knowledge intensive business services

Manchester Institute of Innovation Research

MOSTI - Service Innovation 2009

Knowledge Intensive Business Services - KIBS

Ian Miles

[email protected]

MOSTI service innovation seminar 7



Sets of Services

Whole Economy

Services

Business-related Services

KIBS

Business Services



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)



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.



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Mean % S&E Graduates

KIBS Graduate-Intensity

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CIS3 data, UK

“technology-based KIBS”

"professional KIBS"



What services are KIBs?• Starting point: Business Service sectors: Most of NACE 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



There are (a few) KIBS elsewhere

• Services to specific sectors• Some parts of section M (training), N (veterinary), and O

(Other community, social and personal service activities): Nace Rev 1– 91.1 Activities of business, employers’ and professional

organizations– 92.1 Motion picture and video activities 921x– 92.11 Motion picture and video production 9211x– 92.12 Motion picture and video distribution 9211x– 92.13 Motion picture projection 9212– 92.2 Radio and television activities 921x– 92.20 Radio and television activities– 92.31 Artistic and literary creation and interpretation (includes

Technical Writing!)– 92.40 News agency activities– 92.51 Library and archives activities



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


Manufactured product Service Product(good) (service)

KIBS are often particularlyinnovative - UK CIS4 dataUK CIS4 data: “Understanding Hidden Innovation: Services in the UK “ Programme on

Regional Innovation, Cambridge-MIT Institute 2008 report to NESTA

Product Innovation



0 10 20 30 40 50 60

Manufacturing

Business Services







Retail Trade


KIBS are often particularlyinnovative 2 - UK CIS4 dataUK CIS4 data: “Understanding Hidden Innovation: Services in the UK “ Programme on


Process Innovation



0 5 10 15 20 25 30 35 40 45 50

Manufacturing

Business Services







Retail Trade


Novel Process Innovation Novel Product Innovation

KIBS are often particularlyinnovative 4 - UK CIS4 dataUK CIS4 data: “Understanding Hidden Innovation: Services in the UK “ Programme on


NOVEL Innovation: new to market or industry



UK 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

KIBS are often particularlyinnovative 5 - UK CIS4 data



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

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

Innovation Expenditure



0 10 20 30 40 50 60 70 80 90 100

Manufacturing

Business Services







Retail Trade





Business ServicesUK CIS4 data: “Understanding Hidden Innovation: Services in the UK “ Programme on


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






How important are these services?

Eurostat, 2007, European Business

15.5% EU employment; 14.5% VA



Relative Scale of various BS in the UK, 2000

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

Rapid growth, across

industrial world



So, what do KIBS do?

• They provide, or use, knowledge that clients lack (in sufficient quantity)

• But what sorts of knowledge and what sorts of uses?

• Answer – practically everything!



Knowledge of internal characteristics and external

environments –

Competitors

Clients, Suppliers

Collaborators

Regulators

Financiers

Markets

Social & Institutional

Env

Natural & Physical

Env

Process Technology

Management

Organisational Structure/ Design

Routines

Techniques

Human Resources

Product Technology &

DesignHealth and Safety



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



Universities Laboratories Governments Other KIBS Clients Suppliers etc.

Intermediators

External (generic) knowledge resources *

Firm’s absorption of knowledge

KIBS synthesising and

translating generic

knowledge

Intelligence

Diagnosis

Prescription

(Configuration)

Implementation



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



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



Effecting Innovation 1

KIBS InnovationData production, processing, knowledge generation, generalisation, synthesis methods; presentation tools; specific technologies and techniques for problem area...

Client InnovationReduced risks, accelerated learning, new ideas,

training, freer resources, focus on core problems

Coproduction of InnovationInteractive learning about problems and

potential solutions; new market opportunities



Relations with Clients are Central

Client

Problem formulation

Agreement on shared problem definition

Interaction around features of problem

Delivery of solution

Implementation of solution

Reaction to client’s formulation of problem

Agreement on shared problem definition

Interaction around features of problem

Formulation of solution

Delivery of solution

Ongoing support – “afterservice”

Information interchanges

Service Firm



Relations with Clients are Central

• Tordoir: Jobbing, Sparring, Sales P P Tordoir, 1996, The Professional Knowledge Economy: The Management and Integration of Professional Services in Business Organizations, Dordrecht, Kluwer Academic

• Gallouj: Client Roles and Strategies in Managing Relationship – esp. selecting KIBS/specifying services C Gallouj, 1997, “Asymmetry of information and the service relationship: selection and evaluation of the service provider”, International Journal of Service Industry Management, Vol. 8 No. 1, 1997, pp. 42-64.

• Bettencourt: role responsibilities for clients effective coproduction– communication openness, – shared problem solving, – tolerance, accommodation, – advocacy, – involvement in project governance– personal dedication Bettencourt et al, 2002, “Client Co-Production in Knowledge-Intensive Business

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



Swedish KIBS Survey (Nählinder)

1000 KIBS firms

(Higher for less standardised services)

(All higher for more innovative firms)



UK environmental services

100 firms, 1995

Orientation to technology



Hipp - German Survey

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Services vary in standardisation… some more designed for

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KIBS

Surprisingly low specialisation – may depend on question – cf Nahlinder



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 - 1/3

• 4/5 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)



But what is the User’s View ?

PWC study of consultants’clients, 2006

180 clients, large range of consultancy

services



User’s View of Benefits – PWC 2006



Who are the Users?

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Input Output data Various

EU countries, c1995

Intensive users

Major markets



Survey of Swedish KIBS

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S M P HServices Manufacturing Public Sector Households

Ranking of users

First Second Third

Fourth



Who are the Users? UK 1995

UK - Business Services mainly supporting other services

Computer R&D Other bus. services services services



Who are the Users? France 1995

France - Business Services mainly supporting other services, except R&D services Computer R&D Other bus.

services services services



Top Ten Users- R&D Services UK

c1995

85% of output

goes to top 20

- 9 are services,

many public



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?)



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 interest

• Methods for maintaining and demonstrating quality control, addressing information asymmetries

• Retention and motivation of experts

Client side

KIBS side



Centrality of KIBS Professional Workers• Retention

• Motivation

• Collaboration

• Knowledge Exchange and Capture• Good source: Dawson, R., 1999,

Developing Knowledge-Based Client Relationships: The Future of Professional Services, Boston: Butterworth-Heinemann



Work Experience

across Sectors



Understanding KISA



What are KISAs?• Knowledge-Intensive Services• Starting point: KIBS sectors• Most of NACE 72-74• 1995 definition:

– Rely heavily upon professional/expert knowledge. – High employment of scientists, engineers, experts of all types.

Often small firms (evidence now: 95%<10emp).– Tend to be leading users of Information Technology.– Help define and solve problems in business processes of users

in private and public sectors.– Products may be primarily information and knowledge

resources; or intermediate inputs to clients’ knowledge generating and information processing activities.

– Service often coproduced with client, highly customised or specialised – a fusion of generic and local knowledge.



KIBS have grown…

• Debate about how much growth is outsourcing (and now, about scope for offshoring)

• KIBS are “external” KISA, but within all sectors there are:– Computer and technical professions– R&D professionals– “traditional” professions (lawyers, accountants) –

institutional knowledge– “social” professions (marketing, advertising, etc.)

• Typically a growing share of sectoral employment

• Internal services, and “Product Services”



What are KISAs?Knowledge-Intensive Services

• Starting point: KIBS sectors; most of NACE 72-74• 1995 definition:

– Rely heavily upon professional/expert knowledge. – High employment of scientists, engineers, experts of all types.

Often small firms (evidence now: 95%<10emp).– Tend to be leading users of Information Technology.– Help define and solve problems in business processes of users in

private and public sectors.– Products may be primarily information and knowledge resources; or

intermediate inputs to clients’ knowledge generating and information processing activities.

– Service often coproduced with client, highly customised or specialised – a fusion of generic and local knowledge.



Missing and Problem KISAs

• “Creative services” – much design, graphics, media support

• Finance

• Communications

• Management - may not map onto consultancy

More work needed, but we can see:



ISCO categories that seem to correspond to KISA employees, in particular:

1: legislators, senior officials and managers;

2: professionals (in 1 Physical, mathematical and engineering science; Life science and health; Teaching; and Others);

3: technicians and associate professionals (as in group 2),

[4: clericals]

Orientation



Three KISA Occupations

0% 10% 20% 30% 40% 50% 60% 70%

Primary sector and utilities

Manufacturing

Construction

Distribution and transport

Business and other services

Non-marketed services

ISCO 1 (Legislators, etc)

ISCO 2 (Professionals)

ISCO 3 (Technicians etc)

CEDEFOP data, ISCO categories



DISTRIBUTION OF THE PERSONNEL OF SOME EXPERT PROFESSIONS BETWEEN KIBS INDUSTRIES AND OTHER

INDUSTRIES IN FINLAND 1995

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

Architects & engineers

Technicians

Physicists, chemists, biologists etc.

Computing professionals

Industrial designers

Legal professionals

Accountants

Book-keepers

Marketing professionals

Advertising copywriters

Economic & social science professionals

Administrative professionals

Personnel & recruitment professionals

Training directors, training planners, trainers

in KIBS industries

in other industries

Source: Marja Toivonen

More detailed KISA occupations – in KIBS and elsewhere



Likewise for “Creatives” in UK



Features of work – by occupation

0 10 20 30 40 50 60 70 80 90

isco1

isco2

isco3

isco4

isco5

isco6

isco7

isco8

isco9 Using internet / emailfor work

Working with computers

0 10 20 30 40 50 60 70 80 90 100

isco1

isco2

isco3

isco4

isco5

isco6

isco7

isco8

isco9

Solvingunforeseenproblems

Have tointerrupt atask inorder totake on anunforeseentask

9: ELEMENTARY OCCUPATIONS8: PLANT & MACHINE OPERATORS & ASSEMBLERS7: CRAFT & RELATED TRADES WORKERS6: SKILLED AGRICULTURAL & FISHERY WORKERS5: SERVICE WORKERS & SHOP & MARKET SALES WORKERS4: CLERKS3: TECHNICIANS & ASSOCIATE PROFESSIONALS2: PROFESSIONALS1: LEGISLATORS, SENIOR OFFICIALS & MANAGERS



What drives change:Top Ten Drivers from the Manchester Workshop

1. Public policy and regulation (regulatory frameworks)2. Technological development3. Demand side: challenge of environmental and other global issues

creates market for new enterprises (architecture, engineering and design)

4. Shocks to the economic cycle like oil and banking crises 5. Increased competition.6. Increasing complexity and need for innovation requires

application of tacit knowledge … accrued through close proximity.7. Availability of trained professionals prepared to take risks &

change the way they work8. Desire for increased flexibility on behalf of firms but also workers.9. Increasing possibility of remote working because of development

of I.T.10. Market transparency

All seen

as fairly un

certain

Policy impacts – regulation; procurement; public sector; competition

(cartels); cluster policy; training; etc.



Uncertainties about directions of Change in KISA and KIBS

•Extent to which KISA (whether in-house or KIBS) become more or less:– sourced from external KIBS firms, as opposed to being supplied in-house by employees

in the user firms,– acquired by offshoring service production to locations outside of the EU,– mainly produced (within the EU), in a few core regions and localities,– supported by information technology systems that provide decision support and

advanced tools for tackling complex problems,– subject to automation by application of information technology to perform large parts of

more standardised services, – codified and documented in precise rules, routines, and standards, so they can be more

easily learned, diffused within organisations, and quality controlled,– performed to a large extent by “paraprofessionals” or “technicians”, (whose work is

designed, coordinated and integrated by senior professionals),– customised in many details to meet individual client requirements,– composed of reproducible modules (that can be recombined in various ways),

•Extent to which KISA organised in KIBS become more or less:– organised in virtual networks, with professionals associating to carry out specific

projects,– conducted within larger KIBS firms,– organised within industrial “cartels”, with long-term relationships among groups of firms

(including KIBS and their users),– supporting innovation processes in clients,– engaged in clients’ strategy formulation and decisions– supporting smaller as well as larger business clients.



Important Features of KISA with high uncertainty

• (Overall growth rates)• Organisational location (KIBS vs other

approaches)• Geographical location (extent of

reallocation in EU/offshoring)• Nature of professional work• Division of labour among specialised

firms• Strategic role of external KIBS



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?



End of Presentation