Innovation in Knowledge Intensive Business Services

The Digital Era

Anna Cabigiosu

• Publisher: Routledge
• Year: 2019
• eBook ISBN: 9781000727883
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Knowledge Intensive Business Services (KIBS) are becoming more and more relevant both for their innovative content and as innovation boosters for manufacturing firms and, with this scenario in mind, this book first offers an in-depth analysis of what innovation in KIBS is and its performance outcomes, and then synthesizes what we know about KIBS firms' innovation models, as well as their specific peculiarities and limitations.

This book examines the recent trends in innovation, service design and development in KIBS, starting from a review of the extant literature, explaining the role and specific traits of innovation in KIBS. Then, it progresses our knowledge about KIBS and about how new technologies are offering unique opportunities to use and share their knowledge, within and across boundaries. The book also includes several cases that show how, at the micro level, firms can effectively design their services and boost their innovation performance, by overcoming some of the traditional limits of innovation in services. While KIBS literature traditionally emphasizes that innovative and performing KIBS firms rely on tight client–provider interactions with service customization, recent research suggests that alternative modes of innovation are viable for performing KIBS firms: KIBS firms can develop mass customization strategies, ease interactions with clients via ICT interfaces and leverage on focused collaborations with expert clients. Particularly, the digitalization and ICT technologies are fostering platform and modular architectural designs of KIBS, as in the software and web design services.

The book seeks a broader understanding of innovation in KIBS in the digital era and will be an essential guide for both academics and practitioners interested in KIBS innovation and design.

Part I

Presenting KIBS firms

1 What are KIBS firms?

This chapter presents KIBS firms, what they are, their relevance to the knowledge economy and their main features.

The service industry in the knowledge economy

After World War II, the service sector arose in many developed countries, which moved from being manufacturing-based economies to being so-called knowledge-based economies. This shift is labelled “servitization”¹ (Drejer, 2004). As a result, most of these economies today depend for the larger part of their GNP (gross national product) on services (Nijssen et al., 2006), which contribute over 70% of the employment in the OECD (Organisation for Economic Cooperation and Development) countries² (Baltacioglu et al., 2007).

Services include a heterogeneous set of activities from consumer services to business to business services. Traditionally, services were defined through a process of exclusion, which proceeds by identifying production industries and considering everything else as being part of the tertiary sector. This view has now changed thanks to the growing importance of this sector, and authors have provided multiple definitions and classifications of services (Metcalfe and Miles, 2000). Miles et al. (1995) classifies services on the basis of the functions performed and the markets served, and identifies the following groups: product services such as finance or business services; distributive services such as trade, transport and communication; personal services such as entertainment, hotels, catering and domestic services; and social services such as those related to medicine, health and government. Gadrey, Gallouj and Weinstein (1995) more generally define service providers as firms that organize a solution to a problem that does not principally involve supplying a good. Service firms put a bundle of capabilities and competences (human, technological and organizational) at the disposal of clients and use them to satisfy their needs. Generally, value creation in services is driven by the integration of intangible resources and capabilities, such as knowledge, competences, a cognitive-centric workforce and customer collaboration (Scerri and Randhawa, 2015). Sometimes tangible resources are also involved in service delivery, such as the use of cards in banking services, increasing the complexity of the distinction between products and services.

Additionally, reseachers highlight the elements that distinguish services from products (Tether and Hipp, 2002). The first is the close interaction between production and consumption: services cannot be provided if the service user and the service provider do not contemporarily take part in the provision. Authors use the concept of inseparability to refer to the simultaneous provision and consumption of services. The client co-produces the service and is included in the processes of both providing and consuming the service. The contextual delivery and use of services generate multiple issues, such as the planning of the offer capacity and the management of queues. Perishability refers to the nature of services that cannot be kept or stored for later utilization. For example, the productivity of an emergency depends on patients’ needs, and patients with exactly the same disease may require different treatments depending on their age and general conditions.

The second is the intangible nature of services’ output: services are defined by Pennant-Rea and Emmott (1983) as “the fruits of economic activity which you cannot drop on your foot”. The output of service firms is intangible and more difficult to appreciate and measure quantitatively. Because of their intangible nature, services tend to have a vaguer relationship between what is produced (i.e. the service product) and the process of production. Indeed, both service input and service output are difficult to estimate and evaluate.

Third, human resources have a crucial role in service provision that is shaped by human resources’ knowledge endowment and capabilities, which are used directly when each transaction occurs, rather than the physical plant or equipment (Gallouj and Weinstein, 1997). For this reason, innovation in services often involves asking people to change what they do and how they do it, and this may meet several forms of resistance.

Fourth, firms’ organization and supporting technologies are also central to service performance. The service cannot be separated from the process of provision, and the service provider and user are located at the same time in the same physical space. For this reason, their provision is often local and limited to a small scale. Conversely, today, more modern services, in particular those that rely on digital technologies, can relax some of these constraints: a growing number of services do not need to be provided in close proximity to the user but are provided via the Internet and websites instead of a human interface. This happens for many banking, rental and booking services. Other services, such as restaurants and cleaning, still display the features mentioned. Consequently, there is a strong relation between the technology employed by service firms and the way in which the firm is organized for the service provision and delivery, which in turn has implications for the nature of the service provided and its competitiveness.

The fifth element is the weakness of intellectual property protection in services. Usually, patents and trademarks are not employed by service firms because they often fail to protect intangible products. For this reason, competitors may quickly copy successful services, and companies may thus tend to focus their innovative efforts on back-office and process innovations, which are considered to be less imitable.

The final element is the importance of client participation during service design and delivery, or co-production during service provision, which creates a bond between the service provider and the client during the provision of the service. Clients give the inputs to initiate the service provision, such as the information that clients give to banks about the risks that they are willing to support for their investments, and interact during the definition of the service features by specifying their needs better and giving real-time feedback about the service’s coherence with their desires. Many services are provided by humans via face-to-face interactions with clients, and these services are dependent on humans’ knowledge and capabilities. While service providers also rely on tools and technologies such as computers, socialization skills embodied in individuals (or teams) are still crucial for the success of service provision. Overall, such service specificities explain why services are heterogeneous in nature and heterogeneity describes the variability of the results when providing services.

While the attributes listed represent the main peculiarities of services identified so far by the economic and managerial literature and influence deeply the way in which service firms innovate and conduct their business (Mustafa, 2019), a number of scholars argue in studies undertaken in the last decades that the leading edge of the economy has become driven by knowledge production and dissemination that nurture both products and services. Particularly, innovation today is often driven by the commercial application of new knowledge and has become one of the key drivers of growth in services. Accordingly, the ability to create and manipulate knowledge has become a strategic element, a source of competitive advantage and a critical factor for the production of value added in all sectors.

The importance of knowledge in today’s economic environment is reflected by the term “knowledge economy”, coined to refer to a segment of the economic system in which value is produced through knowledge or in which the most important commodity to be produced and consumed is information rather than manufactured goods. Specifically, this is an economy in which the share of knowledge intensive employment is prevalent, the economic weight of the sectors linked to information has become decisive and the share of intangible assets has exceeded the share of tangible ones (Powell and Snellman, 2004). Unlike other productive factors, knowledge has no reproduction costs (or at least much lower ones than the cost of generation) and is a resource that can be multiplied. Its value in use can in fact be very high, regardless of the cost, if the same knowledge is reused thousands or millions of times. Each new replication and each new application increase the useful value of the knowledge possessed, without increasing (or at least to the same extent) the costs. Today, new ICT technologies allow firms more easily to store and share knowledge, which is becoming an economic renewable resource.

In this context, in the last decades, we have observed the growing importance of those services that base their competitive advantage on the ability to generate new knowledge. These services are labelled KIS (knowledge intensive services) and describe service firms that rely on professional knowledge or expertise relating to a specific technical or functional domain to satisfy the needs of either private consumers or business clients. Examples include accounting, bookkeeping, construction, banking and environmental, marketing, R&D, real estate and telecommunication services (Windrum and Tomlinson, 1999). In Europe, KIS have been among the most dynamic for growth since the mid-1980s. The number of knowledge intensive services has more than tripled in European countries over the last 30 years, and today 30% of workers (generating the same percentage of value added) are employed in KIS. In 2006, around 70 million people in the EU-27 worked in knowledge intensive services (Eurostat, 2008).

The growing importance of knowledge intensive services has also affected manufacturing firms’ activities. To stay competitive, firms increasingly need to rely on ICT services to manage multiple processes as well as on a number of other knowledge intensive activities, such as R&D, design or legal services, which deserve attention, investments and specific competences. For this reason, they assisted in the growth of the service firms providing these services and operating in the business-to-business sector. Manufacturing firms are increasingly paying expert service providers to manage specific activities or functions, while they focus on their core competences and on the related processes, with growing importance of service industries in the production of value. These service companies, which are specialized in the development of knowledge intensive business services and develop tailored solutions for their business clients, are defined by the term KIBS (knowledge intensive business services).

KIBS are organizations for which the primary activities depend on human capital, knowledge and skills, and their role consists of providing knowledge intensive inputs for the business processes of other firms (Muller and Doloreux, 2009). KIBS are one of the pillars on which the “knowledge economy” is based in that they offer knowledge intensive services to other firms and public institutions, thus supporting knowledge sharing and creation.

In this sector, knowledge can be considered as the most relevant resource to increase new competencies and as a precondition for the generation of innovative services (Doloreux, Turkina and Van Assche, 2018). The next sections describe KIBS firms and their characteristics.

KIBS firms

The relevance and diffusion of KIBS firms

The main content of KIBS firms’ offerings is knowledge, their services provide knowledge intensive support for the business processes of other organizations with a highly educated workforce and their clients usually co-produce the service solution (Vargo and Lusch, 2004). KIBS firms are business-to-business service firms that include professional, ICT, design and communication firms (Bettencourt et al., 2002).

KIBS have increasingly attracted the attention of scholars in the last 20 years as their role in the so-called “knowledge economy” has increased (Pina and Tether, 2016). KIBS firms in Europe are generally micro enterprises with fewer than 10 employees (Muller and Zenker, 2001) and are estimated to represent on average 15% of the volume of business of market services in European economies as well as being the main activity of 3.2 million firms in the EU-27 in 2005 (Eurostat, 2008). Over the last three decades, the number of KIBS firms has drastically increased in Europe due to both the increased inter-industry linkages and the attempts of European economies to consolidate their knowledge-based economies. In this context, KIBS offer specialized expertise to other businesses and use their accumulated knowledge to engage in and foster innovation processes. KIBS have become crucial to the evolution of manufacturing businesses: by outsourcing their non-core activities to KIBS firms, manufacturing firms obtain superior efficiency and more focused business models.

There are several regions in Europe where KIBS employees account for more than 11% of the population. The regions with the highest levels of employment in KIBS are the south of England and Ireland, some regions of France (the province of Paris and the south-east), Catalonia in Spain and several provinces of Germany, including Berlin. Overall, central Europe is dominated by areas with at least 7–8% of the population employed in KIBS, while, in Italy, KIBS firms are mainly located in the north and in the Lazio region (Schricke, Zenker and Stahlecker, 2012).

Corrocher and Cusumano (2014) show that KIBS are mainly located in the European capitals, with the exception of Hamburg in Germany and Utrecht in the Netherlands. Metropolitan areas are home to many KIBS and manufacturing companies and are regions with high levels of education and infrastructures. These areas are able to attract and retain entrepreneurs and a skilled workforce. Urban agglomeration favours the growth of KIBS. The authors also rank the European regions according to the presence of KIBS (percentage of employees), manufacturing (percentage of employees) and gross domestic product growth from 1999 to 2006. In this way, they are able to identify areas with a prevalence of KIBS firms (KIBS-intensive areas), areas with a preval...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of tables
• Introduction
• PART I: Presenting KIBS firms
• 1. What are KIBS firms?
• 2. The growing importance of KIBS in today’s economy
• PART II: Innovation in KIBS
• 3. Multiple forms of innovation in services and in KIBS
• 4. Measuring innovation in KIBS
• 5. The specific traits of innovation in KIBS
• PART III: Innovation and performance in KIBS
• 6. Innovation and performance in KIBS The empirical evidence
• 7. The productivity dilemma and digitalization in services
• 8. A critical view How much do collaboration and customization support KIBS firms’ innovative performance?
• PART IV: Moving the innovation model in KIBS forward
• 9. Digitalization and internationalization in KIBS
• 10. Platforms and modularity in KIBS
• 11. Modularity in software and web design
• Conclusions
• Index