On Innovation and the Service Industry
From A Snapshot of Innovation in the Philippine Services Sector Discussion Paper
According to Republic Act No. 11293 or the Philippine Innovation Act, innovation refers "to the creation of new ideas that results in the development of new or improved policies, products, processes, or services which are then spread or transferred across the market." It can be changes in the organization (e.g., adoption of WFH policies, product (e.g., a new formula for a milk product), process (e.g., development of a machine that doubles output), or marketing (e.g., using a movie star for an ad).
It should be noted that the services sector accounts for about 60 percent of the GDP and employment of the Philippines. This sector needs to innovate consistently to lead to better quality of services offered and, thus, a higher rate of return.
Although the author cautions taking a general stance on how to innovate, stating that the nature of the industry and the innovation itself plays a factor, it does appear that firms that implement Fourth Industrial Revolution technologies (such as AI, Internet of Things, or 5G), avail of financing (i.e., obtain loans, equity investments, or public financial support to pay for innovation activities), engage in Research and Development practices (whether they have an in-house team or not), and implementing knowledge management practices (such as obtaining an ISO certification) are more likely to innovate.
A special note should be made of R&D practices. In service industries, R&D can be informal and does not take the form of a dedicated office or department but rather spans the entirety of the organization as a whole. R&D can take the form of the skills and talents of the officers and employees, together with a new technology or opportunity. It, therefore, becomes important for firms to create a nurturing environment and implement policies connected to it where innovation can thrive and not stifle new ways of thinking.
Nevertheless, the research shows that cost is a big hindrance to innovation. Funding can help with this, particularly Sections 21, 22, and 23 of the Philippine Innovation Act, which implements an innovation fund for solutions benefiting the "poorest of the poor," creates an innovation development credit and financing program, and mandates banks dedicate 4% of their loanable funds to innovation development credit.
Finally, the author states that there is a dearth of firms cooperating with traditional sources of knowledge such as universities. Information only comes from experience with the market but not other external entities. Partnerships like this can be a big boost to innovation.