Conclusions from 10-11 October conference on services and innovation

October 12, 2006

Helsinki, 11 October 2006

Services play dominant role in economies but less so in innovation policies: Services account for around 70% of economic activity in developed economies. Yet, services have been an under-represented area in innovation policies. There are many reasons for this, including the fact that the traditional policy paradigm has emphasised the need to foster technology-oriented innovation in manufacturing. For instance, government R&D support is usually directed according to this objective. Service innovation is in most cases not about developing new technologies but of using existing ones. This emphasises the nontechnogical aspect of innovation which is already a key driver of change in the globalised world. Offshoring is elemental in this process, as it is creating new ways of organising service production systems and, ideally, allowing simultaneous utilisation of location-based competitive advantage with knowledge-based business skills and innovations. Some policy measures have be! en undertaken for service innovation, as we have learned from the country presentations. Overall, however, policies have not acknowledged the changes in business dynamics and the increasing role of services for innovation and competitiveness. The Finnish 'Innovative Services', and the German 'Innovation with Services' programmes represent still only rare examples of dedicated service innovation programmes. Despite these initial steps, in general, there is a strong need for new policy initiatives and mutual learning in innovation policy planning and design that ackowledges services.

Division between services and manufacturing is increasingly artificial: Manufacturing companies emphasise services more and more as core elements of their product portfolios. Likewise, services are becoming more industrialised due to technological advancement, in particular, ICT. Therefore, policies need also to reflect the merger between services and manufacturing and, especially, recognise that services are becoming a key ingredient to manufacturing companies' competitiveness.

A set of policies affect innovation in services: There is not just one policy, like government R&D support that bears an influence to firms' innovation capability. A whole spectrum of policies is crucial in this respect. The professional and social skills and competences of the workforce and the management need to be highlighted as cornerstones for service innovation. As services are becoming a key source for productivity growth, governments need to ensure that the regulatory environment is supporting this development. Key aspects in this regard are high quality, timely reviews, transparency and attitude that promotes intense market competition, an aspect that is still severely under-developed when compared to the goods markets. In many cases, the existing policy instruments do not take into account the specific needs of services, and they regularly also fail to acknowledge the need for innovation in public sector services. Therefore, there is a need to take a comprehensive ! look at all the policies that affect innovation in services and reassess their focus from the viewpoint of services and the related innovation.

Service innovation needs recognition and EU level measures: Service innovations are typically multidimensional in nature, and can be based on service concepts, business models, organisation, technology, customer interface, and delivery systems. This is a challenge for the traditional policy approach that has mainly focused on technological innovation. Hence, there is a need to review the policy rational, the policy development and the instruments so that they can effectively facilitate multidimensional innovations, rather than create obstacles for service innovation development due to a systemic failure. The European Commission has just put forward a Communication concerning the need for a broad-based innovation strategy in Europe. The importance of services is recognised in the Communication. It is now essential that this momentum is used to the advantage of services. Service innovation needs to be included among the concrete priorities for innovation policy actions that ar! e currently being planned for the EU.

Finland's EU Presidency
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