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This report summarizes work on innovation in services that was conducted as part of the OECD’s horizontal project “Enhancing the Performance of the Service Sector”. The main conclusions of this report were synthesised, along with those of other modules of the project, into a short brochure Growth in Services: Fostering Employment, Productivity and Innovation (pdf, 300Kb) that was prepared for Ministers at the Meeting of the OECD Council at Ministerial Level, 2005. It was also included in a compendium of papers prepared as part of the project, Enhancing the Performance of the Services Sector.
As the report illustrates, the service sector is of growing importance in OECD economies. Productivity and employment growth are highly dependent on the success of service industries, and services are strong drivers of recent economic growth in most OECD economies. While service-sector firms in general are less likely to innovate than manufacturing firms, they are becoming more innovative and knowledge-intensive, and services such as financial intermediation and business services show above-average levels of innovation.
Policies for enhancing service sector innovation must reflect differences in the innovation processes in services and manufacturing:
- Service-sector innovation derives less from investments in formal R&D and draws more extensively on acquisition of knowledge from outside sources.
- Human resource development is especially important to service firms, given their high reliance on highly skilled and highly educated workers.
- The role of newly established firms in innovative activity is greater in services than in manufacturing, so that entrepreneurship is also a key driver of service innovation.
- IPR protection is less frequently used by service sector firms, but issues related to software and business method patents have implications for innovation in services.
To date, innovation policy measures in most OECD countries have not been attuned to the service sector. Only a few countries have integrated services-related concerns into innovation policies, and participation of service-sector firms in sector-neutral programmes remains low. Greater effort is needed to raise awareness of innovation policies and programmes among service-sector firms, as well as to design or adapt support programmes to be more relevant and useful to the service sector.
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