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According to this new report by PwC, innovation can no longer be considered as a purely technological endeavour aimed at developing products and processes.Service innovation comprises service concepts ...

According to this new report by PwC, innovation can no longer be considered as a purely technological endeavour aimed at developing products and processes.Service innovation comprises service concepts such as new or improved services as well as introduction of service process innovation, service infrastructure innovation, customer process innovation, business model innovation, commercialisation innovation (sales, marketing and delivery), service productivity innovation and hybrid forms of innovation used by several user grioups in different ways simultaneously.



Service innovation not only covers innovation in services, service sectors or service industries that are provided by service entrepreneurs and service firms, but also innfluences manufacturing industries through the involvement of new collaborative digital services, adding further value and signifcantly contributing to overall productivity and profitability.

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    Pwc transformative power-of-service-innovation Pwc transformative power-of-service-innovation Document Transcript

    • www.pwc.lu Transformative Power of Service Innovation Call for Action on New Policy Framework (PART I/III)Definition, Trends,Instruments andChallenges forPolicy-MakersLaurent Probst,PartnerDr. Nuray Unlu Bohn,ExpertJanuary 2013
    • This publication is exclusively designed for the general information of readers and is (i) not intended to address the specific circumstances of any particular individual or entity and (ii) not necessarily comprehensive, complete, accurate or up to date and hence cannot be relied upon to take business decisions. Consequently, PricewaterhouseCoopers, Société coopérative (“PwC Luxembourg”) does not guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. The reader must be aware that the information to which he/she has access is provided “as is” without any express or implied guarantee by PwC Luxembourg. PwC Luxembourg cannot be held liable for mistakes, omissions, or for the possible effects, results or outcome obtained further to the use of this publication or for any loss which may arise from reliance on materials contained in it, which is issued for informative purposes only. No reader should act on or refrain from acting on the2 basis of any matter contained in this publication without considering and, if necessary, taking appropriate advice in respect of his/her own particular circumstances. PwC
    • Table of Contents 1 Introduction 3 2 Service innovation concept 6 3 Global trends 22 4 Key concepts and instruments in support of service innovation 31 5 Key challenges & barriers linked to service innovation 41 6 Conclusion 45 Transformative Power of Service Innovation, Call for Action on New Policy Framework   1
    • 1 Introduction 2 3 4 5 62 PwC
    • 1 2 3 4 51. Introduction 6Innovation can no longer participants, and the creation of Living Lab Organisations to experiment thebe considered as a purely theory in real-world settings3. In parallel, the Large-Scale Demonstrator concepttechnological endeavour was emerged in order to analyse and address the issues (e.g. interoperability,aimed at developing products lack of standards, etc.) related to service innovation with the involvement ofand processes. Today, innovation involves services various stakeholder groups, sectors at regional/multinational levels for that create new channels to the market, accelerating the market access by new business processes and new demonstrating the effectiveness of organisational and business structures new technologies (e.g. key enabling to better meet the consumer’s needs technologies) and services at pre- and expectations. Meanwhile, the market scale. The roles of Innovation- Open Innovation concept, which has based Incubators and Accelerators been defined as “the use of purposive involving service innovation into their inflows and outflows of knowledge scope, Clusters, Social and Business to accelerate internal innovation and Networks, Alliances as well as expand the markets for external use of Innovative Public Administrations innovation, respectively”1, has emerged are also recognised crucial in boosting as a new model of industrial innovation. service innovation. An important new development within Service innovation comprises service open innovation is its increased use in concepts such as new or improved service businesses, leading to Open services as well as introduction of Service Innovation. This involves a shift service process innovation, service in innovation from a product mindset infrastructure innovation, customer to a service mindset by placing the user process innovation, business model at the centre of innovation. In the field innovation, commercialisation of open service innovation, this finds its innovation (sales, marketing, and expression in the emerging concept of delivery), service productivity Public-Private-People-Partnerships innovation and hybrid forms of (PPPP)2, which are composed of innovation used by several user groups universities and research organisations, in different ways simultaneously. Service entrepreneurs, public entities and user innovation not only covers innovation communities (also known as quadruple in services, service sectors or service helix), with the involvement of society industries that are provided by service at the centre. Recent years have entrepreneurs and service firms, but seen the development of Living Lab also influences manufacturing industries methodologies, involving users as co- through the involvement of new creators on equal grounds with the other collaborative digital services, adding further value and significantly 1 Open Innovation: Researching a New Paradigm (2006). Chesbrough, H., Vanhaverbeke, W. & West, J. Oxford University Press., UK 2 OSI Socio-Economic Impact of Service Innovation 3 Service Innovation Yearbook 2010-2011 (2011) (2011) European Union: European Union: http://files.openinnovation-platform.eu//policydocs/ http://files.openinnovation-platform.eu/yearbook/ osi_study_final_report.pdf service_innovation_yearbook_2010_2011.pdf Transformative Power of Service Innovation, Call for Action on New Policy Framework   3
    • contributing to overall productivity Even though there is an increasing Part-I of this series aims to raise and profitability. Western economies awareness and consensus on service awareness on the transformative power are highly dependent on service innovation, the potential impacts of of service innovation by providing a view innovation for growth and employment service innovation on transforming on main industrial trends, challenges, (e.g. services industries account for industries, value chains and economic key barriers, newly emerging concepts approximately 70% of GDP). Combining patterns as well as its environmental related to service innovation at global services and technological advances and societal impacts have not been and EU level as well as key instruments in the manufacturing sector (e.g. new sufficiently analysed and documented to mainly used in service innovation for materials and processes, robotics) provide evidence to the policy-makers better understanding the “Concept of is expected to give rise to the third for the development and implementation Service Innovation” as a key factor in industrial revolution4. of evidence-based policies to unlock achieving economic transformation. the potential of service innovation. Service innovation is expected to Part-II will focus on the support the Europe 2020 Strategy Service innovation is expected to achieve “Transformative Power of Service by stimulating smart growth (mobile economic transformation by reforming Innovation” by providing case studies Internet, cloud computing, ICT services, traditional industries as well as boosting at the regional level by illustrating growing sensor networks) to capture, the development of newly emerging the transformative power both on the store, manipulate and communicate industries. In order to make it happen, traditional and the emerging industries increasing quantities of information smart policy mixes involving smart as well as the economic, environmental to fixed or mobile network devices, specialisation and cluster strategies and societal impacts at the regional thus transforming the everyday lives should be developed for strengthening level. of people and businesses. Regarding the competitiveness of businesses, sustainable growth, new services notably SMEs. The fast strategic move Part-III will provide “Policy increasingly enable a shift towards more to a customer-oriented approach at Recommendations” based on the intelligent use and reuse of resources firm level as well as the impact of best practices as well as failures and that will enable firms to capture the introduction of new enabling identified gaps on how to achieve significant global market shares in technologies, new products, processes, economic transformation at regional, high-value markets such as intelligent and services in business have led policy- national and supra-national levels. transport systems and environmental makers to reassess their economic impact management. Innovations in development strategies and innovation service systems are expected to ensure policies. The challenge is how to shift inclusive growth first by reaching out the focus onto customer issues and how and supporting marginalised groups to reshape industry models accordingly via smart infrastructures and, second, into an ecosystem with supportive policy by developing the skills and supporting environment. the active involvement of such groups in modern society. PwC intends to raise awareness on the “Transformative Power of Service Innovation” by addressing different aspects within the scope of three consecutive articles. 4 Manufacturing and Innovation: A third industrial revolution (April 21, 2012). The Economist4 PwC 4 PwC
    • 123 Service innovation concept456Transformative Power of Service Innovation, Call for Action on New Policy Framework   5
    • 2. Service Innovation Concept Service innovation not only • Service industries and service sectors in the customer interaction channel, comprises innovation in (also including public sectors) refer to a new distribution system, a novel official macro-economic classification application of technology in the service services, service sectors or systems. A service company or service process, new forms of operation with service industries that are firm refers to a company that is officially the supply chain, new ways to organise provided by service classified as belonging to a service and manage services or a combination entrepreneurs and service industry or sector. of these. A service innovation always firms but also takes place in • Service provider is used to refer to all includes replicable elements that can be manufacturing industries, kinds of companies that provide services identified and systematically reproduced as a part of their activities. in other cases or environments. The leading to an increase in replicable element can be the service overall productivity and • Service business is a term that is heard outcome or the service process as such profitability. in everyday language, but it is often or a part of these. A service innovation ambiguous as it may refer to a service benefits both the service producer and provider, a specific service sector, or 2.1. Definition to different business models based on customers and it improves competitive advantage. A service innovation is a services. Therefore, the term “service The terminology on services and service product or service process that business” is best avoided. service innovation varies considerably. is based on a technology or systematic • Service innovation is a new or method. In services, innovation does The definitions used in the “European significantly improved service concept Policies and Instruments to Support not necessarily relate to the novelty of that is taken into practice. It can be the technology itself, but the innovation Service Innovation (EPISIS5)” study either in the form of a new solution aiming to facilitate transnational often lies in the non-technological areas. cooperation between policy-makers and innovation agencies in the field of Innovation in services can be defined as6: services innovation through parallel policy, strategic and operational level “A new or considerably changed service activities were: concept, client interaction channel, service • Service activities are used as a delivery system or technological concept that common headline for all economic individually, but most likely in combination, activities based on services that aim to provide added value for companies. leads to one or more (re)new(ed) service The term “activities” was selected functions which are new to the firm, change to highlight the process nature of the services/goods offered on the market and services, so this intends to cover firms in the manufacturing and service require structurally new technological, sectors and their significance across human or organisational capabilities of the the industries. service organisation”. • 5 EPISIS Final Report of Task Force 1: Service typologies and tools for effective innovation policy development (2011): www.proinno-europe.eu/projects/episis6 PwC
    • 1 2 3 4 5 6This definition distinguishes between It is important to clearly understand the Another approach shows the differencesseveral types of technological profiles taxonomy by distinguishing between between four key categories on the basisand between three types of non- “innovation in services” and “service of their intrinsic characteristics and theirtechnological innovation6: innovation”, as indicated in Table 1. innovation processes: The first concerns the innovative change • knowledge-intensive,1. new services concepts; within the service activity or sector itself. The latter refers to the innovative change • network-intensive,2. new interfaces with clients; in those organisations or companies • scale intensive,3. new systems of service delivery. that use innovative services or those • external innovation-intensive. engendering innovation. It is worth highlighting that the majority Service innovation affects growth by means of the approaches conducted to date of three key mechanisms: refer to modes I and III. However, quantitative approaches are based only • As services comprise around 70% of on modes I and II, since the lack of data activity in advanced economies, their regarding service activities hinders innovation process will be essential for quantitative approaches to the analysis the group of innovative systems and of modes III and IV7. their impact on growth; • Certain services were and are essential in the development of some technological innovations;Table 1: Modes of service innovation7 • Business services, especially Knowledge-Intensive Services (KIS), are used as intermediate inputs in Innovation in services Service innovation (supply approach) (demand approach) production, due to their positive effects on innovation in those Service companies Innovative services companies Use of innovative services (Mode I) companies (e.g. external KIS) companies that make use of these (Mode II) services. This includes impacts on Service activities Innovative services Use of innovative services manufacturers that provide products (any sector) activities activities (e.g. internal or for the service sector. (Mode III) external KIS) (Mode IV)*Knowledge-Intensive Services6 Van Ark, B., Inklaar, R. and McGuckin, R. (2003a), “ICT and productivity in Europe and the United States. Where do the differences come from?” , Research Memorandum, Groningen: GGDC. Van Ark, B., Melka, J., Mulder, N., Timmer, M. and Ypma, G. (2003b), “ICT investment and growth accounts for the European Union 1980–2000” , Research Memorandum, GD-56, Groningen: GGDC. Van Ark, B., Broersma, L. and den Hertog, P. (2003c), Services innovation, performance and policy: a review. Synthesis report in the framework 7 Promoting innovation in the services sector. of the SID project (structural information provision Review of experiences and policies. United on innovation in services), The Hague: Directorate- Nations. New York & Geneva, 2011: General for Innovation, Ministry of Economic http://www.unece.org/fileadmin/DAM/ceci/ Affairs. publications/icp3.pdf Transformative Power of Service Innovation, Call for Action on New Policy Framework   7
    • Table 2: Types of innovation that promote business services7 Innovative Main innovation Business services Functions components (some representative activities) Technological • Major technology incorporation • Computing services Innovation • Major use of existent technology • Engineering services • Technological adaptation to the business necessities • Design services • Efficiency in the information and communication advanced processes • Communication services • Automation of routine processes • Electronic on-line communication services • Enhanced flexibility of productive structures • Quality control services • Improvement in quality Organisational • Efficient internal organisation • Efficient internal organisation Innovation • Integration of control and coordination processes • Integration of control and coordination processes • Improved selection, training and use of human factor • Improved selection, training and use of human factor • Improvement in different functional specialisations • Improvement in different functional specialisations • Management consultancy • Management consultancy • Legal audit and services • Legal audit and services • Personnel services (selection, training and part-time jobs) • Personnel services (selection, training and part-time jobs) Strategic • Flexibility for dynamic environments • Flexibility for dynamic environments Innovation • Positioning in complex markets • Positioning in complex markets • Strategic information on alliances • Strategic information on alliances • Information on product adequacy • Information on product adequacy • Information on allocation and markets • Information on allocation and markets • Defense in an adversarial legal environment • Defense in an adversarial legal environment • Management services • Management services • On-line services • On-line services • Audit services • Audit services • Legal services • Legal services • Fair and exhibition services • Fair and exhibition services • Market studies • Market studies Commercial • Competitive product design • Competitive product design Innovation • Innovative commercialisation • Innovative commercialisation • Major use of opportunities • Major use of opportunities • Business development • Business development • Innovative Marketing • Innovative Marketing • Image and branding • Image and branding • Design services • Design services • Exhibitions • Exhibitions • Advertising • Advertising • Direct marketing • Direct marketing • Public relations • Public relations • After-sale services • After-sale services Operative • Functional work division • Functional work division Innovation • Focus on core activities • Focus on core activities • Operative consideration • Operative consideration • Image consideration • Image consideration • Language services • Language services • Courier services • Courier services • Security services • Security services • Operative services • Operative services8 PwC
    • 1 2 3 4 5 6The strategic role of business services Furthermore, potential service activities The changed perception of the servicesin industry is associated with their that may possess this transformative sector over the last years is mainlyinnovative nature. This function can power can be listed as: due to the acknowledged and growingbe better understood by analysing the 1. Networking, connecting and importance of KIS as a significant sourcefive types of innovation that promote brokerage services linking of growth. The recent growth of KIS isbusiness services: technological, consumers, firms and supply chains partly due to the outsourcing of businessorganisational, strategic, commercial aiming at improving the allocation support processes. KIBS are defined9 asand operational, as shown in Table 2. and distribution of goods and “services that involve economic activities information in society; which are intended to result in the creation, accumulation or disseminationTransformative services 2. Utility and infrastructure services of knowledge”. Furthermore, these are (e.g. telecom, energy, waste disposal) activities which enable and maintainServices are defined offering high value added to their various business processes, involve highas transformative customers; professional skills and knowledge, relywhen they disrupt 3. Knowledge-Intensive Business on advanced technology and strategic inputs, use their knowledge to producetraditional channels Services (KIBS) supporting their customers’ innovation processes. intermediary services for their clientto market, business Typical for these activities is that they industries, and supply their outputprocesses and adapt technologies to the customers’ mainly to other businesses. In addition, KIBS are seen as a parallel knowledgemodels, to enhance needs. Thus, acting successfully in this infrastructure in the national innovationcustomer experiences business requires understanding the technologies, structure, functioning and system contributing to the nationalsignificantly in a way features of the specific businesses in competitive advantage10.which impacts upon which their customers may operate. The This transformation is kicked off andthe value chain as a effects and impacts of these services are seen in the client industries for example supported by service innovations aswhole8. as new service offerings, new business their production calls for cooperation and bundling of intermediate inputs models, new customer interfaces, entry from various industries. The traditional into new markets, changes in delivery industries begin the transformation and payment systems and finally as into emerging industries starting from increases in efficiency and productivity. the design and engineering phases of These changes won’t, however, remain production. Services which apply or are within the enterprise, but will very likely based on Key Enabling Technologies spill-over to benefit the economy and (KETs) play an instrumental role in society at large. shifting production processes towards a more output-oriented (and therefore service-oriented) approach. 9 Miles, I. (1995) Services Innovation: Statistical and Conceptual Issues. DSTI/EAS/STP/NESTI (95)23.8 Expert Panel on Service Innovation: 10 Hertog P D (2000) Knowledge-Intensive Business http://www.europe-innova.eu/web/guest/ Services as Co-Producers of Innovation. innovation-in-services/expert-panel/publications International Journal of Innovation Management 4: 491–528. Transformative Power of Service Innovation, Call for Action on New Policy Framework   9
    • While the transformation of 2.2.1. Intangibility Intangible value is based on a variety manufacturing processes is an of elements such as brand, experiences, important and tangible component of In the world of services, there is greater reputation, trust, and knowledge. service innovation, the significance intangibility. Often, customers need Intangibles are becoming increasingly of companies relying less on new to explain more about what they need important in services as well as in manufacturing processes should not be in the way of services, and their needs manufactured products. For example, disregarded. ICT, financial, business often vary from one organisation to the the recognition of design and creativity and engineering services companies are other. Suppliers in turn can no longer as drivers of innovation, renewal, and embedded within all industry sectors follow a “one size fits all” approach to modernisation is significantly increasing and have demonstrated their ability to serve these customers. They need to by other industries. The rise in the raise large amounts of funds and to be figure out not only how to meet customer importance of intangible assets is likely visible targets for potential acquirers. needs, but also how to do this profitably. to continue, but not all countries have Over the last 5 years, they have widely This introduces a tension between been able to unleash innovation at the contributed to profound market standardisation (which makes service same rate or harness the productivity transformations and are considered to be provision more cost-effective for the boost that intangibles can bring12. essential contributors to the growth of supplier) and customisation (which emerging industries in Europe11. more closely matches the customer’s needs, but may require different solutions for each customer). 2.2. General characteristics of Figure 1: Service Innovation Triangle12 service innovation Services currently account for approximately 70% of employment and VALUE: Innovation Outcomes GDP in Europe. The specific features Value Layers of Innovation of the services sector call for a specific Sup policy mix by fully comprehending its plie ers rs Business tom specific characteristics as summarised Model C us MANAGEMENT: below. Service Customer Innovation Ability Operations Experience Technology People RESOURCES: Tangible Financial Intangible Innovation Capacity Assets Assets Assets Service Firm 12 EPISIS Conference Proceedings on positive 11 European Cluster Observatory (ECO)-Phase III impacts of Service Innovation: From Intangible Study (2011-2013). Conducted by PwC for the Investments to Emerging Industries and European Commission, DG-ENTR. Ecosystems (4-5 June 2012) Helsinki, Finland.10 PwC
    • 1 2 3 4 5 62.2.2. Interoperability Figure 2: Intellectual Property Strategies for Innovative Service ProvidersInteroperability between functionalitiescommon to all applications is a key aspectand covers issues like identity management, Registered Trademarkstrust, security, mobility, service roaming Registered Unregistered Trademarks Designs(geographically and over different devices),financial cross-border transactions andintellectual property rights (IPRs). Open Utility Unregistered Models Designsinnovation is essential for the servicesindustry in order to profit from theeconomic and social benefits generatedby interoperability. It provides several IP Copyrightdirect benefits to service providers and — Patents Rightsconsequently — consumers by deliveringproducts and services which are betteradjusted to the market, more flexible coststructures, increased creativity, adaptability, Know-how Database Rightseasier access to knowledge, and quicker andcheaper innovation cycles. Comprehensiveinteroperability between functionalities is Trade Secrets First Mover Advantageessential not only on a technical level, but Confidential Infoalso on a service convergence level13.2.2.3. IPR managementfor service innovation Creative Commons (CC) Meanwhile, during recent years, open (www.creativecommons.org), a non-profit (service) innovation conceptThe benefits of patenting include the organisation, is offering free legal tools (see Section 4) has been well recognisedprotection of inventions from copying in order to enable the sharing and use of as a means of obtaining a competitivewhich enables them to be exploited through creativity and knowledge for the last 10 advantage on a highly competitive marketlicensing, thus preventing the duplication years. CC licenses are not an alternative to by the active involvement of differentof effort. By definition, patents were created copyright, but work alongside and enable stakeholder groups on the innovationfor new technical inventions, and are not the innovator to modify the copyright terms. process. However, as a co-creative processnecessarily best suited to other areas, such It makes it possible to give other people the among different stakeholder groups that areas services. Many innovations in services, right to share, use, edit, remix, and even not totally formal organisations, it requiressuch as new business models or technology build upon the existing work within the a challenging legal and policy frameworkdriven organisational innovation, do not boundaries of copyright law. It offers a big particularly for IPR management. For thismeet patent protection requirements so that pool of CC-licensed creativity to the ones reason, effective strategies are needed bothexisting IPR mechanisms are difficult to looking for content (e.g. songs, videos, for formal and informal IP protection inapply. For this reason, informal IP protection scientific and academic material) to be used order to address the following issues on14:is more prevalent in the case of services. This freely and legally while aiming to maximise • IPR management in open (service) lead to the emergence of additional ways of the interoperability of data. innovation;protecting and rewarding IP as illustrated inFigure 2 (www.proinno-europe.eu). 14 OSI Socio-Economic Impact of Service Innovation (2011) European Union:13 Service Innovation Yearbook 2010-2011 (2011) http://files.openinnovation-platform.eu//policydocs/ European Union: osi_study_final_report.pdf http://files.openinnovation-platform.eu/yearbook/ service_innovation_yearbook_2010_2011.pdf Transformative Power of Service Innovation, Call for Action on New Policy Framework   11
    • • The role of the user as an innovator on new generation of talents shaping new view, investment readiness and investor user-driven innovation; ideas, and new prototypes and services awareness training is needed to attract • Interoperability standards. Deeper generated by these new structural private investment, especially in emerging understanding on the IP and legal issues changes. industries and services innovation. This in open service innovation can be found concept leads to the development of on the synthesis report15 aiming to open Traditionally, innovation financing different innovation funding mechanisms a deeper policy dialogue in order to involves a public entity investing seed specific to each sector. achieve right legal framework for open funding into a company or into a service innovation. This work is closely research institute project to cover the MOBICAP (Mobilise Capital for Mobile linked to the strategy work of the Open initial part of the innovation value chain. and Mobility Services) and EMMINVEST Innovation Strategy and Policy Group This would be further continued by the (European Mobile and Mobility (OISPG), which is an industrially led visionary approach of a stand-alone Industries International Investment think-tank. private investor. Programme), are two ongoing projects running under the European Mobile and In this new context, innovation financing Mobility Industries Alliance (EMMIA), There is still intense debate over the would imply a more comprehensive aiming to tackle the funding gap extent to which software patents should approach, calling on all stakeholders for early-stage mobile and mobility be granted, if at all. Important issues responsible for regional development industries and build seed funding for concerning software patents include the to contribute with a common strategy mobile and mobility services, whereby unclear boundary between patentable for the shaping of tailored framework the European venture capital community and non-patentable software, and conditions. Innovation financing would and institutional financiers are working uncertainty on the inventive and non- therefore be the outcome of a common hand in hand to better match private obviousness features of the software. design, in which risks are shared and public funds such as the Structural Additionally, most countries treat software among all participants such as supra- Funds. The expected benefits are to patenting differently. The differences national public entities and banks, boost growth in mobile and mobility on interpretation and implementation national and regional bodies, business SMEs, especially across borders, by between different countries create a angels and venture capitalists, private providing access to training, funds and barrier since software algorithms are equity funds, high net worth individuals investment networks through a web- recognised as one of the strongest tools in as well as foundations and cooperatives. based information system on financing support of service innovation. Risks would be absorbed by the fact that possibilities, training seminars and the service innovation value chain could participation in the Investment Network 2.2.4. Innovation Funding be covered at different points in time by & Clusters. Likewise, investment overlapping and diversified financing organisations will gain access to In the context of rapid transformation in mechanisms, addressing the various a professional network of promising the sectors of industry and finance, the aspects and dimensions of innovation: investments through the webinar reorganisation of innovation financing is new ideas and results, new business programmes, the networking as well as perceived to be instrumental. Financing models, new production processes, new the development of a funding facility and no longer covers product design and testing needs, new governance models cluster platform. Additionally, the cluster conception alone. It should have the and, last but not least, attracting and platform will allow innovation agencies power to address not only risks related fostering new talents. to improve not only their capabilities to new business models, but also a and knowledge in guiding local In addition to consider the value chain as a companies, but also their access to other whole, which relies both on technological 15 Intellectual Property and Legal Issues in Open international investors and innovation Innovation in Services (2009) Jacqueline Vallat. products and services in the innovation agencies. European Commission Information Society and life-cycle, one should also take into Media: http://files.openinnovation-platform.eu/policydocs/ consideration the specific funding needs Intelectual_property_policy_doc.pdf of the targeted sector. From this point of12 PwC
    • 1 2 3 4 The development of mobile banking mechanisms 5 has enabled many people with no or little access 6 to financial services, particularly in Africa, to gain access to financial services. Mobile banking offers an open multi-telecom and multi-bank access to make deposits, withdrawals and financial transactions possible between private users, banks, large public and private investors.Crowd funding has recently emergedas a revolutionary tool to raise funds 2.3. Main drivers This interaction between consumers and public and private stakeholders requiresin order to meet the funding needs of and tools for multidisciplinary and cross-sectoralcultural and creative industries, projects service innovation cooperation for the spill-over effectsand individual talents with creative to be seen. For instance, developingideas, which are considered as the core innovative services to ensure activeof service innovation. Crowd funding 2.3.1. Main Drivers ageing and ambient assisted livingis the cooperation and trust between of service innovation requires close collaboration betweenpeople who network and pool their patients, healthcare practitioners, There are two main drivers of servicemoney and other resources together, nutritionists, the medical industry, innovation: the consumer (at the centreusually via the Internet, to support medtech, pharma and ICT experts, of innovation) and the creativity.efforts initiated by other people or among others.organisations. 2.3.1.1. Consumer 2.3.1.2. CreativityIn addition to new financing mechanismsfor service innovation, financial The most productive innovation driver Creativity is believed to be the coreservices are also becoming increasingly is input from the end-user, since the driver of service innovation. For serviceinnovative in offering unique solutions, services production chain starts and innovation to take place, the creativesuch as the development of digital ends with the end-user. Thus, consumer core must meet industry and sciencefinancial services based on existing interaction with producers and service in a creative atmosphere that can bemobile networks. providers during the innovation life- stimulated regionally. cycle is essential in the generation of socio-economic added value. This OECD member countries have been concept lead to the emergence of open increasingly interested in understanding service innovation with the involvement and measuring the role of creative of all parties, from public and private industries in growth and development. stakeholders to society as a whole. Creative industries such as design, Nevertheless, collaborative vision and architecture, advertising, visual and skills in the sharing of ideas, values performing arts, and software design and processes are still lacking in open add value in several ways. They provide service innovation processes due to the cultural goods and services, create new immature innovation and R&D cultures experiences and services for users, in services firms, IP protection gaps in and support productivity in traditional open service innovation, confidentiality sectors by relying heavily on human issues, etc. capital, skills and talent. The search process for novelty is less dependent on large-scale scientific infrastructure, and such creative industries usually include a high share of self-employed and small Transformative Power of Service Innovation, Call for Action on New Policy Framework   13
    • businesses. The specificities of such industries call for differentiated policy support. The performance of those industries is poorly captured by traditional business and industrial indicators. Defining and measuring the contribution of creative industries to value added and the innovation process has yet to be developed and generalised. Local and regional administrations tend to be in a better position to identify the specificities of those activities, since the characteristics of creative assets and talents are highly contextual and access, store, transmit, and manipulate ICT has catalytic impact on the following localised. information. It plays an important key areas: role across all industries (e.g. IT, • Productivity and innovation, 2.3.2. Major tools of Service telecommunications, entertainment, by facilitating creativity and Innovation media, satellite systems, retailing, financial services, life sciences, management; Major tools in support of service healthcare services, manufacturing, • Modernisation of public services, such innovation can be listed as: Information education, etc.) as a key enabling as health, education and transport; and Communications Technologies technology for changing production, • Science and technology, by supporting (ICT), Software, Cloud Computing, work, and business methods, trade cooperation and access to information; Web 3.0, Global Monitoring Systems, and consumption patterns between • Societal challenges, such as ageing and Social Networks as explained in enterprises and consumers. ICT enables population, sustainable health, social detail below. radical changes in organisation structure care, inclusion, education, security, and in ways of learning, researching, climate change, energy efficiency. 2.3.2.1. ICT developing, producing, marketing, distributing and servicing digital and However, the ICT sector faces many The most recent technological advances traditional goods and services, while challenges in Europe, as illustrated in in ICT — often used as an extended enhancing quality of life. Figure 3. synonym for information technology (IT) — are transforming our ability to “The innovative model scenarios, collect and process information in “real time” and act upon society and changing circumstances. ICT covers sustainable economy unified communications and includes of Europe 2020 will telecommunications (telephone lines and wireless signals), computers as be based on ICT- well as necessary enterprise software, empowered citizens middleware, storage, and audio-visual and industries” systems, which enable users to create, (EFIA Mission)16 16 The European Future Internet Alliance (EFIA): http://initiative.future-internet.eu/14 PwC
    • 1 2 3 4 5 6 ICT has a large spectrum of applicationFigure 3: Major barriers of the ICT sector in Europe17 areas in different sectors such as: ICT-enabled Government e-Services Technological advances in ICT enable governments to offer a large spectrum of public services electronically, such as: orderless Service • Location-based e-services to help t &B s people in their day-to-day commutes ten or routines such as information on on weather conditions, road construction, fC traffic, walk-in health clinics, public no transit, passport services and post l La a tio digit ck offices; of Crea mark mented int Incre ero • Online renewal of IDs (e.g. driver’s ets s pe wer ans nges rab licence, health insurance card, Frag ntedchalle ilit me l ase of Se Fragocieta passport, etc.) via computers or smart y Lack of investment in to s networks Lac phones using electronic signatures; ko tru e fS • Receiving automatic e-notifications on w im kill st Insuffici lo rcr s & ybe available government services that rvic c g are most relevant to citizens at certain sin ant R&D Ri eD points of life, such as after giving birth ks (birth registration, obtaining a health e or m card, passport, etc.) w an et d ofN ut The three key themes identified Rool-o as Canadians’ expectations from government e-service delivery, which may also be common to other countries, are listed below and illustrated in Figure 4 18: • Convenience of service delivery services: Ease of access channels (e.g. via telephone, in-person, mail, smart phones, tablets, etc.) and usability; • Cost: Fees by service type and channel; • Control: Personal security and privacy. 18 Next Generation of Services: Citizen Compass: Enhancing service delivery in the Canadian Public Sector (2012) PwC Canada Public Sector17 European Commission COM (2010)245 Final/2 Publication Transformative Power of Service Innovation, Call for Action on New Policy Framework   15
    • ICT for the low carbon economy Figure 4: Citizen’s expected and demanded service delivery from both public and private sectors18 ICT provides various sustainability solutions, including: • Energy efficiency through the use of Simple, intuitive “Smart Energy Grids”; Instant access and easy-to-complete transactions • Energy efficient design and decision support tools for the optimisation of energy during systems development and operation; • Efficient water resources management; Real-time A rich, well-crafted information user experience • Energy-efficient buildings and spaces; gathering • Low-carbon multi-modal freight and logistics technologies and services; • Improved energy efficiency and reduced CO2 emissions in all modes of transport Cross-channel for passengers and goods for energy- capability - start An experience an interaction in that’s relevant positive neighbourhoods; one channel and to me finish it in another • Fully electric vehicles to lower CO2 emissions. ICT for Enterprises and Manufacturing ICT for Health, Healthy Ageing, Inclusion and Governance • Smart factories composed of control and sensor-based systems, laser systems and Specific applications of ICT for the healthcare sector include: industrial robots; • Personal Health Systems (PHS) for remote management of diseases, treatment and • Manufacturing solutions for new ICT rehabilitation outside hospitals and care centres; products; • Virtual Physiological Human (VPH) research focused on more elaborate and • Virtual factories and enterprises reusable multi-scale models and a VPH information infrastructure of larger addressing end-to-end integrated ICT repositories for the development of “Digital Patient” for better prediction and allowing for innovation and higher treatment of diseases; management efficiency in networked • Patient Guidance Services (PGS) to enable patients’ active participation in care operations and supporting the processes; emergence of ‘smarter’ virtual factories and enterprises; • Healthy Ageing focusing on the development of services, social robotics and highly intelligent environments in support of the ageing population in conjunction with • Digital Factories capable of performing Ambient Assisted Living (AAL); life cycle management, modeling, design and optimisation. • ICT for smart and personalised inclusion addressing advanced solutions to improve social and economic inclusion by designing inclusive, accessible and customisable human-ICT interfaces; • Advanced solutions for learning and skills acquisition; • Trusted governance and policy impact analysis.16 PwC
    • 1 2 3 4 5 6ICT for Learning (Technology- • Supercomputing e-Infrastructure • Leading brick-and-mortarenhanced learning) and Access to addresses the data-intensive and retailers are now using softwareCultural Resources complex challenges of modern science to strengthen their logistics and by providing new computing and distribution capabilities to increaseICT-based services are used to foster simulation capabilities (PRACE); competitiveness;e-Science, allowing instant access • Global Virtual Research Communities • Delivery companies use softwareto data and remote instruments, “in to reap the high innovation potential of networks to monitor distributionsilico” experimentation, setting up multi-disciplinary research by sharing vehicles within the distribution hubs;virtual research communities enabling best practices, software and data and • Airline companies use software totrans-national, multi institutional and to help researchers exploit the benefits price tickets, optimise routes andmultidisciplinary research collaboration. that requires enhanced training efforts yields correctly;Existing e-Infrastructures provide a to ensure optimal benefit.variety of services, such as: • Agriculture is increasingly powered 2.3.2.2. Software by software with the involvement of• GÉANT Platform (high-capacity and satellite based soil analysis linked to high-performance communication Companies in all industries, including seed selection algorithms for each research network): the world’s largest software-based industries, need to square meter; multi-gigabit communication network accept that a software revolution is • The financial services industry has dedicated to research and education, coming. Software is observed to disrupt been visibly transformed by software serving around 4,000 universities much of the value chains in industries over the last 30 years; and research centres to connect 34 that are widely considered as existing National Research and Education • Fundamental software-based primarily in the physical world: networks to form a global research transformations are commonly used network; • The automotive industry uses in healthcare and education;• E-Science Grids: meeting the software to run engines, control • National defence is becoming requirements of the most demanding safety features, entertain passengers, increasingly software-based. The scientific disciplines (high-energy guide drivers to destinations and modern combat soldier is embedded physics, bioinformatics) by sharing and connect cars to mobile, satellite and in a web of software that provides combining the power of computers and GPS networks. The trend toward intelligence, communications, sophisticated scientific instruments, hybrid and electric vehicles will only logistics and weapons guidance; e.g.: Enabling Grids for E-sciencE19, accelerate the software shift since • Transformation in the music and European Grid Infrastructure20, which electric cars are completely computer publishing industries was caused by will work in cooperation with the Life- controlled. In addition, the creation the software revolution; Science Grid Community21 to serve of software-powered driverless cars is • Development of e-tailors through the the life science community in scientific already under way; use of software for the production of domains; • Software allows designers and glasses, customised shoes and outfits• The scientific data domain (data engineers to simulate products in 3D (among other applications); infrastructure), aiming to enable as digital prototypes long before they • Smartphone-based software research communities to better are actually built. Such software can applications. manage, use, share and preserve data also be used by other departments in relevant to scientific reports, research the same company (e.g. marketing); articles, experimental or observational data, rich media etc. through user- friendly e-Infrastructure services;19 EGEE, http://www.eu-egee.org/20 EGI, http://www.egi.eu/21 LSGC, http://wiki.healthgrid.org/ Transformative Power of Service Innovation, Call for Action on New Policy Framework   17
    • 2.3.2.3. Cloud Computing Figure 5: Service models of cloud computing22 Cloud computing is a shared services model providing flexible network-based Service models delivery of IT services on a pay-as-you- there are multiple IT offerings that Cloud service models go basis. The five essential attributes can be accessed via the cloud: of cloud computing as defined by the Software as a Service (SaaS): The cloud Application data vendor provides the hardware, network, Email and instant messaging, public National Institute of Standards and operating systems and applications. records tracking, relationship Consumers access the application remotely. management, payment processing Technology are22: Platform as a Service (PaaS): The cloud Middleware runtime vendor provides the hardware, network and Application development, • Measured service: Usage metering, operating systems. Customers provide the Java, .net with charges based on the amount of applications, which are accessed remotely Infrastructure as a Service (IaaS): Network, storage, resources used, such as usage/minute, servers, visualisation The cloud vendor provides the hardware gigabytes (GB) of storage, and number and network. Business units add and manage Virtualised test/ their own applications and operating systems development of transactions; environment • On-demand self-service: Services are ready to use and serve specific consumer needs, and capabilities can be rapidly provisioned by the end user, Cloud computing has the potential to: • Generate revenue and opportunities often through a self-serve portal; by avoiding duplication and • Resource pooling: Shared underlying • Accelerate innovation by increasing redundancies across multiple infrastructure, software or platforms, the experimentation cycle and departments and ministries by aligning allowing available resources to improving time-to-market. Cloud them under one government strategy. concurrently serve multiple needs for computing reduces reliance on Along with this, sourcing certain multiple consumers; the time, expertise and expense commodity services for the cloud traditionally required to build can help to optimise the total cost of • Rapid elasticity: Quickly scalable up dedicated technology to facilitate technology for the enterprise; or down based on user demands; innovation; • Broad network access: Accessible • Help shift custom development to • Focus on customer engagement by standardised cloud utility services; through the Internet on thin or thick offering inexpensive and flexible client platforms. • Enhance employee productivity by options to handle the immense data providing access to services and data storage and analytical resources Cloud computing offers different anytime and anywhere; required to meet changing customer deployment and service models, as demands; • Increase efficiency during peak times shown in Figure 5. by reducing reliance on systems and • Improve connections by choosing resources often dedicated strictly to the right cloud-based systems that specific programs, such as tax time, integrate seamlessly and rapidly to census and elections; better orchestrate across networks of suppliers, time zones and cultures; • Decrease IT capital investment costs by moving traditional capital expenditure costs to operating expenditure costs. The cloud creates the opportunity to address and smooth the “lumpy” IT capital investment cycle by focusing on operational expenditures. 22 Why CIOs need to be ahead of the game: Developing a cloud strategy (2011). PwC Canada Public Sector Publication.18 PwC
    • 1 2 3 4 5 6 a library book; however, machines Environment and Security (GMES)23, cannot accomplish such tasks without has been established and managed human direction, because web pages by the European Commission. In are only designed to be read by people, practice, GMES consists of a complex2.3.2.4. Web 3.0 (Semantic Web) not machines. The semantic web is a set of systems which collect data from vision of information that can be readily multiple sources, including:Future Internet services are interpreted by machines, so machinescharacterised by much richer content can perform more of the tedious work • Earth observation satellites, whichaccompanied by many interaction involved in finding, combining, and led to the development of Satellite-mechanisms, such as social networking acting upon information on the web. Based Service Applicationssites, blogs, wikis, video sharing sites, • In situ sensors such as groundhosted services, web applications, stations, airborne and sea-borne 2.3.2.5. Global Monitoring Systemstagging, mashups and folksonomies sensors commonly known as Wirelessalready existing under Web 2.0. It is Technological advances in the Sensor Networks (WSN)a concept that takes the network as development of global monitoring Satellite navigation relies on a systema platform for information-sharing, systems made it possible to collect of satellites providing autonomousinteroperability, user-centred design, and crucial environmental information in geo-spatial positioning with globalcollaboration on the World Wide Web. order to better understand how our coverage. Also known as a GlobalBy adding semantics to the interactivity planet and its climate are changing, Navigation Satellite System (GNSS),of Web 2.0, Web 3.0 will enable active the role of human activities in these satellite navigation is used in manyconsumer participation and will add high changes, and how these will influence domains, such as the mobility industrycontext sensitivity and personalisation our daily lives. A wide range of services for navigation, surveying and mapping,of services. The Semantic Web related to the environmental protection, marketing, photographic geocoding,provides a common framework that management of urban areas, regional GPS tracking, social networking, roadallows data to be shared and reused and local planning, agriculture, forestry, pricing and emergency purposes,across applications, enterprises, and fisheries, health, transport, climate among many others.community boundaries. The main change, sustainable development, civilpurpose is driving the evolution of the protection, tourism etc. have emerged GMES services provide systematiccurrent web by enabling users to find, thanks to the implementation of global monitoring and forecasting of the stateshare, and combine information more monitoring systems. of the Earth’s subsystems, which caneasily. Humans are capable of using the be divided into six thematic areas:web to carry out tasks, like reserving The European system for monitoring marine, land, atmosphere, emergency, the Earth - Global Monitoring for 23 GMES: http://www.gmes.info/pages-principales/overview/ Transformative Power of Service Innovation, Call for Action on New Policy Framework   19
    • For instance, a designer company demonstrated astonishing growth by raising $8m just a month after launching with 1.2 million members. Half of its business came through social media, as explained by the founder: “We’re growing security and climate change. The land, like a weed because people like to share marine and atmosphere monitoring their latest design finds through Facebook, services will contribute directly to the monitoring of climate change and to the Twitter, Google+ and Pinterest. Part of our assessment of mitigation and adaptation policies. Two additional GMES services core DNA is social interaction and sharing. were set up to address emergency It’s baked into the site”. response (e.g. floods, fires, technological accidents, humanitarian aid) and security (e.g. maritime surveillance, Currently, the main users of GMES Another interesting use of social border control). Many other value-added services are policymakers and public networks can be seen in educational services tailored to more specific public authorities who need the information to technology: or commercial needs (i.e. forecasting develop environmental legislation and services with a local scope, services policies or to take critical decisions in the A start-up company has been including socio-economic data, etc.) are event of an emergency, such as a natural established with the aim of being developed based on GMES services disaster or a humanitarian crisis. Many and will contribute significantly to the other value-added services are expected improving how universities EU2020 strategy. to generate in order to tackle more work, and has already raised specific public or commercial needs. $6m to develop “social- A wireless sensor network (WSN) learning networks for the consists of spatially distributed 2.3.2.6. Social Networks classroom” in a short period of autonomous sensors used to monitor time. It customises the rules of physical or environmental conditions, Social networks are developing such as temperature, sound, pressure, rapidly and are beginning to influence a network to meet the specific etc. These sensors transfer data through business networks, resulting in blurred needs of students to make the network to a main location. The more boundaries between scientific, business, teaching more interactive, modern networks are bi-directional, and social networks. Social networks by extending it beyond the were formerly considered as an irritant also enabling control of sensor activity. to the mainstream media, but lately they classroom, and by stimulating When the sensors detect the event being students to learn from each monitored (heat, pressure), the event have either overtaken the mainstream is reported to one of the base stations, media or are becoming the mainstream other rather than just from the which then takes appropriate action media. For instance, 96% of under professor. Teachers can control (e.g. sending a message via the Internet 30-year-olds have a social networking exactly who is in the network or to a satellite). WSNs are commonly account. New companies in specific (by issuing a class-membership e-commerce verticals, which have led to used in industrial and consumer the emergence of a second generation code) can see how students applications, such as industrial process are using it. They can also monitoring and control, machine health of e-tailors, are providing quite different monitoring, military applications, customer experience that turns distribute course materials, etc. Advances in WSNs have led to the shopping into an exciting experience and contact students, manage tests emergence of Environmental Sensor a source of entertainment. and grades, and decide what to Networks covering many applications make public and what to keep of WSNs in earth science research, private24. such as monitoring volcanoes, oceans, glaciers, forests (to detect forest fires, landslides, etc.), monitoring air pollution and water/wastewater, controlling temperature and humidity levels inside commercial greenhouses, etc. 24 The Economist, 25 August 2012: http://www.economist.com/node/2156091720 PwC
    • 1 2 3 4 Global trends 5 6Transformative Power of Service Innovation, Call for Action on New Policy Framework   21
    • 3. Global trends Presented below are the major trends in the global economy: • Emergence of user-driven open innovation combining service innovation together with technology and product innovation in order to address global challenges; • Disruptions on global value chains: shift from product-based to service- oriented business models; • Shift from mass-production to mass- The first industrial revolution began customisation; • Consumerism: placing the consumer in the late 18th century with the at the centre of innovation and mechanisation of the textile industry production value chains, leading to the emergence of the experience followed by the second industrial economy; revolution where the era of mass • Increased focus on social networks; production have started by the • Emergence of new industries due to cross-sectoral spill-overs (cross- early 20th century. Currently, the fertilisation); consequences of all these trends are • Advances in Key Enabling leading towards the emergence of the Technologies (KETs — i.e. nanotechnology, micro- and nano- third industrial revolution. electronics, industrial biotechnology, photonics, advanced materials and As manufacturing goes digital, it becomes manufacturing technologies) and their possible to produce in much smaller quantities implementation over other sectors leading to flexible automation and more economically, more flexibly and with just-in-time manufacturing; a much lower input of labour, thanks to new • Changes in business and materials, new processes such as 3D printing, organisational models, processes, easy-to-use robots and new collaborative delivery systems, customer processing manufacturing services available online25. systems, etc. with a shift towards online. 25 A third industrial revolution: Manufacturing and Innovation Special Report (21 April 2012). The Economist.22 PwC
    • 1 2 3 4 5 6 in any industrial device to optimise and Service innovation and service firms monitor its use. Traditional industries are expected to contribute to the EU are undergoing a period of intense 2020 strategy in order to address global transformation driven by the birth of societal, environmental and economic new markets and death of long-standing challenges such as climate change; ones. mitigation on natural resources that makes it hard to meet the food, water Businesses are also changing their and energy demands of an increasing approaches to sustainability, not world population; environmental merely because of ethical concerns pollution; ensuring public health; as about the environment, but due to the well as changes in demographics such rising cost of raw materials, energy and as aging population; in addition to water and on account of new regulatory economic crises. constraints. Environmental as well as societal impact considerations are thus Smart growth involves improved being integrated in traditional corporate acquisition and management of objectives, as they provide a competitive information about customer needs advant. The European Union has and behaviour, and business processes3.1. Open Service developed its 2020 Strategy with the to create high added value goods andInnovation to address aim of achieving smart, sustainable and inclusive economic growth. services. Business services, particularly business-to-business services, will driveglobal challenges smart growth by upgrading processes. The combination of knowledge-intensiveThe nature of innovation has changed The role of service innovation services delivered through mobileand it is no longer seen as purely is critical in the European Internet, cloud computing, advancedtechnological, but as the application economy as one of the key ICT services, growing sensor networks,of new technologies to develop new and satellite-based services are expected factors in all sectors that ischannels to market, new business to support smart growth by speeding upprocesses, new business models and contributing positively to R&D and productivity.new organisational structures26. employment, the renewalIndustries are being transformed of industries, clusters and Sustainable growth requires transitionthrough the convergence of new regions and tackling societal on systems to transform existingtechnologies, including novel materials, carbon-based markets, technology, challenges and thus also institutions and products. Servicessmarter software, new processes, new contributing to future growth are believed to play a catalytic roleproduction methods and a whole rangeof mobile and web-based services27. and well-being28. in this transformation towards new forms of sustainable and energy-With the full digitalisation of the efficient transport, food production,economy, the third industrial revolution manufacturing, and housing throughis under way. Software can be embedded the implementation of service-based business models. For instance, energy companies are switching from business26 Meeting the Challenge of Europe 2020. The models where they manufacture Transformative Power of Service Innovation. Report by the Expert Panel on Service Innovation energy to models where they provide in the EU. value-added energy services. This will http://www.europe-innova.eu/c/document_library/ get_file?folderId=383528&name=DLFE-11601.pdf ultimately help make the production and27 Commission communication ‘Preparing for our 28 EPISIS Conference Proceedings on positive consumption of goods and services more future: Developing a common strategy for key impacts of Service Innovation: From Intangible enabling technologies in the EU, Brussels, Investments to Emerging Industries and sustainable and reduce environmental 30.09.2009. COM(2009) 512. Ecosystems (4-5 June 2012) Helsinki, Finland. Transformative Power of Service Innovation, Call for Action on New Policy Framework   23
    • risks and pollution through value-added environmental services enabled by the of 2014-2020, it became a necessity for national and regional authorities 3.2. Disruption use of advanced ICT. across EU to define their research and of global value chains: innovation strategies to be in line with from a product-based User-driven open service innovation is also expected to strengthen social the Smart Specialisation Strategy to a service-oriented inclusiveness, with users interconnected (S3). By doing so, it is aimed to use EU’s Structural Funds more efficiently while model through the use of services accessed creating synergies between different by high-speed Internet. Once the right EU, national and regional policies as innovation infrastructure has been The different stages of the value chain, well as stimulating private investments. provided, users will be able to connect from R&D to market, are becoming Regional Innovation Strategies (RIS) bi-directionally to receive personalised more globalised and more localised at are expected to meet the requirements of services. The services provided will the same time. Service innovation is Smart Specialisation Strategies (S3), so also make it possible to reach out and playing a critical role in these changes called RIS3, in order to satisfy regional support marginalised groups via smart by binding the customer to the solution economic development while addressing infrastructures and support the active provider on one hand, while connecting global challenges. For this reason, for involvement of such groups in modern local R&D facilities and companies to the the next programming period, RIS3 is society, so that inclusive growth can be global R&D networks and global markets seen as an important policy rationale attained29. on the other hand. and concept for the Regional Innovation Policy by the European Commission. Services are playing an increasingly For this reason, the EU 2020 Strategy, It aims to promote efficient, effective, important role in the business models particularly through its Flagship and synergetic use of public RDI of technology-based companies by Initiatives on “Innovation Union” and investments while attracting private provoking an organisational shift from “Digital Agenda”, supports innovation as investment; support countries and a product-based model to one that a whole, including service innovation, by regions in strengthening their innovation is more service-oriented. Product aiming to remove obstacles to the digital capacity; diversify and modernise businesses generally place the customers economy and by providing advanced ICT existing industries while focusing scarce as consumers at the end of the value infrastructures. human and financial resources in a few chain and design their products based Additionally, through the Cohesion globally competitive areas in order to on what their consumers want and are (Regional) Policy, particularly during boost economic growth and prosperity willing to pay for. The service comes at the new programming period of 2014- as outlined in the EU 2020 Strategy. the very end of the value chain before 2020, EU aims to support service Additionally expected advantage is to the product gets to the customer, as innovation via its structural funds (i.e. harness regional diversity by avoiding explained in Michael Porter’s value the European Regional Development uniformity and duplication. It combines chain30. Fund, the Cohesion Fund, the Instrument goal-setting with a dynamic and for Pre-Accession Assistance (IPA) entrepreneurial discovery process and /or European Social Fund) to be involving key stakeholders from used by the regions for the establishment government, industry, academia and of right eco-system at the regional/ other knowledge-creating institutions. national level. In order to satisfy the For this reason, during the new funding targets set out by the EU 2020 Strategy, period, European regions will be asked to during the next programming period draw up national and /or regional innovation strategies for smart specialisation in which services and 29 Meeting the Challenge of Europe 2020. The Transformative Power of Service Innovation. service innovation should play an Report by the Expert Panel on Service Innovation important role. in the EU. http://www.europe-innova.eu/c/ document_library/get_file?folderId=383528&name 30 Competitive Advantage (1985) Porter, M. Free =DLFE-11601.pdf Press New York.24 PwC
    • 1 2 3 4 5 6As oppose to Porter’s model, in the For instance, one music company helps listeners findnew Services Value Chain (Figure 6), new music that is similar to the type they enjoy in thecustomers are involved in every step of genre they currently favour. Once listeners have sharedinnovation in an ecosystem where thecreative core, science and industry can their preferences with this company, the company’smeet to collaborate, not only within service will “push” new songs composed by otherthe same sector but also across sectors. artists, perhaps unknown, matching the taste of theA service-oriented mindset can revive listeners. The feedback provided by the user makes thefailing businesses, open new markets company better and better at finding music that is moreand provide a far more meaningful closely tailored to the listener’s interests.customer experience, as demonstratedby the music industry. Another music company lets truly committed fansIn the traditional music industry, the support their chosen bands to a far greater degreefundamental mindset is product-based:the end result is the production of an than was previously possible in the traditional model.album or CD. Generally, the company Patrons can receive specialty merchandise from thefinds the artist or band, invests time and band; get special liner notes, or photos of the recordingmoney to record the songs, promote the sessions; for the right price, some patrons can even getalbum, etc. In this model, consumers invited to attend the recording sessions, or the releaseare the passive recipients of the music party. Thus, the business models that will succeed inproduct. But this model has becomeservice-based, and digital consumers the future music business will be those that help artistshave become the co-creators of their connect to their audiences, that empower audiencesmusical experiences. to find artists they enjoy, that capitalise on the enthusiasm of fans for certain artists, and that spark co-creation between both groups. Figure 6: Services Value Chain31 31 Service Innovation Yearbook 2010-2011 (2010). European Union. Boundary of the Firm Customer Engagement Co-creation Surrounding Customer Environment: Experience • Partners • Complementors Service Elicit Tacit • Investors Offering Knowledge • Third Parties Design Experience Points31 Service Innovation Yearbook 2010-2011 (2011) European Union: http://files.openinnovation-platform.eu/yearbook/ service_innovation_yearbook_2010_2011.pdf Transformative Power of Service Innovation, Call for Action on New Policy Framework   25
    • Manufacturers are increasingly providing through-life and other complex owning a vehicle, different vehicles can be provided whenever different 3.3. Mass Production services leading to the servitisation functions are desired. There are a to Mass Customisation of manufacturing differentiating growing number of automotive service themselves by offering additional business models, such as car hire Customers are playing an increasingly services such as customisation, flexibility services for as little as one hour and in central role in the development of goods and just-in-time production32. The different cities, urban mobility services and services in a number of ways since boundaries between manufacturing and personal public transport. the market is no longer satisfied with and service processes are becoming standardised, mass-produced products blurred as goods, services and products and services. The cost of producing are becoming more integrated. The Business offerings are changing as much smaller batches of products has transformation from product-based to traditional models of investment in been falling for customising service service-based mindset can also be seen in assets along with service contracts experiences. The factories of the the automotive industry. are being replaced by outright service future will be able to deliver mass models. Hybrid products are being customisation (MC) by designing and In the product-based mindset, the offered as an integrated combination of manufacturing customised products car company procures steel, glass, products and services in order to deliver tailored to the needs of customers at electronics, and other items and its a solution rather than sell a product or mass-production cost and speed, as operations turn these inputs into a product-based service, so that outcomes illustrated in Figure 733. vehicle. That vehicle must be painted, are replacing outputs, as this model accessorised, and shipped to a dealer. offers value-in-use. The customer purchases the vehicle Figure 7 : From mass production to from the dealer, who readies the car for mass customisation33 the customer to drive off the lot. And the customer comes back periodically to the dealer for maintenance, to keep the car running. On the other hand, in the service- Mass based approach, the car would not be Customisation Product Variety • Flexibility and quick conceived as a transaction highlighted responsiveness by the purchase, but instead as • Reconfigurable a delivery method for providing Continous processes, parts, Improvement people transportation services over a period • Efficient Links • Strive constantly of time. There is no single purchase to improve activity but rather a series of ongoing processes interactions with the customer over • Lean/Agile Manufacturing time, such as offering transportation Mass Production principles services, mobility services, or even transportation experiences. New Tomorrow 1900 1980 Today areas of value-added services might be offering different payment mechanisms, vehicle selection, delivery, maintenance, protection, information, etc. If the customer is freed from 33 Technology Review of mass customisation, 32 Joel Goldhar, Daniel Berg, (2010) “Blurring the PRECISE, Purdue University: boundary: convergence of factory and service https://engineering.purdue.edu/PRECISE/ processes” Journal of Manufacturing Technology , Publications/TrendsandgapsinMassCustomization/ Management, Vol. 21 Iss: 3, pp.341 – 354. PETO32_Ramani.pdf26 PwC
    • 1 2 3 4 For instance, one company has been offering the social 5 enterprise resource planning (ERP) software through another company’s cloud platform for providing social, mobile, open, 6 scalable and secure applications. It blends social tools with manufacturing software and aims to turn manufacturing itself into social manufacturing. It is radically different software which puts a different spin on cloud computing, ERP software, and manufacturing. It has the potential to fundamentally change the way manufacturers manage their supply chains and produce their products. For instance, an engineer in an aerospace job shop could notifyMass customisation was made possible shop labour that the engineering departmentby major industrial shifts, including: has finished designing the wing component of an• Modularisation of products and aircraft. The job shop could then begin building the processes enabling management of wing while the engineer finishes designing the other product variety; required components. This has great implications• The ability of knowledge-based for just-in-time (JIT) manufacturing, as it frees software to configure products; up labour to work on more value-added activities• Improved low-cost technologies rather than waiting for the completion of another enabling the implementation of phase of production. flexible automation in manufacturing.Still, there are some issues facingof mass customisation, dependingon the complexity of the product, and just-in-time production in mass Consequently, traditionalmanufacturing and supply chain. customisation at costs comparable to manufacturing companies areTherefore, at the moment, different mass production. This transition from differentiating themselves bymanufacturing sectors have different mass manufacturing towards more offering additional services suchbusiness drivers and are at varying individualised production is expected to as customisation, flexibility anddegrees of readiness to adopt MC bring some of the manufacturing jobs just-in-time production35. Themethodologies. back to rich countries which outsourced boundaries between manufacturingThe enablers in the progress of jobs to emerging countries long ago34. and service processes are becomingMC are the advanced capabilities blurred as goods and services Highly knowledge-intensive services products become more integrated.in ICT together with Key Enabling will play a crucial role in this new This trend has lead to the emergenceTechnologies. The interactions between circuit of technological innovation. of new manufacturing services,these technologies, coupled with the Time-to-market and lead times have namely social manufacturing.use of new materials, lead to: robots been shrinking thanks to increasedthat are capable of working together service innovation. Adoption curveswith people; smarter software allowing are shortening and new innovativehighly complex designs when used products are invading the markettogether with completely new and highly with the potential to quickly erode theflexible manufacturing technologies competitiveness of existing products.(i.e. additive manufacturing whereproducts are constructed layer bylayer, without using tools, also knownas 3D printing); online and novelcollaborative manufacturing serviceswhich made possible the use of flexible 35 Joel Goldhar, Daniel Berg, (2010) “Blurringautomation, electronic product design the boundary: convergence of factory and 34 A third industrial revolution: Manufacturing and service processes” Journal of Manufacturing , Innovation Special Report (21 April 2012). The Technology Management, Vol. 21 Iss: 3, Economist. pp.341 – 354. Transformative Power of Service Innovation, Call for Action on New Policy Framework   27
    • 3.4. Emergence of new industries, business Some companies are able to provide task services through smart phones, and organisational models, processes, delivery such as mobile workforce available on systems, customer processing systems, etc. demand. There is a completely new generation The need for innovation or ideas stems One example of increased integration of local e-commerce platforms bringing from changes in consumer needs, new of cross-sectoral production functions together vast numbers of local businesses technologies replacing existing ones into service concepts is that a major in the world that are currently not and from the emergence of new socio- transport and logistics company is online. economic and environmental challenges. offering seamless car door assembly Some companies provide inventory Newly developing economic activities and delivery services to a major car services in local retail stores as part of are based on the combination and cross- manufacturer. the e-commerce experience. This allows fertilisation of different types of activities Among those newly emerging industries, retail chains to compete online by and sectors, leading to the emergence mobile services, creative industries unlocking the local inventory. of new industries. Emerging Industries are typically based on new products, and the experience industries are the The new generation of e-tailors are much services, technologies or ideas which ones placing consumer and creativity at more appealing to those who enjoy going are in early-stage development and are the centre of innovation and aiming to to shopping centres and purchasing in characterised by high growth rates and produce customised products with an brick-and-mortar shops. Many new start- market potential. Based on our PwC experience included in it. ups are not only very viable, but are also methodology36 based on mergers and growing fast because they provide a In parallel, the next-generation Internet acquisitions and equity investment, we distinctive experience. According to Marc and its services as a computing and have identified seven newly emerging Andreessen, co-founder of Netscape and connectivity platform are expected industries (i.e. creative industries, venture capitalist for the powerful Silicon to boost user-based innovation and mobile services, the experience industry, Valley venture firm Andreessen Horowitz, new business models. The activities eco industries, personalised medicine, 2012 is the year that retail stores will of networked citizens, businesses, maritime and the mobility industries) start to feel huge economic pressure governments and NGOs give rise to that are growing rapidly, shaping new as e-commerce and e-tailors get more new forms of business and create trends and structural changes in the and more viable. He thinks electronics unprecedented ecosystems of innovation. market. Some of these new industries and clothes are going to be under real Citizens are given better opportunities are completely new, whereas others pressure, followed by home furnishing. to become micro entrepreneurs in their emerged from cross-sectoral spill-overs various simultaneous professional and between existing industries facing a need For instance, one company has made private roles in digital society, creating to reinvent themselves. Additionally, we it possible for a number of local a new entrepreneurship. Many of small found that ICT, financial, business and businesses that are not expected to be business owners are expected to start engineering services to be key service on the Web for the next 15 years (e.g. running their businesses through smart activities which facilitate the emergence local restaurants, hair dressers, day- phones hooked to powerful networks of these new industries. care centres, lawn care firms) being supported by cloud computing. In three to five years, a majority of people in accessed online. It has allowed small the world are expected to own a smart businesses that cannot afford to be phone. online to be reached by customers on demand. 36 European Cluster Observatory (ECO)-Phase III Study (2011-2013). Conducted by PwC for the European Commission, DG-ENTR.28 PwC
    • 1 2 3 4 5 6It is a major challenge for retailers tostay competitive against their electroniccounterparts. To the question “Howcan retailers win in today’s toughmarkets?”, the Chief Executive of one ofthe world’s major retailers responded: According to Marc Andreessen, software Companies have increased visibilityFirst, we have to create a personalised/ is believed to transform the world by and more accurate information bycustomised offer that can anticipate disrupting traditional value chains in collaborating in the cloud. For example,how customers’ tastes and needs are many industries. Software companies a manufacturer can share real-timechanging. And secondly we have to are poised to take over large swathes of inventory availability with its customersinnovate in order to create that offer the economy as more and more major and distributors, while suppliers canin partnership with our suppliers, businesses and industries are being run automatically replenish customerinvesting not only money, but also on software and delivered as online inventories as needed.more time and commitment in services—from movies to agriculture toour relationships, since the digital national defence; over the next 10 years, Finally, traditional careers are expectedrevolution has transformed how people many more industries are expected to be to differ in a way where lifelongshop and what they expect of retailers disrupted by software. employment with a corporate firm willand brands. Retailer brands need to be replaced by lifelong employment in abe tailored not just to meet individual Another commonly observed trend on network.customer needs today: retailers need to business models is the common useanticipate what customers want in the of pay-as-you-go, advertisement andfuture. We need to be one step ahead subscription-based business models.and to guide customers, making their Business-to-business (B2B) services arelives easier, more enjoyable and better. believed to play a key role in driving smart growth by building “intelligence” into the design and modelling of the processes, networks, and customers they serve. Transformative Power of Service Innovation, Call for Action on New Policy Framework   29
    • 1 2 3 4 Key concepts and instruments 5 in support of service innovation 630 PwC
    • 4. Key concepts and instruments insupport of service innovationInnovation today is forced towards a Demola40, as an open innovation initiative inmore service-oriented approach, whichrelies on binding problem-solving skills Finland connecting academia and R&D together withand technological improvement37,38. talented students and industry, has been awardedProblems inspire innovators to look foranswers. They often surface as tensions, the Baltic Sea Region Innovation Award 2012 as thesuch as loss of market share, decline in best cross-border and cross-sector innovator withinprofitability, dissatisfied customers, etc.Natural innovators are good at defining sustainable growth and global development. Inthe problems; they often see problems Demola, university students develop demo conceptsthat the rest of the industry does not see.For example, they can have a knack for for products and services together with companiesspotting issues in user interfaces or in within four months and create new solutions to real-business models39. life problems. During the first three years of activity,New concepts for boosting serviceinnovation have recently emerged, as over 200 services and product prototypes were co-explained below: created by more than a thousand talented students, and 93% of the results were claimed for business use.4.1. Open ServiceInnovation “Open Service Innovation” subject, as this is also strongly influenced“Open innovation” is the use of The service delivered is the key concept by open innovation. Each of the top-levelpurposive inflows and outflows of in the Open Service Innovation model, as subjects as well as their relationshipsknowledge to accelerate internal illustrated in Figure 8. It is delivered by can be operationalised in a numberinnovation, and expand the markets for a firm or organisation, in the context of of relevant issues, characterising theexternal use of innovation, respectively. a network of organisations and society. subject or the relation. From the firmOpen innovation is a paradigm that Harnessing the available input into a perspective, for example, this includesassumes that firms can and should productive interaction process must the reasons for innovation (productivityuse external ideas as well as internal eventually lead to service innovation growth, cost savings, market growth,ideas, and internal and external paths that benefits both society and the knowledge exploitation) as well asto market, as they look to advance their economy. Society encompasses the user the reasons for opening up (skillstechnology.” or customer perspective; the impact shortage, skills development). Many of of open innovation can be beyond the the relations are twofold: although the scope of the individual, but high focus catalytic nature of a service can have is also placed on user participation. The a vast impact on society, society can innovation process is the final top-level also introduce barriers to adoption or inclusiveness, such as limited access to the Internet.37 Robert W. Weisberg, Creativity: Understanding Innovation in Problem Solving, Science, Invention, and the Arts (John Wiley & Sons, 2006).38 Kathleen L. Mosier and Ute M. Fischer, eds., Informed by Knowledge:Expert Performance in Complex Situations, (Psychology Press, 2010).39 John Sculley on Steve Jobs, interview transcript, http://www.cultofmac.com/john-sculley-on-steve- jobs-the-full-interview-transcript/63295. 40 http://demola.fi Transformative Power of Service Innovation, Call for Action on New Policy Framework   31
    • Nature of innovation process Nature of partnership/ Idea Organisation of R&D Nature of collaboration Outsourcing Knowledge Innovation process barriers INNOVATION Sustainability/dynamics of partnership Implementation Organisational Innovation PROCESS Role in innovation phase Delivery Management of network Marketing IPR protection Investment Cost saving Productivity growth Market growth Size of network Growth/Dynamics Knowledge NETWORK Firm Geography Single/multi sector MindLab42 - a cross- Skills available Skills shortage SERVICE ministerial (Ministry of Skills development Team size/process Employment growth Innovation drivers Innovation incentives Regional clustering Collaboration drivers Economic and Business Innovation barriers Collaboration barriers Affairs, Ministry of SOCIETY/ Catalythic nature Impact inclusiveness Substainability aspects PEOPLE New to the firm New to the market Taxation and Ministry of Customer/User involvement Adoption barriers Nature of the innovation Service flexibilty Service quality Employment) innovation unit in Denmark Figure 8: Open Service Innovation Model41 designed to inspire “Crowdsourcing” is defined as “the creativity, innovation and act of outsourcing tasks traditionally performed by an employee or contractor collaboration - plays an to an undefined, large group of people or active role in collecting community (a crowd) through an open and disseminating both call.” Social media has been defined as “a group of Internet-based applications Danish and international that build on the ideological and experiences with the technological foundations of Web 2.0, which allow the creation and exchange involvement of citizens of user-generated content.” In other and businesses in words, we can say that, crowdsourcing is a social media activity used as a developing new public channel to bring people together to policy solutions for society innovate and develop ideas. and the public sector. They do this through 4.2. PPPP (Quadruple dialogue and cooperation Helix Model) with national and international networks Service innovation is the outcome of an ecosystem which has been nourished in academia, private with appropriate tools and instruments, companies and public and endorsed by tailored policies. Those organisations. above-mentioned instruments can comprise specific infrastructures headed by joint public and private governance bodies designed to cover a specific part of the value chain and functioning as a ‘glue’ binding the different steps together while filling the gaps and reducing risks. 41 OSI Socio-Economic Impact of Service Innovation (2011) European Union: http://files.openinnovation-platform.eu//policydocs/ 42 MindLab, Denmark: osi_study_final_report.pdf http://mind-lab.dk/en.32 PwC
    • 1 2 3 4 5 6The open service innovation concept,including high participation of people/society throughout the innovationprocess, has given birth to a newpartnership concept known as theQuadruple Helix Model or Public-Private-People Partnership. In thismodel, the private dimension ofentrepreneurship is another key driverof service innovation. 4.3. Living Labs In addition to Design Centres, Design Innovation Clinics also provide support mechanisms at the company levelFuture Internet PPP In recent years, much effort has that can be offered either by a public been placed in developing Living Lab innovation agency or by a private KISThe Future Internet Public Private methodologies and in converting provider such as consultancy companies.Partnership (FI-PPP)43, launched Living Labs into an innovation practice. It typically provides innovation-relatedin 2011, aims to advance Europe’s The methodologies of Living Lab analysis and advice to an organisation,competitiveness in Future Internet Organisations are differentiated on business or individual entrepreneur intechnologies and systems and to support the basis of three main characteristics: a short period of time. They have thethe emergence of Future Internet- involving users on equal grounds with objective to make business models,enhanced applications of public and other stakeholders in a co-creative products and services more user-friendlysocial relevance. It addresses the need to process across the whole innovation and outline new routes to market inmake public service infrastructures and value-chain; experimentation in real- relation to design-led innovation.business processes significantly smarter life contexts; and being Public-Private Another company level innovation(i.e. more intelligent, more efficient, Partnerships. Four case studies have support can be seen in the form ofmore sustainable) through tighter indicated that all of them share these Innovation Assistants. They are theintegration with Internet networking and three common characteristics, although employees (e.g. graduates, youngcomputing capabilities. The aims of the each one has its distinctive flavour, as researchers etc.) hired and paid throughFI-PPP are to increase the effectiveness shown in Table 344. external funds such as Structural Fundsof business process and of the In parallel to this Living Labs concept, to conduct in-house R&D and implementoperation of infrastructures supporting user-centred Design Centres are innovative projects in order to boostapplications in sectors such as transport, also being developed to provide innovation capacity and capability of thehealth, or energy and to derive possible virtual prototyping rooms to foster SMEs45.innovative business models in thesesectors, strengthening the competitive synergies between innovative andposition of European industry in conventional services. It provides accessdomains like telecommunication, mobile to methodologies and technologies,devices, software and service industries, particularly for the SMEs, to test theircontent providers and media. innovative designs while keeping the IPRs always within the company. For instance, furniture manufacturers can test the ergonomics of the furniture that is being developed on these design centres. 44 Service Innovation Yearbook 2010-2011 (2011) 45 The Smart Guide to Service Innovation (2012) European Union: European Union: http://files.openinnovation-platform.eu/yearbook/ http://www.europe-innova.eu/c/document_library/43 Future Internet PPP: http://www.fi-ppp.eu service_innovation_yearbook_2010_2011.pdf get_file?folderId=961021&name=DLFE-13714.pdf Transformative Power of Service Innovation, Call for Action on New Policy Framework   33
    • Table 3: Implementation of the main Living Lab characteristics in the 4 case studies44 User Involvement Real-Life Contexts Public-Private Partnership Living Lab Botnia • Capture of user needs • Locus for appreciation of opportunities • Living Lab is a Public-Private Partnership • Co-Design & Participatory Design • Evaluation and validation of prototypes • Facilitates multi-stakeholder involvement • Gathering Domain- and Market-based in projects Knowledge iLabo IBBT • Contextualisation of prototypes for new • Focus on data gathering • Living Lab is a Public Private Partnership products and services • Attempts to capture insights from a large • Facilitates multi-stakeholder involvement • Selection of the “right” users as a key group of users in projects element Helsinki & Finnish • Identification of Needs • Use of geographical context for selecting • Living Lab is a Public Private Partnership Living Labs • Co-design and participatory Design users (citizens, students, etc.) • Collaboration with town and local • Public, open trials authorities facilitates trials and the uptake • Validation of prototypes of new products and services Catalan • Selection of “relevant users” • Specialised contexts: hospitals, opera • Living Lab is a Public Private Partnership Living Labs • Gathering domain and context-based theaters, etc. • Creation of initial demand, especially in the knowledge • Emergence of new solutions and Meanings public sector, ensuring sustainability • Large public trials together with small • Facilitates trials in public contexts, very specialised ones relevant in highly regulated environments • Unexpected opportunities stemming from real-life contexts 4.4. Large-Scale Demonstrators provide a way of de- risking innovation by providing a provide individuals with more choice and better options by linking activities Demonstrators staged process in which a range of together in a more logical manner. solutions are initially developed, tested Large-scale demonstrators combine the Another key instrument that was and then selected for further rounds three vital elements of infrastructure, generated by the EU Expert Panel on of support. Demonstrators bring market framework, people and skills. Service Innovation46 in 2011 is the Large- industry, service providers, research The R&D factor is also present, but Scale Demonstrator (LSD) concept. The institutions, regulators, and users more in a supportive role. It needs Panel highly recommended considering together to share knowledge, contribute a systemic approach that requires LSDs as a means of analysing the practical experience to articulate regional leadership and priority setting impact of service innovation in a demands and define possible options. as described with the scope of Smart macro-economic context rather than Demonstrators move from small- Specialisation concept. firm level. With service systems there scale prototypes to a smaller number is substantial emphasis on articulating of larger-scale near-market projects emerging consumer demands, defining that provides intelligent ecosystems standards and working back from user allowing interoperability. They can needs to potential technical solutions. include new health care systems, smart grids, intelligent transport systems and smart cities. Such systems will 46 Meeting the Challenge of Europe 2020. The Transformative Power of Service Innovation. Report by the Expert Panel on Service Innovation in the EU. http://www.europe-innova.eu/c/ document_library/get_file?folderId=383528&name =DLFE-11601.pdf34 PwC
    • 1 2 3 4 5 6Some LSD priorities identified at EU • CULTWAyS47 (Cultural Tourism communications which is capablelevel are in the fields of: Ways through Mobile Applications of updating and integrating new and Services) aiming to highlight data from different sources which• Healthcare and active ageing to the potential of mobile technologies can be accessed both online and challenge the needs of aging as a key driver of service innovation offline in order for tourists to avoid population and to reduce healthcare in mobility industries and in cultural roaming charges and to overcome costs; tourism. This approach will enhance the lack of information due to scarce• Sustainable Communities to promote the attractiveness, economic and connectivity. After a market analysis the greening of industry and the social development of remote rural of existing mobile applications protection of natural resources, areas which are not typical tourism and a study of innovative mobile through resource efficiency, water and hotspots, but which have valuable and location-enhanced services, waste management, recycling and life- cultural and natural heritage. The the project will define the data cycle concepts; key objectives are to demonstrate gathering template, design• Industrial Areas in Transition to the potential for mobile technologies the mobile application requirements enhance the competitiveness of in the tourism sector, develop and define the interface between heavily industrialised regions, while the potential of the demonstrator the data platform and mobile transforming their environment; for scalability and adaptation to devices, including interoperability• Smart Cities for providing citizens, any region in Europe and to address testing. A wide range of visitors, companies, utilities and the key societal challenges of stakeholders (e.g. local government municipal authorities with the preserving and exploiting cultural administrations, public tourism information they need, when they heritage, addressing environmental agencies, professional associations, need it to address urban challenges impacts of tourism in remote areas companies and local organisations) such as congestion, sustainable energy as well as safety issues related to from the participating regions in and employment opportunities, as travel in remote areas. The project Italy, Germany and Spain will be well as information on access to local will develop a mobile application involved throughout the project amenities and services; for tourists travelling along lifetime and will be supported in the European Cultural Routes of the development of the mobile• Creating Dynamic Regions to improve the Via Claudia Augusta, running application by the European the standard of living of the poorer, from northern Italy through to Telecommunications Standards remote regions in Europe, with Bavaria in Germany, and the Way Institute that will supervise particular reference to smarter, of St James in the north of Spain. the interoperability testing. sustainable tourism; The mobile application will provide:• Sustainable Coordinated Transport to cultural heritage services, including promote more sustainable mobility a digital passport with certification and reduce the cost of congestion. of completed routes and location- specific cultural information; safetyCurrently there are 3 ongoing LSDs services with location monitoringunder the European Mobile and Mobility and travel and weather informationIndustries Alliance, namely CULTWAyS, and advice; environmentalLIMES and Grow Mobile. These support services with information onsustainable tourism in rural areas to local green initiatives such asaddress the information, location, access bicycle and electric car hire andand safety needs of tourists in Europe eco-accommodation booking. Thewho wish to visit cultural heritage sites challenge will be to develop a systemand routes that are off the beaten tourist combining databases, locations andtrack. 47 CULTWAys: http://www.mobilise-europe.mobi/cultways/ Transformative Power of Service Innovation, Call for Action on New Policy Framework   35
    • Awareness Market Levers & Building Incentives The European Commission through its DG ENTR has just established the Evidence & Business Case European Service Innovation Centre (ESIC)50 in order to support regions in the design of better policies to transform existing traditional industries while boosting emerging industries by unlocking the transfomative power of service innovation. ESIC will Quality provide technical expert assistance Standards & Organisational Interoperability Readiness for conducting peer review analysis on six selected EU Regions as model demonstrator regions (i.e. Basque region, the Canary Islands Region, Emilia-Romagna, Luxembourg, Northern Ireland and Upper Austria) for design Figure 9: Existing Barriers to the Adoption of the Large-Scale and implementation of strategies in Demonstrators Approach48 order to address a particular regional problem or challenge by making better use of service innovation51. However, there are several barriers to • LIMES49 LSD project will also These demonstrators aim to develop the adoption of this new approach, as contribute to the development of and test scalable and transferable illustrated in Figure 9, which need to be sustainable and cultural tourism concepts for providing mobile services addressed through a holistic approach in all European countries along for tourists in close collaboration with where different policies and support the Roman Limes (the only European local tourism agencies, authorities and measures at activity, company, sectoral cultural heritage which binds businesses in rural areas with valuable and market levels should be assessed together 10 European countries, but under-exploited cultural heritage. together as part of a common strategy in from the North-West in the UK To ensure user-friendliness, plugtests order to support this concept to function to the South-East in Bulgaria, and interoperability workshops for properly at all levels (e.g. regional, covering many regions) and support developers and users of mobile services national, supra-national). mobility in rural areas through will be organised with support from the development of innovative mobile ETSI, the European Telecommun- services. The project will focus on ications Standards Institute, to help developing mobile services and guarantee interoperability across creating new, innovative value chains national borders and, possibly, with the involvement of 10 countries. contribute to the development of new standards. 48 EPISIS Conference Proceedings on positive 50 http://ec.europa.eu/enterprise/newsroom/cf/ 49 impacts http://www.mobilise-europe.mobi/limes/ LIMES: of Service Innovation: From Intangible itemdetail.cfm?item_id=6289&lang=en Investments to Emerging Industries and Ecosystems 48 EPISIS Conference Proceedings on positive impacts (4-5 June 2012) Helsinki, Finland. 51 The Smart Guide to Service Innovation (2012) of Service Innovation: From Intangible Investments European Union: to Emerging Industries and Ecosystems 49 LIMES: http://www.europe-innova.eu/c/document_library/ (4-5 June 2012) Helsinki, Finland. http://www.mobilise-europe.mobi/limes/ get_file?folderId=961021&name=DLFE-13714.pdf36 PwC
    • 1 2 3 4 5 64.5. Innovation-Based Figure 10: Stages of Incubation with types of services involved52Incubators andAcceleratorsInnovation-based Incubators (IBI) Stat-up creation Early Stage ExpansionAn Innovation-based Incubator (IBI)52is a business development centre for Incubationnew entrepreneurs and SMEs that • Access to Finance • Innovation Assessment • Innovation Diagnosticsintend to develop innovative ideas. • Busines Plan Elaboration • Coaching & mentoring • Hosting • Internationalisation Support • Business Modelling • Technology CommercialisationThere is a subset where the domains • Training • Training • Commercialisation • Clustering • Business Developmentof entrepreneurship and of innovation • Advanced Business Planningincluding service innovation find Pre-Incubation Post-incubationcommon ground, where ideas are bothinnovative and profitable, and canbe translated into sound businesses ACCELERATORSaddressing specific markets. IBIs supportinnovative business projects whichcould be either technologically oriented Examples of tailored instruments include upcoming joint ventures,or non-technologically oriented. such as the ‘Spinnovator’ of Munich, merging the knowledge andInnovation can be found in technology interest of a TTO (Ascenion, Munich) and of a private fund (Vesalius,as well as in downstream applications Luxembourg). The aim of this entity is to the accelerate market access(of a generic technology), in advanced for innovation in personalised medicine through an accurate marketand in knowledge-intensive services,in business models, in marketing and screening of customer needs done by entrepreneurial leaders.customer-led processes, in design,in standards, in organisation and Accelerators Raising funds, finding the right talent,management, etc. This can take the form performing administrative work,of general-purpose or sector-specific IBIs. Company accelerators are a fairly negotiating with lawyers and dealingIncubation is a process which tends to new instrument in boosting service with governments can be extremelybe activated whenever there is a need innovation. They are already well known time-consuming for companies, andto support entrepreneurs in developing in the US, but have not yet gained wide can be a source of inefficiencies in atheir business at various stages, as shown recognition in Europe. Their role is critical phase of the company life cycle.in Figure 10. unique in accompanying companies In this context, the value of the company which have moved out of the incubation accelerator is to provide logistic support, phase and into the next phase, which fundraising competencies, operational often requires access to global markets. management via skilled professionals High-growth companies (gazelles) and invaluable networks of people and often have a strong ICT base and in investors at a very competitive price. most instances offer services based on innovative business models. A PwC market analysis conducted on accelerators located in the Silicon Valley, New York and London shows that most accelerators help in the early stage of52 The Smart Guide to Innovation-Based Incubators a company’s development and provide (February 2010). European Union: seed funding, whereas only a few http://ec.europa.eu/regional_policy/sources/ docoffic/2007/working/innovation_incubator.pdf Transformative Power of Service Innovation, Call for Action on New Policy Framework   37
    • organisations intervene when companies are beyond the seed-funding stage The common traits between PwC’s and have already generated revenue Accelerator53 and these entities and started acquiring customers. Accelerators in the Silicon Valley are are: the talents running the entities more specialised in certain technology and designing the service offering, areas than those in the region of New York. Most accelerators focus on cloud, their innovative governance and Internet and mobile technology, while the availability of interested and only a few specialise in Bio/Health. The market positioning of the top accelerator innovative investors. Policies on programmes is shown in the Figure 11 service innovation should focus on below. setting up the right governance and funding schemes for these entities. Figure 11: Stages of Incubation with types of services involved (Source: PwC) International set-up PwC’s Blackbox Accelerator Accelerator Plug&Play Tech Center TechStars NYC 500 Startups Rocket Space ER Accelerator Seedcamp London DreamIt Ventures Y Combinator Local set-up Early stage Later stage 53 PwC Accelerator: http://www.pwcaccelerator.com/38 PwC
    • 1 2 3 4 5 64.6. Clusters, Social Two initiatives launched under the ECIA — namely the European Creative management through the analysis of creative industries and newand Business Networks Cluster Lab (ECCL) 59 and Cluster collaboration approaches betweenand Alliances 2020 60 — are intended to foster Creative creative clusters and traditional Industries through the development of industries. cluster excellence and collaboration.Networking with others can create Clusters have long been supported bya critical mass and facilitate the various means and policies, but it iscommunication and dissemination of less so the case with Creative Industriesproject/programme results to outside clusters. Traditionally clusters havestakeholders. Key Alliances and Business been supported at sectoral level, oftenNetworks have been established at with support received to carry outEuropean level to provide a platform for research activities or to foster linkagesthe exchange of best practices on policy with research institutes or universities.making and stimulating international Much less is done to foster linkagescollaborations. Such alliances include with other and broader stakeholders,the European Cluster Alliance (ECA)54, such as knowledge institutions, designthe European Mobile and Mobility centres or technology clusters fromIndustries Alliance (EMMIA)55, the outside their sector. Cluster 2020’s visionEuropean Creative Industries Alliance is to support the creative industries,(ECIA)56, the European Future Internet enabling them to overcome barriersAlliance (EFIA)57 and the Enterprise and seize opportunities for growth. ThisEurope Network 58, along with other partnership will work with businesssectoral business networks. clusters in England, Germany and France, and will run trials and test ways to optimise working spaces, services and cross-sectoral linkages. The ECCL is the think-tank and beta site for the development of new approaches and processes for creative cluster54 ECA: http://www.proinno-europe.eu/eca55 EMMIA: http://www.mobilise-europe.mobi/56 ECIA : https://www.howtogrow.eu/ecia/57 EFIA : http://initiative.future-internet.eu/home.html58 Enterprise Europe Network : 59 ECCL: https://www.howtogrow.eu/ecia/project/eccl/ http://portal.enterprise-europe-network.ec.europa.eu/ 60 Cluster2020 : https://www.howtogrow.eu/ecia/ project/cluster2020/ Transformative Power of Service Innovation, Call for Action on New Policy Framework   39
    • 1 2 3 4 5 Key challenges & barriers linked 6 to service innovation40 PwC
    • 5. Key challenges & barriers linkedto service innovation5.1. Key global fund the same type of research, which leads to unnecessary duplication and Additional barriers regarding the Single Market also apply in the EU:challenges insufficient scale and scope in Europe.and barriers Thus, removing existing barriers to • Single Euro Payment Area (SEPA) for efficient cross-border electronic compatibility and interoperability of payments and invoices;The world is currently facing a number national research systems and promotingof substantial societal and environmental common transnational synchronised • Gaps in the Service Directivechallenges, such as climate change, research agendas can only be achieved implemented to create a strong market;environmental pollution, mitigation by identifying existing gaps and their • Lack of Public e-Procurementof natural resources, food and energy importance in the economy. infrastructures;security, public health and population • Weaknesses in e-Signature (e-IDs)ageing, which can only be dealt with on The current barriers hampering service Directive to enable secure and seamlessa multilateral or global level, since both innovation stem from a lack of: electronic interactions betweenthe originating factors of the challenges • public demand, due to the lack of businesses, citizens and publicand their consequences are global in awareness on the transformative authorities at pan-European level thatnature. Thus, institutional coordination power of service innovation; will increase the effectiveness of publicand collective action among countries is and private online services, e-Business • service innovation supply capacity;needed at global level in order to merge and e-Commerce in the EU.the limited financial resources due to the • service innovation absorption Another common challenge specific toeconomic crisis in the most effective way capacity; Europe is the lack of entrepreneurshipfor advancing RDI to tackle these grand • entrepreneurship; as an engine for economic growth andchallenges while avoiding duplication • funding for service innovation, due to innovativeness, as highlighted in theand fragmentation. the lack of investor awareness; Memo of the European Commission61.In order to meet all these challenges, • education and skilled workforce; Boosting entrepreneurship can bethe importance of service innovation • ICT standards, which are particularly achieved in various ways, includinghas been commonly recognised and required for interoperability; entrepreneurship education; improvingsupported by the European Commission the second-chance law for failed • data security, privacy and availability;through the recognition of the fact entrepreneurs; and boosting demand, • awareness regarding the importance of design, and workplace innovationthat these challenges cannot be solved “Large-Scale Demonstrators”; as a concrete way of enhancing non-within national borders, since thenational research programmes designed • knowledge transfer and IP technological innovation.and implemented within national management issues in open serviceborders do not have the required scale innovation;and scope to generate the necessary • supportive policies (e.g. publicbreakthroughs and are not aligned procurement policy) in favour ofin mainstream research agendas, service innovation across industries,meaning that Member States tend to even within service sub-sectors. 61 MEMO: Focus on boosting entrepreneurship at informal Competitiveness Council (19 July 2012). European Commission. Transformative Power of Service Innovation, Call for Action on New Policy Framework   41
    • 5.2. Key challenges • Political sensitivity to services not delivered by internal IT e-government services, housing and social care. The key success factors faced by Public organisations: Some governments on strategy implementations were Authorities are sensitive to doing business with identified as Leadership, followed by a vendor that is not delivered and Project and Programme Management The following top barriers were managed by internal IT organisations. (PPM) and Partnerships as distant identified in a PwC survey62 of public- The underlying reasons might be the secondary factors. On the other hand, sector chief information officers (CIOs) offshore delivery aspect and difficulty the main barriers in implementing regarding the outsourcing of business in controlling personal information the strategies were mainly finance and services, infrastructure and applications and data; prioritisation. In order to implement via cloud computing: • Repatriation: Some cloud services their strategies successfully, the local are not offered by vendors for internal governments are advised to have • Finance: Cloud computing is use even if the customer is willing to strong leadership and to: redesign challenging the treatment of IT as a license the offering. their organisations for more effective capital expense because of the ability collaboration with their primary to procure IT infrastructure and stakeholders; assess the impact of their According to the previous global software as a service; size and scale and seek out opportunities survey conducted by PwC, the main • Security: Data security and privacy to standardise, simplify and streamline challenges identified for government rank among the top concerns with their operations; develop well- leaders were building the brands of cloud solutions, since the private documented implementation plans their localities, engaging and providing cloud industry currently doesn’t assigning clear roles, responsibilities and leadership for their communities, offer service-level agreements (SLA) timetables to each stakeholder; prioritise working collaboratively with an ever- and privacy protection assurances and manage projects and programmes growing network of partners across to meet all government regulatory more effectively by putting in place sectors and territories at national requirements; outcome measuring systems and value and international level, and funding. for money. • Compliance: Public sector and The follow-up survey focused more government industries have specific closely on the service delivery cycle to governance and compliance understand the key challenges faced by requirements. There are country- local governments. According to survey specific protections and export respondents, outcome assessment along laws surrounding the movement of with performance monitoring and data, and many of these regulations needs assessment were found to pose are based on the ability to identify the greatest challenges, as illustrated in the physical location of data and Figure 12. The parties involved in the technology. Since cloud services design of service delivery were mainly are not yet standardised, businesses city officials, followed by residents, must assert their needs about businesses and NGOs. Commissioning/ data ownership and control while buying external service provision was negotiating SLAs with cloud vendors; seen as an important factor especially for transport and infrastructure, economic development and investment, tourism and cultural promotion, sanitation and water treatment, security and safety, 62 Why CIOs need to be ahead of the game: Developing a cloud strategy (2011). PwC Canada Public Sector Publication.42 PwC
    • 1 2 3 4 5 6 Another key challenge for local Figure 12: Challenges of service delivery cycle63 governments is to develop strong and future-proof policies to make optimum use of society’s resilience in dealing with demographic change Needs assessment 39.7 as a major global challenge. This will Service policy 22.2 result in altered demands with regard to the flexibility and availability of Sourcing 25.4 government products, services and Service design 25.4 information. PwC global initiative on “Cities of the Future” has identified Service delivery 31.7 “demographic development” as one of Service evaluation 28.6 the key elements for the municipalities to make optimum use of society’s Outcome assessment 42.9 resilience in dealing with demographic Performance monitoring 41.3 change. This assessment identifies five roles for local governments (director, Other 4.8 administrative partner, service Don’t know / Not applicable 12.7 provider, enforcer and employer) and % describes their significance for each of the seven core elements (economy, culture, knowledge, infrastructure, environment, democracy, society and people) and the ways in which they are affected by demographic changes like ageing and diminishing population. In order to address this challenge, strengthening policies, collaboration and smarter service concepts should be developed and implemented by governments to meet the needs of an evolving population. The public sector will be hit comparatively hard by the adverse effects of population ageing since government employees tend to retire at an earlier age than their private sector counterparts64. 64 Aging tomorrow, innovation today : local 63 Making it happen: A roadmap for cities and local public services to achieve outcomes (2011) PwC Public governments point of view (2010) PwC Public Sector Research Centre. Sector Research Centre. Transformative Power of Service Innovation, Call for Action on New Policy Framework   43
    • 1 2 3 4 5 6 Conclusion44 PwC
    • 1 2 3 4 56. Conclusion 6Creativity and consumer involvement PwC Global Service Offering: innovation capacity and capability;throughout the whole innovation life- “Regional Innovation Ecosystems” developing financial engineeringcycle are the core elements of service tools for innovative companies;innovation that should be supported This global PwC initiative mainly aims boosting internationalisation;by favourable framework conditions to support the regions, enterprises, stimulating the conduct ofproviding right innovation ecosystem universities, and clusters in large scale demonstration andwith supportive policy measures to accomplishing smart and sustainable transformational projects;boost active collaboration between economic development by: identifying supporting the implementation ofpublic and private entities, investors, and implementing regional smart ICT and Key Enabling Technologiesentrepreneurs, and civil society. Service specialisation strategies as well for the modernisation of traditionalinnovation should also be integrated as conducting evaluations for the industries as well as boosting theinto innovation policies at national and regions to determine their current development of newly emergingregional level. To achieve this, awareness position for present funding period industries; accelerating theon the transformative power of service and eligibility for the next period; development of high-growthinnovation must be raised at all levels increasing research valorisation, companies (more information canamong public authorities, policy- education and training for boosting be obtained via Gateway).makers, entrepreneurs in traditionaland emerging industries, investorsand citizens in order to ensure smart,sustainable and inclusive growth while Laurent Probstmaking efficient use of limited financial Partner, PwC Luxembourgsources to achieve goals that arecommon and crucial at all levels. Global Leader of Regional Innovation Ecosystems laurent.probst@lu.pwc.comPwC aims to raise awareness and providerecommendations particularly to the (+352) 49 48 48 2199 Dr Nuray Unlu Bohnpolicy-makers for developing a newpolicy framework in support of service Expert, PwC Luxembourginnovation. Our second publication Manager of Regional Innovation Ecosystemsin this series will feature case studies nuray.unlu.bohn@lu.pwc.comhighlighting the transformative power Acknowledgement (+352) 49 48 48 4113of service innovation at sectoral andregional levels that will be followed bypolicy recommendations for achieving Dr. Erica Monfardini, Directorthis transformation on the third one. erica.monfardini@lu.pwc.com Dr. Laurent Frideres, Expert laurent.frideres@lu.pwc.com Dr. Kristina Dervojeda, Manager kristina.dervojeda@nl.pwc.com Sarah Lide, Manager sarah.lide@se.pwc.com Transformative Power of Service Innovation, Call for Action on New Policy Framework   45
    • NOTES46 PwC
    • NOTES Transformative Power of Service Innovation, Call for Action on New Policy Framework   47
    • NOTES48 PwC
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    • www.pwc.lu/innovation-paper PwC Luxembourg (www.pwc.lu) is the largest professional services firm in Luxembourg with 2,200 people employed from 57 different countries. It provides audit, tax and advisory services including management consulting, transaction, financing and regulatory advice to a wide variety of clients from local and middle market entrepreneurs to large multinational companies operating from Luxembourg and the Greater Region. It helps its clients create value they are looking for by giving comfort to the capital markets and providing advice through an industry focused approach. The global PwC network is the largest provider of professional services in audit, tax and advisory. We’re a network of independent firms in 158 countries and employ more than 180,000 people. Tell us what matters to you and find out more by visiting us at www.pwc. com and www.pwc.lu. © 2013 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers, Société coopérative (Luxembourg) which is a member firm of PricewaterhouseCoopers International Limited («PwC IL»), each member firm of which is a separate and independent legal50 entity that delivers its services without engaging in any way PwC IL’ S responsibility or liability. PwC