Does policy serve the service economy?

Does policy serve the service
economy?
Reser 2014
Helsinki 12.9.2014
Pekka Lindroos
Enterprise and Innovation Department
Ministry of Employment and the Economy
Presentation perspectives
• Enterprise and innovation policy
• Future competitiveness and growth of Finnish economy
and society in global value networks
• MEE as a service provider: policy design and
implementation: VTT, Tekes, SME and regional
development funding, competition policy, VC market
development, Single Market co-ordination
• Finnish, EU levels
• Intro to policy or policy driven research at MEE
Some national background in efforts for
an industrial policy for services
• Government White Paper for industrial competitiveness 1997
• ’Industrial policy must pay equal attention to the operating
possibilities of manufacturing, services and primary
production’
• Subsequent (sometimes tedious) introduction of changes in
the statutes of Tekes, VTT and other government enterprise
policy agencies
• Enthusiasm for mainstreaming industrial policy was not
universially shared
´Finland will never prosper if we are to engage in washing
each others’ laundry’
• 17 years is sometimes a short period for a simple
mainstreaming process
Shaking the institutional innovation system…
Future Committee
Parliament of Finland
Government
Research
and
Innovation
Council
Ministry
of Education
and Culture
The Finnish Funding Agency
for Basic Research
Universities
Enterprises
Strategic
Research
funding
instrument
Ministry of
Employment and
the Economy
Other
ministries
The Finnish Funding Agency
for Technology and Innovation
The Finnish Innovation
Fund
and other
research centers
Regional
ELYCenters
Finpro
Finnvera
Industry Investment
The New European Commission
Service competitiveness challenge
• Regulation is not the only and potentially not the most potent
driver for innovation
• Will the new Commission and combined Markt and Entr in
particular have both the vision and means to change
• Or will service regulation become an isolated part of new Entr
• Renaissance of industry and 20 % GDP target sign of Revival
of manufacturing nostalgia from the 1990’s
• Industry Council conclusions 25.9.2014 very manufacturing
• Cluster policy and European policy vs. vibrant global value
networks
Some MEE approaches to service policy
and research
Macro
Policy initiatives
Digitalization
Contribution of exports to domestic value added in
Finland 2009
Source OECD TiVA 2009
database
Creative Services
Experimental vs. ”traditional” innovation
policy
• ”Traditional” policy versus finding new answers to
unforeseen questions
• Testing new ideas at a very early stage (fail first, fail
cheap)
= the need to rethink the ways on how to implement policy
• Using intervactive actor-networks (ecosystems) to
encourage experimental actions
Ecosystems as main elements in experimental
policy
• Today´s administration is rigid for experimentation
• The experimental approach calls for selecting focus areas
and shaping a common vision
• Jointly functioning governance apparatus and
decentralised network-based institutional structure should
be preferred
• In governance, flexibility of goals and strategic agility must
be increased (e.g. a portion on EU structural funds be
allocated for the development of new growth areas
following the principles of experimental policy)
Focusing on demand and user-driven innovation
Demand‐driven innovation policy
Innovation friendly markets
• Bolsters demand for innovations
• Enhances ability to adopt innovative solutions
•Improves capability to interpret market needs and potential for demand
• Awareness and knowledge development
• Demanding and innovation friendly regulation
• Standardisation supporting innovation • Regulation as stimulus for competition
• Bolstering innovations through public procurement
Demand, competition and innovation‐friendly culture as drivers of innovation
User‐driven innovation activities
• Awareness and knowledge development
• Design as an enabler for user‐driven innovations
• More systematic engagement of users in innovation activity
• Utilisation of advanced methods in identification and analysis of user needs and trends
• Focusing innovation policy and its tools on user‐driven innovation
User‐driven innovation policy
New outlook towards sustainable
growth Future 2030 report,
PM Office 2013
Present situation
New challenges
Future development as a set of trends
Breaking points, uncertainty,
Stable social development
Flexible capacity for renewal
Success for all enterprises
Global growth enterprises of digital age
Capacity to cope with work stress, on-thejob learning
Stages of life are interwoven between
learning, working, relearning
High level of knowledge
Civilization
Sense of community
Mosaic of life styles and partnerships
Stability of government, legal certainty
Agility, flexibility
Guidelines and project work
Experimenting approach in shaping the
future models
15.9.2014
12
Outlook for 2030’s
• Experimenting will needs constitutional protection
• Digital value creation will be of the same importance as
material production and services related to it
• This implies that policy, frameworks and life will have to go
digital as well
• Resilience may become key success factor for nations and
cultures when frequence of black swans increases and they
become increasingly nasty
Impact of digitization on service sectors
Productivity
potential
▪
IT and
1 information
services
▪
2
Business
Services
▪
Finance,
3 insurance &
broadcasting
▪
4 Retail
Tradability
potential
Medium
to high:
20-30%
▪
Medium:
15-25%
▪
Medium
to high:
30-40%
▪
Medium:
15-20%
▪
High impact
Low impact
Comments
High;
Historical trade
CAGR 2004-12
20%
▪
High; Historical
trade CAGR
2004-12 13%
▪
Medium;
Historical trade
CAGR 2004-12
19% but
volume small
▪
High: ~15%1 of
total volume at
risk within 5
years due to
online
penetration
▪
▪
▪
▪
▪
Productivity improvement likely highest in
lower skilled professionals but entire sector
impacted
Very high tradability already, offshoring will
likely remain the trend for especially lower
skill services
Especially lower skill admin type work will
significantly be impacted from automation
Growth of both exports and imports
expected to continue strong growth across
the sector reflecting global trends
Significant efficiency gains in process
automation in both front and back ends
New digital channels intensify competition,
yet cross-border tradability constrained by
regulation at least in the medium term
Productivity gains from automation mainly
due to online share increase (incl. click and
collect)
Tradability increase of specialty retail
significant as Finland lacks scale; groceries
online penetration likely to remain lower
▪
Productivity
increase has
potential to
impact across
sectors, with
banking in the lead
▪
Tradability will
impact industries
at the digital
crossroads most,
with retail
experiencing most
notable changes
from current state
▪
In addition, all
sectors may be
impacted by new
entrants with
novel business
models disrupting
the sector
1 All Finnish specialty retail online expected to be at risk (specialty retail online retail expected to follow German example and reach 20-30% by 2017;
specialty retail constituted 55% of Finnish total retail output in 2012)
SOURCE: McKinsey Global Institute; McKinsey analysis
McKinsey for MEE 2014
14
Services are going through a change resulting from
digitalization much deeper than what manufacturing has
witnessed
End-users drive
the speed and capture
increasing value
▪
The major shift in manufacturing has been relocation - a productivity game,
aiming at lower costs and better market access
▪
In services, digitalization changes the nature of service products themselves,
dictated by end-user preferences moving online – a significant shift value is
moving from producers to end-user surplus
In manufacturing, automation has increased productivity by eliminating the need
for human labour in many parts of the process
▪
Some sectors’
employment will be hit
badly, and there
is no avoiding it
Individual company
fates within sectors
vary significantly
▪
Services can go a step further, as automation has potential to eliminate the need
for human labour entirely in many processes, such as consumer lending in retail
banking
▪
Also service type jobs within industrial sectors likely to be impacted1
▪
As in manufacturing, digitalization offers both benefits and risks for every
services company
▪
However, the scalability of digital services means that “winner takes it all”situations are much more likely and sudden than in manufacturing
SOURCE: McKinsey Global Institute; team analysis
1 Up to 30-40% of jobs in manufacturing are service-type jobs, e.g. support services, IT, HR and customer service
15
Private sector services as engine for growth First results
For the Ministry of
Employment and the
Economy
Jyrki Ali-Yrkkö
ETLA – The Research Institute
of the Finnish Economy
Approach for study Scalability and
tradability of services
Low
Scalable
High
* Expert views: Economies of scale, feasibility of
separation of production and consumption (
Low
Tradable
High
Number of enterprises, 2012
(change viz. 2007)
high
Tradablity*
66 925
(+2 %)
low
Scalability *
low
79 152
high
38 110
53%
(+8 %)
12 376
(+11 %)
(+17 %)
74%
26%
47%
Shares of services in private sectors,
value added 2012
(change 2007)
Scalable, not tradable
25%
25%
20%
20%
15%
+2.8 %
15%
10%
10%
5%
5%
0%
0%
Non-scalable, non-tradabe
25%
20%
15%
10%
5%
0%
+4.3 %
Scalable,tradable
+2.1 %
Non-scalable. tradable
25%
20%
15%
10%
5%
0%
+0.2 %
Policymaker’s ultimate question:
What kind of growth do we seek?
• Core growth: creating successful new products and
services that fit the existing portfolio
→ low risk, short-term opportunities
• New growth: expanding by developing new operations
through finding new markets complementary to existing
ones
→ incremental innovation, mid-term opportunities
• Emerging growth: capitalizising emerging areas and big
technology bets in entirely new or unrelated sectors
→ radical innovation, long-term opportunities and
potential high reward
The European challenge
Murray 2014 EtlaBrie
Conclusion
There is a long way for policy to evolve in order to
serve the service economy well
(Jon Sundbo this morning)
Norman Rose had it right: research matters for
industry performance but also for policy
Service research should be a dominant element in
enabling an educated policy
[email protected]
© Copyright Tekes
10/2009