What is Service ?

Before we understand “Service” we need to understand the term “Value”.

An economic value is the worth of a good or service as determined by the consumer.

“Use value” is the utility of consuming a good and if it is traded in markets every good has a “Exchange Value” .

We also have to be aware that term “Value” was defined by Adam Smith, Father of Economics,  years ago when the whole economy was primarily manufacturing and trading of goods. Michael Porter, the renowned Harvard economist then coined “Value Chain” as part of his “Competitive Theories” work. 

In a goods dominated world , a customer goes to a shop (or online shop), orders his goods, takes possession  and value-exchange  happens, i.e the customer pays the price and right of ownership to the said good changes. The customer is on his own after this point.  This is a key point.

So the classical economic “Theory of Firms “  infers value creation as a firm taking some raw material inputs doing some processing on it by leveraging its capital equipment , knoweldge and skills to produce some units of output that is passed on to next stage of value chain or sold to end customer finally. The value creation only happens within the walls of the firm before the good is sold.

Similarly the concept of “Supply Chain” is merely a support process to the main activity of value creation to aid efficient delivery and distribution of goods. I do not see how “Supply Chain” adds value from the consumer  perspective though effective modern effective supply chain improves operating margins of the firms.

Similarly I would argue that traditional marketing functions are only an aid to hasten the process of  “Value Exchange” through whatever activities they do. They do not add value in any way to the original good , from consumer point of view. In summary in goods dominated world value creation happens only within walls of the firm or chain of firms through application of knowledge and skills. For eg: taking gold ore and turning into pure gold or ornaments is a knowledge and skills intensive process that adds value to gold.

In the context of “Service” , we look at value creation from an expanded perspective.

In the  “Service Dominated World” , value is continually created  (may be should use the term Co-Created but do not want to complicate matters)   after the “Value Exchange” happens.

In “Service” context value for consumers means that :  after the value exchange has happened , they are assisted by some processes that makes them feel better-off than before. A very simple definition of Service could be -  “Application of competencies for the  benefit of other entity”

This is a very powerful idea. The reason is every service interaction with the consumer produces some intelligence which kind of self feeds as input into core value creation proceseses and thus producing even better service experience for customer’s next service interaction with that good. 

People familiar with Control System theory with feedback loops may be able to draw some parallels here.

What has happened here is, in the context of “Service” , the physical good merely gets relegated to second tier as a gateway that faciliates Service interactions. Service, rather than good becomes the basis of economic and social exchange. Another observation to keep in mind is value creation in the context of “Service” happens at the edges of the firm (consumer touch points) rather than within 4 walls of the firm.

The “Service Thinking” kind of expands  the classical “Theory Of Firm” itself which predominatly uses only raw materials as inputs. It is good to keep this perspective in mind as it will be useful when we dissect the anatomy of business model and re-construct business models incorporating “Service Thinking”.

Let me share an example to help understanding.

When I was a child  thirty years ago we went shopping for a black and white TV. We were extremely happy to get that “Dumb” TV  good manufactured and assembled somewhere. There were only 3 TV channels to watch and no concept of cable. In a sense as a consumer we were at the mercy of  TV Channel provider (the Service Provider).. Did the “Service Provider” ever care about the consumer ?

Contrast this experience with today’s TV purchase. We go to TV shop. We have pleasantly smiling lady welcoming us, sharing all catalogues, answering all questions politely, even arranging credit finance facility, with full warranty &maintenance service, promptly  delivered to home and assembled and installed by their own technicians. We are happy TV customer and we say what a great Service ?  Is it really Service Innovation ?  It is NOT !  What we just experienced is merely “Value-Added Services“ and not “Service Innovation.”  "Value-Added Services" are just sweetners created by the  marketing folks who want to increase the momentum of goods sales. Marketing folks jobs will get much tougher (because CEO's will charter them with the Service Innovation Agenda ) when they wake up in the "Service Dominated" world. Please note again that terms “Services” and   “Service” have different connotations.

Coming back to TV purchase !  Today when we purchase TV we do not look at just TV in isolation. We are more intersted in what kind of content platforms the TV can connect to and what experiences these content platforms offer.   It could be niche “Yoga” channels, “Fashion Channels” for your wife , or educational content or games for your kids. Some of the examples of rich consumer experiences would be other conveniences like “Rememberred play lists” , “Recommendation Engines” etc

The point is physical TV has been relegated to second tier and the platform that is able to offer innovative service has become important for consumers. Large TV manufacturers like Philips and Sony are scaling down TV manufacturing business and focussing instead on  building compelling content platforms for their consumers. This is a very good example of  “Service Innovation”.  Of course there are catalysts like internet and broadband etc supporting this trend..  But that is not the point.   There are some key learning points from this example to appreciate what “new types of value” this service model creates for consumers that were non-existent few years ago.

We as child, adults, in different roles such as students, teachers, architects,  policmen, fire fighters, citizens  etc and also as consumers of different industries like  transporation , housing, education, healthcare, food, entertainment, utilities, mobile, banking can fantasise many consumer experiences and value addition in various forms..  I can list few other examples but would like to hear from the audience.

My apologies for intentionally dropping  the word “Platform” here that has another set of profound meanings in the context of “Service Innovation”. We shall re-visit this later.