PREST

SEM 2006

Services, Innovation, and R&D

Ian Miles, PREST/MBS

Drawing on studies: “The Future of R&D in Services” and RENESER “Research Needs for Service Industries”

conducted for the European Commission, DGs Research and Enterpriseby

PREST (UK) + Dialogic (Netherlands), + ARCS (Austria), IAS (Germany), SERVILAB (Spain), TNO (Netherlands)

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SEM 2006

The Issues

• R&D and innovation

• Why the concern (in the EU)?

• The statistical picture

• What should we say about the statistics?

• How, when, and why do services do R&D?

• The roles of R&D in innovation in services

• Future prospects

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SEM 2006

R&D and Innovation – Linear Model

(manufacturing)

Science Base Industrial R&D

Process Innovation

Product Innovation

Use in Markets

Production Process

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SEM 2006

Production Engineering

innovation

R&D and Innovation – modifying the Linear Model

Science Base Industrial R&D

Process Innovation

Product Innovation

Use in Markets

Production Process

User/client-led innovation

Strategic Research, Applied R&D in HEIs

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SEM 2006

EU vs US trendsServices share of BERD

EU

US

0 5 10 15 20 25 30 35

Source: from OECD ANBERD database 2003

Growth slightly faster in EU, but base seems to be much lower: will take

decades to catch up at this rate – if the data are to be believed

2000

2000

1991

1991

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SEM 2006

UK - Services vs Manufacturing R&D

0

2000

4000

6000

8000

10000

12000

1987 1992 1997 2002

Manufacturing

Services

Linear(Manufacturing)Linear(Services)

£m UK dataslow increase in services’ share of total, since slopes are

equal… but still services are well below their economic weight.

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SEM 2006

-5

0

5

10

15

20

25

30

UK FIN I EU15 E DK JP EL F D NL P US B S IRL

Manufacturing Services

In general - services’ R&D is growing faster

Real Growth Rates of Business Expenditure on R&D as a share of GDP, 1987-1999

But is this a statistical artefact - improved measurement?

-5

0

5

10

15

20

25

30

UK FIN I EU15 E DK JP EL F D NL P US B S IRL

Manufacturing Services

But is this a statistical artefact - improved measurement?

US

EU15

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SEM 2006

Which Services do R&D?

R&D Survey data, c2000

Sh

are

of

bu

sin

ess

R&

DJp 7

Ge 8

EU 7

Fr 4

SK 0

UK 4

It 0

Ca 2

US 3

Sectors where no data available:

R&D

IT

COMMS

TRADE

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SEM 2006

Schematically..

• R&D and IT/technology-based KIBS are R&D-active everywhere

• Professional services (non-technological) hidden in “other services” and rarely register (despite market research, etc!)

• Wholesale and Retail Trade in North America (apparently)

• Transport in France – different surveying approach, or industrial structure?

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SEM 2006

Services performing R&D – CIS data

EU15 CIS2 data – Bruce Tether analysis

Sectors

Size

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SEM 2006

Schematically..

• More than 50% of service firms report R&D! Even small firms.

• R&D and IT/technology-based KIBS are more likely to be R&D-active and to engage in R&D continuously

• Likewise larger firms• R&D activity is associated with internal

development of innovations

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SEM 2006

Official Data• Services’ R&D

– Sometimes data are misleadingly positive - thus US trade R&D is overstated

office

electronics

pharma

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SEM 2006

Official Data

office

electronics

pharma

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SEM 2006

Challenges to Official Statistics

• Services’ R&D– Sometimes data are misleadingly positive - thus US trade

R&D is overstated– (Other US/EU differences may be more matter of

sectoral composition – US dominance in high-tech services)

– Likely that more generally, services’ R&D understated; • formulation of survey questionnaires is very oriented to

manufacturing practices and processes - US and Euro studies recommend change

• sampling of service firms is problematic• exclusion of social science

PREST

SEM 2006

Challenges to Official Statistics

• Services’ R&D– Sometimes data are misleadingly positive - thus US trade

R&D is overstated– (Other US/EU differences may be more matter of

sectoral composition – US dominance in high-tech services)

– Likely that more generally, services’ R&D understated; • formulation of survey questionnaires is very oriented to

manufacturing practices and processes - US and Euro studies recommend change

• sampling of service firms is problematic•

PREST

SEM 2006

• Services’ R&D– Sometimes data are misleadingly positive - thus US trade

R&D is overstated– (Other US/EU differences may be more matter of

sectoral composition – US dominance in high-tech services)

– Likely that more generally, services’ R&D understated; • formulation of survey questionnaires is very oriented to

manufacturing practices and processes - US and Euro studies recommend change

• sampling of service firms is problematic•

Defining and Measuring

Organisation – few R&D departments and managers

Employment – often not specialised task, part of wider activity

Innovation – much design, much on-job development R&D

PREST

SEM 2006

Challenges to Official Statistics

• Services’ R&D– Sometimes data are misleadingly positive - thus US trade

R&D is overstated– (Other US/EU differences may be more matter of

sectoral composition – US dominance in high-tech services)

– Likely that more generally, services’ R&D understated; • formulation of survey questionnaires is very oriented to

manufacturing practices and processes - US and Euro studies recommend change

• sampling of service firms is problematic• exclusion of social science

PREST

SEM 2006

• Services’ R&D– Sometimes data are misleadingly positive - thus US trade

R&D is overstated– (Other US/EU differences may be more matter of

sectoral composition – US dominance in high-tech services)

– Likely that more generally, services’ R&D understated; • formulation of survey questionnaires is very oriented to

manufacturing practices and processes - US and Euro studies recommend change

• sampling of service firms is problematic• exclusion of social science

Defining and Measuring

Frascati Manual – include social science in definition of R&DR&D surveys – exclude social research explicitly or implicitlyTax`credits - exclude social research explicitly

Organisation – few R&D departments and managers

Employment – often not specialised task, part of wider activity

Innovation – much design, much on-job development R&D

PREST

SEM 2006

Services R&D may well be lower, even if it is underreported

“INTRINSIC” REASONS:• Services core activities, products, processes (e.g. more human-oriented, more customised) less amenable to the sorts of technological innovation • Need to engage with clients might discourage radical technological change. Much innovation here may involve client involvement and one-off solutions, and/or some level of customization.• Organisation in SMEs• Non-R&D based innovation– e.g. quality improvement, professional networks and activities, etc.

“HISTORICAL” REASONS:• “Reverse product cycle”: services moving away from being supplier-led.• Worse linkage into national innovation systems.•The organization of innovation in services does not usually involve the classic model of R&D departments; it is project-based and less likely to be known as R&D; may be based in many locations

PREST

SEM 2006

Case Studies

Examined such sectors as :• Broadcasting• Professional Team Sports• Tourism• Market research (social information)• Research services• Financial intermediation – venture capital• Transport/Logistics• Computer services• Telecommunications services• Architecture/Engineering services.

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SEM 2006

Case Studies 1• Not all sectors have R&D-type activity - but many

do. (Our particular subsectors may diverge from their wider sectors - e.g. financial services.)

• Much unreported, much not conceptualised as R&D, much not organised as traditional R&D

• Variation within sectors as well as across them (e.g. broadcasting)

• General expectation for more innovation emphasis• In many cases leads to expectation of more R&D-

like activity. But not in general, more reporting of R&D. (In one case, may be less reporting of R&D!)

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SEM 2006

Further Detail• Technology-related services - IT, R&D,

broadcasting - are undergoing rapid technological change and much associated turbulence - and development is global…

• Apparently public services more likely to use the term R&D and to link to public research (?)

• R&D used to refer to more technological activities - but much innovation is in organisational, service, creative content, and related areas

• Much “research” in contrast is scanning/watch (incl. Most market research)

• Acquisition of technology is important source of innovation

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SEM 2006

Workshops• Confirm sectoral studies as to ambiguous natures of services

R&D/innovation; possibility for both highly technical and more spontaneous innovation, not “captured” for subsequent reproduction

• Much existing innovation policy not seen as relevant• Doubts about improving measurement, about effect of tax

credits - though there was some support for tax credits and for accounting for intangibles

• Benchmarking, learning and emulating best practice , etc. were often more important than R&D.

• Training for innovation, esp. for SMEs, seen as vital.• Means of Support for collaboration and integration in innovation

systems seen as useful.

PREST

SEM 2006

CIS2 data – Bruce Tether analysis

RD - Internal R&D; ARD - Acquired R&D

TR - Training; PR - Preparations; MI - Market Introduction;

OET - Aquired Other External Technologies; ME - Acquired Machinery & Equipment

Transport

Wholesale

Financial sers

Technical sers

Computer sers

Distribution of Services’ Expenditure

on Innovation

PREST

SEM 2006

Production Engineering

innovation

R&D and Innovation – modifying the Linear Model

Science Base Industrial R&D

Process Innovation

Product Innovation

Use in Markets

Production Process

User/client-led innovation

Strategic Research, Applied R&D in HEIs

PREST

SEM 2006

R&D and Innovation in Services

Science Base Industrial R&D

Process Innovation

Product Innovation

Use in Markets

Production Process

Supplier-led innovation

Client-led innovation

Innovation management…

. HR etc

Practice-led innovation

Professions-led innovation

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SEM 2006

Interventions may promote change:

• Generally services neglected in innovation and R&D policy - but there is now some R&D policy for services and R&D-relevant initiatives

• Initiatives like IBM’s “service science”, NSF “service engineering”

PREST

SEM 2006

R&D Policy Initiatives – e.g. BMBF

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SEM 2006

Futures

• Services’ R&D is likely to grow – innovation pressure, learning from others– technological change, new platforms– organisational change (alliances, concentration, management

thinking - incl service science?), – overcoming heritage in management and innovation systems,– R&D policy– recorded growth due to better measurement

• Share of R&D from services is likely grow due to changes in sectoral composition (T-KIBS and other tech-based services e.g. new types of content service)

• Will be long time before many (esp low-tech) services attain R&D levels comparable to manufacturing, but small increases could have big effects on innovation

PREST

SEM 2006

Data, Indicators• Better measurement (sampling, surveys) - not

to reach targets faster but to inform policy– e.g. policy for Services R&D, understanding of services’

innovation– may lead to wider concept of R&D - R&D+– better understanding of services innovation needed to

position R&D in services innovation - should not assume that it is the route to innovation, could even be counterproductive

– but often increased awareness and opportunities for R&D+ should yield benefits

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SEM 2006

Policy• Better measurement (sampling, surveys) -

not to reach targets faster but to inform policy

• Better targeting of “mainstream” R&D and innovation programmes to engage services– beyond the usual suspects– some re-engineering of innovation systems– awareness and promotion (incl. some

benchmarking with service examples, etc.)

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SEM 2006

Policy• Better measurement - not to reach targets faster but

to inform policy• Better targeting of “mainstream” R&D and

innovation programmes to engage services• Services-oriented R&D and innovation programmes

– from science and industrial policy angles (draw on examples of good practice)

– relate to ongoing initiatives where useful– support for new generations of innovation management – ...

PREST

SEM 2006

End of Presentation