Service Providers in the Information Industry Assert Themselves through Innovation

In order that they are able to hold their ground in an increasingly competitive field, service providers in the information society are increasingly investing in innovation. Process innovations, which involve introducing new or improved technologies within a company, play an essential role.

Companies claiming to have implemented a process innovation within the last twelve months generate a revenue share of more than 90 per cent in almost all branches of this sector. Around 65 per cent of revenue in the sector is generated by companies that have also implemented product innovations within the last twelve months. They are thereby able to offer new or significantly improved services.

This is the result of a business survey among German IT-related service providers carried out by the Centre for European Economic Research (ZEW), Mannheim, in collaboration with the credit reference agency Creditreform, Neuss, in September and October 2002. Around 1,200 companies participated in the survey. The sector of IT-related service providers comprises Information and Communication Technology (ICT) service providers (firms providing computer service and leasing, ICT-specialised trade as well as telecommunication services) and knowledge intensive service providers (firms in the branches of tax consultancy and accounting, management consultancy, architecture, technical consultancy and planning, research and development as well as advertising).

Process innovations are designed to optimise business procedures and increase the quality of the services offered. By using product innovations, IT-related service providers try to tap into new markets. Among service providers in the ICT sector, the revenue share of product innovators significantly exceeded the average revenue share in the economic sector. Among knowledge-intensive service providers, product innovations play an equally important role in terms of research and development, as well as technical consulting and planning.

Alongside the implementation of process innovations, changes and innovations in company organisation are also important to ensure that company procedures become, or remain efficient. IT-related service providers show a tendency to outsource certain tasks to external companies. They are therefore better able to focus on their core competencies. The majority of companies in this sector report having outsourced tasks to other companies within the past three years. In this same period, IT service providers and lenders, as well as telecommunication service providers made the most use of this instrument. Tax advisors and accountants on the other hand, made almost no use of outsourcing.

Competitive pressure in the IT sector is increasing. This is first and foremost a result of the current economic situation. Secondly, foreign competition is also increasing in domestic markets. The revenue share of companies which report facing a high degree of foreign competition within their domestic markets accounts for more than 80 per cent in Western Germany and around 45 per cent in Eastern Germany.

Contact

Dr. Margit Vanberg, E-mail: vanberg@zew.de