Identifying Critical Factors Contributing To Successful Innovations In The Service Sector Firms In Pakistan

Innovation and creativity is a key that can help firms to survive and compete in the today’s high-ly competitive world. Due to globalization and deregulations in trade firms are facing fierce competition both from domestic and global competitors so the need to be innovative and creative becomes more important. This study is about innovation performance in the service sector firms of Pakistan. Since most of the service sector firms in Pakistan belong to the public sector so the results of the study has important implications for policy makers. The thesis is divided into vari-ous chapters, the first chapter explains different key concepts, definitions of innovation by dif-ferent authors then it describes various types of innovation based on the Oslo manual framework, this chapter also explains various theories and paradigms of innovation and there applicability for the service sector. The second chapter describes the situation of service sector firms in Paki-stan, as the service sector is the biggest contributor to Pakistan’s GDP for many decades so the service sector is further divided into subsectors and their contribution to GDP is being discussed. This chapter also explains the contribution of service sector in terms of providing employment opportunities and the situation of FDI (foreign direct investment) coming from the service sector and the countries which are biggest contributors of FDI in Pakistan finally in the second chapter the efforts and contribution of some government organizations and programs are discussed which are aimed to improve the science and technology, R&D and infrastructure development situation in Pakistan. The third chapter explores the empirical findings from various studies conducted worldwide in the area of service sector innovation; these studies are published in most renowned and prestigious journals in the last few years and based on this review in the fourth chapter the study has identified key success factors that affect innovation performance in the service sector. These factors include human capital, knowledge capital, information sources for innovation, co-operation for innovation, size of the firm, leadership emphasis for innovation, firms policy and strategy for innovation, government policies for innovation and innovation budget while the de-pendent variable innovation performance is divided into four main types i.e. service innovations, process innovations, organizational innovation, marketing innovations this divisions is according to the Oslo manual which is accepted throughout Europe to measure innovation performance in the firms every year. The fifth chapter describes the methodological tools and techniques used in the study. The data is collected using items adapted from the CIS (community innovation survey) questionnaire which covers all the four types of innovation performance. The research question- naire has sixty items covering all the different explanatory variables and dependent variables. This chapter also explains the applicability and validity of the methodological framework used in the study, it also explains the reasons why Tobit regression model is used in this study. The sixth chapter is for analysis and discussion. The analysis is divided into two parts the first part consist of descriptive analysis explaining the characteristics of the sample and the validity and reliability of the data set the second part consists of various inferential statistical analysis like Pearson’s correlations and Tobit regression analysis used to justify and check the hypothesis of the study. Based on the analysis and discussion chapter the chapter seven make some conclusions which are:human capital which is the work force in the service firms it includes the capabilities of manag-ers, engineers and other staff is one of the most important critical factor affecting service sector firms innovation performance in Pakistan, especially for the service and marketing innovation performance the results indicates that both of these innovations are achieved through capable and innovative work force by offering them innovation training programs. The study also concludes that acquiring knowledge from various sources like getting a new software or machine for inno-vation is an important factor affecting innovation performance in the selected firms and these knowledge sources especially enhance firm’s organizational and marketing innovations. In Paki-stan most service firms acquire new software and machine from outside to enhance their innova-tion performance and the results also show that other knowledge sources like internal R&D is not used for improving innovation performance in Pakistan one reason for this could be that Pakistan is an underdeveloped country so the firms do not have the capabilities and resources to do inter-nal R&D activities so they concentrate more on acquiring knowledge from outside sources.The study finds out that information sources like customers/consumers, universities, conferences and seminars are a rich source of information for innovation and these information sources espe-cially affect process and marketing innovations in the service sector firms of Pakistan. Since marketing innovations are mostly related to the new and novel strategies adopted by firms to market their services the results indicate that most respondents believe that they find consumer interactions, conferences and seminars a rich source of gathering new ideas and information for innovation in their firms. The study finds that the service firms in Pakistan do not cooperate with external firms and insti-tutions for innovation. And most respondents disagree that their firm has done any sort of coop-eration with some university or any other government research and development agency which is an alarming factor, the reason here could be that most of the educational institutions in Pakistan are still concentrating on educational and academic goals and the industry cooperation is not yet started in Pakistan and there are few specific universities like agriculture university Faisalabad that is working with farmers to solve their problems but most universities have no collaboration with the business sector.Another important result from the study is that a majority of the respondents from the service sector firms believe that the size of the company is a very important factor affecting its innova-tion performance and the scores show that larger firms have higher innovation performance, the results for all four types of innovations are significant these results are different from other stud-ies that concluded that larger firms have strong cultural values and this factor hinders in intro-ducing new ideas and practices but in Pakistan the results show that the respondents believe big-ger firms have higher level of service, process, organizational and marketing innovation perfor-mance these findings could be related to some other underlying factors such as large firms have more qualified and experienced work force which can lead to higher innovation performance. The study concludes that leadership emphasis for innovation is an important factor affecting firm’s process, organizational and marketing performance in the selected firms since most of the service sector firms belong to the public sector in Pakistan and these firms have a formal culture and rigid chain of command so in such firms if the top management show high interest in inno-vation activities it can create more motivation in the lower level staff for innovation and creativi-ty. So it is concluded that leadership should emphasise more for innovation performance to en-hance innovation performance in their firms.The study concludes that in most service sector firms innovation performance is not considered as part of the strategic goal of the firm and most firm do not design strategies for innovation but the respondents believe that if innovation activities are made part of strategic goal it will affect their organizational innovation performance higher but currently firms consider market share as a strategic goal. The study also finds that there are no government policies for innovation in Paki-stan that help to enhance innovation performance of firms and the respondents believe that gov-ernment of Pakistan currently do not offer any incentives and tax relaxations to firms investing in R&D activities for enhancing their innovation performance. These results shed light on the seri-ous lack of understanding and foresight in the government policies in Pakistan. These results also explain why the service sector firms do not invest in internal R&D activities in Pakistan and fi-nally the study concludes that setting a separate innovation budget for innovation is a key factor that can enhance a firm’s innovation performance. The results show that service, organizational and marketing innovations are highly affected by setting higher budget for innovation activities.