) 4.5
R2 0.04 0.64
Model fit: χ2 317.24, df 166 ( p < 0.00) RMR = 0.10 NNFI = 0.92
RMSEA = 0.075 (CI 90% 0.06–0.09) CFI = 0.93
Bold refers to coefficient p < 0.05.
 E.J. Nijssen et al. / Intern. J. of Research in Marketing 23 (2006) 241–251 247

equally well. However, none of the individual dimensions' Table 3

direct effects on radicalness were significant, suggesting that the Comparing the path coefficients of the model for NSD and NPD
second-order concept was valid, particularly as its significant Path/relationship Hypothesis t-value Differential Hypothesis
influence remained. effect NSD– accepted
NPD

6. Results R&D strength — 1 2.29 ⁎⁎ Yes Rejected

radicalness
Propensity for 2 − 2.40 ⁎⁎ Yes Rejected
Table 2 shows the results from the multigroup structural innovation —
equation modeling analysis regarding the hypothesized relation- radicalness
ships among R&D strength, willingness to cannibalize (sales, W2C routines — 3 2.11⁎⁎ Yes Accepted
routines, and investments), propensity for innovation, radical- propensity for
innovation
ness and general firm performance across the two groups. The
W2C investments — 4 − 1.06 No Rejected
overall fit of the model was satisfactory (χ2 = 317.24, df = 166, propensity for
p < 0.00). The relative fit indices, e.g., the comparative fit index innovation
(CFI) and non-normed fit index (NNFI), were 0.93 and 0.92 W2C sales — 5 − 0.89 No Accepted
respectively and the absolute indicators of fit, e.g., the Root propensity for
innovation
Mean-Square Residual (RMR) and the Root Mean-Square Error
Radicalness — firm – 1.89 ⁎ Yes NA
of Approximation (RMSEA) were 0.10 and 0.075 (90% CI general performance
0.063–0.088), respectively. The proposed model also explained
* p < 0.1.
nontrivial variances in the dependent construct of level of ** p < 0.05.
radicalness of new products/services (R2 = 0.62 and 0.64), but
the model was less effective in explaining general firm
performance (R2 = 0.14 and 0.04 for services and products find that the importance of willingness to cannibalize
respectively). This is discussed later in the paper. Overall these organizational routines plays a more important role in
results suggest that the proposed model was a reasonable propensity for innovation in service than product innovation.
explanation of the observed covariances and variances among This supports Hypothesis 3. Fourth, the importance of
the study constructs. willingness to cannibalize prior investments in propensity for
We first discuss the findings regarding the relationships of the innovation is not significantly different between the two groups.
baseline model. All direct relationships of the model are in the The same is true for the third, and last dimension of willingness
anticipated direction and significant, except for a non-significant to cannibalize, i.e., willingness to cannibalize sales. This
relationship between R&D strength and the level of radicalness supports Hypothesis 5 but not 4.
of innovations for product markets. The results also show that For the effect of radicalness on firm performance no
propensity for innovation positively influences radicalness, both hypothesis was developed. The results show a somewhat
in a product and in a service context. Organizations that have a stronger relationship for the service than the product group. We
propensity for innovation develop and introduce significantly will discuss these results next.
more radical new products and services than their low pro-
pensity-for-innovation counterparts. The level of radicalness of 7. Discussion
innovations is also positively influenced by R&D strength.
However, as was mentioned, the effect is only significant in a The results show that the multigroup CFA and structural
service not a product context. Finally, the results provide support equation models have an adequate fit with the data suggesting
for the anticipated positive relationship between radicalness of that it is possible to apply the model (Fig. 1) to both product and
new products and services and firm performance. Overall the service contexts. It also supports the conceptualization of
findings support our baseline model and confirm that it holds up propensity for innovation as the second-order construct of
well for both the NPD and NSD context. willingness to cannibalize sales, prior investments and organi-
Table 3 reports the results from the T-difference tests zational routines. In particular, the results provide compelling
performed to compare the coefficients of the relationships of evidence that NSD and NPD may be considered to have the
our model for services and products. Three of the four antic- same underlying dimensions of innovation. We also find clear
ipated moderating effects are significant and one is insignifi- moderating effects providing support for our integrative view of
cant. First, a significant moderating effect is found for the innovation. However, several of these effects are in the opposite
relationship between R&D strength and radicalness. However, direction from what we had anticipated. We will now discuss
contrary to our expectation, R&D strength is significantly more this in more detail and offer possible explanations.
important for explaining radicalness in a new service than a new First, the stronger impact of willingness to cannibalize
product environment. Therefore, Hypothesis 1 is rejected. Sec- routines in service than product context matched our expectation
ond, a moderator effect is found for the influence of propensity (Hypothesis 3). It confirms the key role of new routines and
for innovation on radicalness. The relationship is stronger for willingness to change routines for new service development.
the product than the service group. This is again opposite to our Consider for instance a service versus a product line extension.
expectations and thus also Hypothesis 2 is rejected. Third, we While a product line extension may still use current product and
248 E.J. Nijssen et al. / Intern. J. of Research in Marketing 23 (2006) 241–251
process technology, and thus require minimal change in
manufacturing staff's capabilities, a service line extension is
likely to require frontline employees to learn new skills to
operate modified software and/or master new service procedures
(Atuahene-Gima, 1996). Consequently, some training will
always be necessary in the case of a new or modified service.
Second, a possible explanation for the lack of a significant
difference between NPD and NSD along the dimension of
willingness to cannibalize prior investments (hypothesis 4) may
be that just like incremental new products incremental new
services do not require process innovation (while radical new
products and services do) (Avlonitis et al., 2001). Had we
measured the nature of radicalness of the new products/services
and not just their level we could have tested this explanation. An
understanding of the levels of innovation along the lines of both
product/service technology and process/delivery technology
should be used in future studies.
Third, the fact that we found no difference regarding the
effect of willingness to cannibalize a firm's current portfolio in
new product versus new service innovation fits our fifth
hypothesis. It confirms that both new services and new products
may or may not affect current sales, and as a result may or may
not be hindered by sentiments related to this process.
Fourth, our study shows that R&D strength is more
important in developing radical new services than new
products. We anticipated the reverse in hypothesis 1 based on
previous studies that showed that managers in product settings
focus more on R&D compared to their colleagues in service
industries. A possible explanation for this unanticipated result
could be that R&D activities in product contexts are a necessary
requirement for both incremental and radical innovation while
for services R&D departments are less common and exclusively
linked to radical new service development. For a new product
context R&D thus might act as a “hygiene” factor while for new
services it is a “satisfier”. For product firms having an R&D
department may be a necessity and as a result all companies
have one. As a result it is difficult to differentiate oneself
through R&D efforts. Because for service firms R&D
expenditures and departments are less a focal point and/or a
necessity, those companies that invest in such a department (or
structure) may experience a more favorable rate of return than
their product environment counterparts.
Similarly, our study shows a differential effect for the
effect of propensity for innovation on radicalness, although
the direction of the effect is opposite to our expectations
(Hypothesis 2). Rather than a stronger effect, propensity for
innovation has a weaker effect on radicalness in a service
than in a product context. Again a possible explanation is that
organizational aspects are a hygiene factor in a service
context while they operate as a satisfier in a NPD context. In
other words, willingness to cannibalize one's organizational
dimensions and thus having a positive propensity for
innovation may be a necessity for new service development
while in NPD it helps to differentiate an organization from its
competitors.
Although it was not our intention or objective to explain firm
performance, we did find a weak but positive effect between the
radicalness of an innovation and firm performance. The higher
impact of radicalness of the innovations on firm performance in
service compared to product markets may be explained by the
fact that services are generally easier to imitate (Storey &
Easingwood, 1998). Thus, service organizations need to de-
velop and introduce more radically new services in order to
obtain a sustainable competitive advantage in the marketplace
and enjoy a positive performance effect similar to that of their
product-oriented counterparts. As a result, service organizations
demonstrate a stronger effect of radicalness on performance
outcomes. The fact that our model only explains a small part of
general firm financial performance may be due to factors not
accounted for in this research. First, variables such as the
company's position with wholesalers/distributors, effectiveness
of launch strategy, and customer switching cost, among others,
will also have an effect. Second, the effect of radicalness of the
innovation on firm performance may be mediated by the
competitive advantage achieved.
8. Limitations and directions for future research
The study provides a basis for further synthesizing NPD and
NSD research in general and developing one model suited for
explaining NPD and NSD in particular. However, it also has a
number of limitations in its present form. First, although our
study provided a test of a pluralistic conceptualization of inno-
vation (Pels, Coviello & Brodie, 2000) and encouraging results,
the baseline model used was simple. Most importantly, many
other drivers of propensity for innovation could have been
included (e.g. see Damanpour, 1991). Yet, as our main objective
was not to build a comprehensive model of the drivers of
innovation, but to take a first step toward such a model and
highlighting differential effects we felt that a simple model
would suffice. Future research should try to include more
drivers of propensity for innovation. Adding operational con-
structs that managers may use to manage organizational inertia
and their companies' development processes would also be
useful. Chandy and Tellis's (1998) research may prove a good
starting point for advancing the model in this respect as they
investigated several antecedents impacting willingness to
cannibalize (e.g. product champion influence and future market
focus). We anticipate that these constructs and influences also
may be moderated by the product–service context variable.
Also the effects from e.g., customer trust and loyalty on the
firms' willingness to cannibalize and the level of provider–
customer co-creation on R&D strength may be explored. In-
cluding these variables would allow for a link with the growing
body of relationship marketing literature (Pels et al., 2000;
Vargo & Lusch, 2004b). Such a link would be welcome because
in this literature also the traditional perspective on and divide
between services and products is often challenged.
Second, we used perceptions and single respondents rather
than behavioral data and multiple respondents. Although CEO
evaluations tend to be reliable and provide good estimates
particularly for strategic issues, it may have affected our results.
Furthermore, the cross-sectional nature of the data implies that
inferences regarding causality should be interpreted with
 E.J. Nijssen et al. / Intern. J. of Research in Marketing 23 (2006) 241–251 249

caution. Longitudinal data should be used to test whether the
causality assumed here holds. Extending the research to specific
industries could help determine to what extent the results can be
generalized for different industries. Such replications should
also include large organizations.
Third, although the measurement properties of all constructs
were satisfactory each item was operationalized using a limited
number of items. This is known to affect the external validity of
the measures. Replications with more elaborate measures are
welcome.
Finally, we focused on radical new products and services but
restricted our attention to the level, not the nature of radicalness.
Future research should measure nature of radicalness in order to
better control for different types of radicalness, such as new to
the firm or new to the world. It may also be useful to further
explore the idea of R&D strength and propensity for innovation
as hygiene or satisfier.
Clearly the current empirical results provide an important
basis for further development of an integrated model of
innovation. The suggested approach draws our attention to
an alternative perspective that has heretofore escaped the
scrutiny of most NPD/NSD researchers, and is based on
sound theoretical foundations. Furthermore, the results
presented support its promise for understanding similarities
and differences in the innovation process in the product and
the service context, bridging the two fields by clarifying
their joint underlying mechanisms. We believe that
sufficient theoretical and empirical support exists to suggest
that the proposed pathway warrants careful researcher
attention and consideration. Although moderating effects
were found, several were different from what we hypoth-
esized. It shows that more work is needed to understand the
mechanisms underlying the differences and similarities of
NPD and NSD. We have provided explanations for the
effects found to spur this debate and hope this provides a
starting point for further research in this exciting area of
study.
Acknowledgements
The authors like to thank Martha Chorney and the
anonymous reviewers from IJRM for their helpful comments.

Appendix A
Construct measurements†
Antecedents Mediating constructs and consequences
Willingness to cannibalize: our company … (source: Chandy & Tellis, 1998; Nijssen et al., 2005) R&D strength: our company … (source: Li & Calantone, 1998)
(W2C Sales) • has a much stronger technology base than our main competitor
• supports new projects even if they could potentially take away sales of existing products/ • is very strong in developing new technologies and products/
services services compared to its main competitor
• is very willing to sacrifice sales of existing products/services in order to improve sales of • Compared to our main competitor our company spends much
its new products/services more/less on research and development‡
(W2C Investments)
• tends to invest in new, promising technologies even if it causes service delivery systems/ Radicalness of new products/services: Our company … (source:
manufacturing facilities to become obsolete Chandy & Tellis, 1998)
• has no problem replacing and thus writing of systems/machinery quickly if it will help to • is renown in the industry for its innovative new products/services
create a competitive advantage in the market place • leads the way in introducing radical product/service innovations
(W2C Organizational routines) General firm performance: Compared to our main competitor…
• can easily change its organizational scheme and processes to fit the needs of a new (source: Robinson & Pearce, 1988)
product/service • our firm's last year's overall performance was excellent
• quickly changes the manner in which it carries out its tasks to fit the needs of a new • last year's profitability was very high
product/service
(Propensity for Innovation)
• we constantly consider introducing new products/services that will satisfy future market
needs
†
All items measured on a 5-point “strongly agree”–“strongly disagree” scale except ‡.

Appendix B

Correlation matrix and reliabilities of the study constructs

W2C W2C W2C Propensity for R&D Radicalness General firm
Sales Investments Routines innovation strength performance
W2C sales (0.74)
W2C Investments 0.27 (0.68)
W2C routines 0.18 0.10 (0.71)
Propensity for Innovation 0.20 0.14 0.24 NA
R&D strength 0.13 0.22 0.17 0.31 (0.72)
Radicalness 0.26 0.30 0.19 0.39 0.51 (0.86)
General Firm Performance 0.04 0.18 0.26 0.17 0.23 0.24 (0.71)
Cronbach's α reliabilities between brackets are on the diagonal; NA = non-applicable.
250 E.J. Nijssen et al. / Intern. J. of Research in Marketing 23 (2006) 241–251
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