Customer and employee co-creation of radical service innovations

The study demonstrates that firms can effectively involve customers in new service development (NSD) to create radically innovative, high-performing new services. Prior research found no effect of customer involvement on radicalness in NSD programs, but the current study provides evidence that customer involvement in the design stage of NSD projects can increase the radical innovativeness of a new service.

Surveys from 160 firms captured information on the development process, participants and outcomes of recent service innovation projects. Direct effect and mediation hypotheses were tested using structural equation modeling.

Customer involvement in the NSD process increases the innovativeness of a new service when customers are involved in the design stage and when the influence is mediated by process complexity. Customer involvement in the development stage has no significant effect on service innovativeness. Process complexity also mediates the positive influence of frontline employee and cross-functional team involvement in the NSD process on service innovativeness.

To produce radically innovative new services, managers should: focus on customer involvement in the design phase and build an understanding of how the customer creates value-in-context, and use a detailed but flexible development process and provide extensive opportunities for interaction of customers, frontline employees and cross-functional teams throughout the NSD process.

The study draws on complexity theory to explain how a complex NSD process enhances participants’ creativity and learning and increases the innovativeness of a new service.