Thursday, 29 January 2009

Service Innovation Part 2: Economic Clusters

For a long long time we are being educated by economists that our economy has sectors.  The roughest devides it into Agriculture, Manufacturing and Services. But with 2%, 16% and 82% the Services sector is a bit too big to consider it a sector anymore. 

On the other hand, large chunks of these 82% have strong product characteristics. The energy, telecom,  rail and retail sectors are all good examples of services industries that primarily sell on a transaction basis: kWh, minutes, km and package are exact measures of what customers have to pay for.

These examples show that what contemparary economists reckon under services is a whole lot different that the defininition of my last post suggest. This is not a problem, but a fact one has to be aware of when talking about services.

One of the best - be it quite difficult - articles I've read so far that explains the difference between the "transactional" type of services and "real" services is an article titled Services, Products and the International Structure of Production by Luis Araujo and Martin Spring in Industrial Marketing Management 35 (2006).

Next to "transactional" services they put forward "transfer-based" services, i.e. services that are carried out without knowing in advance what will be the benifit / costs for both parties.  A good example is a consultancy meeting. None of the parties knows in advance if the time and money spent on the consultancy will be worth the money.

Furthermore they stress that it takes a lot of effort to make products transactionable, because the product itself is not transactionalble. For example, who would buy a car without warrenty? Who would buy one without a good networks of dealers to maintain it etc.

The same holds in my view for transferable services,  if they can be made transactionable, it will only be with a lot, a whole lot of effort.  And indeed, we notice that some consultants try to make "packages" of for example "change projects".  Often this still doesn't mean one knows in advance what change will achieved, but at least the time and the pricing can be set in advance. So, in fact, the services is still largely a transfer, not a transaction.

It would take a long story to go into a detailed analysis of Araujo and Spring's work, but as long as the take-home message "there are transactionable and transfer-based services" has landed, my goal for today has been reached.

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