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

SUMMARY

This paper starts from the observation that policy-oriented discussion and policy-oriented studies in the sector of knowledge-intensive business services (KIBS) have been rare despite the central role that this sector has been argued to play in innovation. Finland is one country where activities for the development of KIBS have recently been initiated both at the national and the regional level. This paper describes and analyses these activities. National and regional KIBS studies form an important starting point in all of them. In the practical conclusions, a common feature is the emphasis on the simultaneous development of both the demand and supply sides. The need to link KIBS to innovation systems has been identified particularly at the regional level.

KEY WORDS

knowledge-intensive business services (KIBS); innovative services; services development; innovation policy; technology programmes; regional innovation systems

INTRODUCTION

Knowledge-intensive business service firms (KIBS) are expert firms that provide services to other firms and public organisations. IT services, R&D services, technical consultancy, legal, financial and management consultancy, and marketing communications are typical KIBS industries (Hermelin 1997; Miles et al. 1995; Strambach 2001). Since the mid 1990s, KIBS have aroused broad interest as a part of the knowledge and innovation infrastructure of national and regional economies. Several researchers have argued that KIBS are important carriers, sources and facilitators of innovations (Gallouj 2002; den Hertog and Bilderbeek 2000; Miles 1999).

These arguments are plausible due to the nature of KIBS' business and they have also been confirmed by empirical studies. The role of KIBS as sources of innovation is visible in the Community Innovation Survey (CIS) studies of the EU, where technology-based KIBS (IT and technical consultancy) are included. According to the CIS III study, 64% of technology-based KIBS had carried out some sort of innovation activity, the share being clearly higher than the average in services (40%) or in manufacturing (47%) (Eurostat 2004a). The facilitating function of KIBS has been confirmed, among others, by a recent Finnish study, where companies in the client sectors of KIBS were interviewed. Every other interviewed company had purchased services from external experts when conducting important changes, and in every third company KIBS had been involved in innovation activities (Lith et al. 2005).

At the same time as the importance of KIBS has been recognised, many challenges have been identified in their development. The first issue is the quantitative insufficiency of KIBS in more remote areas. Even before the term 'KIBS' was used, the concentration of business services in advanced economies, and within these in a few metropolitan regions, was perceived (Howells and Green 1986; Illeris 1989). Equalisation in this respect between regions has not taken place until now (Strambach 2001). Secondly, there may be services available, but clients do not use them due to the lack of awareness or lack of resources. There are still companies which do not perceive the benefit of the business-supporting role of expert services, but regard these services as 'a necessary evil' or purchase only 'compulsory' services, like auditing. The lack of resources concerns mostly small and medium-sized enterprises, which often aim to maintain a minimum level of supporting services using their own personnel (Lith et al. 2005).

There are also qualitative problems both among clients and among KIBS. Outsourcing or purchasing services from outside the firm requires know-how from the client. Clients do not always take into account that a skilful recipient party is needed. Further, it is not self-evident that clients possess the process management and interaction skills required by the deep relationship of co-production, typical of KIBS transactions (Bragg 1998; Miles 1999). As regards KIBS themselves, there are many challenges concerning the quality of the service. One important challenge is the growing emphasis on client-orientation. The core expertise of professionals (e.g. legal expertise) which earlier was sufficient is nowadays often taken for granted. The real issue is that KIBS have to thoroughly understand the value creation process of their clients, and the function of their service in this process (Cooper et al. 1996; Hirvonen & Helander 2001).

The role of KIBS in innovation means that the above-described challenges are not only the concern of KIBS and their clients, but are also highly relevant from the viewpoint of the economy in general. Yet, policy-oriented discussion and policy-oriented studies of the provision and use of KIBS services have been rare until now or have been restricted to some specific sub-sectors, like IT services. The most important exception is the OECD's KISA (knowledge-intensive service activities) project which was carried out 2003-2006 OECD 2006). As its name suggests, the study examined knowledge-intensive services as activities irrespective of the type of the producing organisation: it covered KIBS, but also the corresponding in-house and publicly provided services. Eleven countries participated in the KISA project, Australia and Finland being the coordinators. Finland's active participation in the project reflected the emergence of interest in the systematic development of KIBS policies both at the national and the regional levels. Even though practical efforts are still at an early stage, the Finnish experience can be used to illustrate some possible approaches.

PURPOSE OF THIS PAPER

This paper aims to study the possibilities of enhancing the positive impact of KIBS with supporting policies. The main part of the paper consists of the presentation and analysis of developmental activities in the Finnish KIBS sector. A special feature in these activities has been the systematic utilisation of the findings of KIBS studies. The findings of the quantitative and qualitative challenges mentioned in the introduction have formed the starting point. Special attention has been paid to the main trends in the current development of KIBS. Before presenting the policy efforts, we summarise these trends. The author's own study, where 87 KIBS companies and 10 professional associations in the Finnish KIBS sector were interviewed, forms one source here (Toivonen 2004). At the end of the paper we draw some conclusions based on the Finnish experience and compare them with conclusions drawn from the OECD's KISA study.

There are both regional and national policies affecting the Finnish KIBS sector. We examine these on the basis of documents and interviews of 12 relevant stakeholders. At the national level, the objectives of the 'Serve' programme are analysed. This programme was launched by Tekes, the Finnish Funding Agency for Technology and Innovation, at the beginning of March 2006. KIBS form one of the four target areas in the programme, which concentrates on the development of service sectors.

At the regional level, activities in four Finnish regions are summarised and evaluated. Two regions are located around big cities (Helsinki and Tampere); two are more remote (Southern Ostrobothnia and Northern Savo). The author has been a member of the steering groups of KIBS projects in the Helsinki and Ostrobothnia regions and she has also been involved in the preparatory work of the 'Serve' programme. (1)

MAIN TRENDS IN THE CURRENT DEVELOPMENT OF KIBS

The KIBS sector is growing rapidly in modern economies. The progress of the division of labour increases the need for expert services, and external providers have certain competitive advantages compared to the in-house production of these services. KIBS firms that are in contact with many clients receive multiple influences from society and are capable of forming an overall view of the latest developments. This is difficult to achieve and maintain on an in-house basis (Kox 2002; Strambach 2001). However, the balance between external and internal services varies by company, the size of the company being one influencing factor. Several researchers have found that outsourcing is most common among medium-sized establishments (Illeris 1989). The decision also depends on the nature of the service: external services may be purchased in order to ensure the compliance with regulatory regimes, for instance (Thorburn 2005). Further, earlier success in buying expert services and in integrating them into the company's own activities impacts on the extent to which external services are used. The growing demand for planning services for outsourcing indicates that clients want to develop their purchasing know-how and use external services in a skilful way (Toivonen 2004).

As clients learn to utilise external services more efficiently, their expectations grow. KIBS have to provide demonstrable value for the client right from the start. Besides individual solutions to specific problems, they have to support the client's entire business and help it to create new business activities (Cooper et al. 1996; Hirvonen & Helander 2001). While this development increases the requirements imposed on KIBS, it also offers them a new way to acquire a strong position in the service relationship. Earlier the position of KIBS was usually based on knowledge asymmetry favouring the expert over the client (Lowendahl 1997). Nowadays the service relationship often shows the feature of strategic partnership, where KIBS' ability to show initiative and link their service to the strategy of the client are important quality criteria (Bessant & Rush 1995; Toivonen 2004).

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.

The development of new, efficient business models is also crucial. In the case of KIBS, 'Serve' promotes networking and internationalisation, in particular. Through networking, small and medium-sized KIBS can provide versatile service solutions and survive amidst tight competition. Internationalisation has been considered to be a central factor for the dynamic development of the whole KIBS sector (Kox 2002). In addition, the internationalisation of KIBS has been argued to have important implications for the general competitiveness of firms, regions and countries (Miozzo & Miles 2003).

In Finland, no systematic statistics exist to demonstrate the internationalisation of KIBS, but many individual pieces of information indicate that it is not very high. For instance, Swedish and Danish KIBS occupy an important position among the foreign KIBS in Finland (in addition to KIBS from the US, the UK and other big countries), but Finnish KIBS are not visible in the corresponding lists of neighbouring countries (Eurostat 2004b).

As regards the use of KIBS, the first step in the development is to increase understanding of the different tasks that a skilful purchase of external expert services requires. The following tasks can be identified (cf. OECD 2006):

* recognising the need for a service;

* defining the content of the assignment;

* finding and selecting an appropriate service provider;

* managing the co-operative relationship during the service provision;

* absorbing the new knowledge and putting the outcomes of the service into use;

* evaluating the service process and the outcomes.

Demanding clients have an essential impact on the service quality in KIBS. Thus, the 'Serve' programme supports projects that are initiated by KIBS and their clients together. The shorter experience in the use of external expertise in service sectors is taken into account again. The programme emphasises the improvement of purchasing know-how in service companies and in public organisations. Developing the management of tendering practices is an example of the concrete issues to be tackled.

The way in which the 'Serve' programme links the above-described developmental needs and goals to the selection of the project types to be supported involves three steps: the formulation of a vision, the definition of strategies and focuses, and the establishment of guiding principles for implementation. Figure 1 summarises these steps (source: a memorandum of the 'Serve' programme).

In the vision for the development of the Finnish KIBS-sector, the quantitative sufficiency of KIBS, as well as their versatility and capability in international markets are highlighted. Strategies focus on innovative products and working practices in KIBS; the development of skilful (out)sourcing amongst their clients; and on quantitative increase in the use of KIBS. The practical support to be offered in the framework of 'Serve' concentrates especially on three types of projects:

1. innovative projects of existing KIBS, value-adding and replicable solutions being favoured in the first place;

2. projects targeted to the establishment of new KIBS, the focus being on KIBS which specialise in the issues of service sectors or the public sector (e.g. the PPP-models), or which provide comprehensive networked services;

3. common projects of clients and KIBS which intend to develop new innovative models of co-production.

[FIGURE 1 OMITTED]

Regional activities

Tampere

The first regional KIBS study in Finland was carried out in Tampere, the biggest regional centre in Finland outside the metropolitan area (Kautonen et al. 1998). The study revealed that the KIBS sector in this region is even more dominated by technologically oriented KIBS than averagely in Finland. The share of engineering services to support manufacturing is high in particular. Tampere has been one of the most important centres of traditional manufacturing in Finland, and even though its industrial structure has radically changed during the last decades, the composition of KIBS still reflects the needs of earlier times. Thus, one of the main actions required was to increase the versatility of expert services in the region. The first KIBS study was updated six years later (Kautonen et al. 2004). A new topic in this study was the futures of KIBS, particularly from the viewpoint of internationalisation. The study also included the activity-based approach (KISA) besides the KIBS perspective.

A development programme in the KIBS sector was started soon after the first study--Tampere was the first region in Finland also regarding the implementation of KIBS policies. A development company Professia Ltd has played a central role here. The company was established in 2000 in the form of public--private partnership by the City of Tampere, the University of Tampere and two financial organisations; later on its ownership basis has extended to cover several private companies, too.

Professia's mission has been both to promote the birth of new KIBS and to support the development of new services and service quality in existing KIBS. Professia managers a KIBS incubator targeted to all kinds of KIBS and carries out specific efforts for the creation of new KIBS in the IT sector. Until now some twenty KIBS have started their business within the incubator. Professia itself has also started to provide KIBS services; by engaging itself in this business it intends to open the way for other KIBS in the region. Disseminating information about KIBS is included in the remit of Professia, too. Finally, the company has been elemental in the development of KIBS research at the two universities in Tampere. Figure 2 summarises the activities of Professia.

[FIGURE 2 OMITTED]

Helsinki

In the Helsinki metropolitan region, the developmental activities in the KIBS sector started in 2003, the main organiser being Culminatum, the Helsinki Region Centre of Expertise. Also here, a regional study was first carried out (Lith et al. 2005). The study included a statistical survey which consisted of regional data and of some comparative material from other metropolitan regions in Europe. The second part of the study was based on interviews of KIBS and their clients and focused on the relationship of KIBS to innovation. The main issue was how KIBS could support the development of business in those client industries which are based on emerging technologies. The client sectors studied were those belonging to the national Centre of Expertise programme in the Helsinki region during 1999-2006: software; logistics; gene technology and molecular biology; medical and welfare technology; adaptive materials and microsystems; and digital media, content production and learning services. In addition to the linkage to the Centre of Expertise programme, the study was included in the Urban Programme of the Helsinki metropolitan region.

The study showed that companies in new technologies regard KIBS as important for their future development. However, new companies are usually small and do not have the resources to use KIBS even when they are well aware of the need. KIBS themselves also often prefer large or middle-sized clients because these provide higher profits.

The small size of the Finnish economy causes some additional difficulties. Domestic markets tend to be too small to stimulate the establishment of KIBS that would understand the specific issues of gene technology or adaptive materials, for example. Consequently, clients in new technologies often wish to acquire KIBS services from other countries. However, finding information about suitable service providers and developing intensive service relationships are not easy internationally (Lith et al. 2005).

Since the initial study, Culminatum has started a developmental project which is funded by the Regional Council and the Employment and Economic Development Centre of the Helsinki region. The project focuses on three specific issues: the commodification of KIBS' services, the internationalisation of KIBS and the development of (out)sourcing skills of KIBS' clients. As these issues are largely similar to those of the 'Serve' programme, the regional project is interacting with 'Serve' in order to avoid overlapping and to build mutually reinforcing impacts. Some pilot projects for producing best practice examples of commodification have started, and a tool box which supports the pilots and collates the experience is planned.

Secondly, plans for the development of KIBS in the Helsinki region are included in the regional innovation strategy, which was commenced in 2005. This strategy particularly concerns the region surrounding the core metropolitan area and is led by Laurea, one of the region's polytechnics. The interest regarding the development of KIBS is more local in this strategy than in Culminatum's project. One interesting example of a concrete initiative is a 'KIBS centre', a building in a small city outside the core metropolitan area, which hosts different kinds of KIBS. The idea is that physical facilities would stimulate the birth of new KIBS and the common environment would support their interaction and mutual learning. The centre functions in close cooperation with Laurea in order to increase the flow of information about labour needs and skills requirements from KIBS to educators.

Ostrobothnia

Regional innovation strategies form the framework for the development of KIBS also in Southern Ostrobothnia. This region is quite far from the metropolitan area, and its KIBS sector is much less developed than in big cities. Also the awareness of clients about the benefits that result from the use of KIBS is weaker, the majority of clients being very small enterprises.

In Ostrobothnia, the regional polytechnic, (3) municipalities and some existing clients of KIBS established in 2004 a consulting company Emineo Ltd to facilitate the tackling of these issues. This company organises contacts between KIBS and clients, and familiarises small companies with the use of external services. In the KIBS sectors where the lack of services is worst, Emineo also functions as a service provider. Until now, this role has been needed particularly in technology-based consultancy services. Before the establishment of Emineo, the corresponding activities had already been piloted in a publicly funded development project.

In order to get more detailed information of the capability of KIBS in serving SMEs, an interview study was carried out in Ostrobothnia. The study focused on two client industries which are important in this region: the metal industry and the manufacture of furniture. In addition to research targets, the aim was to create new contacts with KIBS' clients. The study was implemented by the research institute (SC-Research) linked to the regional polytechnic, and was funded by Tekes, the regional council and Emineo. The study showed that the use of KIBS is concentrated on the most innovative companies. It also revealed that the lack of awareness about KIBS is partially due to the fact that KIBS do not actively market their services.

All in all, the results confirmed the good sense of the activities initiated: the strengthening of regional networks and the familiarising of small clients with KIBS. The efficient use of intermediaries in the dissemination of information about KIBS is particularly emphasised in the conclusions of the study. The study also warned against one-sided views of local ties: acquiring KIBS services outside the region should be supported, too, particularly in the case of highly specialised services (Saarivirta et al. 2006). According to the study, the stakeholders in Ostrobothnia judge that the ties of KIBS to the regional innovation system are tight and versatile.

Savo

The situation is different in the Savo region, which has also carried out its own KIBS study. The main focus of this study was on the exploration of the nature of innovation activities in micro and small KIBS. The study was conducted via a postal and telephone survey with a sample size of 213 (return rate 19%). The results showed that the contacts of KIBS with the actors of the innovation system were limited. All in all, the innovation activities of regional KIBS concentrated on small in-house improvements. Innovations whose aim would be the development of market relations and networking were more rare. There was also little emphasis on the renewal of service products, e.g. through commodification (Pietikainen et al. 2006).

As in most other regions, in Northern Savo the regional polytechnic has played a central role in taking the initiative for the development of KIBS. Because the study has been finalised recently, there are only preliminary plans for practical policy operations. These plans are in many respects similar with the plans and activities of other regions and they include some common elements with the 'Serve' programme, too. The need to stimulate the demand for KIBS can be mentioned as an example. The development plans also aim to answer the issues revealed by the regional study: increasing commodification and networked business in KIBS, as well as tightening the linkage of KIBS to the innovation system and to the development of regional clusters, are thus mentioned as primary goals.

CONCLUDING DISCUSSION

Our exploration shows that a research-based approach is characteristic of Finnish KIBS policies both at the national and the regional levels. International KIBS studies which have revealed the importance of KIBS and the challenges in their development have motivated supporting activities and formed the starting point for them. These studies have been supplemented with nation- and region-specific statistical surveys and interviews, which have helped to identify development needs in a concrete way. Each of the four regions included in our examination had carried out its own KIBS study/studies.

Considering the development of KIBS as a part of innovation policy is another common feature in the Finnish activities. At the national level, KIBS are supported in the framework of the 'Serve--Innovative Services' programme carried out by Tekes, The Finnish Funding Agency for Technology and Innovation'. At the regional level, KIBS have been explicitly linked to the innovation systems thinking: the need to include the development of KIBS into the regional innovation strategies was emphasised both in big cities and in more remote regions. The situation varied regarding the degree to which linkages between KIBS and the regional innovation system already exist--one region evaluated these linkages to be tight and versatile, another judged their increase to be a central challenge. Reasons for these kinds of differences are an important topic for further studies.

The concrete ways in which the KIBS sector has been developed (or was planned to be developed) include a variety of measures. In the 'Serve' programme Tekes has applied quite a systematic approach where a vision of KIBS' role in the Finnish economy has first been formulated. The next step has been the definition of strategies and focuses, and the final step the establishment of guiding principles for the selection of projects to be funded. In the regions, where the development resources are considerably smaller, the approach has usually been the identification of some 'key measure'. Providing physical facilities (a 'KIBS centre'), maintaining a KIBS incubator and establishing a development company are typical examples.

The use of a development company as a central actor in the implementation of KIBS policies is an interesting solution. It played an important role in two regions, one being a big city and the other a rural area with a small town. The companies promoted the birth of new KIBS, supported the development of services in existing KIBS, organised contacts between KIBS and clients, and familiarised small companies with the use of external services. In both areas the companies also provided KIBS services themselves, thus stimulating further business activity in this sector and filling gaps in the service supply. Another interesting observation in this study was the central role of regional polytechnics in the development of KIBS: in the two remote regions they had carried out KIBS studies, and 'the KIBS centre' in the metropolitan region was an initiative of a polytechnic.

The targets of development include both supply-and demand-centred activities. Tekes as well as regional stakeholders emphasised that they direct stimulating and supporting measures not only towards KIBS, but also to their clients. Further, the aims of development are both quantitative and qualitative. Concerning the supply of KIBS, the primary goal at the national level is an increase in non-technological KIBS, whose number in Finland is smaller than the average in Europe. As regards demand for KIBS, growth opportunities have been judged to exist particularly in other service firms, in the public sector and in manufacturing SMEs. On the qualitative side, Tekes and the regions focus particularly on the promotion of commodification, networking and internationalisation in KIBS. KIBS' clients are supported in the development of (out)sourcing skills which include, among others, carefully defining the assignment, finding an appropriate service provider, and managing the co-operative relationship.

The policy operations initiated in Finland are in many respects similar with the conclusions of the OECD's KISA study. This study emphasised four points in particular. Firstly, it is essential to secure the continuous emergence of research-based knowledge and the availability of a highly skilled labour force as these are the lifeblood of KISA. Secondly, innovation policy frameworks should pay more attention to the non-technological aspects of KISA. Thirdly, a key challenge is improving the access to KISA--the policies that stimulate the demand can also trigger enhanced supply and quality of KISA. Fourthly, policies must adapt to changing needs for KISA. (OECD 2006) In the analysis of the Finnish activities, the second and third points--the development of non-technological services and demand-oriented activities--are clearly observable. Some regional efforts have also tackled the issues of the labour force and its skills. Finally, two foresight studies have been carried out in the Finnish KIBS sector, and their findings of the changing needs for expert services have been used in the selection of developmental targets.

The implementation of the 'Serve' programme and most regional programmes are at an early stage. Thus, our analysis illustrates mainly how such programmes may be planned and what they may consist of. The evaluation of the successfulness of the activities as well as of the problems arising has to be postponed to a later occasion. The preliminary results from the regions which were first in initiating policy operations are encouraging, however. Even though answering the current and future challenges is mainly a task of KIBS and their clients, it seems that public bodies can create the prerequisites for favourable development, and also support it.

Received 18 December 2006 Accepted 7 July 2007

References

Bessant J and Rush H (1995) Building bridges for innovation: the role of consultants in technology transfer. Research Policy 24: 97-114.

Bragg SM (1998) Outsourcing. John Wiley & Sons, Inc., New York.

Coffey W and Bailly A (1991) Producer Services and Flexible Production: an Exploratory Analysis. Growth and Change 22(4): 95-117.

Cooper D, Hinings CR, Greenwood R and Brown J (1996) Sedimentation and transformation in organizational change: the case of Canadian law firms. Organization Studies 17(4): 623-647.

Elfring T and Baven G (1994) Outsourcing Technical Services: Stages of Development. Long Range Planning 27(5): 42-51.

Eurostat (2004a) Innovation in Europe: Results for the EU, Iceland and Norway, Data 1998-2001, Theme 9: Science and technology.

Eurostat (2004b) Business services--an analysis of structural, foreign affiliates and business demography statistics, Theme 4: Industry, Trade and Services.

Gallouj F (2002) Knowledge-intensive business services: processing knowledge and producing innovation. In: Gadrey J and Gallouj F (Eds) Productivity, Innovation and Knowledge in Services: New Economic and Socio-Economic Approaches. Edward Elgar, Cheltenham and Northampton.

Goe WR (1990) Producer Services, Trade and Social Division of Labour. Regional Studies 24(4): 327-342.

Hermelin B (1997) Professional Business Services: Conceptual Framework and a Swedish Case Study. Uppsala Universitet, Geografiska regionstudier nr. 30.

den Hertog P and Bilderbeek R (2000) The New Knowledge-Infrastructure: The Role of Technology-Based Knowledge-Intensive Business Services in National Innovation Systems. In: Boden M and Miles I (Eds) Services and the Knowledge-Based Economy. Continuum, London and New York.

Hirvonen P and Helander N (2001) Towards joint value creation processes in professional services. The TQM Magazine 13(4): 281-291.

Howells J and Green AE (1986) Location, Technology and Industrial Organisation in U.K. Services. Progress in Planning 26(Part 2): 83-184.

Illeris S (1989) Services and Regions in Europe. Gower, Aldershot.

Illeris S (1991) Location of services in a service society. In: PW Daniels and F Moulaert eds, The Changing Geography of Advanced Producer Services. Belhaven Press, London and New York.

Kautonen M, Schienstock G, Sjoholm H and Huuhka P (1998) Knowledge-intensive business services in the Tampere region. The University of Tampere. (In Finnish.)

Kautonen M, Hyypia M, Mulari R and Penttila L (2004) KIBS' future in the Tampere region. Employment and Economic Development Centre for Pirkanmaa, Publications No. 4. (In Finnish.)

Koberg CS, Detienne DR and Heppard KA (2003): An empirical test of environmental, organizational, and process factors affecting incremental and radical innovation. Journal of High Technology Management Research 14: 21-45.

Kox H (2002) Growth challenges for the Dutch business services industry: International comparison and policy issues. CPB Netherlands Bureau for Economic Policy Analysis.

Lith P, Kautonen M, Hyypia M and Kuusisto J (2005) Uusimaa as a centre of knowledge-intensive business services. Culminatum--Helsinki Region Centre of Expertise. (In Finnish.)

Lowendahl, BR (1997) Strategic Management in Professional Service Firms. Copenhagen Business School Press.

Martinelli F (1991) Producer services' location and regional development. In: Daniels PW and

Moulaert F (Eds) The Changing Geography of Advanced Producer Services. Belhaven Press, London and New York.

Miles I, Kastrinos N, Flanagan K, Bilderbeek R, Hertog B, Huntink W and Bouman M (1995) Knowledge-Intensive Business Services: Users, Carriers and Sources of Innovation. European Innovation Monitoring System (EIMS), EIMS Publication No. 15, Luxembourg.

Miles I (1999) Services in National Innovation Systems: from Traditional Services to Knowledge Intensive Business Services. In: Schienstock G and Kuusi (Eds) Transformation Towards a Learning Economy. The Finnish National Fund for Research and Development--Sitra, Report no. 213, Helsinki.

Miozzo M and Miles I (2003) Introduction. In: Miozzo M and Miles I (Eds) Internationalization, Technology and Services. Edward Elgar, Cheltenham and Northampton.

OECD (1999) Business Services: Trends and Issues.

OECD (2006) Innovation and Knowledge-Intensive Service Activities.

Pietikainen P, Siikonen J and Pellikka J (2006) Innovation in the micro and small KIBS firms: an empirical analysis. Presentation in RENT XX--Research in Entrepreneurship and Small Business Conference, Brussels, November 23-24 2006.

Roberts J (1998) Multinational Business Service Firms: The Development of Multinational Organisational Structures in the UK Business Services Sector. Ashgate, Aldershot.

Ronkko P (2001) Growth and Internationalization of Technology-based New Companies: Case study of 8 Finnish Companies. In: Paija L (Ed.) Finnish ICT Cluster in the Digital Economy. ETLA--The Research Institute of the Finnish Economy, B 176 Series, Helsinki.

Saarivirta T, Viljamaa A, Paallysaho S, Vanska J, Kotala S and Kuusisto J (2007, forthcoming) Strengthening the impacts of regional innovation systems: the use and production of knowledge-intensive business services (KIBS). SC-Research, Lapua. (In Finnish.)

Statistics Finland: National accounts, Input-output statistics from the year 2003. http://tilastokeskus .fi/til/pt/tau_en.html

Strambach S (2001) Innovation Processes and the Role of Knowledge-Intensive Business Services (KIBS). In: Koschatzky K, Kulicke M and Zenker A (Eds) Innovation Networks: Concepts and Challenges in the European Perspective. Technology, Innovation and Policy 12, Series of the Fraunhofer Institute for Systems and Innovation Research (ISI), Heidelberg, Physica-Verlag.

Suddaby R and Greenwood R (2001) Colonizing knowledge: commodification as a dynamic of jurisdictional expansion in professional service firms. Human Relations 54(7): 933-953.

Sundbo J and Gallouj F (2000) Innovation as a Loosely Coupled System in Services. In: Metcalfe JS and Miles I (Eds) Innovation Systems in the Service Economy: Measurement and Case Study Analysis. Kluwer Academic Publishers, Boston, Dordrecht and London.

Thorburn L (2005) Knowledge Management and Innovation in Service Companies--Case Studies from Tourism, Software and Mining Technologies. Study for the Department of Industry, Tourism & Resources. http://www.oecd.org/dataoecd/58 /39/34698722.pdf

Toivonen M (2004) Expertise as business: Long-term development and future prospects of knowledge-intensive business services (KIBS). Helsinki University of Technology, Department of Industrial Engineering and Management, Espoo.

MARJA TOIVONEN

Research Director

Innovation Management Institute (IMI)

Helsinki University of Technology

Espoo, Finland

Endnotes

(1) This personal experience is used as supplementary material for this paper.

(2) Manufacturing includes here also the mining industry and the supply of electricity, gas and water, but not the construction sector. If the supply of electricity, gas and water is calculated among services, the share of manufacturing as the user of business services was 47.8% and its share of the total production 23.0%.

(3) There is only one polytechnic in the region of Southern Ostrobothnia as well as in the region of Northern Savo. TABLE 1: SUMMARY OF THE REGIONAL ACTIVITIES FOR THE DEVELOPMENT OF KIBS IN FINLAND

Executive Source of Policy Region organisation funding framework Tampere The company The city, the Local (city) and

established for regional council, regional

KIBS' develop- the regional innovation

ment employment and strategies

economic develop-

ment centre,

Tekes and some

ministries Helsinki The regional Urban programme, National

centre of the regional Centre of

expertise and a council and the Expertise-

regional regional programme,

polytechnic employment and urban pro-

economic develop- gramme,

ment centre and regional

innovation

strategy Southern The company Tekes, the Regional Ostro- established for regional council innovation bothnia KIBS' develop- and the company strategy

ment and the established for

research KIBS' development

institute of the

regional

polytechnic Northern The regional The regional Regional Savo polytechnic council innovation

strategy

On-going

Studies conducted activities

for the mapping (planned

of development activities Region needs in parentheses) Tampere The first Promoting the use

regional KIBS of regional KIBS,

study in Finland. a KIBS incubator,

Revealed that special efforts

engineering for the

services dominate development of IT

the sector in the services,

region. A later support for KIBS

update and research at

foresight study. universities. Helsinki A regional KIBS A pilot project

study focusing on for the

the use of KIBS development of

in emerging commodification

business areas. in KIBS, 'KIBS

Revealed the centre'

difficulties of supporting the

newly established birth and mutual

small firms in learning of KIBS.

the use of

external

services. Southern A KIBS study Promotion of Ostro- which focused networking bothnia on service needs between KIBS and

in the region's clients (also

most important across the

industrial regional

sectors. boundaries),

Confirmed the familiarising

need for network small clients

building and with the use of

highlighted the KIBS, provision

role of of consultancy

intermediary services missing

organisations. in the region. Northern A regional study (Stimulating Savo of innovation demand for KIBS;

activities in supporting

small KIBS. commodification,

Revealed that the networking and e-

focus was on business in

small KIBS; linking

improvements KIBS to the

inside firms, not regional

on the innovation

development of system and to the

market relations development of

and networking or regional

on the more clusters.)

demanding renewal

of services.