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Identifying the potential for and barriers to regional service innovation policies

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What are the regional challenges faced in six ESIC Model Demonstrator Regions and can service innovation help addressing them? Is the regional policy mix conducive to transformation, induced by service innovation? How do regional stakeholders’ view on the regional innovation system and its attributes differ from the analysis provided by the ESIC teams? These questions are addressed in the ESIC Summary Assessment Reports, each exploring the regional innovation system of one of the model demonstrator regions.  The reports also served as a starting point for a dialogue between the ESIC teams and the regional stakeholders in order to identify the cornerstones of better regional service innovation policies in Emilia Romagna, Limburg, Upper Austria, the Canary Islands, Luxembourg and Northern Ireland.


The six model demonstrator regions in ESIC aim to foster economic growth by addressing a specific real life problem or societal challenge through service innovation.  Addressing the concrete, existing challenge is based on the assumption that services and especially service innovation is a key element in supporting the restructuring of existing industries and also in the creation of new industrial structures in global value chains (‘transformative power of service innovation’). The success of this view, which attempts to create favourable framework conditions for all actors of the innovation system, depends on the engagement of all the relevant local and regional stakeholders in setting and implementing an agenda for structural changes in service-driven economies.

The aim of the ESIC activities carried out in the regions is to assist regional policy-makers to test, update and improve their existing policies as well as to boost emerging industries by identifying the gaps and shortcomings in the wider framework conditions of the region. Through a study visit the ESIC team assessed the regional innovation system, framework conditions and potential for better exploiting the transformative power of service innovation in each region. The main outcomes of this summary assessment phase have now been published in specific reports that set the scene towards remaining regional ESIC work; peer reviews and policy recommendations.  The peer review phase encourages policy learning and provides external input into the policy development of the region and leads eventually towards policy recommendations with concrete action plans which will be presented in the policy briefs to be published in May 2014.

The summary assessment reports provide an evaluation whether the regional policy mix is conducive to the emergence of new business sectors/models or the transformation of existing sectors/models or not via the application of service innovation processes and concepts. This includes a mapping of the economic change induced by service activities and service innovation and also an assessment of policy options and policy support measures. Based on the analysis, the report provides initial recommendations for a systemic approach to policies as well as showcases examples of service innovation policies.

Each summary assessment report starts with the regional challenge which, in turn, provides the context for the whole ESIC activities. The report takes into account the current socio-economic situation, presents regional indicator data developed in the European Service Innovation Scoreboard and highlights both the strengths and weaknesses of the regional innovation ecosystem. The reports provide insights to be taken into account when designing the regional policy mix in order to unleash the transformative power of service innovation. Moreover, the reports provide several examples of service innovation and its use at the regional level. They can also be used as a benchmark and policy learning tool.

In brief, following observations in the regions were made during the summary assessment phase:

The Canary Islands

The Canary Islands have chosen to focus on tourism as the key industry, as well as on other sectors that are also important such as environmental services, energy and the management of natural resources, transport and logistics and ICT. Tourism is facing increasing competition, and the market is also becoming more diverse. Therefore there is a need for a change towards a more versatile tourism sector that can be supported by, and serve as leverage for, other industries.

In order to strengthen the regional competitiveness, innovation system could be developed in the following way:

  • Increasing knowledge development and transfer by supporting the cross-fertilisation of ideas;
  • Involving more actors in innovation and business model generation by raising awareness and providing suitable platforms;
  • Embracing all forms of innovation and taking a step away from traditional R&D; and
  • Decreasing the administrative burden faced by enterprises hoping to innovate and grow on the Canary Islands, as well as internationally.


Emilia-Romagna

The importance of the manufacturing sector is a direct result of the culture and history of the region. It is, at the same time, the region’s key strength but also one of the causes of its relatively under-developed services sector.

Innovation policies in Emilia-Romagna include broad measures aimed at supporting access to finance, grants for start-ups and above all, the creation of networks between ‘knowledge production’ centres and enterprises including service providers. In addition, a number of smaller initiatives aimed at improving the managerial skills of local entrepreneurs, provide financial support for the supply of assistance from external consultants.

The model demonstrator approach could be developed in the region through three main interventions:

  • Supply-side activities: to incentivise client diversification within existing services markets and encourage small service providers to move up the value chain;
  • Demand-side activities: to increase the awareness of ‘servitisation’ opportunities for manufacturing companies;
  • Management consultancy training: to increase the expertise of entrepreneurs and express the growth potential of the valuable start-ups.

Limburg

The Province of Limburg has already demonstrated its capacity to transform the region from an old mining area into one that hosts a developed chemical manufacturing industry and other innovation clusters. In addition, the region has an ambition to continue with the transformation into new, innovative fields. However, many of the key manufacturing industries in the region is under pressure from increased global competition and hence adjustments and changes to business concepts are needed and here service innovation can play an important role.

The regional development strategy is centred on several regional knowledge hubs.  The following activities could be crucial for the region in the future:

  • Promoting a service-innovation mind-set among manufacturing companies and especially SMEs;
  • Building more synergies between the regional campuses;
  • Thinking more in complementary policy interventions;
  • Considering the appropriate number of focal points;
  • Addressing service innovation through cross-border initiatives and programmes.

Luxembourg

In Luxembourg, the steel industry laid the foundation for economic growth in the past which has now been, for the most part, replaced by financial services. Dependence on a relatively few industries is a challenge. Luxembourg no longer can afford to rely only on a few cornerstones of the economy and therefore, it has chosen a diversification strategy built on knowledge-based services.

In the future, more emphasis could be focused in the following way:

  • Entrepreneurs should be encouraged to embrace all forms of innovation
  • Information exchange should be increased, for instance, via initiatives supporting public-private partnerships, as well as the cross-fertilisation of ideas
  • More attention should be paid to the means of generating new business models and to how service innovation can help create them
  • The possibilities to establish new forms of financing mechanisms, such as crowd finance, should be explored


Northern Ireland

Northern Ireland’s economy remains dependent on its traditional industries. Over the last decade, the Northern Irish manufacturing sector has altered markedly as a result of technological changes and pressures from global competitors. Despite the recent effort to update the innovation strategy, Northern Ireland does not have a specific strategic focus on service innovation.

The existing policy mix in the region is more product or good-based and offers few opportunities to promote service innovation. Some of the existing programmes can address service innovation but lack a clear focus. In addition the following aspects could be taken into account in the future:

  • More emphasis on the policy measures supporting knowledge transfer and circulation will be needed.
  • Service innovation can be also encouraged through public procurement, such as an obligation to invest in specific services.
  • A lack of financing available for service innovation, or for innovative service companies, is a barrier to promoting and enabling a shift to hybrid service-based products, etc.  
  • Building the trust between the innovation actors and strengthening the mutual collaboration among them would be essential asset for the region.

Upper Austria

Manufacturing is dominant in Upper Austria, and particularly the automotive, mechanical engineering, metal processing, chemicals, plastics, paper, wood and automation sectors. These highly specialised sectors have made UA the country’s most export-oriented region. Despite this relatively good performance in manufacturing, it is also apparent that the development of knowledge-intensive services is increasingly lagging behind the rest of Europe and that opportunities to transform existing manufacturing strongholds through service innovation are not being fully realised.

In the region, further attention could be focused on:

  • Launching a cross-disciplinary Service or Servitisation Factory where leading edge research, education and entrepreneurs meet and work together
  • Working on the well-known brain drain of young people especially by developing new curricula in which in-depth engineering knowledge is combined with courses in business, strategy, design and environment or a policy to create a new generation of engineers
  • Supporting processes of internationalisation in order to combine local buzz with international linkages
  • Identifying promising product-service combinations in the areas of health/ageing society, mobility and logistics, food and nutrition and energy, based on local strengths in manufacturing

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