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Essay: Essay on open service innovation

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The concept of open service innovation captures the rising propensity of companies to work across their traditional restrictions of operation. In the past, this phenomenon has been studied from the perspective of manufacturing businesses whilst services have received much less attention regardless of the predominant role they play in advanced economies. This study focuses on open service innovation in services special in tourism industry. Open service innovation is a key factor in increasing the business performance firms. Our study investigates the moderating effect of competition intensity on relation between business performance and open service innovation in the tourism industry. Analyzing data from 346 travel agencies managers, this study shows that the open service innovation has a positive effect on business performance. Moderation analysis indicates that the effect of open service innovation on business performance increase by competition intensity construct.
Keywords: Open service innovation, Travel agencies, Business performance, Competition intensity
1. Introduction
Services are increasingly recognized as being much more important for building competitive advantage (Chesbrough, 2011). On the one hand, firms in advanced economies have been urged to move to the value chain to preserve or boost their competitiveness (European Commission, 2010). On the other hand, companies are increasingly recognized as crucially depending on service activities that create and add value. Service-related strategies enable companies to get closer to their customers, to raise barriers to market entry, to make businesses less vulnerable to economic cycles, and to promote efficiency through the use of business services (i.e. product design or marketing) that act as catalysts of change (Gebauer et al., 2012). Innovation permits travel agencies managers to launch novel services that develop value, thus meeting the altering necessities of potential clients and rising their sales, income, and marketplace share (Chen et al., 2009). Iranian travel agencies thus preserve their competitive place by simply centering on differentiation strategies. Though marketing study investigates the affiliation between innovation and business performance in a variety of small, medium, and large firms (Jaworski and Kolhi, 1993), since there has been slight study that has carried of the effect of open service innovation on performance and found a positive relationship between them. A number of researchers have studied how innovation affects business performance (e.g., Tsai and Yang 2013; Grissemann et al., 2013) but nobody studied about how competitive intensity and open service innovation together influence business performance. Nevertheless, present researches in the hospitality segment evaluate innovation by simply centering also on the behavioral aspect of innovation, with regarding to the amount of innovations implemented (Agarwal et al., 2003). They thus illustrate an attitudinal aspect of innovation (e.g., Tajeddini, 2010). In this research by measuring open service innovation beside competitive intensity, we achieve more deeply insights into your interactions between open service innovation and the business performance of travel agencies. The aim of this research, thus, is to explore the relations between business performance indicators, competitive intensity, and open service innovation in Iranian travel agencies. This research is significant for the Iranian tourism industry for a number of reasons. Iran has witnessed more than 30% growth in tourism since 2013 (al-Monitor, 2014). Second, while travel agencies are an important segment in the tourism industry, there has been little consideration given to investigative the role of open service innovation in enhancing business performance among travel agencies. Considering all these causes, this research chooses the travel agencies as an appropriate focus for study on open service innovation, competitive intensity and business performance.
2. Literature Review
2.1 Business performance
Current literature commonly splits business performance procedures into financial performance, which contains features for instance incomes, revenue, and non-financial performance measures such as loyalty, reputation , or customer satisfaction (Gupta and Zeitham, 2006). When clients buy services that are intended to fit their special needs, they ought to be willing to give a price best (Moreau and Herd, 2010), which in turn improves the financial performance of a corporation. More clients value should also improve non-financial performance for example reputation and loyalty (e.g., Carpenter and Moore, 2009). Furthermore, when a firm offers open innovative services that gather client needs, patrons will be more likely to buy goods and services more often from the similar corporation and thus raise customer retention (Anderson et al., 1994). The financial performance of tourism industry such as hotels or travel agencies refer to ‘objective measures’ such as the market share (Orfila-Sintes and Mattsson, 2009), while for instance client retention and reputation are the non-financial measures refer to ‘perceptual measures’ (Wang et al., 2012).
In travel agencies, open service innovation contains a broad range of causes such as ticket buying systems, setting up efficient registration, or providing unforgettable experiences. Ottenbacher and Gnoth (2005) indicated that innovative new services enhance the reputation and the financial performance. Researches by Ottenbacher et al. (2006) also recognized a positive relation between reputation and innovation behavior. Evaluating on the result noted above, this study suggests that the open service innovation in travel agencies has positive effects on its business performance in terms of financial performance, customer retention, and reputation.
2.2 Open service innovation
Open service innovation is “the employ of purposive inflows and outflows of awareness to step up internal innovation and develop the markets for external use of innovation” (Chesbrough 2006, 1). Huang et al. (2010) hypothesized that open innovation directs to business growth by authorizing firms to influence more thoughts from a diversity of external resources. Freel (2006) indicated that the main advantage of open innovation is that it increases the likelihood that companies will reach business growth since of incremental sales from new production technologies or products. Chesbrough (2003) recommended a significant factor urging the acceptance of open innovation is the rising charge of technology in numerous industries. Moensted (2010) indicated alike results in relationship to high-tech companies where association with other firms in the expansion of new products was positively related with higher sales. Christensen et al. (2005) stated that open innovation is employed in a variety of different methods. The method took on by an company will be effected by place in the market system; the level of advantage and the place of services on the Product Life Cycle Curve; that can be reached during introducing new products or production technologies. Chesbrough (2007) recommended the procedure can best be explained as existing on a continuum ranging from a low to a high degree of ‘openness’. Lichtenthaler (2008) showed that the amount of openness seems to increase with the quantity of emphasis on radical innovation. Elmquist et al. (2009) indicated that the major aspect is effecting the implementation of open service innovation is whether a company displays an internal against an external focus. An internally centered firm that relies on closed innovation may miss potentially more successful opportunities (Dyer and Singh, 1998). Open service innovation decreases this risk for the reason that the company has achieve to both internal and external views. Though open service innovation might offer access to more viewpoints, Birkinshaw et al. (2011) stated the costs of open innovation could be significant. Companies more to be expected to survive in an increasingly unstable world if they focus on innovation. These researchers articulated the idea that long-term growth is significantly relate on embedding a strong commitment to innovation into their respective firms. To sustain performance in an increasingly multifaceted world necessitates that companies require connecting in open innovation (Chesbrough, 2003). Therefore, this study presents the following hypothesis:
H1. Business performance will be higher among firms involved in open service innovation
H1a: Open service innovation has a positive effect on financial performance.
H1b: Open service innovation has a positive effect on customer retention
H1c: Open service innovation has a positive effect on reputation
2.3 The moderating effect of competitive intensity
Competitive intensity shows the rank of intercompany contest in a business (Li et al., 2008). This research focuses on competition in the travel industry special in travel agencies. Lusch and Laczniak (1989) indicated, In an industry competitive intensity increases from resource limitations, the lack of opportunities, and the survival of many competitors for future growth (Auh and Menguc, 2005). Improved competitive intensity features superior competition amid incumbents (Li et al., 2008), competitor activities (Cui et al., 2005), the survival of stronger competitors (Ang, 2008) and for instances imitation (Chen et al., 2010), promotion competition, price competition (Auh and Menguc, 2005), added services, and advertising and more product offerings (Li et al., 2008). Due to several reasons, we discuss that competitive intensity can also moderate the influence of open service innovation on firm performance. First, differentiation can abate the menace involving competition (Zahra, 1993 cited in Tsai & Yang, 2013). Firms with high innovativeness companies are likely to expand solutions that undermine competitors’ actions and to create differentiation benefits (Hughes and Morgan, 2007).Highly innovative companies are able to stay one-step in front of competitive imitation by continuously introducing unique services. Consequently, such highly innovative companies are more accomplished to winning promotion wars (Auh and Menguc, 2005). Second; from the viewpoint of information processing , highly innovative firms that are open to new external information are in a better position because they can rapidly obtain and interpret a wide variety of competitor information and use the information to expand creative responses to problems that allow them to defeat their rivals. Third, requirement will enhance the likelihood of successful innovation attempts (Janssen et al., 2004). The firms with higher innovativeness are more willing to make clear their goals and resolve their internal conflicts to innovate successfully in order to manage with heightened competition, when facing intense external competition (Janssen et al., 2004). In sum, higher innovative firms can explain competitive threats into useful opportunities throughout product differentiation, creative responses to competitor actions, and a superior determination to innovate successfully, all of which may let these firms to carry out better in highly competitive markets than in minimally competitive markets. With regards, these observations this study presents the following hypothesis:
H2: Competitive intensity positively moderates the relations between open service innovation and business performance.
H2a: Competitive intensity positively moderates the relations between open service innovation and financial performance.
H2b: Competitive intensity positively moderates the relations between open service innovation and customer Retention.
H2c: Competitive intensity positively moderates the relations between open service innovation and reputation
Figure1: Research Model
3. Research method
Travel agencies in Tehran (Iran) are the unit of analysis in this study. Based on the Hair et al. (2010), the minimum number of respondents or sample size is ten-to-one ratio of the number of independent variables to be tested. Probability sampling (systematic random sampling) was used in this study. In the tourism industry of Iran, the majority of travel agencies are small or medium-sized firms. In common, small and medium-sized agencies can be distinct as having up to ten staff member. The present sample profile indicated that 35% of travel agencies had up to 10 staff and 65% had fewer than ten staff members. This research’s sample was hence considered sufficient for the purpose of our research.
3.1. Data collection
In this study, the researchers asked from respondents some questions about agency characteristics and competition intensity then asked to rate their innovation activities (open service innovation) within several areas of the agency from 1 (no open service innovation) to 7 (new to the agency). Furthermore, we asked respondents about their financial performance, customer retention, and the agency’s reputation. The travel agencies were asked to let only the owner and manager complete the questionnaire. The questionnaire of the study was developed in English and then translated into the Persian language by two official bilingual associate. Back translation was also done to check for any inconsistencies or translation errors. Of the 600 questionnaires we sent out, 350 have returned, yielding a response rate of 58.3%. More than half of the questionnaires were filled out by agencies managers (60.4%), followed by agencies’ owners (40.6%). The researchers around 3 month spent time for collection and process of distribution of questionnaires. The next section presents the assessment of the goodness of measure of these constructs in terms of their validity and reliability within the research framework.
Five questions were eliminated after screening the questionnaires for content consistency (Stokburger-Sauer and Hoyer, 2009), resulting in a final sample size of 345 agencies. The sample consisted of 225 small category agency (lower than 10 staff) and 120 medium size category agency (more than 10 staff).
3.2 Measures
In this study all items used, seven-point Likert scale that used to gather data for each construct of the research model and were taken from valid scales in the literature. To measure reputation (three items), financial performance (four items), and customer retention (three items), we used items from Chen et al. (2009).This research measured competitive intensity as the degree of competition in an industry. The scale for competitive intensity consisted of four items taken from Jaworski and Kohli (1993). Open service innovation is a firm’s orientation to using the external environment as a source of ideas for innovation, as a market for unused ideas. The open service innovation scale is made up of six items and we used items from Sisodiya (2013).
4. Testing goodness of measures
Two main criteria; reliability and validity are used for examine goodness of measures. The convergent and discriminant validity used to assess the validity of questions.Table1 to assess factor loading if there are problems with any particular items. A cutoff value for loadings at 0.5 as significant used by researchers based on Hair et al. (2010). For addressing convergent validity, we used the average variance extracted (AVE), factor loadings, and composite reliability as suggested by Hair et al. (2010).The loadings for all items exceeded the recommended value of 0.5.
The results of the measurement model have summarized in Table 2 and indicated that the AVE, were in the range of 0.543 and 0.700. Composite reliability values ranged from 0.819 to 0.876 which exceeded the recommended value of 0.7 (Hair et al. 2010).
In this study to assess the inter item consistency of measurement items, the Cronbach’s alpha coefficient has used. The loadings and alpha values have summarized in Table 2 and as seen from there, all alpha values are above 0.6. As such, we can conclude that the measurements are reliable.
The results of the construct model have summarized in Table 3. The findings show that all the five constructs open service innovation , customer retention, financial performance, reputation and competitive retention based on statistical significance are all valid measures of their respective constructs and their parameter estimates and (Chow and Chan 2008). By investigating the relationships between the measures of potentially overlapping constructs, the disciminant validity has assessed. The average variance shared between each construct and its measures should be greater than the variance shared between the construct and other constructs. Items should load more strongly on their own constructs (Compeau et al. 1999).
As shown in Table 4, the average variance extracted by the indicators measuring are more than the squared correlations for each construct that construct indicating adequate discriminant validity.
5. Hypotheses testing
In this part, to test the four hypotheses the researchers proceeded with the path analysis. Figure 2 and Table 5 present the results.
The R2 value for financial performance was 0.239 suggesting that 23.9% of the variance in financial performance can be explained by open service innovation when competitive construct has moderating role. The results indicated that open service innovation was positively related (B = 0.472, p < 01) financial performance. Thus, H1a has supported. Furthermore H1b also was supported as the R2 square value of 0.777 which suggest that 77.7% of the variance in customer retention can be explained by open service innovation and there was a positive relationship (B = 0.124, p<0.01) between open service innovation and customer retention. In addition, H1c was supported as the R2 square value of 0.505 which suggest that 50.5% of the variance in reputation can be explained by open service innovation and there was a positive relationship (B = 0.125, p<0.01) between open service innovation and reputation.
To test the moderation effect, the interaction between constructs (open service innovation and competition intensity) carried out. The results indicate the effect of open service innovation on the financial performance (??=0.255, t-statistic= 4.39, p<0.01) and reputation will increase by competition intensity. Hewer, the effect of open service innovation on the customer retention (?? =0.025, t-statistic= 0.428, p>0.05) will not increase by competition intensity.
6. Discussion and Managerial Implications
The objective of this research was to improve the marketing literature by identifying the joint moderating effect of competitive intensity on the relation between open service innovation and financial performance, customer retention, and reputation in tourism industry (travel agencies). The outcome of analysis revealed that, open service innovation s had a positive effect on business performance when competitive intensity has moderation role. It appears that quick changes in client preferences reinforce the necessity of open service innovation under highly competitive market conditions. Therefore, the ability of open service innovation to add value for firms that drive in highly competitive markets can depend greatly on whether the desires of customers often change. In general, it shows that competitive intensity jointly interact with open service innovation to influence the level of business performance (financial performance, customer retention, and reputation).In this research, competitive intensity includes sales promotions, price, and product imitation which enhance the significance of a open service innovation actions. The findings of this research have important implications for managers. First, our findings suggest that open service innovation is critical for firms that look for to improve business performance in highly competitive markets. Managers ought to raise a high open service innovation and culture of innovativeness that supports , rewards, and encourages break throughout thinking and that resists the forces that stymie innovation to guarantee that their companies prosper under such difficult market conditions, (Mohr et al., 2010). Managers ought to support staffs to expand and realize creative ideas that meet up the companies’ strategic goals (Chatman and Cha, 2003) during exploiting opportunities threats in the markets. Furthermore, managers are required to stay thoroughly involved in new service development processes, develop new awareness, and present reward for innovation (Mohr et al., 2010).
7. Limitation and Recommendation
First, in this study the single key informants use to self-reported data and this may have limited our inferences regarding the observed relationships due to common method variance. Furthermore, this method may be exaggerated in our analysis, practically given the complex nature of the interaction effects. Since this research surveyed small and medium-sized travel agencies in Iran, the findings may be unique to Iran and may not be generalizable to large firms, non- service firms or to other countries or economies. Future studies could constructively carry out our study to examine across different settings or samples. Finally, while this research focuses on the moderating effects of competition intensity on financial performance, customer retention, and reputation, future studies may test other potentially moderating effects of possibility factors that might affect the relationship between open service innovation and firm performance.

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