University - business collaboration in services vis-à-vis manufacturing firms

University - business collaboration in services vis-à-vis manufacturing firms

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Article by Andrea Mina, University of Cambridge

Collaboration between universities and industry can be an important enabler of innovation in many industries, but its study used to have an overwhelming focus on the manufacturing sector.

This is no longer sufficient to understand the dynamics of advanced economies, including the UK, where services have become the predominant group of activities by value added and employment¹. Over the last few years a burgeoning literature has developed on service innovation. This has greatly benefited from the availability of new survey data on innovation inputs, activities and outputs well beyond the reach of traditional indicators such as R&D (with a narrow focus on technology) and patents, which tended to underestimate the innovativeness of service businesses. One central question is whether services innovate in a different way compared to manufacturing firms. R&D is generally assumed to play a less critical role in services than in manufacturing, while information and communication technologies should play a more pronounced role. The traditional distinction between product and process innovations can be weaker in a service context, as the delivery of many services consists of processes that take place through direct interaction with customers and these processes cannot be separated from the outcomes they produce. Moreover, the efficiency and quality of services often rely on organisational and human capital factors more than tangible assets². Are these characteristics associated with significant differences in the strategic choices that firms make about accessing external knowledge and collaborating with external partners?

The use of external knowledge by service and manufacturing firms

Firms may be able to seek external knowledge from various sources in the pursuit of innovation. They can engage with: competitors; other firms within the same group if they are part of a larger business; customers; suppliers of equipment, materials, components or software; universities and other public research organisations; consultants; scientific and technical literature (papers and patents); databases; professional and industry networks, conferences, trade fairs and exhibitions. These sources are not mutually exclusive forms of learning and firms can combine them in a variety of open innovation strategies.

External knowledge

Services seem to use more external sources than manufacturing (they display greater ‘breadth’ in knowledge sourcing) and collaborate with special frequency with customers and suppliers. These choices tend to have positive effects on their innovation performance. Analyses of European Community Innovation Survey data report that, on average, universities and other public research organisations have been less important sources of knowledge or collaboration partners for services than they have been for manufacturing firms. On the contrary, service firms seem to have valued more highly co-operation with private consultancy firms. In addition, manufacturers are more likely than services to use patents, trade fairs and exhibitions as information sources, and less likely to use databases and the web³.

Empirical evidence does not always confirm that the differences between services and manufacturers are as marked as one might expect. Differences within each sector can be greater than differences between sectors, and more similarities can be found, for example, between business services and high-tech manufacturing than between business services and, for example, transport or personal services, or between high-tech and low-tech manufacturing. At the firm level – and across sectors – co-operation with external partners increases rather systematically with internal investments in knowledge, whether through research and development (which should be more broadly defined than technological R&D) or human capital as sources of competitive advantage. The interactive nature of services may instead be reflected in their greater openness to knowledge exchange with more numerous and more diverse sources, and on average by a preference for informal over formal collaborations compared to manufacturers⁴.

Intra-industry Variety

The service sector contains businesses that are dramatically different from one another, which should caution against the temptation to overgeneralise the characteristics of services as innovators. The sector encompasses activities as diverse as business and professional services, telecommunications services and traditional personal services. It is possible to find a variety of examples of service firms that make intensive use of collaboration with external partners.

Starting from the most knowledge-intensive end of the spectrum, knowledge exchange strategies are central to the business model of companies such as IDEO or ARUP. Born as a product development company, IDEO has diversified into the provision of consulting services in health, energy, food and beverages, education, mobile and digital technologies. Part of its competitive advantage resides in its capacity to interact and share knowledge with clients, suppliers and the science base in the search for innovative solutions. ARUP, one of the country’s most successful providers and exporters of high-value services, has a strong portfolio of interactions with universities in the UK and abroad. The R&D service firms active in the Cambridge technology cluster are a similar example of continuous engagement with local, international clients and the research base.

In a different service domain, BT engages with university partners to scope for new service and product opportunities and to solve emergent problems. This requires dedicated investment tomaintain and nurture channels of communication with academic teams. The BBC routinely collaborates with academic partners for the delivery of specialised programmes. But engagement with universities can also be found at the cutting edge of more traditional businesses such as restaurants. The Catalan restaurant El Bulli, a renowned innovator in its sector, developed upstream collaborations with the science base as well as downstream collaborations with food manufacturers and the hospitality sector. Finally, companies classed as ‘service firms’ are not the only performers of service activities. Manufacturing businesses are expanding the range of services they provide jointly with their core products to create further value and retain customers. Among themwe find, for example, IBM, Xerox and Rolls Royce. These companies have been reported to partner with external knowledge providers specifically to develop their service profile, further blurring the division between manufacturing and service sectors⁵.

Table 1: UK Universities, HEIs and/or PROs as co-operation partners and information sources by industry (1998-2008).
Table 12

Table 2 cambridge

Sectoral patterns of collaboration in the UK economy

Analyses of UK Innovation survey data give us a good aggregate picture of university-industry interactions across sectors. Table 1 reports findings for two dimensions of collaboration for selected sectors: the share of firms that collaborated with universities, higher education institutions (HEIs) and/or public research organisations (PROs), and the share of firms that used universities, HEIs and/or PROs as a sources of information (independently of collaborative agreements)⁶.

The sectors that record the largest share of firms co-operating with the science base are Electricity, Gas and Water Supply, followed by Manufacturing, and then Business Services. The percentages of firms that report using the science base as a source of information are comparatively much higher in all sectors, and among services in particular (further indication of the preference of services for informal over formal knowledge exchange mechanisms).

Among service firms, knowledge-intensive professional business services tend to show the strongest rates of innovation and growth in the UK economy. They include research and development, design and technology services, management consulting, information and communication services, human resource management and employment services, legal services (including those relating to intellectual property rights), accounting, financing, and market related service activities. As a subset of the Business Services group, these firms also have the highest probability to collaborate with external partners, including universities, and to derive the greatest benefits from interaction with the science base.

Modes of collaboration

Two features that seem to characterise the expansion of the service economy are, on the one hand, increased emphasis on various modes of collaboration relative to manufacturing firms, and on the other hand, the broader disciplinary nature of the work that is done with universities⁷.

The process of knowledge exchange between universities and business involves multiple objectives and means of interaction. Collaboration can take place via people-based, problem-solving or commercialisation activities. People-based activities involve staff training, curriculum development, enterprise education, participation in conferences, networks, advisory boards or standard-setting fora. Problem-solving activities include staff exchanges and secondment, contract research, joint research, access to or joint funding of facilities, and joint publications. Commercialisation activities involve, for example, joint patenting, licensing agreements or co-operation through spinoff companies. Overall, people-based activities are by far the most important form of collaboration. Business services are the most engaged group with respect to both people-based and problem-solving activities, followed by manufacturing firms and then the wholesale and retail sector. Collaboration objectives tend to vary from sector to sector. Manufacturing firms are much more frequently driven by the need to introduce new products and processes, but share with business services the identification of ‘marketing and sales’ as the second most relevant area of interest for university collaborations. Manufacturing firms also cite technology development as a key motivation to co-operate with the science base, while business services tend to report a focus on human resource management problems (in line with their likely primary sources of competitive advantage).

Importantly, university-industry interactions are not the exclusive preserve of science,engineering and computing disciplines overall, and especially when we include services into the picture. A much broader range of disciplines emerges that include the social sciences (e.g. to address legal, business, financial, or planning problems), as well as the arts and humanities (e.g. at the interface with the creative economy and media sectors).

Conclusion

Successful innovation can require effective recombination of knowledge sourced within and across firm boundaries. From the viewpoint of business, universities are one among many possible partners for collaboration, and we should not expect them to be systematically more important than customers or suppliers for the average firm. Universities are, however, extremely important for knowledge-intensive businesses that have the capacity to search for, absorb and exploit valuable information generated by or jointly with the public research base. Such businesses can be found in both the manufacturing and the service sector. There are some differences between these two sectors, as we have seen. However, the available empirical evidence indicates that there can be more variability within each sector than between sectors, and that the innovation behaviour of advanced services is in many respects closer to high-tech manufacturers than to traditional services.

The adoption by many manufacturing firms of a service business model contributes further to the blurring of standard sectoral boundaries, and affects expected differences in the patterns of university-business collaboration: service-integrated manufacturers are developing open innovation profiles that are similar to those of service businesses. And as far as the highly heterogenous service sector is concerned, while traditional services lag behind, knowledge-intensive business services are the most frequent collaborators and the more active users of knowledge sourced from universities. This reflects the dynamism of one of the most productive and internationally competitive segments of the whole UK economy. The role of universities is probably becoming even more important for these businesses at the forefront of the global knowledge economy. This may have important lessons for all businesses – manufacturing and services alike – on the returns to intangible investments.

1 Department of Business, Innovation and Skills, ‘Industrial strategy: UK sector analysis’, Economic Paper No. 18, September 2012. ONS, UK Non-Financial Business Economy 2013 (Annual Business Survey), Nov. 2014.
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