Patterns of innovation in service industries

TLDR

Service innovation varies widely across industries, with diverse activities and common practices such as project management and on-the-job innovation, especially in technology-based, knowledge‑intensive business services. The study aims to map how service industries differ in products, markets, work organization, and technology characteristics using input/output data. The authors use input/output and other data to depict variations in these dimensions across service industries. Innovation surveys show that most service firms follow supplier‑driven or knowledge‑based patterns, with only a small segment resembling manufacturing‑led R&D, underscoring the need for innovation policy to extend beyond traditional R&D.

Abstract

The diversity of service activities means that service innovations and innovation processes take various forms. In this paper, we use input/output and other data to depict how service industries vary in such areas as products, markets, work organization, and technological characteristics—most being very distinctive from primary industries (i.e., extractive industries such as agriculture, fisheries, forestry, mining, petroleum, quarrying, and the like) and secondary industries (i.e., manufacturing, construction, and utilities). Innovation survey data indicates that some service organizations behave very much like high-technology manufacturing. This is especially true of technology-based, knowledge-intensive business services (T-KIBS). Distinctive innovation patterns are displayed by KIBS based more on professional knowledge and by large network-based service firms, while many smaller service firms conform to a supplier-driven pattern. Only a small segment of service innovation conforms to the typical manufacturing-based model, in which innovation is largely organized and led by formal research and development (R&D) departments and production engineering. Project management and on-the-job innovation are common ways of organizing service innovation. Innovation policy and management have to be much more than R&D policy and R&D management: This is recognized by some national governments and in some business schools, but the full implications of a service-dominant logic are still rarely found.