The Service Industries Journal

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Incremental innovation in services through

continuous improvement

David B. Audretsch , Clara Martnez-Fuentes & Manuela Pardo-del-Val

To cite this article: David B. Audretsch , Clara Martnez-Fuentes & Manuela Pardo-del-Val (2011)
Incremental innovation in services through continuous improvement, The Service Industries
Journal, 31:12, 1921-1930, DOI: 10.1080/02642069.2011.552977

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The Service Industries Journal
Vol. 31, No. 12, September 2011, 1921 1930

Incremental innovation in services through continuous improvement

David B. Audretscha,b,c, Clara Martnez-Fuentesd and Manuela Pardo-del-Vald
a
Institute of Development Strategies, Indiana University, SPEA Suite 201, 1315 East 10th Street,
Bloomington, IN 47405-1701, USA; bGraduate Studies and Research, King Saud University, Riyadh,
Saudi Arabia; cEconomics Group, WHU Otto Beisheim School of Management, Vallendar,
Germany; dFacultat dEconomia, Depto. Direccion de Empresas, Universitat de Valencia, Avda.
Los Naranjos, s/n, Valencia 46022, Spain
(Received 2 January 2011; final version received 4 January 2011)

Employees contribute to the process of innovation through engaging in continuous

improvement (CI) programmes such as individual suggestion systems or working
teams. This article reviews the main features of CI, and examines the results derived
from its implementation, what are the most common procedures and what problems
arise during operation of these programmes. The empirical analysis shows how a
high-tech service of a large public centenarian university faces the challenges of
innovation through CI and how its organizational design variables generate a barrier
to successful implementation.

Keywords: innovation; continuous improvement; suggestion systems; improvement

teams

Introduction
Developed economies rely on the service sector as the main provider of their gross national
product. The service industries are widely recognized as an essential factor for economic
progress. As the importance of services grows, the idea that they could be an arena for
innovation has slowly gained ground, so that services cannot be longer regarded as
secondary from the viewpoint of innovation.
At the same time, research into innovation has resulted in a new, broader perspective
about its nature. Most innovations that take place in a company are not drastic or radical.
Incremental and less tangible improvements are nowadays also considered innovations
(Fuglsang & Srensen, 2011; Pires, Sarkar, & Carvalho, 2008; Toivonen & Tuominen,
2009). While such broad concern is important for all kinds of innovations, it is essential
in the service context.
Continuous improvement (CI) programmes are a specific case for incremental inno-
vation (Bessant & Caffyn, 1997; Bessant & Francis, 1999), whose goal is to maintain and
improve competitiveness through the knowledge and commitment of employees (van
Dijk & van den Ende, 2002; Garcia-Lorenzo & Prado, 2003; Prado Prado, 1998;
Terziovski & Sohal, 2000; Wood, 2003). CI implies the participation of lower-level
company personnel (Bessant & Francis, 1999; Schroeder & Robinson, 1993; Terziovski
& Sohal, 2000), and the resulting incremental and sustained changes (Bessant & Francis,
1999) that improve performance measurement, without huge financial investments
(Bhuiyan & Bagehel, 2005; Fryer, Antony, & Douglas, 2007; Terziovski & Sohal, 2000).

Corresponding author. Email: manoli.pardo@uv.es

ISSN 0264-2069 print/ISSN 1743-9507 online

# 2011 Taylor & Francis
DOI: 10.1080/02642069.2011.552977
http://www.informaworld.com
1922 D.B. Audretsch et al.

Innovation in services differs from manufacturing due to several features (Toivonen &
Tuominen, 2009). First, often service innovations emerge in the process of service pro-
vision on the basis of clients needs, and are recognized as innovations only a posteriori.
Second, as services are simultaneously both products and processes, it is difficult to apply
the common classification into product, process and organizational innovations. Last, but
not least, the fuzzy nature of the output of services makes it much more difficult to realize
when a change has taken place. Maybe that is why service companies tend to speak more
about customer satisfaction, quality improvement, etc., instead of about service innovation
(Gallouj, 2002; Jun & Cai, 2010).
While the service sector grows in importance, the extent of research focusing on inno-
vation in services does not reflect this importance (Lee, Ribeiro, Olson, & Roig, 2007).
There is little empirical research where innovation in services is analysed (Pires et al.,
2008). Most papers dealing with CI in services focus on explaining CI programmes,
enablers and results, but we have few insights as to why CI does not always succeed.
The goal of this paper is to analyse a service that has been long trying to implement a
CI system and how it has been evolving over time. We examine why it took them a
long time to find their way and the relationship between their evolution and the variables
that define their business and even their organizational structure. To do so, we will start
with a theoretical review with the main features of CI, stressing its features and enablers,
and subsequently present our descriptive case study.

CI in the service sector

The Schumpeterian concept of innovation includes the introduction of a new product or
service, of a new method of production, the opening of a new market, or the change in
suppliers and business models that are perceived as new by the organization (Schumpeter,
1934). Although some authors express doubt about the validity of CI as an innovation,
since it presents no radical discontinuity (Davenport, 1993), Schumpeter also acknowl-
edged new combinations of existing things as the most general form of innovation.
Contemporary theories of service innovation share a broad view of innovation
(Toivonen & Tuominen, 2009), whereas incremental, non-radical and less tangible
improvements are nowadays counted among innovations. CI is a systematic management
approach that seeks to achieve ongoing incremental performance enhancements through a
gradual never-ending change process, focused on increasing the effectiveness and/or
efficiency of an organization to fulfil its objectives. As Bhuiyan and Bagehel (2005) note,
CI is based on a culture that involves organizational members working together to make
improvements with a low level of financial investment required. However, CI is not
strictly continual change, but the evaluation of outcomes of change to further take informed
actions to continuously improve overall performance (Jha, Noori, & Michela, 1996).
As soon as an organization decides to start with the CI philosophy, an evolutionary
process starts in which the CI systems and policies progress (Bessant, Caffyn, & Galla-
gher, 2001). Therefore, certain facilitators act in order to provide ongoing improved
tools, so that a CI capability develops. As Bessant (2003) states, CI evolves along five
levels until it is developed as an organizational capability. To maintain and extend this
capability, new routines are implemented, with a sort of correlation between the evolution
of the organizations activity and the one of the CI system (Bessant & Caffyn, 1997).
As the practice of CI develop, companies tend to shift from mechanical to more organic
structures (Lindberg & Berger, 1997), so that the implementation of CI presents a cyclical
evolution (Savolainen, 1999).
 The Service Industries Journal 1923

Lillrank, Shani and Lindberg (2001) describe five design dimensions for CI. The first
dimension is whether or not the activities are performed by individuals or by groups. The
second concerns the issue of whether groups are formed from a single function or from
different functions, and furthermore, from one hierarchy or multiple hierarchies. The
third design dimension is whether or not the CI organization is parallel or integrated in
the formal organization. Fourth, the CI organization can be a permanent improvement
organization or a continuously evolving vision pursued with various organizational set-
ups. Finally, there could be centralized or decentralized planning and control of CI. The
organizational form of CI depends primarily on the level of product process standardiz-
ation (Lillrank et al., 2001).
Regarding the first dimension, numerous forms of organizing and managing CI have
been in use. To obtain suggestions, there are generally two main kinds of possibilities.
On the one hand, companies can open a suggestions system, where individuals present
their ideas to be evaluated. On the other hand, there are systems to involve employees
in improvement teams, which receive different names according to their specific features
(quality circles, improvement teams, task forces, etc.).
Individual suggestion systems provide a procedure to collect and evaluate ideas pro-
vided by employees of the company and to reward them for their suggestions (van Dijk
& van den Ende, 2002). Normally, workers cast their suggestions through a suggestion
box (Schuring & Luijten, 2001), completing a paper or electronic form. Traditionally,
once the operator has submitted the idea he dissociates himself from the process and
responsibility is transferred to a committee charged with selecting the proposals, setting
a prize and defining the people or groups responsible for implementing them (Frese,
Teng, & Wijnen, 1999; Lloyd, 1999; Schuring & Luijten, 2001). Quick and sufficient feed-
back to employees that have submitted suggestions for improvement is seen as a necessary
component to motivate participation (Rapp & Eklund, 2002). It is often considered that
rewards for the suggestions implemented are also important for motivation, but they do
not need to be necessarily monetary rewards.
Improvement suggestions could also arise from the interaction of people forming
teams. Such improvement teams are formed by a small group of workers who meet reg-
ularly to identify, analyse and propose solutions to problems related to their work area.
Teams often have the autonomy to suggest proposals that are then evaluated by a commit-
tee of managers who decide which should be implemented. Usually the implementation of
the ideas is done by people in the team. The meetings are usually scheduled during
working hours and direct rewards for belonging to these groups are not offered.
However, suggestions are often rewarded based on their usefulness to the company.
These awards are given to the team to decide how to distribute or spend it (Barrick & Alex-
ander, 1987; Buch & Spangler, 1990; Griffin, 1988; Kerrin & Oliver, 2002; Lawler, 1991;
Rapp & Eklund, 2002; Sillince, Sykes, & Singh, 1996). Some programmes reward the
employees according to the money saved by the suggestion submitted, or with a smaller
symbolic sum for each suggestion. There are also CI programmes that reward the group
for the submission of a suggestion, in order to encourage teamwork. Where extra
rewards are offered, organizations have to decide about the type of reward (financial or
not), its size, the frequency with which rewards are provided, as well as the recipients
of them, namely collective or individual systems (Kerrin & Oliver, 2002).
With regard to the evolution of the CI programmes, Lawler and Mohrman (1987) have
found in their studies of QC circles that there are three different phases. First, a start-up or
honeymoon phase, where a small number of teams are formed. Next, the structure is spread
throughout the organization and thus the amount of teams grows accordingly. Finally, in
1924 D.B. Audretsch et al.

the third phase there is a backlash, which is explained due to resistance from middle man-
agers, failure to implement some of the ideas generated, non-productive groups, the extra
cost of operating the QC programme, and the failure of early ideas to produce the antici-
pated level of savings. Griffin (1988) found that after 48 months of participating in a
quality circle programme, participants felt that their efforts were no longer appreciated,
and that managers showed less interest in their recommendations and the groups function-
ing, Also, the initial and obvious problems had been solved, so they had trouble in finding
new problems to solve.
As to the results of both kind of systems, it is commonly agreed that the best results are
obtained when the improvements are suggested within teams, either through permanent
teams such as quality circles (Grutter, Field, & Faull, 2002; Kerrin & Oliver, 2002;
Rapp & Eklund, 2002; Sillince et al., 1996) or through multifunctional or selfregulated
working teams that add CI activities to their responsibilities (Kerrin & Oliver, 2002;
Rapp & Eklund, 2002). Regarding individual suggestion systems, they just obtain
similar results if they are exceptionally well managed (Rapp & Eklund, 2002).
However, it is not easy to find a formal evaluation system to test the results of a CI
system, mainly because the programme objectives are vague, or there is little support
for evaluation activity due to its costs or even to a lack of knowledge as to how to evaluate
(Greenbaum, Kaplan, & Metlay, 1988).
Even though there seems to be a high interest in CI, western organizations seem to
have a harder time succeeding in sustaining the CI programmes than organizations in
Japan. The beginnings of the initiatives seem often successful in the organizations, but
it becomes problematic to keep up the momentum in the long run (Brennan, 1991;
Griffin, 1988; Lawler & Mohrman, 1985, 1987).
Research about the implementation of CI programmes in organizations suggests a
number of enabling factors, such as the commitment of managers (Brennan, 1991;
Mohr & Mohr, 1983; Rapp & Eklund, 2002), rapid response (Lawler & Mohrman,
1985; Mohr & Mohr, 1983), voluntary employee participation and commitment (Rapp
& Eklund, 2002), training in both tools and techniques (Mohr & Mohr, 1983; Rapp &
Eklund, 2002), a basic ability to unfreeze exciting principles and the necessary resources
to invest in the resulting initiatives (Lillrank et al., 2001).
However, to sustain the development of the programmes over a longer period, some
extra concerns should be considered (Rapp & Eklund, 2002). The goals of the programme
should focus on strategic targets. Regarding their composition, teams should become
cross-functional and they should be trained in process orientation. For a long-term survival
of the programme, there should not be any conflicts between espoused and practiced
values, there should be post-project reviews, as well as other efforts that ensure that learn-
ing takes place. Finally, there should be a steering group, a strategic framework, and
regular reviews with re-launching techniques to get the programme firmly rooted into
the organization.
Although some authors highlight the rewarding system as an enabler of CI pro-
grammes, others do not consider it is that clear (Bessant, Burnell, Harding, & Webb,
1993). Toyoda (1988) and Imai (1986) state that, since the daily process improvement
is part of the employees tasks, it should be carried out without further reward.
Thus, there is generally a consensus concerning those factors that facilitate the
implementation of CI programmes, as well as enablers to guarantee the success of the
programmes in the long run. However, considerably less is known about why it takes
so long for the CI programmes to start, even with too slow advances that seem as a
failure. To discuss this issue, we will present the experience of a high technology
 The Service Industries Journal 1925

service that has been trying to implement a CI programme for almost 6 years with limited
results so far.

Empirical research
Methodology
Our empirical research consists of a descriptive case study of the Central Service for
Support of Experimental Research (SCSIE, according to its initials in its local Spanish
language). It is a public organization, heavily technological, that provides services to
different departments and laboratories at a public university. According to the taxonomy
of Soete and Miozzo (1989), where services are divided into three groups supplier-
dominated, production-intensive and science-based services, the SCSIE would be a
science-based one, since it has innovation activities of its own and uses and develops
new technologies.
Information for the case study was obtained from different sources. First, technical
information was gained through their public documentation. To get a better understanding
of the service, several visits were done, in which researchers had the chance to talk to some
employees, as well as browsing the software they used for their CI programme. Finally,
both the director and the quality manager were interviewed in depth through a semi-
structured questionnaire.

Description of the SCSIE

The SCSIE is a service offered by the University of Valencia and provides a number of
scientific and technical services to support experimental research in various areas of
research, health care and industry. Notable among them are the characterization and
analysis of raw materials, structural determination of organic and inorganic substances
and compounds, analysis of food products, transgenic material, among other services.
The SCSIE was created in the 1980s, reporting directly to the Vice Chancellor for
Research. It is divided into 14 sections: aquarium plant, animal production, atomic
spectroscopy, bioinformatics, cell culture, greenhouses, genomics, mass spectrometry,
electron microscopy, proteomics, environmental radioactivity, nuclear magnetic reson-
ance, X-rays, and glassblowing workshop.
Under the direction of a university professor who is elected every 4 years, about 40 people
work at the SCSIE, most of whom are officers and laboratory technicians with a high
technology training and capability to operate sophisticated machinery provided at the
service. The organizational structure is very flat, as the director acts as a coordinator of
laboratories, which are headed by a highly qualified technician primarily engaged in the
provision of services. As support staff, there are four administrative officers, dealing
mainly with accounting and administrative tasks. Since 2004, a quality department was
created and a technician involved in quality management began to assume this responsibility.

The CI programme at the SCSIE

Professor Celda, who served as the Director of the service, first considered the possibility
of initiating a certification process. Thus, in 2002, a first attempt to launch a CI programme
in one of the laboratories was initiated. Positive results were obtained, as a result of the
formalization and systematization of processes, which triggered the creation of a position
of a quality technician.
1926 D.B. Audretsch et al.

The process subsequently continued lab to lab. In each of them the different processes
are described and documented and indicators for each process are identified. At the same
time, the staff involved is being trained.
When this process started, the staff had a negative view of the system, they were reluc-
tant and mistrust and scepticism prevented them from their involvement in it. Once the
improvements achieved were observed, the involvement grew to the point that, once
established in up a laboratory, an official was named to maintain the system.
When the amount of papers began to be high, the system was computerized. To
improve quality management an intranet was generated where the head of the laboratory
introduced non-conformities and corrective and preventive actions. Proposals were
received using various non-formal means that later the head of each laboratory collected
in a program that allowed to reflect the proposal, together with the corresponding action
plan, monitoring and timing. The major drawback of this system was that some sugges-
tions were not made fully explicit, while often the list was being filled in with complaints
about the very poor performance of some tasks. In fact, analysing the number of sugges-
tion that have been reflected in the records, there has been low involvement of staff, who
also did not focus their proposals to a proper CI goal.
In parallel, from the quality unit it has always been considered that a major source of
information for CI should be the customer satisfaction surveys. In 2008, it set in motion
one of the improvements identified in the system, the unification of the database of
users/customers. In addition to its unification, a single annual questionnaire is developed,
which includes questions related to general data service and, in particular and separately,
data by section (each user can complete the questionnaire for all services with which it has
interacted).
Until then, laboratories were treated as individual companies, but for most people there
were no laboratories isolated but a global perception of the service. Thus, the surveys
showed the need to analyse the SCSIE as a whole, since there were many common processes.
In 2010, a Committee on Improvements was created through which actions have been
centralized. This Committee is composed of two technicians with knowledge and expertise
in quality issues and a computer, for a system-wide support. The management is not
involved. The Committee assesses the feasibility of the proposals and the financial
resources to develop them, while the decision on the implementation of the proposal is
taken by management.
Members of SCSIE are aware of the Committee on Improvements because they were
informed of its creation and operation and everyone knows the mechanism to communi-
cate their proposals. Each proposal is recorded with the date of entry. Since the proposal is
received, the answer is fairly immediate, one week, since the committee meets weekly,
considers the proposals received and answers if the proposal is accepted by the
management. From this moment, a new process improvement is launched: the report of
improvement action. This is a document that contains planning action once approved by
the management.
At the same time, this has lead to a further improvement in the system. SCSIE staff,
now fully involved in the improvement process, was not aware of the actual size of the
results of such improvements as the analysis of the improvements made by each laboratory
was annual, as well as the proposals that emerged after the surveys of users. With the
change of the system and the creation of the commission, improvements were displayed
throughout the year, as they are identified. The standard calls for recommendations for
improvement, and now you can indicate the actions that have come from the committee
itself.
 The Service Industries Journal 1927

To further improve the system, it is being documented more. Process and indicators
cards are being developed (delivery time, technical ratios). Almost all processes have
already related and quantified indicators. The cards are being made from quality and
reported by the laboratory responsible. The aim is that from now on, the competent
laboratories maintain them.
Thus, there is a coherent coordinated distribution of functions. The intranet addresses
the improvement of laboratories, while the improvement committee attends all SCSIE
service as a whole, overall.

Discussion
The first fact that catches the attention after analysing this case is that the involvement of
employees in the CI programme has never been extraordinary. Since its inception, when
distrust and passivity were the keynote, they finally succeeded transmitting the purpose of
improving the service perhaps by a sense of obligation rather than conviction, this was
possible because of the involvement of each laboratory technician. However, considering
the list of suggestions that were collected from 2004 to 2009, the small number of sugges-
tions is surprising, and their almost exclusive orientation toward confirmation of problems,
mistakes and daily difficulties to those were given only an answer in the form of actions to
be taken to avoid them in the future.
Comparing the theoretical enablers suggested to start CI programs with the circum-
stances under which this service is initiated, it is worth noting the lack of training given
to employees. In parallel, albeit from different directions, the programme has been sup-
ported, evidence of such support does not seem to have been considered by workers
who have not seen the program as a priority for management. This apparent contradiction
of a management interested in improving the service but not providing the explicit
support required, can be explained by the type of rotational direction that has this
service, in which a professor takes the lead during a relatively short period and probably
never has time of deepening in the essential functioning of the service.
Responding rapidly to the suggestions is one of the enablers that initially were not
present in the first system of CI. There was no estimated, recommended or given time
for a response and the suggestions analysis shows that the answers to some of them had
arrived late or were unanswered. This factor itself is corrected with the new improvement
committee, which is committed to respond to each proposal, maximum within a week.
The organizational structure of the service seems also an obstacle to a better evolution
of the CI program. Since we are in a very flat organization, there is no person who assumes
responsibility for the lab as a department head. Laboratory technicians play an employee
role, both from the point of view of the design of their job, as especially for the high-tech
skills they present and that leads them to worry about providing the technological service
the first instance, without any further business management concerns. It is also important
to note the low number of people in each laboratory, between two and five, being most
often two or three employees. This fact also reflects that the oldest employee takes over
the lab, because this position is not necessarily hierarchical but rather a matter of seniority
and thus greater awareness of the service.
Moreover, the quality department came mainly from the good will of one of the tech-
nicians who had to make a major effort to increase his preparedness in the areas of quality
management and business concerns. The service, with excellent provision of top techno-
logy equipment, had no resources to improve its management, so the quality technician
had to apply high doses of willingness to advance the implementation of a system of
1928 D.B. Audretsch et al.

CI. In fact, even the way in which the collection of suggestions is designed, in which only
the head of each laboratory can introduce them, limits the ability of other employees to
make contributions.
Finally, neither the mechanism of managing suggestions stimulated the programs
progress. While the cards should include a plan of action, a person in charge and dates
of execution, these areas were often empty and there was no monitoring of the proposals.
That resulted in a feeling of lack of interest by the very system of CI which undoubtedly
discourages employees to continue providing suggestions.
In short, after 5 years of operation of an individual suggestions system, progress in CI
has been limited and the quality control department is considering one step further with the
creation of an improvement team. It is evolving, as proposed by the theory, from an indi-
vidual system to the establishment of teams. At this point, it seems that the creation of this
team follows more closely the recommendations that the theory suggests. Its existence has
been widespread and the way to make suggestions to it, the action to be taken with a sug-
gestion has been carefully described and it has been established a short response time,
along with planning the implementation of the proposal, if considered viable.
A prominent feature of this newly formed committee is its composition. Although the
literature mentions the interest of multifunctional teams, the Improvement Committee
created a team of only three members, two of whom are laboratory technicians and the
third is mostly for operational issues (support needed with computer skills). Note that
the existence of a single position with hierarchical authority, the director, involves the
lack of managerial positions in the improvement committee.
It is still early to know the results of this new measure. As a recommendation, and fol-
lowing the theoretical postulates, team members should receive adequate training on tools
and techniques of CI. Also, the management should make an effort mostly to show its
unequivocal support to the initiative, engaging in the operation of the team and congratu-
lating them for the results as soon as they are known. While the public nature of the service
makes it infeasible to make monetary rewards, there should be some kind of non-monetary
rewards considered that emphasize the involvement of more active employees in CI.

Conclusions
CI as an incremental innovation is finely worked out from the point of view of its
implementation tools and enablers, both in starting the program as well as in maintaining
it in the long term. The case presented in this research allows us to identify that in a
high technology-based service, the involvement of (highly skilled) employees should be
fundamental to making improvements that involve innovation in service delivery. The
lack of training in quality improvement, the absence of middle managers and managers
who assume a hierarchical control, and the excessive professionalization of employees,
are impediments to the smooth operation of a CI process.
As limitations it should be noted that the recent implementation of the Improvement
Committee in the SCSIE impedes us to corroborate if the transition from individual
system to group involvement in the process of CI obtains better results for the organization.
Some of the ideas presented here, as the extension of the committee, the possible introduc-
tion of non-monetary rewards, or changes in the composition of the committee, are not
yet officially launched. We hope that these measures will improve the process of CI.
A promising line of future research would be to deepen in the relationship between
structure and strategy. A service company must focus its efforts on customer satisfaction
as a basis for its strategy. Innovation in processes, through CI, should be considered as a
 The Service Industries Journal 1929

fundamental strategic line. Thus, it is necessary to analyse the relationship between

organizational structure design and implementation of policies and systems of CI.

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