Service Innovation in a Complex Service System: Public Transit Service Sustainability Business Cases

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Procedia - Social and Behavioral Sciences 224 ( 2016 ) 269 – 275


1877-0428 © 2016 Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (

Peer-review under responsibility of the Universiti Teknologi MARA Sarawak doi: 10.1016/j.sbspro.2016.05.459

6th International Research Symposium in Service Management, IRSSM-6 2015, 11-15 August

2015, UiTM Sarawak, Kuching, Malaysia

Service Innovation in a Complex Service System: Public Transit

Service Sustainability Business Cases

Samuel Petros Sebhatu


*, Mikael Johnson


, Bo Enquist


a, b, c SAMOT Service and Market Oriented Transport Research, Karlstad University, SE -651 88, Karlstad.


This paper seeks to assess and analyse service innovation in a complex service system, using a theoretical framewor k that comprises three key concepts: service innovation, complexity, and sustainability. Using two public transit cases, from Zurich and Singapore, this contribution describes the challenges associated with understanding service innovation in the complex p ublic transit service system, according to its basis in social and environmental perspectives on sustainability. The findings affir m theoretical attempts to conceptualize service innovation and value co-creation in the service systems. By delineating the challenges of integrating sustainable thinking in complex service systems for service innovations and understanding the role o f public transport services in an international context, this study makes an original contribution to research in services, sustainability, and complexity.

© 2016 The Authors. Published by Elsevier Ltd.

Peer-review under responsibility of Universiti Teknologi M ARA Sarawak.

Keywords: service innovation; sustainability; complex service systems; value creation; public transit services

1. Introduction

To achieve sustainability through innovations, public transit providers need to innovate the services they offer, by re-inventing the way value is created with their customers. In u rban regions, rather than advancing the sole provision of public transit services, resolving sustainability challenges might require a perspective that acknowledges that service innovation is embedded in a co mplex environ ment, marked by societal and environmental issues. This paper

* Corresponding author. Tel.: +46-(0)54-700 10 00; fax: +46-(0)54-83 65 52. E-m ail address:

© 2016 Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (


assesses and analyses service innovation in a complex service system, noting that the concept of innovation is mu ltifaceted. A service innovation might involve not only new services but also new technology, new networks, or new procedures. These innovations can be radical or incremental (De war & Dutton, 1986), whether based on utilitarian principles or experience. Service innovations also reflect a customer-focused, service-dominant (S-D) logic, such that value gets co-created with customers who are resource integrators (Baron & Harris, 2008). Rooted in innovation, a service system emerges that adapts and evolves through the exchange and application of resources. In turn, service systems can pro mote both excellence and innovation (Rubalcaba et al., 2010). Public transportation is a complex service system, based on a “value-co-production configuration of people, technology, other internal and

external service systems, and shared information” (Spohrer et al., 2007, p. 2).

In this exploratory study, we illustrate three concepts—service innovation, complexity, and sustainability—using public transit cases in Zurich, Swit zerland, and in Singapore. Our focus is describing the challenges associated with understanding service innovation in a complex, public transit service system, according to social and environmental perspectives on the efforts to achieve sustainability. That is, a complexity perspective, applied to service innovation in these urban regions, helps reveal the social and environ mental perspectives that exist in these sustainability case s. In line with prior theoretical contributions, we find key elements of service innovation and value co -creation in service systems. This study also reveals the challenges associated with integrating sustainability thinking in co mplex service systems; with its focus on the role of public transport services in an international context, it can describe the challenges of understanding complexity and the ro le of public transport services from a service research perspective, on the basis of social and environmental perspectives.

In the next section, we build our theoretical framework, using concepts of service research, sustainability, and complexity fro m prior literature. Then we illustrate public–private partnerships with two case studies of regional public transport networks in Zurich and Singapore. After we reflect on the dialectic between theory and practice, where the framewo rk meets the cases, we conclude this article with a summary of the main contributions and limitations of this study, as well as directions for further research.

2. Theoretical framework

2.1. Sustainability, innovation, and value creation

Innovation is essential to sustainability (Nidu molu et al., 2009). As we noted previously, innovation is a mu ltifaceted concept, such that it might entail new services, new technology, new networks, and new procedures, as well as radical or incremental forms (Dewar & Dutton, 1986) and utilitarian principles or experience as bases, which might promote both excellence and innovation (Rubalcaba et al., 2010) . Fried man (2008) also argues that innovation, not regulation, can best solve the environmental crisis.

According to an S-D logic, value is co-created with resource integrators, or customers (Baron & Harris, 2008), because these actors use their resources for the benefit of the other party. Both the service provider and the customer participate in value creation; only by integrating their resources can they co -create value (Gu mmesson, 2008; Vargo & Lusch, 2008). The integrated resources might be private (e.g., self, friends, family), market-based (fro m other entities, in economic exchanges), or public (collective access fro m co mmunal an d government sources) (Vargo & Lusch, 2011). Their integration also provides new opportunities for the creation of new resources. In this regard, Sundbo (2010, p. 281) notes that the complex character of services necessarily engages many different actors and trajectories, creat ing space for innovative co mbinations of societal values and priorities, as well as an arena for engaging different stakeholders and achieving resource integration. The resulting co mplex service systems (Rubalcaba et al., 2010) dynamically configure access to resources (e.g., people, organizat ions, technology, informat ion), interact with other service sys tems, and mutually create and capture value (Spohrer et al., 2007). Service systems interact through value propositions (internal and external) that connect them to vast service networks.

In addition, in a new type of business model, sustainability repres ents a strategy for service development and service innovation, as well as a resource for enabling the creation of stakeholder value (Enquist et al., 2006). The

“triple bottom line” agenda for governing institutions suggests such a convergence of business interests with wider societal concerns (Elkington, 1997). Because it engages local stakeholders, sustainability thinking also is an


important factor in the creat ion of a value network (Hart, 2007). Recognition of the impo rtance of sustainability thus derives fro m the perception that an organizat ion is accountable for its impact on all relevant stakeholders. A stakeholder perspective also stimulates change, transforming business thinking to include social values, because of

the firm’s co mmitment to enhance opportunities for the co-creation of value with relevant stakeholders in the long term (Prahalad & Ramaswamy, 2004).

When value is co-created with customers (Lusch & Vargo, 2014), the notion of ‘customer value’ expands to

include not only service value but also value lin ked to values. Edvardsson and Enquist (2009) introduce values -based service, for which the business model shifts fro m short-term, financial controls and command governance structures to long-term, values-based governance that prioritizes triple bottom line thin king. Sustainability, as environ mental and social responsibility, is thus a driving force of value creat ion and a prerequisite for value -in-use (Sebhatu, 2010). Sebhatu (2010) proposes expanding the notion of corporate social responsibility to integrate the more sustainable S-D logic, wh ich includes external stakeholders such as non -governmental organizations in collaborations and relationships.

For examp le, sustainable public transit systems seek to imp rove services and provide mobility that is safe, integrated, orderly, s mooth, comfortable, econo mical, efficient, effect ive, and affo rdable by the commun ity (Gebauer et al., 2010). Avoiding burdens on the bottom line has been a touchstone of sustainable innovation (Nidu molu et al., 2009). Thus, flexib le, rap id transit systems seek to co mbine hubs, vehicles, services, pathways, and an Intelligent Transportation System (ITS). Sustainable public transit also aims to ensure that environmental, social, and economic considerations are factored into decisions that affect transportation activity (MOST, 1999). Modern public transit

services take on the challenge of integrating environmental ‘eco-efficiency’ with social sustainability, including all stakeholders, to provide better service and efficien cy (Edvardsson et al., 2014). By engaging local stakeholders, sustainable thinking also can help create value networks (Hart , 2007), with significant impacts on the environmen t and society (Florida, 2010).

2.2. Conceptualization, value co-creation, and sustainability

Our research framework benefits fro m existing theoretical contributions to the notions of sustainability, service

innovation, value creation, and comp lexity. To conceptualize sustainability, we adopt the ‘value-creating logic for

shared values’ framework fro m Edvardsson et al. (2014), wh ich integrates concerns related to economic, environmental, and social perspectives. Edvardsson et al. (2014) assert that service thinking is grounded in a

company’s core values and the triple bottom line of econo mic, environ mental, and social perspectives for co-creating value. This expanded spectrum of values and criteria for measuring organizat ional (social responsibility) success also provides an agenda for business and the governance of institutions, through the convergence of a governance agenda with wider societal concerns (Elkington 1997).

Regarding the value creation process, we adopt previously applied value creation and value network factors. Value creation relies on five elements (Gebauer et al., 2010; Prahalad & Ramaswamy, 2004):

(i) Customer engagement, or when providers seek to persuade customers through advertising and promotions that involve and activate recipients of the promotional message (Prahalad & Ramaswamy, 2004).

(ii) Self-services, through the Internet, mob ile phones, computer terminals, or ticketing machines, that enable customers to order, buy, and exchange resources without any direct interaction with service employees (Meuter et al., 2000).

(iii)Customer experience, wh ich means that services create memo rable experiences and events for customers (Prahalad & Ramaswamy, 2004).

(iv) Problem-solving, as related to literature on service recovery, wh ich entails co -repairing value (Andreassen 1999).

(v) Co-designing, which occurs when the customer works collaboratively with the service provider to

create a new service or p roduct that matches the customer’s needs and wishes (Prahalad & Ramaswamy, 2004).


3. Research methodolog y 3.1. Study design

Our empirical setting includes Zurich and its surrounding regions, in Switzerland, and Singapore in the Republic of Singapore. These urban regions have achieved varying degrees of maturity in terms of innovating public transit services to co-create value and integrating resources and sustainability. The d ifferences in maturity mean that these regions vary in the way they address service innovation elements, value network elements, and sustainability. Consistent with a grounded theory development, we develop a process model for service innovation to explore both complexity and integration with sustainability, reflect ing the attempts of public transit service providers to increase the use of public transit services. The data were collected between 2007 and 2015, though with different time frames for each case. The samp ling o f urban regions and public transit service providers was d iscriminated: We sampled public transit operators until we uncovered recurring patterns (Strauss & Corb in, 1990). Adopting Bowen’s (2008) argument that it is insufficient to state simply that samp ling was concluded once saturation was reached, we relied on several guidelines. That is, our emerging study became saturated when the proposed patterns appeared in all case

studies, as confirmed by interviewees’ feedback on the data and logical resonance with prior research (Bowen, 2008).

We used a qualitative, longitudinal study to explore the sustainability approach and value co -creation in urban regions. The data came fro m both primary and secondary sources. Primary data include interviews and workshops with key executives working for the public transit operators. These interviews lasted between 90 and 120 minutes and were guided by a semi-structured interview protocol, wh ich allowed for go ing beyond the boundaries of the predefined interv iew contents. Follow-up questions, consistent with a narrative approach, served to explore topics further (Mishler, 1986). The interviewers took systematic notes, and the transcripts were co mpleted shortly after the interviews. The transcribed interviews were co mbined with secondary data, such as annual reports, official public transit development programs, and letters to stakeholders. These various data were comb ined into case studies that described the network format ion in each urban region. We o rganized the case studies by their c hronological description of the value network formations around public transit services. When we assessed the value creation and value network elements according to the research framework, it substantiated the chronological description. We also developed exhib its to track the triggers, goals, and actions in distinct stages of the value network formation. The data analysis included both within- and cross-case approaches (Eisenhardt, 1989).

3.2. Public transport network s

The city of Zürich, Switzerland, with its more than 375,000 inhabitants, is part of a region that hosts some 1,000,000 people, namely, the Greater Zu rich area (o r Canton of Zürich ). The public transport network is maintained by ZVV (Züricher Verkehrs -Verbund), wh ich is owned by the Zürich canton and 171 independent municipalit ies within it. Its steering committee represents the principals and governs dialogue in the network. As a regional agency, ZVV manages the whole network, including 50 (public and private) co mpanies that provide services in the Zurich area. In addition, ZVV has been divided into eight market regions, each of which has a company that takes overall responsibility for market and corridor management and customer d ialogue. Customers include commuters, business people, and any others who use the public transport system throughout the whole region.

Singapore, in the Republic of Singapore, is a modern city -state where 5.2 million people live and work with in 700 square kilo metres; it is the third most densely populated country in the world. Singapore has a highly centralized, unitary government with a unicameral legislature. It also is one of the world's major commercial hubs, with the fourth largest financial centre and one of the five busiest ports. Transport within Singapore is main ly land-based. Connecting people and places, while also enhancing the travel experience, are key missions for the Singapore Land

Transport Authority (LTA ). It uses the phrase ‘transforming daily journeys’ as inspiration for the innovative work

that it undertakes across rail, bus, taxi, road, cycling, planning, and IT functions. The excellent infrastructure and

high quality service of LTA are essential building blocks. Furthermo re, the public bus industry’s move to a new

government contracting model will enable the government to make public bus services more responsive to any changes in ridership or commuter needs.


4. Results, discussion, and conclusion

Our findings replicate and extend previous theoretical contributions, including Möller et al.’s (2005) suggestions

for conceptualizing value networks and Prahalad and Ramaswamy’s (2004) reco mmended elements of value co -creation. Value co-creation fo r public transit services in urban regions evolves through five distinct stages, each of which prov ides different value creation opportunities and requires specific value network act ivities. A lthough this literature stream is relatively underdeveloped in relation to sustainability issues, our findings offer a co mplementary perspective to bridge this complexity, through value creation and sustainability.

In the S-D logic, societal value creation results because social and economic actors are resource integrators (Vargo & Lusch, 2008), reflecting a shift fro m static to dynamic resources and a stakeholder- rather than a customer-centric perspective (Edvardsson & Enquist, 2009; Sebhatu, 2010). Such thinking must be part of value network creation, as a strategy for engaging with local stakeholders (Hart, 2007), because it provides insights into how to deal with the integration of sustainability during infrastructural changes. It also provides a means to exp lore the impact of the S-D logic on contractual governance and performance measures designed to govern a value network for public service (Enquist et al., 2011). Contracts can change the dynamics of the delivery, introducing comp lex issues such as customer involvement, such that both customers and firm focus on value co-creation and co-production, rather than their individual contractual obligations (Ng et. al., 2009).

Across the five elements of evolving value co-creat ion, resource integration beco mes more intensive. First, in the

effort to establish the reliability and integration of transportation modes, customers’ resources have rather limited

impact, mainly related to customers’ motivation to buy travel cards. The resource integration of service providers is

also rather limited, pertain ing only to the pricing and scheduling activities of transit service providers and operators. Second, regional integration also relies on limited integration of customers’ resources, main ly according to their

motivation to adapt their regional travel behaviours. At this point, service p roviders – main ly transit service providers and operators – provide resources related to pricing, scheduling activities across service providers, optimizing corridors, and alleviat ing traffic bottlenecks throughout the whole reg ion. Th ird, for the service

extension, customers’ resource integration increases significantly and achieves a mediu m level, involv ing both their daily routines and social mechanis ms centred around shopping and travelling. The resource integration by service providers also increases to a mediu m level, spanning transit service providers and operators but also auxiliary service providers. The resources affected include routines to enhance shopping and retailing activit ies, as well as to optimize

commuting, leisure, and business travel activities. Fourth, the individual mobility stage extends customers’ resource

integration to a high level, entailing daily routines and social mechanis ms that prioritize individual mobility modes and public transit services. The resource integration of service providers also is high, affecting transit service providers and operators and auxiliary service providers across resources such as routines for enhancing individual mobility activities (e.g., biking, parking, walking) and optimizing commuting, leisure, and business travel activities.

T able 1. Process model in context for innovating sustainable value creation in Zurich.

Economic Environmental Social

Customer engagement Reliable and safe services Environmental friendliness Dialogue on latent risks Self-service Self-service for payment

(pre-paid boarding)

Self-services for buying tickets and travel cards

Self-services for using public transit service

Customer experience Pricing innovations for pre-paid boarding and multiple trips

Integrating public transport with walking and cycling

Enabling mobility by combining individual and public transit services Problem solving Emergencies Shift in mind set Customers and public transit operators

solving incidents themselves Co-designing Information on new


Understanding regional traffic flows Using synergies for individual mobility


T able 2. Process model in context for innovating sustainable value creation in Singapore.

Economic Environmental Social

Customer engagement x Reliability, comfort, and efficiency

x Environmental friendliness x Connecting people and places x Inclusiveness

Self-service x Self-service for payments (pre-paid boarding,

x Fare calculator x Closeness to the public

transport system

x Contract for service

Customer experience x All under one roof (hub) x Express buses

x Pricing innovations

x Integrating public transport with walking and cycling x Cleaner city

x “T ransforming Daily Journeys”

x Combining individual and public transit services x Higher quality of life Problem solving x Emergencies

x Coordinating and facilitating different resources

x Smart transport solutions x LT A hotline for emergencies and accidents, to provide information to both employees and customers

Co-designing x T ravel Smart, Travel Free x Avoid peak hours and congestion

x Peak period short services x Using synergies for individual


In addition to their theoretical imp lications, our findings offer reco mmendations for public transit services in urban regions. In particular, public transport providers need to open their value creation processes to include actively participating customers. Furthermore, they should integrate other transport operators and auxiliary service providers into their networks, to enable the overall network to p rovide supplementary services and services that enhance individual mobility.

The conceptualization of value creation through five elements (customer engagemen t, self-service, customer experience, problem solving, and co-designing) is a valid description of value creation processes. Further qualitative research that seeks to describe value configurations, in accordance with the value -creation logics of transforming resources into products and services, thus can draw on our comprehensive conceptualization. In addition, this study has some limitations that further research might address. Value creation is embedded in social forces (e.g., signification, legit imization, do minance), which can create impo rtant rigid ities or drivers for value networks and value creation (Edvardsson et al., 2011). A co mprehensive understanding thus seems possible only if service research broadens its perspective on the pertinent social co ntext for value-in-use. However, social forces are beyond the scope of our study. Additional research might extend our findings by including social forces in a public transit service context, to better explicate its complexity according to a transformative service approach.


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