SERVICES IN THE MODERN ECONOMY

As consumers, we use services every day. Turning on a light, watching TV, talking on the telephone, riding a bus, visiting the dentist, mailing a letter, getting a haircut, refueling a car, writing a check, or sending clothes to the cleaners are all examples of service consumption at the individual level. The institution at which you are studying is itself a complex service organization.

In addition to educational services, today's college facilities usually include libraries and cafeterias, counseling, a bookstore, placement offices, copy services, telecommunications, and even a bank. If you are enrolled at a residential university, campus services are also likely to include dormitories, health care, indoor and outdoor athletic facilities, a theater, and perhaps a post office.

Customers are not always happy with the quality and value of the services they receive. People complain about late deliveries, rude or incompetent personnel, inconvenient service hours, poor performance, and needlessly complicated procedures. They grumble about the difficulty of finding sales clerks to help them in retail stores, express frustration about mistakes on their credit card bills or bank statements, shake their heads over the complexity of new self service equipment, mutter about poor value, and sigh as they are forced to wait in line almost everywhere they go.

Suppliers of services often seem to have a very different set of concerns than   the consumer. Many suppliers complain about how difficult it is to make a profit, how hard it is to find skilled and motivated employees, or how difficult it has become to please customers.

Some firms seem to believe that the surest route to financial success lies in cutting costs and eliminating “unnecessary" frills. A few even give the impression that they could run a much more efficient operation if it weren't for all the stupid customers who keep making unreasonable demands and messing things up!

Fortunately, in almost every industry there are service suppliers who know how to please their customers while also running a productive, profitable operation staffed by pleasant and competent employees. By studying organizations such as Charles Schwab, Intrawest, Aggreko, Southwest Airlines, eBay, and the many others featured in this book, we can draw important insights about the most effective ways to manage the different types of services found in today's economy.

What Is a Service?

Because of their diversity, services have traditionally been difficult to define. The way in which services are created and delivered to customers is often hard to grasp since many inputs and outputs are intangible. Most people have little difficulty defining manufacturing or agriculture, but defining service can elude them. Here are two approaches that capture the essence of the word.

• A service is an act or performance offered by one party to another. Though the process may be tied to a physical product, the performance is essentially intangible and does not normally result in ownership of any of the factors of production.
• Services are economic activities that create value and provide benefits for customers at specific times and places, as a result of bringing about a desired changes recipient of the service.  

Service: an act or performance that creates benefits for customers by bringing about a desired change recipient.

Benefit: an advantage or gain that customers obtain from performance of eService or use of a physical good.

Services make up the bulk of today's economy, not only in the United States and Canada where they account for 73 percent and 67 percent of the gross domestic product (GDP), respectively, but also in other developed industrial nations throughout the World. Shows how service industries contribute to the economy of the United States relative to manufacturing, government (itself mostly services), agriculture, mining, and construction.

The service sector accounts for most of the new job growth in developed ountries. In fact, unless you are already predestined for a career in a family manufacturing or agricultural business, the probability is high that you will spend your working life in companies (or public agencies and nonprofit organizations) that create and deliver services.

As a nation's economy develops, the share of employment between agriculture, industry (including manufacturing and mining), and services changes dramatically. Shows how the evolution to a service dominated employment base is likely to take place over time as per capita income rises. Service jobs now account for 76 percent of private sector payrolls in the United States, with wages growing at a faster pace than in manufacturing jobs.

In most countries, the service sector of the economy is very diverse and includes a wide array of different industries, ranging in size from huge enterprises that operate on a global basis to small entrepreneurial firms that serve a single town.

It comes as a surprise to most people to learn that the dominance of the service sector is not limited to highly developed nations. For instance, World Bank statistics show that in many Latin American and Caribbean nations the service sector accounts

Service sector: the portion of a nation’s economy represented by services of all kinds, including those offered by public and non profit organizations.

Internal services: service elements within any type of business that facilitate creation of, or add value to, its final output.

For more than half the gross national product (GNP) and employs more than half the Labor forces. These countries often have a large "underground economy" that is not captured in official statistics. In Mexico, for instance, it has been estimated that as much as 40 percent of trade and commerce is “informal." Significant service output is created by undocumented work in domestic jobs (e.g., cook, housekeeper, and gardener) or in small, cash based enterprises such as restaurants, laundries, rooming houses, and taxis.

Service organizations range in size from huge international corporations like airlines, banking, insurance, telecommunications, hotel chains, and freight transportation to a vast array of locally owned and operated small businesses, including restaurants, laundries, taxis, optometrists, and numerous business to business ("B2B") services.

Franchised service outlets—in fields ranging from fast foods to bookkeeping combine the marketing characteristics of a large chain that offers a standardized product with local ownership and operation of a specific facility. Some firms that create a time sensitive physical product, such as printing or photographic processing, are now describing themselves as service businesses because speed, customization, and convenient locations create much of the value added.

There's a hidden service sector, too, within many large corporations that are Classified by government statisticians as being in manufacturing, agricultural, or natural resources industries. So called internal services cover a wide array of activities including recruitment, publications, legal and accounting services, payroll administration, office cleaning, landscape maintenance, freight transport, and many other tasks.

To a growing extent, organizations are choosing to outsource those internal services that can be performed more efficiently by a specialist subcontractor. As these tasks are outsourced, they become part of the competitive marketplace and are therefore categorized as contributing to the service component of the economy. Even when such services are not outsourced, managers of the departments that supply them would do well to think in terms of providing good service to their internal customers.

Governments and nonprofit organizations are also in the business of providing services, although the extent of such involvement may vary widely from one country to another, reflecting both tradition and political values. In many countries, colleges, hospitals, and museums are publicly owned or operate on a not for profit basis, but for profit versions of each type of institution also exist.