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doi:10.1016/j.te

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Corporate Inno

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Technovation 29 (2009) 387–393

www.elsevier.com/locate/technovation

Research note: Intellectual property in the services sector: Innovationand technology management implications$

Daniel Berga,�, Norman G. Einspruchb,1

aDecision Sciences and Engineering Systems, Lally School of Management, Rensselaer Polytechnic Institute, 5015 CII,

110 8th Street, Troy, NY 12180-3590, USAbDepartment of Electrical and Computer Engineering, University of Miami, P.O. Box 248581, Coral Gables, FL 33124-8581, USA

Abstract

Corporate innovation is the subject of several recent articles in the business press and of discussion in academic circles and

international conferences. Recently, Business Week reported a study that identified ‘‘The World’s Most Innovative Companies.’’ Ocean

Tomo, an investment banking firm, developed a list of 300 companies that had major value in their patent portfolios, a surrogate for

innovation. Using a technique called ‘‘Data Surface Mining’’ (DSM), these previously published data were further analyzed to

characterize the similarities and differences between the Goods and Services Sectors; the results of these analyses are presented here. In

addition, the issues of technology management especially relevant to the Services Sector are presented. These issues are of critical

importance in light of the fact that the Services Sector represents 80% (Gross Domestic Product and/or employment) of the United

States economy and is of increasing importance in the global economy. It is also important to note that technology management in the

Services Sector has not been given proportionate attention in the academic literature.

r 2008 Elsevier Ltd. All rights reserved.

Keywords: Innovation; Intellectual property; Technology management; Services sector; Goods sector

1. Introduction

After an extended period of neglect because of its focuson the Goods Sector of the economy, the attention of theacademic community is making a recognizable shift toanalysis of the Services Sector, which has unique anddefinable characteristics. Fitzsimmons and Fitzsimmons(2008) and Tien and Berg (2003) have communicated thatthe Services Sector is the largest segment of the UnitedStates economy, representing more than 80% of bothGross Domestic Product and employment. For otherindustrialized nations, the percentages are somewhat lower,but they are also approaching 80%. In the same paper,

e front matter r 2008 Elsevier Ltd. All rights reserved.

chnovation.2008.10.005

ary, condensed version of this work under a different title

at IAMOT 2007: Berg, D., Einspruch, N.G., 2007.

vation in the Goods and Services Sectors and Technology

In: Proceedings of 2007 International Conference on

Technology (IAMOT), Miami, FL, vol. 1, pp. 59–66.

ing author. Tel.: +1518 276 2895; fax: +1 518 276 8227.

esses: bergd@rpi.edu (D. Berg), neinspruch@miami.edu

h).

284 3812; fax: +1 305 284 3810.

Tien and Berg stated that Services is also the fastestgrowing sector. Until recently, the Services Sector has alsobeen characterized by low productivity compared to theGoods Sector, as Baumol (1967) observed. The narrowfocus of this paper is on a relatively simple and direct,albeit important, question: Are there meaningful differ-ences in the significance of intellectual property in the twosectors? If the answer is in the affirmative, are thereimplications for the management of technology (MOT)?

2. Literature review

Although the literature contains a variety of definitionsfor the term ‘‘services,’’ the findings of the current work areinsensitive to the relatively small variations that existamong these definitions. The following discussion ofdefinitions of services is taken from Fitzsimmons andFitzsimmons (2008):

Services are deeds, processes, and performances.(Zeithaml and Bitner, 1996, p. 5)

ARTICLE IN PRESSD. Berg, N.G. Einspruch / Technovation 29 (2009) 387–393388

A service is an activity or series of activities of moreor less intangible nature that normally, but notnecessarily, take place in interactions between customerand service employees and/or physical resources orgoods and/or systems of the service provider, which areprovided as solutions to customer problems. (Gronroos,1990, p. 27)Most authorities consider the services sector to includeall economic activities whose output is not a physicalproduct or construction, is generally consumed at thetime it is produced, and provides added value in forms(such as convenience, amusement, timeliness, comfort,or health) that are essentially intangible concerns of itsfirst purchaser. (Quinn et al., 1987, p. 50)Services are economic activities offered by one party toanother, most commonly employing time-based perfor-mances to bring about desired results in recipientsthemselves or in objects or other assets for whichpurchasers have responsibility. In exchange for theirmoney, time, and effort, service customers expect toobtain value from access to goods, labor, professionalskills, facilities, networks and systems; but they do notnormally take ownership of any of the physical elementsinvolved. (Lovelock and Wright, 2007, p. 6)

A service is a time-perishable, intangible experienceperformed for a customer acting in the role of co-producer. (James Fitzsimmons)

The working definitions used herein are those utilized byclassical economists: the Goods Sector comprises manu-facturing, extraction, agriculture and construction; each ofthese segments produces goods that can be inventoried,unlike services, in which the concept of shelf-life is notmeaningful. The acronym CHIPS is useful in characteriz-ing the Services Sector. C represents co-production(the receiver of the economic service and the producer ofthe service are both simultaneously involved at the instantof production). H represents heterogeneity (services are notidentical in each instant, i.e., no two physical examinationsare the same in detail). I represents the intangibilityof the service even though a good may be involved (thepreparation and serving of a restaurant meal). P representsperishability since the provider and recipient both partici-pate in the generation and delivery of the service, whichcannot be stored in inventory (e.g., the cutting of hair by abarber). S stands for simultaneity, indicating that theproduction and utilization of the service occur at the sametime. The CHIPS acronym follows the discussion of thecharacteristics of the Services Sector presented by Fitzsim-mons and Fitzsimmons (2008). High-speed informationtechnology, which leads to increased involvement of thefinal receiver in the design and production of the generatedgoods, further draws together the two economic sectors.This drawing together has lowered the level of inventoriesrequired in the Goods Sector. As indicated earlier, thespecific focus of the present work is on the differences inthe significance of intellectual property in the two sectors

and the concomitant impact on the MOT in the twosectors; the arguments presented are in themselves inde-pendent of the various definitions of service.To paraphrase Gallouj (2002) in his focus on innovation

in the Services Sector: the increasing convergence ofmanufacturing and service activities makes it desirable toadopt an integrated approach to innovation. According toGallouj, one should not underestimate the importance oftechnologies or the role of non-technological forms ofinnovation. If one relates technology to intellectualproperty and manufacturing with the Goods Sector, thereis a parallel to his statement with the present work withregard to the MOT.Ganz, in Advances in Services Innovations edited by

Spath and Fahnrich (2007), has pointed out that:

Innovation in services is generally the result of acollective effort of management, sales, IT specialistsand other staff within a company to respond to newmarket needs. It is diffused throughout a company,rather than concentrated in an R&D function,as is usually the case in companies that manufactureproducts.

Delaunay and Gadrey (1992) make the followingrelevant points:

The introduction of new technologies in most services(retailing, banking, insurance, producer services) is veryrapid and, to some extent, looks like classical indus-trialization. But all these studies converge to show that itis generally achieved not by the disappearance of theservice dimension (i.e., relations, adaptation to indivi-dual demand, consultancy, assistance) but in such a waythat, whereas the simplest (sic!) part of the service ispartly automatised, there is at the same time anexpansion of the most relational and most complexpart of the service.

These three references all point to the role of technologyin Services Sector innovation, an area neglected by thesegment of the academic community concerned with MOT.Tien and Berg (1995, 2003) have focused on the growing

importance and complexity of services and, in particular,on the systems within which services operate. They haveindicated that the availability of information technologyaids its growth, access, speed and declining costs, therebyenabling real-time decision making through the applicationof a systems engineering approach. It is only recently thatproductivity in the Services Sector, which has historicallylagged that of the Goods Sector, has increased signifi-cantly. Economists are still trying to understand what iscausing this increase; without doubt, the contributorsinclude low-cost information technology and telecommu-nications technology. These had tremendous impacts onnew services, employment levels and shifts due to out-sourcing. The nature of global competition has beenredefined.

ARTICLE IN PRESSD. Berg, N.G. Einspruch / Technovation 29 (2009) 387–393 389

In the cited papers, Tien and Berg have characterized,using a Bureau of Labor Statistics partitioning, the ServicesSector as including Wholesale and Retail, Business andProfessional, Education, Government, Finance, amongothers; the Goods Sector includes Manufacturing, Con-struction, Agriculture and Extraction. It is important tonote that the Services Sector comprises approximately 80%of domestic employment and the Goods Sector representsthe remaining 20%, with Manufacturing being the largestcomponent of Goods at approximately 13% of the totaldomestic employment. Tyson (2005) attributes the declin-ing trend in Manufacturing to increases in workerproductivity without a concomitant increase in demand.Altman (2006) points out that the decrease in Manufactur-ing is manifest in both durable and non-durable goodsproduction accompanied by strong increases in profes-sional and business services and in education and healthcare. Berg and Einspruch (2004, 2008a, b) use thesedefinitions and a simple analytical technique that theyhave labeled ‘‘Data Surface Mining’’ (DSM) in conductingtheir studies. This technique and an example of itsapplication are discussed in the present paper.

The research emphasis of the present authors for severalyears has been to ascertain, and to quantify wheneverpossible, similarities and differences between the GoodsSector and the Services Sector. This paper represents acontinuation of that work based on two additional datasets published by others in the business press. The presentanalysis enables the authors to highlight certain issues inthe MOT as it relates to the Goods and Services Sectors.

3. Methods: application of DSM

Berg and Einspruch (2004) described a simple, butuseful, analytical approach labeled DSM. The authorsundertake to locate data sets prepared and published byother researchers and to subject these data sets toobservational considerations that lead to inferences andconclusions beyond those that are originally reported. Thereference to ‘‘Surface’’ comes about since ‘‘Deep’’ DataMining does not have to be carried out because the relevantdata have already been gathered and are fully exposed forsubsequent research. Two examples of DSM analysis aregiven below. One set of data on innovative companies isclassified according to goods and services focus; a seconddata set on corporate patent portfolios is also so classified.From these classifications, conclusions pertinent to MOTdistinction between the Goods and Services Sectors aredrawn.

4. Analysis

BusinessWeek partnered with the Boston ConsultingGroup (McGregor et al., 2006) to develop a worldwideranking of the most innovative companies. The 1500largest global corporations (based on market capitaliza-tion) received electronic surveys in February 2006 for

completion by their senior management, as many as ten topexecutives from each company were asked to respond.There were nineteen questions on innovation in generaland an additional eight questions about the innovationmetrics used by the executives. A total of 1070 executivesresponded, they were asked to identify the most innovativecompany that was not in their respective industry. In all46% of the respondents were from North America, 30%from Europe, 16% from Asia and the Pacific region andthe remaining distributed across the globe. Five themesthat were looked at during the evaluations were ‘‘openinnovation, leadership, innovation metrics, collaborationand customer insight.’’The list of companies was then partitioned by the present

authors as to whether they operate in the Goods orServices Sector. The result of this partitioning is presentedin Table 1.Patent activity can be posited as a surrogate for

innovation. Ocean Tomo (2006), an investment bank, hascompiled a list of 300 companies that have major value intheir patent portfolios. They used a proprietary computerprogram to estimate the value of patents issued since 1983.Thus, they selected this population of 300, which includeslarge, mid-size and small companies. This list was thenfurther analyzed using DSM. A shortened list is shown forillustration in Table 2.

5. Discussion and conclusions

Examination of Table 1 indicates that 50 (50%) of the100 most innovative companies worldwide operate in theGoods Sector. It should be noted that companies such asGeneral Electric, IBM and Hewlett Packard are categor-ized here as services companies; indeed, they presentthemselves to the public as such. They undertake to projectan image of being technology solutions providers, ratherthan as manufacturers of hardware. It is reported in theNew York Times (see Lohr, 2007) that IBM, as anexample, now has services revenues that exceed goodsrevenues, thereby substantiating their claim. Buying thisargument leads one to derive a 50:50 partitioning into thetwo economic sectors. Examination of Table 2 reveals that59 (20%) of the companies were in the Services Sector and241 (80%) were in the Goods Sector, once again reinfor-cing the idea that the Goods Sector is the seat ofinnovation, atleast where patent protection is significant.The analyses of two data sets, one based on innovation andthe other on patent portfolios, lead to the same conclusion;the skewing of innovation towards the Goods Sector.Although the economy is 80:20 (Goods:Services), theinnovation distribution is 50:50 and the patent portfoliodistribution is 20:80, illustrating the disproportionateconcentration in the Goods Sector of innovation and itssurrogate patents.In the Berg and Einspruch (2008b), several data sets were

examined with the conclusion drawn that the Goods Sectorwas the purview of innovation. A possible explanation for

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Table 1

The world’s most innovative companies.

Company Services Goods Business

Apple X Manufactures computer products

Google X Online searching service

3M X Manufactures variety of products

Toyota X Manufactures automobiles

Microsoft X Software producer

General Electric X Technology solutions provider

Procter & Gamble X Manufactures household products

Nokia X Manufactures mobile phones

Starbucks X Specialized retailer

IBM X Technology solutions provider

Virgin X Travel and entertainment services

Samsung X Manufactures electronic and electrical products

Sony X Manufactures consumer electronics

Dell X Manufactures computers and accessories

IDEO X Innovation consulting services

BMW X Manufactures automobiles

Intel X Manufactures semiconductor components

eBay X Online marketplace

IKEA X Home furnishings retailer

Wal-Mart X Mass market retailer

Amazon X Online retailer

Target X Mass market retailer

Honda X Manufactures automobiles

Research In Motion X Produces the Blackberry

Southwest X Airline

Porsche X Manufactures automobiles

Genentech X Manufactures pharmaceutical products

Cisco X Manufactures networking products

Nike X Manufactures shoes and sportswear

Motorola X Manufactures communications products

DaimlerChrysler X Manufactures automobiles

Infosys X Technology consulting

Ryanair X Airline

Pixar X Entertainment

SonyEricsson X Manufactures mobile phones

Whole Foods X Food retailer

Capital One X Financial services

Tesco X Food retailer

Danone X Food producer

BP X Oil and gas producer

PepsiCo X Food producer

Hewlett Packard X Technology solutions provider

Disney X Entertainment

JetBlue X Airline

W.L. Gore & Associates X Manufactures specialty materials

Skype Technologies X Telephone service

FedEx X Logistics services

Bang & Olufsen X Manufactures audio equipment

Renault X Manufactures automobiles

L’Oreal X Makes beauty products

ExxonMobil X Oil and gas producer

Siemens X Manufactures electrical and electronic products

Johnson & Johnson X Manufactures healthcare products

Shell X Oil and natural gas producer

Pfizer X Manufactures pharmaceuticals

Singapore Airlines X Airline

Nissan X Manufactures automobiles

DuPont X Manufactures materials and polymers

Zara X Clothing retailer

TiVo X Entertainment service

Yahoo! X Online community

Macquarie Bank X Financial services

Audi X Manufactures automobiles

D. Berg, N.G. Einspruch / Technovation 29 (2009) 387–393390

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Table 1 (continued )

Company Services Goods Business

Harley Davidson X Manufactures motorcycles

Progressive Insurance X Financial services

Volvo X Manufactures automobiles

Philips Electronics X Manufactures electrical and electronic products

ING Bank X Financial services

Nestle X Manufactures food products

Boeing X Manufactures aircraft

Matsushita Electric

Industrial

X Manufactures electrical and electronic products

easyJet X Airline

UPS X Logistics services

Coca-Cola X Beverages

Cirque du Soleil X Entertainment

McKinsey X Consulting services

Woolworths X Retailer

Hutchison Telecom X Communications services

Salesforce.com X Sales information software

ACS X Construction

ITC X Distributes electricity

Time Warner X Media

Danaher X Makes brand-name tools

Costco Wholesale X Retailer

LG Electronics X Manufactures electronics products

bankinter X Financial services

Amgen X Manufactures pharmaceuticals

Caterpillar X Manufactures earthmoving machinery

Accenture X Consulting

SAP X Software

SK Telecom X Communication services

Home Depot X Retailer

LVMH X Manufactures luxury goods

Gap X Retailer

Unilever X Manufactures food products and soap

Goldman Sachs X Financial services

John Deere & Co. X Manufactures farm equipment

Whirlpool X Manufactures home appliances

Entel X Telecommunications services

McDonald’s X Restaurants

Totals: 50 50

From: BusinessWeek, April 24, 2006 (additional classification by the authors).

D. Berg, N.G. Einspruch / Technovation 29 (2009) 387–393 391

that conclusion is the relative role of intellectual propertyin the two sectors. The patent system lends itself morereadily to the protection of physical items invented andproduced in the Goods Sector than it does to the intangibleitems or concepts upon which service businesses are based;it is easier to patent a new computer memory than a novelway to provide food service. Moreover, service businessesgenerally incorporate and utilize items developed andpatented by their suppliers rather than by themselves.The use of this intellectual property is available non-exclusively by product purchase or by license to allcompeting service providers. Service companies establishdefensible boundaries by branding, trademarking, strategy,saturation, franchising, network externalities, etc. ratherthan by a portfolio of intellectual property. Hipp andHerstatt (2006), Hipp and Grupp (2005), Tether and Hipp

(2002), Miles et al. (2002) have focused on the issue of theneed for a different analytical conceptual framework tounderstand service innovation and the protection of itsintellectual property. As indicated above, the protectionafforded the Goods Sector, especially by patents, is muchstronger than for the Service Sector.There are other differences as well pertinent to the issues

of MOT. These issues are especially relevant to the ServicesSector where, for example, the metrics of quality andproductivity are not as well defined as for the GoodsSector. The Goods Sector focuses on physical parametersand other measurables that can be more preciselydelineated. Since the service operations require an interac-tion with the receiver of the service in the produc-tion process, the characterization is more difficult. As aresult, issues connected to cognitive science, organization,

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Table 2

Ocean Tomo 300TM.

Company Services Goods Business

3Com X Manufactures networking electronic

3M X Diversified manufacturer

ABB X Manufactures power and automation products

Abbott Labs X Manufactures pharmaceuticals

Accenture X Consulting

Actuant X Manufactures tools and hydraulic equipment

ADC Telecom X Manufactures telecom equipment

Adobe Systems X Business software

Adtran X Manufactures networking equipment

Advanced Medical Optics X Manufactures eye care products

AMD X Manufactures integrated circuits

Agilent Technologies X Manufactures test equipment

^ ^ ^ ^Western Digital X Manufactures hard disks

Weyerhaeuser X Manufactures paper and building materials

W-H Energy Services X Oil field services

Whirlpool X Manufactures home appliances

Williams Companies X Oil and gas exploration

Wrigley Wm. Jr. Company X Manufactures chewing gum

Wyeth X Manufactures pharmaceuticals

Xcel Energy X Electricity and natural gas services

Xerox X Manufactures office equipment

Xilinx X Manufactures integrated circuits logic devices

XM Satellite Radio X Satellite communication

Zoran CORP X Manufactures integrated circuits

Totals 59 241

From: Patent Index 2007 Member List (additional classification by the authors).

D. Berg, N.G. Einspruch / Technovation 29 (2009) 387–393392

engineering systems, etc. are more prominent in servicedelivery, productivity and quality. Another fundamentaldifference in the two sectors is that in the Goods Sector,physical assets depreciate with time and use (as is true inthe Services Sector); however, in the Services Sector, keyassets are generally reusable and may increase in value withrepeated use and time. Such assets are predominantlyorganization and associated human resources that derivefrom the knowledge base and skill developed by directinvolvement and interaction with the service recipient, whois involved in the economic production of the service.

For the reasons enumerated above, MOT issues in theServices Sector focus on knowledge-based understandingof technology and how to use technology rather than howto generate it. As a consequence, the ability of organiza-tions to readily adapt, utilize and incorporate primarytechnological processes, equipment, etc., which might havebeen devised outside the organization by others, is criticalfor success. These distinctions require differences in theMOT as applied in the Goods and Services Sectors.Although this area is receiving increasing attention(Tidd and Hull (2003)), it requires much more focus.

DSM was applied in this study to illustrate significantdifferences in the role that intellectual property plays in theMOT in the two economic sectors, Goods and Services.The field of technology management in the Services Sectorrequires much more research and analysis than has so far

appeared in the scholarly literature. Although academicattention has overwhelmingly focused in the past on theGoods Sector, it is noteworthy that increased attention isnow being paid to the Services Sector, by far the largesteconomic sector domestically and internationally.

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