Introducing goods innovation, service innovation, or both? Investigating the tension in managing innovation revenue streams for manufacturing and service firms

Many manufacturing and service companies extend their product lines by pursuing different domain NPI (new product introduction), that is, manufacturers launching new services and service firms venturing into new goods. Little is known about how this innovation approach compares to firms focusing on same domain NPI, that is, manufacturers launching new goods and service firms introducing new services. This research investigates these innovation approaches at the firm level using a set of archival data for the period 2006–2008, which comprises 16,735 manufacturing and service firms from 11 European countries. Our results show no statistical difference in innovation revenue performance between same and different domain NPIs. Both categories of firms gained about 13–14% higher performance relative to those firms that reported ongoing innovation activities but did not introduce any innovation. Our findings also show firms that pursued both same and different domain NPIs (a dual innovation approach) achieved a higher innovation revenue performance (about 4% higher relative to firms pursuing same or different domain NPI). Despite the higher performance, we find that the interaction effect of same and different domain NPIs on firm innovation revenue is substitutive. Our results are largely consistent across multiple robustness checks: (a) a different dataset collected for the period 2008–2010 to replicate the findings, (b) alternative dependent variables, (c) multiple endogeneity checks, and (d) different estimation approaches. Finally, post‐hoc analyses show the substitution effect is (i) stronger for small firms, (ii) stronger for firms with internal R&D, and (iii) not significantly different for firms with or without external R&D. Overall, these findings contribute to a nuanced understanding of the opportunity and tension firms face in introducing innovations in same and different domain activities.