Service Activity and Patented Innovation in Manufacturing Firms

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.