Services Science: Fundamentals, Challenges and Future Developments

Roland Berger Strategy Consultants – Academic Network Editorial Council Prof. Dr. Thomas Bieger, Universität St. Gallen Prof. Dr. Rolf Caspers †, European Business School, Oestrich-Winkel Prof. Dr. Guido Eilenberger, Universität Rostock Prof. Dr. Dr. Werner Gocht †, RWTH Aachen Prof. Dr. Karl-Werner Hansmann, Universität Hamburg Prof. Dr. Alfred Kötzle, Europa Universität Viadrina, Frankfurt/Oder Prof. Dr. Kurt Reding, Universität Gesamthochschule Kassel Prof. Dr. Dr. Karl-Ulrich Rudolph, Universität Witten-Herdecke Prof. Dr. Klaus Spremann, Universität St. Gallen Prof. Dr. Dodo zu Knyphausen-Aufseß, Otto-Friedrich-Universität Bamberg Dr. Burkhard Schwenker, Roland Berger Strategy Consultants

Titles published in English by the Academic Network G. Corbae · J. B. Jensen · D. Schneider Marketing 2.0 VI, 151 pages. 2003. ISBN 978-3-540-00285-7 S. Dutta · A. De Meyer · A. Jain G. Richter (Eds.) The Information Society in an Enlarged Europe X, 290 pages. 2006. ISBN 978-3-540-26221-3 M. Blatz · K.-J. Kraus · S. Haghani (Eds.) Corporate Restructuring XII, 180 pages. 2006. ISBN 978-3-540-33074-5 B. Schwenker · S. Bötzel Making Growth Work VI, 138 pages. 2006. ISBN 978-3-540-46486-0

Bernd Stauss · Kai Engelmann Anja Kremer · Achim Luhn (Editors)

Services Science Fundamentals, Challenges and Future Developments

With 23 Figures

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Professor Dr. Bernd Stauss Chair of Services Management Catholic University Eichstätt-Ingolstadt Auf der Schanz 49 85049 Ingolstadt Germany [email protected] Kai Engelmann Roland Berger Strategy Consultants Mies-van-der-Rohe-Straße 6 80807 München Germany kai [email protected] Anja Kremer IBM Deutschland GmbH Wilhelm-Fay-Straße 30-34 65936 Frankfurt am Main Germany [email protected] Dr. Achim Luhn Siemens AG IT Solutions and Services Otto-Hahn-Ring 6 81730 München Germany [email protected]

Library of Congress Control Number: 2007935273

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TABLE OF CONTENTS Editorial ..................................................................................................... 1 BERND STAUSS, KAI ENGELMANN, ANJA KREMER, ACHIM LUHN PART 1: SERVICES SCIENCE – NECESSITY AND CONCEPTUAL FUNDAMENTALS............................................. 9 Services Sciences, Management, and Engineering (SSME) and Its Relation to Academic Disciplines........................................................... 11 JIM SPOHRER Service Engineering – A Transdisciplinary Approach in Service Research ................................................................................. 41 DIETER SPATH, WALTER GANZ, THOMAS MEIREN, BERND BIENZEISLER PART 2: SERVICES SCIENCE – FOCUS RESEARCH ................... 55 International Service Research – Status Quo, Developments, and Consequences for the Emerging Services Science......................... 57 BERND STAUSS Research on Services: From Exploring the "Residual" to Services Science................................................................................... 71 METKA STARE, LUIS B. RUBALCABA Services Science – A Computer Scientist's Perspective ....................... 79 MARTIN BICHLER Research Needs in the European Service Sector – An ApplicationOriented Perspective ............................................................................... 85 WALTER GANZ PART 3: SERVICES SCIENCE – FOCUS TEACHING.................... 89 The Evolution and Discovery of Services Science in Business Schools .................................................................................. 91 MARY JO BITNER, STEPHEN W. BROWN

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The Perspective of Computer Science ................................................. 103 KLAUS-PETER FÄHNRICH, KYRILL MEYER The Perspective of ABB Automation GmbH ...................................... 111 GERHARD HECKELMANN The Perspective of AFSM International ............................................. 115 MARKUS SCHWARZ PART 4: SERVICES SCIENCE – FOCUS COLLABORATION.... 117 Services Science – Where Practice Meets Theory .............................. 119 KAI ENGELMANN Services Science with a Focus on Academia and Company Collaboration ......................................................................................... 137 BO EDVARDSSON, ANDERS GUSTAFSSON The Perspective of Informatics ............................................................ 149 TILO BÖHMANN, STEFANIE JAHNER, HELMUT KRCMAR The Perspective of Service Industries – The Perspective of Siemens AG ........................................................... 155 ANJA GIESEKE, UWE HERMANN The Perspective of IBM Deutschland GmbH ..................................... 163 MATTHIAS K. HARTMANN THE AUTHORS.................................................................................... 169

Editorial Bernd Stauss, Kai Engelmann, Anja Kremer, Achim Luhn

1

The Need for Services Science

For years the service sector has dominated advanced economies. In many countries it accounts for more than 70% of gross domestic product and approximately the same percentage of all employees work in this sector. This statistical data is impressive in itself, but the sectoral view does not show the full picture. It leads instead to a systematic underestimation of the relevance of services in society. For it neglects the continuing trend toward the "tertiarization" of the industrial sector. More and more companies in the industrial sector are offering complementary and stand-alone services or are providing customer-oriented solutions with a predominant portion of services. One might expect the economic relevance of services to be reflected in the academic system through a strong focus on service research and education. However, that is simply not the case. There is a remarkable rise in servicerelevant research documented in an increasing number of monographs, journal articles and international conferences. But no independent research discipline has yet been established. So far, service research is regarded predominantly as part of management science, particularly marketing science, and therefore has a rather limited contextual focus. There is a lack of cross-disciplinary approaches. Hence, the service research conducted today does not meet the requirements of targeted and integrated research into the complex problems with which service companies are confronted. Besides this, services are not appropriately represented in the academic education system. University graduates are hardly prepared for the service-related requirements of academic positions in service companies. Indeed, those who are already working have little chance to acquire the necessary occupational qualifications. Thus, academia cannot sufficiently satisfy the needs of a service economy. This diagnosis is the point of departure in the demand for the improved anchorage of services in research and education: the establishment of services science. The primary initiative in the now extensive discussion of the necessity, understanding, design and implementation of services science was taken

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by IBM, a company which is consistently migrating from an industrial computer producer to a technology-based service company. IBM developed the vision of a multidisciplinary approach called SSME (Services Sciences, Management and Engineering), defining it as the application of scientific, management and engineering disciplines to create knowledge and develop solutions for service problems. The internal SSME initiative was combined with a public call for action and a broad communication of its vision. This activity met with a strong international response. In Germany, IBM Deutschland, Roland Berger Strategy Consultants, Siemens Business Services and the Chair of Services Management at the Ingolstadt School of Management established a team tasked with developing a services science concept that could function as a platform for the further and more concrete discussion of the issue. The result of the team work was published in a White Paper describing a fundamental concept of services science as a new academic discipline to be established.

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Basics of a Services Science Concept

Services science is defined as a new scientific concept that aims at solving the complex problems of a service economy by applying a transdisciplinary approach in intensive collaboration between academia and service organizations. Services science as an independent discipline comprises research as well as academic education for both students and employed persons. Accordingly, three elements are particularly essential in this understanding of services science: the transdisciplinarity of research, the intense collaboration between academia and companies, and the teaching within the academic education system.

2.1

Transdisciplinary Academic Research

The first pillar of the services science concept is a specific kind of academic research. The complexity of the problems emerging in the production of services is such that it would appear insufficient to approach the issues from the perspective of a single academic discipline. What is required is a transdisciplinary investigation of service problems, a multiperspective quest for solutions. Cross-discipline and cross-faculty cooperation is therefore essential. This needs to integrate the perspectives of management and marketing on the one hand, as well as IT and engineering

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sciences along with social sciences on the other. We can expect new service-specific knowledge to be generated through cross-fertilization and the combination of different specialized competencies, models and methods.

2.2

Close Collaboration Between the Scientific and Corporate World

The second pillar of services science is close cooperation between the scientific and corporate world. Services science is viewed as an applied science, which aims to contribute to the solution of very concrete service problems. This presupposes strong networking between research at universities and research and development within companies. A multitude of efforts will be necessary to link these different research worlds. These include the joint definition and selection of research problems, the cooperative execution of research projects and the common examination of the success of the solutions identified. This will facilitate the continuous transfer of knowledge between universities and business enterprises, which will be of use to both partners. Scientists at universities will benefit from new research questions and insights. For service companies, cooperating with scientific institutions will provide the opportunity to develop well-founded service concepts with economically attractive market potential.

2.3

Qualification for Academic Service Jobs

Services science constitutes not only a new research program but also a field of education at institutions that offer academic qualifications for occupations in service organizations. To that extent, the third pillar concerns service education for students who aspire to a job in the service industry as well as for those who already work in the service sector. The latter may be looking for a postgraduate qualification as a prerequisite for career progression in services. Specialized master's programs are desirable for both segments. In each case, a specific curriculum should be developed that reflects the transdisciplinary nature of services science. This comprises modules with content in the spheres of management, sociology, psychology and law as well as information technology and engineering science. These master's programs must ensure that students acquire service-related knowledge in different specialized subjects along with the key qualifications and soft skills that are particularly important in service jobs.

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3

Implementation Problems and Starting Points for Solutions

On the one hand, there is broad consensus concerning the need to establish services science as an independent field of research and education. However, no consistent implementation process can be observed. This is a strong indication of considerable obstacles and powerful resistance. These obstacles and opposition need to be analyzed in detail because only then will it be possible to take realistic and promising steps toward implementation. In particular, the traditions of individual disciplines are in opposition to transdisciplinary research and education. Equally high barriers exist in academic courses that oblige students to go through tiresome and timeconsuming processes if they want to change the focus of their studies. Moreover, the narrow limits of an academic discipline determine the chances of being published and achieving academic positions. As a result, cross-disciplinary research may reduce the career prospects of scientists. The language coined within certain disciplines and the mentality differences that exist between them also serve to complicate matters. There are also obstacles opposing close cooperation between academia and the corporate world in services science. These are caused by a range of factors, such as the lack of a service research tradition and infrastructure in academia and the underestimation of the relevance of services as a topic. Frequently, academia also has inherent reservations about allowing enterprises to exert control over the definition of research questions and the execution of research projects. On the part of companies, time, urgent business pressures and the lack of sufficient resources particularly hamper a continuous commitment to common research projects. Furthermore, the partners have diverging interests and incentive systems. Researchers are primarily interested in highquality publication opportunities, usually only attainable after time-consuming research. In contrast, short-term financial goals are the dominant factor for companies, meaning that they are primarily interested in fast and exclusive utilization of the results. Moreover, there are language and mentality differences between practitioners and scientists as well. Universities can only be expected to overcome these barriers if strong political/financial incentives break down faculty and discipline borders and new transdisciplinary institutions are established. Furthermore, a new research paradigm needs to emerge, with appropriate opportunities to build a

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reputation and a career. Companies, for their part, will need to take service research almost as seriously as they take conventional technology-oriented research. Additionally, they must provide financing and manpower in a way that enables the continuous participation of employees in research and curriculum development. On both sides, all of this requires an incentive system that makes permanent cooperation beneficial. Beyond that, strong support in terms of national research policy is necessary in order to set the reform and implementation process in motion.

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Overview of the Contributions in this Book

These conceptual considerations were the basis for the start of an international dialog on the state of the art, the chances and the limitations of services science. This dialog took place at the First German Services Science Conference, held in Ingolstadt in 2006. The contributions in this book are based on the presentations and discussions at that conference. They can be assigned to four core themes: (1) Necessity and Conceptual Fundamentals, (2) Focus on Research, (3) Focus on Teaching, and (4) Focus on Collaboration. The first section discusses the necessity and conceptual fundamentals of services science. In his paper, Jim Spohrer describes the motivation for services science – he uses the term "Services Sciences, Management, and Engineering (SSME)". He also reviews existing service research approaches and key academic disciplines that can contribute to a general theory of service. On this basis, SSME is proposed as an academic discipline and research area that would complement the different academic disciplines contributing to the body of knowledge about service. The paper by Dieter Spath, Walter Ganz, Thomas Meiren, and Bernd Bienzeisler also emphasizes the need for an independent services science. In addition, the authors present an overview of publicly funded services research in Germany. The piece focuses mainly on a description of the evolution of the innovative research field of service engineering. This field already incorporates the main characteristics of the proposed services science, such as transdisciplinarity and strong cooperation between researchers and practitioners. The second section focuses on the research aspects of services science. Bernd Stauss characterizes the content of the current service-related research and discusses some of the unresolved issues relating to the services

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science concept. He also highlights the challenges that have to be met for the realization of services science. Three statements enlarge upon the discussion of research aspects. Metka Stare and Luis B. Rubalcaba present their view of the status quo and development of service research from a sectoral perspective. They point out some of the weaknesses and drawbacks of current service research, with reference to the European Research Network on Services (RESER). This network involves members from a variety of disciplines and can therefore be seen as one relevant platform for a transdisciplinary research exchange. Martin Bichler poses the question of whether designing services science as a discipline focusing on the generic problems of all service industries may be too general an approach. He proposes a focus on service innovations. In his opinion, a service scientist should be somebody who actively drives innovation. Service scientists therefore need a profound understanding of the techniques of modeling and optimizing business processes. This requires the integration of knowledge from computer science, information systems and operations research as well as other fields of social sciences. In his statement, Walter Ganz identifies a range of deficits in service research. He perceives a special need for service research in certain areas. These are service innovation, internationalization of services, transformation (tertiarization) processes in the economy, the relationship between technology and services, and the design of service work. The third section discusses the teaching of services science. Mary Jo Bitner and Stephen W. Brown highlight the evolution and discovery of services science in business schools. The co-directors of the Center for Services Leadership at Arizona State University comment that within business schools the resources devoted to services management have not been commensurate with the economic importance of services. The authors identify current trends facing business today and demonstrate how these trends will drive the development of transdisciplinary services science curricula. Three statements on the teaching of services science from the perspective of scientists (Klaus-Peter Fähnrich; Kyrill Meyer) and practitioners (Gerhard Heckelmann; Markus Schwarz) enrich the section. All of them respond to questions regarding the current weaknesses of service education and training and the need for independent services science education at universities. They also address the most relevant topics for services science education, the challenges of establishing a services science curriculum, and the role of business in this process. Interesting commonalities and differ-

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ences can be found here. Klaus-Peter Fähnrich and Kyrill Meyer, for example, doubt that there is a major need for independent services science education at universities. Instead, they call for the service-oriented transformation of existing curricula. In contrast, Gerhard Heckelmann and Markus Schwarz are convinced that, from a practical perspective, a substantial need does exist. The fourth section of the book focuses on the collaboration between academia and companies in the interest of realizing services science. First, Kai Engelmann recounts how services have developed into the dominant sector and describes the development of the service sector within the context of the knowledge society. On this basis, he discusses how processes of innovation in the service sector can be promoted. He describes his vision of the academic field of services science and outlines a new model of cooperation between companies and the scientific world. This view is complemented by four statements from scientists and practitioners. Bo Edvardsson and Anders Gustafsson describe their experiences as scholars and directors of The Service Research Center (CTF) at the Karlstad University, Sweden. They discuss the phenomenon of scientific and company cooperation from four different perspectives: (1) reasons behind the cooperation from both the business and the academic perspective, (2) organization of the cooperation and agreement on roles and responsibilities, (3) financing, and (4) mutual learning. The academic view is also taken by Tilo Böhmann, Stefanie Jahner and Helmut Krcmar, who present the perspective of informatics. They demonstrate the benefits and challenges of current collaborative efforts between universities and companies. As an example of a lasting partnership, they cite the "Competence Center for Dynamic Value Webs for IT Services" between Siemens IT Solutions and Services and Technische Universität München. Statements reflecting the view of practitioners are presented by Anja Gieseke; Uwe Hermann (Siemens AG) and Matthias K. Hartmann (IBM Deutschland). Anja Gieseke and Uwe Hermann stress the importance of services and service innovation for a global player in electronics and electronic engineering. They also describe innovative efforts to realize cooperation with academia and combine this with suggestions for future university-industry collaborations. Matthias K. Hartmann outlines the perspective of IBM Deutschland with a clear focus on service innovation. His paper elaborates on IBM's under-

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standing of services innovation as well as on cooperation as a vital element in making service innovation successful. This book* is very specific in nature. It does not represent a scientific inventory of a mature science. The contributions contained herein reflect the content of presentations and statements given at the First German Services Science Conference. They are published to further stimulate the discussion between scientists and practitioners from different disciplines and industries on the opportunity to establish services science as an independent field for collaborative research and academic education. We truly hope that this stimulus may help the call for action be converted into actual deeds. The time is ripe for services science.

*

The editors would like to thank Dr. Matthias Gouthier (Ingolstadt School of Management) and Andrea Wiedemann (Roland Berger Strategy Consultants) for their excellent work and dedication in making the First German Services Science Conference and this book possible. The editors would also like to express their gratitude to the Roland Berger Language Service for their helpful proofreading services.

Part 1: Services Science – Necessity and Conceptual Fundamentals

Services Sciences, Management, and Engineering (SSME) and Its Relation to Academic Disciplines Jim Spohrer

1

Introduction

The service economy refers both the service sector of industrialized economies as well as services performed in the manufacturing and extractive sectors of the economy. The spectacular growth of the service economy in the past fifty years is reflected both the GDP statistics of nations as well as the annual reports of manufacturing companies that report on growing services revenue. The Fortune 1000 reflects the growth trend of the service economy. Both the increasing number of service firms (e.g. Google) that appear on the list and the increasing percentage of revenue from services for many non-service firms (e.g. John Deere) reflect this new economic reality. In spite of the significant measurable growth of the service economy, there is no widely accepted definition of service, and furthermore, measurement of service productivity, quality, compliance, and innovation are still in the early stages of development. For example, in healthcare services, an innovation might eliminate a routine medical need and hence allow more resources to be dedicated toward a more complex illness, with the result being an apparent drop in hospital productivity, in spite of real advancement being made! Perhaps Gallouj (2002) best described the slow progress in understanding innovation and services when he wrote: "… modern economies are both service economies and economies of innovation. Paradoxically, they are not regarded as economies of innovation in services, that is as economies in which service firms' innovation efforts are proportionate to their contribution from the major economic aggregates. It is as if service and innovation were two parallel universes that coexist in blissful ignorance of each other." Seven explanations are often given to explain what appears to be slow progress in understanding the fundamentals of the service economy: (1)

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diversity of service industries and service activities in other industries makes discovery of general principles difficult, (2) misconceptions about services as low value jobs has slowed investment, (3) misconceptions about services as unproductive and resistant to productivity gains has slowed investment, (4) inability to patent or otherwise protect service innovations has slowed investment, (5) data about service phenomena that could form the basis of a general theory of service are considered confidential and proprietary and hence difficult to obtain, (6) the multidisciplinary nature of service research has meant each discipline is separately making progress rather than establishing effective collaborations and building off each others' successes, and (7) all of the above, and more! The good news of course is that progress has been made especially over the last twenty years, and recent activities around the world (including SSME) show signs of accelerating that progress (Tien and Berg, 2006). For example, in business schools, courses in service management, service operations, service marketing, and other aspects of services have well established textbooks, journals, and conferences. In engineering schools, operations research as well as industrial and systems engineering are shifting their focus from factories to service operations and service value chains. Also, computer science departments are beginning to research and teach about web services, service-oriented architectures, data center economics and networked information services techniques. The social sciences, especially economics, are delving deeper into the production, provisioning, and consumption of services. Even the noted economist William Baumol, who studied the unproductive nature of many services in the 1960s and 1970s, has recently begun to devise theories of research and investment in services, concluding that "…innovation activities are fundamentally service activities." One final bit of good news is the progress that government and advisory agencies are making as they characterize the opportunity to do more. For example, the U.S. National Academy of Engineering's 2003 Report on "The Impact of Academic Research on Industrial Performance" summarized the reality well: "..the studies suggest that services industries represent a significant source of opportunity for university-industry interaction. Services account for more than 80% of the U.S. gross domestic product, employ a large and growing share of the science and engineering workforce, and are the primary users of information technology. In most manufacturing industries, service functions (such as logistics, distribution, and customer service) are now leading areas of competitive advantage. Innovation and increased productivity in the services infrastructure (e.g. finance, transportation, communication, and healthcare) have an enormous

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impact on productivity and performance in all other segments of the economy. Nevertheless, the academic research enterprise has not focused on or been organized to meet the needs of service businesses. Major challenges to services industries that could be taken up by universities include: (1) the adaptation and application of systems and industrial engineering concepts, methodologies, and quality-control processes to service functions and businesses, (2) the integration of technological research and social science, management, and policy research, and (3) the education and training of engineering and science graduates prepared to deal with management, policy, and social issues." Another example of government response to service innovation opportunity is the inclusion of a focus on "Modern Services" in China's 2006-2010 Five Year Plan. In 2006, Germany strengthened its efforts with an "Innovation with Service" program announced at the nation's Sixth Annual Service Engineering Conference, which was followed one week later by the First Annual German Services Science Conference. Australia recently hosted the 15th Annual Frontiers in Service Conference, at the University of Queensland in Brisbane, fittingly in the Colin Clark building, named after the first economist to compile worldwide statistics of the growth of the service sector. In 2006, Japan's National Science & Technology Policy Agency established a Services Science Forum for industry, academic, and government collaboration around the service innovation theme. European Union efforts have been truly pioneering over a decade, with significant results as well. The July 2006 issue of the Communications of the Association of Computing Machinery (ACM) has a special section on Services Science, reporting on these global efforts as well as exploring the interdisciplinary connections needed to advance a science of services. Nevertheless, perhaps the biggest barrier holding back the next level of government investment (on par with investment in other emerging innovation areas such a nanotechnology, bioinformatics, and cyberinfrastructure) is the lack of a general theory of service with well defined questions, tools, methods, and practical implications for society. On the one hand, there is the view that economics or the science of complex systems is the appropriate starting point for a general theory of service. On the other hand, some hold the view that since service is so broad and pervasive in the economy, investments in specialized areas such as bioinformatics will provide the appropriate foundation for new healthcare services, for example. This view holds that service is primarily many applied or practical sciences, and not a deep scientific area of theoretical inquiry on its own. And yet, some others feel there may be a middle ground somewhere between one large and gen-

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eral, complex systems science of service, and many small and specific applied sciences of service. In the next section, the two leading efforts to create a general theory of service from within the service research community will be presented. After that section, ten academic disciplines and areas of study with great relevance to a general theory of service are presented. In conclusion, a synthesis is attempted around the notion of SSME and service systems.

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Service Research Approaches

In this section, two approaches toward a general theory of service are described. Both originate from within the service research community. The first, "A Unified Services Theory", derives from a service operations and management discipline perspective. The second, "Evolving a Service Dominant Logic," derives from a service marketing discipline perspective. In "Foundations and Implications of a Proposed Unified Services Theory", Sampson and Froehle (2006) first introduce the need for a unifying theory of service, and then outline six characteristics of a good inductive theory (from Locke, 2005): (1) it is based on observation and data, (2) it defines concepts in a way that differentiates them from other concepts, (3) it integrates concepts and resolves apparent contradictions, (4) it identifies causal relationships, (5) it typically takes time to develop, and (6) it is open ended, allowing for extensions and re-applications. The starting point for their theory is the observation that "With service processes, the customer provides significant inputs into the production process." They argue that the presence of customer input is necessary and sufficient to define a production process as a service process, as distinct from manufacturing and extractive processes. They go on to define inputs, customers, and production processes, and note that customer inputs are the root cause of the unique issues and challenges of service management. Sampson and Froehle (2006) then work to reconcile their efforts with prior service perspective based on defining characteristics (see Lovelock and Gummesson, 2004): intangibility, heterogeneity, simultaneity (inseparability), perishability, and customer participation. They note that the fifth characteristic, customer participation, is also called "coproduction" by some (Bitner et al, 1997) and is essentially a limited view of their own "customer inputs" concept. However, coproduction is too often associated with customers providing themselves as labor in the production process,

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while they can also provide property and/or information – not just customer labor. They also note that Chase's (1981) customer contact theory is very related, though virtual customer input, not just the physical presence of the customer in the system, allows for the front-office service (real customer) and back-office service (virtual customer) distinction of Metters (2006) and Shostack (1984). Exactly what and how customers provision their inputs to the service process is the focus of many other frameworks, including Schmenner's (1986) Service Process Matrix, Wemmerlov's (1990) technologization, degree of customer contact, and object of the service (goods, information, people) framework, Kellogg and Nie's (1995) Service Process/Service Package Matrix, Napolean and Gaimon's (2004) standardized/unpredictable inputs framework, and others. The nature of the customer inputs (tangible or intangible) and bi-directional flows in customer provisioning of inputs has been referred to as a two-level bidirectional service supply chain (Fitzsimmons and Fitzsimmons, 2006). Extensions into business-to-business (B2B) services and supply chain management (Roth and Menor, 2003) are noted as a fertile ground for future contributions. Next, Sampson and Froehle (2006) present the operational implications of their Unified Services Theory in three areas: (1) capacity and demand management (reservation systems, pricing incentives for off-peak, selfservice, time psychology, etc.), (2) quality management (improve customer capabilities including screening and compliance, manage customer expectations, socialize and promote the establishment of objective standards and measures, etc.), and (3) strategy management. For strategy management such as Porter's (1980) cost leadership, focus, and differentiation types, each can be translated into an approach to customer input provisioning. For example, cost leadership may be achieved through a self-service approach, focus by screening and market segmentation to select customer with uniform inputs, and differentiation through more optimal processing of aggregate customer input as in Amazon's book recommendation system. In their conclusion, Sampson and Froehle (2006) assert that all managerial issues unique to services stem from the fact that service processes involve customer inputs. Furthermore, their Unified Services Theory meet the criteria for a good theory because: (1) it is based on a wide variety of industry observations and research literature, (2) it defines services and service concepts in a way that differentiates them from traditional manufacturing concepts, (3) it integrates prior models of service management under a common basis, (4) it shows the cause of various service phenomena (i.e. the requirement for customer inputs), (5) it is based on time-tested research

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of others, and (6) it defines services in a way that is very open-ended in terms of implications and applications. A second approach being advanced from within the service research community takes a very different tack and has been gaining momentum relatively rapidly. Vargo and Lusch (2004) argue for evolving a service-dominant logic in marketing to replace the goods-dominant logic that has taken hold over the last two centuries. A theory of service may follow, but first a service-dominant logic must be evolved that establishes concepts, world view, and a small set of fundamental propositions, along with their empirical support. To evolve a service-dominant logic, Lusch and Vargo (2004) propose eight fundamental propositions to be tested: (FP1) the application of specialized skills and knowledge is the fundamental unit of exchange, (FP2) indirect exchange masks the fundamental unit of exchange, (FP3) goods are distribution mechanisms for service provision, (FP4) knowledge is the fundamental source of competitive advantage, (FP5) all economies are service economies, (FP6) the customer is always a coproducer, (FP7) the enterprise can only make value propositions, and (FP8) a service-centered view is customer-oriented and relational. Vargo and Lusch (2004) define the essential concept of "service" as the application of competences for the benefit of another entity. They prefer the term "service" (singular), which is a process, as distinct from "services" (plural) which implies "intangible goods." They defend the notion that value is always cocreated. Therefore, they emphasize market with (relational) over market to (transactional). They seek to shift the focus to "operant resources" (value in use, verbs) from "operand resources" (value in property, nouns). They also assert that all economies are service economies, and all businesses are service businesses by this definition. To relate service-dominant logic to the Sampson and Froehle (2006) view, customer input is a part of every process (in the service-dominant logic world view), it just may be very indirect (FP2). Vargo and Lusch (2004) point out that the goods-centered dominant logic implies that the qualities of manufactured goods are normative qualities and (in essence) ideal for self-service – tangibility, separation of production and consumption, standardization, and non-perishability (Parasuraman, Zeithaml, Berry, 1985). The service-centered dominant logic puts competence in provision of service and competence in consumption of service in the spotlight, and more or less on an equal footing. Self-service competes with service from others. However, to consume the most sophisticated services may require a lot of competence, and knowledge of self. For example, consider the challenge of being one's own doctor. Self-service healthcare has its limits (e.g. oper-

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ating on oneself while unconscious after an accident). Nevertheless, some may envision robot doctors as an ideal good to support self-service in such circumstances. Vargo and Lusch (2004) emphasize the evolving nature of this proposed world view, in their article "Service-Dominant Logic: What It Is, What It Is Not, What It Might Be." In the section "what it might be," they see four future research directions for service-dominant logic: (1) the foundation of a paradigm shift in marketing, (2) a theory of the firm, (3) a reorientation for economic theory, and (4) a reorientation for a theory of society. The purpose of the first eight foundational premises aims at a paradigm shift for marketing, while the latter three directions may lead to additional foundational premises. For example, as a theory of the firm, after a discussion of the importance of entrepreneurs in starting new firms, FP9 is proposed to be: organizations exist to integrate and transform microspecialized competences into complex services that are demanded in the marketplace. For service-dominant logic to become a general theory of service, much work remains to be done. If service is the application of competences to benefit another entity, and all exchange is service for service (with indirections and specialization), then this implies a need to understand entities, competences, exchange, benefit, indirection, and specialization. Such a conceptual foundation is provided in Shelby Hunt's (2000) "A General Theory of Competition: Resources, Competences, Productivity, and Economic Growth." Known as Resource-Advantage Theory, Hunt proposes nine premises that stand in contrast to neo-classical economic theory: (P1) demand is heterogeneous across industries, within industries, and dynamic, (P2) consumer information is imperfect and costly, (P3) human motivation is constrained self-interest seeking, (P4) the firm's objective is superior financial performance, (P5) the firm's information is imperfect and costly, (P6) the firm's resources are financial, physical, legal, human, organizational, informational, and relational, (P7) resource characteristics are heterogeneous and imperfectly mobile, (P8) the role of management is to recognize, understand, create, select, implement, and modify strategy, and (P9) competitive dynamics are disequilibrium-provoking, with innovation endogenous. Basing a general theory of service on what appears to be a general theory of competition between firms has certain advantages. Business and professional services are the fastest growing part of the service economy (based on U.S. job outlook projections), and B2B service research is under-represented in the service research literature. Thus, a resource advantage theory of competition between firms is better aligned with where the service economy is going in the age of globalization and

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technology-enabled outsourcing. Furthermore, since the primary competitor for the provisioning of market services is in fact the customer (via selfservice), an understanding of comparative advantage in the external provisioning of services between nations, cities, firms, and people – even when one could "do it better oneself" – is instructive. In the next section, perspectives on a theory of service from other academic disciplines will be presented.

3

Other Academic Disciplines

In this section, academic disciplines relevant to a general theory of service are discussed. Each discipline seeks to create a body of knowledge that professionals from within that discipline can use to explain phenomena, answer questions of theoretical significance, and solve problems of practical value to society. The ten areas with relevance to a general theory of service considered in this section are: •

Economics and Law

•

Operations Research

•

Industrial Engineering

•

Computer Science

•

Information Science

•

MBA and Management Consulting

•

Management Information Systems and Knowledge Management

•

Organizational Studies and Organizational Learning

•

Urban Planning, Ecosystem Services, and Nature's Services

•

Complexity Science and Complex Adaptive Systems for Social Systems Research

To highlight the overlaps in purpose among these disciplines and areas of study, extensive quotes from Wikipedia are used. Economics and Law: Economics is the social science that studies human activities associated with the production, distribution, and consumption of products and services. Microeconomics is the branch of economics concerned with individual agents, the household or family unit, firms or enterprises (including for-profit businesses, non-profit organizations, non-gov-

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ernment agencies (NGOs), and government agencies). Macroeconomics considers entire nations and the global economy. While there are many branches of economics relevant to a general theory of service, econometric which seeks to measure variables of economic interest and understand the relationships between those variables is one important area. For example, measures of service productivity, quality, compliance, and innovation are poorly understood today, but areas of study by economists. Experimental or behavioral economics is a relatively new area that allows laboratory experiments to understand human decision-making processes. Information economics also seeks to understand how information affects economic decisions of households, firms, and nations. In addition, the area of complexity economics (strongly related to evolutionary economics) seeks to unify microeconomics and macroeconomics by simulating economic agents and their decision-making processes from the ground up to obtain emergent macro network effects as observed in real economies. Also, especially relevant to a general theory of service is the study of economic growth and industrial economics, since the role of technological progress or capability improvements is an explicit part of these models. Just as important as improvements in technological capabilities are those in organizational and institutional capabilities, which is the area of study of institutional economics. Finally, spatial relationships are important in many services, so the areas of urban economics, economic geography, and international economics (international trade) have great relevance. The connection between the law and economics has major implications for service, not just in international trade and service level contracts between firms, but also in the design of new services that are considered fair and sustainable. "Law and economics, or economic analysis of law, is the term usually applied to an approach to legal theory that incorporates methods and ideas borrowed from the discipline of economics. As used by lawyers and legal scholars, the phrase "law and economics" refers to the application of the methods of economics to legal problems. Because of the overlap between legal systems and political systems, some of the issues in law and economics are also raised in political economy and political science. In the United States, economic analysis of law has been extremely influential. Judicial opinions utilize economic analysis and the theories of law and economics with some regularity."1 A general theory of service will need to both draw on and align with many areas of economics. One must understand value coproduction between economic entities as they produce and consume services. What are the 1

Wikipedia article law and economics on 7/16/2006

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origins of new services between entities (inter-entity services)? If many new services result because of the inadequacy of self- service, then what are the origins of new services within economic entities (intra-entity services)? The production and consumption of services between economic entities (family, firm2, city, and nation) implies win-win value propositions can be cocreated that are superior in some way to self-service, which is the internal provisioning of service. "… the theory of comparative advantage explains why it can be beneficial for two entities to trade services, even though one of them may be able to produce every kind of service more cheaply than the other. What matters is not the absolute cost of production, but rather the ratio between how easily the two economic entities can produce different services. The concept is highly important in modern international trade theory."3 For a general theory of service, the cost of consumption (Womack and Jones, 2005), not just the cost of production, plays a role in an extended notion of comparative advantage. Operations Research (OR): "Operations research, operational research, or simply OR is an interdisciplinary science which deploys scientific methods like mathematical modeling, statistics, and algorithms to decision making in complex real world problems which are concerned with coordination and execution of the operations within an organization. The nature of organization is essentially immaterial. The eventual intention behind using this science is to elicit a best possible solution to a problem scientifically, which improves or optimizes the performance of the organization. The terms operations research and management science are often used synonymously. When a distinction is drawn, management science generally implies a closer relationship to the problems of business management. Operations research also closely relates to industrial engineering. Industrial engineering takes more of an engineering point of view, and industrial engineers typically consider OR techniques to be a major part of their toolset. Some of the primary tools used by operations researchers are statistics, optimization, stochastics, queuing theory, game theory, graph theory, and simulation. Because of the computational nature of these fields, OR also has ties to computer science, and operations researchers regularly use custom-written or off-the-shelf software. Operations research is distinguished 2

In this paper, the term "firm" refers to: for-profit business, non-profit organization, government agency, and non-government agency, "family" is a multi-person household. Later, we will refer to "service systems" that have both internal and external consumption and production of services. A general theory of service should hold for at least the four key types of services systems observed in the world - family, firm, city, and nation.

3

Modified Wikipedia article comparative advantage on 7/16/2006.

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by its ability to look at and improve an entire system, rather than concentrating only on specific elements (though this is often done as well). An operations researcher faced with a new problem is expected to determine which techniques are most appropriate given the nature of the system, the goals for improvement, and constraints on time and computing power. For this and other reasons, the human element of OR is vital. Like any other tools, OR techniques cannot solve problems by themselves."4 A general theory of service will have to both draw on and align with operations research. Operations research has been applied to many practical problems relevant to service operation and management: back-office service operations, supply chain management, guaranteeing service quality in network design, scheduling of fleet and field service operations, efficient customer relationship management, optimizing the rate of robotic automation in factories, and workforce management. Extending the range of problems that OR tools and methods can address, especially with respect to the evolution of intra-entity and inter-entity service capabilities, necessitates balancing the shifting costs of both production and consumption of service, and factoring in institutional and regulatory dynamics of service transactions, technological capability dynamics, as well as the relative mobility of people and their microspecializations. Industrial Engineering (IE): "Industrial engineering is the engineering discipline that concerns the development, improvement, implementation and evaluation of integrated systems of people, knowledge, equipment, energy, material and process. Industrial engineering draws upon the principles and methods of engineering analysis and synthesis, as well as mathematical, physical and social sciences together with the principles and methods of engineering analysis and design to specify, predict and evaluate the results to be obtained from such systems. Industrial engineers work to eliminate wastes of time, money, materials, energy and other resources. Whereas most engineering disciplines apply skills to very specific areas, industrial engineering is applied in virtually every industry. Examples of where industrial engineering might be used include shortening lines (or queues) at a theme park, streamlining an operating room, distributing products worldwide, and manufacturing cheaper and more reliable automobiles. The name "industrial engineer" can be misleading. While the term originally applied to manufacturing, it has grown to encompass services and other industries as well. Similar fields include operations research, systems engineering, ergonomics and quality engineering. There are a number of things industrial engineers do in their work to make processes 4

Wikipedia article operations research on 7/16/2006.

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more efficient, to make products more manufacturable and consistent in their quality, and to increase productivity."5 Again, a general theory of service would both have to draw on and align with industrial and systems engineering. The shift of industrial engineering toward services is very clear in the quote above. The many elements (people, knowledge, equipment, energy, material and process) that must be considered to improve systems are also highlighted. More could be said about the alignment of the emerging area of service engineering and engineered systems design, and industrial engineering. Also, lean, six sigma, and process improvement methodologies are routinely taught in industrial and systems engineering courses. Computer Science: Computer science is the study of computer systems. Computer scientists work to understand and improve information technology capabilities. From e-commerce websites that enable self-service in retail to artificial intelligence and robotics, computer science is driving the development of capabilities underlying many practical services. The study of web services, service-oriented architectures, and network services is also on the rise in computer science. A sphere of computer science that is especially relevant to a general theory of service is the multi-agent systems area. "In computer science, a multiagent system (MAS) is a system composed of several agents, collectively capable of reaching goals that are difficult to achieve by an individual agent or monolithic system. The exact nature of the agents is a matter of some controversy. They are sometimes claimed to be autonomous. For example a household floor cleaning robot can be autonomous in that it is dependent only on a human operator to start it up. On the other hand, in practice, all agents are under active human supervision. Furthermore, the more important the activities of the agent are to humans, the more supervision they receive. In fact, autonomy is seldom desired. Instead, interdependent systems are needed. MAS can be claimed to include human agents as well. Human organizations and society in general can be considered an example of a multi-agent system. Multi-agent systems can manifest selforganization and complex behaviors even when the individual strategies of all their agents are simple. Topics of research in MAS include: (1) beliefs, desires, and intentions (BDI), (2) cooperation and coordination, (3) organization, (4) communication, (5) negotiation, (6) distributed problem solv-

5

Wikipedia article industrial engineering on 7/16/2006.

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ing, (7) multi-agent learning. (8) scientific communities and (9) dependability and fault tolerance."6 Like economics, operations research, and industrial engineering, computer science deals with both the modeling of complex real world systems and the creation of new tools and methods that improve the systems' performance. However, in the former three, the notion of social costs or economic costs is more prominent in the models, and an improved system is more productive from a socioeconomic cost standpoint. In computer science, cost is typically associated with "difficulty" or computational complexity, and the space (storage) or time (processing) complexity of an algorithm or a system. Mechanism design theory is one area of research that involves computer scientists where there are clear efforts to bridge the two notions of costs. "Mechanism design is a sub-field of game theory. It is the art of designing rules of a game to achieve a specific outcome. This is done by setting up a structure in which each player has an incentive to behave as the designer intends. The game is then said to implement the desired outcome. The strength of such a result depends on the solution concept used in the game. Most of the results in mechanism design have been established by economists, but some mathematicians, computer scientists and electrical engineers also work in the field. One branch of mechanism design is the creation of markets such as auctions. Another is the design of matching algorithms such as the one used to pair medical school graduates with internships. A third application is the provision of public goods, and the optimal design of taxation schemes by governments."7 A general theory of service will draw on concepts from computer science, especially multi-agent systems and mechanism design, for the modeling of service. In addition, service computing, which deals with technical capabilities and standards around web services and service-oriented architectures, is rapidly developing as a special interest group area among computing professionals. Multi-agent systems draw on some of the research that originated in the area of distributed artificial intelligence, which is heavily drawn on in many of the MMORPG (massively multiplayer online role playing games). Guilds within MMORPGs such as World of Warcraft are Petri dishes for future online service exchange. Information Science: "Information science is an interdisciplinary science primarily concerned with the collection, classification, manipulation, storage, retrieval and dissemination of information. Information science stud6

Wikipedia article multi-agent systems on 7/16/2006.

7

Wikipedia article mechanism design on 7/16/2006.

24

ies the application and usage of knowledge in organizations, and the interaction between people, organizations and information systems. It is often, though not exclusively, studied as a branch of computer science and is closely related to the cognitive and social sciences. Information Science focuses on understanding problems from the perspective of the stakeholders involved and then applying information (and other) technology as needed. In other words, it tackles the problem first rather than technology first. Within information science, attention has been given in recent years to human–computer interaction, groupware, the semantic web, value sensitive design, iterative design processes and to the ways people generate, use and find information. Some authors treat informatics as a synonym for information science. Because of the rapidly evolving, interdisciplinary nature of informatics, a precise meaning of the term "informatics" is presently difficult to pin down. Regional differences and international terminology complicate the problem. Some people note that much of what is called "Informatics" today was once called "Information Science" at least in fields such as Medical Informatics. However when library scientists also began to use the phrase "Information Science" to refer to their work, the term informatics emerged in the United States as a response by computer scientists to distinguish their work from that of library science, and in Britain as a term for a science of information that studies natural, as well as artificial or engineered, information-processing systems."8 A rapidly growing portion of the service sector deals with information services. All four types of economic entities, family, firm, city, and nation, have two-level bidirectional service supply chains operating within and between entities. A general theory of service will need to borrow from and align with information science. MBA and Management Consulting: "Master of Business Administration (MBA) is a master's degree in business administration, which attracts people from a wide range of academic disciplines. The MBA designation originated in the United States, emerging as the country industrialized and companies sought out scientific approaches to management. MBA programs expose students to a variety of subjects, including economics, organizational behavior, marketing, accounting (especially activity based costing), finance, strategy, operations management, international business, information technology management, management of innovation, human capital management, risk and insurance management, financial engineer-

8

Wikipedia article information science on 7/16/2006.

25

ing, e-sourcing, e-commerce, government policy, strategic consulting, and management consulting."9 "Management consulting (sometimes also called strategy consulting) refers to both the practice of helping companies to improve performance through analysis of existing business problems and development of future plans, as well as to the firms that specialize in this sort of consulting. Management consulting may involve the identification and cross-fertilization of best practices, analytical techniques, change management and coaching skills, technology implementation, strategy development or even the simple advantage of an outsider's perspective. Management consultants generally bring formal frameworks or methodologies to identify problems or suggest more effective or efficient ways of performing business tasks. Management consulting is becoming more prevalent in non-business related fields as well. As the need for professional and specialized advice grows, other industries such as government, quasi-government and not-for-profit agencies are turning to the same managerial principles that have helped the private sector for years. There is a relatively unclear line between management consulting and other consulting practices, such as information technology consulting."10 A general theory of service will need to both draw on and align with the large body of knowledge about the firm that has been compiled in MBA programs and in management consulting practices. The management of technology and the management of innovation are especially relevant to the dynamics of the firm. The tools for formally modeling firms are still in their early stages, but considerable alignment between OR, IE, and management consulting is likely when such tools exist and are in widespread use. Management Information Systems and Knowledge Management: "Management information systems is a general name for the academic discipline covering the application of information technology to business problems. As an area of study it is also referred to as information technology management. The study of information systems is usually a commerce and business administration discipline, and frequently involves software engineering, but also distinguishes itself by concentrating on the integration of computer systems with the aims of the organization. The area of study should not be confused with computer science, which is more theoretical in nature and deals mainly with software creation, or computer en9

Modified Wikipedia article Master of Business Administration on 7/16/2006.

10

Wikipedia article management consulting on 7/16/2006.

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gineering, which focuses more on the design of computer hardware. IT service management is a practitioner-focused discipline centering on the same general domain. In business, information systems support business processes and operations, decision-making, and competitive strategies."11 "Knowledge management (KM) may refer to the ways organizations gather, manage, and use the knowledge that they acquire. The term also designates an approach to improving organizational outcomes and organizational learning by introducing into an organization a range of specific processes and practices for identifying and capturing knowledge, knowhow, expertise and other intellectual capital, and for making such knowledge assets available for transfer and reuse across the organization. Knowledge management programs are typically tied to specific organizational objectives and are intended to lead to the achievement of specific targeted results such as improved performance, competitive advantage, or higher levels of innovation. While knowledge transfer (an aspect of KM) has always existed in one form or another, for example through on-the-job discussions with peers, formally through apprenticeship, professional training and mentoring programs, and – since the late twentieth century – technologically through knowledge bases, expert systems, and other knowledge repositories, KM programs seek to consciously evaluate and manage the process of accumulation and application of intellectual capital. KM has therefore brought together various strands of thought and practice relating to: (1) intellectual capital and the knowledge worker in the knowledge economy; (2) the idea of the learning organization; (3) various enabling organizational practices such as Communities of Practice and corporate Yellow Page directories for accessing key personnel and expertise; (4) and various enabling technologies such as knowledge bases and expert systems, help desks, corporate intranets and extranets, content management, wikis, and document management. While knowledge management programs are closely related to organizational learning initiatives, knowledge management may be differentiated from organizational learning by its greater focus on the management of specific knowledge assets. The rise of KM has seen an increasing understanding of the relevance of the distinction between tacit and explicit knowledge, sophisticated perspectives on the management, assessment and use of intellectual capital, and the emergence of new organizational roles and responsibilities such as the position of Chief Knowledge Officer (CKO)."12

11

Wikipedia article management information systems on 7/16/2006.

12

Wikipedia article knowledge management on 7/16/2006.

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The practice side of information economics theory is realized in management of information systems and knowledge management. A general theory of service at the firm level will need to borrow from and align with these areas. The pace of technological change and new methods in these areas can be a major source of competitive advantage and superior financial performance of firms, both intra-entity and inter-entity services production and consumption. Organizational Studies and Organizational Learning: "Organizational studies, organizational behavior, and organizational theory are related terms for the academic study of organizations, examining them using the methods of economics, sociology, political science, anthropology, and psychology. Related practical disciplines include human resources (HR) and industrial and organizational psychology. Organizational studies are the study of individual and group dynamics in an organizational setting, as well as the nature of the organizations themselves. Whenever people interact in organizations, many factors come into play. Organizational studies attempts to understand and model these factors. Like all social sciences, organizational behavior seeks to control, predict, and explain. But there is some controversy over the ethical ramifications of focusing on controlling workers' behavior. As such, organizational behavior or OB (and its cousin, industrial psychology) have at times been accused of being the scientific tool of the powerful. Those accusations notwithstanding, OB can play a major role in organizational development and success."13 "Organizational learning is an area of knowledge within organizational theory that studies models and theories about the way an organization learns and adapts. In organizational development (OD), learning is a characteristic of an adaptive organization, i.e. an organization that is able to sense changes in signals from its environment (both internal and external) and adapt accordingly (see adaptive system). OD specialists endeavor to assist their clients to learn from experience and incorporate the learning as feedback into the planning process."14 These areas of academic study are again crucial for any general theory of service at the firm level. Organizational learning theories from Argyris and Schon, March and Olson, Kim, Nonaka and Takeuchi, and Bontis are relevant to making continuous improvement in firms, and not unrelated to the lean and six sigma quality methods that are deployed as parts of OR or IE solutions. 13

Wikipedia article organizational studies on 7/16/2006.

14

Wikipedia article organizational learning on 7/16/2006.

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Urban Planning, Ecosystem Services, and Nature's Services: "Urban, city, or town planning is the discipline of land use planning which deals with the physical, social, and economic development of metropolitan regions, municipalities and neighborhoods. Other professions deal in more detail with a smaller scale of development, namely architecture, landscape architecture and urban design. Regional planning deals with a still larger environment, at a less detailed level. Historically, urban development was more often a haphazard, incremental event than a deliberate, planned process. In the nineteenth century, urban planning became influenced by the newly formalized disciplines of architecture and civil engineering, which began to codify both rational and stylistic approaches to solving city problems through physical design. However, a number of broad critiques of the rational planning model gained momentum after the 1960s (such as those of Jane Jacobs), helping to expand the domain of urban planning to include economic development planning, community social planning and environmental planning."15 "Ecosystem services are processes by which the natural environment produces resources useful to people, akin to economic services. They include: (1) Provision of clean water and air, (2) Pollination of crops, (3) Mitigation of environmental hazards, (4) Pest and disease control. Accounting for the way in which ecosystems provide economic goods is an increasingly popular area of development, catalyzed in particular by Gretchen Daily, a conservation biologist at Stanford University. The concept of ecosystem services is similar to that of natural capital. The Millennium Ecosystem Assessment released in 2005 showed that 60% of ecosystem services are being degraded or used unsustainably."16 "Nature's services is an umbrella term for the ways in which nature benefits humans, particularly those benefits that can be measured in economic terms. Robert Costanza and other theorists of natural capital conducted extensive economic analysis of nature's services to humanity in the 1990s. The economic contribution of seventeen of these was found to be approximately US$33 trillion per year, greater than the activities in the interhuman economy, which totaled about US$25 trillion. This was based on estimated costs of replacing the services nature provides, with equivalent services using methods wholly based on human infrastructure."17

15

Wikipedia article urban planning on 7/16/2006.

16

Wikipedia article ecosystem services on 7/16/2006.

17

Wikipedia article nature’s services on 7/16/2006.

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The practice of the design of service at the city level is part of the urban planning discipline. The geographic and ecosystem aspects of a general theory of service need to borrow from and align with this discipline and area of study. Complexity Science and Complex Adaptive Systems for Social Systems Research: "Complex adaptive systems are special cases of complex systems. They are complex in that they are diverse and made up of multiple interconnected elements and adaptive in that they have the capacity to change and learn from experience. The term complex adaptive systems was coined at the interdisciplinary Santa Fe Institute (SFI), by John H. Holland, Murray Gell-Mann and others. The term complex adaptive systems (or complexity science) is often used to describe the loosely organized academic field that has grown up around the study of such systems. Complexity science is not a single theory – it encompasses more than one theoretical framework and is highly interdisciplinary, seeking the answers to some fundamental questions about living, adaptable, changeable systems. Examples of complex adaptive systems include the stock market, social insect and ant colonies, the biosphere and the ecosystem, the brain and the immune system, the cell and the developing embryo, manufacturing businesses and any human social group-based endeavor in a cultural and social system such as political parties or communities. What distinguishes a CAS from a pure multi-agent system (MAS) is the focus on toplevel properties and features like self-similarity, complexity, emergence and self-organization. A MAS is simply defined as a system composed of multiple, interacting agents. In CASs, the agents as well as the system are adaptive: the system is self-similar. A CAS is a complex, self-similar collectivity of interacting adaptive agents."18 To be relevant to a general theory of service, CAS must focus on social systems. For example, CAS or agent based models applied in the following social sciences areas could have great relevance to a general theory of service: sociology, political science, public policy, family, anthropology, economic anthropology, economic history, communication, linguistics, education, cognitive science, and psychology. In the next section, a synthesis is attempted around the notion of SSME and service systems.

18

Wikipedia article complex adaptive systems on 7/16/2006.

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4

SSME and Service Systems

SSME has been defined as the application of scientific, management, and engineering disciplines to tasks that one organization performs beneficially for or with another ('service'). Today, SSME (Services Sciences, Management, and Engineering) is an urgent call to action for industry, government, and academics to focus on becoming more systematic about service innovation (Spohrer, Maglio, McDavid, Cortada, 2006; Maglio and Spohrer, 2006; Chesbrough and Spohrer, 2006; Maglio, Kreulen, Srinivasan, and Spohrer, 2006; Hidaka, 2006). However, SSME is also a proposed academic discipline and research area, which would complement (not replace) the many academic disciplines that contribute to the body of knowledge about service. As we've just seen in the previous section, there are numerous existing academic disciplines and areas that study entities that produce and consume service, or exchange service for service. The entities may be social, economic, computational, or human in nature, but one characteristic that unites them all is the production and consumption of service. Often the entities have considerable internal structure that allows for the production and consumption of service, as well as existing within a population or ecosystem of similar entities producing and consuming services, and learning from each other in the process of service production and consumption. Both Sampson and Froehle's Unified Services Theory as well as Vargo and Lusch's Service-Dominant Logic focus on the service relationship (customer input in the production process, cocreation of value in "service for service exchanges" through the application of competences) as fundamentally important. As Vargo and Lusch point out, the real competitor of service is self-service – if the customer or client has the competences and prefers self-service to service provisioning from another. Both approaches to service also highlight the possibility of indirection (indirect service) or virtual client input (two-level bidirectional service supply chains) developing as other service consumers and providers form networks along which service and service value can travel. A review of the service-relevant existing academic disciplines shows a similar pattern – a focus on systems of interacting entities, composed of multiple elements. The Industrial Engineering article states: "…concerns the development, improvement, implementation and evaluation of integrated systems of people, knowledge, equipment, energy, material and process… While the term originally applied to manufacturing, it has grown to encompass services and other industries as well." The Operations Re-

31

search article states: "…an interdisciplinary science which deploys scientific methods like mathematical modeling, statistics, and algorithms to decision making in complex real world problems which are concerned with coordination and execution of the operations within an organization. The nature of organization is essentially immaterial." The Multi-Agent Systems article states: "In computer science, a multi-agent system (MAS) is a system composed of several agents, collectively capable of reaching goals that are difficult to achieve by an individual agent or monolithic system. The exact nature of the agents is a matter of some controversy. ...Furthermore, the more important the activities of the agent are to humans, the more supervision they receive. In fact, autonomy is seldom desired. Instead, interdependent systems are needed." What emerges is a notion of entities that produce and consume services within populations of other entities. The competences of the entities are critically important, including the competency of custom tuning the service delivery based on input from the customer entity – or else the customer entity may prefer self-service or service from another entity. Also of interest, the importance of humans in the equation is pointed out, even as the autonomous capabilities of the technology components of the system rapidly evolve. The fact is, in the types of services we humans care about most strongly, there are rights of people to be protected. The definition of these rights (or laws) and how they are monitored and enforced (e.g. basic freedoms, property rights, privacy rights, etc.) are important services that evolve over time within the complex entities that produce and consume service. We term the entities that produce and consume service, service systems, highlighting their internal structure and external ecosystem. In everyday life, we frequently encounter four types of entities that might usefully be viewed through the lens of the service system abstraction: family, firms, city, and nations. Firms include for-profit businesses, non-profit organizations, government agencies, and non-government agencies. Perhaps the for-profit business is the canonical entity to be viewed through the service system lens. Businesses exist in a complex ecosystem of service exchange. Businesses have a considerable amount of internal structure, which allows a business to be viewed as a set of components or internal service systems. Thus, the notion of intra-entity services and inter-entity services can be developed. Family or household is a very fundamental service system, in part because it is in all societies the service system that produces people for the future. And hence we see laws emerging related to this service system: "Article 16(3) of the Universal Declaration of Human Rights says: "The family is the natural and fundamental group unit of society and is

32

entitled to protection by society and the State."19 Families directly or indirectly (e.g. taxes to schools) contribute to the preparation of the next generation of people to participate in society. Businesses are increasingly concerned with the work/life balance of their employees. Cities and nations are rated on the quality of life they provide families, based on the services offered. Hence, to develop a general theory of service, accounting for the production and consumption of services within and between family, firm, city, and nation entities is an important start. We can define a service system as a value coproduction configuration of people, technology, other internal and external service systems, and shared information (such as language and laws). Note that this is a recursive definition. This definition highlights that fact that service systems have internal structure (intra-entity services) and external structure (inter-entity services) in which value is coproduced through win-win value propositions, directly or indirectly with other service systems. One should strive not to confuse the abstraction that is termed "service system" with real family, firm, city, and nation entities, or assume the types of service systems are limited to these four canonical types of service systems. The service system abstraction leaves out a lot of detail. However, we will occasionally say "the firm service system" or "the service system of the firm" when what we actually mean is "the firm viewed through the abstraction we term a service system." The two ends of the service system spectrum are an individual person (who produces and consumes services, with external service systems) and the entire global economy (which contains many internal service systems that produce and consume services). However, a well-formed service system has both internal service structure as well as external service structure. So an individual person and the entire global economy are service systems that require special treatment. A person and all of nature are special types of service systems, since they do not perfectly fit the proposed definition of service systems. A general theory of service should broadly consist of three bodies of knowledge: 1. Service systems and their services: Understand the origins of new service systems and new services. Understand what is and is not a service system, and what services are produced and consumed by instances and classes of services systems, both externally and internally. The role of people, technology, shared information, as well as the role of customer 19

Wikipedia article family on 7/17/2006.

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input in production processes and the application of competences to benefit others must be defined as well. 2. Service system improvements: Understand the ways a service system improves or can be improved over time through investments, including improving efficiency (improved plans, methods, and techniques for a service system), effectiveness (improved measures, goals, purpose, and key performance indicators for a service system), and sustainability (improved value proposition results, robustness and versatility with more old and new service systems). 3. Service system scaling: Understand the ways improvements (new competences) in one service system can be spread (scaled out and scaled up) to other service systems, both within and between types of service systems (family, firm, city, nation, etc). This leads to the coevolution of intra-entity services and extra-entity services, as service systems obtain greater competences for the production and consumption of more sophisticated services. Because of the nature of customer input (and often customer transformation) in the production process, scaling the distribution of competences is a challenge in service systems. Unless the new competence can be reduced to a simple list of instructions that the receiving service system can implement through self-service, a more complex transformation service is required to spread the competence. With these three bodies of knowledge as the foundation for a general theory of service, the job of a service scientist is to study service systems, improve service systems, and scale service systems. From the perspective of the firm, the first body of knowledge relates to the design of new services, the second to continuous improvement of the firm, and the third to the possibility of franchising or in other ways monetizing competences that spread from the innovating firm to the receiving firms. Or more concisely stated: (1) creation (design origins), (2) perfection (improvement), and (3) transformation (scaling). What are the simplest types of service like? To the degree that the application of competence(s) can be reduced to a list of instructions that one service system can communicate to a second service, and the second service system can use the instructions to gain the benefit of the competence (say through self-service), then the issue of customer input in the production process (Sampson and Frohle, 2006) and the application of competences for the benefit of another (Vargo and Lusch, 2006) – are minimized to "tell me" type service. Thus, a conversation is a building block type of service (in which two service systems exchange self-service executable compe-

34

tence(s) of satisfactory benefit to both (a win-win value proposition that is not coerced)). More sophisticated service categories include "show me," "help me," and "do it for me." However, the real world is not that simple. Some competences cannot simply be reduced to a list of easily executed instructions (e.g. riding a bike, transforming the supply chain of a business). Some service systems may not have all the requisite skills to execute the instructions (e.g. a business with a new employee who does not know the corporate culture and IT systems), or it may just be physically impossible at the current technology level for a system to perform the self service (e.g. open heart surgeons operating on themselves). Some services lose their significance when not performed by specific entities (e.g. elevator safety inspection done by a vendor versus appropriate city agency). The execution of some competences may have side-effects and associated risks to other service systems if not executed properly, and so certification may be required as well as proof of responsibility in dealing with unintended consequences (e.g. driver's license and car liability insurance, hospital certification and malpractice insurance). A general theory of service must clarify the characteristics of service systems and service competences that we see in everyday life. Can a purely technological system be a service system? No, not without including some of the people: the people who design and build it, the people who operate and maintain it, or the people who dismantle or dispose of it. The perspective provided by the Multi-Agent System (MAS) Wikipedia article is helpful: "In fact, autonomy is seldom desired. Instead, interdependent systems are needed. MAS can be claimed to include human agents as well." In fact, whenever an entity can take actions in the world, society prefers to know who is responsible, in case something goes wrong. What is the role of shared information in a service system? A service system is defined to be a value coproduction configuration of people, technology, internal and external service systems, and shared information. The role of the shared information is especially important in coordination and governance. Three key types of shared information are language, laws, and prices. Without some form of language, signaling, or standard encoding of information, coordination of service systems may be difficult and lead to missed opportunities for innovation or efficiency gains (Gorman, 2004; Paton, 2004). Without laws (as far as we know today), sophisticated service cannot be provisioned, and complex service systems cannot be maintained. Typically, every service system has a governing authority service system that seeks to ensure that all the people in the service system

35

can communicate in shared languages and abide by shared laws. In families it is the parents, in firms it is the CEO and Board of Directors, in cities it is the mayor and city board, and in nations it is government leaders and agencies, as well as shared legal documents and enforcement agencies. Linguistic evolution, political science, information economics, as well as economics and law are all relevant to a general theory of service, and a deeper understanding of service system design and evolution. What entities in everyday life can be viewed as types of service systems? So far several types of service systems have been discussed: (1) the first set includes family, firm, city, and nation, (2) firm includes (a) for-profit business, (b) non-profit organization, (c) government agency, and (d) nongovernment organization (NGO), and (3) and two special cases (a) person and (b) nature, which require special treatment. A service system that is technology centric has also been alluded to, though that service system must include the people who design, operate, or dispose of the technology as part of the service system. In addition, two especially important types of service systems (that fit roughly in the non-profit organization category) are: (1) academic disciplines, and (2) professions. An academic discipline can be viewed as a service system with the faculty and students part of the system, as well as different universities providing services to that service system. A profession may be viewed as a service system that in some cases receives government certification services (e.g. lawyer, doctor, and accountant) as well as services from professional membership associations. Service systems can feed one into the next to create service supply chains. For example, family feeds into academic discipline which in turn feeds into the profession service systems. Are service systems just another name for organizations? While there is certainly a fair amount of overlap between what qualifies as a service system and what qualifies as an organization, it is worth looking at the standard description of what an organization is: "An organization is a formal group of people with one or more shared goals. The word itself is derived from the Greek word (organon) meaning tool. The term is used in both daily and scientific English in multiple ways. In the social sciences, organizations are studied by researchers from several disciplines. Most commonly in sociology, economics, political science, psychology, and management. The broad area is commonly referred to as organizational studies, organizational behavior or organization analysis. Therefore, a number of different theories and perspectives exist, some of which are compatible, and others that are competing."20 Where the purpose of a for20

Wikipedia article organization on 7/17/2006.

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mal group of people is the coproduction of value via the application of competences for the benefit of other organizations, and organizational input is required in the production process, then we begin to see how the notion of organization and service system can begin to be aligned. Furthermore, to the degree that provisioning of the services depends on competences derived from configurations of people, technology, other internal and external organizations, and shared information – and the analysis of these factors is important to understanding (1) the organization and its services, (2) organizational improvements, and (3) organizational scaling – then there is very good alignment between the notions of service systems and organizations. However, the differences in emphasis and focus will require a rethinking of which parts of organization theory contribute most to a general theory of service, and the concept of service system which is one important building block. What motivates the choice of the four components of a service system (people, technology, internal and external service systems, and shared information)? Hunt (2000) refers to seven types of resources of the firm: financial, physical, legal, human, organizational, informational, and relational. These seven types of resources map well to the four service system components: people (human), technology (physical), internal and external service systems (organizational, relational), shared information (informational, legal, and financial). Nelson and Winter (2000) make the distinction between physical technology and social technology. Physical technology maps to the traditional notion of technology, and social technology maps to people (changing modes of division of labor), other service systems (new ways of organizing and governing work) and shared information (laws and language). The competences or capabilities required to provision a service between service systems are distributed amongst people, technology, other service systems (both internal and external), and shared information. Engelbart (1962, 1980) makes similar distinctions when he talks about basic human capabilities (sensory-motor) coevolving with a human system (social technology – language, methodology, skills and knowledge, attitudes and beliefs) and tool system (physical technology artifacts). The result of the coevolution is a capability infrastructure that can be used to augment knowledge workers and improve the collective IQ of organizations. What factors influence the evolution of service systems? Baldwin and Clark (2000) provide an in-depth analysis of the coevolution of the tools system (artifacts) and the human system (industry SIC codes) for the computer industry. They identify six modular operators: (1) splitting, (2) substituting, (3) augmenting, (4) excluding, (5) inverting (such as reversing an

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automation step), and (6) porting (to a new standard platform). This provides a list of the things that service system designers can do to service systems, or any other type of human-designed artifact or system. Baldwin and Clark examine the short-term economic impact of a modularity decision as well as the long term economic impact (e.g. the effect of module size and visibility on incentive to experiment). March (1991) describes exploration and exploitation in organizational learning, as the key tradeoff a learning organization (evolving service system) must make in an uncertain ecology of other organizations (external service systems competing with value propositions). Sanford (2006) explores the role of the component business model (CBM) for business design and evolution in the context of an ongoing improvement cycle: productivity (exploitation), innovation (exploration), collaboration (internal and external value proposition revisions for sustainability and standardization). Hunt (2000) explores the role of the entrepreneur and innovation in the context of a general theory of competition, and the disequilibrium-provoking impact innovation produces. What emerges is a picture of service systems with complex internal service system structure (CBM) embedded in ecosystems with complex external service system structure. Standardization and modularity emerge at multiple levels and both are disrupted by innovation. When the focus is on a single service system entity, say a particular firm, there appears to be a triple loop learning process at work. The first loop deals with efficiency improvements (plans), the second loop with effectiveness improvements (goals), and the third with sustainability improvements (value propositions, both external and internal). Any action of the firm may of course impact all three simultaneously. For example, when a component of the firm is outsourced, it may improve the efficiency, effectiveness, and sustainability. Alternatively, under different circumstances, in sourcing the same component could lead to improvements across all three. In sum, this paper suggests that many everyday entities that produce and consume service may usefully be viewed as service systems. Service is defined as the application of competences for the benefit of another, with self-service being one of its main competitors. The degree to which a process is a service process is related to the degree that customer input is essential to realize the mutual benefit. The complex internal structure of service systems includes value coproduction configurations of people, technology, internal and external service systems, and shared information (such as language and laws). The complex external structure of service systems is sustained through the maintenance of win-win value propositions. Competition and innovation act as disequilibrium-provoking forces. The job of a service scientist is to understand and catalog the many types

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of service systems and service that exist or might exist someday in the world, and apply that understanding to advancing our collective ability to design, improve, and scale service systems for many practical business and societal purposes (efficiency, effectiveness, and sustainability). The introduction of the notion of a service system begins the process of aligning research from multiple disciplines to create a general theory of service. A general theory of service can serve as the basis of a new academic discipline (SSME) and a profession (service scientists).

References Baldwin, C.Y./Clark, K.B. (2000): Design rules: The power of modularity. MIT Press. Cambridge, MA. Beinhocker, E.D. (2006): The origin of wealth: Evolution, complexity, and the radical remaking of economics. Harvard Business School Press. Cambridge, MA. Bitner, M.J./Faranda, W.T./Hubbert, A.R./Zeithaml, V.A. (1997): Customer contributions and roles in service delivery. International Journal of Service Industry Management. 8(3) 193. Chase, R.B. (1981): The customer contact approach to services: Theoretical bases and practical extensions. Operations Research. 29(4) 698-706. Chesbrough, H./Spohrer, J. (2006): A research manifesto for services science. Communications of the ACM. 49(7). July. 35-40. Engelbart, D.C. (1962): Augmenting Human Intellect: A Conceptual Framework. Summary Report AFOSR-3223 under Contract AF 49(638)-1024, SRI Project 3578 for Air Force Office of Scientific Research, Stanford Research Institute, Menlo Park, Ca., October 1962. Engelbart, D.C. (1980): "Evolving the Organization of the Future: A Point of View," Proceedings of the Stanford International Symposium on Office Automation, March 23-25, 1980. Fitzsimmons, J.A./Fitzsimmons, J.M. (2006): Service management: Operations, strategy, and information technology, Fifth edition. Irwin/McGraw-Hill, New York, NY. Gallouj, Faiz (2002): Innovation in the Service Economy: The New Wealth of Nations. Cheltenham UK: Edward Elgar. Gorman, M. E. (2004): Collaborating on Convergent Technologies: Education and Practice, in: Roco, M.C./Montemagno, C.D. (Eds.): The coevolution of human potential and converging technologies (Vol. 1013, pp. 25-37). New York: The New York Academy of Sciences.

39 Hidaka, Kazuyoshi (2006): Trends in services sciences in Japan and abroad. Science & Technology Trends: Quarterly Review. 19. April. 35-47. Hunt, Shelby (2000): A general theory of competition: Resources, competences, productivity, and economic growth. Sage. Thousand Oaks, CA. Kellogg and Nie's (1995): A framework for strategic service management. Journal of Operations Management. 13(4) 323-337. Lovelock, C./Gummessom, E. (2004): Whither service marketing? In search of a new paradigm and fresh perspectives. Journal of Service Research. 7(1) 20-41. Locke, E.A./Latham, G.P. (2005): Goal setting theory: Theory building by induction, in: Oxford Handbook of Management Theory: The Process of Theory Development, M. Hitt, M./Smith, K.G. (eds.). Oxford University Press. Oxford, UK. Lusch, R.F./Vargo, S.L. (2006): The Service-Dominant Logic of Marketing: Dialog, Debate, and Directions. Editors. M.E. Sharpe. Armonk, NY. Maglio, P.M./Spohrer, J. (2006): SSME. Production and Operations Management. In Press. Maglio, P.M./Kreulen, J./Srinivasan, S./Spohrer, J. (2006): Service systems, service scientists, SSME, and innovation. Communications of the ACM. 49(7). July. 81-85. March, J.G. (1991): Exploration and exploitation in organizational learning. Organizational Science. 2(1).71-87. Metters, R.D./King, K.H./Pullman, M./Walton, S. (2006): Successful service operations management, Second Edition. Thompson South-Western, Mason, Ohio. Napolean, K./Gaimon, C. (2004): The creation of output and quality in services: A framework to analyze information technology worker systems. Production and Operations Management. 13(3) 245. Nelson, R.R./Winter, S.G. (1982): An evolutionary theory of economic change. Belknap/Harvard University. Cambridge, MA. Paton, B. (2004): Two pathways to energy efficiency: An energy star case study. Human Ecology Review. 11(3). 247-259. Porter, M. (1980): Competitive strategy: Techniques for analyzing industries and competitors. Free Press. New York, NY. Roth, A.V./Menor, L.J. (2003): Insights into service operations management: A research agenda. Production and Operations Management 12(2) 145. Sanford, L.S. (2006): Let go to grow: Escaping the commodity trap. Prentice Hall. New York, NY. Sampson, S.E./Froehle, C.M. (2006): Foundations and implications of a proposed unified services theory. Production and Operations Management. 15(2). Schmenner, R.W. (1986): How can service businesses survive and prosper? Sloan Management Review. 27(3). 21-32.

40 Shostack, G.L. (1984): Designing services that deliver. Harvard Business Review. 62. 133139. Spohrer, J./Riecken, D. (2006): Special Issue: Services science. Communications of the ACM. 49(7). July. 30-87. Spohrer, J./Maglio, P.M./McDavid, D./Cortada, J. (2006): Convergence and coevolution: Towards a services science. In Nanotechnology: Societal Implications: Maximising Benefits for Humanity and Nanotechnology and Society, editors Mihail C. Roco and William S. Bainbridge. Springer. New York, NY. Tien, J.M./Berg, D. (2006): On Services Research and Education. Journal of Systems Science and Systems Engineering. Submitted. U.S. National Academy of Engineering (2003) Report on "The Impact of Academic Research on Industrial Performance" Vargo, S.L./Lusch, R.F. (2004): Evolving to a New Dominant Logic for Marketing. Journal of Marketing, 68 (1), 1-17. Wemmerlov, U. (1990): A taxonomy for service processes and its implications for system design. International Journal of Service Industry Management. 1(3) 13-27. Womack, J.P./Jones, D.T. (2005): Lean Solutions: How Companies and Customers Can Create Value and Wealth Together. Free Press. Northampton, MA. Parasuraman, A./Zeithaml, V.A./Berry, L.A. (1985): A conceptual model of service quality and its implications for future research. Journal of Marketing 49. 41-50.

Service Engineering – A Transdisciplinary Approach in Service Research Dieter Spath, Walter Ganz, Thomas Meiren, Bernd Bienzeisler

1

Why Services Science?

The idea to take up the subject of services science in Germany and discuss it within the scientific community and in the political landscape of research can be traced back to a stimulus from the "Partners for Innovation" initiative. "Partners for Innovation" is an initiative originated by the former German Chancellor, Gerhard Schröder. It is a voluntary association of renowned personalities and institutions from the realms of science, politics and society with the common goal of contributing to strengthening innovation in Germany through joint activities (see www.innovationen-fuerdeutschland.de). What should Germany do to reinforce its position in international competition? Where should the economy and science network more closely? Where should the government further improve the framework? Where does Germany need more investment? The partners in the initiative make both human and financial resources available to resolve these and other central questions. Within this initiative, 15 thematically specialized impulse committees were established to develop new ideas and recommendations relating to a range of different subjects and to initiate distinct innovation projects. Each committee is composed of 15-20 experts from the specific subject areas. One of the impulse committees deals explicitly with the subject of services. Headed by IBM Deutschland GmbH and Roland Berger Strategy Consultants, the impulse committee has adopted the ambitious goal of contributing to changing the perception of services. For this purpose, the members present recommendations to political decision-makers and launch their own service innovation projects (pioneer activities) that aim at demonstrating, by way of example, •

What framework conditions are required and sufficient for service innovation to work

42 •

How technological innovation and service innovation are contingent on and fertilized by each other

•

How to enhance the general perception of internal and external services so that it corresponds to their actual significance

•

How the multifaceted changes taking place in our society (e.g. demographic change) act as catalysts for service innovation

The "Services" impulse committee has initiated numerous innovation projects that are described in detail in an interim report (Ganz et al, 2005). One of the activities is entitled "services science". Headed by IBM Deutschland GmbH, Roland Berger Strategy Consultants and Siemens Business Services GmbH, the "services science" pioneer activity aims at emphasizing service-specific aspects in higher education and advanced training and strengthening the position of service research as a whole in Germany. The focus is on a specific type of services, namely business-related services. Although business-related services have meanwhile become the major driver of growth, employment and innovation, the focus of innovation continues to be on traditional industry. This is partly due to the fact that there is very often a lack of transparency about the contribution of business-related services to innovation and to value creation. How can a pioneer activity such as "services science" contribute to strengthening the domain of business-related services and what is the precise meaning of the concept of services science? Is it about a new academic degree in the sense of a "Master of Services Science", which combines service-related knowledge from engineering science, business economics and social science? Or does "services science" refer to a transdisciplinary perspective in terms of a discrete scientific discipline? Do we also need services science in addition to the natural sciences, the humanities and the engineering sciences? Such issues are at the core of the discussion about the subject of services science and it does not seem very likely that quick and simple answers can be found. We will therefore try to approach the subject from a different perspective. Our approach is based on the assumption that the demand for a services science is an expression of the fact that – in the course of tertiarization and transformation processes – the academic service research community faces new requirements, which are difficult to fulfill with the traditional institutional structures.

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In this context, the subject of services science addresses the transformation of service research itself. Such a self-transformation calls for new concepts and methods of resolution in various fields: •

Service research is currently not afforded the importance it should have in view of the significance of services for the national economy. However, it is important to take into account that not only the object of research – i.e. the service economy and service enterprises – have an increasingly interdisciplinary and international structure but that the same should also apply to service research and service-related education and training.

•

The academic qualification systems should orientate themselves even more to the needs of knowledge-intensive service enterprises, especially with regard to their need for personnel with academic qualifications, since the combination of technological, business economic and social communicative skills and competences becomes an increasingly decisive factor for innovation and competitiveness.

•

There is a need for new concepts in education and training in the service sector, e.g. degrees that satisfy the needs of enterprises for service specialists who meet with social acceptance and at the same time facilitate smooth access into the employment market. This is ultimately true not only for the academic sector but also for the dual system of vocational training and in-service advanced training.

•

New approaches are required in the cooperation between science and practice. This is also necessary because the links between science and practice in the service sector have not reached anything like the intensity that is evident in the domain of production research. Generally, the readiness to pursue their own research and development activities is lower in service enterprises. Many service enterprises lack the necessary structures on the one hand and a research culture on the other.

•

The establishment of transdisciplinary infrastructure becomes more and more important. This relates to structural elements contributing to interdisciplinary work on the subject of services and, furthermore, facilitating the development of a discrete scientific understanding of the object of research. Examples of such an infrastructure are conferences, professional journals and research projects demanding more than a mere side-by-side attitude of the individual disciplines.

Against the background of these current requirements, activities to pioneer services science should be understood as important impulses to anchor

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innovative structures in academic service research and training. However, since innovation is not about constantly reinventing the wheel, it is worth taking a look at the innovative elements that have been initiated in the context of service research in the past few years. A brief summary of the history of publicly funded service research in Germany is presented below. This is followed by a description of the evolution of the branch of research known as service engineering, the development and establishment of which yielded important findings that can also be useful for the further development of the subject of services science. The article concludes with a look at the potential contribution of service engineering to a services science.

2

Publicly Funded Service Research in Germany

The German service industry is sometimes described as a "service desert". Fortunately this is not true of national service research. Unlike many other European countries, Germany has had a discrete and financially independent service research branch of its own for as long as 10 years. Of course, whether the amount of public funding corresponds to the significance of the service industry for the national economy is a different question. Publicly funded service research in Germany has a relatively short history. In the early 1990s it became evident that although the economic significance of the service sector had increased, this was not reflected in the structures of research policy. The subject of services was considered to be an interdisciplinary issue at most and scientific activities focused primarily on the fields of service management, service marketing and service quality – all of these are subjects which were pretty much dominated by U.S. scientists. Against this background, the conviction matured among the actors from research policy that it was necessary to pave the way toward an independent research program on the subject of services. The main drivers of publicly funded service research in Germany were the Federal Ministry for Education and Research (BMBF) and the corresponding project management agency "Arbeitsgestaltung und Dienstleistungen" (Development of Work and Services). They took up their activities in the mid-1990s under the umbrella of "Services for the 21st Century" (BMBF 2004). Until then, there had been no funded institutional service research in Germany (e.g. service research centers or university chairs) and only

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very few service research projects – mainly in the context of human resource management and quality management. In the ensuing years, the German Federal Ministry of Education and Research launched a series of major initiative projects, referred to as "Prioritäre Erstmaßnahmen" (priority measures), focusing on particularly urgent research topics. Some 320 organizations from the business, public and research sectors participated in this phase of the program. In 1998, Germany's Federal Ministry of Education and Research (BMBF) responded to the perceived lack of service mentality among the country's businesses and research organizations by launching its first service research program, thus laying a vital foundation stone for the comprehensive development of services in Germany. The initiative's key instruments involved promoting ideas, concepts, strategies and models designed to add the necessary new impetus for the successful and stable realization of the country's potential as a location both for living and for doing business, and at the same time securing employment. Finally, in March 2006, the new service research program "Innovation with Services" was launched by the Federal Ministry of Education and Research. It has a budget of EUR 70 million and a planned duration of 5 years.

3

Service Engineering as a Focal Point of Publicly Funded Service Research

Germany has a long tradition of technological innovations that have had a decisive influence on the way mankind lives. For example, the invention of the first automobile (Karl Benz, 1886) and the first computer (Konrad Zuse, 1941) are accredited to German researchers. Other ground-breaking technologies such as letterpress printing (Johannes Gutenberg, 1440), television (Manfred von Ardenne, 1930) and the telephone (Philipp Reis, 1859) were also invented and developed in Germany. Strong engineering science disciplines that have acquired an excellent international reputation – particularly in their core disciplines such as design engineering – have developed in Germany in parallel (e.g. Pahl/Beitz, 1977). In more recent times, engineering know-how – which is especially characterized by a systematic, methodological approach – has also been successfully transferred to neighboring disciplines. For example, there are significant contributions in the field of industrial engineering and man-

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agement (e.g. Bullinger, 1994) and – along with the success of the SAP model – in the field of business process engineering (e.g. Scheer, 2000). The domain of services has also been able to benefit from the traditions of engineering science. Service innovation has been the subject of intense discussion and research in Germany since the mid-1990s. Much of the momentum for both academic and practical work in this field has been generated by service engineering. Originally little more than a catchy buzzword, service engineering has since developed into a discipline concerned with the development and design of new services. This new discipline was characterized from the outset by the interdisciplinary integration of expertise in the use of constructivist methods, including the assignment for the first time of a substantial role to engineering know-how in service research (Bullinger/Fähnrich/Meiren, 2003; Bullinger/Scheer, 2003). Initial work on service engineering focused narrowly on the creation of process models and methods for the development of new services. This entailed describing processes – often along the same lines as in traditional product development and software engineering – through which services could be developed from the original idea through the conceptualization phase to market launch. Methods of achieving seamless customer integration (e.g. Spath/Zahn, 2003), for example, or software platforms designed to support service development proved to be particularly interesting (e.g. Scheer/Bullinger, 2004). Further research work has concentrated on the organizational grounding of service engineering in companies and has sought to identify the organizational forms – such as the establishment of specialist departments – which are best suited to the task of supporting service development. Theoretical work in this field has taken particular account of the varying sizes of different organizations (e.g. service engineering for SMEs) and specific sectors of business and industry (e.g. financial services). Clearly it has been possible – in a relatively short period of time – to establish a sound basis for service engineering itself as well as for continuing work in this field in the future. More intense multidisciplinary collaboration, tapping of engineering know-how, cross-fertilization of ideas and practice, and the construction of international networks all promise to be fruitful sources of new perspectives and insights in the future (see Figure 1).

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1

2 Multidisciplinary cooperation

Engineering know how

• • •

• • •

Service work Customer interaction Service aesthetics

REQUIREMENT: Generate new knowledge

3

Service prototyping Simulation and test of services Integration of technology and service development

REQUIREMENT: Closer integration of engineering disciplines

4 Interplay of theory and practice

International networks

• •

Assessment of potential in companies R&D management departments for services • Contribution to the innovative ability of SMEs

•

REQUIREMENT: Enable research projects with companies

REQUIREMENT: Creating platforms

Raising the profile of European research • Building an international community • Establishing a leading international position

Figure 1: Perspectives of service engineering

More intense multidisciplinary collaboration enables new knowledge to be tapped in borderline fields closely related to service engineering. The design of service work is of particular interest in this respect. The adoption and elaboration of industrial engineering concepts could, for example, enable helpful workplace and work design processes to be integrated in new service development processes. Other interesting and closely related fields include the study of customer/employee interactions (e.g. scripting techniques, service theater) and the systematic development of the emotional components of services, which has been the subject of recent discussions under the newly coined heading of service aesthetics. Increased use of engineering expertise is also likely to inject additional momentum into future work in the field of service engineering. One example is the adaptation of process models to speed up product development in the service sector along the lines of "service prototyping". There would appear to be a growing demand for such models, particularly in light of the increasing competitive pressure that exists in many service markets. However, service prototyping will only be feasible in practice if service concepts can be simulated and tested at a very early developmental phase, more efficiently than has been the case to date, and if prototypes can be subsequently honed and perfected in the run up to their implementation and market launch. Another option is to step up the integration of technology and service development, i.e. drawing on new

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technologies in the process of developing and implementing service offerings. One example is the use of virtual reality to present and assess alternative environments for service delivery. The lessons learned from practical experience also generate ideas for future service engineering. As an applied discipline, service engineering benefits in numerous ways from cooperative ventures between research institutes and business enterprises. For example, research work can be geared toward real world requirements from the outset and innovative companies also provide an important platform for testing new concepts. From a practical perspective, two issues are of particular interest: At what stage does it become worthwhile for enterprises to adopt service engineering procedures and methods (assessing potential)? What organizational framework is needed for the continuous development of new services (R&D management)? Projects run jointly by companies and scientific institutions provide an appropriate basis for collaboration between researchers and practitioners. A final aspect relating to the future development of service engineering is the building of international networks. Not even research and development can resist the sweep of internationalization. On the contrary, the trend toward the internationalization of research and development has intensified markedly in recent decades. One of the main reasons for this development is the acceleration of invention and innovation cycles and the concomitant need for knowledge to be exchanged quickly and efficiently. New globespanning information and communication technologies have also paved the way for entirely new forms of international cooperation. However, another effect of increasing internationalization is competition for attractive R&D locations. Integration in international research networks and, above all, an international standing are destined to become critical decision-making factors for the selection of locations in both the worlds of business and academia. Service engineering is one of the few fields in the service sector that has been substantially shaped by European-wide research input. Closer integration in international networks and the systematic development of an independent service engineering community are essential in sustaining a leadership role in this field in the future.

Excursion: The "ServLab" as a New Form of Interdisciplinary Service Development Based on the foundation of long-term project experience in the subject areas of service work and service engineering, the idea of a "ServLab"

49

emerged at the Fraunhofer Institute for Industrial Engineering IAO. At present, a demonstration and application center is being established in Stuttgart, where procedures and methods for the accelerated development of new services can be worked out, analyzed and put to the practical test. An especially important aspect of this is the full-scale support available for the development process, ranging from the idea-finding process and the conceptual design to the market launch of new services. Another characteristic element of the ServLab is its holistic approach, i.e. an integral view of man, organization and technology. The following objectives are pursued with the demonstration and application center: •

Providing a consistent platform for the development of new services

•

Simulating physical service landscapes ("Servicescape") using virtual reality tools

•

Providing software tools for service engineering

•

Developing discrete tools for service modeling

•

Analyzing and conceptually designing interaction processes between customers and employees using staging techniques for services ("service theater")

•

Developing new methods for imparting service-related concepts to employees (e.g. role concepts and scripting techniques)

•

Staff training in simulated customer contact situations

The ServLab offers the infrastructure in terms of premises and technology which supports the systematic and interdisciplinary development of services and, moreover, makes it possible to test and simulate services at an early stage of development. This offers the opportunity to investigate the interrelations between automation, interactional flow and factors of influence for service quality as early as in the development phase, and to devise suitable design solutions. Services can thereby be optimized with respect to efficiency and quality during the development phase. In addition, this contributes to shorter innovation cycles and raises the maturity level of new services for their market launch.

50

4

The Contributions of a Service Engineering Approach to a Services Science

There are still deficiencies with regard to the perception of services in the public eye, in business and in the domain of research and development. Services are frequently considered mere supplementary jobs which do not make a value-adding contribution of their own and which are held in relatively low esteem. This is partly due to the complexity and diversity of the subject of services. Last but not least, the fact that it has not been possible to date to establish a service research discipline which would be comparable to the engineering sciences in terms of acceptance and scope is attributable to the heterogeneity of services. Wherever it was possible to establish discrete service research settings in the recent past, this was in areas where the concepts and contents of the object of research could be clearly delimited. For example, a fairly new research discipline which focuses on the development and design of new services and on providing suitable models, methods and tools has successfully been established under the heading of service engineering over the past 10 years. The service engineering approach has also become accepted and established internationally in the intervening years. For this reason, it seems appropriate to begin with developing focal points regarding contents and subjects. However, this leads to the question of which aspects of services should come to the fore and which perspective should be adopted by service research. It is beyond dispute that service research can and should be conducted through very different disciplines. For example, in addition to business and political economics, the social or engineering sciences offer prolific vantage points for the investigation of services. However, it is also beyond doubt that there is such a thing as an international division of work, which increasingly extends to the academic world as well. This seems to go along with an increased differentiation of core competences within international service research. For example, the Scandinavian countries have succeeded in combining issues from business economics and social science. Researchers from the Anglo-Saxon domain specialize in the fields of service marketing and service management, tying up with traditions in the economic sciences and social psychology research. In many cases, the national research interests are reflected in the service concepts that are successfully applied by the individual countries in the

51

international markets. It is therefore no mere coincidence that the U.S.A. is successful worldwide with IT services and consumer-oriented services and has a strong service research basis in both of these areas at the same time. This brings us to the question of which focal points, perspectives and traditions of research can be adopted by German service research in order to achieve an internationally unique position. Certainly, there are academic chairs in the German research landscape today which stand at the forefront of service research worldwide. Moreover, Germany is one of the few European countries with publicly funded service research, which has resulted in numerous prolific interdisciplinary research cooperation projects. Nevertheless, in view of the dynamic international networking among the research landscapes, it may be expected that "core competences" attributed to individual research locations will develop in the future even more so than today. The development of such core competences in research and development can be controlled and influenced to a certain degree; however, they are path-dependent to a large extent. This means that strong points develop where strong points already exist or can be assumed. With the concept of service engineering, it was possible to directly tie in with such a strong point within the German system of research. After all, the engineering science disciplines have always enjoyed an excellent reputation worldwide in subject areas such as engineering, business process engineering and socio-technical system design. Hence, the successful implementation of the service engineering branch of research is primarily the result of thematic focusing. At the same time, the successful history of the service engineering branch provides clues to aid an extended understanding of service research in the sense of a services science. We can summarize our lessons learned in this regard in three points as follows: 1. The development of a new branch of research such as service engineering requires the precise identification of the service-specific need for research and development in the first place. This requires establishing those issues and subjects that cannot be covered at all or only insufficiently by the individual disciplines involved. What is the justification for the development and promotion of a discrete branch of research? Why can an issue not be handled from the perspectives of the engineering sciences or business management alone? What are the servicespecific aspects of certain subjects of research? Last but not least, the point of answering such questions is to establish scientific legitimacy.

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2. The establishment of service engineering as a discrete field of research was only possible because concepts, procedures, methods and instruments were developed which are of an interdisciplinary nature on the one hand but which eventually facilitate a wider and distinct understanding of the object of research of "services" on the other. Hence, it is important to develop a common language that is understood and accepted in the individual disciplines involved. A decisive contribution to this was the creation of a theoretical conceptual framework model providing clues to the individual disciplines about where to place a discipline-specific focus and identify potential for transfer. 3. Experience has shown how tedious and difficult it can be to establish an institutional base for a new branch of research in the academic landscape. For example, there has been interest in instituting specific chairs for the subject of service engineering in Germany – but this has only been successful to a limited extent. However, it should be noted that the subject of service engineering has since been included in many curricula, and courses about this subject area are offered. In addition, a number of new courses of advanced studies are under way which are tailored to the subject of services and impart competences in the subject area of service engineering. With the field of service engineering research, it has been possible to establish a branch of research which now features transdisciplinary elements in addition to interdisciplinary ones. This does not mean that the threshold toward transdisciplinarity would already have been passed. However, our experience highlights the importance of joint research on the specific object of research in order to pass from coexistence of the disciplines to collaboration. The establishment of the ServLab described above aims at creating a spatial and technical infrastructure which facilitates and intensifies such joint research on the subject. Let us summarize: It has been possible to successfully establish the subject of services as an object of research in Germany in the course of the past 10 years. Publicly funded service research has made an indispensable contribution to this. Nevertheless, we can assume that the development of specific research profiles will play an increasingly important role. It would probably represent a significant contribution to strengthening service research to develop focal subjects along the lines of which theoretical knowledge and practical know-how can be developed and which are also useful points of departure for more intensive international and interdisciplinary networking. Service engineering is such a focal point which has already been established successfully. From our own perspective, this

53

is a contribution to strengthening service research with a view to a services science and it is desirable that other contributions should follow.

References BMBF German Ministry for Education and Research (2004): Report of the Federal Government on Research 2004, Bonn/Berlin. Bullinger, H.-J. (1995): Arbeitsgestaltung, Stuttgart, Teubner. Bullinger, H.-J./Fähnrich, K.-P./Meiren, T. (2003): Service engineering. Methodical development of new service products, International Journal of Production Economics 85 (2003), pp. 275-287. Bullinger, H.-J./Scheer, A.-W. (eds.) (2003): Service Engineering. Entwicklung und Gestaltung innovativer Dienstleistungen, Berlin, Springer. Ganz, W./Kleppel, C./Siegel, D. (eds.) (2005): Services Made in Germany – Mit innovativen Dienstleistungen die Zukunft gestalten, Stuttgart, IRB. Pahl, G./Beitz, W. (1977): Engineering Design – A Systematic Approach, Berlin, Springer. Scheer, A.-W./Bullinger, H.-J. (eds.) (2004): Computer Aided Service Engineering. Informationssysteme in der Dienstleistungswirtschaft, Berlin, Springer. Scheer, A.-W. (2000): Business Process Engineering. Reference Models for Industrial Enterprises, Berlin, Springer. Spath, D./Zahn, E. (eds.) (2003): Kundenorientierte Dienstleistungsentwicklung in deutschen Unternehmen, Berlin, Springer.

Part 2: Services Science – Focus Research

International Service Research – Status Quo, Developments, and Consequences for the Emerging Services Science Bernd Stauss

Introduction In recent years the term "services science" has been talked about in the context of a need for a new branch of science. Services science seems to be something totally new. This strong demand for the establishment of services science appears to be the result of a perceived science deficit, an expression of the conviction that no specific service-oriented science exists. Therefore, in order to assess the potential of the proclaimed new science, there are two different tasks that need to be fulfilled. Firstly, we need to specify exactly what kind of science deficit exits. Secondly, we need a precise definition of the meaning of services science. Only then will it be possible to answer the question of whether services science is able to resolve this deficit. Both tasks are difficult. They cannot be managed by a single person. They require extensive discussion within the scientific community and its partners from the business world. To stimulate this discussion, the following five propositions are presented, some of which are intentionally controversial.

Proposition 1: Service-Related Research Is Widespread but Not Perceived as Services Science The fundamental basis of the public call for a new services science is the assumption that science (in particular management science) focuses solely or primarily on the problems of industrial firms and neglects the specific problems of service organizations. In other words, it neglects those organizations and their problems that are of greatest relevance in advanced economies. This assumption is supported by references to the relatively small number of service-oriented programs at universities and business schools and the existence of few scientific journals with a focus on service management aspects.

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Although these observations are correct, this view incorporates only part of the scientific reality and may lead to a biased perspective. Service research is not only conducted by service scientists. Whereas the vast majority of companies are service companies today, and even industrial firms have a growing service business, general business management research has developed into a general science of service companies as well. Problems of service organizations are discussed in general business journals (like Harvard Business Review or MIT Sloan Management Review) and in scientific journals dedicated to specific business functions (such as the Journal of Marketing or the Journal of Finance). Additionally, a considerable number of scientific journals exist that focus on particular service industries (like the International Journal of Tourism Research or the Journal of Health Organization and Management). Similarly, there are large numbers of chairs, departments and institutes dedicated to specific industries (such as retailing, banking, insurance, tourism and healthcare). Thus it seems that there is no lack of service research. On the contrary, plenty of servicerelated research exists. But this research is not recognizable as service research. Even most of the researchers are not aware of the fact that they are doing service research. They are members of scientific communities that are built on functional areas, industries or methods. It is not service research in general that is missing but perhaps a common understanding of service research, a commonly accepted services science paradigm. Moreover, the research that is visible as service research may have a specific and rather narrow focus, resulting in the lack of a certain type of services science. This leads to proposition two.

Proposition 2: The Currently Perceived Service Research Is Distinctly Focused on Marketing and Management The research that is recognizable as service research in specific scientific journals and international conferences has been described and analyzed numerous times (Fisk/Brown/Bitner, 1993; Ganz/Meiren, 2002; Katholische Universität Eichstätt-Ingolstadt et al, 2005). These analyses paint a picture of a vivid and growing international scientific community. There are international service research centers (such as the Center for Services Leadership at Arizona State University, USA, or the Service Research Center at Karlstad, Sweden). International scientific conference series on services have been held for many years (including the Frontiers in Services Conference, the QUIS Conference and the SERVSIG Conference). More and more academic journals are being published and gaining an international reputation (like the Journal of Service Research [JSR],

59

International Journal of Service Industry Management [IJSIM], Journal of Services Marketing [JSM] or Managing Service Quality [MSQ]). In addition, international networks exist between researchers (such as the International Academy of Services Research and Education [IASRE]) or management associations that hold an intense dialog with the scientific world (like the Association for Services Management International [AFSMi]). Obviously there is a service-related scientific community and there is service research. But how can this research be characterized? What are the topics recognized as relevant by this scientific community? To answer this question, we can fall back on quite a lot of material. Meiren/Nägele (2002) from the Fraunhofer Institute for Industrial Engineering IAO conducted an analysis of 560 articles in leading academic journals. They found that about 40% of all publications can be assigned to five management fields: customer relationship management, quality management, marketing, financial services and internationalization of the service business. Lemmink (2005), then editor of the International Journal of Service Industry Management, conducted a keyword analysis of all contributions in this journal for the period from the 2000 to 2005. His analysis resulted in a similar picture: 21.3% of the published articles contained "customer satisfaction" and "quality" as keywords, followed by "marketing" (11.9%) and "management" (8.5%). Ranking next were "service operations management" and "e-commerce". No other keywords came close to attaining a share of at least 5%. To get an even more current and a broader insight into the content of the service research that has been published, we conducted a keyword analysis of the two most important service-related journals (the Journal of Service Research and the International Journal of Service Industry Management) and the most important service-related academic conferences (SERVSIG and Frontiers in Services) for 2005. The results presented in Figures 1 and 2 again paint a very similar picture. The majority of contributions deal with specific aspects of customer satisfaction, service quality and customer loyalty. The results of the various analyses are unmistakable. There is a clear focus on a limited number of topics. The question is: Is this focus clear proof of a limited perspective, an unambiguous indication that other relevant aspects are being neglected? It is the scientific community that decides on the topics that are considered scientifically relevant and acceptable. Therefore, it seems plausible that the

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empirically identified research focus is no mere accident, nor is it the consequence of a narrow mindset on the part of the researchers. It is, instead, the consequence of a broad consensus among service researchers concerning what service management is about. • Customer Satisfaction • Service Quality • Customer Loyalty • Customer Relations

14

Satisfaction

13 6

Relationship Management

5

• Relational Marketing

5

• Service Industries

5

• Consumer Behavior

4

• Perception

3

• Services Marketing

3

• Trust

3

• New Service Develop.

3

• Customer Orientation

2

• Customer Service

2

• …

2

Quality

• Electronic Commerce

2

• Financial Services

2

• Internet

2

• Job Satisfaction

2

• Modeling • Opportunism • Prices

Consumer Loyalty

2 2 2

• Scale Development 2 • Service Delivery

Service Marketing

• Service Failure • Service Operations

Consumer Behavior

Internal Marketing

Electronic Commerce

• Value Analysis

2 2 2

• Dissatisfaction

2

• Human Resources

2

• Internal Marketing

2

• ...

2

Figure 1: Research topics in the journals "Journal of Service Research" and "International Journal of Service Industry Management" (keyword analysis)

In his description of the development of service research, Grönroos (1994) characterizes the service management approach on the basis of five facets: 1. Overall management perspective: This is understood as turning away from the traditional management focus on cost reduction and scale economies, specialization and division of labor and emphasizing the efficiency of the firm from the customers' point of view, market partnerships, and employee-oriented concerns. 2. Customer orientation: Customer satisfaction and customer loyalty are seen as cornerstones of successful service management. 3. Customer-perceived quality orientation: Quality is not longer treated as a production problem but as a problem of customer perception. Not the company but the customer defines quality. 4. Long-term perspective: Service marketing and management strive for long-lasting and valuable relationships instead of short-term deals on the basis of campaigns. 5. Holistic approach to management: This means that the barriers of traditional business functions and academic disciplines have to be over-

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come, that the integration of marketing, operations and human resources is necessary. • Consumer Loyalty • Customer Relationship Management • Customer Satisfaction • Service Quality • Service Recovery

12 12 11 8 7

• Airline/Airport Management

5

• Service Guarantees • Service Innovation

5

Satisfaction

4

• Banking

3 3

2

• Internet

2

• Job Satisfaction

2

• Modeling

2 2 2

• Scale Development 2 • Service Delivery

Service recovery

4

• Service Encounter

2

• Financial Services

• Prices

Quality

5 5

• Electronic Commerce

• Opportunism

6

• Cross Cultural Behavior 4 • Outsourcing/Offshoring 4 • Service Employee/ Employee Commitment 4

• Consumer Behavior

Relationship management

10

• Branding • Technology

• Trust • Complaint Management

Customer loyalty

• Service Failure • Service Operations

Branding

Technology

Service innovation

• Value Analysis

2 2 2

• Dissatisfaction

2

• Human Resources

2

• Internal Marketing

2

• ...

2

Figure 2: Research topics in contributions to the conferences "SERVSIG" and "Frontiers in Services" (keyword analysis)

In light of this description of service management research, the results of the empirical analysis should come as no surprise. They merely reflect the conceptual basics in the scientific community. But it is quite possible that the current criticism of the dominant research paradigm is the manifestation of a crisis and may signal the beginning of a scientific revolution that will lead to a paradigm shift (Kuhn, 1962; Ganz/Hermann/Tombeil, 2002). However, this revolution will only be successful if the new perspective proves itself superior in solving theoretical and practical problems and provides promising career opportunities for young researchers. Up to now, the superiority of a future services science seems to be based mostly on the multidisciplinary ("transdisciplinary") character of the approach. Therefore, it seems necessary to analyze traditional service research with respect to this aspect to find out whether the implicit accusation of being singlediscipline research is correct.

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Proposition 3: We Do Find Multidisciplinarity in Current Service Research but the Research Is Not Interdisciplinary. At Least Some Promising Steps in this Direction Can Be Observed In his analysis of the contributions in the International Journal of Service Industry Management, Jos Lemmink (2005) counted the different departments the authors belonged to. He found that the vast majority were from marketing and business, followed by management and consumer science. Only 25% (or a remarkable 25%?) of the contributions were the result of cross-disciplinary collaboration. We repeated this analysis in 2005 for all articles published in the Journal of Service Research and the International Journal of Service Industry Management in that year. The results support the insights of the former study. The authors of the 88 articles were primarily members of departments in the fields of marketing/marketing research (44), business management (12), service management/service research (9), but also operations management (7) and information technology (4). In addition, there is a wide range of other disciplines involved, even with only one or two contributions (including economics, finance, computer science, engineering and psychology). Further, the study reveals that research cooperation and collaboration does take place (34), but mainly within the particular field: marketing scientists work predominantly with other marketing scientists (16). By comparison, cross-functional cooperation is rare. Figure 3 provides an overview of the involved authors' departments and the number of cooperative ventures. These results are supported by a similar analysis of the papers presented at one of the most relevant service research conferences (SERVSIG 2005). In summary, it can be said that multiple disciplines contribute to the current service research but that marketing and management dominate and that interdisciplinary cooperation is the exception rather than the rule. However, it is clear that the most influential researchers in this field, the editors of the most distinguished journals, reinforce the trend toward multior transdisciplinarity. Roland Rust, former editor of the Journal of Service Research, wrote in his editorial back in 2004: "Service, by its very nature, involves a wide range of disciplines, and I would like to see that range of disciplines fully represented in the pages of the Journal of Service Research" (Rust 2004, p. 211). His successor, A. Parasuraman, affirmed this statement with his editorial claim to "position JSR as a flagship service journal that is methodologically rigorous, managerially relevant, … multidisciplinary, and international (Parasuraman 2006, p. 291). This position also applies to the International Journal of Service Industry Management. The last editorial by Jos Lemmink as editor of this journal is entitled: "The

63

need for more multidisciplinary research" (Lemmink 2005, p. 7). To realize his purpose, the proposed concept of services science could be very helpful. But to be in this regard, a clearer and more precise development of the services science concept seems necessary.

Computational statistics, applied statistics

Technology management and economics

International business studies

Decision and Information

2 2

Marketing/ Marketing research (16)

5

Business management

Computer science

Engineering

4

2 Services management and research

Information technology

Operations management (1)

Economics (1)

Figure 3: Research cooperation between authors whose articles were published in the journals "Journal of Service Research" and "International Journal of Service Industry Management" in 2005

Proposition 4: Services Science Should Outline Its Relevance and Conceptual Core More Clearly and Precisely At the moment it is still not quite clear what services science stands for. "Services science" is a kind of "verbal logo" for an initiative to institutionalize a service-centered science. But the product that is labeled "services science" is only recognizable in broad outlines. What exactly are the social, economic or managerial problems that are expected to be described, explained or solved by services science? And what is meant by "science" and "service" when the term services science is used? In services science literature, most of the information provided is about the kind of science that is demanded. Services science is described as follows (Bretthauer, 2004; Chesbrough, 2005; Chesbrough/Spohrer, 2006;

64

Katholische Universität Eichstätt-Ingolstadt et al, 2005; Luhn/Siegel, 2006): •

Problem-oriented in terms of taking concrete problems (those problems managers and other defined stakeholders have) as a starting point

•

Solution-oriented for being not confined to a problem description and explanation but intending to develop solution proposals and actual solutions

•

Transdisciplinary, meaning that services science has to do with complex problems that need the collaboration of experts from different disciplines

•

Collaborative in the sense of intensive cooperation between researchers at universities and managers of companies to enable permanent and mutual knowledge transfer

•

Team-oriented because the intended effects can only be achieved when researchers and practitioners from various disciplines integrate their different perspectives through teamwork

•

Methodologically diverse, meaning that a new, emerging science approach cannot refer to a single methodological paradigm but should instead stimulate the competition of different methodological traditions and approaches

So there is a rather clear understanding of the science aspect. It is a science demanded and promoted in particular by the business world with an explicit focus on contributing to the solution of business problems. Only rarely it is stressed that services science should not only be project-oriented but should also generate new scientific insights (Katholische Universität Eichstätt-Ingolstadt et al, 2005). And no postulation can be found that services science should be as interest-pluralistic as the traditional service research that is not confined to the problems of service companies or managers but reflects the problems of different stakeholders, such as customers or employees and those of non-profit service organizations as well. Whereas the meaning of "science" is described in some detail, the understanding of service in services science remains vague so far. In science, literature and practice, the term "service" is used in very different and sometimes even contradictory ways (Edvardsson/Gustafsson/Roos, 2005). In the published statements about services science, only few explications of the assumed meaning of service can be found (Chesbrough/Spohrer, 2006). The following section therefore discusses the adequacy of different service meanings for services science. For this purpose, the plurality of

65

service understandings is reduced to five relevant perspectives that are (mostly implicitly) described in the scientific service discussion (see Figure 4). Management of intangible and interactively produced goods

5.

Service Management Science

Service sector 1.

Service Sector Science

Service growth industries 2.

Service 3. Transformation Science

Industrial Sector

Service Industries Science

Selected Topics: technology, innovation

4.

Service Topic Science

Figure 4: Five different perspectives on "service" in services science Service Sector Science

The sectoral perspective bases the significance of services science on the fact that the service sector is the largest economic sector with a share of more than 70 to 80% of gross domestic product and employment in advanced economies. This approach implies an institutional understanding of service. Using the term service in this sense, service research is oriented toward all industries that are assigned to the service sector of the economy, including retailing, financial services, transportation, telecommunications and others. The argument of the dominant economic role of services is often used to justify the demand for the new science (Horn, 2005; Spohrer, 2006). But the choice of this sectoral perspective seems to be rather problematic. The share of the service sector is still growing. In a few years it will be more than 90%. Consequently, if all research with respect to this sector is services science, nearly all science will be services science and there will be little left over for non-services sciences. With this understanding, no specific scientific focus is defined, no disciplinary limits exist and therefore all of the prerequisites necessary to describe the research object of a science are lacking.

66 Service Industries Science

To minimize this problem, it is possible to focus the research not on all service industries but on selected industries, for instance on those that have the highest growth potential, such as business services, information services, media and telecommunications services, healthcare services or public services (Ganz/Hermann/Tombeil, 2002). This perspective has the advantage that the focus on selected industries poses at least some restrictions on the research content, although this will vary with the growth rate of the service industries. The main problem remains unsolved, however. Neither a scientific paradigm is described nor are statements formulated that provide information about the potential content of possible specific research problems. Service Transformation Science

The third perspective focuses on an important economic process that has enjoyed little attention in traditional service research. This process is twofold. On the one hand, in traditional industrial product-oriented companies, services are becoming more and more important. The technological core products of competing companies are often virtually interchangeable, with the result that the quality of the product-related services determines the superiority of an offering. Therefore, even in industrial firms, services often contribute more to the company's turnover and profit than do the products themselves; and in B2B markets in particular, many firms are forced or strive to become "solution providers" with a predominantly service character (Bitner/Brown, 2006). This dramatic change in customer requirements represents a great challenge for industrial firms and the process of "servicialization" of the industrial sector poses relevant and new research questions (Oliva/Kallenberg, 2003; Rust/Miu, 2006). On the other hand, across wide swathes of the traditional service industries there is a strong tendency to adopt industrial principles and methods. In many service companies, forms of standardization and process engineering are applied, with the result that an industrialization of services takes place. In addition, more and more companies do not just services or products, but hybrid product-service bundles. This is accompanied by an ongoing trend toward outsourcing formerly in-house services, with the emergence of totally new value chains. Obviously, there is a transformation process in progress, with a growing interface between product and service industries. A services science that concentrates on this process and the challenges involved for the actors and participants has a clear and relevant focus. Additionally, innovative, relevant and complex problems are considered, which require transdisciplinary analysis. Therefore, this perspective is a

67

promising option. But it is important to take into account that aspects of economic transformation are chosen as research objects and not just services. It is questionable why this phenomenon justifies the institutionalization of a new science and why this science should be named services science. This is particularly valid because the available research contributions highlight merely the industrial perspective, with the focus on product, technology, efficiency and costs. Therefore, there is a risk of the traditional customer-oriented perspective of service research having to take a back seat. Service Topic Science

It is hard to find a meaningful label for the fourth perspective. The title of "service topic science" endeavors to express the widely held view that services science should deal with specific selected topics, such as innovation, technology, business optimization, standardization and information integration (IBM Research, 2004; Ganz/Meiren/Tombeil, 2002). Here, services science is not defined by a specific understanding of service but by the focus on the transfer of relevant managerial issues to services. This topic perspective clearly indicates the research objects in focus and the topics listed are also innovative, relevant and complex, thus it seems necessary to apply a transdisciplinary approach. But this perspective raises the same questions as the transformation perspective. The role and understanding of service is unclear; furthermore, it seems to involve a tendency to replace the traditional customer orientation with another way of thinking, such as product or technology orientation (Zysman, 2006). There is also no foundation for the selection of the topics or the description of criteria for the selection process. Besides, it is arguable whether the selection of a few, varying topics can be perceived as a sufficient basis for a new science. Service Management Science

This fifth option comes close to the current service management research. The conceptual basis is the specific characteristics of interactive services: the intangibility of the offering and the customers' participation in the service production process, with the result that the customer "is a co-producer, intimately involved in defining, shaping, and integrating the service" (Chesbrough/Spohrer, 2006, p. 37). The main focus of this service research lies on the problems that arise from these characteristics, independent of the economic sectors and industries that offer the services. With this understanding of services, the traditional focus of the current service research is maintained: service management science continues to deal with

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the expectations, perceptions and behavior of customers and employees and the prerequisites for successful interactions. These service-specific aspects alone justify a service-specific science. Where there is no customer participation and no interaction, there is no need for a services science. A service factory without human beings could be analyzed by applying industrial research methods alone. Service management science shares its conceptual basis with the existing service management research, but it is not the same. It can only fulfill the aspirations that are directed at services science if it builds on the traditional approach and accepts the core scientific demands. That involves, in particular, the adoption of a broader view by embracing more of the perspectives of a transdisciplinary approach to problems.

Proposition 5: Every Option for Services Science Poses Major Challenges for All Parties Involved Whatever position prevails, any transdisciplinary approach will make substantial demands on the partners, the corporate world and the universities involved (Katholische Universität Eichstätt-Ingolstadt et al, 2005). Companies have to accept the relevance of service and reorient their research activities. They have to shift budgets, which is always a problem, and they have to comprehensively support collaborative research. This involves research investment and the support of university research, which is not usual in non-technical areas, at least not in Germany. Besides this, collaborative research is not only a challenge for researchers; it is a challenge for the companies and managers involved, too. Companies have to recruit and train employees to qualify them for this collaboration. Furthermore, companies have to accept that science is something other than consulting and that short-term project success cannot always be guaranteed. These challenges are considerable, but the challenges for the scientific community, in particular the universities, are even greater. Universities have to make strategic decisions. They have to define service as a main research area and they have to establish transdisciplinary structures in research and education that enable cooperation between different departments, schools and universities through cross-institutional budgeting. This involves enormous changes that will evoke severe conflicts. In addition, a new type of professors will be needed: professors who are willing and able to cooperate and conduct transdisciplinary research. This requires the establishment of a process of recruiting professors that attaches great importance to this qualification. Furthermore, universities have to change their

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administrative regulations to make non-bureaucratic cooperation between the scientific community and the corporate world possible. All of these barriers are so great that it is difficult to imagine that they can be reduced gradually over time. This applies in particular to the barriers on the part of the universities, with their strong administrative regulations and the strong autonomy of the professors (at least in Germany). In this situation, single initiatives are doomed to failure. To institutionalize services science, a powerful joint initiative of the corporate world, politicians and universities is essential. This initiative must include attractive financial incentives, originating mostly from the corporate world, and tied to concrete proof that the universities are making the necessary structural changes. The fate of services science thus depends on the corporate world. This has to be taken seriously for the initiative to continue. This position goes along with Chesbrough (2005, p. 44) from IBM, when he says: "In the end, corporate support could be the decisive force that brings a coherent new field into being".

References Bitner, M.J./Brown, S.W. (2006): The evolution and discovery of services science in business schools, in: Communication of the ACM, Vol. 49, No. 7, pp. 73-78. Bretthauer, K.M. (2004): Service Management, in: Decision Science, Vol. 35, No. 3, pp. 325-332. Chesbrough, H. (2005): Toward a new science of services, in: Harvard Business Review, Vol. 83, No. 2, pp. 43-44. Chesbrough, H./Spohrer, J. (2006): A research manifesto for services science, in: Communication of the ACM, Vol. 49, No. 7, p. 35-40. Edvardsson, B./Gustafsson, A./Roos, I. (2005): Service portraits in service research: A critical review, in: International Journal of Service Industry Management, Vol. 16, No. 1, pp. 107-121. Fisk, R.P./Brown, S.W./Bitner, M.J. (1993): Tracking the evolution of the services marketing literature, in: Journal of Retailing, Vol. 69, No. 1, pp. 61-103. Ganz, W./Hermann, S./Tombeil, A.-S. (2002): Results of the expert interviews, in: Ganz, W./Meiren, T. (Eds.): Service research today and tomorrow. Spotlight on international activities, Working Paper, Fraunhofer Institute for Industrial Engineering, Stuttgart, pp. 11-29.

70 Ganz, W./Meiren, T. (Eds.) (2002): Service research today and tomorrow. Spotlight on international activities, Working Paper, Fraunhofer Institute for Industrial Engineering, Stuttgart. Grönroos, C. (1994): From scientific management to service management. A management perspective for the age of service competition, in: International Journal of Service Industry Management, Vol. 5, No. 1, pp. 5-20. Horn, P. (2005): The new discipline of services science, in: Business Week online, January 21 http://www.businessweek.com/technology/content/jan2005/tc20050121_8020.htm Katholische Universität Eichstätt-Ingolstadt/Roland Berger Strategy Consultants/Siemens Business Services/IBM On Demand Innovation Services (2005): Vernetztes Dienstleistungsorientiertes Wissen – Services Science, Positionspapier, Ingolstadt/Munich. IBM Research (2004): Services science: A new academic discipline?, White Paper. Lemmink, J. (2005): The need for more multidisciplinary research, in: International Journal of Service Industry Management, Vol. 16, No. 1, pp. 7-9. Kuhn, T.S. (1962): The structure of scientific revolutions, Chicago. Luhn, A./Siegel, D. (2006): Services Science – Konzept und Umsetzung einer Dienstleistungswissenschaft, in: Streich, D./Wahl, D. (Eds.): Moderne Dienstleistungen, Frankfurt am Main, pp. 539-543. Meiren, T./Nägele, R. (2002): The profile of service research in international journals, conferences and internet communities, in: Ganz, W./Meiren, T. (Eds.): Service research today and tomorrow. Spotlight on international activities, Working Paper, Fraunhofer Institute for Industrial Engineering, Stuttgart, pp. 30-40. Oliva, R./Kallenberg, R. (2003): Managing the transition from products to services, in: International Journal of Service Industry Management, Vol. 14, No. 2, pp. 160-172. Parasuraman, A. (2006): JSR's role as a flagship service journal continues, in: Journal of Service Research, Vol. 8, No. 4, pp. 291-292. Rust, R.T. (2004): A call for a wider range of service research, in: Journal of Service Research, Vol. 6, No. 3, p. 211. Rust, R.T./Miu, C. (2006): What academic research tells us about service, in: Communication of the ACM, Vol. 49, No. 7, pp. 49-54. Spohrer, J. (2006): Service innovations, employment and exports, in: Streich, D./Wahl, D. (Eds.): Moderne Dienstleistungen, Frankfurt am Main, pp. 27-33. Zysman, J. (2006): The algorithmic revolution – the fourth service transformation, in: Communication of the ACM, Vol. 49, No. 7, p. 48.

Research on Services: From Exploring the "Residual" to Services Science Metka Stare, Luis B. Rubalcaba

1

Introduction

Research on services has traveled a long way, starting from a category of non-productive spending introduced by A. Smith over the bumpy road of three centuries of economic thought1 toward new concepts such as services science. From being treated as a residual in national accounts, services became the dominant category in most economies. Important lessons have been learned in the evolutionary process of the research of services and some stereotypes about services have been dismantled, which improved the apprehension of services on a conceptual, methodological and analytical level. The sectoral approach toward explaining development has enabled services (tertiary sector) to be disentangled from industry (secondary sector) and agriculture (primary sector) and introduced some distinguishing features of services such as intangibility, non-storability, non-tradability and low productivity of services. Gradually, with more diversified study of services coupled with technological advancement, the heterogeneity of services was acknowledged, allowing some services to be treated as storable, tradable and not necessarily consumed simultaneously with production. Furthermore, the analyses pointed to increased linkage between services and other sectors, which broadened the understanding of services beyond sectoral boundaries and revealed the intermediary role of services and service functions in the economy, in companies or in public institutions. This is best manifested by the fact that some of the largest manufacturing companies have seen their businesses shift from products to services, the latter generating the bulk of their turnover. Without delving deeper into the evolution of services understanding, which was made possible by the research of many scholars in the past,

1

For a comprehensive survey of the theoretical underpinning of the research on services see Delauney, Gadrey (1992).

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more recently2 we can see new concepts related to services emerging on the horizon. What follows is an attempt to present the view and the perception of the two researchers on the status quo and development of service research from a sectoral perspective, although we acknowledge other perspectives in the research of services (management, business organization, etc.) as well. As such, our observations do not aim to provide a general overview of service research but rather to contribute to the discussion of why the research of services is important, what its major characteristics and weaknesses are, as well as what some new trends in the research of services are. It is our strong belief that the research of services paves the way to a better understanding of the role of services in the increased complexities of a globalized world economy.

2

The Characteristics of Service Research

Services are conceptually understood as value-creating activities that provide solutions to problems and establish interactive relations between suppliers and consumers. From the analytical point of view, however, different approaches are applied due not only to the heterogeneous nature of services but also to the different perspectives explored. This in itself creates the basis for divided research communities that seldom communicate beyond their boundaries. More often than not, service research is confronted with a lack of data and short time series, which hampers the deployment of rigorous econometric analysis and thus also weakens the explanatory power of the results. Yet, researchers of services have frequently taken the risk of using imperfect data, producing various outcomes. However, the very fact that they have ventured into the research and "got their hands dirty with imperfect data" has not only provoked a discussion of how to improve the methodology of research but has also stimulated the generation and collection of new data. Services are explored at different levels of analysis. In the beginning, the research was limited to the analysis of the service sector in relation to other sectors of the economy. Later on, the research broadened and deepened toward exploring individual service industries and finally also services at the firm level, including case studies of service firms. In parallel, an in2

Rubalcaba (2007) draws the attention to a number of scholars from different geographies that have studied service issues from different perspectives and disciplines.

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creasing number of service studies are performed on a comparative crosscountry basis, enabling researchers to detect differences in the performance of services among countries, with important implications for the shaping of policies. Recent studies deal with services in a very comprehensive way, combining the research of service issues at different levels of analysis, providing for an in-depth view of services, of drivers and of barriers to their growth (e.g. OECD, 2005). Another strand of research, promoted by economic geographers, is concerned with the role of services in local and regional development and in particular with the role of distinctive types of services. Furthermore, the research of service-specific features of horizontal issues has expanded rapidly. Service researchers were rather quick to pick up modern economic developments and integrate them in their research (e.g. internationalization, ICT diffusion, innovation, outsourcing and offshoring, etc.). Notwithstanding the advancement in service research, there remain weaknesses and deficiencies, which the research did not resolve in an adequate way or failed to bring significant improvements. In some servicerelated issues it is not clear whether service researchers were quick enough to detect the pressing needs of different stakeholders (e.g. better understanding of peculiar features of public services that bear upon the efficiency of the private and public sector).

3

Weaknesses and Drawbacks of Service Research

At present we are in a much better position to apprehend the importance of services for the functioning of the economy than we were twenty-five years ago. Overall, it could be claimed that the body of research and analysis on services has increased significantly, yet the knowledge of different dimensions of services is scattered. Additional fragmentation of research comes to the surface when account is made of the approach to analysis, the topics addressed or the originating discipline of the research. Researchers of services with a background in different disciplines use specific language and terminology and publish in different journals, which is not a bad thing per se, but when it comes to communication and cooperation with researchers from other disciplines this is usually a barrier. Consequently, it also affects the multi-disciplinary approach to the research of service issues that could contribute to a more holistic knowledge and comprehension of services. Needless to say, the system of public financing of the research disciplines does not in itself provide sufficient incentives for a

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multi-disciplinary approach to research. Hopefully, progress in that regard is being made in an increasing number of countries. Even though the research and analysis of services has attempted to find new approaches in studying services, they still tend to imitate conceptually and methodologically the patterns developed for the research of tangibles3. The lack of data, development of statistics biased toward manufacturing, including the methodologies for the classification of activities, are often blamed for that. The research of services quality, price changes and their implications for better measuring the productivity of services have not made significant improvements in the last quarter of a century. Productivity is persistently addressed from the supply side perspective, while the demand side and the perspective of service users are largely neglected. Given the intensive interlinks between the service sector and other sectors of economy, this can hardly be justified. At the macroeconomic level, for example, too little effort has been dedicated to the research and analysis of service functions that would enable us to better capture their significance for the smooth functioning of the economy. Due to insufficient attention paid to the ways in which services enter international trade, the perception of trade in services still reflects the bias of measuring it only on the basis of balance of payments data. This prolongs the limited awareness of a large portion of services that are embedded in traded products and bears consequences for the shaping of trade-related policies. Moreover, service researchers who advocate the important role of services in trade and not only trade in services are often confronted with the view that, for policies, it is not worthwhile bothering with a category that represents only about 20% of world trade and is not increasing rapidly4. More attention has been devoted to FDI and Foreign Affiliates Trade in Services (FATS) as complementary means of service internationalization, even though data on this mode of service delivery are very deficient. Another emerging area of interest in service research is related to innovation issues. The minor contribution of services to growth originates in the traditional assumptions that services are less productive (ignoring the intersectoral links and the measurement problems), less tradable (neglecting the 3

Specific difficulties in that regard concern the research of service issues in transition economies of the Central and East Europe. In those countries there is no tradition of the research of services due to the legacies of the past development and the dominance of the materialistic concept of production (Stare, 2006).

4

This reflects only trade in services recorded in the balance of payments data.

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complementary means of service internationalization other than cross-border trade), and less innovative. This third negative assumption is based on the relatively weak capacity of services to incorporate technology and produce real and radical innovative products and processes. Some researchers have explored service innovation and the role of organizational and non-technological elements inherent to it. They have opened new research lines, which have been extraordinary useful in understanding the ways in which services are not only receivers of technological innovations but also promoters of a wide set of innovations, technological and nontechnological. Recently, research was launched to assess the role of R&D in services and raise the level of attention paid to services in public programs. The main conclusion of this work is that there are remarkable deficits in either the service research about services (that led mainly by academics and researchers in specialized centers) or the service research in enterprises and other institutions (services to be developed within manufacturing or service organizations). Both types of research are still underfinanced, even if market and systems failures for justifying public support apply to services at least as much as they apply to goods. It seems that agreement among researchers of services is emerging on the need for service-specific policies in horizontal issues, although opposing views can also be traced. Researchers of services engaged in policy shaping are often faced with the challenge of how to formulate recommendations for policies that target service sectors or service functions. Although the lack of understanding of service issues among policy makers may be an obstacle to furthering the case of service-specific policies, service researchers as well will have to improve their argumentation in favor of service-specific measures. The need to support services applies not only to the service sector but also to service activities performed by any economic sector. This is the way in which a service-friendly policy approach can combine regulatory policies (competition, internal market, better regulation) with non-regulatory, complementary policies (Rubalcaba, 2007). Here, policy makers will increasingly have to seek the support of businesses. The limited space available here does not allow us to shed light on other weaknesses of service research, such as the lack of recognition of service research at universities, research centers, and also in R&D programs at the national or supra-national level. The lack of critical mass of researchers in certain areas or the relatively low publicity, profile or impact of some channels for the diffusion of research results (working papers, journals, publishing houses, etc.) further aggravates the situation.

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4

The Way Forward

The service research community is at present not well organized, and is even less institutionalized. Cooperation among researchers from different disciplines (economists, economic geographers, sociologists, planners, etc.) and fields of research (sectoral studies, policy analysis, management of services, organizational studies and marketing) is rather modest and only occasionally goes beyond individual projects. Moreover, the fact that services are not just an economic phenomenon, but also one deeply rooted in social and cultural relations (Bryson, Daniels, Warf, 2004), calls for a more holistic approach in the research of services. So far, little progress has been made across disciplinary boundaries and researchers from different areas do not review each others' work because they don't publish in the same journals, and they don't meet because there isn't a definitive conference covering the field (Chesbrough, 2005). However, the lack of multidisciplinary research is not the only deficit. The recognition and maturity of service research within some disciplines also faces some major gaps, such as in economics, where the service economy has been largely neglected and where most modeling is conceptualized on the basis of tangible economy. A notable exception to such trends and deficiencies is the existence of the European Research Network on Services (RESER), which integrates about 20 research groups and many more individuals active in service research and policy formulation located in different European countries. The network was established in 1988 to improve the understanding of service occupations and service industries and to contribute to the theoretical conceptualization of the role played by business service activities. Since the very beginning, the network consisted of members originating from a variety of disciplines – economics, business studies, geography, sociology, psychology, political sciences and planning. They meet at an annual conference, which is open to a wider audience of researchers, and discuss various service-related issues.5 Having recognized the deficient information on service research between different research communities, there is a clear need to establish common platforms at the national and international level. They would bring together research communities on services from different disciplines, put together the existing knowledge on services and enable access to it. This would be

5

For more details see http://www.reser.net

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helpful not only for service researchers, academia and students but also for other stakeholders, such as policy makers and the business community. In the past, service research was predominantly driven by the research and academic community that provided analysis and advice to the governments or co-shaped with the governments the requirements for service research. International organizations and institutions have also promoted and supported the research of particular service issues to provide their member countries with better backgrounds and a more informed view in shaping service-related policies (OECD, European Commission, WTO, etc.). Companies and business associations appeared on the scene only later, when they started articulating their needs, and have also supported the research of some specific service-related issues. One example is setting the stage for the integration of services into the Multilateral Trade Negotiations within the GATT Uruguay Round by multinational companies. For quite some time now, the responsiveness of service researchers to business needs with regard to service research is increasing not only on account of securing additional funds for service research but also on account of having better insights into new trends in service business (e.g. offshoring, innovation). On the other hand, the business sphere (not necessarily service companies only) has also raised its voice in directing the research of services in line with their needs. The recently launched initiative of IBM for a services science seems to transcend the past concepts of the research sphere–business sphere cooperation in scale and scope. It was brought forward by an MNC's comprehension that its future business would incorporate even greater service complexity than it does at present. The complexity means that knowledgeable people from different disciplines will be needed to globally manage business that is dominated by services. This requires people who will be able to combine knowledge and skills related to services from different perspectives and disciplines. The need for a multi-disciplinary approach to research and training concerning service issues was already recognized by some service researchers, although it basically remained at the level of debate. Owing to the fragmentation of the service research community, such a shift may take a much longer period of time to mature. Besides, the research sphere lacks the institutional leverage to implement the change. On the other hand, businesses move much faster than the research sphere and also have much higher stakes in managing the complexity of service business. It remains to be seen how the initiative for a services science will roll out and diffuse among different communities. Nevertheless, furthering the

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awareness of the importance of a shift toward the multi-disciplinary approach in studying services could in itself bring new momentum to the research of services and mobilize researchers. Ultimately, this could boost the recognition and maturity of service research in individual disciplines. It is, however, questionable whether today's researchers of services engaged in the research of different service fields and issues are capable and willing to transcend the boundaries, as they were predominantly trained within individual disciplines. Or do we have to wait for the new generation of scholars trained in a more cross-disciplinary manner to bring the services science initiative to life?

References Bryson, J.R./Daniels, P.W./Warf, B. (2004): Service Worlds: People, Organisations, Technologies. London: Rutledge, Taylor & Francis Group. Chesbrough, H.W. (2005): Toward a New Science of Services, Harvard Business Review, vol. 83, no.2, pp.43-44. Delauney, J.G./Gadrey, J. (1992): Services in Economic Thought – Three Centuries of Debate. Dordrecht: Kluwer Academic Publishers. OECD (2005): Enhancing the performance of the services sector. OECD, Paris. Rubalcaba, L.B. (2007): The European Service Economy: New Challenges and Policy Implications. Cheltenham: Edward Elgar, forthcoming. Stare, M. (2006): Service Development in Transition Economies: Achievements and Missing Links. In Bryson, J./Daniels, P. (eds.): The Handbook of Service Industries. Cheltenham: Edward Elgar, forthcoming.

Services Science – A Computer Scientist's Perspective Martin Bichler

1

Introduction

Services have emerged as the largest and fastest growing segment of the economy and account for more than 70% of the labor force in Germany and 75% of the labor force in the United States and the UK. Since this trend has been known for quite a number of years, it is surprising how little academic research is explicitly devoted to services. This observation certainly deserves a closer look, and in this short position statement I would like to summarize some thoughts as to what services science is and could be.

2

Pure and Applied Sciences

Let me first start with some definitions.1 Science refers to the system of acquiring knowledge – based on empiricism, experimentation and methodological naturalism. Most scientists maintain that scientific investigation must adhere to the scientific method, a process for evaluating empirical knowledge which explains observable events in nature as a result of natural causes. While pure science is concerned with the development of scientific theories without consideration of their application (e.g. physics and chemistry), applied science (e.g. business, engineering and health sciences) deals with the application of knowledge from one or more natural scientific fields to practical problems. It is not a science of discovery but rather deals with manipulation to solve a particular problem. While one could view services science as a pure science discovering new knowledge about service industries, much of the present literature is of an applied nature, describing how to solve particular problems in service operations or marketing. 1

Definitions in italics are taken from the free Wikipedia (http://www.wikipedia.org).

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3

Do We Need a New Discipline?

Economists often distinguish between primary (agriculture, fishing, forestry, etc.), secondary (manufacturing, construction) and tertiary (service sector) sectors of industry. Although the service sector is the fastest growing segment of modern economies, one could ask what problems are so distinct that they require a new (applied) scientific discipline. One might argue that services pose particular challenges to managers due to their intangibility, time sensitivity and high levels of customer involvement. Certainly, these product features have produced a lot of useful work in the marketing literature, where they have led to new strategies in promotion and pricing (e.g. subscription pricing), which are applicable to a larger set of service industries. These features also impact inbound and outbound logistics, operations, human resource management and all the other parts of the value chain (see Figure 1). Firm infrastructure Human Resource Management Technology development Procurement

SECONDARY activities

Inbound logistics

Operations

Outbound logistics

Marketing and sales

Service

PRIMARY activities

Figure 1: Value Chain Model by Michael Porter (Porter, 1985)

There are already a number of text books focusing on service operations, many of them based on traditional management and operations research literature (Haksever et al, 1999, Johnston and Clark, 2005). However, problems in service operations tend to be very specific and the tertiary sector includes such different industries as banking, education, health care, insurance, tourism, transportation and retail. There are many specific problems in transportation, such as vehicle routing, which are of little relevance to somebody in the banking industry. Or to put it differently, knowledge about solving a vehicle routing problem is as valuable to somebody in the insurance business as it is for somebody in PC manufacturing.

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So, if services science is an applied, problem-solving discipline, one might ask if a discipline focusing on generic problems of all service industries is not too coarse grained, and it might be better to focus on specific services industries. As a matter of fact, most business schools have established departments focusing on banking, transportation or retail and their specific problems. The academic system has actually been fairly successful in establishing disciplines that exhibit tangible long-term problems and theories, requiring domain experts and specific education.

4

Toward Service Innovations

So, does this mean that there is, after all, no need for change in the academic world? The service industry is desperately looking for innovation as a source of competitive advantage and growth (Davila et al, 2006). Innovation is sometimes described as the introduction of something new and useful, for example introducing new methods, techniques or practices, or new or altered products and services. Both universities and the manufacturing industry have been very successful in creating technological innovations, often in cooperation. Relational databases, Internet protocols, the World Wide Web, and Web search algorithms are only a few of the examples from the field of computer science that have changed the world and have led to many innovative products. Similar examples can be found in most engineering and natural sciences. Service innovations are less well defined. In an excellent paper, Maglio, Srinivasan, Kreulen and Spohrer described a number of innovations in the service industries that they consider service innovations (Maglio et al, 2006). The article includes examples in education, IT service delivery and call center management and describes essentially organizational innovation, which is often supported by adequate IT solutions. Amabile et al describe organizational innovation as "the successful implementation of creative ideas within an organization" (Amabile et al, 1996). This type of innovation is a management process and closely related to what is described as entrepreneurship. Nowadays, there is a huge and growing body of academic literature describing innovation management and innovation processes in companies (Chakravorti, 2003, Davila et al, 2006, Stcotchmer, 2004, von Hippel, 2005). While understanding innovation processes in organizations is crucial, much service innovation focuses on designing and optimizing business processes. Many formal and semi-formal techniques to model and

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optimize business processes have been developed in the computer science, information systems and operations research communities. If a service scientist is somebody to actively drive innovation in organizations, these modeling techniques can provide a basic toolbox to design new service processes. Optimization, decision theory and stochastic modeling will prove as useful to services science as they are to economics, electrical engineering, physics and many other scientific fields. Combined with the knowledge gained from social sciences (economics, psychology, law, etc.) and, of course, a creative spirit, service scientists are well equipped to design organizational innovation. In this way, services science could be classified as a design science, as it was described by Nobel Laureate and Turing Award winner Herbert A. Simon in his influential 1969 book "The Sciences of the Artificial" (Simon, 1996).2 Design science is an engineering discipline that embodies the creative, artistic and goal-oriented spirit within which purposeful artifacts are created. Such artifacts might be business processes, service organizations and the information systems used to support them.

5

Service Innovations and Academic Research

Academic research has resulted in much of the technological progress that we have seen during the times of the Internet hype (Web search engines, recommender systems, etc.). However, the type of service innovation described in Maglio et al, 2006, has rarely been the subject of academic research so far. Organizational innovation in service businesses is typically driven by managers and consulting companies. Although scientific methods are probably not necessary for many service innovations, there are a growing number of cases where a more scientific approach can make a significant difference. Due to large-scale data warehouses, RFID technology and sensor networks, there is a huge amount of data available in modern businesses. Leveraging this data, many businesses problems can nowadays be tackled using advanced data analysis and decision modeling. Analytical customer relationship management, business process optimization and demand forecasting are just a few of the topics where scientific methods have already found their way into service organizations. 2

James Spohrer highlighted this relationship during the First German Services Science Conference in Ingolstadt in 2006.

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Admittedly, cooperation between service businesses and academia is less common than in the manufacturing industries, and one could find several potential reasons. Many service innovations are traditionally regarded as managerial tasks that are supported by consulting companies, but not necessarily by academic institutions. This might have to do with the different objectives of both communities. While in the business world, managers often look for timely solutions to a specific problem, academia typically strives for solid results based on scientific methods and for generalization. Also, academics are rewarded for publishing their results, whereas businesses are typically not interested in publication because organizational innovations are considered a competitive advantage. IBM has started a program called "On Demand Innovation Services", where consultants work jointly with colleagues from the research labs on complex business problems. Programs like these help consulting to tackle hard business problems and they expose researchers to potentially new problems that they can then generalize and add to the literature in a specific field. Collaboration of this sort between service businesses, consulting and academia did happen in the past, but closer collaboration among these parties could certainly be beneficial to all of them. This type of collaboration is close to what Gibbons et al, 1994, described as Mode-2 research. Mode-1 research describes the traditional academic system that typically takes place in separate disciplines. Mode-2 research is characterized as transdisciplinary research, focused on specific problems with high value to society. This type of research is typically done in close cooperation with practice. While much public funding is allocated to Mode-2 research these days, transdisciplinary research is still difficult to publish in top-tier journals. After all, services science might not be a completely new subject, but a new way of doing research focused on realworld problems, yet still based on solid scientific methods.

References Amabile, T./Conti, R./Coon, H. (1996): Assessing the work environment for creativity. Academy of Management Review, 39, 1154-1184. Chakravorti, B. (2003): The Slow Pace of Fast Change: Bringing Innovations to Market in a Connected World, Boston, MA, USA, Harvard Business School Press. Davila, T./Epstein, M./Shelton, R. (2006): Making Innovation Work: How to Manage It, Measure It, and Profit from It, Upper Saddle River, Wharton School Publishing.

84 Gibbons, M./Limoges, C./Nowotny, H./Schwartzman, S./Scott, P./Trow, M. (1994): The New Production of Knowledge. Sage. Haksever, C./Render, B./Russel, R./Murdick, R. (1999): Service Management and Operations. Johnston, R./Clark, G. (2005): Service Operations Management: Improving Service Delivery. Maglio, P.P./Srinivasan, S./Kreulen, J.T./Sporer, J. (2006): Services Systems, Service Scientists, SSME, and Innovation. San Jose, IBM Research Center Almaden. Porter, M. (1985): Competitive Advantage, New York, USA, Free Press. Simon, H.A. (1996): The Sciences of the Artificial, Cambridge, Massachusetts, MIT Press. Scotchmer, S. (2004): Innovation and Incentives, Cambridge, MA, MIT Press. von Hippel, E. (2005): Democratizing Innovation, Boston, MA, USA, MIT Press.

Research Needs in the European Service Sector – An Application-Oriented Perspective Walter Ganz

1

Research Areas

There will be a further increase in the importance of services for the development of the European economy as a whole. Nevertheless, the lasting competitiveness of European services on world markets depends on their ability to improve service production processes and to design continuously innovative service products. Inventive ingenuity in the different areas of the service sector has become of increasing importance. European leadership regarding technological innovations, for instance, depends to an ever greater extent not only on the ability to produce innovative goods in a productive way but also on the ability to control service processes like product development, sales and marketing. So, service innovations require the improvement of service processes which accompany the goods production process. At the same time, service providers can develop substantive potential for innovation by rearranging their business models, which often leads to new, value-added service processes. Nevertheless, there is limited knowledge of how to develop, design and model service-driven innovation processes systematically. A better understanding of the interrelationship of service and innovation processes could lead to sustainable enforcement of international competitiveness. Areas that are characterized by a special need for research are: •

Service innovation: Lack of knowledge about reinforcing the innovation ability and dynamism of service providers

•

Internationalization of services: Lack of knowledge about the influence and impact of cultural factors on service offerings, the demand for and quality of services

•

Transformation processes in the economy:

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Lack of knowledge about tertiarization processes as a change in orientation from goods production to service provision •

Technology and services: Lack of knowledge about the feasibility, influence and impact of the use of technology on service offerings, the demand for and quality of services

•

Design of service work: Lack of knowledge about human aspects and social interaction in service relationships, especially in highly qualified knowledge work

2

Need for Action

An important reason for the existing lack of service research is that research administrations, among other organizations, are still dominated by a traditional production model. Undoubtedly, the innovative strength of the European industry has to be transmitted to the service markets of the future. A further important challenge is to forge ahead in terms of productivity and quality of services in a similar way as was done in goods production. Nevertheless, the specific service conditions have to be taken into account. Therefore, the service economy needs a tailor-made basis for innovation of its own. This basis includes and requires us to enhance the value attached to services within society, to increase the willingness of companies to invest in service innovations, and, above all, to strengthen European service research with an international orientation. So far, there is only a rather fragmented service research structure within the different EU member states. In Europe today, there are certainly a number of research institutes that operate with high international research standards in certain areas of service research. However, on the European level, there is a lack of centers of excellence able to cover the breadth of service research challenges in an interdisciplinary way as well as to concentrate resources and know-how in order to be able to shape the international discourse of research. In Europe, technology development, goods production-oriented research and practice are well connected. But such a statement can apply to service research to a limited extent only. It is necessary to raise the so far limited readiness/tradition of service companies for systematic research and de-

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velopment and for participating in collaborative development projects with science. On the other hand, science should also make greater efforts to ensure the sustained implementation of its research findings in close cooperation with partners in practice. The need for action can be outlined as follows: •

Reinforce the research profile of services: Reduce deficits in the perception of services as a relevant R&D subject

•

Strengthen international lead positions: Safeguard the international catch-up capability and set (new) core competences

•

Intensify R&D cooperation with the world of practice: Develop knowledge about sustainability and continuity of research results in a joint effort with the world of practice

•

Create service excellence centers: Bundle resources in subject-specific networks of excellence

Finally, Europe will only be able to become the most innovative and most competitive knowledge-based economy in the world if it succeeds in strengthening its service economy as a whole. It is therefore obvious that a successful future with innovative services relies on the interaction of very different actors. In exploring new paths between science and practice, we need to work on achieving a more widespread awareness of the significance and the cause/effect relationship of services at an institutional level and – last but not least – in our minds.

Part 3: Services Science – Focus Teaching

The Evolution and Discovery of Services Science in Business Schools1 Mary Jo Bitner, Stephen W. Brown

1

Introduction

The growth of services in economies around the world has vast implications for business practice, academic knowledge creation, and education. Service industries have dominated the U.S. and other established economies for decades. Increasingly, manufacturers and IT companies are also shifting to a focus on services as growth and profit engines for their companies. Many contend that future success (for companies, whole economies, and personal quality of life) depends on service innovation across industries. We are among a small group of academics worldwide who have devoted their careers to the study of services. We are co-directors of the Center for Services Leadership (www.wpcarey.asu.edu/csl) at Arizona State University, the first academic center devoted to research and education in services management. Within business schools in general, however, the resources devoted to services management have not been commensurate with the economic importance of services. Similarly, while there are isolated degree programs and executive education offerings for services management, the number of such programs is surprisingly small. Today we see a surge in interest in what is being called “services science.” This awakening is occurring not only in the established economies, but also in countries that are managing explosive growth such as India and China. There is growing demand for new knowledge and education; yet, we feel that much can be learned from existing research and knowledge produced within business schools. There is a need to apply robust research findings related to service excellence, service quality, customer satisfaction and loyalty, and service delivery and design. There is also a need to develop new knowledge and curricula to address the emerging challenges of the global service economy. In this article we highlight the development of services science knowledge and education in business 1

First published in: Communication of the ACM, Vol. 49, No. 7 (2006). Reprinted with permission of the publisher.

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schools, advocate for its application, and identify current trends facing business today. These trends will shape future services research and drive the development of trans-disciplinary curricula.

2 2.1

Evolution of Services Science in Business Schools Emergence of Services as a Field of Study

The study of services has a history in business schools that cuts across disciplines including management, marketing, operations, and human resources. However, the preponderance of the published research has come from services marketing, a field that emerged between 1970 and 1990. The field evolved quickly in the 1980s, primed by the demands of a business community looking for ideas, theories, and new models to address critical challenges. The rapid growth of the service sector, increased competition emanating from deregulation, the complexities of managing services, and the lack of relevant curricula and research all contributed to the field’s rapid development (Berry/Parasuraman, 1993). A number of important conferences and events sponsored by the Marketing Science Institute and the American Marketing Association provided catalysts for knowledge sharing and networking among scholars and practitioners who were intrigued by the challenges of services management. Centers devoted to the study of services began to develop at business schools around the globe. Over 20 years later, many of these same forces are coming together again – right now – to provide another impetus for services research and education; this time under the nomenclature of “service science.” This time the impetus stretches beyond the business disciplines into engineering and computer science, industrial and systems engineering, organization theory, and economics.

2.2

Characteristics of the Field: Substantive, CrossDisciplinary, Multi-method, Global

Because the field grew out of the demands of the business community, its dominant topics are focused on real business problems. In addition, due to the inherent nature of services (for example, they are often delivered by people, they are heterogeneous, they frequently involve the customer in the production process, and they are relatively perishable compared to manufactured goods), the study of services management is inherently cross dis-

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ciplinary. Thus, most services academics, while anchored in their home disciplines, have had to learn at least a nominal amount about the adjacent fields. Another characteristic of the field is its multiple methodologies. Pure experimental research, survey research, econometric and statistical modeling, and sophisticated qualitative studies exist side by side in services journals. This openness to methodology reflects the belief that the most appropriate method is the one that best fits the research questions. Further, the breadth and the interdisciplinary nature of the research questions naturally demand a variety of methods. Finally, the field is characterized by a large body of contributions from scholars across the world. The roots of many services theories and concepts can be traced to the Scandinavian countries, France, the U.K., and the U.S. (Fisk/Grove/John, 2000). Currently, there are important contributions coming from Germany, the Netherlands, Australia, New Zealand, and China as well.

2.3

Dominant Topics Within the Services Discipline in Business Schools

While dominated by the marketing discipline, services research and courses also exist within the human resource and operations management areas. Here, we provide a sampling of services topics researched over the last 20 years in marketing, operations, and human resource management to give a sense of the broad range of issues that have been explored (Fisk/ Brown/Bitner, 1993). The dominant topics in services marketing have included: customer-defined service quality; customer satisfaction and loyalty; service encounters; service recovery; employee/customer interface; servicescapes; technology and services; and customer participation in service delivery. Much of the focus of this research has been on understanding service quality and service delivery from the customer’s point of view in order to help firms compete more effectively. Within service operations, we see different, but complementary topics including: service productivity; managing capacity; waiting and time management; and service experience design. Historically, the research in service operations has taken an internal efficiency and costoriented focus. In the services management field, the dominant services topics can be found within the subfield of human resource management and include: service culture and climate; employee empowerment; and hiring and training service workers. It is interesting to note the overlap in service research foci among the business fields as a result of the multidisciplinary nature of the topics covered. A review of the primary textbooks in services marketing (Lovelock/Wirtz, 2004; Zeithaml/Bitner/Gremler, 2006) and service operations (Fitzsimmons,

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J.A./Fitzsimmons, M.J., 2004) underscores the overlap in content across these two fields.

3

Evolving Services Curricula

Along with the evolution of the services discipline itself, there has been a parallel evolution of services education. However, given strong disciplinary silos in most business schools, it is most common to find isolated services courses within marketing and operations departments rather than truly cross-disciplinary, integrated services curricula. Since ours is one of a handful of schools, and the first in the U.S., to implement an integrated services management curriculum, we use our own case as an example. We began in the 1980s with the introduction of standalone services marketing courses at both the undergraduate and MBA levels. In the mid-1990s, building upon the success of our Center for Services Leadership and working with our Center member firms, we developed a full fledged MBA specialization in services. Students pursuing this specialization took courses in services marketing and management; service operations; managing people; customer satisfaction and service quality measurement; new service development; strategic consumer behavior; and project management. The curriculum was intended to cut across the key academic disciplines essential to successful management of service businesses. As a capstone, the students were required to take a “strategic projects” course in which they engaged in high-level company-sponsored projects to solve real problems. While ASU had a comprehensive and demanding services MBA curriculum, a growing number of schools began to offer individual MBA courses in services and a few tried their hand at actual MBA or MS specializations in services – among them Vanderbilt University, University of Victoria in Canada, Hanken School of Business in Finland, University of Maastricht in the Netherlands, and University of Karlstad in Sweden. At the undergraduate level, many schools around the world offer isolated courses in services marketing, services management, and service operations, similar to what exist at the MBA level. Only one school we are aware of, the University of Wisconsin-Stout, has a well-established and integrated undergraduate curriculum in services management. In addition to MBA and undergraduate education, executive education in services management is also in demand and programs are offered by a number of business schools and consulting organizations.

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Through our CSL, we have offered annually since 1987 a “mini-MBA” in services called the “Services Leadership Institute.” This program attracts managers and executives from companies across the spectrum of industries including technology and manufacturing – reflecting the growing interest and demand for knowledge related to services. We have also offered annually since 1991 the “Compete through Service Symposium” as well as customized programs for individual organizations. The growing demand for all of these offerings reflects the fact that most executives are not trained in the services disciplines, yet recognize that many of the challenges they face can benefit from this expanded knowledge. As the field has evolved, there are a growing number of Ph. D. students across disciplines focusing their research on services topics.

4

Emerging Services Science Challenges

As the world becomes more focused on services, what we need is not only the insights from more disciplines, but more importantly the collaboration of scholars from several disciplines examining the same challenge. Several of the major challenges needing our attention are discussed here.

4.1

Offshore Outsourcing

Some observers feel that one of the greatest developments in the world today is its flattening (Friedman, 2005). Closely associated with this development is the growth of offshore outsourcing of services. Many experts feel this trend is in its infancy and envision large numbers of packaged software, IT services, banking, insurance, and other services ultimately being offshored (Vashistha/Vashistha, 2006). What is stimulating this dramatic phenomenon? First, the world’s economy is increasingly anchored in services and information without any borders. Thus, data can be efficiently gathered and analyzed and associated services processed and delivered to the far corners of the globe. Second, the expense of working with these services and information is plummeting while the quality of service provision is rising. Lowercost countries are developing increasing numbers of well-educated people qualified to work effectively in a services economy. Third, standardized processes will stimulate even more growth in offshoring. Expert observers see industry groups and associations moving to make this happen, meaning that purchasing, billing, and accounting, for example, would

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be done the same in the U.S., Russia, and the Philippines (Davenport, 2005). This move is projected to further lower the costs and risks of offshoring and accelerate the flow of service provision from the developing parts of the world. Unfortunately, there is a paucity of scholarly research on this important challenge. On a macrolevel, work is needed on the costbenefits of “inshoring,” “nearshoring,” and offshoring and on comparative analyses of the offshoring cost-benefits provided by developing countries and their cadre of service providers. On a micro-level, work is needed in areas such as modeling offshoring decision processes, assessing the risks, and examining the service quality associated with different outsourcing options.

4.2

Service and Technology

Traditionally, the study of services science in business schools was anchored in human interactions, particularly the personal contact between customers and employees. Over the past 10 years, however, technology has dramatically changed how services are conceived, developed, and delivered. Technology has not only consumed back-office processes, but has become prominent within the firm-customer interface through self-service technologies (SSTs), such as online reservations, online banking, and payat-the pump gasoline transactions. The infusion of technology in service encounters has been one of the foci of our work at the CSL (Meuter/Bitner/Ostrom/Brown, 2005). The incentives for firms to incorporate technology into the service interaction with customers are often tremendous. For larger corporations billions of dollars in cost saving can be obtained by enticing customers to serve themselves. In some cases, the lure of cost savings overwhelms customer considerations and firms become disappointed with the customers’ modest adoption of the technology. More companies, however, are recognizing that SSTs can provide substantial benefits for both parties. Yet, to have mutual success, firms must appreciate and facilitate the major adjustments customers must make. Not only must customers change their behaviors, but in a self-service situation they must also become co-producers of the service, with responsibility for its delivery and for their own satisfaction. Scholarly attention to service(s) and technology is increasing, yet it is being outpaced by developments in business practice. Looking just at the firm-customer relationship, research is needed on how firms should plan, implement, and measure the impact of technology on service encounters. What drives customer satisfaction with technology-infused encounters?

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Why do (or do not) customers adopt, use, and develop loyalty to self-service technologies? What can be done to encourage customers to use, the technological resources available to them?

4.3

Goods to Services Transformation

Another major challenge for services scholarship is understanding the dramatic transformation among goods-dominant firms operating in B2B markets. Many of these firms are striving with mixed results to become “solutions providers” by adding services to their portfolio of tangible goods. These firms have always provided “customer service,” but the new services refer to actual revenue-generating offerings. Goods-dominant firms are scrambling to develop services for one major reason. Product commoditization is a reality in many industries. With manufacturers finding it difficult to differentiate their goods, their profit margins are narrowing. Services, however, often offer sustainable forms of differentiation, enabling enterprises to achieve more significant margins. The profitability feature is especially true when a firms’ intellectual capital can lead to tailored services for clients. Here, knowledge workers become a firm’s service products. This factor, and the track record of global leaders like IBM and GE, is leading many manufacturing executives to pressure their management teams to get on the services bandwagon. The success in becoming a B2B solutions provider is typically dependent on the firm’s ability to manage the complexity often associated with adding services to its portfolio. In reorienting their thinking to services, one of the biggest challenges for manufacturers is how to engage the customer in unique ways. Successful engagement processes often include having customers co-produce their own services or solutions. It has been shown that involving these high-performing customers can benefit both the customers and the services provider in terms of creating mutually satisfying relationships and bringing about efficiencies (for example, cost and time savings) (Bettencourt/Ostrom/Brown/Roundtree, 2002). Despite the significance of this trend, with a few exceptions (Neu/Brown, 2005), little scholarly work exists on this topic. Looking ahead, we see opportunities to address several important questions including: What are the best methods and best practices for migrating goodsdominant firms to successfully develop and offer services? What kind of solutions are customers looking for from these firms? And, recognizing the complexity of being a solutions provider, how can a firm best engage customers in co-producing these services for mutual benefit?

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4.4

Service Innovation

With most developed nations of the world predominantly services economies, it makes sense that services innovation be a high priority. Yet, most of what is known about innovation comes from manufacturing (product) rather than services innovation. Some observers even make the erroneous assumption that service innovation can be modeled after established manufacturing frameworks. Recognizing the shortcomings of this way of thinking, the Organisation for Economic Co-operation and Development (OECD) recently released the report “Promoting Innovation in Services,” (OECD, 2005) which notes that government policy in developed countries has not been attuned to the service sector. In trying to help rectify this situation, the OECD features several important points that distinguish service sector innovation. First, services are increasingly knowledge-based and drivers of growth. Second, service innovation comes less from traditional research and development and more from acquiring knowledge from outside sources and from collaboration. Third, service innovation depends on highly skilled and educated employees. Fourth, given the importance of human factors, entrepreneurship is a key driver of service innovation. In most organizations the whole service innovation process must become more explicit and less ad hoc. Far too many companies rely more on their instincts and feelings and take a narrow view of customer input. The innovation process for services must be inherently proactive because it should not only aid in retaining existing customers but also bring new customers to the firm (Gustafsson/Johnson, 2003).

As with the other three challenges discussed here, relatively little is known about service innovation. Some questions for services science include: How should an organization focus its attention to innovate through services? Given the importance of customer co-production, how can a firm best involve its customers in service innovations? How can companies develop collaborative relationships with other organizations to stimulate new thinking, creativity, and services innovation?

5

Emerging Demand for Services Science Education

The emerging challenges of the global economy, the dominance of services into the future, and the strong push for continued innovation are pro-

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viding impetus for a fresh look at current higher education offerings and an emerging demand for “services science” education. Because the challenges defy simple one-discipline solutions, emerging curricula need to be transdisciplinary, immersing students in team-based analyses, and giving them the ability to solve problems with multiple knowledge bases and tools. Supported by IBM’s Academic Initiatives program, an example of this type of curriculum is North Carolina State University’s new initiative in Services Sciences, Management and Engineering (SSME) designed to prepare graduate students for careers in services management. This program combines education in business strategies, business processes, information technology and the management of individuals and teams. While not specifically labelled SSME, there are a handful of other programs developing this type of trans-disciplinary curricula. For example, at ASU we have a trans-disciplinary Institute for Computing and Information Sciences and Engineering (InCISE) that has as its core purpose to “enable interdisciplinary innovation centered around computing and information sciences.” InCISE and a new School of Computing and Informatics are leading an effort to develop interdisciplinary research projects and approaches and crossdisciplinary master’s and Ph.D. programs that meld intellectual and problem-solving methodologies across disciplines including industrial engineering, services leadership, anthropology, supply chain management, information systems, and computer science engineering. In addition to formal degree programs, there is an emerging need among experienced executives and managers for this type of services knowledge. For the most part, corporate leaders do not have a background in services and while they appreciate the complexity of the problems they are facing, they are often ill-equipped to solve them.

6

Conclusion

We are energized by the opportunity to be part of bringing the field’s knowledge and current curricula to new levels and broader-based application. We believe there is already a strong services science foundation to build upon, and many robust ideas, strategies, tools, and theories that could be widely applied to immediately benefit organizations (Brown/Bitner, 2006). At the same time, we believe it is critical to think broadly about services to identify important research problems that can inform and guide business decisions and service science. Many academics, business practitioners, and government officials can understand the need for broadbased,

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trans-disciplinary services science education and research at an abstract level. Yet, we can personally attest to the challenges of working across disciplines, even within a business school, let alone across an entire university campus. Though the ingrained languages and discipline-specific approaches that are the foundations of current disciplinary silos make these collaborations challenging, they can be extremely rewarding and when successful can be effective in generating new knowledge. Arizona State University’s President has made trans-disciplinary research and education a central platform of his vision for the “New American University.” Over the last four years more than 10 transdisciplinary institutes and schools have been established at ASU including the International Institute for Sustainability, the School of Global Studies, The Biodesign Institute, InCISE, and the new School of Computing and Informatics. The vision of what these institutes and schools will do to encourage innovation and solve complex world issues is truly exciting. We believe it is imperative that we persevere in this journey within services science to advance knowledge and develop valuable trans-disciplinary services management solutions for the complex global economy.

References Berry, L.L./Parasuraman, A. (1993): Building a New Academic Field – The Case of Services Marketing, in: Journal of Retailing, Vol. 69, No. 1, pp. 13-60. Bettencourt, L./Ostrom, A.L./Brown, S.W./ Roundtree, R.I. (2002): Client Co-Production in Knowledge-Intensive Business Services, in: California Management Review, 44 (4), pp. 100-127. Brown, S.W./Bitner, M.J. (2006): Mandating a Services Revolution for Marketing, in Lusch. R.F./Vargo, S.L. (Eds): The Service-Dominant Logic of Marketing: Dialog, Debate, and Directions, Armonk, NY: M.E. Sharpe. Davenport, T. (2005): The Coming Commoditization of Processes, in: Harvard Business Review, June 2005, pp. 100-108. Fisk, R.P./Brown, S.W./Bitner, M.J. (1993): Tracking the Evolution of the Services Marketing Literature, in: Journal of Retailing, Vol. 69, No. 1, pp. 61-103. Fisk, R.P./Grove, S.J./John, J. (2000): Services Marketing Self-Portraits: Introspections, Reflections, and Glimpses from the Experts, Chicago: American Marketing Association.

101 Fitzsimmons, J.A./Fitzsimmons, M.J. (2004): Services Management: Operations, Strategy, and Information Technology, 4th edition, New York: McGraw-Hill. Friedman, T.L. (2005): The World is Flat, New York: Farrar, Straus and Giroux. Gustafsson, A./Johnson, M. (2003): Competing in a Service Economy, San Francisco: Jossey-Bass. Lovelock, C.H./Wirtz, J. (2004): Services Marketing: People, Technology, Strategy, 5th edition, Englewood Cliffs, NJ: Prentice Hall. Meuter, M.L./Bitner, M.J./Ostrom, A.L./Brown, S.W. (2005): Choosing Among Alternative Service Delivery Modes: An Investigation of Customer Trial of Self-Service Technologies, in: Journal of Marketing, 69 (April), pp. 61-83. Neu, W./Brown, S.W. (2005): Forming Successful Business-to-Business Services in Goods-Dominant Firms, in: Journal of Service Research 8, (August), pp. 1-15. Organization for Economic Cooperation and Development (2005): Promoting Innovation in Services, October 14, 2005, pp. 1-52 Vashistha, A./Vashistha, A. (2006): The Offshore Nation, New York: McGraw-Hill. Zeithaml, V.A./Bitner, M.J./Gremler, D.D. (2006): Services Marketing: Integrating Customer Focus Across the Firm, 4th edition, New York: McGraw-Hill.

The Perspective of Computer Science Klaus-Peter Fähnrich, Kyrill Meyer

1

What Are the Current Weaknesses of Service Education and Training?

So far, the establishment of services science has not been an objective in teaching. However, since services science is such a broad subject, several possible components of such a course of studies can already be found in various other studies. Apparently, service engineering has become quite prevalent in computer science and engineering sciences. Service engineering, however, has never been meant to be introduced into academic education by individual projects or special furtherance in this field. Nevertheless, it is still interesting to analyze how far the diffusion of results from service research has advanced into education. UNIVERSITY

Teaching Element

Country

University of Stuttgart

Service Engineering

Germany

University of Leipzig, Department of Computer Science Business Information Systems

Service Engineering, Engineering of IT-based Services

Germany

Technical University of Vorarlberg

Service Development I and II

Germany

University of Hohenheim, Department of Business Studies Information Management II

Service Engineering and product-specific Services

Germany

Technical University of Munich, Institute for Information, Organization and Management

Service Engineering (Service Management in practice, Electronic Services)

Germany

Technical University of Dresden, Information Management, specifically Information Systems in the Service sector

Advanced Seminar, Service Engineering

Germany

University of Potsdam, Department of Computer Science Service and Software Engineering

Lecture, Service Engineering

Germany

University of Karlsruhe, Department of Applied Computer Science and Formal Specification Methods

Service Engineering – Concepts, Methods and Tools for the Development of Services

Germany

Technical University of Furtwangen

Sales and Service Engineering

Germany

Catholic University of Eichstätt Ingolstadt, Chair of Applied Business Studies and Service Management

Service Management

Germany

Johannes Kepler University of Linz

Service Engineering and Management

Austria

University of Zurich and Business School of Luzern

Service Engineering as an Element in Graduate Studies of Service Management

Switzerland

University of St. Gallen

Graduate Studies/Executive Master Marketing and Services Program

Switzerland

Israel Institute of Technology

Service Engineering

Israel

University of Karlstad

Service Development, Service Quality

Sweden

University of California Santa Cruz

Service Engineering and Management

USA

University of California Berkeley

Services Science, Management and Engineering

USA

North Carolina State University, College of Management, College of Engineering

MBA Program Services Science, Management and Engineering

USA

Service Research Center

Table 1: Service engineering in education

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Attempts to tie service engineering into education were made as early as 1998. The University of Stuttgart developed and offered a lecture about service engineering in their technology management course. Once the lecture had been offered for a certain amount of time, it became highly popular. The Technical University of Vorarlberg successfully offered the lecture as well in their continuing education studies M. Sc. Integrated Product Development. It was also tied into the applied computer science studies and offered by the Department of Computer Science at the University of Leipzig. The universities of Furtwangen, Vorarlberg, and Karlsruhe have been noted to provide further lectures of a similar type. Further inquiries on the utilization of existing material for education have been made to the author of this text. The cases discussed so far are from the fields of engineering and applied computer science. Another field of application for the insights gained is business studies, especially in the areas of industrial engineering, information management as well as marketing and, naturally, service management. Lectures about service engineering are especially introduced in continuing education due to their high relevance for practice, the quality of the results obtained, and the way they top off information provided about the field. This applies specifically to the University of Zurich (graduate studies in service management) as well as the University of St. Gallen (graduate studies in marketing/services). The universities of Aachen, Dortmund, and Munich teach contents from service engineering in lectures at accordingly specialized chairs and institutes. Based on this analysis, this can be considered a tremendous success for a core research area. This success, however, still falls short of the institutionalization of the field in university education that could be expected.

2

Is There a Need for Independent Services Science Education at Universities?

Although there is clear evidence for the necessity of graduate, post-graduate and continuing education in the field of services science, the first hypothesis of this article is:

105 •

There is only a very limited need for independent services science education at universities; there is rather a high need for transformation of existing curricula.

There is no economic sector where a more dramatic shift of focus can be observed than in information and communication technology (ICT). In the 1960s and 70s, the sector was entirely dominated by the hardware business, while in the 80s software as a product was established, and in the late 90s software outperformed hardware. In the 90s, "services" was recognized as the fastest growing sector in ICT. In 2006, IBM, as the market leader, declared itself to be a Service Enterprise (more than 50% of turnover in billed services) and initiated a campaign for a "services science". Within 50 years, this fast growing industry had to be completely reorganized three times. The academic capacities in computer science were built up rapidly worldwide. They originated from mathematics faculties on the one hand and from electrical engineering faculties on the other. These established disciplines dominated education in computer science for three decades. Only gradually was their influence reduced (with respect to the contents of curricula). It has to be accepted that education at universities is at least 10 years behind the demands of the industry. In addition to that, it is questionable whether research – at least in Germany – addresses the right topics. Assuming this analysis is valid, it is evident that by 2015 or 2020, services science can (and probably will) be established widely in education. Moreover, the contents of a "services science" curriculum have to be discussed presently. For such a multidisciplinary field, it is extremely difficult to establish a recognized and standardized program. The focus for the next 10 years will be put on experimenting with content and building a community. This analysis might appear to be rather defensive. In the following sections of this article the way forward will be discussed.

3

Which Topics Should an Academic Services Science Education Address?

Assuming that the argumentation of the preceding chapter is correct, there is no need for a consolidated services science education. Nevertheless, it is highly desirable for an initial "virtual" curriculum to emerge soon. This

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would, in line with the argumentation developed so far, help enrich the established lines of education with "services science" for the next 10 years. This virtual curriculum should be organized in self-contained modules (lectures, exercises, seminars, advanced topics). They could be: •

Service creation

•

Service engineering/service innovation/CASE/prototyping)

•

Service operations and management/working systems and sociotechnical design

•

Service marketing/customer interaction

A dominant role of one specific topic should be avoided. Nevertheless, different topics will be selected by different scientific disciplines. The modularization of the virtual curriculum supports this usage pattern.

4

What Are the Challenges of Establishing Services Science at Academic Institutions?

Services science should be implemented as a multidisciplinary effort. This means that the topic would be developed by cooperative scientific units in a virtual, collaborative structure. Establishing this worldwide structure is a major challenge. The structure could consist of several building blocks: •

An international conference with corresponding regional and national conferences must be established.

•

Corresponding to this effort, an international organization must be founded with national chapters hosting the conference.

•

In addition, a "handbook of services science" must be edited. Moreover, several text books and collections of case studies with worldwide access are needed. Journals in this field must be introduced.

•

A worldwide community should be created in line with the other activities. It should be structured into focus groups.

This approach does not concentrate on specific locations (e.g. universities). Rather, it focuses on rapidly forming an adequate worldwide infrastructure for dissemination. In order to build up this infrastructure, a concentration of expertise at certain locations is necessary rather than a broad development of services

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science competences. For this purpose, about 40 to 50 Centers of Excellence must be developed and networked worldwide. For Germany this would mean 2 to 3 Centers of Excellence and for Europe a Network of Excellence with 10-12 participating universities or – very importantly – industrial laboratories.

5

How Can Services Science Be Anchored Within the Context of Continuing Academic Education?

The strategy outlined so far offers the answer to this question. Combining top-down initiatives (Centers of Excellence; virtual curriculum) and bottom-up initiatives (formation of communities) is the adequate solution. Universities and their respective faculties can tie in services science at the level that fits their specific needs: a course, a module, a set of modules for a dedicated specialization in an established Bachelor's or Master's program, or a self-contained study course as the "premium product" at dedicated locations. The following figure shows a possible increase in integration of a field in education within the conditions of the so-called "Bologna Process". The field develops from level 1 (individual lecture) to level 2 (module) on to level 3 (consolidation) and then into its own study course. The field of service engineering has reached level 1 so far, while first advances into level 2 and even level 3 have been made. As of today, no attempts at establishing a corresponding study course are known of.

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LEVEL 4 Individual study course/degree at least 3 chairs LEVEL 3 Consolidation in advanced studies or in Bachelor's/ Master's courses 1-3 chairs LEVEL 2 Integrated module according to the Bologna Process 1 chair LEVEL 1 Individual lectures as elective or mandatory classes with or without corresponding exercises

1 chair

Figure 1: Increased establishment in academic education

It currently seems realistic to design a module for higher education. This would be equivalent to 20 credit points and could encompass 2 lectures (service engineering and service management), 2 seminars (case studies, IT-based services in computer science) as well as a group internship with six participants per group (see Figure 2). Once quality assured, this module could be used in various settings in engineering science, business studies and applied computer science. For that purpose, a curriculum should be designed and implemented.

LECTURES

Service Engineering

Service Management

SEMINARS

Seminar Case Studies

Seminar IT based

Group internship with 6 participants each

Business internship

INTERNSHIP

Figure 2: Structure of a module on "service engineering and management"

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There are currently at least three networks in the world, with the German centers being Stuttgart, Aachen, and Munich, which cooperate in education. German research in the field of service engineering now has the chance to set a worldwide standard for education in this field and therefore significantly and sustainably coin services science from an engineering point of view.

The Perspective of ABB Automation GmbH Gerhard Heckelmann

For the sake of clarity, I'd like to point out in advance that •

I am focusing on technical services

•

I am convinced that we in Germany cannot live exclusively by service from one company to another and vice versa

•

The challenge for service is to help customers improve their competitiveness and to export leading service methods, tools and expertise

What are the current weaknesses of service education and training? The economics in Central Europe are more or less those of a brown field industry. Instead of investing in new equipment, customers are forced to strive for new and better ways of improving their competitiveness. This will engender a change for service businesses, taking them away from maintaining, fixing and repairing products and turning them into providers of support and solutions. The main focus will be: how can service help customers improve competitiveness by providing support and solutions and increasing Overall Equipment Effectiveness? We have excellent and experienced service engineers who focus on maintaining, fixing and repairing their own products and systems. Providing support and solutions for customers' requirements, especially those that involve interaction with third party products, demands new skills, which calls for specific engineering studies combined with practical experience and best practice methods and tools. Is there a need for independent services science education at universities? Germany and Central Europe alike need further products for markets locally, as well as for export. Today, we still focus on new products and systems but this is obviously not enough for growth and employment. Service is said to be the future for Germany. If this is so, we have to be a front-runner in providing service solutions and capabilities. Two things are necessary: •

A specific "services science" to develop new, high-level services

112 •

A specific "service education" for service engineers

I firmly believe that we need a mix of services science education, in other words •

Independent

•

In strong cooperation with companies

•

By companies on their own

What topics should an academic services science education address? Such an education should cover new aspects like •

Interaction between components and systems of different suppliers

•

Best practice methods and tools

•

Maintenance consulting

•

Solutions and support for modernization/migration

•

Overall equipment efficiency

•

Operational security

•

Analysis and improvement of administration

•

Service commercials

•

General service management

How much sectoral and intersectoral content should services science include? I am convinced that there has to be strong intersectoral content between universities, service providers and end customers. Of course, the degree of intersectoral content depends on the different educational targets. What are the challenges of establishing services science at academic institutions? The main challenges are: •

Services science has to become a front runner and a pioneer in new services

•

Cooperation with industry and service providers is essential

•

A smooth approach is needed because there is widespread intellectual agreement about future requirements but no real demand in the market yet

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How can services science be anchored within the context of continuing academic education? After basic studies in electrical, mechanical or process engineering, services science may be implemented as a specialized course of studies in the last 2-3 years. What role should business play in establishing services science as an academic discipline? Services science should develop in close interaction with customers and service providers. Studies at university should be supported by periods of practical experience with a service provider, similar to the approach adopted by business academies.

The Perspective of AFSM International Markus Schwarz

What are the current weaknesses of service education and training? I see good progress in education programs for service managers. On the other hand, I do think there is a big gap between people who want to start up in the service business and those who have made their own career in service. I've worked for a big call center company in Germany for a long time. And my experience is that we have no education programs for those people. Is there a need for independent services science education and training? I'm convinced that we need services science education and training. We have a lot of private companies working in this business. But people need a certificate from an independent institute. The value of a certificate like that is higher. What topics should an academic services science education address? From a pragmatic point of view, I'd put the points in the following order and priority: •

Basics of service

•

The links between sales and service (this is the biggest challenge for companies)

•

Service development

•

Research and development

•

Control of service delivery

How much sectoral and intersectoral content should services science include? In my experience, the biggest mistake is separating service development and sales. The clients tell you what they want. The opinion of the clients is what counts.

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My answer is that you must have a good link between your sales and your service development. This is the most important point. I think students need to do internships in the industry during their studies. What are the challenges of establishing services science at academic institutions? The most important thing is that a country must give priority to its education programs! In Germany you can see in the political economics of the matter: •

Agriculture is in decline

•

Industry is stagnating

•

The service business is the only sector showing growth

How can services science be anchored within the context of continuing academic education? The experience of the AFSMI is that we wanted to establish a complete course of studies in service. We were in discussions with the leading industrial companies, the leading universities and the Ministry of Education. That was five years ago. This is a big challenge in Germany because of the bureaucratic obstacles. Now we are working with colleagues of the AFSMI. They act as guest lecturers. What role should business play in establishing services science as an academic discipline? There is a business for education! I think service education is new. What we need today are good links between the industry and the universities.

Part 4: Services Science – Focus Collaboration

Services Science – Where Practice Meets Theory Kai Engelmann

1

Introduction

The importance of the service sector for the economic and social development of Germany is beyond all question. The tertiary sector employs around two-thirds of all workers in Germany and contributes approximately 70% of gross value added. Services are vital to the economy as a whole. All the more remarkable, then, that innovation is still rather neglected in this area. In industry, no one questions that research and development is an essential cornerstone of every innovation strategy. But in the service sector – where innovation likewise underpins growth and competitiveness – the importance of research and development has still to be universally recognized. An environment must be created that promotes innovation in the service industry. We propose introducing the field of "services science" as a central part of such a strategy. This chapter is therefore a call for the creation of a new, service-oriented academic discipline. Our argument has three strands, discussed in three separate sections. Section B recounts how services have developed into the dominant sector of the German economy. We are particularly concerned here to show the key role that knowledgeintensive business services play in growth in employment. Section C describes the development of the service sector within the context of the knowledge society. The central theme here is the significance of knowledge as a resource and the link between knowledge, knowledge production and innovation. Section D discusses how processes of innovation in the service sector can be promoted using new models of cooperation between academia and industry. Here, we describe our vision of the academic field of services science and sketch out what areas it might comprise.

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2

2.1

Services – Their Characteristics and Importance for Growth and Welfare In the Past Four Decades, the Winds of Economic Change Have Been Blowing in Favor of the Tertiary Sector

Toward the end of the nineteenth century, a violent and bitter argument raged in the German Empire. The bone of contention? Was Germany an industrial state with an additional agricultural element, or an agrarian state with an additional industrial element? Some 100 years on, the questions facing us are similar. Should we consign the industrial society to history? Does the future now belong to the service-based society? At the end of the day – in the 1990s as in the 1890s – economic facts represent the strongest arguments. In Germany and elsewhere in Europe, the figures and statistics confirm the three-sector hypothesis: national economies develop over time from agrarian into industrial and ultimately into service-based economies. The pattern is clear when we look at the employment structure over the long term, sector by sector. At the beginning of the nineteenth century, two-thirds of all people in work were still working in agriculture. By the middle of the nineteenth century, this figure had dropped to 55%. And at the beginning of the twentieth century it was just one-third. At the same time, the number of people working in industry was on the up and up. In the 1880s, industry overtook agriculture in terms of value creation. And at the dawn of the twentieth century it caught up – and then overtook it – in terms of employment. In Europe at least, the industrial sector remained economically dominant for many years. Unlike in the US, the European service sector still played second fiddle to industry in the mid-twentieth century. In 1949 the French economist Fourastié published his book "The Great Hope of the 20th Century". In it, he portrays "tertiarization" – the transformation from an industrial to a service economy – as the great hope for the future of European states. His arguments fell largely on deaf ears. The period after the Second World War saw high demand for consumer goods and a need for capital goods to make up for war damage. This provoked a post-war boom in industrialization in Europe. Cigar-puffing chancellor Ludwig Erhard and the smoke-puffing factory chimneys became metaphors for the German economic miracle and the promise of "prosperity for all". By the mid1960s, about half the working population was employed in industry, and the secondary sector had reached the peak of its significance for the Ger-

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man economy. Since that time it has been losing weight. The process of tertiarization is proceeding full steam ahead. Tertiarization means that the service sector is growing in importance compared to other economic sectors. The statistics leave no doubt of this. In 1960 the tertiary sector contributed 40.1% to gross value creation in Germany. Today, the figure is 70%. Likewise, in 1970 just 44.9% of workers in West Germany earned their daily bread in the service industry. By 2004 this had grown to 70.4% – and rising. If we look at total job figures, all the new jobs created in Germany have been in the service industry. Thus, between 1990 and 2004 the number of people working in manufacturing fell by around 1.9 million. In the same period the number working in the service sector grew by 3.4 million (see Figure 1). 26.9

27.7

24.3

Employees in services in Germany [% of total workforce]

18.1 14.7 12.4

70.4

15.8 59.7

13.3 44.9

11.9

1970

11.1

11.3

10.5

11.1

1975

1980 1985

1990

Services

12.2

1995

11.3

2000

10.3

2004

1970

1990

2004

Production

Figure 1: Employees in Germany by sector [million] (Source: German Federal Statistical Office; ZEW)

Other figures also show the impact of this structural change on the labor market. New jobs created today are primarily in the area of knowledgeintensive business services. Between 1998 and 2002, for example, some 11% more jobs were created in the area of information and communication services each year. Even in the non-technical consulting and research service arena, employment rose a clear 7% per annum. The total number of new jobs grew by 2.8% each year in knowledge-intensive services and 1.6% each year in straightforward services. By comparison, employment in the economy as a whole grew by just 0.3% over the same period. In the industrial sector it fell.

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2.2

Services Have a Positive Impact on the Labor Market – New Jobs Are Created Mainly in the Knowledge Sector

There can be no question that services – and above all knowledge-intensive services – will remain Germany's most important "job machine" in the coming years (see Figure 2). The tertiary sector needs to continue growing to compensate for expected job losses in industry. Overall, the signs are that the service sector will continue developing positively. New, currently under-served markets are opening up, for example in information, education and health. Also, the numbers of older people – an important target group for services – are growing. Total changes in the business economy

-0.7

Manufacturing industry -3.0 Total simple services Knowledge-intensive services total Healthcare services Media services Non-technical R&D Information and communication services

0.7 1.6 1.1 2.7 5.2 7.6

Figure 2: Annual average changes in the German workforce, 1998-2004 [% p.a.] (Source: BMBF, Destatis, Roland Berger calculations)

The service industry injects energy into the labor market. Its role in the fight against unemployment cannot be overstated. New job opportunities have emerged – and will continue to emerge – in the tertiary sector, as most of the past decades' successful startups have been in this very sector. Progress in communication and information technology (CIT) has made new business models possible. After all, without the Internet we would have no Amazon, no eBay and no Google – all of them flourishing servicesector companies.

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2.3

The Tertiarization of Industry – For Manufacturers, It Pays to Incorporate Services in the Product Portfolio

The service industry has grown in importance not just in comparison with other areas of the economy. It has also increased its role in the industrial sector. Today, some 38% of all companies in the German manufacturing industry offer product-related services, generating around EUR 52.6 billion in service sales. Structural transformation within the industrial sector is set to continue. Services are becoming more and more important. Products and services are more closely integrated than ever before. For customers, one-stop shopping has become the norm. More and more, physical products and services are being offered as complete packages (see Figure 3). Product-related services are also an effective way to make yourself stand out from the competition. Offering innovative pre- and after-sales services can exploit additional potential for value creation. In most sectors of manufacturing in Germany, product-related services are gaining in importance. In electrical engineering they account for 19.6% of total revenues, and 8.9% in mechanical engineering.

Monitoring and diagnostic services

Purchase finance and leasing facilities, delivery

Purchase and operation of related support activities; expert advice/ consultancy

Share of product-related services in total sales in Germany 2002 [%] 19.6

PHYSICAL PRODUCT Retrofitting and updating

Repurchase and/ or disposal

8.9

Maintenance and repair

Electrical engineering

Mechanical engineering

Figure 3: Encapsulation of services and manufactured products (Source: Destatis)

The services offered to customers by manufacturing companies cover a broad spectrum. They range from setting up factories and maintaining machines to offering financing solutions that allow (or help) customers to buy the products in the first place. The Volkswagen group, for example, earned profits approaching EUR 700 million in 2005 from its financial services subsidiary. Other automakers also have flourishing financing businesses that make a not inconsiderable contribution to their consoli-

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dated profits. Indeed, experts estimate that some 18% of the money made during the lifetime of an automobile now comes from the associated financial services. IBM is an example of a company that has completely outsourced production. By the 1990s the company was already earning more from services such as software, consulting and concept design than from the production of hardware. Outsourcing all of its production was therefore simply the next logical step. The rise of services in the industrial sector – its tertiarization – is further evidence that focusing on services creates more jobs. Figure 4 shows how employment has developed in companies with varying degrees of services. The figures pull no punches: the greater the degree of services, the stronger the growth in jobs. The same goes for profitability. Companies that offer more product-related services enjoy higher profit ratios than comparable companies offering a narrow range of services. Automotive Suppliers

Mechanical Engineering

79.6

47.3

22.0 13.0

8.9

-9.1

0%

0-5% SERVICE SALES

>5%

0%

0-5%

>5%

SERVICE SALES

Figure 4: Employment trends in businesses with varying degrees of services in Germany 2000-2003 [%] (Source: Frauenhofer ISI)

2.4

Innovation in Services – Different, but Not Inferior, to the Traditional Research and Development Approach of the Manufacturing Sector

Much of what has been written and said about innovation gives the impression that it is a matter concerning only the industrial sector. The im-

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portance of innovation in services is often underestimated. This misconception must be corrected. The transfer of Germany's traditional strength in innovation to the service industry is now long overdue. The most promising future markets are, in fact, by and large in the service sector both within Germany and around the world. Germany can only keep up with the global leaders in terms of innovation and competitiveness if it starts giving the service industry the weight it deserves. Innovations easily jump across sectors – innovations in the area of services can inject new energy into manufacturing. And products can often be distinguished from the competition by adding on innovative services. On a microeconomic level, there is widespread acknowledgement of the growing importance of innovation. Many service companies have long been aware that innovation is a precondition of market success in the medium and long term. Most firms have now instigated a process of continuous innovation. This is confirmed by the statistics. Figure 5 shows the proportion of innovative companies (companies that introduced at least one innovation in the last three years) in different sectors of the service industry. IT/Telecommunications

70

Tech./R&D providers

67

Media

60

Banks/insurance

50

Mgmt. consulting/advertising

48

Housing/rent

39

Retail

35

Wholesales

34

Transport/post

31

Figure 5: Share of innovative companies in selected branches of the service industry in Germany 2004 [share of companies in %] (Source: ZEW 2005)

The innovation ratios in the industrial sector and in services are broadly similar. This can be seen in Figure 6. However, in terms of the share of revenue stemming from market innovations, the service industry lags behind somewhat. Industrial firms generate 7.6% of their revenue from innovations. For providers of business services, the figure is a mere 4.9%.

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Industry

Business services

65

65 59

63

Distributive services

62 57

38

1997

2003

2005

1997

2003

2005

2000

34

2003

37

2005

Figure 6: Innovation ratios in Germany [% of German companies] (Source: ZEW 2005)

Comparing innovation ratios is a useful exercise. But innovation in the tertiary sector is of quite a different nature from innovation in manufacturing. We need to look at different indicators. Just as services have particular characteristics, so do their innovations and the innovation process itself. It would be wrong to judge innovation drives in the service sector by the same yardstick as we use for industry. Traditional indicators – such as R&D spend – are misleading when applied to services. Measuring R&D spend makes sense for industrial companies: the amount of money they invest in laboratories, staff, materials and so on, is usually a good indicator of their research activity. In the service industry, however, the technological input in R&D is much lower. As a result, the figures fall beneath those of industry. But this does not mean that no R&D is taking place in the tertiary sector, or that the service sector is weak on innovation. "Servicesector companies are innovative in a different way. Clearly, they invest heavily to develop new services in response to changes in the market, but only a small proportion of this investment is in conventional research and development of the kind picked up by official statistics." (Ronald Mackay, EU Commission.) So, what are the key differences between innovations in the service sector and those in industry? Let's look first at what makes services distinct from other products. They have a number of particular characteristics: •

They are intangible goods

•

They are interactive, with a high level of customer contact during the process of creation, delivery and consumption

127 •

They are bound to a particular time and place

•

They are tailored to specific customer needs

Innovations in the service sector also follow a number of specific principles that are based upon these characteristics: •

Innovations in the service sector affect not only products and processes, but also the shape of the interaction with the customer

•

They are difficult to patent and protect

•

They are less technology-focused

Innovations in the service sector cannot be managed in the traditional way via R&D. More important are factors such as the qualification levels and motivation of staff, an innovation-friendly atmosphere and general social trends. Here, the development of a knowledge society and the production of knowledge as a key resource for innovation in services are of particular significance. The next section examines these areas in detail.

3

3.1

Creating Knowledge in a Knowledge-Based Economy Knowledge – The One and Only Source of Lasting Competitive Advantage

The "knowledge society" has been a key concept in social and political discourse since the 1990s. Skeptics argue that the term is simply new skins for old wine – the latest trendy buzz word for something we have known about for ages. But is there more to it? Has the dawning of the third millennium seen an economic and social "paradigm shift"? Historically, knowledge, science and education have always played a key role in economic growth and welfare. However, when we talk about today's knowledge society, we are making the point that knowledge has become the primary force shaping social and economic processes. A key factor here has been the rapid progress in information and communication technology (ICT). In fact, the question of whether we are already a knowledge society, or are still in the process of becoming one, is somewhat academic. From a practical point of view it is clear that we are currently in a phase of fundamental structural change. Earlier, in the transformation from

128

agrarian to industrial society, land lost importance as a production factor compared to capital and energy. This did not take place overnight, nor was the process absolute, but there was a noticeable shift in the balance of production factors. The same thing is happening now as the industry-based economy gives way to the knowledge society. Knowledge is becoming more and more important as a production factor. Today's companies must sit up and take notice. Peter Drucker and other experts in management theory stress the importance of knowledge as a company resource: "In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge." In other words, the production, dissemination and exploitation of knowledge tip the balance in favor of market success. This adds focus to our discussion of innovation. The ability of companies to innovate – their "innovation capability" – is a key factor in competitiveness. The success of companies in innovating is determined above all by whether, and to what extent, they are able to use internal and external knowledge to generate new goods and services. One of the central strategic challenges facing companies now is how best to deal with the knowledge resource – "knowledge management" in the broadest sense of the term. But what exactly do we mean when we talk about knowledge? The question is not as straightforward as it might at first appear. All too often, the differences between data, information and knowledge are only hazily understood. "Knowledge arises […] from the transformation of data (the raw material) into information (the building blocks) and finally, through a process of conscious reflection, into new elements of knowledge." Rolf Caspers' definition makes it immediately obvious that knowledge management means rather more than just organizing data and information. Fredmund Malik stresses the point: "In today's situation, knowledge has nothing to do with computers and IT. It has to do with brains – or rather with understanding and reason. To put it plainly, knowledge is what you find between two ears, not between two modems." Human beings are not data-processing machines. Generating knowledge is not about processing objective information objectively. In fact, knowledge is not an objective product – it's a subjective construct. So, is it really possible to organize, plan and control knowledge? Can we really talk about knowledge management as a concept? Knowledge creation expert Ikujiro Nonaka thinks not: "It is our strong conviction that knowledge cannot be managed, only enabled". This is one of the key tasks of management:

129

steering the process of knowledge generation and dissemination within the company, and promoting the creativity of those involved in the process. Yet, dealing with the knowledge resource is getting tougher and tougher. The digitalization of information and the rapid progress in information and communication technology has led to an explosion in knowledge. According to experts, the amount of knowledge available worldwide will double every five to seven years. At the same time, the shelf-life of knowledge is decreasing rapidly. As our stock of knowledge increases, so it becomes more and more quickly outdated. What are the consequences of this for the production of knowledge in a knowledge society? The following section attempts to answer this question.

3.2

Increasing Knowledge Intensity Sets New Rules for the Production of Knowledge

Since Adam Smith, it has been accepted that the division of labor increases productivity – and thus welfare – in society. Friedrich A. Hayek introduced the analogous term "division of knowledge". This refers to both the process of specialization in knowledge production (and therefore the fragmentation of knowledge into special systems) and the combining or recombining of fragments of knowledge and their dissemination for the benefit of society. The different subsystems of a society – its economy, politics, science, legal system and so on – are based on the functional differentiation typical of modern societies. The production of knowledge within these subsystems has contributed to a general increase in efficiency and effectiveness. However, with increasingly complex problems and a constantly expanding knowledge base, knowledge production – which is based on the division of labor – is straining at its limits. To overcome these limits, we now need to create an exchange or network between the various subsystems for the sake of knowledge production. The same goes for companies. Increasing knowledge intensity requires the integration of external and internal knowledge. Figure 7 provides an overview of the instruments that companies can use to achieve this.

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Effectively managing human resources • Hiring experts • Creating multidisciplinary research teams to broaden knowledge base Establishing appropriate organizational structures • Setting up dedicated business units that scan the environment to develop more expertise • Institutionalizing cooperation with other firms Forging effective networks and linkages • • • •

Participating in networks Cooperating closely with suppliers Working closely with customers on new solutions Establishing joint projects with research

Figure 7: Instruments for integrating external and internal knowledge (Source: OECD)

3.3

The Knowledge Market Is Growing – New Possibilities and Challenges for Knowledge-Intensive Companies

The explosion in information and shortened shelf-life of knowledge are making things increasingly tricky for businesses. Firms are finding it harder and harder to locate (or generate) the knowledge they require without external help. Often they simply lack the time, money or expertise. At the same time, the knowledge resource is becoming increasingly important for the ultimate success or failure of a company. These factors have brought about the creation of a market for the provision of knowledge. Its main players are the so-called knowledge companies, who specialize in the production and processing of knowledge. They produce, exploit and organize home-grown and externally produced knowledge to build solutions to their customers' problems. The knowledge sector is one of the major growth markets in the German economy. The share of knowledge-intensive business services in gross value creation grew from 14.0% to 16.9% between 1991 and 2000. And new jobs are appearing in this sector like in no other. Employment rose by around 7% annually in the field of nontechnical consulting and research between 1998 and 2003. This compares with just 0.3% growth in jobs in the economy as a whole. Among the providers of knowledge-intensive business services, management consulting firms have enjoyed particularly strong growth. Consulting

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firms are a classic example of knowledge companies. They provide a good illustration of the types of challenges faced by such companies, as summarized in Figure 8. TIME Aspect

PHYSICAL Aspect

OPERATING Aspect

• Considerable volatility of knowledge

• Lack of ability to generalize (no theories or rules)

• Impossible to completely store knowledge

• Knowledge is highly dependent on the context • Increasing momentum of information creation

• Strong dependence on individuals (didactic competency/soft skills) • Reputation and brand have considerable importance

• Necessary to constantly regenerate knowledge, because providing knowledge can compromise knowledge sources

Figure 8: Characteristic challenges facing knowledge companies – example: management consulting firms

Consulting firms must rise to the challenges and find solutions to increasingly complex problems. To do so successfully they, like other knowledge companies, need to cooperate with other "knowledge producers" in different subsystems within the knowledge society. As noted above, individual players are no longer able to generate the knowledge they require "off their own back". They need to start working with partners such as academic institutions. The differences in approach, background and experience between companies and academia can lead to highly creative collaboration in knowledge production. In the best-case scenario, there are benefits for both sides – a win-win situation. The real world generates new questions for academia and vice versa. For partnerships to be successful, both parties must contribute their own particular strengths, as shown in Figure 9. Successful cooperation between organizations (or across subsystems) relies critically on both parties maintaining their own identity. The differences in incentive systems, values, motivation and behavior should be respected, not watered down or removed. It is this diversity that enriches a partnership.

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Knowledge-intensive business services

Academia

• Market relevance • Focus on practice • Methodological competency in conducting research projects (project management)

• Theory

COOPERATION

• Methodological competency • Systematic and objective findings from metaobservations

Figure 9: Cooperation between business and academia: a win-win situation

4 4.1

Supporting Innovation in Services The Framework for Innovation in Services Has to Be Improved – Cooperation Is the Magic Word

In Section 3 we described the framework for knowledge production in the knowledge society. As we have seen, successful innovation processes are well-nigh impossible if companies rely entirely on their own sources for input. This also applies to innovation processes in the service sector. Here, small and medium-sized enterprises with between 5 and 500 employees make up a large proportion of all firms. This size of company often lacks the internal capacity needed for generating knowledge. Instead, it must rely heavily on external input (see Figure 10). And yet – tragically – most traditional publicly supported research and development projects have been designed with the needs of larger enterprises in mind.

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Manufacturing

Employees per company in Europe [no.]

Services

38

Finland

53

27

Italy

45

30

26

25

France

18

Germany

16

6

Industry

Business services

Figure 10: Share of innovative firms benefiting from public support programs (Source: OECD/EU)

Raising the level of innovation in the tertiary sector is enormously important for the development of Germany as a business location. The yawning gap between the economic importance of service organizations and their innovation output must be closed as a matter of urgency. One promising way to do this is via cooperation in research and development. Mediumsized firms in particular are open to this form of cooperation with external partners, above all universities. Given this basic readiness to cooperate, it is regrettable that partnerships between business and academia do not always run smoothly in practice. The current types of interaction practiced exhibit several weaknesses. In particular, many partnerships are designed with a short timescale in mind, or are linked to a specific project. In this situation, no long-term partnership is established between the two organizations. Moreover, tacit knowledge often plays a key part in service innovations. This type of knowledge is located on the level of the individual. It is difficult to codify and therefore difficult to pass on. Turning tacit knowledge into explicit knowledge – and transferring it from one organization to another – calls for close personal contact between the partners. For this, lasting networks are required that establish the partnership firmly in the institutions. These networks can overcome the constant barriers to cooperation between business and academia. From the perspective of companies, the barriers include the following:

134 •

Academia lacks an understanding of current problems and challenges in the global economy

•

There is a lack of focus on service innovations

•

Cultural and language barriers complicate the cooperation between business and academia

•

The timelines of business and academia are different

•

Incentive systems are different (practical cooperation is not rewarded in the academic community)

•

Cooperation is often based on a close personal relationship between a specific business person and an academic – such relationships cannot be reproduced or built on

To overcome such barriers, a new model of cooperation is needed. We present such a model in the following section.

4.2

Services Science – A New Model of Cooperation Creates a Win-Win Situation for All and Overcomes the UnderRepresentation of Services in Academia

Academia fuels innovation in the service sector. The service sector cannot do without it. All the more regrettable, then, that the academic world has played only a minor role in the service sector to date. Evidence for this assertion is not hard to find. In particular, in Germany: •

There are very few university chairs specializing in services

•

A small number of university chairs and research institutes deal with service-related areas

•

No academic journals exist for research in services

Increasingly, voices of protest are being raised against this disparity between the importance of the service sector and its representation in German universities. "The academic sector is currently the least important actor in service innovation," writes the OECD. It continues in the same vein: "Promotion of service innovation requires a significant improvement of academic services science education." This is a sentiment echoed by Henry Chesbrough, Director of the Center for Technology Strategy and Management at the Haas School of Business, University of California: "Service management should become an academic discipline – managers urgently need good research findings."

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Our vision of a solution is a response to this call for action. By establishing services science as a discipline, Germany can position itself as an academic pioneer in this flourishing sector of science and industry. We believe that services science should combine an interdisciplinary approach and a strong practical orientation. It must meet the following criteria: •

Services science should function as a melting pot for business people and academics. The aim should be direct cooperation between theory and practice, each inspiring the other.

•

It should be an interdisciplinary field. Critically, it must integrate the various disciplines that touch on complex aspects relating to services – business, law, social sciences, engineering, medicine, IT and so on.

•

Innovating innovation is the name of the game. The goal is to establish a new model of cooperation between various academic disciplines, and between business and academia.

•

Services science must create a joint system of incentives for all the parties involved. This means that everyone will have the same interest in finding solutions. Traditional partnerships between the academic and the business worlds have often been limited by the fact that the academic community does not sufficiently reward partnerships with industry.

•

The concept of services science includes the creation of a new qualification in the medium term. This should not be restricted to fulltime students – it should also be offered part time for people working in appropriate professions. Properly qualified staff are a prerequisite for improving innovation performance and hence competitiveness.

A discussion process is needed to add the fine detail to our concept. Below, we suggest some of the areas that should form part of the academic discipline of services science – our first thoughts on a framework curriculum. The qualification in services science would follow on from a bachelor's degree in economics or a technical subject; those successfully completing the course would be awarded the title Master of Services Science. The course would provide training in the following areas: •

Managing service innovations

•

Setting up, managing and developing service companies – general management and all other operational positions

•

Using technology innovations to create new or more productive services and service companies

136 •

Extensive networking of service companies – with industrial companies and sectors of industry, other branches of the service sector, and also with national and international capital markets

•

Managing the internationalization of services and service companies

The advantages of establishing services science as an academic discipline should be self-evident. Below, we summarize the positive impact of such a step. In the short term we envision: •

The establishment of services science as a practice-oriented field of study and research

•

Improvements in service innovation and the development of more knowledge-intensive services

In the medium to long term, there would be still further advantages: •

New qualifications will lead to better vocational training

•

Establishing research into service-related topics at universities may bring about a quantum leap in innovation and productivity in the service segment

•

Academic competitiveness will be strengthened on the international level – US universities are already in the process of setting up courses in services science

•

Services science will make an important contribution to the underlying scientific and practical basis for structural change. It will increase the competitiveness of the strongest sector in the German economy

To sum up, establishing services science as an academic discipline offers Germany a unique opportunity to combine its excellent business, engineering and social science expertise with knowledge dealing specifically with services. In so doing, it will significantly increase the competitiveness of the country's strongest economic sector. For Germany as a business location, this is too good an opportunity to miss.

Services Science with a Focus on Academia and Company Collaboration Bo Edvardsson, Anders Gustafsson

1

Background, Point of Departure, and Aim

Many countries in the western world are trying to encourage government, academia, and companies to work more closely together in an effort to enhance the innovation process. Academics benefit from research funding from companies and public organizations and companies benefit from the assistance they receive from academics in their business development efforts. Companies need continual renovation, but time for such renewal is always limited. They tend to have a short-term perspective and most often strive for new knowledge and technology to apply or use in their own business rather than to co-create with scholars or to include other companies in different research programs. Sometimes the information is proprietary and sharing knowledge and experiences may harm the competitive advantage. It is often easier to focus on the risks rather than to identify opportunities. If there is no clear basis for collaboration which goes beyond documents, formal agreements, and schedules with roles and responsibilities, we cannot expect many results within the service research field over a longer period of time. People collaborate with people – not with organizations! An approach now widely accepted for conducting research, promoting growth, and contributing to a competitive advantage at a national or industry level is the Triple Helix approach. Triple Helix means that government, academia, and the public and private sector cooperate to realize a common vision. The leaders in the three spheres of organizations coordinate their resources and find a common way to carry out research, to produce new knowledge, and no less importantly, to make sure that the outcome is used in an effective way. The aim is to create and manage innovation systems and clusters in which ideas, programs, and projects are formed, financed, supported, and carried out in a way that satisfies the needs of these three groups of stakeholders. The word helix comes from the Greek and means spiral. As a metaphor it denotes a positive development when society, universities, and the business community collaborate.

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Collaboration between government organizations, academia, and companies is a difficult but rewarding endeavor for all parties. The discussion in this paper is based on our own experience as scholars and directors of a research center within the social sciences field at CTF – The Service Research Center at Karlstad University in Sweden. Our research focuses on value creation through services, and CTF collaborates not only with traditional service companies but also with public service providers and manufacturing companies transitioning to become service providers focusing on service concepts rather than on physical products. We have over 20 years' experience collaborating with companies and governmental organizations. This chapter highlights some of the challenges we have faced and what we see as major challenges of the future. As professors of business administration, our focus is on service research. We will adopt this perspective when we present and discuss our views on academia and company collaboration in the area of service research and services science. The service revolution will be an important overall framework for the discussions and approaches in areas such as services science, service engineering, and the service dominant logic. The aim of this paper is thus to discuss the phenomenon of academia and company cooperation in general but with a special focus on how to manage the dilemma of varying motives for this cooperation. We will discuss this dilemma from four different perspectives: (1) the reasons behind the cooperation both from a business and an academic viewpoint, (2) how to organize the cooperation and agree on the basic roles and responsibilities, (3) financing and (4) mutual learning. We will draw upon our own experience at CTF. We begin with a short presentation of CTF and continue with questions about why companies cooperate with academia. We go on to describe how the cooperation may be organized and what can be achieved. Finally, we discuss three contradictions or dilemmas in the cooperation over a longterm period and suggest areas for future research and what companies, government organizations and research funds should do to support more dynamic cooperation between academia and companies within a service perspective.

2

CTF – The Service Research Center at Karlstad University

The Service Research Center – CTF – at Karlstad University is one of the world's leading research centers focusing on service management and

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value creation through service. CTF was established in 1986 and today numbers 50 researchers and research students. Professors and senior research fellows are associated with the center as research supervisors. CTF is involved in research, undergraduate and graduate education, and networking in the areas of management and organization in service operations. The group of researchers at the department is multi-disciplinary, including researchers from business administration, psychology, sociology, and working-life science. The majority of researchers have a social science background and this is heavily reflected in the type of research we do, but we also have researchers with an engineering background. The research center is dependent on financing from industry and research institutions; more than 80% of our financing originates from outside the university. The research carried out at CTF does not cover all aspects of service management; we focus on the following themes: •

New service development or user-driven innovation

•

Public transportation and how to make this industry more customer oriented

•

Human relationship management

•

Organizational development in governmental institutions

Our research is not limited to these areas. We also research IT-related stress and the church as a service provider, for example.

3

The Reasons Behind the Cooperation Both from a Company and a Scholarly Viewpoint

3.1

Why Do Companies Cooperate with Academia?

A relevant question to pose is why should companies cooperate with academia? What are the potential gains? Over the years we have been fortunate to have easy access to information from companies and governmental institutions. We have asked many organizations why they chose to contact us. We list some of the different reasons below: •

To secure the flow of knowledge, i.e. to make sure that the company receives the latest knowledge. It is often difficult for companies to find

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the time to follow a research debate and sort out the relevant information for a specific organization •

To develop a positive corporate image. Generally speaking, universities and centers of higher education are connected with positive values and trust, and a good relationship with us is seldom a burden for an organization

•

To foster good relations with the universities in order to:

•

Be competitive

•

Increase innovation and creativity

•

Increase human capital

•

For future recruitment because hiring good employees is difficult. One way of ensuring success is to get to know the person before they are employed

•

To stimulate interest in specific subject areas. We have encountered larger companies or regions that have a distinct interest in stimulating research in a certain area

•

Co-production/cost sharing; research is expensive and time consuming

•

Learning in general; there is a great need for companies to develop their human capital and to enhance learning within the organization

The following are some reflections based on experience from the collaborations we have been involved in at CTF. Our research partners often talk about us as translators – as researchers we follow the latest trends in research and not only transmit but also translate those trends into the company's own reality. We have learned that also having a "good translator" within the companies or organizations we work with makes cooperation much easier. It is also important to remember that academics are not consultants. There are several advantages to this. We are not trying to sell a specific product or solution and are therefore more likely to be open-minded to different ways of dealing with a problem. Also, there is no need for us to defend a solution that did not work properly or justify why customers still do not like what your company sells. Since we do not sell things in order to make a profit, we are driven more by a curiosity to learn. It is important to remember, however, that if we do research at a company, we need to tell a story about it afterwards.

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3.2

Why Do Scholars Cooperate with Companies?

The other side of the coin is just as relevant: what motives and advantages do we as scholars have for cooperating with companies? Some researchers voice negative opinions about close collaboration with industry and accepting money to do so. They believe this is a limitation on academic freedom and emphasize the risk of being controlled. When cooperating with companies, some, we would like to think less experienced researchers and company personnel, believe that it is not possible to write freely about the events. They believe that the companies will be in control and thus make quality research impossible. Generally speaking, we do not feel that this is the case, since companies and researchers focus on different aspects, as will be described later. However, we as scholars need to find ways to be in control of the cooperation and clarify what academic research requires. Our experience is that companies tend to have more interest in detailed results, while we have a more general interest in a phenomenon as a whole. The positive aspects of working with companies outnumber the negatives; the rewards of having access to rich empirical data are great. There are many other reasons why academics cooperate with companies, such as the following: •

To develop a positive image for the university. The university needs to be able to show potential students that they have future employers. Other companies are more likely to finance research if there are existing research collaborations

•

To better understand industry problems; academics need to know what the relevant problems are and prioritize the problems with the potential highest impact. This, in turn, will:

•

Create better research

•

Improve teaching

•

To access real data from a relevant context is a great competitive advantage for us as researchers

•

To influence industry; just as companies may influence the focus for academics, academics can influence the focus for industry

•

To be able to finance research, our organization, like many others, is heavily dependent on financial support from outside. Many private research foundations in Sweden as well as governmental research funding require close cooperation with companies and other

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organization to make sure that the results are used, most often to contribute to growth From our experience at CTF, it is generally easier to publish the results of our research with information and empirical data from an industry context. International publication is important to us both as a center and as individuals. As individuals, we need publications in order to be promoted, and the center's reputation is heavily influenced by the number and importance of its publications.

4

How to Organize the Cooperation and Agree on the Basic Roles and Responsibilities

4.1

Different Focuses

Different focuses between companies and scholars are a major impediment to collaboration. It is also one of the major sources of misunderstandings about how to design the cooperation to benefit both parties. The major motive for scholars to collaborate is to do research – to be able to observe, describe, and explain phenomena in a way that has not previously been done. It is even better if we as researchers are allowed to manipulate a business setting and observe the consequences afterwards. We then have access to empirical data and are able to analyze and interpret the empirical data to add new knowledge that contributes to the development of the academic discourse. In a long-term collaboration with companies there must be room for reflection and 'free' research. The results will benefit the companies, albeit not always in the way they expect. Research is by definition about discovery. We cannot plan and organize research and collaboration in the same way as production in companies; however, too many company representatives do not know or accept the logic behind research. On the other hand, scholars need to understand the "world of commercial companies" and how the shareholders exert pressure in terms of growth, return on investments, and the need to make use of new knowledge in improved products and services that create loyal and profitable customers. The following is a list of variations in focus: •

Universities have a general (academic) focus, which can be divided into

143 – Research – knowledge generation, where academics generate new

knowledge – Research – knowledge integration – Teaching – knowledge distribution •

Companies have a specific (commercial) focus, which can be divided into – Basic research – to create innovations and radically new market

offerings – Applied research – to make commercially successful new products

and services – Development projects – to further develop existing products and

services – Management development and education programs – to encourage

executives, specialists, and employees in general to track and make use of the development in relevant areas for the company In addition, academics and practitioners have different perceptions about how fast the results should reach a market. Practitioners want to make use of the results immediately; the perception is that if the research is a couple of years old then it is out of date and needs to be re-done. This may be the case if you aim to hit a time slot to release a new product, but if you want to describe a phenomenon, these are more stable. The purpose for the researcher is to do research, meaning that new ground is being broken; it is therefore difficult to produce results fast. Furthermore, the research results are usually published in peer-reviewed journals in order to get results out onto the market. The peer-review process is a necessary but time-consuming business that can take years. At CTF we rarely feel that this is a problem. We give the practitioners what they need in order to make decisions, i.e. a quick (and accurate) analysis of the results with enough detail to meet their needs. We meet their needs and we are then free to make a thorough analysis of the results, which may take years to complete and even longer to publish. Even if we feel that we at CTF have a model that works, we still have to ask ourselves some questions. How do we bridge the previously mentioned gap in focus? Dealing with the differences in perception of how long research is allowed to take is a complicated business; part of the complication has to do with financing. Some companies are not interested in financing research over long periods of time and researchers do not neces-

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sarily want to work on short-term contracts as consultants. How do we create converting functions in order to satisfy both academia and companies? How do we create arenas that help companies keep up with the latest research?

0 years

TIME TO MARKET Industrial product/service development

5-10-20 years Academic research

Figure 1: Different perceptions of how fast research should be implemented

We need actors who can make a long-term commitment to collaboration based on an understanding of the logic of research and a genuine belief in the value of the research in focus. Company representatives and top executives who support the projects are a necessity, even when the researchers present findings that they do not expect. There is a need for 'interpreters' and 'sense-makers' in the companies to bridge the gap in terms of language and delegation of responsibility, i.e. people who include and involve the right employees to make sure that research results are transferred to the right part of the company and to the right people. Furthermore, identifying and formulating research problems, projects, and programs together with company representatives is equally important for vivid and successful cooperation. The problems sometimes need to be redefined to fit the academic research environment, with a call for international publication in highly ranked scholarly journals. The requirements in these journals are not always in line with what is required by companies. This is the main challenge to manage in a dynamic collaboration. On the other hand, close cooperation with companies provides the scholars and doctoral students at the universities with access to data which might be impossible to achieve without this cooperation. Empirical data is often a requirement for high-quality research, which is the linking pin and mutual benefit as we view the 'landscape'. Challenges

There are some challenges that we find in the cooperation between academia and companies that need to be addressed for it to function in the long

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term. These challenges can be resolved through communication and include aspects such as the following: •

Research and teaching in universities must build on – State-of-the-art in science – academic work needs to be related to

previous research and research must be warranted – Understanding of companies' practicalities – in order for research

to be interesting for practitioners it needs to address aspects that they feel are important – Cooperative forums of interactions •

Challenges for industry – How do we create a demand for the knowledge – knowledge needs

to be disseminated throughout the organization, which is not an easy task. This new knowledge may force people to work differently, which will almost always meet with resistance – How do we make knowledge accessible – research may not – Patience – understand that it may take time to develop knowledge – Understand that the researcher and the consultant have different

roles Financing

The funding situation in Sweden and many other OECD countries requires close cooperation with companies. Government funding from organizations such as Vinnova (the governmental organization for innovation systems) stipulates that companies be involved in the funded programs and projects and support the project with half of the total budget. This financial support may be in the form of manpower and not necessarily cash. This ensures that the research topics are relevant for and the results are used by companies and contribute to growth in society. There is a risk that funding may be controlled too much by the short-term interests of the companies. It is important, and almost a prerequisite for dynamic and prosperous collaboration, that the company representatives involved know and understand the academic culture and what is required by scholars to make a career. These company representatives are also important interpreters, supporters, and people who transfer knowledge inside the company. They need support from someone at the top executive level, since the research application needs to be signed by the CEO or at least a top executive.

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4.2

Mutual Learning

Learning is about development and research-based development is long term. Learning has to do with organizing the collaboration to learn from and with one another in more and more effective ways. How do we organize the basic roles of the collaboration? How do we assess and control the research process in a fruitful way? How do we learn from success and failures in our projects? What we have learned can be summarized in five areas: •

Mutual respect and understanding for the different roles and drivers of the collaboration

•

The importance and necessity of clarifying roles and responsibilities when designing the project and the collaboration

•

Working with professional employees who understand academic research

•

The topic and the project should be of great interest for both parties

•

Support from top management is often very important

5

Challenges and Suggestions for the Future

There are four major challenges for the future, which we will discuss and then suggest ways of coping with them. The first is long-term commitment with respect to research focus and financing. We need a ten-year perspective and the Swedish Vinnova also takes this timeframe as a guiding principle. It is important to establish centers of excellence with at least 40 scholars, including doctoral students. Second, international cooperation in terms of scholars and companies is thus far not a focus in Sweden. We often discuss the value of benchmarking or carrying out comparative studies with companies in other countries but often there are practical restrictions making it difficult or impossible. One reason is that some funds require the research to be carried out with companies in Sweden only. Another reason is that the budget does not allow us to spend time traveling abroad to a great extent. Funding from the EU, however, can make international cooperation easier and opportunities exist today that were not there ten years ago.

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Third, the contents of the cooperation must include long-term projects of a more basic nature, with room for individual researchers to define the problems to be studied. We need more skunk works research! We need applied research with well defined problems to be solved and knowledge transfer. Fourth, the organization of company-academia cooperation and the reward system must be more explicit and must be more financially attractive for scholars and looked upon as a 'real' merit on the path to promotion to full professor. The key role of intellectual property must be dealt with in a more professional way. Finally, we need more research on research – a discourse that is anonymous. How do research centers develop and prosper? What are the main drivers and success factors, as well as the reasons behind failures? What role does academic leadership play and how is it being carried out? It is important to focus on these questions in order to stimulate and develop more effective collaborations between academia and companies and other organizations in a modern and knowledge-intensive society.

The Perspective of Informatics Tilo Böhmann, Stefanie Jahner, Helmut Krcmar

1

Benefits and Challenges of Current Collaborative Efforts Between Universities and Companies

Collaboration between universities and industry has a long tradition in engineering, information systems, and informatics in Germany. A large number of research groups engage in joint research and development activities with large, medium-sized, and startup enterprises. Some of these projects receive their funding directly and exclusively from industry but many projects benefit from public research funding that places a high priority on collaborative, applied research by universities, research institutes, and private enterprises. Research in services is a case in point. Through two consecutive research programs, the German Ministry of Research and Education has launched and funded collaborative projects on a large number of research issues in service management as well as in growing service industries and clusters. Among them are focused research activities on: •

Service engineering and new service development

•

Export and internationalization of services

•

Integration of products, production, and services

•

Knowledge-intensive services

•

Service marketing

•

Service benchmarking

•

Service networks

•

Industry-specific research on financial services, healthcare services, facility management, craft trades services, and public services

Funding for projects in any of these research areas was and is contingent on establishing research consortia between private enterprises, universities and other research institutes, as well as industry associations and transfer partners.

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Such programs certainly initiate collaborative research activities between researchers and practitioners in service industries. Publicly-funded projects are augmented by smaller and larger projects directly funded by service enterprises. Project-based collaboration suffers from particular limitations, however. Projects often only establish a temporal collaboration to achieve specific research goals. Altogether too many cooperations are only contracted and managed tightly for short-term results, yet they also expect the sort of business value added that comes from a mutual understanding of each other's capabilities that only an ongoing relationship can deliver. For a fully effective and mutually successful collaboration between academia and industry, these transient projects need to be evolved into permanent partnerships. Permanent partnerships come with the promise of facilitating the setup and conduct of joint research and development activities. In contrast to focused research projects with new partnerships, permanent partnerships help to build trust and establish communication links between service enterprises and universities that •

Promote acceptance of research results in practice

•

Build understanding of the type of research problems for which joint research with universities promises greatest value to all parties involved

•

Further mutual commitment between the involved partners in terms of resources, ideas, and responsibility for joint research projects

•

Establish governance mechanisms for evolving research topics, protecting intellectual property, and enable timely publication of research results

•

Simplify – and this is a more visionary than current practice – the exchange of talent between universities and service enterprises

Insufficient permanent partnerships increase the efforts needed to build trusted relationships between service researchers and practitioners. This is aggravated by the ad-hoc approach to research collaboration that still characterizes many service industries. Without strategic and continuous relationship management between service firms and universities, lasting partnerships are difficult to build and maintain.

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2

2.1

Establishing Partnerships – The Case of the Competence Center for Dynamic Value Webs for IT Services Between Siemens IT Solutions and Services and the Technische Universität München Objectives

Dynamic market development and disruptive technological changes challenge IT service providers to realize better customized service offerings and lower costs. Siemens IT Services and Solutions (SIS) and Technische Universität München (TUM) therefore founded the Competence Center "Dynamic Value Webs for IT Services" as a strategic innovation partnership in order to compete in the rapidly changing field of IT services. Five research groups of the Department of Informatics at TUM are engaged in this joint research venture, supporting SIS in identifying market needs and adapting these requirements to achieve a systematic and customer-based development of IT services and service offerings. Research groups from the fields of computer science and information systems combine their expertise with the capabilities of SIS into a pool of competencies to both promote innovation in services and advance academic research.

2.2

Results

The competence center focuses on current challenges and industry trends, such as flexibilization, industrialization of IT services, transformational outsourcing, as well as complexity in enterprise and software landscapes. It meets these challenges in different complementary research areas. Strategic visioning advances the research activities by developing scenarios for future areas of collaboration. Figure 1 illustrates the competence center's approach, integrating joint research efforts to reach the best results for the given challenges with appropriate methods.

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ST UD IE S

S

Software Architectures

De Su cisio pp n ort

F T r lexib an ilit sfo y a rm nd ati on

L DE MO

ctru ras ices Inf e rv IT re S tu

Flexibility Industrialization Transformation Complexity

S NT TE PA

Strategic Visioning ce s rvi ie Se nolog ch Te

ME TH OD S

WORKSHOPS

TOOLS

Figure 1: Integrated research on innovative IT services

The competence center is a success for SIS. It has produced applicable models, methods and tools for service innovation and service delivery in close collaboration with a number of SIS's business units. Some results also warranted patent applications. The center has been able to establish international collaboration, reaching into SIS units in the United States and Russia. On the academic side, research from the competence center has been successfully published in leading journals and conferences. Contrary to ad-hoc collaboration attempts between academia and industry, the longterm, strategic and broad research partnership helps to achieve results with sustainable value for all parties involved.

2.3

Organizational Involvement and Setup

The Competence Center for Dynamic Value Webs for IT Services between SIS and the TUM is itself part of an long-term oriented partnership between Siemens and Technische Universität München: The Center for Knowledge Interchange (CKI) is a means for Technische Universität München and Siemens AG to tighten and leverage the strategic dimension of their relationship. The CKI aims at •

Organizing long-term, continuous and intensified knowledge exchange

•

Fostering interdisciplinary innovations throughout various areas

•

Ongoing development of a joint internationalization strategy

153 •

Strengthening the promotion of high potentials and the educationpolicy discussion

•

Facilitating long-term strategic research efforts between the involved parties

CKI acts as a bridge between Siemens and TUM. The governance structure of CKI sets a specific focus on a long-term strategic partnership between Siemens and TUM. CKI also establishes governing bodies and a standard legal framework for research that greatly facilitate the implementation of joint projects such as the Competence Center for Dynamic Value Webs for IT Services.

3

Governance Mechanisms and Communication Structure of the Competence Center

Within the Competence Center for Dynamic Value Webs for IT Services, several organizational issues are considered to ensure the successful collaboration of academia and industry. A steering committee has been implemented with representatives of the five involved chairs from the Department of Informatics at TUM as well as spokespersons from Siemens Business Services. In regular meetings, the steering committee discusses the thematic development and public activities as well as the internal and external promotion of the partnership. On the SIS side, the organizational unit of Innovation Management serves as a boundary spanner into the internal SBS organization. Innovation Management is not only the point of contact for the TUM members, thus ensuring ongoing relationship management between the involved parties, but also acts a link to the local business units of SIS. Innovation Management aims at identifying linking points between the research interests of the academic partners and the current challenges and needs of local SIS business units. Overall, on a political-strategic (steering committee) as well as on a thematic (innovation management, link to business units) level, solid communication and governance structures are established to assure an ongoing, mutually beneficial partnership for both academia and industry.

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4

The Way Forward

The exemplary collaboration between SIS and TUM provides an excellent example of a long-term partnership that delivers benefits for both industry and academia. The key success factor is broad integration – integration of multiple research units with complementary capabilities and integration of various business units within SIS as sources and collaborators of application-oriented research. For the future, we would like to broaden this collaboratory on service science to serve as a platform that fosters visibility for a new wave of service research and education. We envision the collaboratory as a community of reflective practitioners, university researchers from selected institutions in industry and academia that promote innovations in business models and service processes. The collaboratory should create an ongoing marketplace of ideas and competencies that all participants can draw on for innovative projects in research and practice. To realize this vision, the collaboratory needs to build a community of service scientists in research and practice who are willing to engage in this kind of exchange. More specifically, the collaboratory should: 1)

Make accessible a network of institutions and individuals and their competencies

2)

Map service science competencies

3)

Foster an atmosphere of trust and commitment in this network and its competencies through regular exchange so that members can leverage the network quickly and easily

4)

Encourage new members to join the network through nationally visible conferences, workshops, and publications that facilitate the exchange of ideas and dissemination of service science competencies

5)

Facilitate the exchange of talent between academia and industry

6)

Identify and work on areas of research and teaching that provide the members with beneficial opportunities for joint work

Fostering such ongoing partnerships that are built on trust and a commitment to high-quality collaborative research and education could be a powerful promoter of progress in the multi-disciplinary, emerging and promising field of service science.

The Perspective of Service Industries – The Perspective of Siemens AG Anja Gieseke, Uwe Hermann

1

The Importance of Services and Service Innovation

Innovations have always been considered key to the growth and success of an enterprise.1 Today, faced with technological progress, changing customer behavior and tightening competition on the international market, innovation has developed into one of the keys to entrepreneurial survival. These findings apply not only to the field of material goods; they are just as important for service innovations. But people are only gradually growing accustomed to the idea that services can also be innovative products, and that their development, processing, management and exploitation have to be done professionally as well. For companies that traditionally produce material goods in particular, the shift in thinking is not always an easy process. Yet these companies can also profit from service innovation, for instance because •

Customers very often want holistic approaches to their problem ("one face to the customer") instead of single products

•

Many material goods gain a competitive edge only in connection with innovative services

•

In service business, new potential for growth and higher yields can be found even if the market is stagnating

•

The yields in the service business are considerably higher than in the classic product business

As a leading global player in electronics and electronic engineering, Siemens AG actively deals with innovations in the field of services. The shift in thought has already begun, but the shift itself does not necessarily lead to service innovations. Often, fundamental problems like the lack of organizational structures cause difficulties. In many cases, the innovation

1

Schumpeter (1912), p. 170ff.

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process is not sufficiently systematic and services are developed rather ad hoc or intuitively. The systematic approach presents considerable room for improvement within the innovation process. A systematic innovation process could lead to the "hidden golden eggs", which might never be found by a "random" innovation process. In past years, various contributions have been published on the subject of service innovations. Yet an all-embracing solution – a "magic formula" for successful service innovations – cannot be demanded of this young and still growing discipline. It also turns out that past experience in the area of material goods innovation cannot directly be transferred to service innovations – the characteristics of services and material goods are too different. Especially the immateriality, the uniqueness and the transitory nature of the service offering, the simultaneous production and consumption as well as the integration of the external factor and the associated strong involvement of customers lead to the already difficult innovation process being more complicated for services than for material goods. As previously emphasized, service innovations are of great importance for companies, therefore attention should be turned to the service innovation process.

2

How Service Innovations Are Generated

Looking at the development of service business at Siemens, there are certain patterns, common to successful service businesses, that seem to be noteworthy. These patterns can give some indication as to what should be considered for a powerful innovation process. One pattern is that successful service business has often developed out of product business. Also, a holistic approach (complete solutions instead of single products) and close interaction with the customers seem to be important. But customers' wishes and ideas aren't necessarily the only source of input for innovations, though they are very helpful and important in the innovation process. If these were the sole source, there would be the danger of merely moving along the same old tracks and improving them – there would be absolutely new ideas and "disruptive" developments could possibly be neglected because the customers might not know or even think about them.

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Based on experience such as the patterns mentioned above, many divisions at Siemens have created service innovation processes adapted to their specific situations. An example of such innovation processes are the Customer Innovation WorkshopsTM introduced by Siemens Business Services.

3

Customer Innovation WorkshopsTM at Siemens Business Services

Siemens Business Services (SBS) does not have a department for research and development, but there are other structures and people doing this job, for example through intensive contact with customers and through cooperation. The Customer Innovation WorkshopsTM are an example of this intensive contact with customers. These projects and the associated processes already display a systematic approach to the challenges of service innovation. The starting points for these workshops are formed primarily by Siemens' visions of the future. These are combined with the customer perspective – the customer's future plans and upcoming challenges. Siemens' visions regarding technology and services are summed up in the Innovation RadarTM, which is regularly updated. This Innovation RadarTM is developed with the support of analysts and employees carrying out systematic research based on tried-and-tested trend analyses and information gained through cooperation. The long-term development of Siemens' key portfolio elements is described in Innovation RoadmapsTM. The sum of the future options presented during these workshops lays the foundations for a discussion between the customer and Siemens with the main objective of identifying how the customer can best be supported. The outcomes of this discussion can be used, for example, to create customer-specific roadmaps that outline the further procedure. These Customer Innovation WorkshopsTM often provide impulses for new innovations. Customer Innovation WorkshopsTM represent a specific innovation process on the part of SBS, but there is, of course, the chance that other improvements may be possible or that another process may provide even better results. The same applies to any other innovation process. To find these "hidden" improvements or better solution methods, models and tools should be developed. One way to do this (and also to overcome

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challenges like developing an Innovation RadarTM) is through collaborative efforts.

4

Collaborative Efforts

Choosing a suitable partner whose relative strengths are complementary to the company's strengths is very important. The partner of choice depends on the subject of collaboration. Collaborations with industry partners, for instance, can be used to get a more complete picture of customers' wishes, to detect new trends or to create visions of the future. Also, collaborations with academia may provide useful help, with the scientists' solid fundamental and theoretical knowledge as well as research competencies being characteristics that make academia an interesting partner for collaboration. The type of collaboration depends on the subject as well. In theory, there are many possible forms of cooperation, which differ in level of involvement and strength of economic and personal ties2. But for service innovation, a low-involvement alliance guided by economic ties (like contractual research assignments) would appear to be less suitable than in research into physical goods. As service innovations involve various players and depend heavily on customers' input, it is useful to initiate team-based cooperation where members of both sides are highly involved and economic as well as personal ties are developed. But the choice of the collaboration partner and the type of collaboration are not the only factors that determine whether collaboration is successful and whether both partners are content. There are many more factors, some of which are very important: clearly defined objectives and responsibilities to prevent misunderstandings; mutual benefits; both sides must see the advantages – and the advantages must be balanced; personal factors (like trust, commitment, personal relations), and so on. The expectations, intentions and goals of both partners must be taken into consideration, i.e. the scientific demands of the university and the connection to practice must be fulfilled for Siemens. Many of these critical factors depend on the quality of communication between the partners – during the negotiation stage as well as during the cooperation itself. Experience (also from product innovation) can give some hints as to how communication can be improved, e.g. through meet2

Cyert, Goodman 1997

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ings, committees and newsletters; but the realization depends on the individual cooperation (see below for an example: the Siemens – TU Munich cooperation project on services science entitled "Dynamic Value Webs for IT Services"). Also critical for the success of cooperation is the transfer of the cooperation results. Particularly feedback from industry to the university can cause problems. The worst case – that there is no response from industry and the innovation or innovative methods and approaches are not applied – should be prevented in the planning stages by formulating a clear definition of the cooperation subject, making sure that there is a demand for the innovation at the company. To prevent some of the general problems of cooperation and to accelerate the initiation process, Siemens has established a University Liaison Office which supports the Siemens divisions during the initiation and realization of cooperative ventures with academia. The University Liaison Office supports the process by mediating contacts, provides specimen contracts, is responsible for a database listing all cases of university-industry cooperation, organizes contact fairs where representatives of the Siemens divisions and representatives of the university divisions can meet, and provides general organizational support.

5

Centers for Knowledge Interchange

In addition, the University Liaison Office maintains what are known as Centers for Knowledge Interchange (CKI) with some selected universities. These CKIs are a very intensive form of cooperation with universities, consisting of •

A steering committee of high-level representatives of the given university and Siemens

•

An operational CKI office facilitating the daily contact between Siemens and the university

•

Numerous events and activities, such as seminars, workshops and innovation markets

•

Access to Siemens technology like laboratory and measuring equipment and Siemens lecturers

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Siemens University Ambassador Siemens Divisions, CT CKI-Responsible

President Faculties Professors

Joint Steering Committee

Contact Partners

CKI CKI-Manager

Siemens-Divisions

Innovation

Talent Development

• •

• •

Sponsoring of selected activities Summer School

• •

Student contacts Events

Operation of frame contract Identification of TU-potentials and strategic topics

• •

Seminars, innovation market, etc. Triggering R&D-projects

•

Co-ordination and reporting

Figure 1: The organization of the CKI at the Technische Universität München

The result of a CKI is a win-win situation for both the university and Siemens. The benefits for Siemens include improved access to best-in-class university partners and an increased amount of patents and intellectual property; the benefits for the university are improved access to the latest know-how and requirements from industry, and increased intake of industrial research orders for the university, among other things.

6

"Dynamic Value Webs for IT Services" – A Center of Competence of SBS and the Technische Universität München

An example of cooperation within the framework of a CKI can be found at Siemens Business Services (SBS): the "Dynamic Value Webs for IT Services" center of competence was founded at the Technische Universität München the support of the CKI. The purpose of this strategic research partnership is to gain knowledge on selected subjects in a systematic and practically oriented manner and, on this basis, to place orders for concrete application-oriented projects. This center of competence has the following characteristics: •

Several faculties of the university are involved: The breadth of the subject area of services is grasped fully by cooperating with several

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departments instead of a single one. The main research areas of the departments include information and knowledge management, decision support systems, development of software and systems based on models, content brokering and applied software technologies. •

Subject: Not fundamental research (though the knowledge of the university members is very useful), but experimental development of prototypes through team-based cooperation.

•

Long-term partnership (three years): A long-term partnership supports, among other things, commitment, trust, personal contacts and the idea of partnership.

•

Consideration of both partners' expectations and goals: Scientific research and practical applicability are considered: the goals of the cooperation are publications as well as patent applications, the design of prototypes and pilot installations.

•

Precise definition of the cooperation subject: The attempt is made to gain knowledge in a purposeful manner in the interests of finding someone to implement the innovation and also provide feedback. This increases the probability of the innovation being integrated and put on the market.

•

Intensive communication: Regular meetings at all organizational levels, an electronic communication platform, newsletters, innovation forum for common examination and discussion of the results so far.

The project is still in the test stages, so it is not yet possible to assess whether this kind of cooperation is transferable in its present form without improvements. Nevertheless, from today's perspective, various suggestions for future collaboration between universities and industry can be identified.

7

Suggestions for Future University-Industry Collaborations

There are a number of points that could be interesting for future collaborations with academia. •

Interdisciplinary collaboration between several university departments: For holistic medical solutions, for instance, collaboration between a

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medical department, computer and engineering sciences and business is likely to yield highly attractive results for industry. •

Changing the scope from short-range collaboration projects of a few months' duration to long-sighted strategic projects looking not only at single facets of service research but using a holistic approach.

•

Growing the role of academia in industry collaboration from being a sub-vendor tasked with a clearly defined research project to becoming a partner taking an active role toward the end customers. In this way, academia could add additional functions to cooperative ventures, such as its networking capabilities, door-opener role toward new customers, multiplier or opinion leader capacity, etc.

•

Strengthening the quality control aspects: there is a wealth of research into innovation management and technology transfer. This existing know-how should be used to streamline and focus service research.

These are just a few of a wide range of possible fields for action. Nevertheless, one should bear in mind that one of the main drivers and quality metrics should, from an industrial point of view, always be the economic success of activities in the field of innovative services. Looking to the future, the main challenge – not only for Siemens – lies in creating an environment that is capable of producing successful service innovation. New approaches, methods and tools leading to service innovations can only be achieved with an integrative approach involving academic and industrial partners. It will therefore be necessary to strengthen the position of services science and to structure and coordinate the various fields of research and facilitate collaboration between key players. Services science will thus be able to provide the necessary assistance to strengthen the industries' position in global service competition.

The Perspective of IBM Deutschland GmbH Matthias K. Hartmann

Could your idle PC help cure AIDS? Could you cut insurance rates in real time for safe drivers? Could your luggage find you? The answer is yes, with innovation. In IBM's view, innovation occurs at the intersection of invention and insight. This definition by IBM CEO Sam Palmisano eyes innovation in manifold ways: products, services, processes, business models, society as well as in the management and culture of it. Sheer computer power is not enough. It takes the knowledge of how to apply technology – to cure aids or to track human genetics. Only when innovation is purposeful does it become real and valued. Significant innovation implies underlying preconditions such as collaboration and partnering – inside and outside a company. Innovation must deliver against reality. And reality has changed dramatically – globalization, competition of intellectual assets around the globe, a significant shift toward services. Germany as a country is going through this process, as are other companies. IBM has already adjusted to this reality and, today, its revenue is generated primarily from the services unit. Services accounted for more than half of the company's total revenue in 2005. IBM focuses on high-value, innovation-based solutions and services and, over the past three years, has helped thousands of organizations of all sizes, in every industry – including our own company – move into the era of On Demand Business. And now we are delivering on the promise as our clients aim for better results and new sources of value through innovation. As the world is becoming networked, dependent on information and information technology, it is essential to understand the complex services system with multiple relations, stakeholders, expectations and underlying conclusions. Education plays a vital role in that process of understanding. Universities will be prompted to train, teach and develop the emerging generation(s) of services workers – for the benefit of companies, countries and societies in mature markets of the 21st century. Companies can contribute by getting actively involved in that process. That is why this article focuses on cooperation between academia and corporations. It will elaborate on two

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things. First, IBM's understanding of services innovation and, second, cooperation as a vital element in service innovation. First, service innovation: what does that specifically mean with reference to our definition of innovation? To answer this, one must understand the diversity of the services sector, ranging from government and security, health and education to transportation and utilities. A service is the nonmaterial equivalent of a good. It can be seen as four dimensional in that it targets people (consumer services), business, products (industrial services) and information. Information services have seen the most rapid acceleration; in particular the fast development of business information. The implications for the skills of service professionals have not been specified yet. But they need to be. IBM is serious about services science, because the ability to innovate as a company as well as a country depends on the ability to hire appropriately skilled people. Just as IBM has helped in the past to establish computer science departments, it will now help to accommodate new (services) realities and support the establishment of services science departments in the near future. IBM calls this multidisciplinary study of service systems and service innovation SSME: Services Sciences, Management and Engineering. We define SSME as "the application of scientific, management, and engineering disciplines to tasks that one organization beneficially performs for and with another ('services')."1 Science is a way to create knowledge and provide tools and methods to study services and develop solutions to problems that span multiple disciplines. Engineering is a way to apply knowledge and create new value. Management improves the process of creating and capturing value. It is an urgent call for action to become more systematic about service innovation, a proposed academic discipline and a proposed research area that attempts to integrate and bridge discipline silos. IBM's vital interest has resulted, since 2004, in a mutual internal SSME initiative, led by the global leaders for Research and Global Business Services. The goal is to make productivity, quality, performance, compliance, growth, and learning improvements more predictable in (co-production) relationships.

1

Reference to Jim Spohrer’s article, pp. 11-40.

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In regard to service innovation, the implications are threefold. 1. Developing insights: Understanding the subject in depth is a must. Programs need to be established to provide insight and help to identify new market opportunities. At IBM Consulting we call this 'think tank' the Institute for Business Value. The Institute for Business Value has a worldwide presence, drawing on consultants in nine countries to identify issues of global interest and to develop practical recommendations. Comprising 60 consultants, the institute conducts research and analysis in 17 industries and 5 functional disciplines. The work is done in collaboration with industry experts and clients. 2. Invention and capability development: Analysis and knowledge must result in specific activities to invent the right solution. This begins with identifying fields of activities like emerging business opportunities, areas of business that will potentially grow in the future. RFID is such a field. According to IDtechEx (March 2006), the global RFID market containing systems and services is estimated to rise from $2.7 billion in 2006 to $12.3 billion through 2010. Equally important is the buildup of appropriate skill capabilities to harvest potential business fields. This includes developing educational programs and continuously matching them with market requirements. An example to illustrate the point: In September 2005, in close cooperation with IBM, a new study program – producing Bachelor of Arts graduates – was established at the University of Cooperative Education in Stuttgart (Berufsakademie Stuttgart). This modular study course, Business Administration Services Management/IT Consulting & Services, reflects current service market needs. Graduates will leave the university fully equipped to support and master the management of service-oriented companies, such as logistics providers, and industry-related service providers like consultancies and financial service providers. This initiative is a role model in the IT sector in Germany. 3. Using innovation with clients: Clients will quickly say what works and what does not. They are the top collaborators as well as the benchmarks for the success or failure of innovative solutions. Clients play an integral role in collaboration with IBM researchers and consultants in developing innovative solutions. At IBM, we call this mix of research and consulting On Demand Innovation Services (ODIS). It is one of our internal collaboration models. Let me explain it briefly: ODIS combines the capabilities of research with the process and industry expertise of consultants to transform

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business through strategic and technological innovation. ODIS allows clients to work directly with prominent scientists and use their skills and assets to gain business advantage. With access to IBM's eight research labs and nearly 3,000 researchers, ODIS can provide forwardlooking insight into emerging technical and industry trends (ODIS contributes to the development of annual reports such as the Global Technology Outlook and the Global Innovation Outlook), deliver insight and analysis to identify areas of improvement even before clients do, and deliver the optimized performance transformation needed to remain competitive. On Demand Innovation Services make a difference to clients: reducing processing time for a financial management application by 94%, achieving a 20% improvement in productivity and a 10% increase in sales for a transportation company, as well as a 50% reduction in inventory and delivery time for a steel manufacturer. This, in a nutshell, is how IBM views service innovation. Now, let me elaborate on the second point of this paper, cooperation as a key to successful innovation. We asked 765 CEOs2 worldwide about their future challenges and how to tackle them. Innovation, in all corporate areas, is the answer to the expected, significant future transformation. And the way to get there successfully is through collaboration and strategic partnering – on all levels. The significance and relevance of this is recognized by 76% of the 765 CEOs interviewed. But only half of them, 51%, believe their organizations are collaborating beyond a moderate level (see Figure 1). Thus, there is potential for improvement or, as one interviewee put it, "Collaboration is a distinct discipline and cannot be done casually." Collaboration is about gaining creative and inspiring insight. In doing so, companies make use of internal and external sources. While 40% of the interviewed CEOs rank employees as their first source of innovative ideas – followed by four external sources (business partners, clients, consultants, competitors) – only just over 10% turn to academic institutions for new impulses (see Figure 2). Thus, there is lot of potential for improvement, which takes us back to the core of our discussion of collaboration between academia and corporations.

2

IBM, The Global CEO Study 2006.

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100

Implementation gap

80 60 40 20 0 Collaboration is very important

Collaboration takes place to a great extent

Figure 1: Relevance versus effective commitment of collaboration (Source: IBM, The Global CEO Study 2006) Source of ideas generation External [%]

Internal [%] Business partners Clients

R&D (internal)

Competitors

Other

Academic 35

25

15

5 0

Sales and service unit

Consultants

Assoc's, trade groups, conference boards

45

Employee (general)

Think tanks Internet, blogs, bulletin boards 0 5

15

25

35

45

Figure 2: Sources of ideas generation (Source: IBM, The Global CEO Study 2006)

How does IBM perform in that respect? Collaboration is one of the company's core values and affects all internal and external activities. 355.000 employees worldwide partner within IBM – as described for ODIS – as well as with external sources such as the University of Cooperative Education in Stuttgart and the E-Finance Lab in Frankfurt.

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One example illustrating a functioning external collaboration model between corporate and academic world is the E-Finance Lab (www.efinancelab.de). This is an industry-academic partnership between Frankfurt and Darmstadt Universities and partners including Accenture, BearingPoint, Deutsche Bank, Deutsche Börse, Deutsche Postbank, FinanzIT, IBM, Microsoft, Siemens, T-Systems, DAB Bank and IS.Teledata, and is based at the Johann Wolfgang Goethe University, Frankfurt. The goal of the E-Finance Lab is to jointly develop scientific yet managerial methods for re-arranging the business processes of the financial service industry. The overall approach is to apply industrial methods that are well established in other domains, such as automotive supply chain optimization, to the financial supply chain. Using this industry metaphor, the main challenges are the design of smart production infrastructures, including the development and evaluation of advantageous sourcing strategies, and smart selling concepts to enable new revenue streams for financial service providers in the future. The organizational setup that facilitates joint work like the E-Finance Lab is a valuable approach. Overall, the goal is to contribute methods and views to the realignment of the financial supply chain. Since 2003, IBM has primarily supported the research stream of industrialization of the finance sector. In summary, let me say that cooperation between academia and corporations going forward requires two important ingredients: commitment and delivery. This April's Services Science Conference was a good signal and a successful kickoff. It now needs to be followed by specific actions. IBM is a motivated and reliable partner.

References Spohrer, J. (2006): IBM Research: Service Innovations, Employment, and Exports, May, 2006. IBM, The Global CEO Study 2006.

The Authors Bichler, Martin, Prof. Dr., Chair of Internet-based Information Systems (IBIS), Technische Universität München, Germany [email protected] Bienzeisler, Bernd, Dipl.-Soz.-Wiss., Researcher in the Department "Service Management", Fraunhofer Institute for Industrial Engineering, Stuttgart, Germany [email protected] Bitner, Mary Jo, Professor of Marketing, PetSmart Chair in Services Leadership, Academic Director for the Center for Services Leadership at the W.P. Carey School of Business, Arizona State University, Tempe, USA [email protected] Böhmann, Tilo, Dr., Research Group Leader, Research Group Service Management, Chair for Information Systems, Technische Universität München, Germany [email protected] Brown, Stephen W., Professor of Marketing, Edward M. Carson Chair in Services Marketing, Executive Director for the Center for Services Leadership at the W.P. Carey School of Business, Arizona State University, Tempe, USA [email protected] Edvardsson, Bo, Professor of Business Administration at the Service Research Center, Karlstad University, Sweden [email protected] Engelmann, Kai, Manager Business Intelligence, Roland Berger Strategy Consultants, Munich, Germany [email protected]

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Fähnrich, Klaus-Peter, Prof. Dr.-Ing. habil. Dipl.-Math., Department Business Information Systems, Department of Computer Science, Faculty of Mathematics and Computer Science, University of Leipzig, Germany. Executive Director Center of Information, Knowledge and Service Management [email protected] Ganz, Walter, M.A., Institute Director, Head of the Department "Service Management", Fraunhofer Institute for Industrial Engineering, Stuttgart, Germany [email protected] Gieseke, Anja, cand. rer. nat., Ludwigs-Maximilians-Universität München, Germany Gustafsson, Anders, Professor of Business Administration at the Service Research Center, Karlstad University, Sweden [email protected] Hartmann, Matthias K., General Manager IBM Deutschland GmbH, Leader IBM Global Business Services, Germany [email protected] Heckelmann, Gerhard, Dr. Ing., Local Service Division Manager ABB Automation GmbH, ABB Group, Germany [email protected] Hermann, Uwe, Senior Director University Liason, Siemens AG, Munich, Germany [email protected] Jahner, Stefanie, Dipl. rer. com., Researcher, Research Group Service Management, Chair for Information Systems, Technische Universität München, Germany [email protected]

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Krcmar, Helmut, Prof. Dr., Chair for Information Systems, Technische Universität München, Germany [email protected] Kremer, Anja, Managing Consultant, Global Business Services – Strategy & Change, IBM Deutschland GmbH, Germany [email protected] Luhn, Achim, Dr., Head Global Innovation Management, Siemens AG IT Solutions and Services, Munich, Germany [email protected] Meiren, Thomas, Dipl.-Wirt.-Ing., Head of the Research Group "Service Engineering", Fraunhofer Institute for Industrial Engineering, Stuttgart, Germany [email protected] Meyer, Kyrill, Department Business Information Systems, Department of Computer Science, Faculty of Mathematics and Computer Science, University of Leipzig, Germany [email protected] Rubalcaba, Luis B., Professor (titular) of Economic Policy, Faculty of Economics, University of Alcalá and Servilab, Madrid, Spain; President of the European Network for Services Research (RESER) Schwarz, Markus, President of the AFSMI (Association for Service Management International)-German Chapter e.V., Wiesbaden, Germany [email protected]

Spath, Dieter, Prof. Dr.-Ing., Head of Institute, Fraunhofer Institute for Industrial Engineering, Stuttgart, Germany [email protected]

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Spohrer, Jim, Ph. D., Director Services Research, IBM Almaden Research Center, San Jose, California, USA [email protected] Stare, Metka, Dr., Senior Research Fellow, Faculty of Social Sciences, University of Ljubljana, Slovenia; Secretary General of the European Network for Research on Services (RESER) [email protected]

Stauss, Bernd, Prof. Dr., Chair of Services Management, Ingolstadt School of Management, Catholic University Eichstätt-Ingolstadt, Germany [email protected]