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Excellence in service innovationCBI/QinetiQ report on innovation in

UK service sector businesses

www.cbi.org.uk

Report sponsored by

For a copy of this report in large text format, please contact:

Chris Cassley

Innovation, Science & Technology Group

T: 020 7395 8191

E: chris.cassley@cbi.org.uk

July 2008

ISBN 978-0-85201-686-2

Price 45.00

Copyright CBI 2008The content may not be copied, distributed, reported or dealt with in whole or in part without prior consent of the CBI.

69Excellence in service innovation

Footnotes

To avoid too much overlap with a concurrent study on service sector innovation 1 by NESTA and the Department for Business, Enterprise and Regulatory Reform (BERR) we excluded the following sectors from this study: logistics, construction, environmental services and internet recruitment services for business. However, both our studies include retail examples.

www.enginegroup.co.uk2

Note that these are the main factors in the companies innovations described to us 3 in this study, but other aspects of their innovation work may involve different sets of factors.

GVA measures the contribution to the economy of each individual producer, industry 4 or sector in the United Kingdom. The link between GVA and GDP can be defined as: GVA plus taxes on products, less subsidies on products, equals GDP. Source: Office of National Statistics.

Other components of the business services sector include advertising, technical 5 testing and analysis, industrial cleaning, market research, data processing and R&D services.

Innovation Statistics for the European Service Sector, Pro Inno Europe, May 2007.6

Office of National Statistics; Service sector survey, CBI/Grant Thornton, November 7 2007; Globalisation and the changing UK economy, BERR, February 2008; Economics Paper No. 19, Business Services and Globalisation, DTI, January 2007.

Percentages have been rounded and an adjustment has been made for FISIM 8 (Financial Services Indirectly Measured). Source: Globalisation and the changing UK economy, BERR, February 2008.

Conducted as part of the fourth Community Innovation Survey alongside other 9 European countries, and reported in Innovation in the UK: Indicators and Insights, DTI Occasional Paper No. 6, DTI, July 2006.

European Innovation Scoreboard 2007, European Commission.10

TrendChart (2006), Can we measure and compare innovation in services?, European 11 Trend Chart on Innovation, June 2006.

Innovation and public procurement- a new approach to stimulating innovation. CBI/12 QinetiQ, October 2006.

Demanding Innovation: Lead markets, public procurement and innovation, 13 Georghiou, L, NESTA, February 2007.

Top 100 most powerful brands, BrandZ survey, Millward Brown, April 2008. 14 See: www.brandz.com

R&D Scoreboard, DTI, 2007.15

Investment in innovation An analysis of business investment in innovation and 16 implications for public policy, CBI/QinetiQ, March 2007.

Taking services seriously How policy can stimulate the hidden innovation in the 17 UKs services economy, NESTA research report, May 2008.

The sources and aims of innovation in services: variety between and within sectors, 18 Tether, B.S., Economics of Innovation and New Technology, January 2003.

The CBI has identified similar problems in other regulated industries, such as 19 micro-management by regulators in the mobile telecoms sector. Complying with an increasing burden of regulatory demands reduces time available for key staff to work on innovation.

HSBC spent 301m on R&D in 2006 (data from the 2007 R&D Scoreboard, DIUS).20

Winning at services innovation, PRTM, 2004. Available at www.prtm.com 21

Wiki- A collection of web pages designed to let anyone who accesses it to contribute 22 or modify content using a simplified mark-up language. Definition from Wikipedia.

See: A question of culture? Collaborative innovation in UK business, CBI/3M/Design 23 Council, February 2001.

Open innovation, Chesbrough, H, Harvard Business School Press, 2003.24

BT Wholesale provides a hub for network to network interconnection and transit 25 calls and also provides permanent data connection services for banks, as well as working with a number of smaller business customers.

Taking services seriously, ibid.26

Hidden Innovation- How innovation happens in six low innovation sectors, NESTA, 27 June 2007.

Innovation Nation, Cm 7345, Department for Innovation, Universities and Skills, 28 March 2008.

Knowledge Transfer Partnerships (KTPs) allow small firms to access the university 29 knowledge base, skills and technology, by supporting them to take on graduates to work on a project that is core to the strategic development of the business. The scheme also gives graduates valuable business training and experience.

Source: DIUS press release Funding research to answer the big questions 30 11 December 2007.

Are specific policies needed to stimulate innovation in services? Pro Inno Europe 31 (part of DG Enterprise and Industry), February 2008.

Taking services seriously, ibid.32

See for example: Innovation Report, DTI, December 2003; Pre-commercial 33 procurement of innovation, European Commission, March 2006; Innovation and public procurement, CBI/QinetiQ, October 2006; and Demanding Innovation, NESTA, February 2007.

Picture on page 55 copyright Andy Buchanan 2007

Excellence in service innovationCBI/QinetiQ report on innovation in

UK service sector businesses

Report sponsored by

Excellence in service innovation 3

Foreword 5

Summary 6

1 Setting the scene 8

2 Innovation case study themes 22

3 Policy issues 44

4 Conclusions and recommendations 49

Case studies

Footnotes 69

Contents

Arup 14

AVIVA Norwich Union 16

Benoy 18

BT Wholesale 20

Clarks 36

Fujitsu Services 38

HSBC 40

KPMG 42

Legal & General 52

Loch Lomond Seaplanes 54

Magic Lantern 56

Muckle 58

Newcastle International Airport 60

NIKE 62

Steria 64

Texperts 66

Excellence in service innovation 5

Foreword

A radical transformation of the global economy is taking place with the emergence of new economic

powerhouses such as China and India. Global competition is intensifying across every market sector.

In this world of rapid economic change innovation is fast becoming the most important aspect of

competitiveness among nations.

Traditionally in the UK innovation has been synonymous with R&D expenditure. However with

more than 75% of the UK economy based on a diverse range of services including retailing, financial

services, business services, leisure and tourism, it is timely to refresh our views and widen our

understanding of innovation in the service sector.

R&D does have an important role to play in innovation but alongside other factors such as investing

in design, marketing and training as well as innovation-related capital expenditure. By integrating

innovation in new technologies, products and processes with innovation in business models and

market positioning, organisations build and maintain their competitive edge.

This point is very well illustrated by the innovative application of technology around the internet

coupled with the adoption of new business models which is underpinning the delivery of added-

value services to customers. Over the last decade we have seen this innovative approach to service

delivery to meet customer needs resulting in a revitalisation of the travel industry through low cost

air travel, the growth of online delivery of public services such as filing tax returns and licensing of

vehicles, and a huge surge in online retailing, to name a few examples.

This latest research into innovation in the service sector, which has been a joint CBI-QinetiQ

partnership, has given us valuable new understanding of innovation practices and culture in some

of the leading service sector companies in the UK. For me the over riding message is that innovation

plays a crucial role in meeting customer needs, a message which I believe will be applicable to

enterprises in every market sector. I am sure that you will draw other valuable messages from this

very insightful report.

Graham LoveCEO QinetiQ

Excellence in service innovation6

Summary

Key messagesCompany culture and market issues emerge as the main drivers of service sector innovation, while a range of regulatory problems and difficulty in accessing skills and timely finance often create barriers to innovation.

Barriers to change within companies themselves also have the potential to derail or slow down innovation. Companies overcome this by developing new processes and structures to keep the flow of ideas fresh. Online collaborative tools are increasingly being used as part of the ideas generation and management process.

Building trust with customers and engaging with them to understand their real needs is often the starting point for service innovation, although companies also place great value on ideas generated internally or in collaboration with a range of partners, including universities.

While process is important to innovation, on its own it is not enough. Company cultur