Paper to be Presented at the DRUID Academy Winter 2002 PhD Conference

2 Introduction 1 This paper provides an overview of findings and conceptual arguments with respect to services, and innovation in services, especially from a 'systems of innovation' perspective. It will draw especially on the work undertaken by CRIC on innovation in airports, in health care, and in retailing, but will also be informed by wider considerations of services and their innovation activities. By 'services', we mean all sectors conventionally identified as services, although telecommunications and computer software – which are especially technological-are being examined more fully and separately in other ESSY projects. The paper begins, in Section 1, by outlining the economic significance of services and discusses what is meant by services. Section 2 concerns the 'systems of innovation' perspective with regard to services, and summarises the work undertaken by CRIC within the ESSY framework. Section 3 then draws on these studies to provide summary answers to main questions raised by the 'systems of innovation' perspective in relation to services. Finally, Section 4 provides a new perspective on 'systems of innovation' that has evolved out of our work within ESSY. The main points of the paper are the following: • Services are not (normally) engaged in the production of tangible products, but cover a huge range of diverse activities, associated with various types of transformation-i.e., transformations of people (physically and mentally), of things and of information. The great diversity of service activities is not reflected in the depth of understanding of innovation in services, which have been neglected in favour of studies on manufacturing. However, there are important connections between service innovation and artefact innovation as normally defined. More research needs to be done before we can claim a comprehensive understanding of the problems of innovation generation and diffusion with services. • The study of services brings to the fore, to a greater extent than studies of manufacturing, 2 the interrelationships between business models, organisational forms, technology and 3 outputs. Studies of services also highlight the significance of knowledge forms other than, or complementary to, technological knowledge (and R&D). In particular, the significance of market knowledge and procedural knowledge is highlighted. • Many services show high degrees of interaction and interdependency between the service provider and the service user, as well as between provider and equipment suppliers. Such interaction and interdependency is a central feature of 'systems of innovation'. However, the diversity of activities within services means there is certainly …