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					            Background brief for the Workshop on:
       Futures for Knowledge-Intensive Service Activities
              (authors: Barbara Jones, Ian Miles, MIoIR Manchester, August 2008)




      1. Introduction
This workshop (15-16 September 2008) is the first of two being organised as part
of the ETEPS project SC29: “Innovation in the European Service Economy –
scenarios and implications for skills and knowledge”.1 The ultimate aim of
the project is to examine future skills requirements that may be required for
Knowledge-Intensive Service Activities (KISA) in the period to 2020. What skills
will be needed for KISA to play an effective role in building European Knowledge
Economies, in helping achieve progress toward Lisbon Objective-type goals
(competitiveness, innovative, sustainable, high employment, socially inclusive
economies)?      For this study, the focus is on KISA as contributing to the
performance of private firms and other organisations in European economies.
Thus we focus on services that support business processes (e.g. marketing,
design, computer support) rather than those that directly improve quality of life for
citizens. Typically, these services may be provided by in-house activities, or by
purchasing them from Knowledge-Intensive Business Services (KIBS).

This first workshop is intended to create and explicate a small set of alternative
scenarios for KISA development, and take the first steps towards exploring the
skill implications of these. A second workshop will focus more extensively on
skill issues.


      2. What do we mean by KISAs?
For the present study, KISAs are being delimited to the core activities
corresponding to the specialised KIBS sectors in NACE 72-74. These business
services include:
   • IT services (Hardware consultancy, Software publishing, supply and
       consultancy, Data processing and Database activities, Maintenance and
       repair of office, accounting and computing machinery, etc.);
   • Architectural and engineering activities, related technical consultancy, and
       technical testing and analysis;
   • R&D services;
   • Advertising and market research and public opinion polling;

1
    See : http://www.prest.mbs.ac.uk/kisa


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    •  Professional services (such as Legal activities, Accounting, book-keeping
       and auditing activities; tax consultancy, Business and management
       consultancy activities and the Management activities of holding
       companies).
These are all activities that can be carried out by external, specialised KIBS
(Knowledge-Intensive Business Service firms) or in-house by employees of the
firms using the KISA in question. They are all “knowledge-intensive” in terms of
various indicators: they have extremely high levels of graduates in their
employees; both KIBS sectors and professional occupations are characterised by
high levels of problem-solving and complex work, with much new learning on the
job (evidence from Community Innovation Survey, Working Conditions Survey,
etc.).

Of course, this working definition of KISA has several limitations. (If these are
seen to be really important, we may need to discuss these in the workshop.)
Among the limitations are:
1) There are some NACE 74 business service activities – not included in the lists
above – that are not particularly knowledge-intensive (eg office cleaning). These
are not always easy to exclude from statistical analysis of KIBS, though when we
are looking at occupational profiles it is possible to focus on professional
occupations (managerial, technical, expert positions). A related point is that not
all of the employment in KIBS is necessarily KISA: a KIBS firm may well employ
security and catering staff, for instance.
2) There are several activities that are debatably also KIBS in other areas of
NACE – for example creative activities in NACE 92,2 and business-oriented
financial services and telecommunications services; and even health and
education services supplied to organisations rather than consumers.
3) We should also note that there are other options in addition to accessing the
KISA from KIBS or in-house employees (again we may need to address these if
they are seen to be significant for scenario development). KISA could be
supplied by firms whose main activities are in other service or manufacturing
sectors, but who have discovered that some of their capabilities can be sold to
others – such as an automobile company that sells technical testing services
from its labs, a bank that sells IT support to its clients, etc. And they could be
supplied by public sector organisations, such as University staff helping with
technology development, design, market research.

Despite these limitations, this working definition of KIBS and KISA provides a
reasonable base for statistical analysis, and hopefully is effective for scenario
development and analysis

2
 For a very helpful analysis of the distribution of creative professions across the whole economy,
see Peter Higgs, Stuart Cunningham and Hasan Bakhshi (2008) Beyond the Creative Industries,
London: NESTA, available at: http://www.nesta.org.uk/beyond-the-creative-industries/



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           3. What do we mean by skills?
Whereas we have taken a very limited approach to defining KISAs, the approach
to skills is somewhat wider, because the standard definitions of “skill” are actually
quite narrow ones. Skills are typically seen as being people’s capabilities to
carry out particular tasks (and often these are portrayed as learned capabilities).
But when we are examining knowledge-intensive service activities, we are liable
to be thinking of whole series of interlinked tasks – despite growing division of
labour and introduction of paraprofessional and assistant roles, these tasks have
only been subject to limited Taylorisation and deskilling. A wider construct is
competence, which refers to the individual’s capability to perform in a specific
job role – not just skills in a narrow sense, but also the knowledge and
behaviour/motivation required. This wider perspective is more appropriate for the
current study, but we will continue to refer to skills (not least because
“competences” is often used to refer to organisational rather than indivisual
capacities, as in “core competences).

In Deliverable D3 for this project, we have discussed the O*Net classification of
skills, which provides a detailed listing of different skills under a set of major
headings, and which is used in the US for examination of trends in occupations.
The main categories here are Basic Skills (facilitate learning or the more rapid
acquisition of knowledge); Complex Problem Solving Skills (used to solve
novel, ill-defined problems in complex, real-world settings); Resource
Management Skills (used to allocate resources efficiently); Social Skills (used
to work with people to achieve goals); Systems Skills (used to understand,
monitor, and improve socio-technical systems); Technical Skills (used to
design, set-up, operate, and correct malfunctions involving application of
machines or technological systems).3




3
    Source: http://online.onetcenter.org/skills/


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   4. Orientation of the Project
The growth of KIBS has been a striking phenomenon throughout the
industrialised world (and, indeed, in most emerging and many developing
economies). Occupational statistics suggest that professional occupations
(delivering KISAs) are also growing as a share of the workforce in most sectors.
Most commentators anticipate that these trends will continue into the foreseeable
future, though there is less unanimity as to 1) the pace of growth of these
phenomena; 2) which KISAs are liable to be most important; 3) the extent to
which activities may be conducted in KIBS or in-house (“outsourcing” versus
“internalisation”); and 4) the extent to which offshoring might result in (various
types of) KISA work being shifted overseas. Changes in the nature of
professional and technical work (and occupational and career structures), and
the industrial organisation of KIBS (more or less specialisation, systems
integration, etc.) are less often addressed, and forecasts here are typically more
tentative.

The current study aims to examine these phenomena, and construct relevant and
useful scenarios concerning the future development of KISAs. In order to do this,
the workshop will early on examine a range of factors that are seen in the
literature as important influences in KISA development. (In futures studies, these
are usually known as “drivers”. We discuss key drivers outlined in the literature
below.) We will explore which factors are important for which features of KISA
development, and use this discussion as a platform from which we can set out
some major alternative lines of KISA development to 2020, what the drivers are
behind these, and what they may look like. In the first workshop we will go on to
explore the skills requirements that are liable to be associated with each
scenario, and outline how these factors and features might vary across different
types of KISA.

The workshop should result in a scenarios report, where we explicate the
scenarios developed during the course of the workshop in a presentation that is
easy for audiences to understand and assimilate. This will form a key input into
the second workshop.

The following sections of this document provide some Background Notes based
on our literature reviews, concerning the various ways in which KISAs may be
developing (Parameters of KISA Development), and the major Drivers that have
been associated with quantitative and qualitative changes in KISAs.




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    5. Parameters of KISA Development
From other scenario studies we reviewed in Deliverable D3 for this project, we
see a number of approaches to exploring the future of KISA.4 Of course, there
are different rates of employment growth anticipated in economic forecasting
studies by CEDEFOP and others. CEDEFOP (2008) considered the growth of
professional occupations as well as business services sectors in scenarios of
more or less rapid economic growth overall, assuming sectoral relationships
remained much as they now are.5 Kox (2002) considered alternative futures
business service sectors: they might perform well domestically and
internationally, with rates of growth continuing to draw ahead of most other
market sectors, or they might move towards more average rates of growth.6
Zaring (2001), examining eco-efficient services, pointed out that European KIBS
might be larger or smaller, and more or less active in world or regional markets,
relating this to efforts to standardise services and/or customise them or produce
unique services to meet specific customer needs.7

But there are more qualitative changes discussed too:

Geographical Location of KISA Activities: EMCC (2006a) focused on issues
to do with European offshoring activities for the KIBS sector (with little attention
here to in-house KISA offshoring, though it might be expected to follow similar
trends), exploring scenarios with greater offshoring or a reversal of offshoring
activities (related to, for instance, problems with cost-effectiveness, productivity
or customer relations).8 This study also developed a scenario based on the
possibility of a worldwide narrowing of the skills gap, resulting from emerging
economies continuing to grow rapidly and invest heavily in education - increasing
both supply of and demand for KIBS around the world. A further set of features
of KISA were associated with further developments in terms of technology,

4
  B Jones and I Miles (2008) Services, innovation and skills: scoping and definitions report,
Deliverable D3, MIoIR This will shortly be on the project website at http://prest.mbs.ac.uk/kisa
5
  CEDEFOP (2008) Future Skills Needs in Europe
http://www.trainingvillage.gr/etv/Projects_Networks/Skillsnet/Work/pubwork.asp
6
  Kox, H. (2002) Growth challenges for the Dutch business services industry: international
comparison and policy issues The Hague, CPB Netherlands Bureau for Economic Policy Analysis
7
  Zaring, O. et al (2001) Creating Eco-efficient Producer Services Göteborg: Gothenburg
Research Institute available at
http://www.suspronet.org/download.asp?File=documents\creatingefserv1.pdf&Name=creatingefs
erv1.pdf
8
  EMCC, 2006a, Trends and drivers of change in the knowledge-intensive business services
sector: Four scenarios, Dublin: EMCC at European Foundation for the Improvement of Living and
Working Conditions, EF/06/79/EN available at http://www.emcc.eurofound.eu.int



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intellectual assets and network capital, which could also influence employment
and skill levels, methods of service delivery, and competitiveness of KIBS sector.

Change in the nature of professional work. RAND-Europe (2006) noted that
professionals across many sectors are facing increasing amounts of data, new
tools for their work which demand new knowledge, and confronting more
turbulent environments.9 A sense of future developments is required, and a wide
spectrum of knowledge, to inform strategic decisions. Though this may lead to
less specialisation, new sorts of specialist knowledge are also required as new
technologies and techniques are introduced.           The scenarios considered
alternatives in terms of high versus low user-friendliness of advancing
technologies; and of increased/decreased centralisation (sharing of
responsibilities and delegation to other practitioners in the organization versus
tighter control on workflows and centralized responsibility).

Organisation of KIBS’ “Industrial Ecology”: Toivonen (2004) considered
scenarios for the future role of KIBS: (1) how far there is a marked differentiation
grows between KIBS specialising in highly specific types of problem, technology,
etc., and KIBS who are coordinating and integrating these inputs. (2) How far
KIBS deepen their client relationships, and become more important for client
strategies (over and above providing inputs to individual problems and business
decisions). (3) Whether KISA provided by non-KIBS become more serious
competitors to KIBS in the marketplace, as large firms sell their own KISA to
other parties, competing with specialised KIBS firms.10 An EMCC study (2005)
built on this, with scenarios differentiated in terms of the importance of KIBS
sectors to the whole economy (with growth in demand fuelled by developments in
technology, security, regulatory and policy affairs, efforts to “downsize”,
management focus on core competences, and the ability to recruit and retain
skilled employees), the strategic roles of KIBS (in client decisions, and in
orchestrating clusters of firms and projects); the importance of in-house KISA, in
contrast (perhaps fostered by needs to retain organisational memory and
enhance flexibility, by the availability of relatively easy-to-use technological “self-
service” KISA solutions, ability to offshore internal KISA work, etc.); differentiation
between lead supplier KIBS firms (operating as, subcontracting specific inputs to




9
  RAND-Europe, 2006, Changing professions in 2015 and beyond, Luxembourg, European
Commission, European S&T Foresight Knowledge Sharing Platform, EUR 21966, ISBN 92-79-
02664-X, available at
http://ec.europa.eu/research/conferences/2004/foresight/index_en.html
10
  Toivonen, M. (2004) Expertise as Business: Long-term development and future prospects of
knowledge-intensive business services (KIBS) Helsinki: Helsinki University of Technology,
Doctoral dissertation series 2004/2; available at: http://lib.hut.fi/Diss/2004/isbn9512273152/



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others, and as brokers and integrators of service provision) and other who supply
more specialised services.11

From these studies, a set of uncertain but important features of future KISA
emerge:
   • Overall growth in demand for KISA, reflecting both economic growth and
      developments in technology, regulations, etc.
   • Change in extent to which KISA are supplied through KIBS or through in-
      house services, reflecting relative costs, specialisation, etc..
   • Change in extent to which KISA are supplied through domestic, other
      European, or offshored service suppliers, reflecting cost, quality and
      reliability of supply (among other factors).
   • Structure of KIBS sector: extent to which a division exists between
      integrators and lead suppliers, and more specialised KIBS whom they
      contract into projects.
   • Strategic role of KIBS sector: extent to which firms play role in
      coproducing client strategies, as opposed to more distant contractual
      relationship;
   • Extent to which KISA themselves are standardised and routinised, as
      opposed to requiring creative problem-solving (even when modular
      elements of solutions are being configured together)
   • Nature of professional work in KISA – extent of division of labour, type of
      technology support, degree to which work is autonomous or rigidly
      standardised, etc.

This list is probably far from comprehensive, but provides a helpful starting –point
for further analysis.



     6. “Drivers” of KISA skills needs development
One aim of this first workshop is to explore the main “drivers” of KISA
development and growth, how important various and different drivers are seen as
being and how much uncertainty is associated with them and what scenarios can
be derived from them.12 The KISA on-line survey for this project sought to elicit
information on three types of KISA:

11
   EMCC, 2005, Knowledge-intensive business services: Trends and scenarios, Dublin: EMCC at
European Foundation for the Improvement of Living and Working Conditions; available at
http://www.emcc.eurofound.eu.int/content/source/eu05016a.html
12
   “Drivers” is not a term used much in social science, where the complexity, feedback
relationships, and fuzzy boundaries of most objects of studies leads to the term being seen as
involving too much simplification. It is, however, widely used in futures studies and scenario


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    •   Technology related (e.g., engineering, technical testing, R&D, computer
        services)
    •   Professional related to social or administrative services (lawyers, market
        researchers. advertisers)
    •   Financial related to fiscal processes (accountancy, banking, auditing,
        insurance)

The key intention was to identify the factors most likely to have the highest
impact (positively or negatively) on demand for KISAs in the short/medium and
longer terms. The survey utilised the STEEPV framework as a way of eliciting
drivers in terms of social, economic, environmental, technological, political and
values-related categories.13 A useful starting point here was earlier work
concerning drivers deemed potentially important for the supply and demand of e-
skills. Many, if not all of these factors, may be relevant to KISA and KISA-related
skills more generally.14 Among the key drivers identified are:

Social drivers
S1: Improved Educational Levels

workshops in particular, since it provides a useful structuring framework for discussions and
analysis.
13
     Again, STEEPV is not a particularly social scientific framework; it is simply a rubric used in an
effort to encourage people to think widely and to enable rapid grouping of ideas. The notes in the
online questionnaire explicating the tool read as follows: “STEEPV is the acronym for a list of
categories – referring to Social, Technological, Economic, Environmental, Political and Values
factors. This is essentially an aide-memoire for classifying relevant trends or drivers, rather than a
rigorous conceptual framework! The set of categories is intended to be sufficiently wide-ranging
and comprehensive for users to be able to feel free to consider a wider range of topics than they
would often do. … The list below provides examples of the sorts of things that can be grouped
into each category. Do not feel constrained to cite only items from this list! …
   * Social: Ways of life (e.g. use of leisure time, family living patterns, demographics), social
inclusion and cohesion issues (fragmentation of lifestyles, levels of (in)equality, educational
trends).
   * Technological: Rates of technological progress, pace of diffusion of innovations, problems
and risks associated with technology (including security problems).
   * Economic: Levels and distribution of economic growth, industrial structure, competition and
competitiveness, markets and financial issues.
   * Environmental: Pressures connected with sustainability in general, or more localised
environmental issues (including pollution, resource depletion, and associated biodiversity, health
and safety concerns).
   * Political: Dominant political viewpoints or parties, political (in)stability, role of governments in
regulation, political pressure and lobbying by non-state actors (e.g. pressure groups).
   * Values: Attitudes to working life (e.g. entrepreneurialism. desire to pursue a single career,
deference to authority, willingness to be mobile across jobs or countries, etc.) as well as to
leisure, culture, politics, etc.”
14
     This list reflects concern about skill availability and off-shoring of work, which was the focus of
the earlier e-skills study: CEPIS (2006) “Thinking Ahead on e-Skills for Europe” available at
http://www.cepis.org/files/cepis/docs/20071217032722_Thinking%20Ahead%20on%20e-Skills%20in%20.doc   This
study identified 90 drivers and discussed their implications for three types of e-skill (mainly via
deskwork)


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S2: Growing income levels in the EU
S3: Population Ageing Trends
S4: Efforts to attack or compromise systems give rise to growing concerns about ICT
Security
S5: Adoption of ICT in ways that enable new Working and Learning Practices

Technological drivers
T1: Major new classes of Technology / styles of use of technology / applications
T2: Improved User Interfaces
T3: Greater adoption of software engineering and similar approaches to systems
development
T4: Enhanced Telecommunications Infrastructure and Services
T5: Wider diffusion of IT Infrastructure / Services

Economic drivers
E1: (Levels of) Economic Growth within EU
E2: Levels of Global Economic activity
E3: Price Trends of major classes of ICT equipment
E4: Prices of alternatives to ICT-delivered services
E5: Increased start-up rate for SMEs

Environmental drivers
N1: Acceleration of Global Warming
N2: Disruption of Gulf Stream
N3: Pressure/Effort to replace transport with Telecoms.
N4: Emphasis on reduction of ICT and electronic waste
N5: Environmental regulation and concerns lead to growth in business (ICT exploitation)
opportunities

Political drivers
P1: Variation of skilled worker migration flow(s) into EU
P2: Further Reduction of Barriers to migration of skilled workers within EU
P3: Changes in Taxes on Labour
P4: Pressure exerted on employers to reduce/limit off-shoring
P5: Growing Geopolitical instability

Ethical & Values–related drivers
V1: Declining interest of young people in EU in undertaking technology related
courses/qualifications
V2: Demand of workforce for more satisfying jobs
V3: Possible increase in “Enlightened” Management philosophies & practices
V4: Resistance to surveillance/privacy invasion through ICT at work and in services
V5: Growing concern about health hazards of ICT .


The scenario studies discussed above (RAND 2006, EMCC 2005, Toivonnen
2004) also provide useful detailed analyses of trends and drivers influencing the




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KIBS sector –much of which, again, will be relevant to KISAs more generally and
to our scenario exercises. Broadly, from these studies, the key drivers concern:
• The technologies in use for KISA, and the technologies where KISA support
    is required by clients;
• The organisation of the KIBS sector, in terms of the roles of firms
    (specialisation/integration), firm size, and their own use of off-shoring to
    accomplish functions;
• Demand for KISA on the part of clients, and client strategies (and
    management philosophies) in relation to internalisation of KISA versus
    externalisation to KIBS, to off-shoring internal KISA and/or using overseas
    KIBS, and in terms of possibly moving into commercial supply of KISAs to
    other firms.
• Demand is in turn influenced by such factors as technological change,
    regulations, turbulence in markets and levels of economic growth, client firm
    internationalisation, etc.
• Availability and quality of training in KISA skills, modes of provision of
    training (on-the job and in formal institutions, life-long learning, etc.), and
    possibly by professionalization in KISA work itself and the strategies of KISA
    users in terms of management control of professional work.

These drivers have evident implications for the skills that KISA will require in
different scenarios, and offer insight into a range of useful drivers that can be
mobilised to focus more on developing KISA scenarios for sectors and KISAs of
particular interest. More generally they indicate what might be emphasised with
a focus on KISA skill requirements. Ascertaining and establishing what drivers of
KISA skills needs are relevant is clearly not straightforward: a list of drivers might
be rated in terms of the perceived impact on demand for a particular type of
KISA, in different types of environments (where a KISA might be in-sourced or
outsourced, the regulatory framework operating). There is also the element of
uncertainty, in that it may be unclear whether a driver will develop in a particular
way (e.g. will this demand-promoting factor [continue to] grow in significance?)
and/or just what its impact will be (will this driver lead to more or less of this
outcome?)15


     7. Drivers and KISA skill needs
Some preliminary thoughts concerning how drivers might influence one aspect of
KISA – their skill requirements - can be set out, with the aim of providing stimulus
to the workshop not pre-empting its discussions. Of course, this first workshop

15
   Often this latter type of question reflects uncertainty about the development of different parts of
a complex driver – for example climate change could evolve in very different ways, and social
responses might also be quite diverse.


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will be exploring other features of KISA, with skills being the focus of the second
workshop.

Demographic trends and employment retention and arrangements: ageing,
of populations and workforces, have industry-changing impacts on the supply of
labour, market demand and competition, and productivity. As growth in labour
supply slows, attracting and retaining workers becomes critical. The level of job
vacancies can indicate whether there are problems with worker attraction and
retention. Remuneration and leave entitlements are two factors that affect
attraction and retention. Employment arrangements (permanent, casual or
contract employment) affect skills development, productivity, innovation and
competitiveness. These arrangements may engender flexible professional
development solutions specific to sectors as transferable skills and essential
underpinning skills in business, problem solving, communication and technology
are required. Employers may only be willing to provide training for the additional
enterprise-specific skills they require and additionally employers will seek
solutions to capture and share and retain the corporate knowledge built up by
casual and contract staff. Labour hire companies and personnel agencies may
also become increasingly responsible for the skills development of the workers
they supply. Employees and employers may demand reliable, recognised generic
mechanisms for recording skills, training and qualifications which have change
implications for current education and training structures and arrangements.

Technological change: technology and the rate of technology adoption by all
types of enterprises is an important driver of training. Digital technologies, online
transactions and convergence impacts on all enterprises and requires changes in
skilling of workforces. New business models generated by e-business channels
provide different ways of thinking about marketplaces, interacting with customers
and managing staff resources. Enterprises need to consider the nature of the
skills required by their workers. Workforce training is required every time a new
technology (hardware, software or systems) is introduced into the workplace and
ongoing training is needed to ensure that technologies are used effectively.
Technology blurs the boundaries between many industries and generates the
need for skills and knowledge across a number of specialist areas to exploit the
integration of activities across sectors.

Regulatory changes: levels of regulation, licensing requirements and the rate of
regulatory change have increased in all sectors. Skills formation strategies,
particularly for SMEs, have become increasing necessities in areas such as
business, finance, ICT, privacy and         intellectual property, often requiring
recognised industry training. Regulatory compliance is particularly challenging for
the large number of SMEs within the innovation and business industries and
managers and supervisors need the skills to develop risk management
strategies, and mechanisms to ensure the ongoing competency of their workers



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Market pressures: globalisation has provided access to a far wider range of
goods and services, often at lower prices, than would be available from domestic
producers alone and has provided businesses with a larger pool of capital and
greater access to overseas technologies. Small businesses and franchises need
strong business and financial management and planning skills to compete
successfully. High level customer service skills are required in all industries.
Employees are now required to update and broaden their product knowledge
continually as the number of products and services offered increases. Customer
service staff, for example, need skills to help consumers with new sales and
service channels (e.g. information kiosks, online banking, self-service call
centres). Skills that allow innovation, productivity improvements and cost
efficiencies will be highly valued across all industries.

      8. Moving On
This note has set out background information relevant to the first KISA workshop,
especially concerning the two critical elements of the scenario analysis: features
of KISA, and drivers of developments of these features, that may evolve in
various ways in the coming decade(s). In the workshop we will develop a set of
scenarios that reflect particularly important issues emerging from our further
analysis and discussion of these issues. It is intended that these scenarios will
be useful for further thinking about KIBS and KISA developments in general, and
that they will be a resource to inform the detailed analysis of KISA skills to be
undertaken by the second workshop.




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