Service (economics)

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A hotel porter is an example of a service-related occupation. Portier mit Zylinder.JPG
A hotel porter is an example of a service-related occupation.

In economics, a service is a transaction in which no physical goods are transferred from the seller to the buyer. The benefits of such a service are held to be demonstrated by the buyer's willingness to make the exchange. Public services are those that society (nation state, fiscal union, region) as a whole pays for. Using resources, skill, ingenuity, and experience, service providers benefit service consumers. Service is intangible in nature.

Economics is the social science that studies the production, distribution, and consumption of goods and services.

A resource is a source or supply from which a benefit is produced and that has some utility. Resources can broadly be classified upon their availability — they are classified into renewable and non-renewable resources. Examples of non renewable resources are coal, crude oil etc. Examples of renewable resources are air, water, natural gas, wind, solar energy, etc. They can also be classified as actual and potential on the basis of level of development and use, on the basis of origin they can be classified as biotic and abiotic, and on the basis of their distribution, as ubiquitous and localized. An item becomes a resource with time and developing technology. Typically, resources are materials, energy, services, staff, knowledge, or other assets that are transformed to produce benefit and in the process may be consumed or made unavailable. Benefits of resource utilization may include increased wealth, proper functioning of a system, or enhanced well-being. From a human perspective, a natural resource is anything obtained from the environment to satisfy human needs and wants. From a broader biological or ecological perspective, a resource satisfies the needs of a living organism.

A skill is the ability to carry out a task with determined results often within a given amount of time, energy, or both. Skills can often be divided into domain-general and domain-specific skills. For example, in the domain of work, some general skills would include time management, teamwork and leadership, self-motivation and others, whereas domain-specific skills would be used only for a certain job. Skill usually requires certain environmental stimuli and situations to assess the level of skill being shown and used.

Contents

Two I's

Services can be described in terms of I's.

Intangibility

Services are by definition intangible. They are not manufactured, transported or stocked.

Services cannot be stored for a future use. They are produced and consumed simultaneously.

Services are perishable in two regards:

A business opportunity involves sale or lease of any product, service, equipment, etc. that will enable the purchaser-licensee to begin a business. The licensor or seller of a business opportunity usually declares that it will secure or assist the buyer in finding a suitable location or provide the product to the purchaser-licensee. This is different from the sale of an independent business, in which there is no continued relationship required by the seller.

The service provider must deliver the service at the time of service consumption. The service is not manifested in a physical object that is independent of the provider. The service consumer is also inseparable from service delivery. Examples: The service consumer must sit in the hairdresser's chair, or in the airplane seat. Correspondingly, the hairdresser or the pilot must be in the shop or plane, respectively, to deliver the service.

Inconsistency (variability)

Each service is unique. It can never be exactly repeated as the time, location, circumstances, conditions, current configurations and/or as signed resources are different for the next delivery, even if the same service is requested by the consumer. Many services are regarded as heterogeneous and are typically modified for each service consumer or each service contextual. Example: The taxi service which transports the service consumer from home to work is different from the taxi service which transports the same service consumer from work to home – another point in time, the other direction, possibly another route, probably another taxi driver and cab. Another and more common term for this is heterogeneity.

Terminology is a general word for the group of specialized words or meanings relating to a particular field, and also the study of such terms and their use, this also known as terminology science. Terms are words and compound words or multi-word expressions that in specific contexts are given specific meanings—these may deviate from the meanings the same words have in other contexts and in everyday language. Terminology is a discipline that studies, among other things, the development of such terms and their interrelationships within a specialized domain. Terminology differs from lexicography, as it involves the study of concepts, conceptual systems and their labels (terms), whereas lexicography studies words and their meanings.

Service quality

Mass generation and delivery of services must be mastered for a service provider to expand. This can be seen as a problem of service quality. Both inputs and outputs to the processes involved providing services are highly variable, as are the relationships between these processes, making it difficult to maintain consistent service quality. Many services involve variable human activity, rather than a precisely determined process; exceptions include utilities. The human factor is often the key success factor in service provision. Demand can vary by season, time of day, business cycle, etc. Consistency is necessary to create enduring business relationships.

In theoretical physics, a mass generation mechanism is a theory that describes the origin of mass from the most fundamental laws of physics. Physicists have proposed a number of models that advocate different views of the origin of mass. The problem is complicated because the primary role of mass is to mediate gravitational interaction between bodies, and no theory of gravitational interaction reconciles with the currently popular Standard Model of particle physics.

Service quality (SQ), in its contemporary conceptualisation, is a comparison of perceived expectations (E) of a service with perceived performance (P), giving rise to the equation SQ=P-E. This conceptualistion of service quality has its origins in the expectancy-disconfirmation paradigm.

Public utility organization that maintains the infrastructure for a public service

A public utility company is an organization that maintains the infrastructure for a public service. Public utilities are subject to forms of public control and regulation ranging from local community-based groups to statewide government monopolies.

Specification

Any service can be clearly and completely, consistently and concisely specified by means of standard attributes that conform to the MECE principle (Mutually Exclusive, Collectively Exhaustive).

The MECE principle, pronounced "ME-see", is a grouping principle for separating a set of items into subsets that are mutually exclusive (ME) and collectively exhaustive (CE). It was developed in the late 1960s by Barbara Minto at McKinsey & Company and underlies her Minto Pyramid Principle, and is based on ideas going back as far as Aristotle.

Servicescape physical environment in which a service process takes place

Servicescape is a model developed by Booms and Bitner to emphasize the impact of the physical environment in which a service process takes place. The aim of the servicescapes model is to explain behavior of people within the service environment with a view to designing environments that does not accomplish organisational goals in terms of achieving desired behavioural responses. For consumers visiting a service or retail store, the service environment is the first aspect of the service that is perceived by the customer and it is at this stage that consumers are likely to form impressions of the level of service they will receive.

Delivery

Coffee house - a type of service delivery. StarbucksVaughanMills.JPG
Coffee house - a type of service delivery.

The delivery of a service typically involves six factors:

The service encounter is defined as all activities involved in the service delivery process. Some service managers use the term "moment of truth" to indicate that point in a service encounter where interactions are most intense.

Many business theorists view service provision as a performance or act (sometimes humorously referred to as dramalurgy, perhaps in reference to dramaturgy). The location of the service delivery is referred to as the stage and the objects that facilitate the service process are called props. A script is a sequence of behaviors followed by those involved, including the client(s). Some service dramas are tightly scripted, others are more ad lib. Role congruence occurs when each actor follows a script that harmonizes with the roles played by the other actors.

In some service industries, especially health care, dispute resolution and social services, a popular concept is the idea of the caseload, which refers to the total number of patients, clients, litigants, or claimants for which a given employee is responsible. Employees must balance the needs of each individual case against the needs of all other current cases as well as their own needs.

Under English law, if a service provider is induced to deliver services to a dishonest client by a deception, this is an offence under the Theft Act 1978.

Lovelock used the number of delivery sites (whether single or multiple) and the method of delivery to classify services in a 2 x 3 matrix. Then implications are that the convenience of receiving the service is the lowest when the customer has to come to the service and must use a single or specific outlet. Convenience increases (to a point) as the number of service points increase.

Service-commodity goods continuum

Service-Commodity Goods continuum Service-goods continuum.png
Service-Commodity Goods continuum

The distinction between a good and a service remains disputed. The perspective in the late-eighteenth and early-nineteenth centuries focused on creation and possession of wealth. Classical economists contended that goods were objects of value over which ownership rights could be established and exchanged. Ownership implied tangible possession of an object that had been acquired through purchase, barter or gift from the producer or previous owner and was legally identifiable as the property of the current owner.

Adam Smith’s famous book, The Wealth of Nations , published in 1776, distinguished between the outputs of what he termed "productive" and "unproductive" labor. The former, he stated, produced goods that could be stored after production and subsequently exchanged for money or other items of value. The latter, however useful or necessary, created services that perished at the time of production and therefore did not contribute to wealth. Building on this theme, French economist Jean-Baptiste Say argued that production and consumption were inseparable in services, coining the term "immaterial products" to describe them.

Most modern business theorists describe a continuum with pure service on one terminal point and pure commodity good on the other. [1] Most products fall between these two extremes. For example, a restaurant provides a physical good (the food), but also provides services in the form of ambience, the setting and clearing of the table, etc. And although some utilities actually deliver physical goods — like water utilities that deliver water — utilities are usually treated as services.

In a narrower sense, service refers to quality of customer service: the measured appropriateness of assistance and support provided to a customer. This particular usage occurs frequently in retailing.

Service types

The following is a list of service industries, grouped into sectors. Parenthetical notations indicate how specific occupations and organizations can be regarded as service industries to the extent they provide an intangible service, as opposed to a tangible good.

List of countries by tertiary output

Service output as a percentage of the top producer (USA) as of 2005 2005gdpServices.png
Service output as a percentage of the top producer (USA) as of 2005

Below is a list of countries by service output at market exchange rates at peak level as of.

20 largest Countries by Tertiary Output (in nominal terms) according to IMF and CIA World Factbook, at peak level as of 2018
Economy
Countries by tertiary output (in nominal terms) at peak level as of 2018 (billions in USD)
(01) Flag of the United States.svg  United States
16,451
(—) Flag of Europe.svg  European Union
13,616
(02) Flag of the People's Republic of China.svg  China
7,025
(03) Flag of Japan.svg  Japan
4,299
(04) Flag of Germany.svg  Germany
2,792
(05) Flag of the United Kingdom.svg  United Kingdom
2,481
(06) Flag of France.svg  France
2,284
(07) Flag of Brazil.svg  Brazil
1,903
(08) Flag of Italy.svg  Italy
1,775
(09) Flag of India.svg  India
1,654
(10) Flag of Russia.svg  Russia
1,431
(11) Flag of Canada (Pantone).svg  Canada
1,294
(12) Flag of Spain.svg  Spain
1,219
(13) Flag of Australia (converted).svg  Australia
1,101
(14) Flag of South Korea.svg  South Korea
965
(15) Flag of Mexico.svg  Mexico
841
(16) Flag of the Netherlands.svg  Netherlands
669
(17) Flag of Turkey.svg  Turkey
584
(18) Flag of Switzerland.svg   Switzerland
523
(19) Flag of Indonesia.svg  Indonesia
466
(20) Flag of Belgium (civil).svg  Belgium
415

The twenty largest countries by tertiary output (in nominal terms) at peak level as of 2018, according to the IMF and CIA World Factbook.

See also

Related Research Articles

Tertiary sector of the economy service sector

The service sector is the third of the three economic sectors of the three-sector theory. The others are the secondary sector, and the primary sector.

The subscription business model is a business model in which a customer must pay a recurring price at regular intervals for access to a product or service. The model was pioneered by publishers of books and periodicals in the 17th century, and is now used by many businesses and websites.

Services marketing

Services marketing is a specialised branch of marketing. Services marketing emerged as a separate field of study in the early 1980s, following the recognition that the unique characteristics of services required different strategies compared with the marketing of physical goods.

An application service provider (ASP) is a business providing computer-based services to customers over a network; such as access to a particular software application using a standard protocol.

Goods tangible and intangible thing, except labor tied services, that satisfies human wants and provides utility

In economics, goods are materials that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods that are tangible property, and services, which are non-physical.

IT service management (ITSM) refers to the entirety of activities – directed by policies, organized and structured in processes and supporting procedures – that are performed by an organization to design, plan, deliver, operate and control information technology (IT) services offered to customers.

Goods and services outcome of human efforts to meet the wants and needs of people

Goods are items that are usually tangible, such as pens, salt, apples, and hats. Services are activities provided by other people, who include doctors, lawn care workers, dentists, barbers, waiters, or online servers, a book, a digital videogame or a digital movie. Taken together, it is the production, distribution, and consumption of goods and services which underpins all economic activity and trade. According to economic theory, consumption of goods and services is assumed to provide utility (satisfaction) to the consumer or end-user, although businesses also consume goods and services in the course of producing other goods and services.

A value network is a business analysis perspective that describes social and technical resources within and between businesses. The nodes in a value network represent people. The nodes are connected by interactions that represent tangible and intangible deliverables. These deliverables take the form of knowledge or other intangibles and/or financial value. Value networks exhibit interdependence. They account for the overall worth of products and services. Companies have both internal and external value networks.

SERVQUAL is a multi-dimensional research instrument, designed to capture consumer expectations and perceptions of a service along the five dimensions that are believed to represent service quality. SERVQUAL is built on the expectancy-disconfirmation paradigm, which in simple terms means that service quality is understood as the extent to which consumers' pre-consumption expectations of quality are confirmed or disconfirmed by their actual perceptions of the service experience. When the SERVQUAL questionnaire was first published in 1985 by a team of academic researchers, A. Parasuraman, Valarie Zeithaml and Leonard L. Berry to measure quality in the service sector, it represented a breakthrough in the measurement methods used for service quality research. The diagnostic value of the instrument is supported by the model of service quality which forms the conceptual framework for the development of the scale. The instrument has been widely applied in a variety of contexts and cultural settings and found to be relatively robust. It has become the dominant measurement scale in the area of service quality. In spite of the long-standing interest in SERVQUAL and its myriad of context-specific applications, it has attracted some criticism from researchers.

Electronic billing or electronic bill payment and presentment, is when a seller such as company, organization, or group sends its bills or invoices over the internet, and customers pay the bills electronically. This replaces the traditional method where invoices were sent in paper form and payments were done by manual means such as sending cheques.

A value proposition is a promise of value to be delivered, communicated, and acknowledged. It is also a belief from the customer about how value (benefit) will be delivered, experienced and acquired.

Cloud computing Form of Internet-based computing that provides shared computer processing resources and data to computers and other devices on demand

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Service blueprint

The service blueprint is a technique originally used for service design and innovation, but has also found applications in diagnosing problems with operational efficiency. The technique was first described by G. Lynn Shostack, a bank executive, in the Harvard Business Review in 1984. The service blueprint is an applied process chart which shows the service delivery process from the customer's perspective. The service blueprint has become one of the most widely used tools to manage service operations, service design and service positioning.

Third-party logistics in logistics and supply chain management is an organization's use of third-party businesses to outsource elements of its distribution, warehousing, and fulfillment services.

Utility ratemaking is the formal regulatory process in the United States by which public utilities set the prices they will charge consumers. Ratemaking, typically carried out through "rate cases" before a public utilities commission, serves as one of the primary instruments of government regulation of public utilities.

ITIL, formerly an acronym for Information Technology Infrastructure Library, is a set of detailed practices for IT service management (ITSM) that focuses on aligning IT services with the needs of business.

Business services are a recognisable subset of economic services, and share their characteristics. The essential difference is that businesses are concerned about the building of service systems in order to deliver value to their customers and to act in the roles of service provider and service consumer.

Operations management for services has the functional responsibility for producing the services of an organization and providing them directly to its customers. It specifically deals with decisions required by operations managers for simultaneous production and consumption of an intangible product. These decisions concern the process, people, information and the system that produces and delivers the service. It differs from operations management in general, since the processes of service organizations differ from those of manufacturing organizations.

Digital banking is part of the broader context for the move to online banking, where banking services are delivered over the internet. The shift from traditional to digital banking has been gradual and remains ongoing, and is constituted by differing degrees of banking service digitization. Digital banking involves high levels of process automation and web-based services and may include APIs enabling cross-institutional service composition to deliver banking products and provide transactions. It provides the ability for users to access financial data through desktop, mobile and ATM services.

References

  1. Anders Gustofsson and Michael D. Johnson, Competing in a Service Economy (SanFrancisco: Josey-Bass, 2003), p.7.