Knowledge Services in the Innovation System

Aija Leiponen

No 185 in ETLA B from The Research Institute of the Finnish Economy

Abstract: This study examines the nature and role of knowledge-intensive business services (KIBS) in the innovation system. KIBS have been found to be important users and disseminators of knowledge. This study assesses their role in creating new knowledge. In addition, issues related to management of knowledge in interfirm relationships are investigated. Particularly, governance of intellectual property through contractual mechanisms is studied. The main results of the study are that KIBS firms can be highly innovative. Innovative service firms invest in standardizing services and underlying procedures. Service innovation is thus associated with organizational learning and knowledge, even though individual experts’ skills are very important for competitive service provision. Radical service innovation requires combining diverse internal and external sources of knowledge, while incremental learning in client relationships facilitates less drastic innovation. KIBS firms’ learning and innovation strategies are also reflected in their contractual techniques to protect and govern knowledge. Particularly relevant are the control rights to service output, because they affect the incentives to innovate. Organization form and innovation are thus closely related. Advances in information and communication technologies improve efficiency of service production and delivery, but they cannot be the sole basis for international expansion. Personal interaction with clients and visible market presence continue to be necessary. Nevertheless, codification and standardization of service packages as opposed to providing purely expert skill-based services support the adoption of and benefiting from these new technologies

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