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Towards a theory of innovation in services
Faïz Gallouj
University of Science and Technology of Lille
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Towards a theory of innovation in services
• Two major characteristics :1) They are service economies
2) They are innovation economies
• Several problems :1) The service economy is still perceived suspiciously.
2) Service economies and economies of innovation... but not economies of innovation in services.
3) Whatever field of economic theory is considered, services raise interesting issues.
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Towards a theory of innovation in services
• Raymond Barre, former prime minister, former economics minister (1991) :•« Manufacturing industry is the basis of competitiveness. The “ service society ” is based on manufacturing activity : the creation of jobs in services depends on a large extent on it, (…) manufacturing is the sole determinant of competitiveness in global markets (…) ».
• Dominique Strauss-Kahn, also minister of economics (1998) : •« Our efforts must be focused primarily on production and particularly on industrial production, on the creation of real jobs, jobs that are directly productive... ». (Le Monde, 1998).
• Nicolas Sarkozy, when he was minister of economics (2004) :•« We need a strong French manufacturing industry…(…). France cannot be only an economy of banks, insurances and services…». (France Info, 16 april 2004).
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Towards a theory of innovation in services
• Two major characteristics :1) They are service economies2) They are innovation economies
• Several problems :1) The service economy is still perceived suspiciously.
2) Service economies and economies of innovation... but not economies of innovation in services.
3) Whatever field of economic theory…, services raise interesting issues.
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Towards a theory of innovation in services
• For example, problems as regards :
- productivity measurement
- international trade
- spatial localisation
- employment systems and skills
- Etc.
• Focus on problems in the field of innovation.
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Towards a theory of innovation in services
• 1) Answer the question : what’s the trouble with services ?
• 2) Provide a state of the art
• 3) Focus on an integrative theoretical framework
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I. What’s the trouble with services ?
• The trouble with services is twofold :
1. The survival of myths
2. The existence of specificities
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1. First trouble : The myths about services and innovation in services
• 3 myths :- « Unproductive services » and « third sector »- Low productivity and low capital intensity- A « society of servants »
• Negative judgements about services• Rooted in the history of economic thought • Still vivid in present-day discourses• First myth : (negative) judgement on the nature of
an activity or a sector• The other two : negative assessements of the
production factors
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1. First trouble : The myths about services and innovation in services
• 1st myth : the myth of unproductive services and of the « third sector »
– Origins in the history of economic thought.– A. Smith (1776) : productive work of manufacturing vs
unproductive work of services, which vanish at the very moment they are provided.
– Services = work of domestic servants, servants of the state and artists.
– But it continues to influence many present-day approaches.
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1. First trouble : The myths about services and innovation in services
• 1st myth : the myth of unproductive services and of the « third sector »
• Fisher (1935) and Clark (1940) : a residual definition
• But not a value judgement on the economic worth
• Fo other analyses: service sector is ‘peripheral’, ‘pathological’:
- ‘Manufacturing matters’, Cohen and Zysman (1987)
- ‘Too few producers’, Bacon and Eltis (1978)
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1. First trouble : The myths about services and innovation in services
• 2nd myth : the myth of low capital intensity and low productivity
• Linked to the absence of factories and large-scale production lines.
• Capital intensity in services is high (see Kutscher and Mark, 1983). • Energy distribution and transport
• Banking and insurance
• A new syndrome : Solow’s paradox.• ‘Industrialist’ definition of productivity (see Gadrey, 1996)
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1. First trouble : The myths about services and innovation in services
• 3rd myth : the myth of the service society as a « society of servants »
• Concerns the quality of labour. • An attack on the strength of services : job creation.• Service society = a ‘society of servants’, a ‘hamburger
society’, a ‘bad jobs society’.
• The service society creates deskilled jobs. But also highly skilled jobs.
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2. Second trouble : Service specificities
Service specificities
Analytical consequences on innovation : nature and organisation
Product is a fuzzy process
- Difficulty to distinguish between product, process and organisation innovation - Enumerating innovations is difficult - Difficulty to assess innovation economic effects - Difficulty to assess the degree of novelty - Easy imitation - Intangible product or process innovation - Formalisation innovation
Service is interactive
- Importance of certain forms of innovation (tailor-made, ad hoc) - Not compatible with a linear concept of innovation - Consistent with an interactive model of innovation - Client participation to the innovation process - Price fixing problems - Appropriation regimes problems
Absence of property rights
- Appropriation regimes problems
Service sector is heterogeneous
- Product (innovation) forms are variable - Double accounting problems in KIBS
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II. Towards a theory of innovation in services
• 3 different approaches (Gallouj, 1992) :
1. A technologist or industrialist (or assimilation) approach : innovation = introduction of techical systems
2. A service-oriented (or demarcation) approach : focus on specificities
3. An integrative (or synthesis) approach : similar analysis for both manufacturing and services
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II. Towards a theory of innovation in services
Integrative approaches
Service-oriented
Technologist approaches
Time
Quantity
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1. Technologist (assimilation) approaches • Focused on the introduction of technical
equipments.
• Innovation is a manufacturing industry matter.
• Services are dominated by manufacturing industry. They adopt, but create not so much.
• Judgement confirmed by statistical surveys based on OECD manuals
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1. Technologist (assimilation) approaches
• How to explain this technological bias ? :
1) Services : the main users of ICTs
2) Technologies have consequences on economic variables
3) Standard neoclassical theory
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1. Technologist (assimilation) approaches
• 3 categories :
a) Approaches in terms of impact of technologies
b) Taxonomic approaches in terms of sectoral technological trajectories
c) The Barras' reverse cycle model
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1. Technologist (assimilation) approachesa) Approaches in terms of impact
Model 1 : Mainframe
Model 2 : Decentralised computerization and network
Employment
Skills, task organisation
Productivity
Exchange
Quality
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1. Technologist (assimilation) approachesb) Approaches in terms of sectoral technological trajectories
Scale- intensive
firms
Specialized suppliers
Science-based firms
- Continuous process activities (steel, glass) - Mass prod. (cars, cons. durables)
- Mechanical engineering - Instrumentation
Agriculture, construction, public works, traditional manufacturing industries
- Electronics - Electrical - Chemicals
Pavitt's Taxonomy
Market services
Supplier- dominated
firms
Large-scale physical networks
Specialized suppliers and science-based
firms
Soete and Miozzo's Taxonomy
Informational networks
Personal services: Repair, cleaning, catering, hotels, retail trade
Public and social services: education, health, public adminis.
- Transport - Wholesale trade
- Finance - Insurance - Communications
- Software - Specialized business services
Non-market services
Outside the taxonomy
Pro
du
ctio
n-in
ten
siv
e fir
ms
Supplier dominated
firms
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1. Technologist (assimilation) approachesb) Approaches in terms of sectoral technological trajectories
• A statistical analysis of sectoral taxonomies: • 3 sectoral models of innovation (Evangelista,
Savona, 2003) :
– Technology users: Ex : retail trade, hostelry, catering, cleaning
– ICT users: Ex : Banking, insurance, wholesale trade, advertising
– S&T-based sectors : Ex : R-D, engineering services, consultancy
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1. Technologist (assimilation) approachesc) Barras model
Phase ofthe cycle
Main formsofinnovation
Competitiveeffort
Enablingtechnologies
Examples
Phase I Incrementalprocessinnovation
Improvementof serviceefficiency(costdecrease)
Mainframe Computerization ofinsurance policy records,personnel records andpayrolls
Phase II Radicalprocessinnovation
Improvementof servicequality
Mini and microcomputers
Computerizedmanagement of housingwaiting lists in localpublic administration,on-line insurance policyquotations, ATMs
Phase III Productinnovation
New services Networks Home banking
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1. Technologist (assimilation) approachesc) Barras model : limits
• The problem of transposition to other service sectors
• The problem of transposition to other forms of technologies than ICTs
• Fundamentally technologistic :
– Product innovations are necessarily supported by technical equipment.
– New functions (relatively) independent of technologies are not recognized.
• For ex new financial products, new insurance contracts are not taken into account.
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2. Service-oriented (demarcation) approaches
• Technology a core element of innovation in services. • Highlighting the specificities of innovation in
services :- through case studies - through local theories or analyses.
• Innovation can exist where the "technologistic" gaze perceives nothing.
• Focus on non-technological forms of innovation. • « Pure services » for empirical investigation. Ex :
consultancy activities.
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2. Service-oriented (demarcation) approaches
• Ad hoc innovation– Original solutions (for organizational, strategic, fiscal...
problems) in cooperation with clients. – Examples : original ad hoc legal solutions, new strategic or organisational
solutions. – Non-programmed » innovation– Appropriation and reproducibility issues
• Expertise-field innovation – Knowledge accumulation related to emerging fields of
knowledge– Service provision related to these fields– Examples : in legal consultancy investments in new potential fields of law
(upper space, information technologies, environmental protection...).
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2. Service-oriented (demarcation, particularism) approaches
• Formalization innovation– Heterogeneous type of innovation seeking for
tangibility
– Different forms :• Methodologies • Incorporation of technical tools in the process• Organizational innovations• Use of tool kits
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3. Integrative (synthesis) approachesa) The representation of the product (Saviotti and Metcalfe, 1984)
Y1Y2.Yi..Ym
Z1Z2.Zk..Zo
Process characteristics
X1X2.Xj..Xn
(Internal) Technical
characteristics
Service characteristics
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3. Integrative (synthesis) approachesa) The representation of the product (Gallouj and Weinstein, 1997)
C1 C2 .
Ck . .
Cp
T1 T2 . Tj . .
Tn
Y1 Y2 .
Yi . .
Ym
C'1 C'2 . . C' k . . C' q
Provider's direct competences
Final or service characteristics
Material and immaterial technical characteristics
Client's competences
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3. Integrative (synthesis) approachesa) The representation of the product (Gallouj and Weinstein, 1997): the case
of a pure service
C1 C2 .
Ck . .
Cp
Y1 Y2 .
Yi . .
Ym
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3. Integrative (synthesis) approachesa) The representation of the product (Gallouj and Weinstein, 1997): the case
of a pure service (with coproduction relationship)
C'1 C'2 . . C' k . . C'q
C1 C2 .
Ck . .
Cp
Y1 Y2 .
Yi . .
Ym
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3. Integrative (synthesis) approachesa) The representation of the product (Gallouj and Weinstein, 1997): self-service
Y1
Y2
.Yi
.
.Ym
C’1 C’2. C’k . . C’q T1
T2
.Tj
.
.Tn
Technical characteristics
Service characteristics
Client’s competences
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3. Integrative (synthesis) approachesb) Corresponding innovation models
Innovation models Nature of the ‘action’ on the characteristics
Radical - Narrow definition: creation of a new set of characte-
ristics {[C'*], [C*], [T*], [Y*]} - Broad definition: creation of a new set of characteristics {[C'*], [C*], [T*]} even though [Y] remains unchanged
Ameliorative Increase in the weight (quality) of characteristics
‘Incremental’ Addition (or elimination) of characteristics
Recombinative Combining or splitting of groups of characteristics
Formalization Formatting and standardization of characteristics
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3. Integrative (synthesis) approachesc) Improvements of the framework
• Adding the customer’s own technology • Adding other providers’ technologies and competencies
(Erik De Vries, RP, 2006)
• Including the policy maker • Highlighting each agent competences and preferences
and the way the different agents preferences interact. (Paul Windrum and Manuel Garcia-Goni, 2006)
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3. Integrative (synthesis) approachesd) The car as a good-service hybrid
X1 X2 .
Xj . .
Xn
Y1 Y2 . Yi . . Ym
T'1 T'2 .
T'j . .
T'n
Ym+1
Ym+2
C1 C2 .
Ck . .
Cp
The car in Saviotti and Metcalfe's
representation
Service characteristics
additionC'1 C'2 . . C' k. . C'p