Innovation Strategies in the Service Sector - Essay Example

? Innovation strategies and pertinent issues in the service sector al affiliation Innovation strategies and pertinent issues in the service sector 1.0 Introduction The economic development of every country relies heavily on both the manufacturing and service sectors. The major difference between services and products is that the latter are tangible, while the former are intangible. In order to ensure consumer satisfaction, both industries are required to come up with sustainable innovation strategies. Bearing in mind the different characteristics of services and products, it becomes apparent that innovation strategies for manufacturing companies and service firms will also differ. However, today, both sectors are increasingly borrowing from each other in order to offer consumers tailor-made services and products. Manufacturing companies are coming up with “servicisation” strategies for their goods, while service firms are engaging in the “productisation” of services (Cunningham, 2007, pp. 31). It is my opinion that despite this growing interrelationship between the manufacturing industry and the service sector, the use of R&D in the latter is not clearly defined and most R&D-related activities are not assessed. In my opinion, most studies have always placed the service sector second to the manufacturing industry in as far as innovation is concerned. However, this is an old-fashioned way of looking at the service sector. Today, the service sector employees more people around the globe, in comparison to those people in the manufacturing industry. Most of these employees are very educated people with the capacity to innovate new and redesign existing ones to ensure consumer satisfaction. Accordingly, this paper aims at analyzing how a service firm might use R&D as an innovation strategy, in order to cater for the needs of the consumer and ensure business growth. Secondly, the paper aims at evaluating how differently a manufacturing company might use the same R&D innovation strategy in the production of goods. The third aim in this paper concerns an examination of the particular issues that a service firm may be required to address when coming up with R&D as a key innovation strategy. Accordingly, the main objective is to demonstrate that the service sector can be as innovative as the manufacturing industry in the use of R&D. The other objective is to elucidate the positive correlation that exists between the consumer and the service provider in the service sector in consideration of R&D activities. 2.0 Innovation approach- service sector versus manufacturing company Innovation is a key driver in the growth of economic structures in both technologically advanced and third world countries. The service sector is becoming increasingly more crucial to economic development, and as such requires more innovation strategies to ensure the sustainability of global economic growth. According to Gallouj & Djellal (2010, pp. 301) most service innovation strategies involve redesigning existing services in response to new market needs and trends, while some strategies aim at coming up with entirely new services. One of the innovation strategies adopted by the service sector is the use of research and development (R&D) activities to identify and meet consumer needs. In the service sector, there are various sources of knowledge, with R&D being one of them. Baldwin & Gellatly (2003, pp. 130) state that research in previous decades revealed that the manufacturing industry was more likely than the service sector to use R&D as an innovation strategy. However, within the last two decades, the service sector has also begun to invest more in conducting R&D in order to meet consumer demands. According to the OECD (2005, pp. 143) between 1990 and 2001, R&D in the service sector increased at a 12 per cent rate in most developed countries. Service firms and manufacturing companies differ in their use of R&D as an innovation strategy, just as their products differ. In the manufacturing industry, the consumer is almost completely separated from the production process. Here, the goods are produced in a factory, from where they are dispatched to consumers. On the contrary, consumers in the service sector are closely involved in the “production” of services. As such, the use of new R&D in the service sector would require that that the service provider carefully takes customer requirements into consideration (Cunningham, 2007, pp.13). This means that the model of R&D used in the service sector is somehow different to the traditional one used in the manufacturing industry. For example, in the service sector, R&D activities are mostly project-based and may require the distribution of questionnaires to consumers so as to understand their needs before coming up with a new service or restructuring an already existing service. On the other hand, R&D activities in manufacturing are organized in mainstream management structures, where experts conduct research in laboratories, experiment, and create products. The products are then taken to the market to gauge consumer response. In this case, therefore, the consumer in the manufacturing sector is not involved in the R&D process, not until the product has been manufactured. The bottom line is that the services sector relies more on external R&D activities, mainly through consultants, while the manufacturing sector relies on internal R&D performed by employees (OECD, 2004, pp. 148). It is also clear that the use of R&D in most service firms involves the participation of the consumer from the very beginning, as opposed to most manufacturing companies, where the consumer comes at the end of the R&D process. 3.0 Issues to be addressed in devising such an R&D strategy It is evident that the use of R&D in service firms is to some extent different from the conventional R&D used in manufacturing firms. As such, the following are a number of issues that any service firm should first consider, while engaging in R&D. 3.1 Human resources It has been noted that generally, most service firms do not take R&D activities very seriously, and as such, such firms do not have staff members who exclusively belong to the R&D unit. Consequently, there are minimal in-house R&D activities, since such firms tend to contract external consultants to conduct the research (Bryson & Daniels, 2007, pp. 34). Therefore, a firm that aims at using R&D as an innovative strategy should ensure that they have a team or unit, if not a department that caters exclusively for R&D activities. The availability of the right skills is very critical to the service sector in as far as R&D is concerned. Therefore, a service firm should ensure that there are persons in the firm who are well capable of coming up with new ideas or redesigning new ones, so as to meet consumer requirements. Particularly, the management should have people who have innovation capabilities that are essential for business growth. As such, a service firm should identify such people within the organization and ensure that the management promotes the skills possessed by such people to ensure creativity and innovation. The identified people should then be guided on how to engage in organizational innovation, and the improvement of novel business models. To achieve this, a service firm should ensure that its R&D team comprises of multi-disciplinary experts who use their expertise to broaden the scope of knowledge for successful R&D. Kuusisto (2007, pp. 6) analyzes the R&D operation at Creax, a Belgium-based company that offers patent research, innovation studies, and idea generation services to business owners. At Creax, there is a sixteen-member team that is dedicated towards investigation and research, so as to keep up with business projects (ibid). Creax ensures that R&D team is comprised of extremely educated and experienced individuals, able to come up with sustainable and successful projects. This has paid off greatly for Creax, bearing in mind that the corporation has been able to launch new services in every six months, resulting from the projects conducted by the R&D team. 3.2 External collaborations According to Rothkopf (2009, pp. 18) before a service firm engages in R&D, careful consideration should be given to the availability of partners to conduct research and development activities. Apparently, most service firms prefer that external consultants conduct R&D, with little in-house participation. This may include collaborations with other firms or universities to help conduct research (Gallaher, Link, & Petrusa 2007, pp. 35). Accordingly, service firms should ensure that they reach an amicable agreement with consultants and partners, who will be responsible for the R&D activities. In consideration of this trend, service firms should ensure good relationships with those external partners, while also assessing the latter’s trustworthiness and capability to conduct R&D successfully. A service sector firm should ensure that there is adequate transfer of knowledge between the firm, research institutions, and the business community (ibid). Ideally, a service firm should ensure that its in-house R&D gets support from external consultants in the process of conducting research. The knowledge gained from the collaboration between the in-house team and external consultants should then be transferred to the business community in form of a new or revamped service. External collaborations could also mean working closely with other trans-national companies that are in the same service field. In addition to increasing healthy competition, working with like-minded firms ensures that these firms get to learn from each other, especially in matters concerning future trends in the sector. For instance, Creax ensures that there are proper communication channels between the firm and its partners (Kuusisto, 2007, pp. 7). Creax mainly relies on external resources to conduct feasibility studies for any new ideas (ibid). Sometimes, Creax collaborates with universities and the latter conduct research then relay the results to Creax according to the terms of a prior agreement. Geelmyuden.Kiese (GK) is a Norwegian Public Relations firm that whose operations in Copenhagen, Oslo, and Stockholm mostly depend on R&D. GK engages in extensive collaborations with universities and other research institutions to ease the workload that comes with R&D activities (Kuusisto, 2007, pp.25). 3.3 The size of the firm Research, according to Byron & Daniels (2009, pp. 21) has shown that big firms are more likely to succeed at conducting R&D as opposed to small firms. Here, size stands for both physical and financial might that a particular firm possesses. Size matters because the process of undertaking research and development requires huge investments in space and capital. As a result, big firms are more likely to afford such huge investments, whereas small firms would suffer budget deficits. Accordingly, before a service sector firm decides to venture into R&D, the management should ensure that the firm is capable of funding the projects stemming from R&D activities. In order to promote R&D in a firm, there should be enough support systems to fund the activities. Therefore, a service firm wishing to engage in R&D should either have the capacity to fund the activities, or have the right channels for accessing funds from other sources. The firm should be guided by an evaluation of all the expenditures that might be incurred in the course. For instance, a physically small firm may be able to undertake R&D if the government has put in place special policies to ensure R&D funding. An evaluation of probable expenses should be done by the firm, in order to establish its capacity to meet those expenses. For example, R&D expenditure at Creax includes maintaining servers, software, patent databases, paying employee salaries, and conducting related training (Kuusisto, 2007, pp.10). However, for the Norwegian firm, GK, the assessment of finances directed towards R&D primarily is hard because the company does not have an R&D unit (Kuusisto, 2007, pp.26). 4.0 Conclusion The service sector has traditionally been perceived as lacking in innovation, in comparison to the manufacturing industry. From the discussion, it is clear that while conducting R&D, majority of service firms carefully consider consumer needs before introducing a new product or redesigning an existing one. However with the “productisation” of services and “servicisation” of goods, it is becoming ever harder to differentiate firms and companies that deal exclusively with either services or products. Therefore, in as far as R&D in the service sector is concerned; coming years will witness rapid growth considering the continuing co-relation between manufacturing and service sectors. From my point of view, however, the measurement of R&D activities within the service sector is often underestimated, owing to the fact that there is no clear definition of the term “research and development”. Often, companies engage in activities that involve some levels of R&D but which do not meet the conventional R&D threshold established in the manufacturing industry. I would suggest that the services sectors comes up with its own definition of R&D in order to incorporate all other efforts within the firm that are geared towards research and development. References Baldwin, R., & Gellatly, G. 2003. Innovation Strategies and Performance in Small Firms. Cheltenham: Edward Elgar Publishing Limited. Bryson, J., & Daniels, P. 2007. The Handbook of Service Industries. Cheltenham: Edward Elgar Publishing Limited. Cunningham, P. 2007. Innovation in Services: Thematic Report. Available at http://www.europe-innova.eu/c/document. [Accessed November 21, 2012] Gallaher, M., Link, A., & Petrusa, J. 2007. Innovation U.S Services Sector. New York: Routledge. Gallouj, F., & Djellal, F. 2010. The Handbook of Innovation and Services: A Multi-Disciplinary Perspective. Cheltenham: Edward Elgar Publishing Limited. Huang, C., Antony, A., & Hollanders, H. 2011. How Firms Innovate: R&D, Non-R&D, And Technology Adoption. Available at http://final.dime-eu.org. [Accessed November 21, 2012] ICEG European Center. 2011. Policies In Support Of Service Innovation. Available at http://ec.europa.eu/enterprise/policies/innovation/files. [Accessed November 21, 2012] Jaruzelski, B., Loehr, J., & Holman, R. 2012. The Global Innovation 1000: Making Ideas Work. Available at http://ww.booz.com/media/uploads. [Accessed November 21, 2012] Kuusisto, J. 2007. R&D In Services: 17 Business Case Studies. Available at http://ec.europa.eu/invest-in-research/pdf/. [Accessed November 21, 2012] OECD. 2004. OECD Science, Technology and Industry Outlook 2004. Paris: OECD Publishing. OECD. 2005. Enhancing the Performance of the Services Sector. Paris: OECD Publishing. Rothkopf, M. 2009. Innovation in Commoditized Service Industries: An Empirical Case Study. Berlin: Lit Verlag. Read More