Innovation in services

research policy
ELSEVIER Research Policy 26 (1997) 537-556

Innovation in services
Fa'iz Gallouj a,*, Olivier Weinstein b,1 a Last-Clerse, University of Lille I and IFRESI-CNRS, Lille, France b Crei, University of Paris-Nord, Paris, France

Abstract
The purpose of this article is to lay the foundations of a theory that can be used to interpret innovation processes in the service sector. The hypothesis underpinning this article is based on Lancaster's definition of the product (in both manufacturing and services) as a set of service characteristics [Lancaster, K.J., 1966. A New Approach to Consumer Theory. J. Political Economy 14, 133-156.]. The article follows the example of those who have sought to apply Lancaster's work to technological phenomena. Various modes of innovation in the service sectors are highlighted and illustrated. © 1997 Elsevier Science B.V.
Keywords: Innovation; Service sector; Lancasterian representation

I. Introduction

The importance of innovation processes, widely recognised on both the empirical and theoretical levels, and the increasingly prominent role being played by service activities in productive systems have combined to make innovation in the service sector an issue of great importance. However, analysis of innovation in service industries is difficult from two standpoints. On the one hand, innovation theory has been developed essentially on the basis of analysis of technological innovation in manufacturing activities (which, incidentally, represents a diminution of the scope of Schumpeter's pioneering

analyses). On the other hand, the specific properties of service activities, particularly the analytically 'fuzzy' nature of their output, make it particularly difficult to measure them by the traditional economic methods (productivity) and to detect improvement or change (on the qualitative level). These two difficulties constitute the starting point for two complementary groups of studies on innovation in services