Service Innovation as a Driver of Growth

Karsten Frøhlich Hougaard

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Service Innovation as a Driver of Growth

As the European economy recovers from the worst recession for 80 years, it faces a range of challenges that requires ambitious policy responses and novel types of European collaboration. Services innovation can be a critical driver for growth and as well as support new responses to the wider societal challenges.

The launch of the Europe 2020 - A European Strategy for Smart, Sustainable and Inclusive Growth in March 2010 was a very important milestone. This strategy is a dynamic response to the challenges facing Europe and defines a number of headline targets to be met by 2020.

To help the Commission exploit the potential of services innovation and its contribution to the implementation of the Europe 2020 growth priorities, DG Enterprise and Industry appointed an Expert Panel on Service Innovation managed by Danish Technological Institute. Its mandate was to advise the European Commission on how services innovation can best be supported, notably through entrepreneurship and industrial policies and to look at the policy measures required to maximise its contribution.

The Expert Panel comprised 20 distinguished innovation experts drawn from across industry, academia and public authorities from 15 Member States. The Panel met for the first time on 25 and 26 March 2010 and held three similar workshops before announcing the results of its work at a public event in January 2011.

What drives services innovation?
Services and services innovation play a vital role in the European economy. Services account for more than 70% of the EU’s GDP according the latest Eurostat figures. Consequently, there is an inevitable, growing need to design polices that support further innovation in existing and new services as well as and policies that improve the structural frameworks for their businesses.

Innovation in services, as in almost all forms of innovation, is largely market driven and pioneered by private commercial enterprises. Thus, innovation support should be based on a clear policy rationale, e.g. counteracting specific market or systemic failures or determining a political goal that would justify public intervention.

Until recently, services innovation has been overlooked in terms of policy development. There have been some improvements in recent years but the links between public policy and services innovation have largely been unexplored and underexploited. One of the reasons for this is the lack of hard facts and information on the barriers to services innovation. Many market and systemic failures can potentially hamper services innovation and justify policy intervention, but there is little empirical evidence of their effects. This makes it difficult to formulate meaningful policy conclusions and consequently most policy recommendations on services innovation only reflect generalities and are not specific enough to generate real and meaningful change.

The Expert Panel engaged in a critical reflection on these issues and develop concrete policy responses. A key task of its members and its Secretariat, led by Danish Technological Institute, was to collect evidence of what hinders and what drives services innovation. This involved the identification of examples of innovative services and possible business models for companies delivering such services. As a second step, the experts analysed the policy measures and schemes that existed in different EU Member States to promote services innovation to discover the factors that have guaranteed their success.

The March 2010 workshop focused on establishing a common understanding of the role of the Expert Panel alongside the European Commission’s other services innovation initiatives and aligning the work of the Expert Panel closely with the new ‘Europe 2020 Strategy’. The experts also discussed the contribution of services innovation to smart, inclusive and sustainable growth. In the area of smart growth it was, for instance, agreed that smart growth in services innovation involved increasing R&D, improving education and training and moving towards a digital society. The Expert Panel also believed that potential examples of innovation in services included networking services and platforms as well as partnering services. The panel also saw the design of communities that network to achieve economies of scale not normally available to small firms as being innovations that create new markets.

These initial discussions highlighted how many of the innovative services combined knowledge, technology and new business models to generate innovations and smart growth that can make important transformations along the entire value chain. Many of these were dependent on the integration of networking, location and semantic technologies. Other new aspects of the services were that they were increasingly demand- rather than supply-driven and that the viewpoints of consumers were assuming an ever more important role.

Another meeting of the Expert Panel took place in Copenhagen on 14 and 15 June 2010 in conjunction with the high-level conference on Services Innovation as a Catalyst for the Europe 2020 Strategy. This conference was organised by the Danish Ministry of Science, Innovation and Technology, in collaboration with the European Commission.

The overall goal for the Expert Panel was to produce a large evidence base to support the Europe 2020 Strategy. This evidence base was a collection of inspiring and stimulating examples of services and policies drawn from all the EU Member States. In addition, the Expert Panel presented around 15 recommendations, a services innovation policy roadmap and a substantive report providing new knowledge and information about services innovation. The policy roadmap will guide policy makers in establishing or developing support schemes, frameworks and infrastructures that will further the promotion of innovation and the sharing of knowledge.