The Service Economy

Can you measure the new services economy the same old way?
Doug Morse

1. © Services Transformation & Innovation Group, LLC All rights reserved.
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“The Service Economy”
ISSIP Service Economics

Can you measure the new services economy the same old way?

Doug Morse
12/17/2014
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2. © Services Transformation & Innovation Group, LLC All rights reserved.
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“Follow the Money”
Proposal to form a Community of Interest within ISSIP to
study service economics for the purpose of gaining greater
insights around issues concerning economic measures,
metrics and accounting standards affecting service innovation
and the general economy.
•I am NOT an economist but have spoken to many
•I AM a Service practitioner with 35 years of experience
•I have been involved with the Service Science work for
10 years
•Frustrated by slow but obvious need for change
•Worked to understand root cause –follow the money
• This is an underserved area of study that needs a voice
to drive service innovation

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•Economic principles are still deeply rooted in the
Industrial economy and from work dating back to the late
1700’s by Adam Smith in his book, “The Wealth of
Nations
•Money is a core driver and measurement of change and
drives:
•Government Policy
•Education Curriculums
•Business Strategy and Policy
•Service Innovation and Education are inhibited by
antiquated economic measurement and policies
•Can’t measure the NEW economy by yesterday’s
standards
Burning Platform (s)

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•Government Policy
•International Trade , Labor , Research Funding,
Social Change

•Education
•Provide the right skills for defined labor markets and
economic growth
•New Curriculum and Certification for new industries
•Data Science, Service Science – Cross
Disciplinary

•Business Strategy and Policy
•Servitization
•Consumption economics
•Revenue Recognition
•Business Valuations (value of data ownership )


Why Change ?

5. Universities
Economic Drivers
Industry Needs
National Interests
Natural or
Unnatural Events
Research and Funding $$$

Innovation
IP and New
Businesses
High Skilled Labor Public
Policy
Alumni
$$$
Demand Supply Influence
Universities are driven by Economics
Advancement
of Knowledge
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6. © Services Transformation & Innovation Group, LLC All rights reserved.
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How do we measure the services economy ?
Is Service Revenue double counted?
Are NAICS / SIC Codes and other classification systems are outdated?
Why do Businesses have to reach financial doom before expanding Services?
Do FASB Reporting and Revenue Recognition rules inhibit servitization?
What economic factors drive Services R&D? (private or public )
What economic factors affect national and international policies regarding Service?
How do labor laws affect the growth of services in world trade?
How do economic measures drive education?
Are Consumption Economics and Service Economics Related?
Are Services best measured as a 3
rd
Generation of the Industrial Revolution?
Can Customer Equity become a new measure to value companies?
What is the value of Data or core knowledge workers?

A Few Interesting Questions

7. © Services Transformation & Innovation Group, LLC All rights reserved.
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Proposal for Service Economics COI
Service Economics Group Charter / Mission
The key purpose Service Economics Group is to bring together a diverse team of individuals and
organizations to help define and better understand current and desired future state economic tools,
models, processes and technologies that would reduce inhibitors to current service innovation and to drive
change that accelerate service innovation in the future. Ultimately the group would become an instigator /
influencer of change to economic policies, economic and business metrics and accounting rules in support
of the services economy.
This may include but is not limited to the following:
Create a center of knowledge and expertise around service economics
Use the COE( Center of Expertise ) to drive change that promotes service innovation.
Understand new forms of value creation
oCustomer Equity – Customers as an asset – beyond ‘goodwill’
oValue of Data (big data, sensor data et al )
oTouchpoint value ( Twitter, Facebook, other social media that collects eyeballs )

Research and education on both micro and macro-economic models of service(s)
Definition and valuations of non-tangible economic transactions
Create intellectual property (papers, books, presentations etc ) that create a better understanding of
services related economics
oMight also look at the “knowledge economy” and “digital economy” to see if there are differences
or similarities – are they just new names for the same problem

8. © Services Transformation & Innovation Group, LLC All rights reserved.
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Next Step - Actions
If you think that this is of interest to you:

Contact Me: Doug Morse @ [email protected]

Please Specify:

•Name and Contact info.
•Organization or Affiliation
•Specific areas of interest
•Are you interested in presenting to the group?
•Do you wish lead a specific topic or sub-group interests?

•Suggestions?

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Misc. Background Slides

10. © Services Transformation & Innovation Group, LLC All rights reserved.
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Douglas Morse is a service innovation professional with over 35 years of
experience leading all aspects of global service for Fortune 500 companies.
He spent 19 years with IBM and was deeply involved in their services
transition. After IBM he was sought by other global companies to help build
and lead new service strategies. From 2002- 2008, Douglas was with Oracle
heading up service operations, service strategy and customer experience for
a $ 10 Billion global services business. Douglas is currently the founder and
Chief Inspiration Officer of ServTrans. focused on creating customer centric
companies through designed strategic customer relationships.



ServTrans helps companies attract and retain valuable
customers in order to build Customer Equity
www.servtrans.com

About Me

11. How Do We Measure the Services Economy ?
http://wdi.worldbank.org/table/4.2
Are NAICS / SIC Codes and Other Classification Systems are outdated
http://www.census.gov/epcd/www/drnaics.htm#q1

Are Consumption Economics and Service Economic Related?
http://www.tsia.com/research/books-by-tsia/consumption-economics.html
http://en.wikipedia.org/wiki/Consumption_(economics)

Are Services best measured as a 3
rd
Generation of the Industrial Revolution?
http://www.theguardian.com/sustainable-business/jeremy-rivkin-third-industrial-revolution

Some Informational Links
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12. World’s Large Labor Forces
A = Agriculture, G = Goods, S = Service
2009
The largest labor force migration in human
history is underway, driven by global
communications, business and technology
growth, urbanization and
regional variations in labor and
infrastructure costs and capabilities.
US labor force shift to service jobs
44% 64 33 3 1.4 Germany
30% 26 11 63 2.1 Bangladesh
30% 20 10 70 1.6 Nigeria
38% 67 28 5 2.2 Japan
39% 69 21 10 2.4 Russia
21% 66 14 20 3.0 Brazil
35% 39 16 45 3.5 Indonesia
25% 76 23 1 5.1 U.S.
28% 23 17 60 14.4 India
50% 27 22 49 25.7 China
Service
Growth
S
%
G
%
A
%
Labor
%
Nation
2009
(A) Agriculture:
Value from
harvesting nature
(G) Goods:
Value from
making products
(S) Service:
Value from enhancing the
capabilities of things and their ability
to interconnect and create value
CIA Handbook, International Labor Organization
Note: Pakistan, Vietnam, and Mexico now greater than Germany (since 2005)
www.servtrans.com
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13. U.S. trade in commercial knowledge-
intensive services and intangible assets—
business, financial, and communications
services, and payments of royalties and
fees—has produced a consistent and
growing surplus (figure O-38). It reached
a record $108 billion in 2008, sufficient to
counter-balance the high-technology
goods deficit, and has been flat since
then, reflecting the recession's effect. The
EU's surplus was sharply off, and that of
the Asia-8 fell as well—reflections of the
continuing effects of the global recession.
NSF Science and Engineering Indicators 2012
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14. By country, the largest U.S. surpluses in services are with Canada, Japan, Ireland, Brazil,
the United Kingdom, China and Mexico. The U.S. services surplus with China has
accelerated rapidly since 2007, from $2.4 billion to $10.4 billion in 2010, because of sharp
gains in exports and relatively flat imports, according to ESA data.

Exports support more than 10 million American jobs, and those whose jobs depend on
trade earn 13 to 18 percent more than the national average. As a result of administration
policies and the global economic rebound, exports grew 17 percent in 2010 compared to
2009 – the largest year-to-year percent change in more than 20 years.

Private services are defined as non-tangible items of value that are either consumed
when purchased or at a later date by their terms of sale, such as school tuition or an
airplane ticket. These are distinct from tangible items, or “goods,” such as oranges or
motor vehicles.
U.S. services driving overall exports growth, topping half a trillion
dollars
The U.S. Department of Commerce’s Economics and Statistics Administration (ESA) released
a report showing U.S. trade in private services totaled $526.6 billion in 2010, representing a
trade surplus that is growing, rising from $66.7 billion in 2003 to $168 billion in 2010.
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15. U.S. Surplus with China is Growing Rapidly Figure 4: Trade Balance in Private Services Billions of dollars
1992 1995 1998 2001 2004 2007 2010 -40 -200 20 40 60 80 100 -40 -20 020 40 60 80 100 Royalties and
license fees Travel and fares Freight and port use Other private services Source: Bureau of Economic
Analysis. Figure 5: Largest U.S. Surpluses and Deficits by Country in 2010* Private services trade, billions
of dollars Canada Japan Ireland (2009) Brazil United Kingdom China Mexico India Bermuda (2009) -30 -20
-10 0 10 20 30 Source: Bureau of Economic Analysis. * 2009 data is used if 2010 is not available.
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