2015 European Service Innovation Scoreboard (ESIS) Key findings

Transcription

1 Ref. Ares(2015) /09/2015 ESIC European Service Innovation Centre REPORT 2015 European Service Innovation Scoreboard (ESIS) Key findings Hugo Hollanders January 2015

2 ESIC in Brief Increasingly service innovation plays an instrumental role in the transformation and upgrading of traditional economic sectors and industries into more productive, competitive and high value-added business eco-systems. Considered as being multi-dimensional in nature, service innovation comprises innovation in services, service sectors or service industries that are provided by service entrepreneurs and service firms. It also takes place in manufacturing industries, adding further value and contributing significantly to overall productivity and profitability. There is a growing need to assess, analyse and demonstrate what impact service innovation has on industrial change and to assist Member States and regions towards a greater understanding of service innovation as a driver of industrial transformation and future competitiveness. The European Service Innovation Centre (ESIC) is a two-year initiative commissioned by the European Commission s Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs to capture and demonstrate the dynamics and large-scale impact of service innovation as well as to assess how service innovation impacts on competitiveness, industrial structures and regional development. It will also focus on assessing the implications and impacts of service innovation on employment structures, economic patterns and on value creation. ESIC has prepared a European Service Innovation Scoreboard (ESIS) in order to capture and demonstrate the impact of the transformative power of service innovation. In addition, ESIC has provided customised advice to six selected model demonstrator regions (the Canary Islands, Emilia-Romagna, Limburg, Luxembourg, Northern Ireland and Upper Austria). The initiative also helps Europe s other regions and Member States to make better use of the transformative power of service innovation in strengthening existing and emerging industries and markets and to develop better industrial policies and smart specialisation / cluster strategies. The goal of creating a favourable eco-system for service innovation boosts supportive infrastructures and business conditions that, in turn, facilitate the take-up of innovative services throughout the economy. Copyright of the document belongs to the European Commission. Neither the European Commission, nor any person acting on its behalf, may be held responsible for the use to which information contained in this document may be put, or for any errors which, despite careful preparation and checking, may appear. This work is a part of a service contract for the Internal Market, Industry, Entrepreneurship and SMEs Directorate- General of the European Commission. The views expressed in this report, as well as the information included in it, do not necessarily reflect the opinion or position of the European Commission and in no way commit the institution.

3 Table of Contents Executive summary 4 1. Introduction 4 2. ESIS measurement framework Scorecard for service innovation and its transformative power Regional innovation data Service innovation intensive industries Industries with transformative power of service innovation Scorecard for systemic functions and structural indicators Scorecard for the general socio-economic situation 7 3. ESIS update and results Update: more recent data and more countries Variety in performance across countries For many regions and indicators performance has worsened Change in economic performance and service innovation 17 Annexes 19 Annex 1: ESIS indicators measuring service innovation 19 Annex 2: ESIS structural indicators 20 Annex 3: ESIS regional coverage 21 Annex 4: Country abbreviations 22

4 Executive summary The 2015 European Service Innovation Scoreboard (ESIS) provides an updated statistical picture of the level of services innovation and its impact on other industries at the country and regional level for 28 EU Member States, Iceland, Former Yugoslav Republic of Macedonia, Norway, Serbia, Switzerland and Turkey. This second edition provides an update of the first ESIS published May 2014 using more recent data and covering more countries and regions. This second 2015 edition of ESIS shows that there is variety in performance across European countries and there are no countries which excel across all the different dimensions. Compared to the first 2014 edition, performance in the ESIS update has worsened for many regions for the scorecard highlighting the importance of the transformative power of service innovation. In particular for the indicators using data from the Community Innovation Survey performance has worsened due to a negative impact of the economic crisis on innovation activities between 2010 and An analysis between the possible linkages between ESIS and changes in socio-economic performance shows that better performance in services innovation has a positive impact on improving socio-economic performance as measured by changes in per capita GDP and the share of long-run unemployment. 1. Introduction Experience demonstrates that services innovations have a transformative capacity by making a strong contribution to structural changes in regions or nations (Expert Panel on Service Innovation in the EU Meeting the Challenge of Europe 2020: The Transformative Power of Service Innovation 1 ). The European Service Innovation Scoreboard (ESIS) uses a wide range of indicators to measure the impact of service innovation at national and regional levels. The first 2014 Key findings report 2 showed that there is variety in performance across Europe on the level of the Member States where performance on those dimensions measuring performance levels is linked to the innovation performance measured in the Innovation Union Scoreboard. The report also showed that at the regional level there is more variation across the different dimensions and a comparison with regional innovation performance as measured in the Regional Innovation Scoreboard showed that ESIS is better able of capturing services innovation. Full details of the measurement framework are explained in the ESIS Methodology report 3. ESIS presents statistical profiles for all EU28 Member States and their regions and for 6 other European countries (Iceland, Former Yugoslav Republic of Macedonia, Norway, Serbia, Switzerland and Turkey). These statistical profiles show performance related to each of the indicators, compared with overall EU28 performance. These profiles demonstrate the relative strengths and weaknesses of regions and countries and highlight potential areas for new policies aimed at improving the impact of service innovation. The statistical profiles are available at the ESIC website 4. The ESIC website also features an interactive ESIS online tool. Section 2 briefly explains the ESIS measurement framework. Section 3 presents key findings at the country and regional level using the updated ESIS database and comparing with the results of the first ESIS. Section 3 also discusses the link between changes in economic performance and service innovation _revised_ pdf 4 European Service Innovation Centre - 4

5 2. ESIS measurement framework The European Service Innovation Scoreboard consists of three scorecards each serving a different purpose. The scorecards highlight: 1) The importance of the transformative power of service innovation in a region; 2) Structural indicators that can be used as tools in regional policy making; and 3) Indicators measuring the economic performance of a region that capture the overall results of policies, innovation and business activities. Figure 1 ESIS scorecards Service innovation and its transformative power Wider framework conditions; Service innovation inputs; Service innovation throughputs; Service innovation outputs; Outcomes Systemic function and structural indicators Entrepreneurial activities; Knowledge development and transfer; Innovation and business model generation; Financing innovation and growth; Collaboration and networking General socio-economic situation 2.1. Scorecard for service innovation and its transformative power The first set of indicators measures the importance of service innovation in a region. The indicators are presented in a similar way to the Innovation Union Scoreboard with indicators grouped into 5 dimensions (Annex 1). Average performance for each of the dimensions is measured using a composite index where performance has been rescaled from a minimum score of 0 to a maximum score of 100. The first dimension measures framework conditions, which are defined as those factors that are external to a firm, that drive and shape the innovation activity of firms and influence their innovation performance and subsequent market success. These factors are outside the reach or influence of a single firm, or even a group of firms, and are usually issues to be addressed by policies. They represent the interface at which the innovation activities of firms are subsequently revealed in macro measurements of the structural change within a region or a sector. Service innovation is conceived of as three closely connected elements captured by three further dimensions: inputs into the innovation; the actual innovation throughput; and outputs to the market. Inputs are the deliberate development of the service innovation. The service innovation is developed for a purpose and the innovation process is intentional. Hence, it did not just happen as in a case that might be characterised as evolution rather than innovation. Throughputs are the new development themselves and output is the value created. This can be value to the company or the customer alike. If no value is created, then this analysis will not consider it to be a service innovation. Outcomes, the fifth dimension, capture structural change which is the impact of the transformative power of service innovation. European Service Innovation Centre - 5

6 Regional innovation data Although data availability for European regions has increased enormously in recent years, empirical analyses on specific research questions have to cope with difficulties in data availability and/or with data gaps. For data coming from the Community Innovation Survey (CIS) regional data are not available from Eurostat and are difficult to obtain from national sources. A methodology has been developed for estimating regional CIS data. It is assumed that national intensities or shares observed at industry level also apply at regional level and by using real regional data on employment and the number of enterprises (units), it is possible to estimate the corresponding regional data by assuming that intensities at the country level also hold at the regional level. Real data at the NACE 2 digit level on employment and number of firms are then used to construct regional estimates for the ESIS indicators using CIS data. The ESIS Methodology report provides a more in-depth explanation Service innovation intensive industries ESIS includes an indicator measuring the share of employment in service innovation intensive industries. These industries have been defined to include, firstly, those NACE 5 2 digit industries which are within the highest quartile of industries with companies having introduced a service innovation in both 2008 and 2010 and, secondly, those NACE 2 digit industries which are within the highest quartile of industries where the share of companies introducing a service innovation has increased most between 2008 and The following industries have been identified as service innovation intensive industries: Manufacture of paper and paper products (NACE C17); Publishing activities (NACE J58); Telecommunications (NACE J61); Computer programming, consultancy and related activities (NACE J62); Information service activities (NACE J63); Financial service activities, except insurance and pension funding (NACE K64); Insurance, reinsurance and pension funding, except compulsory social security (NACE K65); Architectural and engineering activities; technical testing and analysis; scientific research and development; advertising and market research (NACE M71- M73) Industries with transformative power of service innovation The service innovation intensive industries are characterised by high shares of firms with service innovations within each of these industries. But services innovations also have an impact outside the industry in which they are generated. The Expert Panel, in particular, identified three types of service sectors that have this transformative power of service innovation: Networking, connecting and brokerage services that link consumers, firms and supply chains and improve the allocation and distribution of goods and information in society, including: Land transport and transport via pipelines (NACE H49); Warehousing and support activities for transportation (NACE H52); Postal and courier services (NACE H53); Publishing (NACE J58); Broadcasting (NACE J60); Office administrative, office support and other business support activities (NACE N82). Utilities and infrastructure services, such as telecoms, energy and waste disposal, increasingly provide higher value-added services for their customers, including: Electricity, gas, steam and air conditioning supply (NACE D35); Telecommunications (NACE J61); Financial and insurance activities (NACE K64, K65 and K66). Knowledge Intensive Business Services (KIBS) collaborate closely with their customers to help upgrade their technology, organizational processes and business models as well as transfer knowledge and experience across sectors, including: Computer programming, consultancy and related activities (NACE J62); Information service activities (NACE 63); Legal and accounting activities (NACE M69); Activities of head 5 NACE is the statistical classification of economic activities in the European Community. More details are available at European Service Innovation Centre - 6

7 offices, management consultancy activities (NACE M70); Architectural and engineering activities, technical testing and analysis (NACE M71); Scientific research and development (NACE M72); Advertising and market research (NACE M73) Scorecard for systemic functions and structural indicators The second set consists of structural indicators that can be used as a tool in regional policy making (Annex 2). This set takes a broader approach and focuses on more general dimensions that are relevant to measuring entrepreneurial, high-tech and business activities in a region. As these more general dimensions also include service innovation activities, there is a small overlap between the first and second set of indicators but this enables exploiting individual, and also complete sets of, indicators that relate to the specific focus of the user Scorecard for the general socio-economic situation The third set of indicators provides a summary of the economic performance of a region capturing the overall results of its policies, innovation and business activities. This scorecard includes indicators measuring the level of per capita income, disposable income, long-term unemployment, the degree of urbanisation and the quality of regional government. European Service Innovation Centre - 7

8 3. ESIS 2015 update and results 3.1. Update: more recent data and more countries The first 2014 ESIS was published in May The second edition of ESIS not only uses more recent data but also covers more countries. Country coverage has been improved by adding Croatia, Iceland, Former Yugoslav Republic of Macedonia, Norway, Serbia, Switzerland and Turkey 6. The regions of Norway have also been included in the update. It was not possible to include the regions of Croatia, Switzerland and Turkey due to limited regional data availability 7. For almost all indicators more recent data have been used in the ESIS 2015 update (Table 1). On average the data used are almost 2 years more recent as compared to the ESIS 2014 pilot which was published less than one year ago. For some indicators like the share of business expenditure on R&D updated data have been used for the same year used in the 2014 pilot ESIS. For the indicators measuring change not only were more recent data used, for several of these indicators change has been measured over a shorter period to capture more recent developments. Table 1 More recent data used for most indicators in 2015 ESIS update Service innovation and transformative power Wider framework conditions 2015 Update 2014 Pilot Institutions Macroeconomic stability Infrastructure Higher education/ Training and Lifelong Learning Labour market efficiency Market size Business sophistication It is important to try new and different things in life It is important to think new ideas and being creative Service innovation - Input Innovation expenditures in Knowledge-intensive business services Innovation expenditures in Networking, connecting and brokerage services Innovation expenditures in Utilities and infrastructure services Share of innovators cooperating with others Employees with a higher education degree Business expenditure on R&D Researchers among employees (business sector) Total R&D personnel (business sector) Service innovation - Throughput Companies that introduced a service innovation Product / Process innovators in Knowledge-intensive business services Product / Process innovators in Networking, connecting and brokerage services Product / Process innovators in Utilities and infrastructure services Marketing innovators in Knowledge-intensive business services Marketing innovators in Networking, connecting and brokerage services Marketing innovators in Utilities and infrastructure services Organisational innovators in Knowledge-intensive business services Organisational innovators in Networking, connecting and brokerage services Organisational innovators in Utilities and infrastructure services Data availability is good for Croatia (85%), Norway (81%), weak for Turkey (64%) and poor for Serbia (42%), Switzerland (34%), Iceland (29%) and Former Yugoslav Republic of Macedonia (17%). 7 For the Croatian regions data availability is between 24% and 41%, for all Swiss regions data availability is 25% and for the Turkish regions data availability is between 15% and 17%. European Service Innovation Centre - 8

9 Service innovation and transformative power Service innovation - Output 2015 Update 2014 Pilot Employment in service innovation intensive industries Turnover of newly introduced innovations new to the market Turnover of newly introduced innovations new to the firm Outcomes Change in employment share in Knowledge-intensive business services Change in employment share in Networking, connecting and brokerage services Change in employment share in Utilities and infrastructure services Change in employment share in knowledge-intensive services Change in employment share in service innovation intensive industries Labour productivity growth Systemic function and structural indicators Update Pilot Entrepreneurial activities Self-employed people It is important to try new and different things in life It is important to think new ideas and being creative Labour productivity growth Knowledge development and transfer Employees with a higher education degree Researchers among employees (business sector) EPO high-tech patent applications Innovation and business model generation Companies that introduced a service innovation Employment in medium-high-tech and high-tech manufacturing Employment in knowledge-intensive services Employment in service innovation intensive industries Financing innovation and growth Gross Fixed Capital Formation Total expenditure on R&D Business expenditure on R&D Innovating companies who received public financial support Collaboration and networking Innovating companies collaborating with others Specialisation in service-oriented clusters Employment in 2 and 3 star clusters General socio-economic situation Update Pilot GDP per capita Disposable income Long-term unemployment Urbanization Quality of Government European Service Innovation Centre - 9

10 3.2. Variety in performance across countries The 2015 ESIS shows again that there is variety in performance across Europe on the level of Member States and Norway 8. Table 2 shows the performance per dimension for the scorecard on service innovation and its transformative power and the scorecard on systemic functions and structural indicators. Service innovation and its transformative power North-western Europe performs best on the Wider framework conditions and United Kingdom, Luxembourg and Netherlands have the highest performance scores. The lowest performance scores are found in Southern Europe, in particular in Romania, Greece and Bulgaria. Denmark, Finland and Estonia perform best on the Inputs to service innovation. The weakest performance is observed in Eastern Europe, in particular in Romania, Bulgaria and Latvia. On Throughputs to service innovation the best performers are Luxembourg, Portugal and Germany and the worst performers include Romania, Poland and Bulgaria. On Outputs of service innovation Denmark and Slovakia and United Kingdom show the best performance 9. Performance is weakest in Romania, Bulgaria and Latvia. Most of the indicators used in ESIS are 'stock' indicators and capture the most recent levels of inputs and throughputs of the innovation process. Outcomes on the other hand uses 'flow indicators' which measure changes over time with less performing countries more likely to register faster change as a result of catching-up from lower to higher performance levels. That the level of services innovation (as captured in the previous three dimensions) is not linked to Outcomes can be explained as high performing countries will show a below average change and low performing countries an above average change. On Outcomes Latvia, Greece and Denmark show the highest scores whereas Ireland, Italy and United Kingdom show the lowest scores. Systemic function and structural indicators Hungary, Greece and Poland show the best performance on Entrepreneurial activities, Luxembourg, United Kingdom and Netherlands have the lowest performance. On Knowledge development and transfer highest performance is seen in Finland, Norway and Ireland and lowest performance in Italy, Slovakia and Czech Republic. On Innovation and business model generation Luxembourg, Sweden and Finland take the three leading positions; Romania, Latvia and Bulgaria are the weakest performers. Finland, France and Austria perform best on Financing innovation and growth. The weakest performance is seen in Latvia, Lithuania and Poland. On Collaboration and networking best performance is for Malta, Norway and United Kingdom and worst performance for Latvia, Bulgaria and Croatia. No clear patterns emerge analysing country performance across the 5 systemic functions and structural indicators except that Bulgaria, Latvia and Romania share the lowest three performance positions for at least five dimensions (Table 2). This weak performance corresponds with these countries overall weak performance in innovation as they are among the weakest performance group in the Innovation Union Scoreboard 10. Denmark and Finland Switzerland, two of the overall most innovative countries as identified in the Innovation Union Scoreboard, are among the best three performing countries in at least two dimensions. But also Luxembourg and United Kingdom do well being among the best three performing countries in three dimensions. 8 Due to relatively poor data availability the performance of Iceland, Former Yugoslav Republic of Macedonia, Serbia, Switzerland and Turkey will not be included in the discussion. 9 The extremely high performance for Turkey on Outputs of service innovation is due to missing data for Employment in service innovation intensive industries and by very high values in Turnover of newly introduced innovations new to the market and Turnover of newly introduced innovations new to the firm which are not only respectively 4.6 and 7.5 times as high as the average for the EU28 but also 4.1 respectively 6.1 times as high as in European Service Innovation Centre - 10

11 Table 2 Country performance on 2015 ESIS dimensions Wider framework conditions Service innovation - input Service innovation - throughput Service innovation - output Outcomes Entrepreneurial activities Knowledge development and transfer Innovation and business model generation Financing innovation and growth Collaboration and networking score rank score rank score rank score rank score rank score rank score rank score rank score rank score rank Belgium Bulgaria 23.4# # # # # # 33 Czech Republic # Denmark * * * Germany * Estonia * Ireland # * Greece 21.8# * * Spain France * Croatia # 32 Italy # # Cyprus Latvia # # * # # # 34 Lithuania # Luxembourg 76.8* * # * Hungary * Malta * 1 Netherlands 67.2* Austria # * Poland # * # Portugal * Romania 19.5# # # # Slovenia Slovakia * # Finland * * * * Sweden * United Kingdom 79.8* * # # * 3 Serbia Iceland Norway * * 2 Switzerland Macedonia Turkey Scores of the best 3 performing countries are highlighted in bold with an *, those of the worst 3 performing countries are highlighted in bold with an #. Due to relatively poor data availability Iceland, Former Yugoslav Republic of Macedonia, Serbia, Switzerland and Turkey are not included in the discussion. European Service Innovation Centre - 11

12 A comparison between the 2015 ESIS update and 2014 pilot ESIS for the scorecard on service innovation and its transformative power shows that rank performance has changed for various countries 11. For the Wider framework conditions the UK has moved to first position, followed by the previous best performing countries Luxembourg and Netherlands 12. Also for the Czech Republic, Finland and Hungary rank performance has improved with at least 4 positions. For Cyprus, Denmark and Ireland rank performance has worsened with at least 4 positions ESIS 2015 update: Wider framework conditions RO EL BG LT HR MT LV PT NO PL IT SK EE CY ES FR IE EU FI CH HU SI CZ SE DK AT DE BE NL LU UK ESIS 2014 pilot: Wider framework conditions RO BG MT PT EL LV LT PL IT SK FI HU ES EE CZ FR CY EU SI IE UK SE BE DE AT DK NL LU The best performing countries concerning the Inputs to service innovation are the same in both the 2014 pilot and 2015 update of ESIS: Belgium, Denmark, Estonia, Finland and Luxembourg. Also the worst performing countries are the same in both the 2014 pilot and 2015 update of ESIS: Bulgaria, Latvia, Romania and Slovakia. Hungary and Netherlands have improved their rank performance with at least 5 positions whereas the rank performance for Cyprus, Greece, Lithuania and Sweden has worsened with at least 5 positions ESIS 2015 update: Service innovation - input RO BG LV SK CY PL IT HRMKCZ EL ES PT HU MT TR SI NO EU LT IE SE AT FR DE NL UK IS LU BE EE FI DK RS CH ESIS 2014 pilot: Service innovation - input RO BG LV SK PL IT HU CZ PT ES MT EU SI UK NL CY EL FR IE DE AT LT SE BE EE LU FI DK Germany, Luxembourg, Portugal and Sweden are the best performing countries in the Throughputs to service innovation whereas Bulgaria, Hungary, Latvia, Poland, Romania and Slovakia are the worst performing countries. Austria, Denmark, France and Italy have improved their rank performance with at least 5 positions whereas the rank performance for Belgium, Estonia and Netherlands has worsened with at least 5 positions. 11 For the comparison of rank performance only the EU27 Member States included in the ESIS pilot will be included in the analysis. 12 Country codes are listed in Annex 4. European Service Innovation Centre - 12

13 ESIS 2015 update: Service innovation - throughput RO PL BG SK HU LV ES CZ NO LT UK EE SI HR EU TR NL IE BE FI DK CY AT EL IT RS FR SE MT DE PT LU ESIS 2014 pilot: Service innovation - throughput BG PL LV HU RO SK UK ES LT CZ EU FR DK IT AT SI IE EE NL FI BE CY SE PT DE LU Slovakia and Spain are consistently among the best performing countries in the Outputs of service innovation whereas Latvia and Lithuania are consistently among the worst performing countries. Greece, Luxembourg, Netherlands and the United Kingdom have improved their rank performance with at least 8 positions whereas the rank performance for Cyprus, Estonia, Finland, Italy and Romania has worsened with at least 5 positions ESIS 2015 update: Service innovation - output 96 RO BG LV LT PL NO IE EE SE MT HU AT CY IT HR SI BE PT EL EU LU FI NL DE CZ FR RS ES UK SK DK TR ESIS 2014 pilot: Service innovation - output LV LT UK EL BG PL LU IE SE SI NL AT BE EE RO HU PT EU CY IT FR CZ DK DE FI ES SK For Outcomes there are no consistent best of worst performers. For more than half of the Member States there are significant changes in rank performance. Outcomes clearly is a nonstable dimension which can be explained by the fact that all of the indicators measure change in employment shares and labour productivity. Best or worst performance is less relevant for this dimension as high growth can be the result of a low performance level to start with and similarly low growth can be the result of a high performance level to start with ESIS 2015 update: Outcomes IS IE MK IT UK RO TR NL DE AT SE HU LU EU ES CZNO FR MT LT BE SI CHHR EE FI CY SK PT BG PL DK EL LV ESIS 2014 pilot: Outcomes MT FR DK NL CY DE SE UK FI AT EU CZ BE SK IT IE LU PL PT BG SI HU EL ES LV LT EE RO European Service Innovation Centre - 13

14 3.3. Performance has worsened for many regions and indicators A comparison between the 2015 ESIS update and 2014 pilot 13 shows that for many regions performance has worsened for more than one-third of the indicators used in the scorecard on service innovation and its transformative power (Table 3) and the scorecard on systemic functions and structural indicators (Table 4). Service innovation and transformative power (Table 3) For several indicators of the Wider framework conditions performance has worsened for the majority of regions. Only for institutions and business sophistication performance has increased for respectively 97% and 69% of the regions. Attitudes to the importance of trying new and different things in life and think new ideas and being creative have improved in almost 60% of the regions. A closer look at the Innovation Union Scoreboard (IUS) performance groups shows that there is no difference between the more and less innovative countries. For Inputs to service innovation performance has increased for at least 60% of regions in the shares of business R&D expenditures and R&D personnel. For at least 80% performance has increased in innovation expenditures in Knowledge-intensive business services (KIBS) and the share of employees with a higher education degree. Relatively more regions in Innovation follower countries have increased their performance whereas relatively more regions in Modest innovator countries have seen a worsening of their performance. For Throughputs to service innovation performance has worsened for more than 60% of regions in the share of companies that introduced a service innovation, the share of companies that introduced a product or process innovation in Utilities and infrastructure services, the share of companies that introduced a marketing innovation in KIBS and Networking, connecting and brokerage services and the share of companies that introduced an organisational innovation in KIBS and Networking, connecting and brokerage services. Similar patterns are observed for the IUS performance groups although the majority of regions in Innovation follower countries managed to increase the share of companies that introduced a product or process innovation in KIBS and Networking, connecting and brokerage services. For Outputs of service innovation performance has worsened for the majority of regions in the share of turnover due to newly introduced product innovations both new to the market and new to the firm. The employment share in service innovation intensive industries has increased for almost 60% of the regions, in particular in regions in Modest innovator countries. For Outcomes performance has worsened for at least half of the regions in all indicators and in particular in the change in employment share in knowledge-intensive services and labour productivity growth. More than 60% of regions in Innovation leader and Innovation follower countries did manage to increase the change in employment shares in KIBS and Networking, connecting and brokerage services. Systemic function and structural indicators (Table 4) For Entrepreneurial activities labour productivity growth has worsened for 80% of the regions and there is almost no difference between the IUS performance groups. Attitudes to the importance of trying new and different things in life and think new ideas and being creative have improved in almost 60% of the regions. Performance in Knowledge development and transfer has improved for the majority of regions for employees with a higher education degree and researchers in the business sector. The share of high-tech patent applications has decreased in more than half of the regions, in particular for regions in Moderate innovator countries. 13 The newly added countries and regions are not included in the discussion as for these no data are available from the 2014 pilot ESIS. European Service Innovation Centre - 14

15 Table 3 Performance change between 2015 ESIS and 2014 ESIS per indicator and IUS performance groups: Service innovation and transformative power Performance: All Performance: Innovation Performance: Innovation Performance: Moderate Performance: Modest countries/regions leaders followers innovators innovators Wider framework conditions Better Same Worse Better Same Worse Better Same Worse Better Same Worse Better Same Worse Institutions 97% 0% 3% 91% 0% 9% 100% 0% 0% 99% 0% 1% 93% 0% 7% Macroeconomic stability 35% 0% 65% 7% 0% 93% 40% 0% 60% 37% 0% 63% 100% 0% 0% Infrastructure 3% 0% 97% 2% 0% 98% 5% 0% 95% 3% 0% 97% 0% 0% 100% Higher education/ Training and Lifelong Learning 23% 0% 77% 32% 0% 68% 21% 0% 79% 24% 0% 76% 0% 0% 100% Labour market efficiency 37% 0% 63% 37% 0% 63% 34% 0% 66% 44% 0% 56% 0% 0% 100% Market size 19% 1% 80% 20% 0% 80% 31% 2% 67% 9% 0% 91% 0% 0% 100% Business sophistication 69% 0% 31% 79% 0% 21% 54% 0% 46% 81% 0% 19% 47% 0% 53% It is important to try new and different things in life 61% 0% 39% 72% 0% 28% 58% 0% 42% 58% 0% 42% 67% 0% 33% It is important to think new ideas and being creativ e 57% 1% 42% 72% 4% 24% 56% 0% 44% 49% 1% 49% 83% 0% 17% Service innovation - input Better Same Worse Better Same Worse Better Same Worse Better Same Worse Better Same Worse Innov ation ex penditures (% turnov er) - Know ledge-intensiv e business serv ices 80% 13% 7% 79% 21% 0% 84% 2% 15% 94% 0% 6% 0% 94% 6% Innov ation ex penditures (% turnov er) - Netw orking, connecting and brokerage 38% 14% 48% 68% 21% 11% 31% 5% 65% 28% 0% 72% 6% 94% 0% Innov ation ex penditures (% turnov er) - Utilities and infrastructure serv ices 31% 37% 32% 53% 32% 16% 18% 51% 32% 31% 19% 51% 6% 94% 0% Share of innov ators cooperating w ith others 45% 2% 53% 9% 7% 84% 69% 2% 29% 48% 0% 52% 6% 0% 94% Employ ees w ith a higher education degree (% all employ ees) 83% 0% 17% 68% 0% 32% 83% 0% 17% 93% 0% 7% 71% 0% 29% Business ex penditure on R&D (BERD) (% GERD) 58% 0% 42% 44% 0% 56% 64% 0% 36% 61% 0% 39% 40% 0% 60% Researchers (% activ e population) - Business enterprise sector 63% 13% 24% 56% 11% 33% 84% 1% 15% 52% 27% 22% 29% 14% 57% Total R&D personnel (% activ e population) - Business enterprise sector 64% 7% 29% 64% 5% 31% 82% 1% 16% 49% 13% 38% 33% 17% 50% Service innovation - throughput Better Same Worse Better Same Worse Better Same Worse Better Same Worse Better Same Worse Share of companies that introduced a serv ice innov ation 36% 0% 64% 50% 0% 50% 31% 0% 69% 34% 0% 66% 53% 0% 47% Product / Process innov ators (%) - Know ledge-intensiv e business serv ices 41% 3% 57% 14% 7% 79% 72% 3% 25% 20% 0% 80% 53% 0% 47% Product / Process innov ators (%) - Netw orking, connecting and brokerage serv ices 42% 3% 55% 16% 7% 77% 64% 4% 32% 40% 0% 60% 6% 0% 94% Product / Process innov ators (%) - Utilities and infrastructure serv ices 19% 15% 66% 4% 18% 79% 19% 31% 51% 31% 0% 69% 6% 0% 94% Marketing innov ators (%) - Know ledge-intensiv e business serv ices 27% 2% 71% 18% 7% 75% 18% 2% 80% 39% 0% 61% 47% 0% 53% Marketing innov ators (%) - Netw orking, connecting and brokerage serv ices 33% 3% 64% 19% 7% 74% 43% 4% 53% 30% 0% 70% 29% 0% 71% Marketing innov ators (%) - Utilities and infrastructure serv ices 38% 15% 47% 58% 18% 25% 25% 31% 44% 37% 0% 63% 41% 0% 59% Organisational innov ators (%) - Know ledge-intensiv e business serv ices 25% 2% 73% 9% 7% 84% 42% 2% 56% 9% 0% 91% 53% 0% 47% Organisational innov ators (%) - Netw orking, connecting and brokerage serv ices 34% 3% 63% 18% 7% 75% 54% 4% 42% 28% 0% 72% 6% 0% 94% Organisational innov ators (%) - Utilities and infrastructure serv ices 43% 15% 43% 46% 18% 37% 41% 29% 29% 40% 0% 60% 53% 0% 47% Service innovation - output Better Same Worse Better Same Worse Better Same Worse Better Same Worse Better Same Worse Employ ment in serv ice innov ation intensiv e industries (% total employ ment) 58% 0% 42% 60% 0% 40% 57% 0% 43% 53% 0% 47% 88% 0% 12% Share of turnov er of new ly introduced innov ations new to the market 33% 3% 64% 12% 7% 81% 74% 4% 22% 4% 0% 96% 6% 0% 94% Share of turnov er of new ly introduced innov ations new to the firm 31% 3% 66% 11% 7% 82% 53% 4% 43% 26% 0% 74% 6% 0% 94% Outcomes Better Same Worse Better Same Worse Better Same Worse Better Same Worse Better Same Worse Change in employ ment share - Know ledge-intensiv e business serv ices (%-point) 41% 0% 59% 60% 0% 40% 63% 0% 37% 19% 0% 81% 6% 0% 94% Change in employ ment share - Netw orking, connecting and brokerage serv ices (%- 47% 0% 53% 75% 0% 25% 60% 0% 40% 26% 0% 74% 6% 0% 94% Change in employ ment share - Utilities and infrastructure serv ices (%-point) 35% 0% 65% 28% 0% 72% 29% 0% 71% 49% 0% 51% 12% 0% 88% Change in employ ment share in know ledge-intensiv e serv ices (%-point) 19% 0% 81% 11% 0% 89% 24% 0% 76% 19% 0% 81% 0% 0% 100% Change in employ ment share in serv ice innov ation intensiv e industries (%-point) 33% 0% 67% 18% 0% 82% 49% 0% 51% 21% 0% 79% 56% 0% 44% Labour productiv ity grow th (%) 20% 0% 80% 24% 0% 76% 20% 0% 80% 16% 0% 84% 24% 0% 76% European Service Innovation Centre - 15

16 Table 4 Performance change between 2015 ESIS and 2014 ESIS per indicator and IUS performance groups: Systemic functions and structural indicators Performance: All Performance: Innovation Performance: Innovation Performance: Moderate Performance: Modest countries/regions leaders followers innovators innovators All countries/regions Innovation leaders Innovation followers Moderate innovators Modest innovators Entrepreneurial activities Better Same Worse Better Same Worse Better Same Worse Better Same Worse Better Same Worse Share of self-employ ed people 53% 0% 47% 24% 0% 76% 63% 0% 37% 57% 0% 43% 59% 0% 41% It is important to try new and different things in life 61% 0% 39% 72% 0% 28% 58% 0% 42% 58% 0% 42% 67% 0% 33% It is important to think new ideas and being creativ e 57% 1% 42% 72% 4% 24% 56% 0% 44% 49% 1% 49% 83% 0% 17% Labour productiv ity grow th 20% 0% 80% 24% 0% 76% 20% 0% 80% 16% 0% 84% 24% 0% 76% Knowledge development and transfer Better Same Worse Better Same Worse Better Same Worse Better Same Worse Better Same Worse Employ ees w ith a higher education degree (% all employ ees) 83% 0% 17% 68% 0% 32% 83% 0% 17% 93% 0% 7% 71% 0% 29% Researchers (% activ e population) - Business enterprise sector 63% 13% 24% 56% 11% 33% 84% 1% 15% 52% 27% 22% 29% 14% 57% EPO high-tech patent applications 43% 0% 57% 47% 0% 53% 48% 0% 52% 36% 0% 64% 50% 0% 50% Innovation and business model generation Better Same Worse Better Same Worse Better Same Worse Better Same Worse Better Same Worse Companies w ith serv ice innov ations 36% 0% 64% 50% 0% 50% 31% 0% 69% 34% 0% 66% 53% 0% 47% Employ ment share in medium-high-tech and high-tech manufacturing 23% 0% 77% 15% 0% 85% 27% 0% 73% 21% 0% 79% 41% 0% 59% Employ ment share in know ledge-intensiv e serv ices 92% 0% 8% 86% 0% 14% 91% 0% 9% 95% 0% 5% 94% 0% 6% Employ ment share in serv ice innov ation intensiv e industries 58% 0% 42% 60% 0% 40% 57% 0% 43% 53% 0% 47% 88% 0% 12% Financing innovation and growth Better Same Worse Better Same Worse Better Same Worse Better Same Worse Better Same Worse Gross Fix ed Capital Formation (% of GDP) 42% 10% 48% 38% 0% 62% 36% 26% 38% 48% 0% 52% 78% 0% 22% Total ex penditure on R&D (% of GDP) 88% 0% 11% 92% 0% 8% 83% 0% 17% 91% 1% 8% 94% 0% 6% Business ex penditure on R&D (BERD) (% GERD) 57% 0% 43% 44% 0% 56% 64% 0% 36% 59% 0% 41% 40% 0% 60% Share of innov ating firms w ho receiv ed public financial support 62% 0% 38% 45% 0% 55% 94% 0% 6% 52% 0% 48% 59% 0% 41% Collaboration and networking Better Same Worse Better Same Worse Better Same Worse Better Same Worse Better Same Worse Share of innov ators collaborating w ith others 45% 2% 53% 9% 7% 84% 69% 2% 29% 48% 0% 52% 6% 0% 94% Specialisation in serv ice-oriented clusters 41% 16% 43% 46% 7% 48% 30% 20% 50% 49% 15% 36% 41% 24% 35% Employ ment share in 2 and 3 star clusters 0% 100% 0% 0% 100% 0% 0% 100% 0% 0% 100% 0% 0% 100% 0% European Service Innovation Centre - 16

17 Under Innovation and business model generation the employment share in knowledge-intensive services has increased for 9 out of 10 regions. The share of companies that introduced a service innovation and the employment share in medium-high-tech and high-tech manufacturing have declined for most regions, but relative growth performance is slightly better for regions in Modest innovator countries. For Financing innovation and growth total R&D expenditures have improved for almost 90% of the regions. As the share of business R&D expenditures out of total R&D expenditures has risen for about 60% of the regions the rise in total R&D expenditures has mainly been driven by increasing R&D expenditures in the public sector (universities and public research organizations).the share of innovating firms that received public financial support has also improved for more than 60% of the regions. Investments or Gross Fixed Capital Formation have increased in 42% of the regions but decreased in 48% of the regions. Regions in Modest innovator regions have done much better in increasing their investments. For Collaboration and networking about equal shares of regions have experienced increasing or decreasing shares of innovating firms that collaborate with others and specialisation in serviceoriented clusters. Regions in Innovation leader and Modest innovator countries are doing much worse on innovation collaboration, while regions in the Innovation followers improved. Decline in performance and the economic crisis For many regions performance has worsened. In particular for those indicators using data from the Community Innovation Survey performance has worsened. As the 2014 pilot ESIS used data from the CIS 2010 covering firms innovation activities in and the 2015 ESIS update uses data from the CIS 2012 covering innovation activities in , this performance decline could be linked to the economic crisis. The effect of the crisis was first felt on firms economic activities where production can be more easily adapted in response to declining sales. The impact on innovation activities was felt later as firms need time to adjust their investment activities. With decreasing incomes and profits, firms are forced to focus more on survival and less on investment and innovation. Once ongoing innovation activities are either finalized or when they can more easily be discontinued new innovation activities will be cancelled or postponed Change in socio-economic performance and service innovation For the indicators measuring socio-economic performance the most recent available data are for 2011 (GDP per capita and disposable income) and 2013 (share of long-term unemployment. A comparison with recent changes in these indicators with the indicators in the scorecards on service innovation and its transformative power and systemic functions and structural indicators is best done with the data from the 2014 pilot ESIS where the scorecard indicators on average capture performance in 2010 whereas those in the 2015 ESIS update measure performance in The possible linkages between the scorecard indicators and recent change in economic performance and has been explored using correlation analysis. If two indicators are not related the correlation coefficient will be small and statistically not significant. If two indicators are related the correlation coefficient will be statistically significant 14 and the size of the correlation coefficient is an indication of how well the indicators are related. In an extreme case where both indicators are identical, the correlation coefficient would be at its highest possible value of The strength of the correlation is measured by the level of significance which gives the change that the result would be accidental. For a correlation significant at the 5%-level is thus5 times more likely that the significant results is accidental than for a correlation significant at the 1%-level, the latter is statistically more significant. European Service Innovation Centre - 17

18 Table 5 Linkages between socio-economic performance and service innovation Service innovations and transformative power Per capita GDP Change Disposable income Change Share long-run unemployment Change Share long-run unemployment Change (1) (2) (3) (4) Wider framework conditions.297 ** **.456 ** Service innovation - input.332 ** **.355 ** Service innovation - throughput.455 ** **.325 ** Service innovation - output.366 **.210 ** ** Outcomes **.239 **.064 Systemic functions and structural indicators Entrepreneurial activities ** * ** Knowledge development and transfer Innovation and business model generation.338 ** **.454 ** Financing innovation and growth.402 ** **.396 ** Collaboration and networking.385 **.135 *.246 **.248 ** Significant results highlighted in bold. **. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed). The change between 2008 and 2011 in per capita GDP is positively correlated with performance in the Wider framework conditions, Inputs to service innovation, Throughputs to service innovation, Outputs of service innovation, Innovation and business model generation, Financing innovation and growth and Collaboration and networking (Table 5, column 1). For regions which perform better in any of these dimensions it is more likely that they have experienced an increase in per capita GDP. The opposite is seen for performance in Entrepreneurial activities and the change in per capita GDP. There is no link between the change in per capita GDP and performance in Outcomes and Knowledge development and transfer. The change between 2008 and 2011 in disposable income is only positively correlated with Outputs of service innovation and Collaboration and networking and negatively correlated with Outcomes and Entrepreneurial activities (Table 5, column 2). Differences in among others Wider framework conditions, Inputs to service innovation and Throughputs to service innovation do not explain differences in increases or decreases in disposable income. For changes in the share of long-run unemployment in total employment the results in Table 5 (columns 3 and 4) show that regions with better performance in the Wider framework conditions, Inputs to service innovation, Throughputs to service innovation, Outputs of service innovation, Innovation and business model generation, Financing innovation and growth and Collaboration and networking have managed to decrease the share of long-run employment, in particular for the period There is a negative link with performance in Entrepreneurial activities. These results confirm that services innovation has a positive impact on improving socioeconomic performance as measured by changes in per capita GDP and the share of long-run unemployment. European Service Innovation Centre - 18