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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

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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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