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Technology, innovation and management
Technology, innovation and management

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8.7 Service innovation

The previous section identifies how value can be created by innovation in the process of making a product, rather than in the product itself. Before continuing, however, it is worth noting that innovation is also vital in service industries where the product itself may not be a material artefact. The service sector is now hugely important economically and innovation is every bit as significant to this sector as it is to manufacturing.

The service sector comprises a vast range of industries such as health care, entertainment, finance and education. A service product generally takes the form of a service function (or set of functions) that can be marketed as a commodity (as in recorded music) or provided as a public service (as in social care). They are also essentially intangible, although there is often a material component that comprises a small part of the overall value; for example, the cost of the material in a dental filling is a small component of the cost of dental care. Indeed, since the 1990s the relationship between the service function itself and its material ‘carrier’ has been steadily weakened by digitisation in many information-intensive service industries in a series of disruptive innovations. The market for music CDs is in steep decline as music is increasingly bought and downloaded purely online. Downloading music is a radical technological change with disruptive consequences for the business models of music companies, to which they have responded by intensively lobbying policy-makers to defend their intellectual property in novel ways. Similar dynamics are found in areas such as film, news media and education.

Since the 1990s, however, increasing attention has been paid to the differing dynamics of service innovation (Miles, 2008). For example, innovations in interfaces to the service user have seen them become increasingly self-service in many cases (think, for example, of online banking or shopping). One example of the differing dynamics in service industries is the relationship between product and process innovation, which is often reversed (Barras, 1986) when compared with manufacturing industry, discussed in the previous section. In retail grocery supermarkets, for example, there has been substantial investment in computers since at least the 1970s, to improve the processes behind the service of making goods available at competitive prices in shops. Initially, large mainframe computers were used for business functions such as stock control and accounts. During the 1980s extended barcodes began to be used to track products through the supply chain, most visibly in the final stage of the supermarket checkout. ICT was used heavily to innovate in the process of getting goods into and out of shops, but the fundamental service product had remained largely the same.

The use of ICT in service product innovation happened largely in the first years of the current century, with the introduction of online shopping. Customers of companies like Sainsbury’s in the UK, Carrefour in France or WalMart in the USA can order their shopping via the internet and have it delivered to their homes. This major innovation in the service product not only followed decades of extensive use of ICT in service process innovation, but built on it. The product innovation followed the process innovation, reversing the relationship seen in manufacturing industries (see Figure 10). Barras (1986) gives similar examples in insurance, accountancy and local government.

Figure 10 Barras’s reverse product cycle in service industries (Linton and Walsh, 2008)