Trends and issues in the evolving service innovation policy
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1 Trends and issues in the evolving service innovation policy Dr. Jari Kuusisto FRONTIERS IN SERVICE CONFERENCE October 2-5, 2008 Washington, DC, USA 1 Jari Kuusisto
2 Outline of the presentation Introduction and background Economic performance of services Arguing the case for service innovation policy Key concepts and problem setting Services and innovation policy Developing effective service innovation policy R&D in Services review and case studies Some indications from business cases Concluding comments 2 Jari Kuusisto
3 Introduction and background This paper seeks to highlight some key developments in service innovation policy The presentation build on the following papers by the author: (2007) Innovation Policy project in Services IPPS , Draft Policy Blueprint report, submitted for the DG Enterprise, European Commission. (2008) R&D in Services review and case studies, A paper submitted for the CREST R&D in Services Working Group, DG Research, European Commission. (2008) Services and Innovation - Evolving Service Innovation Policy, Drivers and Barriers, Horizontal and Framework Policies Stimulating Innovation in Service Enterprises, Forfás, Dublin, Ireland. (2008) Towards High Performance Services - Implications for Innovation Policy, A Review of Research Literature, Commonwealth of Australia, Canberra. 3 Jari Kuusisto
4 Economic performance of services Various perspectives to the topic 4 Jari Kuusisto
5 Services role in the economy Service sector contribution to aggregate production and employment keeps growing in developed economies They represent nearly 78 % of US economic output and a similar proportion of employment Demand for services is growing in faster rate than demand for manufactured products Many knowledge based industries that are believed to be crucial to future prosperity, fall into the services sector There is a growing cohort of relatively poorly paid manual service workers providing essential support for the more high value added services and the economy as whole. 5 Jari Kuusisto
6 Elements of economic performance Key elements of services economic performance Services economic performance Service industries - Enabling technologies - Opening of the markets Service occupations - Supply of relevant skills Service activities - Service functions across the industries Globalisation - Offshoring of services - Competition on skills Services-manufacturing dynamics - Outsourcing - New business models Service innovation & productivity - Multidimensional innovation 6 Jari Kuusisto
7 Arguing the case for service innovation policy 7 Jari Kuusisto
8 Services are now recognised Policy makers are increasingly recognising that services have central role in the economy A well-functioning services sector is key to the overall economic performance of OECD countries and to the welfare of its citizens. Reform of services sector policies provides an important opportunity for policy makers to strengthen employment, productivity and innovation. Source: OECD, 2005, Growth in Services Fostering Employment, Productivity and Innovation 8 Jari Kuusisto
9 There is a need for policy change Socio-economic importance of services is not reflected in services R&D which remains underdeveloped* as do the public support measures for service innovation Current policies are biased towards manufacturing giving insufficient attention to non-technological R&D This systemic failure needs to be addressed and it provides a rationale for service innovation policy *According to official R&D statistics 9 Jari Kuusisto
10 Service innovation policy rationale THE SERVICES INNOVATION CASE Intangibility leading to: High uncertainty levels Lack of transparency Limited use of patents Dominance of SMEs Fragmented markets Obstacles to trade and competition Limited role in R&D programmes Need for better integration of services in innovation systems Lack of institutional recognition Reduced awareness of its potential High rates of failure and business death Lack of services!culture" Financial accounting bias against intangible assets Source: Adapted from Rubacalpa (2006) 10 Jari Kuusisto
11 There is a pressure to develop services Smile curve Intangible parts of the value chain are increasingly important revenue generators for manufacturing industry Rate of return The value of manufactured products is increasingly based on intangibles E.g., brand value of a Volvo, BMW, Mercedes cars R&D Production Sales After-sale services 11 Jari Kuusisto Source: Takada, 2003.
12 Key concepts and problem setting Service innovation in policy context 12 Jari Kuusisto
13 Policy development Significant change in the policy scope From technology development towards much broader innovation policy agenda Both direct and indirect policy measures are important Potential impacts are significant Many new industries as a policy target Many new dimensions of innovation as a policy target All forms of innovation matter, technological as well as non-technological 13 Jari Kuusisto
14 Challenges Novel policy area with very few existing instruments E.g. innovation vouchers that can be used for purchasing of expert services Organisations that are delivering policy have little if any experience in service innovation promotion They are facing a very steep learning curve Those who are benefiting from the existing innovation policies are not necessarily keen for the change Broader agenda and wider target groups means that policy attention and supports are spread across more thinly More recipients that are sharing R&D funding 14 Jari Kuusisto
15 Starting point - SERVICES Service innovation is multidimensional, and Any dimension can be driver, or hindrance to service innovation Technology- and product related dimensions Customer interaction related dimensions Service innovations Delivery system related dimensions New network and value chain configurations Organisation related dimensions J. Kuusisto, Jari Kuusisto
16 Starting point - POLICY Any policy can can drive, or be hindrance to service innovation But very few policies recognise the influence they have on service innovation R&D policies tend to have technology bias Service innovation 16 Jari Kuusisto
17 Service concept in statistics Innovation policy for services We are talking about many policies addressing innovation promotion across various service industries Code NAICS Sectors (2002) 1 1 A g r iculture, Forestry, Fishing and Huntin g 5 3 R e a l Estate and Rental and Leasing 2 1 M inin g 54 Professional, Scientific, and Technical Services 2 2 U t i lities 5 5 M anagement of Companies and Enterprises 2 3 C o n structio n 5 6 A d m inistrative and Support and Waste Management and Remediation Services Manufacturing 61 Education Services 4 2 Wholesale Trade 6 2 H e a lth Care and Social Assistance Retail Trade 7 1 A r t s, Entertainment, and Recreatio n Transportation and Warehousing 72 Accommodation and Food Services 5 1 Informatio n 8 1 O t h er Services (except Public Administratio n ) 5 2 F inance and Insurance 92 Public Administratio n Source: NAIC Association (2008) 17 Jari Kuusisto
18 R&D and innovation activities in services R&D in services is much broader Than the traditional R&D concept Research institutions & education - Skilled labour - Basic and applied research, technological and socio-economic research Equipment / technology supplier - Technology related R&D e.g., ICT Service organisation - Internal R&D - other non-r&d activities aiming at services development Client organisation - Joint R&D activities with the clients Knowledge intensive services and external R&D - KIBS - RTO!s 18 Jari Kuusisto Regulation and markets Jari Kuusisto, 2007
19 Developing effective service innovation policy 19 Jari Kuusisto
20 Progress of service innovation policy Has already gained momentum in a number of developed countries, including Australia, Finland, Germany, Ireland, Netherlands, Sweden and the United Kingdom, and also at the European Union level. Several countries, OECD and EU, have launched high-level policy documents addressing service innovation promotion. E.g. Finland, Ireland, Japan and Australia are emphasising service innovation elements in their new innovation strategies. Non-technological and demand-driven innovation are recognised as essential In tackling urgent national challenges such as Ageing population, international competitiveness and the renewal of manufacturing. 20 Jari Kuusisto
21 Targeting policy on specific types of services Prioritized service industries of national significance that could be further strengthened by means of innovation policy Japan - Health and welfare, child care support, tourism and attraction of visitors service, contents, business support, and distribution (six key sectors) Germany - ICT related services, knowledge intensive services, hybrid services utilizing technology and innovative service elements Finland - Business to business services, knowledge intensive business services, public sector services Australia - Tourism and knowledge intensive services Denmark / Sweden - Design and creative industries Netherlands, UK - Creative industries Norway - Design and tourism 21 Jari Kuusisto
22 Promoting non-technological innovation more broadly Adopt problem solving approach Multi-faceted problems require multi-faceted solutions Few problems can be solved by one policy actor Need for joint actions and co-operation Within government between levels and across departments With stakeholders Horizontal approach is key to service innovation policy 22 Jari Kuusisto
23 Moving service innovation policy forward Linking the dimensions of service innovation systematically to policies and development tools Dimensions of service inovation that needs to be addressed!new & innovative service concepts Delivery systems for services Organisational development and innovations New networks and value chains Customer interaction Technology Service innovation Relevant Policy areas Internal markets & competition ICT and networks Regulation R&D and innovation Education and skills SME and enterprise Enployment and qualifications Sustainable development IPR and IP management Knowledge and statistics Standards and regulations Regional policy Sectoral policies Taxation Policy development tools Innovation strategy Policy frameworks White papers State budgets Government committees Informal networks and negotiation Monitoring systems Structurral development, (e.g., merging of ministries) Other inter-governmental activities Mobilizing teams and networks Developing shared networks Building supportive structures Maintaining momentum Mobilising stakeholders 23 Jari Kuusisto
24 R&D in Services review and case studies DG Research European Commission February, 2008 (DRAFT) Final report in print 24 Jari Kuusisto
25 Report overview R&D in services report Introduction to services Statistical overview Literature review Survey of policies in participant countries Case-studies Policy implications 25 Jari Kuusisto
26 Project overview Brief summary of the key results from the existing research Survey of R&D in services in participant countries Case studies in multinational enterprises - R&D activities and future needs Synthesis report with policy implications Dissemination of the research results 26 Jari Kuusisto
27 15 case studies from 9 countries COUNTRY N a m e Industry(i e s ) No. of staff BELGIUM VADIS Consulting 1 5 Creax Patent research, idea generation, 2 0 innovation studies, methodological training, new technical marketing studies, and innovation software Quality Assistance Contract Resear c h 9 1 Defimedia e-business, e-marketing, e-learning 2 0 consultancy Telemis Software program for medical image 3 0 management, and maintenance support DENM A R K BDO ScanRevisio n Accountancy and consultin g FINL A N D YIT Group Building systems, construction, services for industry, networks and IT GERMANY Claas Agricultural engines and harvesters 8200 Deutsche Industrie Wartung Industrial maintenance and cleanin g Drees & Sommer Project management and real estate consultin g GREECE Singular Logic Software and related services LITHUANIA Maxima LT Retail trade NORWAY Geelmyuden.Kiese Strategic Communications Consultin g 7 0 SWEDE N Ekelö w InfoSecurity 3 6 T F S Clinical Resear c h TURKE Y IES Education and Education solution provisio n Information Tech. In c. TURKTRUST Information Security Services Inc. Electronic certificate service providing and information technologies security Jari Kuusisto
28 Public funding and R&D in services Biased towards businesses that are carrying out technology related projects such as software development, or services development in connection with manufactured products Public supports for traditional services was limited among the case businesses 28 Jari Kuusisto
29 Number and status of dedicated R&D staff Typical service firms have very small numbers of full-time R&D staff, and much of the is carried out on part-time basis in connection with customer projects. In the technology related services the number of full-time R&D staff was clearly higher than in service firms in general. 29 Jari Kuusisto
30 R&D resources and their use The allocation and use of R&D resources portrays a wide variety of different practices Organisational and personnel development seems to play a strong role as an R&D activity. Skills and competences development can be more important than new service development Technology related and software services had most formalised R&D processes, with budgets and dedicated staff in place In traditional and knowledge based services, internal development projects are the key form of R&D and these are not typically recorded as R&D costs 30 Jari Kuusisto
31 Typical bottle-necks Cyclical nature of the business and lack of skilled personnel Inefficient fragmented markets can create a barrier for the take up of new ideas Too discipline-oriented organisation of R&D activities is not good for services development Customers may prefer lowest price to improved services Benefits of new services can be demonstrated only after purchase Under developed service culture may hinder R&D in service businesses 31 Jari Kuusisto
32 Intellectual property management Technology related and software services stand out They use patenting, copyrights, standardisation, and software licensing as protection methods Otherwise services IP protection is less formally organised Typically competitors copy new service outcome in a couple of months time Importance of lead-time advantage Importance of IP management and informal IP protection 32 Jari Kuusisto
33 Public support for R&D in services Public research programmes could support R&D in services much more than they currently do Co-operation with research institutions is more appropriate in the fundamental level R&D projects For instance, in the development of theoretical frameworks that the business can utilise in its business strategy development. In more applied research, co-operation with individual academics were seen as more appropriate Planning horizon in public research is much longer than the development cycle in the businesses. Too fixed research questions can be a problem In businesses the research problems often evolve during the process 33 Jari Kuusisto
34 Future needs Increasing need for market research groups that are able to track opportunities for new services and estimate when the demand for new services will emerge Standards that can facilitate competitive markets and act as drivers of innovation 34 Jari Kuusisto
35 Concluding comments 35 Jari Kuusisto
36 Service innovation policy approach is evolving Towards broader perspective and horizontal approach 36 Jari Kuusisto
37 Thank you for your attention! 37 Jari Kuusisto
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