Lecture presented at Autonomous University of Madrid (UAM) March 2013.

1. The New Service Economy
– Innovation in services
Ian Miles
(University of Manchester, and HSE, Moscow)
Ian.Miles@mbs.ac.uk
Manchester Institute of
Innovation Research Ian.Miles@hse.ru Laboratory for
Economics of Innovation
UAM, Madrid, March 2013

2. Overview
Service Innovation, and Innovation in
Services, is NOW (almost) mainstream
How Understanding of Services and
Service Innovation has evolved
New Approaches to Service Innovation
Services and Technological Innovation

3. Interest in “Service Innovation”
Publish or Perish data
www.harzing.com
400
March 3rd 2013
service innovation
350
Publications with the term in their titles
300 new service development
250
innovation in services
200
150
100
50
0
1984
1978
1980
1982
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012

4. Interest in “Service Innovation”
Publish or Perish data
www.harzing.com
400
March 3rd 2013
2010
350
Publications with the term in their titles
300
250
200
150
100 2004
50
0
1984
1978
1980
1982
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012

5. Service Industries – Innovation IN Services
Sections NACE Rev 1
G • Hotels and Restaurants (HORECA)
H • Transport, Storage
I • Financial Intermediation (FI...
J • Real estate, Renting (…RE), Business Activities Includes KIBS
• Wholesale & Retail Trade; Repair of .Motor Vehicles, Motorcycles
K and Personal & Household Goods
L • Public Administration and Defence; Compulsory Social Security
M • Education
N • Health and Social Work
O • Other Community, Social and Personal Service Activities
Industries
These are the service specialists

6. Perspectives on Service(s)
Primary industries specialise in extracting
things (raw materials, etc.) from the natural
world (and change and manage parts of that world).
Secondary industries specialise in making
things (from other things): Manufacturing
makes goods, Construction makes buildings,
etc.
Tertiary industries specialise in doing things:
Services (service industries) produce ...
services (service products).
And services can be produced by other
industries, and consumers.

7. Innovation
Goods innovation – product and process –
making new things, making things in new
ways. (Largely technological innovation.)
Service innovation then: doing new
things, doing things in new ways.
Whether in service industries (“innovation in
services” or other service suppliers.
... or is it more complicated?
Product and process entangled
User involvement in coproduction; role of service
relationships; organisational innovation

8. What Do Services Do?
They effect transformations
physical, chemical, biological, psychological,
informational (etc.)
of Entities
Material artefacts (goods, buildings, etc.)
Living entities (especially human beings)
Signals and Symbols
to achieve Effects
Maintenance, Movement, Matching...
Problem-solving (versus) Providing Experiences

9. Varieties of Service
Transformation
Some human corporeal transformation is of
low complexity – personal services like
cosmetic and hairdressing (can be quasi-
medical, though usually routine). Innovation
in aesthetics, consumables.
Other transformations of people and
artefacts are much more
physical – e.g. transport, HORECA, repair/
maintenance. Application of power machinery.
Informational –e.g. providing experiences,
entertainment, education

10. Three Transformational Types
Many activities, and most service industries, involve some mixture of all three
Physical Human Informational
Transformations Transformations Transformations
Examples
e.g. e.g
e.g Finance, Communic
Health, Personal
Cleaning, Transport
Features Services ations
Often much High presence, often high
manual, sometimes low- involvement of Range of mass and
skill work Consumer/User customised services
Challenges
Environmental Human
sustainability, “self- Keeping apace of
diversity, Interpersonal platforms and users, IP
service” relations
Technologies
Power and engine
systems; technologies Many specialised, from IT and supporting
under repair etc. very low to very high-tech systems (e.g. Batteries)
Trends
New functionality (e.g.
Business model change Changing role of public Location) and knowledge
sector (e.g. Neuro...)
Manual Activity Knowledge-intensive activity

11. Not all service innovation is
technological
Innovating service suppliers often use new
technology, at least in a facilitating role
But even here there are exceptions:
especially in personal services
E.g. CBT (.5m treatments in UK in 2012) Altered
Thinking
Alternative to pharmaceuticals
NHS: “one of the most
effective treatments for
anxiety and depression.” Behaviour Situation Emotional
Feelings
Can be via book or software
And now “web therapy”
But still usually face-to-face,
Physical
Sometimes in groups Sens-
ations

12. Not all Technological Innovations
in Services are IT-based
Many service processes are highly specific
The transformations can benefit from
particular categories of technology.
For example, medical services may apply
tools and knowledge concerning:
Pharmacology
Opportunities influenced by state of science and
Radiology development of practical experience... Health services
involve particularly complex and long-term sequences of
Surgery problem-solving, involving many professions and bodies
of knowledge in complex (public-private) institutional
Physiology frames...Numerous specific innovations. See:
Genomics... D.Consoli etinal, 2007, “The Process of The Economics of
Innovation” J Costa-Font et al (eds)
Health Care
New Health Technology Oxford University Press

13. Information Technology is
nevertheless pervasive
While there are many specific service
technologies
Surgical tools, hairdryers, trains, trolleys,
fast-food containers, clipboards....
Most services are information-intensive,
in front and back offices
Thus most are IT-intensive
Barras: IT represents an industrial
revolution for service sectors: IT
investment is very heavy from them.

14. Information Technology
evolution
70s 80s 90s 00s 10s 20s?
Mainframe Micro Networks Tablet, sm Sensors,
Biodevice
 mini  PC & laptops artphone Actuators
WiMax, 4
VANs LANs Web WiFi, 3G +++
G,cloud
Profess- Wide Ubiquit-
Experts Public Ambient
ionals public ous
Web2.0, Internet of
“End- Semantic
Centralised Content things, loc
User” P2P web
ations
Text/ Commun- Enhance-
Numbers Multimedia Control
graphics ication ment
Inspired by Marc Weiser et al: - cf: I Miles (2005) “Be Here Now”, INFO Vol.
7 No. 2, pp49-71

15. Information Society
Mainframe Micro Networks Tablet, sm Sensors,
Biodevice?
 mini  PC & laptops artphone Actuators
WiMax, 4
VANs LANs Web WiFi, 3G, +++
G,cloud
Profess- Wide Ubiquit-
Experts Public Ambient
ionals public ous
Web2.0, Internet of
“End- Semantic
Centralised Content things, loc
User” P2P web
ations
One for One for a One for Each A Few for Many for Each
Text/ Commun- Enhance-
Many
Numbers Few Person/Place Multimedia
Each Control
Person/Place
graphics ication ment
People People Person/Place
70s 80s 90s 00s 10s 20s?

16. Information Technology Use is
one shaper of Service Economy
Mainframe Micro Networks Tablet, sm Sensors,
Biodevice?
 mini  PC & laptops artphone Actuators
Service
VANs
Service LANs Web WiFi, 3G, Service
WiMax, 4
G,cloud
+++
Economy Economy Economy
Wide Ubiquit-
1.0
Experts
2.0 Profess-
ionals
Public public ous
Ambient
3.0
Web2.0, Internet of
“End- Semantic
Centralised Content things, loc
User” P2P web
ations
One for One for a One for Each A Few for Many for Each
Text/ Commun- Enhance-
Evolving Views of
Many
Numbers Few
graphics Service Economy (&Each
ication Service Control
Person/Place Multimedia Innovation) ment
Person/Place
People People Person/Place
70s 80s 90s 00s 10s 20s?

17. Service Economy 1.0
“Post-Industrial Society” - 1960s-’80s
Phrases in titles: Harzing‟s Publish or Perish 3/1/2013
200
180
Service Economy
Service
160
Post Industrial Society
140
Economy 120
1.0 100
80
60
40
20
0

18. Service Economy 1.0
“Post-Industrial Society” - 1960s-’80s
Economy of services sector(s)
Growth driven by consumer demand,
welfare state provision, low productivity growth
Innovation relatively low, supplier-driven
Industries are pre- or post-industrial - too
complicated or particularised for mass production
MoT thus seen as adoption of technology
from elsewhere
Exceptional services sequestered
Examples: Bell, Fuchs,Touraine

19. Sectoral Patterns of
Innovation – traditional view
Innovation – overwhelmingly identified
as technological.
Original formulation of
Pavitt (1984): four broad
types of innovation
Sectors include:
Supplier-dominated Services, textiles and agriculture
firms Thus, diffusion is the issue: and maybe slow
uptake is the “problem”
Science-based firms high-tech firms in industries such as
pharmaceuticals and electronics
Scale-intensive firms large firms producing basic materials and
consumer durables, e.g. automobile
manufacture
Specialised equipment
specialized machinery production and
producers high-tech instruments.
Pavitt, K. (1984) „Sectoral Patterns of Technical Change: towards
a taxonomy and a theory‟ Research Policy 13 (6) pp. 343-373

20. Traditional view of service innovation
Manchester
Institute of
Innovation
Research
Dismissal
Increasingly hard to and as many more
sustain this view as traditional service
technology-based sectors displayed
services become considerable
important to (with very few exceptions) technology
adoption and
innovation in all Service industries play little innovation
sectors
role in (technological)
innovation
and can thus be ignored by innovation
policy

21. Service Economy 2.0
Knowledge-Based Economy: 1980s-2000s
Phrases in titles: Harzing‟s Publish or Perish 3/1/2013
2500
Service 2000
Economy Service Economy
2.0 1500
Post Industrial
Society
1000 Information Society
Knowledge
Economy
500
0

22. Service Economy 2.0
Knowledge-Based Economy: 1980s-2000s
New Information Technology widely
adopted in service organisations- especially
back-office in large organisations.
Many IT-related services assisting this -
KIBS as supporting business processes
and innovation across the economy.
New services and service delivery, new e-
services.
Information Society, Knowledge Economy
Examples: Barras, Gershuny,

23. Perspectives on service innovation
A similar (not identical)
Framework developed by approach had already
R Coombs & I Miles, been developed in the
2000, “Innovation, 1990s by Gallouj – see
Measurement and recent work like F.
Services: the new Gallouj and F. Djellal
problematique” in J S (eds) (2010). The
Metcalfe & I Miles (eds) Dis-
Dismissal Handbook of
Innovation Systems in the missal Innovation and
Services, Edward
Service Economy
Dordrecht: Kluwer Elgar: Cheltenham
Syn-
thesis
Demarc Assim
-ation -ilation

24. Different Disciplines
Converge and Collide
Management studies, esp. HORECA & trade
Service
Management:
stress coproduction Demarcation
Innovation
Studies: New Service
stress Development:
information and stress
information intangibility
technology
Assimilation
Industrial economics, esp. High-tech, KIBS Marketing, esp. E-business

25. Assimilation Perspective
Services are Service innovation
qualitatively is not distinctive; it
distinctive, due to can be studied and
especially due
INTANGIBILTYto
organised in ways
INTANGIBILTY,
and
familiar from
INTERACTIVITY,
INTERACTIVITY :
etc.  different
different forms of analysis of.
forms of
innovation and Dis-
Dismissal manufacturing.
innovation & missal
innovation
process Tend to
process focus on
technological
Syn- innovation
(though
thesis some
theorists
insist that
even
Demarc- Assim- technological
innovation is
ation ilation distinctive)

26. Patterns of Innovation
rethought: varieties of service
firm as innovator
From Pavitt to Soete & Miozzo (1989 and 2000) – mainly tech focus
Many traditional service sectors – personal and
retail trade services, many public services
Supplier-dominated
Production-intensive scale-intensive sectors:
firms large organisations with much back-office
innovation (incl some supermarkets, etc.)
Network sectors – physical networks (e.g.
Science-based firms transport, wholesale), information networks (e.g.
telecomms, banking)
Specialised technology suppliers and science-
Scale-intensive firms based sectors – computer & engineering
services
Specialised equipment
producers
Soete, L. and Miozzo, M. (2001). “Internationalization of Services:
A Technological Perspective”
Technological Forecasting and Social Change 67, 159–185

27. Services in Innovation Surveys
Innovation surveys (originally the CIS) across Europe since 1980s, have included many service industries
since the 1990s. Recent UK data featured below..
Share of “innovation active” firms
– those engaged in any of: 1. Introduction of a new or significantly improved product (good or service) or process; 2.
innovation projects not yet complete or abandoned; 3. New & significantly improved forms of organisation, business
structures or practices & marketing concepts or strategies; 4. Activities in areas such as internal R&D, training,
acquisition of external knowledge or machinery & equipment linked to innovation activities .

28. Demarcation Perspective
Services are Service innovation
qualitatively is not distinctive; it
distinctive, can be studied
COPRODUCTION,
and organised in
INTANGIBILTY,
ways familiar from
INTERACTIVITY,
etc.  different analysis of
Extensive forms of Dis-
Dismissal manufacturing
discussion of innovation & missal
service innovation
specificities
process
(and the huge
diversity
across
Syn-
services) in thesis
marketing
and
management
as well as
innovation
Demarc- Assimilat-
studies ation ion

29. Manufacturing vs Services -1
Factory Service Producer
versus Services
Goods
Goods Service Consumer
Consumer
Separation Closeness, Coproduction

30. Manufacturing vs Services
Innovation 1
Factory Service Producer
Process Process and
Innovation Product
Intertwined:
Ideas of (e.g.)
Product versus Services Delivery
Innovation
Goods Innovation,
Servuction
Innovation
Goods Service Consumer
Consumer
Separation Closeness, Coproduction

31. Manufacturing vs Services – 2
Not all But not all
manufactur- Back Office Back Office service
ing
process is
processes
are in Factory Front Office immediately
tangible in the
production: coproduction
much back- front-office
office work space – much
here too. Services back office
Goods versus
invisible
preparation
and support
Goods Service Consumer:
Consumer,Use action and transformation
of Goods
Consumer
Communities

32. Manufacturing vs Services -
Innovation 2
Barras:
Reverse
Back Office Back Office Product
Cycle
Factory Front Office model: IT
introduced
for
efficiency
in back
Services office,
Goods versus
then
applied to
improved
quality and
Goods Service Consumer: eventually
Consumer,Use action and transformation
of Goods new
services in
Consumer front office
Communities

33. Service Economy 3.0
Economy of Service(s) 2010s-
Service orientation (Service-
Dominant Logic) to forefront
“Service Science”, SSME
Service Product-service systems – and
Economy responses to Grand Challenges
Not just technology – but
3.0 emergent processes and practices
will be invigorated by use of new
technologies like sensors, data
analytics, etc.
Examples: Gallouj, Spohrer,
Vargo/Lusch

34. A Synthesis?
Exploration of Service Innovation has identified aspects of
innovation that are generically important
Innovation analysis – and measurement and policy – needs to account for all of
these aspects (or if not, to explain why some sorts of innovation are privileged)
Dismissal
All sectors have diverse features, and many “service” elements
Dis-
missal
Synthesis
Demarc- Assim-
ation ilation

35. Aspects of a Synthesis
Exploration of Service Innovation has identified aspects of
innovation that are generically important
Innovation analysis – and measurement and policy – needs to account for all of
these aspects (or if not, to explain why some sorts of innovation are privileged)
Dismissal
All sectors have diverse features, and many “service” elements
Dis-
missal
Manufacturing features: Services feature:
TERTIARISATION GREATER
Synthesis TECHNOLOGY-
INTENSITY
“SERVITISATION”
“PRODUCTISATION”
SERVICE
INDUSTRIALISATION
DOMINANT Demarc-(KNOWLEDGE Assim-
LOGIC ation
INTENSIVE) SERVICEilationENCAPSULATION
ACTIVITIES AS
INNOVATION AGENTS

36. Innovation - Manufacturing
and Services 1
Back Office Back Office
Factory Front Office
versus Services
Goods
Goods Service Consumer:
Consumer,Use action and transformation
of Goods
Consumer
Communities

37. Innovation - Manufacturing
Tertiarisation,
convergence
and Services 1
Back office innovation –
Back Office trajectories of Back Office
similar IT use,
organisational innovation
Factory Front Office
Process innovation – similar features of automation,
etc., but much variety across sectors in terms of
specific processes and transformations
versus Services
Goods
Goods Service Consumer:
Consumer,Use action and transformation
of Goods
Consumer
Communities

38. Innovation - Manufacturing
Tertiarisation,
convergence
and Services 2
Back office innovation –
Back Office trajectories of Back Office
similar IT use,
organisational innovation
Factory Front Office
Process innovation – similar features of automation,
etc., but much variety across sectors in terms of
specific processes and transformations
Product innovation – Services
Product innovation – new
Goods
new / improved goods – / improved services (often
and services for new goods platforms)
Relationship
Goods and Delivery Service Consumer:
Consumer,Use
of Goods innovation action and transformation
Innovation in marketing and e-business, e-
Consumer
commerce, aftersales, use of functionality
provided by good or service
Communities

39. Loci of Service Innovation
• Position in Value Chain
Value Chain
• Management of suppliers
Back Office
Elements of Business Model
• Office systems
• Service work organisation, scripts
Front Office
• Service Value Proposition
(Concept and Content)
Services
• Service Delivery Systems
• Interface with, relation to, • Revenue
consumers and their platforms Models
• Role of consumers (and Service Consumer
communities) in coproduction
• Target Markets and Marketing
Consumer
Techniques Communities

40. Skills for Service Innovation
• Position in Value Chain Grasp of business environment, scope for merger,
Value Chain
acquisition, joint ventures, collaboration, open innovation
management & grasp
of new opportunities
Specific technology
• Management of suppliers Service design capabilities
Back Office
management & new models
Elements of Business Model
• Office systems Grasp of KM & informatics
• Service work organisation, scripts
Front Office
Grasp of financial
Grasp of HR, team management
• Service Value Proposition
(Concept and Content) Service technology capabilities
Services
• Service Delivery Systems
Disruptive possibilities
competitors and esp.
Awareness of
Service design capabilities
• Interface with, relation to • Revenue
consumers and their platforms Service design capabilities Models
• Role of consumers (and Service Consumer
communities) in coproduction Grasp of users, uses
• Target Markets and Marketing
Consumer
Grasp of markets, trends, marketing
Techniques Communities

41. The Synthesis Approach
needs to recognise
Many diverse forms and dimensions of innovation
Varying in frequency and intensity across different
types of organisation.
Often these occur and are managed relatively
independently, even within the organisation
Though some changes trigger others
Some are interconnected from the start
Business model innovation may involve alignment of
many innovations
Existing classifications and categories of innovation
styles and activities – even R&D – may be of
limited use. Study new design approaches.

42. Challenges for Innovation
Management
Even servicisation has often proved challenging
Requirements for wide range of new knowledge,
especially about user behaviour and wider
contexts
Needs to combine different types of knowledge
Numerous sites of innovation, turbulence for
innovation management
Wicked problems in Grand Challenges
Cognitive alignment

43. Conclusions
Often service innovation requires diverse knowledge types, and
ability to combine multiple component offerings from multiple
actors. New tools for service design are emerging.
Many parties play role in development of capabilities for service
innovation, including policymakers, HEIs, leading companies,
professional bodies
Important to retain and enhance scope for individual and
organisational learning, as requirements for multiple
competences evolve
Central role for management capability to identify, mobilise,
coordinate requisite professionals and skill sets
SMEs may need specific support
Grand challenges and complex problems – transformational
innovations spanning social and technological innovation (e.g.
AAL, sustainability)

44. End of Presentation