Innovation in Services - Department for Business, Innovation and Skills

Introduction
through ICT). Recognising the importance of both technological and nontechnological
(and especially organisational) forms of innovation, and the
interactions and complementarities between these two forms, is central to
current innovation research (see Tether and Howells (Chapter 2)).
● The role of demand and end users/customers is highlighted. Bessant and
Davies (Chapter 3) note that in the context of service innovation the search for
and use of demand side knowledge is critical with end-user understanding
and empathy essential to success. This is not to say that new technology is
unimportant but the balance of importance in service innovation may be
more in the direction of demand side knowledge. 16 Voss and Zomerdijk
(Chapter 4) also note that in the case of many experiential services fellow
customers can either destroy or enhance the enjoyment of the services –
something that providers have little control over!
● Co-ordination and networking of different ‘actors’ within the innovation
process can be very important. CRIC (2006) 17 stress that continued innovation
around runway space required ‘negotiated procedural change’ where
partners needed to find mutually acceptable changes to facilitate innovation.
While this highlights some areas of emphasis in services innovation, the drivers
and fundamental process of innovation are arguably not essentially different to
innovation anywhere else in the economy. Bessant and Davies (Chapter 3)
propose that a generic model of innovation – involving search, strategic
selection and implementation phases – applies equally to services and that, with
appropriate modifications, a number of management models derived from
manufacturing have relevance for service innovation. 18
In terms of considering what ‘drives’ innovation, particularly considering
competition, Bessant and Davies argue that ‘although ‘services’ represents a
wide and heterogeneous sector ... the underlying innovation drivers – especially
the continuing emphasis on non-price factors – are similar to manufacturing’.
A number of the examples above, particularly linked to airlines, reflect the
importance of non-price characteristics. Non-price attributes, such as quality
and waiting times, can be more important determinants of overall demand
than price. 19
16 Technology is often used to gather the necessary data to understand demand (e.g. loyalty cards).
17 Op cit.
18 For example, in Chapter 3, Bessant and Davies argue that the key principles for the successful management of
‘disruptive innovations’ primarily developed to help manufacturing firms are equally applicable to low-cost airlines.
Another example discussed in Chapter 3 is the use of the Product-Process Matrix framework (originally developed
for manufacturing) in the restaurant industry.
19 Research shows that convenience and quality can better explain passengers’ choice behaviour amongst alternative
airlines than price, see Gayle, P.G. (2004) ‘Does price matter? Price and Non-price Competition in the Airline
Industry’, Econometric Society 2004 North American Summer Meetings no.163. Similarly, there is evidence that
even in the online book industry – where information is readily available and the books being sold are identical –
price differentials across firms persist, see Clay, K., Krishnan, R., Wolff, E. and Fernandes, D. (2002) ‘Retail Strategies
on the Web: Price and Non-price Competition in the Online Book Industry’, The Journal of Industrial Economics, vol.
50, 3, pp. 351-367.
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