29 14:55 KIBS track: Marja Toivonen, "Innovations in KIBS as Examples of Service Innovations"

29th Aug 2006

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

This digest was created in real-timeduring 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?