THE RELATIONSHIP BETWEEN SERVICE INNOVATION … · CHAPTER 1 - INTRODUCTION ... 5.1.5 Influence of...
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THE RELATIONSHIP BETWEEN SERVICE INNOVATION MANAGEMENT PRACTICES ON PERFORMANCE WITHIN TELECOMMUNICATIONS INDUSTRY IN MALAYSIA By SEYEDEH KHADIJEH TAGHIZADEH This Thesis is Submitted in Fulfillment of the Requirements for the Degree of Doctor of Philosophy October 2015
Transcript of THE RELATIONSHIP BETWEEN SERVICE INNOVATION … · CHAPTER 1 - INTRODUCTION ... 5.1.5 Influence of...
THE RELATIONSHIP BETWEEN SERVICE
INNOVATION MANAGEMENT PRACTICES ON
PERFORMANCE WITHIN TELECOMMUNICATIONS
INDUSTRY IN MALAYSIA
By
SEYEDEH KHADIJEH TAGHIZADEH
This Thesis is Submitted in Fulfillment of the
Requirements for the Degree of
Doctor of Philosophy
October 2015
THE RELATIONSHIP BETWEEN SERVICE
INNOVATION MANAGEMENT PRACTICES ON
PERFORMANCE WITHIN TELECOMMUNICATIONS
INDUSTRY IN MALAYSIA
SEYEDEH KHADIJEH TAGHIZADEH
UNIVERSITI SAINS MALAYSIA
2015
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ACKNOWLEDGMENTS
I am grateful to Almighty ALLAH for his mercifulness and blessing. May
peace and blessing of ALLAH be upon Mohammad S.A.W. his last messenger.
This study involved a lot of determination, hard work, and support. Many
people have contributed their time, effort, and knowledge in the completion of this
study. Notably, I would like to express my deepest gratitude to my supervisor
Associate Professor Dr. Krishnaswamy Jeyaraman for his continual directions,
assistances, and patience in guiding me through the research process. This study
owes much to his guidance, careful thoughts, and generosity in time devoted to
reviewing and commenting on this research. With a greater appreciation, I
acknowledge Dato Professor Ishak Ismail, who guided me as my co-supervisor
during the period of this program. I must admit his diversified supports and time for
which, I was able to complete this tough journey.
My earnest appreciation extends to my examiners for their valuable
comments and suggestions, which made me able to complete this study. I should take
the privilege to thank all the members of the School of Management who were
directly and indirectly involved in the process of this journey.
I must admit the contributions of Professor T. Ramayah, Associate Professor
Dr. Noor Hazlina Ahmad, and Associate Professor Dr. Hasliza Abdul Halim.
I offer my gratitude and deepest indebtedness to Dr. Syed Abidur Rahman for
his continual support to me in the completion of this study. I believe his
knowledgeable thoughts have enhanced my learning process.
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I must always remember and acknowledge Shaghayegh Malekifar who has
supported me remarkably. Besides, I would like to thank the doctoral and masters
students who were around me with their sincere encouragement during this course of
time.
I am very much grateful to the authorities of Telecommunications companies
in Malaysia for allowing me to do the research. Most importantly, I am indebted to
the respondents of this research for their sincere cooperation.
Thank you all so much and May ALLAH blesses you and is with you always.
SEYEDEH KHADIJEH TAGHIZADEH
School of Management, USM
October 2015
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TABLE OF CONTENTS
Page
ACKNOWLEDGMENTS ......................................................................................... ii
TABLE OF CONTENTS .......................................................................................... iv
LIST OF TABLES ................................................................................................... xii
LIST OF FIGURES ................................................................................................ xiv
List of Publications .................................................................................................. xvi
List of Acronyms Included in the Study .............................................................. xvii
ABSTRAK ............................................................................................................. xviii
ABSTRACT .............................................................................................................. xx
CHAPTER 1 - INTRODUCTION ............................................................................ 1
1.0 Introduction ............................................................................................................ 1
1.1 Background of the Study ........................................................................................ 2
1.1.1 Global Competitiveness Index Analysis for Malaysia .................................... 8
1.1.2 Telecommunications Industry in Malaysia ................................................... 11
1.1.4 Motivation of the Study ................................................................................. 15
1.2 Problem Statement ............................................................................................... 16
1.3 Research Questions .............................................................................................. 23
1.4 Research Objectives ............................................................................................. 24
1.5 The Scope of the Study ........................................................................................ 25
1.6 Significance of the Study ..................................................................................... 26
1.6.1 Theoretical Contributions .............................................................................. 26
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1.6.2 Practical and Managerial Contributions ........................................................ 28
1.7 Organization of the Chapters ............................................................................... 29
1.8 Operational Definitions of Key Terms ................................................................. 30
CHAPTER 2 - LITERATURE REVIEW .............................................................. 33
2.0 Chapter Overview ................................................................................................ 33
2.1 Service Innovation Management.......................................................................... 33
2.1.1 The Concept of Innovation in Services ......................................................... 34
2.1.2 Types of Innovation in Services .................................................................... 37
2.1.3 Service Innovation and Involvement of Customer and Other Parties ........... 46
2.1.4 Innovation and Evolution of Theories and Models ....................................... 48
2.1.5 The Model of Service Innovation Management for Current Research ......... 57
2.1.5.1 Strategy ................................................................................................... 59
2.1.5.2 Process .................................................................................................... 61
2.1.5.3 Organization............................................................................................ 63
2.1.5.4 Tools/Technology ................................................................................... 64
2.1.5.5 System ..................................................................................................... 65
2.1.6 Interactions among SPOTS Components ...................................................... 66
2.2 Value Co-creation ................................................................................................ 66
2.2.1 Value Co-Creation from the Perspective of Customer and Company .......... 71
2.2.2 Managing DART Model of Value Co-Creation ............................................ 73
2.2.2.1 Dialogue .................................................................................................. 75
2.2.2.2 Access ..................................................................................................... 76
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2.2.2.3 Risk ......................................................................................................... 77
2.2.2.4 Transparency ........................................................................................... 77
2.2.2 Combining DART Dimensions ..................................................................... 78
2.3 Innovation Value Chain ....................................................................................... 78
2.3.1 Idea Generation ............................................................................................. 82
2.3.2 Conversion ..................................................................................................... 82
2.3.3 Diffusion ........................................................................................................ 83
2.4 Pricing Practice .................................................................................................... 83
2.5 Performance ......................................................................................................... 86
2.6 Theoretical Bases of the Study ............................................................................. 88
2.7 Research Framework ............................................................................................ 98
2.8 Research Hypotheses ......................................................................................... 100
2.8.1 Value Co-creation and the Components of the SPOTS Model ................... 100
2.8.2 Innovation Value Chain and the Components of the SPOTS Model .......... 102
2.8.3 The Components of the SPOTS Model and Performance ........................... 103
2.8.3.1 Strategy and Performance ..................................................................... 104
2.8.3.2 Processes and Performance ................................................................... 105
2.8.3.3 Organization and Performance ............................................................. 106
2.8.3.4 Tools/technology and Performance ...................................................... 107
2.8.3.5 System Integration and Performance .................................................... 108
2.8.4 The Components of the SPOTS Model and Pricing Practice ...................... 109
2.8.4.1 Strategy and Pricing Practice ................................................................ 110
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2.8.4.2 Process and Pricing Practice ................................................................. 111
2.8.4.3 Organization and Pricing Practice ........................................................ 112
2.8.4.4 Tools/technology and Pricing Practice ................................................. 113
2.8.4.5 System Integration and Pricing Practice ............................................... 113
2.8.5 Pricing Practice and Performance ............................................................... 114
2.8.6 Mediating Effect of Pricing Practice ........................................................... 115
2.8.7 Moderating Effect of Company Type (Multi-group Analysis) ................... 117
2.9 Summary of the Chapter .................................................................................... 120
CHAPTER 3 - RESEARCH METHODOLOGY ............................................... 123
3.0. Chapter Overview ............................................................................................. 123
3.1 General Research Design ................................................................................... 123
3.2 Population, Sample and Unit of Analysis .......................................................... 124
3.3 Survey Instrument .............................................................................................. 127
3.4 Expert Opinions ................................................................................................. 135
3.5 Pretest ................................................................................................................. 140
3.6 Pilot Study .......................................................................................................... 143
3.7 Data Collection Procedure ................................................................................. 145
3.8 Data Preparation ................................................................................................. 147
3.8.1 Data Error .................................................................................................... 147
3.8.2 Missing Values ............................................................................................ 148
3.8.3 Independent Two-Group t-Test and Effect Size of Mean Difference ......... 149
3.8.4 Common Method Bias ................................................................................. 149
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3.9 Exploratory Factor Analysis .............................................................................. 151
3.10 Data Analysis Technique ................................................................................. 152
3.11 Partial Least Square (PLS) versus Covariance-based SEM (CB-SEM) .......... 155
3.12 Reflective and Formative Measurement Models ............................................. 160
3.13 Higher Order Constructs .................................................................................. 161
3.13.1 Value Co-Creation as a Reflective-Formative Higher Order .................... 162
3.13.2 Innovation Value Chain as a Reflective-Formative Higher Order ............ 163
3.13.3 Pricing Practice as a Reflective-Formative Higher Order ......................... 164
3.13.4 Operational Performance as a Reflective-Reflective Higher Order .......... 165
3.14 Evaluation of PLS Path Model Results ............................................................ 166
3.14.1 Assessment of Measurement Model .......................................................... 166
3.14.1.1 Convergent Validity ............................................................................ 167
3.14.1.2 Discriminant Validity ......................................................................... 168
3.14.2 Assessment of Structural Model ................................................................ 170
3.15 Testing Mediation in PLS ................................................................................ 172
3.16 Testing Moderating Effect in PLS ................................................................... 174
3.17 Summary of the Chapter .................................................................................. 176
CHAPTER 4 - SIGNIFICANT RESULTS AND FINDINGS ............................ 178
4.0 Introduction ........................................................................................................ 178
4.1 Profile of the Companies and Respondents ....................................................... 178
4.2 Independent Two Groups t-test .......................................................................... 183
4.3 Common Method Bias (CMB) ........................................................................... 185
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4.4. Exploratory Factor Analysis (EFA) and Reliability for Self-construct ............ 186
4.5 PLS Results ........................................................................................................ 190
4.5.1 Goodness of Measurement Model ............................................................... 190
4.5.1.1 Convergent Validity .............................................................................. 191
4.5.1.2 Discriminant Validity ........................................................................... 198
4.5.2 Descriptive Statistics of the Latent Constructs ............................................ 199
4.5.3 Structural Model .......................................................................................... 200
4.5.3.1 The Relationship between Antecedent Variables and Independent
Variables ........................................................................................................... 208
4.5.3.2 The Relationship between Independent Variables and Dependent
Variables ........................................................................................................... 210
4.5.3.3 The Relationship between Independent Variables and Mediating
Variable ............................................................................................................. 211
4.5.3.4 The Relationship between Mediating Variable and Dependent Variables
.......................................................................................................................... 212
4.5.3.5 The Mediating Role of Pricing Practice ............................................... 212
4.5.4 Multi-group Analysis .................................................................................. 213
4.5.4.1 Convergent Validity .............................................................................. 214
4.5.4.2 Discriminants Validity .......................................................................... 220
4.5.4.3 Invariance Test ...................................................................................... 221
4.5.4.4 Path Coefficients ................................................................................... 223
4.5.5 Predictive Relevance (Q2) ........................................................................... 226
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4.6 Summary of the Chapter .................................................................................... 227
CHAPTER 5 - DISCUSSIONS ON FINDINGS .................................................. 232
5.0 Introduction ........................................................................................................ 232
5.1 Recapitulation and Discussions on the Findings ................................................ 232
5.1.1 Value Co-Creation and Its Influence on the Components of the SPOTS
Model .................................................................................................................... 235
5.1.2 Influence of Innovation Value Chain on the Components of the SPOTS
Model .................................................................................................................... 243
5.1.3 Influence of the Components of the SPOTS Model on Telecommunications
Service Provider Performance .............................................................................. 246
5.1.4 Influence of the Components of the SPOTS Model on Pricing Practice .... 251
5.1.5 Influence of the Pricing Practice on Telecommunications Service Provider
Performance .......................................................................................................... 254
5.1.6 Mediating Effect of Pricing Practice ........................................................... 257
5.1.7 Multi-group Analysis .................................................................................. 260
5.1.8 The Modified Final Framework .................................................................. 262
5.2 Contribution of the Study ................................................................................... 263
5.2.1 Theoretical Contribution ............................................................................. 263
5.2.2 Methodological Contribution ...................................................................... 266
5.2.3 Practical and Managerial Contributions ...................................................... 267
5.3 Limitations ......................................................................................................... 271
5.4 Scope for Future Research ................................................................................. 272
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5.5 Summary and Conclusion .................................................................................. 273
REFERENCES ....................................................................................................... 275
APPENDICES ........................................................................................................ 311
Appendix A: Experts Opinion on Questionnaire ..................................................... 311
Appendix B: Results of Pilot Test, Reliability ......................................................... 314
Appendix C: Demographic Profile........................................................................... 316
Appendix D: Independent t-test ............................................................................... 317
Appendix E: Common Method Bias (CMB) ........................................................... 322
Appendix F: Exploratory Factor Analysis ............................................................... 325
Appendix G: Measurement Model ........................................................................... 328
Appendix H: Structural Model ................................................................................. 351
Appendix I: Multi-group Analysis ........................................................................... 353
Appendix J: Questionnaire ..................................................................................... 3688
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LIST OF TABLES
Page
Table 1.1: World‘s top innovative service companies ................................................. 4
Table 1.2: Balance scorecard for innovation................................................................ 5
Table 1.3: Global competitiveness index analysis for Malaysia (2008-2014) ........... 10
Table 1.4: Operational definitions of key terms......................................................... 31
Table 2.1: Examples of radical and incremental innovations mapped on to the 4Ps
model .......................................................................................................................... 42
Table 2.2: Various ways of expressing customer involvement in the provision of
services ....................................................................................................................... 46
Table 2.3: The five generations of innovation process model ................................... 49
Table 2.4: Summary of approaches of innovation in services studies ....................... 51
Table 2.5: Summary of theories and models of innovation ....................................... 56
Table 2.6: G-D Logic vs. S-D Logic on value creation ............................................. 69
Table 2.7: Firm‘s resource ......................................................................................... 93
Table 3.1: Items constituting value co-creation activities ........................................ 129
Table 3.2: Items constituting innovation value chain process ................................. 131
Table 3.3: Items constituting the components of the SPOTS model ....................... 132
Table 3.4: Items constituting pricing practice .......................................................... 134
Table 3.5: Items constituting market and operational performance ......................... 135
Table 3.6: Deleted question items based on experts‘ opinion .................................. 136
Table 3.7: Expert opinion on self-constructed items of value co-creation dimensions
.................................................................................................................................. 137
Table 3.8: Narrative expert opinion ......................................................................... 139
Table 3.9: Number of question items ....................................................................... 143
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Table 3.10: Cronbach‘s alpha scores of instrument scales ...................................... 145
Table 3.11: The list of MNC and LC offices operating in different states of Malaysia
.................................................................................................................................. 146
Table 3.12: Rules of thumb for selecting CB-SEM or PLS-SEM ........................... 157
Table 3.13: Criteria for reflective and formative measurement ............................... 169
Table 4.1: Achieved survey questionnaire ............................................................... 180
Table 4.2: Respondents background information (n=249) ...................................... 181
Table 4.3: Independent sample t-test (online and hardcopy) ................................... 184
Table 4.4: Result of the exploratory factor analysis (Varimax rotation) ................. 188
Table 4.5: Results of reliability analysis .................................................................. 189
Table 4.6: The results of measurement model ......................................................... 193
Table 4.7: Discriminant validity of constructs, Fornell-Larcker criterion ............... 198
Table 4.8: Descriptive statistics ............................................................................... 200
Table 4.9: The result of F-value and observed statistical power.............................. 201
Table 4.10: The results of structural model ............................................................. 204
Table 4.11: Measurement model of multi-group analysis ....................................... 215
Table 4.12: Discriminant validity of multi-group analysis ...................................... 220
Table 4.13: Result of invariance test ........................................................................ 221
Table 4.14: The result of the multi-group analysis for the moderation test ............. 224
Table 4.15: The result of the Q2 values .................................................................... 227
Table 4.16: Summary of hypotheses results ............................................................ 230
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LIST OF FIGURES
Page
Figure 1.1: Global innovative score of top ten countries ............................................. 3
Figure 1.2: Telecommunications industry contribution to GDP, 2009 ...................... 12
Figure 1.3: Telecommunications sectors revenue (2004-2013), Malaysia ................ 13
Figure 2.1: The ‗4Ps‘ of innovation space ................................................................. 40
Figure 2.2: Reverse innovation cycle ......................................................................... 52
Figure 2.3: Building block of interactions for co-creation of value ........................... 74
Figure 2.4: Innovation value chain ............................................................................ 81
Figure 2.5: Resource to performance conversion model ........................................... 92
Figure 2.6: RBV Theory ............................................................................................ 92
Figure 2.7: Theoretical research framework .............................................................. 99
Figure 3.1: Value co-creation as second order constructs, reflective-formative type
.................................................................................................................................. 163
Figure 3.2: Innovation value chain as second order constructs, reflective-formative
type ........................................................................................................................... 164
Figure 3.3: Pricing practice as second order constructs, reflective-formative type . 165
Figure 3.4: Operational performance, second order constructs reflective-reflective
type ........................................................................................................................... 166
Figure 4.1: Measurement model .............................................................................. 197
Figure 4.2: Path coefficient for independent variables and dependent variables ..... 206
Figure 4.3: Path coefficient for antecedent variables, independent variables,
mediating variables, dependent variables ................................................................ 207
Figure 4.4: The interaction graph between innovation value chain and organization
.................................................................................................................................. 225
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Figure 4.5: The interaction graph between system integration and market
performance.............................................................................................................. 226
Figure 5. 1: Modified final framework of the current study .................................... 262
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List of Publications
Lists of Journal Articles Publications
Seyedeh Khadijeh Taghizadeh, Krishnaswamy Jayaraman, Ishak Ismail, & Syed
Abidur Rahman. (2016). Scale Development and Validation of Value Co-
Creation on Innovation Strategy. Journal of Business and Industrial
Marketing. 31 (1), In Press (ISI and SCOPUS Indexed)
Seyedeh Khadijeh Taghizadeh, Krishnaswamy Jayaraman, Ishak Ismail, & Syed
Abidur Rahman. (2014). Innovation value chain as predictors for innovation
strategy in Malaysian Telecommunication industry. Problems and
Perspectives in Management, 12(4), 533-539. (SCOPUS Indexed)
Seyedeh Khadijeh Taghizadeh, Krishnaswamy Jayaraman, Ishak Ismail, & Syed
Abidur Rahman. (2014). A Study of Service Innovation Management in the
Malaysian Telecommunications Industry. Global Business and
Organizational Excellence. 34(1), 67-77. (SCOPUS Indexed)
Seyedeh Khadijeh Taghizadeh, K. Jayaraman, Syed Abidur Rahman, & Shaghayegh
Malekifar. (2014). A Glance on Service Innovation Scenario: Case of
Leading Telecommunication Companies in Malaysia. International Journal
of Business and Innovation (IJBI), 1 (5), 4-22.
Seyedeh Khadijeh Taghizadeh, Krishnaswamy Jayaraman, Ishak Ismail, &
Mohammad Iranmanesh. (2013). Service Innovation Management on Market
Performance through Relevancy of Market conditions: Guide to
Telecommunications Industry, Malaysia. Australian Journal of Basic &
Applied Sciences, 7(4), 241-252.
Conference Paper Presentation:
Best paper award
Title: Innovation Value Chain as Antecedent of Service Innovation
Management Practices: Experience from Malaysian
Telecommunication Sector
Conference: International Conference on Business Strategy and Social Science
(ICBSSS 2014), Kuala Lumpur, Malaysia, 16-17 August, 2014.
Organizer: Asian Economic and Social Society, University Tun Hussain Onn
Malaysia, and PAK Publishers.
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List of Acronyms Included in the Study
MNC Multinational Company
LC Local Company
DART Dialogue, Access, Risk, Transparency
SPOTS Strategy, Process, Organization, Tools/Technology, System
RBV Resource-based view
CIT Computer Information Technology
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HUBUNGAN ANTARA AMALAN PENGURUSAN INOVASI
PERKHIDMATAN PRESTASI DALAM INDUSTRI TELEKOMUNIKASI DI
MALAYSIA
ABSTRAK
Persaingan dalam industri telekomunikasi memerlukan syarikat-syarikat perlu
lebih inovatif dengan permintaan pelanggan yang cepat berubah untuk mencapai
prestasi yang lebih baik. Dalam konteks tersebut, inovasi perkhidmatan memainkan
peranan penting dalam proses keseluruhan perniagaan Syarikat. Dengan itu, kajian
ini telah dimulakan untuk mendedahkan hubungan langsung antara amalan inovasi
perkhidmatan pengurusan menggunakan model SPOTS (strategi, proses, organisasi,
peralatan / teknologi dan sistem) dan pasaran dan prestasi operasi serta melalui kesan
pengantara harga amalan. Kajian semasa mengkaji pengaruh nilai bersama
penciptaan dan inovasi rantaian nilai sebagai dua pemboleh ubah kepada model
SPOTS. Varians berdasarkan PLS-SEM telah digunakan untuk menguji rangka kerja
konsep menggunakan 249 maklumbalas daripada pengurus-pengurus industri
telekomunikasi Malaysia. Hasil kajian ini mendedahkan bahawa penciptaan nilai
bersama dan inovasi rantaian nilai adalah merupakan peramal yang tulen untuk
semua lima komponen model SPOTS. Penyelidikan empirikal semasa meneroka
prestasi Syarikat Telekomunikasi bergantung kepada inovasi dalam strategi, proses,
organisasi fungsian silang dan penyelenggaraan sistem. Di samping itu, amalan harga
pengantara bagi hubungan strategi dan sistem integrasi dengan kedua-dua prestasi.
Dari aspek praktikal, kajian ini dapat menyumbang panduan tenang amalan-amalan
inovasi bagi syarika-syarikat telekomunikasi secara keseluruhannya selain turut
membantu membentuk satu pelan tindakan bagi syarikat telekomunikasi lain di
Malaysia khasnya, dan juga di Asia amnya. Di samping itu, kajian ini boleh
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disesuaikan untuk aplikasi amalan inovasi perkhidmatan di sektor-sektor
perkhidmatan yang lain di Malaysia.
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THE RELATIONSHIP BETWEEN SERVICE INNOVATION
MANAGEMENT PRACTICES ON PERFORMANCE WITHIN
TELECOMMUNICATIONS INDUSTRY IN MALAYSIA
ABSTRACT
The competition in the telecommunications industry requires companies to be
more innovative to align with the fast changing demand of customer to achieve better
performance. In such context, service innovation plays a crucial role in company‘s
overall business performance. Thus, this research has embarked on to reveal the
direct relationship between service innovation management practices using the
SPOTS model (strategy, process, organization, tools/technology, and system) and the
market and operational performance and also through the mediating effect of pricing
practice. The current study investigates the influence of value co-creation and
innovation value chain as two antecedent variables on the components of the SPOTS
model. The variance based PLS-SEM had been applied to test the conceptualized
framework using 249 responses from managers of Malaysian telecommunications
industry. The findings revealed that both value co-creation and innovation value
chain were pure predictors for all the five components of the SPOTS model. The
current empirical research explores the performances of the telecommunications
companies depend on innovation in strategy, process, cross-functional organization,
and system integration. Meanwhile, the pricing practice mediates the relationship of
strategy and system integration with both performances. The practical contribution of
the research serves as a guide on innovation practices for telecommunications
companies and the results form a road map for other Malaysian telecommunications
companies, as well as those in Asia. Further, the study may be customized for the
applications of service innovation practices of other service sectors in Malaysia.
CHAPTER 1 - INTRODUCTION
1.0 Introduction
The issue of service innovation in general has come to the attention of
academics, policy makers, and practitioners in recent times. Although innovation is
complex and highly dynamic in nature, scholars have asserted that innovation
demands effective managerial judgment and decision making (Milling, 1996).
However, the complexities associated with service innovation in the developing
world have not captured much attention in the extant research. In most developing
countries there is a tendency for businesses to follow the crowd and practices the
traditional business values, thereby avoiding the creative path of management
practices (Jackson & Harris, 2003; Pawanchik et al., 2011). Although the businesses
follow the traditional business approach, the competition in developing countries still
exists. Thus, industries need to come up with new ideas and start to explore venues
of innovative approaches in their practices for their better performance and growth.
Similar to other industries such as electronic and Fast Moving Consumer Goods
(FMCG), the telecommunications industry necessitates innovation practices as an
effective business strategy to strive for cost reduction, improvement of overall
performance, and increase growth.
Considering the above issue, the current study has postulated that the practice
of service innovation management helps Malaysian telecommunications companies
to achieve better performance, which can also be facilitated by pricing practices. In
addition, it has been suggested that value co-creation and the innovation value chain
can play an antecedent role for service innovation management practices.
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In this regard, Chapter one provides an overview on the research background,
problem statement, research questions, and the objectives of the study. This Chapter
also highlights the significances and contribution of the study followed by the
organization of the research Chapters and definition of key terms.
1.1 Background of the Study
In recent times, the issue of innovation has become a global factor and most
important ways to drive for economic achievement for any countries. However, as
innovation is dynamic, companies of all sizes and from different geographic
locations are in a competitive position (The Economist, 2014). Such context has
placed the companies in difficult situation and pushing for findings new ways to
prevail in the market with better performance. According to a joint report prepared
by Cornell University, World Intellectual Property Organization, and INSEAD,
innovation is a subject of greater importance, which not only brings higher
performance but also act as a stimulator for sustainable growth in a competitive
market. The report has also identified that government, incubation, infrastructure,
markets, and businesses are crucial factor for innovation ecosystem (The Global
Innovation Index, 2014).
The data from the The Global Innovation Index (2014) demonstrates (Figure
1.1) that in 2013-2014, the top ten countries (which are also considered as
innovation-driven economies) in innovation performance are Switzerland, United
Kingdom, Sweden, Finland, Netherland, USA, Singapore, Denmark, Luxemburg,
and Hong Kong (China). Each of these countries contributes to the world market
with a special product with excellence in innovation. For instance, ARM holding, a
3
5254565860626466
Global Innovation Score
Score
company from United Kingdom, has become top most innovative company in
Europe and ranked 3rd
in world by designing semiconductor, and microprocessors.
Singapore (ranked seventh) as one of the Asian country, provides a world class
logistics and shipping port and serves as an economic market data center for foreign
companies based in South East Asia. In context of the telecommunications industry,
SBA telecommunications from USA has been ranked at 39th
and DiGi from Malaysia
has been ranked at 100th
in the list of most innovative companies in world (Forbes,
2014).
Figure 1.1: Global innovative score of top ten countries
Source: The Global Innovation Index (2014)
Comprehensively, innovation brings better performance which consequently
turns the companies towards expansion. The Forbes data shows that most of the
leading/biggest companies (e.g. Exxon Mobil, General Electric) in the world are
originated from USA. Two telecommunications companies from Malaysia, Axiata
(ranked in 861) and Maxis (ranked as 1344) in the world‘s top 2000 leading/biggest
companies list. However, there is a perplexity exist regarding the innovation, in
4
terms of its applicability in the types of industries such as manufacturing, and
services. Innovation not only centers in the manufacturing industry rather it is also
dominant in the services industries. Many of the world‘s top innovative companies
belong to the service industry such as, Amazon.com (ranked 3rd
), The Priceline group
(ranked 16th
), and Mariott International (ranked 18th
). In addition, Stericycle provides
healthcare service that has been ranked at the 21; a company from USA, MasterCard
has been ranked at 32 in the world‘s most innovative companies list (Table 1.1).
Table 1.1: World‘s top innovative service companies
Industry Company
name Country
Innovative
companies
ranking
Global
leading
ranking
Internet Catalog service
provider Amazon.com USA 3 452
Business and personal
services
The Priceline
group USA 16 654
Hotel & Motel service
industry
Marriott
International USA 18 878
Healthcare service Stericycle USA 21 1959
Data processing services MasterCard USA 32 506
Telecommunications service SBA
Communication USA 38 -
Telecommunications service DiGi* Malaysi
a 100 -
Source: Forbes (2014); *Parent company is from Norway
The above mentioned data and information gives a holistic picture of
innovation around the world. However, it is also interesting to understand the
situation of innovation within the companies. Narrowing down to the state of
innovation in the companies, the renowned consulting firm, Price Waterhouse
Coopers has come up with a balance scorecard for innovation. This balance
scorecard will enable to understand the state of innovation among the leading and
5
large companies in the world. According to the survey by Price waterhouse Coopers
(2014), among 1,757 executives around the world, innovation proved to be the
driving factors for achieving the performance and growth. However, innovation
cannot be happen in a standalone condition, rather it goes through certain stages. In
the survey, innovation strategy, innovation processes, collaboration for innovation
were dominant areas where most of the companies found to have given greater
importance. The following Table (1.2) depicts the result of the survey, which gives
an overall scenario regarding innovation around the global companies.
Table 1.2: Balance scorecard for innovation
Focused
areas
Result
Recognize the
importance of
innovation
67% of the most innovative companies say innovation is a
competitive necessity compared with 19% among the least
innovative.
Innovate with
purpose
The most 32% of innovative companies are more concerned about
developing the right innovation strategy compared with 20%.
Coherent
strategy
Nearly 80% of the most innovative say they have a well-defined
innovation strategy compared with 47% of the least innovative.
Innovation as
management
process
The most innovative (78%) companies are more likely to manage
innovation efforts formally or in a structured way compared with
66%.
Usage of
social media
to innovate
The most innovative companies use social media more often to
collaborate externally: 67% vs. 39%.
Collaboration When it comes to developing new products and services with
external partners, the most innovative companies (34%) collaborate
over three times more often.
Reap the
rewards
The most innovative companies (62.2%) are growing at a much
faster rate.
Source: Price waterhouse Coopers (2014)1
1 http://www.pwc.com/gx/en/innovationsurvey/index.jhtml
6
The success of innovation in service industry depends on the company‘s
efforts and investments in management through connecting the innovation solution to
the market and gain competitive advantage. As the service industry has been the
fastest growing, it faces a severe competition. In a competitive market, the service
providers may tend to offer innovative products (goods and services) to triumph over
the competition and later create value. Advanced economies are dominated by
service sectors and its activities (Gallouj & Windrum, 2009; Lu et al., 2009; Segarra-
Blasco, 2010) which are pushing service companies to rethink their existing business
model in terms of a more innovative approach. The growth of service has intensified
competition among companies, and makes them search for continuous change and
integrate innovation activities in their business practices. Even manufacturing
companies opt to add more service innovation within their product delivery and
decision-making process (Kindström et al., 2013; Ulaga & Reinartz, 2011) as part of
a solution or wider function (Carlborg et al., 2014).
Hence, innovation can play a critical role in the competitive business arena
and act as a fundamental instrument to increase the strategic competitiveness of an
organization. Competitiveness achieved through innovation, enhances existing
market position enables firms to enter new markets (Gunday et al., 2011). A new
market with a competitive advantage provides a base for further development,
enhances product quality, and provides the benefit of reduced costs (Syson & Perks,
2004). As firms reduce unit costs and improve production routines, there may be
price advantages over competitors and performance enhancement (Gellatly & Peters,
1999). Therefore, innovation can contributes to overall business performance, which
correlates with previous research (Eisingerich et al., 2009; Grawe et al., 2009; Hull,
2004b; Tidd & Bessant, 2009). Performance achieved through innovation improves
7
customer perceptions, thus resulting in sustainable competitive advantage (Gunday et
al., 2011).
As part of strategic decision to achieve better performance, nowadays
companies are allowing customers to interact and participate in the innovation
activities. Interaction with customers in innovation activities co-create value for both
side and ultimately bring better performance. In fact, in emerging economies, the
traditional value creation strategies for innovative service development are losing
their effectiveness. Companies which follow conventional company-centric practices
face trouble in terms of decreased customer satisfaction and profitability. As a result,
companies are now focusing more on leveraging external resources such as
customers, rather than internal efficiency, in order to gain new competitive
advantages (Prahalad & Ramaswamy, 2004a; Zhang & Chen, 2008). All traditional
boundaries of industries are disappearing due to the emergence of active, informed
and connected customer in the competitive landscape, which allows firms be
customer-centric rather than company-centric (Payne et al., 2008). Customer
centricity shapes the new creation process of value and enable the customer to be an
active co-creator of value, which is presenting opportunities for companies in the
competitive arena (Prahalad & Ramaswamy, 2003). Accordingly, interaction with
the customer enables organizations to deal with broader heterogeneous markets in
order to better fit customer needs and firms offered product (Tanev, 2011).
With the help of technology, today‘s customers have become more aware of
new services being offered at a global level and have become more demanding when
purchasing innovative services. Customer demand has made firms more competitive
in terms of changing their services (Kim & Cha, 2000). As a result, many companies
8
have incorporated better features and quality into their product-service offerings in
response to customer needs and to maintain customer grip (Victorino et al., 2005).
On the other hand, services are highly heterogeneous and require a variety of
innovation activities (Martínez-Ros & Orfila-Sintes, 2009). For this reason,
involving customer themselves in the business process will help the organization to
get innovative ideas and supply services based on customer desires (Gummesson,
1994). Customer involvement can happen by means of close relationship between the
organization and the customer. Satisfying customer needs through excellent service
enables companies to gain a competitive advantage over their rivals and encourages
managers to change their decision-making processes. Differentiation and offering
innovative service-products remains a key element of change and enables companies
to be distinct from their competitors (Victorino et al., 2005).
A prime example of innovation is getting away from the normal hierarchical
thinking that a firm goes through when it offers a service. Crushpad, a wine
producer, for example, has turned its service offering to a new way of customer
interaction. Curshpad‘s idea caters to wine buyers in terms of its existing products,
which encouraging them into new markets. In the new market, small niches of people
prefer to create their own blend of wine, which has been offered to the service
producer. The economic benefits are that the risks of creating something that people
would not like drinking are reduced, yet leasing their services to this specific niche
helps revenue growth (Crushpad, 2013).
1.1.1 Global Competitiveness Index Analysis for Malaysia
The World Economic Forum, every year publishes the Global
Competitiveness Report, which provides the competitiveness status of every country
9
(World Economic Forum, 2014). Malaysia has been considered as efficiency driven
economy since 2008 till 2011. In the year of 2012, the country was able to move
forward to the transitional phase of innovation, which indicates that the economy of
the country is mostly moving towards innovation driven. The global competitiveness
index indicates that Malaysia is experiencing fluctuation in the world ranking of
competitiveness. As, in 2008 Malaysia was ranked at 21st, in 2011 slipped to 26
th, in
2012 recaptured the position of 21st and in the following year the country tumbled
down to 25th
position (World Economic Forum, 2014).
In addition, the report shows that Malaysia was able to higher its rank in
terms of basic requirements, mobile telephone subscribers, company spending on
R&D, and capacity for innovation. Although, the country was able to position itself
in better in capacity for innovation, but in terms of innovation, the improvement is
not that much of noteworthy. Such context suggests that having a better capacity for
innovation, in overall the rate of innovation is not significant (Table 1.3).
Based on the Table 1.3, Malaysian service industry plays crucial role to the
contribution of the Gross Domestic Product (GDP). The Global Competiveness
report (2008-14) indicates that the contribution of the service industry is increasing at
a significant pace from 39.6 per cent to 45 per cent, which corroborates the
importance of this industry in the economic development. In the service industry,
telecommunications exist as second most contributory sub-sector to the total GDP
after insurance activity in 2012 (Department of Statistics Malaysia, 2013). In 2013,
the communication sub-sector mainly the telecommunications activities strengthened
at 9.0 per cent from the 8.5 per cent (2012) growth of the service sector to Malaysia‘s
economy, according to the data from Department of Statistics Malaysia (2013).
10
Therefore, it is important to look into the telecommunications industry of Malaysia
with more focused view.
Table 1.3: Global competitiveness index analysis for Malaysia (2008-2014)
2008-09 09-10 10-11 11-12 12-13 13-14
Stage of Development* 2 2 2 2 2-3 2-3
Global Competitiveness
Index
21 24 26 21 25 24
Basic requirements 25 33 33 25 27 27
Efficiency enhancer 24 25 24 20 23 25
Innovation and
sophistication factors
23 24 25 22 23 23
Innovation 22 24 24 24 25 25
Infrastructure 23 26 30 26 32 29
Technological readiness 34 37 40 44 51 51
Mobile telephone
subscriptions
56 51 47 40 33 27
Internet users 20 22 39 40 41 39
Availability of latest
technologies
29 36 35 35 35 37
Firm-level technology
absorption 21 37 30 28 29 33
Capacity for innovation 21 25 25 19 17 15
Company spending on
R&D
18 19 16 13 16 17
Value added to the GDP
(service industry)
39.6% 42% 42% 46% 46% 45%
Source: World Economic Forum (2014)
*Stage 1= Factor driven; Stage 1-2= Transition (Factor to Efficiency); Stage 2= Efficiency driven;
Stage 2-3= Transition (Efficiency to Innovation); Stage 3= Innovation driven
11
1.1.2 Telecommunications Industry in Malaysia
Telecommunications industry is considered as a platform for overall
development of any country. This industry is significantly contributing to flourish the
society in general and economy in particular. Through the amazing innovation
initiatives, the telecommunications industry has literally changed the human
civilization, its culture, its pattern of living. From a developed nation to under
developed country, the telecommunications industry has printed its footstep through
remarkable innovation. The successful business in this industry remains alert to take
on new and retain the existing customers. According to the World Trade
Organization (2014), telecommunications industry holds global market worth over
US$ 1.5 trillion in revenue. Within this industry, mobile services comprise
approximately 40 per cent, while the number of worldwide mobile subscribers has
outstripped the use of fixed telephone lines. It has been also mentioned in the World
Trade Organization (2014) that over the last few decades the telecommunications
market is witnessing extensive dynamism, with the entrance of competitors
irrespective of regional locations. However, the Asian region has witnessed rapid
economic growth in recent years and service activities have emerged as a critical
consideration in enhancing the pace of economic development.
According to the Malaysian Investment Development Authority (2014),
Malaysian government has arranged the framework for the New Economic Model to
make Malaysia from a middle-income to a higher-income economy based on
innovation, creativity and high value sources of growth. Under this model, some
industries such as telecommunications and mobile services are targeted. According to
data from the Economic Transformation Programme (2013), Malaysian
12
4.9
3.5 3.4 3.3 2.9
2.6 2.1
Malaysia Singapore Thailand Hong
Kong
Korea China Indonesia
Telecommunications Industry Contribution to GDP, 2009
telecommunications industry has done well among East Asian countries in 2009 and
contributed 4.9 per cent to Malaysia GDP (Figure 1.2).
Figure 1.2: Telecommunications industry contribution to GDP, 2009
Source: Economic Transformation Programme (2013)
The value added contribution of the Malaysian telecommunications industry
to GDP is higher compared to other Malaysian communications and multimedia
commission (MCMC) industries such as broadcasting, postal sectors, and others. The
value was estimated at about RM14 billion in 2008 and increased to RM22 billion in
2009 (MCMC Annual Reports, 2010). The total revenue from the
telecommunications industry found to be at large in the Malaysian economy. Due to
the massive effort by different standpoint and intriguing market, the revenue from the
telecommunications industry is pluming over the past few years. The data form
Malaysian communications and multimedia commission (MCMC, 2014) illustrates
that revenue generated from the telecommunications industry rose to RM 45.3 billion
in the year of 2013 from RM 19 billion in 2004 (Figure 1.3).
13
19 23.6
28.1 31.9
35.5 35.5 39 40.6
43.5 45.3
0
10
20
30
40
50
Telecommunications Sector Revenue (2004-2013), Malaysia
Telecommunications
Sector Revenue
(2004-2013),
Malaysia.RM Billion
Figure 1.3: Telecommunications sectors revenue (2004-2013), Malaysia
Further, according to the statistics on communications and multimedia from
the Anuual Report Broadband Towards 1Malaysia (2009), 87 per cent of the market
share in 2009 came from major telecommunications sectors. Statistics shows, the
communications and multimedia industry in Malaysia has performed with 4.5 per
cent growth in revenue which was mainly dominated by the telecommunications
sector with nearly 85 per cent share of the revenue growth (MCMC, 2014).
Telecommunications networks in Malaysia are more advanced compared to
any other South-east Asia after Singapore (Market Watch, 2012). The advancement
of telecommunications networks has come mainly through digitalization, optical
fibers, satellites and wireless transmissions. As modern technologies, these are
utilized with next generation networks, unified communication, 3G and 4G content,
WIMAX (Worldwide Interoperability for Microwave Access) digital TV, VOIP
(Voice Over Internet Protocol) and sensor technology. In addition, technologies like
IPV6 (Internet Protocol Version) and digital TV are available. Transactions and
services such as unified communications, data center services, authentication
14
services, e-commerce, payment services and billing are conducted daily through
telecommunications services (Market Watch, 2012).
The market structure of Malaysian telecommunications industry is considered
as oligopoly, as there are only a few firms in telecommunications industry such as
Maxis, Digi, and Celcom reported by Economics Talks Only (2012). The theories in
macro economy have defined oligopoly a market which is dominated by a few large
firms of a homogeneous or differentiated product (McConnell et al., 2009). In the
oligopoly market, there are only few firms which have considerable control over
their prices, but each firm must consider the course of actions, activities, and
reactions of the rivals (Noam, 2006). In an oligopolistic market, once a firm
increases its prices, the competitor will not follow the price increase rather if there is
a reduction in price, competitors usually follow the reduced price in order to retain
their customers (McConnell et al., 2009). For instance, in the Malaysian
telecommunications industry, if firm A reduces their price of the services they
provide, other few large firms also might reduce the price of their services to retain
the existing customer base. Furthermore, in oligopoly market, high barriers to entry
for new competitors exist to a greater extent. Such barriers to entry impede the other
new entrants in competing in the market due to the high startup capital cost
(McConnell et al., 2009).
However, the success of the telecommunications industry depends on the
efforts and investments of the individual companies. As telecommunications systems
have been the fastest growing industry, it faces severe competition. In a competitive
market, the telecommunications service providers may offer innovative services due
to breathtaking competition to attract customers and to meet the customer
15
requirements and expectations. In Malaysia, the competition in the
telecommunications industry is very much fierce. Companies such as DiGi, Maxis,
Celcom, Yes mobile, U-mobile, tune talk are successfully running their business
operations, serving a vast and diversified customer base in Malaysia. In order to
increase their market shares, all these companies frequently introduce innovative
services. However, three companies are currently dominating the Malaysian market,
which are having full mobile network operation capability (Celcom, Maxis, and
DiGi). DiGi is a foreign subsidiary while Maxis and Celcom are Malaysian public
limited company. DiGi and Maxis are recognized as the top two innovative
companies and contribute greatly to Malaysian GDP (Pawanchik et al., 2011).
1.1.4 Motivation of the Study
There are significant innovation challenges in the Malaysian context which is
the motivation for the current study. In reality, even though there are some success
stories, the true scenario of the Malaysian service industry‘s contribution to GDP is
that it is still not innovation driven, rather it is in a transitional stage from efficiency
driven towards innovation driven (World Economic Forum, 2014). The
transformation has to take place from efficiency to innovation to achieve the desired
outcomes. Further, Malaysia fell in its global competitiveness (in terms of
innovation) by four positions from 2008 to 2014, and was ranked in 24th
out of 144
nations (World Economic Forum, 2014). The Economic Intelligence Unit (EIU) has
indicated that the Malaysian innovation ranking may decline in future because China
and India are catching up fast (Pawanchik et al., 2011).
As researchers indicate, innovation policies in Malaysia are more oriented
towards Research and Development (R&D), and science and technology driven
16
innovation, rather than modern approaches in innovation such as service innovation,
open innovation, or business model innovation (Pawanchik et al., 2011). In addition,
at the present time, innovation is only just beginning to be a part of company culture
in Malaysia and the focus is still on benchmarking, operational efficiency, copying
competitors, cost cutting, and heading off competition. And also, in Malaysia,
managers have a tendency to consider innovation mainly in the field of only
technology (Idris, 2008).
This is a confirmative sign, which ensures emphasis is needed to improve
different service sectors in Malaysia. In such a situation, companies should invest
more time and effort to broaden innovation policy to connect the innovation solution
to the market or to the customer to create value.
1.2 Problem Statement
Malaysian telecommunications industry is continuing to experience fierce
competition in the market almost daily basis with presence of three major companies
namely Maxis, Digi, and Celcom (Kamarudin et al., 2014). Previous academic
research on Malaysian telecommunications industry has mostly focused on the issues
highlighting government regulations, customer satisfaction, and customer loyalty
(Nikbin et al., 2012; Wong et al., 2014). Further, Salazar (2007) studied political-
structural-historical conditions that shape the adoption of strategic reforms of
telecommunications industries in Malaysia. However, according to Wong et al.
(2014), there is a lack of systematic analysis of the process of telecommunications
industry development in Malaysia. Also it has been noted that diffusion of
telecommunications technology is severely lacking in the developing countries,
17
especially in Malaysia (Wong et al., 2014). In another research, Nikbin et al. (2012)
found that most of the Malaysian telecommunications company‘s service delivery
fails due to not being aligned with the customers‘ trend which impacts on the
switching off among the customers. In addition, in Malaysia the perception on
innovation is still obscure. As noted in the literature, in Malaysia there is a tendency
to equate innovation with high technology and ignore the development of novelties
in the administrative areas such as marketing and human resource (Idris, 2008). In
such paradox, it is an assertion that such situation perhaps could be averted if
Malaysian telecommunications companies manage their services in an innovative
way and practice customer integrated service innovation.
Innovation itself is very complex and dynamic in nature (Tidd et al., 2005).
Most innovation projects face lots of challenges and demands despite the capability
of the company to design and produce a high quality of products and services. About
50 to 90 per cent of innovation projects fail in the marketplace before achieving the
goals of the organizations (Downey, 2007). In the ever dynamic and competitive
environment of the 21st century, firms are struggling to improve performance in order
to stay ahead of their competitors. Service-oriented films also not exception and
operate in a complex and dynamic environment which emphasize on the relationship
between service providers and customer (Kim et al., 2015). Thus, in order to compete
in today‘s hypercompetitive service-oriented marketplace, service firms require
strategies that allow them to compete on service innovation. Service innovation is not
a new concept (Miles, 1993), but research on innovation focus more on technological
innovation by manufacturing (Toivonen & Tuominen, 2009; Vries, 2006), and
mostly ignore service innovation and its inherent opportunities (Carlborg et al.,
2014). However, the issue of service innovation is currently generating a great deal
18
of attention for service researchers, pundits, and practitioners at the global level
(Alam, 2011; Droege et al., 2009; Ettlie & Rosenthal, 2012; Gallouj & Windrum,
2009; Panesar & Markeset, 2008; Van Riel et al., 2013). Scholars found that service
innovation encourages the design of new services, enhances the delivery of services,
enables a company to keep pace with dynamic changes occurring in the business
environment, achieve or improve performance in the marketplace, and secure
competitive advantage (Gunday et al., 2011; Hull & Tidd, 2003a; Jiménez-Jiménez
& Sanz-Valle, 2011; Lin et al., 2010; Möller et al., 2008; O'Cass et al., 2013;
Ottenbacher, 2007; Ruivo et al., 2012; Salunke et al., 2013).
Although the service innovation literature is growing, research frameworks
for the management of service innovation remain scarce (Frei, 2008; Kim et al.,
2015; Möller et al., 2008). Further, the need to thrive and secure competitive
advantages in an agile environment, the practice of service innovation is an important
issue to study (Riel, 2005). Therefore, in the currrent study, a research framework is
presented that study the components of the SPOTS model (strategy process,
organization, tools/technology, and system integration) as service innovation
management practices in the service sector (Tidd et al., 2001). The SPOTS model is
about novelties in the administrative areas such as marketing and operation and has
been tested in developed nations and found that it contributes in enhancing of new
service development performance (Hull, 2003; Hull & Tidd, 2003a). In fact, the
SPOTS model investigates the relationship between internal firm resources and
relational capabilities, and how they interact and evolve to generate better service
innovation in a dynamic environment. As such study in the developing nations like
Malaysia found to be rare, the current study addresses the gap by considering the
SPOTS model to understand to what extent such management practices can help
19
Malaysian telecommunications industry to offer customer aligned service and thus
improve their performance.
The continuous popularity of innovative service development among
customers is making firms more to rely on innovation activities to satisfy customers‘
demands. Hence, firms are putting substantial efforts to create values with their
customers as part of innovation process to attain the competitive advantages
(Prahalad & Ramaswamy, 2003). The development of market is driven by
identifying the right need of customers and customizing the offerings in accordance
(Bharti et al., 2014). To materialize this process, it requires constant connection
through interaction and also participation of the customer, which signifies the value
co-creation (Bharti et al., 2014). Indeed, value co-creation applies the initiatives of
firms‘ innovation with the customers, rather than for the customers, which is now
being considered as a stimulating issue in the market industry. In this line, scholars
have argued that in emerging economies the traditional value creation strategy for
innovative service development is losing its effectiveness (Zhang & Chen, 2008).
Thus, companies are now focusing more on leveraging external resources such as
customers, rather than internal efficiency to gain new competitive advantages
(Prahalad & Ramaswamy, 2004a; Zhang & Chen, 2008). Value co-creation
challenges the conventional value creation process through enabling the customer to
personalize its products and services (Lusch & Vargo, 2008) which has been seen as
a shift from product-and-firm-centric view to customize customer experiences
(Payne et al., 2008). In the conceptual argument of value co-creation, Prahalad and
Ramaswamy (2001) proposed the DART model (dialogue, access, risk assessment,
and transparency) as the key building block in the process of value co-creation in
order to lessen the conventional information asymmetry between customers and the
20
firm. The DART model is an important strategy to facilitate management practices
for successful new service development (Prahalad & Ramaswamy, 2004a). Despite
the importance of value co-creation, research on the key building blocks of value co-
creation (DART) has been largely overlooked. It has been found that thus far the
appropriate construction of the measurements of the DART model has been ignored.
Previously, value co-creation was measured from a different standpoint (Lin et al.,
2010; Zhang & Chen, 2008). Therefore, this research aims to validate the scale
measurements of DART constructs as part of the value co-creation process and to
explore to what extent the DART model is practiced by the companies, even though,
they may believe in value co-creation with their customers.
The SPOTS model signifies the innovation management practices, which
should be implemented not only based on company‘s own decision. Rather, to
achieve the competitive advantage in the market, it is important to take decisions by
sensing the pulse of the customers. As the value co-creation suggests having an
interaction with the customers, it is in need for research to consider the customer
interaction to the practice of SPOTS. While the innovation practices are being
implemented in the company, customers should also have interaction regarding the
company‘s business operation. However, many companies‘ innovation initiatives
were failed due to the incapability of tagging the customers (Hinterhuber, 2004).
Therefore, creating the value with the customers is important in the domain of
innovation management practices. In the extant literature, emphasizes have been
given on the practices of SPOTS model and its outcome. However, lack of research
has been found with regard to the role of value co-creation as a predictor for the
components of the SPOTS model. Such context came out to be one of the puzzling
issues in the scholarly field of innovation management. Thus, the current study
21
addresses the gap in the research by attempting to understand the effect of value co-
creation on the components of the SPOTS model as such a study found to be rare.
Changes in environment make organizational boundaries more dynamic in
order to response to the knowledge about new service development. The process of
new service development represents a series of knowledge initiatives imposed by
various parties which lead to the creation of value (Oliveira & Sbragia, 2013). The
innovation value chain from idea generation, conversion, to diffusion benefits firm in
gathering knowledge and ideas for new service development (Hansen & Birkinshaw,
2007). The advantage of the innovation value chain is the linkage of stakeholders in
the process of innovation from the beginning to the end of new service development
(Ganotakis & Love, 2012) in which knowledge about new services is gathered,
transformed, and exploited (Roper & Arvanitis, 2012). The innovation value chain
enables managers to find the company‘s weaknesses and to better be able to perceive
which innovation approach should be implemented (Hansen & Birkinshaw, 2007).
However, the occurrence of errors in value chain management which do not fulfill
the established goals of the company need to be highlighted (Oliveira & Sbragia,
2013). It is necessary to understand the efficient decisions of management and the
improvement of the team involved. Therefore, it is crucial to know how the
innovation value chain approach helps to highlight the strengths and weaknesses of
the components of the SPOTS model in the innovation management of companies.
The basic telecommunications services in Malaysia are dominated by three
companies. In these oligopolistic market, threat of entry is crucial for other existing
firms‘ profitability. Thus, price plays an important role in firms‘ decision process.
New service development literature perceives pricing to be one of the most important
decisions that firms make while the initiation of new services is undertaken (Hultink
22
et al., 1997). Highlighting the role of pricing is crucial because leaving pricing
issues unaddressed, a barrier will emerge in the implementation of innovation
(Milling & Maier, 1994). Therefore, the issue of pricing has to be resolved in order
for innovation to proceed and to be productive in terms company performance.
However, pricing is one of the most complex decisions faced by companies
(Indounas, 2006) and is a multifaceted practice requiring adequate resources and
coordination efforts (Dutta et al., 2003). Central to successful pricing is an
understanding of how customer value, competition, and cost information on new
services affect the pricing decisions (Ingenbleek et al., 2003). However, the literature
is silent about how organizational capabilities of industrial firms can affect pricing
orientation and how managers integrate cost, competitive, and value information in
their decision-making process (Liozu et al., 2015). In the pricing approaches, more
than 40 per cent of managers are unable to correctly define customer value pricing
along with company and competitor value (Liozu et al., 2012). According to
Ingenbleek et al. (2003), in order to set the right price, firms should receive
information from customers on the service being offered along with information
about company cost and competitor price which are regarded as pricing practice. It
should be mentioned that, in setting the right price, many previous studies have
focused on pricing strategy rather than pricing practice (Hinterhuber, 2004; Nagle et
al., 2010). Nevertheless, pricing practice is the stage before pricing strategy, which
allows the organization to gather information for setting the right price (Ingenbleek
et al., 2003). Considering the importance of pricing practice, however, prior research
has not examined the influence of the components of the SPOTS model on
performance counting the role of pricing practice. Therefore, this research is
designed to shed light on the research lacuna, and proposes that the influence of the
23
components of the SPOTS model on performance will be enhanced if pricing
practice plays a mediating role.
Hence, based on the problems that have been identified, the current study
attempts to conceptualize a research model of service innovation management
practices for new service development in the context of Malaysian
telecommunications industry.
1.3 Research Questions
Considering the problem statement, the current study attempts to formulate
the following research questions for new service development in telecommunications
industry:
1. What are the valid scales measurements for DART model of value co-
creation and does value co-creation have a positive influence on service
innovation management practices (components of the SPOTS model)?
2. Does the innovation value chain have a positive influence on the components
of the SPOTS model?
3. Is there any positive influence of the components of the SPOTS model on the
telecommunications service provider performance (market and operational
performance)?
4. Do the components of the SPOTS model have a positive relationship on
pricing practice?
5. Does pricing practice have a positive relationship on telecommunications
service provider performance?
24
6. Is there a mediating effect of pricing practice on the relationship between the
components of the SPOTS model and telecommunications service provider
performance?
7. Does the company type (multi-national company ‗MNC‘ versus local
company ‗LC‘) moderate between the path relationships of the
conceptualized framework?
1.4 Research Objectives
Considering the research questions, the objectives of the current study are:
1. To validate scales measurements for DART model of value co-creation and
investigate the influence of value co-creation on service innovation
management practices (components of the SPOTS model).
2. To assess the positive influence of the innovation value chain on the
components of the SPOTS model.
3. To study the positive influence of the components of the SPOTS model on
the telecommunications service provider performance (market and
operational performance).
4. To study the positive relationship of the components of the SPOTS model on
pricing practice.
5. To study the positive relationship of pricing practice on telecommunications
service provider performance.
6. To examine the mediating effect of pricing practice on the relationship
between the components of the SPOTS model and telecommunications
service provider performance.
