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Slide 1: Manchester Institute of Innovation Research Service Innovation - Models and Theories Ian Miles Ian.Miles@mbs.ac.uk MOSTI - Service Innovation 2009 I
Slide 2: Manchester Institute of Innovation Research Mission for today MOSTI - Service Innovation 2009
Slide 3: Manchester Institute of Innovation Research Images of Services Dein du st ria l is a ti o n “Stuck in the past” Often unproductive – especially public services, where demand reflects political rather than economic agendas; but also many professional services are overprotected and simply feed themselves. Burdensome upon other sectors – especially due to taxes and labour market distortions from public services, but also from some private services. Economic growth is based on innovation in manufacturing. Services lag behind (usually far behind) in use of technology and in productivity growth. Usually low level, frequently involve manual work ; sometimes knowledge is protected by professional elites. low wage, part “The coming thing” Think: what data could we use to test these? P os t-i nd us tri a li s ati on Und erly ing I mag e Va lue Often superior goods, which leads to increased demand for services as affluence grows. Economic role Job generating; contributing to overall quality of life; helping to co-ordinate complex economy and society. Often substantial organisational innovation in services. Technological innovation is less pronounced - thus expanding services absorb labour displaced by manufacturing automation. Often demand high professional, technical and especially social skills. Jobs often professional and rewarding I nn ov at ion Sk ills MOSTI - Service Innovation 2009 Q ualit y of Jobs often low status,
Slide 4: Manchester Institute of Innovation Research Images of Innovatio n an d Service s Dein du st ria l is a ti o n P os t-i nd us tri a li s ati on Often substantial organisational innovation in services. Technological innovation is less pronounced - thus expanding services absorb labour displaced by manufacturing automation. Economic growth is based on innovation in manufacturing. Services lag behind (usually far behind) in use of technology and in productivity growth. I nn ov at ion Implication: Services display lower rates of productivity – and quality? – growth than manufactures. So there is a shift in employment, if demand for goods and services grows equally, or if services are “superior” and purchased more as people become more affluent – cf Engel, Maslow, Inglehart… This seems to be Bell’s assumption, and to fit the grand employment trends But in the late 1970s Jiri Skolka and Jay Gershuny both raised a question about the long-run implications of “unbalanced productivity growth”… MOSTI - Service Innovation 2009
Slide 5: Manchester Institute of Innovation Research Implications of Imbalance • Per £, $, €, spent, what consumers get from services purchases should grow at a lesser rate as compared to manufacturing – may even decline with inflation. • Costs of – train fares, theatre tickets, complementary therapy – as against, say, cars, televisions, clothes. • What if many services are substitutable with goods? MOSTI - Service Innovation 2009
Slide 6: Manchester Institute of Innovation Research Implications of Imbalance 2 • What if many services are substitutable with goods? Meals: eating in restaurants vs eating at home? Mobility: taking a bus versus driving yourself by car? Washing clothes: laundry, laundrette, washing machine Entertainment: theatre or cinema versus TV, radio, hi-fi “Gershuny Hypothesis”: goods and SELF-SERVICE will increasingly substitute for Final Services MOSTI - Service Innovation 2009
Slide 7: Manchester Institute of Innovation Research Innovation and Imbalance Purchase of Services Goods Time Use • Basic Requirements: • Shelter • Food • Domestic Services • Etc. • Advanced Requirements: • Medicine • Transport • Entertainment • Education MOSTI - Service Innovation 2009
Slide 8: Manchester Institute of Innovation Research Innovation is Important • Potential competition of goods for services: • Declining service quality (vicious circle); polarised services for rich and poor; loss of public service and service employment Cost reductions: reduced service frequency, etc Fewer customers • Possible solution in service innovation – role of new IT MOSTI - Service Innovation 2009 Less income
Slide 9: Manchester Institute of Innovation Research Service Innovation and IT • From late 1970s, apparent that new IT was being widely employed in service sectors • Indeed earlier communications technology had already been widely used: Gershuny cited case of Open University. But now PCs and telematics, allowing for reduction of time and space constraints, allowing for more customisation, etc. • Apparent by early 1980s that services adopting IT heavily: 80% of IT investment from services. • Much description of new service products and processes, but little theorisation at first. MOSTI - Service Innovation 2009
Slide 10: Manchester Institute of Innovation Research Richard Barras: Reverse Product Cycle • Classic model of innovation: – Innovator creates a new product – Product comes to market, and goes through a phase of refinement – improved quality (reliability, userfriendliness, etc) – Product is stabilised, and competition moves to focus on efficient production – process innovation MOSTI - Service Innovation 2009
Slide 11: Manchester Institute of Innovation Research Barras’ ‘Reverse Product Cycle’ (1986) Initial Phase Second Phase Third Phase Prod uc t Innovation To develop new service products to differentiate one from others in the market Investment in capital widening technology Employment generating Incremental Proces s Innovation To improve the efficiency of the existing services Reduce the cost of providing the service Investment in capital deepening technology Labor displacing Radical Process Innovation (quality) To improve the effectiveness of existing services To expand the market for the improved product Investment in capital widening technology Neutral impact on employment Nature of Innovation Ai ms Type of i nvest ment Impact on Labour MOSTI - Service Innovation 2009
Slide 12: Manchester Institute of Innovation Research Four sectors and the RPC (1) 1960 s- 1 970s Incremental Process Innovation Efficiency Improvement (2) 1980s (3) 199 0s ON WARD Product Innovation New Service Realisation Radical Process Innovation Quality Enhancement Aims PHASE Nat ure of I nn ov at ion Tec h nolo gic al I nnov at ion in IT Pro duc er Sec t ors Mainframe Computers On-line Systems; Minis & Micros Dumb & Intelligent ATMs, Financial customer/information systems On-line policy quotations Computerised management accounting Departmental service delivery (e.g. housing allocation) Networking (particularly ISDN) SECTO R APPLI CATI ON S Retail Banking Automated transactions and financial records Computerised policy records Computer audit; Internal time recording Corporate financial systems (e.g. payroll) Cashless shopping (EPOS) Home Banking Complete on-line service Fully automated audit & accounts Public information services (e.g. viewdata) Insurance Accountanc y Local government MOSTI - Service Innovation 2009
Slide 13: Manchester Institute of Innovation Research Banks as Vanguard: Phase 1 Incremental Process Innovation Mid 1960 – Mid 1970 Main frame computers To store, manage and organise financial transaction data Routine Tasks Dealing with customer accounts, booking keeping, producing statements Supplier of technology actively introduces the technology to the adopting firm. Ensuring the staffs has adequate training regarding the use of the new technology. React to those firms who could provide financial information quickly Those adopting the technology first will have considerable competitive advantage. Nature of Innovation Ti me Techno logy P urpose of technology appl ic ati on E xampl e of tasks Rol e of Technol ogy Suppli er Rol e of the Fi rm (bank ) Market Industry Competi ti on MOSTI - Service Innovation 2009
Slide 14: Manchester Institute of Innovation Research Phase 2 Radical Process Innovation Mid 1970 – Mid 1980 Network technologies Technological Systems Automated teller machine networks To create linkages – mainframe linking with dumb terminals thus facilitating the improvement of service quality Dispensing cash out of work hours Improve the speed of cash dispensing service To introduce applications which ensure intra-bank connectivity. Building on the embodied knowledge of using the technology, banks now attempt to establish inter-organisation links through the use of technology. Consumers enjoy the convenience of the interbank connectivity. Most firms have adopted the new technology; the industry now looks at system integration. Nature of Innovati on Time Technol ogy Purpose of technology appl ication Exampl e of tasks Rol e of Technology Suppl i er Rol e of t he Fi rm (bank) Market Industry Competiti on MOSTI - Service Innovation 2009
Slide 15: Manchester Institute of Innovation Research Phase 3 Product Innovation Mid 1980 – Mid 1990 Further upgrade of network technology: Integrated system Extend linkages: mainframes link intelligent terminals. 1990 and beyond Infrastructure: ISDN network/communications system Creating linkage between banks, businesses and individuals Home banking/ Shopping Nature of Innovati on Time Technol ogy Purpose of technol ogy appl ication Example of tasks Rol e of Technology Suppl i er Rol e of the Fi rm (bank) Market Industry Competi tion Real time, online transaction processing – accessing customer data saved on the mainframe & matching financial information and marketing activities developed in the branches … Offering service packages ”personal investment, house purchase, travel, taxation and cash management” The role of technology supplier is less responsive in this phase. Introducing new services to the client using existing databases. Providing staff training for new technology application. Educating customers regarding new technology application. Consumers enjoy more flexibility with the service offered by firms. The access to the service without being in the premise of the bank. Competition by differentiated service products. MOSTI - Service Innovation 2009
Slide 16: Manchester Institute of Innovation Research Barras Account • Very popular: intuitively plausible • But: – Does it apply to all services, or just information services (finance etc.)? – Is it a general model, or one that happens to capture service innovation at one point in time (after new IT emerges)? – How can it be tested empirically? – What are the implications for management? MOSTI - Service Innovation 2009
Slide 17: Manchester Institute of Innovation Research Service Innovation • Early thinking: services unproductive; this did not need much explanation; Fuchs attributes to skills problems. SERVICES ARE INNOVATIVE LAGGARDS. Their (technological) innovations mainly come from manufacturing sectors (Pavitt 1). • Slow productivity growth (plus new services) will lead to sectoral shift in employment. (Though Gershuny hypothesis: goods and self-services compete with services.) • Emergence of new IT – a technological and/or industrial revolution in services (Barras) • Service innovation comes to the fore: understudied, and argument about whether it is something new (?Barras) DEMARCATION- or can be handled using conventional tools and techniques - ASSIMILATION MOSTI - Service Innovation 2009
Slide 18: Manchester Institute of Innovation Research Assimilation - Demarcation Demarcation Synthesis In all sectors innovative activities in marketing, distribution etc. are often not under purview of R&D Managers - liable to be overlooked in surveys etc (and in firms’ own strategic planning?) Need a new concept of ‘investment in innovative activities’ (defined as having the intention of altering the nature of the market offering of the enterprise, or of its underlying costs of doing business) Material changes may be classified as standard into product, process (and delivery?) etc. Immaterial changes could be divided into those ‘focused on client relationships’ or ‘focused on internal processes’, with subcategories (e.g. transactions, product tracking, etc.) Innovative activity seen as intrinsically structured as participating in a process located in a network’ usually not closely bound to one sole ‘innovator’ Innovative activity diffused functional units of firms among Issue: Assimilation Concepts of Innovation: R&D and Should be the same, perhaps service staff need education, perhaps services are mainly assimilating manufactures Conventional terminology inappropriate to and unrecognised by many services. Important role of organisational innovations, yet these remain poorly measured in received approaches. Term not seen as appropriate even in many technology-intensive services (despite Frascati modification to include software). Role of customisation much more ambiguous than Frascati manual implies. The term ‘innovation’ is problematic. Product-process distinction liable to be misleading – consider delivery and other interactional innovations. Organisational innovation seems critical in many services, but is hard to quantify. Innovations co-produced with clients may be attributed solely to the latter. Definition of R&D: Should be the same, perhaps services will focus on specific areas and be more concerned with absorption Definition of innovation: Should be the same, especially focusing on technological innovation Location of innovation: Relatively easy to trace innovator Organisation of Innovation: R&D managment Project rather than R&D management. MOSTI - Service Innovation 2009 Coombes and Miles, 2000
Slide 19: Manchester Institute of Innovation Research Den Hertog’s framework MOSTI - Service Innovation 2009
Slide 20: Manchester Institute of Innovation Research For EU-wide CIS4 analysis • See Arundel et al Innovation Statistics for the European Service Sector • http://www.europe-innova.org/exportedcontent/docs/80/8380/en/Innovation_Indicators_for_the_European_Service_Sector.pdf • Compares “industry” and services, and provides data on KIBS in particular; explores – – – – – – – – 1) use of intellectual property, 2) demand conditions, 3) supply of qualified personnel, 4) use of public science, 5) start-ups, 6) innovation support programmes, 7) regulatory burdens, and 8) financial constraints. MOSTI - Service Innovation 2009
Slide 21: Manchester Institute of Innovation Research Innovation Surveys (CIS)– services v manufacturing Product and process innovators Process only innovators Product only innovators Successful innovators Services Industry Enterprises w ith innovation activity 0 MOSTI - Service Innovation 2009 10 20 30 40 50
Slide 22: Manchester Institute of Innovation Research A more detailed look Extractive Manufacturing Utilities Product and process innovators Transport & comms Process only innovators Product only innovators Successful innovators Wholesale Physical services – less innovation? Financial Information services – TKIBS more innovation? MOSTI - Service Innovation 20090 0 1 20 30 40 50 6
Slide 23: Manchester Institute of Innovation Research Services Innovation Styles differ “Which of these areas are your innovation efforts focussed on?” Max. choice = 2) INNOVA survey, Howells and Tether 2002) MOSTI - Service Innovation 2009
Slide 24: Manchester Institute of Innovation Research CIS4 results Tobias Schmidt & Christian Rammer (2006) The determinants and effects of technological and nontechnological innovations – Evidence from the German CIS IV MOSTI - Service Innovation 2009
Slide 25: Manchester Institute of Innovation 80 Research 70 CIS4 results Telecomms UK data Computer Sers. 60 Financial sers. R&D 50 Real Estate Legal Sers. Extractive, Construction, Utilities Vehicle trade Architecture Wholesale Manufacturing 40 Other Business Sers. Labour Recruitment Other Transport sers. HORECA Retail 30 20 Courier + post 10 0 0 10 20 30 40 50 60 70 80 MOSTI - Service Innovation 2009
Slide 26: Manchester Institute of Innovation Research Conclusions • Are services innovative – are some services especially innovative? • Are services innovative in different ways? • Is IT especially important in service innovation? • Is a focus on technological innovation sufficient – or are we getting drawn into minor organisational changes and strategic issues when looking beyond technology? MOSTI - Service Innovation 2009
Slide 27: Manchester Institute of Innovation Research End of presentation MOSTI - Service Innovation 2009