Introduction to Services

How Important is the Service Sector in Our Economy?
‡ ‡ ‡ ‡ ‡ The size of the service sector is increasing in almost all economies around the world Services make up the bulk of today¶s economy and also account for most of the growth in new jobs Even in emerging economies, service output is growing rapidly and often accounts for half or more of GDP Jobs range from high-paid professionals and technicians to minimum-wage positions Service organizations can be any size ± from huge global corporations to local small businesses

Changing Structure of Employment as Economic Development Evolves

Agriculture Services


Time, per Capita Income

Source: IMF, 1997

Internal Services
‡ Service elements within an organization that facilitate creation of ± or add value to ± its final output Includes: ± ± ± ± ± ± ‡ Accounting and payroll administration Recruitment and training Legal services Transportation Catering and food services Cleaning and landscaping


Increasingly, these services are being outsourced

Major Trends in Service Sector (Fig. 1.3)
‡ ‡ ‡ Government Policies (e.g., regulations, trade agreements) Social Changes (e.g., affluence, lack of time, desire for experiences) Business Trends ± Manufacturers offer service ± Growth of chains and franchising ± Pressures to improve productivity and quality ± More strategic alliances ± Marketing emphasis by nonprofits ± Innovative hiring practices Advances in IT (e.g., speed, digitization, wireless, Internet) Internationalization (travel, transnational companies)

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Some Impacts of Technological Change
‡ Radically alter ways in which service firms do business: ± with customers (new services, more convenience) ± behind the scenes (reengineering, new value chains) ‡ Creation of an information assembly line ± Information today can be standardized, built to order, assembled from components, picked, packed, stored, and shipped, all using processes resembling manufacturing¶s

Defining the Essence of a Service
‡ ‡ ‡ An act or performance offered by one party to another An economic activity that does not result in ownership A process that creates benefits by facilitating a desired change in: ± customers themselves ± physical possessions ± intangible assets

Distinguishing Characteristics of Services
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Customers do not obtain ownership of services Intangible elements dominate value creation Greater involvement of customers in production process Other people may form part of product experience Greater variability in operational inputs and outputs Many services are difficult for customers to evaluate Service products are ephemeral and cannot be inventoried Time factor is more important--speed may be key Delivery systems include electronic and physical channels

Managing Services Requires Collaboration between Marketing, Operations, and HR Functions

Operations Management Customers

Marketing Management

Human Resource Management