2006/08/28 09:30 Paul Lillrank, "Towards a Service Engineering and Management Framework: Process Perspectives on Services"

2006/08/28 09:30 Paul Lillrank, "Towards a Service Engineering and Management Framework: Process Perspectives on Services", SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Paul Lillrank, Helsinki University of Technology, Professor and Dean, Faculty of Industrial Engineering and Management

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Had started working on process perspective, didn't really get there

• Will start on a production system perspective on services

Agenda

Key idea: service machines

Definitions: what is services?

• Basic two dimensions: Borderline between things we talk about, and don't talk about
  • Professionalism:  services are produced by people who have developed skills, in a community
  • Could create a professionalism scale, where have more/less
  • Not performed by anyone off the street, someone trained.
• Commercialism: what kind of commercial exchange is in place, when something is producted
  • Dividing line, when there is money (unless we include barter)
  • Includes systems to calculate price, and the payment of taxes, accounting systems
• Combining the two, some things look like services, but are not.
  • Favours:  e.g. hitchhiking
  • Barter
  • Could develop into a taxi service
• Look at services when value is created for someone, not enough.
• Need to look at the institutionalism context
• Not-for-profit
• Black market

Literature on services marketing has been focused on some intrinsic features that would make it different from products

• Ontological exercise
• Difference would lead researchers to develop management methods
• Management methods behind manufacturing work well.
• Can we copy management methods from manufacturing to services, or have to develop something new?
• Service marketing, and recently service engineering, as new sections of management
• Reading, doesn't think it leads anywhere

IHIP model:

• Intangible: not something that you can drop on the floor
• Heterogeneous: service production systems are complicated, repetitions are different from one to the next
  • Every customer is a little bit different
  • Standardization and automation can not easily be applied, due to the heterogeneity of the input stream
• Separability: services are identical to the service production function, can't be separated
  • In manufacturing, can put the end result into inventory, separated somewhere else in the factory
  • Service producer and customer have to meet
• Perishability: product won't last
• e.g. airline, empty seat can be solved before the gate closes, and then it's gone forever

On any of these issues, can think of a number of counter-examples

• Customization: this is also increasingly true for products
• Inseparability and perishability:  e.g. a haircut exists as long as it is recognizable
• Inventory and storage: customers can be used as inventory, keep them waiting; can manage capacity

These categorization have limited explanatory functions

• Kotler 2003, from pure tangible good to pure service
• Solutions in the middle
• Could have core products, and add-on services
• Augmentation exists, but it doesn't separate immaterial services from material products
• Another view that everything is services:  service and product distinction isn't helpful in different management techniques
• Reference point:  e.g. word processing is a service for me, but it's a product for Microsoft 
• Mobile telephone:  a product-service

Service product matrix, classifying different types of services

• Labour intensity vs. degree of customization
• Problem:  the same model can be applied to physical products

Warneke, The Fractal Company: production as a system of transformations, from inputs into outputs

From book, Service Operations Management, compared to Operations Management

• Most of the content is the same
• Similarly for Service Marketing versus Marketing
• Then, not smart to create a new program in Service Management, as no new content

Deep integration happened in computer science

• Idea from IBM
• Had a number of problems, created a new content
• Then the old sciences start to combine
• Computer, as a device, has been developing since Babbage, Victorian England, steam powered, huge as a house
  • Same thing as today, but couldn't be done with mechanical machines, friction
  • Had Boolean algebra and portable programming, but no electronics
• After WWII, computer science started emerging
• Computer science is big program, can't be split into component parts
• IBM was the company that made it happen
  • In the 1950s, computers were huge, expensive things
  • Academics didn't see this
  • IBM funded chairs, faculty
• In the 1950s, this wasn't obvious
• There was huge, aggressive debate:  you can't have machine-centric science
• If you insist on a computer science, then I'll have a washing machine science
• Washing machine is made up of some scientific components:  electronics, fluid dynamics, chemistry
• No deep integration
• Computing has a lot more, and wider applications than washing machine science
• Washing machines just replace manual labour
• There might be something inherent in washing machines that don't allow deep integration

First management students in 1964, teacher was physics Ph.D., look at students with disdain; whereas now 2-years do this

• At Northwestern, psychologist and linguist started computer science program
• Similarly, Herbert Simon came from political science
• In computer science today, need cognitive science, etc.
• Electrical engineer doesn't need to know much about chemistry
• Similar, the same thing happening in pharmaceutical

But what's different in service science?

• CEO of IBM is enthusiatic in kicking off service science

An example where deep integration didn't happen:  TQM, Total Quality Management

• Lillrank's speciality, spent a lot of time in Japan
• In the early 1980s, a lot of people thought that it was the most important thing around, e.g. Japanese automobiles and electronics
• Reassembling manufacturing
• Many people believed in this, got a chair in Finland in quality at that time
• As time passed by, recognized that there is no such thing
  • Looks foolhardy
• At heart, theory of variation, and Statistical Process Control not replicated elsewhere, by Walter Shewhart at AT&T in the 1920s
  • This helped people do things, reduce errors
  • Japanese adopted these after WWII, and became a world manufacturing power
  • At the same time, it looked like deep integration, but it was not
  • Will eventually run into management problems:  how to do organization issues, etc.
• In Japan, no business schools, and the economics departments don't talk to business
  • Japanese needed to import consultants, etc., got into quality-oriented views of marketing
  • But if compare TQM way of looking at marketing is a simplification/bastardization, focusing only on customer satisfaction and forget everything else
  • End up with a general collection of bad management ideas, put together in a book, and not deep integration
• Some value, if you have engineers that never would study management, they'll learn something
• If your goal in life is to create science, this won't go
• Quality movement has collapsed
  • National quality awards: no one pays attention any more
  • Still have SPC, which has resulted in six sigma thinking, as SPC in more complex environment
  • Also quality metrics
  • COPQ, cost accounting
  • But nothing at the core, it's operations management at the core
• We don't want to come to the same place with service management

Question: If you have service as the central process, have to integrate?

• Can put a perspective in the middle (e.g. look at human resources from a quality perspective)
• But will it create something new, like computer science, which isn't a perspective.
• There are knowledge perspectives, network perspectives of management
• Change location, see thinks differently
• If deep integration happens, then have a new model that becomes a new department
• Important for university administrators to not run around, and focus on things that matter

Question:  In India, find these things

• Business Process Outsourcing is an application, like a washing machine

Having destroyed IHIP, tell us what to do?

• Do something practical? A violation of the mission of creating new knowledge, through science.
• Need definitions and classifications, as they're fundamental to scientific work
• Need a common understanding, so can have meaningful discussions
• Makes it possible to study alternatives:  wouldn't cut down IHIP model if it weren't define
• Models shape the real world, e.g. accounting

Example from clinical medicine:

• Have a medical condition, e.g. leukemia
• It has certain symptoms, body of knowledge
• Then diagnosis, with a treatment
• Look at results, see all over the place
• Not clear causal connection
• Similarly in management, e.g. motivational programs sometimes work and sometimes don't
• Different levels of scalability
• Psychiatry is the worst, and surgery is the best, because you know what the outcome will be

Recently, have discovered the leukemia isn't a single disease, it's seven diseases with similar symptoms

• When know this, and can classify, then could develop seven different diseases

This is why classifications are important, and need definitions that are clear and well-founded

Another example, from quality management, from Walter Shewhart

• Symptoms, use common sense
• But Shewhart suggested breaking symptoms down into common cause quality problems, and specific cause quality products
• They look the same in a defective product
• They can only be distinguished in time series analyst
• Natural defect level comes out of natural processes:  then should do nothing, because the system is running as it should, although by random processes, defects happen
• If can find time and place where this defect happens, then can take action
• Otherwise, will just mess around, and won't be successful
• Shewhart:  you can't make the distinction between common cause and specific cause by the naked eye
• Need to gather data
• It looks like magic, not obvious, a bonanza for consultants

Lillrank created a classification on Types of Science last spring, created some discussion last year

• Traditionally, have made categories based on what scientists do:  
  • (a) Basic science types who generate theory, not practical
  • (b) Applied science people, mostly concerned with solving problems, e.g. engineering, medicine, apply to some field of study
  • Think that this classification isn't good enough, doesn't explain what we do in this department
• We need to look at the governance of science:  the whole superstructure for financing, strategy, dividing roles and responsibilities, monitoring results
  • Look at bigger system on the financing of science, and recipients of science
  • (a) Things done for instrumental value:  science not for itself, used for something
  • (b) Inherent value:  science for its own sake
  • Funding is different
  • In studying Shakespeare, inherent
• Thus, four different types
• (a) Curiousity driven science
• (b) Engineering, clinical science
• (c) New: explorative science, filling defined knowledge gaps
  • This is where Tuta should be
• (d) Another new:  Experimentation for fun, playful science (liked by Nokia), e.g. tinkering with your motorbike
  • Many inventions this way, e.g. Wright Brothers
  • Can discover new things

Less from systems and their environments:  trying to make a definition, isn't always good to look just at the phenomenon by itself

• Looking at scientists today may not help
• Need to look at other layers of the system
• Then it's not just definitions, but context
• May think beyond material and immaterial systems
• Look at different types of production systems and business systems, that have differences

The institutional environment:

• The ontology of IHIP as foundational differences
• Production systems:
  • Difference between open systems and closed system
  • Closed means all of the defined inputs, certain processing and then output
    • Can't change the scheme by what's going on
    • Many companies operate this way
  • Open systems, e.g. travel and tourism system has terrorists, can't have a full and complete description before the act of production
    • Closed systems have low uncertainty, ex ante negotiated, volume low
• In a business system, have a production system, but contractual
  • Could be favour, barter, or public service
• Receiving system

e.g. consuming the services of an automobile (driving)

• Production system:  manufacturing, sales, service and repair
• Business system: car sales (new and used have different behaviours), leasing and rental
• Business system doesn't change the production system
  • Business system comes from ownership and financing
• Receiving systems: time becomes a criteria for billing, charged by number of days that you have the car
• Then, meaningful to say that car manufacturing and sales is part of the material world, and rental is services?

Comment: difference between pre-owned cars and used cars

• Pre-owned cars have all of the same warranty attributes as a new car

Comment: more and more value is not from the physical product, but from the value in use

• Act of consumption is the same

Comment: cars can be customized.  Value comes when I get in the car, and drive.

• An argument that everything is a service, eliminate the difference between the material and non-material
• It's not a different production system, it's a different business system
• Type of business configuration

Student doing R&D study:  the major difference is not the production process, it's the receiving process

• If the end is articulated well, it's different from a receiving system that is vague

Question: Is receiving system is different from the funding system?

• In the R&D example, they're the same

Based on Dalaunay and Gadrey 1987, Araujo & Srping 2006

• Production and exchange
• Could have a separate service provider
• 3-way, different from IHIP, can be split out
  • Production / exchange / consumption

Process management perspective, look at constraints:

• Time constraints:
  • Perishable?
  • Returnable?
  • Creates constrains on production system:  
    • inventory vs. capacity management; billable, revenue models
    • Objectificaiton, at point of invoicing
• Space / location constraints
• Boundary constraints
• Many of these constraints are changing, particularly with information tehcnology

If agree with the reasoning so far, then what could we practically do research on?

• Service machines:  an analogy, since we're a technical university
• In mechanical engineering, have a contract
  • Design parts, have a frame, connect them: need mechanical engineering skills
• Structure and framework aren't articulated, but these are the sorts of things that need to be studies
• This picture is the outcome of a quick and dirty exercise with colleagues in Delhi:  what sort of machine can handle 40,000 calls?
• If only look at process, the operating process is in service delivery, and is relatively simple
  • e.g. someone calling in from Iowa
• Service delivery may be simple, but the operations planning is complex

What kind of contract is made between the customer and vendor?

• Different generations
• First generation of call centers, was on capacity, e.g. buy 52 desks
  • This system doesn't work well, because the number of incoming calls is variable
  • Risk falls on the customer
• Then want to negotiate a different contract, based on the number of calls
  • Then the risk shifts the other way:  the vendor has to shift capacity, will have to pay even if there's no demand
  • From the customer's perspective, there's a risk of not answering the calls
• Third version: forecast given by a customer, in 30-minute time slots, given 2 months ahead, used as a reference point on which incoming traffic is judged
  • This becomes the basis of the revenue model
  • A sophisticated set of quality metrics
  • Metrics can then be linked to bonuses or penalties
  • Operations planning:  in all people-intensive systems, all of things are related to staffing and scheduling, can't save money unless something happens in staffing
  • Human resources: sophisticated incentive system, so people do a good job

In services engineering, the direction is not to dig more deeply into material and immaterial, but go into production systems and develop some perspectives, that allow looking at classical production systems

2006/08/28 11:15 Valerie Mathieu, "Services Strategies within the Manufacturing Sector"

2006/08/28 11:15 Valerie Mathieu, "Services Strategies within the Manufacturing Sector", SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Valerie Mathieu, Institut d-Administration des Enterprises d'Aix-en-Provence, Chair in Marketing, working in B2B

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Come from southern France, near the Riviera

• Background in marketing

Won't disconnect services marketing from services management

• When in services marketing and management, have to approach everything from the lens of a customer
• It's not the only lens, but it's important
• Important to understand what the client expects
• How the client behave, in a service position
• Specificity of service marketing

In services, everything happens between the service firm and the client

• The border between the two is the service experience
• Client consumes the service process
• Not just production, includes consumption and client satisfaction
• Experiences are different for different customers, each service experience is unique
• Each customer arrives with a set of different expectations
• e.g. we have expectations of this training experience
• The service experience is different for each of us, but is valuable

What is the client interaction / encounter / need with the service firm?

• The service firm is not real
• Have physical evidence of the service experience: store, table, equipment
• Front line employees
  • A teacher is a front line employee
  • Human contact, face-to-face, by phone, by mail
  • In a service transaction, may split off a part that is a non-human contact
  • There can be an alternative to human contact
• Challenge in the gap between the perceived service experience and the real one
• Not a distinction between hard and soft in services, there's a continuum

The challenge of a service marketer is to manage the service experience

• Not only to define and market a service product
• Manage, and be sure that the service experience will fit customers' expectations
• Levitt: The main difference between product and service is that product most think technically, and service must think humanistically
• Service marketing is not a challenge of design, it's a challenge of implementation, which is different from product marketing

Everything is a service?

• This is a popular approach in management
• This is dangerous
• From a marketing viewpoint, consider a market offering
  • Could be a solution, a benefit, a pursuit
  • There's a difference between the value offered by the company, and the benefit received by the customer
  • e.g. Why buy a car? To get to work, for pleasure?
• Can create a 2x2 comparing product and service
  • The company offering is expressed in a product or a service
  • The customer benefit in terms of product doesn't exist; it's always a service
  • The customer may be satisfied by a product or a servcie
  • e.g. travelling may be achieved by buying a car, or a subscription to a rental car
• Thus, everything is not a service

In selling a car, is delivery / speed a vehicle a service?

• Delivery is part of the design

Another classification of the service domains, where the company may deliver a service offering:

• Service firms: companies don't business with services, e.g. hotels, banks, consulting services, marketing services
• Internal services: departments dedicated to a production of success, e.g. HR, information technology
  • Some services can be hidden, difficult to realize or approach, yet essential
• Service associated: When the product is sold with services around it
  • May also be called product services
  • This is the focus of this lecture: services within a manufacturing company

Relationship between the three domains

• Internal services are being outsourced into service firms
• Service firms can provide B2C services to final customers and B2B services to companies
• B2C: can have services to people (e.g. health care), and services to objects (e.g. maintenance)
• B2B services:
  • Services to people, e.g. IT help desk, training desk
  • Services to objects, e.g. maintaining plants, physical maintenace
  • Services to the company: e.g. consulting services

Associated services:

• e.g. computer, hot line
• e.g. car with financing

How to explain the increase of services, added to products?

• e.g. a box of pasta, with a toll-free number, which is a service
• e.g. a car with an extended guarantee
• e.g. a computer with a package
• Leave the marketing environment and management environment, and look at ...
  • the economic data;
  • debate from sociology; and 
  • managerial explanations

Economic data:  

• Services denominate economies in employment, about 70%
• GNP is 80% to 85% service sector
• Conclude that the developed economies are service economies
• Two theses:
  • Post industrial economy: the service economy is the new stage of the economy
    • This is a natural evolution
  • Neo industrial economy
    • Can't challenge the data
    • They challenge the explanations of the data
    • Service economies are strong, as a result of the industrial sector
    • Without the industrial sector, the service sector is nothing
    • The puts industry as important
    • Finance, insurance, consulting are developing because the industrial economy is becoming globalized, more complex
• In France, Jean Gaudrey, what is challenge is not to oppose service to product, but to position at the borderline of service economy and product economy, and think about what can be done better
• What can be done with products, to package more value to deliver to the customer?

Sociology:

• Based on the meaning of consumption:  sociology asks, what does it mean to consume?
• Baudrillard: consumption is a question of language
  • When you buy a product or service, you say something.
  • Not a question of acquisition, or buying, it's to say something
• Consequence: material values are at the heart of consumption
  • Brand
  • Why do we buy Nike? Why do we buy Nike for our kids?
  • Branding is a material value in today's culture
• In B2C, human capital is an important immaterial value
  • Can create trust, engender loyalty
  • May link information and knowledge to human capital
• Thus consumption is a complex bundle around a product
• Society is demanding more immaterial values, both in the B2C and B2B domain

Managerial explanations:

• Companies have discovered that the main sources of value are on the services part, less on the production part

For manufacturing companies, it's a question of no or no go with services around the product

There's three kinds of benefits:

• Financial benefits:  increases sales, and the margin in services is higher than in the product
• Strategic benefits: self-service, or expansion to new markets
• Marketing benefits: improve customer satisfaction, customer loyalty, service as a buying criterion

However, there are costs inherent in services to a manufacturing service, in two costs:

• Cultural costs: manufacturing culture in an industrial approach has to adapt to a service culture
  • IBM succeeded in this transition, but not all industrial companies have succeeded
• Organizational costs: when developing the service package, have to develop a new position
  • e.g. a car manufacturer entering the credit market

Matrix: diversity of services manoeuvers in the manufacturing field

• Large range from putting the toll-free number on the back of a package of pasta, to the cultural shift required at IBM
• X-axis: opportunities for manufacturing companies to create services:  organizational intensity
  • What will be the impact of services on the company?  Large, like IBM?
  • (a) Tactic: small impact
  • (b) Strategic:  have to get new competencies to implement a service strategy
    • e.g. selling a training program to make the product work
    • e.g. Medical branch of GE, decided to sell a new training program, had to develop new training competencies
  • (c) Cultural: manufacturing company develops services, to change the culture into a service culture
    • This was the change of IBM
    • e.g. Lexus brand of Toyota:  we don't sell cars, we sell a luxury service package
• Y-axis: service specificity, i.e. how intense is the service offering?
  • (a) Customer service: Just a toll free number, or developing a relationship with the customer
  • (b) Product services: a new offering around the product offering, e.g. extended guarantee
  • (c) Service as a product: developing services not connect to a product
    • e.g. IBM Global Services, without buying IBM computers
    • Autonomous company, apart from manufacturing

Matrix versus benefits and costs

• Most benefits to upper right, as are the costs

Two worldwide examples: IBM, and GE

• GE, more than 90% of products come from services.
• Need to change the culture of IBM

2006/08/28 13:45 KIBS Track Session

2006/08/28 13:45 KIBS Track Session, SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Led by Marja Toivonen

Each day, one presentation by the coach, and then one presentation by a participant

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Marja Toivonen, "From Professional Services to KIBS"

First will talk about KIBS more generally today

• Then tomorrow will speak about natural KIBS and services
• Innovation in services
• Thursday, processes

Agenda:

• KIBS concept
• KIBS history
• Two schools of thinking: general business services studies; and studies into professional services students
• Current view of KIBS
• KIBS are part of the knowledge economy
• Some preliminary discussion on KIBS and innovation

KIBS are expert firms that provide services to other companies and organizations

• Business services, not consumer services
• In addition to being business services, they are knowledge-intensive
  • Some define knowledge both as input and output
  • Some say specialize in problem solving
  • Here, say that KIBS always creates new knowledge, it's a learning process between KIBS and clients, which links to innovation
• Main KIBS industries are IT services, R&D servies, architectural engineering and industry design, legal services, financial consultancy, management consultancy, and communications services
  • Many firms now combine these in KIBS, may be different industries
• In Finland, where compared to other European countries, found KIBS sector is smaller
• This is a reason that Tekes is putting more resources behind KIBS
• If you think of KIBS only as firms and not an industry, can't do statistics

Clarification of basic concepts: (4 here, but there are others)

• KIBS are private firms, that provide expert firms.
  • There are other firms that provide similar services
  • e.g. VTT is public, call it RTO, Research and Technology Organizations: similar work, different funding
  • Important to recognize private firms
• KIBS-ification:  firms not normally in KIBS, but provide some services
  • e.g. Metso, in the Finnish metal industry, provides some services
  • KIBS clients produce these same services
• KISA, Knowledge Intensive Business Service Activities are more focused on actors
  • e.g. OECD has published on KISA
• There are also Knowledge-Intensive Consumer Services, studies much less, e.g. medical healthcare
  • Talking about KICA and KIBS, use the term KIS
• KIBS services are not synonymous with information services
  • Organize store and transfer information
  • Not create and trasnfer knowledge

History of KIBS

• Professions (engineers, lawyers) have existed for thousands of years
• They emerged as firms relatively recently, e.g. linked with industrial revolution
• First KIBS were advertising agencies in the 1820, with mass consumption goods, development of brand names, establishement of popular newspapers
• Then, growth in R&D, book-keeping and management consultancy.
• Engineering offices came about in 1920s

Early KIBS studies:

• KIBS was small until 1950s, then rapidly developed
• In the 1960s, already several studies, statistical
• In the 1950s, KIBS grew faster than the economy
• In the 1970s, KIBS was the highest growth sector
• Rapid growth
• In 1960s, research into business services, on productivity and competitiveness
• Greenfield 1966, discussion is very modern, readable today

Then two lines of Research:

• General research into business services
• Have to use this data before 1995, when didn't have other data
• PSF == Professional Services Firms, which is what U.S. and Canadians use
• PSFs are usually business, rather than KIS

General business studies:

• Also include some routine services
• Some other producer servides, including transportation, trade and storage
• To end of 1980s, research weas in explaining growth
• Attacked as not real, transferring services from one place to antoher

Since the early 1990s, outsourcing explanaiton is too simple

• Services change at outsourcing, often upgrade at initiation

Main reason for growth for KIBS is increasing needs for expertise

Earlier studies focused on demand, now also focused on supply side

• W'hat sort of firms
• How long (life cycle)?

Professional service studies

• Focused on occupations (c.f. KIBS forcused on firms)
• Idea: beneifts depende on background
• Studies originally focused on single firms: .lawyers, engineers
• Firms don't have much power on employees, they get advice from outisde professional societies
• Social control (e.g. who had rights to work) were passed by professional associations
• Partnership principle, seniority imporant
• Leadership weak, partner oriented

Views of PSFs are now becoming more questionable

• Traditional studies were more stable
• Occupatations of blurring
• PSFs are becoming more local

Idea of KIBS combines the two lines of research

• Professional, and business-oriented
• Client is the starting point
• Many now understand the client's industry, value chain
• Modularizing KIBS are at the very beginning

Can't be above the client, have to be there

• Leads to management consultants

KIBS works for large firms, while small firms joint chains

Most KIBS are close to urban:  70% in Finland

KIBS as part of the knowledge economy

• Globalization, networking and ICT contribues to KIGS
• Network ways are more natural in external services

KIBS and ICT

• Innovation changed in the late 1980

Innovative Work Community: Tea Lempiala

[3:20]

 

2006/08/29 09:30 Ashok Agarwal, "Equity in Health Services: Issues and Challenges"

2006/08/29 09:30 Ashok Agarwal, "Equity in Health Services: Issues and Challenges", SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

This digest was created in real-time duringthe meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Ashok Agarwal, Insittute of Health Management Research, India

---

Introduction by Paul Lillrank

• Extreme differences between Finland and India, good for academics
• Possible for them to jump into higher level of technology, avoiding some of the blind spots of early adopters

[Ashok Agarwal]

Bring the science of management to health care

• Like many other countries, health care is managed by doctors

Agenda

• Equity
• How to measure it
• Comparison of developed and developing coutnries
• Millenium goals
• Indicators of goals

Difficulty between defining equity, versus equality

• Equality: compare various attributes of a country or person, in a semblance
  • Different background, financial, social
  • Hence provision of services is equally spread out
  • Equality is value-free
• Equity means social justice
  • Several disparities in wealth, health care, democratic freedoms
  • Can understand inequities in wealth, from inheritance, and some people work harder than others
  • Everyone should have equal access to health, though
  • Health equity is multidimension, includes all of the other special acts in living
  • No matter where they're living, health level, age group

Bring health differentials as low as possible

Dimensions of equity in three parts:

• Economic equity
• Provision
• Health outcomes

There's horizontal equity and vertical equity

• Horizontal:  people who have the same neeed receive same services
• Vertical:  people with more needs get more services

Extreme poverty: World Bank defines as less then $1 per day

• However, different purchasing powers
  • One other way: caloric intake
  • People of different age groups, of different sexes, have different values of intake without malnutrion
  • 2000 calories per day
• Also define poverty as resources, and access to services

Ten richest countries in the world

• Do they have the best health status?
• Do they provide equal health care?

Consider a world where they talk instead about taking care of their babies

• More linked to public health than to engineering
• Number of deaths of infants, under age of one year
• Talks to nutrition status of the woman, health care of the woman while pregnant, health care, ... health status of the child when born

Lowest infant mortality rate:

• Only 2 of 10 richest countries on the list

Range of infant mortality rates around the world

• Countries more than 150/1000 live births
• Singapore lowest at about 2

Expenditure health in different countries in the world, both public and private sector

• Low income, middle income, and high income countries
• Low income countries spend less per capita
• India about 5%, low
• Developed countries spend about 10%, and the U.S. is spending about 1/6 of GDP

Absolute numbers in spending:

• Low income countries spend about $20 to $30 per person per year
• Middle income countries spend about $200
• High income countries spend about $3000
• U.S. spends about $6000 per capita per year

India: typical example of a undeveloped country

• Public health care only 30%
• 82% is private, out of pocket
• Have just started private health care
• Rich people can get either free or fee services

Low income countries have low life expectancy

• Sri Lanka an exception, infant mortality rate is relatively low
• South Africa is an exception: apartheid, high infant mortality rate

1987:  Millenium Development Goals

• Set up by U.N. and World Bank
• Aim for 2015
• Goals not equally spread out
• Defines according to each country, each region in each country, based on 1990: environment, health care
• #1 target: eradicate extreme poverty and hunger
  • Medicine won't improve everything
• #2: achieve universal primary health care
  • Educated women have better health
• #3: gender equiality
• #4: reduce child morality
• #5: improve maternal health

Why is goal setting important?

• According to each countries' relevance
• Important to mobilize world resources
• Goals allow U.N. system to monitor progress
• Last time: eradication of smallpox, a disease know for 5000 years that was highly contagious
• In the 1970s, joint work, countries came together to say to eradicate one disease in the century
• Up to $10000 reward in each country, to find an incidence of smallpox

Where are we?

• On poverty, we're nowhere, because we don't know how to measure it
  • In India, have a different definition of poverty
  • Haven't been able to measure over the past 6 or 7 years
  • Wealth is increasing globally, but in only certain classes of people
  • Many countries in Africa, GDP sometimes goes down
• HIV/AIDS: nothing has been achieved in 2005, because the goal is different, to halt new cases
• Safe water, somewhat better, one of the most basic for health care

Goal to reduce child mortality

• 2015 goal
• Smallpox was eradicated in 9.5 years, without today's technology
• Indicators:
  • Under 5 mortality rate, reduce by 2/3
  • Infant mortality rate
  • Measles
• Under five rate in high-income countires < 5 per 1000 live births, and >100 in low income

In India, 26 million births per year:  5 Finlands

• Highest proportion of global annual live births, but also highest proportion of neonatal deaths
• Deaths less than 4 weeks are mostly related to mother's health status, or delivery conditions
• Under-5 mortality rate is coming down

India's population is 1.1 billion

• Diverse
• Each state, 60 billion to 150 billion
• In south, Kerala is poor, yet lowest infant mortality rate
• Orissa, another poor state on the east, has highest infant mortality rate (similar to Africa), yet bad infant mortality rate
• 100 years ago, Kerala had a policy of educating masses, families working together
• Kerala has infant mortality rate, comparable to the U.S.
• Kerala has electricity rate of 90%, Orissa has about 40%
• Punjab, Delhi have higher mortality rates, and the ratio of men to women is high, biologically incorrect

If trend continues, won't make 2015 goal, but India can take steps

Goal 6: Improve maternal health, target, reduce by 3/4 by maternal mortality ratio

• Indicators:
  • Maternal mortality rate
  • Proportion of births attended by skill health personnel
• Death of the woman while pregnant, or within 6 weeks of termination of pregnancy
• In India, preparing adolescents, a lot of women get pregnant at 18 or 19

Differential in maternal mortality health: 1100 per 100,000 live births in sub-Saharan Africa, compared to 12 in industrialized countries

• In sub-Saharan Africa, a woman will be pregnant 5 or 6 times in her lifetime

Skilled birth attendants at time of childbirth

• About half of children in the world at born at home
• Chances of a child or mother getting infected is very high
• In poor India, 10% have access to nurse or doctor, whereas in rich India, 90%

Goal 7:  Combat HIV/AIDS, malaria and other communicable diseases

• Use of condoms
• Knowledge of women
• In 2005, global 1% with HIV, but about 6% in sub-Saharan

Limitations to achieving Millenium Development Goals

• Difficult in countries that aren't well-defined, e.g. wars
• Poorer people have to pay out of pocket expenses more often
• When a poor person has to go to a hospital, 25% will have to dispossess something

Prescription to remove inequity?

• Wish there was something, no standard prescription, has to vary country by country
• Regions in mountain, by sea, inequal distribution of resources

What needs to be done?

• Firstly, need resource allocation related to social and health needs
  • Some have other priorities, e.g. war
• Education
• People will live near jobs, health care has to go where people are
  • New technology can be distributed
• Must be someone who looks at quality of care at national and regional levels.
• Lots of centres provide free services, but people don't go there
  • Don't understand why
  • In fact, people go to public sector, spending a lot of money, to get the same services
  • Often, go to illegal doctors, quacks
  • In India, one major factor: unreliability, never find a doctor or nurse there or clean facilities
  • People would rather go to a private practitioner who will serve quickly

Most data not collected in a way that is useful

• Lots of data, not churned out into information used in policy

How to monitor and evaluate health equity?

• One research says: guided by values
• You collect data, make it information, but must use it to provide care to the population
• Hard to measure equity directly

Recommendation:

• More resources must be provided to health care, particularly in developing countries
• Resources not just money, also trained manpower and infrastructure
  • Often find the building good, and doctors and nurses are there, but aren't trained well
• Should be a pro-poor approach
• Public funding should be distributed according to distribution of people, where they need it, even in special needs
• Public/private partnership is difficult, defined differently
• Instances where government are providing health care at high cost, and outcomes are quite low
• There are cases where government could outsource to private, at same or lower cost
  • Instances in Cambodia and India, no cost to patients, health care is better
• Health financing models, either by government or by companies, and others can't get it
  • Micro-health insurance
  • India is experimenting with community health insurance, e.g. 1 million people with access to a designated health system

Generic/research questions:

• Is the equity definition correct?
• Found more than a dozen definitions, most often defined as what is inequal (in health care needs, expenditures)
  • Equity to reduce disparities: people with more needs should get more resources
• Who provides? government, people, private sector, NGOs?
• Why is quality in health care intangible?

[Questions]

Equity.  Horizontal, same care to same needs. Can this definition of equity really work in a wealthy society? Curve flattens out at $700-$800 per person, then spending more money doesn't improve health. Amartya Sen 1995 and Robert Fogel 1993 have different views.  Fogel says in U.S., main obstacle is the concept of equity.

• Definition of equity is not standard
• There's 5000 ways to lose weight
• Sen: equity is not in a narrow sense, it's multidimensional.
  • Ability of the people to access health care, or any other public good
  • Thus inequitable

Fogel says there's also moral behaviour, not just determined by body or environment, but by also how you choose to live your health.  If this is ignored, then the consequence is health totalarianism. In Nordics, this isn't far away. An issue of individual freedoms.

• Living the life you want to live is a small decision
• In poor countries, government resources are very limited

Obesity a bigger problem than malnutrition, increasing most in developing countries with bad foods. Should be addressed on a U.N. level. U.S. health care, diabetes at age 20 requires being on machines, cost of life.

• Obesity is behaviour.

How much education about obesity?

• Agree, more education should be on health behaviour.
• Newfound wealth is in a certain class of people.

International problem.  Smallpox eradicated because all countries came together. Some issues difficult not just internationally, but within a country. e.g. polio vaccination, outbreaks in India.

• Diversity, 6 billion people around the world
• In 1970s, diversity, 4 billion people, but the whole world came together to talk about one problem, smallpox.
• This wasn't about control, it was eradication.
• Uniform will, manageable input.  Countries came together.

Politics and religion. A lot of health resistance is by religion communities. Mullahs. Person who wanted to set up a condom factory in Bangladesh, said that privately would support it, but not publically.

Management view.  What kind of health care service providing system, service production system could tackle this? Probably not the same as in the rich world. No alternative health production system, so that poor countries have to wait for GDP to grow.  Average return per user, e.g. building a mobile cell phone for under $20, or Negroponte computer < $100, lean production.

Jakur artificial knee, made of aluminum.

• Health care is limited by doctors.
• Doctors use medicines and technologies, which increase cost of health care.
• Artificial limb is provided free to people. Cost is less than $1000.
• Eye care, cataract surgery.
  • Do this on a camp basis, instead of at hospital at $200 to $1000, do it at $10 per person.
  • Infection rate and complication rate is as low as a hospital.
• Can bring the cost down, but need to take it out of doctor's purview.

Who is responsible for ensuring health care? A lot of stakeholders.  People. Education.

• Everyone has to pitch in.
• Kerala, brought in the right time, 100 years ago, whereas in other states only 10 years ago.

From political theory, government is responsible to ensure equity of people.  Can't ask private sector to do this. Businesses tend to segment markets. Asking them to give up this fundamental principle is not sustainable.

In Finland, it has been NGOs. Service that public sector is offering, has been first developed by NGOs. When the knowledge has been gained, public sector takes them, and the NGO focuses elsewhere. Health clinics on maternal care.

• Am an NGO.
• They don't necessarily belief in government.

Governance doesn't come up with something new.  NGO doesn't have the rights to make it universal.

2006/08/29 11:20 Som Garimella, "Indian Pharmaceutical Value Chain: Opportunities and Challenges"

2006/08/29 11:20 Som Garimella, "Indian Pharmaceutical Value Chain: Opportunities and Challenges", SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

S. Garimella, International Management Institute, New Delhi

---

Was working on a project on alliances in India

• Not many studies in the Indian context
• Took up 3 sectors to improve the supply chain, one was pharma
• Realized certain important aspects of the Indian pharma value chain
• Quiet revolution industry, some related to busines process outsourcing or IT related industries
• India will be known for contract manufacturing, contract research

While trying to get information, little comes from pharma industry, little comes out

• Had to collect through anecdoctal, secondary sources
• Contract services relevant to the SEM 2006 audience in general

Agenda:

• Overview of Indian pharam industry
• Value chain and R&D
• Factors for success
• Opportunities nad challenges, particularly in contract manufacturing
• Impact on health care

In 1947, no pharma industry at independence, but now has one beginning 1970, meeting 95% of country's pharmaceutical needs

• 1.3% of world value, 8% of world production
• Highly fragmented, 23,000 licensed units, range of 100,000 drugs
  • Whatever is supplied, customers will buy
  • Substitutes coming up, working on older drugs
  • $50,000 investment would be large, low technology, not more than 5 to 10 people in an area
  • Work like small production, then supply to larger manufacturers
  • In south India, see this:  small manpower, low capital investment

Indian companies focus on bulk drugs (about 400 types) and formulations (mixes in combination)

• Bulk relates to volume, not profit
  • Few companies in formulation, more profit
  • Formulations by larger companies, have marketing
• Drug price control order, from 1970
  • At one time, drug prices were high, and people couldn't access drugs
  • To provide access to drugs, government brought in price controls to be available to common man
  • Government has a formula to calculate
  • A lot of drugs are under this order
  • Some drugs were under this order, but then brought the number of drugs so that MNCs are interested
  • Control of 74 or 75 drugs, rest are deregulated
  • In other countries, it's not the government that controls prices, but maybe health providers
• Indian Patents Act, 1970
  • Recognition of process patents
  • Has created a revolution in the industry
  • Indians went abroad, and then brought back and reverse engineer
  • In 1995, drug takes $500 million, now costs $800 million, and no Indian company could do this.
  • Controversial
  • Not equitable
  • Different process, and then put drug back into the same market, at the low cost
  • Amendment: Indian has signed GATT agreement in 1995, converted to WTO, new patent regime, where the product is patented and not the process, can't reverse engineer
  • Cost to make drug about 1/6
• Knowledge-intensive sector, lots of universities churn out chemistry graduates
  • R&D still low, 1.5%, compared to MNC 15% to 24%
  • Most Indian pharma companies dependent on someone else
• 20% to 25% cheaper to produce drugs in Europe, as compared to elsewhere
• Only 18% public funded, the rest by people themselves
• No insurance to support, so drugs came in handy
• 16% of expenditures is medicine

Indian Industry

• 1947, non-existent industry
• 1946-1970: Government created large public sector companies: Indian Drugs and Pharma Ltd., and antibiotechs company
• 1970-1979: Watershed, Indian Patents Act created a lot of companys that would ride on reverse engineering
  • Also DPCO to control prices
• 1979-1995: Reduction of drugs in DCPO from 247 to 63
• 2001, signed GATT
• Have to change by 2005, so companies have to change R&D
• 2002-2004, more reduction in DPCO, amendment of Patents Act

Key success factors:

• Look at R&D as an essential component of business, investment for long-term survival
• Good access to technical manpower, but need foreign experts, being done
  • Access to long-term funding, huge investment required
  • Indian companies still don't have access, mostly out of pocket funding, need to look to long-term funds
  • Need to access new technology platforms
• Manufacturing, have technical competence, but lag behind companies worldwide
  • Distribution could be improved, 50% of cost is raw materials
  • Need to contain the cost
  • Most companies acting more as job shops, no thought of management, single man show
• New to introduce new products
  • Most companies don't have a lot of patents in portfolio
• Refocus target markets
• Most don't have blockbuster drugs
• Need distribution efficiencies

Value chain:

• Discovery chemistry: lag behind
• Process R&D, good
• Manufacturing good for a few companies

R&D plays a critical role

• At least 30 claim R&D
• Must be correlation between R&D and profits
• Define as ...
  • New Molecular Entities (few over the past years)
  • New Drug Delivery Systems: Indian companies good at this
    • Can differentiate drugs through delivery
    • Can support MNCs
  • Improved Chemical Entities: same molecule, maybe isomers separated to make more effective
  • Research in Generic Drugs, off patent: Indian companies will look at them
• Indian companies can't invest like Pfizer: Prizer talks of $40M revenue, and total Indian revenue is $7M
• U.S.A. accounts for 44% of global research expenditures
• Research is shifting towards lifestyle, e.g. elderly
  • Higher margins
• Need to balance to serve other infections, as in India

Scope of pharma research

• Basic research
• Prototype design or development
• Pre-clinical development: most expensive stage, countries are insisting longer and more subjects
  • Doing trials in India are cheaper
  • Criticism that India is being used guinea pig
• FDA filing
• Then launch

Indian is nowhere on any of the above list

• Neglected to do research.

Trends in Global R&D

• Rising costs, declining productivity
  • Costs fall 8% to 10%, number of discoveries coming down, large companies are failing
  • Potential for contract services, where India could emerge
• Increase in numbers of alliances
  • R&D expensive, better to shift to low-income countries
  • India, China, Singapore
  • India has also picked up in the last 3 to 4 years
  • Matrix Laboratories
  • A lot of comparison to IT Industries, e.g. started in Y2K problem
• Universities are still going to investors
  • Companies try to poach in on Indian ex-pats at NIMH, but salary differentials are huge, where paid 5x or 6x more in India
  • Arguing patriotism, to come back and serve
  • Also trend, where people from U.S. coming back
  • Large number of research institutions, but output is disappointing
  • CISR was developed on British model
  • Government labs, competent researcher, good research, but basic research that has little to do with the Indian industrial scene
• Licensing: many large MNCs would like companies who can take over, cheaper
  • Outsourcing, puts more drug into pipeline
• Generics are becoming important
  • Payers are specifying generics

Global scenario, driving outsourcing

• Significant price controls exist in developed countries
• High costs and long gestation period forces MNCs to sell drugs at a premium
• Large companies need to bring down R&D expenditures
  • Favourite targets: India, China, Singapore

Three types of outsourcing organizations in India

• Contract research organization: pre-clinical and clinical trials
  • Create molecule
• Contract manufacturing organization: formula given, put production at fraction at a cost
  • Need to see if a service machine works in this way
  • Similar to call centre work
• Contract sales organization: marketing on behave
  • Nicolas Perlman: know distribution network better

Benefits of oursourceing that companies are looking from on CxOs

• Can screen and focus efforts on most promising projects
• Can be first to market in different countries
• Study protocols, number of patients, period of time

Typical Indian outsourcing scenario

• Large generic houses from U.S. outsourcing
• Some using Indian subsidiary, e.g. Baxter
• Large Indian companies setting a trend: Raxbaxy-Eli Lilly
• India has over 500,000 doctors, hundreds of medicial colleges, abundance of diseases
• Low development costs
• Easy raw materials
• Follow Good Clinical Procedures, as prescribed by USFDA
• Pharma research more IT oriented, India has strong IT base
• As well as U.S., EU potential

Opportunities for India

Challenges for Indian companies:

• CEOs survey, not in favour: close interactions required, not as simple as BPO, travel and communcations and time differences are a challenge
• Asking for proven capability
• Major issue: weak in IP protection
  • Although subscribe to the new regime, hard to enforce
• e.g. software is something that you shouldn't pay for
• Companies resistant to share
• Quality and regulatory issues a risk
• Cost effectiveness has to be proven
  • In IT, took a long time to convince people
  • Not just cheap manpower, but whole cost, related to productivity

[Questions]

Style?

• Expats, professional, like startups.
• Even largest company is more family oriented
• Lots of MBAs, but decisions still by family method

Geographical distances. Clusters?

• Like IT clusters, Bangalore, or Hyerabad
• State on the west coast, more into manufacturing
• Mumbai, contract research

Clusters because of pools of labour, or collaboration between companies?:

• Little collaboration
• Clusters has been promoted by government, associations are formed, but companies are very closed
• Companies can't believe trust other companies
• Another school of thought:  you think it's a secret, but everyone seems to know
• Some reliance on local universities, e.g. Hyerabad is becoming a centre for life sciences
• Skilled labour, some fear of poaching
• Expertise across companies can't be transferred, because companies are working at different segments, skills not transferrable

Similar to Japanese pharma industry, fragmented, want to go international. Major relationship with clients? In Japan, symbiotics between medical community and pharma, consumption is high even for mediocre drugs and moderate production systems. Role of pharma industry in improving public health?

• Most companies are there to make profits.
• Top Indian companies focus on drugs that make profits, export potential.
• Should be a focus on drugs that solve infections, but who is going to fund that? Government says can't fund this.
• Could look at private-public partnership.

Some cross-subsidization, e.g. charge rich patients, distribute to poor patients

2006/08/29 13:35 Karita Ilvonen, "Towards eHealth Services"

2006/08/29 13:35 Karita Ilvonen, "Towards eHealth Services", SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Karita Ilvonen, Helsinki University of Technology

---

(Came in a few minutes late, a few slides in)

Started studying Palo Alto Research Foundation

• Do patients get more out of ICT in primary care?
• The current healthcare paradigm has been to add resources, and now there is no more resources to add
• Can ICT help create new system of innovation?
• What part of healthcare can be taken online?

Drivers for online healthcare

• Electronic Healthcare Records in the USA
  • State levels: Regional Healthcare
  • Local and regional have done EHRs
• Personal records locking onto one part of a regional record
• Connection to 
• Hurricanes Katrina and Rita, had to take the patients out, but most of the servers were in the lower floors, and then don't have records, and they're only in one place.
• A case for servers on the Internet

U.S. health care is 13.6% (compared to 7% in Finland with good health care), will to go to 23% by 2010

• Some reduction in costs, but aging, and obesity with increasing number of diabetics
• Consumerism and medical breakthroughs are expensive, they like newest technology
• Want to lower costs

Healthcare Operations Management

• Analysis, planning and control
• Products can be defined by specialty of patients, e.g. outpatient care
• Further subdividing: diabetics
• Gaze: consultation

Healthcare processes by Paul Lillrand

• Care episodes

Online service delivery in healthcare

• Internet is almost everywhere in the U.S.
• Including rural, will be in almost every library.
• Few access via mobile phone, different from Finland.
• Lots of health care data, but currency/date and source are not notated, concerns on quality.

Patient Health Records

• An electronic application, wher eindividuals can access themselves
• Similar to banking, except doctor's visits, results from lab
• Messaging: secure, encrypted e-mail over a specific application
• Also link remote patient technologies: diagnostics, monitoring, consultation (videoconferencing, avoiding phone tag)
• Non-clinical support functions, e.g. online appointment scheduling

There are different models for PHR, talking about PHR out of EHR

• There's also models where you write it up yourself, or your health insurance company keeping records.

PHRs:

• More informed, more empowered patients.
• Typical way of providing messages: where specific words are highlighted, e.g. diabetes with a link to trusted information
• Safer than e-mail through work or Hotmail accounts
• Still lacking a business case, not incentive for Finnish or European use, as not access to health outcomes
• Study by Mayo Clinic that show that people leaving a hospital, 62% don't know the use of their prescriptions, 86% don't know side effects, 58% didn't know their diagnosis.
  • PHR could provide all of this
• Found that the older people do use the Internet, up to 80 years old
• Palo Alto, average patient using is 64
• Messaging can be async, that allows doctors to reply when they have time
  • If a patient takes 10 minutes of a 20 minute appointment, have time
  • Only non-urgent information
• PWC 1999 study says access to e-mail would reduce in-office visits by 20%
  • Doctors could be reimbursed for online messages
  • Why would you want to spend time with patients that don't need urgent care?

Palo Alto patients pay $60, doctors in the study did it out of goodwill

Lillrand: Most businesses would like to increase demand. Health care is different. Fixed costs might cause overconsumption.  But pay as you go raises equity issues.

• Alok: Delco cost per employee is about $65.  Employee gets $28/hour, health care provider gets $25.

Had data on 15,000 patients, chose diabetic patients of 127 for 12 months before and 12 months after intervention

• Control: patients that don't have Internet
• Second group: some that have access, but not messaging
• Heavy users

Messaging patients have more chronic patients, need the service more, potentially replacing visits with messaging

• Number of visits flatten out, at a higher level, rather than continuing to trend up
• Messages: after intervention, have a kick the tire effect, initially higher demand for the first 4 months, then goes down to one message per month

Physician survey

Asked physicians for estimates on how long it takes them to do a function

• On average, phone call takes 5 to 7 minutes or above
• Online results or prescriptions could be done in a minute or less
• Messaging improves quality of care: better access to health care, better lab results, better disease management

Today and future

• Static health content --> Test results
• Appointment requests --> direct scheduling, like airlines
• --> more information online
• Possible for someone to take photos of everything that they've eaten that day
• Asynch advise --> real time chat
• Unstructured e-mail --> Patient-physician messaging
• Generic content --> personal illness content

Future:

• Need to be able to migrate, as people move
• Automatic algorithms to devices in home
• Aim to increase national security

[Question]

Service innovaiton. Driver?

• Started before born
• Demand driven, by people who want to get better access to providers

2006/08/29 14:55 "KIBS Track"

2006/08/29 14:55 "KIBS Track" (Marja Toivonen), SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Three presentations

---

Marja Toivonen, "Innovations in KIBS as Examples of Service Innovations"

Relationship between KIBS and innovation

• First talk about service innovation, based on studies on the research project
• What service innovation can mean
• Results from the empirical study

Agenda:

• Development of perspective
• Similarities and differences services/manufacturing
• Working definition
• Starting point for categorizations
• Two examples

Development of perspectives

• Services were first considers as secondary from manufacturing
• As services has become more important in the economy, need something more
• Pressure to understand service innovation is heavier
• In history of innovation research, first research on services innovation in 1980s:  Barras 1986.
  • Barras 1986 wasn't really about service innovation, but it was related to information technology that spurs services firms
  • More about diffusion of innovations, rather than creation of innovations

More recent theories start from Schumpeter

• Schumpeter was a pioneer in manufacturing, but had a broader view that later researchers
• Later focus on technological
• Schumpeter (1934, p. 66) listed many types of innovation: product innovation, process innovation, market innovations, intermediate inputs in innovation, and organizational innovation
• Schumpeter also said innovations can be radical (new), or combinations of new things (recombinative)
• Raised entrepreneurs into the centre of innovations
  • In his time, innovations were created in universities, as synonymous with inventions, thus inventors
  • Schumpeter argued that there wasn't anything special about those people

Most researchers start Schumpeter, differences in degree between manufacturing and services

• Some say that we can use both, nothing special in services
• Others say services are totally different
• At HUT, have adopted something in between, some things similar, with some differences

Five characteristics that are common to both services and manufacturing

• (1) Innovation is an idea that is put into practice
  • Ideas are in the front end, but it's a long way to the real implementation, put into the market
• (2a) Innovation provides benefits to its developer
  • Motivation: something to compete with
• (2b) In order to be sustainable, innovation has to provide benefits to users
  • Developers can innovate for themselves, but not necessarily long term
• (3) Innovation is reproducible
  • Important for service firms, who say that they make something different for every client
  • This isn't the idea
  • Innovaiton is something that can be applied every time
  • Tailor-made service is not an innovation, although it may contain an element that has been applied from many areas
• (4) Innovation differs from everyday development
  • Most of the time on a stable path, then break a framework
  • Breaks are innovation, maybe incremental or radical, but the formulation is different
• (5) Innovation is an economic concept, in some area or some industry
  • Impacts not only the company that creates it, it has program impacts
  • Others will try to imitate it
  • Thus, need to have some intellectual property system
  • e.g. today comparison between banking and healthcare
  • Both geographic and sector contexts

Differences, in two groups

• Not clear whether meaning outcome, or process
• Usually mean innovation as the outcome, and then can speak to innovation process

Differences in innovation as an outcome

• With goods, can separate out the end product from the process
  • It's something in its own right.
• Services, however, often can't make a distinction between the process and the outcome
• Often, the process produces a benefit for the customer
• e.g. entertainment or tourism, no specific outcome, it's the process
• There are a few services where you can't make a differentiation between the process and the outcome
  • If can make a differentiation between back office and front office, then can differentiate
• For researchers, if studying service sectors, it's not reasonable to go to a service firm and ask about what kinds of innovations
  • They may respond that they don't have innovation, or they can say everything is an innovation
  • Can discuss customer satisfaction or quality, then when you tell them what you mean by an innovation, then they'll be able to speak of some cases

Differences in innovation processes

• Big differences between manufacturing and service companies
• In services, rare that companies will have specific departments, for an R&D, or a specific person
  • In service companies, innovation is seen as a quality process, it's everyone's job
  • Intrapreneuring, guided by strategic management
• Service innovations are often not the result of planned activity
  • The company just provides services, and after 2 to 3 years, and then finds the service is not the same
  • May not be new just for the the firm but the industry
  • Innovation can be found a posteriori
  • Makes it hard to study innovation
• Client participates in the innovation process, unlike in manufacturing (at least in a deep way)
  • In services, without a client, can't innovate, because can't pose relevant questions

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 organization 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 not be new ...
• ....
• ....

Possible categorizations of service innovations

• Which elements in the services are changing?
  • Innovation inputs, usually product, process, organizational ... from Schumpeter.
  • In services, division from product and process innovation are difficult, need deeper in a different way
• What kind of changes are happening?
• How radical is the change?  Two ways to understand.
  • Radical due to the extensiveness of the context, e.g. only in some region, it's incremental; in a country is more radical, then world is also radical.
  • Another way, not radical, but in total, how much it's changed.  If no common element with the earlier service, it's really radical.

Modeling a service, if we can't divide it into product and process, based on Edvardsson 1996 (Nordic school, service marketing), modified by Brax 2006 to make it more detailed, primarly in Saara's thesis, but Marja and Tina have been involved.

• Three fold element:
• (1) Structural, including market characteristics
• (2) Process
  • Stages
  • Roles and tasks
  • Nature of the service relationship
• (3) Resources, especially skills of people is important
  • In manufacturing, resources belong to the production stage, as compared to services people who are here and now
• These three form a system
• Innovation can happen in any of the three
  • Could change roles of client and provider, e.g. making a solution for the client, or may give more tasks to client as self-service
• Then can find a locus of innovation

Locus of innovation from the Lille School, Gallouj and Weinstein 1997

• These form a whole.
• They have another dimension of radical innovation, which is something else.
• (a) One of the three elements can be improved, e.g. pricing
  • Pricing is often on work hours, often discuss that should have other pricing systems that would be useful
• (b) Add something to the service that you didn't have before, a new element
  • e.g. self service
• (c) Two services in the firm, that are combined in a new way as one service; or split a service into two parts -- as architectural or recombinative innovation
• (d) Formalization innovation:  Make the value proposition for the client more clear
  • e.g. promise will do something for the client
  • Making the relationship between the service and the value
  • Communication of the services can be an innovation, although not all communication is an innovation
  • If it's a deep change that provides something for clients and customers

Two case examples of innovations in KIBS

• Have studied 11 services, and gone deep into them
• Two interesting examples

(1) Engineering, in RAU-Info, can find this on the Internet

• Internet-based optimization of building services
• (a) followup on function of systems
• (b) if the client want to analyze further, service company provides tools
• (c) consulting can be provided, e.g. reduce heating costs
• These are new in the Finnish context, although not radical
• Both improvements in a single module, when independent of the automation system (e.g. Siemens provides it for Siemens system, but not for others) and data is gathered from individual meters, not from the meter for the house
• Services are provide both with clients who want to do this in-house, and for people who want to outsource
• Also recombination innovation
• Also sells tools to competitors, as competitors can have deep relationships with other clients, but don't have the tools

(2) Non-technological example, from an auditing company

• Auditors have more than auditing services
• Regulations have changed, so if you have mergers and acquisitions, you have to make the valuation more accurate, and have to include immaterial
• Provides tools, and will also consult
• Innovation in technological KIBS have been very often, but not in non-technological
• Regulatory changes can drive change, and don't tell how you would make the change that can be constructed for the marketplace
• Idea of immaterial property is innovative
• Provides guidelines on best practices for local, and for the chain internationally

Question: where did the idea of radical come from?

• From Gallouj
• Dick Besset, speaking of extensiveness of context
• Important, should develop it further, because not sure which is most important

Question: Gallouj

• Gallouj has written many articles, and a book
• Writings are not all about this categorization
• We think that he is one of the most important writers in this field
• Spent a day in Lille a year ago
• His book has a funny title, because he compares himself with Adam Smith in a new wealth of nations

Tiina Tuominen, "Managing innovativeness in KIBS"

Started formlating this 1-1/2 years ago, as a result of the linking management and innovation

• Might still evolve

Agenda:

• Key theories
• Observations from case studies

Innovation management is an interesting problem in KIBS

Innovation activities are all around the business

Responsible for design an implementation

Managers want to manage these, but can't control everything

How can organizatoins, who have a lot of interdependent employees, manage innovation so that they have capabilities, and have something beneficial to the firm.

• Haven't found many theories that explain these context
• Started from Sundbo's empowerment theory
• Instead of having separate R&D divisions, with innovation experts, every employee might be involved
• Instead of hierarchy, loosely coupled interaction structure in innovaiton, and then a controlling mechanism that manages
• Can be an innovator, or part of the management system
• Questions are about the mechanisms in use (if any)

First, need to do identify the innovation activities that are being managed

• Hult 2004: Innovativeness relates to the firm's capacity to engage in innovations ...
• Useful starting point, but doesn't help in figuring out how it can be capitalized
• They don't have a process type or a process model

Marja is trying to identify processes, but that research is just beginning

• So, go back to look at innovative activites, call them innovation behaviours

Kleysen and Street 2000 cite 5 behaviours:

• (1) Opportunity explorations, looking for problems to solves
• (2) Generativity: new ideas
• (3) Formulative investigations: development
• (4) Championing: presenting the idea, and push them forward
• (5) Application: implementing, modifying, routinizing
• Assume that these can be stimulated by management
• Could be done by process, but not tying into them.

Assumption in this phase:  innovation is a capability

Research questions:

• How are innovation activities organized
• How can they be stimulated adn controlled?
• How does organizational setting able/disable?

Qualitative, inductive research method

• 10 interviews in each
• 2 cases

First case, construction company, innovative because it didn't wait for customers to call, but initiated own projects and marketed them to customers

• Knowledge intensive
• Project management
• Project initiation department, but also stretched towards construction phase
• Innovativeness is embedded in organizational culture
• Divided into four activities, traits:
  • (a) Strong individuals, free to do what they like, no formal management presentations
  • (b) Individuals spent more time outside office than in, with customers
  • (c) When in the office, they had a lot of informal communications, and built with other
  • (d) They tried to think long term, could start with 100 ideas knowing that only a few would make it, but it was important not to reject the ideas early
• Able to maintain this spirit
  • (i) Careful in recruiting people, taking only people they knew, nice people, already had social ties
  • (ii) This is the way we do things here, if you don't like it, you can leave
  • Strong implicit norms, didn't notice them unless someone wrote them down
  • (iii) Since the organization was growing, they tried to spread the spirit through more formal mechanisms

Second case: auditing company, one of big four accountants

• Auditing functions weren't innovative, quite structured
• Some other departments, focused more on mechanisms
• Stimulating
  • First, difficult for them to discuss
  • Not explicit or used organization-wide
  • Gave resources: Lowered objectives for chargeable hours
  • Tried to increase reources for development
  • Tried to give specific growth goals
  • Put development goals in performance plan, if manager
  • Strengthen competences
• Controlling mechanisms
  • In many cases, control by the customer:  if the customer would buy the idea, it would be okay
  • In the largest development ideas, needed more formal decisions
  • Two kinds of control
    • (i) Channelling innovativeness towards some idea: idea generation, make decisions, let customer decide
    • (ii) Control amount of innovation, i.e. the amount of time spent
  • Both non-intentional control
  • Most important control activity was because they didn't dedicate time to these

Rehearsal analysis: link controlling and stimulating mechanisms into innovative behaviour

Conclusions: a lot of questions

• How to deal with mechanisms that aren't formal, including non-intentional or informal
• How to (or should) take into account professional communities?
• Innovations originating elsewhere
• Are mechanisms specific for KIBS, or other types of companies

[Questions]

Started studying service innovation 3 years ago, this project 1.5 years ago

Comparing Finnish firms with international firms?  Google?

• May study in Denmark

Chaos or disorder to create an atmosphere?  Allowed to make mistake

• Yes, in the first case

Inductive case study method?

• Design from concepts in the literature, and Sundbo model.
• Inductive to find the mechanisms from the material, not to have to many about them.
• Sundbo hasn't written about complete mechanism, particularly on channelling, although there are more on stimulating

Loose coupling?

• Activities don't have a strict structure
• Anthony Giddens
• Sundbo has used Gidden's structure (civil society) and institutions

How do companies compare? Different industries?

• Common: professional / knowledge-intensive nature
• Core may be elsewhere, but know KIBS
• Also have an architecture office, advertising agency, engineering, real estate

[David had a long discourse about Bourdieu]

Robert van der Have "Constructing a Service Innovation Database"

From VTT, one of the largest research organizations in the Nordics

• Most VTT people are engineers, there's a small group of social scientist
• Am an economic geographer
• University of Utrecht, graduated in February, then started at VTT
• VTT is a KIBS

Will give own department's point of view

• Innovation Studies
• 22 people
• Both quantitative and qualitative
• One team does impact assessments, e.g. projects for Tekes
• A team of future studies, dealing with environmental studies
• Support decision-making for industrial organizations

Group studies innovation activity in firms, renewal processes

• Take micro level approaches, and translate to processes of change
• Have built up a database of single innovations from Finnish firms, call Sfinno
• As a researcher, was asked if could incorporate service innovation into firms
• Do econometric analysis on innovation processes, as well as studies

Attention for services is under-represented

• Complexity: product, process, intensity is mixed up
• Start at the basics
• Observation: services in manufacturing sectors, boundaries are blurring, really diffusing in the overall economy
• Speak of service activities
• Lack of available data and knowledge on innovation

How do services different? Innovation often takes place in the organizational sphere.

• Nature of innovation is different, but many common elements
• Data is limited
• Now moving from demarcation approach, where services are different, to synthesis, early stages

Loci of innovation is hard

• den Hertog and Bilderbeck (1998), from Dialogic, various loci of innovation
• (1) New Service Concept, how you build up your solution
  • There is a design/concept behind the service, and you may not be able to grasp it.
  • Recombinant use
  • Can apply an existing context in a new application, e.g. self-service banking.
• (2) New Client Interface: services are intimate with clients
  • Service activity connects, how you reach your client
  • Interactive client interface: important whether the feedback loop is there, or not
  • Yesterday, at ABB, formation of partnerships means they invade their clients environment, and absorb the uncertainty.
  • Can mean you're physically there
  • Client can be a coproducer of information
• (3) New Service Production System
  • Relates to firm boundaries, internal to the firm
  • Like a production chain, in manufacturing sector
  • A production system can exist outside the border of the firm, as relationships with partners and public authorities.
• (4) Technological optoins
  • Barras, IT, technology can be important in services
  • Also, services can be important to drive the technology

From loci, to innovation process

• Smith: traditional science and technology view of R&D is related to the linear model of innovation, considered outdated
• Leads more to an interactive model
• Complicates matters for a researcher
• (Diagram: chain-linked model of Kline & Rosenberg, 1986)
• Kline & Rosenberg allows for feedback loops

Frascati, in R&D, recognized as systemic creative work, including knowledge of man

• Widens perspective
• More general, addresses service R&D, in the generation of new knowledge
• R&D activity doesn't necessarily mean innovation
• Incremental nature of services takes place outside, introduced by Gallouj & Weinstein 1987, allows for ad hoc innovation

Database on service innovation, try to measure concrete innovations, at a micro level to build up the data.

• Service innovations
• For products innovation, have been using technical, trade and professional journals for new product announcements, so that it creates values for customers
• An object-based approach, where the developing firm is the subject
• Alternatively, a subject-based approach
• Try to find characteristics of the products of the proceess
• Questionable whether methodology will work, will start with top 50 firms in Finland, using annual reports, as they say something about services
• Try to create a rich micro-level data set
• e.g. send a survey, self-assessment introduces errors
• Extended LBIO method, two stage with second stage asking more about innovations

Expect preliminary results:

• extent and impact of innovation in services
• Where does innovation come from?
• What are the clients?
• What is the knowledge base of the firm? In technological firms, can count patents.
• Systemic nature of service innovations
• Want to do cross-country analysis, one partner is in Singapore studying KIBS
• Need to develop the right indicators

[Questions]

Databases in other countries?

• Comparable, but not generally available.
• Sprew, in Sussex
• In U.S., consultancy had done it for NSF, but have stopped
• Other databases aren't oriented towards services
• Literature based has gone out of fashion in recent years, but now popping up again, e.g. in Holland, helpful to study spatial
  • Delft, looking at regional development
• Other studies in Spain, on ceramic tile
• 2002, one study in UK, focus on special types of services, using the same methodology

In database, describe the process?

• First survey contact, then go back with questions in the firm
• Even have names of contacts in the database
• In Finland, can get educational profile of respondents.

This is a unique project.

• At this point, don't know if will be successful

Hard to identify innovation, when you have a practice

2006/08/30 09:30 Alok Chakrabarti, "Technology and Innovation in the Services: Some Issues and Research Needs"

2006/08/30 09:30 Alok Chakrabarti, "Technology and Innovation in the Services: Some Issues and Research Needs", SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Alok Chakrabarti, New Jersey Institute of Technology

---

Long discussion with Saara on content

Saara: Today's focus will be on information-intensive and knowledge-intensive approach

• Marja will describe the more humanistic perspective later

As focus, will look into health care

Health care means a lot of things for a lot of programs

Four objectives in healthcare:

• Preventive, e.g. smallpox eradication, have a lot of programs in vaccinations
  • Supposed to take flu shot, but then have to pay if under 65
• Curative: anti-infective drugs, curing a certain disease
• Disease management: e.g. hypertension, not curing but managing the disease for life extension
• Quality of life improvement: not curing or extending life, but improving quality for someone who has a disease

Where you provide the service, ontological:

• Doctor-patient in situ, i.e. the same place
  • Doctor's office
  • Ambulatory care, go there a few hours, then go home
  • Hospital, for a few days
  • Nursing home (in the U.S. means long term care, as opposed to in India where it means private hospital)
  • Provides long-term insurance
    • Very expensive, about $150K-$200K per year
    • Can't get this reimbursed by the government, until you exhaust your assets
    • There are laws about asset dispositions
    • If you're ill, and about to enter a nursing home, you can't transfer your home to your children, need to look 3 years back
  • Hospice: quality of life management issue, for terminal patients
• Can we have doctor-patient in different locations
  • Telemedicine: Karita was speaking about Palo Alto, messaging systems
    • Vodaphone, put phone on chest, and it will send information to heart specialists

Time: temporal dimensions in health care delivery

• Chronic <--> acute
• Emergency <--> non-emergency
  • John Hopkins in Baltimore, lots of experience with gun shots

Ecosystem of health care delivery

• Patient
• Doctor
• Lots of other actors in health care delivery:
  • Regulators
  • Financing system
  • Medical device manufacturers
  • Pharmaceuticals
  • Diagnostic services
  • Hospital
  • Nurses and paramedics provide quality of health care

J&J executive: soon you won't need a medical device, because will inject stem cells and the injured parts will grow back

In the future, doctors could look at genes, and will give you something will act specifically on the gene part

Alfred Park, NY, good technology on glass, doing research on implanting glass beads into tumour, then changes in the magnetic field will cause 1 to 2 degree F change, enough to kill cancer cells

Why do drug trials take so long?

• Thalmidomide: wouldn't know unless had a test for a long time
• DES: given to mothers for morning sickness, babies healthy, but then female children at a later stage (30 years later) developed uterine cancer

In India, drug manufacturers may not provide medicine with full strength

Who controls the efficacy of the drugs?

• A lot of people go to hospitals, and catch a new disease

Pharmaceutical value chain

• Pre-clinical development
• Could be NCE New Chemical Entity, new molecule; or NDA New Drug Application, used in a different way
• Clinical development
• Manufacturing Operations
• Sales and Marketing

Traditionally, pharmaceutical has been based in organic chemistry

• e.g. Turku is good in chemistry
• (1) Stem cells are biotechnology, not chemistry
• (2) Use of computer technology to develop designer drugs, specific drugs to act on cells
  • Computational biology, combinatorial chemistry

By breaking out the value chain, small companies spread the risk

In clinical trials, double-blind tests, are done by large companies

Manufacturing is now outsourced, to China or India

Marketing is done by large pharmas, have a brand name

New systems are developing, issue is orchestration

• Big pharma is becoming an orchestrator

Deep ethical issues, e.g. trials in third world countries as being guinea pig; or patients receiving placebos

• In 1930s, tests on syphilis in Alabama prison system, blacks
• At universities today, have to get approval of human study committees

Issues related to preventive programs:

• Generally audience is large, e.g. smallpox or malaria
• Have to teach, and have behavioural modification
• e.g. TB, take a few pills and the fever breaks, so they don't finish the whole prescription
  • This DOTS: Directly Observed Treatment System, take the medicine in front of the nurse

Issues for curative systems:

• Access
• Diagnostic services
• Pharmaceuticals
• Infrastructure
• Financing system

Issues related to long term care:

• Facilities
• Access
• Financing
• Pharma

Technology bases

• Core: Medical science and technology
• Enabling: ICT
• Supplementary: Logistics, transportation

Hype cycle for health care, from Gartner

• RFID to tag emergency room equipment, so that know where it is
• PDA direct prescription through wireless to pharmacy

[Questions]

What do you do research in?

• It depends on who's funding.
• Interested in technology and business gap.

Home care?

• Lillrank: People would prefer to die at home.
• Monitoring technology, e.g. floor sensors to know person is moving in the room

Karita: looked at dermatologist, video conferencing, could see 40% more patients; EHR will probably help accelerate home care; challenge that don't know what happens when the line goes down except for doctor sitting and watching monitor

Professions?

• New roles: nurse practitioner, physician's assistant

2006/08/30 11:15 Marja Toivonen, "Services Supporting Innovation: The KIBS Perspective"

2006/08/30 11:15 Marja Toivonen, "Services Supporting Innovation: The KIBS Perspective", SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Marja Toivonen, Helsinki University of Technology

Marja may have done the first dissertation on Knowledge Intensive Business Services

---

Everyone from the KIBS research group is here

• 4 person group, 3 working on Ph.D.s
• Tiina Tuominen
• Anssi Smedlund
• Saara Brax has mostly moved over

Work in the knowledge management institute, one of the 11 centres in Tuta

Agenda

KIBS project has been running 1.5 years, and still has one year to run

What are knowledge intensive business services?

• KIBS is used in the context of firms
  • Expert firms
  • Could be used at the product level
• They're business services, B2B, not B2C
• Knowledge intensive has 3 descriptions by researchers:
  • Knowledge intensity is both the input and output of the activity
  • KIBS have been seen as problem solvers
  • Most important, and the meaning used here is interaction between KIBS and clients creates new knowledge
  • Many other processes are learning processes, e.g. in health care, but in KIBS, the learning process is central and created by the firm and client jointl
• What kinds of industries?
  • R&D services, technical consultancy (architectural and industrial design), and non-technical (legal, financial consultancy, management consultancy, and marketing communications services).
  • KIBS-ification of industrial firms

How and why the term KIBS was adopted

• Business services was adopted as a term in the 1970s
  • The sector growing most rapidly
  • Also some pioneering researchers interested not just in growth, but the role of them
    • Impacts on productivity on other firms
• This issue came more and more in studies, and analyzed in terms of innovation
• At the end of the 1980s, more growth in the role of innovation in the economy
  • Other kinds of studies emerged, focused on the role in innovation
  • Not on all business services, but on expert roles
  • Industrial cleaning is not include
• 1995, KIBS was first defined by Ian Miles

The role of KIBS in innovation

• KIBS must have a role in innovation, because they're experts, keep at leading edge, otherwise they don't have a business
• KIBS have different attitudes:
  • They're sources of innovations, and have to be innovative themselves
  • They're facilitators of innovation processes within firms
  • If we look at the whole economy, KIBS are carriers of innovation, as the accumulate information and know more at the next client
  • As brokers, bridging intermediaries, they bring together different clients that can use each others' knowledge
  • At the broad level, they're orchestrators of innovators' networks
  • (A hard but reasonable argument), KIBS form the second knowledge infrastructure of society (with universities being the first), and as more practical
• It's important to study KIBS in innovation, and innovation in KIBS
• Processes are facilited by KIBS

Not many empirical studies on the role of KIBS

• In the Netherlands, Cox 2002 asked about the role of outsourcing
  • Some say it's must moving an activity from a manufacturing company to an external firm
  • Cox showed that when companies outsources, business doesn't remain the same, so there's service upgrading
• In Finland, Lith 2005 have centres of expertise programs, where new emerging technologies are put in various regions
  • In Helsinki, micro systems, biotech
  • Made a KIBS study, interviewed companies in these new areas, asking to what extent they used KIBS in their innovation activities.
  • One in three used a KIBS
  • Most were start up companies, lacked resources
  • Still could recognize the role of KIBS
• The role of KIBS as sources of innovation has been found in Eurostat surveys (carried out every 3 years, 2004)
  • Every time the role of KIBS as innovators has come out
  • 64% of technology-based KIBS carried out some innovation activity
  • Have also carried out on non-technology-based

What are the concrete way in which KIBS support their clients? Miles lists 6 ways

• (1) KIBS provide expert knowledge.
  • Traditional way professionals have worked for decades.
• (2) Carrying experience from one setting to another, e.g. from one sector to another
• (3) Benchmarking, identifying concrete best practices
• (4) Brokering, putting people together
• (5) Diagnosis and problem clarification, as clients can't articulate
  • Important converters of tacit knowledge to explicit, and explicit knowledge to tacit
• (6) Acting as a change agent, if the company knows what is wrong but doesn't have the power to change

KIBSINET:

• Anssi at network level
• Tiina at the level of the firm
• Saara and individual innovations and processes

Will speak to the level of individuals, and individual processes, where have the most amount of data currently available.

Three theoretical approaches to service innovation

(1) The linear NSD New Service Development process

• From idea, through development, to pilot and testing and markets
• Well-established model of New Product Development, applied for decade
  • Have developed a similar model in services
  • This has much to do with the marketing school, e.g. Garney and Hooper
• Ideal is that we have a formal innovation process with clear stages and checkpoints
• In the newer models, because clients orientation is important, and client input has been created, can't say the NSD only describes the inside of the innovating company
• Its strength is that it's the only model where the proceeding of the service development process has been studies at a detailed level.
• Weakness: service is a black box
  • Service is just something developed
• Theoretical definition of service innovation is ad hoc

(2) The Nordic school of service marketing, main representative is Edvardsson in Sweden

• Very client-oriented
• Service only exists in the presence of a client
• Diagram:  the service model framework by Edvardsson as in Tuominen 2004, including text into diagram
• Three prerequisites:
  • Service concept: includes the main idea in which the service fulfills the needs of the client, connected to market properties
  • Service system: the resources used in the service, human and technological
  • Service process: the stages of the process, as well as the role and provider
• From the prerequisites comes out the real experience: output and process, both of which have quality
• This is the best to date service model, but not sure all of the elements are the right ones
• Not many models at the detailed level, service specific as separate from goods
• Problematic: the innovation process is not discussed, or very superficially, with no linkage to innovation

(3) The Lille school in France, Gallouj

• Starting point is the modelling of the service, starting from the model of the good
• In the good, have production characteristics, technical characteristics, and the benefits to the client
• Then develop something for services
• Services a final characteristics, technology characteristics, and competence characteristics
• What's different?
  • In services, the production characteristics and technical characters can't be separated
  • Generally the product and process are one and the same
  • Then tries to define service characteristics
• If everything changes, and nothing common to earlier services, call it radical innovation
• Improvement innovation means something one of these three elements has changed
• Innovation by addition: some new element introducted
• Recombinative (architectural) innovation
• Formalizatoin innovation: clarification

Gallouj also lists ad hoc innovation, meaning innovation is not planned a priori, but the service provider provides the service in practice, and gradually discover that innovation has been made a posteriori

• Gallouj provides categorization for different types of incremental innovation
  • But compared to Edvardsson, not much detail, everything is included
  • Need a model where can locate the locus of innovation
  • Services are systems
  • The point at which the innovation in services begin, changes everything around it, yet it's still important to see everything around in advance
• In addition, the categories describes many thing
  • Radical innovation doesn't belong on the list, it's a different dimension, how radical or incremental

Summary:

• NSD is the only model that provides proceeding
• Nordic school provides a good start to model
• Lille school provides categorization of types of service
• In our project, try to use them all

In our project, have found Schumpeterian definition was much broader than the approaches after him, where the linear ideas came out

• Schumpeter saw product innovaiton, process innovation, market innovation ....
• A good start
• 5 criteria:
• (1) Carried into practice
  • Carried into market, with some approval
• (2) Provides some benefit to both developers and to client
  • Can provide benefit to self, but to be sustainable, have to penetrate the client
• (3) Innovation is reproducible
  • Some say everything is innovation
  • Tailor made doesn't have to be innovation
• (4) Innovation represents a discontinous change
• (5) Innovation is a economic concept, somehow impacts in a broader context
  • Innovativeness, adoption of innovation is different from creatoin of innovation
  • Need ways to protect innovation
  • Other firms want to follow, creates issues
  • e.g. compare healthcare and banking, innovation is done in a different sector

Still one problem with innovation

• Most researchers don't specifiy whether they mean the outcome or the process
• We have selected innovation to mean the outcome, and speak to the process of innovation

A working definition for service innovation

Question: social anthropology debate, can innovation be made many times in many places, or one and then diffusion

• Context needs to be taken into account
• Then depends on concrete situation
• e.g. case companies from advertising agency and architectural and auditing
• Can't make a general rule

Difference between step by step development, and incremental innovations

• Real change could be small, but could have huge impact

Innovation is a relative concept

• Want to stop relativity by calling something only new to the firm

In KIBINET, have worked with 6 companies, have studies 11 individual services -- preliminary results

• Told them that we're looking over services, and they could also select services from their viewpoint, to find something interesting
• Based on 25 interviews (of the 70 made)
• First use Edvardsson to understand what types of services, roles of clients, resources
• Then categorize by Gallouj
• Finally, analyze processes

Results:

5 cases of an innovation, but all quite incremental, geographically within Finland and not new worldwide

• Cases were mostly in technological KIBS, 
• One in audting that wasn't expected
  • Service for purchase price acqusition in M&A, since legislation now requires the value of company be estimated much more clearly, and have to recognize immaterial parts
  • At regulatory level, haven't said how to make a service out of this
  • How can we value brand names?  How do we value partner relationships?

3 cases of tailor-made services, with the possibilty of innovaiton could be made

5 where no innovation, by step by step

Three different types of innovation:

• (1) Separate planning stage:  some preplanning, then step by step
  • Some resources devoting, some testing, some piloting
• (2) Rapid application, simultaneous planning and production
• (3) Gallouj's idea of an a posteriori recognition of an innovation

Separate planning states, related to linear NPD

• Pilot, then prototype with a different client, then offered same service package to all clients, finally tools and consultants packaged
• Discover some clients want the tool only, others want consulting only
• Now can choose why you buy

Rapid application model was most general, especially in telecommunications

• 3 reasons for generality
• (1) Don't need massive investment in advance
• (2) Only thing to do, because client doesn't know what he/she wants
• (3) Companies had already worked with the same clients, and got a new idea from their existing clients

A posteriori recognition of innovation, only one, a bit surprised, but the companies didn't present many cases

• Engineering company that had provided a service for 8 years to a client, and thought could apply to other clients.

Where we are now

• How to organize to create and innovate at the same time?
• One project had Tekes funding
• We don't know how they organize this, in practice

Concluding: have to combine different models

• We should also understand these incremental innovations, but not step by step

In auditing company, it's not only technology, but regulation can also drive innovation

Shouldn't juxtapose models, some companies still follow NSD

• But it's not enough, have to study more rapid application

2006/08/30 13:55 "KIBS Track"

2006/08/30 13:55 "KIBS Track", SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

This digest was created in real-time duringthe meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Presentation first, then discussion

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Arja Hallberg, "Exploring Impact on the Interconnected Relationships in a Network Setting"

Arja Hallberg, Swedish School of Economics, started the program last September

Relationship marketing and service management

Agenda

Relationship marketing as a new paradigm

• Marketing as process that covers all parts of the business, about fulfilling customer promises
• How to operate, why are we here

Network economy, but the business environment starts as an aggregate

Relationship marketing, focused on dyadic and multilateral relationships

Use Capra's Triad: pattern, then process, then structure

2006/08/30 15:20 "KIBS Track"

2006/08/30 15:20 "KIBS Track", SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Second presentation

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