As R&D Penetrates the Service Sector, Researchers Must Fashion New Methods of Innovation Management

By Gwynne, Peter | Research-Technology Management, September/October 1998 | Go to article overview

As R&D Penetrates the Service Sector, Researchers Must Fashion New Methods of Innovation Management


Gwynne, Peter, Research-Technology Management


Service industries such as consulting, banking and finance used to have a uniform view of R&D: They didn't need it. When companies in the service field wanted new technology, they bought off-the-shelf versions, and then relied on vendors or integrators to customize it.

No more. According to a planning report commissioned by the National Institute of Standards and Technology (NIST) and issued in January, the service sector's share of total R&D performed in the U.S. increased from less than five percent in 1983 to 26.5 percent a decade later. And data released in June by the National Science Foundation's Division of Science Resources Studies shows that nonmanufacturing industries accounted for 24 percent of total company-funded industrial R&D in 1996.

"R&D is having a very definite impact on how service businesses work," asserts Bruce Friesen, a manager in the strategic services sector at Andersen Consulting.

The NIST report outlines the extent of R&D's incursion into service industries. Banks, it points out, seek new channel access technologies to connect with their customers, targeting technologies that permit them to define specific financial services for defined customer segments, and back-office technologies to improve their efficiency. The entertainment industry wants results of R&D related to television and computer technologies and mergers of the two. And the healthcare industry needs applications of information technology for back offices and front offices, as well as diagnosis, therapy and the delivery of health services.

In response to those needs, companies as diverse as technology-based multinationals and consulting partnerships are devising new approaches to R&D. Those approaches demand different management methods.

New Approaches to R&D Managers at traditional corporate R&D centers find they must learn an entirely new cultural approach to their work when they seek solutions for service industry problems. "We didn't have the foggiest idea of how to deal with our financial services business," admits Walt Berninger, technical director of GE's Research and Development Center in Schenectady, New York, recalling the Center's initial brush with this type of problem. "Our staff wasn't necessarily trained in that area. Our culture was different. We had very little credibility with the business."

Companies that actually provide services face a tougher challenge: They must invent their R&D institutions from scratch. Often enough, they must do so with a major disadvantage. "We don't have the deep pockets for long-term investments," says Kishore Swaminathan, an associate partner in Andersen Consulting and senior researcher at the partnership's Center for Strategic Technology Research (CSTAR) in Northrook, Illinois. "So we face short-term pressures to come up with quick results."

The pressures on old and new R&D centers demand nontraditional approaches to every aspect of the centers' activity: management, personnel, technology transfer, and time cycles. In addition, the application of R&D to the service sector is so new, and the pace of technical change in that sector so fast, that managers' perceptions of their task are continually changing. "Our role is constantly evolving," says Swaminathan.

GE and Andersen Consulting

GE and Andersen Consulting can offer particularly well-informed views about the application of R&D to service industries because they were among the first firms to link the two sectors. Andersen started up its CSTAR center in 1988. "To my knowledge, we were the first to do so in the consulting business," says Swaminathan. Even today, few consulting firms have such R&D groups. GE chose the same year to provide R&D for its own service-oriented businesses, notably NBC broadcasting and GE Capital Services.

Both companies chose to apply research to services for reasons of credibility.

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