Innovativeness of knowledge intensive business services as a factor for productivity

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1 Innovativeness of knowledge intensive business services as a factor for productivity Liudmila Bagdonienė 1, Agnė Kazakevičiūtė 2, Rasa Žilionė 3 Kaunas University of Technology, Lithuania The knowledge intensive business services (KIBS) serve for solving clients problems and increasing their competitiveness. At the same time KIBS are a highly dynamic, constantly growing and rapidly evolving sector. The article analyses innovativeness as the factor determining the productivity of knowledge intensive business service organizations. Having defined KIBS features and functions, having discussed problematic aspects of services productivity as well as peculiarities of KIBS productivity and having analysed the essence of innovativeness and its factors, the integrated model of KIBS productivity/productive performance and innovativeness drivers is presented. Introduction In modern dynamic business environment it is not enough for an organization to have a good strategy. Global competition and fast progress of technologies oblige organizations to react proactively, to develop and to innovate their activity. Managing the situation requires gathering and processing an incessant stream of potentially relevant information and different knowledge. However, organizations often lack knowledge and skills, experience, as well as they are lacking human and technological resources, time and so on. Providers of knowledge intensive business services help to overcome this lack. They use their knowledge, information, competence networks, experience, and technologies in order to meet complicated and very different needs of organizations clients, which emerge in solving business problems. KIBS sector is very heterogeneous; however, these services distinguish in intensity of possessed knowledge application, production of new knowledge, strong involvement of clients into the process of service provision, high competence personnel and so on. The changes of clients environment, as well as increasing competition in the sector of knowledge intensive business services induce the providers of these services to work productively and to innovate own products, business processes, to implement management, marketing and other innovations. In this context innovativeness plays an important role (Hilmi et al., 2010). The organizations distinguishing in great innovativeness more successfully handle environment changes and develop abilities, which guarantee higher achievements (Montes et al., 2004), as well as productivity. The aim of the article is to discuss innovativeness as the factor for productivity of knowledge intensive business services. Our research is based on extensive literature review and helps to increase the understanding of the nature of services productivity, the concept of innovativeness and its variables in knowledge intensive business services. The authors of the article refer to the attitude that 1) innovativeness is a com- 1

2 plex and multidimensional construct, which directly influences the results of organization s activity, among them both upon productivity and it is especially relevant for the enterprises being knowledge intensive business services in order that they could effectively perform their functions and 2) that in service research much more attention should be paid not to innovations but to the innovativeness, which is the prerequisite for emerging of innovations and ensuring of other achievements of a service organization. The formulated aim is pursued by considering the following delivery consequence: first, the features and functions of knowledge intensive business services, which are important in the sense of innovativeness, are defined; further on the specific aspects of service productivity are disclosed and the peculiarities of the productivity of knowledge intensive business services are pointed out, then the essences of innovativeness is analysed. Based on this knowledge the integrated model of KIBS inputs, productivity/productive performance and drivers of innovativeness is proposed. 1. Knowledge intensive business services Knowledge intensive business services are a characteristic feature of knowledge economics. They contain the activities in which knowledge is produced, accumulated and diffused (Miles et al., 1995, 18), modern technologies, specific abilities and professional knowledge are intensively used (Miozzo; Grimshaw, 2006, 1). Knowledge intensive business services are provided in close interaction with clients and are aimed to meet the needs of clients by offering individualized solutions (Bettencourt et al., 2002). One more characteristic feature of these services is a short life cycle (Haataja; Okkonen, 2004). When rendering knowledge intensive business services, a particular role goes to experts (Toivonen, 2006) and their methodological, technical, procedural and other knowledge (Gallouj, 2002; Toivonen, 2004; Kuuisto; Meyer, 2003). Leiponen (2006) calls constant interaction not only with clients but also with partners, as well as constant renewal and continuous increase of the portfolio of products and services as the exceptional features of KIBS. Murray et al. (2009) note tacitness, variability, inseparability and innovativeness as key attributes of KIBS. KIBS will vary in their required amounts of tacit knowledge, or know-how. The authors emphasize the tacit knowledge as less teachable, more complex, and more difficult to codify than explicit knowledge. Variability or heterogeneity of services refers to variation in the service s standard or nature. Service providers behaviour and performance may vary not only across providers but also within one provider across multiple client interactions. Thus knowledge intensive business services as much individualized are heterogeneous as well. Inseparability is the degree to which the service delivery and consumption can occur in a different time and space. Different knowledge intensive business services distinguish in uneven inseparability. KIBSs are embedded in a high-velocity environment, thus innovativeness represents potential opportunities to achieve a competitive advantage. Knowledge intensive business services are divided into P-KIBS (pure professional KIBS) and T-KIBS (technology-based KIBS) (Scarso; Bolisoni, 2011). In the latter group, in order to emphasize the application of information technologies when solving problems of clients, the sub-group of C-KIBS (computer and software-related services) is often distinguished. KIBS perform informative, diagnostic, advisory, facilitative, turnkey and managerial roles (Rajala; Westerlund, 2005). According to Muller 2

3 and Doloreux (2007), knowledge intensive business services have evolved from the activity as transmission of specific information for clients to the activity, which can essentially change the status of clients. Usually these services create great value added because integration of knowledge, personnel professional competence, close relations of a service provider and clients helps not only a service provider but also a client to be innovative and competitive. 2. Service productivity The productivity is the ratio of inputs to outputs (Dobni, 2004) and is a fundamental concept considering this efficient and effective use of resources (Kӓ pylӓ et al., 2010). At the national economy level productivity improvement is seen as the base of economic growth, national competitiveness and increase in the standard of living; at the organisational level productivity improvement is seen as a critical success factor and the foundation of profitability (Stam, 2007; Kӓ pylӓ et al., 2010). The productivity is a relative measure used to compare a previous time period to a current time period to get a sense of either efficiency gains (reducing costs of input) or revenue gains (increasing demand for and hence value of outputs) (Spohrer; Kwan, 2008,127). When services productivity is concerned, it is often pointed out that it is low productivity (Vahter; Masso, 2011) and that services are provided by using excess resources due to which unnecessarily high cost increases (Grönroos, 2007, 233). The expenditure of services provision can be decreased by the change of the structure of used resources, i.e. changing costly resources by cheaper ones, for example, to change the services rendered by contact employees at banks by internet banking, automated teller machines; at universities the change of traditional teaching by distance one and so on. Such changes serve the purpose if clients perceived quality, in comparison to the previous situation, is higher because the service of not worse (sometimes even of higher) quality is attained. If that is the case it is possible to talk about a cost-effective service organization as well as its revenue-generating capability. However, the decrease of expenditure can cause opposite effect. When perceiving that they get a lower quality service, clients will start searching for alternative suggestions, and this will decrease the income of the service provider. If a service provider follows traditional (manufacturing) paradigm of productivity, the client s perceived quality suffers most frequently. Only in the case when productivity and service quality are inseparable it is possible to talk about an effectively functioning service organization (Grönroos, 2007, 234; Sahay, 2005). According to Akehurst (2008), services productivity is not either so low or slowly increasing as it is possible to understand from the indicators of the national statistics. According to the author, in pursuing to objectively reflect services productivity it is necessary to grapple with the problems of isolating and measuring service output. Dobni (2004) states that services productivity is the concept to which different people give unequal meaning due to which the definition of productivity may vary with specific jobs, businesses and industries. Thus the understanding what productive performance in a job actually represents is necessary. According to Djellal and Gallouj (2010), in certain situations the traditional concept of productivity simply loses its meaning. The authors assume that it is nec- 3

4 essary to cease the following of this concept in measuring the achievements of an individual, team and organization. There are the activities; the essence of their productivity is not reflected usually in the traditional perception because it lies elsewhere, for example in creativity, quality of solution and alike. On the other hand, services are so different that it is not possible to generalise the problems of productivity to all of them. Haksever et al. (2000, 385) cite Baumol, who divides services according to the possibilities to increase their productivity into three categories: 1) the stagnant personal services, which are inert for the increase of productivity, 2) the progressive impersonal services, the increase of productivity of which does not cause great difficulties because the participation of a client is not necessary when rendering these services; 3) asymptotically stagnant impersonal services, which possess the features of the two above-mentioned groups, due to which the differences of the possibilities to increase their productivity manifest in different stages of life cycle of services rendering. According to Djellal and Gallouj (2010), it is possible to increase services productivity by applying three strategies based on different principles. The first principle of assimilation supposes the elimination of the specificities of services and to make them differ as little as possible from goods; the second principle of differentiation obliges to consider or maintain services peculiarities, the third principle of integration allows to differently combine the two first strategies that contradict each other and to apply multi-criterion assessment of a product, value and achievements. The authors assert that service enterprises have possibilities to vary these strategies, i.e. in some fields to follow the strategy of assimilation, in the others strategies of differentiation or integration. Though most researchers agree that it is problematic to apply the industrial concept of productivity for services due to the features characteristic for most services (intangibility, heterogeneity, consumption as well as simultaneity and inability to inventory their rendering); however, too little attention is paid to the conceptualisation of services productivity (Grönroos,2007, 233; Vahter; Masso, 2011). These features impede the identification of services' results, as well as their measurements (Dobni, 2004). According to Cleghorn (1992), when defining services productivity, it is necessary to consider the notion of both performance and results measures, not to limit only in the assessment of cost structure but also considering indicators of speed, simplicity and innovation. Sahay (2005) also points out that one-dimensional measurement oriented only to output is not suitable and multi-dimensional analysis is necessary for services productivity. Besides quantity and quality the following dimensions of knowledge workers productivity are identified: costs and/or profitability, timeliness, autonomy, efficiency, effectiveness, client satisfaction, innovation/ creativity, project success, responsibility/importance of work (Ramírez; Nembhard, 2004). Parasuraman (2002) states that traditional viewpoint to productivity in services is also limited due to client s participation, to be more specific, the input of his / her time, physical efforts and mental energy. In order to avoid this, productivity should be analysed from perspectives of an organization and client. Productivity can be increased by different ways. First of all the idea by Drucker (1991) should be considered that the productivity of services providers would be increased by working smarter. The information and knowledge, which become the most important component of modern goods and services (Stam, 2007), modern technologies, and innovations in work organization help to achieve this. Nevertheless Drucker (1991), by acknowledging the influence of advanced activity methods and technologies upon services productivity, yet does not believe that this will absolutely 4

5 eliminate employees of services. This particularly should be said about the sectors based on human relations, for example, social, educative and other sectors. Thus the heterogeneous competence of the employees providing services will remain the important factor of productivity. It is especially said about knowledge workers whose critical work resource within their essential value-creating tasks is knowledge. In order to enhance the productivity of knowledge workers, their competency enhancement and learning has to take place directly at their workplaces (Ley et al., 2008). According to Saarinen (2010), a lot of methods and tools can help employees to develop business processes, to find the ways in untypical situations and in doing so increase productivity. The same methods and tools are necessary for creation and implementation of innovations, for example, constructive collaboration, problemsolution, brain-storm and so on. Hartingh and Zegveld (2011) assume that the increase of productiveness of service business is influenced by specific knowledge and competence of managers. According to Drucker (2006), the leaders in knowledge based businesses must spend time with promising professionals: get to know them and be known by them, mentor them and listen to them, challenge them and encourage. The people are capital resource for the organization and critical to its business performance. Haas and Hansen (2007) state that time saved by leveraging the firm s knowledge resources, enhanced work quality as a result of utilizing knowledge, and the ability to signal competence to external constituencies have critical importance for the productivity of knowledge-intensive organizations. Improving the productivity of knowledge workers is one of the most important challenges for companies in economy based on information and knowledge. 3. Defining innovativeness Innovativeness performs the essential role when an organization is acquiring sustainable competitive advantage (Lin et al, 2008); it determines its abilities to engage in innovation as well as it has significant impacts on business performance (Hilmi et al., 2010). However, the concept of innovativeness has not been clear so far (Ellonen et al., 2008), and its ambiguity determines the use of other similar conceptions, for example, organizational support for creativity and innovations, innovative culture (Jaakson et al., 2011), corporate entrepreneurship (Rutherfod, Holt, 2007) and so on. These differently sounding definitions often mean the same. According to Wilson et al. (1999), innovativeness is a multidimensional construct. Lynch et al. (2010) indicate five dimensions of innovativeness: creativity, openness to new ideas, intention to innovate, willingness for risk-taking, and technological capacity to innovate. Hilmi et al. (2010) assume that innovativeness is the ability of an organization to create something new / to renew, to develop and implement new products and processes, to be change intensive and to want to meet new challenges (Azadegan; Dooley, 2010), to implement innovations (Hult et al., 2004), to influence changes, to eliminate business routines, which do not fit the new environment and to adapt new ideas matching with the present conditions of competition (Nguyen; Nguyen, 2011). Amabile (1997) aligns innovativeness with the concept of organizational creativity. Campa and Skerlavaj (2011) perceive innovativeness as the combination of innovative culture, technological and process innovations. Parsons (1992) relates innovativeness to the organization s power to capture commercialize value to the client current time and continually for years and points out that innovativeness de- 5

6 mands that an organization develops self-renewing characteristics. Thus innovativeness is the feature of an organization but not of a separate project (Cooper; Kleinschmidt, 1995) and has two components creation and adoption (Knowles et al., 2008). According to Wang and Ahmed (2004), organizational innovativeness is reflected by organization s strategic orientation, innovative behaviour and innovative processes. In innovative organizational behaviour Jaakson et al. (2011) distinguishes the behaviour 1) in initiating innovations and 2) in implementing them, and in innovative processes 1) the processes (systems), which are related to the distribution of resources for innovations and 2) the processes, which are related to the general work in inducing innovations. According to Wang and Ahmed (2004), organizational innovativeness assumes five forms: product, market, processes, behaviour and strategic. Marcati et al. (2008) state that it would be necessary to distinguish two levels of innovativeness: general innovativeness, which manifests in the level of openness for innovations, and specific innovativeness, which expresses organization s tendency to be among the first in adopting innovations in a particular field. What determines organization s innovativeness? What the drivers of innovativeness are and how they influence business performance, it has not been thoroughly analysed yet (Lin et al., 2008). Scientific literature discusses the environments determining innovativeness as well as internal factors of an organization and outcomes (Gilbert, 2011). Detre et al. (2011) relate innovativeness to organization s culture and thinking. According to them, innovativeness performs the role of the catalyst in the processes of innovation creation and implementation because in the organization it creates such environment, which stimulates to search for the ways how to meet not completely satisfied present and / or tacit future needs of clients. Chen et al. (2010) point out the importance of organizational context for knowledge management and innovativeness. According to the authors, the organizational context influences work environment and employees behaviour, i.e. mobilizes employees to more energetic change and knowledge production; due to this more favourable environment for knowledge management and innovativeness is being formed when creating new products and services. Campa and Skerlavaj (2011) point out that the strong cohesion between innovativeness and organizational learning exists. Muller et al. (2009) assert that the knowledge angels, which due to their talent and abilities accumulate and catalyse knowledge as well as create vision play an important role for company s innovativeness; so they increase innovativeness KIBS (knowledge intensive business services). The knowledge angels perform not only as knowledge brokers that accumulate and transmit already possessed knowledge inside and outside of an organization; however, they also transmit and apply the knowledge in new fields, and this helps find really new solutions of a problem. Managers greatly influence the creation of the environment inducing innovativeness. Through transformational leadership managers can contribute to the creation of necessary favourable condition for innovations implementation and so influence innovative behaviour of employees (Sarros et al., 2008). Transformational leaders being oriented to innovations can strengthen the innovativeness their followers through motivation and intellectual stimulation (Lee, 2008). According to Ellonen et al. (2008), interpersonal trust, i.e. based on competence, benevolence and reliability, stimulates innovativeness at knowledgeintensive organizations. Frambach and Schillewaert (2002) emphasize the importance of personal innovativeness. Personal innovativeness refers to the tendency of an employee to accept an innovation within a product class, irrespectively of the communicated experience of others. According to the authors, personal innovative- 6

7 ness is influenced by demographic characteristics, company and work tenure, and experience within the product class. Im et al. (2003), having analysed client innovativeness, differentiate the concepts of innate and actual innovativeness. Innate innovativeness constitutes the innovativeness as the part of each individual; actual innovativeness evidences how an individual adopts a specific innovation. According to us, such distribution of innovativeness is important not only for external but also for internal clients behaviour. In summing up it is possible to state that innovativeness as the ability to constantly innovate the activity; but not innovations as the result should be the strategic aim of knowledge intensive business service organizations. 4. Integrated model of KIBS productive performance and drivers of innovativeness On the basis of theoretical considerations concerning KIBS, service productivity and innovativeness we propose integrated model of KIBS productivity/productive performance and drivers of innovativeness (Figure 1). The model consists of three closely C L I E N K I B S F I R M INPUT o knowledge, o labor, o capital, o technology, o facilities, etc. DRIVERS OF INNOVATIVENESS OF CLIENT FIRM SERVICE PROCESS DRIVERS OF INNOVATIVENESS OF KIBS FIRM OUTPUT PRODUCTIVE PERFORMANCE/ PRODUCTIVITY o quantity o service quality o quality of solutions o innovation o creativity o personal mastery o timeliness o service excellence o new/better experience o partnership, etc. KIBS FEATURES o knowledge (explicit, tacit) intensity o high competency (knowledge angels) o client involvement o information asymmetry o variability o innovativeness o inseparability KIBS ROLES o informative o diagnostic o advisory o facilitative o turnkey o managerial ORGANIZATIONAL CONTEXT o organizational learning o organizational culture o job domain (work design, work process, tools and technology) o transformative leadership o trust o constructive collaboration of knowledge workers o knowledge worker s behaviour INDIVIDUAL CHARACTERISTICS o socio-demographic o skills and abilities o innate/actual innovativeness o mood at work Fig. 1: Integrated model of KIBS productive performance and drivers of innovativeness 7

8 interrelated components: resources (input), their transformation process, in which employees and clients of knowledge intensive business services are empowered, as well as output, which we call productive performance in the model. In order to solve clients problems KIBS organizations empower own and clients resources. Empowerment processes at a KIBS organization can also be innovative subject to the input of client s problem uniqueness. In the process of service provision particular KIBS features and prevailing roles, organizational context and individual features of employees will influence KIBS innovativeness as the ability to create a new service / solution, to acquire new competences, to change old or to launch new procedures and methods, to create value for a client and so on. The list of the dimensions of productive performance presented in the model is not final because the expression, which productive performance acquires, depends on the character of the client s problem. Conclusions and limitations Service productivity is the serious theoretical and practical problem, which is being solved by referring to scientists of different fields. Despite plenty of researches, it is hard to unambiguously define what service productivity is and how it is measured. However, it is agreed that traditional understanding of productivity is not suitable for services and that in services quantity has to be separable from quality; in addition, productivity in services can often acquire other manifestations, for example, creativity, personal mastery, etc. In the variety of the factors of productivity increase the important role goes to the innovativeness, which is the strategically important feature for knowledge intensive business services. Innovativeness greatly determines how productively the providers of knowledge intensive business services will work and will successfully fulfill their functions in order that would help business subjects to develop their activity and strengthen their competitiveness. Knowledge intensive business services distinguish in innovativeness more than any other groups of services because they have to offer clients unique solutions to their problems. Nevertheless our performed analysis of scientific literature has shown to us that innovativeness of KIBS organisation has been analysed much less than innovations. We present the integrated model of KIBS productive performance and drivers of innovativeness, in which we distinguish three closely related components: input, service process and productive performance as well as we identify the factors influencing innovativeness. As every research, this research has certain limitations: 1. We have limited ourselves only in the analysis of innovativeness of the organizations of knowledge intensive business services and we have not analysed innovativeness of clients organizations. Knowledge intensive business services distinguish in strong involvement of clients into the process of service rendering; thus it should be researched how their innovativeness influences the productivity of the organizations of services group being analysed; 8

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13 Wilson, A.L.; Ramamurthy, K.; Nystrom, P.C. (1999): A Multi-Attribute Measure for Innovation Adoption: The Context of Imaging Technology. IEEE Transactions on Engineering Management 3, pp Author(s): Liudmila, Bagdonienė, Professor Kaunas University of Technology Faculty of Social Sciences Department of Business Administration K.Donelaičio St. 20, LT Kaunas, Lithuania liudmila.bagdoniene@ktu.lt Agnė Kazakevičiūtė, PhD student Kaunas University of Technology Faculty of Social Sciences Department of Business Administration K.Donelaičio St. 20, LT Kaunas, Lithuania agne.kazakeviciute@stud.ktu.lt Rasa Žilionė, Lecturer Kaunas University of Technology Faculty of Social Sciences Department of Business Administration K.Donelaičio St. 20, LT Kaunas, Lithuania rasa.zilione@ktu.lt 13