apers si4s c innovation and the (service ical p 11 k … · these dimensions are linked by...

SI4S TOPICAL PAPER

Pim den Hertog and Rob Bilderbeek are researchers at TNO-BSA, STB Centre for Technology and Policy Studies, Laan vanWestenenk 501, PO Box 541 NL-7300 AM Apeldoorn. E.mail: [email protected] and [email protected]

CONSEPTUALIZING (SERVICE)INNOVATION AND THEKNOWLEDGE FLOW BETWEENKIBS AND THEIR CLIENTS

PIM DEN HERTOGAND ROB BILDERBEEKS

I4

S TO

PIC

AL

PA

PE

RS

SI4S

111998

This is a report from the project Services In Innovation, Innovation In Services – Services in EuropeanInnovation Systems (SI4S). This project has been funded by the European Commission, through theTargeted Socio-Economic Research Programme (TSER), within Area I: Evaluation of science andtechnology policy options in Europe under contract no. ERB-SOE1-CT-96-1015. Contributions of theTSER programme is gratefully acknowledged.

i Pim den Hertog and Rob Bilderbeek6,�6

ABSTRACT

This paper provides a heuristic tool to conceptualise, map and discuss (services)

innovation as part of the much wider ‘Services in Innovation, Innovation in

Services’ (SI4S) project sponsored under the Targeted Socio Economic Research

Programme of the European Commission. We especially focused on the role

knowledge intensive business services (KIBS) play towards their clients and the

knowledge flows involved in these service interactions.

After briefly describing what it means to produce a service we identified three

strands of approaches to innovation in services: service based approaches (1);

managerial approaches (2); and integrationist or functional approaches (3). As

innovations in service functions are everywhere the practical 4-d model of

innovation presented in this paper is much in line with this third tradition. Basically

4 dimensions are discerned (see figure 1), namely: ‘new service concept dimension’,

‘new client interface dimension’, ‘new service delivery system dimension’ and the

‘technological options dimension’. Most (service) innovations appear to be mixtures

of major and minor changes and adaptations in two or more of these dimensions.

These dimensions are linked by knowledge areas such as marketing, distribution,

organisation development. When this model was used to map (service) innovation

automatically questions popped-up regarding:

➨ knowledge and characteristics of existing and competing service concept

(business intelligence);

➨ characteristics of actual and potential clients (market intelligence);

➨ capabilities, skills and attitude of existing and competing service workers

(human resource management)

➨ available and expected technological options (technological intelligence).

ii Pim den Hertog and Rob Bilderbeek6,�6

Subsequently we identified 7 innovation patterns (see figure 2), proving that a much

more differentiated and careful approach as to the role of services in innovation is

needed. Apart from supplier dominated, more interactive client dominated patterns

are given. Further it is acknowledged that service function – including the

innovation - can equally be outsourced or internalised. Paradigmatic innovation

pattern occurs when some radical innovations forces all actors involved to innovate.

Finally we focused on the linkages between KIBS and their client firms. In addition

to the three roles which were earlier identified for KIBS (namely that of facilitator,

carrier and source of innovation towards the client firm) we differentiated between

the various ways in which knowledge between service provider and client firm is

exchanged (see table 2). Using the model of knowledge creation as introduced by

Nonaka & Takeuchi the processes through which knowledge is built up are

introduced and linked the various knowledge flows that are relevant in the

relationship between KIBS and their client. It is concluded that KIBS do play an

important role in the various knowledge conversion processes and that we should

included process-oriented/intangible, non-contractual, tacit and human embodied

forms of knowledge when looking at the knowledge flows induced by KIBS. It is

further concluded that the knowledge flows from client firms to KIBS firms often

form the basis for further refinement of existing service offerings or complete new

services. In this sense it is possible to consider the link between KIBS and client

firms as a symbiotic relationship.

To summarize: both the soft side and the technological side of innovation are

important and most often they work in combination. Sometimes technological

knowledge is pivotal, but much more often having access to this knowledge and

being able to built the organisation and service workers that are needed to link up to

demanding customers is as challenging. Innovations in service activities are not by

definition supplier dominated as is often taken for granted, but can be triggered in

other ways as well. Especially the specific category of KIBS illustrate this point. Not

only can they perform various roles towards their client firm, the actual knowledge

exchange processes taking place between the two proved to be a multiple, complex

and subtle process the dynamics of which we only slowly start to understand.

iii Pim den Hertog and Rob Bilderbeek6,�6

TABLE OF CONTENTS

ABSTRACT .....................................................................................................................I

TABLE OF CONTENTS ................................................................................................. III

TABLES ....................................................................................................................... III

FIGURES...................................................................................................................... IV

INTRODUCTION: AIM AND STARTING POINTS ..............................................................1

THEORETICAL APPROACHES TO SERVICE INNOVATION .............................................3

A PRACTICAL 4D MODEL OF (SERVICES) INNOVATION ...............................................6

LINKING THE VARIOUS DIMENSIONS .........................................................................12

THE VARIOUS ROLES OF SERVICE FIRMS IN INNOVATION.........................................14

CO-PRODUCING KNOWLEDGE: THE LINKS BETWEEN KIBS AND THEIR CLIENTS ...20

Roles of KIBS: facilitators, carriers and sources.........................................................................20

A knowledge creation model and 4 dimensions to structure knowledge flows.............................22

KIBS and their clients: a symbiotic relationship..........................................................................31

REFERENCES ..............................................................................................................33

TABLES

Table 1: Various approaches to services innovation.............................................................................5

Table 2: Various ways and forms in which knowledge flows between service provider and client firm

and vice versa ......................................................................................................................................26

Table 3: Examples of tangible & intangible knowledge flows between service provider and client firm

on the 4 dimensions of the services innovation model .........................................................................29

Table 4: Examples of human and non-human embodied knowledge flows between service provider

and client firm on the 4 dimensions of the services innovation model.................................................29

Table 5: Examples of explicit and tacit knowledge flows between service provider and client firm on

the 4 dimensions of the services innovation model ..............................................................................30

Table 6: Examples of contractual and non-contractual knowledge flows between service provider and

client firm on the 4 dimensions of the services innovation model........................................................31

iv Pim den Hertog and Rob Bilderbeek6,�6

FIGURES

Figure 1: A four dimension model of (service) innovation ...................................................................7

Figure 2: Various services innovation patterns...................................................................................19

Figure 3: Four modes of knowledge conversion (a) and the ‘knowledge spiral’(b) as conceptualized

by Nonaka & Takeuchi (1995, p. 62/71)..............................................................................................24

1 Pim den Hertog and Rob Bilderbeek6,�6

INTRODUCTION: AIM AND STARTING POINTS

Services and services innovation have been described as the Cinderella of analytical

and policy thinking (Miles et al, 1995, p. 1). Although the emancipation of services

is by far from complete, a number of scholars have over the years contributed

considerably in kissing the princess awake. A massive number of mostly qualitative

and now increasingly also more statistical studies have been produced and still are

underway that show that services innovations are important, have some

characteristics of their own, are increasingly intertwined with manufacturing, etc. At

the same time it is clear that innovation processes and patterns might differ

considerably between service functions and individual service (and manufacturing!)

firms. Apart from the hard technology - or R&D - based side of innovation, the

understanding that services and service function do especially play a special role in

what may be phrased very general as the soft side of innovation seems to be on the

increase (den Hertog et al., 1997). However, progress in services research and

services policy-making is piecemeal, scattered over various disciplines and

sometimes very different in nature. Therefore the community of service innovation

researchers as a whole should be careful not to let Cinderella get to sleep again.

This paper is part of the SI4S-research programme sponsored under the CEC TSER

programme. In this research programme statistical and case study based evidence has

been built up that illustrates the complexity, multidimensionality and heterogeneity

of service innovation. It further provides evidence for the various non-technological

aspects that are so important in (services) innovation. The programme proved further

that especially Knowledge Intensive Business Services (KIBS) can play various roles

(source, carrier and facilitator) in innovation processes of client firms. Finally the

programme showed that a coherent theoretical or conceptual framework for

discussing services innovation is missing1. This discussion paper is an attempt to

provide a heuristic tool to conceptualise, map and discuss services innovation and

1 The most recent, comprehensive and inspiring attempt is the ‘Innovation in services’ articleof Faïz Gallouj and Oliver Weinstein in Research Policy (1997, p. 537-556). The Lancasterianrepresentation of innovation is however not an easy analytical tool to discuss with innovation policy-makers and firms the ins and outs of services innovation.


especially the role KIBS might play towards their clients. It is definitively micro-

based as it will be developed in such a way as to help individual firms to think about

new services development and management of service innovation in a structured

way. In addition we must say that it is eclectic by nature and neither a complete

services innovation review article, nor an attempt to write up the ultimate services

innovation theory.

Having said this it might help if we define our starting points. These can be

summarised as follows:

➨ innovation in services should be read as innovation in service functions;

➨ a clear distinction should be made between innovation in intermediary services

and services aimed at final users given their differences in innovation patterns;

➨ similarly a distinction is needed between innovation in service firms and the

innovative role of service firms towards client firms as especially the latter seems to

point into the direction of a much more dynamic role of services in innovation;

➨ as in most innovations service innovations are as much about human and

organisational capabilities as they are about technological opportunities;

➨ in those service innovations in which technology is important, service firms are

not by definition supplier dominated i.e. service firms sometimes give shape to and

influence technological development as well. Especially T-KIBS can play a variety

of roles in the innovation process;

➨ service innovations not seldom are the result of a new combination of new and

old service elements (mainly the result of processes of bundling and unbundling);

➨ the importance in service innovation of processes of co-production, user-

producer relations and mutual exchange of (often tacit forms of) knowledge can

hardly be overstated.

The paper follows a simple structure. In section 2 we will briefly indicate what it

means to produce a service and discern three categories of thinking or theoretical

bodies of literature about services innovation. In section 3 we subsequently we will

briefly introduce our 4 dimensional representation of services innovation. We then

continue in section 4 by showing the possible roles service firms might play in

innovation processes in a value chain perspective. This mainly indicates that we are


in need of a much more subtle differentiation between roles especially intermediary

service firms play in innovation processes. In section 5 we will focus in particular on

the linkages between (T)-KIBS and client firms and the ways and forms in which

knowledge is transferred.

THEORETICAL APPROACHES TO SERVICE INNOVATION

What does it mean to produce a service? Gadrey et al. (1995) noted that “to produce

a service [..] is to organise a solution to a problem (a treatment, an operation) which

does not principally involve supplying a good. It is to place a bundle of capabilities

and competences (human, technological, organisational) at the disposal of a client

and to organise a solution, which may be given to varying degrees of precision”. We

like this definition for two reasons. It makes clear that apart from technological

capabilities, human and organisational capabilities are equally important for

providing services. Secondly, because it allows for a differentiation between highly

standardized service products or service formulas with quasi good characteristics

(e.g. the famous hamburger chains) and the more customised services that are much

harder to pinpoint. In the latter more tacit forms of knowledge play an important role

and co-production is generally judged as vital (some advisory type of service are an

example of this).

It goes without saying – and the description just given is a reflection of this - that the

thinking on services and services innovation has progressed quite remarkably the last

decade. Although one can observe that whereas services were ‘discovered’ in the

seventies, they were long thought of in terms of technological innovation. Still in

1984 Pavitt - introducing his sectoral taxonomy of technological change - could

label the services industries as mainly supplier-dominated sectors2. Similarly in the

theoretical contributions of Barras (1986, 1990) that focus on the subsequent phases

of innovation processes in services the viewpoint is still mainly technological and the

service sectors are still perceived as supplier dominated. However, gradually non-

technologist approaches to service innovation have been added to the field of

services innovation studies. This resulted in a better understanding of e.g. the

2 Soete & Miozzo (1989) provided already a more differentiated picture of the servicesindustries distinguishing between supplier dominated, scale intensive physical networks andinformation networks and specialized/science based services. However, it still remains a mostlytechnical (and sectoral) taxonomy.


peculiarities of services (Miles, 1993), service management (Norman, 1991; Quinn,

1992), the fact that interaction with clients (and clients competences) can hardly be

underestimated (see also Kline & Rosenberg, 1986) as well as the importance of

recombination of existing elements in new services (Herderson & Clark, 1990;

Foray, 1993). More recently Gallouj et al. (1997) discerned a total of six innovation

models that could be used for describing services innovation3.

Table 1 further illustrates the fact that quite a number of scholars (outside the SI4S

group) have tried to conceptualise various aspects of innovation processes. Basically,

we distinguish between three strands of innovation models or streams of thinking.

Included in the first column are those scholars that tend to think of services and

service industries as industries with rather specific innovation patterns and processes.

Accordingly, they have defined approaches that are service-based. Other –more

practical and hands on -- approaches are derived from management sciences and

business studies. Most of these approaches which are given in the third column tend

to consider individual firms as a set of related functions that need to be taken care of,

or as a value chain. Consequently, the micro focus prevails in these approaches. A

third category of approaches (second column) consider service functions as

increasingly crucial and integrated elements of business processes taking place

within firms. These approaches may be labelled as integrationist or functional. These

innovation models – although very different in nature - have a rather general focus in

common, applying both to manufacturing and service industries. Functional

approaches use the need that an innovation fulfils for a (potential) client as a starting

point. In these latter approaches the boundaries of traditional economic sectors seem

to have lost their meaning.

A logical candidate for a next conceptual model on innovation in services or general

innovation model that applies equally to services does not seem to exist yet (if it ever

will come into existence). However, the variety of available models has helped us at

least in selecting those dimensions which we think are relevant when we discuss

services innovation. We thereby are inclined to work in the integrationist or

3 They distinguish between radical innovation, improvement innovation, incrementalinnovation, ad hoc innovation, re-combinative innovation and formalisation innovation, see furthernote 2.


functional tradition as service functions are spread all over the economy and are

relevant – although to a different degree – in all industries. Distinguishing service

and manufacturing functions increasingly is artificial.

Table 1: Various approaches to services innovation

SERVICE BASEDAPPROACHES

INTEGRATIONIST ANDFUNCTIONALAPPROACHES

MANAGERIALAPPROACHES

• Reverse Product Cycleapproach (Barras, 1986,1990)

• Self-service approach(Gershuny, 1978; Gershuny& Miles, 1983)

• The peculiarities approachto innovation in services(Miles 1993; Miles et al,1995)

• Ad hoc innovation &expertise field innovation(‘formalisation trajectories’:lend a material form toservices) (Gallouj,91/94/95)

• Service professionaltrajectories (Sundbo, 1993,1994, 1996)

• Financial servicesinnovation theory(Hardouin, 1973; Desai andLow, 1987)

• Neo-classical linear innova-tion model (although mainlyaimed at manufacturing)

• Schumpeterian typology ofinnovation identifying 5categories of innovation i.e.:product/ process / organiza-tional/market innovationand conquest of a new sour-ce of raw materials or semi-finished products

• Interactive model ofinnovation (Kline &Rosenberg, 1986)

• Recombination model ofinnovation (Foray, 1993)

• Architectural innovation(Henderson & Clark, 1990)

• Division between func-tional, specification andproduction innovation(Barcet, Bonamy & Mayere,1987)

• Modes of innovationradical/ improvement/incremental/ad hoc/ recom-binative innovation(Gallouj, 1997)

• Vector or servuctionapproach (Belleflamme etal, 1986; Eiglier &Langeard, 1987)

• Core and peripheral servicesapproach (Flipo, 1984;Norman, 1984; Eiglier andLanguard, 1987)

• Intelligent enterprise(Quinn, 1992)

• Service managementsystem, including serviceconcept and service deliverysystem (Norman, 1991)

• Service profit chain(heskett, Earl Sasser &Schlesinger (1997)

Which dimensions then are essential in explaining service innovation? How can we

take on board the various non-technological factors that are generally considered so

important in service innovation? This paper aims at getting a better understanding of

service innovation and describes a (admittedly eclectic) conceptual model or

heuristic tool that allows us to discuss in general terms with policy-makers and

service entrepreneurs service innovation. Although conceptual it need to be be

concrete enough to map service innovation and discuss the practical development of


new services or service innovation policies4. In the next section we discuss in a very

practical way the four dimensions of the model . In sections 4 and especially 5 we

mainly concentrate on the intermediary role of service firms (co-production,

customers competence) in innovation process of their clients.

A PRACTICAL 4D MODEL OF (SERVICES) INNOVATION

If you look at (service) innovations these seldom are limited to a change in the

characteristics of the (service) product itself. Most of the time it coincides with new

ways of distributing the product, new ways of interacting with the client, new ways

of making sure that the product is produced according to a certain standard, etc.

However, what is important for introducing one new product onto the market

(service or good) might be totally irrelevant for other products. Offering a completely

new service product differs considerably from offering an existing service using a

new distribution channel. Similarly some innovations are mainly the product of co-

production by the innovator and his client while others are clearly the result of

applying for instance ICT. In practice, however, most innovations are mixtures of

major and minor changes and adaptations that together form the innovation. If we are

to discuss, map and analyse these innovations in more detail in a structured way we

need a simple analytical framework. The 4 dimensions and their interlinkages as

given in figure 1 – with all its limitations – provide a starting point for this. Below

we first introduce the 4 dimensions, then we discuss the interlinkages.

4 It should be emphasised that this conceptual tool leaves room for various modes or models ofinnovation or taxonomies of innovation.


Figure 1: A four dimension model of (service) innovation

NEW SERVICECONCEPT

(DIMENSION 1)

NEW CLIENTINTERFACE

(DIMENSION 2)

NEW SERVICEDELIVERY SYSTEM

(DIMENSION 3)

TECH-NOLOGICAL

OPTIONS(DIMENSION 4)

Organisation

development

Dist

ribut

ion

Marketing

capabilities, skills & attitude of existingand competing service workers (Human Resource Management)

Kno

wle

dge

of th

e ch

arac

teri

stic

s o

f ex

isti

ng a

nd c

ompe

ting

ser

vice

s (b

usin

ess

inte

llig

ence

)

char

acte

rist

ics

of a

ctua

l and

pot

enti

al c

lien

ts (

mar

ket i

ntel

lige

nce)

© Dialogic

Dimension 1. The Service Concept

In manufacturing a new product is to an important degree tangible and visible. For

services it is not so much a physical product as well as a new idea or concept5 on

how to organise a solution to a problem. This concept needs to be new to a particular

market (although the concept might already exist in other markets). This sort of

innovation is highly intangible. Sometimes it is nothing more than abstract image, a

feeling, a typical approach towards a certain type of problems or a new combination

of service elements (that individually may be well known in the market). Although

not all service innovations have this conceptual element, conceptual innovations are

much more likely to be found in service firms (or better functions) than in pure

manufacturing firms. It is clear that conceptual innovations are related to the other

three dimensions as they might e.g. be based on new technological opportunities or

affect ways of organising the process of producing the service or the way the client is

involved in the process of service provision. Typically new service concepts pop up

5 It can be debated when we can consider a service concept to be new. Should it be new to theproviding firm or to the client, should it be new on the regional, national or global market.


if a firms tries to answer such basic questions as ‘what products are needed to tie in

existing and new clients?’, ‘what products do competitors offer?’ and ‘how can we

communicate our service offering?’ Typically conceptual innovations are market

driven in the sense that they address service needs which the innovator observes in

the market.

Some examples may explain this dimension somewhat further. People complain

about public transport that it does only part of the job and transport before and after a

train ride for example is time–consuming. Offering door-to-door transport services is

a new concept or a new way of thinking about public transport that addresses this

user need. More people these days start to actively manage their private financial

matters. At the same time governments allows that donations to certain humanitarian

aid are tax deductable. Some insurance firms have started to offer services in which

these elements are coupled. The concept of saving money and help yourself and let

others benefit from your savings as well is a new service concept. Similarly the

concept to apply temporary employment services to specific market niches

(temporary legal personnel, interim management) or the concept of labour pool

management by temporary employment agencies are relevant examples of new

service concepts. ICT consultants might offer semi-standardized incremental plans

for implementing e-commerce towards their client firms. Eco-design services offer

strategies for greening of production processes and products of their clients. Some

installation and maintenance firms have developed one stop shopping facilities

management service concepts, etc.

Dimension 2. The client interface

A second element that is relatively important in service innovations is the way in

which the interface with clients is designed. The way in which services are offered to

clients and the communication with clients are in quite a few examples of service

innovation changing completely. Product offerings are increasingly client specific

and delivered electronically. As clients, especially in intermediary services but also

in services aimed at end users, are to a certain degree part and parcel of the

production of the service product the way the service provider interacts with the

client can be a source of innovation. Increasingly there is no clearly identifiable point

where the producer’s activity stops and the user’s activity begins. Especially in


services that have not a very concrete physical shape (creating trustworthiness!) or

can easily be substituted by the products offered by competitors (customer liability)

it pays for service providers to invest in innovative ways to relate to its customers. A

first requisite is building up the knowledge of your actual and potential client base

and their needs. Various technological options provided by ICT such as

datawarehouses and datamining offer possibilities for this. Typical questions to be

answered when service providers consider their client interface are: ‘how do we

communicate with our client’, ‘who are our potential clients’ and ‘can we give our

clients a role in co-producing the service?’ Some examples given below might

further illustrate that interfacing with clients – although seldom in isolation – is a

relevant dimension of service innovation.

The introduction of the ATM in retail banking made that front office bank employees

could invest more time in advising their clients on more complex financial products.

One could see the ATM as a technological innovation, but it is as much an

innovation in how the bank relates to its clients. The introduction of call centres, help

desks and telemarketing in practice is a change in the way how clients are served by

the service firm. Direct banking or direct writing in the insurance industry does not

necessarily mean that new services are offered, but the way in which the banks and

insurance companies relate to their clients changes dramatically. Similarly the large

scale introduction of account management systems in professional organisations such

as economic consultancy or ICT firms can in some cases be interpreted as a renewal

of the client interface. The large scale introduction of home shopping services or for

that matter e-commerce will dramatically change the ways in which service provider

and client relate. It will for the service provider be more important to know what the

actual profile of their actual and potential clients is.

Dimension 3. The service delivery system/organization

This dimension in our view refers to the organisation of the process of producing and

delivering new (service) products. As the client interface (dimension 2) mainly refers

to the linkage between the service provider and its client, the service delivery system

/ organization dimension in our understanding much more refers to the internal

organizational arrangements that have to be taken care of to allow service workers to


perform their job properly, to develop and offer innovative services. This dimension

is closely related to the question how to facilitate or empower employees to perform

their jobs and to deliver service products adequately. On the one hand will new

services ask for new organisational forms and personal capabilities and skills. On the

other hand an organization can be designed and employees be trained in such a way

as to leave room for innovations and non-conventional solutions to practical

problems. There is a clear link between the service delivery system dimension and

the client interface dimension as e.g. the way in which the internal organisation of

the distribution of products cannot be separated from the type and ways in which the

service workers interact with (potential) clients. Some examples further illustrate by

this dimension of service innovation.

Engineering firms using laboratory information systems are able to analyse samples

on a large scale and feedback the results of the analyses to the client firm – in any

required format – as soon as the analyses are available. This way of distributing has

serious consequences for the internal organisational set-up of the engineering firm.

Similarly introducing e-commerce in business processes asks for some serious

business process reengineering as e-commerce not only changes the way in which

the actual commercial transactions occur, but also the processes preceding and

following the transaction. The decision of a retailer to increase/lengthen opening

hours might have serious consequences for the type of customers it attracts, the type

of product offerings, etc. Formulas such as McDonalds and Quick Fit can be

considered as service concepts, but at the same time they are (popular and often-

imitated) delivery systems. Making sure that clients are helped immediately, get a

standard quality product and are treated in various locations in the same way requires

that the service organisation invest heavily in capabilities and attitudes of both the

service workers. Especially in professional services it is important that organisations

empower their employees to be innovative and provide the flexibility to experiment.

Employees of temporary employment agencies for example - actually what may be

phrased as “match makers” - play an important role in picking up signals from the

market and translating these into new services.

Dimension 4. Technological options


This fourth dimension is often widely debated, especially the degree to which service

firms are in practice themselves giving shape to technology development. Clearly,

service innovation is possible without technological innovation; technology is not

always a dimension. However, in most service innovations technology does play a

role. In practice, there is a wide range of relationships between ‘technology’ and

‘service innovation’, varying from technology as a facilitating or enabling factor to a

technology-driven innovation. Service firms also differ in their awareness of relevant

available technological options, the degree to which they dispose of the necessary

technology themselves or have access to the necessary knowledge and the degree to

which they consequently can act as demanding customers and articulate their

technological needs. Many innovations are driven by downstream service sectors and

can surely be considered user-dominated. In fact, users may play a crucial role in

developing and implementing new services, although some of the required

technologies may come from suppliers.

Especially ICT – although certainly not the only category of relevant technology - is

often perceived as the great enabler of services innovation and depicted as typically

supplier-dominated. But after or even during the process of purchasing new

equipment other elements of innovation come into play such as:

• customising the purchased hard- and software to the needs of the service firm

(which may have developed into a service industry in its own rights e.g.

computer service industry);

• enabling workers to operate the new equipment;

• distributing new services to clients;

• developing new services based on the ‘installed base’

• formulating user needs regarding the relevant technology, etc.

Some examples might illustrate that service firms are not by definition supplier

dominated. ICT is an important technology in the financial sector. These firms of

course purchase their ICT equipment on the market. At the same time, however,

these firms dispose of huge ICT departments. These departments used to mainly

focus on massive back office automation, but are increasingly used as a source for

developing new service products such as e-commerce, internet banking and a

multitude of services in which customers to a certain extent manage their own


‘funds’. Some banks have invested so heavily in ICT infrastructures e.g. telecom

backbone infrastructures that they even have entered telecom markets or start

developing new ICT-based services outside the realm of financial services. Put

differently: mastering ICT technology has developed in such a central asset, that

banks and insurance firms can hardly be depicted as passive users of technology. On

the contrary, ICT is used as a basis for developing new services on the basis of which

new demands are transferred to the technology suppliers. Engineering firms possibly

even more so give actively shape to ICT technology. In fact a part of their design

services are delivered in the form of custom made hard- and software such as new

devices for measuring sub sea level water dynamics or GIS software for mapping

large scale soil pollution. In retailing, intelligent cash registers and advanced data

warehousing allows for the creation of detailed client profiles and personalised

product offerings. However, these applications cannot be bought from the shelf and

be simply implemented. They need to be combined with the specific characteristics

of the shop formula at hand (dimension 1), the way the retailer wants to

communicate with its clients (dimension 2), the way the employees are trained

(dimension 3), etcetera.

LINKING THE VARIOUS DIMENSIONS

The example just given already illustrated that each service innovation is a different

mixture or combination of these four dimensions of service innovation. A complete

new service will usually mean that a new service delivery system will have to be

developed, employees will have to change the way they work or relate to customers,

the use ICT is used in business processes, etc. Therefore, the four dimensions may be

less interesting than the links between them and the way the service firm operates in

the direct context.

Central links are at least marketing, organisation development and distribution.

Launching a new service concept for existing and new clients requires marketing

expertise. Similarly interfacing with clients and adapting the service delivery system

requires knowledge on how services are distributed. Further new services require

organisational knowledge: can the current organisation deliver the new service?;

what organisational changes are needed?


Services innovation do not occur in isolation, but take place in a socio-economic

context . Innovative service firms should in the first place be able to identify and

constantly monitor existing and potential competing services. What products do

competitors offer? Are new firms entering the market and what products do they

offer? Can we expect entrants from completely different industries? These and

similar questions are especially important in relation to the dimension of new service

concepts. May be this activity could best be described as business intelligence.

Secondly, service firms, like all firms, need to stay in contact with and to be familiar

with the characteristics of actual and potential clients. Who are our (potential)

clients? What are their needs? Do they like our product? How are our services used

in practice? Are service elements missing? This type of questions asks for some sort

of market intelligence function.

In the third place innovative service firms need to know whether the capabilities,

skills and attitude of their service workers suffice to ‘produce’ the new services. If

not the qualifications of workers need to be worked on. It goes without saying that an

understanding of the quality of the firms’ employees (formal and tacit knowledge,

flexibility, attitude) compared to ‘competing service workers’ is needed. Essentially,

these type of questions are human resource management issues. Not given in the

figure, but an essential link to the environment in which an innovative (service) firms

has to operate is technological knowledge or technological intelligence. This does

not mean mastering all relevant technologies yourself, but at least having an

understanding of what technological fields are promising, be able to articulate

technological needs, etc.

It should be emphasized here once more that the 4 dimensional model just presented

is by definition artificial. The weight of the individual dimensions and the

importance of the various links described differ for each individual service

innovation and each individual service firm. Equally the required inputs differ per

type of service, the level to which the search and selection process (which every

innovation process ultimately is) is formalised, the societal impact of the service

innovation and the degree to which these processes can be influenced by policy-


makers differs considerably. If we would for instance make a distinction between

transaction services and relational services6 we would see completely different

pictures. Innovation in transactional services are mainly aimed at efficiency, cost

reduction such as large scale automation of back office activities e.g. processing of

loans, payments, etcetera. In a way innovations in transactional services almost

resemble innovation in manufacturing. If customers take over part of the activities

required for a transaction (as in electronic banking or filling in forms electronically)

transaction costs are lowered as well. Relational services may be considered as much

more typical service innovation in the sense that they require contacts between

humans. The introduction of account management systems, customised financial

services or the typical new non-standardized services sold by professional services

can be labelled as such. In conclusion: innovation patterns differ, but the basic

ingredients may be the same. In the next section we look more closely into the

various roles service firms play in innovation processes, including the function

intermediary services perform towards their clients.

THE VARIOUS ROLES OF SERVICE FIRMS IN INNOVATION

The role services firms play in innovation processes can be quite different. In section

2 we discussed the fact that in stead of the one-sided Pavitt classification in which

innovation is reduced to technological innovation and services solely defined in

terms of supplier-domination we are in need of a further differentiation of possible

roles that service firms (or sometimes better service functions) can play in innovation

processes. In section 3 we also noted that technology is only one of the four

dimensions of (services) innovation. The various meso- and micro-based case studies

performed within the framework of the SI4S-project provide ample evidence of both

these various roles and the non-technological character of much of the services

innovation process.

In figure 2 below we have distinguished by way of illustration 7 innovation patterns

in which service firms clearly play a different role. These patterns mainly differ in

the type of linkages between supplier of inputs (equipment, capital, human resources,

6 A distinction introduced by Prof. Marc de Jong.


etc.), the service firms and what we have labelled as the client firm and the user of

the innovative service product. The latter could equally be another service or

manufacturing firm in the case of intermediary products or final users. The most

remarkable element is that from pattern 1 to 6 the influence of the client firm or final

consumer gradually increases. Again this overview should be considered as a

mapping device and not as the ultimate typology as we are sure more patterns can be

found. We briefly discuss the patterns given here.

1. The supplier dominated innovation pattern represents the way services

innovations are mostly depicted. Innovation in especially technology occurs in

supplying hardware industries, the results of which are simply disseminated and

implemented by using service industries that in their turn satisfy the needs of

their clients. Quite a few examples of this pattern can be found. The introduction

of the microwave e.g. changed the possibilities of preparing food in cafe’s and

restaurants. Medical robots in the future will relieve hospital personnel from

lifting heavy loads (patients). The computer completely changed administrations.

In these patterns there is a clear technology push and initially less room for using

industries to influence the actual product supplied by the supplier. In a way this

pattern is a caricature of the innovation process as the adopting organisation

needs to adapt its organization, train its employees, etcetera.

2. In the innovation in services pattern the actual innovation and implementation

take place in the service firm itself. The innovation can be both technological and

non-technological and in quite a few cases it is a combination of both. A new

shop formula that is thought up in the service firm itself in e.g. a new business

team and implemented throughout the organization without much ‘innovation

support’ from outside is a relevant example here.

3. A variety rather than a category in its own right is the client-led innovation

pattern. Here the service firm clearly responds to needs expressed in the market.

One could say that in a sense every innovation is a reaction to a perceived market

need, but in our view for some service innovations this is more clear-cut than for

others. The offering of door-to-door public transport services aimed at the

business traveller is a clear answer to the often heard complaints that they ‘would

like to use public transport (the train) more often, but that pre- and post train


transport is too time consuming’. The introduction of green banking products is a

clear response to a growing number of individuals that want to invest their

(saved) money in a ‘societal responsible’ way. The possibility of subscribing to a

‘selection of bio-dynamically grown vegetables of the season every week’ clearly

is demand-led as well.

4. The innovation through services pattern is where things start to become a bit

more complex. The service firms can influence the actual innovation process

taking place at the client firm by providing inputs. The provider of intermediary

services can provide knowledge in various ways through providing a expert

project manager with the necessary skills to implement an innovation, providing

an innovative tailor-made software package, provide a training, a written advice,

etc. (see section 5 for the various modes in which service providers and their

clients relate). The range of possible patterns can best be recognised if we take a

look at the activities of Knowledge Intensive Business Services. The engineering

firm that supports an oil and gas company that wants to drill and explore in a

‘protected’ area and has to find new operational methods to meet the strict

environment protection rules is an example. The engineers might help through

reviewing existing practice, proposing new operations, designing a new method,

training the operators of the client firm, actually heading the drilling operations,

etc., but the actual innovation takes place at the site and with the personnel of the

client (see Hofman et al., 1998). The engineering firm facilitates the innovation

process taking place at the client firm. The management consultant that supports

the management of a publisher as how to introduce new electronic publishing

services is another example. However, the degree of interactiveness and precise

role (source, carrier, facilitator) the intermediary service provider plays towards

the client firm varies (see for more details Bilderbeek et al., 1997).

5. The fifth pattern discerned here – innovation in an internalised service

function of a firm – is nothing out of the ordinary as all firms have a whole

range of service activities or functions which they might use for competition and

innovation. A manufacturer of capital goods can be known for the quality of its

products, but also for its innovative leasing scheme, its well organised dealer

organization and after sales service or the custom made training sessions it offers.

In general in innovation studies this category of innovation is grossly overlooked.


Increasingly manufacturing firms realise that the package of services offered

around the actual good can make the difference between staying competitive or

not. Not seldom value-added realised with these services is much higher than the

margins realised on the capital goods. In some cases, however, the opposite

occurs and service functions are outsourced to service firms.

6. The sixth innovation pattern – innovation in an outsourced service function –

takes place when the firm is already known for its innovative solutions for the

outsourced activity or otherwise innovates on the basis of the outsourced service

function. In a way this pattern resembles the fifth pattern, but goes a step further.

Facilities management, catering and cleaning are the typical examples of

functions that are outsourced. In most cases more specialised service firms take

over these functions and sometimes – this is not necessarily the case– this results

in more innovative service offerings. This depends in general on the room there

is for the service firm to which the activities are outsourced to come up with

innovative solutions. In some contractual relationships, if activities are e.g. very

precisely specified and cost competition is intense, this is clearly not appreciated.

In other cases however the level of specialisation and the economies of scale that

are possible, provide an incentive for coming up with innovative solutions. Fopr

instance, companies increasingly hire temporary labour. However, managing all

these temporary workers and the paper work that comes with it can be

troublesome. Sometimes these activities are outsourced to a temporary

employment agency. These agencies on their turn increasingly get to know the

human resources required by that particular firm and might even offer to

completely take over the human resources management function, including the

training of personnel if needed, hiring extra personnel or helping people to find

another job, etcetera. It is clear that the client firm influences the innovation

taking place in the outsourced service function.

7. A final pattern of innovation that is discerned here are the so-called

paradigmatic innovations. These are the typical complex and pervasive

innovations that affect all actors in a value chain in a very profound way. They

require innovation to take place in all subsequent elements of the value system.

This type of innovations requires completely new infrastructures, new types of

knowledge and also intermediate and final users have to adapt to it. If for


example in a very densely populated areas regular transport of goods is no longer

possible and the decision to switch to sub soil transport was taken, all chains in

the value chain would have to innovate and change attitude. Manufacturers of

transport equipments would have to come up with completely new transport

equipment, the transport companies would have to change their service offerings,

retrain their personnel, sell their product in a different way and users would

possibly have to change their behaviour and the way they use transport facilities.

Similarly the switch from a few public TV channels towards all sorts of multi-

channel pay-per-view regimes require innovations and change of behaviour on

may fronts. The large scale introduction of multi-functional chipcards also is an

example of a paradigmatic innovation.

If we would bring in other dimensions such as the role of the government in

triggering innovation (which can be quite important as is clear from especially the

new services that pop up as a result of much stricter environmental regulation) or the

degree to which end-users are given the opportunity or simply forced to co-produce

particular services we could easily describe more innovation patterns. However, the

message that is clear from the overview given in figure 2 is that the role service firms

play in innovation processes can be quite different and the way service provider and

client firm interact is central to the process of service innovation. In the next section

we will focus on the latter, especially as far as knowledge intensive services are

concerned.


Figure 2: Various services innovation patterns

INNOVATIONPATTERN

ROLE SUPPLIER

ROLE SERVICEFIRM

ROLE CLIENT FIRM (serv/manuf.)

EXAMPLE

SUPPLIERDOMINATED INNOVATION

INNOVATIONIN SERVICES

CLIENT-LEDINNOVATION

INNOVATIONTHROUGHSERVICES

INNOVATION IN INTERNALISEDSERV. FUNCTION

INNOVATION INOUTSOURCED SERV. FUNCTION

PARADIGMATICINNOVATIONS

Introduction of interactiveTV equipment, ICT goods,magnetrons, medical robots

Introduction of new shop formula, new pension and saving schemes

Green banking services, door-to-door transport,

Engineering firms helpingoil/gas firms in designingnew oil rigs, etc.

Copier manufacturer intro-ducing innovative lesasing scheme

Waste reduction service, wate prevention services

Multifunctionalchipcards, sub soil transport services

EMPHASIS INNOVATION

REGULAR INPUTS FOR SERVICE PRODUCT

IMPLEMENTATION OF

SERVICE

INFLUENCE ON INNOVATION

INFLUENCE ON INNOVATION (PULL)

FINAL USE OF INNOVATIVE

SERVICEINNOVATION IN INSOURCED OR

OUTSOURCED SERVICE FUNCTION

LEGENDA


CO-PRODUCING KNOWLEDGE: THE LINKS BETWEEN KIBS

AND THEIR CLIENTS

Roles of KIBS: facilitators, carriers and sources

Services are quite often the result of a joint effort of service provider and client (be it

an end user or another firm). In this process of ‘co-production’ the quality of the

resulting service product to an important degree depends on the quality of the

interaction between service provider and client. This interaction in practice is a two

way process: clients shape innovations in service firms as much as service firms

influence their customers’ innovation. ‘Learning’ and ‘user-producer linkages’ are

important notions here7. This two-way learning process can especially be observed in

the category of knowledge intensive business services (KIBS)8, including the

category of wholesale and retail trade of machinery and equipment9. Consultancy in

IT, management and technical engineering for example typically work in a highly

interactive mode. Client firms and KIBS providers work together to find solutions to

problems and challenges. Through the interaction the client’s knowledge base

changes, but the KIBS provider gets more experienced, learns about the

characteristics of a specific industry, can refine and differentiate the services offered

and methods used, learns about new business opportunities, works on his/her track

record, etcetera.

7 In that sense the literature on user-producer relationships (see e.g. Lundvall, 1988, 1992) isespecially relevant for the study of service (mediated) innovation.8 Outsourcing can be labelled as a special case. The interaction between service provider andclient firm depends on the service and especially the strategic value to the client. Non-strategicactivities are much more likely to be outsourced without much interaction between service providerand client firm. The service firm simply takes over one or more of the activities of the client. Typicalexamples include cleaning services, catering, facilities management. If strategic service activities areoutsourced it is much more likely that a user and a producer start a co-producing relationship, thatspecifications and ‘user knowledge’ are exchanged, etc. It is believed that KIBS much more oftenbelong to the latter category.9 The services ‘surrounding’ the hardware often are as important as the hardware itself forimplementing especially complex systems and machinery.


Earlier a differentiation was made between three roles played by KIBS10 in

supporting innovation in client firms, namely: facilitator, carrier and source of

innovation (Miles et al., 1995; Bilderbeek & den Hertog, 1997). These three roles are

briefly characterized below.

1. Facilitator. A KIBS firm is labelled as a facilitator of innovations if it

supports a client firm in its innovation process, but the innovation at hand does not

originate from this KIBS firm. Nor are the innovations transferred (from other firms)

by this KIBS firm to the client firm. Examples of this role:

• a management consultant helping a client to introduce a new account

management system or developing a new services distribution channel is an

example of this role;

• a technical engineering firm seconding a team of its engineers to work with the

technical engineers of the client to co-produce an innovative solution in e.g.

offshore platform construction or subsoil building might serve as another

example.

2. Carrier. A KIBS firm is labelled as a carrier of innovation if it plays a role in

transferring existing innovations from one firm or industry to the client firm or

industry. However, the innovation at hand does not originate from this particular

KIBS firm. Examples are:

• an IT firm implementing and customising advanced and innovative ERP software

(SAP, BAAN) in a client firm is an example of this role;

10 Focusing more in particular on the role of consultants in innovation processes Bessant &Rush (1995) in a similar vein emphasise the various roles consultants play towards their clients. Theydifferentiate between (1995, p. 101-102):

a. “direct transfer of specialised expert knowledge which has already been obtained andassimilated by the consultants”;

b. “experience sharing (…) carrying experiences and ideas from one location or context intoanother”;

c. “marriage broker, providing users with a single point of contact through which to access awide range of specialist services”;

d. “the diagnostic role which consultants play in helping users articulate and define theirparticular needs in innovation”.

Bessant and Rush further mention a multitude of ‘bridging activities’ by which consultants link supplyand demand and characterise them as “a flexible resource capable of filling the interstices within theoverall innovation system” (1995, p. 102).


• a management consultant specialising in CAD/CAM applications helps a major

client (a shipyard) in specifying the exact user needs and technical specifications

of a new CAD/CAM programme and subsequently helps in implementing it.

3. Source. A KIBS firm is labelled as a source of innovation if it plays a major

role in initiating and developing innovations in client firms, mostly in close

interaction with the client firm. Relevant examples here include:

• an advertising agency developing and implementing a complete new campaign

for a client might serve as an example;

• a provider of call centre solutions advising and actually implementing a new call

centre at a client is another example.

Now that we have looked into the multitude of roles of KIBS in innovation processes

we want to focus in next sub-section on the process of knowledge creation and

knowledge diffusion. We especially would like to point out the multiple and quite

often indirect and informal ways in which knowledge is exchanged between KIBS

provider and client firm.

A knowledge creation model and 4 dimensions to structure knowledge flows

In general it should be noted that knowledge and knowledge flows are much too

often perceived in phrases that are used to describe physical exchanges of goods.

Hales (1997, p. 4) in this context rightfully phrases this as “structurist principles,

typically addressing knowledge as some kind of ‘stuff’ which can be held and

deployed in various ways”11. In this sub-section we first briefly look at the model of

knowledge creation as introduced by Nonaka & Takeuchi (1995) in their book on the

knowledge-creating company before focussing on the various types of knowledge

flows that are relevant in the process of co-production between KIBS and their

clients.

Nonaka & Takeuchi (1995, p. 56-94) after making the well known distinction

between tacit and explicit knowledge start their model by putting forward the idea


that “human knowledge is created and expanded through social interaction between

tacit knowledge and explicit knowledge” (p. 61). In this process of organizational

knowledge creation or social conversion process (see figure 3a) four modes of

knowledge conversion are identified (1995, p. 62-69):

1. socialization: a process of sharing experiences and thereby creating tacit

knowledge such as shared mental models and technical skills;

2. externalization: the “quintessential” knowledge-creation process in that tacit

knowledge becomes explicit, taking the shapes of metaphors, analogies,

concepts, hypotheses, or models;

3. combination: “a process of systemizing concepts into a knowledge

system….combining different bodies of explicit knowledge” or the

“reconfiguration of existing information through sorting, adding, combining, and

categorizing of explicit knowledge”;

4. internalization: a process of embodying explicit knowledge – closely related to

“learning by doing” – into tacit knowledge and the individuals’ tacit knowledge

bases in the form of for example shared mental models or technical know how.

Organizational knowledge creation is seen as a dynamic and continuous process (see

figure 3b) shaped by shifts between the various modes of knowledge conversion,

which on their turn are induced by several triggers. Nonaka & Takeuchi (1995, p. 70-

71) describe this process as follows: “First, the socialization mode usually starts with

building a “field” of interaction. This field facilitates the sharing of members’

experiences and mental models. Second, the externalization mode is triggered by

meaningful “dialogue or collective reflection” in which using appropriate metaphor

or analogy helps team members to articulate hidden tacit knowledge that is otherwise

hard to communicate. Third, the combination mode is triggered by “ networking”

newly created knowledge and existing knowledge from other sections of the

organization, thereby crystallizing them into a new product, service or managerial

system. Finally, “learning by doing” triggers internalization.” What is essential is

although tacit knowledge of individuals is seen as the basis of organizational

11 This would be a reason to discuss the activities performed by KIBS in terms of competenciesrather than knowledge as competence is what KIBS offer. For the time being we will further elaborateon the notion of knowledge, knowledge creation and knowledge flows.


knowledge, this process “through expanding communities of interaction creation”

takes subsequently place at group, organizational and inter-organizational level as

well.

Figure 3: Four modes of knowledge conversion (a) and the ‘knowledge spiral’(b) asconceptualized by Nonaka & Takeuchi12 (1995, p. 62/71)

12 It should be noted that these processes are relevant at various levels of aggregation. Processesof knowledge conversion are start at the individual level, but are moving up to expanded communitiesof interaction (group, organization, inter-organization). This ‘ontological dimension’ is not included inthe figure reproduced here.


There are various reasons for dwelling on the Nonaka & Takeuchi model on

organizational knowledge creation in relation to the KIBS-client interface. In the first

place it appeared from the various SI4S case studies that in addition to the various

types of codified knowledge the more tacit forms of knowledge and knowledge flows

are at least as important as the explicit, codified forms of knowledge exchange. The

model just presented clearly reflect this empirical finding.

Secondly the model shows that the importance of interaction between individuals,

team members and also employees from various organizations in creating knowledge

new to the firm. In our cases studies we found many examples where the knowledge

base of the client firm is constantly enriched by confronting it with the knowledge

base of the KIBS provider, mainly through personal interactions between

professionals. To allow for this type of interaction it is important that within the

client firm professionals are available that could maintain and enrich this dialogue.

Finally, the model draws the attention to the dynamic process of knowledge

conversion. The various forms of tacit and explicit knowledge are constantly mixed,

redefined, linked, exchanged, reshaped and enriched in interaction processes13. We

found in the case studies that this is what typically happens where KIBS and their

clients interact. KIBS seems to trigger and strengthen processes of knowledge

conversion in clients (and vice versa). By hiring a KIBS new project teams are set

up, employees are forced to interact, to make tacit knowledge explicit, to think about

new combinations of knowledge and their mental models are challenged. KIBS in

other words contribute to firm level learning processes and act as catalysts.

In practice knowledge flows between KIBS and their clients are manyfold. Some

random examples are given in table 2.

13 KIBS and especially consultancies are often being criticised for reselling the clients ownknowledge again to the client. However, the sheer act of interacting with the KIBS might helpprocesses such as socialisation, externalization and combination. The interaction between clients andKIBS can consist of building a field in which knowledge is exchanged (e.g. creating multidisciplinaryproject team), setting up a dialogue between various functions/experts (e.g. organising a chipcardplatform), by combining existing pieces of knowledge already present inside and outside the company(e.g. installing a new management information system) and finally learn the tacit tricks of the trade byjust performing just tasks together (e.g. in house software developer working together in projectteamswith external IT consultants).


Table 2: Various ways and forms in which knowledge flows between service providerand client firm and vice versa

• Training/instruction ofemployees

• Benchmarks• Project management• Help in specifications for

procurement• Routine problem-solving

as part of everyday projectwork

• R&D collaboration• Instruction when installing

new machinery• Software package• Written report• Tacit knowledge in

projectteams

• Drawings / designs• Sparring partner (testing of

ideas client firm)• Presence• Advice• Computation• Organisational knowledge• Diagnosis• Extension of network• Market information• Brokerage / coupling to

new partners• Knowledge on how to

create support forinnovations

• Collaboration in projectteams

• Participation inconferences/seminars/workshops

• Patents & patentapplications

• Product documentation(manuals etc.)

• Feasibility studies• Drawings & project plans• Knowledge included in

equipment and theiroperation

• Articulation / specificationof needs

• Use of an R&D facility

Sometimes results – solutions to a (perceived) problem – can be very concrete and

tangible e.g. if the service product delivered is a: software programme, written

report, drawing or design, advertisement campaign, temporary expert, project plan,

benchmark, or advice on a new organization structure. However, sometimes the

outcome of the interaction between service provider and client firm are much more

complex and hard to pinpoint. These more fuzzier outcomes (or should we say more

process oriented forms of knowledge exchange?) are important by-products to the

more concrete results just given or are thé result of the cooperation between KIBS

provider and client firm. Examples of the more fuzzier results are: a management

team that is (again) on speaking terms, a better understanding of a potential market,

required knowledge to actually use a piece of equipment/system, the possibility to

discuss plans and actions with a qualified sparring partner, the emergence of a R&D

collaboration, increased support (inside or outside the client firm) for a solution to a

problem, improved reputation, new personal contacts or introduction into a network

of experts, access to knowledge institutions or policy-makers.

In the various SI4S cluster studies and individual cases we came across many forms

and ways in which KIBS and their clients interact. An interaction seldom is only the

handing over of a written report or a piece of software. Not only because a lot of


services cannot be packaged in such a form, but also because implementation

requires various forms of more direct interaction. The content and quality of the

service provided by a KIBS is to an important degree defined by the quality of the

interactive process and the degree to which service professionals of both client and

service provider relate to each other.

We clearly are in need of some discriminating dimensions to illustrate in a more

structured way the ways and forms in which KIBS providers and client firm interact

and the type of knowledge that is exchanged. Four of these dimensions for

discriminating between the various kinds of knowledge flows are listed below14:

1. Discrete/tangible versus form or process oriented/intangible knowledge (see

preceding paragraph)

2. Human embodied versus non-human (capital, written information) embodied

forms of knowledge

3. Explicit/codified knowledge versus tacit/non-codified knowledge

4. Contractual versus non-contractual forms of knowledge

We will elaborate a bit more on these 4 dimensions of knowledge flows below

(tables15 3a-d) by coupling them to the 4 dimensions of service innovations identified

earlier in section 3.

Ad 1: Discrete/tangible vs process oriented/intangible knowledge flows (table 3)

As is already clear from the foregoing, intangible – often process oriented -

knowledge flows are as important as more tangible knowledge flows. Often the two

are co-produced. A KIBS provider that offers a software solution to a client firm will

not only produce a knowledge flow in the form of a ready made software package.

The software developers will learn about the firm in which it will be applied,

establish a working relationship with the in house experts, possibly ‘en passent’

14 Some of the dimensions mentioned here were for the first time discussed during the SI4SBerlin meeting (february 1998), notably by Prof. Ian Miles.15 We concentrate in the tables on a few random examples of knowledge flows from KIBS tothe client firm, but are well aware that knowledge flows the other way round are important andfrequent as well.


advise on some other topics, introduce the client to a network of users of the same

type of software, etc. The software provider may use the client as a reference

(helping to keep up his reputation), fine-tune the software package, etcetera. In table

3a some tangible and intangible knowledge flows are mentioned using the 4

dimensions or aspects of the services innovation model described in section 3.


Table 3: Examples of tangible & intangible knowledge flows between serviceprovider and client firm on the 4 dimensions of the services innovation model

Service concept Client interface Delivery system Technologicaloptions

Tangible knowledgeflows

Campaign of an ad-vertisement companyfor positioning a newshop formula on the

market

Report delivered bymarketing bureau onmarket perspectivesfor an electronic ho-meshopping service

Marketing training forfront office service

employees

Installation of a newdata mining software

programme

Intangible knowledgeflows

Experience of hiredexpert on similarcampaigns in the

industry

Invitation to presentthe new service on an

international marketingconfe-rence (new net-works, new contacts)

Hired expert act as amirror e.g. by con-

fronting the client firmwith the quality of the

‘service encounter’ asperceived bycompetitors.

In house softwareteam brainstorms with

hired expert on newbusiness opportunities

using the newsoftware.

Ad 2: Human embodied versus non-human (capital, written information) embodiedforms of knowledge (table 4)

The second dimension refers to the degree to which knowledge is embodied in

humans or not. Human embodied knowledge flows require face to face interaction

between service provider and client firm. Disembodied knowledge flows are

typically written down ( a report, an action plan, an article in a magazine, an

electronic database) or incorporated in a capital good or piece of equipment. Human

embodied knowledge flows are generally thought of as relatively important in

services in general. However, from the example it can be gathered that written

communication and technology do play an important role as well, most often in

combination with human embodied knowledge flows.

Table 4: Examples of human and non-human embodied knowledge flows betweenservice provider and client firm on the 4 dimensions of the services innovation model


Human-embodiedKnowledge flows

Ask a managementguru in a face to face

meeting to give avision of electroniccommerce-basedservice concepts

Organise a user panelwith a firm’s clients to

test a prototype service

Employees of the clientfirm receive an on the

job training (byexternal experts) on

dealing withcustomers.

An instruction by amaintenance worker

on how to handle thenew copier

Non-humanembodied knowledge

flows

Reading a report onstate of the art

innovation strategies inservice firms

Install a website tocommunicate with(potential) clients

An action plan by amanagement con-sultant for reorga-

nising the firm into wellfocused SBUs.

A CD ROM contain-ingan interactive demo of

the e-com-merceencounter


Ad 3: Explicit/codified knowledge versus tacit/non-codified knowledge (table 5)

As was already clear from the discussion on the Nonaka & Takeuchi model tacit

forms of knowledge and especially the conversion processes in which tacit

knowledge becomes explicit, is recombined and is again (in an enriched version)

again internalised are extremely important when discussing knowledge flows. Mostly

explicit knowledge comes to mind when economic transactions are discussed.

However, although there is most of the time no price tag on exchange of tacit forms

of knowledge as these are much harder to pinpoint, they are at least as important in

the interaction between KIBS and their clients. In table 5 some examples are given.

Table 5: Examples of explicit and tacit knowledge flows between service providerand client firm on the 4 dimensions of the services innovation model


Explicit/codifiedknowledge flows

Read a chapter onlaunching new service

products in the latestservice management

book

Purchase the SAPcustomer relationsmodule from Baan

company

Obtain the require-ments for obtain-ing a

9000-ISO certificate forthe service

organisation

Read the productdocumentation on how

to handle the newcolour photocopier

Tacit/non-codifiedknowledge flows

Two friends – oneworking for a insu-

rance firm, the other inspace research –

discuss during theirweekly cafe visit

financial construc-tionsfor financing satellites

Sharing the feelingbetween an external

and internal inter-active designer of what‘feels’ as an appealing

web site design

Participate in a one-day seminar on data

warehousing anddiscuss new oppor-tunities with a soft-

ware sales represen-tative

Engineers of thecontracted engi-neering firm and

oilcompany share bestpractices du-ring their

2 months at seainstalling a new oil rig

Ad 4: Contractual versus non-contractual forms of knowledge (table 6)

Another way of looking at the knowledge flows taking place between KIBS and

client firms is assessing the degree to which these knowledge flows are part of a

contractual relationship or whether these simply occur without a contract between

KIBS and client firm. Most often contractual and non-contractual forms of

knowledge exchange coincide. Especially in those in which KIBS have a more or

less steady relationship with a client it is more likely that the contractual knowledge

flows are supplemented with more informal types of knowledge flows. This is not

only the result of KIBS trying to link client firms, but also a matter of experts or

professionals of both KIBS and client firm developing a (trust) relationship. Some

examples are given in table 6.


Table 6: Examples of contractual and non-contractual knowledge flows betweenservice provider and client firm on the 4 dimensions of the services innovation model


Contractualknowledge flows

Contract an externaldesigner to de-sign a

new line of diffe-rentlypositioned products

Hire a marketingresearch firm to as-

sess how many cus-tomers might switch to

e-commerce.

Order consultancy firmto improve client

friendliness of aftersales service

department

Contract an engi-neering firm to help

procure a piece ofmachinery/ hardware

Non-contractualknowledge flows

Discuss new bu-siness opportunitiesduring a meeting of

a professionalassociation

A software bureauspecialised in ‘call

centres’ suggests tocontact a specia-lised

temporary workagency for pool

management

A trainer discussesafter the training withthe manage-ment the

situations he/sheexperienced by

competitors

Experience as anexpert the advanta-ges

of an electronicboardroom session

and decide it to use itin one of the own

projects

KIBS and their clients: a symbiotic relationship

On the basis of the foregoing we may conclude that:

• KIBS perform par excellence a catalyst role in knowledge-creating or innovation

processes of client firms. Their role in abstracto varies by adding innovative

knowledge originating from the KIBS itself (KIBS as a source of innovation),

originating innovative knowledge from another source - firm or institution - to

the client firm (KIBS as carrier of innovation) or helping out a client in

implementing new knowledge mostly developed in house (KIBS as a facilitator

of innovation).

• KIBS do play an important role in the various knowledge conversion processes

(socialization, externalization, combination and internalization) such as identified

by Nonaka & Takeuchi. It can even be concluded that by doing so KIBS play a

key role in transforming firms into learning organizations.

• The types of knowledge flows induced and triggered by KIBS are not confined to

the discrete/tangible, contractual, explicit/codified and non-human embodied

forms of knowledge. On the contrary, the functioning and role of KIBS can only


be understood if we include process-oriented/intangible, non-contractual, tacit

and human embodied forms of knowledge.

• KIBS and their clients have a sort of relationship which might be characterized as

an symbiotic relationship. They – or at least the professionals they employ -

profit from the interaction with the client firms and the various types of

knowledge flows generated during this process of interaction as much as the

client firm does. The experience gained during a given project will be used as a

basis for developing new service products and approaches and will make the

involved professionals more valuable professionals towards future clients with

similar problems. KIBS are by the nature of their activities in contact and

cooperate with quite a number of client firms and their employees, constantly

diffusing and absorbing knowledge, reprocessing it, diffusing it again, etc.

Through their activities they act as ‘bridging institutions’ in innovation systems

(at whatever scale)and contribute considerably to the ‘knowledge distribution

capacity´ and learning capacity of innovation systems as a whole.


REFERENCES

Barras, R. (1990), Interactive innovation in financial and business services: thevanguard of the service revolution, in: Research Policy 19, 215-237.

Barras, R. (1986), Towards a theory of innovation in services, in: Research Policy15, 161-173.

Bessant, J. & H. Rush (1995), Building bridges for innovation: the role of consultantsin technology transfer, in: Research Policy 24, 97-114.

Bilderbeek, Rob & Pim den Hertog (1997), The interactiveness and innovative roleof technology-base knowledge-intensive business services (T-KIBS). TSER-SI4S-project, TNO-SI4S report no. 3, Apeldoorn.

Gadrey, J., F. Gallouj & O. Weinstein (1995), New modes of innovation. Howservices benefit industry, in: International Journal of Service IndustryManagement, 6 (3), 4-16.

Gallouj, F. & O. Weinstein (1997), Innovation in services, in Research Policy, 26,537-556.

Hales, M. (1997), ‘Make or buy’ in the production of innovations – Competences,fullness of service and the architecture of supply in consultancy, Contributionto workpackages 5/6 of the SI4S project, CENTRIM, University of Brighton,Brighton.

Henderson, R.M. & Clark, K.B. (1990), Architectural innovation: the reconfiguringof existing product technologies and the failure of established firms, in:Administrative Science Quarterly, 35 (1), 9-30.

Hertog, P. den, R. Bilderbeek & S. Maltha (1997), Intangibles, the soft side ofinnovation, in: Futures, 29 (1), 33-45.

Hofman, Y, P. den Hertog & Rob Bilderbeek (1998), The intermediary role ofengineering firms in innovation processes in offshore industry. A clusterstudy, TNO-SI4S report no. 5, Apeldoorn.

Kline, S.J. & N. Rosenberg (1986), An overview of innovation, in: Landau, R. & N.Rosenberg (eds), The positive sum strategy: harnessing technology foreconomic growth, the National Academy Press, Washington D.C.

Lundvall, B.A., ed. (1992), National systems of innovation, Towards a theory ofinnovation and interactive learning, London, Pinter Publishers.

Lundvall, B.A.(1988), Innovation as an interactive process: from user-producerinteraction to the national system of innovation, in G. Dosi et al. (eds.),Technical change and economic theory, London, Pinter Publishers.

Miles, I (1993), Services in the new industrial economy, in: Futures, 25 (6), 653-672.

Miles, I., N. Kastrinos, R. Bilderbeek, P. den Hertog with K. Flanagan & W. Huntink(1995), Knowledge-intensive business services: their role as users, carriersand sources of innovation, Report to the EC DG XIII Sprint EIMSProgramme, Luxembourg.


Nonaka, I. & H. Takeuchi (1995), The knowledge-creating company. How Japanesecompanies create the dynamics of innovation, Oxford University Press, NewYork/Oxford.

Normann, R. (1991), Service management. Strategy and leadership in servicebusiness (2nd edition), John Wiley, London.

Pavitt, K. (1984), Sectoral patterns of technical change: towards a taxonomy and atheory, in: Research Policy 13, 343-373.

Quinn, J.B. (1992), Intelligent Enterprise: a knowledge and service based paradigmfor industry. New York.

Soete, L. & M. Miozzo (1989), Trade and development in services: a technologicalperspective, MERIT 89-031, Maastricht.

apers si4s c innovation and the (service ical p 11 k … · these dimensions are linked by...

Documents