Maximizing Returns on Innovation through Service Encapsulation A case study in Thailand Luxury Car Industry A Thesis submitted to The University of Manchester for the Degree of Doctor of Business Administration (DBA) in the Faculty of Humanities 2013 Nattavut Kulnides Manchester Business School Table of Contents TABLES 6 FIGURES 8 BOXES 9 ABSTRACT 10 DECLARATION 11 COPYRIGHT STATEMENT 11 ACKNOWLEDGEMENT 13 THE AUTHOR 14 CHAPTER 1 - INTRODUCTION 15 1.1 RESEARCH BACKGROUND 15 1.2 RESEARCH QUESTIONS 16 1.3 SCOPE OF INVESTIGATION 17 1.4 METHODOLOGICAL APPROACH 19 1.5 UNIQUE ROLES OF THE AUTHOR AS AN INSIDER AND OUTSIDER OF THAI LUXURY CAR INDUSTRY 20 1.6 CHAPTER OUTLINES 21 CHAPTER 2 - LITERATURE REVIEW 24 2.1 CONCEPT OF INNOVATION 25 2.2 SERVICE INNOVATION 27 2.2.1. WHAT IS SERVICE INNOVATION? 27 2.2.2. DRIVING FORCES BEHIND SERVICE INNOVATION 29 2.2.3. SERVICE INNOVATION IN MANUFACTURING FIRMS 31 2.3 SERVICE ENCAPSULATION 32 2.3.1 PRODUCT AND SERVICE CONSUMPTION 32 2.3.2 WHAT IS ‘SERVICE ENCAPSULATION’? 34 2.3.3 DESIGN OF NEW SERVICE OFFERING 35 2.4 MEASUREMENT OF INNOVATION SUCCESS 36 2.5 LUXURY CAR INDUSTRY 40 2.6 INNOVATION MANAGEMENT IN MULTINATIONAL CORPORATIONS (MNCS) 42 2.7 CONCLUSION 45 CHAPTER 3 - RESEARCH METHODOLOGY 46 3.1 LITERATURE GAPS AND CONCEPTUAL FRAMEWORK 46 3.2 RESEARCH QUESTIONS 50 Page 2 of 261 3.3 RESEARCH METHODOLOGY: MIXED METHODOLOGY 51 3.4 RESEARCH DESIGN, DATA COLLECTION AND ANALYSIS 54 3.4.1 THE EXPLORATORY MIXED METHOD DESIGN 55 3.4.2 QUALITATIVE STRAND: FACE-TO-FACE INTERVIEWS 57 3.4.3 INTERIM PHASE: INSTRUMENT DEVELOPMENT 63 3.4.4 QUANTITATIVE STRAND: QUESTIONNAIRE 65 3.4.4 MERGING OF RESULTS 69 3.5 LIMITATIONS & CONTRIBUTION 70 3.6 CONCLUSION 71 CHAPTER 4 - AN OVERVIEW OF THE THAI LUXURY CAR INDUSTRY & ROLES OF INNOVATION IN THE THAI LUXURY CAR INDUSTRY 73 4.1 AN OVERVIEW OF THAILAND AUTOMOTIVE MARKETS 73 4.1.2 OVERVIEW OF THE PASSENGER CAR SEGMENT IN THAILAND 74 4.1.3 OVERVIEW OF THE LUXURY CAR SEGMENT IN THAILAND 76 4.1.4 MARKET TREND AND FUTURE CHALLENGES 80 4.2 INNOVATION STRATEGY BY DIFFERENT LUXURY CAR COMPANIES IN THAI MARKET 83 4.3.1 ROLES OF INNOVATION IN THE THAI LUXURY CAR INDUSTRY 89 4.3.2 WHAT MATTERS MOST IS INNOVATION COMMUNICATION 90 4.4 OUTCOMES FROM QUANTITATIVE ANALYSIS: QUESTIONNAIRES 91 4.4.1 PERCEPTION OF DISTINCTIVE FEATURES BETWEEN LUXURY CARS AND OTHER NON- LUXURY PASSENGER CARS 92 4.4.2 TOP THREE LUXURY CAR BUYING CRITERIA 94 4.4.3 TOP BRANDS BY DISTINCTIVE CATEGORIES 96 4.4.4 CUSTOMERS’ PERCEPTIONS OF PRODUCT INNOVATION AND SERVICE INNOVATION 98 4.5 DISCUSSION OF FINDINGS 102 4.5.1 DIFFERENT PERSPECTIVES OF INNOVATION BY EACH KEY STAKEHOLDERS 102 4.5.2 FINDINGS INNOVATION AS AN ‘ENABLER’ NOT A ‘MAIN DRIVER’ 104 4.5.3 GAPS BETWEEN RESEARCH FINDINGS AND LITERATURE REVIEWS 106 4.6 CONCLUSION 107 CHAPTER 5 - ROLES OF SERVICE ENCAPSULATION IN THE THAI LUXURY CAR INDUSTRY 109 5.1 OUTCOMES FROM QUALITATIVE ANALYSIS: FACE-TO-FACE INTERVIEWS 109 5.1.1 ROLES OF SERVICE IN THE LUXURY CAR MARKET 109 5.1.2 SERVICE ENCAPSULATION IN THE THAI LUXURY CAR INDUSTRY 111 5.1.3 CURRENT SERVICE ENCAPSULATION OFFERED BY THE THAI LUXURY MARKET 113 5.1.4 MEASUREMENT OF SERVICE ENCAPSULATION QUALITY BY THAI LUXURY CARMAKERS 115 5.1.5 LUXURY CAR DEALERSHIP AND RETAIL EXPERIENCE 116 5.2 OUTCOMES FROM QUANTITATIVE ANALYSIS: QUESTIONNAIRE 118 5.2.1 VALUE PERCEPTION OF SERVICE ENCAPSULATION 118 5.2.2 VALUE MISALIGNMENT OF SERVICE ENCAPSULATION 123 5.2.3 INFLUENCING FACTORS OF SERVICE ENCAPSULATION 125 5.3 DISCUSSIONS AND FINDINGS: SERVICE ENCAPSULATION DELIVERY MODEL 127 5.4 DISCUSSIONS AND FINDINGS: BARRIERS OF SERVICE ENCAPSULATION IN THE THAI LUXURY CAR INDUSTRY 133 5.5 TRENDS OF SERVICE ENCAPSULATION IN THE THAI LUXURY CAR INDUSTRY 142 5.6 CONCLUSION 143 CHAPTER 6 - MAXIMIZING RETURN ON INNOVATION THROUGH SERVICE ENCAPSULATION: A CASE STUDY IN THE THAI LUXURY CAR INDUSTRY 145 6.1 RETURN ON INNOVATION 146 Page 3 of 261 6.1.1 CONCEPT OF RETURN ON INNOVATION FROM SERVICE ENCAPSULATION 146 6.2 CRITERIA FOR FUTURE PURCHASE AND BRAND LOYALTY: FINDINGS FROM QUANTITATIVE ANALYSIS 153 6.2.1 CONSUMERS’ REASONS TO PURCHASE LUXURY CARS IN THE FUTURE 153 6.2.2 LUXURY CAR’S BRAND LOYALTY 155 6.3 DISCUSSION AND FINDING: KEY SUCCESS FACTORS IN MAXIMIZING RETURN ON SERVICE ENCAPSULATION 158 6.3.1 MARKET AND CUSTOMER INTELLIGENCE 159 6.3.2 SERVICE ENCAPSULATION READINESS 161 6.3.3 ORGANIZATION COMPATIBILITY 163 6.3.4 POLICY MAKER ALIGNMENT 164 6.4 DISCUSSION AND FINDING: SERVICE ENCAPSULATION COMMERCIALIZATION FRAMEWORK 166 6.4.1 INTERNAL FACTORS 168 6.4.2 EXTERNAL FACTORS 175 6.4.3 EXTERNAL TRAJECTORIES 183 6.4.4 SERVICE ENCAPSULATION ENABLERS 187 6.5 LESSONS LEARNED AND IMPLICATIONS 194 6.5.1 RETURN ON INNOVATION THROUGH SERVICE ENCAPSULATION 194 6.5.2 KEY COMMERCIALIZATION SUCCESS FACTORS FOR SERVICE ENCAPSULATION 194 6.5.3 SERVICE ENCAPSULATION COMMERCIALIZATION FRAMEWORK 195 6.6 CONCLUSION 195 CHAPTER 7 - MANAGEMENT IMPLICATIONS 197 7.1 KEY EMPIRICAL FINDINGS AND MANAGEMENT IMPLICATIONS 197 7.2 IMPLICATIONS FOR INNOVATION EXPECTATION MATRIX 199 7.2.1 ACTION 1 FOR HEADQUARTERS: GLOBAL INNOVATION STRATEGY & MANAGEMENT 200 7.2.2 ACTION 2 FOR LOCAL SUBSIDIARY: MARKET INNOVATION INTRODUCTION AND COMMUNICATION 201 7.2.3 ACTION 3 FOR INTERMEDIARY: CUSTOMER’S INNOVATION APPRECIATION AND EDUCATION 203 7.3 IMPLICATIONS FOR SERVICE ENCAPSULATION DELIVERY MODEL 204 7.3.1 ACTION 4 FOR HEADQUARTER: SERVICE ENCAPSULATION STRATEGY & PLATFORM MANAGEMENT 205 7.3.2 ACTION 5 FOR LOCAL SUBSIDIARY: MARKET’S SERVICE ENCAPSULATION MANAGEMENT AND OPERATION 206 7.3.3 ACTION 6 FOR INTERMEDIARY: CUSTOMER’S SERVICE ENCAPSULATION OPERATION 207 7.4 IMPLICATIONS FOR SERVICE ENCAPSULATION COMMERCIALIZATION MODEL 208 7.4.1 ACTION 7 FOR HEADQUARTERS: STRATEGIC GLOBAL PERFORMANCE MANAGEMENT209 7.4.2 ACTION 8 FOR LOCAL SUBSIDIARY: LOCAL SUBSIDIARY PERFORMANCE MANAGEMENT 211 7.4.3 ACTION 9 FOR INTERMEDIARY: INTERMEDIARY PERFORMANCE MANAGEMENT 212 7.3 CONCLUSION 214 CHAPTER 8 – CONCLUSIONS & RECOMMENDATIONS 216 8.1 REVISITING THE RESEARCH PROCESS 216 8.1.1 EMERGING GAPS AND RESEARCH QUESTIONS 216 8.1.2 METHODOLOGY 217 8.2 RECALLING FINDINGS AND DISCUSSIONS 218 8.2.1 ROLES OF INNOVATION IN THE THAI LUXURY CAR INDUSTRY 218 8.2.2 ROLES OF SERVICE ENCAPSULATION IN THE THAI LUXURY CAR INDUSTRY 219 8.2.3 MAXIMIZING RETURN ON INNOVATION THROUGH SERVICE ENCAPSULATION 220 8.3 CONTRIBUTIONS TO ACADEMIC KNOWLEDGE 221 8.3.1 ROLES OF INNOVATIONS IN THE LUXURY CAR INDUSTRY 222 8.3.2 ROLES OF SERVICE ENCAPSULATION AND THE UNIQUE ROLE OF LOCAL INTERMEDIARY 223 Page 4 of 261 8.3.3 MAXIMIZING RETURNS ON INNOVATION THROUGH SERVICE ENCAPSULATION: A CASE STUDY IN THE THAI LUXURY CAR INDUSTRY 224 8.4 APPLICABILITY OF THE RESEARCH AND AGENDA FOR FURTHER RESEARCH 225 8.4.1 APPLICABILITY OF RESEARCH 225 8.4.2 AGENDA FOR FURTHER RESEARCH 227 8.5 CONCLUDING REMARKS 229 REFERENCE 232 APPENDIX I: LIST OF INTERVIEWEES 241 APPENDIX II: AN EXAMPLE LETTER ASKING FOR AN INTERVIEW 242 APPENDIX III: SERVICE ENCAPSUALTION IN THAI LUXURY CAR INDUSTRY SURVEY 244 APPENDIX IV: SERVICE ENCAPSUALTION IN THAI LUXURY CAR INDUSTRY SURVEY FOR NON-RESPONDENTS 252 APPENDIX V: DESCRIPTIVE STATISTIC ANALYSIS AND T-TEST BETWEEN RESPONDENTS AND NON-RESPONDENTS 258 Total word count 73,796 (including footnotes) Page 5 of 261 Tables Table 1: Roles of author in Thai luxury car industry during 2007 - 2011................21 Table 2: Measurements of new service performance.................................................38 Table 3: A model of innovation performance measurement....................................39 Table 4: Management Challenges in the evolving global innovation paradigm...43 Table 5: Innovation strategy framework in global automobile industry................44 Table 6: Key debates/gaps, findings from literature and management practices 48 Table 7: Strengths and weaknesses of mixed methodology .....................................53 Table 8: Exploratory mixed method research design ................................................57 Table 9: Design of face-to-face interview questions...................................................60 Table 10: Design of questionnaire questions...............................................................64 Table 11: Response rates of paper-based survey and web-based survey...............67 Table 12: Outcomes of merging of results to address research questions ..............70 Table 13: Total car population of Thailand’s luxury carmakers (as of December 2011) ..................................................................................................................................76 Table 14: Summary of establishments of luxury car makers in Thailand...............80 Table 15: World’s top-ten automotive consumers and ASEAN market.................81 Table 16: Future challenges of an automotive industry ............................................83 Table 17: Descriptive statistic and t-test for Qq3 ‘Do you agree that the luxury car offer the following distinctive features when compared to other passenger cars?’ ............................................................................................................................................93 Table 18: Ranking of luxury car buying criteria .........................................................95 Table 19: Qq2 - Luxury car brand who captured the distinctive criteria by Thai consumer ..........................................................................................................................97 Table 20: Descriptive statistics and t-test for Qq6 ‘Important of Product Innovation