Interfirm co-development competency,
e-service innovation, and firm
performance
Hung Tai Tsou1 and Ja-Shen Chen2
1
[email protected]
[email protected]
Graduate School of Management, Yuan Ze University
135 Yuan-Tung Road, Nei-Li, Chung-li, 320, Taiwan
2
The effect of interorganizational collaboration and innovation practices for firm performance is
lasting paid much attention. The relationship between interfirm co-development and firm
performance requests intermedium through which interfirm co-development may influence firm
performance. However, there is limited academic investigation on how interfirm co-development
competency can create performance gains for firms through e-service innovation. This study
proposes that e-service innovation is a significant mediator through which interfirm co-development
competency influences firm performance. We also argue that partner and technology integration as
critical organizational changes that moderate the relationship between interfirm co-development
competency and e-service innovation. This study concludes that the interfirm co-development
competency should be managed and organized to enhance e-service innovation, in turn, to influence
firm performance. Furthermore, through our theorizing, we draw attention to significant roles of
partner match and IT integration as critical moderators in contemporary firms.
innovation (e-service innovation). Very few studies,
however, have been conducted focusing theoretical and
empirical study in e-service innovation. Therefore,
e-service innovation literature is almost non-existent, at
least when seen from an academic perspective.
Further,
innovation
practices
have
become
increasingly more challenging, driving managers to
employ a different open innovation model (Chesbrough,
2003, 2004) to stay competitive. At the heart of this
model is the recognition that open innovation springs
from sources external to the company (Chesbrough and
Schwartz, 2007), in combination with supplementary
internal company innovation activity. Currently, in the
special issues of the 2006 R&D Management discussing
the phenomenon of open innovation from different angles.
From these issues, the studies focusing on
“interorganizational collaboration behaviors” issued
1. Introduction
In response to globalization, rapid product life cycle,
operational excellence, and customer intimacy, service
innovations are central concerns in these fast changing
environments. Concurrent with the interest in service
innovation literature, there is a growing interest in
understanding how the technology context in which a
firm’s service innovation practices are embedded
influences their performance. Juxtaposing service
innovation with other findings (e.g., Chen and Tsou,
2007; Xu et al., 2005), we note that electronic application
(i.e., internet applications and wireless communications
applications) is an important part in innovation studies,
but missing from service innovation. While the IT facet is
significant, our focus is on the electronic context, which
highlights the significance placed on electronic service
1
within the open innovation environment are scarce.
Because innovation relies strongly on interaction,
coordination, cooperation, and integration among
functional areas (Sarin and Mahajan, 2001), we intend to
explore the phenomenon of open innovation from a
different perspective, especially for the issue of
“co-development”.
With regard to co-development research, as Deck and
Strom (2002) highlighted, they have identified a set of
co-development model has three levels: strategy (partner
selection and management), execution (teams and
processes), and infrastructure (IT tools). It implies that
companies now transfer their collaborate behavior to
these new co-development initiatives by developing and
selecting partner relationships, codifying the workflow
processes, and providing IT tools that facilitate
collaboration across the firms. In other words, companies
practiced in the art of co-development typically use a
three-level structure to manage the effort. However, Deck
and Storm did not show relationships among partner
selection, processes, and IT tools. Correspondingly, we
propose that peculiarity of the interorganizational
co-development model demands further investigation. As
suggested above, of all issues regarding collaboration
behaviors and service innovation practices, the present
study probes the relationship among interfirm
co-development competency, e-service innovation, and
firm performance. Hitherto, we lay the foundation for
research model development by defining the research
stream and taking a first step toward unification of
relevant literature.
2.1 e-Service innovation
We adopted from Järvinen and Lehtinen (2004) to define
e-service innovation in the following way: e-service
innovation is a new e-service or new e-service marketing
and/or production processes targeted to respond better to
the needs of customers and invented by using skills and
capabilities of service providers in a simultaneous
interaction through electronic network. Furthermore, by
using the typologies of service innovation (e.g.,
Schumpeter, 1934; Gadrey et al., 1995; Debackere et al.,
1998; Preissl, 1999; Avlonities et al., 2001; Lyytinen and
Rose, 2003; Djellal and Gallouj, 2001; Drejer, 2004) as
basis for classification, we even propose that product and
process innovation are crucial elements in service
innovations. Respectively, we classify e-service
innovation into two main typologies, namely e-service
product innovation and e-service process innovation.
2.2 Interfirm co-development competency
The literature directly related to the definition of
co-development competency is still scarce. Deck and
Strom’s co-development model identifies a set of
integrated practices that define the best co-development
model as having three levels. Drawing on related new
product development (NPD) literature, the research of
Appleyard (2003) investigated the downstream-upstream
cooperation (i.e., buyer-supplier co-development) to
describe co-development as the cooperative relationships
that two or more firms cooperate to either introduce new
products or improve the quality of existing products
lines. Furthermore, from the NPD alliances perspective
presented by Emden et al. (2006), new-generation NPD
practices—co-development alliances and clarifying
defined co-development alliances are nonequity-based
collaborative relationships enjoined by two or more firms
to create value by integrating and transforming disparate
pools of know-how related to new product or service
development.
Following these definitions, we propose that
co-development is two or more parties working together
to develop and release a new product, service, or
technology for mutual benefit. Accordingly, we develop
and test a new construct that is called “interfirm
co-development competency.” We define such a
competency as an organizational ability for finding,
developing, and managing collaboration. Therefore, in
this article, we conceptualize the construct of interfirm
co-development competency as a property of the
relationship among the organizational entities
participating in new products or services development.
Applied to research of interfirm NPD partnerships and
NPD alliances, we use the term “interfirm
co-development competency” to compose of three facets:
absorptive capacity, coordination capability, and
relational capability.
Absorptive capacity refers to the capability of firms to
assimilate, identify, transform, and make use of new
information or knowledge from the environment (Cohen
and Levinthal, 1990). Here, we focus on the interfirm
2. Literature review and propositions
Our research model based on Deck and Strom’s
co-development model, the terms of the two elements
(partner selection and IT tools) are modified as “partner
match” and “IT integration”, another element, processes,
is served specifically as “e-service innovation” that
investigates its relationship to the other elements. The
present paper focuses on interfirm co-development
competency, e-service innovation, firm performance, IT
integration, and partner match. We present the research
model in Figure 1.
Open innovation
environment
Partner match
Interfirm
codevelopment
competency
e-Service
innovation
Firm
performance
IT integration
Figure 1. Research model
2
level and propose that interfirm’s absorptive capacity
requires collaborative partners that have sufficient
knowledge or information to facilitate sharing and
learning and to provide something of worth. Coordination
capability refers to the ability of firms to synchronize
resources and tasks to create superior new ways of
performing collaboration activities (Ettlie and Pavlou,
2006). Relational capability refers to the ability of firms
to forge, develop, and govern partnerships (Dyer and
Singh, 1998). The essence of relational capability is the
integration of domain-specific expertise and tacit
knowledge with external partners. Therefore, firms with
larger and higher quality of relational capability are more
likely to have stronger relationship with their partners.
P1: Interfirm co-development competency has
positive effects on e-service product
innovation.
P2: Interfirm co-development competency has
positive effects on e-service process
innovation.
2.5 e-Service innovation and firm performance
As for the relationship between service product
innovation and firm performance, product improvements
and new products provide firms the momentum for
market leadership and sales growth (Iansiti, 1995). More
novel or radical product innovations can increase firm
performance (Marsili and Salter, 2005). Nowadays,
customer satisfaction is a more fundamental indicator of
the firm's performance (Anderson et al., 1994). Offering
new service products to fit customer needs would enable
firms to keep pace with the shifting desires of customers,
and help improve firm performance. Therefore, we
propose that the one possible determinant of the
performance of firm is simply implementation of service
product innovation.
Furthermore, as for service process innovation,
process innovation may increase operations effectiveness
and efficiency (e.g., Tushman and Nadler 1986). It
follows that firms that constantly innovate service
processes would excel at utilizing new marketing
techniques and enhancing customer satisfaction to fulfill
the constantly changing needs of their customers. In
addition, Davenport (1993) and Han et al. (1998)
reported that process innovations are positively related to
organizational performance. The other relevant evidences
(e.g., Cooper and Edgett, 1996; Roberts and Amit, 2003)
also further showed that the firm’s process innovation
activities
contribute
substantially
to
financial
performance. The above discussion means that the
greater implementation of process innovation results in a
higher level of expected firm performance. Thus, we
postulate that service process innovation would have
positive and significant effects on firm performance.
Despite this strong emphasis on innovation practices
(i.e., product innovation and process innovation) and
survival in industrial economics and management, few
attempts have been made to estimate the effect of the
ability of a firm to innovate service products and service
processes with electronic applications on firm
performance. Therefore, this study leads to our third and
fourth propositions:
2.4 Interfirm co-development competency and
e-service innovation
Interorganizational collaboration has been recognized as
important in supplementing the internal product
innovation activities of organizations (Deeds and
Rothaermel, 2003; Kalaignanam et al., 2007). Firms
possessing interorganizational collaborative relationship
can perform better in terms of the proportion of turnover
realized by means of new products (Faems et al., 2005).
Due to cooperative relationship between firms aimed at
innovation (Sarin and Mahajan, 2001) and the
development of new products (Chesbrough, 2003;
Lawton-Smith et al., 1991), manufacturers have
increasingly turned to partnerships with customers and
suppliers for the development of new products (Bstieler,
2006). These arguments address that interfirm
cooperation and collaboration issues are significantly
related to new products. Therefore, we propose that
collaboration between two firms means that both actively
contribute to the development of the service product
innovation. As for process innovation, firms may
improve their ability to engage in process innovation by
managing their relationships with suppliers and
customers (Kaufman et al., 2000). Thus, we propose that
new process design, new process technologies, and new
process rules often arise within an interorganizational
collaboration. At this point in the process, the
interorganizational collaboration is not only producing
new products, but also redesigning business processes
within the boundaries of the collaboration.
In sum, collaborative relationships are often designed
to produce some form of innovation (Gray, 1989), such
as product innovation and process innovation. However,
while there is an overwhelming amount of publications
on collaboration issues, they mainly focus on cooperation
between organizations in non-electronic product
innovation. Moreover, very little speaks to the outcome
of process innovation of interorganizational collaborative
efforts. Thus, we propose that interfirm collaboration,
especially for interfirm co-development in e-service
product innovation and e-service process innovation, has
received only scarce attention. Accordingly, the
following propositions are offered:
P3: e-service product innovation has positive
effects on firm performance.
P4: e-service process innovation has positive
effects on firm performance.
2.6 Moderating role of IT integration
IT integration can be defined as the degree to which a
focal firm has established IT capabilities for the data
consistency and high-velocity transfer of cross-functional
3
information within and across its boundaries (Rai et al.,
2006; Ward and Zhou, 2006). From an innovation
perspective, Stock and Tatikonda (2004) highlighted the
importance of technology integration as a key activity in
processes of product development, process development,
and operational improvement. They argued that
management of technology integration leads to successful
product and process innovation. Furthermore, Zhu et al.
(2006) developed an integrative model to examine
technological contexts as one of prominent antecedents
of assimilation processes of e-business innovations. From
their empirical analysis findings, it shows that
technologies integration is the strongest factor influence
on e-business innovation assimilation at the firm level. In
addition, since most companies have operational data in
different types or in a variety of places, in order to
optimize new collaborative business models, IT must
integrate (Andriole, 2006). Therefore, from our
perspective, an integrated IT could enhance consistent
and real-time transfer of information between
innovation-related practices and functions that are
distributed across partners. Summarizing these arguments,
the following propositions are offered:
P7: Partner match has a positive moderating effect
between interfirm co-development competency
and e-service product innovation.
P8: Partner match has a positive moderating effect
between interfirm co-development competency
and e-service process innovation.
3. Discussion and conclusions
This study provides insights for understanding some
significant research contributions and managerial
implications. First, this study contributes to the service
innovation literature by introducing e-service innovation
as a critical mediator between interfirm co-development
competency and performance of firms. By introducing
the e-service innovation construct, this study uncovers
that the components are mainly in e-service product
innovation and e-service process innovation. This study
also improves our understanding that electronic
innovation is a new business model and a new way of
producing, delivering, or distributing existing or new
products or services to existing or new customer
segments. Secondly, this study contributes to the
literature on interorganizational collaboration by adapting
the interfirm NPD partnerships from Ettlie and Pavlou
and NPD alliances from Sivadas and Dwyer, developing
theoretical dimension of an interfirm co-development
competency, and explaining how such a competency
enables e-service innovation of firms. This study
articulates that an interfirm co-development competency
is comprised of three dimensions: absorptive capacity,
coordination capability, and relational capability.
Thirdly, we provided an organization-wide perspective
about e-service innovation that is valid for the enterprise
and business unit. Our research highlights an integrated
perspective to link interfirm co-development competency,
e-service innovation, IT integration, partner match, firm
performance, and open innovation environment. In
addition, we proposed that interfirm co-development
competency is important because it visualizes how firms
continually develop their capabilities and focus on their
firms’ resources to shape their e-service innovation.
Furthermore, e-service innovation captures the
interactions among technology, partners, organization,
and open innovation environment in shaping superior
firm performance. Attention to these dimensions of
e-service innovation in our model will be important for
researchers
and
practitioners.
Finally,
our
conceptualizations illustrate the complementarity among
technology, inter-organization, and partners in open
innovation environment. Our research model suggests
that gaining interfirm co-development competency will
require attention to absorptive capacity, coordination
capability, and relational capability. In addition,
researchers should examine the nature of organization
designs, interfirm governance structures, necessary
resources, partnerships, and IT infrastructure that will
foster such e-service innovation described in our model.
Therefore, we hope to extend this comprehensive agenda
by proposing that an important direction for service
P5: An integrated IT has a positive moderating
effect between interfirm co-development
competency and e-service product innovation.
P6: An integrated IT has a positive moderating
effect between interfirm co-development
competency and e-service process innovation.
2.7 Moderating role of partner match
Partner match suggests the chosen partners have similar
management style and company culture, as well as
organizational compatibility and prior history of business
relations (Bucklin and Sengupta, 1993). The level match
of the partners is proposed to moderate the relationship
between interfirm co-development competency and
e-service innovation. From the present literature, it is
clear that organizations can improve their innovative
capabilities
by
developing
interorganizational
collaborations with a variety of partners. Because
partners with compatibility in cultures, management
practices, goals, and objectives that have had comfortable
prior collaboration relationships tend to have effective
communication and exchange of knowledge/information,
they also tend to improve innovation practices. For
example, Lane and Lubatkin (1998) argued that greater
similarity in organizational properties and knowledge
bases between pharmaceutical and biotech companies
enhanced alliance success. The expectation is that, if
there is a need for effective innovation practices, firms
are often required to choose an appropriate and suitable
partner. Therefore, a high level of partner match between
the firms will be more effective in innovation practices
than low level of partner match between the firms.
Summarizing these arguments, the following propositions
are offered:
4
innovation research lies in adopting an electronic
perspective. This is fundamental to future interfirm
co-development competency and e-service innovation
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