Logistics innovation: A service-dominant logic-based conceptual framework

Abstract

Customers demand new services due to a dynamic and complex business environment. Innovation is a response to these challenges in various industries. Logistics service providers are under great pressure to be innovative due to their changing business environment and customer demands. Logistics innovation can be considered service innovations triggered by technological innovations. Service innovation should be examined with a service-dominant logic perspective by considering properties of services. Service-dominant logic as an evolving view in marketing highlights the importance of value co-creation, relationships, processes, and operant resources in the service exchanges of the organizations. In this chapter, important determinants related to logistics innovation are derived by a comprehensive literature review. Furthermore, a conceptual model of logistics innovation within a service-dominant logic perspective is established. This study is novel in that it focuses on the unexplored research of logistics innovation from the perspective of service-dominant logic by taking a holistic approach integrating technology, knowledge, and relationship orientation concepts with value co-creation.

Full text

Handbook of Research
on Effective Marketing in
Contemporary Globalism
Bryan Christiansen
PryMarke, LLC, USA
Salih Yıldız
Gümüşhane University, Turkey
Emel Yıldız
Gümüşhane University, Turkey
A volume in the Advances in Marketing, Customer
Relationship Management, and E-Services
(AMCRMES) Book Series

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Chapter 1
DOI: 10.4018/978-1-4666-6220-9.ch001
Logistics Innovation:
A Service-Dominant Logic-
Based Conceptual Framework
ABSTRACT
Customers demand new services due to a dynamic and complex business environment. Innovation is a
response to these challenges in various industries. Logistics service providers are under great pressure
to be innovative due to their changing business environment and customer demands. Logistics innova-
tion can be considered service innovations triggered by technological innovations. Service innovation
should be examined with a service-dominant logic perspective by considering properties of services.
Service-dominant logic as an evolving view in marketing highlights the importance of value co-creation,
relationships, processes, and operant resources in the service exchanges of the organizations. In this
chapter, important determinants related to logistics innovation are derived by a comprehensive litera-
ture review. Furthermore, a conceptual model of logistics innovation within a service-dominant logic
perspective is established. This study is novel in that it focuses on the unexplored research of logistics
innovation from the perspective of service-dominant logic by taking a holistic approach integrating
technology, knowledge, and relationship orientation concepts with value co-creation.
INTRODUCTION
Innovation is a required process for adapting
dynamic business environments and deriving
value to customers. Innovation has great effect
on performance regardless of industry and orga-
nization type. Though there are four innovation
types, product innovations related studies are
mostly common in literature (Grawe, Chen, &
Daugherty, 2009). Due to the dynamics of the
knowledge economy and society, the importance
of delivering innovative services increases due
Omur Yasar Saatcıoglu
Dokuz Eylul University, Turkey
Gul Denktas-Sakar
Dokuz Eylul University, Turkey
Cimen Karatas-Cetın
Dokuz Eylul University, Turkey

2
Logistics Innovation
to an accerelated pace of technical and scientific
advancement. The key component of the knowl-
edge economy is a greater reliance on intellectual
capabilities than on physical inputs. Due to the
increased importance of services and service in-
novation, it is necessary to conduct research on
service innovation. Product and service innova-
tions have different characteristics; therefore,
service innovations must be considered with
respect to service properties. Service-dominant
logic should be considered in service innovation
related studies which emphasizes co-creation of
value, learning, and value creation network.
The logistics industry and its service providers
are also affected by changes in the global market-
place. Hence, innovation is also a key process for
logistics service providers. However, there is still
a high failure in logistics innovation in practice
(Buse & Wallenburg, 2011) even though research
on logistics innovation has increased since 2005.
Accordingly, innovation related research consid-
ering the unique properties of logistics service
will contribute both to logistics practices and the
extant academic literature. Therefore, the goal
of the study is to explore the main mechanisms
which enable logistics service providers to deliver
value with their innovations via feedback from
a service-dominant logistics perspective by a
conceptual model and developing propositions.
The study is structured in three main parts:
literature review, conceptual framework, and con-
clusion. After a brief introduction on innovation
in general and logistics innovation in particular,
the relationship between determinants of logistics
innovation within the context of detailed litera-
ture review is discussed. Following the literature
review, a conceptual model is developed showing
the relations between determinants and outcomes
of logistics innovation process. Finally, the study
is concluded with implications for theory and
practice as well as mention of the limitations of
the study.
BACKGROUND LITERATURE
Logistics Innovation
Innovation is considered an evolutionary process
within an organization to adopt any change regard-
ing a device, system, process, policy, or service
which is new to the organization (Damanpour,
1987; Calantone, Cavusgil, & Zhao, 2002). In-
novation is also regarded as an organizational
capability since the organization deploys resources
with a new ability to create value. This capabil-
ity is basically about the organization’s ability to
continuously transform the existing knowledge and
ideas into new products, processes and systems
(Hurley & Hult, 1998).
Many developments in today’s business envi-
ronment such as increased competition, a complex
global environment, and the needs of customers for
more customized services have motivated compa-
nies to seek new and innovative ways to achieve
competitive advantage. The global marketplace,
with everchanging technological and relational
options, has driven businesses to discover new
ways to innovate (Flint, Larsson, Gammelgaard,
& Mentzer, 2005). In this sense, logistics is sug-
gested as a set of services spanning the boundaries
between suppliers, service providers, customers,
and other related parties, and also as an important
process for successful supply chain operations
(Stank, Goldsby, Vickery, & Savitskie, 2003).
Multiple enviromental trends have required
logistics service providers (LSPs) to be innova-
tive and intensive competitive pressures forced for
new ways to handle what have previously been
considered standard logistics practices (Busse
& Wallenburg, 2011; Wu, 2006; Evangelista,
McKinnon & Sweeney, 2007; Daugherty, Chen &
Ferrin,2011). It is also proven that logistics enter-
prises improve their logistics ability by innovation
(Daugherty, Chen & Ferrin, 2011). However; LSPs
are not innovative (Busse & Wallenburg, 2011)

3
Logistics Innovation
and innovation management for LSPs still has
much room for improvement (Wallenburg, 2009).
Despite the fact that some logistics firms have
earned enormous returns from innovation, there
is still a high failure rate in innovation (Busse &
Wallenburg, 2011). Insufficient human and capital
resources are named as the main reasons for the
failure to perform innovation activities (ELA &
Little, 2007).
The more complex role which LSPs must play
to meet the changing supply chain requirements
of their customers (Evangelista, McKinnon &
Sweeney, 2007) increases the need for innova-
tion (Busse & Wallenburg, 2011), as well as the
need for capturing a larger market share (Soosay
& Hyland, 2004). Therefore, it is important for
logistics firms to engage in innovation. However,
the extant literature has paid little attention to inno-
vation in logistics (Flint, Larsson, Gammelgaard,
& Mentzer, 2005; Busse, 2010; Evangelista, McK-
innon, & Sweeney 2007; Wagner, 2008; Busse &
Wallenburg, 2011) and the lack of innovation of
performance in LSPs has not yet been explained
(Busse,2010). A detailed literature examination
by Busse & Wallenburg (2011) reveals that gen-
eral reviews of innovation management do not
discuss the topic of LSPs, and literature reviews
in the field of LSPs do not reflect the increased
importance of innovation management in LSPs
despite the increased research from 2005. Wu
(2006) also examined 317 dissertation abstracts
and emphasized that little research has been
conducted on technological innovativeness. The
importance of the topic combined with the very
limited prior research should encourage logistics
researchers to continue exploring this line of
research (Wagner,2008).
Many researchers posit that innovation is biased
towards a goods dominant view which focuses
mainly on technology oriented innovation (Sayem,
2012), due to the characteristics of the services
such as intangibility, heterogeneity, and insepara-
bility (Ordanini & Parasuraman, 2011). However,
the existence and the importance of other factors
such as knowledge, skills, and capabilities that cre-
ate new opportunities for developing new services
should also be considered to achieve successful
service innovations. Logistics innovation is also
considered as a service innovation. Although there
is an increasing need for studies related to service
innovation, many firms elect to compete on the
basis of service rather than on physical products
(Gronroos, 2000; Kandampully, 2002), and it is
observed that relevant literature still heavily relies
on product-related innovations (Grawe, Chen, &
Daugherty, 2009); furthermore, service innovation
is under researched (Ettlie & Rosenthal, 2012;
Castro, Montoro-Sanchez, & Ortiz-De-Urbina-
Criado, 2011; Lusch, Vargo, & O’Brien, 2007).
As Lin and Chen (2012) mentioned, innovative
services may be considered in the form of apply-
ing new ideas and new technologies to reform and
change existing service processes and products,
improving existing service quality and service
efficiency, creating new value for customers, and
constituting a competitive advantage for service
activities.
Logistics innovation has been defined as
“any logistics related service from the basic to
the complex which is seen as new and helpful to
a particular focal auidence” (Mena, Christopher,
Johnson & Jia, 2007; Sakchutchawan, Hong, Cal-
laway, & Kunnathur, 2011). The auidence could
be internal where innovations improve operational
efficiency or external where innovations better
serve customers (Mena, Christopher, Johnson &
Jia, 2007). Though obtaining logistics innovation
is challenging, the potential for pay-off can be high
if achieved (Daugherty, Chen, & Ferrin, 2011).
Based on the study conducted by the Euro-
pean Logistics Association (ELA) and Arthur D.
Little (ELA & Little, 2007), the most important
objectives for logistics innovation are reduc-
tion of logistics costs, the modularization and
standardization of logistics services, providing
new services to cover customer requirements,
and covering basic market requirements. When
the studies conducted in 2007 and 2012 were

4
Logistics Innovation
compared, “logistics service innovations” was
seen much more important by logistics service
providers in 2012 by an increase of five percent.
Logistics innovation does not always entail the
introduction of something new to the market. New
products and services can result from adopting
and organizing technology and applying processes
from applications in other areas. Based on this
understanding of logistics innovation, innovative
logistics processes are structured, measured logis-
tics activities perceived as new and helpful in the
production of a specific output (Grawe, Daugherty,
& Roath, 2011). Logistics innovation emerges out
of processes managers use to understand unmet or
poorly served customer desires and subsequently
develop new services that better respond to their
desires (Flint, Larsson, Gammelgaard, & Mentzer,
2005). Logistics innovation promoted by technol-
ogy improvement and service changes enhances
the competitiveness of enterprises (Zhang, He,
Gui, & Shi, 2008). Logistics innovation might
emerge from processes in which social actors
continously attempt to make sense of their dy-
namic market environment through processes such
as brainstorming exercises, competitive product
analysis, scenario exercises, and direct customer
input where they reflect on their insights and
past attempts to respond in similar situations and
negotiate interpretations and possible responses
such as innovation ideas (Flint, Larsson, Gam-
melgaard, & Mentzer, 2005).
An extreme case of logistics innovation would
be a logistics service that is new to the world.
The initial shift to inter-modal containers was
an innovation resulting in industry-wide change.
Radio frequency identification devices (RFID)
have the potential to radically change visibility,
albeit maybe at a slower rate than many custom-
ers would like due to technological challenges
(Flint, Larsson, Gammelgaard, & Mentzer, 2005).
The other important radical logistics innovations
include robotics, automated storage/retrieval sys-
tems, and automated material handling equipment
(Germain, 1996).
At the other extreme are incremental in-
novations such as a change in package design,
implementation of a new warehouse manage-
ment system (WMS), freight tracking systems,
order management processes, real-time electronic
proof of delivery transmission into the shipper’s
IT system, shorter and guaranteed deliveries to
the shipper, optical scanners, electronic data in-
terchange (EDI), distribution modelling software,
distribution requirement planning (DRP) software,
handheld data entry devices, materials requirement
planning (MRP) software, barcodes, local area
networks, direct product probability software, and
order processing (Flint, Larsson, Gammelgaard,
& Mentzer, 2005; Grawe, Daugherty, & Roath,
2011; Wagner, 2008; Germain, 1996). Virtual
reality (such as for digital plant planning) and
automated control (e.g., by agent systems, RFID,
etc.) are seen as the most important growth areas
for innovations (ELA & Little, 2007).
Top innovators within logistics service pro-
viders engage in method- and process-related
innovations and technological innovations (ELA
& Little, 2007). Logistics service innovation is led
by the logistics technology innovation, and service
innovation lags behind technology innovation in
the stage of industry evolution. Logistics technol-
ogy involves IT, communications technology,
and logistics equipment technology which offer
tremendous opportunities for the development of
logistics services (Zhang, He, Gui, & Shi, 2008).
The process of innovation in logistics firms should
be viewed as a system rather than as a simple set
of achieving single innovation, respectively, and
the synergy among the elements enables suc-
cessful innovation (Shen, Wang, Xu, Li, & Liu,
2009). Logistics innovation mostly benefits from
supply chain integration, value chain approaches,

5
Logistics Innovation
and joint process improvement. As the initiator of
innovation ideas, all the value chain participants
such as technology/software companies, suppli-
ers, shippers, and end-customers are involved
in the process (ELA & Little, 2007). LSPs are
increasingly seeking integrated solutions rather
than individual isolated improvements (Chapman,
Soosay, & Kandampully, 2003).
Service-Dominant Logic from a
Logistics Innovation Perspective
The service-dominant logic (S-D logic) is consid-
ered a novel perspective which enhances the re-
evaluation of conventional literature on innovation
(Michel, Brown, & Gallan, 2008). The S-D logic
perspective has widely been viewed by scholars
as a foundational premise for studying service
innovations (Ordanini & Parasuraman, 2011). As
a possible way to better understand the basic prin-
ciples of S-D logic, it may be suggested to review
the principles of goods dominant logic. As Vargo
and Lusch (2004) argued, goods-dominant logic
is built on the assumption that economic value
is added through industrial processes, embedded
in goods and distribution. The basic differences
between goods-dominant and S-D logic, as well
as the transitional concepts between these ap-
proaches are summarized in Table 1. It should
be noted these differences do not argue that S-D
logic is superior to goods-dominant logic, but
they do suggest that goods-dominant logic may
be considered as embedded within the context of
S-D logic (Vargo, 2009).
As Ballantyne and Varey (2006), and Lusch,
Vargo, and Wessels (2008) dictated, the S-D
logic perspective is expected to transform exist-
ing marketing thought by shifting the focus from
a traditional goods-dominant to an S-D logic
perspective. It argues that the value can not be
embedded in factory or distribution process; rather,
it is co-created with the customer (Lusch & Vargo,
2006). Another remarkable suggestion of S-D
logic is the type of resources utilized during the
service provision process. Resources in service
innovation and service-dominant logic perspec-
tives have widely been discussed mainly from the
resource-based and knowledge-based viewpoints
(Yang, Marlow, & Lu, 2009; Michel, Brown, &
Gallan, 2008; Möller, 2006; Yazdanparast, Manuj,
& Swartz, 2010).
Table 1. Goods dominant logic versus service-dominant logic
Goods Dominant Logic Concepts Transitional Concepts Service-Dominant Logic Concepts
Goods Services Service
Products Offerings Experiences
Feature/attribute Benefit Solution
Value-added Co-production Co-creation of value
Profit maximization Financial engineering Financial feedback/learning
Price Value-delivery Value proposition
Equilibrium systems Dynamic systems Complex adaptive systems
Supply chain Value chain Value creation network
Promotion Integrated marketing communications Dialogue
To market Market to… Market with…
Product orientation Market orientation Service orientation
(Source: Lusch & Vargo, 2006, 286)

6
Logistics Innovation
Vargo and Lusch (2004) underpinned two basic
types of resources which determine the main in-
puts for the service provision. The first is operant
resources such as all tangible resources including
the facilities and infrastructure-related properties
are those upon which an operation is performed
to produce an effect. Operant resources including
knowledge, skill, capabilities, and all related in-
tangible resources are employed to act on operand
resources (Constantin & Lusch, 1994). Making a
distinction between operant resources which are
basically tangible and static resources and operant
resources that are mostly intangible and dynamic
resources which create value is essential for firm
success. Integration of these resources enables
the organizations to develop the service provision
termed as “value-in use”. S-D logic is based on 10
foundational premises which constitute a dynamic
and service centered framework as listed below
(Vargo & Lusch, 2008: 7):
FP1: Service is the fundamental basis of exchange.
FP2: Indirect exchange masks the fundamental
basis of exchange.
FP3: Goods are a distribution mechanism for
service provision.
FP4: Operant resources especially knowledge
are the fundamental source of competitive
advantage. Skills, competences, capabilities
and knowledge when applied are examples of
operant resources. S-D logic views operant
resources as the primary source of competi-
tive advantage.
FP5: All economies are service economies.
FP6: The customer is always a co-creator of value.
FP7: The enterprise cannot deliver value, but only
offer value propositions.
FP8: A service-centered view is inherently cus-
tomer oriented and relational.
FP9: All social and economic actors are resource
integrators.
FP10: Value is always uniquely and phenom-
enologically determined by the beneficiary.
Michel, Brown, and Gallan (2008) proposed
several dimensions to explain the main assump-
tions of S-D logic and the changing preferences of
the customers including the business environment.
The first dimension is the changing customer roles.
This dimension advocates that the customer is
always a co-creator of value, and in accordance
with S-D logic, firms do not produce value for,
but rather with, the customer; therefore, it is the
customer who defines the value of market offer-
ing – not the organization itself. As such, logistics
service providers follow a market-driven innova-
tion approach triggered by customer requirements
(ELA & Little, 2007).
The second dimension is changing the firm’s
value creation. The application of specialized skills
and knowledge is an important unit of exchange
(Vargo & Lusch, 2004: 6), so the use of relevant
service innovation attempts should be observed
in detail. Michel, Brown, and Gallan (2008) as-
serted that knowledge and skills can be transferred
in three ways: (1) directly; (2) through education
and training; and (3) indirectly through embedding
into objects. Using smart phones as an example,
researchers argued that the most important ques-
tion to be asked is not what it is (how smart is
the phone?) but rather what the customer can do
with it (how does it make the customer smarter?).
It can be inferred the main point that needs to be
highlighted is the benefit or value the customer
can achieve using the product or service.
Drivers of Logistics Innovation
In order to innovate, businesses must evolve pri-
marily from an inward-orientation (remembering
their resources, capabilities, and competencies)
toward an outward-orientation in which the firms
devote attention to the needs of customers and the
aggressive marketplace (Soosay& Hyland, 2004).
Accordingly, enablers of logistics innovation are
mainly categorized in two groups:

7
Logistics Innovation
1. Industry/Enviromental: Customers,
competition, collaboration, technology
development, infrastructure, government,
suppliers (Busse & Wallenburg, 2011; Mena,
Christopher, Johnson, & Jia, 2007; Soosay &
Hyland, 2004; Su, Gammelgaard, & Yang,
2011).
2. Organization: Leadership, long-term focus,
financial resources, people and skills, orga-
nizational structure and size, organizational
culture and incentives, process and tools, IT,
knowledge, information, performance mea-
sure, project planning, number of interfirm
relationships (Mena, Christopher, Johnson,
& Jia, 2007; Soosay & Hyland, 2004;
Busse & Wallenburg, 2011; Evangelista,
McKinnon, & Sweeney, 2007).
Innovation is imperative for logistics firms
serving the market in the new economy and can
be examined on the basis of Kandampully’s three
requirements for service innovation (Chapman,
Soosay, & Kandampully, 2003);
1. Technology,
2. Knowledge,
3. Relationship networks.
Thus, a firm’s service-innovation capabilities
are dependent on its knowledge base, realized
through the effective use of internal and external
partnerships, employing technology to extend its
product mix, and increasing the speed and effi-
ciency of its delivery. This continuously updated
“amorphous knowledge resource,” resulting from
a network of partners, represents a firm’s core
competency. A firm’s subsequent ability to remain
at the forefront nurtures its image as a service
leader and differentiates it from its competitors.
The new economy differs from the old economy
with the effective use of information (knowledge),
globalization and increasing usage of business
networks. Partners in the networks attempt to
obtain specialist know-how to extend their core
competency instead of a cost-saving exercise.
Thus, the term “outsourcing” has been replaced
with “outpartnering” in the new economy and
“networks are the fundamental stuff of which new
organizations are and will be made” (Chapman,
Soosay, & Kandampully, 2003).
Relationship Orientation
Relevant literature mainly advocates the unprec-
ented growth in supplier-customer collaboration,
partnerships, and network relationships due to
the organizations’ extensive externalization of
their business activities (Achrol & Kotler, 1999;
Powell, Koput, & Smith-Doerr, 1996; Möller &
Halinen, 1999). This was linked to some of the
factors such as global competition, increases in
the cost of operations, and advancing technologi-
cal complexity that call for collaboration between
different service providers with networking ca-
pabilities (Ritter, Wilkinson, & Johnston, 2004).
Relationship-orientation refers to the proactive
creation, development, and maintenance of rela-
tionships with customers and other parties which
would result in mutual exhange and fulfilment
of promises at a profit. Relationship-orientation
may be viewed as a philosophy of conducting
business successfully and as an organizational
culture that places the buyer-seller relationship
at the center of a firm’s strategic and operational
thinking (Panayides & So, 2005). Zacharia, Nix,
and Lusch (2009) suggest firms seek to develop
a competitive advantage through building re-
lationships with other firms, requiring a sound
understanding of what the partner firm can bring
to the collaboration.
Innovativeness may help LSPs to differentiate
themselves from their competitors. Moreover,
logistics outsourcing has steadily gained a more
relational focus and the character of “long-term”
exchange rather than that of spot-market transac-
tions (Wallenburg, 2009). One of the most impor-

8
Logistics Innovation
tant examples of the partnership approach is the
Toyota supplier system in Japan which greatly
assists innovation in logistics (Chapman, Soosay,
& Kandampully, 2003).
Benefits of a relational exchange enable the
parties to learn each other’s business practice, to
learn from previous relational exchange, and to
develop best practices, by sharing information in
a collaborative manner (Panayides & So, 2005;
Chapman, Soosay,& Kandampully, 2003; Flint,
Larsson,& Gammelgaard, 2008; Zacharia, Nix, &
Lusch, 2009). Hence, suppliers are also partners
in logistics innovation (Su, Gammelgaard, &
Yang, 2011) besides customers (Sakchutchawan,
Hong, Callaway, & Kunnathur, 2011). Based on
the theory of relational exchange, a close working
relationship between LSPs and their customers
will facilitate collaboration, enable more efficient
exchange of information, and provide better re-
sponse to client’s needs (Panayides, 2007).
Firms should collaborate in projects for which
they do not possess the required knowledge and
capabilities by identifying companies which can
fill those gaps and with whom they can operate.
The other requirement is the partners should un-
derstand each other (business objectives, skills,
capabilities, cultural and communication norms,
risk) and wish to learn from each other. The more
interdependent the firms, the better they know
and understand each other. In a collaboration
project, firms should learn from each other in
terms of experience and expertise (Zacharia, Nix,
& Lusch, 2009).
Logistics innovation involves not only col-
laboration between buyers and suppliers, but also
between internal units as intra-organizational
logistics innovations work in practice (Su, Gam-
melgaard, & Yang, 2011). Cross-functional col-
laboration is an informal, integrative work-man-
agement approach involving departments which
work together to have a mutual understanding
and a shared vision to achieve goals collectively.
Effective process management and integration
requires collaboration between functional areas
that are typically distinct and seperate entities.
Such a change requires that demand processes
shift from managing relationships with customers
solely as a means to sell,deliver, and service the
product to managing relationships with customers
as a means to learn about their needs and how best
to satisfy them. Merchandising and purchasing
arrangements made with such partners are no
longer simple buy-sell transactions, but include
joint operational planning, shared assets and tech-
nology, and – most importantly – a willingness to
share information and risk (Esper, Ellinger, Stank,
Flint, & Moon, 2010).
Panayides and So (2005) discovered that
relationship-orientation will not lead to innovation
directly, but indirectly via organizational learning.
Therefore, relationship-orientation is essential
for a positive learning climate, which in turn will
contribute towards innovation in the supply chain
that may include incorporation of new techniques
and processes in supply chain operations.
LSPs may implement various measures in an ef-
fort to improve relationships with their clients. The
most important parameters in the creation of rela-
tionships include communication and information
sharing, coordination and collaboration towards
achieving common goals and upgrading of staff
skills in terms of how they deal with clients and
supply chain partners. LSPs may routinely seek to
engage in personal interaction and communication
with their clients. Such interaction may take the
form of personal visits, telephone calls, or e-mail
communication. Key players from the partner firm
should meet regularly and seek ways to improve
performance co-operatively.The parties should
work together to identify improvement areas and
introduce innovations which will facilitate timely
performance and efficient information exchange.
Investment in technology and systems that will
improve the integration and contribute towards
the longevity of a relationship will be beneficial
(Panayides & So, 2005; Zacharia, Nix, & Lusch,

9
Logistics Innovation
2009). LSPs may also seek alliances to provide
deeper service coverage and overcome the chal-
lenges posed by differing national cultures.
Customer-Orientation
To be successful in market competition, logistics
firms must make strategic adaptations to meet
customers’ needs and adjust to the enviromen-
tal changes (Shen, Wang, Xu, Li,& Liu, 2009).
Considering the current challenges that logistics
service providers face during the service provision
and relationship with their customers, Mentzer,
Flint, and Hult (2001), and Bowersox, Closs, and
Stank (2000) argued that logistics managers should
continually update their services based on the driv-
ers of value for current and potential customers by
revising the service offerings as well. Innovation
projects at logistics service providersare often re-
sults in by-products of customer-specific projects
(ELT & Little, 2007, 15).
Hence, the main driver for logistics innovation
is the customer (Busse & Wallenburg, 2011), and
the innovation must also be valued by certain
customer segments. Additionally, innovative
customer solutions should be able to project into
the future what customers are likely to value at
that time. The relationship between the logistics
services and customer value has been discussed
by many researchers (Langley & Holcomb, 1992;
Morash, Droge, & Vickery, 1996; Lynch, Keller,
& Ozment, 2000) and it was determined that
creation of customer value can only be achieved
through logistics services to have a competitive
advantage. Hence, it is necessary to collect infor-
mation about how customers’ desires are changing
by partners in the supply chain (Flint, Larsson, &
Gammelgaard, 2008).
LSPs should give the customer an overall
knowledge of the value of the logistics service
instead of showing the relatively lower price. This
requires a deeper understanding of the custom-
ers’ needs with regards to the logistics-related
solutions. In addition to understanding customer
needs, Langley and Holcomb (1992) stressed that
some mechanisms should also be considered to
keep in close contact with the customer so as to
be aware of changing preferences and priorities. A
novel solution to the creation of value propositions
is mentioned as a process for the co-creation of
value. In accordance with such a need, detailed
research for a deeper understanding of valuing
co-creation concept in supply chains is suggested
(Flint & Mentzer, 2006). From this perspective,
the S-D logic approach is proposed as a way for
supply chain members to create value with each
other which develops strong relationships between
the members as well as increases competitive
advantage (Flint & Mentzer, 2006).
The S-D logic approach has also been linked
closely to relationship marketing and knowledge
management theory in a resource-based view of
the firm and the interaction perspective in indus-
trial marketing (Kowalkowski, 2010). The S-D
logic perspective suggests an organization must
focus on considering the customer as a resource
contributing to the creation of value which actu-
ally makes the customer a co-creator of value
(Vargo & Lusch, 2008). Since customers mobilize
knowledge and other resources in the service
process that also influence the outcome of value
proposition (Ordanini &Passini, 2008), they are
viewed as the main actors in the value creation
process as well as the co-creators and producers.
Co-production was defined by Ordanini and Pa-
sini (2008, 295) as the following: “Co-production
means that the customer must be open, in terms of
realising [his or her] existing knowledge base with
the service provider: the provider can maximise the
service benefits with free and open access to the
customer’s knowledge and expertise.”. As dictated
by Vargo and Lusch (2004, 6), “a service-centered
dominant logic implies that value is defined by
and co-created with the consumer rather than
embedded in output”.
Regarding the partnership between logistics
enterprises and the customer, it is better to discuss
the issue thoroughly between the high-level man-

10
Logistics Innovation
agers of both parties so as to reach agreements.
LSPs should focus on serving the customer in a
more diversified and individual way (Liu, Li, &
Wang, 2007). In a certain logistics project, cus-
tomer demands must be the starting point, as non-
threating environments for customer interactions
and managerial training for customer interactions
should be established (Liu, Li, & Wang, 2007;
Flint, Larsson, Gammelgaard, & Mentzer, 2005).
Busse and Wallenburg (2011) also recommend
using tools for idea generation, particular as a
joint effort with customers.
Technology and Logistics Innovation
Technological and service innovations do not
appear simultaneously in the process of industry
evolution as the latter lags behind the former. The
emergence and maturation of the logistics ser-
vices always lags behind the stability of logistics
technology (Zhang, He, Gui, & Shi, 2008). Tech-
nology is adapted rather than generated by LSPs
(Busse, 2010). The use of technology can enable
logistics firms to transform themselves from being
an enabler of operational and material-handling
functions to being an enabler of decision making
and activity-planning functions within the supply
chain. This progressive transformation of firms
from transportation services to logistical solutions
requires innovation beyond traditional business
capabilities. Innovation thus transcends the mere
use of technology. Logistics firms should deploy
proper technology through the collective use of
mind and knowledge to implement innovative
methods and thereby gain superior competitive
advantage. Technology makes creative use of
the knowledge and relationship networksby fa-
cilitating the integration and communication and
providing the supply chain logistics operations
into a paperless working environment, allowing
participants to have improved knowledge about
what is happening at each stage and control what
happens to their cargoes by providing relevant and
timely information (Chapman, Soosay, & Kan-
dampully, 2003; Sakchutchawan, Hong, Callaway,
& Kunnathur, 2011; Su, Gammelgaard, & Yang,
2011). However, IT products and services are
generally in line with small LSP needs. Financial
and cost factors are the main inhibitors of wider
IT dissemination. Firms which generally have
a closer and direct relationship with customers
adopt a longer term strategic views of the use of
IT (Evangelista, McKinnon, & Sweeney, 2007).
Organizational Learning and
Logistics Innovation
LSPs which have the ability to learn will be suc-
cessful in fulfilling client’s logistics requirements
more effectively via process improvement of
material and information flow (Panayides & So,
2005; Panayides, 2007). In addition, LSPs should
also be relational- oriented for consolidation and
integration in the global logistics industry (Pan-
ayides, 2007). There is a bi-directional relation
between learning, relation orientation and knowl-
edge management. Hence, the development of the
relationship and interaction between companies
will depend on what they learn about each other’s
uncertainties and abilities (Zacharia, Nix, & Lusch,
2009). Learning about a partner’s business builds
rapport, enhances communication between part-
ners, solves conflicts between partners, facilitates
the identification of new collaboration opportuni-
ties, leads to effective and efficient relationships
and provides greater commitment for relationships
(Panayides, 2007; Zacharia, Nix, & Lusch, 2009;
Su, Gammelgaard, & Yang, 2011).
Organizational learning influences what kind
of knowledge is gathered, how it is interpreted,
evaluated, and shared. The main components
in organizational learning are customer needs,
market changes, competitors, suppliers and new
technologies (Panayides & So, 2005). Learning
occurs because each party brings different inter-
pretations of the same data as well as different
and complementary data to the process. Social
interaction across organizational and functional

11
Logistics Innovation
boundaries is also another requirement for learn-
ing (Flint, Larsson, Gammelgaard, & Mentzer,
2005). Information acquired in organization
learning provides firms with a potential capacity
to facilitate new logistics processes (Shen, Wang,
Xu, Li,& Liu, 2009).
Hyland, Soosay, and Sloan (2003) have iden-
tified four key capabilities which are central to
learning and continuous improvement in logistics:
1. The management of knowledge.
2. The management of information.
3. The ability to accommodate and manage
technologies and the associated issues.
4. The ability to manage collaborative
processes.
Organizational learning is characterized by the
presence of intra-organizational culture that values
learning manifested by top management commit-
ment towards learning, a shared vision, openmind-
ness towards change, and intra-organizational
sharing of knowledge. Organizational learning
is promoted through teamwork, the auditing of
unsuccessful operations, and cross-functional
communication of lessons learned via specified
mechanisms. Organizational learning is an intan-
gible resource manifested by specific orientation
instilled within the processes and culture of an
organization. Employees should openly express
their opinions through mechanisms that facilitate
the discussion of mistakes, providing honest
feedback. Information Technologyh (IT) is an
important tool in organizational learning since it
facilitates accelerated sharing of information as
well as the post-implementation learning audits
(Panayides, 2007). Knowledge from partners
should also be used in organizational learning
process. Effective use of the extensive network
of relationships provides knowledge which can
be used in organizational learning (Chapman,
Soosay, & Kandampully, 2003).
Knowledge Management
and Logistics Innovation
According to the resources and capabilities
theory of the firm, knowledge is a strategic
firm resource (Grant, 1996, 110) and a source
of competitive advantage (Conner & Prahalad,
1996). The knowledge-based approach offers a
theoretical basis for understanding organizational
innovations and trends (Grant, 1996: 120), and
knowledge management plays a fundamental
role when managing service innovation efforts
(Aranda & Molina-Fernandez, 2002). The rela-
tionship between knowledge and innovation is that
knowledge creation is focused on the generation
and application of knowledge which leads to
new capabilities for the firm, and innovation is
concerned with how these new capabilities may
be developed into products and services which
have economic value in markets (Popadiuk &
Choo, 2006: 311). The more flexible and versatile
knowledge management policies, the faster and
more robust innovation efforts become (Aranda
& Molina-Fernandez, 2002). The definition of
innovation includes concepts of novelty, com-
mercialization, and/or implementation (Popadiuk
& Choo, 2006: 303).
As one of the two major types of knowledge;
explicit knowledge as the academic knowledge or
“know-what” is expressed in formal and systematic
language, print, or electronic media. In contrast,
tacit knowledge as the practical, action-oriented
knowledge or “know-how” is highly personal,
difficult to formalize, and based on practice
(Smith, 2001, 314). Tacit knowledge is deeply
rooted in action, procedures, routines, commit-
ment, ideals, values, and emotions (Nonaka,
Toyama, & Konno, 2000: 7). Gopalakrishnan
and Bierly (2001) proposed that as innovations
become more tacit, systemic and complex, they
tend to be more internally sourced, more costly
to implement, and more effective. Nonaka (1994)

12
Logistics Innovation
proposed a knowledge creation model based on
the assumption that knowledge is created through
conversion between tacit and explicit knowledge.
The SECI model includes the knowledge conver-
sion: (1) from tacit knowledge to tacit knowledge
(Socialization); (2) from tacit knowledge to explicit
knowledge (Externalization); (3) from explicit
knowledge to explicit knowledge (Combination);
and (4) from explicit knowledge to tacit knowledge
(Internalization).
Aranda and Molina-Fernandez (2002) analysed
the degree of service innovation based on three
dimensions of knowledge-based theory known as
knowledge acquisition, knowledge integration, and
knowledge application, and concluded that service
innovation efforts must be based on customers’
knowledge of the firm to be competitive. Most
research about the knowledge-based view of the
firm (Spender, 1989; Nonaka, 1994) focuses upon
the acquisition and creation of organizational
knowledge (Grant, 1996: 112). Popadiuk and
Choo (2006) analyzed the similarities and differ-
ences between innovation and knowledge creation
and differentiated types of innovation based on
“knowledge creation” and “market knowledge”
perspectives. Knowledge about markets becomes
a critical component in the innovation process.
As one of the key premises of S-D logic,
knowledge plays an important role and is clas-
sified as a key operant resource. Knowledge in
logistics operations has two key aspects. One of
the key aspects is “IT” as a knowledge sharing
platform and the other is “people” as involved
in all knowledge management process. Due to
the increased complexity of logistics processes,
knowledge from all supply chain partners should
be collected.
Within the knowledge acquisition process,
knowledge flows emitting from outside the firm
become opportunities for service industries to
recombine current stock of knowledge and cre-
ate new knowledge. Knowledge sources can be
internal or external. While internal knowledge
encompasses the knowledge on business process,
work experience, project management, teamwork
within organization; external knowledge includes
knowledge about market, competitor, supplier,
customer requirements (Zhang, 2013). Firms
should decide about the knowledge to be used
and ask questions such as the kind of knowledge
from which individuals should be collected, who
will receive and exchange identified knowledge,
and what is the best way to exchange knowledge
such as face-to-face, e-mail, database, reports,
or another type of knowledge exchange (Grawe,
Daugherty, & Roath, 2011).
Inter-organizational learning processes, hori-
zontal and vertical alliances, relationships within
the supply network, openness, and commitment
to collaboration are the most important knowl-
edge exchange and diffusion tools. It is a holistic
approach incorporating intra-organizational and
cross-organizational knowledge sharing, as well as
focusing both on people and technology in which
sharing knowledge offers enhanced efficiency,
customer satisfaction, quality of strategic plan-
ning, flexibility and adaptability, decision-making
quality and supply-chain management processes
(Busse & Wallenburg, 2011; Chapman, Soosay,
& Kandampully, 2003). In the knowledge ap-
plication process, the continuous interaction of
technical knowledge and market knowledge will
define a firm’s capacity to innovate and therefore
to prosper in an increasingly competitive environ-
ment (Popadiuk & Choo, 2006: 311).
Table 2 shows knowledge management pro-
cesses which include knowledge acquisition,
production, storage, diffusion and application,
knowledge tools and the content for the logistics
industry. Logistics innovation is regarded as the
outcome of the knowledge application process.
Key success factors for top innovators amongst
logistics service providers are the structured gen-
eration of market and technological know-how and
the early and ongoing involvement of their cus-
tomers (ELA & Little, 2007). Knowledge-based

13
Logistics Innovation
theories of the firm emphasize the strategic im-
portance of market information. While knowledge
can be based on hard data such as the analysis of
customer satisfaction or service quality surveys,
a deeper understanding of customer experiences
and preferences for gaining knowledge about
customers’ value creating process is also required
(Payne, Storbacka, & Frow, 2008).
Knowledge management through a continu-
ous learning process to establish renewal of an
organization’s competencies in order to meet the
challenges of competitive business environment
is viewed as an important factor affecting the
provision of value to the customer (Nahapiet &
Goshal, 1998; O’Connor & Veryzer, 2001). Cus-
tomer information acquired from many sources as
well as competitor information is used as a part
of market sensing activities to forecast potential
demand. Supply-side knowledge consists of in-
sights about suppliers of products and services,
including their capabilities, past performance, and
strategic initiatives.
Information about technology, industry trends,
networks as well as capacity, inventory levels, and
transportation/storage options often feed into the
organization through the supply side. Operational
interdependence between multiple departments
within the firm necessitates cross-functional
integration and collaboration to ensure that effec-
tive generation, dissemination, interpretation, and
application of knowledge creates customer value
through superior integration of demand and supply
management processes (Esper, Ellinger, Stank,
Flint, & Moon, 2010). The interaction between
the knowledge in the logistics processes and the
logistics innovations related with each logistics
process is shown in Table 3.
Table 2. Knowledge management processes for logistics industry
Knowledge Processes Tools Content
Knowledge acquisition Documents
Communities
Groupware
Intranet
E-mail
Expertise location
Discussion group
SOP
Operation documents
Professional knowledge
Employee
Knowledge production Discussion forum
Database
Workshops
Idea management
Training
Teamwork
Knowledge storage Data mining
Data warehousing
Electronic bulletin boards
Database system
Knowledge repositories
Statistical analysis
Document management
Operation management
Customer data
Knowledge diffusion/transfer EIP
E-learning
Knowledge directories
Discussion forums
Electronic bulletin boards
Videoconferencing
Knowledge map
Tracking
Surveying
E-mail
Training
Sharing
Knowledge application Expert systems
Workflow systems
Intranet
Logistics Innovation
-New service development
-New logistics process
Source: compiled and extended from Alawi & Leidner, 2001; Lin, Ho, & Ma, 2004.

14
Logistics Innovation
Table 3. Knowledge-based logistics innovation
Logistics Process Logistics Process Related
Service
Knowledge in Process Logistics Innovation
Order Fulfillment *product inquiry
*order configuration
*order booking
*order confirmation
*invoicing
*order planning
*order changes
*order processing
*order preparation
*order shipment
*order information
*customer information
*payment terms
*order processing database
*order management
systems
*EDI
*extranets
*e-marketplaces
Procurement/Purchasing *needs/market analysis
*vendor selection
*product/service delivery
*procurement pricing
*supplier/market information
*electronic procurement database
*purchase terms
*postpurchase performance
evaluation system
*supplier problems and solutions
*vendor selection criteria
*electronic procurement
systems
*e-commerce
Warehousing *warehouse/load planning
*consolidation
*pick & pack
*labeling
*kitting
*security
*warehouse insurance
*quality control
*cross-docking
*warehouse insurance information
*facility security information
*warehouse equipment and
shipment tracking and tracing
database
*storing system information
*warehouse design
*quality control manuals and
procedures
*barcoding
*RFID
*automated storage systems
*warehouse management
systems
*optical scanners
*handheld data entry
devices
Inventory Management *inventory forecasting
*inventory decision making
*inventory valuation
*inventory visibility
*quality management
*inventory control
*replenishment lead time
*asset management
*stock information
*replenishment techniques
*inventory quantity measurement
techniques
*inventory accounting
*JIT systems
*material requirements
planning (MRP) software
*inventory management
software
*distribution requirements
planning software
*tracking and tracing
systems
Packaging *protective packaging
*marking
*coding
*stringent packaging
*packing information
*packaging procedures and
regulations
*new package designs
*sustainable packaging
*robotics
*automated labelling
equipments
Transportation *booking
*shipment
*network planning & design
*pick-up and delivery
*transport security
*freight insurance
*equipment maintenance
*customs
*routing and scheduling of
vehicles
*network optimization
*freight bill information
*transportation booking
information
*pick-up and delivery procedures
*transit time information
*insurance and reliability
requirements of freight
*carrier/shipment problems and
solutions
*government regulations for
transportation
*transportation performance
measures and indicators
*container
*freight tracking systems
*automatic identification
system (AIS)
*automated transport
vehicles
*distribution modelling
software
*network optimization
tools
continued on following page

15
Logistics Innovation
Value Creation in
Logistics Innovation
The value concept has received great attention
in diverse areas of pricing, consumer behaviour,
business marketing, and strategy (Möller, 2006).
Ulaga (2003) highlighted that value and value
creation originated from business and service
marketing (Ravald & Grönroos, 1996). Möller,
Rajala, andSvahn (2005) suggested that value
production constitutes a fundamental character-
istic of any value producing system, and also that
value production was closely related to the level of
complexity of interaction between the supplier and
the customer (Möller & Törrönen, 2003). Value-
creation process occurs when a customer consumes
or uses a product or a service rather than when
the output is manufactured (Payne, Storbacka,
& Frow, 2008). S-D logic attributes importance
to the value-creating processes which involve
the customer as a co-creator of value (Lusch &
Vargo, 2006: 181) which was also mentioned as
one of the premises in the S-D logic perspective.
Together with the interaction of the customer and
the supplier, value is created through customized
and co-produced offerings (Payne, Storbacka, &
Frow, 2008).
In this sense, value creation defined as the set
of value activities the organization controls and
conducts as an actor in the value system was based
on its collection of competences and capabilities
(Möller, 2006). Grant (1995: 126) defined orga-
nizational capabilities as “the firm’s capacity to
undertake a particular activity” which mainly
range from single-task capabilities through spe-
cialized capabilities, activity-based capabilities,
broad functional capabilities to cross-functional
capabilities as new product development and
customer relationship management capability.
Tax & Stuart (1997) classified the competencies
of organizations which aim to create new services
into three dimensions as; different processes, the
skills and knowledge of service providers and
physical facilities. Moreover, three competencies
as the enablers of innovation are suggested as the
following (Leonard-Barton, 1995; Trott, 1998):
• Market Competencies: The firm’s abil-
ity to understand and exploit opportunities
within its market.
• Organisational Capabilities: Managerial
systems and routines required to transform
and exploit the firm’s knowledge base.
Logistics Process Logistics Process Related
Service
Knowledge in Process Logistics Innovation
Materials Handling *materials handling planning
*materials handling
equipment selection
*space utilization
*safe handling
*equipment insurance
*materials handling principles
*equipment information
*maintenance and repair
information
*material flow optimization
*automated material
handling equipment
*mechanization and
automation
Customer Service *call-center service
*parts and service support
*IT support
*Return goods handling
*customer emergency orders
*customer database
*customer feedback systems
*customer performance indicators
*customer satisfaction monitoring
plans
*customer related problems and
solutions and service surveys
*EDI
*Customer profitability
analysis (CPA)
*postponement
Table 3. Continued

16
Logistics Innovation
• Science/Technology Competencies:
Derived from in-house research and devel-
opment (R&D) activities.”
Payne, Storbacka, and Frow (2008) developed
a value co-creation framework consisting of three
main components: (1) customer value-creating
processes; (2) supplier value creating processes;
and (3) encounter processes. The customer’s value
creation process mainly includes a number of
activities performed by the customer to achieve
a particular goal. In this case,customer’s ability
to create value can be linked to the amount of
information, knowledge, skills, and other related
operant resources they can use (Normann, 2001).
In terms of the supplier value creating processes,
organizations should begin understanding cus-
tomer’s value creating processes. Co-creation
of value through the design and delivery of
relevant customer experiences and facilitation
of organizational learning helps organizations to
co-create value. This mainly involves “a review
of co-creation opportunities; planning, testing and
prototyping value co-creation opportunities with
customers; implementing customer solutions and
managing customer encounters; and developing
metrics to assess whether the enterprise is making
appropriate value propositions” (Payne, Storbacka,
& Frow, 2008: 88). As the third component, the
encounter processes consist of two-way interac-
tions between the customer and the supplier which
mainly generate a certain level of relationship
between these parties.
Conceptual Model on
Logistics Innovation
The conceptual model of the study is illustrated
in Figure 1. The main components of the model
include the logistics service providers as the focal
organization, knowledge management process
of the LSPs, the value chain partners principally
the customers and suppliers, integration of the
operand and operant resources of all the related
parties, and inter-organizational learning between
these parties and relationship (customer, supplier,
market) orientation of the LSPs. The model refers
that value is generated by providing logistics in-
novation which is also the result of knowledge
sharing, technology usage, inter-organizational
learning and collaboration between value chain
partners.
The dynamic market environment encompasses
the determinants such as globalization, global
competition, and market and competitive pressures
such as the need for more customized services,
changing customer needs, changes in the global
marketplace, reduction in logistics costs, and the
need for supply chain integration. Such factors
force logistics service providers to work closely
with their business partners and create value for the
whole chain by enabling innovations. Besides the
suppliers and customers shown in the model, the
industrial environment also covers such parties as
competitors, technology and software companies,
government, and business partners.
As one of the main propositions of S-D logic,
integration of the operand (tangible) and oper-
ant (intangible) resources of all the value chain
partners is a prerequisite for the value proposition.
Human and capital resources, skills, capabilities
basically networking capabilities of the organi-
zation, and core competencies are the dynamic
resources that create value (Constantin & Lusch,
1994). As one of the operant resources, knowl-
edge is also a source of competitive advantage
for the organization (Conner & Prahalad, 1996).
Organizational learning is also regarded as an
intangible (operant) resource (Panayides, 2007).
Value-generation process starts with the value-in
use which is the service provision developed by
resource integration (Vargo &Lusch, 2008).
Through the innovation and value creation
process, as the focal organization, logistics service
providers should focus on the enabling factors
of innovation within the organization which are
principally leadership, long-term focus, organiza-
tion structure, organization culture and incentives,

17
Logistics Innovation
IT, information and intra-organizational learning
(Mena, Christopher, Johnson, & Jia, 2007; Soosay
& Hyland, 2004). Additionally, cross-functional
collaboration, open-mindness toward change,
intra-organizational sharing of knowledge, and
inward and outward orientation are the other re-
quirements on the journey of logistics innovation.
The two critical value chain partners for LSPs
are customers and suppliers and partners who
should understand each other to co-create value
as the main suggestion of the service- dominant
logic (Lusch & Vargo, 2006). LSPs should be
customer- and supplier-oriented – essentially
relationship-oriented. Improving customer and
supplier relationships by coordination and infor-
mation sharing, close contact with the customers
and suppliers, mutual exchange of information,
knowledge and technology, providing integrated
solutions, joint operational planning, personal
interactions with customers by e-mail and phones
and continually updating the services based on
customers changing supply chain requirements
will create a collaborative market environment
and initiate logistics innovation process.
A relationship-orientation will lead to in-
novation indirectly via organizational and inter-
organization learning (Panayides & So, 2005).
Learning from each other by sharing information
and knowledge and learning from best practices
and relation exchanges pave the way for logistics
innovation. Mutual relations take place between
inter-organizational learning, relation orientation
and knowledge management (Zacharia, Nix, &
Lusch, 2009). Knowledge and skills can be shared
Figure 1. A service-dominant logic conceptual framework for logistics ınnovation

18
Logistics Innovation
within the organization (intra-organizational trans-
fer) through training and education and through
embedding into objects (Michel, Brown, & Gal-
lan, 2008).
Concerning the knowledge management
process of logistics service providers, market
knowledge and technical knowledge can be re-
garded as the triggering factors behind logistics
innovations. Besides customer, supplier, and
competitor knowledge of the firm, being aware
of the changing needs of the value chain partners,
continually gathering customer information by
knowledge acquisition, technical and market
know-how (tacit knowledge) and know-what (ex-
plicit knowledge) are the concerns of knowledge
management process of logistics service provid-
ers. IT is principally used as a knowledge sharing
platform between customers and suppliers (Zhang,
2013). The application of knowledge is the last
stage of the knowledge management process and
the outcome is the logistics innovation.
Finally, value is generated through all the
partners in value chain by the provision of logis-
tics innovation. With regards to value generation,
three main steps were considered as value-in use,
value co-creation and, value proposition. Since
the integration of operand and operant resources
helps the organizations to develop the service
provision termed as value-in use, it can be con-
sidered as a starting point for the value generation
journey of the logistics service providers. Then,
value co-creation with the relevant suppliers as
well as the customers in accordance with the basic
principles of service-dominant logic perspective
in marketing takes place in order to offer the in-
novative logistics service which is co-created with
the customer. Although the service-dominant logic
view mainly focuses on the customer value co-
creation, the existence of suppliers in this process
can not be ignored in this study which provides a
novel approach. As the last step in value genera-
tion, related value propositions should be made
to achieve the innovation with the value in the
logistics innovation processes of the organizations.
Following the conceptualization of the main
concepts in the main framework of the study, main
propositions can be made as listed below:
Proposition 1: Logistics service providers should
consider their business environment dynam-
ics in their logistics innovation processes.
Proposition 2: Logistics service providers should
be relationship oriented in their logistics
innovation processes in order to facilitate
interorganizational learning among value
chain partners.
Proposition 3: Logistics service providers should
integrate their knowledge management pro-
cesses in tandem with value creation partners
to generate logistics innovation processes.
Proposition 4: Logistics service providers should
integrate operand and operant resources
with their value chain partners’ operant and
operand resources to generate value-based
logistics innovations.
Discussion and Conclusion
In this study, a conceptual framework based on
the logistics innovation and service- dominant
logic perspective was developed in order to have
a holistic view regarding the main dimensions
related to logistics innovation. Within the context
of the conceptual framework, the main determi-
nants supporting the constitution of value for the
logistics service providers include knowledge
management of the organizations, the integration
of resources to be utilized in logistics innovation
processes, inter-organizational learning, relation-
ship orientation and value development processes.
The conceptual model developed by the authors
suggests that logistics service providers should
be competent in knowledge management in order
to offer an innovative service to their customers.
Knowledge management processes should be
linked closely with the suppliers of the logistics
service providers as well as their related customer
segments with the purpose of understanding the

19
Logistics Innovation
needs of these parties. Customer segments play
a critical role in this case as value co-creation
can only take place with the participation of the
customers and configuring the innovative ser-
vices according to the needs and requirements
of the customers. However, suppliers’ input to
the logistics innovation processes of the logistics
service providers can not be underestimated since
the suppliers’ know-how, expertise, and other
relevant parameters determine the success of the
relationshipas well as the constitution of logistics
networks.
Logistics networks are commonly strategically
guided, extensive, and innovative. It is widely ac-
cepted that logistics organizations are reshaping
their structures and relationships and creating
knowledge networks to facilitate improved com-
munication of data, information and knowledge,
while improving their coordination, decision mak-
ing, and planning. In the conceptual framework,
the need for achieving such improved networks
is highlighted by the relationship orientation
variable which may not be deemed as progress
in the innovation process without an effective
relationship between the parties in the develop-
ment of logistics service innovations as well as
value propositions. Additionally, integration of
operant and operand resources borrowed from the
service-dominant logic view is needed in order to
use the efficient resources during the service inno-
vation development process. Inter-organizational
learning is inevitable for establishing relationship
orientation between the focal company, customer
segments and the suppliers since a mutual learn-
ing process between these parties provides a clear
understanding of the main needs, requirements,
progresses achieved and other details. The impact
of the dynamic marketing environment with in-
creasing global competition is also incorporated
to the conceptual model. As the main outcome
of the conceptual model, value generation steps
including value-in use, value co-creation and value
propositions are discussed since the survival of
many service organizations depends on the value
they provide to their customers.
Since no research is without limitations, there
are a few restrictions to be mentioned with re-
gards to this study. First, it should be mentioned
the relationship between the variables discussed
in the framework needs more investigation with
regards to quantitative models. Since this study
is a conceptual one, there is a lack of verifica-
tion regarding the main dimensions shown in the
conceptual model.
As the main contribution of this study, the
integration of logistics innovation concept to-
gether with service-dominant logic perspective
can be mentioned. Michel, Brown, and Gallan
(2008) argued that research in service innova-
tions generally focuses on topics such as types of
service innovations, the design and management
of innovations, the involvement of customers in
the innovation process and the role of technology.
The involvement of service- dominant logic is not
always the case in many service innovation stud-
ies. Moreover, Flint, Larsson, Gammelgaard, &
Mentzer (2005) stressed that research regarding
service innovation has mainly been neglected in
logistics and supply chain management literature.
Hence, this study can be considered as an initial
response to this call to adress the research gap
in logistics literature regarding the service in-
novations.
In addition to the consideration of the basic
concepts discussed in logistics innovation litera-
ture as well as service-dominant logic perspective,
this study explores logistics innovation by provid-
ing a conceptual model. We hope this study will
provide areas for new research by implementing
field studies to be conducted in different logistics
companies and different settings. The framework
developed by the authors can be used for different
innovation types and different companies apply-
ing various innovation types in their logistics

20
Logistics Innovation
processes can obtain different outcomes and
practical solutions. Future research may exam-
ine the relationship between the determinants of
the conceptual framework through quantitative
studies. For instance, the impact of relationship
orientation variables on the value generation steps
can be discussed and examined.
Moreover, the relationship between the knowl-
edge management processes of the logistics service
providers and their value generation processes can
be investigated. Such further research can be real-
ized thorugh the development of a specific scale
which measures the related relationships together
with the main variables to be used. From the quali-
tative approach, case studies may be offered either
on a single or multiple company bases. Qualitative
interviews, Delphi studies, or focus group discus-
sions can generate new grounds and extensive data
for investigating the main determinants dicussed in
the conceptual framework. Another possible future
research area would be based on the investigation
of the relationships discussed in the framework for
different service industries. This could be based
on a single service sector or an organization or
the comparison of different organizations and the
service industries as well.
For practical implications, it can be men-
tioned that the logistics service providers should
consider not only cost-effective solutions, but
also value-based competencies. Becoming in-
novation oriented in the logistics industry would
assist companies to be competitive in dynamic
business environments so that innovation-based
approaches should be considered in every stage
of the relationship with the customers as well as
the suppliers. Another implication would be the
importance of the learning which can be discussed
in two approaches: organizational learning and
inter-organizational learning. Logistics service
providers should focus on improving their learning
capabilities in order to trigger the innovative pro-
cesses. Any improvement achieved by any of the
customer segments or suppliers through learning
activity may provide substantial outcomes for the
organizations. Another practical implication can
be dictated as the inevitable use of both operand
and operant resources by the logistics service pro-
viders. Although the common thought is mainly
based on the use of firms’ own resources such as
the warehouses, vehicles etc., use of information
technology related sources of the suppliers as well
as the relevant resources of the suppliers should
also be evaluated.
For theoretical implications, service-dominant
logic perspective is integrated with the logistics
innovation processes of the logistics service
providers. There is a limited number of studies
investing the logistics value and value co-creation
from the view point of service-dominant logic.
The S-D logic perspective is integrated with
the relationship orientation, inter-organizational
learning, and knowledge management concepts
to obtain a holistic approach for the logistics in-
novation processes of the organizations.
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