Service Activity and Patented Innovation in Manufacturing Firms

Abstract

Noting the significant shift in the manufacturing sector towards services in recent decades, this study examines the potential of service operations as a source of customer insight. We study whether regular customer exposure during service operations can drive commercially significant and patentable innovation. Furthermore, we highlight the underexplored heterogeneity in the knowledge-generating potential of service activities. Using the media richness theory, we argue that more contact-intensive, knowledge-intensive, or focused services can provide richer customer information. By analyzing data from 8,087 unique manufacturing firms and 1,546,216 patents over a 30-year timeframe, we find that a higher level of service activity results in a higher level of patented innovation, which is stronger for contact-intensive and knowledge-intensive services. Post hoc analyses reveal that such innovations tend to be more radical in nature and depart from the firm's historical innovation patterns. Our study offers a critical managerial insight that, to maximize their innovation potential, manufacturers should expand into high-contact, knowledge-intensive services and treat their service operations as strategic market intelligence media.

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