Service (economics)

• 1. Introduction

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  A service is an act or use for which a consumer, company, or government is willing to pay. That single line covers the barber cutting hair, the doctor in the examination room, the lawyer drafting a contract, and the mechanic under a car. It also covers the bank holding money, the insurance company carrying risk, and the accountant balancing the books. Some of these things you buy yourself. Others a whole society pays for together, such as hospitals, elementary schools, and libraries. So what binds a haircut to a hospital and a taxi ride to a tax return? The answer is a set of strange properties that goods do not share. You cannot hold a service. You cannot store it on a shelf. You cannot make two of them exactly alike. To understand the service economy, you have to understand why an empty airplane seat at takeoff is gone forever. You have to understand why economists once argued that a service produced no wealth at all. And you have to understand why a restaurant meal sits somewhere between a pure thing and a pure act.

• 2. The Three Strange Properties

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  Intangibility comes first. A service is not manufactured, transported, or stocked the way a durable good is. It is produced and consumed at the same instant, which means it cannot be saved for later use. Perishability follows directly from that. Service resources are assigned to a specific window of time, and if the consumer does not request the service during that window, the resources may simply go unused. To the provider this is a lost business opportunity. A hairdresser moves on to serve another client. An empty seat on an airplane cannot be filled once the plane has departed. There is a second sense of perishability too. Once a service has been fully rendered, it irreversibly vanishes. Think of a passenger who has been transported to the destination; the act is complete and gone. Variability is the third property. Each service is unique and can never be exactly repeated, because the time, location, circumstances, or assigned resources may differ on the next delivery. A taxi taking someone from home to work is not the same service as the taxi taking that same person from work to home. The direction differs, the time differs, possibly the route differs, and probably the driver and the cab differ too. The more common name for this trait is heterogeneity, and it sets up a hard question about how you keep quality consistent at scale.

• 3. The Quality Problem

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  Mass generation and delivery must be mastered before a service provider can expand, and that turns out to be a problem of service quality. Both the inputs and the outputs of service processes are highly variable, and so are the relationships between those processes, which makes consistent quality difficult to hold. Many services depend on variable human activity rather than a precisely determined process. The human factor is often the key success factor in service provision, though utilities stand out as an exception. Demand itself refuses to sit still. It can vary by season, by time of day, and by the business cycle, and consistency is what creates the enduring business relationships a provider needs to survive. To tame all this variation, any service can in principle be specified completely and concisely using standard attributes that conform to the MECE principle, meaning mutually exclusive and collectively exhaustive. The list of attributes is long and precise. It covers the consumer benefits that are triggerable and consumable on request. It covers service-specific functional parameters, such as whether a passenger sits in an aisle or window seat. It covers the service delivery point, the physical location or logical interface where benefits are rendered and where delivery can be monitored. It also names the service fulfillment target, which is the provider's promise expressed as the ratio of successful deliveries to requests over a period. The delivery price often splits into two parts, an access fee that qualifies a consumer to request the service and a consumption fee for each delivery made.

• 4. Service As Performance

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  Six factors usually come together at the moment of delivery. There is the service provider, meaning the workers and managers. There is the equipment, such as vehicles, cash registers, and computer systems. There are physical facilities like buildings, parking, and waiting rooms. Then there is the service consumer, the other customers present at the location, and the customer contact itself. All the activities bound up in that process are called the service encounter. Many business theorists go further and treat service provision as a performance or act, sometimes joking about dramalurgy in a nod to dramaturgy. In this view the location of delivery is the stage, and the objects that help the process along are the props. A script is the sequence of behaviors followed by everyone involved, including the clients. Some service dramas are tightly scripted while others run more ad lib, and role congruence occurs when each actor follows a script that harmonizes with the roles the others are playing. A different concept dominates certain fields. In health care, dispute resolution, and social services, the idea of the caseload describes the total number of patients, clients, litigants, or claimants a single employee is responsible for. That employee must balance the needs of each individual case against all the other current cases and against their own needs as well. The stakes can turn legal. Under English law, a provider induced to deliver services to a dishonest client by a deception has been the victim of an offence under the Theft Act 1978.

• 5. Good Or Service

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  Adam Smith's famous book, The Wealth of Nations, published in 1776, drew a sharp line between what he called productive and unproductive labor. Productive labor made goods that could be stored after production and later exchanged for money or other items of value. Unproductive labor, however useful or necessary, created services that perished at the moment of production and therefore added nothing to wealth. This argument grew out of an older view. In the late-eighteenth and early-nineteenth centuries, classical economists treated goods as objects of value over which ownership rights could be established and exchanged. Ownership implied tangible possession of an object, acquired by purchase, barter, or gift, and legally identifiable as the property of its current owner. The French economist Jean-Baptiste Say pushed back on Smith. Say argued that production and consumption were inseparable in services, and he coined the term immaterial products to describe them. The modern view abandons the hard line entirely. Gustofsson and Johnson describe a continuum with pure service at one end and pure commodity good at the other, and most products fall somewhere between. A restaurant supplies a physical good in the food, but it also supplies services through the ambience and the setting and clearing of the table. Even water utilities, which actually deliver physical water, are usually treated as services rather than goods.

• 6. A Map Of Service Industries

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  Consulting, customer service, and human resources sit among the business functions that apply to organizations in general, where an HR administrator provides a service by ensuring employees are paid accurately. The map runs far wider than office work. Death care includes coroners, who provide the service of identifying cadavers and determining the time and cause of death, alongside funeral homes that prepare corpses for display, cremation, or burial. Dispute resolution and prevention gathers an unexpected crowd under one heading. It holds arbitration and mediation, but also courts of law backed by the power of the state, plus diplomacy, law enforcement, incarceration, and the military, which performs the service of protecting states in disputes with other states. Even negotiation appears, though the article notes it is not really a service unless someone is negotiating on behalf of another. Construction trades such as carpentry, plumbing, and electricians offer services too, an electrician supplying the service of making wiring work properly. Entertainment counts when delivered live or in a specialized facility, covering gambling, movie theatres, performing arts, sport, and television. The financial cluster spans accountancy, banks and building societies, real estate, stock brokerages, tax services, and valuation. Personal grooming reaches from hairdressing to manicurists, dental hygienists, and body hair removal. Public utilities bring in electric power, natural gas, telecommunications, waste management, and the water industry. Lovelock classified services using the number of delivery sites and the method of delivery in a 2 by 3 matrix, finding that convenience is lowest when the customer must come to a single specific outlet, and rises as service points multiply.