UAM, Madrid, March 2013

The New Service Economy – Innovation in services

Ian Miles

(University of Manchester, and HSE, Moscow)Ian.Miles@mbs.ac.uk

Ian.Miles@hse.ruManchester Institute of Innovation Research

Laboratory for Economics of Innovation

Overview

Service Innovation, and Innovation in Services, is NOW (almost) mainstream

How Understanding of Services and Service Innovation has evolved

New Approaches to Service Innovation

Services and Technological Innovation

Interest in “Service Innovation”

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ions

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service innovation

new service development

innovation in services

Publish or Perish data www.harzing.comMarch 3rd 2013

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Publish or Perish data www.harzing.comMarch 3rd 2013

2010

2004

Service Industries – Innovation IN ServicesNACE Rev 1

•Hotels and Restaurants (HORECA)

G

•Transport, Storage

H

•Financial Intermediation (FI...

I

•Real estate, Renting (…RE), Business Activities

J

•Wholesale & Retail Trade; Repair of .Motor Vehicles, Motorcycles and Personal & Household Goods

K

•Public Administration and Defence; Compulsory Social Security

L

•Education

M

•Health and Social Work

N

•Other Community, Social and Personal Service Activities

O

Includes KIBS

Sections

Industries These are the service specialists

Perspectives on Service(s)Primary industries specialise in extracting

things (raw materials, etc.) from the natural world (and change and manage parts of that world).

Secondary industries specialise in making things (from other things): Manufacturing makes 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 new ways. (Largely technological innovation.)

Service innovation then: doing new things, doing things in new ways.

Whether in service industries (“innovation in services” 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 transformationsphysical, chemical, biological, psychological, informational (etc.)

of EntitiesMaterial 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 Transformation

Some human corporeal transformation is of low complexity – personal services like cosmetic and hairdressing (can be quasi-medical, though usually routine). Innovation in aesthetics, consumables.

Other transformations of people and artefacts are much more

physical – e.g. transport, HORECA, repair/ maintenance. Application of power machinery.

Informational –e.g. providing experiences, entertainment, education

Three Transformational Types

Physical Transformations

e.g Cleaning, Transport

Often much manual, sometimes low-skill work

Environmental sustainability, “self-

service”

Power and engine systems; technologies

under repair etc.

Business model change

Human Transformations

e.g. Health, Personal Services

High presence, often high involvement of Consumer/User

Human diversity, Interpersonal relations

Many specialised, from very low to very high-tech

Changing role of public sector

Informational Transformations

e.g Finance, Communications

Range of mass and customised services

Keeping apace of platforms and users, IP

IT and supporting systems (e.g. Batteries)

New functionality (e.g. Location) and knowledge

(e.g. Neuro...)

Manual Activity Knowledge-intensive activity

Examples

Features

Challenges

Technologies

Trends

Many activities, and most service industries, involve some mixture of all three

Not all service innovation is technological

Innovating service suppliers often use new technology, at least in a facilitating role

But even here there are exceptions: especially in personal servicesE.g. CBT (.5m treatments in UK in 2012)

Alternative to pharmaceuticals

NHS: “one of the most

effective treatments for

anxiety and depression.”

Can be via book or software

And now “web therapy”

But still usually face-to-face, Sometimes in groups

Situation

Altered Thinking

Emotional Feelings

Physical Sens-ations

Behaviour

Opportunities influenced by state of science and development of practical experience... Health services involve particularly complex and long-term sequences of problem-solving, involving many professions and bodies of knowledge in complex (public-private) institutional frames...Numerous specific innovations. See: D.Consoli et al, 2007, “The Process of Health Care Innovation” in J Costa-Font et al (eds) The Economics of New Health Technology Oxford University Press

Not all Technological Innovations in Services are IT-based

Many service processes are highly specific

The transformations can benefit from particular categories of technology.

For example, medical services may apply tools and knowledge concerning:

Pharmacology

Radiology

Surgery

Physiology

Genomics...

Information Technology is nevertheless pervasive

While there are many specific service technologies

Surgical tools, hairdryers, trains, trolleys, fast-food containers, clipboards....

Most services are information-intensive, in front and back offices

Thus most are IT-intensive

Barras: IT represents an industrial revolution for service sectors: IT investment is very heavy from them.

Information Technology evolution

Inspired by Marc Weiser et al: - cf: I Miles (2005) “Be Here Now”, INFO Vol. 7 No. 2, pp49-71

Mainframe mini

VANs

Experts

Centralised

Numbers

Micro PC

LANs

Profess-ionals

“End-User”

Text/ graphics

Networks & laptops

Web

Public

Content

Commun-ication

Tablet, smartphone

WiFi, 3G

Wide public

Web2.0,

P2P

Multimedia

Sensors, Actuators

WiMax, 4G,cloud

Ubiquit-ous

Internet of things,

locations

Control

Biodevice

+ + +

Ambient

Semantic web

Enhance-ment

Mainframe mini

VANs

Experts

Centralised

Numbers

Micro PC

LANs

Profess-ionals

“End-User”

Text/ graphics

Networks & laptops

Web

Public

Content

Commun-ication

Tablet, smartphone

WiFi, 3G,

Wide public

Web2.0,

P2P

Multimedia

Sensors, Actuators

WiMax, 4G,cloud

Ubiquit-ous

Internet of things,

locations

Control

Biodevice?

+ + +

Ambient

Semantic web

Enhance-ment

Information Society

One for Many

People

One for a Few

People

One for Each Person/Place

A Few for Each

Person/Place

Many for Each Person/Place

Mainframe mini

VANs

Experts

Centralised

Numbers

Micro PC

LANs

Profess-ionals

“End-User”

Text/ graphics

Networks & laptops

Web

Public

Content

Commun-ication

Tablet, smartphone

WiFi, 3G,

Wide public

Web2.0,

P2P

Multimedia

Sensors, Actuators

WiMax, 4G,cloud

Ubiquit-ous

Internet of things,

locations

Control

Biodevice?

+ + +

Ambient

Semantic web

Enhance-ment

Information Technology Use is one shaper of Service

Economy

One for Many

People

One for a Few

People

One for Each Person/Place

A Few for Each

Person/Place

Many for Each Person/PlaceEvolving Views of Service Economy (& Service Innovation)

Service Economy

1.0

Service Economy

2.0

Service Economy

3.0

Service Economy 1.0“Post-Industrial Society” - 1960s-’80s

1966-1970

1971-1975

1976-1980

1981-1985

1986-1990

1991-1995

1996-2000

2001-2005

2006-2010

0

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140

160

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200

Service Economy

Post Industrial SocietyService Economy

1.0

Phrases in titles: Harzing’s Publish or Perish 3/1/2013

Service Economy 1.0“Post-Industrial Society” - 1960s-’80s

Economy of services sector(s)

Growth driven by consumer demand, welfare state provision, low productivity growth

Innovation relatively low, supplier-driven

Industries are pre- or post-industrial - too complicated or particularised for mass production

MoT thus seen as adoption of technology from elsewhere

Exceptional services sequestered

Examples: Bell, Fuchs,Touraine

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 – traditional view

Original formulation of Pavitt (1984): four broad

types of innovation Sectors include:

Thus, diffusion is the issue: and maybe slow uptake is the “problem”

Innovation – overwhelmingly identified as technological.

Pavitt, K. (1984) ‘Sectoral Patterns of Technical Change: towards a taxonomy and a theory’ Research Policy 13 (6) pp.

343-373

Manchester Institute of Innovation Research

Traditional view of service innovation

(with very few exceptions)

Service industries play little role in (technological)

innovationand can thus be ignored by innovation

policy

Increasingly hard to sustain this view as

technology-based services become

important to innovation in all

sectors

and as many more traditional service sectors displayed considerable technology adoption and innovation

Service Economy 2.0Knowledge-Based Economy: 1980s-2000s

Phrases in titles: Harzing’s Publish or Perish 3/1/2013

Service Economy

2.0

1966-1970

1971-1975

1976-1980

1981-1985

1986-1990

1991-1995

1996-2000

2001-2005

2006-2010

0

500

1000

1500

2000

2500

Service Economy

Post Industrial So-ciety

Information Society

Knowledge Economy

Service Economy 2.0Knowledge-Based Economy: 1980s-2000s

New Information Technology widely adopted in service organisations- especially back-office in large organisations.

Many IT-related services assisting this - KIBS as supporting business processes and innovation across the economy.

New services and service delivery, new e-services.

Information Society, Knowledge Economy

Examples: Barras, Gershuny,

A similar (not identical) approach had already been developed in the 1990s by Gallouj – see recent work like F. Gallouj and F. Djellal (eds) (2010). The Handbook of Innovation and Services, Edward Elgar: Cheltenham

Framework developed by R Coombs & I Miles,

2000, “Innovation, Measurement and Services: the new

problematique” in J S Metcalfe & I Miles (eds)

Innovation Systems in the Service Economy Dordrecht: Kluwer

Perspectives on service innovation

Dis-missal

Demarc-ation

Syn-thesis

Assim-ilation

Dismissal

Different Disciplines Converge and Collide

Service Management:

stress coproduction

New Service Development:

stress intangibility

Innovation Studies:

stress information and

information technology

Management studies, esp. HORECA & trade

Marketing, esp. E-businessIndustrial economics, esp. High-tech, KIBS

Demarcation

Assimilation

Services are qualitatively distinctive, due to INTANGIBILTY and INTERACTIVITY : different forms of innovation and innovation process

Assimilation Perspective

Dis-missal

Demarc-ation

Syn-thesis

Assim-ilation

Dismissal

Service innovation is not distinctive; it

can be studied and organised in ways

familiar from analysis of.

manufacturing.

Services are qualitatively distinctive, especially due to INTANGIBILTY, INTERACTIVITY, etc. different forms of innovation & innovation process

Tend to focus on

technological innovation

(though some

theorists insist that

even technological innovation is distinctive)

Supplier-dominated firms

Science-based firms

Scale-intensive firms

Specialised equipment producers

Patterns of Innovation rethought: varieties of service

firm as innovator

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

(1989 and 2000) – mainly tech focus

Soete, L. and Miozzo, M. (2001). “Internationalization of Services: A Technological Perspective”

Technological Forecasting and Social Change 67, 159–185

From Pavitt to Soete & Miozzo

Services in Innovation SurveysInnovation surveys (originally the CIS) across Europe since 1980s, have included many service industries since 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

Dis-missal

Demarc-ation

Syn-thesis

Assimilat-ion

Dismissal

Services are qualitatively distinctive, COPRODUCTION, INTANGIBILTY, INTERACTIVITY, etc. different forms of innovation & innovation process

Service innovation is not distinctive; it

can be studied and organised in

ways familiar from analysis of

manufacturingExtensive discussion of

service specificities

(and the huge diversity across

services) in marketing

and management

as well as innovation

studies

Manufacturing vs Services -1

Factory

Goods

Goods Consumer

Service Producer

Services

Service Consumer

versus

Separation Closeness, Coproduction

Manufacturing vs Services Innovation 1

Factory

Goods

Goods Consumer

Service Producer

Services

Service Consumer

versus

Separation Closeness, Coproduction

Process Innovation

Product Innovation

Process andProduct Intertwined: Ideas of (e.g.) Delivery Innovation, Servuction Innovation

Back Office

Consumer Communities

Back Office

Manufacturing vs Services – 2

Factory

Goods

Goods Consumer,Use

of Goods

Front Office

Services

Service Consumer: action and transformation

versus

But not all service

process is immediately in

the coproduction

front-office space – much

back office invisible

preparation and support

Not all manufactur-ing processes are in tangible production: much back-office work here too.

Back Office

Consumer Communities

Back Office

Manufacturing vs Services - Innovation 2

Factory

Goods

Goods Consumer,Use

of Goods

Front Office

Services

Service Consumer: action and transformation

versus

Barras: Reverse Product

Cycle model: IT introduced

for efficiency in back office, then

applied to improved

quality and eventually

new services in front office

Service Economy 3.0 Economy of Service(s) 2010s-

Service Economy

3.0

Service orientation (Service-Dominant Logic) to forefront

“Service Science”, SSME

Product-service systems – and responses to Grand Challenges

Not just technology – but emergent processes and practices will be invigorated by use of new technologies like sensors, data analytics, etc.

Examples: Gallouj, Spohrer, Vargo/Lusch

Dismissal

A Synthesis?

Dis-missal

Demarc-ation

Synthesis

Assim-ilation

All sectors have diverse features, and many “service” elements

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

Aspects of a Synthesis

Dis-missal

Demarc-ation

Synthesis

Assim-ilation

All sectors have diverse features, and many “service” elements

Manufacturing features:

(KNOWLEDGE INTENSIVE) SERVICE

ACTIVITIES AS INNOVATION AGENTS

Services feature:

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)

“SERVITISATION”

SERVICE DOMINANT

LOGIC

TERTIARISATION GREATER TECHNOLOGY-

INTENSITY

INDUSTRIALISATION

“PRODUCTISATION”

ENCAPSULATION

Back Office

Consumer Communities

Back Office

Innovation - Manufacturing and Services 1

Factory

Goods

Goods Consumer,Use

of Goods

Front Office

Services

Service Consumer: action and transformation

versus

Back Office

Consumer Communities

Back Office

Innovation - Manufacturing and Services 1

Factory

Goods

Goods Consumer,Use

of Goods

Front Office

Services

Service Consumer: action and transformation

versus

Back office innovation – similar trajectories of IT use,

organisational innovation

Process innovation – similar features of automation, etc., but much variety across sectors in terms of

specific processes and transformations

Tertiarisation, convergence

Back Office

Consumer Communities

Back Office

Innovation - Manufacturing and Services 2

Factory

Goods

Goods Consumer,Use

of Goods

Front Office

Services

Service Consumer: action and transformation

Back office innovation – similar trajectories of IT use,

organisational innovation

Process innovation – similar features of automation, etc., but much variety across sectors in terms of

specific processes and transformations

Tertiarisation, convergence

Product innovation – new / improved goods – and services

Relationship and Delivery innovation

Product innovation – new / improved services (often for new goods platforms)

Innovation in marketing and e-business, e-commerce, aftersales, use of functionality

provided by good or service

Consumer Communities

Back Office

Loci of Service Innovation

Front Office

Services

Service Consumer

• Revenue Models

Ele

men

ts o

f B

usin

ess

Mod

el

• Position in Value Chain

• Management of suppliers

• Office systems

• Service work organisation, scripts

• Service Value Proposition (Concept and Content)

• Service Delivery Systems

• Interface with, relation to, consumers and their platforms

• Role of consumers (and communities) in coproduction

• Target Markets and Marketing Techniques

Value Chain

Consumer Communities

Back Office

Skills for Service Innovation

Front Office

Services

Service Consumer

• Revenue Models

Ele

men

ts o

f B

usin

ess

Mod

el

• Position in Value Chain

• Management of suppliers

• Office systems

• Service work organisation, scripts

• Service Value Proposition (Concept and Content)

• Service Delivery Systems

• Interface with, relation to consumers and their platforms

• Role of consumers (and communities) in coproduction

• Target Markets and Marketing Techniques

Value ChainS

peci

fic t

echn

olog

y m

anag

emen

t &

gr

asp

of n

ew

opp

ortu

nitie

s

Gra

sp o

f fin

anci

al

man

agem

ent &

new

mod

els

Grasp of KM & informatics

Service design capabilities

Service technology capabilities

Grasp of users, uses

Service design capabilities

Service design capabilities

Grasp of business environment, scope for merger, acquisition, joint ventures, collaboration, open innovation

Grasp of markets, trends, marketing

Grasp of HR, team management

Aw

areness o

f com

petitors and

esp. D

isruptive po

ssibilities

The Synthesis Approach needs to recognise

Many diverse forms and dimensions of innovation

Varying in frequency and intensity across different types of organisation.

Often these occur and are managed relatively independently, even within the organisation

Though some changes trigger others

Some are interconnected from the start

Business model innovation may involve alignment of many innovations

Existing classifications and categories of innovation styles and activities – even R&D – may be of limited use. Study new design approaches.

Challenges for Innovation Management

Even servicisation has often proved challenging

Requirements for wide range of new knowledge, especially about user behaviour and wider contexts

Needs to combine different types of knowledge

Numerous sites of innovation, turbulence for innovation management

Wicked problems in Grand Challenges

Cognitive alignment

ConclusionsOften service innovation requires diverse knowledge types, and ability to combine multiple component offerings from multiple actors. New tools for service design are emerging.Many parties play role in development of capabilities for service innovation, including policymakers, HEIs, leading companies, professional bodiesImportant to retain and enhance scope for individual and organisational learning, as requirements for multiple competences evolveCentral role for management capability to identify, mobilise, coordinate requisite professionals and skill setsSMEs may need specific supportGrand challenges and complex problems – transformational innovations spanning social and technological innovation (e.g. AAL, sustainability)

End of Presentation