Journal of Service Science and Management, 2011, 4, 111-117
doi:doi:10.4236/jssm.2011.42014 Published Online June 2011 (http://www.SciRP.org/journal/jssm)
111
Factors Impacting Innovation in New Service
Offerings
John Maleyeff
Rensselaer Polytechnic Institute, New York, USA.
Received January 28th, 2011; revised April 17th, 2011; accepted May 11th, 2011.
ABSTRACT
Factors that affect the level of innovation in projects to develop new service offerings are analyzed based on field re-
search results from 84 service innovation projects. Personal characteristics of developers, process and customer type,
and an important characteristic of their organization (i.e., whether or not they possess a strong Lean Six Sigma or simi-
lar process improvement orientation) are analyzed. It is shown tha t, although personal characteristics, process type, or
customer type do not affect the level of innovation, organizations with a strong Lean Six Sigma orientation had a lower
incidence of radical innovation recommendations.
Keywords: Service Science, Service Innovation, Lean Six Sigma, Service Development
1. Introduction
The ability of an enterprise to provide its customers with
innovative products and services will be critical to sus-
tainable success in the 21st Century [1,2]. This ability
will be important for services provided to both external
customers (in order to respond to market pressures) as
well as internal customers (to stay competitive and retain
knowledge workers). To better understand how organiza-
tions can foster the development of new services, a re-
search project was initiated to study the effect of personal
characteristics and organizational characteristics on an
individual’s ability to recommend highly innovative ser-
vices.
The research is motivated by a degree of skepticism
that exists regarding the ability of certain types of indi-
viduals and organizations to thrive in an innova-
tion-intensive environment. For example, it has been
postulated that, due to their extensive application of
standard solutions based on highly structured analyses,
organizations having embraced a formalized process or
continuous improvement program (such as Lean Six
Sigma) may have created an internal atmosphere that
discourages innovation [3-5].
The research database consists of the results from 84
separate projects. In each project, a developer was asked
to study a service and make a recommendation for an
innovative new service offering. Each developer was
supported with training and hands-on assistance. The
data were analyzed to determine if the level of innova-
tiveness in the developer’s recommendation was affected
by: (a) the developer’s personal characteristics, (b) the
nature of the service process, (c) customer characteristics,
or (d) whether or not the developer’s employer had a
formalized Lean Six Sigma or related program.
The remainder of the article is organized as follows.
The first section provides background in the form of a
literature review that places the research in its proper
context relative to previously reported results. In the
second section, the innovation projects that formed the
basis of the research data set are described. The third
section details the configuration of the resulting data set.
This section is followed by the analysis of results, and
the final section discusses the implications of these re-
sults.
2. Background
A variety of approaches to innovation have been pro-
posed to address the challenges of a volatile, rapidly
changing business world. Among the approaches are
open innovation [6], innovative sustainability [7,8], inte-
grated innovation chains [9], radical innovation agendas
[10], and management innovation [11-13]. These ap-
proaches all seek to provide a framework for organiza-
tions to remain competitive in the 21st century. This re-
search deals with the creation of new markets (i.e., ex-
panding market spaces) by exploring factors that affect

Factors Impacting Innovation in New Service Offerings 112
the ability of developers (i.e., individuals responsible for
creating new services) to create innovative new service
offerings.
Service innovation differs from product innovation
because of the direct and significant intertwining of com-
pany productivity and customer needs, which may neces-
sitate a new typology of service innovation [14]. The
term service “offering” will be used to denote an addi-
tional solution that a customer did not previously receive.
The additional offering could be an extension of the cur-
rent service (e.g., when an automobile insurance com-
pany provides free rate quotes to a customer that includes
competitors’ prices) or a new service for which custom-
ers did not previously ask (e.g., when an automobile in-
surance company provides its customers with repairs or a
replacement vehicle).
Other terms have been used to denote a service offer-
ing. For example, Vermeulen [15] uses the term “prod-
uct” to describe a service sold to financial customers.
Similarly, Berry et al. [16] refer to the creation of new
markets, and Panesar et al. [17] make us of the term ser-
vice “content.” In all of these cases, successful service
development will enable enterprises to increase business
results by expanding their market space, rather than by
increasing market share [18]. By innovating service of-
ferings, customers benefit in the additional value they
receive [19] and/or in enhancement of the service ex-
perience [20,21].
A number of appro aches have been propo sed to en able
developers to understand the customer’s experience with
the existing service in ways that support the development
of innovative service offerings. Womack and Jones [22]
proposed the use of consumption maps to document how
the customer interacts with the service provider. Simi-
larly, Bettencourt and Ulwick [23] recommend the use of
an innovation map that focuses on what the customer is
trying to accomplish (rather than their specific actions),
and Morelli [24] suggests other displays that illustrate the
service design. Ulwick [25] describes how a focus on
outcomes, rather than inputs from customers, can help a
developer create innovations that customers have not
suggested exp licitly.
It is well known that the ability of an organization to
innovate is affected by its structural and cultural charac-
teristics. Many organizations focus on customer-centered
continuous improvement. This movement began in the
1970’s, when organizations began to actively embrace
the teachings of quality and productivity pioneers that
included W. Edwards Deming, Joseph Juran, Taiichi
Ohno, and others. Total quality management (TQM) was
arguably the first “program” that emphasized employee
involvement in the organization’s quest to make every-
one in the comp an y resp onsibl e for customer satisfaction,
where previously this responsibility was given to the
quality assurance department. Over time, similar pro-
grams followed, such as those based on the Malcolm
Baldrige National Quality Award criteria, ISO 9000, and
finally Six Sigma. Over time, these programs moved
towards more structure when applying methodologies to
improve customer satisfaction.
Lean production began to be widely adopted in the
1990’s after the publication of The Machine that
Changed the World [26]. Lean production is based on
the Toyota Production System and focuses on the elimi-
nation of wasteful activities during the creation of a
product [27]. Over time, Lean began to be thought of a
management approach because of its need to treat em-
ployees with respect and to create an alignment of all
business functions [28]. Although originally applied to
manufacturing, many service and governmental organi-
zations have embraced both Lean and Six Sigma princi-
ples [29,30]. For example, from 2004 to 2008, the preva-
lence of articles reporting on the use of Six Sigma in ser-
vices doubled to 40% of publications from 20% of pub-
lications [31].
Today, Lean Six Sigma (LSS) is often used to denote a
program that makes routine use of the principles and
techniques found under the Lean or Six Sigma umbrella.
These organizations would possess common attributes,
such as an emphasis on customer satisfaction, a culture of
continuous improvement, the search for root causes, and
comprehensive employee involvement. In each case, a
high degree of training and education takes place, from
upper management to the shop floor. Additionally, these
organizations tend to employ a standard project man-
agement process in the management of improvement
projects, such as the DMAIC approach of Si x Sigm a [32].
It has been argued that facets of Lean and Six Sigma are
consistent with innovation [31,33], though perhaps they
are better suited for incremental rather than radical inno-
vation [33].
The effect that organizational characteristics have on
the ability to innov ate has b een stud ied. Johne and Storey
[34] argue that the organization’s culture plays an im-
portant role in new service development. Similarly, Oxe
[35] points to an ineffective development process as a
barrier to service innovation. The barriers to innovation
listed in Loewe and Dominiquini [36] include: a belief
that innovation is risky, a lack of systematic innovation
processes, and little or no reward for innovation. Among
the barriers to innovation in financial services firms
listed in Vermeulen [15] is a conservative organizational
structure. Rivas and Gobeli [37] point to highly skilled
people, interdisciplinary cooperation, and a support
management structure as being critical to successful in-
novation at Hewlett-Packard. Finally, Blumentritt and

Factors Impacting Innovation in New Service Offerings 113
Danis [38] show that the innovation approach must be
somewhat customized to the strategic orientation of the
organization.
3. Innovation Projects
Field research was used to create a data set that formed
the basis of the analysis. In total, 84 different services
were included. For each service, the developer was a
professional employee with precise knowledge of the
service. The developer was asked to study the service
and recommend an innovative service offering that
would add value for customers. No single developer
studied more than one service. Because innovation is
enhanced by teams over individuals [14], each developer
was assisted in this endeavor by 3 - 5 other trained indi-
viduals. However, the developer was rated on the effort
and it was clear that the developer was solely responsible
for ensuring the quality of their results.
Each service offering recommendation was based on a
thorough evaluation of the service and interviews with
customers. Prior to creating the new service offering
recommendation, the developer was required to: 1)
document the sequence of steps customers followed be-
fore the service was initiated, during the service delivery
process, and after the service output was delivered (i.e.,
activities that describe how each customer “consumed”
the service, resulting in a consumption map); 2) evaluate
how customers define value, including the many dimen-
sions of performance [39] that customers considered
when evaluating the quality of the service; and 3) docu-
ment elements of the existing service offering that
pleased customers and elements of the existing service
offering that displeased customers.
The recommended service offering could be one that
added value without a significant change to the nature of
the existing service offering, one that supplemented the
existing service with a related service, or one that created
a totally new service offering. In each case, it was as-
sumed that the service provider had the capability to de-
liver the new service offering, albeit with some addi-
tional resources and training. The 84 services covered a
broad range of service types, but they did not constitute a
random sample nor were they carefully selected in a con-
trolled experiment. Although most of the services had
customers who were internal to the organization, several
studies have concluded that the management of services
for internal customers differs very little from the man-
agement for services for external customers [40,41].
There was a definitive bias towards technology-oriented
organizations and the developers were biased towards
those with technical backgrounds.
The projects were designed so that more radical inno-
vation recommendations were encouraged. The develop-
ers were told that their recommendation would be rated
in part based on the level of innovation (e.g., higher rat-
ings would be given to more radical innovations). In ad-
dition, a team of other trained individuals spent several
hours working with each developer to brainstorm ideas
for innovative service offerings. The brainstorming ses-
sions were guided by a facilitator with expertise in this
type of endeavor. Developers were told that, although
they needed to estimate the cost and benefit of their
recommendation, they would not be judged based on a
financial justification (this was done to discourage low
cost recommendations that added value but were not in-
novative). Finally, to further encourage radical ideas,
none of the recommendations were required to be im-
plemented as part of the project effort.
4. Data Set Description
At the end of each project, the service offering recom-
mendation was rated as either an incremental innovation
or a radical innovation. In order the differentiate innova-
tions more precisely, a rating of weak, moderate, and
strong was applied to the incremental category, and a
rating of evolutionary or revolutionary was applied to the
radical category. This rating system resulted in a total of
5 potential scores for each recommended innovation. The
assignment of each rating was done by the author based
on a set of precise definitions for each type of innovation
that ensured objectivity.
Incremental innovations tended to be those that created
additional value by means of an improvement to, or ex-
tension of, the existing offering. An example of a weak
incremental innovation would be the imple mentation of a
checklist or template so that the cu stomer does not forget
or provide incomplete information to the service provider.
The new value would be the elimination of confusion or
uncertainty regarding the format and content of the re-
quired information. An example of a strong incremental
innovation would be a self serv ice database that allows a
division manager to retrieve health and safety informa-
tion on an as needed basis, where previously the infor-
mation was provided quarterly as a generic report. The
new value would be the ab ility of the manager to addr ess
problems on a timelier basis and eliminating the need to
either wait for new reports or use information from old
reports.
Radical innovations would to be those that created ad-
ditional value by means of a new offering that would
vary substantially from what customers expected from
the existing service. An example of an evolutionary
radical innovation would be the creation of customized
financial reports that included new metrics specifically
designed for each customer, where previously reports
were sent to a variety of customers in a generic form. An

Factors Impacting Innovation in New Service Offerings 114
example of revolutionary radical innovation would be a
self service dispensing machine for safety tools and re-
lated equipment in a manufacturing facility. The new
value added would be improved availability of the
equipment, but the offering would also add new value by
providing management with the ability to account for
equipment and charge relevant departments accordingly.
A database was created with one record for each of the
84 services that included the following fields: the name
of the enterprise within which the service took place; a
code signifying the type of service delivery process; an
indication of whether or not the organization had a for-
malized LSS program; a brief description of the process;
the primary type of customer (classified as internal or
external); the age of the analyst; the gender of the analyst;
the educational level of the analyst; and the innovation
rating of the recommended new service offering.
5. Results and Analysis
Table 1 provides the distribution of innovation ratings
for the 84 service offering recommendations. Interest-
ingly, although ra dical innovatio ns were enco uraged w ith
training, assistance, and personal incentives, only 6 of 84
(7.2%) of the recommendations were rated as radical.
Similarly, almost one-fourth (23.8%) of the innovation
ratings fell into the weak innovation category.
The prevalence of technical professionals among the
developers may have contributed to the scarcity of radi-
cal innovations. Poten tial root causes include: (a) a disin-
clination among technical professionals to be creative
(even with encouragement and training), or (b) a disin-
clination among more creative individuals to be em-
ployed by corporate organizations. The analyses, pre-
sented below, will determine whether certain personal
characteristics of a developer or their organization influ-
enced the level of innovation in subsequent recommen-
dation.
In the analyses that follow, all radical innovations
(evolutionary or revolutionary) are pooled. Polling of
these categories was done to create a data set consistent
with the assumptions necessary to perform the appropri-
ate statistical analysis procedures.
5.1. Service Process Type
Table 2 shows the distribution of innovation ratings
across six service process classifications. These classifi-
Table 1. Distribution of recommended innovations.
Innovating Rating Number Percentage
Weak Incremental 20 23.8%
Moderate Incremental 33 39.3%
Strong Incremental 25 29.8%
Evolutionary Radical 3 3.6%
Revolutionary Radical 3 3.6%
Table 2. Innovation ratings across process types.
Incremental Innovation
Process Type Weak Moderate Strong Radical
Innovation
Analysis 2 2 3 0
Consultation 7 12 11 3
Evaluation 4 3 2 0
Gathering 2 1 4 0
Planning 4 11 4 1
Troubleshooting1 4 1 2
cations, suggested by Maleyeff [41], are based on the
activities performed during delivery of the service; they
are not affected by the nature of the service offering. For
example, written reports often constitute the service of-
fering from different types of service processes.
An analysis of the data in Table 2 concluded the fol-
lowing: The hypothesis that service process type affects
the service offering inn ovation rating is no t rejected (p =
0.467). That is, there is no evidence that sp ecific types of
tasks and activities that take place during the delivery of
a service impact the ability of developers to create inno-
vative offerings.
5.2. Customer Type
Table 3 shows the distribution of innovation ratings
across two customer types. In cases where both internal
and external customers existed, the developer was asked
to focus on the service offering for one group–either in-
ternal or external. For example, an accounting statement
may be used internally to mak e decisions and external to
satisfy regulatory requirements. Because the value defi-
nition of internal customers would often differ from the
value definition of external customers, a service offering
change would likely by targeted to one type of customer
over the other.
An analysis of the data in Table 3 concludes the fol-
lowing: The hypothesis that customer type affects the
service offering innovation rating is not rejected (p =
0.851). Although there is often a tendency for service
providers to focus less attention on internal customers
than on external customers [40], this result suggests that
the development of innovative offerings is equally chal-
lenging whether the customer is internal or external.
5.3. Developer Characteristics
Although the detailed numerical summaries are not pro-
vided, three personal characteristics of the developers
were analyzed to determine if any of them affected the
rating of their innovation recommendation. These per-
sonal characteristics included them developer’s age (also
an indication of their level of professional work experi-
ence), gender, and educational level (highest degree
earned).
Analysis of the personal characteristics of the devel-

Factors Impacting Innovation in New Service Offerings 115
Table 3. Innovation ratings across customer types.
Incremental Innovation
Customer Type Weak Moderate Strong
Radical
Innovation
External 4 4 3 1
Internal 16 29 22 5
oper concluded the following: (a) The hypoth esis that the
developer’s age affects the service offering innovation
rating is not rejected (p = 0.213); (b) The hypothesis that
the developer’s gender affects the service offering inno-
vation rating is not rejected (p = 0.844); and (c) The hy-
pothesis that the developer’s educational level affects the
service offering innovation rating is not rejected (p =
0.939).
The implication of these results may be important for
practitioners who engage in team creation. It suggests
that the assignment of diverse individuals (i.e., in regards
to age, gender, and education) to teams may not result in
recommendations having a higher level of innovation.
That is, the results suggest that team formation should
consider factors other than personal characteristics of
team me mbers.
5.4. Lean Six Sigma Organizations
Table 4 shows the distribution of innovation ratings
across two organization types. Here, the organization th at
employed the developer was classified as to whether or
not it possessed a strong LSS or similar program. This
determination was made based on knowledge of the en-
terprises that employed the develop ers and in pu t from the
developer in cases where the organization’s orientation
was not known.
An analysis of the data in Table 4 concluded the fol-
lowing: The hypothesis that the likelihood that a devel-
oper within a LSS organization generates innovation rat-
ings that differ from innovation ratings from a developer
within other organizations is not rejected (p = 0.081).
But, due to the low p-value and the small number of
radical innovations, a follow-up analysis was performed
using only the data for incremental innovations (i.e., the
columns labeled “strong incremental innovation” and
“radical innovation” are combined).
An analysis of the data in Table 4 (modified by pool-
ing radical and strong incremental innovations) con-
cludes the following: the hypothesis that the likelihood
that a developer within a LSS organization generates
innovation ratings that differ from innovation ratings
from a developer within other organizations is rejected (p
= 0.035). Further, there is higher prevalence of weak
incremental innovations from developers employed by
LSS organizations.
Table 4. Innovation ratings across organization types.
Incremental Innovation
Organization TypeWeakModerate Strong
Radical
Innovation
LSS 16 25 13 3
Other 4 7 12 3
6. Conclusions
A number of results contribute to the understanding of
factors that impact the ability of developers to make in-
novative new service offering recommendations. Many
of the results support a number of authors who stated that
the nature of the organization, rather than the individual,
plays an important role in new service development.
Specifically:
1) LSS organizations may stifle th e level of innovation.
This conclusion supports the position of Hoerl and
Gardner [33], that LSS may not be well suited for recog-
nizing opportunities for radically new services. The
utilization of highly structured projects and the focus on
the implementation of standard solutions may contribute
to this tendency.
2) Neither the nature of the service process nor
whether or not customers are internal or external have an
effect on the level of innovation in service offering rec-
ommendations. This result is consistent with the results
of Maleyeff [41] who also found that many important
features of services are common across a broad range of
service process types and customer types.
3) Personal characteristics of employees (e.g., experi-
ence, education, gender) have little or no effect on the
level of innovation in their service offering recommenda-
tions. The org anization is clearly more importan t than th e
individual.
An interesting result that deserves further exploration
is that recommendations made by developers were on the
whole conservative. This result may stem from a lack of
confidence on the part of the developers regarding their
creative abilities, especially given the bias towards de-
velopers with technical backgrounds. Alternatively, per-
haps individuals drawn towards working for an enterprise
may lack an entrepreneurial sp irit that wou ld impact their
innovative tendency. Finally, it may be worth exploring
whether or not very strong incentives need to be imple-
mented in organizations to ensure that employees de-
velop more radical innovations.
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