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ABSTRACT This empirical study examines knowledge creation activities in business service firms. Using survey data of 167 Finnish knowledge-intensive business service firms, I explore hypotheses about the organization of learning and innovation. Results from an exploratory factor analysis combined with regression analyses suggest that, first, collective application of knowledge is more likely to lead to significant improvements in services than individual application of knowledge. Second, external sourcing of knowledge, particularly from customers and competitors, is more conducive to new service introductions than local and incremental learning on the job. Broad information sourcing and internal cooperation to mobilize knowledge thus support the renewal of knowledge-intensive business services. More significant service innovations are also supported by highly educated employees, but the role of R&D investments is not significant.
KEY WORDS: Knowledge, innovation, business service firms, Finland
1. Introduction
Despite the growing role of services in industrialized economies, innovation has mainly been studied in the context of manufacturing. In the manufacturing sector, new goods are tangible and research and development (R&D) investments are well documented. In contrast, services are characterized by intangibility and user-participation (Miles, 1994; Boden and Miles, 2000), whereby each service process is different. Some creativity is thus required of every service delivery. However, service innovation can be distinguished from customization. Service innovation involves changes in the process of delivering existing services or the development of completely new kinds of services.
Qualitative studies of service innovation have argued that the innovation process is more informal and ad hoc than innovation activities in the manufacturing sector (e.g. Sundbo, 1997). For instance, investments in R&D play a less prominent role in the development of new services. Moreover, the process of service innovation has been suggested to be qualitatively different from manufacturing innovation. In particular, Barras (1986) has proposed that in financial services the innovation cycle is reversed: technology adoption ignites service process innovation, which eventually leads to service product innovation. This is in stark contrast to the cycle of innovation described by Abernathy and Utterback (1978).
Independent of the process of innovation, recent survey data indicate that innovation does occur in the service sector. According to the Finnish Community Innovation Survey of 1997, approximately 20 percent of firms in a sample of 550 service firms1 reported having...