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Product and Service Innovation
in
Small and Medium-Sized
Enterprises
Sponsored Research Prepared for:
United States Department of Commerce
The National Institute of Standards and Technology
Manufacturing Extension Partnership
RFP 05-480-5824
Contract No. SB1341-03-Z-0015/65332
September 20, 2006
Prepared by
Smeal College of Business
The Pennsylvania State University
Principal Investigators
Dr. Gerald Susman
Dr. Anthony Warren
Dr. Min Ding
Research Assistant
Jenna P. Stites
Graduate Assistants
Vidur Chandra
Jarret Chirafisi
Jason R. Dytche
Varij Saurabh 2
TABLE OF CONTENTS
1.0 EXECUTIVE SUMMARY ...................................................................................................... 4 2.0 INNOVATION STRATEGIES FOR SMALL AND MEDIUM-SIZED
ENTERPRISES ........................................................................................................................ 5 2.1 Generalizations about SMEs and Innovation are Difficult to Make............................. 5 2.2 Types of Innovation that SMEs Undertake................................................................... 7 2.3 SME Strengths and Weaknesses and Required Capabilities for Innovation ................ 8 2.4 What Innovation Strategies Should SMEs Pursue?.................................................... 10 3.0 SERVICE INNOVATION IN MANUFACTURING COMPANIES .................................... 13 3.1 Background................................................................................................................. 13 3.2 Why Add Services?..................................................................................................... 13 3.3 Definition of Services ................................................................................................. 14 3.4 Types of Product-Related Services............................................................................. 14 3.5 Mini-Cases ...................................................................................................................18 3.6 Differences between Products and Services ............................................................... 21 3.7 Innovation in Product-Based Services........................................................................ 22 3.8 Role of Information Technology (IT) in Product-Related Service Innovation........... 24 3.9 Do Manufacturing and Service Firms Innovate Differently? ..................................... 28 3.10 The Customers’ Role in Product and Service Development .................................... 28 4.0 INNOVATION MODEL AND TOOLS FOR TOTAL SOLUTION DEVELOPMENT...... 32 4.1 Models for New Product Development and New Service Development ................... 32 4.2 A Model for Total Solution Development.................................................................. 35 4.3 Tools to Implement Total Solution Development ...................................................... 37 5.0 TRANSITION STRATEGY................................................................................................... 42 5.1 Phase I: Services Embedded in Product Sale.............................................................. 43 5.2 Phase II: Services Provided to the Installed Base....................................................... 48 5.3 Phase III: Services Based on Customer Relationship................................................. 49 6.0 RECOMMENDATIONS FOR THE MEP NETWORK ........................................................ 52 6.1 Introduction................................................................................................................. 52 6.2 Current Skills within the MEP Network..................................................................... 52 6.3 Statement of the Key Problems................................................................................... 53 6.4...
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