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...1. Abstract

The area of research of this study is introducing new service to the market in international context, with the example of a company from the telecommunication industry. The first part of the master thesis will present the basic characteristic of services in the modern economy. Furthermore, the service lifecycle presents with the emphasis on the phase of launching new service in the market. Creation of new services elaborated through various services' innovations. In the second part of the thesis the characteristics and development of the telecommunication industry will be presented. Based on the study, a new service launching strategy will be described, as well as benefits that it brings. The company is going to be written about in the thesis is Telenor, a well-known international telecommunication firm. The case will refer to a new sales model for mobile devices that company has introduced in Serbia, which is specific because it involves the Telenor Bank. Here will be elaborated how Telenor has introduced new service to the market and how this innovation affects business and its parameters, customers and market share. It is going to be brought ahead this topic in a qualitative and quantitative way supported by materials and data get from Telenor.


1. Abstract

2. Table of contents

3. Preface

4. Introduction

5. Defining service and service innovation

5.1. Service innovation approaches

5.2. Characteristics of service and service innovation

5.3. System of innovation concept

5.4. Types of service innovation

5.4.1. Process innovation

5.4.2. Product innovation

5.4.3. Organizational innovation

5.4.4. Marketing innovation

5.4.5. Ad hoc innovation

5.4.6. The typology of service innovation

5.5. Motives for service innovation

5.5.1. Internal motives of service innovation

5.5.2. External motives of service innovation

5.6. Benefits and obstacles to service innovation

5.7. Service innovation models

5.8. Customers influenced by introducing new service innovation

6. Service innovation examples in the world and their impact

7. Telecommunication industry: Case Study

7.1. Telecommunication industry in the world

7.2. Telecommunication industry in Serbia

7.3. Telenor Telecommunication Company

7.4. Telenor Bank and its functions

7.5. Pilot sales model

8. Conclusion

9. References

3. Preface

This Master Thesis is the final research project for receiving the Master of Science Degree in International Business and Management at the Faculty of Organizational Sciences in Belgrade and cooperation partner Middlesex University in London. The research project is about new service innovation launched in Serbia by the international telecommunication company, Telenor.

Interest in the service innovation has emerged from my personal nature and being impressed by the radical changes that are happening in the business environment due to technology and digitalization. In this report will be shown new trends in the mobile economy and factors that affect it. New insights on service innovation and different aspects of it triggered the start of this research of this report.

I would like to mention all people that contributed to creating this report. I appreciated it very much the time and efforts you put into this. I especially want to thank my mentor Ms. Slavica Cicvaric Kostic at Faculty of Organizational Sciences in Belgrade, for her support, suggestions, flexibility and critical insights. I have to thank all participants and employees in Telenor for their assistance and cooperation during this research.

Finally, I would like to give especially thank my family and friends for their endless support in every way they could give it to me.

Dragana Stojkovski, November 2016.

4. Introduction

The service sector is very important for the global economy. According to the most recent data, global exports of services increased by 5.5 percent in 2013 and 7.0 percent in the first quarter of 2014. The performance of service exports in 2013 reached $4.7 trillion in nominal value. As a result, it is 20 percent of total exports. The rising trend in service exports was due to service exports in developing countries such as Latin America and Asia.

In the picture above, it is shown the share in world services exports by sector in the period between 2000 and 2013. The share of developing economies in the world services exports climbed from 23 per cent to 30 per cent. In 2013, activities which were prioritized construction and computer and information services with 40 per cent and 30 per cent respectively.

Innovations are a vital part of the every company that is doing its business activities in the world. Service innovations are becoming more powerful, more widespread, and more available. They are playing a key role in developing the business, bringing progress to society, and enabling competitiveness.  

This research was performed to answer following questions: What were the reasons for launching the Telenor Bank in Serbia? What kind of changes in organization structure and culture the company has experienced? What are the benefits of implementing the new sales model buying mobile phones on credit? What was the procedure of implementing and launching the new sales model? These questions are going to be answered in the theoretical part, but also in the case study.

The paper consists of three parts. The first part deals with evolution, concept, types, and characteristics of the service and service innovation. In this part is going to be elaborate on motives, benefits, and obstacles to service innovation, as well as of its impact on the customer.

Creating a new service innovation based on examples in the world is discussed in second part. The challenges of implementing and launching the service innovation met by companies and the strategies that companies were practiced on their businesses.

The third part is dedicated to the evolution of telecommunication industry in the world and Serbia. It is going to be discussed Telenor Bank and its attempt to implement new sales model onto Serbian market. As well as, the impact of the implementation market share, competition, and the business itself.

5. Defining service and service innovation

The nature of services has shifted dramatically in recent years. Service is an application of competences for the benefit of another. It is a short-lived and intangible experience for every customer. To develop services is a more complex than creating or producing a new product. Services are heterogeneous, and they differ in nature and quality from time to time due to different customers and their needs.

Service innovation has development stages that encompass levels from idea to market launch of new service. In the development process of a new service or product, the breakpoint needs to be not just on designing the core service features and attributes but also to the service delivery processes that augment the value for its consumers. It gives opportunities for collaboration arise giving employees the chance to learn, innovate and co-create value with customers. Customer interface and technological options have recognized significant challenges in service design and delivery.

With demanded market, service companies are trying to look for ways how to satisfy their customers and attract new ones, so that they could be loyal to their products or services. Companies are having a lot of competition, and they are trying to make their business sustainable and maintainable. However, they are looking all the time for ways how to make their profits growing and increasing. In the era of information technology, they figured it out how to be competitive, but with low-cost strategy. That is why both service innovation and services represent central drivers of economic growth. In developed countries and economies, service innovation dominates in their gross domestic product.

Firms innovate in services to survive and to be competitive. By investing in services and innovation, they are creating value. Companies which are offering different services are facing the challenge of giving their customers improved, updated or completely new products or services. In fact, companies aim for service innovation to have sustainable growth, high quality and efficient production levels of services. With service innovation companies are capable of responding to customer needs, requirements and expectations.

The service innovation process involves a high degree of interactivity between the service supplier and customer. It appears that service innovation can focus on these interactions as well as on the service product or process.

5.1. Service innovation approaches

Coombs and Miles (2000) and later also Drejer (2004) have categorized these approaches into three groups. First, Assimilation/technological approach, which emphasizes the role of technology in services and treats service innovations similar to manufacturing innovations. Second, Demarcation/services oriented approach, which argues that service innovation is distinctively different from innovation in manufacturing, and the focus on pure services excluding technology, and last, synthesis approach, which accepts and integrates both technology and service oriented approaches (see Figure ).

 Figure - Approaches to service innovation

The assimilation approach is built on the assumption that 'most economic attributes of services are fundamentally similar to those of manufacturing sector' (Miles, 2007, p. 262). All dissimilarities between the two domains can be thought of as matters of degree, rather than fundamental differences. The assimilation approach is particularly adhered to in statistical measurement of economic performance and innovation. For instance, studies on the use of R&D by service firms have questioned the applicability of standard indicators (Miles, 2005).

The demarcation approach answers to many critiques regarding assimilation approach. This approach focuses on determining peculiarities of services. Due to its focus, the demarcation approach is accused of resulting in 'local theories' rather than contributing to a better understanding of innovation in general (Gallouj & Savona, 2009). Scholars of demarcation approach assume that innovation in service sectors are of another kind in comparison with the innovations taking place in manufacturing sectors.

The synthesis approach to innovation in services is based on the S-D logic which attributes service as the fundamental basis of exchange between two parties. Gallouj and Weinstein [32] build their approach on a model that represents a product or a service as a system of competences, technical characteristics, and final characteristics. Innovations thus consist of changes in one or more of these elements. A notable difference with the demarcation approach is that the synthesis view looks at service innovation activity, irrespective of the type of organization (and especially sector) in which it is performed (Rubalcaba et al., 2012). The most extreme form of the synthesis is conceiving service innovation as an opportunity for virtually all firms within an economy (Mina et al., 2014). According to the foundational premises of service-dominant logic, all economic activity essentially is a matter of exchanging services (Vargo & Lusch, 2004).

Service innovation is completely different from product innovation. Service innovation has a lack of tangible nature and delivered according to customer needs. A manufacturing company can sell a service in addition to tangible products, but also there are companies who are introducing to the market the new service.

5.2. Characteristics of service and service innovation

It is very difficult to find the appropriate definition and a corresponding list of characteristics of service innovation. Therefore, it is reasonable to start with a service definition by Lehtinen (1984): 'Service, actually a service-like marketed entity, is a benefit providing object of transaction that is a more or less abstract activity or process of activities essentially produced, marketed, and consumed in a simultaneous interaction.'

According to the definition given by Lehtinen, it consists of four elements connected to services. First basic characteristic is intangibility or abstract nature.  Services are usually considered to be intangible. However, services are not purely intangible. By this, it means that some services have written documents and through various documents they become tangible. The most of the services consist of processes, which customers and providers should follow. For some of the services such as e- and technology-based services, these processes are very important; otherwise, the whole service system wouldn't function well.     Inseparability is the third characteristic. By inseparability, services are markedly different from each other. It depends on service if it is going to be produced, consumed or marked simultaneously or separately. But, there are some services that do not follow the inseparability logic. For instance, insurance services are usually produced and marked separately. The fourth characteristic interaction between customer and provider. Liljander and Strandvik (1995) pinpoint that some services can be called relational comprising the interactive nature of services. Years behind, an essential part of all services was the personal interaction. However, nowadays, due to technology-based services personal interaction is limited and reduced. The customers' interactions are done mainly with machines.

Service innovation is an intangible, and it provides benefit as a new object of exchange processes that includes inseparable production, marketing, consumption, and other service processes. Service innovation is developed by using skills and knowledge of customers and service providers in simultaneous interaction; therefore, it produces value for customers and service organizations.

Basic service innovation elements are a benefit-providing object, processual nature, and personal skills and knowledge in creating a new service innovation. However, the innovation does not always benefit the company, unless it creates value for the customers. The customers choose how they will use services either automated or personal interaction. Many services fail because there are no markets for them. The technology-based innovations are in most cases problematic as customers do not know what is the real value the innovation can bring to them and what needs it can fulfill. The customer participation is very important and essential in solving this issue.

5.3. System of innovation concept

Innovation is a persuasive avenue for organizations to create value and competitive advantage (Pitelis 2009). According to Greenhalgh and Rogers 2007, p4, the service innovation is a combination of product and process innovation.

Service innovation is a social and interactive phenomenon. The main point is on the role of institutions and social dimension of innovation. Systems of innovation could be divided into two groups:

' The geographical concept was introduced by Cooke (1992), and it explains approach to a more distinct geographical focus.

' Production concept encompasses three parts:

1. Sectoral systems of innovation

2. Technological systems

3. Competence blocs

Production concept has a focus on a specific product, product category, and output, but not in a geographically defined space.

Innovation systems are driven by getting to understand economic growth and macro phenomenon. Companies are creating innovations to compete with rivals, potentials entrants or new possibilities to allocate customers' spending.

N''hlinder (2005) indicated that innovation is not always a change in a tangible product or the production process of such a product. It may also be a change in what we usually label a service. When someone mentions 'innovation,' it makes people think it is all about electronic devices, engines, and technical gadgets. On the contrary, the concept of innovation is more than a technical change. Some innovations are changes in technology, but on the other hand, innovation can be an organizational change or a service product.

Service innovation is bringing growth and competitive advantages to economies as a whole, but to individual companies, too. Western companies and economies are more depended on service innovation, therefore, by creating them, they are getting more competitive. The most important driver for economic growth is the development of new, innovative services such as financial services, new sales channel, and mobile end-user services. Service innovation consists of four trends that rule nowadays and shape all economies the need for innovation, changes in customer and business market and the advancements in information and communication technology.

Products can be goods and services. Marketing is describing a product as something that is offered to the market to satisfy a wish or needs of customers. The only difference is that services are intangible and used at the same time when they are produced. A service is a process that is consisting of a sequent intangible and tangible activities and interactions. Those activities and interactions are usually happening between the customer and service employees. Since the process of creating a service is at the same time production process, therefore we could say that customers are participating in service production process.

5.4. Types of service innovation

There is a difference in innovation in service firms and manufacturing once. Innovation in service firms is non-technological. They obtain small and incremental changes in procedure and processes. Service innovation does not require much innovation; the service companies invest less in fixed assets to support innovation. Service innovation is very easy to imitate. Innovation in services is an interplay of service concepts, service delivery systems, client interfaces, and technologies (den Hertog 2000), and often entails new ways in which customers view and use the service.

Traditionally, there are three main types of service innovations; product innovation, organization and process innovation (Tidd & Bessant, 2009; Flikkema, Kwakman, Spaargaren & Vos, 2010).

According to Venkatesh et al. (2010), service providers can exploit customer differences rather than continually focusing on customer similarities in seeking a variety of ideas and inputs for service innovation. Customers providing input into the service design and delivery process extend the notion of co-production to co-creation of services (Lusch et al. 2009; Sampson and Chase 2010).  

There are different modes of innovation such as radical, improvement, incremental, ad hoc, recombinative, and formalization. Our focus is on the type of service innovation created by Gadrey et al. 1995.

5.4.1. Process innovation

Process innovation is an introduction to a new process of making or delivering goods or services. It includes changes in techniques, equipment, and IT software. Process innovations are decreasing unit costs of production or delivery, increasing quality, or delivering new products or services.  

5.4.2. Product innovation

Nowadays economic environment is changing in all frameworks. The technological side of innovation has become very important that affects company's strategies.

Product innovation is the development of the existing product, making changes in the actual product concerning the design, new features, and techniques that the current product does not have. The new product focuses on the existing markets and differentiates through new technological and function sides. The product innovation depends on internal and external aspects. The internal view represents capacities, knowledge, resources, and technologies that company uses. However, the external side consists of consumers needs and the owner's expectations.

The product innovation is a great tool for achieving a competitive advantage. The competitive advantage manifests in speed and market acceptance. In the long run, the maintenance of the competitive advantage reflects the market share.

As services have an intangible characteristic, therefore continuous feedback from the customer is needed. The customer is using services in the form to define the dimensions of innovation and new service and value addition. Feedbacks are very important because they are giving the insight of what customer needs are. In that way, product features can be adjusted according to the needs of customers.

5.4.3. Organizational innovation

Organizational innovations represent an implementation of a new organizational method in the company's business, organization's workplace, and any other external connections. Organizational innovations can reduce administrative costs, gain access to non-tradable assets, and reduce costs of supplies, to increase company's performance. It is a mechanism implementation of the organization to adjust itself to changes in the environment, technological advancement, and market expansion due to new products, techniques, and systems. According to Gumusluoglu and Ilsev (2009: 467), the organization develops the new products or services, and it tries to bring them to the market. The connection between organizational innovation and technological change is very important for an organization to innovate and use new technologies to bring prospects and challenges to the company.

5.4.4. Marketing innovation

Besides product and process innovation, there are also marketing innovations. They represent tools and mechanism of representing new product or service. New methods of being in touch with customers are collecting consumers information through creative marketing programs that helped companies to reach customers such as online stores 'eBay' or '' There are two types of marketing innovation one is the ability to obtain consumer's information, and the another one is the ability to reduce consumer's transactional costs.

5.4.5. Ad Hoc Innovation

Ad hoc innovations are different from other innovations mentioned above. This innovation can appear as a respond to client's problem. Ad hoc innovations obtain knowledge and experience gathered over time and put into work to create fresh ideas and solutions that can change client's position and the situation in a positive way. These innovations are non-programmed innovation or emerged ones. They are recognized as innovations until the service has been provided. Ad hoc innovations are profitable, and they have a base in the informational and cognitive input that can be implemented in other ad hoc cases.

5.4.6. The typology of service innovation

The typology of service innovation is based on four cases: case I (quadrant I) is neglected, case II (quadrant II) is defensive, case III (quadrant III) is imitative, case IV (quadrant IV) is offensive. The quadrants have the combination in the environment that can be stable and dynamic and service orientation that can be low and high. If service orientation is high, the core element is that service leadership values a service logic, that is a service philosophy in which service innovation is given priority (Gr''nroos, 2007). If service orientation is low, service leadership values a 'steady' run of business conduct which represents the status quo and gives priority to technical and operational affairs in business conduct.

If the service company is doing business in a stable environment, the protection of the company is very low. On the other hand, if the service company operates in a dynamic environment, then the company is a subject to a high level of competition.

The first quadrant, where is the neglected type of service innovation, represents a low service orientation while the firm is operating in a stable environment. The term neglected means that the company is in the 'status quo.' This situation is not very favorable for any changes and innovations because the enterprise is placed in a culture that shows stability. The model of this type of company is focusing on technical and operational aspects of service innovations. According to service excellence, management needs to turn to the quality of service by putting the customers at the front of service operations and designs an organization that develops an organizing structure in line with Carlzon's (1987) view of the inverted pyramid. Therefore, management is recommended to monitor how the markets develop, how to prepare for changes, to transfer the company's culture into service culture and how to reorganize the organizational structure according to front-line organizing principles (Johannessen and Olsen, 2010).

The second quadrant is termed as a defensive type of service innovation is not favorable, too. Even though the service orientation is high, the company is doing business in a stable environment, but it doesn't motivate or stimulate any innovation or activities. In this quadrant appears the sign for the company to prepare for the move. The management needs to monitor market situation and to anticipate market's trend and changes. Here it is shown the lack of market orientation in a certain enterprise and the company is not proactive which is supposed to be because the market is going to be changed from the stable into the dynamic. The situation requires a strategic reorientation towards competition and an upgrading of the role of the market.

The third quadrant shows an imitative type of service innovation. It represents not such a  favorable situation for service innovation development. Even though the enterprise operates in a highly dynamic environment, the service orientation is very low. In such a situation, the service company does not apply a strategy of service excellence because the firm is placed in an old and technically-oriented culture. The company who is not changing its business towards service excellence by upgrading the role of customers and services, it will fall into an economic spiral downturn.

The fourth quadrant termed as an offensive type of service innovation. In this situation, the conditions are favorable for service innovation because the company is doing the business in a highly dynamic environment which stimulates change-oriented management and market and customer orientation. On the other side, the company has a place in a service philosophy of service excellence. It means that a company is monitoring market signals and development within its business environment.   

5.5. Motives for service innovation

5.6. Benefits and obstacles to service innovation

The service sector continues worldwide to grow, but in underdeveloped countries, too. The advantage of launching and introducing new services lies in generating higher profits, sales and gaining competitive advantages in the market. However, companies are having a different point of view, which means that it is necessary to understand failures of a new service, development projects to find the right solutions. That is how they transfer their barriers into success factors. Some factors can be more relevant than others, but that depends on the industry. In this process of creating a new service, there are two sides. On the one hand, there is practice part and on the other hand is research process. Both sides present very important and significant barriers to service innovation.

Recently, the interest in the innovation and service innovation has increased dramatically. New ideas in the field of innovations have become popular instruments that can bring growth and development of ideas and prototypes. Companies are using innovations as an engine to make progress and innovations that are available today are the results of technological advances. However, the technology is persistently providing the opportunities from which it can make and sell better goods and services.

Telecommunication technology is today present in every aspect of our lives. It affects the way we do business, the way we keep in touch with other people worldwide and the way we build a culture and human experiences.

Many of the companies imitate other companies' innovations to achieve higher profit and to overtake market share. Nowadays is very hard to stay in a game with other competitors, because to follow is easy, but creating new ideas and solutions is longer and difficult process. Therefore, did you ask yourselves whether all companies that imitate others have achieved the same success? The right answer is very rarely. The reason for it is that they layer the copied processes and tools on existing infrastructure without addressing what's keeping them from being innovative in the first place.  

Factors that could hamper the introduction of innovation or could lower companies 'innovative efforts are listed as barriers to innovation. As suggested by Patier (1984), impediments to innovation could be both internal and external to the firm (e.g. resource and environment related). Most of them are due to the uncertainty that affects the development of technological innovation that usually involves the unpredictability over which creation path has to be followed to reach promising and marketable discovery and application (Castellacci et al., 2005). To overcome these obstacles, one needs very detailed collection of information about technology and market. Sometimes it can discourage companies or can lead them to failure. Moreover, hampering factors are related to the large amount of financial and qualified human resources required by R&D projects (Baldwin and Lin, 2002; Frenkel, 2003; Hadjimanolis, 1999).

The lack of internal resources and the difficulty in integrating them with external ones, because of difficult access to them or the difficulty in the management of the integration process, make the development of innovation more difficult. Other obstacles are based on organizational rigidity caused by excessive bureaucracy, the inability to unlearn and the break through the barriers of conventional thinking or simply resistance to change by an employee (Assink, 2006; Zwick, 2002). Others are linked to the lack of infrastructure or government supports (Hadjimanolis, 1999; Rush and Bessant, 1992). Previous studies remark that these obstacles could be interrelated that is to say that they could reinforce each other's (Galia and Legros, 2004; Mohnen and Rosa, 2002; Shiang and Nagaraj, 2011; Wziatek-Kubiak and Peczkowski, 2011). In particular, obstacles show a higher propensity to be combined with others as regards firms not engaged in any innovation activities (Shiang and Nagaraj, 2011).

The determination of financial constraints as obstacles to innovation is higher in high-tech manufacturing industries and increases if innovation activities involve R&D activities, basically when companies are confronted to new competitors entering the market. On the contrary, the cumulativeness of knowledge involved in innovation activities lowers the perception of lack of financial resources (Canepa and Stoneman, 2008; H''lzl and Janger, 2011; Iammarino et al., 2007; Rahmouni, 2011; Tourigny and Le, 2004).  Usually, when the company has high costs connected to the development of innovation, it is in most of the cases perceived as a barrier for a company that has been engaged in internal R&D activities aimed at radical innovation and when firms have to face the competition from new products introduced by competitors.  On the contrary, costs are not hampering factors the more the firm is engaged in export activities and if it is foreign- owned (Galia and Legros, 2004; H''lzl and Janger, 2011; Iammarino et al., 2007; Mohnen and Rosa, 2002; Rahmouni, 2011; Tourigny and Le, 2004). Skill shortage is perceived more by innovative high growth rate firms facing high competition and engaged in external R&D whilst is not a barrier for firms engaged in basic R&D activities based on cumulative know-how (Baldwin and Lin, 2002; Bascavusoglu-Moreau and Simonetti, 2011; Galia and Legros, 2004; H''lzl and Janger, 2011; Iammarino et al., 2007; Rahmouni, 2011; Tourigny and Le, 2004).

The lack of market information is an obstacle when firms are engaged in the introduction of technological innovation to the market or is experiencing organizational changes (Bascavusoglu-Moreau and Simonetti, 2011; Galia and Legros, 2004; H''lzl and Janger, 2011; Iammarino et al., 2007; Rahmouni, 2011). Uncertainty about market reaction to new products is a deterrent for large firms that are also involved in managerial and organization transformation whilst it is not a real barrier for start-up firms and companies with high export rate (Bascavusoglu- Moreau and Simonetti, 2011; Galia and Legros, 2004; H''lzl and Janger, 2011; Iammarino et al., 2007; Rahmouni, 2011).

One of the French and Italian Community Innovation Survey 2002-2004 (CIS 4) did research to provide information about firm's structural characteristics and firm's innovation activities and performance for 20,747 French and Italian companies.

CIS is the valid data source for analysis of barriers to innovation, and it collects a set of data about factors that can hamper innovation's development by asking for the perception of cost-related, knowledge-related and market-related obstacles.

CIS database identifies three different innovation profiles: Innovator, Innovative active and Non-Innovative active. A firm is identified as an Innovator if it introduced at least new or significantly improved product, service or process. A firm is defined as Innovative active if it didn't introduce a new or significantly improved product, service or process, but it was engaged in innovative activities. The non-innovative active company represents a firm indifferent to innovative activities. This research represents a sample of 31% of Innovators, 5% of Innovative active and 64% of Non-Innovative active firms.

Due to the previous explanation is given above, the analysis will check for the impact of firm's structural characteristic, industry sectors, types of innovation activities and public subsidies. Types of obstacles are quite similar across innovation profiles. However, what we can notice is that 'innovation costs' are significantly high in compare to other obstacles.

The analysis shows that factors like internal financial constraints, innovation costs, a market dominated by established firms and uncertain demand for innovative goods or service are significant obstacles in innovation that have a strong probability to delay or abandon the development of innovation.

What is very interesting to notice is that the size of the company reduces the perception of all different economic obstacles. That means, the higher the firm's turnover is, the lower percentage is that the firm lacks internal and external financial resources and is touched by high project costs.

Service innovation can offer to a company a way how a company can create sustained competitive advantage for a company. The benefits of service innovation are adopting a service-based strategy, cost structure, delivery system, and technology. When we mention the service innovation, we usually think in the service sector. But it usually doesn't have to be only in the service sector. New and improved services were implemented in manufacturing firms to enlarge supply portfolio with value adding services.

There are some reasons why it is good to create a service innovation. First of all, services dominate and constitute the main part of all economies. Innovation in services is not so well understood and less visible in statistics. Service companies who are investing in development and innovation of services are not officially recorded. The reason why it is happening this is that innovation of services is taking placing outside of R&D and innovation departments. And finally, service firms are under pressure, because the whole economy goes towards services and service sectors.

5.7.   Service innovation models

The concept of innovation was an element of great importance for Schumpeter (1934). He was discussing innovation that has its purpose of creating wealth through completing of customer needs with five types of innovation: new products, new methods of production, new sources of supply, exploration of new markets and ways to organize a business.

The four key dimensions of service innovation identified by den Hertog (2000)'service concept, client interface, service delivery system and technological options'provides a useful framework to classify different types of service innovation. The concept of creating customer experience or service solution forming a core dimension of service innovation is widely discussed in the literature (den Hertog et al. 2010; Goldstein et al. 2002; Gr''nroos 2007). Some developers show that four dimensions are applicable in describing innovation of new services. Here are represented four elements such as service concept, the client interface, the service delivery system and technological options.

Service concept: It is the first phase in the dimension of innovation in services. In some service companies, the product is often visible and intangible, like having a new idea or concept as a solution to the problem. Some service concepts can be recognizable on the market. However, the crucial element is in its novel that exists in the application within a certain market. Conceptual innovations are more available in the service companies than in manufacturing ones. Those are having so highly intangible elements, which means that the service in some cases has elements that are quite tangible and therefore the new features have less to do with material rarity. Usually, service companies are imitating their competitors and trying to make adjustments by creating a new service in combination with existing ones.

Some examples of service concept are call center service. They install, organizes and recruit staff for their clients' call centers.

Client interface: This is the second phase of a dimension of innovation. Services are produced and offered to the customers. In the focus of many service companies are customers and their needs. Characteristics and desire of existing clients are significantly important because getting a feedback concerning the service; a firm is getting an input what to change in the current service to make proper adjustments. In this case, clients are acting as producers, too.

Service delivery system: The next dimension of innovation obtains adjustments in the service delivery system. This phase can be presented as internal work processes and arrangements. It means that internal organizational arrangements are managed to allow service employees to perform the job properly, to develop and create new innovative services.

Technological options: The fourth dimension is the center of analysis and debates concerning the degree to which service firms themselves in practice are giving shape to technology development. Service innovation is possible without technological innovation; technology is not always a dimension. Service firms also differ in their awareness of relevant available technological options, the degree to which they dispose of the necessary technology themselves or have access to the necessary knowledge and the degree to which they consequently can act as demanding customers and articulate their technological needs.

Besides a four-dimensional character of service innovation, there are several ways how the service processes may take place. Toivonen and Tuominen (2009) explained five service innovation processes about their degree of collaboration and formality. The sequence goes from less to more formal:

1. Internal processes without a specific project (incremental innovations regarding existing service)

2. Internal innovation projects (deliberate projects focusing on improvements of service production systems and their content)

3. Innovation projects with pilot customers (new ideas are tested with customers)

4. Innovation projects tailored for a customer (the service provider trying to solve a specific customer problem)

5. Externally funded innovation projects (the focus is on creating generation of new service concept and platforms)

If it looks for a while in a definition of the invention where it is said that the invention becomes an innovation through the market selection process, there is no doubt that market and institutional environment influence on innovations. Innovations are influenced by institutional environment because organizations can embody them to create and deliver them, but on the other side, it is better innovations to install onto markets to attract finance means by satisfying existing customers demand or creating the new one.  

Drivers and trends for service innovation

Services are developing, because there are customers who are demanding and going forward. However, preferences are not the same in every part of the world. It depends on demographic and aging population, socio-technical and socio-economic factors. All these factors can influence on the needs, preferences and priorities of consumers.

Services, products, and information can be copied very easily. Some services cannot be copied, which means that they are based on unique technical elements and possess unique capabilities and resources. The whole system can go wrong in the case when there are employees who do not have proper knowledge, skills, and capabilities.

Service innovation is an interactive and dynamic process in which a lot of actors play their roles. The customer is among those actors, who is providing feedback about existing service or suggests alternatives. Since service innovation is getting more and more important in the world of business, many companies invest in technical R&D. Service innovations are not driven only by R&D; there are a lot of elements that can influence on service innovation such as new concepts, new ways of interacting with clients and new kinds of service delivery.

Telecommunication industry

The market has been defined as 'a group of potential customers with similar needs and sellers offering goods and services to satisfy those needs' (McCarthy and Perrault 1984). Almost every market follows a lifecycle from birth to maturity. The industry or market lifecycle idea has been derived from the product lifecycle concept (Klepper 1997) that was originally presented in marketing literature (Suhonen 2002). Hofer and Schendel (1978) distinguish five to seven stages in product or market evolution: development, growth, shakeout, maturity, saturation, and sometimes decline and petrification.

After R&D phase is done, it is a time the product or service to be launched. The sales at this point may remain low because the market needs time to accept the product or service. At this stage, the company is losing money on the product or service. The growth phase

Mobile industry

Mobile services industries have a significant role in empowering Europe to become a smart and sustainable economy, which refers to performing high levels of employment and productivity. Mobile services industries persist in making a strong socio-economic contribution to Europe.

2015 has been the year of the mobile industry and continued to be that in 2016. There are 7.6 billion mobile connections, and operator revenues are more than 1$ trillion. The penetration rate now stands at 63%, with regional penetration rates ranging from 43% in Sub-Saharan Africa to 85% in Europe. However, the growth rates continue to slow due to saturation that is happening in developed countries and the difficulties of connecting low-income populations in developing markets. Mobile growth is the most focused on the developing world because the forecast explains that more than 90% of the incremental 1 billion new mobile users will come from developing countries. The number of smartphone connections globally will increase by 2.6 billion by 2020, and they will come from developing countries, too. (GSMA Intelligence, 2015).

New internet giants have scaled rapidly together with established mobile companies. Further investments in mobile companies will fuel the rapid pace of technological and service innovation. A growing range of industry sections is now searching for digitalization, because it can create opportunities and challenges for incumbents and new entrants, too. Operators are driven by innovation and they launch new services with the goal of offering a customer experience with content and services available across a range of devices and networks. Mobile technology plays a great role in increasing employment and productivity, but as well as improving the connection with education and healthcare. Here are some fascinating data concerning mobile devices and their use. At the end of 2015, 2.5 billion individuals across the developing world were assessing the internet through mobile devices. In the developing countries more than 40% of the population will be lacking internet access (GSMA Intelligence, 2015).

The mobile services industries all around the world have changed dramatically over the past few years. Customers are changing their habits, preferences, and requirements, but telecommunications industries are changing their patterns, technological progress as well. Services are becoming very fast obsolete resulting in increasingly short product life cycles. Therefore, the global mobile industry is growing, and ideas are spreading more rapidly. Nowadays companies need to be highly innovative and dynamic, with a firmly competitive strength to overcome all barriers on its way.

As it was said already, the innovation concept consists of product, process, billing and marketing innovations. A majority of the innovations which affect the market shares of operators is related to billing methods and smaller product and service improvements.   

The digital economy brings quickly grow in an economic and social way. Technologies are taking a significant part in the professional, and personal life of individual, businesses and countries are connected via a host of devices at home, in public spaces, at work, and on the move. Digital economy is bringing all countries closer to sustained prosperity. On the side of telecommunication industries, the aim is to develop telecommunications infrastructures and to promote the ICT sector.

The ICT sector in 2015 has positive results although the sector has not fully recovered in all countries from world economy crisis in 2007 and 2009. According to OECD Digital Economy Outlook 2015, the share of ICT goods and services in OECD total value added is remaining stable; however, ICT trade worldwide continues to grow for ICT services.

ICTs are playing the key role in innovation activities. The markets continue to switch from fixed telephony to wireless broadband subscriptions confirming the trend towards mobile/fixed substitution. Fixed and mobile broadband subscriptions reached 344.6 million and 983.4 million subscriptions, respectively in June 2014, with the corresponding annual growth of 3.7% and 14.2% over the past two years in the OECD area. Telecommunication revenue and investments remain relatively stable. The traffic of Internet worldwide has grown by 20% annually and the number using the Internet has reached 2.9 billion users.

The potential of the digital economy for productivity, innovation, growth and jobs can be maximized by governments by doing more than encouraging broadband expansion and the comeback of Internet and ICTs. It is essential to engage in efforts to protect competition, lower barriers to entry, strengthen regulatory coherence, improve user skills, and build trust in infrastructures and applications. The Internet and ICTs devices can bring a lot of benefits, but on the other hand, exists a concern about security and privacy risks.


In the beginning, the mobile phone was represented by voice device, but today it offers a wide range of possibilities such as downloading and uploading text, photo, audio, video and data. Developing countries have more benefits of mobile communications. The mobile sector is the leading force in developing countries. The mobile revenue in growing from 0.9 percent in 2009 to 1.5 percent in 2010.  In developing countries, customers can use mobile handsets. Young people are taking up more new trends in compare to age profile in countries which are not so developed.

Nowadays, companies on the different business markets are recognized by high competition. Therefore branding is one of the key roles for organizations. Branding is one of the essential elements of an organization that is why strong brands possess high equity by managing various activities of customers' preferences created to market their products and services. According to Hoeffler and Keller, 2003; Keller, 2001, having a powerful brand can make an organization to possess different marketing advantages and strengthen its competitiveness.

Telecommunication industry develops innovation as an effective business strategy to seek for cost reduction, raise the performance, productivity, and growth. The success of telecommunication company depends on merely upon company's efforts and investments to link innovation solution to the market and acquire a possible competitive advantage. The telecommunication service providers tend to offer innovative services to take down the competition and later co-create value.

Innovation is very complex and dynamic in nature, and most of the innovation projects face a lot of challenges even though that the company's capabilities' in designing and producing high quality of services. According to Downey (2007), about 50 to 90 percent of innovation projects fail in the marketplace in reaching the organizational goals.  

According to a survey conducted on a sample of 3982 companies was about innovative activities in Serbia covering the three year period from 2008-2010. There are different types of innovation. It can be innovation in an organization, introducing new product or process innovation or marketing innovation. The survey showed that 47% companies have at least one of innovation types mentioned above. Around 70% of large companies, more than 50% of medium companies and more than 30% of small companies are innovative. Service companies are representing only 40% of innovative activities, while innovations are more introduced in the manufacturing industry.


Some companies with product and process innovation are almost the same. The share of companies with marketing and organization innovation is significant, whereas some companies with all types of innovation are in the manufacturing sector.

In general, Serbia has invested a lot in Information and Communication. Concerning product and process innovation is 56.5%, whereas marketing and organizational innovation is around 53.5% and without innovation in this area is 43.5%.

A strategy of one company aims to adjust needed fit between its competencies i.e. knowledge and the value-creating activities for its customers i.e. relationships. The company due to environment changes, adjustments to the strategy are necessary to survive, drawing attention to the reinvented value instead of limited oneself to adding value. According to Chien and Chen, 2010, customer involvement has a positive effect on the performance of the new financial service development process. There are some critical views concerning customer involvement. Customers' perception is limited because it describes only the current situation. However, the company meets difficulties in this case because customers' needs can be restricted to what is technically feasible for the company. Another case can be when a customer changes its needs by the time development is ready. According to the Walter (2009), it is found that the segment retail customers are shown as more costly to get involved than corporate ones. Nevertheless, factors that are significant for involving customers in financial services innovations are local regulations and customer preferences. Collecting customer needs and meeting those needs can certainly lead to competitive advantage for national retail markets.  

The benefits of involved customers must be well-known, and the company should first evaluate its opportunity costs when hiring them. There can be so-called agency costs resulting as a consequence of different needs because customers want to gain what they need. However, it is well-known that firms focus on as low as possible costs and synergy effects.

Technology is of great significance in the financial service sector because it is in the center of every change in this sector. According to Baets, (1996) and Avison et al. (2004), financial services can be considered as a service industry due to its main business activities such as processing information and dealing with the intangible feature.

Customers are very important in the mobile industry. They are like co-creation customers, which means they represent users, lead users, intermediate users and end or final users of a service. They can have a crucial role in a way that they can present a key input for what they need and play an important role in new product or service. The relationship between customers and company is believed to be very fruitful place great for innovations. Therefore, co-creating new services show an innovative activity of interactions and relationships between customer and company, which is the central part. Communication is here very important due to transferring of information between customer and company in the innovation process.

During various interactions between customer and company, the innovation that is knowledge driven can guide into a change of current competencies in the company to provide new service that delivers value to its customers. This new service will create linkage with new customers and reinforce those in the existing base. Therefore, the reconfiguration of the company's competencies may change organizational structure and its competitive landscape.

Retail banking

Over the years, many innovations in banking and retail payment have become and are becoming very developed. This certainly is changing our habits concerning choice of payments and reshaping the payment processes. Benefits of the new wave of technology and payment processes can reduce processing costs and increase social welfare.

Service innovations in telecommunication industry offer much more benefits for users, technology and telecommunication itself and without any doubts for financial service industries. Innovations are opening greater possibilities for new types of transactions and payments models. It changes mobile money landscape and mobile industry.

Each market is different, and therefore, it is necessary to understand a customers' demands, and according to that, the business models should be defined. Key factors that will ease the whole process is regulation and legislation which needs to be dealt with fraud and money laundering issues.

The 'mobile money' is a term describing a service that allows a transfer of electronic money transaction over the mobile phone. In this case, the mobile phone is represented as a wallet. Other terms that are in use are a mobile wallet, mobile financial service, and mobile payment.

Mobile Money Services consist of three parts. First, Mobile Banking which means informational services and transactional services connected to a bank account and it is delivered via a mobile application, mobile website or SMS. Second, Mobile Money Transfer represents an application that with the help of mobile phones sends money across international borders. Third would be Mobile Payments (Commerce) which means using the mobile phones as a tool to perform financial transactions for purchases, sales, retrieve promotion information and deliver gift items.

Mobile Banking is performed by a financial services organization, whereas, Mobile Transfers and Mobile Payments are provided by mobile operators, financial service organizations and other payment service providers.

Every country needs to develop a new generation of regulations and to confront important questions to implement the transaction of electronic money. This guides all countries into developing the new regulatory concept of e-money and payment.

Mobile money has the tendency to go viral, but only when it solves real problems in a real-time. There are other key enablers such as point-of-sale, payment network, mobile bill pay and microloans.

Regulatory framework becomes very significant. Here the key enabler is turning to digital world and economy. In some countries will happen new regulatory concepts to implement mobile money model.

The barriers to mobile money concept would be security and user's right privacy. Mobile payment is secured as much as any other card which the customer possesses. But the only issue is trust in the service which can only be bitten by educating customers. On the other side, mobile payment providers should be more flexible. It means they need to cooperate with customers and to ask questions if they want to share their data.

Mobile money has a very important role for economic activity across borders. It reduces cost and risk connected to cash. Mobile money model facilitates the flow of the money from one party to another one due to communication infrastructure. This kind of innovation offers to businesses across to reach new customers and to provide better service to existing customers. It opens an opportunity for telecommunication industry to develop new business lines and products. Mobile money payment is more convenient in a way that it doesn't waste time; everything goes very fast instead of being in a bank and losing a half of day in the line.

Mobile network operators (MNO) are the leaders in the mobile ecosystem. It means that they can reach to customers in all income segments. MNO has its sales agents and retail shops where the customers can sign up for the service, purchase phones and have other information about specific of phones and packages. The sale agents have the most important role in this chain because they have a direct touch with customers. Agents have the best view of the flow of the money, and they can identify when the cash is taken out and used instead. On the other hand, agents can identify what are the habits of customers, what do they need and by observing them agents can suggest other ways create and develop new business lines to use mobile money.

Mobile phones have a great impact on business growth, entrepreneurship, empower individuals and give them productivity. Mobile applications are portals to the online world which offer services driven by social networking, innovations, and high-speed network.

Mobile money is present in 93 countries and offers 271 services according to GSMA Report 2016. In 2015, a regulatory framework for implementing mobile money was present in 51 of 93 countries. At least 19 percent markets have more mobile money accounts than bank accounts. By the data of GSMA Report, in 2015, mobile money was launched in four new markets with lower- and upper-middle income Albania, Myanmar, Peru, and Seychelles.

According to GSMA source, the figure 1 shows clear that regions at the moment who have the majority of live mobile money services are Sub-Saharan Africa, South Asia, Latin America and the Caribbean and East Asia and Pacific. The mobile money industry matures, as it was shown in the example of the launched new services in 2013, 2014 and 2015. Comparing through years, launching new services are every year significantly less than it was in last years.


In 2015 were launched 13 new services, however in 2013 were introduced 58 new services. That is why we can notice that majority of live mobile money services, which is 52 percent, are launched in 2015 in Sub-Saharan Africa. Nevertheless, it is more than half of the new services were launched in 2015 in Latin America and the Caribbean.

In figure 2, it shows the potential growth of mobile money services in Europe and Central Asia, as well as in the Middle East and North Africa. It is expected in these markets the percentage of mobile money services grows by as much as 50 percent.

Telenor Company

The whole story about Telenor Company started back in 1855 with a first Norwegian Telegraph line opened by Norwegian Telegraph Administration. Then from 1867 to 1869 happened first international cable connection between Denmark and Great Britain. In 1893, Norway was the first country in the world to be recognized as the highest number of telephones per habitant. The first international distance call from Norway was enabled in 1966 and at the same time was launched the first manual mobile telephone. 15 years after launching the first manual mobile telephone, the first mobile services 1G was introduced by Telenor in Norway.

The 1994 year was of great significance for Telenor because they had at that time a joint venture with Danish Telecom to enter the Hungarian market and Telenor becomes a public corporation.

Telenor Group is present in 13 markets (Norway, Denmark, Sweden, Hungary, Bulgaria, Serbia, Montenegro, Thailand, Malaysia, India, Pakistan, Myanmar, Bangladesh), has 211 million subscribers and economic interest of 23.7 percent in VimpelCom Ltd., operating in 14 markets. VimpelCom Ltd. has mobile services in Russia, Ukraine, Kazakhstan, Uzbekistan, Tajikistan, Armenia, Georgia, Kyrgyzstan, Laos, Algeria, Bangladesh, Pakistan, Zimbabwe, and Italy.

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