The New Service Economy – Innovation in services Ian Miles (University of Manchester, and HSE, Moscow) Ian.Miles@mbs.ac.uk Manchester Institute of Innovation Research Ian.Miles@hse.ru Laboratory for Economics of Innovation UAM, Madrid, March 2013
OverviewService Innovation, and Innovation inServices, is NOW (almost) mainstreamHow Understanding of Services andService Innovation has evolvedNew Approaches to Service InnovationServices and Technological Innovation
Interest in “Service Innovation”Publish or Perish datawww.harzing.com 400March 3rd 2013 service innovation 350 Publications with the term in their titles 300 new service development 250 innovation in services 200 150 100 50 0 1984 1978 1980 1982 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Interest in “Service Innovation”Publish or Perish datawww.harzing.com 400March 3rd 2013 2010 350 Publications with the term in their titles 300 250 200 150 100 2004 50 0 1984 1978 1980 1982 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Service Industries – Innovation IN ServicesSections NACE Rev 1 G • Hotels and Restaurants (HORECA) H • Transport, Storage I • Financial Intermediation (FI... J • Real estate, Renting (…RE), Business Activities Includes KIBS • Wholesale & Retail Trade; Repair of .Motor Vehicles, Motorcycles K and Personal & Household Goods L • Public Administration and Defence; Compulsory Social Security M • Education N • Health and Social Work O • Other Community, Social and Personal Service Activities Industries These are the service specialists
Perspectives on Service(s)Primary industries specialise in extractingthings (raw materials, etc.) from the naturalworld (and change and manage parts of that world).Secondary industries specialise in makingthings (from other things): Manufacturingmakes goods, Construction makes buildings,etc.Tertiary industries specialise in doing things:Services (service industries) produce ...services (service products). And services can be produced by other industries, and consumers.
InnovationGoods innovation – product and process –making new things, making things in newways. (Largely technological innovation.)Service innovation then: doing newthings, doing things in new ways.Whether in service industries (“innovation inservices” or other service suppliers.... or is it more complicated? Product and process entangled User involvement in coproduction; role of service relationships; organisational innovation
What Do Services Do? They effect transformations physical, chemical, biological, psychological, informational (etc.)of Entities Material artefacts (goods, buildings, etc.) Living entities (especially human beings) Signals and Symbolsto achieve Effects Maintenance, Movement, Matching... Problem-solving (versus) Providing Experiences
Varieties of Service TransformationSome human corporeal transformation is oflow complexity – personal services likecosmetic and hairdressing (can be quasi-medical, though usually routine). Innovationin aesthetics, consumables.Other transformations of people andartefacts are much more physical – e.g. transport, HORECA, repair/ maintenance. Application of power machinery. Informational –e.g. providing experiences, entertainment, education
Three Transformational Types Many activities, and most service industries, involve some mixture of all three Physical Human Informational Transformations Transformations Transformations Examples e.g. e.g e.g Finance, Communic Health, Personal Cleaning, Transport Features Services ations Often much High presence, often high manual, sometimes low- involvement of Range of mass and skill work Consumer/User customised services Challenges Environmental Human sustainability, “self- Keeping apace of diversity, Interpersonal platforms and users, IP service” relationsTechnologies Power and engine systems; technologies Many specialised, from IT and supporting under repair etc. very low to very high-tech systems (e.g. Batteries) Trends New functionality (e.g. Business model change Changing role of public Location) and knowledge sector (e.g. Neuro...) Manual Activity Knowledge-intensive activity
Not all service innovation is technologicalInnovating service suppliers often use newtechnology, at least in a facilitating roleBut even here there are exceptions:especially in personal servicesE.g. CBT (.5m treatments in UK in 2012) Altered ThinkingAlternative to pharmaceuticalsNHS: “one of the mosteffective treatments foranxiety and depression.” Behaviour Situation Emotional FeelingsCan be via book or softwareAnd now “web therapy”But still usually face-to-face, Physical Sometimes in groups Sens- ations
Not all Technological Innovations in Services are IT-basedMany service processes are highly specificThe transformations can benefit fromparticular categories of technology.For example, medical services may applytools and knowledge concerning: Pharmacology Opportunities influenced by state of science and Radiology development of practical experience... Health services involve particularly complex and long-term sequences of Surgery problem-solving, involving many professions and bodies of knowledge in complex (public-private) institutional Physiology frames...Numerous specific innovations. See: Genomics... D.Consoli etinal, 2007, “The Process of The Economics of Innovation” J Costa-Font et al (eds) Health Care New Health Technology Oxford University Press
Information Technology is nevertheless pervasiveWhile there are many specific servicetechnologies Surgical tools, hairdryers, trains, trolleys, fast-food containers, clipboards....Most services are information-intensive,in front and back officesThus most are IT-intensiveBarras: IT represents an industrialrevolution for service sectors: ITinvestment is very heavy from them.
Information Technology evolution 70s 80s 90s 00s 10s 20s?Mainframe Micro Networks Tablet, sm Sensors, Biodevice mini PC & laptops artphone Actuators WiMax, 4 VANs LANs Web WiFi, 3G +++ G,cloud Profess- Wide Ubiquit- Experts Public Ambient ionals public ous Web2.0, Internet of “End- Semantic Centralised Content things, loc User” P2P web ations Text/ Commun- Enhance- Numbers Multimedia Control graphics ication ment Inspired by Marc Weiser et al: - cf: I Miles (2005) “Be Here Now”, INFO Vol. 7 No. 2, pp49-71
Information SocietyMainframe Micro Networks Tablet, sm Sensors, Biodevice? mini PC & laptops artphone Actuators WiMax, 4 VANs LANs Web WiFi, 3G, +++ G,cloud Profess- Wide Ubiquit- Experts Public Ambient ionals public ous Web2.0, Internet of “End- Semantic Centralised Content things, loc User” P2P web ations One for One for a One for Each A Few for Many for Each Text/ Commun- Enhance- Many Numbers Few Person/Place Multimedia Each Control Person/Place graphics ication ment People People Person/Place 70s 80s 90s 00s 10s 20s?
Information Technology Use is one shaper of Service EconomyMainframe Micro Networks Tablet, sm Sensors, Biodevice? mini PC & laptops artphone Actuators Service VANs Service LANs Web WiFi, 3G, Service WiMax, 4 G,cloud +++Economy Economy Economy Wide Ubiquit- 1.0 Experts 2.0 Profess- ionals Public public ous Ambient 3.0 Web2.0, Internet of “End- Semantic Centralised Content things, loc User” P2P web ations One for One for a One for Each A Few for Many for Each Text/ Commun- Enhance- Evolving Views of Many Numbers Few graphics Service Economy (&Each ication Service Control Person/Place Multimedia Innovation) ment Person/Place People People Person/Place 70s 80s 90s 00s 10s 20s?
Service Economy 1.0 “Post-Industrial Society” - 1960s-’80s Phrases in titles: Harzing‟s Publish or Perish 3/1/2013 200 180 Service Economy Service 160 Post Industrial Society 140Economy 120 1.0 100 80 60 40 20 0
Service Economy 1.0 “Post-Industrial Society” - 1960s-’80sEconomy of services sector(s)Growth driven by consumer demand,welfare state provision, low productivity growthInnovation relatively low, supplier-drivenIndustries are pre- or post-industrial - toocomplicated or particularised for mass productionMoT thus seen as adoption of technologyfrom elsewhereExceptional services sequesteredExamples: Bell, Fuchs,Touraine
Sectoral Patterns of Innovation – traditional view Innovation – overwhelmingly identified as technological. Original formulation of Pavitt (1984): four broad types of innovation Sectors include:Supplier-dominated Services, textiles and agriculture firms Thus, diffusion is the issue: and maybe slow uptake is the “problem”Science-based firms high-tech firms in industries such as pharmaceuticals and electronicsScale-intensive firms large firms producing basic materials and consumer durables, e.g. automobile manufactureSpecialised equipment specialized machinery production and producers high-tech instruments. Pavitt, K. (1984) „Sectoral Patterns of Technical Change: towards a taxonomy and a theory‟ Research Policy 13 (6) pp. 343-373
Traditional view of service innovationManchesterInstitute ofInnovation Research Dismissal Increasingly hard to and as many more sustain this view as traditional service technology-based sectors displayed services become considerable important to (with very few exceptions) technology adoption and innovation in all Service industries play little innovation sectors role in (technological) innovation and can thus be ignored by innovation policy
Service Economy 2.0 Knowledge-Based Economy: 1980s-2000s Phrases in titles: Harzing‟s Publish or Perish 3/1/2013 2500 Service 2000Economy Service Economy 2.0 1500 Post Industrial Society 1000 Information Society Knowledge Economy 500 0
Service Economy 2.0 Knowledge-Based Economy: 1980s-2000sNew Information Technology widelyadopted in service organisations- especiallyback-office in large organisations.Many IT-related services assisting this -KIBS as supporting business processesand innovation across the economy.New services and service delivery, new e-services.Information Society, Knowledge EconomyExamples: Barras, Gershuny,
Perspectives on service innovation A similar (not identical) Framework developed by approach had already R Coombs & I Miles, been developed in the 2000, “Innovation, 1990s by Gallouj – see Measurement and recent work like F. Services: the new Gallouj and F. Djellal problematique” in J S (eds) (2010). The Metcalfe & I Miles (eds) Dis- Dismissal Handbook ofInnovation Systems in the missal Innovation and Services, Edward Service Economy Dordrecht: Kluwer Elgar: Cheltenham Syn- thesis Demarc Assim -ation -ilation
Different Disciplines Converge and Collide Management studies, esp. HORECA & trade Service Management: stress coproduction Demarcation Innovation Studies: New Service stress Development: information and stress information intangibility technologyAssimilation Industrial economics, esp. High-tech, KIBS Marketing, esp. E-business
Assimilation PerspectiveServices are Service innovationqualitatively is not distinctive; itdistinctive, due to can be studied andespecially dueINTANGIBILTYto organised in waysINTANGIBILTY,and familiar fromINTERACTIVITY,INTERACTIVITY :etc. differentdifferent forms of analysis of.forms ofinnovation and Dis- Dismissal manufacturing.innovation & missalinnovationprocess Tend toprocess focus on technological Syn- innovation (though thesis some theorists insist that even Demarc- Assim- technological innovation is ation ilation distinctive)
Patterns of Innovation rethought: varieties of service firm as innovator From Pavitt to Soete & Miozzo (1989 and 2000) – mainly tech focus Many traditional service sectors – personal and retail trade services, many public services Supplier-dominated Production-intensive scale-intensive sectors: firms large organisations with much back-office innovation (incl some supermarkets, etc.) Network sectors – physical networks (e.g. Science-based firms transport, wholesale), information networks (e.g. telecomms, banking) Specialised technology suppliers and science- Scale-intensive firms based sectors – computer & engineering services Specialised equipment producersSoete, L. and Miozzo, M. (2001). “Internationalization of Services:A Technological Perspective” Technological Forecasting and Social Change 67, 159–185
Services in Innovation SurveysInnovation surveys (originally the CIS) across Europe since 1980s, have included many service industriessince the 1990s. Recent UK data featured below.. Share of “innovation active” firms – those engaged in any of: 1. Introduction of a new or significantly improved product (good or service) or process; 2. innovation projects not yet complete or abandoned; 3. New & significantly improved forms of organisation, business structures or practices & marketing concepts or strategies; 4. Activities in areas such as internal R&D, training, acquisition of external knowledge or machinery & equipment linked to innovation activities .
Demarcation Perspective Services are Service innovation qualitatively is not distinctive; it distinctive, can be studied COPRODUCTION, and organised in INTANGIBILTY, ways familiar from INTERACTIVITY, etc. different analysis of Extensive forms of Dis- Dismissal manufacturing discussion of innovation & missal service innovation specificities process(and the huge diversity across Syn- services) in thesis marketing and management as well as innovation Demarc- Assimilat- studies ation ion
Manufacturing vs Services -1 Factory Service Producer versus Services Goods Goods Service Consumer ConsumerSeparation Closeness, Coproduction
Manufacturing vs Services Innovation 1 Factory Service ProducerProcess Process andInnovation Product Intertwined: Ideas of (e.g.)Product versus Services DeliveryInnovation Goods Innovation, Servuction Innovation Goods Service Consumer Consumer Separation Closeness, Coproduction
Manufacturing vs Services – 2Not all But not allmanufactur- Back Office Back Office serviceing process isprocessesare in Factory Front Office immediatelytangible in theproduction: coproductionmuch back- front-officeoffice work space – muchhere too. Services back office Goods versus invisible preparation and support Goods Service Consumer: Consumer,Use action and transformation of Goods Consumer Communities
Manufacturing vs Services - Innovation 2 Barras: ReverseBack Office Back Office Product Cycle Factory Front Office model: IT introduced for efficiency in back Services office, Goods versus then applied to improved quality and Goods Service Consumer: eventuallyConsumer,Use action and transformation of Goods new services in Consumer front office Communities
Service Economy 3.0 Economy of Service(s) 2010s- Service orientation (Service- Dominant Logic) to forefront “Service Science”, SSME Service Product-service systems – andEconomy responses to Grand Challenges Not just technology – but 3.0 emergent processes and practices will be invigorated by use of new technologies like sensors, data analytics, etc. Examples: Gallouj, Spohrer, Vargo/Lusch
A Synthesis? Exploration of Service Innovation has identified aspects of innovation that are generically importantInnovation analysis – and measurement and policy – needs to account for all of these aspects (or if not, to explain why some sorts of innovation are privileged) Dismissal All sectors have diverse features, and many “service” elements Dis- missal Synthesis Demarc- Assim- ation ilation
Aspects of a Synthesis Exploration of Service Innovation has identified aspects of innovation that are generically important Innovation analysis – and measurement and policy – needs to account for all of these aspects (or if not, to explain why some sorts of innovation are privileged) Dismissal All sectors have diverse features, and many “service” elements Dis- missalManufacturing features: Services feature: TERTIARISATION GREATER Synthesis TECHNOLOGY- INTENSITY “SERVITISATION” “PRODUCTISATION” SERVICE INDUSTRIALISATION DOMINANT Demarc-(KNOWLEDGE Assim- LOGIC ation INTENSIVE) SERVICEilationENCAPSULATION ACTIVITIES AS INNOVATION AGENTS
Innovation - Manufacturing and Services 1Back Office Back Office Factory Front Office versus Services Goods Goods Service Consumer:Consumer,Use action and transformation of Goods Consumer Communities
Innovation - ManufacturingTertiarisation,convergence and Services 1 Back office innovation – Back Office trajectories of Back Office similar IT use, organisational innovation Factory Front Office Process innovation – similar features of automation, etc., but much variety across sectors in terms of specific processes and transformations versus Services Goods Goods Service Consumer: Consumer,Use action and transformation of Goods Consumer Communities
Innovation - Manufacturing Tertiarisation, convergence and Services 2 Back office innovation – Back Office trajectories of Back Office similar IT use, organisational innovation Factory Front Office Process innovation – similar features of automation, etc., but much variety across sectors in terms of specific processes and transformationsProduct innovation – Services Product innovation – new Goodsnew / improved goods – / improved services (oftenand services for new goods platforms) Relationship Goods and Delivery Service Consumer: Consumer,Use of Goods innovation action and transformation Innovation in marketing and e-business, e- Consumer commerce, aftersales, use of functionality provided by good or service Communities
Loci of Service Innovation • Position in Value Chain Value Chain • Management of suppliers Back OfficeElements of Business Model • Office systems • Service work organisation, scripts Front Office • Service Value Proposition (Concept and Content) Services • Service Delivery Systems • Interface with, relation to, • Revenue consumers and their platforms Models • Role of consumers (and Service Consumer communities) in coproduction • Target Markets and Marketing Consumer Techniques Communities
Skills for Service Innovation • Position in Value Chain Grasp of business environment, scope for merger, Value Chain acquisition, joint ventures, collaboration, open innovation management & grasp of new opportunities Specific technology • Management of suppliers Service design capabilities Back Office management & new modelsElements of Business Model • Office systems Grasp of KM & informatics • Service work organisation, scripts Front Office Grasp of financial Grasp of HR, team management • Service Value Proposition (Concept and Content) Service technology capabilities Services • Service Delivery Systems Disruptive possibilities competitors and esp. Awareness of Service design capabilities • Interface with, relation to • Revenue consumers and their platforms Service design capabilities Models • Role of consumers (and Service Consumer communities) in coproduction Grasp of users, uses • Target Markets and Marketing Consumer Grasp of markets, trends, marketing Techniques Communities
The Synthesis Approach needs to recogniseMany diverse forms and dimensions of innovationVarying in frequency and intensity across differenttypes of organisation.Often these occur and are managed relativelyindependently, even within the organisation Though some changes trigger others Some are interconnected from the start Business model innovation may involve alignment of many innovationsExisting classifications and categories of innovationstyles and activities – even R&D – may be oflimited use. Study new design approaches.
Challenges for Innovation ManagementEven servicisation has often proved challengingRequirements for wide range of new knowledge,especially about user behaviour and widercontextsNeeds to combine different types of knowledgeNumerous sites of innovation, turbulence forinnovation managementWicked problems in Grand ChallengesCognitive alignment
ConclusionsOften service innovation requires diverse knowledge types, andability to combine multiple component offerings from multipleactors. New tools for service design are emerging.Many parties play role in development of capabilities for serviceinnovation, including policymakers, HEIs, leading companies,professional bodiesImportant to retain and enhance scope for individual andorganisational learning, as requirements for multiplecompetences evolveCentral role for management capability to identify, mobilise,coordinate requisite professionals and skill setsSMEs may need specific supportGrand challenges and complex problems – transformationalinnovations spanning social and technological innovation (e.g.AAL, sustainability)