Do you think you can manage to suspend
disbelief for the next few minutes, to consider an idea that may seem ridiculous
at first? Can you at least
momentarily entertain the notion that every business may usefully be seen as a
service business, and even what we normally think of as products can be viewed
according to the services they provide?
This is the essence of the “all-services, all-the-time” perspective. This perspective stems directly
from the observation that people, with their talent, knowledge, skills, and
experience constitute the ultimate source of value. No matter what business you’re in, this perspective can serve you well.
A widely-accepted point of common knowledge says that there are three major
divisions of employment – agriculture, manufacturing, and service. In the Standard Industry Classification
(SIC) codes “services” is cited as a classification as distinct from
agriculture, mining, construction, manufacturing, transportation,
communications, electric, wholesale trade, retail trade, finance, insurance, public
administration and others. For
many purposes this sort of classification scheme makes a lot of sense. However, from the point of view of what
and how people actually accomplish work and create value, a hard and fast
separation of “services” from other forms of production seems less helpful.
The
all-services, all-the-time viewpoint is supported by the work of Frédéric
Bastiat, a French statesman and economist of the 19th Century. Bastiat was a tireless advocate
for free trade, and he made a witty and entertaining case against the
regressive effects of tariffs and other barriers to exchange. In his work titled Harmonies of Political Economy, he explained the positive benefits
that come from open exchange and commerce.
The most
fundamental pattern within Bastiat’s political economy consists of 1) human
desires and wants, 2) human efforts, and 3) the satisfaction of wants. Wants inspire efforts to achieve
satisfactions. His list of human
desires and wants includes (in general order of urgency): respiration, food,
clothing, lodging, preservation or re-establishment of health, locomotion,
security, instruction, diversion, and sense of the beautiful. The efforts
to address satisfaction of these desires, also called “labor”, may be physical,
intellectual, or even moral. From
this we can see that Bastiat’s pattern of economic thinking is very
wide-ranging and inclusive.
Bastiat talks
about the “indefinite expansibility” of the desires and wants of people. Not infinite, but indefinite, so that
as certain wants are satisfied, others come into view. It is interesting that he defines a
want as a “painful desire”. He
separates the ideas of wealth and value, saying that effort of people on behalf
of others must be recompensed, but wealth is to be found in utility, which is
the combination of the gifts of nature and labor. He gives examples of water, air, and energy to emphasize the
point that when these are freely available to all, there is no basis for
putting value on them, and therefore no basis for exchange.
“If we
all always had a spring right at our feet, evidently water would not have any
value, since there would be no occasion to exchange it. But if it is half a
mile away, we must go and get it; that is work, and there is the origin of its
value. If it is a mile away, that is double work, and hence double value,
although the utility remains the same. [If] I go and get [water] myself, I
render myself a service by taking some pains. If I entrust this task to another, I put him to some trouble
and owe him a service. Thus, there are two pains, two services, to compare and
discuss. … Air is a gratuitous
gift of Nature; it has no value. … But if you enter a diving bell and have a
man send down air to you with a pump for two hours, he will be put to some
trouble; he will render you a service; you will have to repay him. Will you pay
for the air? No, for the labor. … Services are
exchanged for services. … Do this for me, and I will do that for you. It is
very trivial, very commonplace; it is, nonetheless, the beginning, the middle,
and the end of economic science.”
I have
assembled this set of snippets of quotation from Harmonies in order to focus on the pattern of want, effort, satisfaction
at the very heart of economy, emphasizing the basis of economy as the exchange
of services. By the general law of
service for service, the receivers of current services must recompense the
efforts that have been made for them.
“But” I hear you say, “what about services that are simply paid
for?” And of course, the normal
case is that services are simply paid for with money. But hear Bastiat on that point.
“The primitive form of exchange is barter which
has … two wants as the motivating
force, two efforts as the means, two satisfactions as the result. … We can [also] conceive of roundabout
barter, involving three contracting parties. Paul renders a service to Peter,
who renders an equivalent service to James, who in turn renders an equivalent
service to Paul, thereby completing the cycle. … It is easy to understand that
roundabout barter in kind cannot be greatly expanded, and there is no need to
dwell on the obstacles that prevent its further development. … Barter cannot go
beyond a small circle of persons acquainted with one another. Humanity would
soon have reached the limits of the division of labor, the limits of progress,
if a means of facilitating exchange had not been found. … When this type of
intermediate commodity is resorted to, two economic phenomena appear, which are
called sale and purchase. … Exchange is not complete until the [person] who has made an
effort for another [person] receives in return an equivalent service, that is,
a satisfaction.” We thus sell services for an “intermediate
commodity” (some form of money) and then eventually buy equivalent services.
Some
efforts are engaged with services currently being rendered, while others set
people up in order to render those current services. Bastiat gives us the example of the water carrier, who makes
his own barrow and cask and then amortizes that effort across the many
immediate services of providing water.
In agriculture he talks about plowing, sowing, harrowing, weeding,
harvesting, on the one hand vs. clearing, enclosing, draining and improving the
land, on the other.
Bastiat
summarizes the cumulative effect of services compounded across a whole economy,
resulting in a powerful concatenation of effort. Remember, this is from a mid-19th Century point
of view, but it’s easy to transfer this thinking to the 21st
Century, where the networks and forces are vastly more powerful: As Bastiat
reports, a common worker purchases a pair of cotton stockings for half day of
wages. This is nothing compared to
the effort that it would take for him to perform every aspect of bringing those
stockings into existence. His
small price (multiplied by all buyers of stockings and other cotton goods)
provides recompense for the chain of labor, and the interest on capital that
enlisted the “gratuitous” services of nature. That is, “Capital does not consist of the vegetative force
that has made cotton germinate and flower, but in the pains taken by the
planter.”
More recently (much more recently!), two
professors of marketing, Stephen Vargo and Robert Lusch make the case for
service-dominance. They contrast this service-dominant logic with the
prevailing view in the 20th Century: “The old dominant logic: The purpose of economic activity is
to make and distribute things that can be sold. To be sold, these things must
be embedded with utility and value during the production and distribution
processes and must offer to the consumer superior value in relation to
competitors’ offerings. The firm
should set all decision variables at a level that enables it to maximize the
profits from the sale of output. For both maximum production control and
efficiency, the good should be standardized and produced away from the market. The good can then be inventoried until
demanded and then delivered to the consumer at a profit.”
This seems to indicate that
services-orientation is a matter of perspective, with the pendulum of
perception recently swinging strongly back to Bastiat’s position that exchange of services,
mediated by “intermediate
commodity” (money of some kind).
That variable perspective creates the opportunity to bring the services
aspect into the foreground. For instance, the painter of a chassis
in an automobile manufacturing plant can be classified as a service provider.
That is true if the painters are subcontracting to the manufacturer, but how is
it really different if they are employees performing the service of
painting? IBM Research can be seen
as a service provider within IBM as a computer manufacturer and software
vendor. Whole industries, such as the consumer electronics industry, have been
broken down into multiple enterprises that provide specialized services to each
other in complex supply networks.
From
the “all-services, all-the-time” perspective, even those things we typically
call “products” can be seen as services, as well. A manufacturing plant creates products that are sent out to
store shelves, commodity warehouses, or are accessible through mail-order
catalogs or Internet retail are all intended to perform services for the
buyer. It’s just that in the
“product” case, the service is released from constraints of time and distance. The co-creation of value happens in
stages: the manufacturing stage and the usage stage. A car exists to provide a transportation service, but
without any intervention of the original maker of the car. A chair exists to provide the service
of a place to sit. A flashlight
exists to provide the service of a portable light source.
An
interesting exercise is to try to think of some product for which this relationship
does not hold true. This exercise
is left to the imagination of the reader!
The
all-services, all-the-time perspective makes it clear that no matter your business, you offer services, sometimes
with immediate, sometimes with deferred time horizons. Once you start to see all businesses as
service businesses, all work as performing services of some kind, and all
products existing to provide services at a distance in time and space, a kind
of pattern language becomes useful. The kinds of questions that are prompted by
taking an all-services perspective include:
- What purpose is this interactive or deferred service intended to satisfy?
- What desire, want, or need does it fulfill?
- What value is being created?
- Who receives the value that the service provides?
- How effective is it?
- Are we being rewarded based on effective performance?
- Who decides what level of value requires remuneration?
- How else might the need be fulfilled?
- What providers of alternate services might become competitors?
The early 21st Century provides a particularly appropriate opportunity to focus on services, just as the Internet of Things is starting to gain momentum, and new generations of people are coming of age who have never experienced the world without a powerful computer and communication device in their pockets. It's easier now than ever before to see a web or graph of interconnected services. Or, as we've heard: "Services are exchanged for services. …Do this for me, and I will do that for you. It is very trivial, very commonplace; it is, nonetheless, the beginning, the middle, and the end of economic science.”
To get back to the hub list of healthy business factors, click here.
To get back to the discussion of businesses as living systems, here.
References:
Claude
Frédéric Bastiat, The
Bastiat Collection, Auburn Alabama, Ludwig von Mises Institute, 2011
“Service-Dominant Logic: The New Frontier of
Marketing -- Business Briefing for the Otago Forum on Service-Dominant Logic, November
25, 2005, Robert F. Lusch, University of Arizona, Stephen L. Vargo, University
of Hawaii at Manoa
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