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Service innovation can give Europe a cutting edge

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Service innovation can play an important role in industrial policy because it has the potential to transform Europe’s businesses, thus making a strong contribution to the Europe 2020 strategy for smart, sustainable and inclusive growth. These are among the key conclusions of a report from the Expert Panel on Service Innovation in the EU presenting recommendations in five areas to achieve this objective.

The Panel was established in early 2010 to consider what steps could be taken to support service innovation in the EU’s new growth strategy. ‘Meeting the Challenge of Europe 2020: the Transformative Powers of Service Innovation’ is the Panel’s final report. It urges Europe to gear industrial and innovation policy towards services.

The importance of the service sector has grown significantly in the last decade. Nearly all employment growth between 1995 and 2007 was due to services. Now more than 155 million people can be classed as working in services: about 69% of total employment across the EU. Services also accounts for 71% of the EU’s gross added value.

This means that the innovative performance of the service sector has a huge influence on job creation, growth and competitiveness. The report examined how Europe can best harness the potential of services to transform entire sectors of the economy as well as the role service innovation can play in dealing with wider societal issues such as the aging population, climate change and welfare provision.

Beyond technology

The report stresses that building a competitive economy is not just about delivering technological innovation. Companies must exploit those technologies, not only in terms of developing new products and services, but also in the way they cultivate new channels to market, new business processes, new organisational structures and new business models.

These interactions mean that the distinction between the manufacturing and service sectors is breaking down. The good news is that plenty of European companies are trailblazing in the world economy because they are able to integrate high-value manufacturing with design and marketing services to create goods that customers want – such as mobile phones and cars.

But to remain competitive, Europe must build on those successes. The report lays down recommendations in five areas which should help put service innovation at the heart of European industrial and innovation policy.

Firstly, efforts must be made to raise awareness of the transformative potential of service innovation and the contribution it makes to European competitiveness. The Panel recommends that the European Commission develop a European Service Innovation Centre (ESIC) to strengthen links between policy-makers, business and academia. The ESIC would then act as a hub of expertise which could help to raise awareness about new developments and opportunities related to service innovation.

Secondly, political leadership at European, national and regional levels must be strengthened. The Panel wants to see the prospective High Level Group on Business Services provide a leadership role to promote a service perspective in policy-making. In addition, regional innovation strategies should give weight to the contribution services and service innovation can make to growth and economic development. Member States should also be ready to review the way they use the EU’s structural funds so they can better support innovative services.

The third area of recommendation centres around building new competitive business from service innovation while improving policy-making methods. The Panel would like the European Commission to develop mechanisms which can encourage the growth of new innovative services. The European Creative Industries Alliance provides a good example of what can be achieved. This platform brings together policy-makers and stakeholders with the aim of boosting the creative sector’s economic and innovative performance.

Fourthly, more effort must be put into developing dedicated programmes that can support innovative services. The European Commission is urged to develop a ‘Service Gazelles Programme’ to support small but fast-growing companies that are capable of creating lots of new jobs. Providing initiatives that help generate and improve links between service and manufacturing companies should also be high on the agenda.

The Panel’s fifth area of recommendation concerns the way service innovation can be used to meet societal challenges. In this respect, the Panel welcomes the concept of European Innovation Partnerships developed under the Innovation Union flagship initiative and it makes proposals on the way innovation partnerships and research demonstrators could be run to ensure that they play a key role in shaping future innovation and industrial policy. In addition, the Panel recommends that the next EU Framework Programme for Research (FP8) focus on technologies that can help enterprises develop responsive, real-time services in sectors like transport and logistics, construction, energy, telecoms and financial services.

The way ahead

The report was presented at the Panel’s final conference, which took place in Rome in February 2011. The conference also marked the start of a European Commission-backed awareness-raising campaign that aims to strengthen the role played by service innovation in modernising industrial policy. The six-month campaign will also be a chance to assess how EU structural funds can best be utilised to support service innovation.

Going for growth

The Europe 2020 Strategy is about ensuring that economic growth is brought about in a smart, sustainable and inclusive manner. The Expert Panel report is complemented by a set of case studies which shows that a range of European companies and organisations are already embracing innovation in a manner that befits the strategy’s goals.

For example, two Finnish companies have come together to develop a “smart” way to manage welding production. Their customer-driven method can improve welding quality, shorten production lead times and offer a more responsive service.

When it comes to sustainable growth, the Italian municipality of Parma shows what can be achieved by bringing technology and innovation services together. Its Eco-city initiative harnesses IT-driven logistics platforms, warehousing and green vehicles to provide the commercial sector with a delivery system that reduces city-centre pollution and congestion.

The Moravian Wine Trail in the Czech Republic proves that low-tech solutions can be innovative as well as inclusive. A 1 200km network of cycling paths supports local farmers and the wider economy by bringing in tourists who can enjoy the region’s natural and cultural heritage.

Contact

'Support for Industrial Innovation' Unit,
Directorate-General for Enterprise and Industry

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