The Growth of Service Sector - Term Paper Example

 Introduction A shift in economies from the industrial to the services sector is evident with approximately 65 to 70 percent gross product of the European Union coming from services. This sector is being increasingly redefined with a large number of varied activities falling within the purview of services. These include core research and development activities which are called as renewal services, while those that contribute to maintenance and management of sub systems such as accounting are known as routine services. Network services include those that facilitate communications, exchange of knowledge and flexibility in resource allocation. Other services include those that assist firms in conduct of operations within the regulatory regime, such as auditing and legal services. (Innovation : 2006). Thus these diverse services most of them knowledge based are supplementing traditional services as banking, tourism and leisure. This broad expanse now falling within the ambit of services has placed greater emphasis on the use of science and technology and innovation in this field. The internationalization of technology and its impact on national competitiveness also has a significant influence on the services sector. While traditionally services such as banking, retailing, business processing have not been considered amenable to research and development and innovation as compared to other emerging services such as software development and genetic engineering, this appears far from the truth. Thus innovation can also be employed for creation of growth in the services sector. (SETI : 2004). There is a growing trend which shows that a substantial amount of research and development is occurring in the services sector. Significance of Innovation – Services Sector While new products and processes were not unknown in the services sector but innovation in services more often related to changes in how, where and when a service is delivered. For instance, electronic banking is an innovative way to provide traditional banking services at home at any time. The growth of knowledge based work along with technological change and competition has also highlighted the need for innovation. Knowledge based work implies non routine, cognitive skills as abstract reasoning, problem solving, communication and collaboration which contribute to the services sector. However, services innovation need not be linked to changes in technology. Fast-food chains, like McDonalds, have applied innovative changes in delivery to obtain fast track growth in diverse geographic areas. To ensure that growth is constant and non linear, it is essential that the services sector is supported by suitable science, technology and innovations policies. Where policies are prevalent there is a need to review them to enable their rationalizing with the markets. (Future of Work: 2004). Innovation policy frameworks also need to focus on non technological facets of the services sector. This will come about once problems in traditional research and development activities have been recognized and importance is given to interactive people oriented actions. (SETI : 2004). The developed World is well aware of this need. Thus the OECD Committee for Scientific and Technological Policy at Ministerial Level has emphasized the importance of the policies for knowledge creation and innovation for sustainable economic growth and social well being. (Science : 2004). The need to involve the research enterprise and involve civil society and business in governance of public research has also been identified. The policy design is said to include an interface between innovation and science systems to harness benefits from investments in research. This will also facilitate effective industry science linkages. Policy Initiatives Fostering Growth Patents and copyrights are an essential part of the services industry particularly those related to information technology, knowledge creation and sharing. Policies on patent regimes will encourage innovation by dissemination of scientific and technological knowledge, thereby allowing more number of firms to enter and transact business. Thus liberal patent policies can contribute to growth of the services sector. Patenting policy acts as a powerful incentive for research and development to innovate and should thus be given a greater thrust. Avoidance of delay in patenting innovations which restricts the spread of knowledge thus needs to be eliminated. Establishment of quality standards is also an essential element of technology policy. This will ensure that there is a demand for growth in the services sector for knowledge based workers who can deliver value. Another facet is said to be improving the accountability of science and technology policy, identifying and disseminating good practices in this field. Science and technology policy affecting the services sector also needs to balance between problems centered research and fundamental research. This will address social and economic problems as well and should thus be fostered. The services sector also has a large number of green field areas such as bio technology. Appropriate policies should be evolved well in time to ensure that these get the desired impetus especially in terms of the research and development infra structure from the outset. (Science : 2004). The policy initiatives in science and technology which will impact on growth of the services sector should include direct and indirect policy issues. Direct policy interventions will be related to securing private and public financing grants as well as tax credits for investments made in knowledge and innovations. The transfer of enabling technologies which can support growth of the service industry is another facet which will drive growth. On the other hand indirect policy interventions will target the non business player in the innovation loop. These will thus include facets such as securing the skills base of service innovators, widening the focus of establishments for non technological innovation, developing the framework for facilitating knowledge building in advancement, cutting down the regulatory burden, financing, good practices and cultivating an innovation culture. Services friendly science and technology policies will also need to acknowledge the value of process innovations such as those undertaken in technological organizations as well as those related to products to include goods and services. Financing and assistance criteria also need to be established for service oriented projects. The policies should also address the needs for training and skills building in service oriented innovation particularly for those who are executing the innovations policy. The policies should also target development of knowledge intensive service activities in particular. Thus networks and customer interaction will be created as platforms for innovation. The support in basic and fundamental research by government will also contribute to development of competencies in knowledge based innovation in the services sector. Traditionally innovation in the services sector is related to the manner in which services have been delivered. Thus service innovations are not linked to technology alone. These can take place in the process of delivery to make it smooth and easy for the customers to purchase the service. Thus innovation policy in the services sector need not focus on technology per se but will have to include the broad ambit of delivery of goods by the services sector. The policy on internet and use of World Wide Web is another essential feature of innovation in the service industry. While so far the web has grown without any government encumbrances, some countries as China are planning to police the net, which given its permeation in society is a difficult process. Since services sector is evolving a model of e commerce with exclusive or inclusive reliance on the web the regulatory framework for the web also assumes considerable significance in growth of the services sector. A rewards policy related to science and technology will also determine the growth of the services industry. A greater number of rewards which are devoted to innovations in the services sector will attract more number of people to research in areas such as banking. This in turn will provide the necessary impetus to growth in the services sector through greater innovation. Conclusion These trends in science and technology policy for growth of the services sector identified by the OECD can be equally applied to other countries and even more so as these are continuously evolving into service economies over the years. Thus a proactive science and technology policy which is targeted to foster growth in the services sector will play a major role in development of not only the specific sector but the economy as a whole. Traditional wisdom has decreed that research and development is beneficial only to the agricultural and the industrial sector. These were the main areas identified for innovation and thus the focus of the policies as well as firms has been on improvement of goods and products rather than improving its reach and delivery to the consumer. However as the information and technology spread has increased there has been greater understanding of the need for innovation within the services sector per se. Thus services such as business processing, retailing, banking and software development are increasingly seen as areas for innovation and management of improvements within these sectors is said to drive growth. Management of innovation in the services sector is related to the manner in which services are delivered. Thus in the banking sector, the emergence of electronic banking is proving to be an important facet which is driving growth. This is a field where innovation has played a major role being essentially oriented to application of technology to money and finance. Had this innovation not come about, the banking industry would have continued to languish. (Pilat : 2000). Significance Innovation – Services Sector Innovation is however not totally alien to the services sector. McDonalds, the multi national fast food chain has continuously applied innovation to boost customer circulation in restaurants and achieved rapid growth. This has been done by applying technologies and processes from the industrial sector. In the case of McDonalds, ‘just in time’ techniques adapted from the assembly line proved effective in improving turnaround and thus sales and profit and demonstrates how management of innovation has contributed to intrinsic growth of the company. Thus it would be seen that in the services sector, innovation is more related to the way the service is delivered. However service organizations are known to manage innovation in a more adhoc manner rather than a structured approach. Thus new solutions emerge out of problems which focus on a specific financial or business issue. (Pilat : 2000). Management of innovation in the services sector will require greater focus on identification of the area for improvement, as this is seen to be the key problem peculiar to this sector. In manufacturing innovations are easier to identify and hence achieve prominence. However a recent survey shows that 55 percent firms in the knowledge-intensive services sector in France have shown evidence of having carried out innovation as compared to only 45 percent in manufacturing. Innovation in the services sector is primarily restricted to the fields of telecommunications, computer and software services with specialized research and development service firms being the largest spenders on innovation, which was anticipated. The other area where management of innovation has been taken up on priority is in the field of education, financial services and telecommunications. Here the percentage of innovation usage is even more than manufacturing firms. Management of improvements has considerably impacted on productivity in the services sector as borne out by statistics. It is said that in retailing the use of information technology has considerably improved productivity due to innovation of bar code scanning in the till as well as in inventory management. Similarly productivity in telecommunications is said to have increased in the telecommunications sector in countries as Australia, Finland, Italy and Sweden. Where management of innovation is poor there has been limited growth in areas such as classical music and traditional art. (Pilat : 2000) Impact of Innovation - Growth Services Sector The key tool for innovation in the services sector is information and communication technologies and all managements need to fully understand the nuances of these. Those managements which have successfully accepted this trend have been able innovate and achieve growth. Motorola is a recent example. By adopting innovative processes such as e procurement, data base management, e net and shifting the focus from engineers to designers in designing new models, Motorola has overcome the slump it faced due to tough competition from Nokia. (Barlas : 2003). New knowledge technologies are also providing companies in the services sector ample opportunity for change. These thus need to be harnessed successfully. Services sector companies which have successfully adopted e commerce as an alternative mode of business have achieved better results than those who rely exclusively on the bricks and mortar model. Major productivity gains are feasible in b2b or business to business relations, b2c or business to customer relations and so on through e commerce. Some experts believe that development of right skills is also an essential part of innovation in services as these are labor intensive firms while some are highly knowledge intensive and hence it is important to understand the customer’s needs and then respond to these. (Pilat : 2000) The growth of innovation in the services sector is dominated by the high level of R & D spends by the life sciences and information technology companies. The R & D focus in the services sector has to be on system design which will include the network of physical products and information, system operation to include the processes for business operation and service design and delivery which includes interaction with the customers. Companies in the services sector who have been able to innovate in these fields drawing from different disciplines and competencies have seen gains. (Norling : 2002) In the services sector managing networks between large and small firms is an important facet of innovation. Thus there is a need for building such networks for business development. A successful model of innovation which benefits the business particularly in the software sector is said to be that of developing new products through internal resources while use out side services for formulation of strategy, finance and legal services which may be expensive in terms of internal development of creative options. (Innovation : 2006). Companies in different sectors in the services have to adopt different strategies for innovation. Thus in leisure industry innovation is about leisure pursuits of the consumer and hence it is essential that companies pursue innovation as a continuing, reflective process rather than a chronological one to attain success. It is seen that in tourism as well as leisure, innovation is an externally driven process which offers great flexibility. (Innovation : 2006) While in the health care sector, innovation arises from effective sharing of knowledge and practices which will enable expertise available at one end benefit across the entire industry. Vicarious learning thus has an important role in innovation. (Innovation : 2006). A survey of innovation by firms in the services sector will thus reveal that this is an important facet for growth. References 1. Barlas Demir. 2003. Motorola's Services Procurement. 21 February 2003. Retrieved 10 May 2006 from http://www.line56.com/articles/default.asp?articleID=4439&TopicID=1 2. Norling, Parry M.2002. Growth of Industrial R & D :The Implications and Issues. Science and Technology Policy Year Book 2002. American Association for Advancement of Science. Retreived 10 May 2006 from http://www.aaas.org/spp/yearbook/2002/Contents1.pdf 3. Pilat, Dirk. 2000. No Longer Services as Usual. OECD Department of Science, Technology and Industry. OECD Observer No 223. October 2000. Retrieved on 10 May 2006 from http://www.oecdobserver.org/news/fullstory.php/aid/384 4. Innovation and Knowledge-Intensive Service Activities – Executive Summary. 2006. Retrieved on 10 May 2006 from. http://www.oecd.org/dataoecd/44/14/36274476.pdf 5. SETI - Sustainable growth, Employment creation and Technological Integration in the European knowledge-based economy. Retrieved 10 May2006 from http://www.coleurop.be/template.asp?pagename=devoresref&sub=SETI/index. 6. The Future at Work — Trends and Implications. Research Brief. 2004. Retrieved 10 May 2006 from http://www.rand.org/pubs/research_briefs/RB5070/index1.html. 7. Science, Technology and Innovation for the 21st Century. Meeting of the OECD Committee for Scientific and Technological Policy at Ministerial Level, 29-30 January 2004 - Final Communique.2004. Retrieved 10 May 2006 from http://www.oecd.org/document/0,2340,en_2649_34487_25998799_1_1_1_1,00.html Read More