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Service Innovation 2 - the reverse product cycle and more


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Second set of powerpoints for my module in the MBS MSc module on Service Innovation

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Service Innovation 2 - the reverse product cycle and more

  1. 1. Service Innovation - Models and Theories Ian Miles [email_address] 
  2. 2. Mission for today
  3. 3. Images of Services Think: what data could we use to test these? Jobs often professional and rewarding knowledge work. Jobs often low status, low wage, part time, etc. Quality of working life Often demand high professional, technical and especially social skills. Usually low level, frequently involve manual work ; sometimes knowledge is protected by professional elites. Skills Often substantial organisational innovation in services. Technological innovation is less pronounced - thus expanding services absorb labour displaced by manufacturing automation. Economic growth is based on innovation in manufacturing. Services lag behind (usually far behind) in use of technology and in productivity growth. Innovation Job generating; contributing to overall quality of life; helping to co-ordinate complex economy and society. Burdensome upon other sectors – especially due to taxes and labour market distortions from public services, but also from some private services. Economic role Often superior goods, which leads to increased demand for services as affluence grows. Often unproductive – especially public services, where demand reflects political rather than economic agendas; but also many professional services are overprotected and simply feed themselves. Value “ The coming thing” “ Stuck in the past” Underlying Image Post-industrialisation Deindustrialisation
  4. 4. Images o f Inn ovation and Services Implication: Services display lower rates of productivity – and quality? – growth than manufactures. So there is a shift in employment, if demand for goods and services grows equally, or if services are “superior” and purchased more as people become more affluent – cf Engel, Maslow, Inglehart… This seems to be Bell’s assumption, and to fit the grand employment trends But in the late 1970s Jiri Skolka and Jay Gershuny both raised a question about the long-run implications of “unbalanced productivity growth”… Often substantial organisational innovation in services. Technological innovation is less pronounced - thus expanding services absorb labour displaced by manufacturing automation. Economic growth is based on innovation in manufacturing. Services lag behind (usually far behind) in use of technology and in productivity growth. Innovation Post-industrialisation Deindustrialisation
  5. 5. Implications of Imbalance <ul><li>Per £, $, €, spent, what consumers get from services purchases should grow at a lesser rate as compared to manufacturing – may even decline with inflation. </li></ul><ul><li>Costs of – train fares, theatre tickets, complementary therapy – as against, say, cars, televisions, clothes. </li></ul><ul><li>What if many services are substitutable with goods? </li></ul>
  6. 6. Implications of Imbalance 2 <ul><li>What if many services are substitutable with goods? </li></ul>Meals: eating in restaurants vs eating at home? Mobility: taking a bus versus driving yourself by car? Washing clothes: laundry, laundrette, washing machine Entertainment: theatre or cinema versus TV, radio, hi-fi “ Gershuny Hypothesis”: goods and SELF-SERVICE will increasingly substitute for Final Services
  7. 7. Innovation and Imbalance <ul><li>Basic Requirements: </li></ul><ul><li>Shelter </li></ul><ul><li>Food </li></ul><ul><li>Domestic Services </li></ul><ul><li>Etc. </li></ul><ul><li>Advanced Requirements: </li></ul><ul><li>Medicine </li></ul><ul><li>Transport </li></ul><ul><li>Entertainment </li></ul><ul><li>Education </li></ul>Purchase of Time Services Goods Use
  8. 8. Innovation is Important <ul><li>Potential competition of goods for services: </li></ul><ul><li>Declining service quality (vicious circle); polarised services for rich and poor; loss of public service and service employment </li></ul><ul><li>Possible solution in service innovation – role of new IT </li></ul>Fewer customers Less income Cost reductions: reduced service frequency, etc
  9. 9. Service Innovation and IT <ul><li>From late 1970s, apparent that new IT was being widely employed in service sectors </li></ul><ul><li>Indeed earlier communications technology had already been widely used: Gershuny cited case of Open University. But now PCs and telematics, allowing for reduction of time and space constraints, allowing for more customisation, etc. </li></ul><ul><li>Apparent by early 1980s that services adopting IT heavily: 80% of IT investment from services. </li></ul><ul><li>Much description of new service products and processes, but little theorisation at first. </li></ul>
  10. 10. Richard Barras: Reverse Product Cycle <ul><li>Classic model of innovation: </li></ul><ul><ul><li>Innovator creates a new product </li></ul></ul><ul><ul><li>Product comes to market, and goes through a phase of refinement – improved quality (reliability, user-friendliness, etc) </li></ul></ul><ul><ul><li>Product is stabilised, and competition moves to focus on efficient production – process innovation </li></ul></ul>
  11. 11. Barras’ ‘Reverse Product Cycle’ (1986) Employment generating Neutral impact on employment Labor displacing Impact on Labour Investment in capital widening technology Investment in capital widening technology Investment in capital deepening technology Type of investment To develop new service products to differentiate one from others in the market To improve the effectiveness of existing services To expand the market for the improved product To improve the efficiency of the existing services Reduce the cost of providing the service Aims Product Innovation Radical Process Innovation (quality) Incremental Process Innovation Nature of Innovation Third Phase Second Phase Initial Phase
  12. 12. Four sectors and the RPC Public information services (e.g. viewdata) Departmental service delivery (e.g. housing allocation) Corporate financial systems (e.g. payroll) Local government Fully automated audit & accounts Computerised management accounting Computer audit; Internal time recording Accountancy Complete on-line service On-line policy quotations Computerised policy records Insurance Cashless shopping (EPOS) Home Banking ATMs, Financial customer/information systems Automated transactions and financial records Retail Banking SECTOR APPLICATIONS Networking (particularly ISDN) On-line Systems; Minis & Micros Dumb & Intelligent Mainframe Computers Technological Innovation in IT Producer Sectors New Service Realisation Quality Enhancement Efficiency Improvement Aims Product Innovation Radical Process Innovation Incremental Process Innovation Nature of Innovation (3) 1990s ONWARD (2) 1980s (1) 1960s- 1970s PHASE
  13. 13. Banks as Vanguard: Phase 1 Those adopting the technology first will have considerable competitive advantage. Industry Competition React to those firms who could provide financial information quickly Market Ensuring the staffs has adequate training regarding the use of the new technology. Role of the Firm (bank) Supplier of technology actively introduces the technology to the adopting firm. Role of Technology Supplier Routine Tasks Dealing with customer accounts, booking keeping, producing statements Example of tasks To store, manage and organise financial transaction data Purpose of technology application Main frame computers Technology Mid 1960 – Mid 1970 Time Incremental Process Innovation Nature of Innovation
  14. 14. Phase 2 Most firms have adopted the new technology; the industry now looks at system integration. Consumers enjoy the convenience of the interbank connectivity. Building on the embodied knowledge of using the technology, banks now attempt to establish inter-organisation links through the use of technology. To introduce applications which ensure intra-bank connectivity. Dispensing cash out of work hours Improve the speed of cash dispensing service To create linkages – mainframe linking with dumb terminals thus facilitating the improvement of service quality Network technologies Technological Systems Automated teller machine networks Mid 1970 – Mid 1980 Radical Process Innovation Industry Competition Market Role of the Firm (bank) Role of Technology Supplier Example of tasks Purpose of technology application Technology Time Nature of Innovation
  15. 15. Phase 3 Industry Competition Market Role of the Firm (bank) Role of Technology Supplier Example of tasks Purpose of technology application Technology Time Nature of Innovation Competition by differentiated service products. Consumers enjoy more flexibility with the service offered by firms. The access to the service without being in the premise of the bank. Introducing new services to the client using existing databases. Providing staff training for new technology application. Educating customers regarding new technology application. The role of technology supplier is less responsive in this phase. Home banking/ Shopping Real time, online transaction processing – accessing customer data saved on the mainframe & matching financial information and marketing activities developed in the branches … Offering service packages ”personal investment, house purchase, travel, taxation and cash management” Creating linkage between banks, businesses and individuals Extend linkages: mainframes link intelligent terminals. Infrastructure: ISDN network/communications system Further upgrade of network technology: Integrated system 1990 and beyond Mid 1980 – Mid 1990 Product Innovation
  16. 16. Barras Account <ul><li>Very popular: intuitively plausible </li></ul><ul><li>But: </li></ul><ul><ul><li>Does it apply to all services, or just information services (finance etc.)? </li></ul></ul><ul><ul><li>Is it a general model, or one that happens to capture service innovation at one point in time (after new IT emerges)? </li></ul></ul><ul><ul><li>How can it be tested empirically? </li></ul></ul><ul><ul><li>What are the implications for management? </li></ul></ul>
  17. 17. Service Innovation <ul><li>Early thinking: services unproductive; this did not need much explanation; Fuchs attributes to skills problems. SERVICES ARE INNOVATIVE LAGGARDS. Their (technological) innovations mainly come from manufacturing sectors (Pavitt 1). </li></ul><ul><li>Slow productivity growth (plus new services) will lead to sectoral shift in employment. (Though Gershuny hypothesis: goods and self-services compete with services.) </li></ul><ul><li>Emergence of new IT – a technological and/or industrial revolution in services (Barras) </li></ul><ul><li>Service innovation comes to the fore: understudied, and argument about whether it is something new (?Barras) - DEMARCATION- or can be handled using conventional tools and techniques - ASSIMILATION </li></ul>
  18. 18. Assimilation - Demarcation Coombes and Miles, 2000 Innovative activity diffused among functional units of firms Project rather than R&D management. Organisation of Innovation: R&D managment Innovative activity seen as intrinsically structured as participating in a process located in a network’ usually not closely bound to one sole ‘innovator’ Innovations co-produced with clients may be attributed solely to the latter. Location of innovation: Relatively easy to trace innovator Material changes may be classified as standard into product, process (and delivery?) etc. Immaterial changes could be divided into those ‘focused on client relationships’ or ‘focused on internal processes’, with subcategories (e.g. transactions, product tracking, etc.) The term ‘innovation’ is problematic. Product-process distinction liable to be misleading – consider delivery and other interactional innovations. Organisational innovation seems critical in many services, but is hard to quantify. Definition of innovation: Should be the same, especially focusing on technological innovation Need a new concept of ‘investment in innovative activities’ (defined as having the intention of altering the nature of the market offering of the enterprise, or of its underlying costs of doing business) Term not seen as appropriate even in many technology-intensive services (despite Frascati modification to include software). Role of customisation much more ambiguous than Frascati manual implies. Definition of R&D: Should be the same, perhaps services will focus on specific areas and be more concerned with absorption In all sectors innovative activities in marketing, distribution etc. are often not under purview of R&D Managers - liable to be overlooked in surveys etc (and in firms’ own strategic planning?) Conventional terminology inappropriate to and unrecognised by many services. Important role of organisational innovations, yet these remain poorly measured in received approaches. Concepts of R&D and Innovation: Should be the same, perhaps service staff need education, perhaps services are mainly assimilating manufactures Synthesis Demarcation Issue: Assimilation
  19. 19. Den Hertog’s framework
  20. 20. For EU-wide CIS4 analysis <ul><li>See Arundel et al Innovation Statistics for the European Service Sector </li></ul><ul><li> </li></ul><ul><li>Compares “industry” and services, and provides data on KIBS in particular; explores </li></ul><ul><ul><li>1) use of intellectual property, </li></ul></ul><ul><ul><li>2) demand conditions, </li></ul></ul><ul><ul><li>3) supply of qualified personnel, </li></ul></ul><ul><ul><li>4) use of public science, </li></ul></ul><ul><ul><li>5) start-ups, </li></ul></ul><ul><ul><li>6) innovation support programmes, </li></ul></ul><ul><ul><li>7) regulatory burdens, and </li></ul></ul><ul><ul><li>8) financial constraints. </li></ul></ul>
  21. 21. Innovation Surveys (CIS) – services v manufacturing
  22. 22. A more detailed look Physical services – less innovation? Information services – more innovation?
  23. 23. Services Innovation Styles differ “ Which of these areas are your innovation efforts focussed on?” Max. choice = 2) INNOVA survey, Howells and Tether 2002)
  24. 24. CIS4 results Tobias Schmidt & Christian Rammer (2006) The determinants and effects of technological and nontechnological innovations – Evidence from the German CIS IV
  25. 25. CIS4 results UK data
  26. 26. Conclusions <ul><li>Are services innovative – are some services especially innovative? </li></ul><ul><li>Are services innovative in different ways? </li></ul><ul><li>Is IT especially important in service innovation? </li></ul><ul><li>Is a focus on technological innovation sufficient – or are we getting drawn into minor organisational changes and strategic issues when looking beyond technology? </li></ul>
  27. 27. End of presentation