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Services Economy

Many companies are currently trying to convert from selling products to selling services. For example, IBM treats its business as a service business. Although it still manufactures computers, it sees the physical goods as a small part of the "business solutions" industry.

In order to adapt to the new economic reality of the services economy many companies are currently trying to convert from selling products to selling services. For example, IBM treats its business as a service business. Although it still manufactures computers, it sees the physical goods as a small part of the “business solutions” industry.

A services economy is an economy whose primary activity it based in the tertiary or services sector. The services revolution can be described with reference to very straightforward empirical data. Over the past number of decades, services have come to dominate advanced economies and are slowly but surely coming to dominate the global economy.1 Behind this simple observation is a very profound, subtle and complex transformation, as it means the stuff that our economies process is changing. It is changing from tangible industrial products to intangible services. These two things have fundamentally different characteristics, meaning this transformation is having a very significant effect on what the economy does and is.
Economies are about the efficient use of scarce resources to achieve valued ends.2 Within post-industrial societies these valued ends are subtly but fundamentally changing. Advanced economies have largely completed the process of industrialization, the function of providing basic industrial products to the mass of societies. And people want more than this now. They want things like experience, like actual quality of life. People aren’t happy to just go to the nearest beach on holiday any more. They want a package holiday that takes them to some exotic place, providing them will a full experience they can tell their friends about. They don’t want just a pair of jeans. They want some designer jeans where what they are really paying for is a story that an advertisements agency produced. The actual physical product is outsourced to some industrial developing economy. Advanced economies increasingly create the service experience that goes on top of the product.

Nature Of Services

The nature of services is studied within services science and services design. We won’t go into the technical details here, but services include all sorts of things that are way outside the box of our traditional industrial age model such as attention, advice, access, experience, discussion and of course information of all kinds. These are not things that you can wrap up and put in a box to be pushed over the counter. But wrapping things up and pushing them over the counter is the only real model we have so we go on trying to use it. The whole model that was built for the mass production of standardized tangible industrial products that were pushed out to isolated and passive end-users is being stretched to its limits by the rise of the services economy.
Successful services are things like how happy you felt visiting a restaurant because it was a smooth seamless service that provided you with what you expected and wanted. The focus is on people interacting with people and serving the customer rather than transforming physical goods. Services systems place people at the center of the world. They aggregated disparate technologies and subsystems in order to deliver functionality that is importantly measured in terms of customer satisfaction, and that is a very different metric to how many products you push over the counter that day.

Changing Needs

The end of the process of industrialization in developed economies has created widespread affluence and a shift from primary needs to secondary needs

The end of the process of industrialization in developed economies has created widespread affluence and a shift within the consumer base from physical primary needs to more aspirational secondary needs

Maybe the best example of this is within advertising. Previously it was about paying some celebrity or beautiful persons to tell other people that if they buy a product their lives will be better. Advertising today is increasingly focused on getting your friend to tell you that they brought the item and it actually made their lives better. The difference is subtle but very profound. It is not about fancy things that have all sorts of amazing properties. It is about the actual value and experience that they deliver to a specific person often within a specific context. Increasingly this idea of just getting more things is not really cutting it. After many decades of prosperity, we are becoming somewhat disillusioned with this dream that was part of the industrial model. People increasingly want the real things – happiness, health, well-being, quality of life. And that is a paradigm shift, because the industrial model always looks inside of the economy, modeling its throughput, but in the real world it is not just about what you produce. It is also about what people want and how the economy matches that. This might sound obvious but it doesn’t fit into our traditional model. All we can capture is the gross output to the economy GDP.

Servicization

As mentioned, servicization is a very subtle and complex economic phenomena and it is in many ways the foundation to the implementation of the information revolution to our real economies. Things have to be serviced before they can be digitized. They are in many ways two sides of the same coin, but the services revolution is the infrastructure unlike the information revolution that gets all the fame, but they are totally symbiotic, enabling each other. Services engender a whole new economic paradigm involving co-creation, enduring service relationships, service process and life cycle, context, product service networks, personalization and extreme customization. This is very different from the industrial age mass production of standardized one size fits all, discrete products that can be easily quantified.

Cite this article as: Joss Colchester, "Services Economy," in Complexity Labs, October 6, 2016, http://complexitylabs.io/services-economy/.

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2017-05-04T15:25:10+00:00