Abstract Manufacturing companies differentiating their offerings with new services need to combine both product and service innovation. We study how service development is influenced by the choice of (1) separation or integration of service development and (2) the modes of innovation. Our results show that service development often is more structured if services are developed separately. Furthermore, service innovations often follow a sequence of innovation modes different from those of product innovations. Since different innovation modes benefit from varying degree of structure in the development process, many companies find it hard to develop products and services within the same development project.