Service versus Manufacturing Innovation*

This article describes how service and manufacturing firms are different when it comes to innovation, based on a survey of firms in both sectors. Overall, four of the five hypotheses developed for comparative study of new offerings were supported by the analyses of 38 new products and 29 new services. First and foremost, there appear to be real differences between how manufacturing and services approach the innovation process, primarily because of the way organizations formalize development of new offerings in these two sectors. Manufacturing is more likely to report the need for new strategies and structures when products are new to the industry or new to the firm. However, services are more likely to convert novelty into success. Services are significantly more likely to have a short beta testing process and to exploit general manager (internally sourced) ideas for new offerings as an alternative to formal innovation structures. However, manufacturing and services exhibit a similar tendency to exploit customer (externally sourced) ideas for new offerings. The potential contribution of this study is to point the direction for future work in the nascent research stream of service innovation, highlighting areas where there appear to be fundamental differences between the innovation process in services and other sectors of the economy. Key differences appear to be the alternative ways services formalize the innovative process, the unique way services test customer concepts, and the combined role of general managers and professionals in the development process. These differences have managerial implications. Working closely with customers, service managers should proceed with their own unique approach to the innovative process, especially with respect to prototyping and beta testing. Senior managers in service organizations should participate in the ideation process for successful new service offerings, as part of their strategy‐making responsibilities.