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The Netherlands' Drive to Build a Service Economy

How has a country with just 16 million inhabitants become the 15th-largest economy in the world? Answer: through a combination of resourcefulness, hard work, and acute foresight for what might make the nation rich. Since the 14th century, the Netherlands has played a major role in shaping the world economy. Now the country that brought us such major innovations as the stock exchange and the insurance industry has identified another big opportunity: the services sector.

Recognizing the need to steer the typical conversation about innovation away from technology and products toward services, Minister of Economic Affairs Maria Van Der Hoeven—a power woman if I ever met one—recently focused the country's prestigious annual Innovation Lecture on this topic. The audience comprised business leaders, government officials, and selected creative individuals who all play important roles in the Netherlands' various government agencies and business sectors. (Read the full presentation.)

Here are some highlights from the event, along with some ideas other nations might consider importing.

Service innovation for higher growth and productivity

A number of attributes about services are of particular relevance in driving economic growth. For instance, automated services delivered through information- and communications-technology platforms can attract significant revenues from outside a country's physical borders with relatively little incremental investment. Just look at (AMZN) or the Dutch GPS company, Tom Tom, each of which does considerable business outside its home base. Heightening revenue from abroad stimulates a country's trade balance and productivity growth. Today 60% of the Netherlands' gross domestic product is made up of exports; additional services could drive the figure higher.

Do, don't think

The U.K. Design Council set up the "Red" initiative to tackle social and economic issues through design-led innovation.They run a "Do Tank" to create prototypes of new ideas for government services quickly.(It is designed deliberately to contrast with "Think Tanks" typically populated by paper-writing policy wonks.) Van Der Hoeven liked the idea and decided to take immediate action. Following the lecture she put her staff to work to create a pilot to run a similar "Do Tank" in the Netherlands. Her goal: put it toward tackling issues of departmental efficiency.

Service innovation needs new inputs

Change management is often considered a boring topic, but it's critical to the service innovation equation. After all, service delivery depends on an organization's systems, processes, and talent base. When a company's service portfolio shifts, these critical inputs must shift with it—and as we know, people hate change. This idea resonated with the corporate leaders in the audience. Later, Manon Janssen, Chief marketing officer and senior vice-president for Philips Lighting told me that managing change is a huge issue for her business as it tries to transform from selling lamps and light bulbs to offering service solutions that involve new business models, marketing plans, and a different type of sales force. Philips Lighting's new strategy calls for selling LED lighting solutions that are capital-intensive but low in operating cost to city governments around the world. "We have to reinvent the entire business," she said. "This takes time and a huge amount of focus on the delivery model, pricing, and recruiting experienced talent, among many other things."

Empathize with customers

The use of greater customer empathy and design methods is critical to creating services that will be adopted. Because services are uniquely positioned to touch human lives, they need to be designed in a way that accounts for every encounter with the service. Designing services is also a question of systems innovation.

Think urban

Creative class representatives are key to bringing new services to life. The Netherlands has already recognized the value that these creative types add to economic growth. The livable and accessible city of Amsterdam has become a mecca for all sorts of design, branding, and marketing professionals, a "Go to" spot for creative talent. An additional benefit: Not only are these individuals important small business owners who drive employment growth, but their talent lures companies from all over the world to buy their services.

Provide tax credits

The U.S. government stubbornly retains the view that research and development tax credits should only be applied toward primary research of a purely scientific nature. In contrast, the Dutch government has broadened its scope for R&D tax credits to information- and communications-related service innovation. The Netherlands has recognized that information technology is one of the primary drivers of new services opportunities. Think of IT as the "factory" for services.

The Obama Administration and Congress should take this type of policy initiative to heart in their push to create new jobs. With the growth of services from 50% to 80% of GDP in the U.S. over the last 20 years, you'd think U.S. politicians would support some kind of incentive to update or create new IT systems, especially given the productivity enhancements that often result from such investment. At the same time, putting a few more information architects, programmers, and other Web 2.0 talent back to work wouldn't be a bad thing, either.

Capitalist purists might reject this type of government focus and attention on a segment of economic activity as a dangerous type of market "tinkering." Maybe, but lately having seen so many U.S. economic advantages vanish due to lack of attention, I must say the Dutch approach struck me as refreshing. While the U.S. is largely perceived as a leader in the services sector, it could clearly learn a few lessons from committed Dutch counterparts. They recognize that service innovation that especially leverages today's technological capabilities can really stir economic growth.

Download a PDF of Innovation Is Served, the report Van Der Hoeven published at the end of the conference, highlighting many key service-oriented themes.

Jeneanne Rae founded Motiv Strategies, a consulting firm specializing in innovation. She has worked in the field of innovation and design for more than 20 years, holding positions at Peer Insight and IDEO. For the last decade, Rae has taught new product development and service development as an adjunct professor at Georgetown University's McDonough School of Business. She has an MBA from Harvard Business School. She can be reached at

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