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Mancheste r Institute of Innovatio n Research MOSTI - Service Innovation 2009 Service Innovation - Models and Theories Ian Miles [email protected]
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Service Innovation 2 - the reverse product cycle and more

Oct 29, 2014

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Technology

Ian Miles

Second set of powerpoints for my module in the MBS MSc module on Service Innovation
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Page 1: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Service Innovation - Models and Theories

Ian Miles

[email protected]

Page 2: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Mission for today

Page 3: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Images of ServicesDeindustrialisation Post-industrialisation

Underlying Image

“Stuck in the past” “The coming thing”

Value Often unproductive – especially public services, where demand reflects political rather than economic agendas; but also many professional services are overprotected and simply feed themselves.

Often superior goods, which leads to increased demand for services as affluence grows.

Economic role Burdensome upon other sectors – especially due to taxes and labour market distortions from public services, but also from some private services.

Job generating; contributing to overall quality of life; helping to co-ordinate complex economy and society.

Innovation Economic growth is based on innovation in manufacturing. Services lag behind (usually far behind) in use of technology and in productivity growth.

Often substantial organisational innovation in services. Technological innovation is less pronounced - thus expanding services absorb labour displaced by manufacturing automation.

Skills Usually low level, frequently involve manual work ; sometimes knowledge is protected by professional elites.

Often demand high professional, technical and especially social skills.

Quality of working life

Jobs often low status, low wage, part time, etc.

Jobs often professional and rewarding knowledge work.

Think: what data could we use to

test these?

Page 4: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Images of Innovation and Services

Deindustrialisation Post-industrialisation

Innovation Economic growth is based on innovation in manufacturing. Services lag behind (usually far behind) in use of technology and in productivity growth.

Often substantial organisational innovation in services. Technological innovation is less pronounced - thus expanding services absorb labour displaced by manufacturing automation.

Implication:

Services display lower rates of productivity – and quality? – growth than manufactures.

So there is a shift in employment, if demand for goods and services grows equally, or if services are “superior” and purchased more as people become more affluent – cf Engel, Maslow, Inglehart… This seems to be Bell’s assumption, and to fit the grand employment trends

But in the late 1970s Jiri Skolka and Jay Gershuny both raised a question about the long-run implications of “unbalanced productivity growth”…

Page 5: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Implications of Imbalance• Per £, $, €, spent, what consumers get from

services purchases should grow at a lesser rate as compared to manufacturing – may even decline with inflation.

• Costs of – train fares, theatre tickets, complementary therapy – as against, say, cars, televisions, clothes.

• What if many services are substitutable with goods?

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Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Implications of Imbalance 2

• What if many services are substitutable with goods?

Meals: eating in restaurants vs eating at home?

Mobility: taking a bus versus driving yourself by car?

Washing clothes: laundry, laundrette, washing machine

Entertainment: theatre or cinema versus TV, radio, hi-fi

“Gershuny Hypothesis”: goods and SELF-SERVICE will increasingly substitute for Final Services

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Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Innovation and Imbalance

• Basic Requirements:

• Shelter• Food

• Domestic Services

• Etc.• Advanced

Requirements:• Medicine

• Transport• Entertainment

• Education

Purchase of Time Services Goods Use

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Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Innovation is Important

• Potential competition of goods for services:

• Declining service quality (vicious circle); polarised services for rich and poor; loss of public service and service employment

• Possible solution in service innovation – role of new IT

Fewer customers

Less income

Cost reductions: reduced service

frequency, etc

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Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Service Innovation and IT• From late 1970s, apparent that new IT was

being widely employed in service sectors• Indeed earlier communications technology

had already been widely used: Gershuny cited case of Open University. But now PCs and telematics, allowing for reduction of time and space constraints, allowing for more customisation, etc.

• Apparent by early 1980s that services adopting IT heavily: 80% of IT investment from services.

• Much description of new service products and processes, but little theorisation at first.

Page 10: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Richard Barras: Reverse Product Cycle

• Classic model of innovation:– Innovator creates a new product– Product comes to market, and goes

through a phase of refinement – improved quality (reliability, user-friendliness, etc)

– Product is stabilised, and competition moves to focus on efficient production – process innovation

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Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Barras’ ‘Reverse Product Cycle’ (1986)

Initial Phase

Second Phase

Third Phase

Nature of Innovation

Incremental Process Innovation

Radical Process Innovation(quality)

Product Innovation

Aims To improve the efficiency of the existing servicesReduce the cost of providing the service

To improve the effectiveness of existing servicesTo expand the market for the improved product

To develop new service products to differentiate one from others in the market

Type of investment

Investment in capital deepening technology

Investment in capital widening technology

Investment in capital widening technology

Impact on Labour

Labor displacing Neutral impact on employment

Employment generating

Page 12: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Four sectors and the RPCPHASE (1) 1960s- 1970s (2) 1980s (3) 1990s

ONWARD

Nature of Innovation

Incremental Process Innovation

Radical Process Innovation

Product Innovation

Aims Efficiency Improvement

Quality Enhancement

New Service Realisation

Technological Innovation in IT

Producer Sectors

Mainframe Computers

On-line Systems; Minis & Micros Dumb

& Intelligent

Networking (particularly ISDN)

SECTOR APPLICATIONS

Retail Banking Automated transactions and financial records

ATMs, Financial customer/informatio

n systems

Cashless shopping (EPOS) Home

Banking

Insurance Computerised policy records

On-line policy quotations

Complete on-line service

Accountancy Computer audit; Internal time

recording

Computerised management accounting

Fully automated audit & accounts

Local government Corporate financial systems (e.g.

payroll)

Departmental service delivery (e.g. housing allocation)

Public information services (e.g.

viewdata)

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Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Banks as Vanguard: Phase 1Nature of Innovation Incremental Process Innovation

Time Mid 1960 – Mid 1970

Technology Main frame computers

Purpose of technology application

To store, manage and organise financial transaction data

Example of tasks Routine TasksDealing with customer accounts, booking

keeping, producing statements

Role of Technology Supplier

Supplier of technology actively introduces the technology to the adopting firm.

Role of the Firm (bank) Ensuring the staffs has adequate training regarding the use of the new technology.

Market React to those firms who could provide financial information quickly

Industry Competition Those adopting the technology first will have considerable competitive advantage.

Page 14: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Phase 2Nature of

InnovationRadical Process Innovation

Time Mid 1970 – Mid 1980

Technology Network technologies Technological SystemsAutomated teller machine networks

Purpose of technology application

To create linkages – mainframe linking with dumb terminals thus facilitating the improvement of service quality

Example of tasks Dispensing cash out of work hoursImprove the speed of cash dispensing service

Role of Technology Supplier

To introduce applications which ensure intra-bank connectivity.

Role of the Firm (bank)

Building on the embodied knowledge of using the technology, banks now attempt to establish inter-organisation links through the use of technology.

Market Consumers enjoy the convenience of the interbank connectivity.

Industry Competition

Most firms have adopted the new technology; the industry now looks at system integration.

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MOSTI - Service Innovation 2009

Phase 3Nature of Innovation

Time

Technology

Purpose of technology application

Example of tasks

Role of Technology Supplier

Role of the Firm (bank)

Market

Industry Competition

Product Innovation

Mid 1980 – Mid 1990 1990 and beyond

Further upgrade of network technology: Integrated system

Infrastructure: ISDN network/communications system

Extend linkages: mainframes link intelligent terminals.

Creating linkage between banks, businesses and individuals

Real time, online transaction processing – accessing customer data saved on the mainframe & matching financial information and marketing activities developed in the branches … Offering service packages ”personal investment, house purchase, travel, taxation and cash management”

Home banking/ Shopping

The role of technology supplier is less responsive in this phase.

Introducing new services to the client using existing databases. Providing staff training for new technology application. Educating customers regarding new technology application.

Consumers enjoy more flexibility with the service offered by firms. The access to the service without being in the premise of the bank.

Competition by differentiated service products.

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Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Barras Account

• Very popular: intuitively plausible

• But:– Does it apply to all services, or just

information services (finance etc.)?– Is it a general model, or one that happens to

capture service innovation at one point in time (after new IT emerges)?

– How can it be tested empirically?– What are the implications for management?

Page 17: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Service Innovation• Early thinking: services unproductive; this did not need much

explanation; Fuchs attributes to skills problems. SERVICES ARE INNOVATIVE LAGGARDS. Their (technological) innovations mainly come from manufacturing sectors (Pavitt 1).

• Slow productivity growth (plus new services) will lead to sectoral shift in employment. (Though Gershuny hypothesis: goods and self-services compete with services.)

• Emergence of new IT – a technological and/or industrial revolution in services (Barras)

• Service innovation comes to the fore: understudied, and argument about whether it is something new (?Barras) - DEMARCATION- or can be handled using conventional tools and techniques - ASSIMILATION

Page 18: Service Innovation 2 - the reverse product cycle and more

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MOSTI - Service Innovation 2009

Assimilation - DemarcationIssue: Assimilation Demarcation Synthesis

Concepts of R&D and Innovation:Should be the same, perhaps service staff need education, perhaps services are mainly assimilating manufactures

Conventional terminology inappropriate to and unrecognised by many services. Important role of organisational innovations, yet these remain poorly measured in received approaches.

In all sectors innovative activities in marketing, distribution etc. are often not under purview of R&D Managers - liable to be overlooked in surveys etc (and in firms’ own strategic planning?)

Definition of R&D:Should be the same, perhaps services will focus on specific areas and be more concerned with absorption

Term not seen as appropriate even in many technology-intensive services (despite Frascati modification to include software). Role of customisation much more ambiguous than Frascati manual implies.

Need a new concept of ‘investment in innovative activities’ (defined as having the intention of altering the nature of the market offering of the enterprise, or of its underlying costs of doing business)

Definition of innovation:Should be the same, especially focusing on technological innovation

The term ‘innovation’ is problematic. Product-process distinction liable to be misleading – consider delivery and other interactional innovations. Organisational innovation seems critical in many services, but is hard to quantify.

Material changes may be classified as standard into product, process (and delivery?) etc. Immaterial changes could be divided into those ‘focused on client relationships’ or ‘focused on internal processes’, with subcategories (e.g. transactions, product tracking, etc.)

Location of innovation:Relatively easy to trace innovator

Innovations co-produced with clients may be attributed solely to the latter.

Innovative activity seen as intrinsically structured as participating in a process located in a network’ usually not closely bound to one sole ‘innovator’

Organisation of Innovation:R&D managment

Project rather than R&D management. Innovative activity diffused among functional units of firms

Coombes and Miles, 2000

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MOSTI - Service Innovation 2009

Den Hertog’s framework

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MOSTI - Service Innovation 2009

For EU-wide CIS4 analysis• See Arundel et al Innovation Statistics for the

European Service Sector• http://www.europe-innova.org/exportedcontent/docs/80/8380/en/Innovation_Indicators_for_the_European_Service_Sector.pdf

• Compares “industry” and services, and provides data on KIBS in particular; explores – 1) use of intellectual property, – 2) demand conditions, – 3) supply of qualified personnel, – 4) use of public science, – 5) start-ups, – 6) innovation support programmes, – 7) regulatory burdens, and – 8) financial constraints.

Page 21: Service Innovation 2 - the reverse product cycle and more

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MOSTI - Service Innovation 2009

Innovation Surveys (CIS)–services v manufacturing

0 10 20 30 40 50

Enterprises w ithinnovation activity

Successful innovators

Product onlyinnovators

Process onlyinnovators

Product and processinnovators

Services

Industry

Page 22: Service Innovation 2 - the reverse product cycle and more

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MOSTI - Service Innovation 2009

A more detailed look

0 10 20 30 40 50 60

TKIBS

Financial

Wholesale

Transport & comms

Utilities

Manufacturing

Extractive

Product and process innovators

Process only innovators

Product only innovators

Successful innovators Physical services – less innovation?

Information services – more innovation?

Page 23: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Services Innovation Styles differ

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

Max. choice = 2)

INNOVA survey, Howells and Tether 2002)

Page 24: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

CIS4 resultsTobias Schmidt & Christian Rammer

(2006) The determinants and effects of technological and nontechnological

innovations – Evidence from the German

CIS IV

Page 25: Service Innovation 2 - the reverse product cycle and more

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

CIS4 resultsUK data

Other Business Sers.Legal Sers.

Architecture

Financial sers.

WholesaleReal Estate

Labour Recruitment

Other Transport sers.

Vehicle trade

RetailHORECA

Courier + post

Extractive, Construction, Utilities

Manufacturing

TelecommsComputer Sers.

R&D

0

10

20

30

40

50

60

70

80

0 10 20 30 40 50 60 70 80

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MOSTI - Service Innovation 2009

Conclusions

• Are services innovative – are some services especially innovative?

• Are services innovative in different ways?• Is IT especially important in service

innovation?• Is a focus on technological innovation

sufficient – or are we getting drawn into minor organisational changes and strategic issues when looking beyond technology?

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End of presentation