Models and Theories of Service Innovation - IME 2010 seminar 2

Manchester Institute of Innovation Research

IME - Service Innovation - 2010 BMAN62052

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Service Innovation - Models and Theories

Ian Miles

[email protected]



MIIRO Mission for today

Consider major images of services

Assimilation/demarcation

Implications of innovation trends

Services as laggards?

IT and services

The Reverse Product Cycle theory

What do surveys tell us?



MIIROInnovation is Important to

ServicesPrivate services – competitive pressure (especially as service trade, liberalisation, deregulation allows new competition)Public services – pressure to save costs and to respond to new social demands.All services – potential competition with disruptive services and/or manufactures:Declining service quality (vicious circle); polarised services for rich and poor; loss of public service

and service employment

Possible solution in service innovation – including new IT

Fewer users

Less income/political support

Cost reductions: reduced service frequency, etc



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Classic Views of Services

Deindustrialisation Post-industrialisation

Underlying Image

“Stuck in the past” “The coming thing”

Value Often unproductive – especially public services, where demand reflects political rather than economic agendas; but also many professional services are overprotected and simply feed themselves.

Often superior products, which leads to increased demand for services as affluence grows. (Business demand for services – reflects new problems and challenges in more complex, knowledge-based society)

Economic role

Burden on other sectors – especially due to taxes and labour market distortions from public services, but also from some private services (unproductive consumption).

Job generating; contributing to overall quality of life; helping to co-ordinate complex economy and society.

Innovation Economic growth is based on innovation in manufacturing. Services lag behind (usually far behind) in use of technology and in productivity growth.

Often substantial organisational innovation in services. Technological innovation is less pronounced - thus expanding services absorb labour displaced by manufacturing automation.

Skills Usually low level, frequently involve manual work ; sometimes knowledge is protected by professional elites.

Often demand high professional, technical and especially social skills.

Quality of working life

Jobs often low status, low wage, part time, etc.

Jobs often professional and rewarding knowledge work.

what data support one

or other view?



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Views of Innovation and Services

Deindustrialisation Post-industrialisation

Innovation Economic growth is based on innovation in manufacturing. Services lag behind (usually far behind) in use of technology and in productivity growth.

Often substantial organisational innovation in services. Technological innovation is less pronounced - thus expanding services absorb labour displaced by manufacturing automation.

Implication:

Services display lower rates of productivity – and quality? – growth than manufactures.

So there is a shift in employment, if demand for goods and services grows equally, or if services are “superior” and purchased more as people become more affluent – cf Engel, Maslow, Inglehart… This seems to be Bell’s assumption, and to fit the grand employment trends

(As noted last week, in the late 1970s Jiri Skolka and Jay Gershuny raised questions about the long-run implications of “unbalanced productivity growth” – manufactured goods (cheapened and improved by innovation) may compete with

services (remaining unmodernised)



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Services, textiles and agriculture

high-tech firms in industries such as pharmaceuticals and electronics

large firms producing basic materials and consumer durables, e.g. automobile manufacture

specialized machinery production and high-tech instruments.

Supplier-dominated firms

Science-based firms

Scale-intensive firms

Specialised equipment producers

Sectoral Patterns of Innovation – received view

Classic Pavitt (1984) Sectors include:



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Supplier-dominated firms

Science-based firms

Scale-intensive firms

Specialised equipment producers

Patterns of Innovation rethought: varieties of service firm

Classic Pavitt (1984)

Many traditional service sectors – personal and retail trade services, many public services

Production-intensive scale-intensive sectors: large organisations with much back-office innovation (incl some supermarkets, etc.)

Network sectors – physical networks (e.g. transport, wholesale), information networks (e.g. telecomms, banking)

Specialised technology suppliers and science-based sectors – computer & engineering services

Soete & Miozzo (1989 and later)



MIIRO Beyond Supplier-Domination

Several authors, including Pavitt himself, have revised his taxonomy – see recent studies like F. Castellacci, (2008) "Technological paradigms, regimes and trajectories: Manufacturing and service industries in a new taxonomy of sectoral patterns of innovation". Research Policy 37: 978–994; D. Archibugi, (2001) "Pavitt's Taxonomy Sixteen Years on: A Review Article". Economics of Innovation and New Technology 10: 415–425.

Impact of new IT as well as growth of service sectors

Do we need to treat services separately?



MIIRO Assimilation - DemarcationIssue: Assimilation Demarcation

Concepts of R&D and Innovation

Should be the same, perhaps service staff need education, perhaps services are mainly supplier-driven, assimilating manufactures

Conventional terminology inappropriate to and unrecognised by many services. Important role of organisational and service innovations, yet these remain poorly measured in received approaches.

Definition of R&D Should be the same, perhaps services will focus on specific areas and be more concerned with absorption

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 innovation

Should be the same, especially focusing on technological innovation

Even the term ‘innovation’ is problematic. Product-process distinction liable to be misleading – consider delivery and other interactional innovations. Organisational innovation seems critical in many services, but is hard to quantify.

Location of innovation

Relatively easy to trace innovator

Innovations co-produced with clients may be attributed solely to the latter.

Organisation of Innovation

R&D management Project rather than R&D management.

Coombs and Miles, 2000



MIIRO Synthesis

Issue Synthesis

Concepts of R&D and Innovation

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?)

Definition of R&D Need a new concept of ‘investment in innovative activities’ (defined as having the intention of altering the nature of the market offering of the enterprise, or of its underlying costs of doing business)

Definition of innovation Material changes may be classified as standard into product, process (and delivery?) etc. Immaterial changes could be divided into those ‘focused on client relationships’ or ‘focused on internal processes’, with subcategories (e.g. transactions, product tracking, etc.)

Location of innovation Innovative activity seen as intrinsically structured as participating in a process located in a network’ usually not closely bound to one sole ‘innovator’

Organisation of Innovation Innovative activity diffused among functional units of firms

Coombes and Miles, 2000



MIIRO Service Innovation and ITFrom late 1970s, apparent that new IT was being widely employed in service sectorsIndeed 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.Apparent by early 1980s that services adopting IT heavily: 80% of IT investment from services.Much description of new service products and processes, but little theorisation at first.



MIIRO Different classes of service

Miles (1984 on…)PHYSICAL SERVICES: especially energy technologies, motor power – consumer goods vs final services. IT to control and increase effiuciency.PERSON-CENTRED SERVICES: basic information processing, plus innovations in medicine, etc. (More sophisticated IT more personalisation)INFORMATION SERVICES: major scope for applying IT of all sorts – and this is where big investments are. In Information sectors, and back-office jobs.



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Demarcation approach - Richard Barras’ Reverse

Product CycleContrast with the classic model of innovation in which:

Innovator creates a new productProduct comes to market, and goes through a phase of refinement – improved quality (reliability, user-friendliness, etc)Product is stabilised, and competition moves to focus

on efficient production – i.e. process innovation

Abernathy & Utterback “ Patterns of Innovation in Technology” Technology Review 1978



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Barras’ ‘Reverse Product Cycle’ (1986)

Initial Phase Second Phase

Third Phase

Nature of Innovation

Incremental Process Innovation

Radical Process Innovation(quality)

Product Innovation

Aims To improve the efficiency of the existing servicesReduce the cost of providing the service

To improve the effectiveness of existing servicesTo expand the market for the improved product

To develop new service products to differentiate one from others in the market

Type of investment

Investment in capital deepening technology

Investment in capital widening technology

Investment in capital widening technology

Impact on Labour

Labor displacing Neutral impact on employment

Employment generating



MIIRO Four sectors and the RPCPHASE (1) 1960s-

1970s(2) 1980s (3) 1990s

ONWARD


Incremental Process Innovation

Radical Process Innovation

Product Innovation

Aims Efficiency Improvement

Quality Enhancement New Service Realisation

Technological Innovation in IT

Producer Sectors

Mainframe Computers

On-line Systems; Minis & Micros Dumb

& Intelligent

Networking (particularly ISDN)

SECTOR APPLICATIONS

Retail Banking Automated transactions and financial records

ATMs, Financial customer/information

systems

Cashless shopping (EPOS) Home

Banking

Insurance Computerised policy records

On-line policy quotations

Complete on-line service

Accountancy Computer audit; Internal time

recording

Computerised management accounting

Fully automated audit & accounts

Local government

Corporate financial systems (e.g. payroll)

Departmental service delivery (e.g. housing

allocation)

Public information services (e.g.

viewdata)



MIIRO Banks as Vanguard: Phase 1Nature of Innovation Incremental Process Innovation

Time Mid 1960 – Mid 1970

Technology Main frame computers

Purpose of technology application

To store, manage and organise financial transaction data

Example of tasks Routine TasksDealing with customer accounts, booking

keeping, producing statements

Role of Technology Supplier

Supplier of technology actively introduces the technology to the adopting firm.

Role of the Firm (bank)

Ensuring the staffs has adequate training regarding the use of the new technology.

Market React to those firms who could provide financial information quickly

Industry Competition Those adopting the technology first will have considerable competitive advantage.



MIIRO Phase 2Nature of

InnovationRadical Process Innovation

Time Mid 1970 – Mid 1980

Technology Network technologies Technological SystemsAutomated teller machine networks


To create linkages – mainframe linking with dumb terminals thus facilitating the improvement of service quality

Example of tasks Dispensing cash out of work hoursImprove the speed of cash dispensing service


To introduce applications which ensure intra-bank connectivity.


Building on the embodied knowledge of using the technology, banks now attempt to establish inter-organisation links through the use of technology.

Market Consumers enjoy the convenience of the interbank connectivity.

Industry Competition

Most firms have adopted the new technology; the industry now looks at system integration.



MIIROPhase 3


Time

Technology


Example of tasks



Market

Industry Competition

Product Innovation

Mid 1980 – Mid 1990 1990 and beyond

Further upgrade of network technology: Integrated system

Infrastructure: ISDN network/communications system

Extend linkages: mainframes link intelligent terminals.

Creating linkage between banks, businesses and individuals

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”

Home banking/ Shopping

less responsive in this phase.

Introducing new services to the client using existing databases. Providing staff training for new technology application. Educating customers regarding new technology application.

Consumers enjoy more flexibility with the service offered by firms. The access to the service without being in the premise of the bank.

Competition by differentiated service products.



MIIRO Barras Account

Very popular: intuitively plausible

But:Does it apply to all services, or just information services (finance etc.)?

Is it a general model, or one that happens to capture service innovation at one point in time (after new IT emerges)?

How can it be tested empirically?

What are the implications for management?



MIIRO More Recent Accounts

Much effort to examine service firms and sectors as innovators through use of surveys such as CIS – Community Innovation Survey.

Note that these were originally designed for manufacturing, but have been elaborated to include services.

Some efforts to explore features of service innovation and new service developmenty.



MIIROInnovation Surveys (CIS)–services v manufacturing

0 10 20 30 40 50

Enterprises w ithinnovation activity

Successful innovators

Product onlyinnovators

Process onlyinnovators

Product and processinnovators

Services

Industry



MIIRO A more detailed look

0 10 20 30 40 50 60

TKIBS

Financial

Wholesale

Transport & comms

Utilities

Manufacturing

Extractive

Product and process innovators

Process only innovators

Product only innovators

Successful innovators Physical services – less innovation?

Information services – more innovation?



MIIRO For EU-wide CIS4 analysisSee Arundel et al Innovation Statistics for the European Service Sectorhttp://www.europe-innova.org/exportedcontent/docs/80/8380/en/Innovation_Indicators_for_the_European_Service_Sector.pdf

Compares “industry” and services, and provides data on KIBS in particular; explores

1) use of intellectual property, 2) demand conditions, 3) supply of qualified personnel, 4) use of public science, 5) start-ups, 6) innovation support programmes, 7) regulatory burdens, and 8) financial constraints.



MIIRO Evangelista/Savona TaxonomyInnovative Intensity & relevance of R&D & design

Relevance of external technological sources (investment)

Use

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Technolo

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Users

Interactive

Consultancy

S&T Based

Post & tele-communications

R&D services

Engineering & Computing

Legal, Other financial,

Travel, Retail

Security, Cleaning, Other

Business

Waste, Land &

Sea Transport Banks,

Insurance, Trade/repair of motor vehicles,

Hotels

Advertising

Technical Consultancy



MIIROWithin-Sector Variation - Hipp/Grupp Taxonomy

Nearly Soete/ Miozzo categories

But we may need other categories for describing, e.g. professional, public and creative services.



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Services Innovation Styles differ (INNOVA survey)

“Which of these areas are your innovation efforts focussed on?”

Max. choice = 2)

INNOVA survey, Howells and Tether 2002)



MIIROCIS4 results

Tobias Schmidt & Christian Rammer(2006) The determinants and effects of

technological and nontechnologicalinnovations – Evidence from the

GermanCIS IV



MIIROCIS4 results

UK data

Other Business Sers.Legal Sers.

Architecture

Financial sers.

WholesaleReal Estate

Labour Recruitment

Other Transport sers.

Vehicle trade

RetailHORECA

Courier + post

Extractive, Construction, Utilities

Manufacturing

TelecommsComputer Sers.

R&D

0

10

20

30

40

50

60

70

80

0 10 20 30 40 50 60 70 80



MIIROHow can we understand

innovation in service products?Delivery as something other than product and process.“Servuction” as interaction between service supplier and user – “servuction innovations” parallel to “production” innovations?Issues like coproduction of service – and of innovation…In future weeks we will consider new service development and service design…For now, a proposed framework for thinking about dimensions of service innovation:



MIIRO Den Hertog’s framework



MIIRO ConclusionsWe know that even in conventional terms, many services are innovative – and some services are especially innovative.Some services appear to innovate in non-standard ways, and service innovations might need to be described in new ways.IT is especially important for service innovators; but is it the whole story?Indeed, do we need to move beyond a focus on technological innovation? Can we / should we examine organisational changes, business model innovations, new marketing strategies, etc.? Many innovations blur boundaries.



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End of presentation(some extra slides follow)



MIIRO Implications of ImbalancePer £, $, €, spent, what consumers get from services purchases should grow at a lesser rate as compared to manufacturing – may even decline with inflation.Costs of – train fares, theatre tickets, complementary therapy – as against, say, cars, televisions, clothes.What if many services are substitutable with goods?



MIIRO Implications of Imbalance 2

What if many services are substitutable with goods?

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

Models and Theories of Service Innovation - IME 2010 seminar 2

Business

Transcript of Models and Theories of Service Innovation - IME 2010 seminar 2