Académique Documents
Professionnel Documents
Culture Documents
November 1998
1. Introduction
In order to analyse the role of innovation in services, we first have to clarify what
we mean by services. Unfortunately, the term “services” is ambiguous. It has
been applied to firms, to industries, to commodities, and to activities. Some
basic distinctions are required.
2
When we consider the relations between services and innovation, it is important
to bear in mind the multiple referents to which the tag “services” can be applied.
It is not just a matter of avoiding confusion, important though that is. One further
reason is the need to consider the trade-offs between in-house and outsourced
business services. Some of the growth of service sectors presumably reflects an
outsourcing of functions that were previously carried out within manufacturing,
though this cannot be the whole story.ii But even more significant, in the present
context, is another factor. This is the likelihood that the features of innovative
activity that characterise service firms, will also have a bearing on the innovation
issues confronted by the service components of firms in manufacturing and other
sectors. In other words, new features or problems in innovation that are visible in
service sectors, are liable to be experienced more widely in service activities and
functions.
3
Many exceptions can, of course, be found to such generalisations. Quite possibly,
such exceptions are becoming more common, and in part this is a result of
innovative activities. For instance, many service innovations seem to be oriented
toward providing more tangible components of the product, such as customer
loyalty cards for retailers, airlines, even restaurants, or glossy instruction manuals
for software and programmes for concerts, and the like.
Exceptions are in any case almost inevitable, given the wide variety of things that
are classified as services in the established frameworks. Service sectors can be
identified from the ISIC or NACE classifications, but these have limited conceptual
content. Received distinctions between the primary, secondary and tertiary
sectors also lead to these service activities being defined in negative terms, as not
making, growing, or mining things. Services were traditionally of little interest to
economists; the “tertiary sector” being in effect a category into which to dispose of
all of the awkward parts of the economy which were not directly extracting,
manufacturing or constructing material products. A more positive approach, based
on the work of pioneering analysts such as Terence P Hill and Dorothy Riddleiii,
relates economic sectors to their specific types of transformative tasks. The
primary sector is mainly concerned with extracting raw materials from the
environment; and the secondary sector with transforming these raw materials
into material goods and other artefacts. What then of services, the tertiary
sector(s)?
Services can be seen to involve several distinct kinds of transformation of the state
of organisms and artefacts, encompassing generic activities like movement and
storage, maintenance and revitalisation, elaboration and intensification. These
transformation activities can affect the state of:
•the environment - as in waste management, pollution clean-up, park-keeping;
• the artefacts produced by other sectors - e.g. repair and maintenance, goods
transport, building services, wholesale and retail trade;
• people - as in health and education services, hospitality and consumer services
such as hairdressing, public transport;
4
• symbols (data, information, knowledge) - entertainment services; communication
services such as broadcasting and telecommunications; professional services and
consultancies.
Services have been neglected, in part, because they are seen as lagging behind
other sectors in terms of innovation. They are seen as slow in their uptake of
new technology, and as “supplier driven” when they do use it.
But as services have now grown to constitute the largest sectors in terms of
creating employment and generating output in most industrial countries, their
contribution becomes harder to ignore. Among OECD countries around 1995 the
highest employment shares of services were 68.8% for Canada and 68.2% for
the USA, with only Greece, Portugal and Spain below 50% (and these all being
in the 40%’s). Contributions to GDP were sometimes slightly lower than these
5
figures (66.8% for the US, 65.7% for Canada) and sometimes higher (e.g. over
50% for Greece, Portugal and Spain).iv
6
transport services, for example, pharmaceuticals and medical equipment by
health services, and so on.
• This diversity also emerges with respect to IT use. Currently, some services
are in the IT vanguard, but others are lagging. The continuing increase in
familiarity, functionality and power of IT, together with the decrease in its price
mean that its is liable to be diffused even more widely in the future. Mobile
communications have been widely adopted by many small service firms, and
future generations of communications and computer systems are also liable to
be adopted by many of the least technology-intensive services.
• As well as being users of new technology, some services are innovators - for
their own use in new system configurations and applications, and for wider use
when they sell on IT services such as software, databases, and telematics to
other clients. Thus, it is now evident in RT&D statistics that services do
undertake R&D activities (25% of BERD in the UK and USA, more in some
countries), though only a few years ago this was widely thought not to be the
case. Innovation surveys, such as the EU’s Community Innovation Survey,
also show services to be prominent innovators, while labour force data
confirms that certain services absorb large numbers of qualified scientists and
engineers, many of whom must be doing more in the way of technology
development that simply maintaining installed systems.vii
• Other services also play a substantial role in helping diffuse technological
knowledge, via marketing, training, and consultancy.viii “Knowledge-Intensive
Business Services” (KIBS) are major agents of change in the wider economy.ix
KIBS are often both producers and agents of transfer of knowledge, and may
well be involved in coproducing innovations with their clients. Though there
are obvious examples connected with IT – computer and telematics services,
web designers, etc. – there are also important roles for services in
environmental, construction, biotechnological and other fields. KIBS are
among the most rapidly growing subsectors of the service economy.
From the analysis presented above, we suggest that the topic of ‘innovation and
services’ can be usefully divided into three broad issues:
7
1. Innovation processes within Service Firms and Sectors.
2. Innovation processes in service functions more generally.
3. The contribution of services (especially KIBS) to innovation in their clients,
and in systems of innovation more generally.
These will form the basis of the next three sections of this paper. We suggest
that they are also appropriate topics around which to structure a fruitful
conference.
2.1 Learning
Many of the features of services discussed in section 1 are bound to impact upon
the innovation process: both in the choice of technology, and the learning
processes that surround it. For example, small firms and large bureaucracies
alike are liable to face impediments to innovation that are less apparent in
medium-sized and large firms. Small firms usually have fewer resources to put
into learning the ways in which technologies may be used - and even less
opportunity to learn about the different technological opportunities that may be
8
available. In large bureaucracies, on the other hand, learning is likely to be
localised. A common problem is that knowledge is not adequately transferred
from specialised groups (e.g. Data Processing Centres), and that even when it is,
the routines in other offices may well prove hard to shift.
Thus many features of services are liable to shape the innovation and learning
processes in these sectors in particular ways. One consequence is that the
organisation of innovation rarely takes the form that is typical in manufacturing
industries. Service firms rarely have R&D departments. Some do have new
product or product development departments - this is quite common for large
financial firms, for example - but typically they do not consider their innovative
activities as R&D. For many service firms “research” means market research -
the standard sense of R&D is most readily taken on board by new technology-
9
based services, such as software and telematics, environmental services, and
laboratory and R&D services themselves. But most commonly, when service
firms undertake innovation, they set up product or project development teams, on
an ad hoc basis. This obviously has implications for the learning process in
these firms, and in service sectors more widely, who will often not participate in
networks of R&D managers and the like.
Relations between service suppliers and their clients, and the process of service
delivery, are of great significance for innovation and learning processes.
Interactions between supplier and client, and the delivery of the service itself is
often critical for innovation. Delivery innovation thus stands alongside
conventional process and product innovation as a crucial issue for many
services, both because of the intensive nature of these interactions during
design, production and consumption of the service, and because of the
immaterial nature of many services. Services have often required movement on
the part of suppliers or clients so that both can be at the same place at the same
time - consultants visit and even set up offices in their client firms, patients often
travel to their doctors and dentists, and so on. Not surprisingly, delivery
innovation now often involves IT, since the information components of services
can be delivered through new media - e.g., magnetic or optical discs, or the
Internet. Those services that are essentially information products, such as
financial transactions, reports, and entertainment, can often now be entirely
provided by such means.
The scope for new forms of delivery is influenced by the structure of supplier-
user interactions. For instance, some innovations require that clients or other
suppliers have their own terminals or PCs (and appropriate software), and learn
to make use of the specific (and often firm-specific) systems. This can be a
barrier to innovation - especially when there are different communications
systems in place, as was the case for EDI in the 1980s. Sometimes service
suppliers can provide equipment on a free or subsidised basis in order to
facilitate the take-off of such services - as in the well-known French Minitel
experience, where the telecommunications operator distributed free terminals in
place of telephone directories.
10
In other cases the delivery innovation may retain use of service supplier
premises, as in the use of ATMs (Automated Teller Machines, or cashpoint
machines) by banks. In such cases the client still has to attend these premises,
though often the hours at which the services is available are increased. More
advanced strategies, such as telephone-based or Internet telebanking provide
freedom from both time and space constraints (but cannot deliver the material
elements of the service (in this case, money). In some countries banks are
experimenting with unstaffed premises offering the most advanced ATMs and
video links to central offices, whereby clients can present more complicated
problems to employees.
Apart from the issues of technology, there are important elements connected with
personal contact. Reductions in face-to-face interaction may be problematic
when the services require either high levels of input of idiosyncratic (and poorly
structured) information from the clients, or where the service supplier needs to
win their trust and confidence by establishing appropriate expertise, reliability,
empathy, etc. Video links may be adequate for routine queries, but less suitable
for clients seeking to negotiate a new loan, for example: business use of
videoconferencing to date tends to suggest it works best as an adjunct to
conventional meetings, rather than as a complete replacement. New IT delivery
systems best suit relatively standardised services, where customisation consists
of tailoring responses to a fairly predictable and limited set of elements and is
thus amenable to automation (e.g. giving advice in a common set of problem
situations, as in customer support “helplines”). However, growing experience on
the part of suppliers and clients may make it possible to extend the applicability
of telematics, telephone and - especially - video communications. (Issues of
privacy and data security are seen as major problems here.) In the long term
more advanced IT systems may enable automation of more challenging tasks.
User-friendly and highly adaptive systems should be able to manage
considerably enhanced client inputs in the future.
11
These developments in styles of innovation in service firms reveal an
interesting paradox . On the one hand, they derive to a considerable extent
from the ‘peculiarities’ of services as identified in section 1. On the other hand
they are also contributing to the evolution of services in ways which make
them less ‘different’ and more like some received descriptions of
manufacturing. We can consider these issues under the headings of service
production processes, service products, and regulatory issues.
2.2.2 Labour. Service labour costs can now be reduced by relocating key
operations to areas of lower wages.– While this need not involve IT (and may
simply involve consumers purchasing services from cheaper sources, as in the
flow of people for dental treatment from Western Europe to Hungary), when firms
practise this cost reduction they typically use advanced telecommunications to
maintain co-ordination. Information services are the pioneers here, though other
services with high information-processing requirements (e.g. ticket stubs that
need processing) are also active. Examples include software outsourcing to
developing countries from the USA and Europe, and similarly data entry for
industries like airlines and insurance. The need for expensive and scarce skills
may be reduced through remote access to expertise (e.g. on-line medical
12
diagnosis or assistance with advice on surgery) and, possibly, by use of expert
systems and other decision aids (these have often been incorporated as
supports to the work of established professionals rather than as substitutes,
however).
13
2.3 The Service Product
2.3.1 Immaterial Nature. IT allows for the electronic and optical storage and
transmission of the information content of products. Telematics are often being
used for ordering, reservation, and where possible - as in software and
information services - delivery of the service. Automated Teller Machines and
equivalent information services allow for service delivery outside of office hours.
Additionally, new material components such as client and membership cards are
being introduced by services as varied as supermarkets, banks and airlines
(these are often supported by and feed into IT systems). Thus the immaterial
service increasingly interpenetrates with quite material components.
14
2.4 Regulatory Issues.
15
2.5 Approaches to Services Innovation
The two central (but not universal) features of services, intangibility and client-
intensity, have influenced the major efforts to develop theories of service
innovation which imply significant demarcations between this and manufacturing
innovation. The approach of “the reverse product cycle” initiated by Richard
Barrasxii takes the “supplier-driven” approach to services on one step further . It
suggests that the absorption of new IT into services as a means of increasing
service process efficiency provides a catalyst for services to undertake their own
innovation trajectories. Thus from process innovations they move through a
period of quality improvement to product innovations. The pattern he describes
is often equally well characterised as an evolution from back-office process
innovation, through innovation in the delivery of services to clients, to product
innovation.
Relations between service suppliers and their clients include more than just the
delivery of the service itself, as indicated above. Another approach to services
innovation introduces the unappealing neologism servuction to describe the
penumbra of such relations that surrounds process, product and indeed
consumption.xiii In some applications of this approach, innovation in servuction is
contrasted with innovation in production. As delivery innovation, many innovative
activities involving interactions between supplier and client (and networks of
clients) could be overlooked, underemphasised, or misrepresented by
conventional measurement approaches. The sorts of activities that are involved
here include, for example: marketing; transactions; input of information from
clients for choice, design or customisation of the service; after-sales support; and
so on. Customisation raises particular challenges for innovation measurement: it
is usually explicitly sidelined in terms of R&D and innovation indicators, but is a
critical process in many services, and much service innovation is intrinsically
entangled with customisation of a continually evolving product. A related point is
that with the high degree of codesign and coproduction of service products, it
may be difficult to locate the innovation within the service supplier or client: it is
not unusual, for instance, for service firms to site their staff within client
16
organisations for periods of time. (Similar problems are raised in collaborative
R&D more generally.)
A final issue in services innovation, connected with the intangibility of the service
product, involves Intellectual Property Rights. Andersen and Howellsxiv note, the
elements of IPR systems that were historically evolved to protect technological
innovations have mainly been those connected with patents (though software is
increasingly covered – uneasily – by copyright, and design rights are also of
significance to services). Many commentators have argued that the weak IPR
regime in services has acted as a serious deterrent to innovation (this has been
especially voiced with respect to software). However, neither large-scale surveys
nor our own case studies lend much support to this being a widespread
phenomenon across services.xv There is reason to think that the IP regimes do
influence services’ innovative activities in subtle ways however: a topic that has
only recently begun to be explored. These recent studies of IP and knowledge
management in a range of knowledge-intensive business services do
demonstrate that distinctive strategies are adopted, related to firm size and to the
particular sorts of knowledge that is critical for the firms’ competitiveness.
We have seen that a strong case can be made for the continuing
distinctiveness of service firms and industries, in terms of standard
perspectives on theorising and measuring innovation. But it is not just the
services sectors that demand new look from the perspective of innovation
studies. Service and service-like activities across all sectors of the economy
demand the new approaches. A focus on service sectors has thus served to
throw light on neglected elements of the whole economy. All firms and
sectors engage in various service functions – marketing, design, after sales,
transactions, delivery and so on - varying quantitatively in the extent to which
they do so. Each of these is a site of potential innovation alongside the
conventional focus on physical products and processes.
17
The economic system is thus seen as a web of intertwined functions, some of
which for largely historical and accidental reasons are labelled services, some
of which are labelled manufacturing (etc.). Any firm or sector is liable to
feature a great many of these functions, though the proportions vary markedly
– and it is the different mixtures that give sectoral distinctions their utility.
There are also good grounds for thinking that, just as service firms are
“industrialising” and acquiring characteristics more typical of manufacturing
sectors, so many manufacturing firms’ activities are becoming more service-
like. Thus it is particularly important to be aware of features of services
innovation which may be increasingly characterising manufacturing sector
innovations, too, and eluding capture by our conventional instruments.
18
are embodied in final and intermediate industrial products thus features a
growing share of service activities, and increasing variety of service activities,
supplied both as business services and as in-house inputs from service
workers within companies. Thus there is growth both in the business services
sold to industry, and in the share of white-collar workers in all sectors.
The greater part of most companies’ costs (other than those for purchased
materials) typically involves overheads. Even in manufacturing, more than
two-thirds of all nonmaterial costs tend to be indirect or overhead expenses.
Most overhead is actually a matter of services that the company is supplying
internally.xvi Within manufacturing, 75% to 85% of all value-added, and a
similar percentage of costs, involves service activities: the production of
physical goods constitutes only a small part of the overall value
This suggests that the major value-added to a product (as indicated by what
purchasers are prepared to pay for it) is typically due less to its basic material
content than to design features, perceived quality, and so on.xvii These
features are added by services activities, inside or outside the manufacturing
company. For instance, in the computer industry, the direct physical
manufacture of the computer accounts for only 10% of the ultimate price; the
bulk of the costs is taken up by design, software development, distribution etc.
Sports shoes have even lower “material” cost components. Most companies,
whether statistically defined as manufacturers or as services firms, are thus
predominantly service providers!
19
increase, as is anticipated by many academic and industrial commentators
(often under the rubrics of “post-Fordism” and “flexible specialisation”).
20
the product - after-sale repair and maintenance, pre-installation customisation, rush
delivery, specialised training, product updates, helplines, etc. Likewise, service
components are integral to product innovation. For instance, the process of
upgrading products, i.e. creating increasingly differentiated, high quality production,
aimed at the specific needs of market segments, depends upon these service
functions. Manufacturers, then are increasingly deriving competitive advantage from
elements in service processes associated with material production, and the
associated human skills, logistic capabilities, knowledge bases, and other service
strengths that competitors cannot easily reproduce, and that lead to greater
demonstrable value for the customer.xxii
The implication of all this is that service activities are an increasingly important
feature of the whole economy. Innovation in service activities is thus liable to
be of significance across the economy. And any challenges to measurement
generated by the peculiar features of services innovation are thus liable to
apply across the economy. Established measurement procedures may be
missing out on important elements of innovation. One of the most obvious
and now well-rehearsed features of this problem is that if a ‘manufacturing’
firm decides to outsource a particular service function rather than providing it
internally, then the statistical indicators show this as a growth in the service
‘sector’. Similarly, if the firm sets up an internal group to provide a service
previously purchased from a service firm the reverse is true. Both situations
have implications for the incentives and possibilities for innovation in the
service function itself, yet these are lost in a simple sectoral re-allocation of
output. Whatever the difficulties involved, analysts have little choice but to
grasp the nettle and analyse innovation in terms of service functions rather
than simply in terms of the service ‘sector’.
21
4. Services as Agents of Innovation
Some of the growth in services involves relatively low skill services (such as
catering, cleaning and security) which are typically characterised by 'flexible
employment patterns', with a predominance of female and part-time or temporary
work. Other activities however, contain much higher proportions of skilled
workers, and of particular interest to the study of innovation are Knowledge-
Intensive Business Services (KIBS). These exemplify the general process of
knowledge-intensification in industrialised economies.
Their growth reflects increased demands for (certain types of ) knowledge in the
economy, together with trends in the division of labour which lead to specialised
services emerging and playing prominent roles in knowledge accumulation and
transfer. Two main types of activity can be distinguished.
Traditional professional services help users deal with complex social, physical
and psycho-biological systems. These include administrative rules and
regulations (as in legal and accountancy services); social groups and interests
(marketing and consultancy); physical systems (architecture and building services
which may have considerable technical content); psychological and biological
systems (medical and veterinary services, educational and clinical psychology and
psychiatry, counselling - some of these also have high technical content). Their
relation to new technology is typically more one of being users rather than as
agents in development and diffusion.xxiii
22
These new-technology-based KIBS are of particular interest in the context of
innovation processes. They rely heavily upon professional knowledge:
accordingly, their employment structures are heavily weighted towards scientists,
engineers, and other experts. Many supply information and knowledge to their
users as their central function (for example, in the form of measurements, reports,
training, and consultancy). Some others use their knowledge to produce
intermediate inputs to their clients' own knowledge generating and information
processing activities (e.g. communication and computer services). And others still
use their specialised knowledge to provide other technical functions, such as
pollution detection and remediation services.
KIBS thus span a broad range of activities, from the diagnosis and analysis of
problems, to the identification and implementation of technological and other)
solutions. Some KIBS are highly standardised; their service products are largely
supplied as packaged commodities. Others typically supply products that are
highly customised to clients and whose production involves much interaction.
Conventional economic subsectors conceal much of this diversity: the software
sector, for instance, spans the complete range from firms producing standardised
commodities to firms who only ever work to client specifications. One trajectory for
much services’ innovation is the move from client-intensive to commodity
packages and combinations of modules.
This process is a common one, apparent in KIBS like software, and it is likely to
grow in prominence. One consequence may be the reduction in costs, so that
these services become cheaply accessible to small firms, and even to consumers.
But many software and other KIBS companies will find it hard to market their
products on a mass commodity base, even if they want to produce more
standardised products. The industry is liable to be dominated by a few large
players, like the publishing industry is. Against this scenario, there may be
opportunities to use the Internet as a new marketing and distribution medium,
enabling smaller firms to achieve global outreach. And there are inherent limits to
standardisation: there will continue to be much work to do developing specialist
applications for large users in customising standard packages to the requirements
23
of larger numbers of users, and in providing services that really reflect the new
knowledge requirements of the client. Furthermore, continuing technological
innovation is liable to bring also a continuing flourishing of new client-intensive
KIBS. Consider, for example, the flood of firms providing new services in Web
design. Equally, not all services can readily be packaged and delivered through IT
media: as noted above, face-to-face contact may continue to retain a central role
in many instances.
KIBS have proliferated around new technologies, and around new technological
problems (such as those created by environmental regulation and litigation).
Considering services concerned with the development of IT, for example, there
are specialised IT training and consultancy services; second-, third-and now
fourth-party equipment (repair) services; sales services; management services;
facilities management and outsourcing of computer and telematics services;
software production and maintenance of various kinds; dataware services such
as CD-ROM and other multimedia, as well as established on-line database
servicesxxiv.
The growth of such KIBS results from a number of factors. Most importantly, the
growth has been driven by demand. Structural changes in industry (downsizing,
concentration on core activities) have led to the externalisation of activities that
were in the past provided in-house. Even activities which were usually regarded
as a part of the core business – such as R&D - and which analysts normally
assumed could not be delegated to outsiders, are being treated in this way. There
is a strong element of firm strategy in this, with different firms taking different
decisions - and with perspectives changing over time as experience accumulates
on the part of both potential suppliers and potential clients for services.
24
But many services are too new to have been developed in-house and then
externalised by many of their users. It is not a case of KIBS substituting for in-
house activities – as Gallouj has argued, often the relationship is one of
complementarity rather than substitution.xxv New highly technical or complex
services may be too costly to maintain in-house, and the knowledge may not even
be present about how to go about establishing these in-house functions. The
requisite skills or equipment may be seen as experimental, as too different from
core capabilities; as being only required occasionally, or as problematic in terms of
achieving a minimum efficient scale. Some firms demand service inputs as a
function of the need for co-operation with other members of a network.xxvi
On the supply side, new-technology- based services have been “spun-off” of from
firms in other sectors, as their competence at supplying (especially technology-
xxvii
related) services has grown. Recently, many professionals have been shed
from firms that are “downsizing” and are seeking to establish themselves as self-
employed service suppliers - thus a growth in one-person consultancies . The
rapid growth in demand for producer services in the 1970s and ‘80s has allowed
for high charges to be levied, and for less attention than would be desirable to be
paid to issues of quality. In many service sectors one hears complaints about
“cowboys”, and a reaction against consultants is now visible in some quarters –
with some consultancies finding a new role advising firms about their use of
consultants!
Given that trust between the parties concerned is a key factor in the
establishment and success of services, a number of problems can arise. It may
be hard for new firms to establish themselves in existing areas, or for new types of
service altogether to arise. When it is hard to demonstrate your product (or
trustworthiness) in advance, there may be a need for schemes that promote
quality standards and innovation awards, and systems for the interchange of
experience of use of services. Clients, too, may benefit from exchange of
experience and self-help, e.g. through user groups (which can also sometimes
exert pressure on service suppliers - for example, telling them to unite around a
common standard). Close relationships between suppliers and clients may lead to
“lock-in” or other anti-competitive practices. Other problems can arise with respect
25
to legally or politically sensitive activities, working with firms who may be
competitors, etc.
Fears about “cowboys” notwithstanding, it is clear that there are many highly
innovative firms present in the KIBS field. High levels of competition are stimulating
this innovation, especially as the economic shake-out of the 1990s has led to many
clients seeking to minimise costs, ensure higher performance standards - and to put
many of their skilled staff onto the labour market, and thus render them possible
sources of new service start-ups. Not surprisingly, most of the product and process
innovation in KIBS is continuous rather than discrete; and many of the smaller firms
have real problems in developing an innovation strategy. Pursuing new ideas is
often something that takes place out of office hours, and without much conscious
planning or discussion among team members. As in most other services, much
innovation is highly project-based (which is not to say that the developments
generated in the course of one project are not taken up in successors). But it can be
hard for an outsider to distinguish the elements that are customisation from those
that are genuinely technically novel, in many cases. There is rarely an R&D
department, more often simply a project team. Most technology development
appears to take place in-house, with frequent contracting-out of specialised activities
(such as writing a specialised element of software). There is quite often collaboration
with other partners - and especially with clients.
26
when the clients are themselves advanced in their field and able to team up with
the service provider. Many KIBS require substantial customer-specific knowledge,
and are at least in part designed and provided within the facilities and working
processes of the client. Strategic alliances between KIBS customers and KIBS
suppliers can therefore be one part of a strategy to enhance the appropriability of
innovations that are hard to protect in other ways.
As we have noted, some services are deeply involved in the business of transfer
of knowledge (or better, “knowledge resources”). Thus engineering and other
consultancies can play important roles in the building of technological capabilities.
They may provide critical information to clients as well as giving them software or
other artifacts; and they may well develop the clients’ own capabilities to turn
information into practical knowledge. To borrow a formulation from Tordoir,xxx
professional knowledge requires practical integration between explicit (scientific
and documented) knowledge and tacit (undocumented) knowledge of the routines
and practical requirements of companies. New-technology-based KIBS
intermediate between scientific and technological development (“invention”) and
practical innovation (including diffusion and application, and leading to the change
of routines in companies). The importance of tacit and client-specific knowledge is
an important limiting factor to the standardisation of these services and the use of
new technology for disintermediation. (Nevertheless, there are people setting up
as “knowledge brokers”, etc., with an eye to at least reducing the intermediation
chain.)
Even when it is not the primary function of the service transaction, there may well
be technological learning on the part of service clients. Some training may be
therefore strategic for the service provider. Though a little knowledge can be a
dangerous thing, clients with some technological knowledge may utilise the
service effectively (and perhaps be drawn into paying for a wider range of
services), and be able to solve minor problems themselves. They may also
provide better feedback on service functionalities to the service provider. Learning
may occur more “spontaneously” in the course of clients’ interaction with service
technologies. This can have an element of client strategy too, as the clients can
use a service to explore technological possibilities, and determine lessons drawn
27
by the provider as to successful operation. (Thus many businesses used British
Telecom’s Prestel as a learning platform before creating their own private videotex
services.)
KIBS can thus influence clients’ accumulation of knowledge and help shape their
technological trajectories, even if the services are not explicitly setting out to
transfer knowledge. The service transaction can involve two types of learning.
The service supplier learns about the client’s operations and requirements, and
thus can come to better understand the market. (Typically KIBS firms combine
technological innovation with customisation as they explore client needs, as we
have already remarked.) A matching process evolves on the part of the client, who
learns the service provider’s routines, capabilities and technological base.
The client too, may be in a position to generalise from this knowledge - to
make better use of the service, and/or to explore alternative suppliers.
The discussion in this section has suggested that KIBS services not only
engage in innovative activity themselves, but also potentiate or contribute to
higher levels of innovation in their customers. If this is true, then we would
expect to find that intensive users of KIBS outputs would exhibit greater than
average innovation-related performance benefits. This is indeed the case.
Recent work by Tomlinsonxxxi analysing this issue using input-output tables
has shown that manufacturing sectors with higher than average consumption
of KIBS exhibit higher than average rates of productivity growth.
5. Conclusion
28
recognise that the understanding of innovation processes and consequences
related to service activity forces us to go beyond these notions of sector. This
will not be easy.
ENDNOTES
29
i
The point is made strongly in several writings by Orio Giarini. See for example, O. Giarini & W
R Stahel The Limits to Certainty: facing risks in the new service economy Dordrecht, Kluwer, 1993.
ii
A similar process occurs when consumers face the choice of acquiring final services,
or of purchasing goods with which to generate their own service functions. It is
interesting to note that in this case the trend has often been toward “self-services”
(see J I Gershuny and I D Miles, 1983, The New Service Economy, London, Frances
Pinter).
iii
T. P. Hill, "On goods and services" Review of Income and Wealth Volume 23,
pp.315-338 (1977); D. Riddle, Service-Led Growth Praeger, New York (1986)
iv
OECD, 1997, OECD in Figures 1997 Edition, Paris, OECD.
v
I Miles with others, 1990, Mapping and Measuring the Information Economy Boston
Spa, British Library; OECD ICCP 1993, Usage Indicators - a new foundation for
Information Technology policies Paris: Organisation for Economic Cooperation and
Development, Information Computer Communications Policy ICCP 31
vi
R Barras, "Towards a Theory of Innovation in Services" Research Policy 15 (4) 161-
173, 1986; “Interactive Innovation In Financial And Business Services: the vanguard of
the service revolution”, Research Policy, 19, pp215-237, 1990
vii
E.g. see S. Jacobsson, and C. Oskarsson, “Educational statistics as an
indicator of technological activity” Research Policy Volume 24, pp.127-136 (1995)
viii
I Miles, N Kastrinos, K Flanagan, R Bilderbeek, P den Hertog, W Huntink and M
Bouman, Knowledge-Intensive Business Services: - Users, Carriers and Sources of
Innovation 1994 EC, Luxembourg, (DG13 SPRINT-EIMS)
ix
J. Bessant and H. Rush, “Building bridges for innovation: the role of
consultants in technology transfer” Research Policy Volume 24, pp.97-114 (1995)
x
The prevalence of low-skilled staff was often cited as a reason for low rates of
service innovation, in the earlier literature. The use of IT has often been embarked
upon by firms with little understanding of the need for training (staff are often simply
given a manual and asked to instruct themselves); and issues of work organisation
often remain unexplored, so that the scope for new divisions of labour is discovered
by chance or even ignored.
xi
There is widespread recognition of a more general problem in accounting for
IT investment, which often does not seem to pay off by conventional criteria because
it is introducing systemic effects.
xii
R Barras, "Towards a Theory of Innovation in Services" Research Policy 15 (4)
161-173, 1986; "New Technologies and the New Services" Futures 18 (6) 748-772,
1986; “Interactive Innovation In Financial And Business Services: the vanguard of the
service revolution”, Research Policy, 19, pp215-237, 1990
xiii
C Belleflamme, J Houard & B Michaux, Innovation and Research and
Development Process Analysis in Service Activities Brussels, EC, FAST Occasional
papers no 116, September 1986; P Eiglier & E Langeard, Servuction, Paris, McGraw-
Hill, 1987.
xiv
B. Andersen & J. Howells , Innovation Dynamics in Services: Intellectual
Property Rights as Indicators and Shaping Systems in Innovation University of
Manchester: CRIC Discussion Paper No 8, February 1998
xv
I. Miles, B. Andersen, M. Boden and J. Howells “Service Production and
Intellectual Property” forthcoming in International Journal of Technology
Management
xvi
J B Quinn, T.L. Doorley & P.C. Paquette, “Beyond Products: services-based
strategy” Harvard Business Review March 1990, pp 58-67, 1990; "Technology in
Services: rethinking strategic focus" Sloan Management Review 11 (2) pp 79-88,
1990; and J B Quinn & P C Paquette, "Technology in Services: creating
organisational revolutions" Sloan Management Review 11 (2) pp 67-78, 1990.
xvii
There is no value judgement here as to whether these market decisions represent
genuine additions to social well-being or the quality of life. A long debate has raged
about the sovereignty of consumers as opposed to the creation of “false” needs in
the market. Advertising is among the service elements included in the cost of
products, as is market research. But it is likely that there are more important forces
shaping consumer opinion and choices, even though these too are socially
constructed. Cf. C M. Tomlinson & A. McMeekin, Does the ‘Social’ Have a Role in
the Evolution of Consumption University of Manchester: CRIC Discussion Paper No
14, June 1998
xviii
Quinn op cit makes this point, as did Gershuny and Miles op cit, who
differentiated between service products (such as a concert or railway journey) and
service functions (e.g. entertainment or mobility) which could be delivered either
through services or though goods (e.g. an audio system or a motor car).) Many
managers also articulate such a view: they see their firms as being in the business of
producing final services (through specific manufactures). This viewpoint is becoming
important in environmental debates, too: cf W R Stahel “From products to services:
selling performance instead of goods” pp35- 42 and other articles in the same issue
of The IPTS Report no 27, September 1998
xix
H Mathe and R D Shapiro, Integrating Service Strategy into the Manufacturing
Company London, Chapman & Hall, 1993
xx
D Teece, “Profiting from Technological Innovation: implications for integration,
collaboration, licensing and public policy” Research Policy 15 (6) pp285-305, 1986
xxi
R B Chase. & D A Garvin (1989), “The service factory” Harvard Busdiness
Review, July 1989, p. 61-69
xxii
This is based on the formulation set out by Quinn et al (op cit). For a lengthy
exposition of “The Service Edge”, focusing on customer service in 101 US
companies - including both manufacturing and service firms - see R Zemke with D
Schaaf, 1990, The Service Edge: 101 Companies that Profit from Customer Care
New York, Plume (Penguin Books) 1990.
xxiii
These services are liable to be increasingly influential shapers of new IT as
their professional experience of such technology grows. Already “spin-offs” from
professional services into new-technology services are apparent.
xxiv
The useful term “dataware” is borrowed from H Kubicek & P Seeger, "The negotiation
of data standards: a comparative analysis of EAN- and EFT/POS systems" in M
Dierkes & U Hoffman (eds.) New Technology at the Outset Frankfurt, Campus/Verlag,
1992.
xxv
C. Gallouj & F Gallouj L’Innovation dans les Services Paris, Economica, 1996; F. Gallouj & O.
Wenstein, “Innovation in Services” Research Policy pp 537-556 vol 26, 1997.
xxvi
Tordoir has advanced a set of provocative set of theses concerning the
interplay of trends in the demand for professional services on an in-house and
outsourced basis which does not seem to apply strictly to the new technology
services. Cf. P P Tordoir, The Professional Knowledge Economy PhD dissertation,
University of Amsterdam, 1993.
xxvii
Jeremy Howells, Economic, Technological and Locational Trends in European
Services (Avebury, Aldershot, 1988); Tom Elfring, “Strategic Choice in the Capability
Development of Knowledge-Intensive Service Functions” mimeo, Rotterdam,
Rotterdam School of Management (Erasmus University), and printed in IAE, 1994.
xxviii
Work by PREST and TNO researchers detailed in Miles et al (1994 op cit) and
I. Miles et M. Boden Services in the Knowledge Economy London, Cassell,
forthcoming, provided much insight drawn on here. The case studies involves small
and medium-sized firms, in the main, working in environmental, multimedia and
telematics services.
xxix
An exception is R&D services. For a rare example of detailed data on such
services, see A. Rose, “Strategic R&D alliances” Services Indicators Statistics
Canada, pp.73-85 (Fourth Quarter 1994), who also documents the importance of
services in R&D alliances and networks in Canada.
xxx
Tordoir, 1994, op. cit.
xxxi
M. Tomlinson The Contribution of Services to Manufacturing Industry:
Beyond the Deindustrialised Debate, University of Manchester: CRIC Discussion
Paper No 5September 1997. See also Tomlinson, M, ‘Knowledge & Technology
Flows in the Service Sector and Manufacturing Sector: An Anglo-Japanese
Comparison’, presented at the STS Conference, Tokyo, March 1998, which
indicates that there are tantalising national difdferences in the impact pof
services’ use.