Randstad's business model of innovation: results from an exploratory study in the temporary staffing industry.

SUMMARY

Official statistics suggest that European service corporations seem to be ignoring the importance of R&D and innovation activities. It is worthwhile to look at whether and how European service companies innovate in order to reap the associated benefits. In this article, we will introduce the Randstad model of corporate service innovation, showing how their particular innovation strategy, structure and decision-making processes help to develop learning capabilities that have fostered this company's long-term competitive advantage. And what lessons are to be learned from the Randstad example that could assist the implementation of the model in other organizations.

KEY WORDS

innovation; services; business models; temporary staffing industry

1. INTRODUCTION

Despite the increased importance of service innovation for the economy, we know surprisingly little about the drivers, strategy, organization and decision-making culture of innovation processes within service companies. This study explores these features of service innovation in detail. The core of this article is the introduction of the Randstad model of service innovation in the temping industry. This company offers a benchmark concept of corporate innovation by illustrating how the balance between strategy, structure and decision-making processes can be shaped in the context of large service enterprises without sacrificing long-term performance.

Many advanced countries have been moving away from agriculture and manufacturing towards information, knowledge and service economies. Services are ubiquitous and form the key to the much needed productivity growth of many developed economies (Howells, 2004; Van Ark et al., 2000; Inklaar et al., 2007). Market services alone, for example, account for 45 to 55 percent of the total value added in most OECD countries and the overwhelming majority of all European employees work in service companies (European Commission, 2003; 2005). Hence, the competitiveness of service companies is crucially important for the economic growth of advanced nation states. Innovation and/or research and development within service companies--and across service companies in 'systems of innovation' (Metcalfe & Miles, 2000)--are key to achieving a sustainable competitive advantage (Cainelli et al., 2006; Dodgson, 2000; Verspagen, 2005; Pilat, 2001); the more so as services are becoming increasingly tradable and therefore subject to international competition (Mankiw & Swagel, 2006).

There are many good reasons why service companies need to innovate (Sundbo & Gallouj, 2000; Den Hertog, 2000). From a corporate perspective, the aim of innovation is mainly instrumental, delivering increased efficiency and productivity as well as access to new markets and clients (Ozdemir et al., 2007). It is apparent that market situations and competitive structures are subject to constant change and that the pace of dynamic innovation has accelerated unmistakably. Against this background of increased competition, successful companies no longer try to achieve decisive advantages through cost leadership or advances in quality or technology alone (Foss & Knudsen, 1996; Peteraf, 1993; Conner, 1991). They tend to differentiate themselves through innovative services that give them a decisive unique selling proposition compared with their competitors (Barney, 1993; Dahlgaard & Dahlgaard, 1999; Sharma et al., 2005; Tether et al., 2001). Thus, innovation allows service companies to continuously offer enhanced or new services in the market and be quicker than the competitor. They are therefore better able to find and produce new opportunities and reap the associated benefits. We will associate this proposition with our case company, i.e., Randstad.

Surprisingly, however, many service companies seem to ignore the importance of innovation and/or R&D for the performance of their corporation (Van Ark et al., 2003). Official statistics suggest that relative to their economic performance, service sectors only account for a small share of total R&D (OECD, 2005a; 2005b). The average R&D intensity tends to be much lower in services than in manufacturing. Although not all service sectors are the same--and the intensity to engage in innovation and R&D varies between service sectors--the statistics nonetheless indicate that service companies find it difficult to create new products and services. To some extent, we can explain the less optimal innovative performance of service companies in the official statistics. It is argued, for example, that service companies are more inclined to invest in various forms of organizational ('soft') innovation rather than in (technological) R&D--that often aims at technological ('hard') innovation--and for that reason are not covered in the statistics. This is confirmed by case study research (Boden & Miles, 2000; Gallouj, 2002; Gallouj & Weinstein, 1997; Howells, 2001; Metcalfe & Miles, 2000; Sundbo et al., 2007). Service companies associate R&D mostly with technological R&D (Den Hertog et al., 2003). R&D is less associated with creating new services or new service development. This implies that, in practice, important services' R&D and innovation activities are hidden behind labels such as business development and service improvement without being recognised as services' R&D (Howells & Tether, 2004; Tether, 2003; Den Hertog, 2000).

Hence, the empirical evidence of innovation by service companies is mixed and therefore many questions still remain unanswered, most importantly, whether and how service companies are able to innovate and by doing so, achieve long-run competitive advantage (cf. Dodgson et al., 2005). The main research question of this study is 'how do service companies develop and maintain successful R&D and innovation activities?' We investigate the drivers, strategy, organization and decision-making culture of innovation processes within a service company in the temporary staffing industry to answer this question. Research on new service development usually focusses on particular sectors such as financial services (e.g. Ozdemir, 2007; De Brentani, 2001), transport (e.g. Nijhof et al., 2002) and wholesale (e.g. Hart & Service, 1993). Innovation processes in the temporary staffing industry remain relatively unaddressed and we aim to fill this gap. The industry is also interesting because most of the leading industrialized countries have overall rates of temporary employment above 10 percent, with relatively high levels in European countries such as the Netherlands, Germany and France (OECD, 1999). Finally, it is a knowledge intensive business sector which is often highly innovative in its own right, as well as facilitating innovation in other economic sectors (Den Hertog, 2000).

The outline of this article aligns with the structure of our research. First of all, we will provide an overview of core concepts and definitions that relate to service innovation. That is, we start our research with a review of previous work of service innovation in order to characterize and define service innovation. We use these insights for the design of our exploratory case study. Section three will describe our case study methods and introduce our case company, i.e., Randstad. Section four will report the case study results and will present the Randstad model of corporate innovation. The article concludes with an appraisal of what can be learned from the case company in the context of the current quest for business models of innovation by service firms that strive for innovation and that need to adapt to the requirements of modern knowledge economies.

2. SERVICES AND INNOVATION

During the past decades the research in services and services innovation has mushroomed (Dodgson, 2000; Tidd & Hull, 2003; Gallouj, 2002; Metcalfe & Miles, 2000). These studies offer a helpful point of departure for the design of our exploratory case study. Studies on service innovation have focused mainly on the conceptualisation of service innovation (Boden & Miles, 2000; Gallouj & Weinstein, 1997; Howells, 2001). These studies often characterize services as a specific economic activity that is distinctively different from goods producing activities--they stress the intangible nature of most services, the overlap of the moment of production and consumption, the non-storability and low tradability of services, and the strong user-producer links. For a long time, the definitions of services were dominated by Pavitt's sectored taxonomy of technological change that primarily characterised service industries as supplier-dominated sectors (cf. Soete & Miozzo, 1989; Evangelista & Savona, 1998; Djella & Gallouj, 2001). In a similar vein, the important theoretical contributions of Barras (1986, 1990) portrayed most service sectors as supplier-dominated, and as receiving an impetus from manufacturing in order to be able to embark on subsequent phases of innovation processes.

Our study aligns with the definition of Gadrey et al. (1995) who suggest that:

to produce a service [...] is to organise a solution to a problem

(a treatment, an operation) which does not principally involve

supplying a good. It is to place a bundle of capabilities and

competences (human, technological, organisational) at the disposal

of a client and to organise a solution, which may be given to a

varying degrees of precision.