Chapter 1: The Role of Services In An Economy

Chapter 1
The Role of Services In An Economy
TEACHING NOTE
This introductory chapter is intended to motivate students and arouse their interest in the importance of services in
our economy and career opportunities in the 21
st
Century. Material on the e!perience economy illustrates the
current economic evolution "eyond the postindustrial economy. The nature of the #e!perience economy$ also
provides an opportunity for students to discuss their o%n o"servations and e!periences. The role of information
technolo&y' innovation' and chan&in& demo&raphics in service sector &ro%th can lead to speculation a"out the
future.
SUPPE!ENTAR" !ATERIAS
#The (itchhi)er*s +uide to Cy"ernomics'$ A Survey of the ,orld Economy' The Economist' Septem"er 2-'
1../.
A 0/ pa&e special insert loaded %ith fi&ures and &raphs that present the transformation from an industrial
economy to a service economy driven "y information technolo&y. The article discusses ne% 1o"s' productivity'
and the difficulty of measurin& economic output %hen the metrics %ere desi&ned for industrial production.
2oseph 3ine and 2ames +ilmore' ,elcome to the E!perience Economy' Harvard Business Review' 2uly4Au&ust
1..-' pp. .54167.
The authors descri"e the features of the emer&in& e!perience economy represented "y firms such as the Rainforest
Caf8 that sta&e an e!perience rather than 1ust deliver a service.
ECTURE OUTINE
I. Service 9efinitions
II. :acilitatin& Role of Services in an Economy ;:i&ure 1.1<
III. Economic Evolution ;:i&ure 1.2 and 1.=<
I>. Sta&es of Economic 9evelopment ;Ta"le 1.2<
3re4industrial society
Industrial society
3ost4industrial society
>. ?ature of the Service Sector ;:i&ure 1.0 <
The 21
st
Century Career ;:i&ure 1.7<
>I. ?e% E!perience Economy ;Ta"le 1.=<
Consumer Service E!perience ;:i&ure 1./<
@usiness Service E!perience ;Ta"le 1.0<
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>II. Sources of Service Sector +ro%th
Information Technolo&y ;:i&ure 1.5<
Innovation
Chan&in& 9emo&raphics
TOPICS #OR $ISCUSSION
1. Illustrate how the type of work that he or she does influences a person's lifestyle. For example
contrast a farmer a factory worker and a schoolteacher.
A farmerAs lifestyle is' to a certain e!tent' still influenced and conditioned "y the elements' the %eather'
the Buality of the soil' and the availa"ility of %ater. Cife is partly a &ame' "ut mostly it is a stru&&le
a&ainst nature. The rhythm of life is shaped "y nature and the pace of %or) varies %ith the season.
In the case of the factory %or)er' the stru&&le is a&ainst a fa"ricated nature: a %orld of cities' factories and
tenements. Cife is machine4paced ;or at least appears to "e<. Efficiency is the %atch%ord and
productivity is its measure. The standard of livin& is measured "y the Buantity of &oods a person has. The
%or)er "ecomes 1ust a part' a person in the "ureaucratic and faceless or&aniDations that sprin& up to
achieve the tas) of production and distri"ution of these &oods. The individual is the unit of social life'
%ith society considered as the sum of all the individual decisions "ein& made in the mar)etplace.
3rotection from the or&aniDation is often sou&ht throu&h la"or unions.
A schoolteacher interacts on a face4to4face "asis %ith hisEher students in an intellectual environment. A
career in teachin& involves continual readin& in the su"1ects tau&ht and searchin& for innovative %ays to
motivate students. Cife is reflective' ordinarily not physically demandin&' and %or) is conducted in a
pleasant campus environment.
2. Is it possi!le for an economy to !e !ased entirely on servicesF
Economies "ased on services only are e!ceptions and rare ones at that' e.&.' Andorra and Ciechtenstein'
resort islands in the South 3acific and the Cari""ean' and Monte Carlo ;&am"lin&<. Such countries must
import their food' consumer &oods' and dura"les. @ut as a rule' this cannot "e done for lar&er economies
%here production of food andEor &oods is essential.
=. "hat is the value of self#service in an economy$
Measurin& self4service is a pro"lem in its o%n ri&ht and currently is not included in the +?3. A creative
discussion of methods to indirectly measure self4service %ould include accountin& for customer la"or in
transactions such as "uyin& a meal at a fast4food restaurant %here you are e!pected to "us your o%n ta"le
or the savin&s in pumpin& your o%n &as at a fillin& station. Self4service has additional value "ecause the
la"or is only present %hen it is needed. In Chapter 7 #Technolo&y in Services$ the topic of self4service
technolo&y ;SST< %ill "e e!plored.
0. %o to the Internet and find the percent employment in services over the past &' years for a country not listed
in Ta!le (.(.
142
Gnfortunately' the source for Ta"le 1.1 is limited to the ten listed countries. 9ata on employment in other
countries mi&ht "e availa"le from Gnited ?ations statistics. A +oo&le search is in order %ith )ey %ords such as:
service employment in #country of interest.$
7. %o to "ikipedia.com and search under the topic of )service economy.* "hat do you make of the data plotted
on the world map$
T%o color coded %orld maps are presented on this site: ;1< C93 Composition "y Sector and ;2< Ca"our :orce "y
Hccupation. Althou&h it is difficult to read the color )ey le&end' the maps &ive a &ood visual indication of the
spread of services throu&hout the %orld "y country.
/. +etermine if the ,.-. service sector is currently expandin. or contractin. !ased upon the /on#0anufacturin.
Index 1/0I2 found at I-0 Report on Business on the Institute of -upply 0ana.ement we!site3
http344www.ism.ws4pu!s4ismma.4.
The ISM Report of @usiness has a %ealth of survey data from industry respondents on the current level of
"usiness activity for the month. The first ta"le presents the ISM series inde! for the current and previous month
for several measures ;e.&.' ne% orders' employment' inventories' etc.<. An inde! value a"ove 76 indicates an
e!pandin& service sector economy' "elo% 76 a declinin& economy. The ta"le also contains a measure of the inde!
direction and rate of chan&e.
INTERACTI%E CASS E&ERCISE
The class !reaks into small .roups. Each .roup identifies service firms that should !e listed in the top Fortune
('' and places them in rank order of estimated annual revenue.
3ost on the "ac)"oard the com"ined results of the student &roups. @rin& to class an overhead of the most recent
listin& of the Fortune ('' to compare %ith the students list ;see %%%.fortune.com<.
CHAPTER 'UI( 'UESTIONS
TrueE:alse
1. In the past 166 years %e have %itnessed a shift in emphasis from services to a&riculture and industry. ;:<
2. Ca"or force movement is &enerally from lo% productivity sectors to hi&h productivity sectors. ;:<
=. 9ivision of la"or is the hallmar) of an industrial society. ;T<
0. Impersonal "ureaucratic and hierarchical or&aniDations that treated people li)e thin&s flourished in the
pre4industrial society. ;:<
7. The decrease in the proportion of income spent on the "asic necessities of life has encoura&ed the demand
for more services and accelerated the transition to post4industrial society. ;T<
/. The Clar)4:isher hypothesis o"serves the shift of employment from one sector of the economy to another.
;T<
5. The fall in employment in the a&ricultural sector is the primary reason for the increase in service sector
employment. ;:<
-. 3rofessional and "usiness services are pro1ected to have the &reatest percent chan&e in G.S. employment
in the period 266/4261/. ;:<
.. The service e!perience defined as escapism reBuires the most commitment from the customer. ;T<
14=
16. The systems perspective is a vie%point essential for dealin& %ith the challen&e of service
or&aniDations. ;T<
140
11. As compared %ith &oods' services are characteriDed "y a faster rate of price increasesI this is one
reason for the &ro%in& economic importance of the service sector. ;T<
12. Services are also responsi"le for ma)in& the &oods4producin& activities of the manufacturin& and
e!tractive sectors possi"le. ;T<
1=. +oods4producin& industries include minin& and construction. ;T<
10. Services are deeds' processes' and performances. ;T<
17. Information services is e!pandin& at the e!pense of physical products in the percent of +93. ;T<
1/. The push theory of innovation is essentially a solution loo)in& for a pro"lem. ;T<
15. The a&in& G.S. population is a social trend that is &oin& to have a ma1or influence on services. ;T<
1-. >alue for the #"usiness service e!perience$ is derived from co4creation. ;T<
1.. A standardiDed e!perience is a feature of the ne% e!perience economy. ;:<
26. In the ne% e!perience economy' customers can participate either in an active or passive manner. ;T<
21. Hne of the )ey features of a "usiness service e!perience is colla"oration. ;T<
22. A "usiness service e!perience ;@2@< has three dimensions: co4creation of value' relationships' and
sustaina"ility. ;:<
Multiple Choice
1. ,hich one of the follo%in&' accordin& to 9aniel @ell' is not true of pre4industrial societiesF
a. A&riculture' minin& and fishin&
". Co% productivity
c. 9emocratic structureJ
d. Co% technolo&y
2. 9ivision of la"or is the central concept of:
a. Industrial societiesJ
". 3reindustrial societies
c. A&rarian societies
d. 3ostindustrial societies
=. ,hich one of the follo%in& is not a value4added service provided "y a manufacture to increase profitsF
a. :inancin& or leasin&
". Customer support call centerJ
c. After4sales maintenance
d. ?et%or) and communication services
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0. ,hich of the follo%in& is not a feature of the ne% e!perience economyF
a. The e!perience is memora"le.
". The e!perience is customiDed.J
c. The customer is treated as a &uest.
d. The e!perience is sta&ed.
7. ,hich of the follo%in& is not amon& the important dimensions of the post4industrial societyF
a. Creation of a service economy
". The rise of environmental protection &roupsJ
c. The plannin& of technolo&y
d. The preeminence of the professional and technical class
/. The )ey technolo&y of a postindustrial society is
a. machines.
". ener&y.
c. information.J
d. intellectual capital of the %or)ers.
5. ,hich of the follo%in& is pro1ected to have the &reatest percenta&e chan&e in G.S. employment from
266/4261/F
a. Information
". 3rofessional and "usiness services
c. Ceisure and hospitality
d. (ealthcare and social assistanceJ
-. ,hich one of the follo%in& reasons "est e!plains the recession4resistant nature of servicesF
a. Services cannot "e inventoried.J
". Many services' such as healthcare' are essential.
c. Many service employees' such as those %ho %or) on commission' do not need to "e laid off
durin& recessions.
d. The num"er of 1o"s in maintenance and repair services increases durin& recessions.
.. The concept of economies of scale is "est descri"ed as
a. the replacement of fi!ed costs %ith varia"le costs.
". sellin& a %ider ran&e of products.
c. a synonym for economies of scope.
d. the replacement of varia"le costs %ith fi!ed costs.J
14/
16. The concept of economies of scope is "est descri"ed as
a. a synonym for economics of scale.
". the use of "rand e!tensions.
c. usin& e!istin& channels of distri"ution to introduce a ne% product.J
d. e!tendin& e!istin& distri"ution channels to reach ne% customers.
11. ,hich of the follo%in& is not included in the sta&es of economic activityF
a. Kuarternary
". Kuinary
c. @inaryJ
d. Secondary
12. ,hich of the follo%in& is not a principle on %hich service e!perience desi&n is "asedF
a. Theme the e!perience.
". Eliminate ne&ative cues.
c. Mi! in memora"ilia.
d. Encoura&e customer feed"ac).J
1=. ,hich of the follo%in& does not descri"e a "usiness service e!perienceF
a. sta&eJ
". co4create
c. colla"orator
d. sustained over time
10. The realms of an e!perience include all "ut one of the follo%in&F
a. Entertainment
". Education
c. Estheticism
d. ElationJ
17. ,hich one of the follo%in& is not a dimension of a "usiness service e!perienceF
a. Co4creation of value
". 3ro"lem solvin&J
c. Relationships
d. Service capa"ility
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1/. ,hich of the follo%in& is an e!ample of a "usiness service ;@2@<F
a. Communications
". Auditin&J
c. Retailin&
d. Ceasin&
15. A "ureaucratic structure is a feature of %hich societyF
a. post4industrial
". pre4industrial
c. industrialJ
d. none of the a"ove
1-. Service innovation is driven "y %hich factor listed "elo%F
a. ?e% product technolo&y
". Customer needs
c. H"servant contact employee
d. All of the a"oveJ
1.. ,hich one of the follo%in& is not a core e!perience of the 21
st
century serviceF
a. creative
". e!periential
c. customiDedJ
d. pro"lem solvin&
26. In an e!perience economy the method of supply is
a. revealed over time.J
". stored in "ul).
c. delivered on demand.
d. inventoried.
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