Essays on Service Innovation

As economies are increasingly driven by services, the introduction of new services to satisfy customers and improve firm value is becoming a critical issue for managers. In my dissertation, I take a step in improving the understanding of service innovations. In the first essay, I look at the determinants of the number of service innovations introduced by a firm and their interrelationship with customer satisfaction and firm value. Furthermore, I look how these interrelationships vary between Internet-Enabled Service Innovations (IESIs) and Non-Internet-Enabled Service Innovations (NIESIs). I develop a system of equations that link service innovation, customer satisfaction and firm value. I model the determinants of service innovations, using a zero-inflated Poisson model. I estimate the model on a panel data set that I assembled across multiple industries from multiple data sources such as the American Customer Satisfaction Index, Compustat, SDC Platinum, and LexisNexis. My results reveal that IESIs are more strongly influenced by financial resources of the firm and by market growth than are NIESIs. Surprisingly, neither IESIs nor NIESIs have a significant direct effect on customer satisfaction. However, IESIs have a positive and significant effect on firm value. Given the differences between consumer markets and business markets, it is important to understand better the determinants and outcomes of business-to-business service innovations (B2B-SIs). In my second essay, I empirically address this issue. I develop a modeling system that relates service innovation to firm value. I estimate my model on unique panel data of service innovations. Results indicate that B2B-SIs have positive effects on firm value. Furthermore, I find that the number of B2B-SIs introduced by a firm is primarily determined by firm-level factors rather than marketlevel factors Overall, I find that regardless of firm type or market type, the number of service innovations introduced by a firm has a substantial impact on firm value. In particular, IESIs and B2B-SIs increase firm value. In addition, the two essays also show that liquid financial resources are important determinants of service innovations. This is especially true for IESIs and B2B-SIs.