2007/04/28 08:30 Papers on "Services in the 21st Century Economy"

daviding — Thu, 12 Jul 2007 21:32:16 -0400

2007/04/28 08:30 Papers on "Services in the 21st Century Economy", Innovation in Services Conference, Berkeley, California

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Discussant: Kristian Möller, Helsinki School of Economics

Papers:

“Services Innovation in the 21st Century”, by Goldhar, Braunstein and Berg
“Information Services in the US Economy”, Apte, Karmarkar, and Nath
“Creating new markets through service innovation”, by Leonard L. Berry, Venkatesh Shankar, Janet Turner Parish, Susan Cadwallander, Thomas Dotzel
“The Service Myopia: New Recipe for Client-Provider Value Creation”, by Möller, Rajala, and Westerlund

“Information Services in the US Economy”, Uday Apte, Uday Karmarkar, and Nath

Dichotomy more helpful that product / services

India just passed 200 million mobile phones
Information - material dichotomy
Machlup 1969, Porat 1977, Apte and Nath 2004

How economy splits across information and material

Follow Porat's definition, i.e. iPods are part of this economy, as they do nothing but process information
Study at level of SIC code

Similarly, split in employment across information and material

Paper to come in a few months

Product versus services, lots of issues in definitions

To blunt discussion, look at information content of services, going a different direction, and it's a dominant factor
Nature of transaction and delivery, form, production function

Industry level data from IO, SIC and NAIC codes

Some work to reconcile
Differences are mostly lag, particularly in the time it takes to get input-output tables

Double Dichotomy

x-axis: Delivery form: products, services
y-axis: End product: material, information

Bucket the data

Movement to services is well known
Split between information and non-information going up, has been going on since Machlup
Will see what happens with 2002 data this summer
Information economy is a bigger part of the economy, and information services supersector is the biggest piece
This is what management does, and all of us do
Problem in information services: services are growing because of low productivity
What happens when productivity in information services improves? Will look at employment level
Can look at SIC level, firm level, and job level
Crossing segments, e.g. Disney is in 3 sectors

Analysis with Korean partners: Choi Rhim Park

Definitions are not exactly the same in government statistics, but similar trends

Decline in share of traditional manufacturing

In physical services, there's growth in GNP, but its share is falling
These are systems-oriented large, e.g. retailing, water, electricity, construction, some of health care (that splits across information and non-information)
This means in the trend towards services, there's chunk that is not growing
1967-1982 decline in computer, then growth in 1992-1997, no explanation yet, only conjectures
What happens with service industrialization? Good analogy with industrial revolution, call it the services revolution

Not just a shift to services, but also services and information

Growth in information side

Jobs and wages, done at a different level, Bureau of Labor Statistics, month to month

Physical services sector has always been a big chunk of the economy, don't know where it's going in the future
Wholesale trade and retail trade, don't know where it's going
Splits between information and non-information aren't clear
Average wage in dollars/year, discrepancy between information and non-information
There's better job matching, leverage in information

[Questions]

Porat versus information jobs? Explains different

GNP has secondary information sectors
Have returns to capital and returns to labour
If company is highly automated, e.g. web sites, it's not going to show up on labour
Physical services used to be big for labour; was expecting to see declines in information services sector, but also saw declines in physical information sector
Goes back to Machlup criticisms: Data means that we go ahead with Porat definition

Skew because hedge fund trader makes more than a trader

Yes, different level

Medical care costs going up, where does it appear

Have to estimate splits between information and physical
Machlup and Porat both come close to 50/50, 49/51
e.g. nurse: is that information or physical work
Radiologist is mostly information work
If a person has to be near a machine, then call that physical work; radiologists from Sweden move to Spain

“Services Innovation in the 21st Century”, by Joel Goldhar, Yale Braunstein and Daniel Berg

Paper is old, when it was written, it wasn't yet 21st century

IIT, UC Berkeley, RPI

Will try to be a service product

After yesterday's talk, scrapped the more formal presentation

Think piece, to start some theory building, and be contrarian

Contrarian is above full professor; then curmudgeon; and then crank, before coming emeritus

Come from business school, am concerned about narrow slicing of the field

In teaching, need to worry more about convergence of ideas
May be more helpful to students about what services mean, as compared to factories
Convergence between human work and machine work
Strategy, structure, technology
Innovation, profitability

Game: lists of companies

Which are services, which are factory "operations"
A play? Have a script that you follow, have to be in a place where the light hits

Confusion comes from point of view:

Marketing, or operations, or strategic points of view
X-axis: Product Type - Production Point of View: tangible, information, experience
Y-axis: Product Types- Marketing point of View: relationship, durable, convenience

Think about linkages, physical versus organizational.

X-axis: Physical Links: connected, disconnected
Y-axis: Organizational Links: disconnected disconnected

	Connected Physical Links	Disconnected Physical Links
Connected Organizational Links	True service	Supply chain or distribution channel
Disconnected Organizational Links	An "experience"	"Traditional factory"

McDonalds more factory than Burger King
Barbers that wait for you versus appointments

Services that look like products, and vice-versa, starting with Levitt's productionization of services

Can't do things until you get economies of scale
Traditional factory is double decoupled; true service is double coupled
True service: customer gets involved in design, pricing

What's interesting is the ones that are half-coupled

Supply chain
Experience products, not part of it, but have to be there

Digital world to an analog world

X-axis: Intensity of information of information technology

Ideas on innovation: table of variables

Innovation and services is easy, not hard
e.g. new financial services (or are they financial products)
New financial innovations come up all of the time? Between 30 seconds and a few days
Few entry barriers, few switching costs
Easy innovation, but can't make money on this, sustainable, have to do something to make it scalable

[Questions]

Arch slide: how do you map FedEx tracking system?

It's at the top of the arch
You're not part of their organization, but more than the post office
FedEx, you're physically linked, not part of the organization

A pure service that is double connected?

Having my own masseur on my payroll
They're part of my system, I control their rewards, you have to physically be there, and they have to be available when I want it
True services are rare and expensive
Reliable babysitter had better be a family member

Doesn't scale, babysitters and masseurs

Grew up in a grocery store, 1949, technology was a telephone
Customer would phone, would deliver on bicycle or car
Had a clientele that was captive, because no other store was willing to do this

Any spot on the curve should be equally profitable

Ford Modelling will provide a digital runway, to scale up a pure service

“Market-creating service innovation”, Leonard L. Berry, Venkatesh Shankar, Janet Turner Parish, Susan Cadwallander, Thomas Dotzel

Venkatesh Shankar, Texas A&M (howdy)

This paper is already published in Sloan Management Review

Want to use it to create new ideas and extend, dialogue

Why are some new services successful, and others not?

e.g. FedEx
Not the first, but the most efficient, became a market leader, and then adjoined other spaces
Compared to dot-com services that fizzle out overnight
Why can some create new markets, and sustain them?
Looked at 100 case examples

Definition: market-creating service innovation

Exploits an idea
Fulfills a need
Perceived by csutomers as new benefit
Changes customer behaviours
e.g. Cirque du Soleil

How do MSCIs different from good innovation?

Some service people use the term product, e.g. banking, hence use "good"
Labour-intensive, interactive services means that providers get embedded into the innovation
Inseparable, e.g. Fed Ex
Co-produced: Cirque du Soleil, involvement of customers, part of the production
No tangible product

Create two dimensions

Type of benefit offered:
Core benefit: gives an underlying reason for a customer to buy, e.g. FedEx ability to transfer a package
Delivery benefit: convenience of access and experiencing core benefit, e.g. NetFlix, delivery of video as convenient
Degree of separability:
Separable: time and place of service production differ from time and place of consumption, e.g. health services, you have to be there
Non-speparate

4 types of market creating service innovation

	Core benefit	Delivery benefit
Separable	Cell 1: FedEx's Flexible Solutions	Cell 2: Google's Controllable Convenience
Non-separable	Cell 3: Starbuck's Comfortable Gain	Cell 4: Ball Memorial's Respectful Access

Cell 1: FedEx was designed to be more reliable and efficient, as other competitors weren't

Absolutely, positively
Then they came up with supply chain management, B2B
Then ground to ground
Company tried to reduce uncertainty in services
Other examples in this cell: eBay, CNN (first 24 hour challenge)

Cell 2: Google wasn't first to provide search engines, e.g. Alta Vista

Google was first for page rank, got a business model based on page search

Cell 3: Starbucks for experience, not just latte, but also CDs

Emphasis on inseparable, e.g. tables are circular because they're aren't threatening, but are closed

Cell 4: Bell Memorial's emergency room

How to best deliver service, lessening aggrevation
Atmosphere like entering a hotel lobby

Findings:

MCI

Have innovation champion
Offer superior customer benefit
Affordable
Continuous strategic innovation
Brand differentiation

MSCI

Scalable business model, e.g. H&R Block has gone on web, converting nonseparable to separable
Customer experience management, e.g. Cirque du Soleil, former Olympian,
Continuous operational innovation

Management takeaways

Make the service easy to use and convenient to access
Create a trusted brand
Know you cell
Create a culture for innovation

[Questions]

Intersection between brand and innovation

Brand building, companies had to spend

“The Service Myopia? New Recipe for Client-Provider Value Creation”, by Chris Möller, Risto Rajala, and Mika Westerlund

Helsinki School of Economics

Empirical background

More scientific title: different modes of service innovation

There's a certain amount of hype, that services are the value earners

Thinking more in terms of hybrids, instead of pure services or pure products
Emphasis on processes between provider and client may be operational, when we're talking about strategic

Think of basic contingencies influencing the three generic modes of value production, not only within services, but also in value options

		Level of determination
		High level of determination: order		Low level of determination: chaos
Value modes		Established business e.g. Dell, McAfee, Ikea Can specify activities, how to combine lego bricks	Incremental servce innovation e.g. Google, TVU Networks Both exploration and exploitation	Radical service innovation e.g. Skype, Bluetooth More exploration
	Value creation logic
	Exchange and relationship structure
	Value create

Value modes:

Not static, movement from radical to incremental to established

Modes of value co-creation

		Service provider's strategy
		Established service	Incremental service innovation	Radical service innovation
Client's strategy	Established service	1. Balanced	2. Provider-driven	3, Implausible
	Incremental service innovation	4. Client-driven	5. Balanced	6. Provider-driven
	Radical service innovation	7. Implausible	8. Client-driven	9. Balanced

What are the different types of client-provider relationships?

Try to understand the recipe


		Client-driven

Merging radical and incremental innovations ... mixing them up in the first version

Conclusions:

Value always rendered by customers, but what resources are used
Network value production
Market governance isn't enough, need to understand network and relational governance

[Questions]

Patterns on technology, talent in networks?

Not enough data, only a few cases so far
In radical service innovation, can be different drivers, e.g. Bluetooth
Want to raise the discussion in abstraction

Does the service innovation always start from the radical?

This is a highly abstract sense-making tool for what's happening in the services world
Radical service innovations are starting a lot from science

Coevolving Innovations - 2007/04/28 08:30 Papers on "Services in the 21st Century Economy" - Comments

2007/04/28 08:30 Papers on "Services in the 21st Century Economy"

“Information Services in the US Economy”, Uday Apte, Uday Karmarkar, and Nath

“Services Innovation in the 21st Century”, by Joel Goldhar, Yale Braunstein and Daniel Berg

“Market-creating service innovation”, Leonard L. Berry, Venkatesh Shankar, Janet Turner Parish, Susan Cadwallander, Thomas Dotzel

“The Service Myopia? New Recipe for Client-Provider Value Creation”, by Chris Möller, Risto Rajala, and Mika Westerlund