Service economy 3.0

Service Innovation in the Post-Industrialized Society: Service Economy 3.0 Ian Miles (University of Manchester, and HSE, Moscow) OMIIR Manchester Institute of Laboratory forMC R Innovation Research Manchester Centre for Ian.Miles@mbs.ac.uk Economics of Innovation Service Research IAMOT March 2012

OverviewUnderstanding Services and ServiceUnderstanding Service InnovationService Innovation and TechnologicalInnovationEmerging Perspectives and Hot Topics,Implications

C21stService Innovation, and Innovation inServices, is NOW (almost) mainstreamWe accept that:Technology is Vital for Services and ServiceInnovationServices are Vital for Technology andTechnological InnovationPeople are crucial as designers, producersand users (coproducers) of technology andservices

The Time has Come forPublish or Perish data Service Innovation IAMOT 2012 300www.harzing.comMarch 12th 2012 Chesbrough,FT,2004 250 Publications with the term in their titles 200 Service Innovation 150 100 Innovation in Services 50 0

Perspectives on Service(s)Primary industries specialise in extractingthings (raw materials, etc.) from thenatural world (and change and manage partsof that world).Secondary industries specialise in makingthings (from other things): Manufacturingmakes goods, Construction makesbuildings, etc.Tertiary industries specialise in doingthings: Services (service industries)–source of Ambiguityproduce services (service products). misunder- standing

Industrial SpecialisationAny industry can produce things that othersspecialise in. Service industries specialisein doing things, not making things.Some service industries produce physicalproducts (usually the value lies in theprofessional skill, the particularisation andinformation content rather than thematerials) – printed reports, dental fillings,assemblages...)Primary and secondary industries oftenproduce services – aftersales and muchmore – “servicisation” foregrounds this.

InnovationGoods innovation – product and process –making new things, making things in newways. (Largely technological innovation.)Service innovation then: doing newthings, doing things in new ways.Whether in service industries (“innovation inservices”) or other service suppliers.But is it more complicated? Product and process entangled User involvement in coproduction; role of service relationships; organisational innovation

Not all service innovation is technologicalInnovating service suppliers often use newtechnology, at least in a facilitating roleBut even here there are exceptions: perhapsespecially in personal servicesE.g. CBTAlternative to pharmaceuticals Altered ThinkingNHS: “one of the mosteffective treatments foranxiety and depression.” Behaviour Situation EmotionalCan be via book or software FeelingsAnd now “web therapy”But still usually face-to-face, Sometimes in groups Physical Sensations

Not all Technological Innovations in Services are IT-basedMany service processes are highly specificThe transformations can benefit fromparticular categories of technology.For example, medical services may applytools and knowledge concerning: Pharmacology Opportunities influenced by state of science and development Radiology of practical experience Health services involve particularly complex and long-term Surgery sequences of problem-solving, involving many professions and bodies of knowledge in complex (public-private) Genomics... institutionalspecific innovations. See: D.Consoli et al, 2007, Numerous frames “The Process of Health Care Innovation” in J Costa-Font et al (eds) The Economics of New Health Technology Oxford University Press

What Things are Services doing?Transformations physical, chemical, biological, psychological, informationalOf Entities Material artefacts (goods, buildings, etc.) Living entities (mainly and especially human beings) Signals and Symbolsto achieve Effects Condition, Location, Accessibility (Maintenance, Movement, Matching)... Problem-solving, Experience-engineering

Varieties of Service TransformationSome human corporeal transformation is oflow complexity – personal services likecosmetic and hairdressing – these can bequasi-medical, though usually routine.Innovation in aesthetics, consumables.Other transformations of people andartefacts are much more physical – e.g. transport, HORECA, repair/ maintenance. Application of power machinery. Informational –e.g. providing experiences, education . Application of new IT.

Three Transformational Types Many activities, and most service industries, involve some mixture of all three Physical Human Informational Transformations Transformations Transformations Examples e.g Cleaning, e.g. Health, e.g Finance, Features Transport Personal Services Communications Often much manual, High presence, often high Range of mass and sometimes low-skill work involvement of customised services Challenges Consumer/User Environmental sustainability, “self- Human diversity, Keeping apace of service” Interpersonal relations platforms and users; ,IPTechnologies Power and engine systems; technologies Many specialised, from IT and supporting under repair etc. very low to very high-tech systems (e.g. Batteries) Trends New functionality (e.g. Business model change Changing role of public Location) and knowledge sector (e.g. Neuro...) Manual Activity Knowledge-intensive activity

Information Technology is nevertheless pervasiveWhile there are many specific servicetechnologies Surgical tools, hairdryers, trains, trolleys, fast- food containers, clipboards....Most services are information-intensive, infront and back officesThus most are IT-intensiveBarras: IT represents an industrial revolutionfor service sectors: IT investment very heavyfrom them. Barras, R. (1986) "Towards a theory of innovation in services" Research Policy vol.15 no.4 pp.161-173

Information Technology evolution 70s 80s 90s 00s 10s 20s?Mainframe Micro Networks Tablet, Sensors, Biodevice mini  PC & laptops smartphone Actuators WiMax, VANs LANs Web WiFi, 3G +++ 4G,cloud Profess- Wide Ubiquit- Experts Public Ambient ionals public ous Web2.0, Internet of “End- Semantic Centralised Content things, User” P2P web locations Text/ Commun- Enhance- Numbers Multimedia Control graphics ication ment Inspired by Marc Weiser et al: - cf: I Miles (2005) “Be Here Now”, INFO Vol. 7 No. 2, pp49-71

Information SocietyMark Weiser at http://www.ubiq.com/hypertext/weiser/UbiHome.htmlMainframe Micro Networks Tablet, Sensors, Biodevice? mini  PC & laptops smartphone Actuators WiMax, VANs LANs Web WiFi, 3G, +++ 4G,cloud Profess- Wide Ubiquit- Experts Public Ambient ionals public ous Web2.0, Internet of “End- Semantic Centralised Content things, User” P2P web locations One for One for a One for Each A Few for Many for Each Text/ Commun- Enhance- Numbers Many Few Person/Place Multimedia Each Control Person/Place graphics ication ment People People Person/Place 70s 80s 90s 00s 10s 20s?

Information Technology Use is one shaper of Service EconomyMainframe Micro Networks Tablet, Sensors, Biodevice? mini  PC & laptops smartphone Actuators Service LANs VANs Service Web WiFi, 3G, Service WiMax, 4G,cloud +++Economy Economy Economy 1.0 2.0 Wide Ubiquit- Experts Profess- ionals Public public 3.0 ous Ambient Web2.0, Internet of “End- Semantic Centralised Content things, User” P2P web locations One for One for a One for Each A Few for Many for Each Text/ Commun- Enhance- Evolving Views of Numbers Many Few graphics Service Economy (and Service Innovation) Person/Place Multimedia ication Each Control Person/Place ment People People Person/Place 70s 80s 90s 00s 10s 20s?

Service Economy 1.0 “Post-Industrial Society” - 1960s-’80sEconomy of services sector(s)Growth driven by consumer demand,welfare state provision, low productivity growthInnovation relatively low, supplier-drivenIndustries are pre- or post-industrial - toocomplicated or particularised for mass productionMoT thus seen as adoption of technologyfrom elsewhereExceptional services sequesteredExamples: Bell, Fuchs,Touraine

Manufacturing vs Services -1 Service production Factory Service Producer was typically seen as either low- Services skill (and Goods versus thus not economic to automate) Goods Service Consumer or very Consumer high skill and too complex toSeparation Closeness, Coproduction automate

Traditional view of service innovation It became increasingly hard to sustain this view as technology-basedThus service services becomeindustries were important to innovationtypically seen as in all sectorssupplier-driven,with low Dismissal and as manyproductivity more traditionalgrowth: the service sectorschallenges for displayedpolicy and MoT considerablewere thus those of (with very few exceptions) technologyimproving Service industries play little adoption andtechnology role in (technological) innovationtransfer innovation And thus be innovation policy and MoT need only focus on technology transfer

Service Economy 2.0 Knowledge-Based Economy: 1980s-2000sNew Information Technology widelyadopted in service organisations- especiallyback-office in large organisations.Many IT-related services assisting this -KIBS as supporting business processesand innovation across the economy.Innovation IN services – but also newservice delivery, new e-services.Information Society, Knowledge EconomyExamples: Barras, Gershuny, Sundbo

Perspectives on service innovation A similar (not identical) Framework developed by approach had already R Coombs & I Miles, been developed in the 2000, “Innovation, 1990s by Gallouj – see Measurement and recent work like F. Services: the new Gallouj and F. Djellal problematique” in J S (eds) (2010). The Metcalfe & I Miles (eds) Dis- Dismissal Handbook ofInnovation Systems in the missal Innovation and Services, Edward Service Economy Dordrecht: Kluwer Elgar: Cheltenham Syn- thesis Demarc Assim -ation -ilation

Assimilation PerspectiveServices are Service innovationqualitatively is not distinctive;distinctive, due to it can be studiedespecially dueINTANGIBILTYto and organised inINTANGIBILTY,and ways familiar fromINTERACTIVITY,INTERACTIVITY :etc.  differentdifferent forms of analysis offorms ofinnovation and Dis- Dismissal manufacturing Tend to focus oninnovation & missal techno-innovationprocess logicalprocess innovation Syn- (though some thesis theorists insist this is distinctive) Demarc- Assim- ation ilation

Assimilation Perspective Services are Service innovation qualitatively is not distinctive;Stressed that some distinctive, due to it can be studiedservice industries –those to especially due INTANGIBILTYconcerned with and organised in INTANGIBILTY, andknowledge and ways familiar from INTERACTIVITY, INTERACTIVITY :informational  differentof etc. different forms analysis oftransformations –of and forms are innovation Dis- Dismissal manufacturing Tend to focus onparticularly innovation & intensive missal techno- innovation processadopters and increasingly logical processinnovators with new IT, innovationwhile many other Syn- (thoughservices are less so. someBut large firms use thesis theoristsNew IT similarly in insist thisBack Offices. is distinctive) Demarc- Assim- ation ilation

Manufacturing vs Services -2 Barras model:Back Office Back Office efficiency in back Factory Front Office office, then new services in front office Services Glushko, R. Goods versus (2010). “Seven Contexts for Service System Design”, in Maglio, P. P., Kieliszewski, Goods Service Consumer C., & Spohrer, Consumer J. (eds) Handbook of Consumer Service Science, Communities Springer

Innovation - Manufacturing vs Services -Assimilation Back office innovation – similarProcess Back Office trajectories of IT Back Office Process innovationinnovation – use – alsoalso Factory Front Office widespreadwidespread adoption ofadoption of new ITnew IT Tertiarisation, convergence Services Goods Goods Service Consumer Consumer Consumer Communities

Innovation - Manufacturing vs Services – Beyond Assimilation Back office innovation – similar ProcessProcess Back Office trajectories of IT Back Office innovationinnovation – use – somesome Factory Front Office elementselements very veryspecific to specific toparticular Tertiarisation, particularmfg. sectors service convergence sectors Services – front and Goods back office integration and organis- Goods -ation Service Consumer issues. Consumer Consumer Communities

Demarcation Perspective Services are Service qualitatively innovation is not distinctive, distinctive; it can especially due to be studied and INTANGIBILTY, organised in INTERACTIVITY, etc.  different ways familiar Extensive forms of Dis- Dismissal from analysis of discussion of service innovation & missal manufacturingspecificities innovation (and the process huge diversity Syn- acrossservices!) in thesis marketing andmanagement as well as Demarc- Assimilat- innovation ion studies ation

Innovation - Manufacturing vs Services - Demarcation Back office Process innovation – innovation –Process Back Office similar trajectories Back Office someinnovation – of IT use elementssome elements veryvery specific Factory Front Office specific toto particular particularmfg. sectors service sectors InnovationProduct related to Product Servicesinnovation – Goods properties innovation:new / improved and functions newgoods of product servicesInnovation Servicein goods Goods Service Consumer Relationshipdelivery Consumer and Delivery Consumer innovation Communities

As well as Transformations, Service Processes also vary in terms of such parameters as:Capital-intensivity Labour-intensivity T2H H2H Standardisation Particularisation Routineness (customised) SpecialisationManual activity Knowledge-intensive activity Cf. review by Esa Viitamo (2007), Productivity of Business Services – Towards a New Taxonomy, Lappeenranta University of Technology, Faculty of Technology and Management, Department of Industrial Management, Research Reports, 188.

Innovation and Service Processes - Capital/Labour:Capital-intensive Labour-intensive T2H H2HStandardised Particularised Advanced WorkRoutine technology, (customised) Specialised organisation, remote division of processing, labour,Manual activity scale offshoring Knowledge-intensive economies activity

Innovation and Service Processes - Standardised/Specialised: Automation, scripting,Capital-intensive service Labour-intensive Modularisation T2H engineering, and H2H “productisation” recombinationStandardised ParticularisedRoutine (customised) Specialised Novelty versus innovation;Manual activity knowledge Knowledge-intensive capture activity Strategy and Business Model orientation affects moves to more or less standardisation/particularisation

Innovation and Service Processes - Manual/Knowledge-Based:Capital-intensive Labour-intensive T2H Power Paraprofessional H2H technology, HR and decision issues where support much H2H systems;Standardised contact Technical ParticularisedRoutine (customised)specialisation SpecialisedManual activity Knowledge-intensive activity

Service Economy 3.0 Economy of Service(s) 2010s-Service orientation (Service-DominantLogic) to forefront: Synthesis viewpointEmergent processes and practices still–willbe invigorated by use of new technologieslike sensors, data analytics, etc.Service innovation; metamanufacturing,product-service solutions and GrandChallengesExamples: Gallouj, Spohrer, Vargo/Lusch

A Synthesis? Exploration of Service Innovation has identified aspects of innovation that are generically importantInnovation analysis, measurement and policy – needs to account for all these aspects (or if not, to explain why some sorts of innovation are privileged) All sectors have Dismissal Dis- Services become diverse features, and missal more technology- many “service” intensive and elements “industrialised” Synthesis “Servitisation” (Knowledge of intensive) service manufacturing activities Demarc- Assim- ation ilation

Innovation - Manufacturing and affecting design and new service relations, thus Services - Synthesis Value Chain Back office Value Chain Process innovation – innovation – wider “back-office” functions- “front office”Processinnovation – Back Office similar trajectories Back Office some of IT use elementssome elements veryvery specific Factory Front Office specific toto particular particularmfg. sectors Further service Convergence sectorsProduct Productisation Servicisation Services Productinnovation –new / improved Goods innovation: newgoods services Innovation inInnovation marketing and e- Servicein goods Goods business, e- Service Consumer Relationshipdelivery Consumer commerce, and aftersales, use of Delivery Metamanufacturing : functionality Consumer innovation Goods in use and provided by good beyond or service Communities

Service Thinking and DesignManufacturing and Making Things remains,of course, critical; and highly reliant onspecialised knowledge.But Service dimensions of production cometo fore, as it is more necessary to relateproducts to their use in extended life cyclesand challenging environmentsThough new Technology can be usedthroughout innovation processes, muchcomplexity and need for extended designprocesses.

Loci of Service Innovation • Position in Value Chain Value Chain • Management of suppliers Back OfficeElements of Business Model • Office systems • Service work organisation, scripts Front Office • Service Value Proposition (Concept and Content) Services • Service Delivery Systems • Interface with, relation to • Revenue consumers and their platforms Models • Role of consumers (and Service Consumer communities) in coproduction Users • Target Markets and Marketing Consumer Techniques Communities

Capabilities for Service Innovation • Position in Value Chain Grasp of business environment, scope for collaboration and open innovation Value Chain • Management of suppliers SCM capabilities Back Office management & new modelsElements of Business Model • Office systems Grasp of KM & informatics • Service work organisation, scripts Front Office Grasp of financial Grasp of HR, team management • Service Value Proposition (Concept and Content) Service technology capabilities Services • Service Delivery Systems Service design capabilities • Interface with, relation to • Revenue consumers and their platforms Models • Role of consumers (and Service Consumer communities) in coproduction Grasp of users, uses • Target Markets and Marketing Consumer Grasp of markets, trends, marketing, competition Techniques Communities

Another View: multiple dimensions of service innovation Revenue Finance, Model strategy Marketing Value Chain/ System Customer Interaction Partnering, Sales, M&A, after salesprocurement Delivery Service Concept (Organisation) P den Hertog, W van der Aa, M W. de Delivery Jong, (2010) Technology (Technology) HRM "Capabilities for managing service innovation: towards a conceptual framework" Journal of Service Management , Vol. 21 (4) pp.490–514

Challenges for Innovation and MoTEven servicisation has often provedchallengingRequirements for wide range of newknowledge, especially about userbehaviour and wider contextsWicked problems in Grand ChallengesNumerous sites of innovation,turbulence for innovation managementMulti-stakeholder, problems of cognitivealignment (e.g. around platforms)

Conclusions - PolicyDevelop Service Innovation PolicyThis means looking beyond traditional R&D support fortraditional recipientsMany parties play role in development of capabilities forservice innovation, including policymakers, HEIs, leadingcompanies, professional bodies; Public-Private PartnershipsEspecially where public services and procurement areconcernedSMEs may need specific supportGrand challenges and complex problems – transformationalinnovations spanning social and technological innovation(e.g. AAL, sustainability)Social innovation involving broader stakeholders and wideruser communities, for legitimacy and access to knowledgerelevant to effecting lasting behaviour change.

Conclusions - MoTConsider service design capabilities and techniques -requires diverse knowledge types, and ability to combinemultiple component offerings from multiple actors;application of new tools for service design and relations(open innovation?) with relevant communities.Integration of management of innovations across multiplelocations (back-office, front-office, value chain, factory,product in use...), building in knowledge of H2H and H2Trelations and product/service life-cycles.Important to retain and enhance scope for individual andorganisational learning, as requirements for multiplecompetences evolveCentral role for management capability to identify,mobilise, coordinate requisite professionals and skill sets

FinallyService innovation is important For all sectors For all economies For confronting Grand ChallengesUnderstanding service innovation isimportant To help do it better To engage more of the potential sources of creative solutions

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Service economy 3.0

by Ian Miles on Mar 20, 2012

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