keis04 services 2008

Manchester Institute of Innovation Research

The Information Society - 2006Knowledge Economy and Information Society - 2008

Ian MilesMIoIR

University of [email protected]

Service Economy = Knowledge Economy, Information Society??



This seminar will…

• Examine “services” and “the service economy” (related to Knowledge Economy/ Information Society)

• Consider implications of Information Technology (IT) and Knowledge-Intensity for services firms, sectors, activities

• Explore the phenomenon of KIBS.

… in two main parts



Part 1: Two Issues

• Service Economy notions overlap with Information Society, Knowledge-Based Economy

• (Richard Barras): IT as an industrial revolution in services



Service Economy as “New Thing”

• Daniel Bell (and others) 1960s, 1970s: “The Coming of Post-Industrial Society” – relative growth of services sectors

• Bell also stressed increasing role of knowledge – industries based on new knowledge, workers requiring more knowledge as compared to deskilling trend in Taylorism/Fordism

• In late C20th, rise of knowledge-intensive services – esp. KIBS – seen as key to Knowledge-Based Economy

Part 1

Part 2



Services Workforce Growth – a global phenomenon

James Spohrer,. Michael Radnor, “Service Innovations for the 21st C” IBM Research Service Innovations

Workshop, November 2004, http://www.almaden.ibm.com/asr/events/

serviceinnovation/contacts.

Top Ten countries in terms of Labour Force – these constitute more than 50% of world employment! A=agriculture, G= goods/manufacturing, S=services



Growth in Employment

- only slightly less pronounced for

output (GDP share)

0

10 20 30 40 50 60 70

Agriculture Industry

Services

EU15

0 10 20 30 40 50 60 70 80

Japan

0

10 20 30 40 50 60 70 80

c. 1900 c. 1950 1971 C2000

USA



0

10

20

30

40

50

60

70

80

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

EU15 ServicesEU25EU15 IndustryEU25

EU15 AgricultureEU25

Perc

enta

ge S

hare

s of

Em

plo

ym

ent

The EU service economy

sector

^

Service sectors are reported here: there are also growing

shares of service activities within firms in other sectors



Gender Structure and Employment Trends

0

10

20

30

40

50

60

70

80

90

100US male US female Japan male Japan female UK male UK female

Male dominated (except Japan) -

Decline in all categories

Male dominated - Decline in all categories

Female dominated –growth

1980 ? 1998? 1980 1998 1980 1998 Agriculture “Industry” Services

Pro

port

ion o

f w

ork

forc

e



“The” Service Sector dominates employment…



Different Services – Different Trends

0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35Germany France Netherlands

Sw eden UK US

0

5

10

15

20

25

30

350

5

10

15

20

25

30

35Distributive Services

Personal Services Producer Services

Social Services

1960 1973 1984 19971960 1973 1984 1997



What are Services?

• We’ve been looking at service SECTORS -• sectors that do not (in general) produce goods or other

artefacts (raw materials, buildings, water and power…)• They undertake other sorts of transformations:• Transformations of goods and other physical objects

e.g. repair, storage, transport (some analogies in treatment of people).

• Transformations of people e.g. health and personal services

• Transformations of information e.g. communications, transactional services; and of knowledge e.g. consultancy



G. Hotels and Restaurants (HORECA)

H. Transport, Storage

I. Financial Intermediation (FI...

J. Real estate, Renting (…RE), Business Activities

K. Wholesale & Retail Trade; Repair of Motor Vehicles, Motorcycles 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

Includes KIBS

Services in NACE

effects on Material Artefacts

PERSONAL care & Material Comforts

Both people and things

Mainly informational

Informational, material, plus diverse BUSINESS services inc KIBS

PUBLIC (inc knowledge activities) and PERSONAL



Meanings of “service”Service Sectors (industries) - firms and sectors

specialised in supplying services

Service activities (functions) - particular “intangible” transformations that may be produced in these specialised service firms, in other firms (e.g. “product services”) or by other means.

Service occupations - employees in all sectors involved in “service” functions within their firms

(career of the word “industry”: from work to manufacturing to sectors)

(Classically - domestic service, servants . Can services be provided by goods as well as by people? Self-services?)

(white collars, transport, SCC, etc – “nonproduction workers”)



Service Transformations: Terence Hill, Dorothy Riddle, and beyond...

Primary sector: extract raw materials from environment Secondary sector: transform these raw materials into material artefacts (goods, buildings, etc). Tertiary sector: effect changes in state of:

environments - waste disposal, pollution clean-up, park-keeping; artefacts produced by the secondary sector - repair and

maintenance, goods transport, building services, wholesale and retail trade;

people - health and education services, hospitality and consumer services such as hairdressing, public transport;

symbols (information) - entertainment; communication; consultancy; professional services; finance



Reading Triangular PlotsElement A

Element B Element C

High A, low B and C

A, B, C roughly equal

Moderate A, low B, moderate C

Fairly high B, fairly low A and low C

Can be used where three elements add up to 100%

We can often capture features of services in terms of three dimensions:

so we can use triangular plots to

capture and explore diversity



Diversity in Workforce skills

Agriculture

Manufacturing

HORECA

Trade Transport Pub.

Admin.

Other Sers.

FIRE

Education

Business Sers._ Health & Soc.

Sers.

HIGH SKILL

LOW SKILL

MEDIUM SKILL

The highest skilled parts of the economy

– also highest growth!

EU, 2000



Diversity in inputs (transformations)

PHYSICAL

SOCIAL INFORMATIONAL

Trade

Recreational

Other Sers.

HORECA

Public Sers.

FIRE

Comms.

KIBS

Other Bus. Sers.

Transport

ConstructionManufacturing

Agr. Fish. Forestry Utilitie

s

Services undertake a

HUGE range of transformations – as previous

graphic indicated, some

are more knowledge-

intensive than others



Diversity in Markets

Businesses

NON-MARKET Consumers

Public Sers. HORECA

Recreational

KIBS

Extractive

ConstructionOther Bus.

Sers.

Other Sers.Trade

FIREManufacturing

Agr. Fish. Forestry

Transport

Comms.Utilities



Services Tendencies:

• LESS ABOUT MATERIAL PRODUCTION OF TANGIBLE ARTEFACT• MORE PRODUCTION OF “SERVICE”: SUPPLIER - CLIENT INTERACTION often very important • Often this interaction means exchange of information, working together to “coproduce” service – even when core service is something rather tangible (like physical health or transport)• and informational activities like design, transaction, booking, training surround many services



What lies behind services growth?

Post-industrial argument (Bell)• it’s mainly consumer demand• Engel’s law: as you get richer, you

spend proportionally less of your income on potatoes

• Shift to “superior goods” (i.e. services)

• Or is it?



• On the whole, not shift in consumer demand (post-industrial hypothesis)

What Drives Services Growth?

•Consumer expenditure does shift across categories – thus away from “basic needs” towards “higher needs”

•But this does not simply equate to shift from goods to services

•This much less clear in the data

•Gershuny: within categories, consumer demand shifts from services to goods




• On the whole, not shift in consumer demand (post-industrial hypothesis) US data





• Public sector growth (in many countries) – political drivers and limits?

• BUSINESS SERVICES





• Public sector growth (in many countries) – political drivers and limits?

• BUSINESS SERVICES SERVICES SERVICES



Services and IT• Who invests most in IT? (Roach, Miles et al,

Kimbel) Services are major investors in IT equipment - c 80%. They are major users of IT labour (c 50% of software staff in UK, main destination of graduates in Nordic countries)

• This is uneven - financial services are very IT intensive, consumer services and retail not (but large firms in all sectors usually are)

• IT applications in process (office work, ‘front-line’

staff), product and delivery (esp. information

services and information components of services),



IT as “industrial revolution” in services

• Richard Barras (Research Policy 1986)Services investment in IT represents a shift from ‘plant’ to ‘equipment’ investment – analogous to the shift from factories to machinery in C19th manufacturing: thus “an industrial revolution in services?

• Changes in work organisation, productivity, etc.

• New IT services - software, computer services, telematics services, new media...

• And business services supporting the “IT revolution”



RPC Model

Process Innovation - efficiency

Process Innovation – improved service

Product Innovation – new service



Services Productivity

• Services take bulk of IT investment – but display lower productivity growth. Why?

• Some services are problematic?• Growth underestimated? poor measures of

output, quality change. Need better measures.

• Benefits to clients appear elsewhere?• There’s a general “productivity paradox”

maybe more acute in services - Gains from IT investment may only appear in long-term - or with organisational change?



The Productivity Paradox Resolved?

Long-term convergence in labour productivity (GDP/hour worked) between EU and US seems to have reversed since 2000

40

38

36

32

301990 1992 1994 1996 1998 2000

2002 03

EU

US



Innovation –services v manufacturing

0 10 20 30 40 50

Enterprises w ithinnovation activity

Successful innovators

Product onlyinnovators

Process onlyinnovators

Product and processinnovators

Services

Industry



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?



Services Innovation Styles differ

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

Max. choice = 2)

INNOVA survey, Howells and Tether 2002)



CIS4 resultsTobias Schmidt & Christian Rammer

(2006) The determinants and effects of technological and nontechnological

innovations – Evidence from the German

CIS IV



Part 2 - KIBS• We’ve seen that a major source of

services growth is for business services

• Among these are the most knowledge-intensive sectors

• Thus seen as core element of the emergent knowledge economy



Business services – recent growth

Shares of value-added: manufacturing

and BS



Business Services sectorsNACE

ClassnServices Most important activities

71.1, 71.21-23,

Leasing & renting Renting of transport and construction equipment Renting of office machinery incl. computers

72.1 - 6 Computer Hardware consultancy; Software consultancy; Data processing; Database activities

73.1, 73.2 R&D Research and experimental development on: natural sciences and engineering

… social sciences and humanities

74.11, 74.12, 74.14

Professional Legal activities; Accounting and tax consultancy; Management consulting

74.13, 74.4 Marketing Market research; Advertising

74.2, 74.3 Technical Architectural activities; Engineering activities; Technical testing and analysis

74.5 Labour recruitment

Labour recruitment and provision of personnel

74.6, 74.7 Operational Security activities; Industrial cleaning

74.81-84 Other Secretarial and translation activities; Packing activities; Fairs and exhibitions



LTMMLTM

MHTM HTM

Extraction

Construction

TS1

TS2

IT1

IT2FS1

FS2

PS1

PS2

PS3

TR1

TR2 TR3

WS

0%

10%

20%

30%

40%

50%

60%

70%

40% 50% 60% 70% 80% 90% 100%

Proportion of Firms Employing Graduates

Me

dia

n P

rop

ort

ion

of G

rad

ua

te S

taff

am

on

gst

Gra

du

ate

Em

plo

yers

An indicator of knowledge-intensity – graduate employment

% Firms employing graduates

% o

f g

rad

uat

e st

aff

amo

ng

em

plo

yers

Technical and IT

services (except

telecomms)

Professional services

Manufacturing

Financial services

Trade and Transport

0%

40%

70%

100%



Types of Knowledge processed by KIBS

• Technology• Design and Research• Market Relations• Organisation and Management• Human Resources and Skills• …



How is Knowledge Used?

KIBS Role with

clients

InformativeInformative

Diagnostic Diagnostic

AdvisoryAdvisory

FacilitativeFacilitative

Turnkey Turnkey

ManagerialManagerial

environmental intelligence for client’s planning

identify and evaluate solutions for the client

put the solutions in place (e.g. systems integration)

implement solutions for the client

explicate the nature of the client’s problem

help the client effect the solutions



Implications for Client Innovation

• Apart from freeing up resources, and being dispensable…

• KIBS are specialists - in acquiring, possessing and communicating knowledge. Alternative to labour mobility.

• Able to draw on generalised knowledge from other firms and sectors. FUSION

• Less wedded to heritage, organisational rigidities, factions

• Coproduction of innovation



But can be problematic• Client needs absorption capacity…• Timing issues• Loss of organisational memory (though

chance for new learning)• Insensitivity to organisational culture, even to

national culture• Too close ties to clients and/or suppliers• Quality control, information asymetries



Services Innovation…

Service firms are

– Less likely to conduct (or recognise conducting) R&D, to conduct so much R&D

– Much less likely to organise R&D through conventional management structures – few R&D departments and managers

– Much more likely to have project management– To stress acquisition of technology, human resources,

market development– But situation always varies across diverse services.

• R&D is often NOT the major locus of knowledge generation: professional and in-service vectors are important

• Services play a role in innovation through the economy, and managers in all sectors respond to this.



End of Presentation

keis04 services 2008

Technology

services firms

education services

consumer services

transactional services

product services

features of services

knowledgeintensive services

services workforce growth