Service Innovation Knowledge Intensive Services and by leg61528


									             Service Innovation:
     Knowledge Intensive Services and ICT

                        Dr. Marja Toivonen

                 Innovation Management Institute
                 Helsinki University of Technology


1)   What is an innovation and what is a service innovation?

2)   Modelling the service innovation process

3)   Service innovations in knowledge-intensive business services (KIBS)
     (relation of KIBS to ICT)

4)   Empirical findings of innovation processes in KIBS
     - a model
     - two case examples

                 The development of perspectives
                      on service innovation

•   Services were long regarded as secondary from the viewpoint of innovation:
    as the consumers or imitators of innovations of manufacturing firms.

•   Along with the ‘servicisation’ of society, this kind of argumentation has become
    untenable because it implies that the non-innovative features would apply to the
    majority of economy.

•   Research into service innovation started from the analysis of the impacts that the
    introduction of technical equipment and systems had in service firms
    (e.g. the pioneering work of Barras 1986).

•   A manufacturing-based innovation paradigm is identifiable in early theories: they were
    more theories of the diffusion of technological innovations into service sectors rather
    than theories of the nature service innovation.

                  The development of perspectives
                    on service innovation (cont.)
•   More recent theories often rely on Schumpeter, the classic of innovation research.
    Schumpeter’s definition of innovation was broader and more open than the technology-
    centered paradigm which became dominant after him.

•   He identified several different forms of innovation (Schumpeter 1934, p. 66):
    - the introduction of a new good or a new quality of a good
    - the introduction of a new method of production
    - the opening of a new market
    - the conquest of a new source of supply of raw material or intermediate input
    - the establishment of a new organization

•   According to Schumpeter, innovations can manifest themselves both as
    radical discontinuities and as new combinations of existing things.

•   Schumpeter raised entrepreneurs to a central position as innovative agents.
    He laid the grounds for the insight that everyday business activities
    are an important arena for the emergence of innovations.

                        Similarities of service
                       and industrial innovation

    On the basis of the Schumpeterian perspective, we can list the following
    features as criteria for innovation both in manufacturing and in services:
    • innovation is an idea which is carried into practice
    • innovation is reproducible
    • innovation differs from everyday development: it represents a new kind
        of problem formulation, a break in business-as-usual
    • innovation leads others to follow; it functions as a driver of development
        in a broader context, not only in the organization which has developed it.

    In services, the criterion of reproducibility is particularly important. Even
    though each service act includes some unique features, not all of them are
    innovations. Correspondingly, a tailor-made solution as such is not a service
    innovation. It can, although, be developed into an innovation, if its replicable
    elements are identified and applied in other cases.

                     Differences between service
                      and industrial innovation
•   In goods, the production process and the outcome are clearly separable.
    In services, the process is an essential part of the product and in many
    services a separate outcome cannot be identified at all. Thus, the categorisation into
    product and process innovations cannot be reasonably applied in services.

•   The allocation of specific R&D resources for innovation activities is not
    wide-spread in service firms. Many service innovations are not the result of deliberate
    activity at all, but emerge in the process of service provision, and are recognised as
    innovations only a posteriori.

•   The role of clients is deeper in services than in manufacturing: not only do
    the needs of clients form the starting point for the renewals, but clients often participate
    in the innovation process.

•   Service firms use innovation terminology only rarely. This has to be taken into account
    in studies mapping innovations in services.

                   A working definition for
                     service innovation

    A service innovation is a new service or such a renewal of an existing service
    which is put into practice and which provides benefit to the organisation that
    has developed it; the benefit usually derives from the added value that the
    renewal provides to the customers. In addition, to be an innovation the renewal
    must be new not only to its developer, but in a broader context, and it must
    involve some element that can be repeated in new situations, i.e. it must show
    some generalisable feature(s).

    A service innovation process is the process through which the renewals
    described are achieved.

                    Three models describing
                  a service innovation process

1) The linear NSD process
•   A model of new service development (NSD), based on earlier models
    of new product development (NPD).
•   In services theory, this approach has linkages to services marketing school;
    important representatives - among others - are de Brentani and Cooper.
•   A formal process with clear pre-planned stages and checkpoints for making ‘go/kill
    decisions’ (a stage-gate -model) is seen as the ideal.
•   Input from clients and the possibility of parallel conduct of some stages have been be
    taken into account in newer NSD studies.
•   A strength of the approach is that it discusses the proceeding of service development
    process at a detailed level.
•   Weaknesses are that the service itself is ‘a black box’ in the analysis, and
    a deeper theoretical discussion about innovation is missing.

                    Three models describing
              a service innovation process (cont.)
2)   Modelling the service - the target of development
•    The NSD model of the so-called ‘Nordic school’ of service marketing,
     presented by Edvardsson et al.
•    Very strongly client-oriented: each individual service consists of a customer-perceived
     outcome and a customer-unique process.
•    The perspective of providers is included, too; however, here the question is not of the
     actual delivery of the service, but of the creation of prerequisites for it.
•    Creation of prerequisites is seen as the essence of NSD and it includes three tasks:
     service concept development, service system development and service process
     development; each of these is further divided into sub-tasks.
•    The strength of the approach is a detailed service model, on the basis of which the
     ‘locus’ of renewals can be reasonably analysed.
•    Weaknesses are that the proceeding of the NSD process is not explicitly discussed and
     the linkages to innovation theories are missing.

             The service model -framework of Edvardsson et al.

                                     the perspective of the customer
                                       and actual service provision

        UNIQUE OUTCOME PERCEIVED                               UNIQUE PROCESS WHERE THE
        BY THE CUSTOMER                                        CUSTOMER PARTICIPATES

          SERVICE CONCEPT                SERVICE SYSTEM                SERVICE PROCESS
          Analysis of the customer’s     Resources: staff, physical/   Prototype of customer
          needs and the ways in          technical environment, the    processes, describes
          which they are met; the        organisational structure;     the chain of activities
          content and structure of the   customers as a resource

                                 the perspective of the service provider
                                       and service development

                    Three models describing
              a service innovation process (cont.)
3)   Modelling the service and categorising innovations
•    The model of the ‘Lille school’ (Gallouj et al.)
•    Also here the starting point is the modelling of the service. Following the Lancasterian
     approach, services are described as sets of final characteristics (Y), technical
     characteristics (X) and competence characteristics (C).
•    Innovation is defined as any change affecting one or more of the above described
     characteristics. There are different types of innovations:
     - Radical innovation means that a totally new system of [Y*, X*, C*] replaces the old one.
     - Improvement innovation is created when the value of a certain Y is increased by improving
       certain X or certain C.
     - Innovation by addition or substitution occurs when one or more new elements are added to X,
       or one or more of its elements are replaced (C and Y change accordingly).
     - Recombinative (architectural) innovation takes place when a new service is developed either
       by combining characteristics of existing services or by splitting up an existing service.
     - Formalisation innovation refers to the clarification of the relationship between technical
       characteristics and final characteristics. The increase in the visibility of the service achieved
       in this way is the core idea in the commodification and standardisation of services.

3) Modelling the service and categorising innovations (cont.)
•    The discussion of Gallouj et al. does not include an explicit analysis of the
     proceeding of a service innovation process. However, the concept of a posteriori
     innovation refers to the view that this process need not start with conscious planning,
     but can emerge in service practice.
•    The model has several strengths: It provides an alternative to the categorisation
     between product and process innovations, whose application in services is difficult.
     It also shows that besides the emergence of totally new services there are abundant
     options available for smaller renewals.
•    The adequacy of the service model can, however, be questioned. The category of
     technical characteristics seems to be too broad: it includes both the production system
     and the process of the service. This restricts the application of the model: it functions
     well in the analysis of the nature of changes, but not in the analysis of the possible
     loci of innovation.
•    Another problem is that the categories describe at least three different dimensions:
     the radicality of innovation, the changes in the characteristics of the service, and the
     way in which the innovation process begins.

                          Summary of the models
•    The NSD model based on the stage-gate approach is the only model
     where the proceeding of a service innovation process has been analysed in detail.
     However, the model lacks both a deeper discussion on the nature of services and the
     nature of innovation.

•    The Nordic school provides a reasonable and detailed service model, but
     does not analyse the proceeding of a service innovation process and has almost no
     linkages to innovation theories.

•    The Lille school provides a reasonable categorisation of the ways in which a service
     can be changed. It contributes particularly to the analysis of different kinds of
     incremental innovations and brings up the possibility that a service innovation process
     does not always begin with conscious planning. It does not, however, discuss the
     proceeding of the innovation process and the service model behind the innovation
     analysis remains at a very general level.

               Service innovations in knowledge-
               intensive business services (KIBS)

    What are KIBS?

    Knowledge-intensive business service firms (KIBS) are expert firms
    which provide services (intermediate inputs) to other companies and organisations.

    Main KIBS industries are IT services, R&D services, technical consultancy
    (architectural, engineering and industrial design services), legal services, financial
    consultancy, management consultancy, and marketing communications services.

    The relationship between KIBS and ICT -sectors: IT consultancy companies are
    a part of the KIBS sector. Telecommunications sector is a knowledge-intensive sector
    but usually not included among business services, because it is a producer of end
    products, not intermediate inputs.


 1) ICT increases the divisibility and commercial potential of information. KIBS are
      important actors in the new information markets.

 2)   On the other hand, the huge amount of information highlights the finding of essentials.
      This causes need for professionals who are able to locate the necessary information
      and interpret it in a customised way.

 3)   Explicit information has to be supplemented with tacit forms of knowledge.
      KIBS help their clients to convert tacit knowledge into explicit and vice versa.

 4)   The development of ICT has essentially increased opportunities to effectively combine
      external and intra-organisational knowledge. KIBS act as an interface and as a mediator
      between a client firm’s specific knowledge and the generic knowledge available in the

                          PROCESSES IN KIBS

 the stage-          the emergence of          the development                market
 gate model               an idea                 of the idea               applications

  the model of
rapid application    the emergence of          applying the idea              further
                          an idea               in the markets             development

 the practice-       a change in the                ’finding’                 further
 driven model        service practice               the idea               development

                Two examples of ICT-related
                   innovations in KIBS

1)     An internet-based optimisation of the operation of building services systems -
       an example of an innovation process carried out according to the stage-gate model

2)     A commodified consultancy service for the planning and developing of
       telecommunications systems - an example of an innovation process illustrating
       “rapid application”

                                 CASE: RAU-Info

                         Pöyry Building Engineering

      RAU-Info is a service for the follow-up of the operation of building services
       systems (heating/cooling, water supply, air-conditioning and electricity);
              consultancy concerning these systems is also included.

     RAU-Info is a totally new service among the services provided by JP Building
      Engineering. It also includes some elements which are new in the Finnish
                             building engineering industry.


radical innovation       building automation and the follow-up systems linked to it is
in the background        a radical innovation which is today in a global use

innovations            - data gathering is independent of the automation system
created in the         - flexibility and configurability (instead of the main meter of the
RAU-Info context         building, the data is gathered from smaller units)
                       - integration of the follow-up, reporting, and consultancy
                       - providing tools for clients’ own analyses and reporting

Added value for the clients is obvious, and even though the service is today used in
the domestic market only, its market is principally global.

RAU-Info innovations include: 1) improvement of a single module (data gathering)
                              2) adding a new module (tools)
                              3) recombination of the modules in a new way

   separate services           unified service package               modular structure
   (before RAU-Info)             (early RAU-Info)                   (present RAU-Info)

      information                    reports
        systems                       audits

                                                       and                            measuring,
                                                     reporting       measuring,        reporting
                                                                   reporting and         and
                                                                   providing tools    consultancy
                                                                     for further


          developing a deep                                                     providing ”full service”:
          partner relationship                                                 follow-up, reporting and
           with some clients                                                         consultancy

                                                        a client

                 JP Building                                                              another
                 Engineering                                                             consultant

              marketing the product,            providing tools                   providing tools for other
               benefiting from the                for a client                    consultants used by the
               economy of scale               (enabling in-house                    client (competitors)

                      The stage-gate model in the RAU-Info case

           a big client            pilot-project with          first actual clients,       further development
          expresses need            another client,          perception of different      on the basis of hints
           for this type           discussions also              service needs               provided by the
           of a service            with other clients                                  growing number of clients



                                                                                         measuring,        reporting,
                                                                                         reporting,        consultancy
                                                                                         providing tools

                  first          prototype development -           the same service           multi-layered
               documented           first excel-based,             package is offered            modular
                  ideas             then Java-based                  to all clients          service structure

               year 2000                                                                        year 2005

                The model of rapid application
• Many innovation cases in KIBS represent this model. This type of innovation
  process has also been identified in some studies of the software and
  telecommunications sectors (e.g. Engvall et al. 2001).

• After the emergence of a new idea, it is almost directly brought to the markets and
  developed hand in hand with the actual delivery of the service. There may be a short
  stage of ‘desk-study’ but not a separate piloting stage.

• There are three reasons for the use of this model:
  1) Due to the small amount of investments needed for the development of a new
  service, it is possible to test ideas directly in the markets.
  2) A new service may include abundantly questions that cannot be correctly posed -
  let alone answered - without operating in real markets. The urgent need in the
  markets may function as an additional reason for rapid action.
  3) If the idea emerges in the interaction with an existing client, it is often natural to
  continue its development along with operation in the markets.

               CASE: A consultancy service for the developing
               of organisations’ telecommunications systems

                                    Pöyry Telecom

     This service aims to create an optimised development plan for
     telecommunications systems in public and private organisations. The service
     enables client organisations to utilise the continuous diversification of the
     telecommunications systems and their decreasing prices.

     Innovativeness of this service is included in its detailed commodification. This type
     of consultancy services are often tailor-made, which means that with each client
     the process starts from scratch. Through commodification the repeatability of a
     service can be increased.

     In this service, the value proposition, intermediate and final results, stages of the
     service process as well as the tasks of the client have been clearly described.


radical innovation             the development of ICT and service models linked to it:
In the background                   mobile technology, VoIP, call centre -concept

                               acquiring a comprehensive view of the clients’ needs
the service of                regarding communications technology and providing an
Pöyry Telecom                optimised and cost-efficient development plan based on it

The nature of the innovation: a formalisation innovation in the first place


 - The starting point was a tailor-made service, but the questions of the first client
   awakened the service company to think that other clients probably have similar

 - The optimisation of organisations’ telecommunications systems had become
   an issue along with the development of these systems more complicated, including
   several alternatives.

 - The company continued to offer its service and simultaneously developed its
   elements into a replicable form.

 - The division of working time for both purposes enabled this solution.

 - The clients were not invoiced for the time devoted to the development.


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