Abstract:    Dual service innovation enables manufacturing firms to perform well both in the present product market and in the future new emerging market. For example, Huawei has gained long-term market success by successfully pursuing dual service innovation, namely offering both the extensions and refinements to existing service and the introduction of radical service offerings to the market. However, it is difficult to execute exploration and exploitation simultaneously because they would compete for scarce resources. At the same time, manufacturing firms′ existing knowledge and resources, historically developed for product innovation, may be insufficient or even counterproductive for taking advantage of opportunities for service innovation, this is especially true for local manufacturing firms with limited innovation resources. Therefore, it calls for theoretical analysis on how to resolve resource limitation and conflict when conducting dual service innovation.Existing research points out that knowledge-intensive service agencies, being both knowledge producer and knowledge bridge (Howells, 2008), play a critical role in facilitating manufacturing firms to obtain resources for service innovation. In recent years, the specialized network role of knowledge-intensive service agencies has been highlighted and the network resource perspective has emerged. Zhang & Li (2010) suggest that ties with service intermediaries serve as a conduit for a wide range of information, resources and opportunities, and thus enable the firm to conduct a broader search for innovation. Others have shown that relations with knowledge-intensive service agencies, facilitate product-centric firm to pursue boundary-spanning search for service innovation (Wang et al., 2018). Based on the perspective of network resource, it is reasonable to argue that building ties with knowledge-intensive service agencies is the path for manufacturing firms to relieve the ambidexterity tension and obtain resource for dual service innovation. However, theoretical or empirical work in this area is very limited. How ties with knowledge-intensive service agencies are related with dual service innovation hasn′t been carefully examined. Moreover, while ties with knowledge-intensive service agencies create the potential for dual service innovation by providing access to a variety of knowledge and expertise and thus resolving the resource limitation and conflict between exploration and exploitation, they also provide challenges for manufacturing firms to integrate and recombine external knowledge with internal resources and capabilities to produce innovative output. According to Savino et al. (2017), the potential value of ties with knowledge-intensive service agencies partly depends on the extent of whether manufacturing firms have absorptive capacity and dynamic capability to take advantage of it. Because absorptive capacity allows firms to recognize the value of external knowledge, assimilate it, and apply it to commercial ends (Cohen & Levinthal,1990), while dynamic capability enables firms to continually integrate, reconfigure, gain and release resources in responding to changing circumstances (Eisenhardt & Martin,2000). Drawing on this view, this study investigates the moderating roles of both technological capability and strategic flexibility on the relationship between ties with knowledge-intensive service agencies and dual service innovation.By using a sample of 296 manufacturing firms in both Ningbo and Chongqing, we examine the relationship between ties with knowledge-intensive service agencies and dual service innovation, and analyze how technological capability and strategic flexibility moderate this relationship. To test our hypotheses, we employ a stepwise hierarchical regression approach. The results show that ties with knowledge-intensive service agencies positively influence dual service innovation. Because knowledge-intensive service agencies not only provide service-related knowledge to manufacturing firms (Miles, et.al, 2015), but also facilitate manufacturing firms to search the external knowledge space (Zhang & Li, 2010) to satisfy the knowledge requirements of pursuing exploration and exploitation simultaneously. The results also show that technological capability has a significant "inverted U-shaped" moderating effect on the relationship while resource flexibility and coordination flexibility have linear moderating effects on the relationship, which indicates that a high level of technological capability impedes dual service innovation whereas a high level of strategic flexibility strengthen the positive effect of ties with knowledge-intensive service agencies on dual service innovation.This study contributes to the literature in two major ways. First, it enriches extant literature by demonstrating the value of knowledge-intensive service agencies in manufacturing firms′ dual service innovation. Drawing on network resource perspective, we prove that ties with knowledge-intensive service agencies have an increasingly positive effect on dual service innovation. Second, it enriches the development of a contingent view of social network theory by exploring internal conditions under which ties with knowledge-intensive service agencies enhance dual service innovation. This focus is different from previous studies that have typically examined the moderating role of external environmental factors. Drawing on the perspective of absorptive capacity and dynamic resource management, this study demonstrates the differential moderating effects of technological capability and strategic flexibility. This extends the existing studies by combining static and dynamic resource management perspective and have implications for the manufacturing firms to take advantage of ties with knowledge-intensive service agencies for dual service innovation.This study also provides some important managerial implications. First, to overcome the resource limitation in pursuing dual service innovation, developing and maintaining good relations with knowledge-intensive service agencies become an important strategy option for manufacturing firms who are transferring from product–centered to service-centered. Our field interview suggests that in many Chinese manufacturing firms ties with knowledge-intensive service agencies were in place to facilitate innovative activities, although they didn′t realize their potential value for dual service innovation. Second, because the moderate level of technological capability benefits dual service innovation, manufacturing firms should be aware of that too low or too high level of technological capability may impede dual service innovation and thus should avoid invest too much on the development of technological capability. At the same time, manufacturing firms with higher level of strategic flexibility can achieve the potential of ties with knowledge-intensive service agencies for dual service innovation. Therefore, by developing strategic flexibility in their resource allocation and coordination, such as designing flexible organizational structures, developing flexible service development processes, and etc., manufacturing firms can stimulate greater exploration of technologies and markets opportunities through ties with knowledge-intensive service agencies for dual service innovation.

Key words: ties with knowledge-intensive service agency, manufacturing firm, dual service innovation, technological capability, strategic flexibility