Knowledge Intensive Business Services and Innovation

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Video Conference between MBS Manchester and UNAM Mexico, Oct. 2012

Knowledge Intensive Business Services –

KIBS - and Innovation

Ian MilesManchester Institute of Innovation Research

Manchester Business School(and the Laboratory for the Economics of Innovation, HSE Moscow)

[email protected]

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Consumer Services

• Private Individuals

• Households

Business-Related Services

• Consumers• Businesses• Public

Sector

Business Services

• Public Sector;• Private Sector

Manufacturing;• Private Sector

Services

Services in the Economy

SERVICE INDUSTRIES:

Public ServicesPrivate

Services

• Personal Services

• Entertainment

• Etc.

• Professional Services

• Administrative & Operational Services

• Etc.

• Finance• Telecoms• Trade• Etc.

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Consumer Services

• Private Individuals

• Households

Business-Related Services

• Consumers• Businesses• Public

Sector

Business Services

• Public Sector;• Private Sector

Manufacturing;• Private Sector

Services

Business Services

SERVICE INDUSTRIES:

Public ServicesPrivate

Services

• Personal Services

• Entertainment

• Etc.

• Professional Services

• Administrative & Operational Services

• Etc.

• Finance• Telecoms• Trade• Etc.

These are services that support BUSINESS

PROCESSES, not just business organisations

There are public sector organisations that perform similar functions, e.g. RTOs, HEIs...

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Business Services in StatisticsNACE Rev 2

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Professional, Scientific and Technical Services (M)

LEGALACCOUNTANCY

CONSULTANCY

ARCHITECTURE

ENGINEERING

R&D

ADVERTISING

MARKET RESEARCH & POLLING

DESIGN

TRANSLATIONPHOTOGRAPHY

VETERINARYOTHERS

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Administrative and Support Services (N)

RENTING, LEASING

EMPLOYMENT SERVICES

TRAVEL SERVICES

SECURITY SERVICES

FACILITIES SERVICESCLEANING

Catering would have been here too

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KIBS – classic definition (1995)As a first approach to a definition, we understand KIBS to be services that:

Rely heavily upon professional knowledge. Thus, their employment structures are heavily weighted towards scientists, engineers, experts of all types. Many are practitioners of technology and technical change, Whatever their technological or professional specialism, they will also tend to be leading users of Information Technology to support their activities.Either supply products which are themselves primarily sources of information and knowledge to their users (e.g. measurements, reports, training, consultancy);Or use their knowledge to produce services which are intermediate inputs to their clients' own knowledge generating and information processing activities (e.g. communication and computer services). These client activities may be for internal use or supplied to yet other users in turn.Have as their main clients other businesses (including public services and the self-employed). Indeed, knowledge-intensive activities will frequently tend to be business-related, since as labour-intensive activities they will be relatively costly. (Educational and medical services demonstrate that delivery to final consumers often has to be mediated through collective service organisation.)

Miles et al (1995) at http://research.mbs.ac.uk/INNOVATION/Portals/0/docs/KIBSEIMS1995shortreport.pdf

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KIBS – EMCC (2005)As business services, KIBS are mainly concerned with providing knowledge-intensive inputs to the business processes of other organizations. These other organizations can, and often do, include public sector clients – KIBS do not only provide services to businesses. Knowledge-intensity is not easy to measure, but one convenient indicator is the shares of graduates in an industrial workforce. By this measure, KIBS are unusually high in terms of graduate-intensity. The graduates have been trained in different areas of knowledge: some specialize more in scientific and technological knowledge, others more in administrative, managerial or sociolegal affairs.

http://www.eurofound.europa.eu/emcc/publications/2005/ef0559en.pdf

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What services are KIBs?Starting point: Business Service sectors: Most of NACE(1) 72-74

NACE Classn Business Services Most important activities

71 71.1, .2Leasing & renting • Renting of transport, construction equipment, office machinery

72 72.1 – 6 Computer • Hardware consultancy • Software consultancy Data processing • Database activities

73 73.1, .2 R&D • Research and experimental development on natural sciences and engineering • …on social sciences and humanities

74 74.2,.3 Technical • Architectural activities • Engineering activities Technical testing and analysis

74.11- .12,

74.14

Professional • Legal activities • Accounting & tax consultancy Management consulting

74.13, 74.4 Marketing • Market research • Advertising

74.5 Labour recruitment • Labour recruitment and provision of personnel

74.6, 74.7 Operational • Security activities • Industrial cleaning

74.81-84 Other • Secretarial and translation activities • Photography Packing activities • Fairs & exhibitions

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Viitamo’s Framework (2007)

Knowledge Services

Manual Services

High capital intensity

High labour intensity

Low information intensive

Low tech intensive

High information intensive

High tech intensive

Tailored managerial

problem solvingInformation-

intensive repetitive processing

Standardised

Customised

Labour-intensive tailored

processingLabour-intensive

repetitive processing

Standardised

Customised

Tailored technical problem solving

Scale-intensive networked processing

Standardised

Customised

Capital-intensive tailored

productionCapital intensive

networked production

Standardised

Customised

Esa Viitamo, 2007, Productivity of Business

Services - Towards A New Taxonomy

LAPPEENRANTA UNIVERSITY OF TECHNOLOGY,

TUTKIMUSRAPORTTI – RESEARCH REPORT 188

at http://doria17-kk.lib.helsinki.fi/bitstream/handle/10024/43346/isbn978952214456

0.pdf?sequence=1

Manual Services

Knowledge Services

Labour intensive

Capital intensiveStandardised

Customised

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Viitamo: Knowledge Services

Knowledge Services

High capital intensity

High labour intensity

High information intensive

High tech intensive

Tailored managerial

problem solvingInformation-

intensive repetitive processing

Standardised

Customised

Tailored technical problem solving

Scale-intensive networked processing

Standardised

Customised

General or focused management consultancy, Training, Accounting,Business- based health care

Customized management & legal consultancy, Tailored marketing, Merger operations services

Tailored R&D, Tailored process engineering & design, Architecturalservices, Tailored software

“Systems services” Banking & insurance, Internet-based services, General software, Telecomms

Low volume; High complexity; High service content; Open system; Efficacy-driven

Low volume; High complexity; Low service content; Closed system; Efficiency-driven

Low volume; High complexity; Low service content; Closed system; Efficiency-driven

Low volume; High complexity; High service content; Open system; Efficacy-driven

Knowledge Services

Labour intensive

Capital intensive

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Examples: Computer Services – KIBs NACE1 but no longer PST! NACE2

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Manchester Institute of Innovation Research

R&D services

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Testing Services

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Accounting/ Consultancy, Design

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Compliance. We have 50 years expertise in ensuring that television advertising complies with BCAP codes.Advertising processes. We are uniquely positioned to streamline the advertising copy chain to the benefit of everyone that advertises on TV and wider audiovisual media. Metadata. We hold a range of metadata related to commercials ranging from artists and music featured to advertising restrictions.

Marketing/ consultancy

http://bcap.org.uk/The-Codes/BCAP-Code/BCAP-TV-Code.aspx

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A small legal service firm

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How important are these services? Share of EU economy

Eurostat, 2007, European Business 14.5% EU VA 15.5% EU employment

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Relative Scale of various BS in the UK, 2000

Architecture & engineering

Industrial Cleaning

Misc.

Security & investigation

AdvertisingR&D

Telecommunications

Labour recruitmentLegal, accountancy,

management

computer services

0

100

200

300

400

500

600

700

800

900

0.00 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00 60,000.00 70,000.00

Value-added (million euros)

Em

plo

yees (

tho

usan

ds)

0 10 20 30 40 50 60 70 VALUE ADDED bn euros

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KIBS: rapid growth in share of economy

0 2 4 6 8 10 12 140

2

4

6

8

10

12

14

16

Share of Value Added in Economy (%)

Sha

re o

f E

mpl

oym

ent

in E

cono

my

(%)

Japan 1975-2007

EU15 1975-2007

USA 1985-2007

From European Competitiveness Report, 2011

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European Cluster Observatory: KIBS (+FI)

regional employment

At http://www.clusterobservatory.eu/index.html

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European Cluster Observatory: KIBS, Growth and Innovation

At http://www.clusterobservatory.eu/index.html

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0 10 20 30 40 50 60

Manufacturing

Business Services

Research and Development

Computer and Related

Real Estate and Renting of Mach.

Financial Intermediation

Transport and Communication

Hotels and Restaurants

Retail Trade

Wholesale Trade and Repair

0 10 20 30 40 50 60

Manufacturing

Business Services







Retail Trade


Introduced a New Good Introduced a New Service

KIBS are often particularlyinnovative - UK CIS4 data

UK CIS4 data: “Understanding Hidden Innovation: Services in the UK “ Programme on Regional Innovation, Cambridge-MIT Institute 2008 report to NESTA

Product Innovation

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0 10 20 30 40 50 60

Manufacturing

Business Services







Retail Trade


KIBS are often particularlyinnovative 2 - UK CIS4 data


Introduced a New Process

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0 5 10 15 20 25 30 35 40 45 50

Manufacturing

Business Services







Retail Trade


Novel Process Innovation Novel Product Innovation



NOVEL Innovation: new to market or industry

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Manchester Institute of Innovation ResearchUK CIS4 data: “Understanding Hidden Innovation: Services in the UK “ Programme on Regional Innovation, Cambridge-MIT Institute 2008 report to NESTA

0 5,000 10,000 15,000 20,000 25,000

Manufacturing

Business Services







Retail Trade


Intramural R&D Expenditure p.e. Extramural R&D Expenditure p.e.

Machinery, Equip. and Soft. Exp. p.e. Expenditure on External Knowledge p.e.

Training Expenditure p.e. Design Expenditure p.e.

Marketing Expenditure p.e. Innovation Expenditure per employee


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0 10 20 30 40 50 60 70 80 90 100

Manufacturing

Business Services







Retail Trade


Intramural R&D Expenditure Extramural R&D Expenditure Machinery, Equip. and Soft. Exp.

Expenditure on External Knowledge Training Expenditure Design Expenditure

Marketing Expenditure

Structure of Innovation Spend in Services

Innovation Expenditure

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Innovation Expenditure

0 10 20 30 40 50 60 70 80 90 100

Miscellaneous

Industrial Cleaning

Investigation and Security

Labour Recruitment

Advertising

Technical Testing and Analysis

Architectural and Engineering

Legal, Accounting and Management

Intramural R&D Expenditure Extramural R&D Expenditure Machinery, Equip. and Soft. Exp.

Expenditure on External Knowledge Training Expenditure Design Expenditure

Marketing Expenditure

BS Innovation Expenditure

0 10 20 30 40 50 60 70 80 90 100

Manufacturing

Business Services







Retail Trade


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3 Types of KnowledgeTechnology/Technical

Knowledge

Professional/ Administrative

KnowledgeCreativity/ Cultural Knowledge

Architecture

Advertising

Industrial Product Design

Industrial Process Design

R&D

Technical Testing

Computer Services

Engineering Services

Accountancy

Legal Services

Management Consultancy

Business Media

Graphic Design..

Market research

Impressionistic, but some scope for

validating e.g. by graduate

share of employment

Knowledge may be of internal

business processes and/ or of external environments (customers, regulators, suppliers,

competitors, etc.

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0%

10%

20%

30%

40%

50%

60%

70%

Low

Tec

h M

anuf

actu

ring

Pas

seng

er T

rans

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Fre

ight

Tra

nspo

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Med

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Low

Tec

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anuf

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Con

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n

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rans

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Med

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Hig

h T

ech

Man

ufac

turin

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Ext

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Util

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, Rec

yclin

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Who

lesa

le

Ren

ting

and

Leas

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Hig

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ech

Man

ufac

turin

g

Ban

king

, Ins

uran

ce, P

rope

rty

Tra

ding

Tel

ecom

s &

oth

er IT

ser

vice

s

Lega

l / A

ccou

ntin

g

Pub

lish,

Tra

v/E

st A

g, M

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es

Man

ager

ial /

Org

anis

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nal S

ervs

Arc

hite

ctur

e &

Eng

inee

ring

R&

D a

nd T

echn

ical

Tes

ting

Com

pute

r S

ervi

ces

Mean % Other Graduates

Mean % S&E Graduates

KIBS Graduate-Intensity

???

CIS3 data, UK

“technology-based KIBS”

"professional KIBS"

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KIBS Professional Workers

Retention

Motivation and Governance

Collaboration

Knowledge Exchange and Capture

Good source: Dawson, R., 1999, Developing Knowledge-Based Client Relationships: The Future of Professional Services, Boston: Butterworth-Heinemann

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Work Experience

across Sectors

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Knowledge of internal characteristics and external

environments –

Competitors

Clients, SuppliersCollaborators

Regulators

Financiers

Markets

Social & Institutional

Env

Natural & Physical

Env

Process Technology

Management

Organisational Structure/ Design

Routines

Techniques

Human Resources

Product Technology &

DesignHealth and Safety

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Knowledge of internal characteristics and external environments –

What’s the background?

What’s the problem?

What’s the solution?

How to effect it?

Putting it into practice

Knowledge applied to Problem solving:

• Support for self-diagnosis• Diagnosis

• Prescription• Configuration

• Implementation of Solutions

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Universities Laboratories Governments Other KIBS Clients Suppliers etc.

Knowledge Intermediators

External (generic) knowledge resources *

Firm’s absorption of knowledge

KIBS synthesising and

translating generic

knowledge

Intelligence

Diagnosis

Prescription

(Configuration)

Implementation

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Universities Laboratories Governments Other KIBS Clients Suppliers etc.

Its an Interactive Process!

External (generic) knowledge resources *

* including previous service encounters

Client’s knowledge and

experienced problem

KIBS fusing generic and local knowledge – and

creating new knowledge

through R&D etc

Intelligence

Diagnosis

Prescription

(Configuration)

Implementation

Preliminary Problem Formulation

Coproduction and Absorption of Solution

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Interactive Innovation

External (generic) knowledge resources

Firm’s experience of problem

KIBS fusing generic and local

knowledgePreliminary Problem Formulation

Coproduction and Absorption of Solution

Intelligence

Diagnosis

Prescription

Configuration

Implementation

Knowledge of environments & technologies; scientific &

engineering principles; innovation-relevant market conditions,

regulations, laws

Better understanding of problem, ways of measuring and monitoring

Reduced risk in defining solution; introduction of new types of solution

Easier learning and application of experience in combining processes

Saving resources that can be applied to core products, processes - & other goals

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Relations with Clients – Exchange and Innovation

Knowledge of- environments &

technologies; STI principles and

market conditions, regulations, laws

Better understanding of problem, ways of

measuring & monitoring

Reduced risk in defining solution; introduction of

new types of solution

Fusion of generic and local

knowledge

Easier learning & application of experience in

combining processes

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What sort of business relationship is this?

Tordoir distinguishes: jobbing, sparring (and sales)

How far is the problem defined?

What is the scope for learning and innovation?

Highly interactive ◄▬▬► Highly standardised

P P Tordoir, 1996, The Professional Knowledge Economy: The Management and

Integration of Professional Services in Business Organizations, Dordrecht, Kluwer

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Relations with Clients are Central

Tordoir: Jobbing, Sparring, Sales

Gallouj: Client Roles and Strategies in Managing Relationship – selecting KIBS/specifying services

Bettencourt: role responsibilities for clients effective coproduction

communication openness, shared problem solving, tolerance, accommodation, advocacy, involvement in project governancepersonal dedication

Bettencourt et al, 2002, “Client Co-Production in Knowledge-Intensive

Business Services” California Management Review, Vol. 44, Issue 4

C Gallouj, 1997, “Asymmetry of information and the service relationship:

selection and evaluation of the service provider”, International Journal of Service

Industry Management,. 8 (1) pp. 42-64.

KSRI (Satzger et al), 2009, Knowledge Intensive Services Procurement Strategy, KSRI, KIT, athttp://www.ksri.kit.edu/Upload/Publications/70765f4b-10cc-4ce4-b874-04c3016ad158.pdf

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Swedish KIBS Survey (Nählinder)

0% 20% 40% 60% 80% 100%

helps clientsdevelop

products orroutines

no.of contactswith clients

during a deal

works in closecooperation with

client

highest level

high level

low level

lowest level

1000 KIBS firms

(Higher for less standardised services)

(All higher for more innovative firms)

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UK environmental services

1 2 3 4 5 6 7

0

10

20

30

help clientschoose

help clientsdevelop

develop forclients

100 firms, 1995

Orientation to technology

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Hipp - German Survey

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Tra

de

Tra

nsp

. &

Co

mm

.

Ba

nkin

g / In

s.

Oth

er

Fin

an

cia

l

Se

rs.

So

ftw

are

Sci. &

Te

ch

.

Se

rs.

Oth

er

Bu

s. S

ers

.

Specialised

Intermediate

Standardised

Services vary in standardisation… some more designed for

clients… especially in

KIBS

Surprisingly low specialisation – may depend on question – cf Nahlinder

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Hipp - German Survey

Half the innovating service firms thought their innovations positively impacted client performance/productivity – 16% “very important” productivity, 13% performance. Fewer for the firms supplying standardised solutions - 1/34/5 of software firms thought this (as opposed to only 2/5 financial firms, for instance)Service innovation>organisational innovation (but this can have an impact too)

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Doroshenko - Russian Survey of KIBS and coproduction

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In Eleonora Di Maria, Roberto Grandinetti, and Barbara Di Bernardo

(eds) 2012 Exploring Knowledge-Intensive Business Services

Knowledge Management StrategiesLondon, Palgrave

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Doroshenko - Russian Survey

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Doroshenko – effects on users

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New paper “Knowledge Intensive Business Services as Generators of Innovations “ by Marina Doroshenko, Ian Miles, Dmitri Vinogradov

- Sample is of leading KIBS, so picture may differ for smaller, more local firms

Average

Sectors

AD MKT ADT IT REC ENG FIN LEG DVP DSGN

Often 9.3 10.4 18.0 4.8 3.3 6.8 5.8 13.0 11.7 10.9 8.1

Sometimes 25.6 23.4 23.0 30.6 43.3 16.9 32.7 20.4 11.7 29.1 25.8

Rarely 23.6 22.1 27.9 24.2 18.3 30.5 38.5 22.2 15.0 12.7 25.8

Never 41.5 44.2 31.1 40.3 35.0 45.8 23.1 44.4 61.7 47.3 40.3

AD = Advertising; MKT = Marketing services; ADT = Audit; IT = Information technology services; REC = Recruitment services; ENG = Engineering services; FIN = Financial advice services; LEG = Legal advice services; DVP = Property development services; DSGN = Business design

TABLE 1. REPLICATION OF INNOVATIONS, 2011[

"How often do you manage to supply service innovation which you co-created with one customer, to other customers ?

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Prof. Dr. Gerhard [email protected]

Peter Schulteß[email protected]

Andreas [email protected]

http://www.ksri.kit.edu/Upload/Publications/70765f4b-10cc-4ce4-b874-04c3016ad158.pdf

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Information Asymmetries

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Six Issues in Procurement

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User’s Views

PWC study of consultants’ clients 2006

180 clients, large range of consultancy

services

http://www.wwyltc.com/Ensuring-sustainable-value-from-consultants.pdf





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The User’s View ? PWC study of consultants’ clients, 2006

Partially satisfied

50%

Completely satisfied ,

36%

Not at all satisfied

14%

180 clients, large range of consultancy

services

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User’s View of Benefits – PWC 2006

Increased revenue, 6% Reduced costs,

14%

Specialist know ledge/ improved

management capabilities, 31%

More eff icient processes, 34%

Improved customer service,

15%

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Implications for Innovation

Apart from freeing up resources, & being dispensable…

KIBS are specialists - in acquiring, possessing and communicating knowledge. Alternative to labour mobility.

Able to draw on generalised knowledge from other firms and sectors. FUSION – and some creation of knowledge

Less wedded to heritage, organisational rigidities, factions

But… how far do they really help clients move in new directions? (E.g. : what role in move to cleaner technology?)

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Some implications – practical issues and research questions

“ Absorption capacity” – what capabilities and practices clients need to effectively select KIBS, define problems, use solutions?“Organisational amnesia” – how can they cope with loss of memory when activities outsourced? Knowledge management (a) capture of new learning; (b) across organisational boundaries; (c) across professions?Standard solutions vs. sensitivity to organisational culture, national circumstances, etc.Professionalism: avoidance of “capture”, of collusion with clients and/or suppliers, of conflicts of interestMethods for maintaining and demonstrating quality control, addressing information asymmetriesRetention and motivation of experts

Client side

KIBS side

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KIBS’ importance recognised

Important innovators

Important sources and “intermediaries” of knowledge

Growing (still?)

Limited knowledge about how different KIBS interact with clients and each other (in projects), about conditions and criteria for successful collaboration – what sorts of impact and innovation? What management lessons? What policy issues?

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End of Presentation(some extra slides follow)

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Muller and Zenker– KIBS & SMEs

Muller E, & A Zenker (2001) "Business services as actors of knowledge transformation: the role of KIBS in regional and national innovation systems" Research Policy vol 30 no 9 pp1501-1516.

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2010 MCA study

http://www.mca.org.uk/value-consulting

Management consulting



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Main conclusions on users

Knowledge Intensive Business Services and Innovation

Business

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