The Effects Of Service Innovation Strategy On The Competitive Advantage Of Manufacturing Firms

With the trend of service economy and service-dominated competition paradigm, service innovation is increasingly a vital strategic tool for manufacturing firms to cope with dynamic market competition, especially for Chinese manufacturing firms aiming to transform from low cost processing link to high-end link of value chain. However, Chinese manufacturing firms still face a lot of problems in service innovation practice.In theory, researches on service innovation of manufacturing firms have become an important field of innovation management and strategic management, but existing researches simply argue that service innovation strategy is conducive to competitive advantage from the aspects of the characteristics of service and customer value but is not enough for us to understand the theoretical boundary of the relationship between service innovation strategy and competitive advantage. In view of this, we carry out the study exploring how service innovation strategy promotes Chinese manufacturing enterprises’ competitive advantage based on the resource-based view, customer value and service innovation theory and so on. Specifically, this study focuses on the following five questions from shallower to deeper:(1) What is the connotation of service innovation strategy? and What is the relationship between service innovation strategy and competitive advantage?(2) How does environment dynamic moderate the relationship between service innovation strategy and competitive advantage?(3) How do technological capabilities moderate the relationship between service innovation strategy and competitive advantage? and How does the environment dynamic moderate the relationship between the fitness of the technological capability and innovation strategy and competitive advantage?We comprehensively use theory research, exploratory case study, large sample statistical analysis method, combining qualitative research with quantitative research together, to explore the above five problems in depth. Through the above research, this paper comes to the main research conclusions:(1) Service innovation strategy is a kind of customer-focused strategical decision about how and to what extent to use service innovation to create more value for customer and enhance firm’s competitive advantage. In the light of the innovation extent and transformation characteristics of manufacturing firms, it can be divided into incremental service innovation strategy and radical service innovation strategy. Based on the existing research, we design the questionnaire about service innovation strategy and empirically demonstrate the reliability and validity of the questionnaire.(2) Service innovation strategy is beneficial for firm’s competitive advantage. We treat service innovation strategy as a kind of value creation strategy and explore the impact of service innovation strategy on competitive advantage. It is worth mentioning that we divide the competitive advantage into two dimensions, that is, market performance and financial performance, and empirically find that a) incremental service innovation strategy and radical service innovation strategy both are conducive to firm’s market performance; b) incremental service innovation strategy and radical service innovation strategy both are conducive to firm’s financial performance.(3) Environment dynamic is an important contextual factor in the relationship between service innovation strategy and competitive advantage. The findings indicate that market turbulence have a significantly positive impact on the relationship between incremental service innovation strategy and competitive advantage, and the relationship between radical service innovation strategy and competitive advantage. And as for the hypothesis that competitive intensity moderates the relationship between service innovation strategy and competitive advantage, we cannot reject it fully. Competitive intensity can moderate the relationship between incremental service innovation strategy and market performance, radical service innovation strategy and market performance, radical service innovation strategy and financial performance.(4) The effect of service innovation strategy on firm’s competitive advantage depends on firm’s technological capability. The findings show that manufacturing firms with lower technological capacity will select incremental service innovation strategy and provide comprehensive product supporting service, which enhances product value effectively, and subsequently gains financial and market performance. Whereas for the manufacturing firms owning higher technological capacity, it is necessary for them to implement radical service innovation strategy, so as to gain spillover effects, provide special customer’s utility or pleasure for customers and finally establish new competitive advantage.(5) The technological capability and environment dynamic can jointly determine the relationship between service innovation strategy and firm’s competitive advantage. Under the condition of higher market turbulence environment and fiercer competition, the fitness of the incremental service innovation strategy and technological capability is more important influence on market performance, but do not have a significant influence on financial performance. It means that incremental service innovation strategy is more helpful for the manufacturing firms with low technological capability to improve market performance under high dynamic environment. However, in the context of high market turbulence environment, the fitness of radical service innovation strategy and technological capability have a negative impact on both market performance and financial performance. Under a highly competitive environment, the fitness of radical service innovation strategy and technological capability also has a negative impact on firm’s market performance. It means that, it is ambiguous that whether manufacturing firms can cope with core rigidity coming from high technological capability, and rapidly develop a service solution in accordance with customers’need under a highly dynamic environment.The above research deepens our understanding about the mechanism of service innovation strategy on manufacturing firm’s competitive advantage, and contributes to the study in the research field of manufacturing firm’s service innovation, strategic management and so on. Firstly, we put forward the connotation of service innovation strategy and design the questionnaire which is helpful for empirical research in service innovation strategy research field. Secondly, in view of lacking of the research on the mechanism about how service innovation strategy impact competitive advantage, we clarify the theoretical boundary in the relationship between service innovation strategy and competitive advantage and systematically test the moderating effect of technological capability and environment dynamic. Finally, mostly of the researches on the relationship between manufacturing firms’service innovation strategy and competitive advantage focus mainly on the developed countries, other than the developing countries. Our research on Chinese manufacturing firms can enrich the research context.Except that, this paper also contributes to the study in the research field of strategic management. Research in the field of strategic management recently tends to combine the customer view to understand firm’s competitive advantage. This paper treats service innovation strategy as a kind of customer value creation strategy and test the effect on firm’s competitive advantage. The findings suggest that in the shortage of resources manufacturing, firms can take proper customer value creation strategy to contend against the leading firms. So our research provides a valid explanation for the source of manufacturing firm’s competitive advantage and to some extent enriches the theory of competitive advantage.