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Jon Sundbo, Department of Communication, Business and Information Technologies, Roskilde
University, Roskilde University, sundbo@ruc.dk
The service laboratory as an organisational innovation
Abstract
This paper presents a case study of an organisational innovation, namely the service laboratory,
and develops a theoretical explanation of its existence. The study was carried out in an insurance
company where the service laboratory was established as a top management decision connected to
introduction of a new strategy. The answers to three research questions were sought namely Why
did the insurance company introduced the service laboratory? How can the function of the service
laboratory be understood? What unintended dysfunctions does the laboratory create? This case
demonstrates that a service laboratory can contribute to systematising service firms’ innovation
work by creating a structure for innovation activities, improving the user-base and involving
employees and other external actors. The service laboratory also creates some dysfunctions, for
example creating confusion for the employees because the laboratory involves them in loosely
coupled networks while it at the same time is part of a hierarchy.
The paper suggests a theoretical model composed of five factors to explain the existence of the
laboratory. These factors are: 1. A structure-network perspective, 2. Roles, 3. Innovation
instruments, 4. Material factors, 5. Organizational processes. The selection of these factors is
inspired by Actor-Network-Theory, Strategic Innovation theory and New Service Development
theory.
1. Aim of the paper
This paper presents a study of an organisational innovation within service firms’ innovation
activities, namely the service laboratory, and develops a theoretical explanation of its existence.
The study is exploratory and the analysis presented here is based on one case, a Danish insurance
company, TrygVesta, which has established a new kind of service laboratory. The laboratory puts
on events and carries out experiments in which customers, non-customers and employees are
invited to participate. These events and experiments are inspired by natural science laboratories, the
service dominant logic (Vargo and Lusch 2006) and experience production (Pine and Gilmore
1999), and are combined with methods of observing actual and potential customers (such as
ethnographic studies). At the same time, the laboratory is designed to train employee innovators.
Innovation processes in service firms have often been characterised as unsystematic and not
based on science, which is seen as a disadvantage (Andersen et al. 2000, Sundbo and Gallouj 2000,
Aa and Elfring 2002). Manufacturing innovation has traditionally been based on the natural and
technical sciences of which the laboratory is the ultimate ideal (which we see, for example, in the
pharmaceutical industry and electronics). The service laboratory is a new suggestion for achieving a
more systematic and research-based way of organising service innovation activities so as to
improve service firms’ innovation activities which can become more efficient, for example in terms
of creating successful products or developing more radical innovations. These qualities make
service laboratories particularly interesting for both service firms and service innovation
researchers.
The service laboratory brings the development of organising innovation activities back to the old
laboratory, however, it does so in a new form because service innovation is not about the invention
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and application of new technology, but about human actions, and reactions (for example those of
customers). The service laboratory is not a technical laboratory, but a sociological and
psychological one.
2. Research questions
In addition to describing TrygVesta’s service laboratory, the paper discusses why it was introduced
by the company. Furthermore, it examines the advantages and disadvantages of the service
laboratory, whether or not it improves the company’s innovation activities and whether or not there
are unintended negative effects. The analysis will seek to answer the following research questions:
• Why did the insurance company introduce the service laboratory, i.e. which business drivers
were behind this innovation?
• How can the functioning of the service laboratory be understood, i.e. which social parties and
material factors are involved and how are they organised?
• What dysfunctionalities does the service laboratory create, e.g. does it create turbulence in the
organisation, does it create mistrust among the users, or are there innovation tasks that the
laboratory cannot solve?
To answer these questions it is important for service innovation researchers to get a better
understanding of the conditions necessary for and processes of organising innovation activities in
service firms. Since the service laboratory is a new phenomenon, answering these questions
produces new scientific knowledge. Thus a theoretical framework for understanding and explaining
these issues will be put forward. The framework will primarily be based on Actor Network Theory
(Law and Hassard 1999, Latour 2005) and selected aspects of service innovation theory, Strategic
Innovation Theory (Mintzberg 1989, Sundbo 1997, Tidd, Bessant and Pavitt 2001, Gallouj 2002,
Sundbo and Fuglsang 2002, Bessant 2003,) and New Service Development theory (Fitzsimmons
and Fitzsimmons 2000, Edvardsson et al. 2006). The emphasis in the theoretical analysis will
primarily be on the users’ role and on the roles of and effects on the internal organisational structure
and employees.
The paper is structured as follows: First, the concept of “the service laboratory” will be defined.
Then a theoretical framework will be developed. Next the case study’s method and TrygVesta’s
service laboratory will be described. Finally, to answer the research questions, the laboratory will be
analysed in terms of the theoretical framework. The final section concludes and discusses further
research.
3. The service laboratory
Based on the notion of the old natural science laboratory, one can formally define a service
laboratory as an organisational unit that a service firm establishes to undertake experiments aimed
at making innovations for which there will be market demand. In service laboratories one
experiments with developing new forms of behaviour as a service can be defined as an act, often
combined with technology as an auxiliary tool. The innovation activities are more research based
than in traditional service innovation processes. Research based means that the approach is that of
empirical science, which can be expressed in the following way:
Research = Systematisation (method) + based on knowledge (earlier research results)
Based on this exploratory case study, the service laboratory can, following Chesbrough (2006),
be said to be open, however it is not restricted to the development of technical innovations. The
service laboratory is a physical unit, it has rooms, equipment etc. in which the innovation activities
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are undertaken. These can be, for example, role playing service situations either as theatre with real
actors or as video projections on walls (for example to create a hotel lobby scene). The laboratory
enables TryVesta to see how users react to potential innovations and by doing so stimulate ideas for
innovations that can meet users’ wants and fit into their lives (if they are individual users) or
functions (if they are business firm users). However, the activities of the service laboratory are not
restricted to the physical unit. The laboratory can undertake field work such as sociological or
anthropological investigations, or experiments in society at large or at customer locations (for
example in business customers’ organisation). The activities are something in between the
controlled laboratory experiment and the natural field experiment (Lee 1989, Willer 2007, Dunning
2008, Sørensen, Mattsson and Sundbo 2010).
The main goal of the service laboratory’s work (as we observed in TrygVesta) is to establish
what customers want. The service laboratory is different from a traditional technical laboratory in
which different technical possibilities are tested in controlled in-house environments. The service
laboratory can expand the physical border of the laboratory and do field experiments and make
investigations concerning market possibilities and establish whether a new service can be sold or
not. Sellability has been a condition for innovation from the beginning, which is rarely the case in a
technical laboratory. Whereas the technical laboratory is normally purely science based, the service
laboratory is both market and science based. The service laboratory can carry out experiments that
test ideas coming from science, both the technical sciences (new IT software for example) and
social sciences (for example a new theory of a firm’s organisational function, citizens’ lives, or a
psychological theory of peoples’ reactions to external stimuli such as a service experience). Thus,
the service laboratory is different from a technical laboratory in that it is based on the behavioural
sciences, and not on the natural sciences.
In contrast to the technical laboratory, the service laboratory involves ordinary users and
employees. The users play a leading role in the service laboratory because it is they who will,
hopefully, buy the innovation and thus their needs and reactions are focussed upon. Users are both
the objects of the laboratory experiments and actors in the experimental plays. The service firm is
the author and director of the play (even though users may be involved as co-authors as is the case
in TrygVesta’s laboratory). The role of the users is not usually that of being lead users (cf. von
Hippel 2005) but rather that of ordinary users. The idea of the service laboratory is not to learn from
lead users, but to learn from ordinary users thus the experiments will show which innovations can
really be accepted by the market. To study and involve lead users might also be a useful approach to
service innovation, but it would require other methods that are not laboratory-based (von Hippel
2001). Employees can be involved as actors in the plays, as active developers in the experiments
and development activities or as observers. They have an active role as they are to take the
innovation further, either as agents for the laboratory engaging other employees in the innovation
process, or by implementing the innovation, selling the new service and therefore carrying out the
final part of the innovation activities. The service laboratory is an open system, which may also
have the task of introducing innovations into the organisation and training employees and managers
to become corporate entrepreneurs. As the service laboratory is a new phenomenon, little research
has been done into it (however, see Thomke 2003, Spath et al. 2008).
TrygVesta’s original intention with the service laboratory was to establish an organisational unit
that could execute innovation management, i.e. ensure that there are systematic innovation
activities, and bring creativity to the organisation. The unit has also been aimed at training
employees in becoming innovators and being a change agent in the organisation. When the
organisational unit was established, the manager and the employees of the unit decided to develop a
physical room for some of the activities. The service laboratory is now considered primarily an
organisational unit that aims at developing all innovations through the first idea phase, and training
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the personnel in other departments in innovation activities. However, the physical room is an
important symbol of the laboratory, i.e. it marks the laboratory’s function and gives the employees
in the laboratory an identity; further, it has a function in the creative idea phase of innovation
processes.
The service laboratory can directly test peoples’ reactions to service offers provided by personnel
or via IT (e.g. Internet or mobile phone). It can also involve users in acting a service situation (e.g.
designed via blueprinting, cf. Shostack and Kingsmann-Bundage 1991) in reality or let users and
employees construct a service delivery (for example a train trip) by using a game. The laboratory
can present ideas for new services, even radical innovations, and can reveal potential customers’
enthusiasm for and willingness to buy the service. This function of the service laboratory is
scientific in the sense that it uses systematic methods. Howeever, the laboratory is only to a small
degree based on scientific knowledge. Further, the service laboratory in TrygVesta is not
completely based on systematically utilising existing knowledge, but more on intuitive creativity.
The latter could be combined with a more systematic use of existing knowledge making it more like
a manufacturing (or natural science) laboratory. The service laboratory could also have a learning
function within the organisation (cf. the theory of the learning organisation, Senge 1990); it
accumulates experiences from earlier innovation experiments. The service laboratory could be
expressed in the following way:
Service laboratory = Systematic (method) + based on knowledge (earlier research results)
+ creative methods + user and employee involvement + organisational learning
4. Theoretical framework
Existing service and manufacturing innovation theory
Investigations into service innovation have revealed that service innovation processes are very often
different from manufacturing ones (van den Aa and Elfring 2002, Gallouj 2002, Drejer 2004,
Gallouj and Djellal 2010). Innovation in services is often an unsystematic process, based on quick
ideas coming from practice, in many cases from the personnel’s encounter with customers – in
some cases a creative solution to a specific customer’s problem. This can be considered an
advantage because the innovations are close to practice and the users, which means that there is a
strong possibility that the market will accept the innovation. The innovations are often incremental
and very practice-oriented, which means that they are easy to develop and implement because they
do not require radically new competencies or research and can mostly be carried out within the
existing organisation of production and delivery. Theory suggest that service innovation must be
understood as being very market and pull-oriented (based on demand), bottom-up processes based
on employees acting as corporate entrepreneurs (Sundbo 1997, Edvardsson et al. 2006). Service
innovation activities can, for example, not be measured in the same way as manufacturing
innovation activities (e.g. as investment in R&D or man-hours used on R&D) (Djellal and Gallouj
2001, Drejer 2004).
However, this situation can also be seen as a disadvantage. Many innovation possibilities are lost
because the attempts to innovate are not systematic. Innovative solutions designed to meet one
customer’s needs are not communicated throughout the organisation, and thus other parts of the
service firms do not benefit. The service firm is dependent on clients with particular problems who
express these problems, innovation takes place when employees invent a solution. The firm does
not investigate possibilities that technology, new service or management theory and research could
provide. If the service firms were more push-oriented towards scientific and technology determined
innovation possibilities, they could find innovation possibilities that the practice-oriented pull
approach would never reveal. The innovations would probably be more radical, however, this could
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also imply that investments in innovation activities could be more expensive. These factors
together could increase risk as potential demand is less well known. Since service innovation
activities are only rarely research and push-based, they have received little theoretical attention.
There has been some discussion suggesting that services and goods can be seen as parts of the same
continuum or as being more or less integrated implying that there is no need for new theory
(Gallouj 2002). Most of the work that has been done has concentrated on prescriptive models for
linear innovation processes copied from manufacturing (Cooper and Edget 1999) or IT-
development models (e.g. Prandelli et al. 2008). There is no specific theory about the service
laboratory or the scientific basis for service innovation. Although the new attempts to formulate a
service science (or service engineering) (Hefley and Murphy 2008, Stauss et al. 2008) and even the
attempt to develop more engineering-prescriptive models under the name of New Service Design
(Shostack and Kingmann-Brundage 1991, Voss et al. 1992, Fitzsimmons and Fitzsimmons 2000,
Edvardsson et al. 2006) have introduced some elements of more systematic and science based
service innovation processes, the concept of a service laboratory has not been included within these
attempts (one exception is a short description of a service laboratory in Spath et al. 2008).
Consequently, theoretical explanations of service laboratories have little to build on.
It is possible that innovation theory relating to manufacturing might provide some ideas that can
be used to explain scientifically based innovation processes (e.g. Freeman and Soete 1997, Dosi et
al. 1988), which include laboratories based on R&D providing knowledge about innovation.
Traditionally, innovation has been seen as a very closed internal process in manufacturing, but
recently a view of the innovation process as more open, and involving external partners has been
introduced (Chesbrough 2006). However, Chesbrough’s open innovation theory is still limited to
explaining the development of technology. Services primarily concern behaviour (even though
more technology, particularly IT, plays a role). Manufacturing innovation theory, even in the open
version, does not quite fit the explanation of the service laboratory as the latter involves users and
employees to a greater extent, and is more oriented towards developing new behaviour.
Five factors for understanding the functioning of the service laboratory
Considering the above necessitates a search for other elements of a theory which can explain both
the laboratory (research) and the open social process. As stated, the service laboratory is an open
laboratory which is not limited to a specific room within the enterprise (such as a chemical or
physics laboratory). Chesbrough’s (2006) theory of open innovation can go some way to providing
the required theory, however it remains focused on explaining technological innovation and is a
variation of the manufacturing R&D model. Moreover, it cannot explain innovation in social
behaviour.
Here we suggest five factors that can explain the emergence and function of the service
laboratory. We draw on three theoretical traditions. One is Actor Network Theory (ANT), which
has emphasized change processes as social processes that also may include innovation (Law and
Hassard 1999, Latour 2005). Several actors participate in such processes which are carried out in
networks that may be fairly structured, or at least be a social community with its own norms,
behavioural patterns etc. The other two theoretical traditions are taken from particular parts of
service innovation theory, namely Strategic Reflexivity theory (Tid, Bessant and Pavitt 2001,
Sundbo and Fuglsang 2002, Sundbo 2003, Bessant 2003) and the New Service Development (NSD)
approach (Fitzsimmons and Fitzsimmons 2000, Edvardsson et al. 2006). Here, elements from these
three traditions will be combined to create a framework for understanding the service laboratory.
As stated, the service laboratory is an open laboratory and external parties (for example
customers, suppliers and experts) participate in the interaction processes that take place in the
laboratory. ANT (e.g. Law and Hassard 1999, Latour 2005) is well suited to explain such processes.
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The theoretical tradition was started by Latour’s study of scientific laboratories (Latour and
Woolgar 1979). It is not the term “laboratory” which makes ANT suitable rather it is because ANT
primarily is a sociological theory that includes different social parties who interact in networks.
While ANT is not only about innovation processes, the theory has been used to explain wider social
processes (Law and Hassard 1999), ANT has mostly been used to explain science, research
processes and innovation (Latour and Woolgar 1979, Callon 1986). Furthermore, the approach also
emphasises material aspects such as technological development that are also determinate factors in
the social processes, for example in innovation processes (Latour 1987, 1992).This is important in
explaining service innovations since technology plays an increasing role in these. The outcome of
the process may be a new form of social behaviour or a materiality (such as a good) or, most likely,
a combination of both.
ANT’s contribution to the explanation of the service laboratory includes:
• An organisational perspective concerning external relations: Structure-network
ANT sees – as the notion suggests – networks as basic for understanding the organisational forms
of innovative organisations. A network is a more loosely coupled social system than is a social
group or an organisation. The members of the network are not subordinated to a hierarchical system
and are free to leave the network. They only stay in the network as long as they can benefit from it
(cf. Pyka and Küppers 2002).
Social relations are important for the functioning of TrygVesta’s BusinessLab. The laboratory
can be considered as a combination of a structure and social processes. The structure is the formal
organisational unit with its hierarchy, positions, tasks and measurement of results. This is like an
organisational machine. The social processes take place in both loosely coupled networks and more
formalised relationships that are connected to the laboratory. The networks are both inside and
outside the firm. Outside-actors can include customers, non-customers, suppliers, competitors,
researchers and other experts. Inside-actors are employees and managers. Members of the networks
are involved in the laboratory on an ad hoc basis. The more formalised relationships concern the
laboratory’s co-operation with the different departments of the firm and the training that employees
from different departments must go through. Thus, the organisation around the laboratory is a
combination of a structured relationship with departments within the firm and loosely coupled –
often ad hoc – networks in and outside the firm. The people in this formal relationship and ad hoc
networks can be called actors because they are active partners who provide their own ideas, behave
in their own ways and have their own interests, but they also play the laboratory game (e.g. provide
knowledge, accept to be trained as innovators, participate in experiments and so forth).
This combination of formal relationships and ad hoc network relations fits in with ANT. Latour
(2005) writes that the network metaphor does not really cover the organisational structure that ANT
theory emphasizes. The organisational structure is often what ANT calls temporary associations.
This is a valid description of the daily work of TrygVesta’s BusinessLab, but we must add that the
BusinessLab also has formal relations to other departments because the BusinessLab must decide
and develop every idea about an innovation. We can therefore call the organisation around the
service laboratory a structure-network to indicate that it is a combination of a hierarchical structure
and a loosely coupled network.
• Material factors
ANT emphasizes material factors as being important determinants of science and innovation
processes. It thereby differentiates itself from more sociologistical traditions such as the SCT
(Social Construction of Technology, see Bijker et al.1987), which see technology as purely socially
constructed. The ANT perspective is important when explaining service laboratories because
material elements – even though a service primarily is an act – play a role in many services. IT is
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involved in most service production and delivery. New hardware, software and IT-systems provide
new possibilities for innovating services, both product and process innovation. The same do other
technologies such as physical and chemical cleaning technologies, transport technologies, store and
shop technologies etc. Sometimes IT or other technologies enter in at the later phases of a service
innovation process because they are necessary for developing the new service or process.
Material factors are not restricted to technology. The way of thinking in material structures also
plays a role in service innovations. This can, for example, be in expressing aspects of services in a
physical form such as physical design (as do architects and industrial designers) or having artists to
express service elements in painting or music. This can add a certain intellectual and creative
perspective to the service function that can make the innovation more radical and even more user-
friendly (which for example designers and architects often claim they do). TrygVesta has, for
example, employed a technical designer in its service laboratory.
• Power relations (or organisational processes)
The ANT tradition has emphasized power as part of the network, or organisational processes
(Latour 2005). Thus this tradition differentiates itself from the economic and business-oriented
R&D tradition that considers innovation a rational process and sees difficulties in the innovation
process as only determined by inefficient methods. ANT understands innovation processes in terms
of social processes in which actors have their own interests, and engage in secondary (or maybe
even irrelevant) social interaction that is not related to the innovation process. Scientists thus may
have their own political intellectual and economic interests that influence their interpretation and
practice-orientation of laboratory experiments or other investigations (e.g. Callon 1986). Struggles
for power that exist within firms do not necessarily promote innovation in a way that would be most
beneficial to the company (as March and Simon observed in 1958, organisations are not rational
machines).
The advantage of this aspect of ANT in explaining the service laboratory is not only that the
service laboratory is subordinated to the law of organisational power struggles, but also that other
relations between different organisational departments, informal groups, managers and employees
play a role in the direction and outcome of innovation processes. Service innovation processes, even
in laboratories, are social processes, not rational natural scientific processes. We should bare this in
mind when we discuss the service laboratory.
Having said this, ANT does not contribute much to understanding the following issues which are
also important if we shall explain the function of the service laboratory:
• Roles
ANT is a general theory that does not specify the roles that different actors have and how these
roles interact with each other. In particular the roles of employees, users and the managers are
relevant in relation to the service laboratory.
• How, innovations are instrumentally developed in the laboratory
ANT does not specify concrete design processes, instruments or methods that are used to develop
innovations. Even though the service laboratory has been described above as a social system with
different actor interests, it is also a fairly rational system that includes systematic methods and tools
for developing innovations.
The factors that explain these two aspects of the service laboratory must be found in other
theories. Here I draw on two taken from the service theory tradition.
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The first is the theory of strategic innovation (Sundbo 1997, 2001, 2003, Sundbo and Fuglsang
2002). This theory can explain the roles. Strategic innovation theory looks at innovation processes
as being based on market possibilities. These can not be discovered by just observing current
customers or asking them. This will rarely produce innovative solutions because customers, unless
they are lead users (cf. von Hippel 2005), which very few users are, rarely have any idea about new
solutions to their problems that could be the basis for service innovations. Further, since it takes
some time to develop a service innovation, innovations are about future needs. The firm has to rely
on analyses and strategies relating to the future. Innovation can emerge as ideas from below, i.e.
primarily from employees and less so customers, suppliers or others, or be initiated from above by
the management.
The employees play a central role because they can get many ideas (for example from customer
encounters); this makes them corporate entrepreneurs (Drucker 1985). The mangers’ role is that of
creating the innovation framework (creating the strategy and an innovation culture), controlling the
innovation process (that the innovations are within the framework of the strategy and deciding for
every idea whether it should be developed or not), and corporate entrepreneurs (they can also get
ideas for innovations and fight to realise them). Users (or customers) are given a more indirect role.
Sometimes they can be equally active partners in innovation processes as employees or managers
are (Alam 2002), however this is rare. Mostly they are objects of user or market studies or they are
involved as players in innovation processes with a specific task (for example to create ideas within a
given framework, e.g. a play about a new type of insurance, or to assess service-prototypes). The
power of the users (to use ANT language) is not so great as the employee’s and particularly the
managers’, or one may say that it is more indirect. The users have the ultimate power because they
are the ones who decide whether to buy the new services or not, but during the innovation process
they play a less influential or more staged role (cf. Pine and Gilmore 1999). Other actors such as
researchers, suppliers, consultants and administrators can play a more central role depending on
which service is developed and the situation of the service firm. These other actors are often
actively engaged in the service laboratory activities because they are assumed to possess valuable
knowledge that can be a direct input into the innovation.
New Service Development (NSD) is a particular branch of service innovation theory (George
and Marshall 1984, Scheuing and Johnson 1989, Congram and Epelman 1995, Cooper and Edget
1999, Fitzsimmons and Fitzsimmons 2000, Edvardsson et al. 2006) is, in line with Service Science,
(Hefley and Murphy 2008, Stauss et al. 2008) occupied by developing systematic, engineering-like
methods and instruments for service innovation processes. NSD is prescriptive. This tradition is the
other movement within the service innovation tradition that will be included here so as to
understand the service laboratory. NSD can contribute ideas that help to explain the instrumental
character of the service laboratory’s activities. NSD is not particularly oriented towards developing
methods for laboratories, but towards developing systematic methods and tools for service
innovation in general. However, NSD has developed instruments such as blueprinting (Shostack
and Kingman-Brundage 1991), which can define the behavioural function of a service delivery
process. Johnson et al. (2000) summarise models and instruments developed within NSD. These
models emphasize three main aspects: market screening, idea generation and the desk design of the
service process by using instruments such as blueprinting. The models follow the principles of
systematically working with the theoretical design of services that is also the logic of a service
laboratory. The most laboratory-like theory is probably the linear stage gate model that R. Cooper
has developed in relation to manufacturing innovation processes and applied to service innovation
(Cooper and Edgett 1999). This model states how service firms can work systematically with
development; it does not specify how to get ideas and tools to encourage creativity. The stage gate
model for services argues that innovations should be developed by systematically assessing their
9
market possibilities and whether the firm has or can procure the necessary technology and
competencies. Management are to make decisions at each stage. The development process is carried
out in project groups where employees may participate, but the groups have a clearly defined task
and a structure with managerial responsibility. Even though the service laboratory is an open
process, it is also dominated by these characteristics. Further, in the stage gate model the innovation
process is guided by strict resource allocation and steering, which also is the case in the service
laboratory.
Another aspect of NSD is its emphasis on customer involvement in the innovation process
(Fitzsimmons and Fitzsimmons 2000, Alam 2002, Edvardsson et al. 2006, Prandelli et al. 2008).
Different techniques for involving customers have been developed. They include ethnographic
studies, innovation co-development (involving customers in the innovation groups), market and
latent need studies (e.g. surveys, analysis of market statistics etc.), the observation of users’ use of
services in normal routines to reveal latent needs (Deszca et al. 1999), focus groups, lead user
studies (Thomke and von Hippel 2002), IT communication platforms (Prandelli et al. 2008) and
brainstorming (for an overview, see Sandén, Gustafsson and Witell 2006).
NSD can contribute to the understanding of service laboratories because it emphasises
developing toolkits for innovation processes, particularly user-based innovation. Further, the role of
material factors such as IT platforms is specified (Davenport 1993, Prandelli et al. 2008), which is
also relevant to service laboratories since technology is both an element of many services and a tool
in the innovation process (for example in employee and customer interaction).
The theories that have been discussed above provide input into the conceptualisation of the five
factors that will be used in explaining all aspects of the function of the service laboratory. These
five factors are:
1. The structure-network perspective
Here we draw on ANT. This aspect includes users as parties in networks.
Service laboratories are both a well-structured system “within walls” and a social network with all
the aspects of social life represented.
2. The roles
Different actors play different roles in a service laboratory. Here we turn to strategic innovation
theory which includes the roles of users, employees and managers, but also other external actors.
3. Instrumental development of innovations
A service laboratory is an attempt to use instruments and more engineering systematically in service
innovation processes. NSD has provided an understanding of this and several tools and models.
4. The influence of material factors
ANT states that material factors have a role in determining innovation processes, which is relevant
to service innovation too. The particular material factors that might be relevant to service
laboratories are, for example, IT as a carrier of services and as an instrument in the laboratory work,
other technologies that can be part of the service (e.g. cleaning and transport technology, health care
technology and environmental measurement technology) and physical design (e.g. architecture and
technical design).
5. Organisational processes
The service laboratory is part of the firm’s organisation and thus organisational processes. These
can be conflicting or co-operational – power relations as ANT theory calls them. Even if they are
not real power relations, the work of the service laboratory is mixed into the organisational game.
This may both provide resources and support to the service laboratory and be impediments to the
laboratory’s work.
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The following sections describe the method of the case study and service laboratory in
TrygVesta. We then turn to analysing the laboratory’s function and answering the research question
by employing the five features outlined above.
5. Data and method
The researchers collected data about TryVesta’s service laboratory and its activities by using a case
study approach (Yin 2003). Data were collected in 2009 using qualitative methods: interviews,
meetings (including group interviews) and documentary material. Furthermore, the researchers
participated in some laboratory activities as participant observers.
All the employees and managers of the laboratory were interviewed (a total of six). The two
managers were interviewed three times (2 hours each time), and four employees were interviewed
once (two were interviewed for one and a half hours and two for half an hour each). Documentary
material was also collected. Ten employees and managers in TrygVesta “outside” the laboratory
were also interviewed about their involvement in and assessment of the laboratory; each interview
lasted between one and two hours. These interviewees were selected to represent different
departments and functions in the insurance company. Four researchers from the ICE project were
involved in this study. Two of them made participant observations. They made notes about their
experiences.
The interviews have been transcribed and analysed qualitatively. The interview extracts, the
documentary material, and the observation notes taken at the meetings and the participant
observations provide the basis for this analysis. The qualitative data was structured into three
categories relating to the three research questions. The method was, thus, abductive: First we posed
the research questions, which defined the factors that should be empirically observed. These
observations have been the inductive basis for structuring the understanding of the service
laboratory.. The next step was a search for theory which might help to explain the service laboratory
and place it in a broader framework. This provided the foundation for reconsidering the initial
empirically based understanding of the innovation process and making it more generalisable. The
results are presented below.
6. The service laboratory in TrygVesta
TrygVesta is an insurance company based in Denmark having activities in all Nordic countries. The
company has about 4000 employees and a broad insurance product portfolio. It has a very dynamic
and innovation oriented managing director. The top management established a special service
laboratory called the BusinessLab in 2007. In 2009, TrygVesta introduced a new strategy. The
company wanted to expand its product portfolio and not just be an insurance company:
“We don’t only want to be in the insurance branch, we want to be in the safety and welfare branch”
(quote from an interview).
A new organisational structure was also introduced. Three departments covering different areas
of insurance were established, each of them having three sub-departments: Development, sales and
marketing. The development sub-departments must co-operate with the BusinessLab in their
innovation activities.
The top management, and particularly the managing director, wanted, and wants, the company to
develop into new market fields because there is not much growth potential in the traditional
insurance field. Top management therefore defined a new strategy with a new vision of
development and an emphasis on innovation because they know that that is the precondition for
realising the strategy. The new strategy has been communicated extensively internally in the
11
organisation to engage all employees in innovation and development so as to realise the strategic
goal (just as Carlzon (1987) did in the airline company SAS in the 1980s). The top management
also want more innovation within the traditional insurance field, but the BusinessLab’s mandate is
broader.
The BusinessLab has a manager, a vice-manager and has four employees. This is not many in
comparison with manufacturing laboratories, but even for a large service company the number is
large, particularly as the BusinessLab’s innovative function is far away from the production and
delivery functions of the rest of the firm. The managers and employees of the BusinessLab can
develop their own experiments, but they are supposed to interact with the line departments about
ideas that might be developed further. A board with representatives from the management and
including the managing director has been established.
As stated earlier, the BusinessLab has established a physical laboratory, which is an
untraditionally decorated room with small sections where meetings can be organised, “theatre”
plays enacted, discussions arranged and other activities organised. They work via different and
often untraditional means to engage customers and employees in innovation processes. The
BusinessLab has employed people that are not normally found in insurance companies such as an
industrial designer, a set designer and an anthropologist.
The laboratory utilizes different methods. We have observed the following – but others may be
introduced in the future:
• Laboratory experiments in which IT is used as a means of creating real situations, for example to
project physical environments on the walls or the participants are to develop an attitude to
Internet services that are presented.
• Laboratory experiments where professional actors play a service process; an audience corrects
the players and suggests other courses. Members of the audience can include members of the
general public, firm representatives, external experts, employees or others.
• Laboratory experiments in which groups play out and develop a service situation (for example a
train journey) in the form of a game.
• Brainstorming and interactive focus group interviews.
• Expert future scenario developing in the laboratory.
• Anthropological field studies where users are observed and interviewed.
• Physical design as a means to present service ideas.
They involve many customers in the activities, but also many people that are not actual
customers. The latter can, for example, be ordinary citizens, lead users, researchers and experts,
administrators from the public administration.
The BusinessLab also has the task to create entrepreneurship and innovation throughout the
entire organisation. It organises training sessions for employees and innovation-awareness
campaigns in the organisation. They try to create corporate entrepreneurs called “innovateurs” and
rely on the “innovateurs” to teach other employees in their departments to be innovative by
imitating the “innovateurs”. The BusinessLab must also follow and assess the innovation activities
of all departments and eventually suggest actions to be taken by the management. All innovation
must go via the BusinessLab thus the members have to approve the innovative idea, which they do
in interaction with the top management.
The BusinessLab has its own budget and can carry out experimental activities within that budget.
The further development of an innovative idea requires that a specific project is established and the
top management is asked to approve the project and set up a budget for it. The BusinessLab initiates
the first idea phase of each innovation project, but as the project moves into the later development
phases, the line departments become increasingly involved and take over the project completely as
12
the project nears implementation. The BusinessLab’s effort is measured. The unit must present the
top management with calculations of the benefit of all its activities for the company. This means
that abstract innovative ideas that lie far away from the company’s actual activities are
economically restricted unless a line manager accepts the idea and establishes a development
project based on it.
7. Analysis
We now turn to the three research questions that were posed in the introduction. The analysis
throws light on the first question concerning why TrygVesta has introduced the BusinessLab.
Answering this concrete question contributes to a theoretical understanding of the function of the
business laboratory. However, particular attention is paid to questions two and three concerning the
function and dysfunction of the service laboratory. The analysis is structured around the five
explanatory factors presented in the theory section.
Why did TrygVesta introduce the service laboratory?
The decision to introduce the service laboratory was taken by the top management. The top
management, and the managing director in particular, wanted to introduce a new strategy which
implied a new business model for the company. The overall aim was to introduce a broader service
product portfolio which entailed that the company should be more innovative. Such an
organisational innovation is radical for a service firm, and the innovation was contingent upon a
radically new strategy or business model. However, this does not have to be the case. One should be
careful to generalise this observation based on one case study because service firms might introduce
service laboratories without changing their strategy or model.
However, this finding is in accordance with earlier findings about service innovation (van den
Aa and Elfring 2002, Toivonen 2010), namely that service firms are very resistant? to introducing
permanent innovation structures, particularly those that are research-based. The underlying
explanation of why the company introduced the service laboratory is the managing director’s desire
for a new strategy. There is no further rational explanation.
The idea was, however, only the beginning of an innovation process. If the BusinessLab had not
functioned well or could not be established because of organisational or other problems, a service
laboratory would not have been developed. Thus, its initial implementation was crucial and is
discussed in the next section.
The function and dysfunction of the service laboratory
In this section we analyse, based on the five explanatory factors, how the BusinessLab works and
explore both its positive and negative sides – its functions and dysfunctions. The use of the words
“function” and “dysfunction” may produce associations with functionalistic sociology (e.g. Moore
1967, Merton 1968), however, this is not the intention. Rather the purpose is to discuss both the
intended, rational functions and the un-intended, and perhaps, sometimes, unwanted implications.
The laboratory’s function is seen in relation to the firm’s internal organisation: How does the
service laboratory affect the formal organisational structure, power and other social relations
between individuals and departments within the organisation? The laboratory’s function is also seen
in relation to customers (or users): Does the service laboratory create better innovations in the form
of being need or market based? How do the involved users relate themselves to such an activity?
The five factors can throw some light on the function and dysfunction of the service laboratory
and give a general understanding of the phenomenon, which will be done in the following.
13
1. The structure-network perspective
The BusinessLab is not a network in the word’s usual meaning: a loosely coupled social relation,
often dedicated to solving a specific task (such as developing an innovation) (Hakonsson and
Snehota 1989, Pyka and Küppers 2002, Kilduff and Tsai 2003). It is relatively independent of any
organisational top management’s decision. The BusinessLab is, like technical manufacturing
laboratories, a formal organisational unit which has a well-defined place in the hierarchy. It has a
budget and has to perform according to this and its performance is controlled. Thus, the top
management has much more control of the service laboratory than it has of a network as defined
above.
Nevertheless, the BusinessLab is more like a network than are normal organisational units. The
BusinessLab has to interact with employees and managers all over the organisation, also
independently of the formal hierarchy – except that it is subordinated to the power of the top
management. The BusinessLab is a change agent within the organisation (a kind of innovative
“guerrilla” function). This promotes the firm’s innovation function, but it creates some confusion in
the organisation about the role and place of the service laboratory. Some employees, who express
this in interviews, are negatively disposed to the laboratory (which may be a normal psychological
reaction). In terms of creating a general innovative culture in the company, this is dysfunctional.
The BusinessLab also has network relations to external actors – customers, experts, suppliers etc.
These external actors are involved in single experiments, but many of them become involved in
several and get a longer lasting informal relationship to the service laboratory. The service
laboratory, its organisational status, its employees’ competence profiles and behaviour are seen as
rather strange and independent of the insurance company. Observations of the experiments show
that both the external actors and the company employees who participate in them experience them
as games which are relatively independent of insurance issues and the insurance company. This
helps to overcome possible reservations that external actors may have in being involved with
TrygVesta (for example because TrygVesta is a competitor or a commercial firm). The relatively
independent network character of the service laboratory helps it to involve external actors. But an
even greater help with this function is the atypical competence profile and behaviour of the
laboratory employees.
2. The roles
Different actors have different roles in the service laboratory’s activities.
The employees have a double role. They are participants in the laboratory experiments and they
are trained to be innovation agents in the organisation. Employees from the company and
representatives from the BusinessLab state in the interviews that the employees generally find
participation in the experiments very interesting and stimulating. The employees also take on the
role of innovation agents. However, when they go back to their jobs, this role very often fades
away. As they, their colleagues and managers explain in the interviews, they become occupied by
their daily work and it is difficult to act as an entrepreneur if the rest of the department is not
innovation minded. Some employees become successful corporate entrepreneurs, but many do not.
Teaching employees to become innovative – and thus the role of change agents – is mostly taken
care of by the middle managers in the firm’s organisation, who mostly take the role because they
see this as a part of their management task (which is supported be earlier results, Sundbo 1997). The
managers are rarely participants in the laboratory experiments, and the less so, the higher they are in
the hierarchy. The departmental managers and the top management mostly play the role of general
strategic leaders of the laboratory activities (sitting in the management board of the laboratory) and
make decisions about concrete innovations. The BusinessLab has for the managers functioned as a
driver for becoming innovative, just because the laboratory is there and influences the functions and
14
culture of the company. However, the formal and independent status of the BusinessLab in some
cases seems to have impeded managers from becoming innovation oriented (according to some
interviews). Since the laboratory is there, these managers can just repeat the general attitude that the
company is innovative and the BusinessLab takes care of it, they do not need to act.
Users and other external actors are instruments in the experiments (they carry out the experiment
activities). Users are also objects for the laboratory’s work because they represent the potential
buyers of the new service products. As far as observations and interviews with employees from
TrygVesta show, the users are satisfied with these roles because they have an interesting experience
by participating in the laboratory experiments (thus, they are attracted by the experience economy,
cf. Pine and Gilmore 1999). Those users who participate in the laboratory choose to do so and are
thus disposed to be positive towards it. Those who are not positively inclined, do not participate.
The results presented here do not say anything about why users are motivated to participate in
service laboratory activities, only how they react when they participate. Other external actors such
as researchers, suppliers and experts seem to participate primarily because they will benefit from it
(research results, sale or honorarium). In addition, they seem, according to the BusinessLab
personnel, to find it fun.
3. The instrumental development of innovations
The BusinessLab has introduced and developed instruments for service innovation (as described
above). It has developed new service concepts that are additions to insurance and it has contributed
to the development of new insurance products and procedures. The new concepts, products and
procedures that have been realised, have been further developed in the other departments’
development sub-departments. Both the BusinessLab and the other departments have applied a
strategic reflexive approach to the innovations (cf. Sundbo and Fuglsang 2002). The service
laboratory has improved the company’s innovation capability; this is widely agreed by the
interviewees.
However, the instrumental capability of the laboratory is not as high as it could be. The
personnel in the BusinessLab are unaware of the instruments that service operations theory and
service science have presented (e.g. Cooper and Edget 1999, Johnson et al. 2000, Sandén et al.
2006, Hefley and Murphy 2008). This is due to the fact that they are not experts in service science
as no service engineer or person trained in service science is employed in the laboratory. This is
partly because there is no formal education within this field in Denmark and partly because the
personnel of the BusinessLab – as other professionals do – have a tendency to look for new
colleagues within their own field. It has been a dysfunction of the BusinessLab that it has been
manned with industrial designers, set designers and insurance professionals.
The interviewees maintain that the service laboratory’s activities are different from other
attempts to create innovations. Interviewees disagree as to whether or not the innovations coming
from the laboratory are more likely to be accepted by the market. If market success is the measure
of innovation success, then more research and other methods are required to assess the laboratory’s
accomplishments.
4. The influence of material factors
Material factors have not been very important for the function of the BusinessLab, which was a
social construction focussing on the development of behaviour.
For example, IT has not been central as no-one with IT expertise has been employed in the
laboratory, but the BusinessLab can procure IT help (for example to establish Internet-
communicative user experiments). This need not necessarily be the case, other service laboratories
may make IT central and many of the innovations that the laboratory has started are IT-based.
15
Material factors thus mean something to the function of the service laboratory and are determinants
of innovations (cf. the discussion of Latour and Woolgar 1979).
Another example is the physical laboratory. The room helps promote innovations in that it is a
physical framework for the idea phase of the innovation projects and helps in creating a creative
climate. It also has a symbolic importance for the managers and employees of the service laboratory
and gives them an identity. It demonstrates that they are there and are important, and it can be used
to demonstrate to managers and employees what a service laboratory is.
5. Organisational processes
The whole innovation set up has created new organisational structures in which the BusinessLab is
one element. The development sub-departments of the line departments are also part of this new
organisational structure. The service laboratory is thus a catalyst of organisational re-structuring
aimed at creating systematic innovation processes. This organisational function also implies that the
service laboratory is subordinated to the normal organisational steering and control mechanisms
such as budgets, contractual goal measurement and so forth. The service laboratory is not an
anarchistic, isolated unit although it has more freedom in choosing its activities than normal
departments. The employees and managers of the BusinssLab claim in the interviews that they can
be creative in their work, but have to justify their activities to the management.
The BusinessLab has contributed to creating a more innovative culture in the organisation, but
has also created resistance and latent conflicts. Although we have not discovered any open conflicts
with the BusinessLab in the interviews, it is indirectly said that some managers and other
employees, as mentioned, have a slightly negative attitude to the personnel of the laboratory. The
interviews with employees and managers suggest that
“The personnel are interesting, but somewhat strange people” and “we do not really feel any effect
of the laboratory in our daily life” (quotations from interviews with employees).
As with all new organisational units, a service laboratory introduces latent conflicts with existing
units that may feel their power and position threatened by this new unit. The possible latent
conflicts were expressed very carefully in the interviews because of the managing director’s
obvious support for the BusinessLab. The latent conflicts are not expressed as conflicts, but in more
professional terms such as objective assessments of there being no effect of the laboratory and
intimating that the laboratory personnel are deviants in the insurance company’s social system (cf.
Callon’s (1986) observation of ethnographic scientists’ interpretation of development of scallop
fishing). On their side, the people from the BusinessLab often in the interviews indirectly express a
distance to the rest of the organisation, not in terms of conflict, but as a kind of missionary
statement. The other parts of the organisation are those to win over to the innovation business.
Many employees and managers, we interviewed, were very positive about the BusinessLab’s
activities, both those carried out in the laboratory and the BusinessLab’s role as decision-makers
and entrepreneurship-initiators. However, the managers in particular, but also some of the
employees, express a distance to the BusinessLab. They emphasized the BusinessLab’s role as
controller of the innovation processes, and if they mentioned the laboratory activities, it was at a
distance such as
“Entertaining creative exercises” (quotations from interviews with employee).
16
Furthermore, departments have different interests and the BusinessLab becomes a pawn in that
game. Interviewees’ answers about their impression of the BusinessLab reflect, to some degree,
their department’s interest in the organisation’s political game.
Users, and other external partners, are involved in the open laboratory innovation processes (cf.
Chesbrough 2006), but they do not become part of the firm’s organisation. They remain outsiders
that are momentary partners of the networks that the laboratory creates for specific purposes. No
user communities such as those known from Internet communities around IT software products
(e.g. Prandelli et al. 2008) have developed. The top-down establishment and formalisation of the
service laboratory can be an impediment to the establishment of user communities since user
communities normally establish themselves and it is difficult for a firm to establish them. At least it
is difficult via a service laboratory as this case study suggests.
8. Conclusion and theoretical discussion
This study is based on one case and has therefore generalisation is difficult, but it does provide us
with the basis for further research and theory development. We now turn to the conclusions that can
be derived from the case study and suggest directions for future research.
Conclusions
Three research questions were posed at the start of this paper. We now come back to these.
Business drivers behind the introduction of the service laboratory
(Why did the insurance company introduced the service laboratory?)
In this case the most important driver was the company’s managing director. Her impetus was
combined with a general change of strategy and the business model and organisational change.
The function of the service laboratory
(How can the function of the service laboratory be understood?)
The function and dysfunctions were analysed by using five explanatory factors. The functions and
dysfunctions will be understood within each of these five factors.
We may conclude that this case shows that a service laboratory can contribute to systematising
service firms’ innovation work. The service laboratory can:
• create a structure and a budget for innovation activities
• improve the user-base; involving users in innovation activities is more systematic (scientific)
yet still based on realistic situations
• involve external actors (e.g. researchers, experts) cheaply (this is important since only a few
service firms can afford to engage researchers on a permanent basis)
The conclusions concerning the five factors are the following:
1. The network perspective
• The BusinessLab combines innovation push and pull by being based on scientific principles but
involving customers, even in their day to day situations.
• It unites a fixed hierarchical position with more anarchic networking.
• Because it has a network perspective, the service laboratory can release the employees from their
hierarchical positions and thereby create a more creative climate.
2. The roles
• Employees and managers become innovation agents in the firm’s organisation.
• External actors such as users, researchers, suppliers and experts can more easily be involved in a
service laboratory because of its scientific and independent character.
17
3. Instrumental development of innovations
• New instruments for innovation activities are developed.
• These instrument are supposed to be better and lead to more user and market acceptable
innovations; we can not in this case study conclude whether this is true or not.
4. The influence of material factors
• IT and other technology has some influence on the innovation activities and many innovations
are based on IT functions; however, the main aim of the BusinessLab is to develop new
behaviour (as the service products are supposed to be mainly based on human acts).
• The physical laboratory (the room) is important as a framework for creating a creative climate
and for the laboratory personnel’s identity.
5. Organisation
• The BusinessLab is an integrated part of the firm organisation.
• It is a catalyst for organisational change (in TrygVesta it was part of a strategic and
organisational change).
• The BusinessLab has contributed to creating an innovative culture in the firm.
The dysfunction of the service laboratory
(What unintended dysfunctions does the laboratory create?)
1. The network perspective
• The service laboratory can create confusion for the employees because of its character of both
having a place in the hierarchy and being an independent network.
2. The roles
• Employees’ roles as innovation change agents often fade when they get back to their
departments.
• Managers use the BusinessLab as an excuse for not acting innovatively themselves.
3. Instrumental development of innovations
• The BusinessLab misses opportunities by not being based on service science.
4. The influence of material factors
• IT is not as central to the innovations (at least in the BusinessLab) as it perhaps should be; the
lack of IT competencies in the laboratory staff is a main explanation for this.
5. Organisation
• The service laboratory has a latent possibility for conflict with other departments in the
organisation.
• The BusinessLab has not created user communities.
Discussion of further research
These conclusions suggest some generalizations which can be the basis for future research
regarding service laboratories.
Studies of service laboratories can be seen as a contribution to the development of a service
science (e.g. Hefley and Murphy 2008, Stauss et al. 2008), both because such studies can lead to
theory and methodological development within a service science framework and because a service
laboratory is a practical implementation of service science.
The theoretical understanding of the service laboratory presented here has been based on three
theoretical traditions: Actor Network Theory (e.g. Latour 1987, 2005, Law and Hassard 1999),
Stragic Reflexive innovation theory (e.g. Sundbo 2001, Sundbo and Fuglsang 2002, Bessant 2003)
and the New Service Development tradition (e.g. Cooper and Edget 1999, Fitzsimmons and
18
Fitzsimmons 2000, Edvardsson et al. 2006). This theoretical framework has worked well in
structuring an understanding of the function of the service laboratory.
The case study and the theoretical considerations that it has given rise to lead to further research
should be carried out to test the generality of the results of this study.
19
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