Management Decision

Services and organisational innovation: the right mix for value creation
Jorge Gallego Luis Rubalcaba Christiane Hipp
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Jorge Gallego Luis Rubalcaba Christiane Hipp, (2013),"Services and organisational innovation: the right mix for value
creation", Management Decision, Vol. 51 Iss 6 pp. 1117 - 1134
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Services and
Services and organisational organisational
innovation: the right mix for value innovation
creation
1117
Jorge Gallego and Luis Rubalcaba
Applied Economics Department, University of Alcalá, Madrid, Spain, and
Christiane Hipp
Faculty of Mechanical, Electrical and Industrial Engineering,
Brandenburg University of Technology, Cottbus, Germany
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Abstract
Purpose – The paper aims to discuss how services and service innovation are inter-linked and
support organisational innovation. In particular, the reorganisation of operations and the introduction
of new organisational arrangements are examined and conceptualised for further empirical analysis.
Design/methodology/approach – Based on the analysis of the different, most recent developments
in the literature and practical experiences, a conceptual framework is developed that incorporates
service and organisational innovation.
Findings – The developed conceptualisation focuses on the role of services and service innovation,
and the emerging interactions between organisations and services providers, where facilitators play a
role. Accordingly, services are no longer a secondary instrument of the value chain. Instead, they have
become essential and may add value from their involvement, for example, in product design, business
management, procurement in global markets, and support to customers’ participation in value
creation.
Research limitations/implications – The paper provides a concept derived from an in-depth
literature analysis. In a next step an empirical analysis based on the proposed concept would complete
the theoretical findings.
Practical implications – The proposed conceptual framework supports the overall recognition of
service and organisational innovation as a powerful mechanism to gain competitive advantage for
companies.
Originality/value – This paper proposes for the first time a conceptual framework that shows that
organisational innovation turns into a prevailing tool that facilitates the integration of service
innovations into the value chains of companies, and thus the increasing level of inter-connectedness
required for firms’ competitiveness.
Keywords Service industries, Organizational innovation, Value chain, Decision making
Paper type General review

1. Introduction
Services are increasingly recognised as being much more central and much more
important for building competitive advantage than suggested in Porter’s value chain
framework (Chesbrough, 2011). On the one hand, firms in advanced economies have
been urged to move to the value chain to preserve or boost their competitiveness
Management Decision
Vol. 51 No. 6, 2013
This work was supported by the European Commission, Directorate-General Enterprise and pp. 1117-1134
q Emerald Group Publishing Limited
Industry, Europe INNOVA Initiative, Sectoral Innovation Watch Project (contract number ENTR 0025-1747
2007-11-02). DOI 10.1108/MD-11-2012-0446
 MD (European Commission, 2010). On the other hand, companies are increasingly
51,6 recognised as crucially depending on service activities that create and add value. In
particular, the fortunes of economies increasingly rely on how well they rethink their
services (Chesbrough, 2011). Service-related strategies enable companies to get closer
to their customers, to raise barriers to market entry, to make businesses less vulnerable
to economic cycles, and to promote efficiency through the use of business services
1118 (i.e. product design, logistics, marketing, or management activities) that act as
catalysts of change (Gebauer et al., 2011). Companies that master new service models
and build or add the requisite new capabilities will be able to reach levels of success
that they have never experienced before in their market or their industry (Chesbrough,
2011).
The role of service activities in companies’ value chains has been evolving and
shifting from the early stages of conceptualisation. Services are a transformative
source and the key to competitive advantage in the business arena of the twenty-first
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century (Teboul, 2006). The introduction of new service functions or service

innovations contribute towards changing traditional value chains through, for
instance, the provision of new service delivery channels (e.g. internet-based customer
interfaces that facilitate a worldwide service offering) or the outsourcing of activities
(e.g. server and router infrastructure, ICT maintenance); the latter allowing firms to
concentrate on their core competencies and primary business activities (Ostrom et al.,
2010). A globally competitive textile and fashion industry, for instance, depends on
strong support from design, transport, and logistics services (Mena et al., 2007), which,
in turn, makes innovation in services a key element to improving efficiency and
effectiveness. Bertelsmann, for example, is focusing on all kinds of outsourcing
services to support other industries’ customer communication and value chain process
management.
Given the importance of service-related strategies in the competitiveness of firms
today, this paper contributes to the extension of knowledge on the under-developed
service-related organisational innovation research domain. Organisational innovation
has the potential to be integrated as a systemic dimension that is useful for any
economic activity (Rubalcaba, 2006). Accordingly, the paper aims to discuss and
examine how the reorganisation of operations and the introduction of new
organisational arrangements – which replace the traditional vertically integrated
value chain mechanisms – turn into a prevailing tool. This tool favours the
incorporation of new service functions, changes the role of service innovation as a
transformative force in traditional value chains, and facilitates the implementation of
new ways of organising relationships with other firms or public institutions for
innovation.
Within this context, the present work pursues to elucidate a novel question of major
concern for management decision makers. Accordingly, in section 2, we provide an
overview of the evolution of service activities in the value chain and propose a
conceptual framework, which supports the entire recognition of services and service
innovation as a powerful mechanism to gain competitive advantage. Section 3
identifies the concept of organisational innovation and outlines recent trends of
organisational innovation affecting firms’ operations and innovation processes.
Finally, section 4 concludes with some final remarks and recommendations for future
research.
 2. The evolution of services in the value chain Services and
The value chain framework[1] has been used as a powerful analytical tool for firms’ organisational
strategic planning and decision management for two decades now. Widely recognised
through the work of Michael Porter in 1985 and widely disseminated in 1990, this innovation
framework identifies the crucial aspects of firms’ functioning to achieve competitive
strengths and core competencies in the marketplace, and reveals how firms’ activities
form an inter-dependent system connected by linkages that tie together to ultimately 1119
create value for the consumer (Porter, 1985, 1990). Thus, it regards an inter-dependent
system or network of activities that link together to develop the value of the business
(Stonehouse and Snowdon, 2007).
The set of activities in the value chain ranges from:
.
inbound logistics (e.g. activities concerned with receiving and storing externally
sourced materials); to
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. operations (e.g. activities related to the production of goods and services);

.
outbound logistics (e.g. activities concerned with distributing the final product);
and
.
other support activities (e.g. human resource management).

Within this framework, services come out as accompanying activities before or after
the sale of the product (e.g. pre-installation or after-sales services) to satisfy potential
customer requirements (Porter et al., 1980). Although this viewpoint has been highly
useful in recognising the importance of services to the value chain, these activities were
still confined to be integrated into a limited number of particular areas. In addition, the
role for innovation and value creation was not put forward yet (Chesbrough and
Davies, 2010). However, from the times of Michael Porter’s diffusion of the value chain,
the service literature, since late 1980s and the 1990s, has pointed out the complex and
rich value of services in business management, innovation, technological development,
marketing, and value added generation (Barras, 1985, 1986a, b, 1990; Brouwer and
Kleinknecht, 1995, 1997; Bryson and Daniels, 1998; Collier, 1983; Gershuny and Miles,
1983; Giarini, 1987; Iacobucci, 1998; Miozzo and Soete, 2001; Quinn, 1986a, b, 1988;
Quinn and Paquette, 1990; Sundbo, 1997).
It was at the beginning of the 2000s when services began to be recognised as having
a direct effect on industrial competitiveness. The recognition of such a strategic role
focused attention on the inter-linkages between services and manufacturing. More
concretely, it focused on the particular characteristics of a variety of business services
(Gebauer et al., 2010; Hipp, 1999) and their innovative dimensions (Miles et al., 1995). In
this respect, Rubalcaba (1999) distinguished between five different types of innovative
functions stimulated by business services, namely:
(1) technological;
(2) organisational (in a narrow sense of the term);
(3) strategic;
(4) commercial; and
(5) operational.
 MD IT activities, for instance, together with electronic communications, engineering,
computer-assisted designs and certain telecommunication services contribute to a real
51,6 and effective introduction of technological innovations (Gago and Rubalcaba, 2007;
Miozzo and Grimshaw, 2005; Quinn, 1988). Other business services, such as
management, audit, and legal activities, also favour firms’ innovative component by
increasing the flexibility for dynamic environments, positioning them in complex
1120 markets, and providing strategic information on alliances, product adequacy,
allocation and markets, or defence in a conflictive legal environment (DeBresson and
Amesse, 1991).
One step forward constituted the emergence of the role of knowledge-intensive
services (KIS), especially knowledge-intensive business services (KIBS), as crucial
elements in innovation systems (Windrum and Tomlinson, 1999). KIBS favour the
modernisation of a country’s knowledge base through the provision of intangible
aspects (e.g. know-how, software, organisational skills, or R&D capabilities). These, in
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turn, have become key factors for the creation of value and can play multiple roles in
making innovation systems more dynamic and perform better (Hipp, 1999). To this
regard, den Hertog (2002) underlined how KIBS may play a variety of crucial roles in
innovation systems as:
. diffusers of knowledge and best practices towards other (client) firms;
. demanding customers (especially towards other KIBS);
.
knowledge brokers – they are mostly well networked and therefore can bring
different parties together in networks acting as intermediaries;
.
training institutes – typically young, highly trained professionals enter at a
rather young age into KIBS firms, work there for a couple of years visiting many
client firms, and then spread out to “regular businesses”; and
. policy advisors, implementors, and evaluators.

Therefore, KIBS are increasingly seen as being part and parcel of a fine innovation
climate; they are a basic element needed for developing wide and deep networks that
favour the dynamics of overall innovation systems (Miles, 2005).
In addition, services are major players in the current wave of the globalisation
process, by which international markets are becoming increasingly interdependent and
integrated. The last decade underlined the role of globalisation in transforming
services provision and the inter-linkages between services and manufacturing at the
global level, like in the case of services off-shoring widely emerging between 2000 and
2005 (Tate et al., 2009). Since 1990, the export of services grew at the yearly average
rate of 9 per cent, while the large majority of foreign direct investment (FDI) are related
with services – in Europe accounting for more than 77 per cent of total FDI in 2006
(Rubalcaba and Visintin, 2010). In this respect, Rubalcaba (2007) summarised the
contribution of this sector to the attainment of a world dimension of the economy by
classifying service activities into three main groups:
(1) services that make globalisation possible by establishing transport and
communication networks, which facilitate travelling, international trade, and
connectivity between geographically distant places;
(2) services that support the internationalisation process of the activity
(e.g. strategic, legal, and tax management); and
 (3) a third group of consumer services offered within the global economy, which Services and
facilitate the allocation of products to the global market (e.g. distributive trade organisational
and e-commerce activities).
innovation
Accordingly, services may influence productive factors by facilitating a global access
to capital (e.g. financial intermediation), labour force (e.g. recruitment and contracting
of personnel), and globally competitive technological innovations (e.g. engineering 1121
services). They also may support in obtaining and monitoring global knowledge,
(Eisingerich et al., 2009). In addition, services may influence markets by steering the
exporting and trading of goods (e.g. consultancy, marketing, fairs and exhibitions)
towards new markets or towards the adaptation of goods to local needs, in which
distributive trades and internet services play a role. Finally, services allow for the
possibility of planning new business locations, which can lead to relocations and
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off-shoring processes (Tate et al., 2009). Therefore, by altering the physiognomy and
borders of the markets in which they operate (Thunert, 2000) services may behave as
both active players and active catalysts of global change.
Furthermore, den Hertog (2000) recognised and identified the transformative
power of services. Innovative services have the potential to contribute towards a
virtuous circle of innovation in which they increase the dynamism of the firms they
interact with elsewhere in the economy, whereas these interactions have the potential
to generate dynamic spillovers that can support new cycles of transformative
innovation across the economy (Expert Panel on Service Innovation in the European
Union, 2010). The Expert Panel on Service Innovation in the European Union (2010)
recently identified three types of service sectors that present this transformative
capacity:
(1) Networking, connecting and brokerage services – these services link
consumers, firms and supply chains and improve the allocation and
distribution of goods and information in society.
(2) Utilities and infrastructure services, such as telecoms, energy and waste
disposal, that increasingly provide high value-added services for their
customers.
(3) KIBS that collaborate closely with their customers to help upgrade their
technology, organisational processes and business models.

All in all, the role of services has evolved from being regarded as mere activities needed
to accompany a product, to key activities that may be integrated at any stage of the
value chain and are crucial in sustaining firms’ competitiveness in the market. Services
turn into transformative sources of change by:
.
favouring the introduction of technological, human, and intangible capital within
an organisation (e.g. networking, strategic management, and multi-location
advice); and
.
involving any type of function, either primary (e.g. global sourcing of materials,
new customer service interfaces) or supportive (e.g. international knowledge
networking, financial intermediation).
 MD The conceptual scheme presented in Figure 1 attempts to include the most positive
51,6 aspects of each of the underlined steps, in the path towards the full recognition of
services and service innovation as a transformative dimension of the value chain.
The above conceptualisation focuses on:
.
the role of services and service innovation, both in the full range of primary
activities and support activities; and
1122 .
the emerging interactions between organisations and services providers, where
facilitators play a role.

Accordingly, services are no longer a secondary instrument of the value chain. Instead,
they have become essential and may add value from their involvement, for instance, in
product design (in which optimal combinations of goods and services have to be
planned), business management, procurement in global markets, and support to
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customers’ participation in value creation. Thus, services providers can add value to
every step of the value chain. The innovative functions of services are also given
within particular systems of inter-relationships where market conditions and enablers
matter. Service innovations are possible in fruitful interactions between the different
actors of a system, which is increasingly knowledge-oriented.
The proposed services-oriented value chain provides room and scope for firms to
introduce organisational innovations. On the one hand, new and improved services

Figure 1.
Service innovation for
value creation
 within firms’ value chains result from the introduction of new organisational Services and
arrangements. Organisational innovation can act as a precondition to the integration organisational
and development of new service functions and much of the service innovation. On the
other hand, service innovation brings the need for more effective organisational innovation
arrangements to occur, given the increase of firms’ interactions with providers,
suppliers, clients, and other external institutional agents in the search for information
and knowledge. Accordingly, the synergies between service and organisational 1123
innovation are reinforced where different agents at local or global scale interact. In this
context, recent ongoing trends affecting firms’ organisational arrangements are
presented in section 3.

3. Trends of organisational innovation in value creation

For many years, the focus of innovation research has been on product and process
innovations. Accordingly, the innovation activities of firms were traditionally
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perceived to merely include (product and process) technological innovations (Drejer,

2004), neglecting actual driving forces behind innovation in favour of those that are
easily surveyed and measured (von Hayek, 1996). However, technological innovations
only represent a part of the innovation potential; innovation comes in many forms
other than technological innovation, including organisational innovation and
innovation in services (European Commission, 2006). To gain a more complete
picture of the innovation efforts of firms, the concept of innovation has to be much
broader than it has been to date. More specifically, it should be extended to
organisational innovations (Schmidt and Rammer, 2007), rather than being restricted
to technological development in a narrow sense (Drejer, 2004).
The current definition of organisational innovation, which is widely accepted in the
sciences sector, understand this innovation type as “the implementation of a new
organisational method in the firm’s business practices, workplace organisation or
external relationships that has not been used before in the firm and is the result of
strategic decisions taken by management” (Organisation for Economic Co-operation
and Development, 2005, p. 51). Organisational innovation refers to changes in the
structures and processes of an organisation that result from developing and
implementing new structural, managerial and working concepts and practices to offer
the consumer more efficient, effective and flexible solutions (Armbruster et al., 2006).
Accordingly, it is assumed to be a sort of non-technological process innovation, which
does not aim to find and implement new process technologies (e.g. new equipment,
software, and specific techniques or procedures), but, instead, organisational
innovation deals primarily with people and the organisation of work[2].
In other respects, Armbruster et al. (2006) identified four fields of organisational
change. On the one hand, organisational innovation can be understood as a structural
or procedural innovation. Whereas procedural organisational innovations affect the
routines, processes, and operations of a company, structural organisational innovation
refers to changes in responsibilities or information flows, the number of hierarchical
levels, or the divisional structure of functions. On the other, the internal or external
focus of organisational innovation can also be addressed. Intra-organisational
innovations may involve particular departments or affect the overall structure and
strategy of the company. Inter-organisational innovations lead to new organisational
structures for co-operation with other institutions.
 MD According to Armbruster et al. (2006), inter-organisational innovations involve the
51,6 implementation of new ways of organising relationships with other firms or public
institutions such as:
.
the establishment of new types of collaborations with research organisations or
customers;
. new methods of integration with suppliers; or
1124 .
the outsourcing or subcontracting, for the first time, of business activities in
production, procuring, distribution, recruiting, and ancillary services.

Organisational innovation is playing an increasingly important role in better

understanding the innovation concept and its impact on the competitiveness of
enterprises and countries (Armbruster et al., 2008). Due to the rising complexity of
organisational processes, companies must change and adapt along with other
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enterprises (Senior and Fleming, 2006). As already suggested, companies are crucially
dependent on service activities that add value (Sheehan, 2006). In view of that, what is
favouring and driving the integration of new services in value chains? The
introduction of organisational innovations, we state, facilitates the rearrangement of
capabilities and processes, the reorganisation of operations, the coordination of value
chains, and the attainment of knowledge beyond enterprises’ confines. In what follows,
we identify three major recent trends as regards of organisational innovation, which
shape traditional value chains throughout service-related strategies:
(1) the “servitisation” process;
(2) the global value chain; and
(3) the open innovation model.

In this context, services and service innovation play a key role as transformative
sources to maintain competitiveness and growth (Muller and Doloreux, 2009).

3.1 The “servitisation” process

The concept of “servitisation” can be defined as the innovation of an organisation’s
capabilities and processes to shift from selling products to selling integrated products
and services that deliver value in use (Baines et al., 2009). This shift represents one of
the most identifiable trends in the manufacturing industry (Hayes et al., 2005), turning
traditional manufacturers, in addition to being producers, into innovators, supply
chain managers and service providers. In other words, manufacturers have to become
service-manufacturers. This servitisation process may be identified as the main driver
for the growth of sales in, and hence a key source of growth for, the manufacturing
sector overall (Neely, 2007). Increasingly, industry leaders are complementing their
product offerings with service innovations to develop solutions that generate greater
customer value, improve brand preference, and create greater cross-selling
opportunities (Shelton, 2009).
It is widely assumed that manufacturing firms can rarely remain pure
manufacturers. Instead, they have to move beyond manufacturing and offer services
and solutions delivered through their products (Cramer and Hipp, 2011). Providing
additional services to accompany the sale of products is increasingly central to the
strategies of manufacturing companies. This is reflected in the growth of services
 importance and the general trend away from a “pure product” orientation towards an Services and
integrated offering, or even a service orientation (Magnusson et al., 2008). Ultimately, organisational
firms’ success depends on finding the right mix of products and services (Mathe and
Shapiro, 1993) that provide the best solution to customers’ needs; a right mix could be innovation
the precise combination of business model and product/technology innovation.
Therefore, traditional manufacturing companies increasingly pursue a transition from
products to an embedded product-service. The attempt is to develop new higher-value 1125
activities that would substitute or complement their manufacturing operations
(Santamarı́a et al., 2012). To evolve in this direction, manufacturing firms have to turn
their attention to high-valued added activities, adding services to their core
manufacturing activities in a search for further differentiation and increased
performance.
A diverse range of servitisation examples can be identified in the literature.
Rolls-Royce Aerospace, for instance, offers a Total Care Solution, where customers buy
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the capability the engines deliver and the company retains responsibility for risk and
maintenance, generating revenues by making the engine available for use (Neely,
2007). One step beyond, and moving away from the production of hardware to offer
business solutions (Sheehan, 2006), IBM has fundamentally reinvented itself as a
business service firm. Similarly, many services have also incorporated a production
function in their business models, thereby having similarly evolved in the opposite
direction (Tether et al., 2001). Servitisation implies a whole new business model which
no longer emphasises the maximisation of output and unit sales; Instead, it emphasises
revenue generation via long-term customer relationships (Johnson and Mena, 2008).
For instance, Hilti, a Luxembourg fastening technology company that develops,
manufactures, and markets products for the construction and building maintenance
industries, offers quick repair services within 24 hours throughout Europe. This
process, intimately related to the introduction of organisational innovations, is
expected to continue as services allow manufacturers to diversify, create new revenue
opportunities, and gain a competitive advantage.

3.2 The global value chain

The integration of services into companies’ value chain is increasingly achieved
through the reorganisation of operations via outsourcing/off-shoring processes. These
apply to firms that contract out (parts of their) production to other firms (Kedia and
Mukherjee, 2009), either domestically or abroad. The scale and the pace at which the
relocation of production has occurred over the last decade appear to have increased
(Hätönen and Eriksson, 2009). Crucial enabling factors behind this development regard
the information and communication technology revolution that began in the early
1990s, which transformed the way companies do business and the increased ability to
fragment or divide production processes into increasingly smaller and more
specialised functions (Krugman, 1995).
The increasing ability to decompose and “slice up” the value chain into a number of
self-contained parts (activities/production processes, as well as products) has been
associated with an increase of trade in components (Egger and Egger, 2007) and,
together with the search for cost reduction and new markets, led to the emergence of
global production networks. The global value chain concept focuses on the nature and
content of inter-firm linkages and the power that regulates value chain coordination
 MD (Gereffi et al., 2005). Of particular interest is the role of leading global firms that govern
51,6 the chain and enforce the governing rules by which local producers – often small- and
medium-sized enterprises (SMEs) – operate in the chain (Saliola and Zanfei, 2009). The
influence of chain coordinators is huge and has major impacts on access to markets, the
acquisition of capabilities, and the distribution of gains (Vivek et al., 2009). Inter-firm
linkages increasingly take place among firms located in different countries and that
1126 participate in the sequence of activities needed to make a product available in the
market (Pietrobelli and Rabellotti, 2009).
The take-off of global production networks has significantly stimulated the use of
services, ranging from research and development (R&D) and innovation activities
(Miozzo and Soete, 2001) to third-party logistics (3PL) services (e.g. customs clearance
and freight forwarding). The increasing tradability of services and the ease with which
they can be transmitted over long distances facilitates the internationalisation of
specialist knowledge services providers that generate, transfer, and spread knowledge.
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Thus, they play a crucial role in the creation and commercialisation of new products
and processes (Castellacci, 2010). Since highly sophisticated work, such as new product
development, R&D, creativity, and other knowledge-intensive activities may
increasingly be performed abroad (Martinez-Noya et al., 2012), the supply of
scientific, engineering, and analytical talent becomes fundamental. Companies may
well overcome the absence of geographical proximity – a key aspect in supporting the
flow of tacit knowledge – through the introduction of new organisational forms that
favour such interactions (Hätönen and Eriksson, 2009). Therefore, organisational and
relational structures within and between firms are considered fundamental in firms
organising bases of knowledge and accessing markets around the world (Cusmano
et al., 2009).

3.3 The open innovation model

The future firm should network and collaborate to exploit knowledge that is beyond its
organisational boundaries to remain competitive (Chesbrough, 2007). The reason for
this is that technologies have become increasingly complex and inter-disciplinary in
nature. The increasing pace of technological change results in firms’ inability to build
all required competencies within the firm (Dodgson et al., 2006). Consequently, firms
will have to learn how to exploit knowledge through collaborations with external
organisations (Drechsler and Natter, 2012). The development of accessing external
knowledge from networks and collaborations is broadly acknowledged as the open
innovation model. It turns into a source of competitive advantage, as it determines how
effective firms manage to exploit knowledge commercially (Huizingh, 2011).
To cover all of the scientific and engineering disciplines that contribute to their
product offerings, organisations increasingly need to co-operate and collaborate for the
purpose of innovation (Tomlinson, 2010) via inter-organisational network relationships
(e.g. with other companies, universities or public research bodies). Within this more
fluid innovation environment, it makes sense for firms to externalise their
technological options and innovation opportunities by licensing them to other
businesses or by forming alliances, rather than keeping options in stock and running
the risk of never exploiting them (Chesbrough, 2003). Open innovation is a business
model designed to purposefully allow and facilitate knowledge and technology transfer
across organisational boundaries, enabling organisations to appropriate value
 (Gianiodis et al., 2010). Therefore, openness frequently requires a high organisational Services and
and relational level (Hastbacka, 2004), whilst firms need to adapt their internal organisational
organisational structures for open networking (Kirschbaum, 2005) and institutionalise
a share and synergy management culture (Chesbrough, 2003). innovation
An advanced characterisation of the innovation process brings about the
understanding of a firm as an open system that actively interacts with other
external agents, both in the early phases and the downstream of the innovation 1127
process. In this respect, open innovation may be seen, to some extent, as an extension
of the general trend towards knowledge externalisation processes, favoured by the
introduction of organisational innovations, in which KIBS are key agents.
Organisational innovation supports the formation of knowledge networks, where
KIBS have a privileged function. These services occupy a crucial position in other
firms’ innovation processes as key sources of knowledge transfer. These services,
therefore, represent a critical piece in the innovation puzzle, holding up and supporting
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a part of the system. Nevertheless, the posed interactive panorama entails being
supported by the introduction of organisational and relational innovations which
favour inter-connectedness amongst producers and innovators within the system.
These innovations help to facilitate and allow firms to adapt to a continuously shifting
environment.

4. Discussion and final remarks

Firms, and their organisational structures, need to adapt to the thriving
inter-dependence of economic activities. Organisational innovation allows the
permeability of service functions and innovations in companies’ value chains, which
promotes the integration of competitive solutions. Organisational innovation
frequently favours a shift or re-design of service’s provision, enabling firms to attain
productivity gains in design, logistics, marketing, R&D, and management functions,
among others. Thus, when adopted by traditional industries, organisational innovation
can lead to considerable improvements in the efficiency of certain service activities
within their value chain. In other words, organisational innovation confers a new value
and potential upon service activities as value-added generators in traditional value
chains, thereby blurring the increasingly limited borders between the economies of
goods and services.
To this respect, organisational innovation represents the major potential channel for
services and service innovation to be integrated within firms’ value chains. It must be
understood in multi-dimensional contexts as a systemic component useful for any kind
of economic activity. This is in accordance with the nature of today’s most innovative
developments, where different inter-relationships emerge between different
dimensions of innovation. Accordingly, it has to be perceived as a prevailing tool
towards firms’ consecution of productivity and competitive gains. This new
perspective requires taking an increased account of the inter-linkages between
manufacturing and services activities. Industry is both a user and provider of a
growing range of services related to innovative technologies and products. Thus, the
cost, quality, and productivity of certain services have an impact on the
competitiveness of an industry.
Moreover, operation and innovation processes are increasingly reliant on inter-firm
relationships. The rising level of complexity encountered when introducing
 MD innovations into the market and the progressive division of labour growth within the
51,6 current globalisation context have favoured an intensification of inter-organisational
interactions with the aim of achieving novel developments. The implementation of
inter-organisational arrangements enables a major access and increasing connection
with sources of information and with collaborative networks for innovation.
Innovation needs to be progressively understood as an open and interactive process,
1128 which requires efforts, capabilities, and competences from a multiplicity of innovation
agents. The relational nature of organisational innovation favours a greater level of
connectedness between innovation agents. This opens up an avenue for incoming
information and knowledge from outside firms’ boundaries, which is useful for firms’
innovation processes. It also reinforces thriving cooperative arrangements between
innovators within the system and favours the concurrence of means to overcome the
rising complexity in innovation completion. In this interactive context, KIBS emerges
as a key transformative player of knowledge gathering, management, and transfer.
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Therefore, organisational innovation not only favours the integration of

value-adding new service functions in traditional value chains, but also the
consecution of further innovation developments through endorsing the openness of
innovation processes. From a management perspective, the paper turns awareness to
the increasing specialisation, globalisation, and fragmentation of the value creation
chain. This leads to complex organisational structures comprising networks of
manufacturers and service providers whose activities need to be integrated.
Organisational innovation turns into a prevailing tool which facilitates the
integration of services and service innovations into the value chains of companies
and, thus, the increasing level of inter-connectedness required in firms’ innovation
processes. The analysis of the relationships between organisational innovation and the
services sector, and their effects on firms’ competitiveness, remains fundamental.
Given the present state of under-exploration, we encourage innovation academics to
investigate this issue empirically and shed some light that supports decision
management and policy-making.
Management can learn from the above findings that service and organisational
innovation have to be managed the same time. It is not the question of one or the other
but finding a right mix of servitisation processes, openness, and structural flexibility.
Essential is also to finding the right position within the global value chain – which is
becoming more and more a value network – and to support value creation and
innovation within the whole value structure. Remaining issues are the question of
building trust within the network and the quality assurance process for the customer
buying the final product or service. Also business models which allow profitability for
all actors within the value network needs to be addressed in the future.
Policy makers are enforced to establish institutional frameworks which support
transparency throughout the whole value chain. This is of special importance for the
final customer to self-evaluate process quality within an open and flexible value
network. Also, independent platforms could help firms to present themselves and to
signal process quality via special entry barriers like quality seals. From the
qualification point-of-view policy makers could also implement qualification programs
at universities and schools which should support communication, network,
organisational management, innovation, media, and service business skills.
 Notes Services and
1. For a revision, see Kaplinsky and Morris (2002). organisational
2. Guidelines for distinguishing the two in borderline cases (organisational and process innovation
innovations) are underlined in the Oslo Manual (Organisation for Economic Co-operation
and Development, 2005, p. 55).

1129
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About the authors

Jorge Gallego is a Research Fellow in the Applied Economics Department at the University of
Alcalá (Madrid, Spain). Dr Gallego’s research interests include service innovation, organisational
innovation, open innovation and innovation policy. His PhD focused on the study of innovation
processes in the service sector from a multidimensional perspective. He has been able to work
continually within the field of innovation economics and related topics through his contribution
to several consultancy works and research projects, mostly for the Commission of the European
Communities – DG Research, DG Enterprise and Industry and DG Single Market and Services.
He is the author of a number of refereed articles and book chapters. Jorge Gallego is the
corresponding author and can be contacted at: jorge.gallegom@uah.es
 MD Luis Rubalcaba is Professor of Applied Economics, University of Alcalá, Spain (2008-),
Visiting Fulbright Scholar at Boston University, USA (2012), Honorary Research Fellow at the
51,6 University of Birmingham, UK (2010-2012), President of the European Association for Services
Research (2004-2008), Coordinator of the EU 7FP ServPPIN project (2008-2011), Award on
Applied Economy (1996) and Award on Social and Human Sciences, University of Alcalá,
Madrid (1999). His publications include The New Service Economy: Challenges and Policy
Implications for Europe (Edward Elgar, 2007), The Contribution of Business Services to European
1134 Economic Growth (edited with Henk Kox, Palgrave-Macmillan, 2007), “Services, innovation,
employment and organisation: research gaps and challenges for the next decade” (with John
Bryson and Patrik Ström, The Service Industries Journal, Vol. 32 No. 4, pp. 641-655, 2012), “The
case of market and system failures in services innovation” (with Jorge Gallego and Pim den
Hertog, The Service Industries Journal, Vol. 30 No. 4, pp. 549-566, 2010), and “ICT and innovation
in services: towards a multidimensional approach for impact assessment” (with David Gago,
Journal of Evolutionary Economics, Vol. 17, pp. 25-44, 2006).
Christiane Hipp became Dean of the Faculty in 2011 and Full Professor for Organisation,
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Human Resource Management and General Management at the Brandenburg University of

Technology Cottbus in 2005. She received her Diploma in Industrial Engineering in 1994 and her
PhD in economics in 1999. From 1995 until 1999 Christiane Hipp was research associate at the
Fraunhofer Institute for Systems and Innovation Research and from 1999 until 2005 she worked
as a senior technology manager for several companies (e.g. Vodafone) while she continued her
research at the Technical University of Hamburg-Harburg in the area of innovation
management. There she received her “Habilitation“ in 2005. She was a visiting scholar at the
University of Manchester’s Centre for Research on Innovation and Competition. Her areas of
interest include demographical change, service innovation, innovation strategies, intellectual
property and innovation processes.

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