1. WHAT IS INNOVATION ?
Innovation, as the following literature review will show, is not a new phenomenon – however, as per the
views of Jan Fagerberg (2003) in particular, the academic literature has only really exploded in recent
decades and he pinpoints the 1960s as the decade where it started to emerge as a separate field of research.
Early papers (pre-60s) were more descriptive of the impact of the chance elements of creativity on
innovation whilst a recognition of the importance of innovation started to appear in the late 1880s (Burns &
Stalker, 1961) and more interventionist and structured approaches really emerged between the wars (Burns
& Stalker, 1961; Schumpeter, 1942).
More recent literature has reviewed, amongst other topics, the impact of corporate culture (De Vos, 1966;
Kanter, 1983; Herbig, 1994; Khazanchi et al, 2007), the benefits to society (Warner & Morse; 1966;
Tewksbury et al; 1980; Hofmann, 1999; Fontan et al, 2004), the impact of industry sector (Rogers &
Shoemaker, 1971; Kanter, 1983; Damapour, 1991), the impact of firm size (Acs & Audretsch, 1987 and
1993; Rogers, 2004) and the impact of innovation on exports at both the firm and industry level
(Greenhalgh, 1990; Wakelin, 1998; Cassiman & Martinez-Ros, 2007).
For the purposes of this paper, in order to answer the questions posed by the project, the author will focus on
the following areas in this review:
Part 1 – Defining Innovation
Part 2 – The Benefits of Innovation
Part 3 – A brief consideration of enablers and blockers of innovation
Part 4 – Innovation in the Service Sector
Part 5 – Key Models and Frameworks to Manage and Promote Innovation
Part 1 – Defining Innovation
From economists to academics and business leaders to politicians there have been many attempts to define
innovation – some complex others more straightforward.
Michael Vance, the renowned speaker on creativity and innovation, termed it as“....the creation of the new
or the re-arranging of the old in a new way.” (http://www.famous-quotes.com/author.php?aid=7414)
Vijay Vaitheeswaran, Chief Business and Finance Editor at The Economist, and leading authority on
Innovation, summarised it as “.....new products, business processes and organic changes that create wealth
or social welfare....” (Vaitheeswaran, 2007)
The economist and Harvard Professor, Theodore Levitt, focussed on the difference between innovation and
creativity - “....creativity is thinking up new things. innovation is doing new things....” (Levitt & Levitt,
1998)
Barack Obama, pre-Presidency, viewed it as ”.......the creation of something that improves the way we live
our lives.” (Obama, 2007)
The formal academic writing on the development of a single definition of innovation, however, really started
with Schumpeter in the 1930s – though even before this the processes associated with innovation were
accepted as good practice. Whilst the factors of innovation may have changed Veblen's view that success in
firms may be linked to their innovative employment of women (Veblen used the term “appropriation” !) was
ahead of its time (Veblen, 1899). Subsequent articles follow this theme without formally trying to define
what innovation is (Lorenzi et al, 1912; Schumpeter, 1934). Schumpeter's initial attempts looked at five
different types of innovation:
1 - Introduction of a new product or a qualitative change in an existing product
2 - Process innovation new to an industry
3 - Opening of a new market

2. 4 - Development of new sources of supply for raw material
5 - Other inputs and changes in the industrial organisation
So why is it so important to define innovation ? We will consider the benefits of innovation in more detail
in Part 3, however, the main reason we need to understand what innovation truly is can be found in recent
articles by McAdam et al (2004) who felt that “.....the absence of a consensual definition is problematic.....”
and this was supported and furthered by Baregheh et al (2009) who concluded that there was the
“.......need for such a definition........potential to inform both practice and research.
A consensus on the definition of innovation offers a way forward for the identification
of innovation within organisations and countries.”
In essence, the author interprets these views as saying that if we don't fully understand what it is then how
can we exploit it. A major factor which has prevented a truly consensual definition is that the academic
research and attempts to define innovation have spanned many academic areas leading to a lack of cohesion
and consistency. Appendix 1 outlines some of these challenges.
Innovations have also been defined by type:
– Incremental/Sustaining Innovation:
– Radical/Discontinuos Innovation:
– Product Innovation: What most people think of when they consider innovation – can be split in to
development of new products and improvement of existing products
– Process Innovation: usually brought about by business process re-engineering techniques eg lean
manufacturing and often is a necessary step in Product Innovation
– Organisational Innovation:
Business Model Innovation
Business model innovation is becoming a high priority task for many companies, transforming existing
markets or creating entirely new ones that drive competitive advantage and generate extensive returns. The
model is often completely different to anything seen in the industry sector previously. Prime examples would
be Dell's delivering direct to consumers and South-West airlines low-cost, quick turn-around airline model.
It is however, “.....much more than the discovery of a radical new strategy on the part of a firm...”
(Markides, 2006) and has become significantly more important in the world of e-business where more
companies are distributing products direct to their consumer via new methodologies. Teece (2006) believed
that “....getting the business model right is important to the innovation process and to business performance
more generally.”
Closed v Open Innovation
Traditional innovation models focussed on processes within the firm primarily to protect intellectual property
rights. Rothwell (1994) for example, identified five generations of innovation practice development all of
which relate to the interaction, or lack of, within the firm. The different generations, which are outlined in
Table 2, are a good summary of Part 1 of this paper, namely the development of academic concepts of
innovation and show the growth from a single department being responsible for RnD through to integrated
systems across production, management, functions, etc. They also show the latter introduction and input of
market knowledge to the development of innovations.
Up until the latter decade of the 20th
Century, there was no real differentiation between closed innovation and
innovation generally – one was the same as the other, and there was certainly no formalised concept of open
innovation or appreciation of its benefits, thus there are limited specific references to closed innovation prior
to the advent of open innovation.
Closed innovation was summarised quite well by Chesborough (2003a) as “.....an internally oriented,
centralised approach to research and development (R&D).......”, however, the article was primarily about the

3. move to open innovation which is a recurrent theme in the literature, namely that Closed Innovation is only
Table 2: Adapted from Rothwells' Five Stages of Innovation Development (Rothwell, 1994)
Stage 1 Technology push model Linear model in which innovation is driven by RnD and functional separation is
maintained in the development process
Stage 2 Market pull model Linear model in which innovation is driven by market opportunity or need and where
functional separation is maintained in the development process
Stage 3 Coupling model Non-linear model in allowing feedback from marketing to RnD and vice-versa.
Development remains a sequential event.
Stage 4 Integrating model Integrated development teams break down functional separation within the development
process. Market and technical information shape the process.
Stage 5 System integrating model Relates to the integration of production and management systems across functional and
firm boundaries and the use of IT to enable interactive development
considered in Open Innovation literature.
Chesborough (2003a) also identified a major issue of closed innovation in terms of missed opportunities
“....closed and open models are adept at weeding out …...ideas that initially look
promising......open innovation.........ability to rescue ….....projects that initially seem to
lack promise but turn out to be surprisingly valuable........ a closed innovation approach
-- is prone to miss a number of those opportunities ….....outside the organisation's
current businesses …..”
Chesborough (2003b) also produced a diagrammatical definition of closed innovation (see Diagram 1) which
shows not only the impact on the firm but also the restraints placed on larger innovation systems such as
those at the industry, regional and national level. In essence, if firms within a larger system are only
focussing on their own markets this potentially prevents the opportunity to grow all industries within the
regional or national system.
Herzog (2011) also provides the following definition and challenges surrounding Closed Innovation:
“.....a firm has to do everything by itself, beginning with idea generation, development
and production to marketing, distribution, service, and financing. This implies that
innovation projects (1) can only enter the innovation process at the very beginning, (2)
are developed using only internal resources and competencies, and (3) finally can only
exit the process by getting commercialised via the firm’s own distribution channel.”
CurrentMarket/s
Diagram 1: Chesborough's digrammatic representation of Closed Innovation
Research Development
Firm boundaries
Research Projects
CompanyACompanyB

4. The separate works of Chesborough and Herzog share very similar themes however it is not surprising that
any discussion about Closed Innovation would be similar to Chesborough who first truly defined the concept
in any detail (2003b). Where the author believes Herzog differs is that he is less dismissive of the Closed
Innovation concept but articulates that it can only be successful in certain cultures and this is the theme of
more recent research from Almirall & Casadeus-Masanell (2010) and Wang (2013).
Academic work on Open Innovation is much more in evidence - again much of the output lead by
Chesborough whose definition is as follows (2008):
“......use of purposive inflows and outflows of knowledge to accelerate internal
innovation, and expand the markets for external use of innovation, respectively
.......assumes that firms can and should use external ideas as well as internal ideas, and
internal and external paths to market.......”
Chesborough has also developed a diagrammatic representation of this view (2003b), which is illustrated in
Diagram 2 below. This shows the multi-directional flow of information through the firm but also in to the
external markets. Where Open Innovation is particularly beneficial is in those situations where a product
developed for a specific reason finds an alternative use in another market – the move in to new markets
demonstrated in Diagram 2.
To illustrate this concept, HarQen, a Milwaukee company with 10 employees, which began as a free online
service that let users record jokes over the phone and e-mail the recordings to friends is now a software
product which is used by recruiters to conduct automated phone interviews. The company worked with
various external companies including recruiters, lawyers and software firms to develop the prototype and the
new product added 14% to the company's revenue in year 1 (Barrett, 2010).
The boundary-spanning focus of open innovation, which the author will consider in greater detail in section 4
of this review, offers a number of benefits:
– overall spend on RnD can potentially be spread across two or more firms, thus dissipating the risks
of innovation (Love & Roper 2001; Cassiman & Veugleurs, 2002)
– firms can investigate internal uncertainties through external reference and respond more effectively
to those uncertainties generated by the market (Mowery et al, 1996)
– external collaboration can add value to the supply-chain (Phelps, 1996)
– these advantages lead to clusters which can further enhance these benefits (Best, 1990; Turok, 1993)
Diagram 2: Chesborough's digrammatic representation of Open Innovation
CurrentMarket/s
NewMarket/s
CompanyACompanyB

5. Other opinions around the definition and importance of Open Innovation have included:
“.......a holistic approach …..systematically encouraging and exploring a wide range of internal and external
sources …...consciously integrating that exploration…....broadly exploiting those opportunities through
multiple channels.” (West & Gallagher, 2006)
In a seemingly direct adaptation of Charles Darwin's quote made at the start of this paper, Drakeet al (2006),
in their study of Procter & Gamble felt that “Winning the competition does not require coming up with the
best and most ideas, but to make the best use of internal and external ideas......”
“........initiatives must gain access to and leverage from the insights, capabilities, and support of other
companies without compromising legitimate corporate secrets.” (Wolpert, 2002)
“.....means of providing firms in hyper-competitive environments with the ability to create a stream of new
products and services.....” (Almirall et al, 2014)
Open Innovation – Extending the Paradigm
In the authors view, there are three areas which have been prevalent in more current literature two of which
move beyond the current thinking of Open Innovation which focusses on the structured business-to-business
relationship in networking and one of which further extends the concept of business-to-business networking
beyond a traditional partnership approach.
The latter of these refers to the concept whereby established firms which have had to review their business
model in order to survive in changing worlds have seen an opportunity to create relationships with small,
more innovative companies which they can help to incubate in return for first use of the products which are
produced. This concept takes the form of a firm stepping in to a geographic or business cluster which
pervasively it had not had contact with in order to create innovation in areas where it did not have strength.
This could be seen as a natural output of the Innovation Value Chain (IVC), which will be covered further in
Section 7 of this review, namely understanding that the Idea Conversion element may need outsourced
assistance, however, the IVC can be seen as a more iterative process whereby the various steps do not
necessarily have to follow consecutively.
As an example, AXA Group has recently established an Innovation Laboratory in Silicon Valley aimed at
creating ties with small, digital-development organisations which prevail there – AXA is the first Global
Insurer to have a presence like this in Silicon Valley. Already, this has lead to new distribution methods in
development which are not currently in use on the market but more importantly to illustrate the author's
assertion, the work undertaken in the Idea Conversion section of the IVC has seen potential new ideas for
products and markets being identified which had previously not been considered – thus enhancing the Idea
Generation section.
The other two elements above are easier to define and have been considered more within the literature
recently:
1- Crowdsourcing
2 – Open-source Software
The first of these is defined as “......the practice of obtaining needed services, ideas, or content by soliciting
contributions from a large group of people, and especially from an online community, rather than from
traditional employees or suppliers.” (http://www.merriam-webster.com/dictionary/crowdsourcing)
The term Crowdsourcing was first used in 2006 and is “......distinguished from outsourcing in that the work
comes from an undefined public rather than being commissioned from a specific, named group....” (Bruno,
2011).
Thus the perceived supplier base which is a source of information in Open Innovation circumstances has

6. moved from being a structured and easily identifiable commodity to one where the innovative idea could
come from quite literally anywhere.
The open-source software concept could well be just an example of crowd-sourcing but it is a very unique
element and also, with the impact of digital, social-media, etc will become more and more of a focus for
companies going forwards. So what is open-sourced software (OSS) ?
“....computer software with its source code made available and licensed with a license in
which the copyright holder provides the rights to study, change and distribute the software
to anyone and for any purpose...”
It is generally “......developed in a public, collaborative manner....” (Verts, 2008). Levine & Prietula (2013)
further extend the concept to open collaboration which they see as "any system of innovation or production
that relies on goal-oriented yet loosely coordinated participants, who interact to create a product (or service)
of economic value, which they make available to contributors and non-contributors alike........."
The previous section was intended to show how many different attempts have been made to define
innovation and it is quite likely that with the growth of crowdsourcing in particular this challenge will
continue – it is also the primary reason why a number of recent academic papers have chosen to try and
create a single definition across all research areas and types of innovation.
Olson et al (1995) developed a model, which would fit across industries, based on a four-way classification
relating to the degree of novelty within the innovation:
Table 3: Olson et al's Classifications
New to the world products These are new to both the market and the company introducing them. The “highest” level of
innovativeness in Olson's model
Line extensions New to the marketplace but not to the company
Me-too products New to the company but not the marketplace
Product or service modifications Neither new to the marketplace nor the company but are simply an upgrade of existing products
pr a new feature which doesn't add value to the user-experience
Von Stamm's (2003) matrix combined the level of innovativeness with the innovation focus ie was it product,
process, service, etc ? This extended Olson's categorisations and took consideration of the process of
innovation alongside it, thus was more detailed, but could still be applied across any industry.
Table 4: von Stamm's matrix combining level and type of innovation (applied to the Insurance industry)
Transformational Products which insure
against loss caused by
insurable risks which
have not yet been
created eg the driverless
car
Immediate response via
live chat with virtual
claims assistant
Management of claims
process via online
portal and charging for
hard-copies
Multi-channel
distribution via
consumers preferred
contact method
Radical Products which insure
against the loss or theft
of big-data
24 hour turn-around of
claims via the internet
Options to have online
or hard-copy
documentation through
a tick-box at application
stage
Move from 3rd
party to
internet-based direct
sales to consumer
Incremental Reduction in premium
with no claims in
previous year
48 hour claims SLA via
the phone
Moving from hard-copy
posted documentation
to emailed documents
Moving from 3rd
parties
to white-labelled goods
Product Service Process Business Model
Trott (1998) focussed on the integration of a number of elements, though he perhaps did not go far enough in
terms of looking at new services, new processes, etc.....however, he did make clear that it is fundamentally
more than just a single department, process, etc.

7. “...........not a single action but a total process of interrelated sub processes. It is not just
the conception of a new idea, nor the invention of a new device, nor the development
of a new market..........all these things acting in an integrated fashion.”
Rogers (1998), in his work on the measurement of innovation, defined it as“....the process of introducing
new ideas to the firm which result in increased firm performance....” but he also contextualised it by
continuing that it “....covers an extremely broad range of activities which varies between firms.”
Dance (2008) probably oversimplified things when he combined a number of different focusses to come up
with “......a) something fresh (new, original, or improved) b) that creates value.” In Dance's defence he did
go on to clarify this and his basic definition needs the clarification to make sense and to be applicable in a
practical environment:
“Something new is not enough for the definition of innovation. There are plenty of cases
where something new has no new value ( a new colour of a product or a new chemical
produced that does nothing). Sometimes, the value creation results because the item is
simply useful to us. We can create a lot of fresh or new things that are of no use and no
value. It must create value to be innovation.”
NESTA (Roper et al, 2009) defined hidden innovations which operated alongside more recognised RnD
based innovation – this included “.....changes to service, ways of working and delivery, customer insight and
many other forms.”
One theme which has come through during my research is that until recent years many researchers, speakers,
business leaders, etc have chosen to define innovation to suit their needs for the paper or speech they are
delivering. The author intends to follow this trend and as such will save the final definition until the end –
this is the definition provided by Baregheh et al (2009).
This does not just suit the author's needs in the context of the paper but in in his opinion provides the most
comprehensive and applicable definition which will survive the test of time and will remain applicable as the
newer forms of recognised innovation such as service innovation and crowdsourcing become more popular
as research topics. It considers the need to encompass a number of the aspects of the essence of innovation
as follows:
1 – it considers the multi-stage process-driven necessity of innovation
2 – it accepts that innovation can occur in non-business contexts such as society and the not-for-profit sector
3 – it captures all stages referred to by previous academic research
4 – it considers the need to see an improvement or a new product, service, process, etc
5 – it reflects the strategic aims of innovation and the potentially diverse social and environmental context in
which innovation occurs
“Innovation is the multi-stage process whereby organisations transform ideas in to
new/improved products, services or processes , in order to advance, compete and
differentiate themselves successfully in the marketplace.” (Baregheh et al, 2009)

8. Part 2 – The Benefits of Innovation to the Firm
Innovation by definition introduces change (“transform” - Baregheh, 2009) to a business and as many
writers have proposed change is a time of difficulty for a business leading to uncertainty and requiring much
leadership and management time and effort to be successful. Kotter (1995) outlined eight steps to
transforming a business which must be followed – he felt that “...skipping steps creates only the illusion of
speed and never produces a satisfying result.”
Kotter's eight-step model is summarised in Appendix 7 with possible implications of not getting change
right in the final column (the author's summary of academic views on which Kotter either drew or which
have cited and confirmed or enhanced Kotter's work in later research):
So if it such hard work and has so many potential pitfalls, points of failure, etc......there must be a number of
substantive reasons why innovative change is important to economies, nations, industries, regions, cities and
of course at the firm level. For the purpose of this paper I will concentrate on the benefits at the firm level –
however, this part of the review will allude to the links between innovation in the firm and the impact at the
other aforementioned levels, though common sense also makes these links obvious.
There have long been recognised links between the benefits of RnD and the performance of individual
businesses however the links between innovation more generally and that performance have come about
much more recently. This may be due to a natural lag between the more advanced and informative works on
innovation management and the output from this more structured process approach to innovation – reflected
also in the lag between the innovation and a true understanding of its impact on the firm's performance, as
typified by the pharmaceutical sector (Hall & Bagchi-Sen, 2002; Sharabati et al, 2010). In other words, at
what point does the innovation investment deliver a return.
Benefits to the firm aren't just about profitability of course – indeed innovation in the not-for-profit sector
itself was discussed in detail as long ago as 1982 (Hatten, 1982). The next section of this paper will consider
some of the main research around the benefits to organisations of innovation.
1 – Financial measures (Profitability and Growth)
Of course, the primary reason for innovation in firms which require a share-holder return has to be
profitability. There can't be too many shareholders who would expect their money to be spent on perceived
innovations that don't enhance, or more precisely have no chance of enhancing, their returns – thus
performance, measured through profitability, is a major benefit.
There is evidence consistent with the view that innovation can be linked directly to enhanced performance
(Geroski et al, 1993; Leiponen, 2000) but it is not clear if this is as a result of one-off innovations of
consistently innovative firms. Roberts (1999) focussed on the “....conveyor belt.....” of innovation in the
pharmaceutical sector which lead to consistently high profits for the innovating firms, though each
individual innovation only provides a temporary monopoly position.
Cainellis' research (Cainelli et al; 2004) discovered links between innovative activities and enhanced
economic performance in “....the following period.” Love & Roper's study of more mature firms developed
statistical and positive links between “....innovative sales.......innovation diversity....and business growth.”
(Love & Roper, 2010).
The links with profitability and growth have also been focussed on by Governments. The UK's Department
of Trade clearly link innovation with the GDP and standard of living (2003) whilst in the US the Department
for Innovation has researched extensively the links between firm innovation and the state of the US
economy (2008).
Baumol (2004) defined innovation as a key element of the market mechanism, where entrepreneurs created
innovative new growth businesses. Christensen (1997) believed firms needed innovation to create
significant and lasting growth and Dodgson felt that innovation gave firms the chance to generate growth by
creating new business and opening up new markets in lower-cost developing countries (2009).

9. Ahlstrom (2010) took the innovation argument one step further in terms of its impact on growth and also
some of the other benefits outlined below. He felt that innovation which leads to growth was more
important than Friedman's argument that profits are the chief purpose of business and agreed with
Christensen & Raynor (2003) that innovation lead to growth by meeting previously unsolved or
unanticipated consumer needs.
In a quite dramatic graphic representation, Ahlstrom demonstrates the global impact of innovation in terms
of Global GDP measured against the value of a 1990 US Dollar (Diagram 3). It is no surprise that the real
start of this growth coincides with the First Industrial Revolution which was outlined in Part 1 previously.
The author has extended Ahlstrom's graph from its 1998 peak in the previous research to the latest figures
released by the World Bank which provide data to the end of 2012 (World Bank, 2013).
2 – Productivity
Innovation allows us to deliver in shorter timescales or more in the same timescales - for example, in 1890,
one hour of time produced the same amount as seven minutes nowadays (De Long, 2000). In the US,
studies have shown that innovation may count for over 50% of the increase in labour productivity in recent
times (Griliches, 1996; Hall et al, 2010) whilst Janz et al (2004) established consistency and common
stories in links between
innovation and productivity across national borders. Lynch & Black (2004) focussed their research on
innovative HR practices, including share ownership and employee engagement, leading to increased
productivity.
3 – A Change Mechanism leading to Sustained Competitive Advantage (SCA)
Organisations often use innovation as a means of influencing or reacting to their competitive environments,
ie change, both internally and externally (Damanpour, 1991) through new products, new processes, new
services and new organisational structures (Ettlie & Reza, 1992).
Using innovation in this way allows organisations to react in a way that can deliver sustained competitive
advantage – a concept recognised in Schumpeter's early research (1934) and also more recently, in the
context of organisational learning, by Lado & Wilson (1994). The latter work focussed on how the change
of competency, attitude and capability brought about through innovation meant organisations who innovated
as a normal part of their strategy and culture were more capable of adapting to future skills needs – and
could often predict them.
12,000
0
2,000
4,000
6,000
8,000
10,000
0 1000 1820 2012
Years (Anno Domini)
GDPperCapita
Diagram 3 – Growth of World GDP per Capita in 1990 US$ equivalent value (Ahlstrom, 2010)

10. Innovation has allowed firms to deliver SCA through other dimensions:
Enhanced quality: Barras' research (1990), focussing on the financial services sector, showed that“....the
innovation cycle proceeds, from increases in efficiency through improvements in service quality to the
generation of new network service products.....” thus offering opportunities for greater market share.
Sadikoglu & Zehir (2010) found that innovative commercial practices promoted better performance from
employees leading in turn to improved quality of products and service.
Enhanced competitiveness: Braganza & Edwards (1999) paper, whilst focussed on the impact of
knowledge management specifically, generally states that “...it is well established in the literature and
evidenced in practice that an organisation's ability to innovate leads to competitiveness.”
Cleff et al (2005), whilst accepting other factors were more important in the short-run, found
comprehensively that “In the long run, the ability of firms to innovate and invest in RnD and innovation are
crucial determinants of competitiveness.”
Tinguely (2013) concurs that whilst the actual process of innovation has changed over time, there is still
extensive evidence suggesting that innovation is the main engine of competitiveness and economic growth.
4 – Brand Image/Reputation
Despite the successful innovation history of brands such as Apple, Dunlop, Dell, etc this benefit of
innovation has only been focussed on in the academic world more recently and is an area that could deliver
further research opportunities. Most research has accepted that there is a link between:
– strong reputation for innovation and the desire to purchase (Chang, 2011);
– the relationship between the type of innovation and the brand's position (Beverland & Napoli, 2010)
– and how crowd-sourcing can be used to innovate the brand (Benson, 2013)
However, the author found most of the literature is in the Marketing discipline and relates more to how
innovative branding techniques can enhance the image of a brand without changing the product offering
(Mayo, 1993; Colomb & Kalanides, 2010) – thus is less relevant here other than in the context of the
Employer Brand which is discussed in the analysis section.
5 – Employee Engagement
The links between innovation and employee engagement tend to sit in the Human Resources discipline and
link to the impact that an innovative organisation can have on personal engagement and performance through
enhanced job satisfaction (Pritchard & Karasick, 1973; Shipton et al, 2006). There are also links as stated
above to the enhancements in productivity, quality and ability to adapt to change through extended
organisational learning capability which can lead to SCA.
6 – Benefits to Society
There are some benefits to society which can be inferred from the previous sections. Firm innovation leads
to greater profitability and output and potential new products and marketplaces. A clear implication is the
creation of employment and significant improvements to standards of living in those areas where jobs are
created, linked to increases in per-capita GDP (Christensen & Raynor, 2003; Baumol, 2004;).
The knock-on effect is that profitable companies can reward their employees better and thus the employee
has a higher level of disposable income to return to the economy (Pfeffer, 1998) and building on this it is
clear that more prosperous countries can provide better health and social systems for their residents
(Viscussi, 1995; Snowdon, 2006).
This impact is not only in developed countries but according to some research there is a more widespread
effect. Brooks (2004) found that in 1990 472 million people in the East Asia/Pacific Rim region lived on less
than $1 per day - a figure that had dropped to 271 million by 2001 and is currently on target to drop below

11. 19 million by 2015, according to Brooks' projections. It is no coincidence that China's economy in this
period has grown at an average of 8% per annum and over a 30 year period has grown to be the second
largest economy globally producing “....sophisticated exports across a range of industries...” (one of the
accepted measures of innovation) (Hoffman & Enright, 2008).

12. Part 3 – A brief consideration of enablers and blockers of innovation
In the context of this paper there are five key areas which the author believes are important to consider:
1 – Industry
2 – Firm size
3 – Company structure
4 – Culture & Leadership
5 – Attitude to Open Innovation and Networking
By definition, the author believes that in identifying where innovation thrives we will also outline the
blockers to innovation. It is important to understand the conditions in which innovations can grow to better
understand and create the macro-conditions which are required for full effectiveness (Kanter, 1988).
At a broad level, innovation will thrive where “....conditions allow flexibility, quick action and intensive
care, coalition formation and connectedness.” (Kanter, 1988). So what does this mean in the context of the
four areas above ?
Industry
Pavitt's research (1984) shows different approaches to innovation, in particular adoption of new technology,
depends on sector. Pavitt identified four key classifications:
1 – Supplier dominated sectors which focus on external supplier innovations
2 – Scale intensive sectors where innovation is often in the form of patents
3 – Specialised supplier sectors which are customer-relationship driven and use both internal and external
sources of innovation
4 – Science-based sectors with strong RnD functions and linkages to public research centres such as
Universities.
More recent research has linked three specific aspects with sector approaches to innovation, identified as the
Sectoral Innovation System approach by Malerba (2005). This research followed on from work by Malerba
& Orseningo (1995) and Navarro and Buesa (2003) which identified three aspects which vary greatly and
empirically have been linked to differences in approach to innovation amongst sectors:
1 – knowledge, technological expertise and sectoral borders
2 – actors, relationships and networks
3 – Institutions
Caceres et al (2011) applied a factor analysis to identify that “The influence of firm.......sector of activity on
innovation occurs.....” but is more about how the type or variety of innovation is impacted by sector rather
than actually impacting whether it occurs or not.
Malerba (2005) also identified other areas of significance:
1 – The innovative concentration of the sector which can be impacted by the presence and strength of
Schumpeterian Mark I and Mark II firms. Where the market allows technological ease of entry innovation is
lead by new firms and entrepreneurs whilst in Mark II environments where barriers to entry are stronger the
innovation tends to be driven by large established firms.
2 – The technological environment firms face will drive the levels of innovation within that sector.
Innovation is higher in sectors where the technological environments drive the need for businesses to
innovate to grow and/or survive.
3 – Product relatedness in terms of when the need to exchange knowledge with other firms, even
competitors, is key to growth. This expanded on Dahmen's work (1988) which identified“.....tensions and

13. virtuous cycles among related products...”
4 – Natural market and non-market trust-driven relationships which lead to “...informal interactions and
relationships amongst agents...” (Montobbio, 2000). Nelson-Rosenberg (1993) identified the importance of
non-firms in this relationship matrix, including universities and public research bodies.
Firm Size
Various themes have arisen through the literature in terms of relationship between firm size and the ability or
desire to innovate and whilst ability to fund innovation is an important factor it is certainly not the driving
force – in the author's opinion, this is often context-specific and reviews the risk level and potential returns.
Fisher and Temin (1973) identified firm size as being important in defining whether a firm could obtain RnD
funding from external sources whilst Cohen & Levin (1989) formed the same opinion in relation to internal
authorisation to divert funds to riskier projects.
In terms of the capability to attract skilled employees, Kamien & Schwartz (1975) believed firm size was key
in attracting the best managerial and technical talent whilst Rothwell and Dodgson (1994) identified the
ability of larger firms to establish strategic alliances with suppliers and other partners which could encourage
open innovation.
Larger firms can deliver innovative importance through the introduction of a larger range of products which
has a positive impact on their ability to sustain an incremental innovation strategy (Corsinoet al, 2011) and
this approach is fundamentally supported by the acquired knowledge firms create as they age giving them the
ability to nurture innovation (Sorensen & Stuart, 2005)
Size does however have a negative impact on innovation in that it creates inertia and complacency since it
allows firms to survive longer without innovating (Giovanetti et al, 2011)
Conversely, smaller firms may enjoy more behavioural advantages (Rothwell & Dodgson, 1994) such as:
– less bureaucratic structures
– more agile decision-making processes
– leaner and more focussed organisational cultures
– innovation as a core competitive strategy
The overall impact of these is that smaller firms can generally react more effectively and take advantage of
technological and market opportunities (Acs & Audretsch, 1990). Smaller firms tend towards more dynamic
and disruptive innovations whilst larger organisations tend to be more incremental – though there is also an
impact related to both industry and culture at the firm level (Filippetti, 2011; D'Esteet al, 2012).
Company Structure
Kanter (1983) observed that decentralised firms, ie those where the structure is made up of smaller business
units, tend to be more flexible and able to find funding within the unit for innovation. This follows with the
concept that small firms take away bureaucracy, etc and speed up decision-making. Whilst the author agrees
with the principle of this concept he believes there is a caveat whereby if the innovation is firm-wide then
smaller business units may act as blockers.
This concept is particularly prevalent where the innovation is driven by a Corporate Centre in a Stakeholder-
lead environment where stakeholder side influences (entity technology competencies, capacities and
heritage) can be perceived as power by the local leadership (Pearce, 1999). This is even more relevant where
the Corporate Centre is perceived as a cost factor – ie the business units fund the existence of the shared
service environment.
Gaasmann (2006) research identified some of the issues of trying to globalise innovation in a decentralised
firm. In particular this research focussed on the loss of network-lead learning both within the organisation

14. and external to it as a result of what is often referred to as “Not Invented Here” (Bush, 1960) – a concept
related to the desire not to accept innovation which hasn't been created within the local entity.
Pavitt & Patel (199) linked the challenge to the strength of the local entity's national system of innovation
which might not promote the benefits of innovation as systematically as the firm.
Kanter (1983) identified that the decentralisation could lead to missing out on expertise, knowledge and
slack in a local entity which could be utilised in a global innovation programme.
Ultimately, decentralisation passes real or perceived power further down the hierarchical structure away from
the global organisation and in to the hands of local leadership through empowerment or through
organisational or financial authority (Marin & Verdier, 2008).
Culture & Leadership
Kanter (1983) identified the right culture as a key factor in innovation – culture being the norm within the
organisation, the way things are done. This research identified cultures which push tradition or change and
outlined a theory that innovative cultures were generally found in more modern areas rather than traditional
ones where “preservationism” prevailed. Leadership norms are key in these more innovative cultures and
Green (2012) identifies five traits of leadership essential to drive a culture which will empower employees to
drive innovation.
1 – The ability to challenge your own assumptions around customer, market and competition
2 – Changing your perspective to look at “what could be” rather than “what is”
3 – The sense to ask the right questions which are future focussed and action-oriented
4 – Openness to a variety of answers to a question
5 – Don't jump to the first solution
By developing a norm which is underpinned by these traits a culture will be established which will enable
the firm to consistently out-perform the competition and achieve sustained competitive advantage.
Innovative cultures lead to a feeling of pride of working for the firm (Kanter, 1983) and also the output of
consistently high performance may lead to cohesion within the company and a mutual respect for colleagues
(Staw, 1975) leading to greater teamwork and networking and an increase in productivity (Wormann &
Linsenmeier, 1977). Thus culture, with its ability to create a self-reinforcing upward cycle(Kanter, 1983;
Amibile, 1983) encourages employees to look at how they can improve business performance through their
ability to “....generate ideas and use these as building blocks for new and better products, services and work
processes.” (de Jong & Den Hartog, 2007).
Attitude to Open Innovation & Networking
In general, the literature has moved towards a generalised recognition that innovation requires more than the
individual firm to be effective and sustainable (Chesborough, 2003, 2006; Coombs, 2003). There are
contexts where this is not the case and Closed Innovation practices are required in the cultural or legislative
environment (Herzog & Leker, 2011) or where a mix of closed and open innovation is most effective
(Boscherini et al, 2012), however the author will focus on open innovation and specifically the importance
of networking in the context of the research questions in this paper.
In the context of open innovation the relationships with the external environment is generally key be that
formal or informal (Pittaway et al, 2004). This can relate to network externalities (Arthur, 1990) where
innovations become more important to a firm as more people use them, thus deriving economic advantage;
the spread of new fashions or fads through network management (Abrahamson, 1996) and the development
of professional standards or best practices (Swan & Newell, 1995).
Pittaway et al identified six main benefits to networking in the innovation context:
– access to new markets and technologies

15. – commercialisation speed
– accumulation of complementary assets
– protection of property rights
– risk sharing
– networks as an avenue to external knowledge
To take advantage of these benefits we need to understand the dynamics of the specific networks which will
help identify how information, norms and knowledge flow within them (Dodds et al, 2003).
Innovations are determined by the network in which the firm is embedded (Möller et al, 2005; Mohannak,
2007) it's shape and structure (Milgram, 1967) and more recently this has become more impactful through
the advent of the internet and most recently social-media (Brown & Duguid, 2000; Andersen, 2012; Yoo et
al, 2012) such that Milgram's concept of “Six Degrees of Separation” has now become 4.5 degrees
(Dorogovstev & Mendes, 2013).
Granovetter's work (1973) focussed on social ties in the network rather than its actual structure – and
differentiated between strong ties and weak ties – the latter being the links with a broader group of contacts
and acquaintances who in Granovetter's view could be more useful in the innovation context than the strong
ties of colleagues, friends and family.
Recent work by Moolenaar et al (2011) has advanced this concept to look at the importance of weak ties in
the social-media world which is the key concept underpinning crowd-sourcing (Kesavan et al, 2013).
Hansen (2009) identified the importance of social-media in the context of weak ties and outlined how it was
easier to maintain a high number of weak ties than it was a lower number of strong ties whilst a recent
survey has identified that 77% of companies believe social-media will be a key driver of innovation going
forwards (Kesavan et al, 2013).
It is also key to recognise the importance of internal networks in the innovation context. Kanter (1983)
outlined the importance of selling the innovation internally and identified the need to build a coalition.
Subsequent research identified specific roles within the coalition and what their responsibility was and this
work is summarised in Table 6. These roles are not specific to internal coalitions but can also be found in
more open forms of innovation where they are equally as important.
Recent research has also focussed on identifying the challenges of innovation networks – a key element
which allows the actors to plan for and overcome the issues (Ojasalo, 2008). Table 7 outlines some of the
key issue discovered through this research.
Whilst the author agrees with the importance of external networks in developing knowledge and capability
in an innovation project he believes this most recent trend is very important in the context of this paper.
Traditionally, the key partners in the recruitment industry have been recruitment agencies whose raison
d'etre is to provide candidates for client companies. The innovations currently being proposed at AXA
Group could have far-reaching implications on the c€20m spent each year wit recruitment agencies – thus
the networking challenge with this group would be a substantial conflict of interests.
There are other network partners who can offer alternative options in terms of the project and these will be
covered in more detail in the analysis and recommendations.

16. Table 6 – Important Roles within the Coalition
The Role The Responsibility Reference
Sponsor Discover and fund the innovation Galbraith, 1982
Orchestrator Manage the politics surrounding the innovation Galbraith, 1982
Champion Informally or formally champions the cause of the innovation
– usually a senior manager – a figurehead
Summers, 1992
Stakeholder Will be impacted by the innovation being implemented thus
can influence other stakeholders, resources, etc and depending
on their power can derail the project completely
Delbecq & Mills, 1985
Power Sources Run interference for the innovation – and secure resources,
etc – usually most senior management
Schroeder et al, 1986
Boundary Spanners Developing and maintaining inter-organisational links.
Translate the experience of particular individual or groups in
to language understood by a wider audience
Allen, 1977
Brown & Duguid, 1998
Knowledge Brokers Create flow of useful information from one group to another
where there is no structural support for that flow. This can be
at the individual or firm level
Burt, 1992
Hargadon & Sutton, 1998
Table 7 – Innovation Network Challenges (Ojasalo, 2012)
Perceived Challenge Description Reference
Conflict of
Interest/Opportunism
Some partners act in a way that is not seen as win-win by
other partners. Often this is as a result of different
perspectives on the need of the network, short-term v long-
term
Davis, 2006
Education/Learning
in the Network
Different levels of technical knowledge can lead to one
partner being able to develop a stronger product knowledge
than others
Chetty & Stangl, 2010
Unforeseen Gain to
Competitors
Where partners have existing or subsequent relationships with
other partners who may be competitors to the original partners
creating conflict of interests
Drejer, 2002
Network Partners
Economic Problems
Partners are not aware of the economic strength of other
partners who are unable to fulfill their commitments or end up
in bankruptcy thus destroying the network
Berasategi et al, 2011
Defining
Responsibilities &
Roles
Whilst partners don't understand the capabilities of other
partners it is if difficult to define who take which
responsibilities and roles
Steinicke, 2012
Lack of Co-
ordination &
Leadership
There may be a large number of actors in the network but
without an easily defined leader or where leaderships conflict
due to the conflict or opportunism above
Provan et al, 2007
Meeting Schedules Where other workloads for individual partners take away
resources from the partnership causing difficulties in meeting
network schedules
Rampersad et al, 2010
Lack of Written
Contracts
Without written contracts, there is scope for one partner to
take advantage of the network or for partners to interpret the
relationship differently
Dickson & Hadjimanolis, 1998
Unreliable
Partners/Scams
An impact of the lack of written contracts might be the ability
for partners who had no intention of acting in the spirit of the
network to not deliver their accountabilities
Drejer, 2002
Ability to Correct
Ones Own Errors
Not being able to correct errors before the customer sees them
or not correcting them before other partners can adjust to the
mistake thus impacting that partners workload
Szeto, 2000
Exaggerating Skills
and Capabilities
Partners who do this leave other partners in a situation where
their work quality and thus reputation is impacted by sub-
standard work of other partners
Dickson & Hadjimanolis, 1998

17. Part 4 – A Summary of Service Innovation
Research in 2005 highlighted that 70% of aggregate production and employment in OECD countries was
now directly attributable to the service industry. The same report identified that services contributed 75% of
GDP in the US (OECD, 2005). Many product innovations require service innovations to deliver the benefits
of the product innovation (Damanpour, 1991; Garcia & Calantone, 2002). Consequently, the development
of new, innovative services becomes a key driver of economic growth (Bowman et al, 2008).
Key to service innovation is an organisational culture that supports exceptional performance and innovation
– the key asset of most service organisations is its employees and the service they offer. This is also true of
production firms where there is a pre- or after-sales service and repeat business is key (Berryet al, 2006;
Love et al, 2010).
Services have a specific nature compared to products in that they are generally intangible, heterogenous,
simultaneously consumed and perishable (Levitt, 1981; Fitzsimmons & Fitzsimmons, 2000)) leading to a
profusion of incremental innovations which are easy to imitate (Atuahene-GIma, 1996) whilst dynamic,
radical innovation is perceived as being more focussed in production environments or where intra-firm or
intra-industry collaboration occurs (Agarwal & Selen, 2009).
Innovation can take place at different stages of the service offering including the overall concept, client
interface, delivery system and technological options (Chase et al, 1998; Den Hertog, 2000). In the delivery
system, which is pertinent to this paper, service innovation is within the internal working arrangements
which allow workers to to deliver innovative offerings in their job (Cook et al, 1999; Den Hertog, 2000).
The relationship between technology and service innovation has increased substantially with the advent of
the internet (Black et al, 2001) and other digital tools such as mobile (Hsu et al, 2007), tablet (Clatworthy,
2010); online user innovation communities (Gangi et al, 2010) and crowd-sourcing (Schenk & Guittard,
2009).
The long-term financial impact of service innovation is less clear particularly where the service innovation
has improved manufacturing output (Berry et al, 2006) or has transformed the customer state (Tether &
Metcalfe, 2001) and it is generally harder to measure due to its intangibility and simultaneous nature (Tether
& Metcalfe).
Its is this latter point which causes most challenges when service firms look to innovate. With very little
capability to measure the value which an innovation adds there is more scope for organisational inertia as
management conform to cultural norms - corporate history, traditions, rules and procedures – thus there is a
tendency for less risky investments without the same potential returns to be funded instead (Oliver, 1997).
More recently, research has focussed on how service organisations can specifically create“super-value-
add”
(Sternquist & Finnegan, 2008) traditionally associated with production environments and most typically
with the high-technology companies (Linden et al, 2008). Three such frameworks are outlined in Tables 8-
12 below.
Table 8 looks at the management of key activities within the service innovation firm (de Jong & Vermeulen,
2006) with a strong focus on banks and financial services companies. The research identified eight
activities which a service organisation should focus on to enhance its innovation capabilities.
Table 9 takes a step further and looks at how service organisations can actually create new markets through
innovation which is more dynamic and radical. To do this the firm must understand its positioning in
relation to (a) whether the service it produces must be consumed immediately or can be removed from the
from the point of production and (b) whether the innovation is giving a new benefit or delivering a core
benefit in a different way (Berry et al, 2006). This latter element seems to contradict the traditional nature
of services being consumed at the point of production, however the same academic argued, in an earlier
paper, that technology has allowed this separation to occur (Berry et al, 2003).

18. The 2006 research lead to the formulation of a two-by-two grid which could help companies identify where
they sat in relation to innovative ideas and thus could align the innovation with the dynamics and leverage
points of the particular matrix-quadrant. By looking at a service innovation in terms of these two separable
elements firms are able to “out-innovate” their competitors.
The two-by-two grid is shown in Diagram 4. Each cell, has an approach to innovation linked to it as per
Table 9 with illustrative examples drawn from the literature.
Table 8 – Key activities for a service innovator to manage effectively
Activity Primary points Reference
Involvement of front-line
employees
Enhanced motivation leads to greater support and the
likelihood of customer conversion. Often front-line
staff better understand the client needs in a service
focussed environment
Atuahene-Gima, 1996
Fernandes et al, 2011
Product Champion
The author argues this
should generically be
called the Innovation
Champion
This informal position helps to push innovations
beyond road-blocks and helps to mobilise resources.
Research has shown the importance of this role in
service innovation projects
Shane, 1994
Vermeulen, 2001
Ettlie & Rosenthal, 2012
Management support Senior managers need to constantly encourage
innovation through their own daily behaviour. Staff
involved in the innovation must be reassured they will
not be punished for failure
Atuahene-Gima, 1996
Debackere et al, 1998
Donate & Guadamillas, 2011
Create formal innovation-
driving work systems
By dividing up various tasks between employees and
creating and channelling creativity through structured
processes ensures the capture of all creativity and
potential innovation
Meyer & DeTore, 2001
Van Dijk & van den Ende, 2002
Promoting the use of tools
which drive new service
innovations
Within the formal organisational structure it is key that
informal organisations and activities exist underpinned
by the use of tool and frameworks to drive creativity
and interactive behaviour eg brainstorming
Bowers, 1989
Meyer & DeTore, 2001
Bitner et al, 2008
Create multifunctional
teams
Cross-functional teams offer new combinations of
knowledge and capability thus problem-solving is more
effective and promotes intra-departmental engagement
and interaction which is key to service innovation
Avlonitis et al, 2001
Gebauer et al, 2008
Ensure resource availability Service innovation often needs a more creative
approach to resources since the lack of a tangible output
often deters investment.
Vermeulen, 2001
Datta & Roy, 2010
Test the marketplace Without market research, the firm cannot know if the
service innovation potentially meets unmet customer
needs and does not help the firm identify its sales and
marketing competencies are strong enough
De Brentani, 2001
Chesborough, 2011
CELL 4
RESPECTFUL ACCESS
CELL3
COMFORTABLE GAINS
CELL 1
FLEXIBLE SOLUTIONS
CELL 2
CONTROLLABLE
CONVENIENCE
Core DeliveryTYPE OF
BENEFIT
Inseparable
Separable
TYPE OF
SERVICE
Diagram 4 – The Four Types of Market-Creating Service Innovations (Berry et al, 2006)

19. Table 9 – Description of The Four Types of Market-Creating Service Innovations (Berry et al, 2006)
Ce
ll
Innovative offering Benefit to consumer/user Examples
1 A new core benefit and can be consumed
apart from where and when they are produced
No restriction on where and when the service can be
“consumed” - existing markets
FedEx, Ebay
2 New delivery benefits offer controllable
convenience = new markets
No restriction on where and when the service can be
“consumed” - new markets
Google, Netflix
3 A new core benefit which is consumed at the
time and place of production
A new experience involving a core product but
which is delivered in a way which enhances comfort
Starbucks, Cirque de
Soleil
4 A new delivery benefit where the production
and consumption are inseparable
Company offering respect to the customer in terms
of their time and space consuming the service
South-west Airlines,
Hertz Gold Club
In each of the cells identified above, Berry et al (2006) identified nine success drivers behind these service
innovations and whilst they believed that each innovation required all nine, the individual cells relied on
certain drivers more than others.
Table 10 – The Nine Drivers of Successful Service Innovations (Berry et al, 2006)
Driver Definition Important
in which
cells ?
Scalable business model People are key asset so productivity is essential to long-term profitability.
Companies have opted to become more capital intensive or focus on reward
systems which are productivity-focussed
3,4
Comprehensive customer-
experience management
High touch nature of customer relationship leads to “functional, mechanical and
human clues” which create a total experience for the customer which influences
view of quality and value
3,4
Investment in employee
performance
Where the service is important, enduring and personal the more pronounced is the
effect of human interaction and thus the employee performance is key
All
Continuous operational
innovation
Service innovators who continually assess their service and improve it are very
difficult to catch or overhaul – thus it becomes a genuine sustainable competitive
advantage
All
Brand differentiation A trusted brand leads to perception of lower risk – this is key where there is no
tangible product to hold, feel, see, etc.
All
Innovation champion Most successful market0creating innovations usually begin with the story of a
single person/personality
All
Superior customer benefit Innovations are only going to create new markets if they offer a clear and better
solution to customer which prompts them to consider trying new service
All
Affordability With the major cost for services being people (generally) the opportunity to drive
production costs down is fairly limited – thus other cost efficiencies are required to
ensure the service is affordable in relation to the benefit it offers
All
Continuous strategic
innovation
To stay ahead of the competition, service organisations must constantly strive to
deliver ongoing innovation as a source of sustainable competitive advantage
All
Table 11 relates to Research which extends the Resource-based view of the firm (Wernerfelt, 1984; Barney
et al, 2001) to include the capabilities of the client which overcomes what Molleret al (2008) called Service
Innovation myopia - “.....the overemphasis on the service production process from either the clients or
service providers perspective...”.
The RBV view is considered to be very internally focussed on the firm (Srivastava et al, 2001; Priem &
Butler, 2001) and a result doesn't consider the dynamics of the client and provider relationship in the service
environment. Further this research demonstrated that through their competencies and activities, clients can
ehnance the end-value offered by the service proposition.
This research identified three innovation strategies which can be implemented in the service environment
(Table 11) and outlines where the client/provider collaboration can be most effective (Molleret al, 2008) in

20. terms of their respective approaches to innovation (Table 12).
Table 11 – Characteristics of Generic Service Innovation Strategies (Moller et al, 2008)
Strategy 1 – Established Service 2 - Incremental Innovation 3 - Radical Innovation
Brief definition An established service with well-
defined and relatively stable value
production logic
A value-creation strategy where
services are employed for the
incremental addition of value
Pursues value creation through
novel service concepts and
where value is future-oriented
Value Creation Logic
– the focus and means
to create value-adding
services
- Well-known and definite value
activities and processes focus on
service efficiency
- Relatively high stability and
transparency are characteristics of
the value creation logic
- Enhanced activities and
processes aim at increased value
added through improved
efficiency
- Incremental modifications
shape the value creation logic
- Embryonic value activities
and new value creation
processes make up novel
services with improved
effectiveness
- Emerging systemic
innovations break the
traditional frames of value
creation
Exchange and
Relationships
Structure – the nature
and relational
complexity of
collaboration
- Transactional exchange takes
place in primarily unilateral
relationships with well-known
actors
- Relational complexity between
actors is typically low as
collaboration focusses on existing
well-specified needs
- The value system consists of
both old and new actors that are
at least partially known
- Moderate complexity dominates
relationships with clients whose
unmet needs feed service co-
development
- The innovation activity
embodies relational exchange
in multi-lateral partnerships
- High complexity of the
relationship structure
characterises emerging
networks of service co-
producers
Value Capture- the
way the provider
retains value it creates
with the client and how
it manifests through
quality of service
offered
- Well defined typically
autonomous market offerings are
optimised to serve current needs
- Value propositions are typically
homogenous across several
- Potential benefits of enhanced
services based on incremental
offering extensions are assessed
against current service solutions
- Modified service components
form modular offering portfolios
- Value propositions are based
on emergent services intended
to form novel offerings
- Future orientation causes
uncertainty concerning the
value capture potential and
about the actors that will
benefit from the innovation
Moller's research showed that whilst the two strategies didn't have to tally exactly, there were situations
where the strategies were jus too extreme to work together (Implausible). Additionally where the focus was
Client-Driven, ie the client was the more radical party, they found that this was problematic since the
provider may not innovate radically or quickly enough for the client. Where this was converse, the service
provider could exceed the client expectation but only if the client was able to gain the value from the
innovation.
Table 12 – Interaction modes in Service Innovation Co-creation (Moller et al, 2008)
Client's
Strateg
y
Service Provider's Strategy
Established Service Incremental Innovation Radical Innovation
Established Service Balanced Provider-driven Implausible
Incremental Innovation Client-driven Balanced Provider-driven
Radical Innovation Implausible Client-driven Balanced
In the author's opinion, the research on service innovation has demonstrated its fundamental importance to
the development of future economic growth globally and demonstrated similarities with and differences from
innovation management and delivery in the product space. The author does believe there is a need,
particularly in the stakeholder-driven service innovation sector, to extend the definition of innovation and this
will be covered in the recommendations.

21. Part V – Strategic Models and Frameworks to Understand, Manage and Promote Innovation
The literature review undertaken has reviewed a number of frameworks which will be used to help the
analysis and provide some recommendations in particular those in the Service Innovation Summary. In Part
V the author will look at three more elements of Innovation Management, one of which was used in the
primary research on this project and the other of which may be of use in the longer-term recommendations.
These tools are rich-picture diagrams within the soft-systems methodology (SSM) field (Checkland &
Poulter, 2006) which have been used in the primary research and the Innovation Value Chain (IVC – Hansen
& Birkinshaw, 2007) which the author believes will aid the longer-term understanding of how the team can
continue to innovate in the future and finally the Cultural Web which will identify the paradigms which may
prevent or enable innovation to occur in the case of AXA Group.
Soft-systems Methodology and Rich Picture Diagrams
Soft-systems methodology essentially is one of a number of process-oriented approaches to complex
problems which allow internal resources to analyse problems and define solutions – other methodologies
exist (for example see Rosenhead and Mingers, 2001; Jackson, 2003 and Pidd, 2003) however SSM enables
an approach which can cover finer operational details through to high level strategic thinking and can be
incorporated as part of organisational culture (Checkland, .
SSM starts with two assumptions:
1 – Innovation will always take place within a complex and and unique social situation
2 – Effective innovation projects require a group of participants from the organisation to work together to
generate ideas and reach agreement about new system design and future actions
As a process, SSM then has three steps – although in the complexity of the real world these need to be
interchangeable and iterative (University of Warwick, 2012(a)) Lesson 3.
Step 1 – Situation Mapping
The situation is mapped in a visual format which includes any element which the participants feel relevant
to the situation but may include stakeholders, culture, structure, etc). For the purposes of this paper and
project, the author has employed a technique known as a rich-picture diagram(Appendix ?). A rich picture
is:
“....a cartoon-like representation that identifies all the stakeholders, their concerns, and some of the
structure underlying the work context. A rich picture is a tool for recording and reasoning about these
aspects of the work context, in particular, how they should affect the design.” (Monk & Howard, 1998)
Step 2 – Design Modelling
This step allows participants in the process to offer alternatives around how the system could be improved –
analogous to a series of prototypes which can be assessed to understand how they can add more value to the
system and the customer
Step 3 – Action Planning
This is a comparison of the “As Is” situation and the “To Be” target model and a series of actions which
need to be completed to reach the desired state. It can be a general discussion or a detailed discussion of the
chosen system model(s) from Step 2.
SSM is particularly strong in defining challenges and offing solutions in complex and“messy” problem
areas and the structural and stakeholder complexity of AXA is one such environment.
Innovation Value Chain

22. The IVC concept was developed by Hansen & Birkinshaw (2007) as a “.....sequential three-phase process
that involves idea generation, idea development and the diffusion of developed concepts.” (Hansen &
Birkinshaw in University of Warwick, 2012 (b)) Lesson 4 – pg 2
This helps to identify areas of weakness within the overall innovation process and thus enables managers to
focus on those areas which could defeat the whole innovative operation. The three stages are summarised in
Diagram 5.
Knowledge Sourcing Knowledge Transformation Knowledge Exploitation
Aim
Assemble bundles of
knowledge
Transform knowledge in to a
physical reality
Marketing function
Outputs
Internal and external sources of
knowledge that are required for
innovation
New processes and products Growth productivity
Diagram 5 – The Innovation Chain diagram adapted from Hansen & Birkinshaw, 2007 p124
Whilst the IVC was originally developed with the production and process environment in mind, subsequent
studies have shown the application of it in the knowledge-driven services sector (Roperet al, 2008, 2010).
In particular, this relates to the knowledge-based activity within services and specifically how the linkages
are formed between the various stages of the IVC such as the external knowledge transformation through
encoding linkages (Roper et al, 2010) – strategic links with external parties leading directly to new products
and processes being developed, but before they are fully commercialised.
As service innovation moves further in to the open innovation environment, these encoding linkages,
particularly with research institutions, will become increasingly important in the context of firms developing
new and enhanced service offerings.
The IVC in the service context can be used to identify, internally and externally,:
1 – a point-in-time summary of the strengths and weaknesses of the firms innovation processes
2 – priorities for improving those processes
3 – identify those factors which contribute to operational and strategic blockers and develop policy to
overcome them.
In general, the information used to complete an IVC is collected through a questionnaire which Hansen &
Birkinshaw argued should be completed by the firms employees. The author believes this could be extended
to include partners involved in the innovation process, though it could be argued that they may identify
weaknesses which would allow them to take further power or create business development opportunities for
themselves.
The original questionnaire from Hansen & Birkinshaw is at Appendix ?, however, the questionnaire itself is
a guide and as with all innovation the context of the firm, industry, etc is relevant and the questions should
be adapted accordingly. For instance, a single business-unit firm would adapt questions 3 and 4 whilst a
service firm would adopt questions 9 and 11.
The author concludes that by definition, through repeating the IVC process regularly and comparing the
results, the IVC can be used to qualify the improvements made in the process which may link to
demonstrating a return on any investment and also this repetition can iteratively identify areas which may
have weakened due to changes in business processes, technology, changing skill-sets, etc – thus allowing the
firm to refocus on those areas.
DiffusionConversionIdea Generation

23. The Cultural Web
Schein (Reference) defines organisational culture as the ‘basic assumptions and beliefs that are shared by
members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an
organisation’s view of itself and its environment’. In essence, this is the modus-operandi which Johnson
(1992) summarises as having four key levels:
Table ?: The four levels of culture (Johnson, 1992)
Values Tend to be written down as statements about the organisation’s mission, objectives or
strategies and can often be vague
Beliefs More specific but generally evident from corporate statements
Behaviours The day-to-day way in which the organisation operates including work routines and
organisational structure.
Taken-for-
granted
assumptions
The core of an organisation’s culture. They are often difficult to identify and explain.
They are often referred to as the organisational paradigm, where the paradigm is the set
of assumptions held in common and taken for granted. They represent collective
experience without which, members of the organisation would have to ‘reinvent their
world’ for different circumstances that they face
This is clearly a complex set of datas and the Cultural Web (Johnson, 1992) helps to summarise them
succinctly in a set of core “boxes” as per Diagram XXXXX:
The routines and rituals are about the way things are done and may provide a distinctive organisational
Symbols
Stories
Routines &
Rituals
Power
Structures
Control
Systems
Organisational
Structures
Paradigms

24. competence, but can also represent a taken-for-grantedness and emphasises what is particularly important
and reinforces ‘the way we do things around here’.
The stories told by members of the organisation to each other, to outsiders, etc, embed the present in its
organisational history and also highlight important events and personalities. They tend to cover successes,
disasters, heroes, villains and mavericks.
Symbols such as titles, department names, logos, etc can be a shorthand representation of the nature of the
organisation.
Power structures are also likely to influence the key assumptions. The most powerful groupings are likely to
be closely associated with the core assumptions and beliefs.
The control systems. measurements and reward systems emphasise what is important to monitor in the
organisation. Reward systems are important influences on behaviours, but can also prove to be a barrier to
success of new strategies.
Organisational structure is likely to reflect power and show important roles and relationships. Formal,
hierarchical, mechanistic structures may emphasise that strategy is the province of top managers and
everyone else is ‘working to orders’. Highly devolved structures may signify that collaboration is less
important than competition, for example.
The Paradigm is the summary of themes from other elements of the cultural web and identifies at a higher
level what is important to and summarises the organisational culture. By identifying the paradigm, we can
identify the blockers and enablers to innovation.

25. Research Methodology and Output
Research Questions – Methodology used to answer
1 - Who are the most important stakeholders for success ?
The stakeholder involvement is key within the context to inform and strengthen the coalition (Kanter,
1983) allowing the author to provide recommendations against the specific elements of the academic
research as they are relevant to the particular stakeholder views at that point in the project. Stakeholders
are key in AXA Group and their buy-in is fundamental to the ability of the project to add value to the
Group, the over-arching pre-text of the Stakeholder View concept (Maurer & Sachs, 2005).
The author's experience in implementing innovative recruitment processes within the AXA-UK entity
identified three groups of internal stakeholders: Hiring Managers, Budget-holders (usually Head of
Department) and the HR Leadership for the particular business unit within the entity. During the
interviews with the various parties in September 2013 this trend continued at a global level, however, the
complexity was greater with additional layers within the various stakeholder communities.
The role of the key stakeholders can be aligned with the work of Kanter (1983) to identify the various
coalition members and this will provide an overview of who the most important stake-holders are in this
complex structure (Table XXXX).
2 – What needs to be done to access them ?
Once the key stakeholders have been identified, the author will then consider how to most appropriately
gain access to them. Without the ability to influence the hiring managers the Pilot will not deliver the wins
needed for it to be moved in to BaU. The literature suggests that the challenges here will be the structure
and the culture of AXA Group and the case-study with it's “helicopter view” (Yin, 1984) will help to
identify pockets where there is more access to the stakeholders which will allow “quick wins” (Kotter,
1995) which will help to influence other stake-holders.
3 – How can they be influenced to think more innovatively ?
The author has constructed a cultural web (Schein, 1970, 1984; Johnson, 1992) to identify paradigms
which will either help to enable or block the innovation. The author also drew on the experience from the
UK and the literature to identify where there were differences in the attitude to innovation (Berryet al,
1996) and this will allow the definition of methods to “encourage” less innovative elements of the AXA
Group to move forward with the recruitment innovations.
It is also important to understand from the literature what other elements may block and/or enhance the
innovation including the attitude to open innovation and external networking which has been identified via
the author's interpetation of specific answers in the questionnaire and also the cultural web.
The case-study is good for developing and testing this sort of theory (Yin, 1984) though it should be noted
that much of the output from the actual testing will occur after the submission of this paper and as such can
not be referred to – however, some of the proposed theory development will be alluded to..
4 – Is it possible to implement a global team in a structure which is so federated and autonomous ?
Part of this relates to the cultural web and some of the paradigms – but also within the literature there is
reference to how structure can enhance and/or block innovation. The author also used the rich picture
diagram from soft-systems methodology to understand how the structure was perceived to be a potetnial
blocker to the implementation of innovative recruitment practices.
Due to the nature of the project being ongoing, the research methodology has been multi-faceted and
iterative building a picture during the project phase and refocussing the case-study approach to define the
research questions more appropriately to the project. The author believes that by adding further research to
the case-study in the form of (1) a stakeholder questionnaire (Appendix 1) at the start of the project and (2) a
rich picture diagram at the mid-point working with the same stakeholders will enrich the analysis by
combining the issues faced by different people in the project (Checkland & Poulter, 2006).

26. By including additional research the issue of a single-case study being too narrow is mitigated (Eisenhardt,
1991) and the output will be less subjective which is a criticism often aimed at the single-case approach.
Table 6 – Important Roles within the Coalition (Kanter, 1983)
The Role The Responsibility Role or roles of relevant people
Sponsor Discover and fund the innovation Deputy Global HR Director – Group
Orchestrator Manage the politics surrounding the innovation Group HRD – COO Perimeter
Champion Informally or formally champions the cause of the innovation
– usually a senior manager – a figurehead
Group Chief Marketing, Communication
& Distribution Officer
Stakeholder Will be impacted by the innovation being implemented thus
can influence other stakeholders, resources, etc and depending
on their power can derail the project completely
Entity Hiring Managers
Entity HR Business Partners
Power Sources Run interference for the innovation – and secure resources,
etc – usually most senior management
Deputy Global HR Director – Group
Group Chief Marketing, Communication
& Distribution Officer
Boundary Spanners Developing and maintaining inter-organisational links.
Translate the experience of particular individual or groups in
to language understood by a wider audience
Global Employer Brand Manager
Global Talent Acquisition Lead
Global HR Business Partners
Knowledge Brokers Create flow of useful information from one group to another
where there is no structural support for that flow. This can be
at the individual or firm level
Global Employer Brand Manager
Global Talent Acquisition Lead
Global HR Business Partners
The Literature Review followed an iterative process being a mixture of very specific academic research,
some practical business-driven views from best-practice organisations in the social-recruiting and employer-
branding environment but also contains more generic work where the author believed the generic work
would underpin the message from the other literature sources. A good example of this would be the
generation of a satisfactory definition of innovation which was relevant to the context.
The primary research was also iterative and initially uses a case study method offering a holistic and
detailed review of specific research areas within one or multiple real environments (Abercrombie, Hill and
Turner, 1984). It is particularly good for the “helicopter” review of management processes in a given
context (Yin,1984; Gummesson, 2000).
The Case-study Approach
Yin (1984) believed case-studies could be used to provide description, develop theory or test theory and this
paper involves all three – though the majority is descriptive.
Case studies may involve both single and multiple cases (Yin, 1984; Eisenhardt, 1989). Advocates of the
single-case approach (Dyer and Wilkins, 1991) identified a more structured approach to the theoretical
analysis, whilst supporters of multiple studies argue they are a powerful analytical tool because they permit
replication and extension and a broader perspective (Eisenhardt, 1991). By its nature, this case-study is
singular - however, it will longer term form part of a range of case-studies to identify success across
different cultures, structures, etc as part of the ongoing learning needed for successful implementation of the
project.
The output of the case-study can be qualitative, quantitative or both (Eisenhardt, 1989) – the analysis in this
paper will reveal a combination however the author will add his own observations from experience and
observation (Yin, 1984) to enhance the understanding of the output.
The Stakeholder Questionnaire
The initial information from the stakeholder questionnaires was gathered informally through 1:1 interviews
using a framework of statements and suppositions which were then analysed and formulated in to more

27. structured questions (Lepsinger & Lucia, 1998). The benefit of this approach is that it allowed the author to
explain in more detail what the project was expected to achieve and the stakeholders were not restricted in
their responses (Damian & Zowghi, 2003). As it transpired, several themes did come through from this
element of the research.
The sample population for this survey was a mixture of Management and Executive-level professionals all
of whom are involved in the Digital Transformation (Appendix ?) but whose functions are spread across
Marketing, Human Resources and IT. The sample size is 27 and whilst this is potentially not large enough
as a sample ( Warwick Business School, 2012) MAM notes it does account for over 60% of the
Management and Executive population involved in the Digital Transformation thus its validity as a sample
size is relevant. The author included his own answers to the questionnaire in the response as he met the
criteria above ie Management level, within the HR function and involved in the Digital Transformation.
The questionnaire was answered, unless specifically requested, in terms of the AXA Group globally rather
than specific entities or the Digital Transformation. Whilst the sample population comes from the Digital
Transformation they are integrated with other parts of the AXA business and have a varied background
which includes time and or exposure to the Lines of Business (Appendix ?) thus were able to answer the
questions based on their perception of the overall AXA Group rather than just the Digital Transformation.
The questionnaire formed part of a larger survey carried out across the overall recruitment strategy
programme, of which the author's project formed a part. The questions have been selected in terms of their
relevance to the project rather than including the whole survey. The output is summarised graphically below
in Diagrams XX-YY.
This question allows us to understand the level of intertia related to the culture of the AXA Group. The
output shows there is a substantial element of the AXA Group which does not see the need for change or
does not want to change.
1. Yes
2. No
3. Unsure
0
50
100
PercentageofResponses
Diagram XX – Q1: Do you believe that we need to think differently about how we attract talent in the future ?
Responses

28. The author considered whether to remove this question since the “Yes” response to Q1 was relatively small
and thus overall this question did not offer valid insight. It was left in to complement Q3.
1. Change the employer brand image of AXA from traditional insurer to digital leader
2. A different candidate market
3. Cost of hiring
4. Speed of hiring
With such a strong “No” response in Q1 this was key and the output supported the inertia theory from Q1.
Whether this is AXA Group-specific or related to the industry as a whole is not clear from this question btu
further research around the cultural web will identify paradigms.
1. Current practices work (search firms and personal networks)
2. The managers networks here are strong enough
0
Percentageof
Responses
0
50
100
Responses
1 2 3 7654
0
Responses
0
50
100
Percentageof
Responses
Responses
1 2 3 7654
Diagram XX – Q2: If you answered “Yes” - which of the following do do you think is the most important
reason for having to think differently ?
Diagram XX – Q3: If you answered “No” - why do you yhink that ?

29. This question tests the ability for AXA Group to think more innovatively in the future recruitment of talent.
It is clear from the Digital Transformation that our market is changing and thus we do face competition for
talent from a much-wider range of industries.
1. Greater competition from other industries
2. It won't – we should still focus on the Financial Services companies
3. Need to look more globally for local hires
Currently, recruitment is managed by the HRBPs within the entities and this question tests both the inertia to
change and the flexibility of those strucutres. The author's observations on this question were that the
respondens who asnwered (a) were those he expected to and are the stakeholders who will be used to create
quick wins.
1. A
2. B
3. C
0
50
Responses
0
100
Percentageof
Responses
1 2 3 7654
0
5
0
Percentageof
Responses
Responses
0
100
1 2 3 7654
Diagram XX – Q4: How do you think the candidate market will change going forwards ?
Diagram XX – Q5: Do you think we can achieve these goals better by (a) a cenral sourcing team delivering
Globally (b) entity HRBPs managing recruitment (c) other ?

30. This again tested whether there were percevied cultural and structural blockers and identified specifics
which may need to be considered in future recommendations.
1. Autonomous regionally-federated business units who don't like being told what to do and distrust
central policies
2. Financing for centralised projects must come from “revenue-earning” entities
3. Accessing the right stakeholders most effectively
4. Hiring Managers perceiving their autonomy as complete power and not understanding the need to
change
This question directly tested the impact of culture in particular and identified inertia as a potetnial major
blocker. It also showed that certain expectations of the digital native will not be met in the current format.
1. Traditional recruitment and selection processes
2. Traditional nature of the industry
3. Traditional and retrospective nature of the Employer Value Proposition
4. Needs and wants of the digital native vs traditional AXA candidates
5. Hiring Managers not recognising the need for change
6. AXA's culture
7. Not being flexible in terms of role location
0
Percentageof
Responses
Responses
0
50
100
1 2 3 7654
0
5
0
100
Percentageof
Responses
Responses
1 2 3 7654
Diagram XX – Q6: In AXA's structure, what may prevent the effective implementation of centralised
practices in sourcing Digital Talent ?
Diagram XX – Q7: What is it about AXA which could hinder the innovative attraction of digital talent ?

31. This question considered the nature of the changing market in terms of the expectations of the future talent
pool and in so doing actually identified the very traditional view of the Hiring Manager's in particular. The
author's own research during the Marketing Through Social Media elective identified very different needs
for Gen Y and digital native candiates compared to more traditional AXA Group employees.
1. The overall digital transformation strategy
2. The fact we are a global insurance brand
3. Innovation and creativity
4. Corporate Social Responsibility
5. Empowering culture
This questions explores the impact of the traditional culture and implicit approach to change.
1. Global brand
2. Innovative and creative products
3. Delivering for society
4. Offering empowerment and challenge
0
5
0
100
Percentageof
Responses
Responses
1 2 3 7654
0
50
100
PercentageofResponses
ResponsesResponses
1 2 3 7654
Diagram XX – Q8: What are the most important messages for the external digital talent pool ?
Diagram XX – Q9: Do you believe we can offer all elements of the Employee Value Proposition statement
Across all areas of our business ? (Answer Yes or No for each element – graphonly shows Yes responses)

32. The author, with reference to both the objective output above and his own observations as a participant
observer (Kluckhohn, 1940) and expertknowledge of the topic in hand based on interpretation of anecdotal
evidence from the interviews which formed the basis of the questionnaire, has identified the following high-
level themes:
# Comments/Observations
1 There was no correlation between any of the respondents function and the question themes. The only exception to this lack of
trend was that the Marketing respondents always gave the answer which had a “brand” element eg Q8/Response 2.
2 There was a lack of knowledge across most groups, other than HR, about the benefits of a centralised sourcing team.
3 Inertia was perceived as a potential issue across all areas of the respondent group possibly caused by a fear of losing control of
the recruitment process, thus possibly related to a lack of knowledge of the pilot and the opportunity it presents.
4 A lack of understanding of how the Digital Transformation will change the “type” of people AXA recruits and thus the
expectations in terms of career, flexible working, etc.
5 A lack of understanding about the Employer Value Proposition being about the past, traditional insurance brand – does this
appeal to the future-focussed digital native which is the target for AXA.
6 Any question that implied a possible cultural challenge affirmed that challenge is likely to exist.
The author was not surprised by this output having experienced similar themse on a local within the
company previously when trying to implement innovative practices within the UK entity where there are
four financial entities and a Corporate Centre.
Rich Picture Diagram from Soft Systems Methodology
The pilot did not produce the expected results in the first three months which were anticipated and a mid-
pilot review was held at the end of January 2014 involving primarily the same people who had answered the
questionnaire in September 2013. The focus of this meeting was to understand:
1 – the views of all stakeholders represented at the meeting who were from a variety of backgrounds
including HR, Marketing, Operational Excellence and IT.
2 – identify what had prevented the delivery of the quick wins which were so key to the initial stages of the
Pilot (Kotter, 1995).
The use of the Rich Picture Diagram allowed the author to further understand the perceived issues from a
wide range of stakeholders and to create more visual linkages across the issues which transpired (Checkland
& Poulter, 2006). This analysis meant that recommendations could be made based on holistic issues and
perceptions rather than just on the initial questionnaires which had to be interpreted to create themes before
offering recommendations.
The author felt this session should be very open and to an extent unstructured to allow the disparate views to
be recorded in a relaxed, honest environment and as such reverted to a rich picture diagram to capture the
views. The diagram has been replicated below and the key themes are summarised in table XXXX:

33. # Theme
1 Hiring Managers do not plan their staffing requirements properly in terms of numbers, skills, etc required and as a result
recruitment is reactive and thus more expensive and often wastes time of recruiters and candidates with its iterations – but this
is not considered to be an issue
2 Networking (le vieux ecole) and agencies are how managers expect to recruit and these current recruitment practices do not
lead to diversity of workforce
3 Managers believe autonomy to be total power and thus will only do things the way they want to rather than the way which is
most cost-effective or best for the AXA Group
4 Entities do not like being told what to do by Group
5 Managers do not understand Gen Y and as a result do not adapt their behaviour to their needs
6 AXA is not perceived as a modern, innovative culture and do not pay high-end salaries thus are not compeititve with the
market for digital talent
7 Candidates do not see AXA as an Employer of Choice in the digital space
8 Hiring Managers are very traditional in their attitudes towards flexible working patterns
9 AXA is viewed as a very traditional insurance company with very hierarchical attitudes
10 Hiring Managers do not see the importance of slick and planned recruitment processes – thus candiadte selection can take
months