Service Fundamentals

Services are a "rental" through which customers can obtain desired experiences and solutions. The customers "rent" the following :

1. PRODUCT : Goods : boats, costumes, rooms
2. FACILITY : Defined space and place : shop, parking slot, seat in an aircraft, game of golf
3. ORGANIZATION : Labor / expertise : which people do not have (repairs, surgery) or dont want to do (drive)
4. PLATFORM : Access and participation on a platform where value is created by other members telecommunications, utilities, banking or insurance

The industrialization of services means treating service as an industrial process and applying industrial optimization procedures to it.  It came into being under the assumption that the services sector suffered from inefficiency and wide variations and can benefit from  systematic planning, optimal processes, consistency, and capital intensive investments. This lead to McDonalds type operations.  But this thinking had many undesirable consequences. : employees did not like the mechanical work, high staff turnover, reduced involvement and hence the service quality. It was realized that many customers prefer the "personal touch" and not necessarily high efficiency. By 1990s the wheel started turning back to the human element and personalization of services. Employees were empowered to customize the service encounter to the individual characteristics of customers.

Products today have an increasingly higher component of service than before and this is called servitization of products. Virtually every product today has a service component to it. For example, IBM still makes computers but sees itself to be in service business and in the "business solutions" industry. They find that price elasticity of demand for "business solutions" is much less than for hardware. There has been a corresponding shift to a subscription pricing model. Rather than receiving a single payment for a piece of manufactured equipment, many manufacturers are now receiving a steady stream of revenue for ongoing contracts. Full cost accounting and most accounting reform and monetary reform measures are usually thought to be impossible to achieve without a good model of the service economy.  The service economy in developing countries is mostly concentrated in financial services, hospitality, retail, health, human services, information technology and education. The old dichotomy between product and service has been replaced by a service-product continuum. Many products are being transformed into services.