Organizations must run fast to keep up with changes taking place all around them. They must modify themselves all the time. Change, rather than stability, is the norm today. Every business is affected by a number of powerful environmental forces such as; technological advances, environmental changes, evolving society and customer desires, and maturation of market, which drive the need to change in today's globalized economy. All of these enviromental forces have created opportunities and threats. Every organization strives to take advantage of opportunities and manage the threats which have arisen during the change process (Daft, 2001).

Organizations, to be considered innovative, need to implement technologically new products and processes, or need to make significant technological improvements in existing products and processes. Organizations generate and apply the appropriate knowledge required for producing something new and improving the existing product or process, simply known as “knowledge creation” (Atmaca, 2006). The rate of innovation and technical change is important to an economy's rate of growth. Differences in knowledge creation, diffusion, and use have implications for international competiveness, standards of living, and quality of life (Feldman and Massard, 2002).

To remain competitive, established firms must continually seek out opportunities for growth and new methods for strategically renewing their performance. Changes in customer needs, new technologies, and shifts in the competitive landscape require that companies continually innovate and initiate corporate ventures in order to compete effectively (Dess, Lumpkin and Eisner, 2008).

The discussion begins with defining the innovation concept focusing on different literatures from professional writers. Innovations can take many forms, including radical breakthrough innovations as well as incremantal innovative improvements, and today's researchers are strongly emphasizing that innovation is one of the most valuable differentiator for sustainable competitive advantage. The concept of innovation is compared to the concept of invention and creativity as they are confused and interchangeably used. Later, the discussion concentrates on the importance of innovation in identifying opportunities and threats coming with change; which are followed by suggestions how to become successful innovators to overcome these threats.

The discussion continues by identifying the four types of changes an organization undergoes to achieve advantage in the international environment. These changes can be used to update the products or the services, the technology, the existing strategy and structure, and culture in the organization. Then, focus will be on how organizations can build innovation by applying key elements that create a truly innovative and entrepreneurial one. The next chapter identifies some successful global innovators that have delivered novel benefits to their customers.

This thesis reviews the innovation concept and the forms it takes to achieve competitive edge in the market. It identifies the benefits driving from innovation, explains why people and organizations resist change and identifies the appropriate steps to overcome barriers resisting it. It explains the role management has during innovation and the key elements to create an innovative organization. It concludes by explaining why healthcare sector is different and identifies the best practiced innovations in healthcare sector.

The later chapter concentrates on how innovation evolves in the service sector. The biggest industries for R&D spending for 2009 are identified. The important features of services sector; the concept of service innovation and its four dimensions are compared to the service product concept. To conclude, some suggestions how management in service companies can achieve effective innovation are given.

The last chapter concentrates on the healthcare sector. It focuses on the main and best practised innovations in the healthare sector, as healthcare is a part of the service sector. The reasons that make the healthcare sector different from others are underlined. Big structure, complex size, and different government policies are some of the reasons. To sum up, best practised processes and services which are applied by present healthcare service providers are identified.



1.1Defining Innovation

According to King (2009) innovation is doing things in new ways in order to achieve significant results and make a huge difference in performance compared to others. Innovation's goal is to have a positive change, to make someone or something better. Testing and evaluation of ideas is critical in achieving this goal. The ideas that do not work are identified through testing. Failure is an integral part of the innovation process. Failing means collecting data and evidence about the changes that organizations want to undergo. This view is supported by Mulgan and Albury (2003) who define innovation as new ideas that work and a successful innovation can be achieved through the creation and implementation of new processes, products, services and methods of delivery which will result in significant improvements in the profitability and enhance the growth of an enterprise.

Innovation is a special case of planned change and learning that either transforms current products, services, and markets, or creates an entirely new market by introducing a radically new product or service. An organization is considered innovative if it stirs up the marketplace, by creating competitive pressures and new opportunities. It has been recognized that innovation success in an established organization requires balancing the stabilized efficiency of the current market offerings and building new capabilities to create and develop offerings for unknown markets (Bloisi, Cook and Hunsaker, 2003).

The changes used to adapt the environment can be evaluated according to the scope and to the extent to which changes are incremental or radical for the organization. Incremental changes maintain the general equilibrium of the organization through a series of continual progressions and affect only one part in organization. On the contrast, radical changes, transform the entire organization. Incremental changes include technology improvements, such as the introduction of computer-integrated manufacturing or product improvements in the established structure and management processes. In radical changes, the technology is likely to be breakthrough, and new products created will establish new markets (Daft, 2001).

Importance of innovation seems to be the most talked management issue these days. Knowledge plays a crucial role in the economic processes because within the knowledge-based economy, innovation plays a central role and stands at the heart of economic change. Firms innovate to defend their competitive position as well as to achieve competitive advantage. Organizations possessing more knowledge outperform those with less. It was believed that an enterprise can maintain competitive advantage through quality and price. While today's different researches have revealed that innovation is one of the most valuable differentiator for sustainable competitive advantage (Tyagi, 2008).

1.1.1 Invention

Tyagi (2008) has made a distinction between invention and innovation. Invention is discovering of things never existed before while innovation is discovering how to introduce and commercialize new products, processes and new ways of adding customer value through innovative business models and management systems. This point of view is supported by King (2009) who defines invention as the generation of new ideas which have the potential to make someone or something better. New ideas can drawn from scanning other industries, by having conversations and meetings, or accessing information which is not usual in your business. All innovation's starting point is invention of creative ideas. The distinction between them is; invention is having an idea about a service, product, technology or device, while innovation is the successfull application of those ideas.

Another author who has discussed about the difference existing among invention and creativity is Sloane (2010). Invention is the creation of a product, device or method that has never been made and existed before. So, every invention is an innovation. But every innovation is not an invention. When a company first publishes its website this is a major innovation for the company even though many other websites may already exist.

1.1.2 Creativity

Creativity is defined as the process of thinking and generating new things, new concepts, and new ideas. Converting these thoughts into tangible things, bringing these ideas to life is innovation. Creativity is like dreaming up new things and innovation is making those dreams come true. Expressed in other words, creativity is the capability of conceiving something unusual or original while innovation is the implementation of those unusual or original things (Difference Between, n.d.).

1.2 Benefits and Barriers of Innovation

In the last years change has occured incrementally and infrequently. A globalized economy is creating both opportunities and hazards to everyone. Firms are forced to make dramatic improvements not only to compete and prosper but also to survive. People who have been through difficult, and not successful change efforts end up drawing pesimistic and angry conclusions. They become suspicious of the motives of those pushing for transformation (Kotter, 1996).

This section will focus on the discussion of benefits and barriers that come with innovation. The advantages supporting a strong leadership and the factors causing resistance toward change will be identified. In addition, this section will also explain some methods that managers can use to implement change successfully within the organization.

1.2.1 Benefits of Innovation

Bhatt (2007) states the reasons that make companies innovate, those are listed below:

  • To advance in technology.
  • To change the environment.
  • The evolving of the society.
  • The evolving of the customer desires.
  • Competitors improve their products and services.
  • Customers stop buying your old products so you need to replace them and add new products.

Innovation opportunities can arise due to environmental changes in technology, science, and data analysis. Environmental changes may result in creation of new customer needs or may enable the organization to develop better solutions to current customer needs. Service or product innovations have to fulfill four benefit aspects listed below:

  • Unique. The target group should perceive the new benefits generated from the new service or product as unique.
  • Important. The customers should perceive the new benefits as important.
  • Sustainable. The new benefits should be protected against followers by measures such as patents, time to market and brand management.
  • Marketable. The organization should have the resources, capabilities and competencies to market the product which also includes an effective and ready to market version of the product (Anon., 2008).

Stark (n.d.) has identified the benefits of good innovation, those are listed below:

  • First to market.
  • Premium prices.
  • Best customers.
  • Large market share.
  • Increased shareholder return.
  • Increased employee motivation and morale.

1.2.2 Barriers to Innovation

Beer and Nohria (2000) state that one research team concluded that ‘The brutal fact is that about 70 per cent of all change initiatives fail'. These researchers conclude that there are two primary reasons why organizations undergo change: one is based on ‘hard' economic value (e.g. financial return to shareholders); the other is based ‘soft' organizational capabilities. The organizational approach develops corporate culture, human capabilities, feedback, measurements and reflections on evolutionary progress.

Both people and organizations frequently resist change, even if it is in their best interests, especially in large and established organizations. Bloisi, Cook and Hunsaker (2003) suggest five main reasons why individuals resist change:

  1. Selective perception. People sometimes perceive the same thing differently. When changes are initiated, individuals tend to focus on how they will be personally affected rather than seeing the big picture for the entire organization.
  2. Lack of information.People will resist change if they are not informed about what is expected from them or what benefits change will bring. If the reasons for change are not clearly presented, people tend to fill in the missing pieces with speculation, which often assumes the worst in terms of initiator intentions and personal impact. In addition, if people do not have enough information about how to change, they may fear making mistakes, so they will not try.
  3. Fear of the unknown. Individuals resist change when they are uncertain about how it will affect their well-being. They fear downsizing, uncertainties about not knowing how to change, not being able to perform as well as before the change, losing position, income, and status or power.
  4. Habit. Many people prefer familiar actions and events, even if they are not optimal. Breaking a habit is difficult because it takes hard work and involves giving up perceived benefits from the habit, even if the new behavior has more desirable consequences.
  5. Resentment toward the initiator.If a change seems arbitrary or unreasonable, resentment and anger are directed towards those initiating the change. People resent being controlled and losing autonomy over their works and lives, when their thoughts and feelings are not considered by change initiators. Finally, without trust in the initiator's inventions, people may resist the change out of resentment or fear of possible unknown consequences.

Bloisi, Cook and Hunsaker (2003) state that organizations resist change for many of the same reasons individuals do. There are also many forces inside an organization that create resistance to changes initiated by environmental conditions. Some of the main ones are summarized below:

  1. Power Maintenance. Changes in decision-making authority and control of resource allocations threaten the balance of power in organizations. Units benefiting from the change will welcome it, but those losing power will resist it.
  2. Structural stability. Organizations create hierarchies, subgroups, rules and procedures to promote order, consistent and predicable behaviors. People who ‘fit' these desired behavioral criteria are hired and shaped to confirm further through the socialization process and organizational conditioning.
  3. Functional sub-optimization.Differences in functional orientation, goals and resource dependencies can cause changes that are seen as beneficial to one functional unit and as threatening to another. Functional units usually think of themselves first when evaluating potential changes and support those that enhance their own welfare, but resist the one that reduce it.
  4. Organizational culture. Organizational culture promotes predicable ways of thinking and behaving. Organizational members will resist changes that force them to abandon established assumptions and approved ways of doing things.
  5. Group norms. Groups develop their own norms to promote desirable behaviors. Many members conform these norms. Consequently, any change that disrupts group norms, tasks or role relationships will probably be resisted.

Strategos conducted a survey of innovation practices of more than 550 large companies, where majority of respondents in every industry rated innovation as critical and said that the importance of innovation would grow in the future. According to Loewe and Dominiquini (2006) the top six obstacles to innovation identified by respondents across industries are:

  • Short-term focus.
  • Lack of time, resources or staff.
  • Leadership expects payoff sooner than is realistic.
  • Management incentives do not reward innovation.
  • Lack of a systematic innovation process.
  • Belief that innovation is inherently risky.

Below is a list of suggestions how to become successful innovators about overcoming the barriers to innovation:

  1. Have a vision for change. Innovation has to have a purpose, a statement which defines the direction for the business and which people will readily understand and remember. Your team needs to know the direction they are headed in order to be innovative. Illustrate the goals and explain to people how their role is decisive in meeting the goals to fulfill the organizational vision.
  2. Fight the fear of change. Innovative leaders constantly explain the need for change. They must paint a picture that shows an attractive future that is worth taking risks to achieve.
  3. Have a dynamic suggestions scheme. Great suggestion schemes are focused and open to all. Leaders do not need to offer huge rewards. Sometimes, recognition and response are generally more important.
  4. Break the rules. To achieve radical innovation leaders need to challenge all the assumptions related to how things should look in your environment. Business is like Art, with no well-defined rules and referees. Innovation is filled with opportunities for people who can take advantage in creating new ways to provide the goods and services that customers want.
  5. Give everyone two jobs. Ask your people to run their current jobs in the most effective way possible and at the same time to find completely new ways to do the job. Encourage them to identify the purpose of their role, the outcomes delivered through this role and if there is a better way to deliver that purpose.
  6. Collaborate. CEOs must see collaboration as key to their success during innovation. Success can not only be achieved by using internal resources, but also by looking outside of the organization for people to partner with.
  7. Welcome failure. The innovative leader encourages a culture where people feel free to innovate and experiment. Innovative leaders tell people that each unsuccessful attempt is a step along the road to success. When innovative leaders welcome innovation and create a culture of experimentation, means that they except failure and welcome it.
  8. Build prototypes. Innovative leaders are suggested to try the new ideas at low cost by building prototypes and see what the customer reaction is. You will learn more in the real world than you will in the test laboratories.
  9. Be passionate. Leaders must concentrate on the things they want to change, on the challenges they want to face and be passionate about overcoming them. Organizations need passionate supporters, who are inspired to innovate and change the way they do things to come up with extraordinary results. Be passionate about what you believe, communicate that passion every time you speak and explain why reaching the destination is really worthwhile (ArticleSnatch, n.d.).

1.3 Types of Innovation

There exist four types of changes to achieve strategic edge within an organization. Managers can use these four types of changes to achieve competitive advantage in the international environment. Each company can have maximum impact upon the chosen market through its own unique configuration of technology, product and services, strategy and structure, and culture as explained below (Daft, 2001).

1.3.1 Technological Innovation

Technological innovations refer to changes in an organization's production process to enable distinctive competence. Changes in an organization's production process, including its knowledge and skills base, are designed to produce greater in volume or to have a more efficient production. Changes in technology involve the work methods, equipment, and work flow techniques for making products or services. For example, in a university, technology changes are about changes in methods for teaching the courses. Tyagi (2008) suggests that traditionally innovation has been associated with the use of technological knowledge, and research and development activities. A technological innovation is any innovation due to an industrial application of scientific knowledge.

Dess, Lumpkin and Eisner (2008) suggest that innovation involves the usage of new knowledge to transform organizational processes or create commercially viable products and services. The latest technology, results of experiments, creative insights, or competitive information may be the sources of new knowledge. However it comes about, innovation occurs when new combinations of ideas and information bring about positive change. Among the most important sources of new ideas is new technology. Technology creates new possibilities and provides the raw material that firms use to make innovative new products and services. But technology is not the only source of innovation. There can be innovations in human resources, firm infrastructure, marketing, service, or in many other value-adding areas that have little to do with anything “high-tech.”

1.3.2 Product and Service Innovation

Product and service innovations refer to the product or service outputs of an organization. New products may be in the form of entirely new product lines or small adaptions of existing products. New products are designed to develop new markets, or customers, or to increase the market share. Tyagi (2008) states that product innovation is about the introduction of new goods and services which have improvements in terms of design excellence, core characteristics, technical specifications etc. and are derived from customer or industry insight, or strategic alignment of the organization.

Godin (2005) suggests that the old rule was to create safe and ordinary products that were combined with great marketing. The new rule is to create remarkable products and figure out a great theory by looking at what's working in the real world and what the various successes have in common. Identify what the successful companies have in common and do something to be remarkable.

Roberts (2002) has made a distinction when discussing if innovation is between product/service innovation and process innovation. Product/Service innovation refers to efforts to develop new products or services for end users. Product/Service innovations tend to be more radical and are more common during the earlier stages of an industry's life cycle. As an industry matures, there are fewer opportunities for newness, so the innovations tend to be more incremental. Process innovation, by contrast, is associated with improving the efficiency of an organizational process, especially manufacturing systems and operations. Process innovations occur in the later stages of an industry's life cycle as companies seek ways to remain viable in markets where demand has flattened out and competition is more intensive. As a result, process innovations are often associated with overall cost leader strategies because the aim of many process improvements is to lower the cost of operations.

There are several problems with seeking competitive advantage through investments in process technology. Firstly, the people who sell you robots or point-of-sale terminals, software to analyze production or service delivery will sell the robots, terminals, and software to your competitors. Your ability to obtain the benefits of this technology depends on your ability to implement it more rapidly and more effectively. Secondly, investment in specialized technology is not a substitute for skill in managing the work force. This is because more skills may be required to operate the more sophisticated and advanced equipments. Having a higher level of investment per employee will result in increasingly expensive interruptions in the process which means that the ability to operate, maintain, and repair equipment effectively becomes even more critical (Pfeffer, 1996).

1.3.3 Strategy and Structural Innovation

Strategy and structural innovation refers to the administrative section in an organization. It is related to the management and supervision in the organization, including changes in an organization's strategic management and structure, policies, accounting and budgeting systems, reward systems, labor relations, coordination devices, management information and control systems. Strategy and structure changes in an organization are mandated by top management. They usually have a top-down structure. An example may be if the corporate goes downsizing. On the other hand, product and technology changes may come from the bottom up.

1.3.4 Cultural Innovation

Cultural innovation refers to changes that may occur in an employee's attitudes, beliefs, values, expectations, abilities, and behavior. Culture innovation tends to change the way employees think. These are changes in mindset rather than the technology, structure, or products and services.

Culture can be a powerful force undermining or shoring up the effectiveness of a nation, a business, and a manager. Recognizing the presence and power of culture will help in better navigating through the rough seas of international business. Discovering how to harness the power of culture in an organization will help the organization gain competitive advantage (Schneider and Barsoux, 2003).

To conclude, it can be said that successful innovation in an organization occurs when technological and product or process innovations in the value chain are implemented through effective strategy and structure innovation. Innovation in an organization, which includes people, leadership, creativity, process and organizational culture, is the driver to grow, to achieve high profits and to succeed in the market. Innovation in an organization should be approached in a systematic way and not a piecemeal manner and should be initiated even at the lowest levels (Tyagi, 2008).

1.4 Leadership in Practice of Innovation

Many organizations are resistant to changes and continue operating the way they had been operating in the past. To remain competitive, they work harder, improve efficiency, reduce cost and implement best practices. But, this is not enough. Instead of getting stuck in their standard mode of operations, organizations need to adopt innovative ways to change the strategies. The best way to create a competitive edge and be in the head of the competition is to innovate by drawing advantage from the creative power of your people. Turn your greatest assets into opportunistic entrepreneurs who discover new ways and improve the way they do business. Management innovation involves total transformation of existing culture to enhance organizational performance in an integrated manner involving technological innovation, product and service innovation, and strategy and structural innovation (Tyagi, 2008).

Sloane (2003) suggests that every organization needs to have a vision, a culture and a process of innovation to build a truly innovative environment. There are eight key elements that create a truly innovative and entrepreneurial organization as below:

  1. Painting the vision. The first step is to paint a desirable, challenging and believable vision. Innovative leaders must be sure that people share a common goal and embarke on a journey all together. Being all together means they accept easier the changes, all the challenges and difficulties that show up during the journey. Innovative leaders should delegate more responsibility, and empower the staff with control over their work. Once staff is aware of the goal and direction headed, they contribute the best creative ways to solve challenges and obstacles that lie ahead.
  2. Build an open and questioning culture. The painted picture quickly fades away from view, so great leaders should take time to meet staff and illustrate the goals to be achieved and the challenges to overcome. Leaders inspire the staff to become entrepreneurs finding innovative routes to success and constantly remind them how their role is decisive in fulfilling the vision and meeting the challenges.
  3. Empowering. The purpose of empowering your people is to turn them into entrepreneurs looking for new opportunities. By empowering, leaders enable them to develop the skills for the task and achieve the change through their own efforts to come up with radical innovations. People need freedom to succeed and need to understand and agree on what management expects of them. People and management must agree on the scope of freedom and responsibility. Empowering means trusting your people, supporting and believing that they will achieve great things.
  4. Set goals, deadlines and measurements for innovation. Change is uncomfortable, resulting in anxiously people fearing an embarrassing or costly failure. Leaders should spend time with people encouraging them to undertake risks and come out from their safety zones. Leaders should reassure them that risks are necessary and worth taking and no one will be punished if their initiatives do not succeed.
  5. Use creativity techniques to generate a large number of ideas. Innovative leaders should build a culture where everyone can come up with creative solutions and crazy ideas through techniques, methods, and workshops. The goal is to change the people within the organization; from people who do routine jobs into highly energized entrepreneurs who constantly search for new and better ways of making the vision a reality. People need to be trained to learn the skills and to develop the confidence to try new methods, and use creative techniques to come up with new solutions.
  6. Review, filter and select ideas. In the innovation process many ideas are generated in response to a given issue or challenge. At the end, the most promising idea is selected.
  7. Prototype the promising proposals. After the idea is selected, then the move is to rapidly prototype it.
  8. Analyze the results and the successful projects. New product is tested for its feasibility, attractiveness and payback. Those that pass these criteria are given more funding.

King (2009) suggests that the most effective, efficient and leading edge organizations are those that innovate and encourage innovation. Innovative organizations require a strong leadership team to approve the importance of innovation and create a culture for it. A development of strong capabilities for innovation leadership need to be started early in the career development process. In an innovative culture, the staff is given freedom to innovate and experiment. In an innovative culture, risks are managed and the organization understands and accepts that future success is built on a series of learning from unsuccessful attempts. Collaboration with outside parties to generate and adopt innovations is encouraged. Success will depend on strong leadership. We can take learning from market leaders to help us identify key leadership behaviors to promote innovation as explained below:

- Lead continuous innovation and improvement. Develop and communicate an encouraging story.

- Encourage partnerships and collaboration. Staff should be exposed to new viewpoints and ideas that can be adapted in the organization. To do this, the organization should create partnerships and collaboration with different parts within or outside the organization.

- Promote innovation. Organization should consider innovation as a core part of its role, and time is allocated for its employees to innovate. Different organizations have created bespoke labs or prototyping space that staff can use to develop and undertake early testing of ideas.

- Recognize and promote the success of adopters and diffusers of innovation. Commissioners and providers are encouraged to reflect various forms of innovation in their commissioning schemes - which may include goals on putting new inventions into practice, adopting changes already proven elsewhere, or spreading proven changes within an organization or to other providers.

- Reward innovative thinking. Innovation must be viewed as part of a deliberate process. Management should recognize that innovation can happen at all levels in an organization and staff who seek new and better ways of doing things should be rewarded.

- Use and share knowledge. Many organizations support staff to join knowledge communities to share the ideas and initiatives among innovatiors and potential adopters. Staff who have access to diverse and timely information are stimulated to generate new ideas and use best available evidence to inform decisions by creating effective networks for sharing ideas, knowledge and experience.

- Manage risk and tolerate failure. Organizations supporting an innovative culture recognize that not all ideas will work through testing and evaluation. Innovative organizations assess and manage risk actively, making sure to fully understand the risks that are present in their current system. Failure is viewed as part of the learning process rather than something to punish.

- Promote learning and development. Organizations provide their staff with the necessary specific tools and techniques of improvement to support radical rethinking of services. They create and develop the capability to innovate and build.



Today, every organization must change to survive. New discoveries and inventions quickly replace standard ways of doing things. The pace of change is revealed in the following examples of global innovation practices:

The search leader, Google, has earned a reputation as one of the most innovative companies in the world of technology. A few ways how Google hatches new ideas:

  • Open Office Hours: Managers discuss new ideas two/three times a week. Google's personalized home page is one success born from this approach.
  • Free Thinking Time: Google gives all engineers one day a week to develop their own pet projects, no matter how far from the company's central mission. Google News is an example of this process.
  • Big Brainstorms: As it has grown, Google has cut brainstorming sessions. A concept is discussed for 10 minutes. The aim is to build the initial idea with at least one complementary idea per minute.
  • The Ideas List: Anyone at Google can post thoughts for new technologies or businesses on an ideas mailing list.
  • Acquire Good Ideas: Although Google prefers to develop technology in-house, it has also been willing to snap up small companies with interesting initiatives (Anon., 2005).

3M, is a company whose name is synonymous with innovation. 3M has three approaches to a new product development: projects which are spearheaded by employees and are not overseen by management; traditional development, in which business managers and researchers work together to create new products or improve existing ones; and pacing programs, which consist of a small number of products and technologies the company thinks will produce substantial profits fast and are thus given extra attention and resources. The process works, 3M has achieved its goal of getting 30 percent of sales from products less than four years also consistently that is considering raising the bar.

3M culture supports innovation and risk taking to come up with new ideas and new products. At 3M, innovation is a primary goal supported by top management and spread throughout the organization. Managers also recognize the importance of staying in touch with customers. Strong cross-functional coordination and communication helps identify customer needs, turn new ideas into new products, and get them to the marketplace fast (DiSimone, 1995; Stewart, 1996).

What is innovative about Starbucks ? It is innovative because it gets you to think about more than just coffee. Starbucks has made coffee a side item to its main offering; the store is a destination. It has translated the purchase of coffee into a place to go to read, relax, hang out, a destination unto itself where items like Starbucks only music CD specials can be marketed and sold. You may think you go to Starbucks just to get coffee but you really go because the brand of Starbucks is in your brain.

British Petroleum is doing the same thing as Starbucks to its gas stations. They are trying to transform the gas station more than a place to get gas. They are opening Wild Bean Cafe where you can pick up snacks. They are trying to make it a destination (Anon., 2006).

There have been many technological inventions in order to make air flights more efficient. Southwest Airlines presents the business model which focuses on how to efficiently use the capital assets and reduce the total costs. With this cost advantage, Southwest airlines could expand the air travel market. It operated one type of aircraft on a system and had no assigned seats. The flight attendants together with the flight crew helped to clean up the cabin after every flight. Virgin Atlantic distinguishes itself by offering a differentiated and attractive experience. Virgin offers a fun and lively experience by providing complimentary massages and manicures services on the board, a bar in the sky and a wide range of entertainment pleasantries. Furthermore, Virgin extends the quality throughout the total travel time to include transit to the airport as well as in their airport lounges. In particular, Virgin's lounge at Heathrow airport is so popular that passengers show up hours before departure just to spend some time there. Singapore Airlines emphasizes the highest quality service at every interaction with the customer. Flying with them is like being in a five-star hotel in the sky. These companies do not compete with each other but they provide to their customers the last best experience they have ever had and they are good at exceeding it (Hemeter and Hutchins, 2011).

The Gillette Company gained an enormous market share over the years due to the production of a new and better shaving systems like the Sensor and Mach III razors. The firm recently poured its important resources into an ambitious project, the motorized M3 Power razor. Along the way, Gillette has developed a culture of continous innovation to stay a step ahead of its competitors (Kelley and Littman, 2008).

The unique German retailer Tchibo opened in the 1950s as a simple coffee shop, but nowdays has gone beyond its roots to become an international merchandizing sensation. Tchibo combined a stand-up cafe with a collection of ever-changing products. A part of its success formula is “A new experience every week,” with a completely new line of inventory arriving and selling in huge quantities for just seven days. The company continues to intoduce a completely new merchandizing fifty-two times a year and generates impressive sales throughout Europe (Kelley and Littman, 2008).



Booz & Company's annual study of the world's biggest R&D identified the 1,000 public companies around the world that spent the most on R&D in 2009. The analyzed companies's datas on the R&D spending had to be public; all data is based on each company's most recent fiscal year, as of June 30, 2010. The global recession affected the world's top innovators in 2009. The 1,000 companies that spent the most on R&D decreased their total R&D spending in 2009 by 3.5 percent, to US$503 billion. This is due to economic downturn's impact on corporate R&D budgets. Almost all the cuts came in just three industries: auto, computing and electronics, and industrials. The other industries increased spending to a lesser or greater degree. The three biggest industries for R&D spending remained auto, computing and electronics, and healthcare (Jaruzelski and Dehof, 2010).

3.1 Characteristics of Service Sector

A report commissioned by Forfás (2006) explains that innovation within the services sector has now become a subject of growing interest among policymakers. Currently, service innovation policies are underdeveloped. This may be due to a growing realization that innovation itself is an economic rather than a technological process that is not limited to technology-based innovations. Service innovation requires thinking in different ways, which need to be reflected in the development of policies and supports that are appropriate. The concepts that support service innovations need to take into account a number of important features of services such as:

  • Services are intangible processes.
  • Services are interactive with several parties that participate in the innovation process.
  • Services are extremely diverse in nature.
  • Services innovation can operate at the economy, business strategy, operations levels and even individuals.

Three types of services innovation are identified:

  • Traditional R&D (sequential service development).
  • Fast Market Entry (an emphasis on speed and cutting down time to market).
  • Incremental Innovation (formalising existing practices of service delivery).

3.2 The Difference Between Service Innovation and Service Product Innovation

Hertog (2000) suggests that service innovation is not limited to differences existing in the characteristics of the service product. Innovation includes new ways of product distribution, customer interaction, quality control, etc. The specific ways are different for each organization; a company's goal may be to introduce a new product into the market, while this may be not the same for other companies. Offering a completely new service is different from offering an existing service using a new distribution channel. In practice, many organizations just make major or minor changes in the characteristics of the existing (service) products. In Hertog's point of view, service innovation consists of four dimensions as presented below:

  1. The service concept. Manufactured products and processes have highly tangible and visible characteristics. On the contrast many services involve more intangible characteristics, such as how to organize new ideas to a solution or to a problem. But there are some cases when service innovations involve highly visible characteristics. An example is the Automated Teller Machine (ATM), where delivery of the product is involved. Perceptions can differ when a product, service or thought is new, according to whether it incorporates new reasoning or scientific knowledge. Perceptions can differ when the product, service or thought are new to the client base, the providers and the local, national or international market.
  2. The client interface. The second dimension of service innovation is about how the service provider and its clients design the interfaces that focus on a good deal of service innovations.The way how the service provider and the client interact with each other can be a source of innovation itself.
  3. The service delivery system/organization. This dimension is about how to empower the employees so that they can perform their daily jobs and deliver service products properly. It refers to the internal arrangements done in the organization to permit the service workers perform their job adequately and develop innovative services.
  4. Technological options. There exists a relationship between technology and service innovation because technology has a facilitating or enabling role. IT has a great enabling and facilitating role in service innovation. Users are important in developing and implementing new services, but the suppliers are the one that fulfill the required technologies to implement the new services as technology is typically supplier-dominated.

Hertog (2000) suggests that a service innovation is a combination of the above mentioned dimensions. A complete new service requires:

- a new service delivery system to be developed in the organization,

- the employees will have to change the way they work or relate to customers (the client interface),

- and the way IT is used in business processes will have to be changed while a new service concept may be involved.

Miles (2008) suggests that a service productis a service function or a set of functions marketed as a commodity or a public service. The service products share two common features: intangibility and interactivity.

Intangibility refers to transformations in service products such as the state of material products, of people and in data rather than being material products. Some are delivered through physical artifacts such as the CD-ROMs and consultancy reports and some are associated with them such as the dental fillings and credit cards.

Interactivity refers to the service processes that require the presence and participation of the client. Some kinds of transformations may require the physical presence, such as transport from place to place, hairdressing, or providing some form of counseling. The service activities feature more intimate producer-consumer relationships than is usual for manufacturers, especially those providing mass-production goods due to numerous points of interaction with the service provider.

3.3 Achieving Effective Innovation Management System in Service Company

According to Oke and Goffin (n.d.) point of view managing innovation in service companies is difficult due to the complex nature of service products, which are mostly intangible and involve close interaction with customers. Services suppliers must interact with customers to develop the service product itself. Therefore, innovation in service companies is not only about “what” is being offered but also about “how” it is being offered. Thus, the development of a new service is often more complex than that for a new manufactured product. Service companies think that service innovation management requires good performance in five areas described below:

  1. Innovation strategy. Management needs to develop a strategy, a vision and communicate the role of innovation within the company. Management needs to decide how to use technology in order to have performance improvements through the use of appropriate performance indicators.
  2. Creativity and Ideas Management. All employees should be involved in stimulating good ideas, which address customer requirements. Close contacts with customers should be cultivated.
  3. Portfolio Management. Once ideas have been generated, the best ones for implementation are selected through efficient means.
  4. Implementation. Once the best idea is selected, they are quickly turned into new products.
  5. Human Resource Management. Management should create a culture in which employees are motivated to contribute to innovation. Often companies fail in creating the reward and recognition mechanisms, which promote innovation thinking.



The last topic discussed is related to the innovations occurring in the healthcare sector. It is chosen to discuss about healthcare sector as healthcare remains in the three biggest industries for R&D spending. It is discussed after discussing the innovations in service sector, as healthcare is a subsector of service sector. The aim of this section is to identify the reasons that make the healthcare sector different from other sectors and what are the new methods of innovation applied by healthcare providers.

This section aims to draw attention of the complexity of the health sector due to large-scale organizational entity, and huge staff numbers. Innovation in health sector is influenced by government policies, professional groupings, political and government policies, and the large range of stakeholder involved.

Four service subsectors - health, financial, education, and business services—make intensive use of highly skilled workers. In health and financial services, highly skilled professionals apply specialized knowledge supported by semi-professionals and other staff to effect very different transformations. In health services, knowledge in areas such as biochemistry, physiology, pharmaceuticals, and surgery is applied to influence bodily well-being; information is exchanged with patients, communities, and other practitioners about which behaviors may further support this. In many countries, health services feature large-scale R&D activities alongside more routine, testing-oriented laboratory work (Miles, 2008).

4.1 What Makes the Healthcare Sector Different?

Røtnes and Staalesen (2009) in their study regarded user driven innovation in the healthcare sector suggest that this sector is different from other economic sectors. Innovators must know the field well in order to succeed. The following sections highlight distinctive features of the healthcare sector which innovators must be aware of during the innovation process and act in a way to prevent the process of innovation.

4.1.1 Big Sector, Complex Structure

Røtnes and Staalesen (2009) identify healthcare system as very complex. The complexity of the sector itself complicates innovation, and the implementation of new solutions becomes a major management issue. The level of complexity means that health systems are very resilient to pressure, even where that pressure is for positive change. Its operation is based on a web of structures, processes and patterns where the relationship between cause and effect is often uncertain.

In their point of view even the large number of people employed in the sector can be a barrier for innovation because effective communication and structure for knowledge management may be difficult. Also, the sector has several professional groupings with their own perspectives, beliefs and interests. Medical professions show resistance to undertake changes which may be risky to patients or others. There is a wide range of stakeholders in the healthcare sector which means that there is a strong requirement to consult and review planned changes with all of them.

Healthcare sector is an extremely complex and large-scale organizational entity, composed of huge staff numbers, a large range of professional and semi-professional, and a diversity of organizational arrangements and service processes. Healthcare providers face difficulties in communicating the need for innovation and will militate against the successful dissemination of innovative ideas and practices (Koch and Hauknes, 2005).

4.1.2 Heritage and Legacy

Healthcare sector organizations are prone to entrenched practices and procedures. The impact of innovation is often viewed as unwelcomed to the organization and new operational methodologies may be discouraged. These factors will militate against the inception of innovations and their dissemination (Koch and Hauknes, 2005).

According to Ökem (2011) innovation is affected by government policies because they stimulate the innovation drivers in the health sectors. Decisions by public authorities to licence, authorize the market, set the prices and reimburse are crucial for the utilization of a new machine or treatment. The authorities that adapt and implement these policies and procedures shape decisions concerning the key innovation drivers in the healthcare sector, such as R&D, investment and production.

4.1.3 Professional Resistance

Health systems comprise a number of well-established professional groupings, with their own communities of practices and perspectives. A lack of dialogue between these different groupings, different medical professions may hinder innovation and its dissemination even if people in these groupings share similar professional status, for example, surgeons and anaesthetists (Koch and Hauknes, 2005).

4.1.4 Risk Aversion

There exists particularly a strong inherited resistance in the medical professions to undertake or implement changes which may result in an increased probability of risk to the patients in their care or to the other recipients of their services. The health profession's desire is to minimize the unforeseen consequences of new health interventions placed on the development of evidence-based medical and clinical practice over recent years. Moreover, innovations depend upon further changes across the entire system in which they are applied (Koch and Hauknes, 2005).

4.1.5 Public/Political Profile

The healthcare sector has a professional and public duty focus to deliver the highest possible standards of care. As a result, health is a major political issue and the shortcomings of government health policies often form the focus of political, and media debate. Consequently, service managers and politicians try to avoid changes that may result in negative outcomes, particularly if there is the risk that these will attract media (Koch and Hauknes, 2005).

4.1.6 Need for Consultation and Unclear Outcomes

There is a large range of stakeholder involved within the health sector. As a result, it is of great importance to consult and review any planned changes and modifications with all of stakeholders. But as the health system is complex, it is difficult to obtain a clear picture of all the eventual effects of these modifications (Koch and Hauknes, 2005).

4.2 Best Practiced Innovations in Healthcare Sector

The demand for high quality services and treatment is increasing, as societies get more prosperous. Innovation is not only in medical treatment and equipment but also in processes and methods. Innovation is therefore necessary in order to provide the best care for all citizens in an effective way. At the intersecting point between new technology, new knowledge and increasing demands of services and effectiveness in the healthcare sector, there is a large potential for improving processes, methods, treatments and equipments (Røtnes and Staalesen, 2009).

Ökem (2011) emphasizes that the end-user of innovation in health is the individual and technological advances directly affecting the human life and its quality. The ultimate product of the health sector is a healthy population. Innovative products and services boost the competiveness of innovating companies and enhance diagnostic and treatment procedures. As a result, R&D and innovative capacity of the healthcare sector diffuses into other sectors with which it interacts.

4.2.1 Innovative Processes in Healthcare Sector

Innovation in medical devices involves new production and application methods and procedures as well as products or the modification of existing ones. The innovation process is medical devices is incremental as their performance can be continually improved. The development process is initially connected with the practical use of a specific device. Medical devices require lead users to facilitate their effectiveness (Ökem, 2011). Picture Archiving and Communication System

PACS have been improved to provide storage, quick retrieval and access to images anytime. PACS eliminates the need to manually file, collect, or transport film jackets because all the electronic images and reports can be transmitted digitally. PACS delivers timely and efficient access to images, interpretations, and related data. PACS has advantage over the physical and time barriers associated with traditional film-based image retrieval, distribution, and display. The advantages of PACS are:

Hard copy replacement. PACS have replaced hard-copy films resulting in space advantage over film archives. PACS have provided also a cost advantage by operating on digital storage.

Remote access. Doctors in different locations may access the same information concurrently for teleradiology.

Electronic image integration platform. PACS interfaces the radiology images with other medical automation systems such as Electronic Medical Record (EMR), Hospital Information System (HIS), Radiology Information System (RIS), and Practice Management Software.

Radiology workflow management. PACS is used by radiology personnel to manage the workflow of patient examinations (Wikipedia, n.d.b). Electronic Health Record

EHR collects systematically the electronic health information about individual patients or populations. It is a record in digital format and records data such as demographics, medical history, medications used, allergies, immunization status, radiology images, laboratory test results, vital signs, personal status like age and weight, and billing information. All these data can be shared across different healthcare centers.

Some of the main advantages of EHR systems identified include reducing medical errors, improving quality of care, conserving physician time, sharing patient information among healthcare practitioners, and workflow efficiency (Wikipedia, n.d.a).

Thakkar and Davis (2006) suggests that the major barriers identified to adopt an EHR system are related to the technical issues, system interoperability, concerns about privacy and confidentiality, lack of health information data standards, lack of a well-trained clinician informatics workforce to lead the process, the number of vendors in the marketplace, and the transience of vendors.

4.2.2 Innovative Services in Healthcare Sector E-Health

DeLuca and Enmark (2000) have defined e-health as an electronic exchange of healthcare data or information across organizations. E-health is used to change the business and medical practices. Even though its form and structure continue to emerge, e-health is affecting every facet of health experience. Business, medical, social, and technological factors are converging to make achievable a wide-scale and continuum-based care functionally perhaps for the first time. The Internet clearly drives the development and adoption of e-health applications because it has the reach, the infrastructure, and the acceptance to achieve widespread change. Google Health

Google Health is a service provided from Google at no charge. Google believes that everyone should have easy access to their own health information anytime and anywhere. With a Google Health account, you can manage and share all of your health and wellness information in one central place. All you need is a username and password to get started. Features of Google health are:

  • Manage your health information online. Google Health offers a single place to organize and store your health information online. It is possible to track your wellness metrics, gather and organize your medical records, or import your health data directly into your account from connected doctors, hospitals and retail pharmacies.
  • Set personal health goals. With Google Health you can set your own personalized goals online and monitor them regularly. You can track your weight and blood pressure goals, your sleep patterns, your progress at the gym and you can also record how much you walk during the day.
  • Track your progress. Create custom trackers for things you want to monitor daily like sleep, how much coffee you drink a day, or how many times you exercise a week. You can also take notes on how you are doing with a particular medical condition or a personal goal you set.
  • Share your health information. People can better coordinate their care by sharing their health records, wellness goals and progress notes with their family members, friends and doctors. It is possible to stop sharing at any time and everyone can see who has accessed his/her own information.
  • Personalize your health needs. It is possible to access different contents about health topics from trusted sources and Google search results (Google, n.d.). MinuteClinic

MinuteClinic deals with the treatment of common illnesses while adhering to the same principles as traditional healthcare centers. Healthcare comes with the top-quality care you might expect from your doctor's office, urgent care center or emergency room.

The innovations and safeguards used by MinuteClinic to ensure quality care include focused treatment, qualified clinicians, quality control and adherence to national clinical practice guidelines (MinuteClinic, n.d.a).

Top-Quality Care at Minute Clinic

  1. Focused treatment. The approach to focused treatment means MinuteClinic concentrates on the common illnesses which they can help patients the most. When MinuteClinic can't help, they refer patients to the healthcare center that can best address their concerns.
  2. Qualified clinicians. Top-quality healthcare depends on clinicians that are thoughtful, caring and, above all, qualified. To ensure it delivers top-quality healthcare, MinuteClinic hires only the most qualified clinicians, possessing the licenses, certifications and clinical experience that ensure effective treatment of common illnesses.
  3. Quality control. Top-quality healthcare depends on strict quality control. And, at the heart of MinuteClinic's quality control is the Electronic Medical Records to ensure that procedures are followed consistently. It guards against mistakes and alerts practitioners when a condition should be referred elsewhere.

There is no secret behind MinuteClinic's better approach to diagnosing and treating common illnesses:

  • Quick. Visits about 15-minutes and no appointment needed.
  • Affordable. Most insurance plans are accepted; cash, checks and credit cards are also welcomed.
  • Convenient. It is opened 7 days a week, and located inside CVS/pharmacy stores.

The ability to put together all these simple pieces results in top-quality healthcare and high customer satisfaction which guides MinuteClinic toward achieving the goal of providing a quick, affordable and convenient healthcare (MinuteClinic, n.d.b).


Change is the natural order of things in today's global environment. Organizations need to build in change as well as stability, to facilitate innovation as well as efficiency. Pervasive change has become the norm as organizations and individuals to adapt to rapid and often unexpected change to survive and prosper.

Most change in organizations is incremental, but there is a growing emphasis on the need for radical change. Four types of changes; technology, products and services, strategy and structure, and culture, may give an organization a competitive edge, and managers can make certain each of the necessary ingredients got change is present.

People seek change that is favourable and resist change perceived as harmful or ambiguous. They make cost and benefit assessments of potential changes, which influence their degree of acceptance or resistance. To be skilled at managing change, managers and other change agents begin by identifying performance gaps and the targets of their change efforts. They must understand both the content and process of change and how their efforts affect their organizational system.

Healthcare Outcomes

The healthcare sector is constantly growing and is not as much negatively affected by the adverse changes in the global economy in relation to other serctors. However, since it is subject to several regulations, difficulties arise in assessing the processes/services which may provide innovation in this particular sector.

Another aspect that provides difficulties in innovation in the health sector is the human factor. The professionals must be able to be open to this “opportunity” and be able to spread the enthusiasm throughout the hierarchical levels of the health sector. They must be able to encourage other employees to embrace innovation as a means of providing for better profits and improvements to their service, despite the intital costs included. Furthermore, the resistance to change, a typical human response to new methods which interfere with their routine, is a barrier to innovation. Innovation needs to be the result of a shift in the human force working culture.

If a company in the health sector can succeed in developing a positive attitute towards innovation through to its employees, this will give them a competitive advantage over their competitors. Since so many companies have yet not grasped the full concept of innovation, or yet, how to reap benefits from this whole process, a firm which includes innovation in its working practices will pave its way for a major success. The company is also advised to follow the most well-known practices globally, as explained above, in order to build up innovation.

On a person analysis, the project has contributed to my much more increased awareness towards innovation. Furthermore, the research, the proposed strategies and the reviewed literature have helped me understand the significance of the presence of innovation in the service sector.