Italian report 2002

Italian report

Services and Innovation
A report on recent publications in Italy
Francesca Canti
Gruppo CLAS srl - Milano

Introduction
Innovation in the services
Services for the innovation
Services and innovation
Finding a definition: the first double obstacle to overcome
The context: synergies between environment and innovation
Conclusions
BIBLIOGRAPHY

Introduction
During the last decade many studies of Economics of Services have highlighted the importance of services as loci of innovation. The increasing understanding of the role of services in the development of modern economies (often called advanced tertiary economies) leads to a new consideration of the relationships between innovation and services. There are at least two different themes inside the topic service and innovation: the first one is the big transformation occurred in the service sector during the last two decades (for example the introduction of NITC in the distribution channel of services); the second one is the possibility that the innovation in services could spread the innovation to other sectors and the knowledge in all the economic system.
Besides, the services sector produces, or uses, either the innovation coming from industrial progress; or the services sector creates new ways to offer services and new ranges of services.
The spreading of new services contributes heavily to the structural change taking place in the advanced economies, where we can find complex processes of industrialisation and internationalisation, especially if we are talking about the most dynamic services, as the ones related to financial, transport, tourism and communication [1; 11; 14; 21; 26; 27]. Anyway, few economists have extended their research to the innovation of the services sector too. It is in these last years that official Institutes of Statistics have begun to harmonize methodologies data collection, surveying and measuring of the results of the new services and progress in general. Therefore, it was not easy to built a theory on innovation and services without a help of an harmonic data set.
We have to recognise that today OCSE and Eurostat are trying to overcome this bias in measuring innovation and they are carrying out a very difficult process of standardisation and homogenisation in defining and quantifying innovation in service activities [24; 25].
The problem of the availability of comparable data is only one of the issues involved in the study of innovation and services. In this report we can underline some of them, with reference to the recent Italian bibliography, and we intend to divide this huge production of articles and studies in the following points:- Innovation in the services: new services, new ways to offer/use existing services;
- Services for the innovation: NICT and other services that can support innovation.
- Services and innovation: what kind of socio-economic and cultural system can aid innovation and what kind of innovation can aid progress in the services sector? Is there a synergy coming from the sum of service activity plus innovation?

Innovation in the services
Referring to services, innovation is quite different from the way we usually talk about it for industry: it is, very often, a new way of offering and consuming a service (on Internet, for example) and it is, rarely, a new process of production. The quality is linked to a face to face consumption that puts together all the qualities of the service offered. On the contrary, the quality of the manufactured product is strictly determinated by the raw materials and the selected production process. This implies that defining the innovation in services activities is very difficult, because it is very difficult to separate the different contributions of the actors involved. A solution might be to begin to classify the complex group of internal and external business interactions.Bonaccorsi [4] splits them in four tipologies:
_ funcional interactions (among different internal functions in a firm)
_ vertical interactions (among different hierarchic levels)
_ external interactions (with other organisations, individuals, institutions)
_ sectional interactions (technological synergies among different departments)
Looking at this list, we can argue that innovation often implies a re-thinking of traditional division of labour and labour organization. This observation is particularly interesting for the new trend of the women employment rate. In fact, the recent technologies, NICT above all, permit a new way of working: in Italy the so called tele-work is not very widespread, but is now considered, by the policy makers, one of the possibilities to improve women's working conditions assuring a bigger support to family management. Actually, the advanced tertiary sector is the one in which women are most employed and where wages and careers are quite similar for men and women.

However, innovation in services means also international spreading of service enterprises: can we talk about global innovation as easily as we talk about global economy? Do local services lead to global innovation? Is it possible to affirm that there is a glo-local dimension for services sector as there is in the industrial sector (see the case of Italian districts)?
Internet is everywhere; transport is widespread service on its own; the R&D sector has no boundaries. Without going back again to the theme discussed last year, we want to draw the attention only to a specific point: the diffusion and the trasmission of outcomes and output in a digital form and the possibility of re-materialising them in another place (or to store them in bit) cause the expansion of the tertiary sector and the process of re-allocation of output and outcomes among different sectors. These processes overcome both geographical and physical limits [6; 9; 14; 18].

Services for the innovation
Services are promoters of innovation. Innovation is brought us through service activities and the new aknowledgment comes through new services. We could talk about a silent learning that flows along and beyond the tertiary sector. In this case, services are agents of innovation, they can push innovation or spread it to other sectors through a local economic system. In particular, the services involved in this case are the so-called advanced or knowledge intensive services. The knowledge-intensive activities need advanced services too, e.g. consultant services, in order to develop and reach international markets. This means that internationalisation and production of new knowledge are very often two indivisible phenomena.
Some authors write about the knowledge-intensive business services, KIBS, that use and guide knowledge around a territorial area. In modern economies, KIBS are today the most important sub-sector of the tertiary sector: information technologies, consultant services, legal services, research service, and so on, are all activities that require highly qualified human capital. This is a logical consequence of the general process of knowledge-intensification in industrialised economies. One of today's problems is, therefore, to measure the innovation in services, being them difficult to quantify too [19; 23]. Nowadays many empirical studies are made to find a way to calculate the real contribution of a service to an innovation and the real innovation in a service. This point carries us to the next one.

Services and innovation
Innovation in services is considered both as a factor and a product of the economic growth. Innovation is, of course, a way to develop an economy, but is also an outcome of the research centres and universities. Research centres and universities are good examples of advanced services. We can then argue that innovation in service is, at the same time, a factor of production and a product itself. Therefore policy makers have to be involved either in innovation in the services, or innovation for the services, in order to improve the flows of knowledge in the economy. Services and the industrial system are not divisible and they can produce externalities and synergies between each others. The structure of the services sector and, above all, the role of the State in supporting it, can influence its capability to produce and transmit innovation. In other words, we can ask uorselves: which kind of context can advantage innovation? Can local innovative district be reproduced in other areas? Is a context it linked to a specific geographical and institutional system? A recent survey carried out by OCSE shows that a quarter of the resources spent in R&D is used for innovations in services. Several studies show that the services sector is the one that draws the biggest profit from introduction of new technologies. This fact explains why there is a growing new interest in the role of the context and of the innovative enviroment.
We could state, in few words, that the literature on innovation and services involves at least four issues: a) tipology of innovation (innovation of service, of product, of process); b) kind of innovative activity (R&D, project work, e-training, e-marketing, software consultancy); c) goals (efficiency, quality improvement); d) types of pre-existing technologies and sources of information involved [2; 3; 19; 23; 25].
In the following paragraphes we can analyse the link between services and innovation by facing three important matters: definitions, policies and context. After this very short discussion, we illustrate a synthesis of three interesting Italian cases coming from some recent debats: the growing importance of the Universities; the new job opportunities for women; the changes in health sector.

Finding a definition: the first double obstacle to overcome
The concept of innovation and innovative systems in the literature is very broad. We can start trying to give a definition of innovation and to link this concept to a possible definition of service. The economic theory of Innovation, that is the production of new aknowledgments, has followed different areas of research. In the beginning, this theory assumed a linear approach to this argument (neoclassical studies); than, the modern theory introduced a multidimensional approach which was more useful in explaining the natural complexity of the innovation processes [3; 19; 24].
Starting from the studies of Arrow and Nelson, in the Sexties, the Economics of Science and Innovation has analysed both the creation of knowledge in a business context (new technology) and the innovation created in the centres of research. The first kind of innovation has to answer to the traditional economic conditions, i.e. maximisation of profit and minimisation of costs. The second one, generally more expensive, can generate pure knowledge. Moreover, the high levels of costs in research have three important features: indivisibility, uncertainty, non-appropriation of investments. These are the reasons why it is necessary to guarantee that the level of investments in R&D reaches the point of Pareto's efficiency by means of government policies. The main idea found in the traditional literature is that the innovative process is essentially a discovery one, where new knowledge can become new products. This path starts in the laboratories of R&D and finishes in the firms production departments. The technological progress, in this linear model, depends strictly on the communication skill of these two actors.
If we look, instead, at the modern theory of innovation, the picture is not so clear. Some aspects stand out very clearly. Many empirical studies show that innovation does not follow this linear sequence all the time. It is a more dynamic process, implying a relationship of interdependance between the two actors involved. In this vision, innovation is a complex process that causes accumulative and irreversible changes in the long term. During this non-linear sequence the learning in itinere, which was not considered in the previous approach, plays a crucial role. Innovation stops being taken as exogeneous and becomes a path-dependance factor, strictly linked to the behaviour of firms and the external context.

We can adopt the new systemic approach to solve the ancient question of the definition of innovation. This approach, used by OCSE, considers innovation a result of the interchanges involved among the different actors of an economy. Knowledge systemsand knowledge economy are two expressions where innovative context is considered as a set of institutions whose interactions determine the innovative performance of an economy [24]. In this case, change and learning seem to be the two sides of a same coin. But, what kind of role does the services sector play in this picture? How can we quantify its contribution in a similar complex system?
As we did for innovation, first we have to examine the meaning of service. The National Institute of Statistics in Italy has today adopted a very wide definition of service activity: a service is something which makes a change in the conditions of consumed goods or in the fisical and mental conditions of the consumers; this change is always caused by another economic unit [17].
This definition allows to understand the two essential dimensions of the services activities. On one hand, we have the traditional charateristics of the intangibility of the product and contemporaneousness of production and consumption; on the other hand, it is stressed the necessity to considerer services with a completely different logic from the one adopted for the other goods, causing the attention to be moved from production to consumption moment. That is, from producer to consumer/client/user and his needs/interests involved [11; 2].
We note also that the lack of agreement in defining both service and innovation causes a lack in empirical and theoretical studies: it is difficult to organise a reference methodological frame without a precise definition as starting point.

The context: synergies between environment and innovation
The most common question is what can support an innovative process. Evironment and context seem to be the main generators and promoters of innovation [8]. Several theoretical works underline the more and more crucial role played by relationships among the differents actors existing in a restricted area (the context). Most authors focus their stuidies on the link between innovation and context, talking about a complex portrait formed by institutional, economic, social, political set-up [8; 15].

Any innovation implies a change in the existing set-ups (and a change in the previous equilibrium) and, therefore, a pro-innovation context is a place where innovation will try to expand, reproduce and grow by itself. The set of advantages and resistances in the context generates more, or less, favourable environment for progress. This means that not only do we have to considerer pure investments in research, but also which innovation can be obtained by a previous one.
Yet again, the networks of existing relantionships in the social set-up are important factors, together with an elastic law system. From a legislative point of view, Italy does not seem very open to innovation [8].
In its widest sense, context is also responsible for what we can call a spontaneous attitude to innovation. This would explain why similar economies behave completely differently in a high innovative development period.
All innovations introduced into existing and steady processes spread quickly. Generally the correlation between an efficient solution and the urgency of the problem determines the level of profit of the innovation and the speed of its spread. No innovation happens by chance, but is the result of efforts in facing a crisis and a lack of resources. The IT revolution seems to have came about due to the oil crisis of 1973.
According to Schumpeter, innovation does not stop after the solution of a single problem, but it tends to produce positive externalities that overcome the starting point. In order to increase this effect, the policy makers should concentrate their efforts in minimising the legislative barriers and maximising the resources for R&D activities.
Policies and innovation
Nowadays, the principal Italian innovations are in public utilities services. Some authors talk about Welfare mix, that is a new type of relantionship between State and society [5]. In the Welfare mix model public intervention becomes, lesser and lesser, a production activity and, more and more, it becomes an action, in order to clarify the rules, create incentives, favour the birth of other subjects (non-profit organisations) and services networks.
This model needs an efficient information network able to assure quality and transparency. Taking into consideration a local system, the policies that can be put in to use, thanks to the innovation in the services sector, are those that create networks of cities and transnational networks [22; 24]. These networks are alternative to the traditional geographic maps and are the result of the new technologies.
Finally, we must not forget the importance of policies to safeguard innovations. Many innovations are complementary and interdependant so that one innovation can bring and support another: the protection of a single innovation means to favour the development of this silent network. National bounderies and sectors bounderies are not able to protect the right of use of one innovation; patents are less and less able to protect the economic value of an innovation and the main future matter, for the modern economies, seems to be just the safeguard of intellectual property right [8; 24].
The role of Universities and R&D centres
University-industry knowledge transfer is nowadays a key research subject both in Economics and Management studies, as well as a top entry in the science and technology policy agenda of a number of developed and developing countries. The relationships between university and local development, or city development, is investigated in a lot of recent publications [4; 15; 24]. This theme involves many aspects: the role of education in the innovation process and the role of institutions in promoting education and innovative capability. In short, university produces innovation and, at the same time, it is a service that uses innovation.
The cultural and research world is the one that consumes more innovative services. We can find two elements linked to the nature of research activities: communication of information and production of new knowledge. Both are strictly linked to the development of NICT and transport networks. The inter-university networks re-draw the paths of knowledge within different sectors and within different regions. Territorial bounderies and sectorial bounderies are overcome by the natural trend in the rapid diffusion of any incremental innovation, if this innovation is easy to introduce in the existing socio-economic tissue, without too many obstacles or too many rules to change.
Innovation in services and labour market: the case of women employment
As we have already seen, the increasing of women's employment rate is an example of good relationship between innovation in services and labour market.
Actually, women, on average, seem better inclined to accept flexible contracts, like temporary work contracts and free-lance contracts. Recent statistic surveys permit to value the existence of a correlation between the growth of tertiary sector and the rise in women's employment. The local importance of tertiary sector is highlighted by these data: 30% of advanced Italian tertiary sector, at the end of 1998, was concentrated in Lombardia and more than 20% was in the metropolitan area of Milan [13; 28].
A high rate of development of the tertiary sector seems to characterise those countries with a high rate of women's employment. In Italy the advanced tertiary sector is not as well developed as in the rest of Europe (Italy is an slow IT adopter) and, therefore, there are wide potential areas of growth still existing in services, especially in those most innovative [9]. This is confirmed by the ratio between average income pro-capite and demand of services.
In particular, the services sector for enterprises and the R&D one is where there is a high percentage of women employment: real estate agencies, IT and research are the fields where, on average, almost 40% of employees are women. In the social services sector, a very dynamic sector today, this percentage reaches the 50 or 60% [12; 13; 16].
Innovation in social and health services: the Italian case
In Italy during the Nineties we saw a real change in social services which can be considered a cultural innovation. There was an attempt to diversify the offer introducing different types of structures for different collective needs (minors, old people...). The progress in the data elaboration technology and in the use of some services (i.e. tele-medicine) has lead to a new consideration of the territory and of the choises of localisation. An efficient transports network should allow a good level of accessibility to all these essential services. Today access and use are considered the two key features for good urban planning of public services, in which social and health services are at the top of the list [6; 7; 17; 20].

Conclusions

From what we have seen, innovation seems to be an important element able to contribute to the economic growth much more than other factors. In the last few years, services have had a better part of the innovations produced also by other sectors [19; 23; 24].
As we can see, the word service, coming from servitium, condition of slave, has definitely lost its original meaning. Services are not a residue of productive economy, as seen in the National Accounting, but have taken on a new power so to become a driving force in modern economies. As locomotive of innovation the new services can change social and cultural habits (i.e. e-commerce, new media...).
Services sector has applicated the innovations more than produce them. Services act as innovators within the system, they are places for spreading and growing innovation. Services sector works on a relationship of interpersonal exchanges that has a double meaning, both economic and social. This generates those intangible goods called relational goods that the services are able to incorporate, and transmit, by means of new ways of use and new applications. In this way, the innovative and creative dynamics of a society take shape in the new services and cause a real revolutionary impact. Finally, services seem also to be able to safeguard the heritage of those tacit competences, which characterise every local economy, from the risk that, instead of a diffusion, a missing of knowledge should take place and bias the future socio-economic development.

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