ARLA-06-2016-0161

Academia Revista Latinoamericana de Administración
Innovation capabilities in services: a multi-cases approach
Vanessa Marques Daniel, Mauricio Pozzebon de Lima, Ângela Maria Ferrari Dambros,
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Vanessa Marques Daniel, Mauricio Pozzebon de Lima, Ângela Maria Ferrari Dambros, (2017)
"Innovation capabilities in services: a multi-cases approach", Academia Revista Latinoamericana de
Administración, Vol. 30 Issue: 4, pp.490-507, https://doi.org/10.1108/ARLA-06-2016-0161
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ARLA
30,4
Innovation capabilities
in services: a multi-cases
approach
490
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Received 1 June 2016
Revised 1 September 2016
21 November 2016
12 May 2017
Accepted 18 July 2017
Capacidades de inovação em
serviços: uma abordagem
multi-casos
Vanessa Marques Daniel
Department of Administration, Universidade Federal do Rio Grande do Sul,
Porto Alegre, Brazil
Mauricio Pozzebon de Lima
Universidade Federal do Rio Grande do Sul, Porto Alegre, Brazil, and
Ângela Maria Ferrari Dambros
Escola de Administracao da UFRGS, Porto Alegre, Brazil
Abstract
Purpose – Considering the importance of services and innovation for the modern economy and the
peculiarities that differentiate services from tangible goods, the purpose of this paper is to better understand
how, based on the capabilities approach, innovation takes place in services.
Design/methodology/approach – A qualitative multi-case study was conducted in five instances of
innovation in the fitness market, using a semi-structured questionnaire as devised in Zawislak et al. (2014).
Findings – The results show that the traditional capabilities framework is limited in explaining service
innovation, as there are many levels of intangibility and non-linearity in service provision. Cases show that
it is not possible to think of capabilities linearly in the service context. The authors propose that capabilities
overlap, and the results show that this is a more accurate way of describing service dynamics.
An alternative framework is suggested based on field findings, and a set of propositions are made for
future research.
Originality/value – For many years, services were perceived as non-innovative, complementary activities,
geared mainly towards the production of goods. The value of this study is to investigate a topic
(innovation) that is widely studied in the industrial sector in a service context, contributing to a largely
unexplored field.
Keywords Services, Capabilities, Innovation
Paper type Research paper
Resumen
Academia Revista
Latinoamericana de
Administración
Vol. 30 No. 4, 2017
pp. 490-507
© Emerald Publishing Limited
1012-8255
DOI 10.1108/ARLA-06-2016-0161
Propósito – Considerando a importância dos serviços e inovação na economia moderna, e as peculiaridades
que diferenciam serviços de bens tangíveis, este estudo visa entender melhor como se dá a inovação nos
serviços baseado na abordagem das capacidades.
Método – Foi conduzido um estudo qualitativo multi-casos em cinco ambientes do mercado de atividades
físicas utilizando um questionário semi-estruturado baseado em Zawislak et al. (2014).
Achados – Os resultados mostram que a abordagem tradicional das capacidades é limitada em explicar a
inovação em serviços, dado que existem diversos níveis de intangibilidade e não-lineariedade na provisão dos
mesmos. Propomos que as capacidades se sobrepõem, e os resultados indicam que essa é uma forma mais
acurada de descrever a dinâmica da inovação em serviços. É sugerida uma abordagem alternativa e uma série
de proposições para pesquisas futuras.
Originalidade/valour – Por muito tempo serviços eram percebidos como atividades complementares não
inovativas direcionadas para a produção de bens. O valour desse estudo é investigar um tópico (inovação)
já amplamente estudado no setor industrial, porém num contexto de serviços, assim contribuindo para um
campo quase inexplorado.
Palabras clave serviços, capacidades, inovação
Innovation
capabilities in
services
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Tipo de documento Trabajo de investigación
1. Introduction
For many years, the world economy has been linked to goods manufacturing. The very
definition of “product” was, for a long time, associated with tangible objects because past
approaches considered services as incapable, by their nature, of creating economic value.
Once considered unproductive, services are now seen as having marketable products with
measurable value, since changes in technology and the use of microelectronics have altered
the structure of world business. The transportability of services has been enhanced by the
increased storability and information transmission, leading to restructuring of the service
sector, which questions the traditional separation of economic activity as a means of
analysis (Miozzo and Soete, 2001).
The importance of the service sector has influenced academia to study phenomena that
occur in these firms’ environments. Therefore, understanding the service economy
dynamics and comprehending the innovation process in terms of services becomes crucial,
as does the study of capabilities, which leads to innovation. Despite all this, innovation in
services is still a largely unexplored field, and there is a strong tendency to transpose the
accumulated knowledge about industry directly to services, without considering its
specificities (Vargas, 2006). Chen et al. (2009) argue that there is no full and adequate
understanding of the concept of service delivery innovation and its role in competition,
especially due to IHIP service characteristics (intangibility, heterogeneity, inseparability and
perishability), making service innovation unique to a certain degree. Similarly, Ordanini and
Parasuraman (2011, p. 3) state “innovation research to date, though insightful, has treated
services merely as a special category of products – that is, ‘what goods are not’ – thereby
employing ‘residual’ conceptualisations of service innovation”.
Considering the importance of service and innovation for the modern economy,
the peculiarities that differentiate services from tangible goods, and the lack of research
linking services and innovation capabilities, this paper aims to better understand how
innovation takes place in services based on the capabilities approach.
This paper is organised into six sections, including this introduction. Section 2 presents
the main concepts about services, capabilities and innovation in services. Section 3 describes
the methodology used in this research. Section 4 presents the results and analysis.
Finally, the research conclusion and references are presented.
2. Services
The economic concepts of productivity and value creation, mostly related to efficiency and
utility generation, were created by economists, such as Adam Smith, David Ricardo, Alfred
Marshall and Thomas Maltus (Kon, 2004). This perception considers that only industrial
activities can generate value, restricting services to non-innovative and complementary
activities for producing goods (Meirelles, 2006; Silva, et al., 2006; Morrar, 2014).
The traditional perspective also considers services that are unmarketable, because they
provide intangible and non-storable products, demanding continuous involvement between
supplier and consumer during the development process and requiring simultaneity in
production/provision and consumption (Miozzo and Soete, 2001).
Over time, however, gradual changes in economic and technological dynamics have led to
a new perspective on services, now seen as activities that link different sectors of the economy
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with diverse combinations of inputs (labour, material, information) in order to produce
tangible and intangible products (Kon, 2004). Besides, crucial for the expansion of business
activities, services have a strong influence on the productive performance of industry, since
“services are complementary and relevant to the consumer, the latter being the primary goal
of production, and therefore essential for productive activity” (Silva et al., 2006, p. 8).
The distinction between goods and services is not always clear, resulting in a lack of
consensus among researchers (Kon, 2004). Services can be supplied through human or
mechanical work (machinery/equipment), so the results can be both tangible and intangible
(Meirelles, 2006). According to Suciu (2013), the most frequently cited difference between
goods and services is related to intangibility, but Hill (1999) questions the association of
services with this characteristic, since technological changes and the advent of ICT have
changed the nature of services, reducing their intangibility, simultaneity, and increasing their
storability (Miozzo and Soete 2001; Kon, 2004; Meirelles, 2006). There is now a possibility of
storing services on physical media (paper, hard discs), which can be reproduced and
transported physically and electronically. Services generate tangible changes in the condition
of physical objects or people, and thus the association of intangibility with services, “not only
obscures the real nature and economic significance of intangibles, but also causes confusion
about the true characteristics of services” (Hill, 1999, p. 426).
A tangible product can be defined as “a physical object which is appropriable and,
therefore, transferable between economic units” (Hill, 1977, p. 317), and an intangible one as
“a change in the condition of a person or of a good belonging to some economic unit”
(Hill, 1977, p. 318), this being a result of human activity (Say, 1983). Given this, we propose
that a differentiation be made according to the products’ tangibility, as presented in Table I:
The diversity of concepts and possibilities of combining goods and services leads to a
wide variety of classifications. Among these, there are those that classify services according
to their function and location in the supply chain (Kon, 2004), according to the volume of
clients and level of product customisation (Silvestro et al., 1992), and relating to their
association with goods and relationship with the market (Tinoco and Ribeiro, 2007).
Intangible products
Tangible products
Related to
Provision and consumption of intangible
products occurs at the same time and
location, being impossible to transport
and store these products
Intensive on human labour and information
(knowledge exchange)
Tangible product production,
transportation, storage and
consumption can occur at different
times and locations
Intensive on mechanical work
(machines and equipment)
and physical inputs to production
of products
Is possible to transfer the ownership
of tangible products from supplier to
customer during the transaction
Little interaction between supplier
and customer during the production
process, it may be manufactured and
consumed separately
The possibility of manufacturing
without customer involvement
results on uniform outputs
Perishability
Due its immateriality, is not possible to transfer
the ownership from supplier to customer
High interaction between provider and customer
during the development process, due the
inseparability among provision and consumption
The combination of immateriality and direct
customer involvement on development process
Table I.
causes high variability of output, once products
Characteristics
according to products’ can differ from customer to customer
tangibility
Source: Adapted from Hill (1999), Meirelles (2006), Say (1983), Kon (2004), Suciu (2013)
Operational inputs
Ownership right
Interconnection
with customer
during production
and development
Possibility of
achieving
uniform output
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The boundary of tangibility between goods and services is becoming increasingly blurred,
with a trend toward “tangibilisation” of services and “servitisation” of goods.
While the former relates to the storage, replication and transport of certain kinds of
services; the latter refers to the growing importance of services in industry. This is a change
in the business perspective, from the supply of “pure goods” to the offering of “goodsservices” packages, in which the product is a part of the total supply (Almeida et al., 2011).
In this vein, Johnson and Gustafsson (2003) proposed four generic categories of
classification, disposed in a continuum where goods and services can be classified according to
the combined solutions package offered to customers (Vargas, 2006), as presented in Figure 1.
The first category, “pure goods”, includes industries that produce and supply tangible
products without a direct relationship with customers. The second category, “core goods”,
includes firms with tangible product portfolios that offer complementary services. The “core
services” category presents firms that complement their main service portfolio by offering
complementary goods. Finally, the “pure services” category embraces those firms that
develop intangible products through direct interaction with their customers. Based on this
continuum, it is possible to argue that there are many combinations of goods plus services,
resulting in many ways of offering services in the market.
Based on this previous discussion, the next section presents the relationship between
services, innovation and capabilities, in an attempt to address how capabilities can lead to
innovation in services.
Innovation
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services
493
3. Innovation in services
Schumpeter (1997) defines innovation as new input combinations that turn into new goods;
a new production arrangement; the uncovering of a new market; finding another source of
raw materials; or a new way of organising an industry able to generate extraordinary
profits. An innovation is only complete, in Schumpeter’s (1997) perspective, when the
invention becomes a business transaction generating wealth. The author further states that
technological innovation creates a disruption in the economic system, eliminating the steady
state, creating new productive patterns, and leading companies to differentiation.
Most studies that focus on innovation as the object of analysis still emphasise the industry
as the one delivering an innovative good to the market.
Even the studies that had focussed on innovation in the service sector until the
mid-1990s were based on the use of concepts and methods of innovations verified
in industry. In addition, research in this field was restricted to following the diffusion
processes for service technologies (Barras, 1986). Given the limitations in this approach to
service innovation, efforts have been made in recent years to establish a theory of
innovation in services, or to verify convergences that make it possible to develop a
perspective encompassing both goods and services, safeguarding their specificities
(Vargas et al., 2013).
Goods-services
package
Pure goods
Core goods
eg. commodity
industries
eg. automotive
industries
Core services
Pure services
eg. restaurants
eg. consultancy
Goods
Source: Adapted from Johnson and Gustafsson (2003)
Services
Figure 1.
The goods-to-services
continuum
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Although the service innovation area, in relation to the industrial sector, started later, it has
grown considerably in the last decade (Lusch and Nambisan, 2015). Studies have been
undertaken from different perspectives. Some have focussed on the theory, in order to promote
advances and maturity in this area (e.g. Gallouj and Savona, 2009; Carlborg et al., 2014), whereas
others have focussed on specific issues in an attempt to understand the dimensions of innovation
in service (e.g. Meigounpoory et al., 2015), the value proposition (e.g. Skålén et al., 2015),
and the relationship between innovation and productivity (e.g. Álvarez et al., 2015), among
other contributions.
When comparing with the manufacturing sector, service innovation seems to be “more
nontechnical and resulting from small, incremental changes in processes and procedures
that do not require much formal research and development” (Aboal et al., 2015, p. 538).
Service innovation will always emerge from a process of interactive learning amongst the
actors involved, occurring as planned, either intentionally or unintentionally (Gallouj and
Savona, 2009).
Innovation in the service sector has characteristics that distinguish it from other sectors.
Sundbo and Gallouj (1998) formulated a summary of the characteristics inherent to the
management of innovation in service companies. The first feature noticed is flexibility, as it
identifies the absence of structures dedicated to innovation, such as Research and
Development departments, with the innovation activity generally in charge of a marketing
department or ad hoc project teams. According to these authors, it is the informal
development of a set of people and activities that drives innovation. The second feature is
the need for staff skills. Regardless of the branch of service, when purchasing a service, the
customer expects the best service possible. Therefore, staff qualification becomes an
important element, as does the development of learning mechanisms by the organisation.
The third and final striking feature is the involvement of external stakeholders, especially
customers and suppliers. Although the tendency to perceive that innovation in services is
becoming more systematic, integrating the organisation’s strategy, it is still administered in
a fairly contingent way.
Thus, innovation in service works by solving a customer’s problem(s) (Sundbo and
Gallouj, 2000). This solution may be given through a new service or by changing to an
existing service, which must be put into practice. It provides benefits for the organisation
that develop it and these benefits are the resulting in added value for customers
(Toivonen and Tuominen, 2009).
Sundbo and Gallouj (1998) show that innovation in services can occur in four ways:
product innovation, process innovation, organisational or managerial innovations and market
innovations. Product innovation relates to the provision of a new service, such as a new line of
bank credit. Process innovation is related to the change in the way the customer is served,
service delivery, or procedures for the preparation of the service. In turn, organisational or
managerial innovations relate to the introduction of new techniques of planning, process
management, and adoption of indicators, among others. Lastly, market innovations occur in
the action of identifying new markets, market niches in which they operate, and also changing
the organisation’s behaviour in the market in which it already operates.
3.1 Innovation capabilities in firms
Throughout history, and as a result of the limited attention given to services, studies on firm
capabilities have been built within the framework of an industrial logic. Based on the
existing theoretical construction, one of the goals of this study is to verify the existence of
limitations between the concepts associated with capabilities in industrial firms and those in
service firms.
In this paper, the firm is conceptualised by unifying two different, but complimentary,
perspectives: transaction costs economics and Schumpeterian entrepreneurship. The first
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argues that a firm is an agent that internalises and coordinates transactions inside an
“organisation” so as to minimise its costs, when compared to the same transactions on the
open market, operating within a governance structure (Coase, 1937; Williamson, 1991).
The second perspective highlights the entrepreneur as the central figure, seeking changes
and innovation in order to keep operating in the market through the use and development of
multiple resource types (Schumpeter, 1942; Dosi, 1988; Nelson and Winter, 1982).
By combining these two traditions, it is possible to define the firm as having both
coordinator and entrepreneur functions. As Zawislak et al. (2012, pp. 15-16) puts it: “the firm
is the technological-economic agent that produces goods and services and transacts in the
market by operating within a cost-minimising organisational structure that should change
over time by both internal and external forces”, or “an economic agent that promotes
technological change and innovation in order not only to reduce costs (efficiency), but to
increase revenues by making it more efficient than the market”.
Ultimately, the firm will prevail if it succeeds in filling a market gap over time. To do this,
it has to develop a specific knowledge or technology, operationalise it, organise it with a
managerial corpus and engage in successful market transactions. To gain significance in the
market, firms need to develop certain capabilities to overcome the competition.
These capabilities and their combinations can boost innovations, be they products,
processes, management, internal to the firm or external in the market. Over the past decade,
many studies have been carried out to understand capabilities that can lead to
innovation (Crossan and Apaydin, 2010; Guan and Ma, 2003; Lawson and Samson, 2001;
Yam et al., 2011; Zawislak et al., 2012). These researchers show much understanding about
firm innovation capabilities and their influence factors, such as culture, organisational
intelligence, technology management, and market research, among others.
In this study, we adopt the innovation capabilities framework from Zawislak et al. (2012),
which has a traditional industrial logic, considering that every firm has four different,
complimentary capabilities: technology development; operations; management; and
transaction. Technological capability is the ability to interpret, absorb and transform a
given technology to improve other capabilities in order to reach higher levels of
technical-economic efficiency; it is responsible for developing the knowledge necessary to
produce a firm’s products. Operational capability is the ability to perform the productive
capacity through a set of daily routines (based on knowledge, skills and technical systems);
i.e., responsible for converting the knowledge into a set of practical procedures to transform
technology into products. Management capability is the ability to integrate and coordinate the
firm’s resources, transforming them into coherent operation and transaction arrangements.
Finally, transactional capability is the ability to reduce the costs of sales, communication
and related activities (Zawislak et al., 2012). Integration among these capabilities builds the
innovation capability, that can be understood as “both the technological learning process from
the firm translated into the technology development and operations capabilities, as well
as the managerial and transactional routines represented by the management and transaction
capabilities” (Zawislak et al., 2012, p. 17). This innovation capabilities framework is
presented in Figure 2.
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capabilities in
services
495
Innovation capability
Technology driven capabilities
Technology
development
capability
Operations
capability
Business driven capabilities
Management
capability
Source: Adapted from Zawislak et al. (2012)
Transaction
capability
Figure 2.
Innovation capabilities
framework
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According to this logic, innovation can occur in any of these four capabilities: the firm can
develop new technology, new ways of producing, innovative forms of management, and
unexplored ways of transacting. Differential performance results from successful
innovation in any of these capabilities over time, enjoying so-called Schumpeterian
profits. Teece et al. (1997) use a different, but complementary, argument to elucidate that
what makes a firm successful is its dynamic capabilities; i.e., its ability to achieve new forms
of competitive advantage in a changing business environment. As the authors put it,
“the term ‘capabilities’ emphasises the key role of strategic management in appropriately
adapting, integrating, and reconfiguring internal and external organisational skills,
resources and functional competencies to match the requirements of a changing
environment” (Teece et al., 1997, p. 516). It is possible to connect the two approaches, as
innovation can occur in any of the four capabilities resulting from new forms of competitive
advantage created by a firm’s strategic management. The four capabilities cited above can
also be distinguished in service companies, but considering that the model shown in
Figure 2 was developed within the industrial linear logic – which is reflected on the factory
floor, or the chain of activities internalised by the firm – the direct transposition of models
would incur in ignoring the services’ specificity.
IHIP service characteristics affect the way of developing the knowledge necessary for service
production/development, since the clients are directly involved in the process. The clients’ active
participation changes their perception of a product’s quality, since it is assessed throughout the
development process and not only when it is finalised. Likewise, the simultaneity between supply
and consumption affects both the operation and the supply of services to the market, making it
difficult to establish routines for “mass production”. In this sense, Bressant and Nicolaidis
(1988, apud Vargas, 2006) argue that network organisation is the ideal form of organisation for
service operation, since it simultaneously allows the broadening of the range of intersectorial
relations and the extension of customer relationships beyond the trade moment. The service
management process is also differentiated, since the processes of development, operation and
transaction occur simultaneously, undergoing continuous adjustments from beginning to end.
Few studies try to link innovation capabilities in service delivery. Ordanini and
Parasuraman (2011) propose a framework containing collaborative competency, dynamic
capability of customer orientation and knowledge interfaces. In short, they study how
capabilities impact innovation in service delivery. In a posterior work, Ordanini et al. (2014)
argue that innovation in service delivery needs interlinked attributes to be adopted, but they
do not discuss what capabilities firms need to develop these attributes.
Based on this perspective, we argue that more intellectual exploration is needed to
address innovation in services, since the capabilities framework was developed within
industrial logic and may provide a limited explanation. However, the framework described
earlier is maintained as a basis for the research due to the lack of related studies in services.
In the next section, the research procedures used for exploring the relationship between
capabilities and service innovation are described.
4. Research procedures
This study is a qualitative exploratory research. The method is suitable for this research
objective because there is a lack of evidence regarding innovation in a service context.
There is a substantial amount of conceptual development in innovation, but it focusses
mostly on the industrial sector. Due to this theoretical gap, a multi-case approach was
chosen to further assess the way firms’ capabilities combine to create service innovation.
This research technique seeks to understand a phenomenon that has not been broadly
explored and that occurs in a non-controlled environment. In this kind of study, observing
the reality collects empirical evidence and/or interviewing subjects who are directly related
to the phenomenon in question (Yin, 2003).
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The research instrument used was a semi-structured questionnaire, acquired from
Zawislak et al. (2014), in which the authors analysed the characteristics of innovative firms
in the Brazilian industrial context. A semi-structured questionnaire is a proper choice as it
allows greater flexibility for the researcher, given that new questions can emerge and be
explored in the field.
The field of study was the Brazilian fitness services market. Specifically, in order to capture
significant empirical variability, we investigated gyms that offered different services and with
different customer profiles. Five cases were analysed: four gyms and one personal trainer.
Data collection was carried out in three stages: first, data about the company was searched
for in secondary sources ( firm’s website); second, semi-structured interviews were conducted
from May to August 2014 with firms’ main manager; third, while visiting each firm, local data
were collected. Confidentiality was maintained by using pseudonyms in each case.
5. Results
5.1 The industrial gym
The industrial gym started in 2009 as a new business unit of an already established fitness
chain, and was created to fulfil a gap detected in the Brazilian market. Since then, it has
opened more than 100 units in three countries. Its main activity is to provide an affordable
service with high quality fitness equipment and instructor supervision.
The management structure is flatter than a traditional business. Knowledge is shared
among units, although there is a global board. The management likes to think it has a
unique management method when compared to other gyms.
The manager interviewed argued that this gym does not have any direct competitors; in
general, other gyms add many services that raise the cost of membership. The firm’s main
objective is to provide training on a large scale, and this goes hand-in-hand with its
low- pricing policy, in place, not just in particular units, but throughout the whole chain.
The idea is to be “close to people”, offering a high quality, low-cost locale near everybody’s
home where they can work out. Thus, this gym’s objective was to revolutionise the market:
to offer a large-scale low-cost fitness service.
Employees have some targets in terms of service quality, but not in sales. The focus is to
welcome customers and carry out administrative tasks. Technology is important for facilitating
customer service: it is possible to subscribe and pay via the internet or on self-service totems.
There are virtual classes clients can attend, and modern standard fitness equipment.
Innovation is a concern in the firm. This cost-benefit model was the first to be
implemented in Brazil, and a consequence of the original franchise’s expansion plans.
This model was an innovation for the company and for the Brazilian market. The manager
stated that innovation is a constant topic in the firm’s strategic plans.
An interesting statement was that, imagining the firm’s capabilities, the four of them are
equally important: “it’s a flat model; the four are side by side”.
Yet this gym’s fitness service is still somewhat intangible. The firm operates more as an
industrial business than a pure service – this is why we have called this case the “industrial
gym”. There is a high degree of standardisation in the gym’s processes, and there is no
customised customer experience besides the training prescriptions. The value creation is
cantered on a low cost, high-scale perspective. Even if the service itself may not be the best from
a customer perspective, it has high capillarity in the market, with plans for further expansion.
5.2 The diversified gym
This gym was established in 2010, but the brand had already existed in Brazil for over
30 years. The gym is part of a larger group that has a corporate board. It is mandatory for
the gym to have a local shareholder, who is the manager and will be in charge of giving an
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identity to the business. The board’s objective is to develop the chain’s strategic
management, focussing on innovations, equipment, techniques, and modern solutions.
Each team assesses whether the new acquisition or technique will be valued by its
customers. The management is concerned with “what the customers want, what the gym’s
public is searching for”, seeking the gym’s own personality through its clients.
The customer profile is different from the traditional urban inhabitant.
The neighbourhood has a unique vivacity due to the presence of a lake in the region.
Therefore, the gym’s range encompasses people more inclined to engage in outdoor
activities than indoor ones. This is why the management has to make sure it designs
activities that will be compatible with this lifestyle.
This gym’s board wants to be a step ahead in terms of technology. As such, it has
developed software that helps trainers to design personalised activities for their clients.
This software has many features, for example, it blocks certain types of exercises if an
injury is reported. The objective is to provide a personalised experience, and to show that
the gym cares about its customers’ health.
The fitness room has up to seven instructors working at the same time, and they make a
point of knowing the customer by name, try to create a closer bond and avoid a feeling of
“I am just another customer”.
Besides the fitness room, the gym offers more than 140 sessions a month of different
activities: dance classes, martial arts, sports, and gymnastics for select groups from children
to the elderly. This is because it aims to provide an array of activities related to general
welfare, rather than just traditional weightlifting exercises.
The gym has a specific way of stimulating innovation in the business: it rewards
employees who create a new technique, process, activity, and so on. The employee
responsible for the innovation then competes with other innovators from different units for
an annual award. There is also an annual meeting, convened with both management and
instructors, to discuss innovation involving the whole chain.
Intangibility is present in the gym’s relationship with its customers, concerned with
conciliating its activities with clients’ lifestyles. As the manager affirmed, innovation can
occur in any of the business’ capabilities. For him, all the capabilities are very important.
He did not determine any one as being more prevalent. But this gym has some industrial
traits, as it offers many kinds of activities in the same way factories offer many lines
of goods. We called this case the “diversified gym” to highlight its feature of mixing pure
services with services that remind us of industrial diversification.
5.3 The family gym
The gym was established in 1986 as a swimming school. Later on, in the 1990s, it started to
offer gymnastics and weightlifting training. Since then, the gym has expanded its services, and
now offers an array of activities and facilities, such as swimming (children and adults), a fitness
room, Pilates, a running club, personal trainers, and dance, to about 600 active members.
All the activities are coordinated by a general manager who is the business owner.
He started as an employee in 2004, and identified an opportunity to acquire the gym in 2007.
He stated that the change in ownership happened because the older investor lost interest in
the business. From then on, the gym has undergone important changes in the way it
conducts its activities.
The new owner altered the consumer retention strategy: the focus changed from monthly
to annual and biannual membership plans. The idea of this was to build customer loyalty
and create a closer bond. Moreover, its positioning changed to that of a diversified gym that
could embrace all family members, from children to the elderly. This happened because,
besides a good array of physical activities, it offers a closer contact with its clients, and
trainers and other employees are stimulated to engage in friendly informal conversations
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with clients. This is made possible by maintaining a not too crowded environment, and a
medium sized fitness room, not the usual huge floors with loads of people and equipment.
This new positioning avoided direct competitors, since others could not combine
diversified fitness activities with a “user-friendly” approach. The manager said that, indeed,
the retention rate had risen substantially following the change of strategy. However, the
gym has many indirect competitors, such as the classic fitness gyms, leisure clubs, and low
cost “do-it-yourself” franchise gyms.
All the pricing is determined internally, and the only activity that is fixed considering
market prices is Pilates, because the local competition is very high. In fact, management has
no sound knowledge about Pilates’ competition.
Technology is not focussed just in the gym, but rather, there is a policy of always trying
to add better fitness equipment and keep everything in good working order, bearing in mind
the limited space (which has doubled in the last four years).
It became clear that what creates value is the capacity of fostering a family environment
in what is, traditionally, a place for lone individuals. Usually, gyms are not capable of
turning customers into friends, even less so of capturing members that include whole
families. Creating bonds in this gym is the rule and the lone weightlifter is the exception.
It seems that even the importance of the quality of the fitness equipment pales beside
members’ feelings of being cared for. We called this case the “family gym” because of the
different relationship it has with its clients. It believes that management capability comes
first, followed by operations, transactions, and technology.
The intangibility here plays an important and central role: the firm’s position on the
goods-service continuum is more left-sided than right. This “intangible innovation” comes
from a mix of the way in which operations and transactions are carried out with customers,
guided by a central manager and assisted by some technology (equipment). Our analyses
indicate that it is a consequence of an overlapping of capabilities, yet the transaction
capability is preponderant.
5.4 The neighbourhood gym (NG)
Founded in 1965 and acquired by the current owner in 1970, the NG is the oldest in
operation in Rio Grande do Sul State. Initially focussing on bodybuilding, the gym has
changed its focus since the 1990s due to market demands, specialising in weight training for
health and welfare. Its clients include a range of men and women aged 16 and over. This is a
small business that has a team of three professionals (the owner plus two employees) and
attends approximately 200 clients per month in three shifts. Each team member
is responsible for one shift, and his/her activities include customer assistance, controlling
sign-ups, payments and gym entry. To facilitate these administrative processes, the gym
uses well-known software for gyms, which also records monthly assessments and
monitoring of clients’ progress with customised training, developed by instructors
according to client’s demands and constraints. The execution of the training is the
customer’s responsibility, and the instructor plays the role of an assistant.
When the gym was founded, the knowledge came from the owner’s experience as a gym
client and from international specialised magazines – information about bodybuilding was
restricted. Today, college curriculums have changed and knowledge comes from continuous
search for new techniques by employees’ experience and expertise, as well as from the
clients’ demands during training.
The owner is the manager. He predominantly makes the decisions on tactical and
operational levels, and has a very particular understanding of the firm’s position in the
market. Despite considering competition a good thing, because it pushes companies to
evolve, the owner believes that “there is enough market for everyone” and does not perform
any competition analysis. Regarding strategy, the owner’s vision is that “the academy only
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exists because of the clients”, and by believing that the gym has sufficient capacity
to maintain a family atmosphere, he does not intend to expand the business. His goal is to
keep the gym running by modernising his equipment and techniques, but without
expanding the range of activities, since “by doing many things at the same time, you can’t
do everything well”.
The pricing of the services is cost-based and takes into account the socioeconomic profile
of the clients. In order to maintain a more affordable price, the gym negotiates with local
suppliers, and buys customised equipment that, according to the interviewees, are cheaper
and similar in quality when compared to those sold in specialised stores. The price varies
according to the number of training days, and the gym offers only monthly packages
(it has no semi-annual or annual packages), because it considers this the most advantageous
for both parties. This system allows the gym to control the real number of regular clients,
and customers may sign out at any time without major financial losses. As a form of
customer loyalty, it has a renewable programme every year, which offers monthly discounts
to clients who maintain their attendance for 12 consecutive months (discounting one month
for holidays).
The gym attempts to maintain a close relationship with its clients, like a family.
According to the owner, the gym is not only a place where clients can improve their physical
health, but also a kind of therapy, a moment to interact with other people. He believes that
large gyms cannot offer this proximity because there is a distance between customers and
the owner: “today, if customers want to complain or talk, they come straight to me”. This
proximity generates a loyalty that runs through generations of clients, and customer
satisfaction, associated with virtual communication channels (website and social media) is
the main tool through which the company is promoted.
The firm is open to receiving suggestions from customers and employees, and the clients
are consulted before any changes. The owner states that the most significant change that
occurred in the business was the change in the gym’s focus implemented in the 1990s – from
bodybuilding to weight training focussed on health care, and the expansion of the physical
space in 2012. While the former may be considered, at the time, as a sector innovation, which
resulted in the expansion of its market niche, the latter was an innovation at firm level.
Focussing on health care increased demand by 50 per cent, and expanding the gym space
increased its capacity to 250 clients.
The owner stated that all capabilities are interlinked and equally important. Compared to
other cases, we highlight again the intangible nature of the product offered. Although the
gym uses some technology to manage the administrative processes, it has updated
the equipment and has its own training models; it appears that customer relationships are
the main driver that allows the perpetuation of the firm. Clients are usually friends and they
know their colleagues by name. They all live near the gym and share the feeling of
neighbourhood/community, which is why we called this case the “neighbourhood gym”.
5.5 The personal trainer
This personal trainer has been operating in the market since 1999. He was part of a group of
eight personal trainers with ample experience. The main interface between this professional
and his customer is established on first contact – the majority of clients are recommended.
Some of his clients have been with him for over six years and have created an
all-important close bond with him. The objective is not to pay attention only to physical
aspects, but to psychological ones too. He accumulated knowledge through many courses, a
post-graduation in exercise physiology, functional training, and management seminars.
He is part of a fitness study group (eight to ten people), with monthly sessions. Several
scientific articles in major journals are selected to foster discussion, and the aim is to share
knowledge and techniques that will be applied in practice.
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Many aspects demand attention in this job. The first is assiduity, which is central.
Then a bond has to be created with the customer, and he must be motivated. The message
that the trainer tries to convey is that physical activity is important to people’s lives and
essential for sustained future health. It is always necessary, however, to combine the needs
and objectives of clients to design a personalised plan of activities.
Another important issue is the close relationship the professional creates with his
customers. To sustain this relationship, besides training, he needs to be aware of what is
happening in society in general: the political situation, the economy, and social issues, in
Brazil and worldwide. This is why he has to make sure he is up-to-date, listen to the radio,
browse the Net, read newspapers, and so on. Also, knowing some of his customers’
preferences will help establish conversation. For example, if the client likes sailing, the
trainer will try to learn a little about it in order to chat about it with his client. This attitude
will help to establish a good trainer-pupil relationship, and it is the core of loyalty.
Some pricing policies exist to maintain the retention rates stable: for every renewal of the
semi-annual plan, customers get one month free of charge.
He tries to implement a strategy to motivate people to exercise. Sometimes, it is difficult
to find an activity that is suitable because of a client’s inherent condition or disability. In this
scenario, knowledge is crucial, and training must be highly personalised. Anyway, the aim
will always be the clients’ long-term welfare.
Fitness equipment is not that important since many clients work out in parks or in the
street. The trainer has to be aware of the client’s diverse objectives, mood and preferred
exercise. He has to be prepared to hear a “no” and change the training session on the go.
The degree of intimacy is higher than in usual gyms, thus there is high intangibility in the
instructor-client relationship. This is the main value created, and innovation is an effort that
comes entirely from the professional, which is not an easy task. Much research is needed to
create a unique type of activity that will keep old customers and attract new ones, and there
is always the possibility of being imitated by other trainers. When asked what capability is
the most important, the trainer answered “transaction”, because, in his view, the relationship
with customers is primordial in his activity.
6. Analysis and discussion
A synthesis of the capabilities in the analysis of the cases is presented in Table II. There was
significant differentiation between the cases, with several levels of intangibility detected.
The industrial gym shows many characteristics of the traditional standardised large scale
production lines. The diversified gym has a mix of pure service and services that are like
goods in a way. The family gym, while it has some level of diversification, presents high
intangibility with its bond with clients. It is less diversified and has a high level of
community spirit that keeps the gym running, even with its low reach. Finally, the personal
trainer has the highest intangibility level in his activities, because he has to train his clients,
even without specific fitness equipment.
With these diverse tangibility levels in mind, it is possible to sort the cases using the
services continuum ( Johnson and Gustafsson, 2003). This classification is important to show
that, first, these services have many supply modes, and, second, that the cases captured this
diversity. This can be seen in Figure 3.
In terms of capabilities, the case descriptions show that the four capabilities are present
in the firms, as defined by Zawislak et al. (2014). Therefore, we share the proposition that
every firm has technology, operations, management and transaction capability.
Although the four capabilities are present, the way they relate to each other shows
significant differences when compared to the Zawislak et al.’s (2014) model. This is because
services are offered by different means, as discussed in the related literature. Cases showed
that is not possible to think of capabilities in a service context in a linear mode. We propose
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Operational
capability
Table II.
Cases’ capabilities
synthesis
Industrial gym
Diversified gym Family gym
The gym uses
technology for
facilitating the
customer service:
Virtual classes and
modern fitness
equipment.
Technology is
central
The gym’s objective
is revolutionise the
market by offering
large-scale low-cost
fitness service
The gym
developed a
software that
helps trainers to
design
personalised
activities to their
customers
The gym has a
policy of always
add good fitness
equipment and
keep everything
functional,
although it is
not a “high
tech” gym
Besides the
The gym
fitness room, the strategy is
gym offers more maintaining a
than 140
not too crowded
sessions of
ambience and a
diversified
medium sized
activities
fitness room so
monthly
trainers can
manage to
attend all
customers
Management is
The gym is
A general
more flat than a
part of a larger manager who is
traditional business. group that has also the business
Knowledge is
a corporate
owner
shared among units board. It is not coordinates all
self-managed
the activities
Neighbourhood Personal
gym
trainer
The gym’s goal
is to keep
running
through
modernisation
of equipment
and techniques
Auxiliary
equipment is
essential since
many clients
workout in
parks and such
The gym
strategy is to
continue
working with
fitness
(specialisation)
without
expanding the
range of
activities
It is important
to be aware of
the diverse
objectives,
mood, and
preferred
client’s way of
exercising to
achieve
operational
efficiency
Managerial
The
Management
capability
management is comes from the
held by the
trainer himself
business owner,
who makes
decisions
predominantly
on tactical and
operational
levels
The gym’s goal Pricing is cost- The trainer is
Transactional The gym’s goal is to The goal is to
is to build
based and the concerned not
capability
be “close to the
provide a
customer loyalty gym attempts to to give
people”, offering a personalised
and create a
maintain a close attention to
place near
experience,
physical
everybody’s home showing that the closer bond with relationship
with its clients aspects only
to workout with
gym cares about all family
members, from
but to
quality and low
customer’s
children to
psychological
cost. Pricing is very health
elderly
ones as well
relevant
Source: Elaborated by the authors
that capabilities overlap, and the results showed they are a more accurate way of describing
service dynamics.
Starting from the basic innovation capabilities framework of Zawislak et al. (2012),
we propose a different framework, considering the form of integrating the capabilities in
services. Instead of linking the four capabilities linearly, we argue their capabilities will
overlap in the creation of value, and innovation comes within this association. Therefore, the
distinct feature is that, although the four capabilities will always exist in some way, they
overlap and are impossible to separate or arrange linearly. This will occur, basically, because
of the medium to high degree of intangibility present in services. Figure 4 illustrates this.
Our cases showed that the intersection is the place for creating value and innovation.
Innovation can emerge from any capability, but will be perceived only if it is merged with
Innovation
capabilities in
services
Goods-services
package
Core services
Pure services
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m
m
m
er
ym
in
gy
gy
gy
lg
ra
d
d
y
t
a
l
e
o
i
i
l
o
fi
m
str
na
rh
rsi
Fa
du
rso
ou
ve
e
i
In
b
P
h
D
ig
Ne
Source: Elaborated by the authors
Technology
development
capability
503
Figure 3.
Services continuum of
the analysed cases
Operations
capability
Innovation
capability
Transaction
capability
Management
capability
Source: Elaborated by the authors
the other capabilities. Even if one capability is preponderant, and it probably will be, this
model advances our understanding of service innovation dynamics: without the
superimposition of capabilities, innovation is not possible. This is a striking difference
between the proposed model and Zawislak et al.’s (2012): while the former has an industrial
mind-set, the latter tries to capture the specificities of service offering. This dynamic can be
detected in some managers’ statements when they argue that all capabilities are important
for firm innovation success. The intangibility in service provision and the simultaneity
between consumption and supply compels firm’s capabilities to have synergy, even though
one can be more preponderant at a certain time.
Based on this analysis, we propose our set of propositions for the capabilities framework
in services:
P1. Every firm has all four capabilities. None of them are null.
We share the same proposition as Zawislak et al. (2012) because the cases showed that,
indeed, it is not possible to think of a firm functioning without any one of the capabilities.
In addition, because offering and consumption occurs at the same moment, the four
capabilities will be present at the same time. This dynamic is presented in Figure 4, which
includes the intersection of capabilities.
Figure 4.
Innovation capabilities
framework for
services
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The case descriptions showed that one capability could be more important than others,
with respect to the kind of service offered. Therefore, the second proposition is presented:
P2. To be innovative, at least one of the firm’s capabilities must be predominant,
but not independent.
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504
This proposition is similar to Zawislak et al. (2012), but with an addition: one capability will
probably be predominant and have more potential for creating innovation, but it will be
successful only if it is well merged with the other capabilities. Moreover, non-linearity is
central in service provision and innovation.
It is possible to argue that, due to the specificities in service offering, a firm’s
capabilities can behave in diverse ways when meeting customer needs. This was observed
in the different way capabilities related to each other in the cases analysed, leading to the
next proposition:
P3. The more intangible the service is, the more transaction capability will be central.
The analysis showed that, as we move toward the pure services continuum, more
transactional skills are needed for the service’s performance. The close relationship between
trainer and pupil is highly important for value perception. While the industrial gym does not
focus on personalised experience, the personal trainer has to provide a different class every
time. Furthermore, every time a pure service is provided, the customer will assess it in terms
of cost-benefit and the wide range of alternatives in the market. Thus, the transactional
capability will not work independently of the others, for example, knowledge has to be
present to be converted into new training methods.
7. Conclusion
Service innovation still lacks solid underpinning from the scientific literature, despite its
growing importance in the world economy. The aim of this exploratory research was to
advance understanding of innovation in services, focussing on the capabilities, departing
from the related literature and seeking new insights.
An exploratory research was conducted to fulfil this study’s objective. The field of
study was gyms that have diverse ways of doing business. The search for gyms with
different business approaches had the purpose of identifying dissimilarities in their
innovation capabilities.
Regarding the capabilities, results indicate that the four capabilities exist in both
industrial and service businesses. However, it is not possible to think of capabilities in a
service context in a linear way, as shown in Zawislak et al. (2014), which focussed on the
industrial sector. We propose that capabilities overlap, and this study showed that it is a
more accurate way of describing service dynamics.
Intangibility plays a key role in services and service innovation. Therefore, results
indicate that it is not possible to think of innovation in services without an intersection of
capabilities. This is a central difference between the services and manufacturing industries
that Zawislak et al. (2014) did not point out. Thus, we identified the same capabilities as
Zawislak et al. (2014), and verified that one will always be more central. Moreover,
intangibility makes firms that are in a pure service context more transactional as they move
into a pure service context. We argue that our model advances our understanding of
innovation, capabilities and service relations. Nevertheless, to consolidate our proposition,
and even expand it, more research is necessary, with a greater array of service types and
more diverse firms.
We suggest that more exploratory research should be conducted in diverse service
sectors to relate to the model presented. Then, a quantitative approach would be possible to
assess the relationship between the preponderant capabilities and innovation.
Since this is an exploratory research, generalisations are not possible. Future research
should try to work with samples that can make inferences about how capabilities work in
services and their relation to firms’ success. As the service sector is very diverse, we
suggest more field research to see if our proposed model makes sense in other activities
besides fitness.
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Further reading
Ministério do Desenvolvimento, Indústria e Comércio Exterior (2014), “Importância do Setor
Terciário”, available at: www.mdic.gov.br/sitio/interna/interna.php?area=4&menu=4485
(accessed July 21, 2014).
Corresponding author
Mauricio Pozzebon de Lima can be contacted at: [email protected]
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