Alignment Between Service Innovation Strategy and Business Strategy and Its Effect on Firm Performance: An Empirical Investigation

Abstract

A well-planned service innovation strategy is recognized as a prerequisite for successful service innovation in organizations. However, prior studies on service innovation strategies struggle to provide guidance on successful service innovation, because they do not consider the alignment between service innovation strategy and business strategy. Furthermore, they did not consider conditions, such as industries, that affect the alignments to improve firm performance. By using empirical data collected from 175 service firms in Korea, this study aims to investigate the effect of alignments between service innovation strategy (i.e., service creation-focused [SCFS], service delivery-focused [SDFS], and customer interaction-focused [CIFS] strategies) and business strategy (i.e., cost leadership [CLS], innovative differentiation [IDS], and focus [FS] strategies) on firm performance, which is assessed using both nonfinancial and financial measures. We then examine how the effect of alignments differs depending on industry types (i.e., scale intensive [SCIS], technology-based knowledge intensive [TKIS], and professional-based knowledge intensive service industries [PKIS]). Empirical evidence indicates that three alignment patterns (i.e., SCFS-IDS pattern, SDFS-CLS pattern, and CIFS-FS pattern) have synergistic effects on firm performance. Results also confirm that the effects of the alignments on firm performance differ according to the types of industry. The SCFS-IDS alignment performs well in the TKIS group, the SDFS-CLS alignment in the SCIS group, and the CIFS-FS alignment in the PKIS group. The implications for practice highlight the idea that successful service innovation requires judicious alignment between service innovation strategy and business strategy with the consideration of industries.