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Ever since Harvard sociologist Daniel Bell published his book, The Coming of Post-Industrial Society, in 1973, there has been a strong sense of inevitability about the rise and dominance of services in the world’s advanced economies. And, in general, people have concluded that this is a good thing. But there’s danger lurking in services. At this point in their evolution, they’re less efficient and productive than modern manufacturing and farming. Also, while manufacturing took over 200 years before its “quality revolution,” services have only been dominant for a few decades and have yet to figure out quality. These issues  could mean big trouble not just for developed countries but for the entire global economy.

Some of today’s top thinkers about services are sounding alarms. Robert Morris, head of service research at IBM Research, says that unless services become more scientific and technical, economic growth could stagnate. Henry Chesbrough, the UC Berkeley professor who coined the term “open innovation,” says this is a major issue facing the world economy long term. He calls it the “commodity services trap.”

Underpinning their thinking is an economic theory called Baumol’s disease. The idea is that as services become an ever larger piece of the economy, they consume an ever larger share of the human and capital resources–but don’t create enough value, in return. Think of an electricity generation plant that consumes more energy than it produces. “Productivity and quality of services isn’t growing comparably to other sectors, including manufacturing and agriculture, so the danger is that it swamps the economy–employment, the share of GDP, and what people have to pay for,” says Morris. “The world economy could stall.”

Developed nations are particularly vulnerable to Baumol’s disease. In Europe and the United States, a lot of progress has been made in the past decade in improving the efficiency of IT services, but other service industries and frightfully inefficient and ineffective: think government, health care and education.

So while adding jobs is vitally important to countries that are still reeling from the economic meltdown, if the jobs that are added are commodity service jobs, long term, it’s adding to the inefficiency of the economy. That’s why governments need to invest aggressively in science and education and technology to improve services  in spite of their budget deficits.

One area that deserves investment is service science. It’ s the academic discipline that IBM (with help from Chesbrough) began promoting in 2002. A multidisciplinary approach, service science addresses Baumol’s disease head on by using the ideas and skills of computer science, engineering, social science and business management to improve the productivity, quality and innovation in services. Many of the techniques that have already been developed in computer, mathematical and information sciences can be directly applied to helping services.  But new breakthroughs and the better interactions with behavioral and business sciences are also essential, because services are, and always will be, people-centric businesses.

Today, more than 450 universities worldwide offer some sort of service science program. But much more can and should be done to avoid falling into the commodity services trap. Otherwise, the the post-industrial society could take on a post-apocalyptic tinge.

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February 23, 2011
4:30 am
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March 26, 2011
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