Organizational design for service innovation development

This is the accepted manuscript. It was part of the Proceedings of the 2014 R&D Management Conference.Firms increasingly servitize, thus selling functionality instead of or in addition to products. Despite various qualitative studies little quantitative evidence exists on how firms should organize for effective service innovation. This paper presents results from a quantitative study on servitization in the German manufacturing sector. We focus on performance effects of three distinct organizational design element: autonomy of the service business, service innovation orientation in the innovation strategy and formalization of a service specific innovation process. We analyze how these organization design elements are contingent on service innovativeness. Our results are based on hierarchical regression analyses of data complied through a multi-item scaled questionnaire completed by two informants from 72 firms. The findings show that organizing for new service development in a separate business unit and formalizing a specific service innovation process positively impact service business success in general. When testing for moderating effects we find that the results are contingent on technological and organizational innovativeness of the new services that firms develop. However, when service units occasionally work on radical innovation projects such organizational design seems to be sub-optimal. We discuss how firms can counteract sub-optimality by specific remedies.We like to thank Thomas Meiren and the Competence Team Service Development at the Fraunhofer IAO in Stuttgart (Germany) for their generous support. Funding for the project was kindly provided by the Konrad-Adenauer Foundation