The role of innovativeness and supply chain agility in the Australian service industry: a dynamic capability perspective

2.1 Dynamic capability view (DCV)

As part of enhancing the understanding of how firms are able to use their resources to develop competitive advantage in fast-changing environments, Teece et al. (1997) introduced the concept of dynamic capability view (DCV) as complementary to a resource-based view (RBV). The DCV logic is that an organisation operating in a dynamic environment and facing uncertainties in the SC needs to develop capabilities to manage these uncertainties (Teece, 2007).

DCs incorporate elements of sensing and seizing opportunities (Teece, 2000), learning new information and improving effectiveness (Zollo and Winter, 2002) and reconfiguration of resources and processes (Zahra et al., 2006). We follow the model of Teece (2007) and distinguish DCs as having three categories that are relevant for sustaining competitive advantage: the capacity to sense and shape opportunities and threats; the capacity to seize those opportunities; and the capacity to maintain competitiveness through enhancing and reconfiguring intangible and tangible resources. According to the DCV, innovativeness is expected to be indirectly related to performance outcomes by enabling firms to reconfigure their operational processes or capabilities which, in turn, generate value (Zahra et al., 2006), However, the DCV has been criticised for its lack of “empirical grounding” (Eisenhardt and Martin, 2000). In this respect, our research contributes significantly by developing and empirically testing a conceptual model that spans many disciplines (i.e. supply chain, innovation and strategy). We argue that a firm's SCs need to develop DCs to mitigate vulnerabilities in an uncertain environment, which necessitates agile capabilities to survive in the long run employing its sense and response capabilities. The DCV is relevant to the service sector because of the complicated characteristics embedded in services (Den Hertog et al., 2010).

2.2 Innovativeness

Innovativeness is perceived in contemporary literature as a desirable aspect of firms because it energises and augments the probability of survival and continued success (Crossan and Apaydin, 2010). Innovativeness is a multifaceted construct encompassing the adoption of an idea or behaviour, whether pertaining to a device, system, process, policy, program, product or service that is new to the adopting organisation. Innovativeness indicates a proactive willingness to abandon old habits and try never-tested ideas (Golgeci and Ponomarov, 2013).

In the last few decades, there has been an unprecedented growth of service industries in advanced economies. In parallel, there has been a great deal of services management and innovativeness studies that attempted to articulate the emergence of innovativeness in services and explain the difficulty in analysing innovativeness in service industries (e.g. Drejer, 2004; Gallouj and Djellal, 2011). These scholars agree that the “fuzzy” and “curious” nature of service output makes it difficult to measure or assess its innovativeness. They further illustrate that lack of protection possibilities due to its intangible character of service, and existing innovativeness theories that are developed around technological innovation in manufacturing activities, might act as a barrier to investigating innovativeness in the service setting. However, these scholars acknowledge the importance of innovativeness in the service sector. They argue that even where innovation does occur radically in service sector, it does not follow a technological imperative, but rather technology is a vehicle to enhance the process.

This study is guided by Damanpour's (1991, p. 556) definition of innovativeness: “the generation, development and implementation of new ideas or behaviours. Innovativeness can be a new product or service, a new process, a new structure or administrative system, or a new plan or program on organisational members.” This view of innovativeness reflects the development in services, products and systems through interactions between a focal firm and SC member. According to this definition, innovativeness reflects the development in services, products and systems through interactions between the focal firm and its SC member. Three types of innovativeness identified in this study are service, process and administrative innovativeness. Service innovativeness is the firm's new service offering beyond its usual services; process innovativeness is adopting new initiatives into a firm's operations system that could result in an improved SC; while administrative innovativeness refers to changes in organisational structure including the authority, structuring of tasks, recruiting of personnel and allocating of resources and rewards (Damanpour et al., 2009).

At this point, it is critical to recognize the distinction between innovativeness as a process which is the focus of this research and innovation as an output which is the volume of the firm's innovations as measured by patent counts or overall originality and novelty. In this research, innovativeness at the firm level in the context of SCM is postulated. In particular, this manuscript views innovativeness as an ability and process-oriented not as an output (Gopalakrishnan and Damanpour, 1997; Helkkula et al., 2018).

2.3 Supply chain agility

Being attentive and responsive to customers is a crucial requirement for any industry. Further, the shift in competition from the firm level to the SC (e.g. Christopher and Towill, 2001) has triggered the need to find a smart SC that emphasises speedy delivery and accelerated response times. Over a number of years, considerable attention has been paid to the concept of SCA as a linchpin for the long-term profitability and competitiveness of companies (e.g. Gligor et al., 2013; Ismail and Sharifi, 2006) and has become one of the significant features of SCM (Dubey et al., 2018). Associated with the sense and response capabilities (Calatayud et al., 2019; Li et al., 2008, 2009), SCA has become a sine qua non as a response to the ever-increasing global market requirements for firm competitiveness (Braunscheidel and Suresh, 2009; Calatayud et al., 2019). Lusch (2011) conceptualized SCs as service ecosystems of sensing and responding networks where the core of SCA lies. Additionally, the author stressed the importance of speed of learning and implementation that coincides with the essence of SCA.

There has also been research on several facets within service SCA. Yet, discussion of SCA within the service context has been poorly researched. It is thus hoped that this study will add value to the current literature of SCA. In high velocity markets and uncertainty context such as the service sector, agility, through its swift sense and response capabilities, is ever needed.

2.4 Collaborative relationship

A collaborative relationship seeks advantages through resources spilling over firms' boundaries that entail developing and sustaining relational capabilities driven by long-term relationships built on mutual trust and information sharing (Dyer and Singh, 1998). As a result, its competitive advantage may be based on interfirm relations, or more precisely, on resources that are deeply embedded in interfirm cooperation (McEvily and Zaheer, 1999). Nesheim (2001) argued that the critical resources of a firm may be developed and strengthened through external transactions. Consequently, the need for additional resources drives companies to seek alliances with other organisations (Eisenhardt and Schoonhoven, 1996). In other words, the rationale for alliances is the value-creation potential of firm resources that are pooled (Das and Teng, 1998). For example, it has become a practice for firms to obtain needed resources by sharing them through an interfirm arrangement with their current owner, allowing both firms to perform activities that neither could perform alone (Hamel, 1991). Firms that combine resources in unique ways may be able to outperform firms that are unable to do so (Dyer and Singh, 1998).

Therefore, firms increasingly engage and invest in developing and maintaining collaborative interfirm relationships with upstream and downstream members (Braunscheidel and Suresh, 2009). Stank et al. (2001) argued that external collaboration increases internal collaboration which improves the firm's service performance. In the service settings, Bhappu and Schultze (2006) envisage relational performance as those firms who proactively seek to understand customers' needs and maintain relations with customers proactively and reactively when providing the exact service requested. Relations will be strengthened between all members of the supply chain including customers. Flint et al. (2014) confirmed the importance of network actors acting quickly being resource integrators. Resource integration is central to structuring service ecosystems (Vargo and Akaka, 2012).

2.5 Services and the supply chain

In the modern world, most employment and wealth in developed countries is derived from services (Wang et al., 2015). According to the Australian Bureau of Statistics (ABS, 2018), the service sector in Australia constitutes an important segment of the total business community and represents 70% of Australia's GDP and employs four out of every five Australians, confirming its significance in research. Because of its importance, there is a necessity for extending the sectoral coverage of SCA research to include the service sector.

The service offerings and delivery involve processes enhanced by support amenities, facilitating information and implicit services (Roth and Menor, 2003). In service supply chains, human labour forms a significant component of the value delivery process (Zhou et al., 2009). Also, the variation and uncertainties of outputs are higher because of the human involvement (Ellram et al., 2004; Bitner et al., 1997). In addition, services themselves cannot be inventoried as the focus of efficiency in service supply chains is on management of capacity, flexibility of resources, information flows, service performance and cash flow management among others (Boon-itt et al., 2017; Ellram et al., 2004). The service sector is unique with its own set of defining factors, characteristics and measurements (Brandon-Jones et al., 2016). Companies in this sector are, therefore, attempting to find ways to improve their efficiency, flexibility, responsiveness and relationship with other members in the chain and in turn increase their competitiveness by changing their operation strategy, methods and technologies that include the implementation of SCM approaches.

3.1 Innovativeness and performance

It has been widely acknowledged that innovativeness is a key source for achieving a competitive edge for all firms (Yu et al., 2019) because it is strongly linked to creating market value (Gunday et al., 2011), responding to uncertainty (Lee, 2002) and surviving turbulent markets (Marshall, 1997). Authors have generally agreed that such impact of innovativeness on performance is also prominent in the service sector (Helkkula et al., 2018; Ryu and Lee, 2018; Salunke et al., 2019; Weerawardena et al., 2019), where customers often participate in the innovation process (O'Cass and Wetzels, 2018).

As turbulent environments shrink the product life cycle, innovativeness provides an effective capability to respond to such dynamic markets (Teece et al., 1997). Innovation represents changes of the way things are done (Piening and Salge, 2015). This change process is prominent in the service sector due to the ease of imitation because services are co-created and co-designed with customers and other partners (Ryu and Lee, 2018; Weerawardena et al., 2019). In order to gain and sustain competitive benefits and improve performance, firms need to develop an environment of continuous change and innovation (Yamin et al., 1997).

Panayides and Lun (2009) suggested that openness to novel ideas that endorse administrative efficiency and adoption of fresh technologies in the SC could lead to improvements in performance. Innovativeness that encompasses change or adoption of new processes, business models and services creates strong interactions between a firm and its business partners and quickly enhances knowledge sharing (Gunday et al., 2011; Yu et al., 2019). Innovativeness represents the ability to reconfigure organisational processes mainly through continual technological innovation, improved operation and distribution processes, improved access to resources and implementation of cost-reduction operations (Piening and Salge, 2015). The result will be a higher value for the customer in terms of cheaper, faster, or more flexible products and services. Therefore, we hypothesise that

3.2 Mediating role of SCA

Innovativeness plays an important role in augmenting performance and the link between innovativeness and firm performance is well established (Calantone et al., 2002; Damanpour et al., 2009). However, innovativeness may not necessarily create outcomes per se.

We argue that merely being open to new services and processes will not boost revenues or achieve operational excellence. The firm must take action; its attitude towards innovativeness must result in sensing and responding measures designed to enhance performance. As SCA is always associated with speed (Dubey et al., 2018) to represent the accelerated pace of market changes, and since innovativeness is a rapid adaptive process, we consider SCA as being a critical proximate outcome of innovativeness. That is, through SCA, innovative firms take shape by swiftly signaling customers' demands, allowing them to extend customers' value and alter their competitive posture. The real potential value of developing innovative services, processes and business models, therefore, manifest in the agility of the firm's SC. Innovativeness has a positive effect on firm performance measures, but this effect is mediated by SCA. We thus hypothesise:

3.3 Conditional and moderating effect of collaborative relationship

Information integration among SC partners not only enables the performance of SCA in developing relational and operational aspects, but also possesses the ability to improve the firm's profitability (Wu et al., 2017). While we argue that SCA is acting as an effective mechanism to reap better benefits of innovativeness, we extend this line of argument considering the boundary conditions that affect this link. As service firms are currently facing highly turbulent environments, with strong doses of dynamism, complexity and uncertainty (Salunke et al., 2019), we argue that collaborative relationships may strengthen the indirect impact of innovativeness on performance.

Because innovativeness represents a close relationship between business partners with a high level of shared knowledge (Roy et al., 2004), such relationship between these members can generate tension due to their diverse visions and approaches (Macchion et al., 2020) and can increase complexity. Prior studies have suggested co-created services require the active involvement of both the supplier and the customer (Grönroos, 2011). For instance, Theoharakis et al. (2009) demonstrated that partnering capabilities improved organizational innovativeness, improving customer performance and, subsequently, the firm's financial performance.

These relational initiations can be represented by operational collaboration and the willingness to share information and trust (Stank et al., 2001). This relational factor is a driving force in satisfaction and performance for all SC members (Cao and Zhang, 2011) that will engender trust, commitment and satisfaction at the firm level because such investment in relationships and trust will enhance visibility and accelerate responses and might lead to superior relational benefits (Wieland and Wallenburg, 2013). Yang (2014) advocated that such relational outcomes may increase trust, satisfaction and cooperation and decrease any opportunistic behaviour and conflict. Collaboration helps firms tailor service offerings to the specific requirements of customers of choice by identifying their long-term requirements, expectations and preferences.

In short, collaborative relationship decreases the efforts required to liaise partners' innovativeness and performance, this eventually increases the indirect effect of innovativeness and performance. Based on these arguments, we hypothesise that

Relying on the hypothesised relationships, a conceptual model has been developed which is presented in Figure 1.

5.1 Measurement model assessment

We evaluated the measurement model using psychometric properties such as factor loadings and corresponding t-values, average variance extracted (AVE), composite reliabilities and construct correlations. All item loadings corresponding to the constructs are greater than 0.7 and significant at p < 0.01 except for COL2, OP1, AInv5, PInv4, SCA1 (see Table 1). Following Hair et al.’s recommendations (2011), we dropped these four low-loaded items (loading < 0.7) from the measurement model. The AVE and CRs of all constructs exceeded the minimum thresholds of 0.5 and 0.7, respectively (Hair et al., 2011; Henseler et al., 2009).

The construct correlations in Table 2, show that the square root of AVE is higher than the off-diagonal components presented both across the row and down the column (Fornell and Larcker, 1981). In addition, the heterotrait-monotrait ratio (HTMT), which is shown in Table 3, is lower than 0.85 (Henseler et al., 2015). Both of these approaches support the discriminant validity of our measurement model.

5.2 Hypothesis testing

As noted previously, we used SPSS PROCESS (Hayes, 2013) enabled regression analysis to test the hypotheses. In relation to H1, we found a positive and significant relationship between innovativeness and performance (see Table 4 Model 1). Further, the interaction effect of collaborative relationships COL and innovativeness on performance was also positive and significant (see Table 4 Model 3). Therefore, the individual effect of innovativeness as well as the combined effect of innovativeness and COL positively influences performance in the service industry.

In relation to H2, the mediating role of SCA in the relationship between innovativeness and performance, we found that the indirect effect between innovativeness and performance via SCA was positive and significant (β = 0.1579, LLCI = 0.0772, ULCI = 0.2463) (see Table 4 Model 4). Therefore, SCA significantly mediates the relationship between service innovativeness and performance. From Model 3 we found that the effect of the collaborative relationship on SCA is positive and significant and the interaction effect of innovativeness and collaboration (INN × COL) on SCA was positive and significant (β = 0.3978, t = 12.6406). Therefore, a collaborative relationship positively moderates the link between innovativeness and SCA.

Referring to H3, we found that the conditional indirect effect of innovativeness on performance via SCA deteriorated when collaborative relationships were low (the indirect effect = 0.1544 at LLCI = 0.0737 and ULCI = 0.2488). However, the conditional indirect effect was significant when the collaborative relationship was high (the indirect effect was = 0.1005 at LLCL = 0.0465, ULCL = 0.164 (see Model 5 in Table 4)).

5.3 fsQCA based analysis

After testing the net effect of the constructs using regression based statistic, we tested the combined effect of the constructs on firm performance using fsQCA. For fsQCA analysis, we ran multiple models. At first, we ran a model based on the outcome variable overall performance. However, to analyse which causal conditions are suitable for predicting specific areas of firm performance (e.g. operational performance or financial performance) we ran two other models. To conduct fsQCA, first, we conducted calibration of crisp values of the data to obtain fuzzy values transforming latent variable scores of the constructs into fuzzy set scores ranging from full membership to full non-membership. For this study, the 90th percentile of latent variable scores was considered as the full membership, the 10th percentile as full non-membership and 50th as the cross-over point (Acquah et al., 2021).

Next, we conducted a necessary condition analysis to check which causal conditions are necessary to predict firm performance. From necessary condition analysis we found that the consistency of the causal conditions ranged from 0.699904 to 0.768261 which infers that no causal condition met the minimum threshold (>0.9). Following the necessary condition analysis, we produced truth tables to conduct a sufficient condition analysis by deriving possible combinations of antecedent conditions of the outcome performance. To simplify the truth table, the consistency cut-off was set as 80% and above, and frequency was set to 2 because of a large sample size (Ragin, 2018). Three truth tables were developed based on the outcome variables capturing overall performance, operational performance and financial performance. We also conducted the negation test of each model.

Model 1a (p = f (SI*PI*AI*S*R)) in Table 5 shows six configurations corresponding to the outcome performance. Of those, four configurations met the threshold of consistency (>0.80) and coverage (>0.50). Sensing and service innovation were found to be common causal conditions in three out of four plausible configurations while configuration 3 shows only innovativeness can predict overall performance. Among all configurations the most suitable combination was found to be S*R*SI*PI*AI with high consistency (0.939 > 0.80) and high coverage (0.526 > 0.50). This configuration infers that the combination of all capabilities under agility and innovativeness (S, R, SI, PI and AI) best predicts overall performance. Parallel to model 1a we also tested which conditions are responsible for deteriorating firm performance by running model 1 b (∼p = f (SI*PI*AI*S*R)). In this case, three configurations met the consistency (>0.8) and coverage (>0.5) threshold. However, the most plausible configuration responsible for inhibiting performance is ∼S*∼R*∼SI*∼PI which infers that lack of sensing, responding, service innovation and process innovation can substantially affect firm performance.

Model 2a (OP = f (SI*PI*AI*S*R)) three configurations emerged that had a high consistency (>0.8) and coverage (>0.5). The 1st configuration shows innovativeness can predict firm performance while the 2nd configuration implies that service and product innovation with sensing capability lead to higher operational performance. Similarly, the 3rd configuration infers that administrative innovation with agility (both sensing and responding) lead to firm performance. Based on the outcome variable ∼ OP our results, presented in Table 5 revealed two solutions that have high consistency and coverage. These solutions imply that compromising any of the conditions either S or R or SI or PI or AI would harm SCS.

Finally, Model 3a (FP = f (SI*PI*AI*S*R)) shows two configurations that can significantly enhance financial performance with high consistency and coverage. Among the configurations the agility components (both S and R) and administrative innovativeness are common causal conditions to enhance financial performance. On the other hand, Model 3 b shows that lack of agility (both S and R), process innovation and administrative innovation may substantially cause deterioration in financial performance.

6.1 Theoretical contributions

While our empirical tests validate the existing literature that innovativeness positively influences performance in the service sector (Helkkula et al., 2018; Ryu and Lee, 2018; Salunke et al., 2019; Weerawardena et al., 2019), our findings extend this relationship and show that SCA mediates the relationship between innovativeness and performance. Our study establishes that the sense and response capability of the firm's SC speed up the process of innovativeness to reflect on the accelerated pace of changes in the service sector. We reveal that innovativeness is a necessary precursor to being agile within the SC. As SCA require firms to quickly detect and respond to market changes, it is necessary to nurture innovativeness to ensure change is correct and timely. A lack of innovativeness may encourage SC partners to implement changes that are not in parallel with the required market needs.

Further, we found that SCA mediates the link between innovativeness and performance at higher values of collaborative relationships. In other words, when collaborative relationships increase, the indirect effect of innovativeness on performance through SCA also increases. Firms working in a disruptive business environment such as the service sector often manage a cooperative and collaborative relationship with SC partners to quickly respond and quickly recover from crises (Jüttner and Maklan, 2011). Thus, this study extends the existing body of knowledge of innovation in the sense that in turbulent SCs, innovativeness may not yield the expected outcome (i.e. operational and financial performance in this study). Our findings reveal that as innovativeness constitutes a close relationship between partners, with a high level of shared knowledge that may generate tension and complexity at a velocity level, collaborative relationship is necessary to ensure the smooth exchange of this critical information and knowledge.

Relating to firms' overall performance, our configurational analysis shows instead of independent effect a combination of agility components and the components of innovativeness can better explain firms' performance. Thus, our study extends the existing body of knowledge by unveiling the different causal combination of both innovativeness and SCA components in explaining firm performance. This finding complements the results of our symmetrical analysis (i.e. regression-based analysis) which shows the net effect of agility and innovativeness on firm performance in contrast to combined effect. Our configurational analysis also shows that sensing and service innovation are highly important for enhancing firms' overall performance; this is reflected in most of the configurations. Further, it is evident that response capability, service and process innovation are critical for firms as compromising those factors may substantially deteriorate firms' overall performance. Therefore, our findings show that the configurations for inhibiting performance are to some extent consistent with the configuration of enhancing performance but they are not exactly the mirror opposite.

To dig deeper, we also analysed the causal conditions responsible for different areas of firm performance such as operational and financial performance. Our results show that causal conditions predicting the individual areas of performance are different. However, there are some commonalities such as the configuration SI*PI*AI, which has been found to be sufficient in predicting operational and financial performance. It has also appeared that sensing and responding are dominant capabilities in most of the optimal configurations leading to different domains of firm performance.

The results presented suggest that the demarcation between services and manufacturing loses most of its meaning, which pinpoints the need to develop a unified theoretical framework to analyse agility in both the service and manufacturing industries. The suggestion to work towards an integrated approach also applies to innovation policies which, so far, have been directed mainly towards the manufacturing industry. This implies that manufacturers are realizing the importance of servitization and applying similar policies and methods. The servitization of manufacturing (Vandermerwe and Rada, 1988) is a natural development of heightening competition in product-centric firms that felt pressure to add value through the provision of services. Traditional manufacturing firms are discovering that their revenues are dominated by their service offerings rather than to their manufactured products (Cook et al., 2006). Servitization has accounted for the blurring of boundaries between the product and service business (Kroh et al., 2018) that might have led to adopting similar agility concepts in the service sector. In the context of servitization, firms require to have “quick-response” attitude in answering clients' requirement, such as financing service bundled with the car sales in order to release customers' financial concerns in a quick manner. Offering servitization requires the firm to create agile supply chain ecosystem in response to the fast changes of market demand, in collaboration with the key stakeholders in supply chains.

6.2 Managerial contributions

Executives need to know how agility in SC is enabled. Examining the role of firm innovativeness is extremely useful in their quest to manage the ever-changing dynamics and interactions in the SC. By identifying the various dimensions of a firm's innovativeness, this study will help managers gain a better understanding of factors that contribute to increasing agility in the SC, especially in the uncertainty context.

Our study will also assist SC managers in understanding the conditions in which innovativeness can positively enhance performance. Under environmental uncertainties, firms wanting to improve their performance must enhance their SCA coupled with their innovativeness and collaborative relationship. The results from the present study will also assist the SC managers in shaping the structure of collaborative relationships in parallel with improving SCA and innovativeness to ensure performance. Our study thus offers managers new insights into how they should develop effective agile mechanisms to extract performance benefits of innovativeness among SC members. More specifically, focal firm SC managers should focus in maintaining relationships between customers and suppliers to improve operational excellence and financial benefits.

Our study also alerts managers to a realisation of the importance of agility. It is a key factor in determining the success of the business and maintaining a firm's competitive advantages in an uncertain environment, such as that of COVID-19. Adopting an agile philosophy within the SC amid crises provides managers with the ability to restructure sources and operational systems to adapt to customer needs while nurturing a growth mindset. Agility helps a firm reduce operational risk and improve its financial performance because it views changes not as expected and manageable, but as a chance to disrupt. This is evident from many companies being transitioned to an entirely virtual workplace in response to the pandemic. Amongst their latest releases, Mckinsey and Company (2019) stated that adopting agility in service operations not only led to 20-point increases in customer satisfaction but also to a more than 30% rise in efficiency.

Finally, the findings from our configurational analysis provides an eye-opening strategic insight for the decision makers that they should focus on both innovativeness and agile approaches to enhance firm performance otherwise a standalone application of each approach may result in sub-optimal result. Our study also informs the service managers that they should not compromise with certain critical capabilities because absence of those capabilities, such as responding capability, may lead to substantial deterioration in firm performance. From the findings of our configurational analysis, managers may find an idiosyncratic recipe to improve the low performing dimension of firm performance.

6.3 Limitations and future research avenues

While our research has provided some intriguing insight, limitations exist, which also reflect possible avenues for future studies. First, this study used cross-sectional data rather than longitudinal data which may make cause-effect inferences on constructs examined problematic, even though some control variables were utilized in this study to approximate the rigorous test for causality. Replication of this study should be undertaken to observe the changing relationships between the variables and to better examine their dynamism. Second, it is ideal to employ a multiple-informant design to obtain a more accurate evaluation of variables that represent inter-firm processes and relationships.