Transcript The Information and Services Economy a.k.a. Business

The Information and Services Economy
a.k.a.
Business Architecture and Services Science
IS210
Profs Bob Glushko & Anno Saxenian
UC Berkeley School of Information
Fall 2006
Outline: Week of Sept 5-7
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Drucker & management in the ISE
Economic paradigms and the ISE
Defining services (revisited)
Services: front stage v. back stage
The experience economy
Drucker on the knowledge economy
“The essence of management is to make
knowledges productive.”
 Industrial economy the scarce resource is fixed
assets (capital, expensive machinery, tools)
 Knowledge economy scarce resource is talent:
quality of knowledge & productivity of knowledge
 Value of talented people goes beyond
predefined tasks: building brands, relationships,
reputations, and other intangibles (high value)
What is management in ISE?
 Management brings people together for joint
performance—makes human strengths
productive and human weaknesses irrelevant
 Management is a social function—and in its
practice it is truly a liberal art.
 The 21st c. organization will have to put as much
effort into developing talent as to recruiting it
Replace silo-based hierarchies with talent markets
Allows workers to find challenging new opportunities &
managers to identify talented people for new roles
Paradigms of the economic growth
 Mainstream economics
Adam Smith and perfect competition
All firms have access to same “recipes”
Allocation of resources via invisible hand
Productivity growth via specialization and
division of labor; no intangible assets
Main threat is monopoly=>government’s role
 Posits equilibration and equalization of
returns; no role for innovation / creativity
Paradigms of the economy
 Schumpeter’s creative destruction
Entrepreneurs and technological change as main
drivers of growth
Incentive to innovate: short term monopoly rents,
enforced created by copyrights and patents
Continuous innovation creates losers in a
“continuous gale of creative destruction”
Network effects (increasing returns) amplify costs
 Challenge of continuous displacement of older firms,
products, regions, workers, and inherent inequality
Economic categories and services
 The Economist: “Services are anything sold in
trade that cannot be dropped on your foot.”
 Key limit to standard tripartite classification is it
lack of attention to intangible assets
Services are products that cannot be stored and that
are consumed at the time of their purchase (U.S.
Bureau of Economic Affairs)
Browning-Singlemann classification
 Services Sectors
 Producer business
& marketed services
 Personal domestic,
hotel, dry cleaning,
repair,
entertainment
 Distributive
logistics, communic,
wholesale and retail
trade
 Non-marketed
health, welfare,
govt.
 Two other sectors:
 Transformative
mfg/food/construction
 Extractive agric,
mining
Beyond classification schemes
We’re all in services now, more or less . . .
“There are no such things as service
industries. There are only industries
whose service components are greater or
lesser than those of other industries. . .”
Theodore Levitt, 1972
Beyond classification schemes (Teboul)
 Pure product: raw materials transformed by
capital and labor into finished product
 Pure service: customer transformed by an
experience provided by capital and labor
Customer is integral to service
Service delivery requires interaction/contact with
customer
e.g. hospital, education, restaurant services
 Product involves transformation
 Service involves performance, interaction
Front stage: performance
Back stage: transformation
Information as another raw material
 Data and information of any sort can be
considered raw materials
 When in physical form (paper, books) it takes
great effort to search, retrieve, store, manipulate,
transform information
 When digitized, information is:
Easily stored and processed – databank, data
warehouse, data mining
Easily customized, enriched, accumulated, transformed
Easily distributed - infinite scalability
Industry v. services: a matter of degree
Teboul: we shall be more in services . . .
 Any activity is a composite of front-stage and
back-stage elements
The service aspect involves interaction, the
product aspect involves material transformation
 As front end and back end become more
differentiated the challenge is to align and
coordinate them
Conflict between product logic and customer
relationship approach
Services: The front-stage experience
Industrializing services
 Teboul: “Industrializing services means
simplifying the front stage and focusing on the
product in the back stage.”
 Why industrialize services?
 What are advantages?
 Who has an incentive to industrialize services?
Two different worlds
Back stage
 Product excellence
and scale
Division of Labor
Standardization
 Limits
 Controlled Product
Process
 Zero Defects
Scale economies
Front stage
 Solutions and
customer experience
1-off: Moment of truth
Seamless interaction &
integration
Proximity to customers
Zero defections
Co-production
Scope economies
The service triangle
How to link front and back stages?
Back and front stages closely interwoven:
back-stage exists to support front-stage
1. Ask customers to be more reasonable (Model T)
2. Develop flexible production lines, workshops, or
modular designs
3. Have same people do both back & front
4. Integration mechanisms (coordination meetings,
marketing councils, etc.)
5. Focus on workflow processes linking the two
The experience economy
B. Joseph Pine II and James H. Gilmore
The Experience Economy (HBS Press, 1999)
What is the experience economy?
How does it differ from the service economy?
What is the relationship between the service
and the experience economy?
What is the experience economy?
 Commodities – extraction, natural resources,
bulk storage, fungible
 Goods – make, standardized, inventory after
production, tangible
 Services – deliver, customized, on demand
supply, intangible
 Experiences – stage, personal, revealed over
time, memorable
The experience economy
“Work is theatre & every business a stage”
Differentiated
Stage
Experiences
Deliver
Services
Competitive
position
Undifferentiated
Relevant
Needs of
customers
Make
Goods
Extract
commodities
Market
Irrelevant
Pricing
Premium
The progression of economic value
In the shift from goods to services:
What is the role for customization
What is the role for commoditization?
How about other stages in the progression?
What comes next?
Transformations:
Wisdom
Experiences:
Knowledge
Services: Information
Goods: Data
Commodities: Noise
The Silicon Valley story
1960s: Defense manufacturing
1970s: Semiconductor manufacturing
1980s: PC design & manufacturing
1990s: Software & Internet design
2000s: Information services delivery
2010s: ???