Enterprise Software and Service Innovation: Standardization versus Customization

Enterprise software systems support service firms in planning, supporting and managing business processes. In general, these software packages can be categorized in standardized generic applications, software systems designed to fit one particular business sector or completely customized enterprise software developed for a single firm. Sector specific enterprise software is expected to facilitate the knowledge handling, storing and accumulation especially by presentating information in an adequate manner. In addition to the benefits mentioned, a firm using customized enterprise software can also incorporate long-term experience and knowledge in the software application, making it perfectly suitable for fulfilling all requirements and needs for its specific business. By taking part in or completely shaping the design of the software, a firm using customized software may build up its own IT know-how, resulting in an optimization of business processes and time managment. These optimizations allow service firms focusing on the design of new services. Taking all the benefits together, the use of customized enterprise software systems is expected to support innovation in the service sector rather than the use of sector specific enterprise software. This paper analyzes the relationship between the use of sector specific enterprise software and service innovation as well as the relationship between the use of customized enterprise software and service innovation. The analysis is based on a knowledge production function estimated by a probit model. The basis of the analysis is a dataset consisting of German service firms that provide information and communication services and knowledge-intensive services. The results indicate no relationship between the use of sector specific enterprise software and service innovation. On the other hand, the use of customized enterprise software is related to service innovation in a positive and significant way. Taking former innovative activities into account, the analysis suggests that the causality runs from the use of customized enterprise software to service innovation. The positive impact of customized enterprise software on service innovation stays robust among different specifications.

Engelstätter, Benjamin and Miruna Sarbu (2010), Enterprise Software and Service Innovation: Standardization versus Customization, ZEW Discussion Paper No. 10-100, Mannheim.