Innovation policy in services: The development of knowledge-intensive business services (KIBS) in Finland.

Understanding the clients' business and strategies often results in client-specific specialisation in KIBS (Elfring & Baven 1994). Large service companies may carry out sector-specific specialisation, managing several client sectors simultaneously through the division of work. Small KIBS often aim to find a feature in their clientele that is more restricted than the industrial sector and makes it possible to develop a service of the niche type (Toivonen 2004). Understanding the client also means that the service needs are perceived in a more comprehensive way. Consequently, at the same time as KIBS specialise according to clients, the content of the services tends to broaden; service packages and integrated solutions are expressions of this development. One way to manage successfully these partially contradictory development trends is the commodification and modularisation of services. Modularisation in particular can efficiently reconcile the needs for versatility and specialisation: the elements are fixed but the combination is unique (Sundbo & Gallouj 2000).

There are also changes in the working practices of KIBS: a trend towards consultative operational practices advances side by side the tightening strategy linkages and integrated service solutions (Toivonen 2004). The generalisation of consultative practices has signified not only the adoption of new working methods, but also the penetration of firms from other KIBS sectors into the field of management consultancy. Convergence both among the KIBS sub-sectors and between KIBS and the neighbouring sectors proceeds also in other directions. IT services in particular are connected with many other KIBS sectors: engineering services, marketing communications services and financial administration services. Typical are also multi-sectoral KIBS which combine activities from several professional fields (Suddaby & Greenwood 2001).

Wide-scoped service solutions and the related multi-sectoral activity are challenges that can most easily be met by large companies. Consequently, concentration characterises the development of KIBS both within countries and internationally (OECD 1999). Global chains are one manifestation of the concentration and they are also a manifestation of the internationalisation of KIBS (Suddaby & Greenwood 2001). The picture is not that simple, however: the development of information technology and the generalisation of network structures provide new opportunities for small and medium-sized companies, too. It has been found that many small KIBS today are 'born global' (Ronkko 2001). In these firms, orientation towards international markets begins immediately upon the establishment of a company and occurs simultaneously in many different forms: (wired) exports, affiliates, acquisitions and mergers, strategic alliances, networks, etc. Even companies in geographically remote areas can go global directly without attempting first to get a foothold in the domestic centres (cf. Roberts 1998). Further, internationalisation affects KIBS that operate in domestic markets. They often have individual international assignments or assignments including an international dimension (e.g. foreign parties); in addition, professional networks extend outside the company's own country (Toivonen 2004).

DEVELOPMENTAL POLICIES IN THE KIBS SECTOR: EXAMPLES FROM FINLAND

The discussion about the role of KIBS initiated in Finland at the end of the 1990s, when the first nation-wide and regional studies of the size, growth and future prospects of the Finnish KIBS sector were carried out. In 2000 the KIBS sector was added to those sectors whose development is regularly followed and reported by the Sectoral Information Service of the Ministry of Trade and Industry. Within this Service, statistics and other general information of the KIBS sector as a whole have been compiled. In addition, more detailed reports of three sub-sectors have been produced yearly: software, accounting and engineering services. The information has been disseminated to ministries, regional bodies, industrial associations, educational institutions and other stakeholders who are involved in the development of the sector. Nowadays the importance of KIBS is mentioned in several governmental and regional documents, particularly in those dealing with the increase of the effectiveness of innovation systems. Concrete activities are mostly at a planning stage, but first steps towards their implementation have been taken, too. At the national level, the most concrete and extensive initiatives are included in the 'Serve' programme launched by Tekes, the Finnish Funding Agency for Technology and Innovation. We start with the description of this programme and thereafter present and analyse regional activities.

Nation-wide activities: The 'Serve' programme

Tekes is the main public funding organisation for research and development in Finland. It funds innovative company projects as well as projects in universities and research institutes. Traditionally the focus of funding has been on the development of technology, but in this decade the necessity to support the innovative development of services as well has become evident. Consequently, services have gained a foothold in the mission statement and strategy of Tekes and some sector-specific technology programmes have been launched--in the healthcare sector, for instance.

At the beginning of 2006, Tekes changed its name to reflect the new broader orientation: instead of 'The National Technology Agency' its whole name is now 'The Finnish Funding Agency for Technology and Innovation'. Two months later, in March 2006, the first large programme for the development of services was started. The budget of this programme, called 'Serve--Innovative Services', is some 100 million euros, half of which comes from Tekes and the rest from the participating companies. The objective of 'Serve' is to improve the competitiveness of Finnish services and to promote the emergence of new, internationally successful service concepts and business models. 'Serve' focuses on producer services which are grouped into three categories: KIBS; trade and logistics; and services linked to manufacturing.

Before the launch of the 'Serve' programme, Tekes analysed the development needs of the Finnish KIBS sector in conjunction with universities and companies. On the basis of earlier studies, it had already become clear that the share of KIBS in the Finnish economy is smaller than in the EU as a whole. According to statistics from the year 2001 (Eurostat 2004b), the share of KIBS of total employment in Finland was 12.7%, the EU average being 16.4%. As regards value added, the difference is even bigger: the respective figures were 9.2% in Finland and 15.4% in the entire EU. It is particularly worrying that the situation does not seem to be improving: the birth rate of KIBS firms is also below average in Finland.

The Finnish KIBS sector is dominated by technology-based firms: in 2001 the share of IT and engineering services of the value added of the whole KIBS sector was 70.2%. The corresponding EU average (for 7 countries) was 59.7%. Thus, the quantitative insufficiency of KIBS in Finland concerns particularly non-technological sectors--legal, marketing and consultancy services.

Based on these facts, the first challenge that the 'Serve' programme aims to tackle is the development of quantitatively sufficient and versatile supply of KIBS services. Activities that support the establishment of new KIBS and the growth of existing KIBS are one means here. On the other hand, it has been noted that paying attention merely to the supply side does not lead to the desired result, but demand-oriented activities have to be taken into account simultaneously. An increase in the use of KIBS is important, not only for the alleviation of the underdevelopment of the Finnish KIBS sector, but from the viewpoint of the development of client industries, too.

Traditionally, demand for business services has come mainly from manufacturing firms (Martinelli 1991). At the beginning of the 1990s, it was found, however, that other service firms and the public sector are also becoming important users of these services (Goe 1990; Coffey & Bailly 1991). Despite this change, it can be argued that manufacturing firms are more accustomed to using external support in the development of their innovativeness and productivity. In Finland, the role of manufacturing as the user of business services is still remarkable compared to its share of the economy. In 2003, manufacturing sectors used 50.9% of business services supply, whereas their share of the total production was 25.3% (Statistics Finland). (2) Because of this, the 'Serve' programme encourages demand for KIBS particularly from other service sectors and from the public sector.

In addition to the initiatives concerning the quantitative growth of the KIBS sector, the 'Serve' programme includes qualitative objectives. In line with its original mission, Tekes supports the innovative use of technology in KIBS. On the other hand, the 'Serve' programme emphasises that the adoption of technology is not the only way in which firms can renew their operations (cf. Koberg et al. 2003). The commodification and modularisation of service offerings is one area where good practices are highly welcome.