The services imperative: Focusing on the future of business

Services now account for a staggering 80 percent of the U.S. Gross Domestic Product and labor force, but many still view the world through manufacturing lenses, according to W. P. Carey experts Mary Jo Bitner and Stephen Brown. Their new paper synthesizes service research and throws down a challenge to businesses, policy makers and academics: recognize the immediate need to focus on growth and innovation through, in order for individual companies and countries to be competitive in the global economy. Bitner and Brown lead the W. P. Carey School's Center for Services Leadership, host of the annual Compete Through Service Symposium.

Stephen Brown calls his latest paper a "catalyst for action." It might be more aptly termed a wake-up call — a long overdue wake-up call, at that. The paper, titled simply "The Services Imperative," is co-authored by Brown and his fellow W. P. Carey School marketing professor Mary Jo Bitner. It is a call for action aimed at business leaders, academics and government policymakers, challenging them to change the way they view business services.

More the point, it asks them to finally recognize how crucial the services industry now is for both individual companies (IBM being a prime example) and the global economy. Set to be published in the forthcoming 50th Anniversary Edition of Business Horizons, Bitner and Brown's paper makes two basic arguments: First, that the future of business lies in services; second, that too many business leaders, academics and government officials fail to recognize it.

The situation, the authors write, "suggests an immediate need to focus on growth and innovation through services in order for individual companies and countries to be competitive in the global economy [and] suggests a need for research and education to support the rapidly growing global service economy."

'Everything is a service'

"We felt that we really wanted to get some things down on paper," explains Bitner, who, along with Brown, co-directs the Center for Services Leadership at the W. P. Carey School. "We've been talking about these developments so much. And they've seemed to resonate. We felt it was timely."

Adds Brown: "This paper was meant to be a catalyst for action, and it was aimed at a wide variety of stakeholders in the business community, government and education community to help them recognize how extensively our current and future economic success depends on the service economy. We are still lagging in a lot of our thinking. Our funding and our education is back in a manufacturing and product era, which is long gone."

Unfortunately, there are some who refuse to accept that. They see the world through a manufacturing lens. But according to Brown, these people simply miss the point, because services matter everywhere. "We're always going to have some manufacturing and we're always going to be making products," he explains. "But the future is really services — knowledge-based services, professional services Products are a means to an end. Everything is a service."

As Bitner and Brown point out in their paper, services represent a staggering 80 percent of both the U.S. gross domestic product and labor force. Services encompass everything from healthcare, telecommunication, education, transportation, and financial services, to business services, technology services, and retail. But while the U.S. has enjoyed a big head start in the development of its services economy, other nations are getting into the game now, too.

Holding onto the lead

Services are increasingly important among both Western European economies and developing nations such as China and India. The Chinese government has gone so far as to mandate a focus on services in the next half-decade. In other words, Bitner and Brown say, Americans can't exactly rest on their laurels. It does seem, however, that many are doing just that. "Nations such as Germany and Finland, though they may be relatively smaller economies and smaller populations, have invested heavily in service research and innovation, relative to their size," Bitner says.

"Because of [America's] sheer size and history of ingenuity we've had outstanding services, and in fact we currently have a trade surplus in services. And because we've been really successful, we haven't had to think too much about it — our technology and competitiveness have always just led the way. It seems to me that, because we've been so successful, people are feeling as though we don't need to do anything different."

Indeed, as Bitner and Brown point out in their paper, even while services increasingly dominate both the national and global economy, there remains a surprising lack in interest in services as a research focus. Both in the U.S. and elsewhere, the authors write, "there is relatively little formal focus within companies and governments on service research and innovation compared to the focus on tangible products and technologies."

Making matters worse? Business schools are lagging behind, too. The Center for Services Leadership was in the vanguard of scholarly thought in the field when it was founded more than 20 years ago. But though several universities have in recent years created research centers similar to it, many business school programs continue to ignore services entirely, or simply wrap them up into broader curriculums.

But that's not good enough, Bitner and Brown say. Businesses are increasingly seeking out the services leaders of tomorrow. But without business schools to train them, those leaders simply won't be there for the taking. "Universities are a contradiction in a lot of ways," Brown says. "When we think of universities, we think of cutting-edge thinking and discoveries. But on the other hand, the way universities operate they are some of the slowest moving institutions in our society. Change happens, but it happens slowly. And in terms of education, a lot of things are tradition-bound."

Case Study

Fortunately, trendsetting companies such as IBM have proven to be far less burdened by the past. Twenty years ago, Big Blue was, like most of its contemporaries, a product company. But while the company's specialty — computers — may have been cutting-edge and high-tech, its business plan wasn't: IBM built and sold those computers much in the same way that Henry Ford built and sold Model-Ts.

Since the early 1990s, market forces pushed IBM to question its conventional product model. Over the next several years IBM remade its processes and culture, shifting from a focus on business-to-business computer sales and manufacturing into being a global leader in providing information technology support and solutions. In other words, it became a service business.

Today, IBM is considered by many to be the leading services company in all the world. Big Blue has also become a symbol, to many, of the vast potential of services to change individual companies, entire economies, and maybe even the face of global commerce.

"IBM has played a very catalytic role in this change," explains Brown. "IBM came from a point, 20 years ago, where it was clearly a product company to a point now where over half of its revenues and half of its employees work in the services area. They woke up to the fact that they are a service company."

Now, companies such as Oracle, HP and Xerox are hopping on the services bandwagon, and more firms — even companies from those smokestack industries of the American past — figure to do so soon. "A lot of companies are starting to realize that services is an area where they can make money, where they can grow," Bitner says.

"There are companies out there, like IBM, that they want to emulate through services. Maybe for some of these companies, their products and technologies may be competitive, but they still may not be as profitable or growing as fast as they hope. Then they see customers demanding services. From a strictly business perspective, they're realizing that they need to compete with services in the future."

But businesses can't do it alone, the authors say. If the vast potential of services, both locally and globally, is ever to be reached, businesses, academics and government will all have to chip in. So, in their paper, Bitner and Brown offer a road map to services success for each.

For companies, they advocate an increased focus on customers and the needs of those customers, greater investment in services R&D, an increased understanding of what it takes to truly succeed in services, and stepped-up efforts to find and develop outstanding services leaders.

They call on universities to foster a focus on services across disciplines (including in such key related fields as computer science and engineering), tap into the power of services to help transform developing economies, and encourage cross-disciplinary research.

They ask policymakers to recognize the importance of services in their economies — and then take steps to increase funding for the kind of research that can help shape the services of tomorrow. Essentially, they ask each of these stakeholder groups to finally and fully accept the one thing that, to Brown, Bitner and, apparently, the leadership at IBM, has long been obvious: Services are the key to success in the future.

Bottom Line:

• Led by such industry leaders as IBM, services (e.g., healthcare, telecommunication, financial services, technology services, transportation, retail, etc.) now represent 80 percent of the American GDP.
• Even as services are the dominant sector in global business, however, relatively little money or resources is dedicated to research in services science and innovation.
• In a new paper, two longtime experts in the field of services science say an increased focus on services could help companies, and entire economies, achieve greater success.
• For this to happen, however, universities, businesses and governments will all have to change the way they look at services, recognize the field's great potential, and take steps to train the services leaders of tomorrow.
• What are "services?" Bitner and Brown ascribe to a very broad view.
  • Services are "deeds, processes, and performances" (or constellations of "deeds, processes, and performances") provided to customers in exchange relationships among organizations and individuals.
  • Service can also come in the form of customer service that supports an organization's offerings and often is the "face" of an organization to its customers.
  • Service can also be derived from a tangible product, as when an automobile provides transportation service or eyeglasses provide sight.
  • Service(s) include the offerings of critical industries such as healthcare, education, transportation and telecommunication (to name a few), as well as services that enhance the value of technical and manufactured products or that, when combined with tangible products, provide a total value solution for the customer.