Service Innovation: Why it matters to Regional Development Agencies?
Innovation sits at the heart of the mission for most regional development agencies as it is crucial to the evolution and ultimately the competitiveness of economies. Set against a backdrop of public spending cuts, growing demands on Government and intensifying international competition, promoting innovation is one of the most sustainable ways of fuelling economic growth and creating jobs.
Background
The fiscal upheaval and raft of public spending cuts creates a dilemma for Regional Development Agencies (RDAs). The capital intensive nature of R&D can accentuate the cyclical nature of economic crises. Investments in innovation with a longer term payback need to be balanced with the pressures for maintaining social services which can reduce the turmoil created by job losses and a credit squeeze. During an economic downturn market, economic or welfare policies may well take precedence in the short term over investing in innovation.
Europe has one of the most sophisticated networks of universities and research institutes in the world, and for a long time this R&D infrastructure was seen as the foundation for innovation and long term economic growth. That asset base was seen as a pipeline for future innovation. Historically policies tended to focus on the individual ingredients needed for research and development, at the expense of a more holistic view that recognised the complexity of the interactions between education, research, development, finance and business – and the importance of the relationships and modes of communication between them. There is now a much greater recognition of the importance of taking a systems view.
Secondly, policies focussed on product innovation at the expense of a broader view of the innovation spectrum, as illustrated in the evolution of internet-related technologies and services below.
Innovation is a messy business, occurring at the interface between sectors, disciplines, products and services. Policies to support innovation need to address both product and service based innovation – and everything in between.
Do not forget the service sector itself
For Europe, the service sector and the innovation that propels it, is of particular importance, representing:
- 69.4% of the European total GDP, far outstripping manufacturing and agriculture
- A source of economic growth – business related services account for 2/3rds of start ups within the European economy
- A source of employment – 1 in 3 jobs created are in the service sector
In addition, indirectly it is important for:
- Improving the resilience of economies through strengthening links between suppliers and customers
- Promoting the knowledge economy, where Europe currently has a lead1
- Acting as an agent of organisational change and evolution
Thus the implications of service innovation go way beyond the service sector alone.
The issues
The importance of supporting innovation in services was highlighted in the Europe Innova Paper2 - ‘Towards a European strategy in support of innovation in services: Challenges and key issues for future actions’. The drivers that make service innovation so important are illustrated in the diagram below.
More recently both the EU Competitiveness Council and in the European Commission’s new strategy paper’ Europe 2020: A strategy for smart, sustainable and inclusive growth’, raised the importance of service innovation.
However there is a gap between current policies which emphasise traditional technological innovation with a focus on academic research and traditional R&D. A shift is needed to focus on mechanisms which do not discriminate against service innovation and which are more aligned with the approaches planned by organisations promoting regional development3. Key enablers of service innovation include a range of structural factors.
A recent survey by Europe Innova concluded that the traditional technological view regularly undervalues the importance of non-technological invention which may be based on service or organisational innovation. The total investment of in regional development across Europe 2007-2013 is estimated to be €86 billion. Supporting this investment with the right policies will determine the return from this investment.
Secondly there is a need for a more coherent approach to policies at the European, national and regional levels, as well as between sectors and ‘horizontal’ or thematic interventions. Policy interventions range from those that are technology based such as investments in ICT infrastructures, and technology transfer, to sectors such as the life sciences, energy, telecoms and the creative industries. They may have a geographical focus being linked to a specific community or region or mechanism such as those that focus on finance or the management of intellectual property. The breadth of possible interventions planned to support service innovation by RDA across Europe is illustrated below.
Innovation often occurs at the interface of different disciplines, and service innovation is no exception. From education to R&D and business, this places a premium on people who can successfully bridge disciplines from science to the delivery of services.
This also highlights the need for a strategic approach to ensure policies support one another and that scarce resources are used as efficiently as possible.
Since such a system is more than the sum of its parts, how it performs is often difficult to predict. Hence policies need to be developed and adapted as part of a continuous process which encourages the ongoing optimisation of that system.
What does this mean for Regional Development Agencies
In determining their role, the RDA’s focus needs to shift from looking at individual mechanisms for promoting innovation, to a more holistic view; viewing service innovation as part of a system that brings together people, technology, organisations and shared information.
Regional development agencies have five main challenges:
- Create awareness of the importance of service innovation and the service culture
- Shift from a linear view of innovation and the policies that support that process to thinking about policy as a process for the optimisation of a system
- Recognise that shaping that system is outside the control of any one agency or organisation which puts a premium on the effective management of extra-organisational relationships
- Value the integrative benefits of promoting service innovation, which can improve the resilience of local economies enabling them to respond more quickly to changing demands and new markets
- Ensure a dynamic approach that enables policies to evolve in the light of the changing context and lessons learnt
Policies that encourage consumer driven or citizen responsive services are likely to lead to a more dynamic system with a greater awareness of the service culture. Promoting service innovation goes beyond organisational change or reengineering of business processes, to a shift in values that underpin the community and economy as a whole.
Effective policies can create a virtuous circle with short term benefits as well as ensuring a longer term economic competitiveness. Effective RDA policy in the coming decades will depend on many factors but clearly attitudes and policies towards service innovation will play a pivotal role.
1 PRO INNO Europe Paper number 15. European Innovation Scoreboard (EIS) 2009
2 Europe INNIOVA paper No. 4, Commission staff working document SEC(2007) 1059
3 EURADA-NEWS Nr. 328 – 29 April, 2011
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