Innovation in Services - Department for Business, Innovation and Skills

Introduction
Recognising the multiple dimensions of innovation is a considerable leap from
the time when services were usually described as ‘supplier dominated’ in terms
of innovation. 20 This acknowledges that the full utilisation of technology, whether
within service or in manufacturing firms, often depends upon how firms
combine it with skills and organisational practices. Bessant and Davies (Chapter
3) note that as manufacturers look to broaden the services they provide around
products, the skills needed for services innovation (such as working with active
users) are increasingly needed in manufacturing firms too.
Adequately measuring innovation, incorporating both technological and nontechnological
dimensions is challenging. Tether and Howells (Chapter 2) suggest
that ‘invention’ is well captured (through R&D, patents) and ‘commercialisation’
of inventions is measured through surveys like the Community Innovation
Survey. 21 They argue the gap is in areas like diffusion and integration of
technologies and practices, which require combinations of, and mutual
adjustments to, skills, technologies, and organisational forms. Their research
presents one such approach to measuring such activities in firms. At the same
time, it is neither desirable nor practical to include all routine business learning
or improvement, important though these can be for improving productivity (see
Box 1.1 below). More significant learning by doing is, however, a key part of
innovation.
Measurement is not just important at the aggregate level but for firm decision
making too. Wölfl (2005) 22 notes a problem in financing innovation projects
particularly in services as they tend to be around processes and systems which
do not typically afford enough advanced information to make financial
decisions. Voss and Zomerdijk (Chapter 4) suggest that the difficulty in
predicting financial returns can not only cause an unwillingness to invest in a
particular service innovation, but also make it easy to over-invest.
A further challenge for measurement is the language used around services
innovation. The term ‘R&D’ used in a manufacturing context conjures images
associated with organised research and development. Service businesses may
not have a formal R&D department but they do undertake this kind of activity in
order to deliver a stream of innovations. Recent indicators do, however, suggest
that UK service sector firms are showing greater investment in traditional
measures of innovation. In 2006 several non-technology companies declared
R&D spending for the first time, following a change in accounting standards. For
example, the Royal Bank of Scotland, HSBC and Tesco, together declared nearly
£700m of R&D. 23
20 Largely attributed to Pavitt’s 1984 taxonomy of innovation.
21 The Community Innovation Survey in 1996 was the first large-scale systematic survey of innovation in the UK.
22 Wölfl, A. (2005) ‘The Service Economy in OECD Countries’, OECD Science, Technology and Industry Working Papers
2005/3, OECD.
23 See http://www.innovation.gov.uk/rd_scoreboard/
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