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Survival in the services

Business-to-business and business-to-government services are often thought to lack innovation, but this is definitely not the case, as Norman Rose, Director General of the Business Services Association explains

Service providers must innovate in their service offerings if they are to survive in today?s competitive market. It is not good enough to bid for a contract and hope that the services offered at its initiation will be sufficient to satisfy the client by its conclusion. Inevitably, the client will wish improvements as they become available and are relevant to the contract. This may be catered for in the original specification of the contract or may be provided at an additional, agreed cost. Alternatively, it may be agreed that new ways of providing the service make it possible to provide more for the same (or sometimes less). All this is common practice and knowledge so why mention it at the beginning of this article?

The reason is simple: there is continuing controversy as to what constitutes innovation. In the IT and electronics industries it is easy to identify innovation ? new functionalities, additional features, new programs. New models of cars display innovation in a variety of easily recognisable ways ? greater engine efficiency, diesel engines which perform as well as their petrol counterparts, automatic headlights, rain-sensitive windscreen wipers. Rarely are there such radical developments in business services and, when they occur, they are rarely seen as innovation; they are viewed more as technological development ? but is that not innovation?

The European Commission is not convinced that innovation is rife in the sector. It finds that a lack of quantifiable innovation based on criteria used in other sectors of the economy, especially the amount spent on R&D. This, however, is a flawed analysis. The Shorter Oxford English Dictionary defines innovation as ?the introduction of novelties; the alteration of what is established?. This places the emphasis on doing new things and change. What is innovative is new or an improvement on what existed previously. It is difficult to imagine what service delivery looked like 10 years ago, far less 15 or 20. Much less was mechanised; more was manual. Much had remained reasonably constant for many years because clients liked it that way. All this has changed. World-class companies and their multinational clients thrive on innovation.

Consider the following as examples from bluecollar services.

But innovation is not the sole preserve of equipment and technology. The way in which services are provided, the efficiency with which they are provided and the time at which they are provided can be equally innovative and provide benefits to all parties. These are rarely seen as innovation ? more a response to client or user demands; but they are more than that.

This is a vibrant sector that has the ability and desire to respond to challenges

Frequently, they will be introduced at the suggestion of the service provider. On other occasions, the service provider has to be able to respond to a client?s request by offering innovative solutions to the client?s problem or the desires of the users of the services. It is easy to overlook the role of users in promoting the need for innovation. Users, whether the general public or staff within client organisations, are clear what they think they should receive and, as savvy consumers, are aware of what is best in class. While they may not realise the constraints within a contract, they are good catalysts for change since the acceptability of the services provided is proved by the satisfaction of those who use them. User surveys can raise issues that are then considered by the parties and on which appropriate action can be taken.

There is only one area where this is less so ? Private Finance Initiative (PFI). It is now accepted that the PFI contract is not conducive to innovation after it has reached financial close. The mechanisms of this cumbersome contract militate against flexibility throughout the service delivery period. The main cause of this lack of innovation is that once projects reach financial close there is no incentive for service providers to innovate and this inhibits developments in technology that can bring real benefits for the end user. Therefore, while innovation is commonplace when the project is under tender, once financial close is reached there is no incentive for the service provider to invest in innovation as they will bear all the risk. The implications of lack of innovation in PFI are huge.

Over the life of a 30-year PFI contract, technological advances will be staggering and if there is no incentive to invest in these developments then the client will significantly lose out and public services will inevitably be affected. This is unfortunate as it is in these areas that most innovation is often required. Our public services are often mired in past inefficiencies that need to be eradicated if we, the citizens of the UK, are to receive the services we deserve.

Even when this is included at the contract negotiation stage, little attention is paid to the major advances and changes which might occur during the long life of the contract. Without the opportunity and incentive to invest in innovation, the recent massive investment in public services will be heavily undermined. Without modern and innovative solutions, Britain?s public services will inevitably become inefficient and in need of investment once more.

What is needed is a culture of incentive payments within PFI contracts in addition to a regime of deductions. This would give service providers more scope to work with clients to innovate in these important contracts within an innovationfriendly environment.

Overall, then, the picture is one of continued development and improvement of services to meet client requirements and user expectations. This is a vibrant sector that has the ability and desire to respond to these challenges. However, if this is to be achieved, clients must be ready to share the risk of innovation and to allow incentives for the service provider to innovate. If this is achieved, then the potential of an industry willing to invest in innovation can be met and both clients and service providers can reap the benefits.


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