Models and Theories of Service Innovation - IME 2010 seminar 2


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second seminar in service iunnovation series, 2010

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Models and Theories of Service Innovation - IME 2010 seminar 2

  1. 1. Service Innovation - Models and Theories Ian Miles [email_address] 
  2. 2. Mission for today <ul><li>Consider major images of services </li></ul><ul><li>Assimilation/demarcation </li></ul><ul><li>Implications of innovation trends </li></ul><ul><li>Services as laggards? </li></ul><ul><li>IT and services </li></ul><ul><li>The Reverse Product Cycle theory </li></ul><ul><li>What do surveys tell us? </li></ul>
  3. 3. Innovation is Important to Services <ul><li>Private services – competitive pressure (especially as service trade, liberalisation, deregulation allows new competition) </li></ul><ul><li>Public services – pressure to save costs and to respond to new social demands. </li></ul><ul><li>All services – potential competition with disruptive services and/or manufactures: </li></ul><ul><li>Declining service quality (vicious circle); polarised services for rich and poor; loss of public service and service employment </li></ul><ul><li>Possible solution in service innovation – including new IT </li></ul>Fewer users Less income/political support Cost reductions: reduced service frequency, etc
  4. 4. Classic Views of Services what data support one or other view? Jobs often professional and rewarding knowledge work. Jobs often low status, low wage, part time, etc. Quality of working life Often demand high professional, technical and especially social skills. Usually low level, frequently involve manual work ; sometimes knowledge is protected by professional elites. Skills 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. Innovation Job generating; contributing to overall quality of life; helping to co-ordinate complex economy and society. Burden on other sectors – especially due to taxes and labour market distortions from public services, but also from some private services (unproductive consumption). Economic role Often superior products, which leads to increased demand for services as affluence grows. (Business demand for services – reflects new problems and challenges in more complex, knowledge-based society) Often unproductive – especially public services, where demand reflects political rather than economic agendas; but also many professional services are overprotected and simply feed themselves. Value “ The coming thing” “ Stuck in the past” Underlying Image Post-industrialisation Deindustrialisation
  5. 5. Views of Innovation and Services 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 (As noted last week, in the late 1970s Jiri Skolka and Jay Gershuny raised questions about the long-run implications of “unbalanced productivity growth” – manufactured goods (cheapened and improved by innovation) may compete with services (remaining unmodernised) 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. Innovation Post-industrialisation Deindustrialisation
  6. 6. Services, textiles and agriculture high-tech firms in industries such as pharmaceuticals and electronics large firms producing basic materials and consumer durables, e.g. automobile manufacture specialized machinery production and high-tech instruments. Supplier-dominated firms Science-based firms Scale-intensive firms Specialised equipment producers Sectoral Patterns of Innovation – received view Classic Pavitt (1984) Sectors include:
  7. 7. Supplier-dominated firms Science-based firms Scale-intensive firms Specialised equipment producers Patterns of Innovation rethought: varieties of service firm Classic Pavitt (1984) Many traditional service sectors – personal and retail trade services, many public services Production-intensive scale-intensive sectors: large organisations with much back-office innovation (incl some supermarkets, etc.) Network sectors – physical networks (e.g. transport, wholesale), information networks (e.g. telecomms, banking) Specialised technology suppliers and science-based sectors – computer & engineering services Soete & Miozzo (1989 and later)
  8. 8. Beyond Supplier-Domination <ul><li>Several authors, including Pavitt himself, have revised his taxonomy – see recent studies like F. Castellacci, (2008) &quot;Technological paradigms, regimes and trajectories: Manufacturing and service industries in a new taxonomy of sectoral patterns of innovation&quot;. Research Policy 37: 978–994; D. Archibugi, (2001) &quot;Pavitt's Taxonomy Sixteen Years on: A Review Article&quot;. Economics of Innovation and New Technology 10: 415–425. </li></ul><ul><li>Impact of new IT as well as growth of service sectors </li></ul><ul><li>Do we need to treat services separately? </li></ul>
  9. 9. Assimilation - Demarcation Coombs and Miles, 2000 Project rather than R&D management. R&D management Organisation of Innovation Innovations co-produced with clients may be attributed solely to the latter. Relatively easy to trace innovator Location of innovation Even 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. Should be the same, especially focusing on technological innovation Definition of innovation 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. Should be the same, perhaps services will focus on specific areas and be more concerned with absorption Definition of R&D Conventional terminology inappropriate to and unrecognised by many services. Important role of organisational and service innovations, yet these remain poorly measured in received approaches. Should be the same, perhaps service staff need education, perhaps services are mainly supplier-driven, assimilating manufactures Concepts of R&D and Innovation Demarcation Assimilation Issue:
  10. 10. Synthesis Coombes and Miles, 2000 Innovative activity diffused among functional units of firms Organisation of Innovation Innovative activity seen as intrinsically structured as participating in a process located in a network’ usually not closely bound to one sole ‘innovator’ Location of innovation 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.) Definition of innovation 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) Definition of R&D 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?) Concepts of R&D and Innovation Synthesis Issue
  11. 11. Service Innovation and IT <ul><li>From late 1970s, apparent that new IT was being widely employed in service sectors </li></ul><ul><li>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. </li></ul><ul><li>Apparent by early 1980s that services adopting IT heavily: 80% of IT investment from services. </li></ul><ul><li>Much description of new service products and processes, but little theorisation at first. </li></ul>
  12. 12. Different classes of service <ul><li>Miles (1984 on…) </li></ul><ul><li>PHYSICAL SERVICES: especially energy technologies, motor power – consumer goods vs final services. IT to control and increase effiuciency. </li></ul><ul><li>PERSON-CENTRED SERVICES: basic information processing, plus innovations in medicine, etc. (More sophisticated IT  more personalisation) </li></ul><ul><li>INFORMATION SERVICES: major scope for applying IT of all sorts – and this is where big investments are. In Information sectors, and back-office jobs. </li></ul>
  13. 13. Demarcation approach - Richard Barras’ Reverse Product Cycle <ul><li>Contrast with the classic model of innovation in which: </li></ul><ul><ul><li>Innovator creates a new product </li></ul></ul><ul><ul><li>Product comes to market, and goes through a phase of refinement – improved quality (reliability, user-friendliness, etc) </li></ul></ul><ul><ul><li>Product is stabilised, and competition moves to focus on efficient production – i.e. process innovation </li></ul></ul>Abernathy & Utterback “ Patterns of Innovation in Technology” Technology Review 1978
  14. 14. Barras’ ‘ Reverse Product Cycle’ (1986) Employment generating Neutral impact on employment Labor displacing Impact on Labour Investment in capital widening technology Investment in capital widening technology Investment in capital deepening technology Type of investment To develop new service products to differentiate one from others in the market To improve the effectiveness of existing services To expand the market for the improved product To improve the efficiency of the existing services Reduce the cost of providing the service Aims Product Innovation Radical Process Innovation (quality) Incremental Process Innovation Nature of Innovation Third Phase Second Phase Initial Phase
  15. 15. Four sectors and the RPC Public information services (e.g. viewdata) Departmental service delivery (e.g. housing allocation) Corporate financial systems (e.g. payroll) Local government Fully automated audit & accounts Computerised management accounting Computer audit; Internal time recording Accountancy Complete on-line service On-line policy quotations Computerised policy records Insurance Cashless shopping (EPOS) Home Banking ATMs, Financial customer/information systems Automated transactions and financial records Retail Banking SECTOR APPLICATIONS Networking (particularly ISDN) On-line Systems; Minis & Micros Dumb & Intelligent Mainframe Computers Technological Innovation in IT Producer Sectors New Service Realisation Quality Enhancement Efficiency Improvement Aims Product Innovation Radical Process Innovation Incremental Process Innovation Nature of Innovation (3) 1990s ONWARD (2) 1980s (1) 1960s- 1970s PHASE
  16. 16. Banks as Vanguard: Phase 1 Those adopting the technology first will have considerable competitive advantage. Industry Competition React to those firms who could provide financial information quickly Market Ensuring the staffs has adequate training regarding the use of the new technology. Role of the Firm (bank) Supplier of technology actively introduces the technology to the adopting firm. Role of Technology Supplier Routine Tasks Dealing with customer accounts, booking keeping, producing statements Example of tasks To store, manage and organise financial transaction data Purpose of technology application Main frame computers Technology Mid 1960 – Mid 1970 Time Incremental Process Innovation Nature of Innovation
  17. 17. Phase 2 Most firms have adopted the new technology; the industry now looks at system integration. Consumers enjoy the convenience of the interbank connectivity. Building on the embodied knowledge of using the technology, banks now attempt to establish inter-organisation links through the use of technology. To introduce applications which ensure intra-bank connectivity. Dispensing cash out of work hours Improve the speed of cash dispensing service To create linkages – mainframe linking with dumb terminals thus facilitating the improvement of service quality Network technologies Technological Systems Automated teller machine networks Mid 1970 – Mid 1980 Radical Process Innovation Industry Competition Market Role of the Firm (bank) Role of Technology Supplier Example of tasks Purpose of technology application Technology Time Nature of Innovation
  18. 18. Phase 3 Industry Competition Market Role of the Firm (bank) Role of Technology Supplier Example of tasks Purpose of technology application Technology Time Nature of Innovation Competition by differentiated service products. Consumers enjoy more flexibility with the service offered by firms. The access to the service without being in the premise of the bank. Introducing new services to the client using existing databases. Providing staff training for new technology application. Educating customers regarding new technology application. less responsive in this phase. Home banking/ Shopping 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” Creating linkage between banks, businesses and individuals Extend linkages: mainframes link intelligent terminals. Infrastructure: ISDN network/communications system Further upgrade of network technology: Integrated system 1990 and beyond Mid 1980 – Mid 1990 Product Innovation
  19. 19. Barras Account <ul><li>Very popular: intuitively plausible </li></ul><ul><li>But: </li></ul><ul><ul><li>Does it apply to all services, or just information services (finance etc.)? </li></ul></ul><ul><ul><li>Is it a general model, or one that happens to capture service innovation at one point in time (after new IT emerges)? </li></ul></ul><ul><ul><li>How can it be tested empirically? </li></ul></ul><ul><ul><li>What are the implications for management? </li></ul></ul>
  20. 20. More Recent Accounts <ul><li>Much effort to examine service firms and sectors as innovators through use of surveys such as CIS – Community Innovation Survey. </li></ul><ul><li>Note that these were originally designed for manufacturing, but have been elaborated to include services. </li></ul><ul><li>Some efforts to explore features of service innovation and new service developmenty. </li></ul>
  21. 21. Innovation Surveys (CIS) – services v manufacturing
  22. 22. A more detailed look Physical services – less innovation? Information services – more innovation?
  23. 23. For EU-wide CIS4 analysis <ul><li>See Arundel et al Innovation Statistics for the European Service Sector </li></ul><ul><li> </li></ul><ul><li>Compares “industry” and services, and provides data on KIBS in particular; explores </li></ul><ul><ul><li>1) use of intellectual property, </li></ul></ul><ul><ul><li>2) demand conditions, </li></ul></ul><ul><ul><li>3) supply of qualified personnel, </li></ul></ul><ul><ul><li>4) use of public science, </li></ul></ul><ul><ul><li>5) start-ups, </li></ul></ul><ul><ul><li>6) innovation support programmes, </li></ul></ul><ul><ul><li>7) regulatory burdens, and </li></ul></ul><ul><ul><li>8) financial constraints. </li></ul></ul>
  24. 24. Evangelista/Savona Taxonomy Innovative Intensity & relevance of R&D & design Relevance of external technological sources (investment) User-producer interactions, dependence on manufacturing suppliers Internal/tacit innovation sources & importance of service provider/client interactions Technology Users Interactive Consultancy S&T Based Post & tele-communications R&D services Engineering & Computing Legal, Other financial, Travel, Retail Security, Cleaning, Other Business Waste, Land & Sea Transport Banks, Insurance, Trade/repair of motor vehicles, Hotels Advertising Technical Consultancy
  25. 25. Within-Sector Variation - Hipp/Grupp Taxonomy Nearly Soete/ Miozzo categories But we may need other categories for describing, e.g. professional, public and creative services.
  26. 26. Services Innovation Styles differ (INNOVA survey) “ Which of these areas are your innovation efforts focussed on?” Max. choice = 2) INNOVA survey, Howells and Tether 2002)
  27. 27. CIS4 results Tobias Schmidt & Christian Rammer (2006) The determinants and effects of technological and nontechnological innovations – Evidence from the German CIS IV
  28. 28. CIS4 results UK data
  29. 29. How can we understand innovation in service products? <ul><li>Delivery as something other than product and process. </li></ul><ul><li>“ Servuction” as interaction between service supplier and user – “servuction innovations” parallel to “production” innovations? </li></ul><ul><li>Issues like coproduction of service – and of innovation… </li></ul><ul><li>In future weeks we will consider new service development and service design… </li></ul><ul><li>For now, a proposed framework for thinking about dimensions of service innovation: </li></ul>
  30. 30. Den Hertog’s framework
  31. 31. Conclusions <ul><li>We know that even in conventional terms, many services are innovative – and some services are especially innovative. </li></ul><ul><li>Some services appear to innovate in non-standard ways, and service innovations might need to be described in new ways. </li></ul><ul><li>IT is especially important for service innovators; but is it the whole story? </li></ul><ul><li>Indeed, do we need to move beyond a focus on technological innovation? Can we / should we examine organisational changes, business model innovations, new marketing strategies, etc.? </li></ul><ul><li>Many innovations blur boundaries. </li></ul>
  32. 32. End of presentation (some extra slides follow)
  33. 33. Implications of Imbalance <ul><li>Per £, $, €, spent, what consumers get from services purchases should grow at a lesser rate as compared to manufacturing – may even decline with inflation. </li></ul><ul><li>Costs of – train fares, theatre tickets, complementary therapy – as against, say, cars, televisions, clothes. </li></ul><ul><li>What if many services are substitutable with goods? </li></ul>
  34. 34. Implications of Imbalance 2 <ul><li>What if many services are substitutable with goods? </li></ul>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