Product and service innovation: Comparison between performance and efficiency

With the increasing importance of services in the manufacturing industry, manufacturers have been providing customers with packages that combine products and services. Such a product–service combination trend is often referred to as “servitization” and/or “product–service system,” and its impact on firm performance has been studied over decades. Although firms can improve their performance through service and product innovation, uncertainty in services may cause them to experience potential risks. Notwithstanding the risk associated with undertaking both product and service innovation together vis-à-vis the increase in resource and effort utilization, several studies have focused on performance itself without considering the change in inputs. Thus, this study measures innovation efficiency, which represents the ratio of innovation outputs to inputs, and verifies the difference in innovation efficiency among three different innovation types: 1) both product and service innovation, 2) product innovation only, and 3) service innovation only. The differences in innovation performance, which is measured by the sales of innovative products and utilized as an output factor in estimating efficiency, are also verified to compare the results with the difference in innovation efficiency by innovation type, and the changes in inputs are inferred. This study demonstrates that firms performing both product and service innovation tend to achieve higher innovation performance than others, albeit lower innovation efficiency. Based on the results, this study suggests an appropriate innovation strategy for firm managers, depending on firms’ innovation objectives and input availability.