EMCC European Monitoring Centre on Change

Knowledge-intensive business services: Trends and scenarios

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This article builds on the first article’s discussion on the rise of the knowledge-intensive business services (KIBS) sector, the reasons for its growth and the nature of the contemporary landscape of KIBS. It reviews a limited number of earlier studies that have attempted to identify drivers of quantitative and qualitative change in KIBS, and explores three alternative scenarios for the future development of the sector in coming years.

Knowledge-intensive business services (KIBS) are companies that provide inputs - based heavily on advanced technological or professional knowledge - to the business processes of other organisations. Although the KIBS sector is continuing to grow at a rapid rate, it is also experiencing qualitative changes. Many KIBS branches are becoming more concentrated, although the KIBS sector features more small firms than the economy as a whole does. Increasingly, KIBS are supplying a wider range of services, which has resulted in some overlap and convergence between different KIBS branches. Some KIBS are becoming more involved with the strategies of their major clients, leading to the possibility that certain services will become specialised and others will integrate their inputs for clients.

Drivers of KIBS growth

The KIBS sector encompasses a range of activities such as computer services, research and development (R&D) services, legal, accountancy and management services, architecture, engineering and technical services, advertising and market research, among others. The first article in this series, Knowledge-intensive business services - what future?, noted that the majority of these sectors have grown rapidly in most of the EU25 countries, and that they typically employ high-skilled workers to a greater extent than other sectors of the economy. It also outlined a number of factors driving growth of the KIBS sectors, namely:

  • outsourcing of services from client firms, although the related trend of offshoring services could reduce the number of KIBS located within the EU;
  • growing demand for different types of technological knowledge, especially related to new technologies such as information technology (IT);
  • growing demand for specialised knowledge of social, administrative, and regulatory issues - ranging from requirements to understand consumer and industrial markets, to being able to comply with and anticipate regulatory and similar pressures;
  • factors associated with internationalisation and globalisation of business;
  • an increasing emphasis on service and on intangible elements of production and products in the knowledge-based economy;
  • issues regarding labour markets for knowledge workers.

Such drivers will be experienced to different extents across the range of activities performed by KIBS. Also, there will be variations, from country to country, in the relative scale of KIBS in the national economy, in the relative size and growth rates of specific KIBS, even in the product types that are produced by different KIBS branches. There is some evidence that relations between KIBS establishments and their clients vary from country to country, as well as across sectors. For example, in some cases, the client clearly defines the mission of the KIBS establishment, while in other cases, the KIBS company and the client tend to define the problem jointly. Despite these differences, it is possible to identify some widely-shared features of KIBS development that are liable to persist into the future. Kox (2002) and Toivonen (2004) provide discussions on such development trends, which are drawn on below.

Development trends in KIBS

Expansion

Continuing operation of the drivers listed above is generally seen as being conducive to ongoing growth in the demand for, and supply of, KIBS. Offshoring might mean that parts of this supply would be sourced from outside the EU, or that it might shift to lower-wage but highly-skilled regions of the EU, particularly to some of the new Member States. However, most commentators believe that many KIBS require in-depth knowledge of, often localised, cultural, regulatory and organisational issues, and that face-to-face interaction between supplier and client that makes offshoring difficult. It remains to be seen whether ongoing advances in IT can offset some of these issues.

There may be other threats to the expansion of KIBS. Rapid growth is not always without its costs, and it is likely that high demand for KIBS, coupled with clients’ difficulties in assessing the likely quality of services to be delivered, means that some KIBS firms are producing inferior services. There have been reports, for example, of ‘cowboy consultants’, poor service in IT systems design, accountants and auditors who have failed to identify serious failings in business practice. There are also concerns that client firms have become too ‘hollow’, losing a great deal of organisational memory and strategic capability in the pursuit of flexibility, as well as losing their focus on core competencies. Problems of this nature may reduce demand for KIBS, or lead potential clients to seek in-house solutions.

Another possible threat to KIBS comes from the public sector. As research and technology organisations, such as government laboratories and universities, are pushed to find more sources of external funding, they may undercut KIBS firms by offering competing services. There have been sporadic complaints about this happening, for example, in areas such as web design services. On the other hand, KIBS firms sometimes benefit from such public sector bodies. Furthermore, national and regional governments can help to facilitate, subsidise or promote KIBS services to disadvantaged regions and firms, e.g. smaller firms and peripheral regions that may lack easy access to types of support that larger and metropolitan firms can acquire readily.

KIBS employment in the EU25 has grown considerably over recent decades, to the point that it now accounts for some 9% of all employment. Whether this high growth rate can be maintained is unclear, although it is evident that some countries (and not just the new Member States) have much scope for development, if their KIBS are to occupy a similar role in their economies as they do in much of the EU.

Growing concentration

In many sectors, there is a long-term tendency for larger firms to emerge and become dominant - a process of concentration that is often seen as synonymous with industrial maturity. Most KIBS sectors are less concentrated than the manufacturing industry; they feature many small firms operating in regional or specialised niches, together with a small number of very large firms operating transnationally. Figure 1 displays some basic data on this: it shows that computer services are very close to the entire economy in terms of size distribution; R&D services are actually more concentrated; but ‘other business activities’, a category under which a significant number of KIBS fall, displays considerably more activity in the micro business sector, and less among large firms, than is typical for the economy as a whole.

In many, but not all, KIBS sectors, a trend towards concentration is nevertheless apparent. Larger KIBS firms grow, often by acquisition, and expand regionally, nationally and internationally. This is not altogether a new phenomenon. The five major auditing firms were already dominant actors some decades ago, and rapid consolidation has been underway in KIBS sectors such as advertising. Large global firms are also active in engineering services, but the high specialisation and often the extensive local knowledge required for such services mean that they are not as concentrated as auditing services. In other sectors - for instance, legal services - country-specific factors are very important. This suggests that while concentration trends may be visible within countries, they are less prominent on a global scale. The most common picture seems to be one of increasing orientation around head offices in a few metropolitan centres.

Figure 1:Value added by firms in different KIBS sectors, compared to that for the EU25 market economy, 2001


Note: The non-financial market economy is here defined as NACE sections S to I and K (i.e. omits agriculture and fishery, financial intermediation, and public services). Source: Eurostat, 2004

Growing internationalisation

Although growing concentration of certain KIBS sectors is taking place on an international scale due to the dominance of large firms, internationalisation does not only concern large firms. As well as the emergence of large multinational KIBS, some small- and medium-sized companies are also active on an international scale. In fact, some small KIBS have been described as being ‘born global’. An example is a two-person company that is selling its computer security solutions to dozens of countries around the world.

Toivonen (2004) identifies three main models for KIBS internationalisation:

  • The ‘evolutionary model’ is often portrayed as the main model. In this model, KIBS companies first increase their local market share, then extend their activities to wider national markets. They subsequently go international, mainly through following their clients overseas; and finally they set up their own overseas operations, servicing clients or other international companies from the host country (Roberts, 1998).
  • The ‘born global’ model refers to new KIBS companies that are oriented towards international markets from the outset. Typically, these are companies that make use of computer networks to market themselves, interact with clients, and deliver their solutions - so they are often involved in information or computer services, though a range of design and similar activities can also be undertaken in this way.
  • The third model is characteristic of many firms operating mainly in domestic markets. Often, because they may be servicing a foreign client, or a local client who operates in overseas markets, the KIBS firm needs to be aware of the wider global business environment (or at least, those portions of it that clients operate in). The international linkages in their own area of expertise may also become important, with professional and other networks that extend outside the KIBS own country sometimes being relevant. In some more professional KIBS activities, for instance, there are many partnerships between similar firms in different countries.

Changing client relations

There is considerable diversity in relationships between KIBS companies and their clients - from very remote relationships, where the KIBS company is largely a contractor performing a predefined task, to more intimate, interactive ones, where the KIBS company may be in a long-term partnership with clients and negotiate the service tasks with them. Such diversity is likely to continue, but there are apparent trends.

For example, Toivonen (2004) argues that many clients expect KIBS companies to examine how their services support the client’s entire business and business strategy. This means that KIBS have to be more proactive in finding solutions to potential problems the client may face. They need to understand the client’s business as well as their own professions and specialised knowledge base; they are required to provide integrated solutions to their clients’ problems.

Such a trend is associated with a shift to longer-term partnership relationships and more managed supply and value chains - a more general development in the business world, but one whose permanence remains to be seen. The working relationships within KIBS companies and between their clients may therefore feature what Toivonen describes as a growth in consultative working practices. This reflects, in part, the demands of professional knowledge workers, as well as the need for shared problem solving with the client. Toivonen also suggests that because of these trends, KIBS need to broaden the range of services they provide, even while they become more specialised in relation to a particular sector or type of client.

On the other hand, there are also pressures that may cause some KIBS to maintain a certain distance in client relationships. In particular, concerns about the high cost and uncertain quality of some services have lead to efforts to provide more standardised and modularised service solutions to common problems. Service costs may be reduced by passing some of the work of client interaction and production or delivery of services over to para-professionals, leaving the most experienced staff to focus on the most challenging problems.

Different patterns of development in client relationships are quite possible in relation to various KIBS sectors and firms. It may be that the more strategic and intimate relationships tend to be reserved for larger clients, while more standardised solutions are introduced for others.

Convergence among KIBS

If, as suggested above, KIBS broaden the range of services they provide, there is liable to be some convergence among KIBS, as their services overlap. Toivonen argues that such convergence is a trend across many KIBS sectors, as traditionally distinct KIBS sectors increasingly offer services that were previously only provided by each other. Figure 2 illustrates the most common forms of convergence among KIBS.

There has also been an increase in companies from other sectors moving in to offer more KIBS-type services. Even former manufacturing companies may redefine themselves as service industries - IBM being a prominent example, among other computer manufacturers. There is a plausible argument that companies in all sectors are being forced to pay more attention to the services they deliver, as distinct from the particular material products or processes they provide. If this is the case, many other companies could follow this trend of producing KIBS for external markets. Figure 2 suggests how this may happen in the case of banking and real estate services, and underscores the likelihood that such new entrants will offer relatively restricted sets of KIBS, at least initially.

However, the trend of convergence may face limits, for example, if KIBS determine that specialisation in core competencies is necessary in order to be most competitive or to meet regulatory or professional standards.

Figure 2: Convergence among KIBS branches: An example of overlap with neighbouring sectors (the banking sector example)


Source: Toivonen, 2004

Existing scenario studies

KIBS are a relatively new area of study: the first reports on this topic are less than a decade old. Not surprisingly, few analysts have so far outlined scenarios for the development of this sector. This article, however, refers to three available studies, which each has its own particular focus.

The first study relates to Toivonen (2004), who analysed KIBS from the perspective of a foresight study, conducted to provide policy advice within Finland, particularly within the main urban region of that country. She considered three possible, and not necessarily mutually exclusive, scenarios for the future role of KIBS:

  1. The prospect of a two-layered structure in the KIBS sector. The core idea here is that a differentiation emerges between KIBS that specialise in highly specific types of problems, technology, etc, and others that increasingly play the role of coordinating and integrating these inputs.
  2. KIBS as shapers of their clients’ business: this sees the trend towards KIBS deepening their client relationships, and becoming more important in terms of their strategies, as well as providing inputs to isolated problems and business decisions.
  3. In contrast, the third scenario portrays in-house services as becoming more serious competitors to KIBS: not so much in the sense of firms adopting in-house solutions rather than using KIBS solutions, but rather where many large firms from various sectors offer KIBS-type services to external markets, and make it harder for ‘pure’ KIBS to compete.

While Kox (2002) is more concerned with the performance of the Dutch business services sector, there is some overlap between his two scenarios and the last two presented by Toivonen. - It should be noted that ‘business services’ implies a wider scope than KIBS, though these are prominent contributors here. - He essentially focuses on the growth prospects for business services, and contrasts a ‘powerhouse’ scenario - in which Dutch services perform well domestically and internationally - with one of ‘mediocrity’. In the latter, the Dutch business services’ growth rate is close to the average of other market sectors; in the former, it is greater than the average. While this may be a rather crude contrast, Kox fills in the scenarios with a number of helpful details which are outlined below.

The third scenario study is less useful for present purposes, though it is extremely relevant for anyone considering the environmental impact of services and the supply chains they are located within. This study is concerned with eco-efficiency and the contributions that services, particularly business services, can make here. Zaring (2001) uses these scenarios to examine the economic contexts within which more eco-efficient producer services might develop, or be thwarted. These are scenarios of general economic developments within which prospects for KIBS are located, rather than being specifically KIBS-based scenarios. The scenarios are:

  1. Europe in the fast lane - European companies predominantly produce for liberalised global markets; the firms are generally quite large and produce products and services that are appropriate and/or adaptable for large parts of the world;
  2. the sky is the limit - again businesses are operating on a global scale, with large firms and standardised products dominating; but in this scenario, resources and transport costs are very low, production is located as much as possible where production costs are lowest, and there is little environmental awareness and high confidence in technological solutions;
  3. small is beautiful - in this scenario, the orientation is towards regional markets, with demanding customers valuing an individual approach: medium-sized companies are more important and every company needs a ‘license to operate’ based on internalisation of environmental costs, extended producer responsibility, and sustainability orientation.

Three new KIBS scenarios

Although the scenarios described above are of interest, they are limited in terms of defining a set of scenarios dedicated solely to the future development of KIBS in the EU. For this reason, this article develops three new scenarios that better capture the specifics of KIBS in a wider European context:

  • Scenario A: KIBS leadership;
  • Scenario B: KIBS plateau;
  • Scenario C: Two-tier KIBS.

These scenarios represent aspects of both the Toivonen and Kox scenarios, with additional considerations drawn from discussions on drivers in the first article on the KIBS sector. Current ‘business as usual’ trends would seem to suggest that a scenario somewhere between KIBS leadership and Two-tier KIBS below is more likely. However, some commentators would predict a situation more along the lines of scenario B, KIBS plateau. Each scenario is described in more detail below.

Scenario A: KIBS leadership

This scenario envisages continuing growth of and reliance on the KIBS sector. It partly draws on aspects of Toivonen’s second scenario and Kox’s ‘powerhouse’ scenario. Its main features are described here.

Rapid growth of KIBS

The sector and most, if not all, of its subsectors continues to outpace the rest of the economy, in terms of increasing shares of value added and job creation, and growth of international trade. There is a rapid rate of formation of new firms, but in the context of a growth in larger and transnational firms. High demand growth might make it less likely that labour productivity growth in KIBS would be high compared to other sectors. However, application of new technology and a move to more commoditised services among some KIBS might enhance productivity, thus increasing demand.

Increased demand

Quantitative growth in demand is fuelled by developments in technology and other factors that increase the need for service inputs from businesses. Examples might include new generations of equipment and technology-based services, e.g. those supplied via the Internet such as e-commerce, groupworking systems, and videoconferencing. The proliferation of advanced broadband and mobile connectivity could stimulate demand for business of all types, to offer new services and/or work in new ways. Also, new technology may have pitfalls (e.g. viruses, hacking, other security issues, problems along the lines of Y2K) that require expert inputs.

Increased demand may also result from trends in user industries, such as those associated with growth in company size or efforts at ‘downsizing’, management philosophy, e.g. focusing on core competencies, and the ability to recruit and retain particular classes of skilled employees. Kox suggests that a tendency for firms to decrease in size across the economy could be related to increased demand for several types of business services. He also speculates that there could be employee or even consumer-driven demand for KIBS-type services such as e-learning. Other trends may be motivated by broader developments in operating environments, for example, transport gridlock, high energy price.

Demand may also be driven by new social challenges, such as anti-terrorist measures in the wake of 9/11, or the introduction of the euro and the advent of the single European market. Other regulatory and policy changes - e.g. environmental and standards-oriented rules, a shift from proprietary to open systems - could impact on KIBS. The impact of government policies is potentially mixed: while more regulation would create demand for some types of KIBS, deregulation might generate demand for legal KIBS, for instance, if problems are increasingly solved through the courts. Harmonisation of regulations across the EU would make it easier for KIBS to operate across borders, but might decrease demand for some types of KIBS and would presumably remove the sheltered contexts in which many local KIBS operate.

Qualitative shifts in demand may also result, whereby more KIBS are expected or enabled to take a strategic role in client decisions, are increasingly entrusted to gain an overview that is difficult for clients to achieve, and even become the leaders in orchestrating action in clusters of firms. Such leadership will require high skills. In general, in this scenario, employees of KIBS will feel valued and will be able to negotiate good working conditions.

Supply of KIBS

There is a possibility, in the developments outlined above, that KIBS may act out of their own self-interest, pushing their clients’ strategies to maintain their reliance on particular KIBS inputs. However, clients should have a wider choice of KIBS suppliers to choose from, to make informed choices between suppliers, and to evaluate the service they receive.

Toivonen sees a possibility of KIBS - IT services in particular - seeking to develop commoditised, standardised services that they can supply repeatedly to many clients. The liberalisation of services trade would be expected to result in increased efforts by transnationals to export such services globally, although they could face obstacles due to the lack of cohesion with local cultures and contexts. One result might be the growth of services specialising in ‘localisation’, or the adaptation of commoditised services. Many standardised services might be provided by ‘offshore’ offices located in low-wage economies.

Increased KIBS trade

In this scenario, KIBS trade - including overseas trade, such as franchising and partnerships, as well as classical investment and ‘bodyshopping’, and delivery of services through electronic networks - continues to flourish. While this means that many previously sheltered KIBS are exposed to international competition, there are also many opportunities for ‘export’ of EU KIBS to other world regions, as well as increased trade among EU countries. Small as well as large firms gain an international presence. This is facilitated by continuing articulation and implementation of liberalisation principles regarding services trade and investment, not least within the European single market. Though there is some offshoring of more routine elements of the KIBS services to low-wage areas of the world, a large share of functions are conducted in core areas of the EU and other industrial regions.

Knowledge infrastructure

Some commentators have seen KIBS as forging a second ‘knowledge infrastructure’, alongside the public knowledge infrastructure of universities and government laboratories (e.g. Beije, 2000, den Hertog, 2000). The issue arises of how far the knowledge produced in this infrastructure remains private, and how far it becomes publicly available; or who performs functions aimed at the public good, such as setting standards, conducting fundamental research and submitting knowledge regarding refereeing and similar quality control procedures? With a major expansion of KIBS, this is likely to be a more pertinent question, and one that may have to be resolved, for example, through contracting of public good functions, better relations between KIBS and universities, etc.

Scenario B: KIBS plateau

In this scenario, the growth of KIBS is impeded, and in some cases even reversed, mainly by a shift to in-house provision of services by users, supported by technological and managerial changes. As such, it draws on a synthesis of Toivonen’s third scenario and Kox’s second scenario, although it goes beyond these scenarios in some respects. Its main features are described here.

Slow growth of KIBS

Growth is slow and is more similar to that of the economy as a whole, a process that might be interpreted as the ‘maturation’ of the KIBS sector. This is largely due to changes in demand, which require less external provision of services. Other factors could include slow progress in services trade liberalisation and in harmonisation of standards. Larger KIBS firms might shed staff who would in turn attempt to set up as small KIBS businesses themselves. Three types of factors may be relevant in this scenario:

  1. Competition among KIBS as a result of greater provision of services by companies and other agents outside of the KIBS sector. Instead of new KIBS being set up as independent entities, more companies may decide to retain their KIBS activities in-house, as well as offering some of these services to other parties, thus competing with specialised KIBS companies. Toivonen describes this scenario as ‘clients becoming competitors’. Companies from other service sectors could also attempt to move up the value chain by offering more KIBS-type services. Greater competition may also come from the public sector, where universities and government research laboratories are encouraged to provide KIBS-type services to business clients. This also has the potential to undercut the commercial KIBS sector.
  2. More internal provision of KIBS-type services by clients, or at least, less outsourcing of such services. For strategic reasons, many users, or potential KIBS users, decide to provide services themselves, rather than acquiring services from external sources. A possible reason for this could include growing concern that the ‘hollowing’ of firms has gone too far, and that there are high costs in terms of organisational memory and flexibility associated with replacing too many internal functions with external KIBS. This could result in a change in management philosophy with greater emphasis on the importance of retaining relevant strategic functions or in facilitating this. There could be increased availability and use of relatively easy-to-use technological solutions that allow for ‘self-servicing’ of these functions (e.g. more automatic interoperability of IT systems; self-repairing systems). Increased availability of skilled labour could also play a role, particularly if labour markets and regulations permit more rapid hiring and firing of expert staff. Finally, KIBS themselves might contribute to their own erosion of services, should the perception grow that they often provide inadequate and overpriced services.
  3. Absolute reduction in requirements, or reduction in the growth rate of requirements, for KIBS-type services. This might be associated with a substantial decrease in the ‘regulatory burden’ on businesses, or a slowing of the rate of technological change confronting them. For example, it may be related to problems in the global economy and to greater isolation of national or regional economies. Alternatively, governments might be able to agree on simplified and streamlined common sets of rules.

Offshoring

Another element that could impact negatively on the growth of the KIBS sector in the EU is offshoring of many KIBS functions to low-wage parts of the world, where high skills and effective telecommunications are available. This could involve some movement of more sophisticated KIBS functions overseas - or if as suggested above more client firms seek to retain these elements of KIBS in-house - of the more routine, standardised and commoditised elements of KIBS.

Reduced demand

In addition to a decline in quantitative demand for KIBS, under most of these conditions, a reduced qualitative role for KIBS may also be expected, in terms of intimate engagement with client strategies. Relatively powerful in-house departments would be able to employ KIBS on a ‘jobbing’ basis to provide highly defined service inputs.

  • In his first scenario, Kox suggests that KIBS would be more concerned with technology diffusion than with promoting highly innovative applications. KIBS companies themselves would tend not to pursue radical technological innovation, and may instead pursue strategies of product differentiation.
  • With the worsening market situation for many KIBS, there may be a general shift towards larger and better-established firms, though some low value-added firms of a smaller scale might be expected to survive in regional and sectoral markets. The KIBS workforce may be under pressure to work more intensively and possibly under less secure contractual relations. This sector is relatively low in terms of trade union membership - professional associations are more important - and a tradition of defending working conditions may be poorly established.
  • Several factors suggest that transnational KIBS may experience many difficulties in this scenario. However, in practice, such organisations are likely to remain prominent - even if their capabilities are more limited than in scenario A. Companies of all sizes are likely to come and go, with individual firms searching to find the right niche.

Knowledge infrastructure

With more business service functions produced by firms who are not KIBS - whether internally or for other organisations to use - it is possible that less of the knowledge produced would enter the public domain. As always, however, there may be countervailing forces. If more service functions are ‘self-serviced’ using new technology, then relatively generic knowledge about the services might be widely accessible, even if more local knowledge about how the services are realised in specific contexts is less widely accessible.

Some of the developments in this scenario may result from policies and strategies developed with little specific thought for KIBS. For instance, a major increase in output of a wide range of technical skills could reduce of the need for KIBS.

Scenario C: Two-tier KIBS

This scenario represents a further extension of a theme touched on, to a lesser degree, in the previous two scenarios: the development of KIBS that effectively intermediate between other KIBS firms and their clients. These KIBS could be referred to as ‘service integrators’ or, as Toivonen describes, ‘coordinators’. This trajectory reflects a combination of trends towards specialisation and towards the provision of a wider set of service inputs. Already, some KIBS operate as lead suppliers, subcontracting other suppliers to provide specific inputs. Such a scenario sees considerable expansion of this practice, and is loosely aligned with Toivonen’s first scenario and with elements of Kox’s second scenario. It also resembles the scenario outlined by den Hertog (2000). Its main features are as follows:

Specialisation

In this scenario, many KIBS firms are highly specialised, achieving high productivity and innovation by specialising in services tailored to particular branches of industry and/or organisational functions. These firms might display high internal division of labour, with the most experienced and qualified professionals supported by larger numbers of more junior staff. Some of the specialised companies would grow to a large size, making use of extensive knowledge management techniques to achieve reproducibility of the solutions they develop for individual clients.

Others specialise in orchestrating the inputs from these specialised KIBS, acting in some cases as brokers, but often more proactively as integrators of service provision. In the latter case, they play a substantial role in defining the service outputs and inputs that are to be provided. Toivonen suggests that some of this integration expertise may be supplied by client firms selling their in-house KIBS to other organisations. The integrators would be responsible for quality control of the specialised service providers.

Such integrators could act on a regional or sectoral basis, perhaps even with some form of public assistance, providing support for the development and modernisation of clusters and SMEs that would otherwise find acquisition of KIBS inputs relatively costly. Such support might be particularly appropriate in more peripheral regions.

Strong competition

This pattern of development is likely to see large multi-sectoral KIBS acting as integrators in many cases. Such a scenario could well involve increased international competition in the supply of such coordinating and integrating services. EU firms may face extreme competition from other regions, and one strategic response might involve mergers and other partnerships. Acquisitions are also likely.

There are also likely to be some occasions where smaller firms can effectively coordinate and integrate service packages, with larger firms providing some of the elements of these service packages. Since the integrators will be in a good position to determine prices and contractual conditions, however, one can foresee large firms striving to gain and retain control here. Many different kinds of contractual relations and coordination mechanisms will be instituted, but complex IT-based project management and network systems are likely to be prominent, while the specific managerial skills associated with management of large and complex product systems will be in high demand. Such managers need to understand the complexity of client requirements. They need to be able to build shared visions and to organise networks of partners and multiple supply chains, as well as working with inter-organisational and cross-professional teams. Such skills will be in high demand.

Standardisation

Given these challenges, there will also be efforts to standardise and systematise such processes. While very large and complex projects will require tailored solutions, there are also likely to be more commoditised solutions for recurrent problems. Decision support and project management systems are liable to be introduced both for specialised services and integrative functions. Different working conditions and pay levels may be seen in the two tiers of KIBS.

Knowledge infrastructure

The knowledge involved in standardised services is liable to be readily available, and ‘service engineering’ courses and research programmes are a likely consequence. Knowledge and skills in integrating service components and in managing multiple service operators are another matter, however. Training in ‘hybrid’ skills for service managers is one thing, but a great deal of knowledge about integrating services is likely to remain tacit, since these are complicated and often project-specific and fast-changing issues.

Conclusion

This article reviewed major trends in the KIBS sector and considered some alternative scenarios for the future development of KIBS. While the continuing importance of KIBS seems definite, the scenarios are an example of the different prospects that the sector could face in the years ahead. The last article in this series, KIBS - policies, issues and the future, reviews a range of policy issues that are raised by the three scenarios in relation to the future development of KIBS.

The three different scenarios regarding the future development of KIBS, outlined above, are of course hypothetical. However, they may prove useful by exploring some significant features that could potentially emerge and by explaining the dynamics underlying these features. The eventual future of KIBS is likely to be a mixture of different elements; precisely how they are integrated will be a major issue in the years ahead. It is likely that the outcomes will vary across countries and regions, and across KIBS branches. For example, it is quite possible for scenario A, KIBS leadership, to apply to some KIBS branches and for scenario B, KIBS plateau, to apply to others. Consider, for instance, a KIBS plateau scenario where the government withdraws to a considerable extent from regulatory action, reducing the demand for services that assist firms in gaining access to these regulations. One outcome of this could be an increasing reliance on private litigation to settle industrial and other disputes, leading to increased demand for other types of KIBS, such as legal services.

References and further reading

All links accessed on 28 August 2005.

Beije, P. Service in innovation: The role of knowledge intensive business services in innovation of private firms, Position Paper, Conference on ‘Service in innovation’, 11-12 May 2000.

Eurostat, European business: Facts and figures - Data 1998-2002, Luxembourg, Office for Official Publications of the European Communities, 2004b.

Hertog den, P., ‘Knowledge-intensive business as co-producers of innovation’, International Journal of Innovation Management, Vol. 4, No. 4, pp. 491-528, 2000.

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

Miles, I., ‘Taking the pulse of the knowledge-driven economy: The role of KIBS’, in Toivonen, M. (ed.), Growth and significance of knowledge based services, Helsinki, Finland, Uusimaa TE Centre Publications 3, 2002.

Miozzo, M. and Miles, I. (eds.), Internationalisation, technology and services, Cheltenham, Elgar, 2002.

Muller, E., Innovation interactions between KIBS and SMEs, Heidelberg, Physica-Verlag, 2001.

Murphy, M. and Vickery, G., Strategic business services, Paris, OECD, 1999.

Roberts, J., Multinational business service firms: The development of multinational organisational structures in the UK business services sector, Aldershot, Ashgate Publishing Company, 1998.

Toivonen, M., Expertise as business: Long-term development and future prospects of knowledge-intensive business services (KIBS), Helsinki, Helsinki University of Technology, Doctoral dissertation series 2004/2, 2004.

Zaring, O. (ed.), Creating eco-efficient producer services, Gothenburg, Gothenburg Research Institute, 2001.

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