THE RELATIONSHIP BETWEEN SERVICE

INNOVATION MANAGEMENT PRACTICES ON

PERFORMANCE WITHIN TELECOMMUNICATIONS

INDUSTRY IN MALAYSIA

By

SEYEDEH KHADIJEH TAGHIZADEH

This Thesis is Submitted in Fulfillment of the

Requirements for the Degree of

Doctor of Philosophy

October 2015

THE RELATIONSHIP BETWEEN SERVICE

INNOVATION MANAGEMENT PRACTICES ON

PERFORMANCE WITHIN TELECOMMUNICATIONS

INDUSTRY IN MALAYSIA

SEYEDEH KHADIJEH TAGHIZADEH

UNIVERSITI SAINS MALAYSIA

2015

ii

ACKNOWLEDGMENTS

I am grateful to Almighty ALLAH for his mercifulness and blessing. May

peace and blessing of ALLAH be upon Mohammad S.A.W. his last messenger.

This study involved a lot of determination, hard work, and support. Many

people have contributed their time, effort, and knowledge in the completion of this

study. Notably, I would like to express my deepest gratitude to my supervisor

Associate Professor Dr. Krishnaswamy Jeyaraman for his continual directions,

assistances, and patience in guiding me through the research process. This study

owes much to his guidance, careful thoughts, and generosity in time devoted to

reviewing and commenting on this research. With a greater appreciation, I

acknowledge Dato Professor Ishak Ismail, who guided me as my co-supervisor

during the period of this program. I must admit his diversified supports and time for

which, I was able to complete this tough journey.

My earnest appreciation extends to my examiners for their valuable

comments and suggestions, which made me able to complete this study. I should take

the privilege to thank all the members of the School of Management who were

directly and indirectly involved in the process of this journey.

I must admit the contributions of Professor T. Ramayah, Associate Professor

Dr. Noor Hazlina Ahmad, and Associate Professor Dr. Hasliza Abdul Halim.

I offer my gratitude and deepest indebtedness to Dr. Syed Abidur Rahman for

his continual support to me in the completion of this study. I believe his

knowledgeable thoughts have enhanced my learning process.

iii

I must always remember and acknowledge Shaghayegh Malekifar who has

supported me remarkably. Besides, I would like to thank the doctoral and masters

students who were around me with their sincere encouragement during this course of

time.

I am very much grateful to the authorities of Telecommunications companies

in Malaysia for allowing me to do the research. Most importantly, I am indebted to

the respondents of this research for their sincere cooperation.

Thank you all so much and May ALLAH blesses you and is with you always.

SEYEDEH KHADIJEH TAGHIZADEH

School of Management, USM

October 2015

iv

TABLE OF CONTENTS

Page

ACKNOWLEDGMENTS ......................................................................................... ii

TABLE OF CONTENTS .......................................................................................... iv

LIST OF TABLES ................................................................................................... xii

LIST OF FIGURES ................................................................................................ xiv

List of Publications .................................................................................................. xvi

List of Acronyms Included in the Study .............................................................. xvii

ABSTRAK ............................................................................................................. xviii

ABSTRACT .............................................................................................................. xx

CHAPTER 1 - INTRODUCTION ............................................................................ 1

1.0 Introduction ............................................................................................................ 1

1.1 Background of the Study ........................................................................................ 2

1.1.1 Global Competitiveness Index Analysis for Malaysia .................................... 8

1.1.2 Telecommunications Industry in Malaysia ................................................... 11

1.1.4 Motivation of the Study ................................................................................. 15

1.2 Problem Statement ............................................................................................... 16

1.3 Research Questions .............................................................................................. 23

1.4 Research Objectives ............................................................................................. 24

1.5 The Scope of the Study ........................................................................................ 25

1.6 Significance of the Study ..................................................................................... 26

1.6.1 Theoretical Contributions .............................................................................. 26

v

1.6.2 Practical and Managerial Contributions ........................................................ 28

1.7 Organization of the Chapters ............................................................................... 29

1.8 Operational Definitions of Key Terms ................................................................. 30

CHAPTER 2 - LITERATURE REVIEW .............................................................. 33

2.0 Chapter Overview ................................................................................................ 33

2.1 Service Innovation Management.......................................................................... 33

2.1.1 The Concept of Innovation in Services ......................................................... 34

2.1.2 Types of Innovation in Services .................................................................... 37

2.1.3 Service Innovation and Involvement of Customer and Other Parties ........... 46

2.1.4 Innovation and Evolution of Theories and Models ....................................... 48

2.1.5 The Model of Service Innovation Management for Current Research ......... 57

2.1.5.1 Strategy ................................................................................................... 59

2.1.5.2 Process .................................................................................................... 61

2.1.5.3 Organization............................................................................................ 63

2.1.5.4 Tools/Technology ................................................................................... 64

2.1.5.5 System ..................................................................................................... 65

2.1.6 Interactions among SPOTS Components ...................................................... 66

2.2 Value Co-creation ................................................................................................ 66

2.2.1 Value Co-Creation from the Perspective of Customer and Company .......... 71

2.2.2 Managing DART Model of Value Co-Creation ............................................ 73

2.2.2.1 Dialogue .................................................................................................. 75

2.2.2.2 Access ..................................................................................................... 76

vi

2.2.2.3 Risk ......................................................................................................... 77

2.2.2.4 Transparency ........................................................................................... 77

2.2.2 Combining DART Dimensions ..................................................................... 78

2.3 Innovation Value Chain ....................................................................................... 78

2.3.1 Idea Generation ............................................................................................. 82

2.3.2 Conversion ..................................................................................................... 82

2.3.3 Diffusion ........................................................................................................ 83

2.4 Pricing Practice .................................................................................................... 83

2.5 Performance ......................................................................................................... 86

2.6 Theoretical Bases of the Study ............................................................................. 88

2.7 Research Framework ............................................................................................ 98

2.8 Research Hypotheses ......................................................................................... 100

2.8.1 Value Co-creation and the Components of the SPOTS Model ................... 100

2.8.2 Innovation Value Chain and the Components of the SPOTS Model .......... 102

2.8.3 The Components of the SPOTS Model and Performance ........................... 103

2.8.3.1 Strategy and Performance ..................................................................... 104

2.8.3.2 Processes and Performance ................................................................... 105

2.8.3.3 Organization and Performance ............................................................. 106

2.8.3.4 Tools/technology and Performance ...................................................... 107

2.8.3.5 System Integration and Performance .................................................... 108

2.8.4 The Components of the SPOTS Model and Pricing Practice ...................... 109

2.8.4.1 Strategy and Pricing Practice ................................................................ 110

vii

2.8.4.2 Process and Pricing Practice ................................................................. 111

2.8.4.3 Organization and Pricing Practice ........................................................ 112

2.8.4.4 Tools/technology and Pricing Practice ................................................. 113

2.8.4.5 System Integration and Pricing Practice ............................................... 113

2.8.5 Pricing Practice and Performance ............................................................... 114

2.8.6 Mediating Effect of Pricing Practice ........................................................... 115

2.8.7 Moderating Effect of Company Type (Multi-group Analysis) ................... 117

2.9 Summary of the Chapter .................................................................................... 120

CHAPTER 3 - RESEARCH METHODOLOGY ............................................... 123

3.0. Chapter Overview ............................................................................................. 123

3.1 General Research Design ................................................................................... 123

3.2 Population, Sample and Unit of Analysis .......................................................... 124

3.3 Survey Instrument .............................................................................................. 127

3.4 Expert Opinions ................................................................................................. 135

3.5 Pretest ................................................................................................................. 140

3.6 Pilot Study .......................................................................................................... 143

3.7 Data Collection Procedure ................................................................................. 145

3.8 Data Preparation ................................................................................................. 147

3.8.1 Data Error .................................................................................................... 147

3.8.2 Missing Values ............................................................................................ 148

3.8.3 Independent Two-Group t-Test and Effect Size of Mean Difference ......... 149

3.8.4 Common Method Bias ................................................................................. 149

viii

3.9 Exploratory Factor Analysis .............................................................................. 151

3.10 Data Analysis Technique ................................................................................. 152

3.11 Partial Least Square (PLS) versus Covariance-based SEM (CB-SEM) .......... 155

3.12 Reflective and Formative Measurement Models ............................................. 160

3.13 Higher Order Constructs .................................................................................. 161

3.13.1 Value Co-Creation as a Reflective-Formative Higher Order .................... 162

3.13.2 Innovation Value Chain as a Reflective-Formative Higher Order ............ 163

3.13.3 Pricing Practice as a Reflective-Formative Higher Order ......................... 164

3.13.4 Operational Performance as a Reflective-Reflective Higher Order .......... 165

3.14 Evaluation of PLS Path Model Results ............................................................ 166

3.14.1 Assessment of Measurement Model .......................................................... 166

3.14.1.1 Convergent Validity ............................................................................ 167

3.14.1.2 Discriminant Validity ......................................................................... 168

3.14.2 Assessment of Structural Model ................................................................ 170

3.15 Testing Mediation in PLS ................................................................................ 172

3.16 Testing Moderating Effect in PLS ................................................................... 174

3.17 Summary of the Chapter .................................................................................. 176

CHAPTER 4 - SIGNIFICANT RESULTS AND FINDINGS ............................ 178

4.0 Introduction ........................................................................................................ 178

4.1 Profile of the Companies and Respondents ....................................................... 178

4.2 Independent Two Groups t-test .......................................................................... 183

4.3 Common Method Bias (CMB) ........................................................................... 185

ix

4.4. Exploratory Factor Analysis (EFA) and Reliability for Self-construct ............ 186

4.5 PLS Results ........................................................................................................ 190

4.5.1 Goodness of Measurement Model ............................................................... 190

4.5.1.1 Convergent Validity .............................................................................. 191

4.5.1.2 Discriminant Validity ........................................................................... 198

4.5.2 Descriptive Statistics of the Latent Constructs ............................................ 199

4.5.3 Structural Model .......................................................................................... 200

4.5.3.1 The Relationship between Antecedent Variables and Independent

Variables ........................................................................................................... 208

4.5.3.2 The Relationship between Independent Variables and Dependent

Variables ........................................................................................................... 210

4.5.3.3 The Relationship between Independent Variables and Mediating

Variable ............................................................................................................. 211

4.5.3.4 The Relationship between Mediating Variable and Dependent Variables

.......................................................................................................................... 212

4.5.3.5 The Mediating Role of Pricing Practice ............................................... 212

4.5.4 Multi-group Analysis .................................................................................. 213

4.5.4.1 Convergent Validity .............................................................................. 214

4.5.4.2 Discriminants Validity .......................................................................... 220

4.5.4.3 Invariance Test ...................................................................................... 221

4.5.4.4 Path Coefficients ................................................................................... 223

4.5.5 Predictive Relevance (Q2) ........................................................................... 226

x

4.6 Summary of the Chapter .................................................................................... 227

CHAPTER 5 - DISCUSSIONS ON FINDINGS .................................................. 232

5.0 Introduction ........................................................................................................ 232

5.1 Recapitulation and Discussions on the Findings ................................................ 232

5.1.1 Value Co-Creation and Its Influence on the Components of the SPOTS

Model .................................................................................................................... 235

5.1.2 Influence of Innovation Value Chain on the Components of the SPOTS

Model .................................................................................................................... 243

5.1.3 Influence of the Components of the SPOTS Model on Telecommunications

Service Provider Performance .............................................................................. 246

5.1.4 Influence of the Components of the SPOTS Model on Pricing Practice .... 251

5.1.5 Influence of the Pricing Practice on Telecommunications Service Provider

Performance .......................................................................................................... 254

5.1.6 Mediating Effect of Pricing Practice ........................................................... 257

5.1.7 Multi-group Analysis .................................................................................. 260

5.1.8 The Modified Final Framework .................................................................. 262

5.2 Contribution of the Study ................................................................................... 263

5.2.1 Theoretical Contribution ............................................................................. 263

5.2.2 Methodological Contribution ...................................................................... 266

5.2.3 Practical and Managerial Contributions ...................................................... 267

5.3 Limitations ......................................................................................................... 271

5.4 Scope for Future Research ................................................................................. 272

xi

5.5 Summary and Conclusion .................................................................................. 273

REFERENCES ....................................................................................................... 275

APPENDICES ........................................................................................................ 311

Appendix A: Experts Opinion on Questionnaire ..................................................... 311

Appendix B: Results of Pilot Test, Reliability ......................................................... 314

Appendix C: Demographic Profile........................................................................... 316

Appendix D: Independent t-test ............................................................................... 317

Appendix E: Common Method Bias (CMB) ........................................................... 322

Appendix F: Exploratory Factor Analysis ............................................................... 325

Appendix G: Measurement Model ........................................................................... 328

Appendix H: Structural Model ................................................................................. 351

Appendix I: Multi-group Analysis ........................................................................... 353

Appendix J: Questionnaire ..................................................................................... 3688

xii

LIST OF TABLES

Page

Table 1.1: World‘s top innovative service companies ................................................. 4

Table 1.2: Balance scorecard for innovation................................................................ 5

Table 1.3: Global competitiveness index analysis for Malaysia (2008-2014) ........... 10

Table 1.4: Operational definitions of key terms......................................................... 31

Table 2.1: Examples of radical and incremental innovations mapped on to the 4Ps

model .......................................................................................................................... 42

Table 2.2: Various ways of expressing customer involvement in the provision of

services ....................................................................................................................... 46

Table 2.3: The five generations of innovation process model ................................... 49

Table 2.4: Summary of approaches of innovation in services studies ....................... 51

Table 2.5: Summary of theories and models of innovation ....................................... 56

Table 2.6: G-D Logic vs. S-D Logic on value creation ............................................. 69

Table 2.7: Firm‘s resource ......................................................................................... 93

Table 3.1: Items constituting value co-creation activities ........................................ 129

Table 3.2: Items constituting innovation value chain process ................................. 131

Table 3.3: Items constituting the components of the SPOTS model ....................... 132

Table 3.4: Items constituting pricing practice .......................................................... 134

Table 3.5: Items constituting market and operational performance ......................... 135

Table 3.6: Deleted question items based on experts‘ opinion .................................. 136

Table 3.7: Expert opinion on self-constructed items of value co-creation dimensions

.................................................................................................................................. 137

Table 3.8: Narrative expert opinion ......................................................................... 139

Table 3.9: Number of question items ....................................................................... 143

xiii

Table 3.10: Cronbach‘s alpha scores of instrument scales ...................................... 145

Table 3.11: The list of MNC and LC offices operating in different states of Malaysia

.................................................................................................................................. 146

Table 3.12: Rules of thumb for selecting CB-SEM or PLS-SEM ........................... 157

Table 3.13: Criteria for reflective and formative measurement ............................... 169

Table 4.1: Achieved survey questionnaire ............................................................... 180

Table 4.2: Respondents background information (n=249) ...................................... 181

Table 4.3: Independent sample t-test (online and hardcopy) ................................... 184

Table 4.4: Result of the exploratory factor analysis (Varimax rotation) ................. 188

Table 4.5: Results of reliability analysis .................................................................. 189

Table 4.6: The results of measurement model ......................................................... 193

Table 4.7: Discriminant validity of constructs, Fornell-Larcker criterion ............... 198

Table 4.8: Descriptive statistics ............................................................................... 200

Table 4.9: The result of F-value and observed statistical power.............................. 201

Table 4.10: The results of structural model ............................................................. 204

Table 4.11: Measurement model of multi-group analysis ....................................... 215

Table 4.12: Discriminant validity of multi-group analysis ...................................... 220

Table 4.13: Result of invariance test ........................................................................ 221

Table 4.14: The result of the multi-group analysis for the moderation test ............. 224

Table 4.15: The result of the Q2 values .................................................................... 227

Table 4.16: Summary of hypotheses results ............................................................ 230

xiv

LIST OF FIGURES

Page

Figure 1.1: Global innovative score of top ten countries ............................................. 3

Figure 1.2: Telecommunications industry contribution to GDP, 2009 ...................... 12

Figure 1.3: Telecommunications sectors revenue (2004-2013), Malaysia ................ 13

Figure 2.1: The ‗4Ps‘ of innovation space ................................................................. 40

Figure 2.2: Reverse innovation cycle ......................................................................... 52

Figure 2.3: Building block of interactions for co-creation of value ........................... 74

Figure 2.4: Innovation value chain ............................................................................ 81

Figure 2.5: Resource to performance conversion model ........................................... 92

Figure 2.6: RBV Theory ............................................................................................ 92

Figure 2.7: Theoretical research framework .............................................................. 99

Figure 3.1: Value co-creation as second order constructs, reflective-formative type

.................................................................................................................................. 163

Figure 3.2: Innovation value chain as second order constructs, reflective-formative

type ........................................................................................................................... 164

Figure 3.3: Pricing practice as second order constructs, reflective-formative type . 165

Figure 3.4: Operational performance, second order constructs reflective-reflective

type ........................................................................................................................... 166

Figure 4.1: Measurement model .............................................................................. 197

Figure 4.2: Path coefficient for independent variables and dependent variables ..... 206

Figure 4.3: Path coefficient for antecedent variables, independent variables,

mediating variables, dependent variables ................................................................ 207

Figure 4.4: The interaction graph between innovation value chain and organization

.................................................................................................................................. 225

xv

Figure 4.5: The interaction graph between system integration and market

performance.............................................................................................................. 226

Figure 5. 1: Modified final framework of the current study .................................... 262

xvi

List of Publications

Lists of Journal Articles Publications

Seyedeh Khadijeh Taghizadeh, Krishnaswamy Jayaraman, Ishak Ismail, & Syed

Abidur Rahman. (2016). Scale Development and Validation of Value Co-

Creation on Innovation Strategy. Journal of Business and Industrial

Marketing. 31 (1), In Press (ISI and SCOPUS Indexed)

Seyedeh Khadijeh Taghizadeh, Krishnaswamy Jayaraman, Ishak Ismail, & Syed

Abidur Rahman. (2014). Innovation value chain as predictors for innovation

strategy in Malaysian Telecommunication industry. Problems and

Perspectives in Management, 12(4), 533-539. (SCOPUS Indexed)

Seyedeh Khadijeh Taghizadeh, Krishnaswamy Jayaraman, Ishak Ismail, & Syed

Abidur Rahman. (2014). A Study of Service Innovation Management in the

Malaysian Telecommunications Industry. Global Business and

Organizational Excellence. 34(1), 67-77. (SCOPUS Indexed)

Seyedeh Khadijeh Taghizadeh, K. Jayaraman, Syed Abidur Rahman, & Shaghayegh

Malekifar. (2014). A Glance on Service Innovation Scenario: Case of

Leading Telecommunication Companies in Malaysia. International Journal

of Business and Innovation (IJBI), 1 (5), 4-22.

Seyedeh Khadijeh Taghizadeh, Krishnaswamy Jayaraman, Ishak Ismail, &

Mohammad Iranmanesh. (2013). Service Innovation Management on Market

Performance through Relevancy of Market conditions: Guide to

Telecommunications Industry, Malaysia. Australian Journal of Basic &

Applied Sciences, 7(4), 241-252.

Conference Paper Presentation:

Best paper award

Title: Innovation Value Chain as Antecedent of Service Innovation

Management Practices: Experience from Malaysian

Telecommunication Sector

Conference: International Conference on Business Strategy and Social Science

(ICBSSS 2014), Kuala Lumpur, Malaysia, 16-17 August, 2014.

Organizer: Asian Economic and Social Society, University Tun Hussain Onn

Malaysia, and PAK Publishers.

xvii

List of Acronyms Included in the Study

MNC Multinational Company

LC Local Company

DART Dialogue, Access, Risk, Transparency

SPOTS Strategy, Process, Organization, Tools/Technology, System

RBV Resource-based view

CIT Computer Information Technology

xviii

HUBUNGAN ANTARA AMALAN PENGURUSAN INOVASI

PERKHIDMATAN PRESTASI DALAM INDUSTRI TELEKOMUNIKASI DI

MALAYSIA

ABSTRAK

Persaingan dalam industri telekomunikasi memerlukan syarikat-syarikat perlu

lebih inovatif dengan permintaan pelanggan yang cepat berubah untuk mencapai

prestasi yang lebih baik. Dalam konteks tersebut, inovasi perkhidmatan memainkan

peranan penting dalam proses keseluruhan perniagaan Syarikat. Dengan itu, kajian

ini telah dimulakan untuk mendedahkan hubungan langsung antara amalan inovasi

perkhidmatan pengurusan menggunakan model SPOTS (strategi, proses, organisasi,

peralatan / teknologi dan sistem) dan pasaran dan prestasi operasi serta melalui kesan

pengantara harga amalan. Kajian semasa mengkaji pengaruh nilai bersama

penciptaan dan inovasi rantaian nilai sebagai dua pemboleh ubah kepada model

SPOTS. Varians berdasarkan PLS-SEM telah digunakan untuk menguji rangka kerja

konsep menggunakan 249 maklumbalas daripada pengurus-pengurus industri

telekomunikasi Malaysia. Hasil kajian ini mendedahkan bahawa penciptaan nilai

bersama dan inovasi rantaian nilai adalah merupakan peramal yang tulen untuk

semua lima komponen model SPOTS. Penyelidikan empirikal semasa meneroka

prestasi Syarikat Telekomunikasi bergantung kepada inovasi dalam strategi, proses,

organisasi fungsian silang dan penyelenggaraan sistem. Di samping itu, amalan harga

pengantara bagi hubungan strategi dan sistem integrasi dengan kedua-dua prestasi.

Dari aspek praktikal, kajian ini dapat menyumbang panduan tenang amalan-amalan

inovasi bagi syarika-syarikat telekomunikasi secara keseluruhannya selain turut

membantu membentuk satu pelan tindakan bagi syarikat telekomunikasi lain di

Malaysia khasnya, dan juga di Asia amnya. Di samping itu, kajian ini boleh

xix

disesuaikan untuk aplikasi amalan inovasi perkhidmatan di sektor-sektor

perkhidmatan yang lain di Malaysia.

xx

THE RELATIONSHIP BETWEEN SERVICE INNOVATION

MANAGEMENT PRACTICES ON PERFORMANCE WITHIN

TELECOMMUNICATIONS INDUSTRY IN MALAYSIA

ABSTRACT

The competition in the telecommunications industry requires companies to be

more innovative to align with the fast changing demand of customer to achieve better

performance. In such context, service innovation plays a crucial role in company‘s

overall business performance. Thus, this research has embarked on to reveal the

direct relationship between service innovation management practices using the

SPOTS model (strategy, process, organization, tools/technology, and system) and the

market and operational performance and also through the mediating effect of pricing

practice. The current study investigates the influence of value co-creation and

innovation value chain as two antecedent variables on the components of the SPOTS

model. The variance based PLS-SEM had been applied to test the conceptualized

framework using 249 responses from managers of Malaysian telecommunications

industry. The findings revealed that both value co-creation and innovation value

chain were pure predictors for all the five components of the SPOTS model. The

current empirical research explores the performances of the telecommunications

companies depend on innovation in strategy, process, cross-functional organization,

and system integration. Meanwhile, the pricing practice mediates the relationship of

strategy and system integration with both performances. The practical contribution of

the research serves as a guide on innovation practices for telecommunications

companies and the results form a road map for other Malaysian telecommunications

companies, as well as those in Asia. Further, the study may be customized for the

applications of service innovation practices of other service sectors in Malaysia.

CHAPTER 1 - INTRODUCTION

1.0 Introduction

The issue of service innovation in general has come to the attention of

academics, policy makers, and practitioners in recent times. Although innovation is

complex and highly dynamic in nature, scholars have asserted that innovation

demands effective managerial judgment and decision making (Milling, 1996).

However, the complexities associated with service innovation in the developing

world have not captured much attention in the extant research. In most developing

countries there is a tendency for businesses to follow the crowd and practices the

traditional business values, thereby avoiding the creative path of management

practices (Jackson & Harris, 2003; Pawanchik et al., 2011). Although the businesses

follow the traditional business approach, the competition in developing countries still

exists. Thus, industries need to come up with new ideas and start to explore venues

of innovative approaches in their practices for their better performance and growth.

Similar to other industries such as electronic and Fast Moving Consumer Goods

(FMCG), the telecommunications industry necessitates innovation practices as an

effective business strategy to strive for cost reduction, improvement of overall

performance, and increase growth.

Considering the above issue, the current study has postulated that the practice

of service innovation management helps Malaysian telecommunications companies

to achieve better performance, which can also be facilitated by pricing practices. In

addition, it has been suggested that value co-creation and the innovation value chain

can play an antecedent role for service innovation management practices.

2

In this regard, Chapter one provides an overview on the research background,

problem statement, research questions, and the objectives of the study. This Chapter

also highlights the significances and contribution of the study followed by the

organization of the research Chapters and definition of key terms.

1.1 Background of the Study

In recent times, the issue of innovation has become a global factor and most

important ways to drive for economic achievement for any countries. However, as

innovation is dynamic, companies of all sizes and from different geographic

locations are in a competitive position (The Economist, 2014). Such context has

placed the companies in difficult situation and pushing for findings new ways to

prevail in the market with better performance. According to a joint report prepared

by Cornell University, World Intellectual Property Organization, and INSEAD,

innovation is a subject of greater importance, which not only brings higher

performance but also act as a stimulator for sustainable growth in a competitive

market. The report has also identified that government, incubation, infrastructure,

markets, and businesses are crucial factor for innovation ecosystem (The Global

Innovation Index, 2014).

The data from the The Global Innovation Index (2014) demonstrates (Figure

1.1) that in 2013-2014, the top ten countries (which are also considered as

innovation-driven economies) in innovation performance are Switzerland, United

Kingdom, Sweden, Finland, Netherland, USA, Singapore, Denmark, Luxemburg,

and Hong Kong (China). Each of these countries contributes to the world market

with a special product with excellence in innovation. For instance, ARM holding, a

3

5254565860626466

Global Innovation Score

Score

company from United Kingdom, has become top most innovative company in

Europe and ranked 3rd

in world by designing semiconductor, and microprocessors.

Singapore (ranked seventh) as one of the Asian country, provides a world class

logistics and shipping port and serves as an economic market data center for foreign

companies based in South East Asia. In context of the telecommunications industry,

SBA telecommunications from USA has been ranked at 39th

and DiGi from Malaysia

has been ranked at 100th

in the list of most innovative companies in world (Forbes,

2014).

Figure 1.1: Global innovative score of top ten countries

Source: The Global Innovation Index (2014)

Comprehensively, innovation brings better performance which consequently

turns the companies towards expansion. The Forbes data shows that most of the

leading/biggest companies (e.g. Exxon Mobil, General Electric) in the world are

originated from USA. Two telecommunications companies from Malaysia, Axiata

(ranked in 861) and Maxis (ranked as 1344) in the world‘s top 2000 leading/biggest

companies list. However, there is a perplexity exist regarding the innovation, in

4

terms of its applicability in the types of industries such as manufacturing, and

services. Innovation not only centers in the manufacturing industry rather it is also

dominant in the services industries. Many of the world‘s top innovative companies

belong to the service industry such as, Amazon.com (ranked 3rd

), The Priceline group

(ranked 16th

), and Mariott International (ranked 18th

). In addition, Stericycle provides

healthcare service that has been ranked at the 21; a company from USA, MasterCard

has been ranked at 32 in the world‘s most innovative companies list (Table 1.1).

Table 1.1: World‘s top innovative service companies

Industry Company

name Country

Innovative

companies

ranking

Global

leading

ranking

Internet Catalog service

provider Amazon.com USA 3 452

Business and personal

services

The Priceline

group USA 16 654

Hotel & Motel service

industry

Marriott

International USA 18 878

Healthcare service Stericycle USA 21 1959

Data processing services MasterCard USA 32 506

Telecommunications service SBA

Communication USA 38 -

Telecommunications service DiGi* Malaysi

a 100 -

Source: Forbes (2014); *Parent company is from Norway

The above mentioned data and information gives a holistic picture of

innovation around the world. However, it is also interesting to understand the

situation of innovation within the companies. Narrowing down to the state of

innovation in the companies, the renowned consulting firm, Price Waterhouse

Coopers has come up with a balance scorecard for innovation. This balance

scorecard will enable to understand the state of innovation among the leading and

5

large companies in the world. According to the survey by Price waterhouse Coopers

(2014), among 1,757 executives around the world, innovation proved to be the

driving factors for achieving the performance and growth. However, innovation

cannot be happen in a standalone condition, rather it goes through certain stages. In

the survey, innovation strategy, innovation processes, collaboration for innovation

were dominant areas where most of the companies found to have given greater

importance. The following Table (1.2) depicts the result of the survey, which gives

an overall scenario regarding innovation around the global companies.

Table 1.2: Balance scorecard for innovation

Focused

areas

Result

Recognize the

importance of

innovation

67% of the most innovative companies say innovation is a

competitive necessity compared with 19% among the least

innovative.

Innovate with

purpose

The most 32% of innovative companies are more concerned about

developing the right innovation strategy compared with 20%.

Coherent

strategy

Nearly 80% of the most innovative say they have a well-defined

innovation strategy compared with 47% of the least innovative.

Innovation as

management

process

The most innovative (78%) companies are more likely to manage

innovation efforts formally or in a structured way compared with

66%.

Usage of

social media

to innovate

The most innovative companies use social media more often to

collaborate externally: 67% vs. 39%.

Collaboration When it comes to developing new products and services with

external partners, the most innovative companies (34%) collaborate

over three times more often.

Reap the

rewards

The most innovative companies (62.2%) are growing at a much

faster rate.

Source: Price waterhouse Coopers (2014)1

1 http://www.pwc.com/gx/en/innovationsurvey/index.jhtml

6

The success of innovation in service industry depends on the company‘s

efforts and investments in management through connecting the innovation solution to

the market and gain competitive advantage. As the service industry has been the

fastest growing, it faces a severe competition. In a competitive market, the service

providers may tend to offer innovative products (goods and services) to triumph over

the competition and later create value. Advanced economies are dominated by

service sectors and its activities (Gallouj & Windrum, 2009; Lu et al., 2009; Segarra-

Blasco, 2010) which are pushing service companies to rethink their existing business

model in terms of a more innovative approach. The growth of service has intensified

competition among companies, and makes them search for continuous change and

integrate innovation activities in their business practices. Even manufacturing

companies opt to add more service innovation within their product delivery and

decision-making process (Kindström et al., 2013; Ulaga & Reinartz, 2011) as part of

a solution or wider function (Carlborg et al., 2014).

Hence, innovation can play a critical role in the competitive business arena

and act as a fundamental instrument to increase the strategic competitiveness of an

organization. Competitiveness achieved through innovation, enhances existing

market position enables firms to enter new markets (Gunday et al., 2011). A new

market with a competitive advantage provides a base for further development,

enhances product quality, and provides the benefit of reduced costs (Syson & Perks,

2004). As firms reduce unit costs and improve production routines, there may be

price advantages over competitors and performance enhancement (Gellatly & Peters,

1999). Therefore, innovation can contributes to overall business performance, which

correlates with previous research (Eisingerich et al., 2009; Grawe et al., 2009; Hull,

2004b; Tidd & Bessant, 2009). Performance achieved through innovation improves

7

customer perceptions, thus resulting in sustainable competitive advantage (Gunday et

al., 2011).

As part of strategic decision to achieve better performance, nowadays

companies are allowing customers to interact and participate in the innovation

activities. Interaction with customers in innovation activities co-create value for both

side and ultimately bring better performance. In fact, in emerging economies, the

traditional value creation strategies for innovative service development are losing

their effectiveness. Companies which follow conventional company-centric practices

face trouble in terms of decreased customer satisfaction and profitability. As a result,

companies are now focusing more on leveraging external resources such as

customers, rather than internal efficiency, in order to gain new competitive

advantages (Prahalad & Ramaswamy, 2004a; Zhang & Chen, 2008). All traditional

boundaries of industries are disappearing due to the emergence of active, informed

and connected customer in the competitive landscape, which allows firms be

customer-centric rather than company-centric (Payne et al., 2008). Customer

centricity shapes the new creation process of value and enable the customer to be an

active co-creator of value, which is presenting opportunities for companies in the

competitive arena (Prahalad & Ramaswamy, 2003). Accordingly, interaction with

the customer enables organizations to deal with broader heterogeneous markets in

order to better fit customer needs and firms offered product (Tanev, 2011).

With the help of technology, today‘s customers have become more aware of

new services being offered at a global level and have become more demanding when

purchasing innovative services. Customer demand has made firms more competitive

in terms of changing their services (Kim & Cha, 2000). As a result, many companies

8

have incorporated better features and quality into their product-service offerings in

response to customer needs and to maintain customer grip (Victorino et al., 2005).

On the other hand, services are highly heterogeneous and require a variety of

innovation activities (Martínez-Ros & Orfila-Sintes, 2009). For this reason,

involving customer themselves in the business process will help the organization to

get innovative ideas and supply services based on customer desires (Gummesson,

1994). Customer involvement can happen by means of close relationship between the

organization and the customer. Satisfying customer needs through excellent service

enables companies to gain a competitive advantage over their rivals and encourages

managers to change their decision-making processes. Differentiation and offering

innovative service-products remains a key element of change and enables companies

to be distinct from their competitors (Victorino et al., 2005).

A prime example of innovation is getting away from the normal hierarchical

thinking that a firm goes through when it offers a service. Crushpad, a wine

producer, for example, has turned its service offering to a new way of customer

interaction. Curshpad‘s idea caters to wine buyers in terms of its existing products,

which encouraging them into new markets. In the new market, small niches of people

prefer to create their own blend of wine, which has been offered to the service

producer. The economic benefits are that the risks of creating something that people

would not like drinking are reduced, yet leasing their services to this specific niche

helps revenue growth (Crushpad, 2013).

1.1.1 Global Competitiveness Index Analysis for Malaysia

The World Economic Forum, every year publishes the Global

Competitiveness Report, which provides the competitiveness status of every country

9

(World Economic Forum, 2014). Malaysia has been considered as efficiency driven

economy since 2008 till 2011. In the year of 2012, the country was able to move

forward to the transitional phase of innovation, which indicates that the economy of

the country is mostly moving towards innovation driven. The global competitiveness

index indicates that Malaysia is experiencing fluctuation in the world ranking of

competitiveness. As, in 2008 Malaysia was ranked at 21st, in 2011 slipped to 26

th, in

2012 recaptured the position of 21st and in the following year the country tumbled

down to 25th

position (World Economic Forum, 2014).

In addition, the report shows that Malaysia was able to higher its rank in

terms of basic requirements, mobile telephone subscribers, company spending on

R&D, and capacity for innovation. Although, the country was able to position itself

in better in capacity for innovation, but in terms of innovation, the improvement is

not that much of noteworthy. Such context suggests that having a better capacity for

innovation, in overall the rate of innovation is not significant (Table 1.3).

Based on the Table 1.3, Malaysian service industry plays crucial role to the

contribution of the Gross Domestic Product (GDP). The Global Competiveness

report (2008-14) indicates that the contribution of the service industry is increasing at

a significant pace from 39.6 per cent to 45 per cent, which corroborates the

importance of this industry in the economic development. In the service industry,

telecommunications exist as second most contributory sub-sector to the total GDP

after insurance activity in 2012 (Department of Statistics Malaysia, 2013). In 2013,

the communication sub-sector mainly the telecommunications activities strengthened

at 9.0 per cent from the 8.5 per cent (2012) growth of the service sector to Malaysia‘s

economy, according to the data from Department of Statistics Malaysia (2013).

10

Therefore, it is important to look into the telecommunications industry of Malaysia

with more focused view.

Table 1.3: Global competitiveness index analysis for Malaysia (2008-2014)

2008-09 09-10 10-11 11-12 12-13 13-14

Stage of Development* 2 2 2 2 2-3 2-3

Global Competitiveness

Index

21 24 26 21 25 24

Basic requirements 25 33 33 25 27 27

Efficiency enhancer 24 25 24 20 23 25

Innovation and

sophistication factors

23 24 25 22 23 23

Innovation 22 24 24 24 25 25

Infrastructure 23 26 30 26 32 29

Technological readiness 34 37 40 44 51 51

Mobile telephone

subscriptions

56 51 47 40 33 27

Internet users 20 22 39 40 41 39

Availability of latest

technologies

29 36 35 35 35 37

Firm-level technology

absorption 21 37 30 28 29 33

Capacity for innovation 21 25 25 19 17 15

Company spending on

R&D

18 19 16 13 16 17

Value added to the GDP

(service industry)

39.6% 42% 42% 46% 46% 45%

Source: World Economic Forum (2014)

*Stage 1= Factor driven; Stage 1-2= Transition (Factor to Efficiency); Stage 2= Efficiency driven;

Stage 2-3= Transition (Efficiency to Innovation); Stage 3= Innovation driven

11

1.1.2 Telecommunications Industry in Malaysia

Telecommunications industry is considered as a platform for overall

development of any country. This industry is significantly contributing to flourish the

society in general and economy in particular. Through the amazing innovation

initiatives, the telecommunications industry has literally changed the human

civilization, its culture, its pattern of living. From a developed nation to under

developed country, the telecommunications industry has printed its footstep through

remarkable innovation. The successful business in this industry remains alert to take

on new and retain the existing customers. According to the World Trade

Organization (2014), telecommunications industry holds global market worth over

US$ 1.5 trillion in revenue. Within this industry, mobile services comprise

approximately 40 per cent, while the number of worldwide mobile subscribers has

outstripped the use of fixed telephone lines. It has been also mentioned in the World

Trade Organization (2014) that over the last few decades the telecommunications

market is witnessing extensive dynamism, with the entrance of competitors

irrespective of regional locations. However, the Asian region has witnessed rapid

economic growth in recent years and service activities have emerged as a critical

consideration in enhancing the pace of economic development.

According to the Malaysian Investment Development Authority (2014),

Malaysian government has arranged the framework for the New Economic Model to

make Malaysia from a middle-income to a higher-income economy based on

innovation, creativity and high value sources of growth. Under this model, some

industries such as telecommunications and mobile services are targeted. According to

data from the Economic Transformation Programme (2013), Malaysian

12

4.9

3.5 3.4 3.3 2.9

2.6 2.1

Malaysia Singapore Thailand Hong

Kong

Korea China Indonesia

Telecommunications Industry Contribution to GDP, 2009

telecommunications industry has done well among East Asian countries in 2009 and

contributed 4.9 per cent to Malaysia GDP (Figure 1.2).

Figure 1.2: Telecommunications industry contribution to GDP, 2009

Source: Economic Transformation Programme (2013)

The value added contribution of the Malaysian telecommunications industry

to GDP is higher compared to other Malaysian communications and multimedia

commission (MCMC) industries such as broadcasting, postal sectors, and others. The

value was estimated at about RM14 billion in 2008 and increased to RM22 billion in

2009 (MCMC Annual Reports, 2010). The total revenue from the

telecommunications industry found to be at large in the Malaysian economy. Due to

the massive effort by different standpoint and intriguing market, the revenue from the

telecommunications industry is pluming over the past few years. The data form

Malaysian communications and multimedia commission (MCMC, 2014) illustrates

that revenue generated from the telecommunications industry rose to RM 45.3 billion

in the year of 2013 from RM 19 billion in 2004 (Figure 1.3).

13

19 23.6

28.1 31.9

35.5 35.5 39 40.6

43.5 45.3

0

10

20

30

40

50

Telecommunications Sector Revenue (2004-2013), Malaysia

Telecommunications

Sector Revenue

(2004-2013),

Malaysia.RM Billion

Figure 1.3: Telecommunications sectors revenue (2004-2013), Malaysia

Further, according to the statistics on communications and multimedia from

the Anuual Report Broadband Towards 1Malaysia (2009), 87 per cent of the market

share in 2009 came from major telecommunications sectors. Statistics shows, the

communications and multimedia industry in Malaysia has performed with 4.5 per

cent growth in revenue which was mainly dominated by the telecommunications

sector with nearly 85 per cent share of the revenue growth (MCMC, 2014).

Telecommunications networks in Malaysia are more advanced compared to

any other South-east Asia after Singapore (Market Watch, 2012). The advancement

of telecommunications networks has come mainly through digitalization, optical

fibers, satellites and wireless transmissions. As modern technologies, these are

utilized with next generation networks, unified communication, 3G and 4G content,

WIMAX (Worldwide Interoperability for Microwave Access) digital TV, VOIP

(Voice Over Internet Protocol) and sensor technology. In addition, technologies like

IPV6 (Internet Protocol Version) and digital TV are available. Transactions and

services such as unified communications, data center services, authentication

14

services, e-commerce, payment services and billing are conducted daily through

telecommunications services (Market Watch, 2012).

The market structure of Malaysian telecommunications industry is considered

as oligopoly, as there are only a few firms in telecommunications industry such as

Maxis, Digi, and Celcom reported by Economics Talks Only (2012). The theories in

macro economy have defined oligopoly a market which is dominated by a few large

firms of a homogeneous or differentiated product (McConnell et al., 2009). In the

oligopoly market, there are only few firms which have considerable control over

their prices, but each firm must consider the course of actions, activities, and

reactions of the rivals (Noam, 2006). In an oligopolistic market, once a firm

increases its prices, the competitor will not follow the price increase rather if there is

a reduction in price, competitors usually follow the reduced price in order to retain

their customers (McConnell et al., 2009). For instance, in the Malaysian

telecommunications industry, if firm A reduces their price of the services they

provide, other few large firms also might reduce the price of their services to retain

the existing customer base. Furthermore, in oligopoly market, high barriers to entry

for new competitors exist to a greater extent. Such barriers to entry impede the other

new entrants in competing in the market due to the high startup capital cost

(McConnell et al., 2009).

However, the success of the telecommunications industry depends on the

efforts and investments of the individual companies. As telecommunications systems

have been the fastest growing industry, it faces severe competition. In a competitive

market, the telecommunications service providers may offer innovative services due

to breathtaking competition to attract customers and to meet the customer

15

requirements and expectations. In Malaysia, the competition in the

telecommunications industry is very much fierce. Companies such as DiGi, Maxis,

Celcom, Yes mobile, U-mobile, tune talk are successfully running their business

operations, serving a vast and diversified customer base in Malaysia. In order to

increase their market shares, all these companies frequently introduce innovative

services. However, three companies are currently dominating the Malaysian market,

which are having full mobile network operation capability (Celcom, Maxis, and

DiGi). DiGi is a foreign subsidiary while Maxis and Celcom are Malaysian public

limited company. DiGi and Maxis are recognized as the top two innovative

companies and contribute greatly to Malaysian GDP (Pawanchik et al., 2011).

1.1.4 Motivation of the Study

There are significant innovation challenges in the Malaysian context which is

the motivation for the current study. In reality, even though there are some success

stories, the true scenario of the Malaysian service industry‘s contribution to GDP is

that it is still not innovation driven, rather it is in a transitional stage from efficiency

driven towards innovation driven (World Economic Forum, 2014). The

transformation has to take place from efficiency to innovation to achieve the desired

outcomes. Further, Malaysia fell in its global competitiveness (in terms of

innovation) by four positions from 2008 to 2014, and was ranked in 24th

out of 144

nations (World Economic Forum, 2014). The Economic Intelligence Unit (EIU) has

indicated that the Malaysian innovation ranking may decline in future because China

and India are catching up fast (Pawanchik et al., 2011).

As researchers indicate, innovation policies in Malaysia are more oriented

towards Research and Development (R&D), and science and technology driven

16

innovation, rather than modern approaches in innovation such as service innovation,

open innovation, or business model innovation (Pawanchik et al., 2011). In addition,

at the present time, innovation is only just beginning to be a part of company culture

in Malaysia and the focus is still on benchmarking, operational efficiency, copying

competitors, cost cutting, and heading off competition. And also, in Malaysia,

managers have a tendency to consider innovation mainly in the field of only

technology (Idris, 2008).

This is a confirmative sign, which ensures emphasis is needed to improve

different service sectors in Malaysia. In such a situation, companies should invest

more time and effort to broaden innovation policy to connect the innovation solution

to the market or to the customer to create value.

1.2 Problem Statement

Malaysian telecommunications industry is continuing to experience fierce

competition in the market almost daily basis with presence of three major companies

namely Maxis, Digi, and Celcom (Kamarudin et al., 2014). Previous academic

research on Malaysian telecommunications industry has mostly focused on the issues

highlighting government regulations, customer satisfaction, and customer loyalty

(Nikbin et al., 2012; Wong et al., 2014). Further, Salazar (2007) studied political-

structural-historical conditions that shape the adoption of strategic reforms of

telecommunications industries in Malaysia. However, according to Wong et al.

(2014), there is a lack of systematic analysis of the process of telecommunications

industry development in Malaysia. Also it has been noted that diffusion of

telecommunications technology is severely lacking in the developing countries,

17

especially in Malaysia (Wong et al., 2014). In another research, Nikbin et al. (2012)

found that most of the Malaysian telecommunications company‘s service delivery

fails due to not being aligned with the customers‘ trend which impacts on the

switching off among the customers. In addition, in Malaysia the perception on

innovation is still obscure. As noted in the literature, in Malaysia there is a tendency

to equate innovation with high technology and ignore the development of novelties

in the administrative areas such as marketing and human resource (Idris, 2008). In

such paradox, it is an assertion that such situation perhaps could be averted if

Malaysian telecommunications companies manage their services in an innovative

way and practice customer integrated service innovation.

Innovation itself is very complex and dynamic in nature (Tidd et al., 2005).

Most innovation projects face lots of challenges and demands despite the capability

of the company to design and produce a high quality of products and services. About

50 to 90 per cent of innovation projects fail in the marketplace before achieving the

goals of the organizations (Downey, 2007). In the ever dynamic and competitive

environment of the 21st century, firms are struggling to improve performance in order

to stay ahead of their competitors. Service-oriented films also not exception and

operate in a complex and dynamic environment which emphasize on the relationship

between service providers and customer (Kim et al., 2015). Thus, in order to compete

in today‘s hypercompetitive service-oriented marketplace, service firms require

strategies that allow them to compete on service innovation. Service innovation is not

a new concept (Miles, 1993), but research on innovation focus more on technological

innovation by manufacturing (Toivonen & Tuominen, 2009; Vries, 2006), and

mostly ignore service innovation and its inherent opportunities (Carlborg et al.,

2014). However, the issue of service innovation is currently generating a great deal

18

of attention for service researchers, pundits, and practitioners at the global level

(Alam, 2011; Droege et al., 2009; Ettlie & Rosenthal, 2012; Gallouj & Windrum,

2009; Panesar & Markeset, 2008; Van Riel et al., 2013). Scholars found that service

innovation encourages the design of new services, enhances the delivery of services,

enables a company to keep pace with dynamic changes occurring in the business

environment, achieve or improve performance in the marketplace, and secure

competitive advantage (Gunday et al., 2011; Hull & Tidd, 2003a; Jiménez-Jiménez

& Sanz-Valle, 2011; Lin et al., 2010; Möller et al., 2008; O'Cass et al., 2013;

Ottenbacher, 2007; Ruivo et al., 2012; Salunke et al., 2013).

Although the service innovation literature is growing, research frameworks

for the management of service innovation remain scarce (Frei, 2008; Kim et al.,

2015; Möller et al., 2008). Further, the need to thrive and secure competitive

advantages in an agile environment, the practice of service innovation is an important

issue to study (Riel, 2005). Therefore, in the currrent study, a research framework is

presented that study the components of the SPOTS model (strategy process,

organization, tools/technology, and system integration) as service innovation

management practices in the service sector (Tidd et al., 2001). The SPOTS model is

about novelties in the administrative areas such as marketing and operation and has

been tested in developed nations and found that it contributes in enhancing of new

service development performance (Hull, 2003; Hull & Tidd, 2003a). In fact, the

SPOTS model investigates the relationship between internal firm resources and

relational capabilities, and how they interact and evolve to generate better service

innovation in a dynamic environment. As such study in the developing nations like

Malaysia found to be rare, the current study addresses the gap by considering the

SPOTS model to understand to what extent such management practices can help

19

Malaysian telecommunications industry to offer customer aligned service and thus

improve their performance.

The continuous popularity of innovative service development among

customers is making firms more to rely on innovation activities to satisfy customers‘

demands. Hence, firms are putting substantial efforts to create values with their

customers as part of innovation process to attain the competitive advantages

(Prahalad & Ramaswamy, 2003). The development of market is driven by

identifying the right need of customers and customizing the offerings in accordance

(Bharti et al., 2014). To materialize this process, it requires constant connection

through interaction and also participation of the customer, which signifies the value

co-creation (Bharti et al., 2014). Indeed, value co-creation applies the initiatives of

firms‘ innovation with the customers, rather than for the customers, which is now

being considered as a stimulating issue in the market industry. In this line, scholars

have argued that in emerging economies the traditional value creation strategy for

innovative service development is losing its effectiveness (Zhang & Chen, 2008).

Thus, companies are now focusing more on leveraging external resources such as

customers, rather than internal efficiency to gain new competitive advantages

(Prahalad & Ramaswamy, 2004a; Zhang & Chen, 2008). Value co-creation

challenges the conventional value creation process through enabling the customer to

personalize its products and services (Lusch & Vargo, 2008) which has been seen as

a shift from product-and-firm-centric view to customize customer experiences

(Payne et al., 2008). In the conceptual argument of value co-creation, Prahalad and

Ramaswamy (2001) proposed the DART model (dialogue, access, risk assessment,

and transparency) as the key building block in the process of value co-creation in

order to lessen the conventional information asymmetry between customers and the

20

firm. The DART model is an important strategy to facilitate management practices

for successful new service development (Prahalad & Ramaswamy, 2004a). Despite

the importance of value co-creation, research on the key building blocks of value co-

creation (DART) has been largely overlooked. It has been found that thus far the

appropriate construction of the measurements of the DART model has been ignored.

Previously, value co-creation was measured from a different standpoint (Lin et al.,

2010; Zhang & Chen, 2008). Therefore, this research aims to validate the scale

measurements of DART constructs as part of the value co-creation process and to

explore to what extent the DART model is practiced by the companies, even though,

they may believe in value co-creation with their customers.

The SPOTS model signifies the innovation management practices, which

should be implemented not only based on company‘s own decision. Rather, to

achieve the competitive advantage in the market, it is important to take decisions by

sensing the pulse of the customers. As the value co-creation suggests having an

interaction with the customers, it is in need for research to consider the customer

interaction to the practice of SPOTS. While the innovation practices are being

implemented in the company, customers should also have interaction regarding the

company‘s business operation. However, many companies‘ innovation initiatives

were failed due to the incapability of tagging the customers (Hinterhuber, 2004).

Therefore, creating the value with the customers is important in the domain of

innovation management practices. In the extant literature, emphasizes have been

given on the practices of SPOTS model and its outcome. However, lack of research

has been found with regard to the role of value co-creation as a predictor for the

components of the SPOTS model. Such context came out to be one of the puzzling

issues in the scholarly field of innovation management. Thus, the current study

21

addresses the gap in the research by attempting to understand the effect of value co-

creation on the components of the SPOTS model as such a study found to be rare.

Changes in environment make organizational boundaries more dynamic in

order to response to the knowledge about new service development. The process of

new service development represents a series of knowledge initiatives imposed by

various parties which lead to the creation of value (Oliveira & Sbragia, 2013). The

innovation value chain from idea generation, conversion, to diffusion benefits firm in

gathering knowledge and ideas for new service development (Hansen & Birkinshaw,

2007). The advantage of the innovation value chain is the linkage of stakeholders in

the process of innovation from the beginning to the end of new service development

(Ganotakis & Love, 2012) in which knowledge about new services is gathered,

transformed, and exploited (Roper & Arvanitis, 2012). The innovation value chain

enables managers to find the company‘s weaknesses and to better be able to perceive

which innovation approach should be implemented (Hansen & Birkinshaw, 2007).

However, the occurrence of errors in value chain management which do not fulfill

the established goals of the company need to be highlighted (Oliveira & Sbragia,

2013). It is necessary to understand the efficient decisions of management and the

improvement of the team involved. Therefore, it is crucial to know how the

innovation value chain approach helps to highlight the strengths and weaknesses of

the components of the SPOTS model in the innovation management of companies.

The basic telecommunications services in Malaysia are dominated by three

companies. In these oligopolistic market, threat of entry is crucial for other existing

firms‘ profitability. Thus, price plays an important role in firms‘ decision process.

New service development literature perceives pricing to be one of the most important

decisions that firms make while the initiation of new services is undertaken (Hultink

22

et al., 1997). Highlighting the role of pricing is crucial because leaving pricing

issues unaddressed, a barrier will emerge in the implementation of innovation

(Milling & Maier, 1994). Therefore, the issue of pricing has to be resolved in order

for innovation to proceed and to be productive in terms company performance.

However, pricing is one of the most complex decisions faced by companies

(Indounas, 2006) and is a multifaceted practice requiring adequate resources and

coordination efforts (Dutta et al., 2003). Central to successful pricing is an

understanding of how customer value, competition, and cost information on new

services affect the pricing decisions (Ingenbleek et al., 2003). However, the literature

is silent about how organizational capabilities of industrial firms can affect pricing

orientation and how managers integrate cost, competitive, and value information in

their decision-making process (Liozu et al., 2015). In the pricing approaches, more

than 40 per cent of managers are unable to correctly define customer value pricing

along with company and competitor value (Liozu et al., 2012). According to

Ingenbleek et al. (2003), in order to set the right price, firms should receive

information from customers on the service being offered along with information

about company cost and competitor price which are regarded as pricing practice. It

should be mentioned that, in setting the right price, many previous studies have

focused on pricing strategy rather than pricing practice (Hinterhuber, 2004; Nagle et

al., 2010). Nevertheless, pricing practice is the stage before pricing strategy, which

allows the organization to gather information for setting the right price (Ingenbleek

et al., 2003). Considering the importance of pricing practice, however, prior research

has not examined the influence of the components of the SPOTS model on

performance counting the role of pricing practice. Therefore, this research is

designed to shed light on the research lacuna, and proposes that the influence of the

23

components of the SPOTS model on performance will be enhanced if pricing

practice plays a mediating role.

Hence, based on the problems that have been identified, the current study

attempts to conceptualize a research model of service innovation management

practices for new service development in the context of Malaysian

telecommunications industry.

1.3 Research Questions

Considering the problem statement, the current study attempts to formulate

the following research questions for new service development in telecommunications

industry:

1. What are the valid scales measurements for DART model of value co-

creation and does value co-creation have a positive influence on service

innovation management practices (components of the SPOTS model)?

2. Does the innovation value chain have a positive influence on the components

of the SPOTS model?

3. Is there any positive influence of the components of the SPOTS model on the

telecommunications service provider performance (market and operational

performance)?

4. Do the components of the SPOTS model have a positive relationship on

pricing practice?

5. Does pricing practice have a positive relationship on telecommunications

service provider performance?

24

6. Is there a mediating effect of pricing practice on the relationship between the

components of the SPOTS model and telecommunications service provider

performance?

7. Does the company type (multi-national company ‗MNC‘ versus local

company ‗LC‘) moderate between the path relationships of the

conceptualized framework?

1.4 Research Objectives

Considering the research questions, the objectives of the current study are:

1. To validate scales measurements for DART model of value co-creation and

investigate the influence of value co-creation on service innovation

management practices (components of the SPOTS model).

2. To assess the positive influence of the innovation value chain on the

components of the SPOTS model.

3. To study the positive influence of the components of the SPOTS model on

the telecommunications service provider performance (market and

operational performance).

4. To study the positive relationship of the components of the SPOTS model on

pricing practice.

5. To study the positive relationship of pricing practice on telecommunications

service provider performance.

6. To examine the mediating effect of pricing practice on the relationship

between the components of the SPOTS model and telecommunications

service provider performance.

Title page_SKT.pdfTHE RELATIONSHIP BETWEEN SERVICE INNOVATION MANAGEMENT PRACTICES ON PERFORMANCE WITHIN TELECOMMUNICATIONS INDUSTRY IN MALAYSIA