Name: Chen, L.J., Chen, C.C. & Lee, W.R. (2008). Strategic capabilities, innovation intensity, and performance of service firms. Journal of Service Science and Management, 1, 111-122 (scholarly).
Article Summary
Chen, Chen and Lee (2008) create a conceptual framework that link firms’ strategic capabilities to innovation and performance in the service sector. Service firms play a vital role in the economic development of nations (Chen, Chen & Lee, 2008). Unfortunately, most studies in the strategic development field focused on the analysis of manufacturing businesses; few researchers explored service firms’ strategic behaviors and their implications for theory (Chen, Chen & Lee, 2008).
The authors use the resource-based view of the firm, to examine the link between strategic capabilities, innovation, and performance in Taiwanese service firms. The results of the study are at least surprising. First, social relationships between service firms exemplify an effective external resource, which facilitates innovative activity and improves firms’ strategic performance (Chen, Chen & Lee, 2008). Second, interorganizational relations foster new business opportunities and promote value creation in the service sector (Chen, Chen & Lee, 2008). Third, firms’ internal resources produce little to no effects on innovation intensity (Chen, Chen & Lee, 2008). Finally, innovative activity in service firms contributes to their strategic performance (Chen, Chen & Lee, 2008).
Implications for Professionals Involved in Strategic Management
The results of the study have far-reaching implications for professionals involved in strategic management. First, the study extends the resource-based view of firms and implies that social relationships can serve an essential external resource in the service sector. For many years, the strategic potential of interorganizational relationships had been largely overlooked. Today, professionals in the service sector must develop and sustain effective relations with other service firms.
Cooperation in the service sector can help to create social capital and raise the intensity of firms’ innovative activities. Second, Chen, Chen and Lee (2008) suggest that innovations contribute to the creation of the future business activities in firms. Simply stated, the intensity of innovative activities has little to do with firms’ present activity but re-orient them toward future competition and economic value. Professionals in strategic management must realize that it takes time for innovative decisions to affect and improve service firms’ performance. Simultaneously, innovative activities can help to make the future of service firms more certain.
Unfortunately, the study is not without limitations and its results must be treated with caution. To begin with, Chen, Chen and Lee (2008) focused on the discussion of service firms; for this reason, the results of their study may not be transferable to the manufacturing sector. Second, Chen, Chen and Lee (2008) suggest that internal resources do not affect firms’ innovative activity and performance. However, the reasons and mechanisms behind this finding are unknown. The future research must examine the relationship between firms’ internal strategic capabilities, innovations, and social relations. In the meantime, it is essential that service firms utilize their social relations potential to the fullest.
References
Chen, L.J., Chen, C.C. & Lee, W.R. (2008). Strategic capabilities, innovation intensity, and performance of service firms. Journal of Service Science and Management, 1, 111-122.