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Using the Transformative Power of Service Innovation in Upper Austrian Industrial Renewal Published on: 14/08/2014, Last update: 30/09/2015

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The economy of Upper Austria is characterised by the dominance of its competitive manufacturing sector including notably the automotive, mechanical engineering, metal processing, chemicals, plastics, paper, wood and automation industries. These driving industries have made Upper Austria the most export-oriented region in the country. Since the performance of the region’s industries is increasingly being threatened by global competition, sustaining industrial success has become a major challenge. Most of the efforts that have been made are extensions of existing strategies to support the manufacturing industries. So far, Upper Austria has largely neglected opportunities to modernise its manufacturing strongholds through service innovation. It is acknowledged that knowledge intensive service firms can play a role in improving the performance of manufacturing industries, but less attention has been paid to the fact that manufacturing industries can commercialise their knowledge in new, and possibly more profitable ways, by adopting service-based business models. However, the regional government is developing an economic programme dedicated to service innovation in order to unleash this ‘transformative power of service innovation’. How this can be done is one of the core questions behind the ESIC work for the region.


The areas to be promoted through service innovation

Firstly, the regional economy lacks companies that can act as ‘knowledge-brokers’ and enhance the performance of the manufacturing industries. Secondly, manufacturing firms need to engage in service production themselves to create hybrid offerings and develop smart production methods. These include high value-adding, product-service combinations that are essential for the competitiveness of Upper Austrian firms. To develop itself, Upper Austrian industry needs a supportive eco-system, which includes expert services and tailored education that can drive service innovation.


Strengths and weaknesses in Upper Austria’s innovation system


Lessons being learned that might be reflected in future policies

In Upper Austria, it is important to consider the existing policy portfolio and to identify opportunities for the renewal and streamlining of existing innovation support policies. Some renewal of existing policies and a discontinuation of out-dated schemes, as well as the introduction of totally new policy initiatives, are expected to be needed. Based on the analyses of the economic system and existing policy strategies, the ESIC team recommended that Upper Austria, and other regions dealing with similar challenges, should prioritise the policy actions that are outlined below.

Renewing and streamlining existing innovation support policies is a key starting point in helping local firms to exploit their knowledge in novel ways. This requires a thorough analysis of how services can spur both economic transformation and improvements in competiveness, given that the potential of service innovation has various distinct aspects that require their own respective forms of policy support. Also, a clear organisational and governance structure is required for the industrial renewal activities and for securing the lean and effective implementation of the development programme.

Promoting a greater awareness of how industrial renewal can be achieved through service innovation is a second priority for enhancing the region’s competiveness. A suggested method of raising this awareness is to highlight the strengths and weaknesses in the current situation and to contrast them with alternative future scenarios. The region will undertake a range of publicity activities aimed at promoting the transformative power of service innovation. These will include the appointment of an activator, who will work full-time to encourage industrial renewal especially through the setting up of R&D&I projects and the establishment of a Service Innovation and Industrial Renewal Factory, as a flagship initiative. This factory will be a centre where manufacturing firms can experiment with making the shift towards more service-based business models. This mutual learning can also be supported by linking service providers as well as academics to the service centre. Another measure is to create awareness around the transformative power of services by selecting and showcasing examples of firms that are successful in renewing their own business activities or those of other firms.

Fostering knowledge intensive services is another way to unleash the transformative power of service innovation. The intention is to analyse how the supply and demand of knowledge intensive services can be increased and to reform training and education to secure the supply of a multi-skilled labour force for Upper Austrian firms.


Practices that have the potential for transfer

The main reason for Upper Austria’s collaboration with the ESIC initiative is that services still receive little attention from both public and private entities in the region. Although examples of firms or industries that have been successful in their transformation through business innovation remain scarce, there are already a few policy initiatives that might be relevant to other regions. 

A transferable practice in Upper Austria is to be found in the Cluster Initiatives. Traditionally, these were mainly focused on individual manufacturing sectors such as the automotive industry. More recently, Upper Austria has been introducing Cluster Networks on topics including ‘human resources’ and ‘resource and energy efficiency’. Having a horizontal nature, these cluster networks go beyond the strict delineation between goods and service industries. The networks anticipate that the interaction between both sides of industry will be a crucial factor in ensuring a high level of performance in several domains. Also, Upper Austria is aware of the fact that the societal challenges of Horizon 2020 can best be addressed through an integrated approach.

Another example, in the context of Upper Austria’s well-known clusters, concerns ‘service infusion’. The Cluster Managers in the region recognise that many firms in the industrial clusters face similar challenges when it comes to servitisation. In order to support these firms in the exploration of services-based business models and service delivery, the Cluster Managers organise sessions where firms can exchange their experiences. Such mutual learning is an efficient way of sharing practices and creating partnerships, both of which have the potential to generate promising innovations.