I4g policy brief_7_-_service_innovation
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I4g policy brief_7_-_service_innovation

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The implementation of the Horizon 2020 in economies dominated by services requires the exploitation of the broad innovation potential that combines technological and non technological innovations and ...

The implementation of the Horizon 2020 in economies dominated by services requires the exploitation of the broad innovation potential that combines technological and non technological innovations and problem solving approach.
Empirical evidence confirms direct and indirect effects of services and service innovation on growth, employment and competitiveness of the economy (European Competitiveness Report, 2011).

New technologies provide important impetus for service innovation; however its drivers are much more related to non – technological dimensions and interactions with the users. Hence the traditional measures of innovation support (e.g. incentives for R&D) are insufficient to accelerate service innovation.

In the period 1995 – 2007 nearly all employment growth in the EU was due to services (EC, 2009), suggesting that service innovation could keep on being the main driver of future jobs creation.

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I4g policy brief_7_-_service_innovation I4g policy brief_7_-_service_innovation Document Transcript

  • 1Innovation for Growth – i4gPolicy Brief N°7 (december 2012)Seizing the opportunities of service innovation1Stare Metka, University of LjubljanaFaiz Gallouj, University Lille1The implementation of the Horizon 2020 in economies dominated by services,requires the exploitation of the broad innovation potential that combinestechnological and non-technological innovations and problem solving approachEmpirical evidence confirms direct and indirect effects of services and service innovation ongrowth, employment and competitiveness of the economy (European Competitiveness Report,2011). New technologies provide important impetus for service innovation; however its driversare much more related to non-technological dimensions and interactions with the users. Hencethe traditional measures of innovation support (e.g. incentives for R&D) are insufficient toaccelerate service innovation. In the period 1995-2007 nearly all employment growth in the EUwas due to services (EC, 2009), suggesting that service innovation could keep on being the maindriver of future jobs creation. Yet, the attention of policy makers to service innovation and theamount of funds spent for the research of service innovation is utterly disproportionate with theeconomic importance of the service sector2 and services related innovations. Overlooking thesefacts may also put into question the appropriateness of public policy measures taken bygovernments to address the economic crisis, particularly in countries that are the most severelyaffected. The Policy brief points to major gaps in understanding service innovation and its specialcharacteristics, where non-technological dimensions and intangibles play a particularly importantrole. Its focus is on:a) Identifying the gaps in knowledge on service innovation and highlighting the need for in-depth research and analysis that would provide better foundations for services inclusiveinnovation policy;1 For a full discussion of the topic with relevant evidence see the paper made by the authors for I4G.2The share of services on average accounted for 72,7% of GDP in EU27 in 2011, with substantialdifferences accros member states (e.g. Romania: 52,6%, Germany: 66,2%, Greece: 79,3% andLuxembourg: 94,7%) (Eurostat, 2012).
  • 2b) Proposing the supporting activities and measures to better seize the opportunities of serviceinnovation.Service innovation (SI) has the potential to successfully address problems in various areas. Someof them are especially relevant in the current situation: The sheer size of the service economy calls for the increase of innovation activity inservices that will have positive effects on growth and employment. The manufacturing in Europe is under heavy pressure of globalisation and theeconomic crisis has further aggravated the situation. SI could facilitate thetransformation of manufacturing by introducing new business models and new leversof value creation. Declining public budgets across Europe coupled with the population aging urge thechange in models of public services provision and related innovations (e.g. health,education). SI could induce organisational changes resulting in improved efficiency andquality of services. New technologies can provide answers to specific problems related to big societalchallenges. Effective deployment of new technologies and their roll-out criticallydepends on SI that creates new services, new models and complementary knowledge onsocial dimensions needed for holistic solutions adapted to citizens and society at large.Systemic approach to service innovation should promote the research of serviceinnovation and the implementation of research results in practice. In parallel,education and training system should adapt the curricula with knowledge, skillsand competences for service innovation.A combination of horizontal and sector specific measures are needed to cope with heterogeneityof services and multi-dimensional nature of service innovation3. The experience of mostadvanced economies indicates that several activities could be followed in the promoting serviceinnovation. Some of them have the effect on service innovation in general and are mutuallyreinforcing while the others are more targeted to specific priorities: Accommodate and complement horizontal measures of innovation support to betterreflect service innovation properties and take account of intangible assets (e.g.eligibility criteria for R&D tax allowance, voucher schemes, innovation grants, etc.); Accelerate demand for innovation by introducing relevant instruments (for examplepublic procurement) that can leverage innovation potential of manufacturing andservice companies in addressing big societal problems;3see I4G´s Best Practice Brief. This brief is based on the experience of Germany and Finland in supportingresearch and innovation in services.
  • 3 Introduce funding instruments that support the integration of new services and newtechnologies into holistic solution offers. This is relevant in coping with big societalchallenges, as well as for improving the competitiveness of businesses. Support the introduction of new business and revenue models to renovatemanufacturing and boost its competitiveness with services; Provide incentives forthe development of business models promoting sustainability; Encourage innovation and new models in public services provision beyond e-services, to add greater value to the economy and citizens (e.g. health, education,etc.). In health care services, besides innovations related to curative activities,greater emphasis should be given to innovative “preventive activities” with long termeffects on health improvement and related decrease in health expenditures; Allow for experimentation in dealing with big societal challenges by dedicated funds(e.g. 5-10% of budget), where the focus should be on changing the behaviouralpatterns of businesses and consumers towards sustainability (for example indeployment of green technologies, mobility, health, energy efficiency, eco-foodproduction etc). Enhance innovation support measures for specific service sectors in line with smartspecialization approach; activate innovation in under-valued sectors such aspersonal and proximity services that could mitigate unemployment problems; Support new sustainable innovation trajectories in financial services in order to gobeyond the current crisis and to reboot confidence in an important and innovativesector (for example crowd funding4, welfare banks/cooperatives, etc.); Establish innovation platforms at national/European level to disseminate goodpractices in policy support to service innovation to enable learning and scaling up;5 Promote new skills, interdisciplinary education and problem solving approachneeded for service innovation at university and vocational level;4Crowd funding is a new and emerging way of funding new ideas or projects by borrowing funding from the crowds(Financial Times Lexicon). Given the tight funding by banks, this mechanism could be particularly relevant as analternative source of funding for start-ups and SMEs in general.5E.g. The establishment of a pilot European Service Innovation Centre that will provide customized advice to sixmodel demonstrator regions related to the transformative power of service innovation.
  • 4Research of service innovation is highly fragmented, lacks internationalorientation and is inadequately integrated into practice in comparison totechnology-based R&D.The gaps in knowledge about service innovation remain regarding several questions that call forspecific research and development programmes with a view to fostering knowledge transfer topractice and to providing better underpinning for the shaping of public policy. We propose somepriority fields of research: How to measure and assess the outputs, outcomes and impacts of service innovation?How to measure the role and impacts of intangible assets in value creation? How to integrate "invisible" performance in services in the assessment of productivityand innovation? What could be theoretically and practically workable indicators forservice productivity? How to analyse and measure the performance of complex service systems? How to design business models for the renewal of manufacturing/industrialtertiarization? What are the patterns of innovation in public services and of service innovation forpublic sector transformation? Which are the drivers and barriers for innovation in health and education? Whichorganisational approaches connect different stakeholders most effectively? What are the characteristics of the emerging service business models and their impacts -for example frugal innovation, ad hoc innovation, rapid application model, inclusiveinnovation (do more with less for more people); What are the drivers of innovation in under-valued sectors such as personal andproximity services that are major sources of employment in moderne economies? Which type of education and skill profiles does service innovation require and how tointegrate them into education system? What levers could service innovation provide for addressing big societal challenges andfor social innovation? Are services and service innovation environmental-friendly? How to support the transformation to a service-oriented company and instil serviceculture?