The Role of Services in an Economy

Session 1 Services Operation Management

Service definitions
Many definitions of service are available but all contain a common theme of intangibility and simultaneous consumption. The following represent a sample of service definitions; Christian Gronroos in Service Management and Marketing: A service is an activity or series of activities of more or less intangible nature that normally, but not necessarily, take place in interactions between customer and service employees and/or physical resources and/or systems of the service provider, which are provided as solutions to customer problems.

 James Fitzsimmons: A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer.

Dependency of Manufacturing on Services

Manufacturing depends on many services like transportation, banking, advertising and repairs and maintenance for its smooth functioning. With increasing globalization and the crucial role played by the IT sector which is essentially a service industry, manufacturing has come to rely more and more on the Service sector for its very survival in specific geographies.

The Clark-Fisher Hypothesis

Economists like Colin Clark argue that as nations become more industrialized there is an inevitable shift of employment from one sector of the economy to the other. As productivity improves in one sector, the labor force moves into another sector. This observation is known as the Clark-Fisher hypothesis and leads to a classification of economies by noting the activity of the majority of the workforce.

Stages in Economic Evolution

Most economists limit themselves to 3 stages of economic activity for their analyses the primary sector comprising agriculture, mining and fisheries and forestry; the secondary sector covering manufacturing and processing; and the tertiary sector consisting of services.

 However, it is useful to distinguish within the service sector three distinct categories namely: Domestic services (tertiary) restaurants & hotels, barber and beauty shops, laundry and dry cleaning, maintenance & repair Trade & Commerce services (quaternary) Transportation, Retailing, Finance& insurance, Communication, Real estate, Government. Refining and extending human capacities health, education, research, recreation, arts.

Stages of Economic Development

Preindustrial society where the labor is predominantly occupied in the primary sectors. Industrial society predominant activity is in the production of goods Postindustrial society is concerned with the quality of life as measured by the services such as health, education and recreation.

New experience Economy

Economy Agrarian Industrial Service Experience Eco. Offering Eco. Function Nature of offer Key attribute Method of supply Seller Buyer Factors of demand Commodities Extract Fungible Natural Stored in bulk Goods Make Tangible Standardize Inventoried after production Manufacturer User Features Services Deliver Intangible Customized Delivered on demand Provider Client Benefits Experiences Stage Memorable Personal Revealed over time Stager Guest Sensations

Trader Market Characteristics

Sources of Service Sector growth

Innovation: Push and pull theories of innovation Social trends: The growth of two income families and their need for services Higher disposable incomes: Need for services like entertainment, tourism etc.