The 1st International Conference on Information Science and Engineering (ICISE2009)

Research on Driving Forces Model and System Construction of Service Innovation

Based on Value Chain Theory
Zhang Jingmin1,2
1.School of Management, Jilin University Changchun, P.R.China 2.School of History and Tourism, Liaoning Normal University Dalian, P.R.China zjm1223@126.com

Lu Yanqiu
School of Management Jilin University Changchun, P.R.China

Wang Huijun
School of Management Jilin University Changchun, P.R.China

Abstract The rise and development of the service industry depend on the competitiveness of service enterprises, and service innovation is the source and power of the competitiveness of enterprises. In this paper, knowledge management theory is quoted to explain the formation of service innovation, and then it takes the value chain theory as a research perspective, through an analysis of the value chain of service enterprises, builds a service innovation system of service business, and finally takes a performance evaluation of service innovation. Keywords - value chain, service enterprises, service innovation, knowledge management, driven model, innovation system

service; in a narrow sense, it refers to the innovation behavior and activities occurred in the service sector[2]. B. The Features of Service Innovation First of all, service innovation has a rich variety of styles. Service Innovation not only depends on technological innovation but also performances through the innovation of organizational structure, management mode and awareness. Because of the hidden nature of these innovation channels and ways makes the effectiveness of service innovation difficult to measure. Secondly, service innovation has a complex process. Service Innovation is more than from the alternation and collision between the new and old experiences, and the response of departments and staff to customer needs, which is an integration process of experience, knowledge and wisdom. III. DRIVING FORCE MODEL OF SERVICE INNOVATION

I.

INTRODUCTION

Service industry has become the main source of social wealth. Currently economic development has changed from product-based economy to service-oriented economy, and such structural changes are brought about by the changes in the nature of knowledge. The traditional concepts deem that the service industry is one of the labor-intensive industries with low technological content and lacking innovation. But along with the rise of the knowledge economy and information technology, the traditional of value chain in service industry are being reconfigured, and the emerging service industries with knowledge-intensive and high-technology are considered the model of innovation industries[1]. Service innovation can not only reduce costs, improve efficiency, increase profitability, but also enhance the overall competitiveness of the service sector. II. THE CONCEPT AND FEATURES OF SERVICE INNOVATION

A. The Concept of Service Innovation Occurred areas of service innovation have three levels: the service sector, manufacturing, non-profit public service. Thus the concept of service innovation includes two levels of broad and narrow. In a broad sense, service innovation means all innovation behavior and activities related to or aimed at

Analyzing driving force of service innovation can help to summarize innovation model and innovative system and associate with the structure characteristics and the innovation path of service innovation system. The driving force of service innovation includes driving force within and outside the enterprise. The internal driving force includes enterprises strategies and management, staff, innovation sectors and R&D sector. The external driving force can be divided into two types: paths and Behavers. Path refers to the common things in certain sector. As an important external driving force, itll impose the impact of enterprise which innovate in the defined framework of path. Behavers refer to the external stakeholders, including customers, suppliers, competitors and the public sectors, which are important factors of stimulating service innovation[3]. The driven model for service innovation describes the various internal and external factors affect innovation activities in enterprises, which combine together to react on the innovation activities. Driving force model of service innovation presented as shown in figure1.

This paper is humanities and social sciences research project of Liaoning Education Department (project number: 2008362)

978-0-7695-3887-7/09/$26.00 2009 IEEE

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T e c h n o lo g ic a l tra je c to ry S ys te m tra je c to ry M anagem ent tra je c to ry P ro fe s s io n a l tra je c to ry S o c ie ty tra je c to ry

E xte r a l f a c to r s I n te r n a l fa c to r s S tra te g y a n d m an agem en t In n o v a tio n R&D S ta ff

C o m p e tito r C s to m e r S u p p lie r P u b lic S e to r

Figure 1. The driving force of service innovation source:Linlei,Wuguisheng.serviceinnovation[M],Tsinghua university press.

IV. TO BUILD SERVICE INNOVATION SYSTEM BASED ON THE THEORY OF VALUE CHAIN A. Analysis of Value Chain in Service Enterprises 1) Analysis of general value chain Value chain is a concept which Michael Porter put forward in his book "competitive advantage". He described the value chain as the process of converting raw materials into the final product, each segment is an integral part of value increase, and enterprises meet customer needs in order to enhance the competitive advantage by a series of value added processes[3]. 2) Service profit chain Based on Michael Porter's value chain theory, Heskett and other scholars have put forth the internal value chain specifically aimed at service enterprises, which is also called profit chain theory, which elaborated the relations among profits, customers, employees and business, proposed the links among profitability, customer loyalty, employee satisfaction and productivity. The internal logic is: the growth of turnover and profit comes from loyal customers, which is from customer satisfaction. Service value provided by the enterprises decides customer satisfaction, and high-quality service is from the higher employee satisfaction, which is determined by various aspects, including job design, work environment, incentive mechanism, the selection and training, service tools and technical support. The management model of service profit chain was shown in figure2.

3) Knowledge value chain Knowledge value chain roots in knowledge management theory, which refers to the process that organization absorb and store external knowledge as implicit knowledge, and then create explicit knowledge through spread. During the service enterprises knowledge value chain was based on the composition of the organizational structure, corporate culture, information technology as support platform, run through the financial sector, marketing, human resources and other departments, composed by knowledge input, knowledge diffusion, knowledge output and knowledge creation, which constitutes a closed cycle development knowledge value chain. In the knowledge value chain, through a series of activities new knowledge can be finally produced and made value chain value-added. Knowledge value chain was shown in figure3.
Knowledge innovation Knowledge input Organizational structure Finance department Knowledge activity Enterprise Culture Marketing department Knowledge output Information technology Human resources Competitive advantage

Figure 3. Knowledge Value Chain of Corporate

B. Innovation System Construction in Service Enterprises Based on Knowledge Value Chain 1) Analysis of knowledge value chain in service enterprises Knowledge input. Knowledge input is the upstream link of knowledge value chain. In this process through a variety of channels, enterprises obtain access to outside information, make explicit knowledge gradually collate into implicit knowledge of employees, and finally become the accumulation of staff experience. Knowledge activity. Knowledge activity is the intermediate links of knowledge value chain, which transform staff personal experience into explicit organization overall knowledge through knowledge sharing such as teamwork exchange, empowerment and organizational learning. In this process, explicit knowledge and implicit knowledge interact to form innovative service products and personalized service. Knowledge output. After the above activities, service companies have formed a stable organizational knowledge, and can translate the knowledge into standardized service products by means of Internet, information systems to bring economic benefits to enterprises. Knowledge innovation. Knowledge innovation is the downstream link of knowledge value chain. After the links of input, activities and output, knowledge formed

Staff Value of Customer Customer Internal Staff service satisfaction Retainning external satisfaction Loyalty service quality

Income Increase Profitability

W orkplace design Job design Staff selection and training Staff reward and recognition Customer service tool

Employee productivity

Improveme nt of Quality and productivity Highquality and low-cost

Design and deliver services to meet the needs of target customer

Retainning customers Repeat purchase Customer recommending

Figure 2. Service profit chain Source: (United States) James L. Heskett, W. Earl Sasser, and Niu Hai-peng, et al. Service Profit Chain [M]. Beijing: Huaxia Publishing House.

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customized personalized services through continuous accumulation, development and innovation. 2) Impact mechanism of knowledge value chain on service innovation From the above analysis we can see the service enterprises generate knowledge innovation after knowledge input, knowledge activity and knowledge output. Learning explicit knowledge of the service enterprise means to find out demands of customer and employee through internet, learn from the advanced enterprises, adjust the strategy and improve the organizational structure and management methods to achieve staff satisfaction, and then transform staff satisfaction into helpful activities through the sharing and transformation of internal knowledge, such as they are aware of the importance of their work, willing to provide high-quality service, and even innovate services products and optimize service processes. Knowledge output refers to show high quality and convenient service products to customers to gain customer satisfaction especially customer loyalty. The last link knowledge innovation means that customer loyalty brings stability of customer and have more customers and markets as a result of formation of great customer publicity and brand. To sum up, the process of knowledge input, knowledge activities, knowledge output and knowledge creation has led to a wide range of service innovation, and staff satisfaction, customer satisfaction, customer loyalty can be achieved. The impact mechanisms of knowledge value chain are as shown in figure4.
Knowledge input Strategic Consciousness Knowledge Innovation Innovation activity Management Quality Innovation Innovation Organizational Product Innovation Innovation Knowledge activity Knowledge activity Staff satisfaction Knowledge output Customer satisfaction Knowledge innovation Market Innovation

same region and same industry chain, they can improve the industry competitiveness through cluster. For the same type of business in different regions, they can improve service quality, increase products and form a influential brand by means of alliances and association.
Innovative system of service enterprise Industry Value Chain

Enterprise external

Enterprise internal

Cluster innovation

Trade organization innovation

Cluster Cluster Alliance Association internal external

Strategic onsciousness Market Innovation Innovation Management Quality Innovation Innovation Innovation Organizational Product Innovation Innovation Staff satisfaction Customer satisfaction Customer loyalty

Service Profit Chain

Figure 5. The services innovation system based on the value chain

b) Right strategy is the winning guarantee in competition, which originates in the understanding of internal and external resources. To internal resources, human, material and financial resources, and information is the four pillars of operations, in which the control of human resources is the foundation and key. The enterprises need innovation in management and organizational structure to train and select talents, at the same time they also need strategy innovation to guide the long-term development of business and employees. c) The enterprises satisfy employees through good internal service. In the circumstances, employees will initiatively receive innovation strategy, result in the sense of innovation, and actively improve service quality and rich product range to gain customer satisfaction, feedback, recommendation and repeat purchase, which can not only increase the profits of enterprises but help to expand and open up the market. d) The enterprises should keep people-oriented management thoughts, establish an internal service profit chain by using various forms of innovation to satisfy staffs and customers and further enhance the competitiveness, at the same time, enterprises need to take all various links into account, in a certain macroeconomic context, enhance the overall strength of industry through collaboration and collective efforts. V. THE PERFORMANCE EVALUATION OF SERVICE INNOVATION

Knowledge innovation Customer loyalty

Figure 4. The Mechanism of Knowledge Value Chain Influence Service Innovation

3) Innovation systems construction based on value chain theory From the above analysis we can learn that innovation is the necessary means to gain the competitive advantage. Service innovation not only depends on the concerted efforts of the various departments inside the enterprise, but also needs the support of upstream and downstream links and external macroenvironment. In this paper, construction of service innovation system is based on value chain of service enterprises as shown in figure 5. a) Among the three external resources of enterprises, policies, industries and markets, except that policy belongs to national macro-control factors, industries and markets can be controlled by the cluster and industry reorganization. For the enterprises located upstream and downstream links in the

A. Performance evaluation indicators of service innovation Studies have shown that service innovation brings the benefit on financial index, improving image, marketing, deversification etc. Service innovation performance appraisal can be divided to two aspects: the benefit for product and the

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benefit for enterprise. Performance evaluation index includes: 1)benefit for product: sales, market share on domestic and international, income, profit margins, return on investment. 2) benefit for enterprise: improving the profits of other products and enterprise image, enhancing customer loyalty, attracting new customers, developing new product and market to strengthen competitiveness. B. Service innovation ability evaluation Application of the DEA method Service innovation system based on value chain is a complex system made of various subsystems and with high input and output. The utilization of scientific method Data Envelopment Analysis (DEA) can well evaluate the performance of innovation system and analyze from the aspects of economy and management according to the evaluation results to put forward improvement measures[6]. DEA is a multi-indexed evaluation method to evaluate relative efficiency of each decision making unit (DMU) according to the input and output data of the same kind of DMU. This method makes the evaluation based on the analysis of initial decision data, and emphasizes integral optimal effect of the evaluation objects to provide lots of experience information for future decision. It also can evaluate comprehensively the relative efficiency of the same unit which has the characteristics of multi-index input and multi-index output. Assign the number of DMU n , X denote the input indicators,Ydenote output indicators, the number of input types of each DMU ismand output types number is s. xij0 and yrj0 are used to denote the i input and the routput of the j0th DMUjo. The production possibility set of model DEA is:
n T = ( x, y) | xj j x, j =1

efficiency of input and output in existing scale is valid or not, its denoted by j m ( j = 1, 2, ..., m ) .
j =1 n

1) If it exists

j j j

(j=1,2,,m) to make

j=1

m j

< 1 , then

the scale profit will get increment; 2) If it exists (j=1,2,m) to make

j =1
n

m j

> 1 , then
= 1 , then

the scale profit will get decrement; 3) If it exists (j=1,2,,m) to make

j=1

m j

y
j j =1

0, j 0, j =1,2,, n (1)

the scale profit will hold the line. 4) the scale profit will hold the line. If the scale merit is increment, should increase investment, If the scale merit is decrement, should reduce investment, If the scale merit is unchanged, output is constant. The evaluation procedure of DEA is as below: a) select input and output indexes; b) get sample data through investigation; c) process data and analyze evaluation result by means of DEA. As making the evaluation of service innovation system, in consideration of the procurability and quantifiability of data, the selected input indexes are: the cost proportion of R&D, the numbers of researchers, the cost proportion of marketing service and technical support, the numbers proportion of marketing staff, the coverage rate of marketing network. The output indexes are: the profit margin, return on investment ratio, the sales proportion of new products, the numbers of new products or proprietary products, the mumbers of new customers. It hasnt make the evaluation of qualitative indicators such as the innovation atmosphere, the sense of innovation, etc. ACKNOWLEDGMENT This paper is humanities and social sciences research project of Liaoning Education Department (project number: 2008362). REFERENCES
[1] [2] [3] [4] Shen Xinjian. Research on problem and suggestion of Chinese service ndustry. Marketplace modernization, pp.271.March,2009. Linlei,Wuguisheng.Service innovation.Tsinghua university press. pp.106.2007. Michael porter. Competitive advantage.Beijing: Hua xia press.pp. 65~70 1997. Zhang Shanqin. Enhance the competitive advantage of hotel through build knowledge value chain.Shan Dong normal university journal, June,2006. Ding Mingmin. Research on Evaluation of Self-innovation Capability of the Large or Medium-sized Enterprises in Shandong Based on Value Chain Theory.Shandong University. July,2007. Jeffrey .F. Rayport,John Sviokla Exploiting the Virtual Value Chain.Harvard Business Review, Sep, 1995:75-99. Sato,ryo,fukunaga.Management innovation for service through systems concepts.Systems research and bevioral science,vol 20,2008,pp19-34. Monica hu,meng-lei. Hospitality teams:knowledge sharing and service innovation performance. Tourism management .vol30 ,2009,pp41-50

Model DEA that fits of the production possibility set is also called Model C2R, which is a model evaluating total efficiency of DMU based on input. The Model C2R using Nonarchimedean Infinitesimal is as below.

- e T S - + e T S + M in n X j j + S - = X j0 j =1 n (2) Y j j - S + = Y j0 j =1 j 0, j= 1,2 n; S - 0, S+ 0 T e = (1,1 1 ) E , e T = (1,1 1 ) E m s Let be NonArchimedes Infinitesimal, and the optimal solution of the programming problem be , S-, S+ ,. While =1,S+=0,S-=0, DEA is valid. Scale merit refers to whether the

[5]

[6] [7] [8]

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