EPISIS Statement for European Innovation Action Plan: a new mind-set and strong actions to support service innovation in Europe

During the first months of the project, the Think Tank members contributed to the EPISIS statement concerning the upcoming Innovation Action Plan of the European Commission. The statement welcomes the European Commission's Communication on Innovation and, in particular, the Commission Working Document on Innovation in Services.

The New Innovation Paradigm

It is clear that, as the EU comes out of the recession, we are no longer in a world of ‘business as usual’. The Presidency Conference at Lund pointed to the huge societal challenges which Europe and the rest of the world will face in the near future. These challenges are exacerbated by the resource constraints faced by all member states in the aftermath of the worst financial crisis for 75 years and the impact of a fundamental shift in the economic centre of gravity towards Asia and the Pacific Rim.

It is also clear that the innovation paradigm has changed fundamentally. There is a shift away from pure technological and product innovation, which is largely dependent upon R&D expenditures, towards user-centric and network models of innovation. These new forms of innovation tend to focus on the composition of complex service systems and the possibilities of co-creation which are required to meet rising customer demands and expectations along with speed of delivery. The growth companies of the modern Europe will be service oriented firms which are providing customers worldwide with new types of solutions and value proposals.

 

The need for a deeper understanding of service innovation

Service innovation is a phenomenon that cuts across the economy. Service activities and service business is performed in all industries from service sector to traditional manufacturing sectors. Thus innovative services can act as an important catalyst for the renewal of entire industries, networks and clusters.

As a multi-dimensional, multi-level and multi-disciplinary phenomenon service innovation creates challenges for the traditional innovation policy. What distinguishes service innovation from the traditional understanding of R&D is its relation to technology. In the context of service innovation, technology can be understood as an enabling platform for numerous non-technological service innovations that can deliver unmatched value to the customer and the service provider. The integration of services and technology is thus highly important for the service innovation creation. Also new service development has specific characteristics that need to be recognised. Typically it is a continuous process embedded in firms’ business activities rather than a separate R&D project. Such renewal processes are already at work in many firms where new ideas stem from employees, customers and users.

Users and user communities are rapidly rising in importance as a source of new knowledge, content and innovations. This is increasing the number of innovators and providing businesses with more scope to benefit from knowledge produced outside companies. Users’ active role in the innovation process is also improving the prospects of commercial success. Novel business models, services, design thinking and organisational development represent businesses approaches to user-centric innovation.

 

European Performance and the Barriers to Service Innovation: A Rationale for Intervention

European firms have been, and remain, highly successful in displaying a strong innovative capability. However, the new paradigm is also characterised by a number of elements which present significant difficulties for European firms, particularly European SMEs:

• Traditional forms of IP protection are largely ineffective in the context of new service design and new processes. This places a considerable premium on rapid expansion and consumer recognition through branding. Overall, there is a need for new forms of IP management suitable for the open innovation era;
• Comparability of service offerings is often difficult and standards hard to define/develop at the European level and hence, in their absence, consumer trust and confidence in innovative solutions is reduced; and
• User experience is often culture dependent and so market expansion across European borders is risky, particularly for SMEs.

By contrast, an important feature of the US innovation system is the ability of innovative SMEs to exploit the size of the US market quickly and mobilise private equity to fund expansion. Furthermore, American SMEs have access to public procurement processes on a much larger scale than their European counterparts. There is, by comparison, a clear failure of market mechanisms to enable European SMEs to provide the thrust to innovation, enjoyed by their American counterparts, with a consequent impact on EU prospects for growth and consumer choice.

 

Priorities for Change

The EPISIS members believe that the response to these challenges and trends requires a fundamental shift in strategy by the Community and also by the member states, in favour of a more systemic and user-centric approach to meeting the needs and concerns of Europe’s citizens, and strengthening the competitiveness of European business. This has five important elements:

• Prioritisation of activities towards societal challenges and the needs of EU citizens in fulfilling their daily lives, e.g. ambient living, sustainable communities, sustainable transport and industries which have an important impact upon the competitiveness of other business sectors;
• Developing policy alignment and coherence for all the relevant policy levers in the Commission based on a shared perspective of future needs and drivers of change, which is developed in partnership with stakeholders, particularly business;
• Urgent need for a ‘new mind-set’, recognising that service innovation is an important source of competitiveness across all industries and it is a vital element of the European Innovation Plan.
• Securing a shift in the balance of R&D from technology development to systemic approaches, including integration of technological and service innovation;
• A focus on policies to enable innovative SMEs to develop and expand their activities across European borders.

 

EPISIS Expectations relating to the European Innovation Action Plan

• Investing in the knowledge triangle (education, research, innovation) should remain the key priority in improving Europe’s competitiveness, sustainable growth and employment. Such a knowledge triangle is highly important for the development of a European knowledge base for services and service innovation. It can pave way for the effective networks between innovative businesses, lead users, consumers, scientific communities and other stakeholders.
• There is a need for more comprehensive and consistent governance of the European Union’s innovation policy. Research, innovation and other innovation-related policy areas needs to be implemented in line with common objectives which call for better policy co-ordination. Joint road mapping is one important tool that can build more coherence between programmes and also within programmes in terms of research, policy design and delivery.
• The Commission’s innovation support activities, provided by various Directorates-General, need to be systematically adjusted to harness service innovation potential more effectively. In this context:
• Framework programmes and other innovation support should be designed to encourage both non-technological and technology-based innovation. Service innovation needs to become an element in technology focused calls and technology ought to be recognised as an enabler and innovation driver in service and user-innovation focused calls.
• There is a need for tailored support for service innovations including new tools, funding criteria and practices that address the specific aspects of service innovation. These include improved effectiveness of innovation processes, market readiness of service innovators, betterment of business skills, new business models, mentoring practices, and human resources management.
• Users and user communities are important innovation actors and their potential should be fully harnessed. This could be done, for instance, by providing communication platforms and sufficiently adaptive standards, that permit and promote open and user driven innovation processes
• Systemic approaches are necessary in tackling societal challenges. This will need to be reflected in the policy tools and instruments that mobilise users, stakeholders and SMEs in the development of innovative services capable of tackling societal challenges. For instance, EU procurement rules need to facilitate inclusion of innovative SME’s in service contracts.
• Launch of a new European Mobility Programme for Service SME’s is a key priority. Such a pilot action would promote rapid expansion of innovative services businesses across the European markets. The initiative would provide shared cost and time limited support for the secondment of a key member of personnel to the buying firm/organisation located in another member state.
• Finally, there is a need more for systematic sharing of knowledge and good practices between the member states and the European Commission. For instance, systematic dissemination good practices in the delivery of public services, and effective ways to implement state aid rules in support of service innovation.
• The role of entrepreneurship and high-growth businesses needs to be systematically taken into account in enterprise and innovation policies. Community-level measures and the European Investment Bank’s (EIB) financial instruments need to be used as a way to facilitate integrated European venture capital markets. Within the financing community, a better understanding needs to be developed on the specific requirements of innovative service businesses, for example, a more thorough understanding on intangible assets, IP issues, and barriers to internationalization of innovative service businesses.

 

Conclusions

We do appreciate the scale of the ambition set out above; it is only matched by the scale of the challenge confronting European business. The participants in the EPISIS project and European Service Innovation Think Tank will seek to lead the debate in our respective member states, and we stand by to support the new Commission develop its own thinking and policy priorities e.g. by participating directly in policy workshops. The project itself will make its own contribution to the service innovation policy in several key areas, and we look to the continued support of the Commission in our endeavours.