In this paper, we define sustainable development using the dominant definition established by the World Commission on Environment and Development (WCED), published by [2
]: “Sustainable development means meeting the needs of the present without compromising the ability of future generations to meet their own needs. This definition means that firms engaged in sustainability need to seek strategies that simultaneously create economic value.
The sustainable development in terms of long-term growth and survival is driven by differentiation, its ability to provide unique and superior value in terms of quality, services, and special features or after-sales service. Therefore, research has begun to test whether strategic and other features configurations of actions and practices have a different impact on firm results [5
]. The works by Tether [7
] and Freel [3
] provide important steps in the direction of exploring differences across KIBS. It seems that heterogeneity of KIBS sector concerns not many factors as the size of companies, or the kind of services provided, but rather strategy adopted, cognitive aspects of knowledge features [8
These issues are defined by Scheuing and Johnson [21
] according to Ansoff’s product-market expansion matrix who identified four different development strategies for services that can be pursued using four different types ranging from new service/markets, through new service lines and service line extensions, to service improvements. However, the service/market development strategies should be supported by innovations and changes in organizing internal resources. Figure 1
shows the research framework of sustainable development of KIBS in this study.
In the middle is the alignment, which is based on the premise that simultaneously, many contingencies are embedded in the research model [22
]. The goal is trying to find clusters of variables that collectively define a meaningful and coherent slice of organizational reality [23
]. All individual determinants are described in the next sections.
2.1. Product (Service) and Process Innovation
The competitive advantage of KIBS firms primarily relies on the development, adaptation, and commercialization of knowledge-based services, product innovation plays a crucial role in KIBS’ operations [24
]. The new product development (NPD) literature classifies innovation into different types and captures the intensity of firms’ innovation efforts within a technological domain. The emphasis on innovation in services is often placed on continuity rather than newness Voss et al., [26
]. One of the key criteria which have been used as the basis for establishing the typologies is the degree of the radicalness of innovation.
Avlonitis et al. [27
] offer a typology which classifies service innovation into six different types: new to-the-market services, new-to-the-company services, new delivery processes, service modifications, service line extensions, and service repositioning. Product and other innovations can give the company a competitive advantage to the extent that the technology underlying such innovations remains proprietary [27
]. Lafuente et al. [24
] are using commonly used scale proposed in the Oslo Manual for evaluating service innovations: (1) replacement of products being phased out; (2) extension of product range within main product field through technologically new products; (3) extension of product range within main product field through technologically improved products; and (4) extension of product range outside main product field. Others like [27
] are using traditional data (e.g., CIS) with rather dichotomous (1-new or significant improved services, otherwise 0) variables. Product innovations are developed to meet or outstand the offerings of the company’s competitors. Avlonitis et al. [27
], suggest that this group of services is developed to meet or outstand the offerings of the company’s competitors. Further, the KIBS implemented product (service) innovation is associated with how services are provided and organized, and in turn, affects the relation with users in terms of customer satisfaction [6
Rodriguez and Camacho [30
] and Miles et al. [11
], identified technology, as a factor reflecting companies’ orientation towards product innovation. According to Corrocher et al. [6
] is technology adoption non-interactive source of knowledge explained by the (ICT) technologies used in service production/delivery process. The development of technology has implications, which concerns with the modes and timing of production and delivery of some types of services much more possible and easier. This process can introduce some distance between service development and utilization. It could create the geographical reach of KIBS and, accordingly, the perception of increasing international pressure on local firms [6
]. This group of variables characterizes firms that are at the frontier in terms of adoption and use of new technologies but that are also likely to rely upon external drivers of innovation, such as specialized suppliers of tangible technological inputs.
Technology development emphasizes the newness of the service’s operating/delivery process (i.e., hardware, software) to the company, the technological newness of the service’s delivery process and its subsequent newness to the customer, and the newness of the new service development and marketing process to the company [29
]. However, KIBS firms specializing in a service like law or engineering may introduce a completely new service and many of them have developed consultancy offerings—without the use of any new technologies [11
]. While professional KIBS are more keen to adopt new technologies, technical KIBS are more focused on moulding them [6
]. This theoretical evidence suggests that technology development reflecting companies’ orientation towards product innovation and improvement of service’s operating/delivery process [6
]. This theoretical evidence suggests that KIBS as a sector is conducive to greater service innovation level based on changes in technology.
Even established KIBS are on the lookout for new opportunities emerging in new markets to ensure future development in terms of growth and survival. Furthermore, being able to offer new or existing services or processes may improve a company’s positioning in existing markets [31
]. Market development strategies reflect the breadth of the geographic markets served and the firm’s pursuit of new distribution channels [32
] so they are closely interlinked with marketing actions. Branzei and Vertinsky [32
] suggest that high-growth firms are twice as likely as low-growth firms to research and enter new markets. They found, that more intense market development strategies constrained exploitation while an increased focus on existing niches fostered the commercialization of incremental innovations. KIBS targeting to specific niche markets can offer distinct advantages and can avoid having to compete solely on cost against larger enterprises with greater economies of scale and deliver high-quality products, they can thrive in small volumes with high margins.
However, the service innovations (especially more radical) which are untested and bringing into the new markets are a very risky strategy Rodríguez and Nieto [33
]. As a result of the interaction between service providers and their customers, some innovation activities are aimed at adapting the services to the users´ needs, which might in itself be considered a form of innovation Rodríguez and Nieto [33
] which is often under the protection of the contract between the service provider and the customer. This may be a barrier to distributing and delivering service innovation to foreign markets as well.
2.3. Marketing Actions
Marketing development strategy involving significant changes in design, placement, promotion or pricing activities [34
]. This strategy leads to tactical marketing actions such as changes in sales or distribution methods, advertising or permanent exhibitions. The objective is to increase the appeal for the firms’ products in terms of market penetration and/or to enter new markets [6
]. These actions focus on customer’s needs, opening new markets, or repositioning a company’s product with the intent to increase sales. Marketing strategies affect financial outcomes for small businesses and lead to the sustainable development of these companies. An effective marketing strategy increased sales and dominance in a targeted market [35
]. KIBS managers/owners are tasked with using various communication levels to determine which consumer populations are most likely to talk about a company brand to help influence quantifiable ways to sales and profitability [36
KIBS can use marketing communications to obtain information and advice, offer information about products, and persuade target customers on the merits of a particular product [37
]. Product presentation is a very important marketing tool in terms of penetration or entering new markets and help to promote brands. Building a valuable brand increases customer value perception, gives the product a higher quality level, increases profitability [38
] and lead to the sustainable development of these companies. Companies that have a strong brand name achieve better performance and marketing capabilities [39
]. The KIBS focusing on marketing actions are likely to have a better ability to increase customer satisfaction, also to successfully adapt to changing market needs, to discover and exploit business opportunities and to access new information and resources in order to develop new competitive products or processes [6
2.4. Human Resources and Organizational Structure
A specific feature of KIBS, which affects the development activities, is their labor-intensive nature. It is especially in KIBS that highly qualified human capital represents a key strategic asset. Corrocher et al. [6
] talking about the organizational changes and non-technological innovations, which is explained by human capital competencies and organizational structure, and reflects an innovative pattern which is oriented towards changing organizational variables such as the firm internal structure and personnel skills and profiles. Perhaps, one of the best arguments for sustainable development of SMEs is the potential to attract and retain employees [40
]. Development of human resource management is a critical innovation strategy, particularly for high-tech or knowledge-intensive firms and consistently enables superior performance. Human development strategies reflected the strategic importance placed on recruiting knowledgeable employees, training existing employees, and developing functionally diverse teams [32
]. Investments in human resources appear to increase, rather than decrease, with the introduction of product innovation and ICT, following the need for firms to improve their knowledge capacity [6
]. Implementation more complex technology will increase the need for intensive learning.
2.5. Business Performance of Services
The impact of strategic and mainly innovation activities on the business performance of services is less directly observable compared to manufacturing [27
]. In other words, because there is no physical product, it is often harder to convey the immediate benefit to consumers and any benefit may not be immediately linked by the customer to an innovation per se [42
]. An increasing number of researchers have turned their attention to a specific aspect of the non-financial performance of service firms [29
]. Effectiveness assessment of any strategy and its impact on the overall firm is an important issue that all firms need to assess after the implementation of any new strategy [2
]. When measuring SMEs performance, the subjective sources of financial and non-financial performance are more useful [43
All the mentioned strategic actions in terms of innovations and changes in selected areas of theoretical background have an impact on business performance. Researchers use many indicators, such as financial (turnover, sales, ROA, etc.) and non-financial (market share, customer satisfaction, image, etc.) using objective and/or subjective scales [2
]. Many researchers (e.g., [27
]) suggest that the service innovations have a positive relationship on firm (financial, non-financial) performance (depend on radicalness). According to Avlonitis et al. [27
], service line extensions are concerned with non-financial performance, particularly the company’s overall image. Having developed a good image in the eyes of the customer helps minimize the risk associated with the new offering and emphasizes its ability to (also) offer a particular service or its ability to offer improved services. Delivery processes have the most important contribution in terms of financial performance, particularly the profitability level. This type of action aims to take advantage of modern technologies in the delivery of the service and, thus, renders the delivery more cost-efficient and therefore, profitable. Service repositioning is merely an effort to shift the market’s overall perception of the company’s services relative to that of competitors. Further, Georgiadis, and Pitelis [44
] find that more profitable services (SMEs) combine a highly skilled workforce with technological and know-how-based firm differentiation strategies, and/or product differentiation strategies, which are based on the quality of service and personal attention to customers, alongside generous compensation and attention to employee development. Thus, we hypothesize:
Hypothesis 1 (H1).
KIBS implemented more radical service (new to the market or firm) innovations have an association with non-financial performance, particularly company overall image.
Hypothesis 2 (H2).
KIBS implemented marketing actions have an association with increasing customer satisfaction and flexibility to adjust to the changeable needs of the customers.
Hypothesis 3 (H3).
KIBS implemented technology to introduce new or to improve existing delivery processes, have a close association with financial performance (profitability level).
Hypothesis 4 (H4).
KIBS implemented changes focused on human resource management have a closed association with improvement of quality service offered.
The firms often make decisions resulting in strategic configurations of one or several development actions. As Amara, Landry, and Doloreux [29
] pointed out, there are strong complementarities between different types of innovations in services. From a system point of view, any action or change and innovation involves the development of other forms of actions in the system, organization. Hence, the introduction of new services often requires the introduction of new service processes, the adoption of new organizational practices, the availability of changes in service design, promotion and placement and so on [28
]. Instead of exhibiting complementarities, the different forms of innovation might be independent of each other or even show substitution effects [29
There is general agreement that KIBS sector have the highest mean score in innovation level within service industry as a whole and are expected to adopt a broad, complex portfolio of innovation initiatives [28
]. Implementation of one of the four types of innovations and changes represents a simple strategy and any of their combinations a complex strategy [28
]. The importance of the hybrid cluster is mentioned in the work of [15
]. Coordination of innovation decisions can result in complex strategies. According to Martin-Rios et al., [28
] a complex strategy is formed, for example, by combining one or more technology-derived innovations (product and process) and non-technological innovations (organizational and marketing). There is an expectation that internal variability of innovation types will lead to differences in the generation of organizational results. Service firms adopting complex innovation strategies could obtain high rates of firm turnover and alternatively, simple strategies could be associated with lower firm turnover rates [28
]. However, even within the KIBS sector have been found differences and not all businesses are active innovators [11
]. This type of non-innovatory KIBS probably rely upon established reputation and/or economic upturn in terms of growing customer demand to compete in the current market [6
]. This cluster of conservative KIBS have been identified throughout European studies and studies from emerging economies (see [6
]). In light of the above conclusions, we hypothesize:
Hypothesis 5 (H5).
The group of least or non-innovative KIBS are less successful in terms of both, financial and non-financial performance compared to the other type of KIBS.
Hypothesis 6 (H6).
KIBS implemented more complex innovation strategy are more successful in terms of financial performance, particularly profit.