ServINNo Service innovation in the Nordic countries: Key Factors for Policy Design Taxonomy for Business Service Innovation Ragnhild Kvålshaugen* Katja Maria Hydle** Per-Olof Brehmer*** ABSTRACT This paper presents a business service innovation taxonomy where we link business service types to sources/drivers of innovation. Business service innovation can occur in the service concept, in the client interface, in the service delivery system and the underlying service technology. The major source of innovation and renewal in business services is regarded to be knowledge/competencies/intangible assets. We identify four competencies in business services firms that potentially can drive innovation; customer competence, organizational competence, market and network competence and ICT competence. In order to align these competencies to business services, we develop a business service typology by arguing that degree of standardization and degree of client interaction in the service delivery process are the major categories for distinguishing business services. Based on a combination of these categories, four generic types of business services are identified: expert business services, client business service, special business services, and standard business services. Informed by the service innovation research and case examples from business service firms, we link the four business service types to innovation drivers (competencies types) and suggest a business service innovation taxonomy. Sources for renewal and creation of expert business services are primarily customer competence and market/network competence; for client business services the most relevant drivers of innovation are customer competence and organizational competence; for special business services drivers of innovation are market and network competence and ICT competence; and finally for standard business services ICT competence and organizational competence are major drivers of innovation *BI Norwegian School of Management, Norway Email: ragnhild.kvalshaugen@bi.no **SINTEF Knowledge and Strategy, Norway Email: katja.hydle@sintef.no *** LiU School of Management (EKI), University of Linköping 581 83 Linköping, Sweden Email: perbr@eki.liu.se This paper is part of the ServINNo project, Service Innovation in the Nordic Countries: Key Factors for Policy Design. Funding from the Nordic Innovation Centre is gratefully acknowledged.