Spohrer and Maglio Yorktown 20061020 v2

SSME: Service Science, Management, and Engineering

SSME Emerging | Yorktown | October 20th, 2006

Service Science, Management, and Engineering (SSME): An Emerging Multidiscipline

Jim SpohrerPaul MaglioAlmaden Services Research (ASR)

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IBM Research © 2006 IBM Corporation

Thanks

Wendy Murphy Liba Svobodova Kazuyoshi Hidaka Hong CAI Claudio Pinhanez Doug Riecken Dan Connors Iris Ginzburg Guruduth S Banavar Corrina Shulze Dianne Fodell Sharon McFadden Lilian S Wu Diem Ho J Michael Loughran Sara Delekta Galligan ASR team And many more…

Nick Donofrio Paul Horn Irving Wladawsky-Berger Stu Feldman Robert Morris Thomas Li Mark Dean Benda Dietrich Manoj Kumar Gina Poole Susan Tuttle Taffy Kingscott Ed Bevan Greg Golden George Pohle Alan Yamamoto And many more…

Paul F Van Droogenbroeck Jyrki Koskinen Erwin Jung Dirk Siegel Anja Kremer Pini Burtman Carla Milan Will Peachey Katerina Frolovicheva Attila Suhajda Jeongtae Nam Andre Braga/Brazil/IBM Edgar Polanco Gomez Matt Berry And many more…

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Phase I: “Call to Action” (2004-2006)

“The SSME Palisades event was the biggest and most diverse gathering ever in support of service education.” – Roland Rust, U. Maryland (Oct. 15, 2006)

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SSME is an emerging multidiscipline (frontier field)

“Need I-shaped, T-shaped, π-shaped people… “ – Stuart Feldman (Oct. 6, 2006)

Business and

Managem

ent

Science and

Engineering

Econom

ics and Social

Sciences

Math and O

perations R

esearch

Com

puter Science &

Info. S

ystems

Industrial and System

s E

ngineering

Business

Anthropology

Organizational C

hange &

Learning

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More T-shaped Peopleto work in, study, and innovate

service systems

Social Science (People)

Management (Business)

Engineering (Technology)

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SSME: Growing Body of Knowledge about Service

Economics and Social Science

Management

Engineering

Smith

1750 1800 1850 1900 1950 2000

100%

75%

50%

25%

Marx Clark

Percentage of labor force in service sector: US (blue) and World (green)

Argyris

Glushko

Alter

Bryson et alMilgrom& Roberts

Jaikumar & Bohn

March& Simon

Lusch & Vargo

Berry (1999), Teboul (2006)Fisk, Grove, & John (2000) .Davis

Fitzsimmons & Fitzsimmons (2001) Grönroos (2000), Sampson (2000)

Hoffman & Bateson (2002) Lovelock & Wright (2001)Zeithaml & Bitner (2003)

Hesket, Sasser, & Hart, Rust, RamirezPine & Gilmore, Schneider, Chase

Murmann, Seabright, Latour, SenCohen & Zysman, Triplett & Bosworth,Abbott, Baumol, Hill, Gadrey & Gallouj

StermanGanz, Weinhardt, RouseTiene & Berg, Carley

Herzenberg, Alic&Wial

Taylor Deming

Bastiat

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Communications of the ACM, July 2006

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Textbooks

Berry (1999) Chase, Jacobs, Aquilano Davis Fisk, Grove, & John (2000) Fitzsimmons & Fitzsimmons (2001) Grönroos (2000)

Hoffman & Bateson (2002) Lovelock & Wright (2001) Sampson (2000) Teboul (2006) Zeithaml & Bitner (2003)

Service Management: Operations, Strategy, and Information Technologies

by James Fitzsimmons and Mona Fitzsimmons

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Journal and Conference

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At San Francisco’sWestin St Francis

16th Annual AMAFrontiers in Service Conference

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On what foundational logic, could we build a science of service?

Defines service as the application of competencies for the benefit of another entity and sees mutual service provision, rather than the exchange of goods, as the foundational logic

This new paradigm is service-oriented, customer-oriented, relationship-focused, and knowledge-based

The Service-Dominant Logic of Marketing: Dialog, Debate, and Directions

by Robert F. Lusch and Stephen L. Vargo

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On what theory of economics, could we build a science of service?

Firms: Viewed as historically situated combiners of heterogeneous and imperfectly mobile resources under conditions of imperfect and costly to obtain information, towards the primary objective of superior financial performance.

Resources: Viewed as tangible and intangible entities available to the firm that enable it to produce efficiently and/or effectively a market offering that has value for some market segment(s).

A General Theory of Competition : Resources, Competences, Productivity, Economic Growth (Marketing for a New Century)by Shelby D. (Dean) Hunt

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How do new professions arise?

In The System of Professions Andrew Abbott explores central questions about the role of professions in modern life: Why should there be occupational groups controlling expert knowledge? Where and why did groups such as law and medicine achieve their power? Will professionalism spread throughout the occupational world? While most inquiries in this field study one profession at a time, Abbott here considers the system of professions as a whole. Through comparative and historical study of the professions in nineteenth- and twentieth-century England, France, and America, Abbott builds a general theory of how and why professionals evolve.

The System of Professions: An Essay on the Division of Expert Labor

by Andrew Abbott

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How do new professions and new disciplines coevolve with government institutions?

Emergence of German dye industry, German mid-19th Century Emergence of chemistry as an academic discipline Emergence of patent protection in the new area of chemical

processes and formula Emergence of new relationships connecting firms, academic

institutions, government agencies, and clients Demonstrates needed coevolution of firms, technology, and national

institutions Took England and US over 70 years to catch up!!!

Knowledge and Competitive Advantage : The Coevolution of Firms, Technology, and National Institutions

by Johann Peter Murmann

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How does the service economy and the innovation economy relate?

“… 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 proportional 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.”

Gallouj, F. (2002). Innovation in the Service Economy: The New Wealth of Nations. Cheltenham UK: Edward Elgar.

Productivity, Innovation and Knowledge in Servicesby Jean Gadrey and Faiz Gallouj

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Nation % WW

Labor% A

%G

%S

25 yr %delta S

China 21.0 50 15 35 191

India 17.0 60 17 23 28

U.S. 4.8 3 27 70 21

Indonesia 3.9 45 16 39 35

Brazil 3.0 23 24 53 20

Russia 2.5 12 23 65 38

Japan 2.4 5 25 70 40

Nigeria 2.2 70 10 20 30

Banglad. 2.2 63 11 26 30

Germany 1.4 3 33 64 44

Top Ten Nations by Labor Force Size(about 50% of world labor in just 10 nations)

A = Agriculture, G = Goods, S = Services

>50% (S) services, >33% (S) services

2004 2004United States

The largest labor force migrationin human history is underway,

driven by global communications, business and technology growth,urbanization and low cost labor.

(A) Agriculture:Value from

harvesting nature(G) Goods:

Value from making products

(S) Services:Value from enhancing the

capabilities of things (customizing, distributing, etc.) and interactions between things

Because the world is becoming a service system.Why is SSME so important?

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Why does IBM care? Our ability to hire needed talent and innovate

Now IBM is working with academics and government to establish Service Science

ComputerScience

Physicists

Electrical Engineers

Mathematicians

Philosophers(Boolean Logic)

Need to hire Computer Scientists Need to hire Service Scientists

Engineering and Natural Sciences

Social Sciences

Business and Management

Liberal Arts and Humanities

Other

Engineering and Natural Sciences

Social Sciences

Business and Management

Liberal Arts and Humanities

Other

PhD’s & Masters in U.S. IGS and IBM Research

IBM played a role in establishing Computer Science

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Berkeley SSME Certificate Program

http://ssme.berkeley.edu/

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NCSU SSME Curriculum for MBA

http://www.mgt.ncsu.edu/news/2006/mba_ssme.php

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Service Science at ASU

http://wpcarey.asu.edu/csl/

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http://www.nytimes.com/2006/04/18/business/18services.htmlhttp://www.nytimes.com/2006/04/18/business/18services.html

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Phase II: “The Science” (2007-2009)

“People-Oriented, Services-Intensive, Market-Facing Complex Systems – complex systems and services – are very similar areas

around which we are framing the very complicated problems of business and societal systems that we are trying to understand.”

– Irving Wladawsky-Berger (Oct. 9, 2006)

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Many disciplines study some aspect of service systems

Operations Research and Industrial EngineeringBut need more realistic models of people

Computer Science and Electrical EngineeringBut need software and systems that adaptively change with business strategy

Economics and Business StrategyBut need better models of scaling and innovation

Law and Political EconomyBut need better models of innovation (is passing a law innovation?)

Complex Systems and Systems EngineeringBut need better models of robustness and fragility (sustainability)

Service systems are value coproduction configurations of people, technology, internal and external service systems (connected by value propositions), and shared information (language, laws, measures, models, etc.)

Examples: People, families, cities, businesses, nations, global economy, etc.

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What is science? Data – the language of nature (empirical framework) – this is what academics want! Model – measurable quantities and relationships (theoretical framework) Analytics – fit data to model, explain variance (analytical framework) Take Action – interact with world and iterate (engineering and design frameworks)

Can we create Computer-Aided Design (CAD) for service systems?

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Under what conditions do value propositions exist between service systems to justify service for service exchanges?

Case 1 – complementary superior performance

Costs

A = 1 4, B = 3 2

Self Service

A: 10 + 40 = 50

B: 30 + 20 = 50

Over produce best by one and exchange

A: 11 + 36 = 47

B: 27 + 22 = 49

Case 2 – one with strictly superior performance, namely A

Costs

A = 1 2, B = 4 3

Self Service

A: 10 + 20 = 30

B: 40 + 30 = 70

Over produce best by one and exchange

A: 11 + 18 = 29

B: 36 + 33 = 69

Assume service system A and B (imagine two people, family-clans, cities, nations, or businesses) each produce two same kinds of service, each have demand for ten performances of the services each day, and each have different costs of producing the services for self-service consumption

Surprisingly, in Case 2, it still makes sense to exchange service for service as well! Of course, this ignores transaction costs associated with the exchange… What happens when the cost decreases with experience/learning/innovations? What about trading the skill to perform a service, rather than simply performances?

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Under what conditions are compliance laws innovative in a service system of selfish optimizers?

Pigou’s ExampleA population of commuters must drive from point A to point B. There are two roads. The first road always takes one hour. The second road takes time proportional to the amount of traffic (all = 1). If everyone takes the second road, the time is one hour. All drivers take the second road, it is never worse than one hour, and maybe better.

Braess’s ParadoxTwo roads with composed of two parts. First road has constant one hour plus one hour max if congested. Second road has one hour max if congested plus one hour. Traffic splits so everyone gets from point A to point B in 90 minutes. However, by adding a zero cost interchange connecting the two midpoints, now everyone takes the two connected congested routes, and now every takes 120 minutes!

A B

C(x) = 1

C(x) = x

A law that mandates odd and even license plates take different routeson different days, if backed up with sampling and tickets/fines, could yield better results.

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Baumol and Oulton – R&D Services (Primus Inter Parus)

Circa 1960: Imagine an economy with two sectors (manufacturing and services). Technology for labor substitutions increase productivity at a steady pace in the “progressive” sector, and the “stagnant” or “asymptotically stagnant” sector absorbs the labor from the other.

Circa 2002: Now imagine that the asymptotically stagnant sector is R&D (primus inter parus). Oulton (Bank of England) suggests that R&D which produces information is not a final result, but is actually input to the progressive sector. So as long as R&D productivity gains are slightly positive, the economy as a whole does not stagnate!

Let, yi = the output of sector I, Li = the primary input quantity used by sector I, where L1 + L2 = L (constant), Pi = the price of the sector’s output, G i = the growth rate of the productivity of the primary input used directly by sector I (with 0 < G1 < G2, so that sector 1 is the relatively stagnant sector, w primary input price

Y1 = F1(L1, t), Y2 = F2(y1, L2, t)

• Data (Fano): In US, between 1921 and 1938 industrial research personnel rose by 300%. Laboratories rose from fewer than 300 in 1920 to over 1600 in 1931, and more than 2,200 in 1938.

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If time permits…

Call centers as exemplar service systemsBalance productivity and quality

Balance compliance and innovation Service innovation, beyond cost cutting (e.g., global sourcing, automation)

How to grow when markets don’t

Blue ocean strategies Simple service system ecology simulator

Measures up, same, down, indeterminate

Population of measurement makers and users

Examples prices, salaries, success rates, etc.

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How will we know when we have succeeded?

A textbook that is used in service science and complex systems courses around the world

Data from variety of service systems (e.g., call center), models, analytics, action research plans and case studies of service systems

Payoff in business and societal results (better measurement systems, models of business-clients-competitors, and theory of value proposition evolution between service systems)

Perhaps even a Moore’s like law or investment road map for predictable service system capability growth (we’ve even had a few people starting to propose some)


SSME Emerging | Yorktown | October 20th, 2006

REST IS BACKUP

ContactJim Spohrer ( [email protected] )Paul Maglio ( [email protected] )Wendy Murphy ( [email protected] )

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But what about service innovation?

What is service innovation?Increase margins of delivering existing service offerings – cut costs

Create new kinds of high value service offerings – grow revenue

Improve skilled labor productivity in creating and delivering service…

But how to do these things?

We can hire physicists and computer scientist to innovate

But who do you hire to do service innovation? Easy to name technology innovations Bit harder, but can name business innovations What about social-organizational innovation? How about client-driven demand innovation?

What should a service scientist learn to know these things?

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IBM Perspective on Services: Business & IT

Strategic Outsourcing & IT Hardware, Software & Services

Application Management

BusinessTransformation Outsourcing

Business Consulting Services & Project-based Systems Integration

2003: 50 of 3000 of 320,0002006: 550 of 3200 of 340,000

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2007 Services Area Strategies

1. Business Value

2. Services Software Engineering

3. Services Management and Products

5.

Serv

ices

Info

rmati

on

For C&SI, BTO Applications

Primarily for AS

For ITD, SO/BTO Delivery, SPLs4.

Serv

ices O

pti

miz

ati

on

SSME – Service Science, Management and Engineering

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What would service scientists actually do?

Service scientist own the body of knowledge around service system problem solving

Service scientists identify a service system that needs improvement

Service scientists identify the stakeholders their concerns and perceived opportunities

Service scientists envision augmentations (additional new service systems) or reconfigurations (of old service systems components) that best address all problems and opportunities

Identify year-over-year improvement trajectories

Identify incentives to change (ROI, leadership, laws)

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Example: Are there “scale laws” of service innovation – year-over-year compounding effects?

ProblemsInput: Student quality

Process: Faculty motivation

Output: Industry fit

AugmentationsA: -20% eLearning certification

B. +10% Faculty interest tuning

C. +10% On-the-job skills tuning

Year 1: 20%

Year 2: 20%

Year 3: 20%

Year N: 20%

. . . . . . . .

After a decade the course may look quite differentService systems are learning systems: productivity, quality, etc.

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Herb Simon: “The first service scientist?”

“Herbert Simon (1916-2001), in the course of a long and distinguished career in the social and behavioral sciences, made lasting contributions to many disciplines, including economics, psychology, computer science, and artificial intelligence. In 1978 he was awarded the Nobel Prize in economics for his research into the decision-making process within economic organizations. His well-known book The Sciences of the Artificial addresses the implications of the decision-making and problem-solving processes for the social sciences. “

Models of a Man : Essays in Memory of Herbert A. Simon

by Mie Augier (Editor), James G. March (Editor)

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National Academy of Engineering, 2003

“The studies suggest that services industries represent a significant source of opportunity for university-industry interaction. Services account for more than 80 percent 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, health care) have an enormous 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 the (3) the education and training of engineering and science graduates prepared to deal with management, policy, and social issues.”

From "The Impact of Academic Research on Industrial Performance“ (ttp://newton.nap.edu/catalog/10805.html)

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Smith: Unproductive Labour, Division of Labour “That work consists in services which perish generally in the very instant of

their performance, and does not fix or realize itself in any vendible commodity which can replace the value of their wages and maintenance... It is upon this account that, in the chapter in which I treat of productive and unproductive labour…”

“This great increase of the quantity of work which, in consequence of the division of labour, the same number of people are capable of performing, is owing to three different circumstances; first, to the increase of dexterity in every particular workman; secondly, to the saving of the time which is commonly lost in passing from one species of work to another; and lastly, to the invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many. “

An Inquiry into the Nature and Causes of the Wealth of Nations

by Adam Smith

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Karl Marx: Productive Forces, Social and Technical Relations

“… maintained at the expense of the whole community.” (judge, police, tax-gatherer, religious services, schoolmaster, barber, washerman)

Marxian thought rests on the fundamental assumption that it is human nature to transform nature, and he calls this process of transformation "labour " and the capacity to transform nature “labour power.”

A mode of production is a specific combination of: * productive forces: these include human labor power, tools, equipment, buildings and

technologies, materials, and improved land

* social and technical relations of production: these include the property, power and control relations governing society's productive assets, often codified in law, cooperative work relations and forms of association, relations between people and the objects of their work, and the relations between social classes.

Das Kapital (Capital: The process of the production of capital)

by Karl Marx

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Colin Clark saw the growth of services… National Accounting and Services: “It was an outstanding error on

Adam Smith’s part to attempt to exclude services from his definition of real national product. This exclusion… persisted in the Soviet definition of national income until Stalin’s recent pronouncement (October 1952).” (p 6)

Demand Innovation: “…we may judge the success of an economic system, as an economic system, by the extent to which it enables men to satisfy (without contravention of morality) their desires. It follows logically from this that we must ask ourselves: are we doing any good in laboring to provide a greater abundance of goods and services, if in the course of so doing we cause man’s desire to increase (whether directly through advertising or indirectly as a result of the general restlessness and competitiveness of the world in which they live) faster than the means of satisfying them; which is apparently what we have done in most modern communities.” (p5)

The Conditions of Economic Progressby Colin Clark

(1940, 1947, 1957 editions)

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How did the service economy come to be?

0

20

40

60

80

100

120

Services (Info)

Services (Other)

Industry (Goods)

Agriculture

Hunter-Gatherer

Estimations based on Porat, M. (1977) Info Economy: Definitions and Measurement

Estimated world (pre-1800) and then U.S. Labor Percentages by Sector

The Pursuit of Organizational Intelligence, by James G. March Exploitation vs exploration

The Origin of Wealthby Eric D. Beinhocker

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What economic variables matter in service systems?

Evolution of Trust: Human beings are the only species in nature to have developed an elaborate division of labor between strangers. Even something as simple as buying a shirt depends on an astonishing web of interaction and organization that spans the world. But unlike that other uniquely human attribute, language, our ability to cooperate with strangers did not evolve gradually through our prehistory. Only 10,000 years ago--a blink of an eye in evolutionary time--humans hunted in bands, were intensely suspicious of strangers, and fought those whom they could not flee. Yet since the dawn of agriculture we have refined the division of labor to the point where, today, we live and work amid strangers and depend upon millions more. Every time we travel by rail or air we entrust our lives to individuals we do not know. What institutions have made this possible?

The Company of Strangers : A Natural History of Economic Lifeby Paul Seabright

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How do service economies grow?

Production is measure of results or “goals achieved”Production per capita (Y) as a function of output per worker (L) and capital assets per worker

(K) and technology investment per worker (I)

Investment drives technology progress and improves the efficiency of labor; accumulates over time as capital assets

Today: Six billion people (L) with the capital assets created by one hundred billion people throughout history (K) and innovation investments (I) to increase efficiency of L, K, and I

Innovation impact will be realized in terms of…More workers (L): Healthy – healthcare services

More capital assets (K): Wealthy – financial services, retail services, transportation services

More technology investment (I): Wise – education, information, financial services

Growth Theory: An Expositionby Robert M. Solow

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How do service economies grow?

BusinessServices

Public Administration

ExtractiveSector

ManufacturingSector

InfrastructureServices

TradeServices

Social/personalServices

Consumer

Developing nations that invest in government services, health and education services, financial and business services, transportation services, utility services, communication services, and wholesale and retail services (growth of their service economy) create large populations of service labor – removing “un-freedoms” of un-healthy, un-educated, un-safe, un-employed, etc. (see Amartya Sen, “Development as Freedom”)

Financial & informationProfessional & business

Government & Police

Education & healthcareLeisure & hospitality

Wholesale & retailTransportation & warehousingUtilities & communication

Development as Freedomby Amartya Sen

1998 Nobel PrizeWinner Economics

Source: Dorothy I. Riddle (1986) Service-Led Growth. Praeger, NY

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Does geography matter in service system evolution?

People, organizations, technologies

Space/Geography in the economics of services

Consumer power in services: Client demand

Dynamics of knowledge value

Unifying themes across all service sectors

Service Worlds: People, Organisations, Technologiesby John R. Bryson, Peter W. Daniels, Barney Warf

Also, see “Age of Services”By James Teboul

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What comes after the service economy?EconomicOffering

CommodityGoods

PackagedGoods

CommodityServices

ConsumerServices++

BusinessServices++

Economy Agrarian Industrial Service Experience Transformation

EconomicFunction

Extract Make Deliver Stage Co-create value growth

Nature ofOffering

Fungible Tangible Intangible Memorable Effectual

Key Attribute

Natural Standard Custom Personal Value growth relationship

Method ofSupply

Stored inBulk

Inventory of product

DeliveredOn Demand

Reveal overduration

Sustained over time

Seller Trader Manufacturer Provider Stager Collaborator

Buyer Market Customer Client Guest Collaborator

Factors ofDemand

Characteristics Features Benefits Sensations Capabilities(Cultural Values)

Based on (Pine & Gilmore, 1999), Table 9-1, pg 170.

The Experience Economyby B. Joseph Pine II, James H. Gilmore

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How does one measure productivity in a service economy?

The services industries—which include jobs ranging from flipping hamburgers to providing investment advice—can no longer be characterized, as they have in the past, as a stagnant sector marked by low productivity growth.

They have emerged as one of the most dynamic and innovative segments of the U.S. economy, now accounting for more than three-quarters of gross domestic product. During the 1990s, 19 million additional jobs were created in this sector, while growth was stagnant in the goods-producing sector.

They highlight the importance of making improvements within the U.S. statistical system to provide the more accurate and relevant measures essential for analyzing productivity and economic growth.

Source: Amazon.com book review

Productivity in the U.S. Service Sectorby Jack E. Triplett and Barry Bosworth

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Does manufacturing matter in a service economy?

“In today’s sophisticated technological environments, high-tech services are inextricably linked to mastery and control of manufacturing. Lose manufacturing, and you will lose your competitive edge high-tech capabilities, as well as much”

Upstream services help producers of products/technologyTypically shift to production locations

Downstream services help consumers of products/technologyTypically shift to consumer locations

Manufacturing Matters: The Myth of the Post-Industrial Economy (1987)

by Stephen S. Cohen and John Zysman

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Four worlds of services jobs, upstream and downstream for…

People Business

Products Information

enable develop enable transform

designoperate &maintain

create utilize

Industrial services Information services

Business servicesConsumer services

Non-market services

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Definition of services (based on Gadrey, 2002)

A. Service Provider

- Individual- Organization- Technology that A is responsible for

C. Service Target: The reality to be transformed or operated on by A, for the sake of B

-People, dimensions of-Business, dimensions of-Products, technology artifacts & env.-Information, codified knowledge

B. Service Client

- Individual- Organization- Portion of reality

owned by B

Forms ofService Relationship

Forms ofOwnership Relationship

(B on C)

(A & B coproduce value)

Forms ofResponsibility Relationship

(A on C)

Forms ofService Interventions

(A on C, B on C)

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How do service systems improve over time?

Arguris: Double loop learning: Double loop learning questions the governing variables of a systems

Governing variables: Those dimensions that people are trying to keep within acceptable limits. Any action is likely to impact upon a number of such variables – thus any situation can trigger a trade-off among governing variables.

Action strategies: The moves and plans used by people to keep their governing values within the acceptable range.

Consequences: What happens as a result of an action. These can be both intended - those actor believe will result - and unintended. In addition those consequences can be for the self, and/or for others.

On Organizational Learningby Chris Argyris

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Hoe can one manage service system trade-offs?Service Breakthroughs: Changing the rules of the gameby James L. Heskett, W. Earl Sasser, Christopher W.L. Hart

From managing trade-offs (old) to creating self-reinforcing service cycle relationships (new) Key measures

Quality of service (customer satisfaction) = service quality delivered – service expected

Value to customer = quality of service (results & process) / (price + acquisition costs)

Profit leverage = value to customer – cost to provider

Profitability to provider = margin x repeat usage / investment

customer providerIncreased Trials

Increased Referrals

Increased Repeat Usage

Lower Perceived Risk

Lower Acquisition Costs

Increased Service Quality

Improved Results from Service

Greater Conformance with Expectations

Increased Value

Increased VolumeLower Cost of Service

Increased Margins

Greater PricingLatitude

Greater Investment Options in Service Results and Quality

Development ofCustomer-Oriented

Policy

Investment in TechnologyService Delivery

Investment inHuman Resources

Investment inMarketing

Higher ServerMotivation

Higher ServerSatisfaction

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Can a business be viewed as a service system? “First, and most fundamentally, organizations and business

strategy can be as important as technology, cost, and demand in determining a firm's success.”

“The study of organization is not about how berries are arranged on a tree of authority, but about how people are coordinated and motivated to get things done.”

“We study coordination: what needs to be coordinated, how coordination is achieved in markets and inside firms, what the alternatives are to close coordination between units, and how the pieces of the system fit together. We also study incentives and motivation: what needs to be motivated, why incentives are needed, and how they are provided by markets and firms, what alternative kinds of incentive systems are possible, and what needs to be done to make incentive systems effective."

Economics, Organization and Managementby Paul Milgrom, John Roberts

55



What can be learned from the evolution of manufacturing?

Process control is the coordination of machines, human labor, and the organization of work to effect the manufacture of a product.

Six epochs of manufacturing process control can be delineated:Craft System (circa 1500)

English System of Manufacture (circa 1800)

American System of Manufacture (circa 1830)

Taylor System (circa 1900)

Statistical Process Control (circa 1950)

Numerical Control (circa 1965)

Computer Integrated Manufacturing (circa 1985)

From Filing and Fitting to Flexible Manufacturing:A Study in the Evolution of Process Controlby Roger Bohn and Ramchandran Jaikumar

56



Does Service System = Socio-technical System = Economic System = Work Systems Design and Evolution?

The Work Systems Method to organizations:* Recognizing that systems involve much more than IT* Describing and understanding systems from a business viewpoint* Analyzing and improving systems* Improving communication between business and IT professionals* Increasing the likelihood of successful implementation* Understanding the role and limitations of IT

The Work System Method: Connecting People, Processes, and IT

for Business Results by Steven Alter

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How does technology matter in designing new web services?

Document Engineering: A new synthetic disciplineWith roots in Information and Systems Analysis (Data Analysis), Electronic

Publishing (Document Analysis), Organization Science (Business Process Analysis), Business Informatics (Transaction Analysis), User-Center Design (Task Analysis)

Design of Documents and Business Processes

Design of Web Services and Service Oriented Architectures Related to Business Informatics– “combine the modern theory,

methods, and techniques of business (i.e., organization science) and informatics (information and computing science) into one integrative programme.” (definition from Utrecht University)

Document Engineering : Analyzing and Designing Documents for Business Informatics and Web Services

by Robert J. Glushko, Tim McGrath

58



How can we formally model service systems?

“Accelerating economic, technological, social, and environmental change challenge managers and policy makers to learn at increasing rates, while at the same time the complexity of the systems in which we live are growing. Many of the problems we now face arise from unanticipated side effects of our own past actions.”

Dynamic complexity arises because systems are:Dynamic, tightly coupled, governed by feedback, nonlinear, history

dependent, self organizing, adaptive, counterintuitive, policy resistant, and characterized by trade-offs

How rapid is the change and are there any patterns in how humans deal with complexity… how do people invest their time?

Business Dynamics: Systems Thinking and Modeling for a Complex World

by John Sterman

59



Example Model: Oliva & Sterman (2001) Quality Erosion in Service Industry

60



Introduction to SSME

What is SSME? Why is SSME so important? Why does IBM care? Who else cares? What kinds of skills should a service scientist have? What kinds of tools should a service scientist have? What does a service scientist actually do? Are there “scale laws” of service innovation? Questions?

61



What is SSME?(Services Sciences, Management, and Engineering)

An urgent “call to action”To become more systematic about innovation in services

Complements product and process innovation methods

To develop “a science of services”

A proposed academic disciplineDraws on many existing disciplines

Aims to integrate them into a new specialty

A proposed research areaService systems are designed (computer systems)

Service systems evolve (linguistic and social systems)

Service systems have scale-emergent properties (economic systems)

62




The application of scientific, management, and engineering disciplines to tasks that one organization beneficially performs for and with another (‘services’)

Understand the evolution and design of service systems

Service systems are value coproduction configurations of people, technology, organizations, and shared information, such as physical, mathematical, and national laws

Make productivity, quality, compliance, sustainability, and innovation rates more predictable

Invest in service systems to make them into double-loop learning systems

Science is a way to create knowledge

Engineering is a way to apply knowledge and create new value

Management improves the process of creating and capturing value

63



Why is SSME so important?

Governments need to make service innovation a priority GDP growth of nations increasingly depends on it

Businesses need to make service innovation a priorityRevenue and profit growth increasingly depend on it

Academics need to make service innovation a priorityStudents’ futures depend on it

Improved education productivity and quality depends on it

New frontier of research with business and societal impact

Almaden Services Research

© 2006 IBM Corporation64 Service Science

IBM’s SSME Course Materials

http://www.almaden.ibm.com/asr/SSME/coursematerials/http://www.almaden.ibm.com/asr/SSME/coursematerials/



Recent Meeting on Education for Service Innovation

http://www.almaden.ibm.com/asr/SSME/esi/http://www.almaden.ibm.com/asr/SSME/esi/



Upcoming Summit on Service Education – October 2006

http://www.almaden.ibm.com/asr/SSME/summit/http://www.almaden.ibm.com/asr/SSME/summit/

67



Who else cares? Governments

US,European Commission, China, Japan, Germany, UK, Finland, Norway, Denmark, Sweden, Italy, Netherlands, Russia, India, Belgium, and others

US Department of Commerce, NSF, NIST, DARPA, VTT,etc. Industry

IBM, Accenture, HP, EDS, CSC, Cisco, P&G, American Express, John Deere, Avaya, Oracle, and many others

Academics ASU, PSU, NCSU, Berkeley, RPI, UCSC, Georgia Tech, Bentley,

Stanford, CMU, UCLA, BYU, Yale, Harvard, MIT, Northwestern, UArizona, UMaryland, UGeorgia, UMichigan, UTexas, MichiganSU, Columbia, Oxford, Warwick, Tokyo University, Peking University, Carlsruhe, AIO, Norwegian School of Economics, Helsinki University of Technology, University of Rome La Sapienza, and many others

OthersBestServ, OECD, Institute for the Future, Bay Area Economic Forum, etc.

68



School Discipline Evolution & Revision

Selection & Aggregation

Transformation & Integration

School ofManagement

Marketing Service Marketing

Service &

Solutions E

xcellence Centers

(Information S

cience & T

echnology Managem

ent)

Services S

ciences, Managem

ent, and Engineering (S

SM

E) and S

olutions E

ngineeringOperations Service Operations

Accounting Service Accounting (Activity-Based Costing)

Contracts & Negotiations Service Sourcing (eSourcing)

Management Science Service Management

Management of Technology

Management of Innovation

School of Engineering and Science

Operations Research Service Operations

Industrial & Systems Engineering

Service Engineering

Computer Science Service Computing, Web Services, SOA

School of Social Sciences Economics Institutional EconomicsExperimental Economics

Psychology Labor Psychology(Human Capital Mgmt)

Anthropology Business Anthropology

Organization Theory

Other Information Science & Systems, Service professional schools

69



What kinds of skills should a service scientist have?

TechnologyMake, Verify, Deliver, Operate, plus eServices & eMarkets

BusinessPropose (win-win), Finance, Market, Manage, plus eBusiness & eMarkets

Social-OrganizationalCoordinate, Motivate, Govern, Learn, plus eSourcing and eMarkets

Education in reading, writing, and arithmetic (3 R’s) enabled 19th century innovation.Add science, technology, engineering, and mathematics (STEM) for the 20th century.Add more info. technology, business, and social-organizational enable 21st century, or

Social-Technology-Economic-Environmental-Political (STEEP).

70



What kinds of skills should a service scientist have?Academic disciplines evolving to combine technology, business, and social-organization

Technology

BusinessSocial-Organizational

26

22

17 42

15

1

18

3

5

1625 22. Inform. Sci & Sys

23. Service Ops & Mgmt

24. Service Engineering

25. Service Marketing

26. Social Complexity

27. Agent-based compute. economics

28. Computational Organization Theory

6. Managerial Psychology

7. Human Capital Management (HCM)

8. Organization Theory

9. Operations Research

10. Systems Engineering

11. Management Science

12. Game Theory

13. Industrial Engineering

14. Marketing

15. Computer & Information Sciences

2324

2728

19

20

21

78

9

10

1112

13

14

6

1990-2004

1960-1990

1900-1960

Before 190016. Management of Innovation & Tech (MoT)

17. Experimental Economics

18. AI & Games

19. Management of Information Systems

20. Computer Supported Collab. Work (CSCW)

21. Performance Support Systems In Business & Organization

1. Education

2. Sociology

3. Law

4. Economics

5. Business Administration (MBA)

71



What kinds of tools should a service scientist have?

TraderA

Trader B

Operating&Monitoring

KnowledgeBased

Market Design

( B

ichle

r, K

ers

ten,

Str

eck

er

20

03

)

Market outcom

e

Market structure

Transaction object

CAME (WEB) Suite (AvH and SSHRC)

MarketEngineeringWorkbench

CAME Web Service CAME Web Service

(Tra

nsc

oop,

Wein

hard

t, N

eum

ann,2

00

3)

Conduct

D. Neumann, J. Maekioe, C. Weinhardt (2005): CAME - A Toolset for Configuring Electronic Markets; In: Proceedings of the ECIS 2005, Regensburg

For Example: Computer-Aided Market Engineering System

72



Knowledge Workers

Service Economy

“Innovative activityis fundamentally aservice activity.”

- William J. Baumol

“We are continuallycreating a new

and novel world.”- Douglass C. North

…

…

Education & Employment

New Specialists

New Industries

Based on slides by Jean Paul Jacob, IBM Researcher Emeritus

73



Four worlds of services jobs, upstream and downstream for…

People Business

Products Information

enable develop enable transform

designoperate &maintain

create utilize

Industrial services Information services

Business servicesConsumer services

Non-market services

74



Four targets of knowledge intensive service activities… people, business, products, and information

Tangible Intangible

Has Rights People Business(organizations)

Is Owned Products(technology artifactsand environment)

Information (capital, reputation, process, laws, science)

75



Definition of services (based on Gadrey, 2002)

A. Service Provider

- Individual- Organization- Technology that A is responsible for

C. Service Target: The reality to be transformed or operated on by A, for the sake of B

-People, dimensions of-Business, dimensions of-Products, technology artifacts & env.-Information, codified knowledge

B. Service Client

- Individual- Organization- Portion of reality

owned by B

Forms ofService Relationship

Forms ofOwnership Relationship

(B on C)

(A & B coproduce value)

Forms ofResponsibility Relationship

(A on C)

Forms ofService Interventions

(A on C, B on C)

76



Questions?

Service Science

SSME

Operations Research and Management ScienceIndustrial & Systems Engineering, Control Theory

Service Marketing, Operations, and Management

Information Sciences and Systems EngineeringManagement of Technology and Innovation

Computational Organization Theory Social and Cognitive Science Economics & Jurisprudence

Computer Science, Distributed AI, CSCW

Game Theory and Mechanism Design Theory Management of Information Systems

Organization Science, Complexity Management Theory Business Informatics and Document Engineering

Business Anthropology and Learning OrganizationsDecision Science and Knowledge Management

Human Capital Management & Incentive EngineeringQuality, Six Sigma, Statistics, Process Optimization

Computer Aided Market Engineering

Services: Value coproduction acts, promises, and relationshipsvia sharing work, risk, information, assets, decisions, responsibility, and authority

Focus on Education, Employment, Innovation, Economic Growth: Complex Business Performance Transformation Services

77



A Grand Challenge: Predictable Service Productivity Growth

Global

National

Industry

Enterprise

Work System

Knowledge WorkerProfessions

Productivity

Sustainability& Demand

Growth & Innovation

Standards& Compliance

Growth & Innovation

Quality & Learning

Opportunity& Sustainability

IssuesOther Considerations

Family Life, LocalCommunity, Environment

Graduates fromSchools & Universities

Foundations, Not-for-Profits,Research Organizations

Crime, Terrorism, Cheating, Other Mischief

Policies & Laws,Public Infrastructures

Values, Demands,Aspirations, Wants, Needs

Measu

remen

t of S

ocio

techn

ical System

s

Measu

remen

t of S

ervice System

s

78



Innovation sustains skilled employment and exports

1800- England Industrial Revolution

1850- Germany Chemicals Revolution

1900- USA Electrical & Information Revolution

1950- Japan Quality Innovation: Product Revolution

1990- Finland Mobile Communication Revolution

2000- India Cost Innovation: Services Revolution

2000- China Cost Innovation: Product Revolution

? Future of Products & Services Exports

Sustainable growth depends on innovation viaregional government, industry, academic collaboration.

79



Are there “scale laws” of service innovation?

Moore’s Law underlies much of the information technology and business capability growth over the last half century

Are there analogous “predictable capability doubling laws” that apply in the realm of services? If so, how might they be exploited to improve service productivity and quality in a predictable manner?

It seems three improvement or learning curve laws that might be applicable in services:

The more an activity is performed (time period doubling, demand doubling) the more opportunities there are to improve the process

The better an activity can be measured (sensor deployment doubling, sensor precision doubling, relevant measurement variables doubling) and modeled the more opportunities there are to improve the process

The more activities that depend on a common sub-step or process (doubling potential demand points), the more likely investment can be raised to improve the sub-step.

Example: Amazon’s Book Buying Recommendation Service QualityThe quality of the recommendations depends on accurate statistics – the more purchases made, the better the

statistical estimates for recommendations Example: Call Centers Query-Response Productivity and Quality

The speed and quality of call center responses can be improved significantly given accurate statistics about the kinds and number of queries that are likely to be received.

Example: New Service Offerings Viability (Blue Ocean Strategy)The viability of new service offerings often depends on the scale (amount of demand) in adjacent market segments

where service satisfaction is low enough to result in sufficient critical mass of defections to bootstrap the new offering.

Example: Predictable Education Gains (Student Knowledge, Teacher Satisfaction)If eLearning can be used to shift 20% of routine teacher activities into automation that can be covered in half the

normal time, freeing up 10% of teacher time each year to innovate and add new content or exploratory activities to the curriculum, then each year students will be learning more and teachers will have time to try new things.

80



Spohrer-Engelbart Cycle of Service System Evolution(Augmentation Systems: Bootstrapping Capability Infrastructure via Coevolution of Human System and Tool System)

Population Growth (Atomic Service Systems, Self Service, Multitasking)Assume growing population of service systems in an environment

Each service system is multitasking two services based on two underlying capabilities or competences

Organization Growth (Outsource Service, Higher-Level Multitasking)Advantage of pairs forming to trade, or forming an organization

Coase’s Law and Kaldor-Hicks Efficiency enabled within organization

Thus, a growing populations of multitasking service systems gives rise to increasingly specialized service systems, professions, markets and organizations

Technology Growth (Improvement, Free Time, Rise of New Goals, Multitasking)Over time learning curves and efficiency leads to better competencies

Learning curves improve specialization and technologies used, until it is cost effective to form new service systems that provide the technology

Free time leads to new goals, competences, and more multi-tasking

As technology capability improves some service systems shift back to self service – multitasking more and using high capability technology

Infrastructure Growth (Fairness, New Environment, New Multitasking Goals)If the service and technology become universally needed, the technology may be embedded

into the environment as part of a government action to establish a new utility or national infrastructure (institution formation) to ensure fairness of access

Improved environment fosters population growth

81



Service Science Core Questions: How do work systems reconfigure? What role does innovation play? Can integration relationships be found across different types of work system?

Collaborate(incentives)

Augment(tool)

Automate(self-service)

Delegate(outsource)

ToolSystem

HumanSystem

Help meby doing some

of it for me(custom)

Help meby doing allof it for me

(standard)

The choice tochange work practicesrequires answeringfour key questions:

- Should we? (Value)- Can we? (Technology)- May we? (Governance)- Will we? (Priorities)

Organize People(Socio-economic models with intentional agents)

Harness Nature(Techno-scientific models with stochastic parts)

43

21

Z

Collaborate(1970)

Augment(1980)

Delegate(2000)

Automate(2010)

Experts: High skill people on phones Tools: Less skill with FAQ tools Market: Lower cost geography (India) Technology: Voice response system

Example: Call Centers

82



Category Change DirectionEfficiency Communication and Transportation Costs = - + ?

Efficiency Transaction Costs(Trust, Coase, North, etc.)

= - + ?

Effectiveness World Model Fidelity(sense, store, compute, etc.)

= - + ?

Effectiveness Number of Services Accessible = - + ?

Effectiveness Capabilities/Skills of People(learning curves)

= - + ?

Efficiency & Effectiveness

Time Costs/Quality of Experience(waste, boredom, stress, etc.)

= - + ?

Versatility & Sustainability

Innovation Rates(versus compliance rates)

= - + ?

Versatility & Sustainability

Self Sufficiency(versus interconnectedness)

= - + ?

All Number of People(professions, salaries, ages, diversity, etc.)

= - + ?

How do service systems learn and evolve?

83




The application of scientific, management, and engineering disciplines to tasks that one organization beneficially performs for and with another (‘services’)

Make productivity, quality, compliance, sustainability, learning rates, and innovation rates more predictable in the service sector, especially complex organization to organization services – business to business, nation to nation, organization to population

Services are anything of economic value that cannot be dropped on your foot – the key to service value is in actions, performed now or promised for the future. Services transform/protect or promise to transform/protect a state of the target of the service. The client may not have the skill, time, desire, or authority to perform self-service, do it themselves. Services often create mutual interdependencies.

Services are value coproduction performances and promises between clients and providers, with alternative work sharing, risk sharing, information sharing, asset sharing, and decision sharing arrangements and relationships (promises to perform now or in the future, once or repeatedly, when needed or demanded, standard or customized, satisfaction guaranteed or best effort, service levels fixed or variable)

Science is a way to create knowledge Engineering is a way to apply knowledge and create new value Business Model is a way to apply knowledge and capture value Management improves the process of creating and capturing value

84



What can you do to get involved? [government]

Does your agency fund innovation? Does your agency influence innovation policy? Does your agency establish standards? Does your agency deal with intellectual property? Does your agency deal with economic statistics?

85



What can you do to get involved? [industry]

Does your business develop, sell, and/or deliver service offerings? Does your business have a service innovation process? Does your business use services to complement and add value to

manufactured products? Does your business invest in internal R&D? Does your business fund university or other external R&D? Does your business create case studies, success stories, white papers, or

point-of-view documents about service offerings? Does your business recruit service professionals? Service researchers? Does your business provide feedback to schools (survey recent graduates

hired) on what skills are desired to be most effective in your business? Does your business procure services? eSource of services? Outsource

services? Does your company patent or otherwise protect intellectual property related

to service innovation?

86



What can you do to get involved? [academics] Do you teach courses that include or could include complex business to

business service case studies? Do you have responsibility for revising or creating new curriculum? Do you perform research that could be published in the Journal of Service

Research or other relevant journals or conferences? Do you have students who could intern with business service or service

research organizations? Compete for PhD fellowships in services? Are you interested in industry-academic rotations? Are you interested in developing tools that could enable SSME? Are you interested in creating business proposals or grant proposals related

to SSME and service innovation? Competing for university research awards? Are you interested in participating/speaking in SSME events? Hosting one at

your university? Does your school already have services related courses, degrees, centers, or

institutes? Are you a service innovation pioneer? Are you interested in competing for a

faculty award?

87



What is IBM doing to support others? Publicizing a “call to action” around SSME and the need for systematic approaches to

service innovation (identify IBM relationship/ambassadors) Hosting and cosponsoring SSME and service innovation related events with

government, industry, and academics around the world IBM Faculty Awards to select service innovation pioneers IBM PhD Fellowships to select services-related PhD students IBM University Research (SUR) awards to select academic institutions proposing

leading edge service innovation and SSME related work Providing best paper awards for leading service research related journals and

conferences Working with government funding agencies to increase focus and establish new

programs related to service innovation Inviting people to contribute to an SSME blog, and share information about their SSME

related efforts (http://www.research.ibm.com/ssme) Working with some academic institutions to provide access to service data Hiring recent graduates into IBM Global Services and IBM Research Supporting curriculum development and research efforts, and much more…

88



IBM’s SSME Course Outline1. Services – What are services?

2. Systems – Services depend on sociotechnical systems

3. Methods – Service delivery depends on methods

4. Industrialization – Services are being standardized

5. Quality – How do we ensure quality of service?

6. Components – Business processes are being modularized

7. Science – Is there a science of services?

8. Management – What is different in management of services?

9. Engineering – Can service engineering foster innovation?

10. Productivity – Why do services resist productivity gains?

11. Challenges – What are the big problems for the service economy?

12. Innovation – Can we be systematic about innovation on services?

13. Business Transformation Services & Industry Solutions

89



Mary Jo Bitner, ASU, Center for Services LeadershipIBM faculty award, Service research pioneer

90



Example: Berkeley’s new ORMS undergraduate majorhttp://www.ieor.berkeley.edu/AcademicPrograms/Ugrad/ORMS.pdf

91



Example: Berkeley SSME Certificate Program

http://www.citris-uc.org/news/2006/01/25/services_science_management_and_engineering_curriculum_launched

92



Services Management

Consulting

Relationship Management Focus

Service Innovation FocusBusiness

Relationship Management

Organizational Culture

Market Analytics

Process Analysis and Design

Organizational Culture

New Service Development

Project ManagementMarketing StrategyService ModelingE-Commerce Practicum

Market ResearchMarketing Strategy Project ManagementSupplier Relations

Electives Electives

Example: Business School SSME Curriculum for MBA

93



Henry Chesbrough, Berkeley, a service science pioneer.IBM Faculty Award

94



Jim Tien and Daniel Berg, RPIIBM Faculty Award, Service research pioneersEstablished RPI “Service Research and Education” Center in early-90’s

95



Marietta Baba, Dean, Social Sciences, Michigan State UniversityIBM Visiting Scholar, Spring 2005, Sociotechnical Systems Theory Pioneer

96



Service Science – Reading List Motivation

Chesbrough (2005) Towards a new science of services. Harvard Business Review.

Chesbrough (2004) A failing grade for the innovation academy. Financial Times.

Rust (2004) A call for a wider range of services research. J. of Service Research.

Tien & Berg (2003) A case for service systems engineering. J. Sys. Science & Sys. Eng.

Rouse (2004) Embracing the enterprise. Industrial Engineer.

Karmarkar (2004) Will you survive the services revolution. Harvard Business Review. Philosophy

Vargo & Lusch (2004) Evolving a new dominant logic for marketing. J. of Marketing. Exemplar Model

Oliva & Sterman (2001) …Quality erosion in the services industry. J. of Management Science. Economics

Bryson et al (2005) Service worlds. Routledge. London, UK.

Herzenberg et al (1998) New rules for a new economy. Cornell University Press. Ithaca, NY. Technology

McAfee (2005) Will web services really transform collaboration? MIT Sloan Management Review. Textbooks

Fitzsimmons & Fitzsimmons (2001) Service management. McGraw-Hill. New York, NY.Sampson (2001) Understanding service businesses. John Wiley: New York, NY.

Evolution and Change: Managed, Designed, and EmergentKhalil, Tarek (2000) Management of Technology. McGraw-Hill, New York, NY.

Nelson (2003) On the uneven evolution of human know-how. J. of Research Policy.

Agre (2004) An anthropological problem, a complex solution. J. of Human Organization.

Baba & Mejabi (1997) Socio-Technical Systems. J. of Human Factors & Industrial Egronomics.

97



Select efforts to promote service science

Dec. 2002: Almaden Service Research established, the first IBM Research group completely dedicated to understanding service innovations from a sociotechnical systems perspective, including enterprise transformation and industry evolution(http://www.almaden.ibm.com/asr/)

March 2003: IBM-Berkeley Day: Technology… At Your Service!(http://www.eecs.berkeley.edu/IPRO/IBMday03/)

September 2003: Coevolution of Business-Technology Innovation Symposium(http://www.almaden.ibm.com/coevolution/)

April 2004: Almaden Institute: Work in the Era of the Global, Extensible Enterprise(http://www.almaden.ibm.com/institute/2004/)

May 2004: “Architecture of On Demand” Summit: Service science: A new academic discipline?(http://domino.research.ibm.com/comm/www_fs.nsf/pages/index.html)

June 2004: Paul Horn, VP IBM Research, briefs analysts on “Services as a Science”

September 2004: Chesbrough’s “A failing grade for the innovation academy” appears in the Financial Times(http://news.ft.com/cms/s/9b743b2a-0e0b-11d9-97d3-00000e2511c8,dwp_uuid=6f0b3526-07e3-11d9-9673-00000e2511c8.html)

November 2004: IBM’s GIO focuses on service sector innovations: government, healthcare, work-life balance(http://www.ibm.com/gio)

November 2004: Service Innovations for the 21st Century Workshop(http://www.almaden.ibm.com/asr/events/serviceinnovation/)

December 2004: Samuel J. Palmisano, IBM CEO, Harvard Business Review interview discusses the important role of “values” in organizational performance, “Leading Change When Business is Good”(http://harvardbusinessonline.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=R0412C)

December 2004: IBM expands academic initiatives related to service innovations, including sponsoring Tannenbaum Institute of Enterprise Transformation at Georgia Tech.

February 2005: Chesbrough’s “Service as a Science” in Harvard Business Review Breakthrough ideas of 2005

2005 - Oxford, Warwick, Bentley, Penn State, UMaryland, ASU, NCState, Japan, China, Norway, etc.

98



One Policy Challenge: Beyond Technology Patents… Patenting Business, Social-Organizational, Demand Innovations

Source:Robert M. Hunt

“You can patent that?Are patents on software and

business models good forthe new economy?”

99



Terms & Definitions Service Science, short for Services Sciences, Management, and Engineering (SSME)

Definition 1: The application of scientific, management, and engineering disciplines to tasks that one organization beneficially performs for and with another (‘services’)

Make productivity, quality, performance, compliance, growth, and learning improvements more predictable in work sharing and risk sharing (coproduction) relationships.

Definition 2: The study of service systems. Evolution & Design: Services systems evolve in difficult to predict ways because of naturally

emergent and rationally designed path dependent interactions between economic entities, acting in the roles of clients and providers coproducing value.

Interactions & Value Coproduction: Service systems are made up of large numbers of interacting clients and providers coproducing value. Each economic entity is both a client and a provider. Service system dynamics are driven by the constantly shifting value of knowledge distributed among people, organizations, technological artifacts (culture), and embedded in networks or ecosystems of relationships amongst them.

Specialization & Coordination: One mechanism for creating value is specialization of clients and providers, which results in the need for coordination via markets, organizational hierarchies, and other mechanisms. Specialization creates efficiency. Efficiency creates profits and leisure. Profits and Leisure create investment (profits to innovation) and new demand (leisure to new aspirations).

100



So, services are…

Pay for performance in which client and provider coproduce value

High talent performanceKnowledge-intensive business services (business performance transformation

services) (e.g., chef’s, concert musicians)

High support performanceEnvironment designed to allow average performer to provide a superior

performance (average cook with great cook book and kitchen; average musician with a synthesizer)

High tech performance Computational services (e-commerce, self service – client does work)

Even here… talent builds, maintains, upgrades, etc. the technology

Routine performance (sometime High Finance)This is being automated, outsourced, labor arbitrage, financial arbitrage,

migrated to high talent/value sectors, or otherwise being rationalized

101



Global Services: Opportunities & Challenges

OpportunitiesGlobalization (Developed & Developing)

ICT (R)evolution (eServices & Semantics)

Business Performance Transformation Services (BPTS)

Service Entrepreneurship (SME)

ChallengesEducation (Talent & Tools: High Value Jobs)

Innovation (Investment & Protection: High Value Exports)

Science (Formalization of Service Systems & Systematic Methods: Sustainable Growth)

102



What will the next new service industry be?

Online game worlds for business applications?

Google Search (less than a decade old)

Semantic Search?

Book: Blue Ocean Strategies

103



Endless Stream of Industries & Knowledge Workers…Government & security

Health & education

Financial & insurance

Professional & business

Information & communication

Retail & wholesale

Leisure & hospitality

Transportation & utilities

High skill executive, judge

doctor, professor, dean

broker, partner

executive, lawyer, scientist, engineer, architect, entrepreneur

executive, engineer

executive, proprietor

producer, director, proprietor, designer, star athlete performer

pilot, executive, engineer

Semi-autonomous

legislator, policy researcher, patent analyst

pharmacist, nurse, teacher, technician

analyst, actuary, underwriters

manager, accountant, HR, PR, marketing, business dev

technician, system administrator, journalist, writer, announcer

buyer, high end sales

actor, performer, artist, technician

attendant, maintenance technician, plumber, electrician

Unrationalized labor intensive

police, firefighter, security guard

nurses aid, day care worker, ambulance driver

adjustors, auditor, investigators

admin. assistant, hiring specialist, door to door sales

call center specialist, librarian

sales clerk, stocker, shipping & receiving

maid, janitor, waiter, gardener, cook, barber

truck driver, field force technician, machine operator

Tightly constrained

inspectors, data entry

data entry bank teller, check proofers

inspectors, receptionist

telephone operator

sales counter clerks

fast food worker

inspectors

Client citizen, plaintiff, defendant, inventor

patient, student, subscriber

shareholder, client, subscriber

client subscriber consumer, shopper

guest subscriber, commuter

- based on Herzeberg et al, (1998). All occupations span a range, placement is representative only.

104



Service jobs are increasingly the high skill knowledge worker jobs – especially in business and information services

Type of work system

1979 1996 Example

All Service Manufacture Admin., Manager

High-skill Autonomous

34% 40% 40% 40% Executive,Scientist

Semi-Autonomous

35% 30% 30% 35% Admin., Manager

Unrationalized Labor Intensive

25% 25% 26% 15% Maid, child care

Tightly Constrained

6% 5% 4% 10% Call center, Fast food

From Herzenberg, Alic, Wial (1998)

95% of all business executives and research scientists are alive today.

-from Herzenberg, Alic, & Wial (1998). New rules for a new economy. Employment and opportunity in postindustrial America. Cornell University Press.

105



Projected US Service Employment Growth, 2004 - 2014

US Bureau of Labor Statistics. http://www.bls.gov/opub/ooq/2005/winter/art03.pdf

106

© USK/Sep’04 SI&GIE/106

Information services is fastest growth

Services

Material

Information

11%

9%

30%

50%

Products

Uday Karmarkar & Uday Apte: “Service industrialization in the global economy”Author of HBR article: “Will you survive the services revolution?”

107107

Growing role of servicesAverage annual growth rate of business R&D expenditure, 1990-2001

Source: OECD Science, Technology and Industry Outlook 2004Jerry Sheehan

-20

-10

0

10

20

30

40

50

Me

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Ice

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y (

19

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)

Ire

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(1

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00

1)

Ja

pa

n

Ge

rma

ny (

19

91

-20

01

)

Au

str

ia (

19

93

-19

98

)

Po

rtu

ga

l

Fin

lan

d (

19

91

-20

01

)

To

tal O

EC

D (

19

95

-20

01

)

Ne

the

rla

nd

s

Fra

nce

Eu

rop

ea

n U

nio

n (

19

95

-20

01

)

Sp

ain

De

nm

ark

Gre

ece

(1

99

1-1

99

9)

Un

ite

d S

tate

s

Ca

na

da

Hu

ng

ary

(1

99

3-2

00

1)

Au

str

alia

Ita

ly

Ne

w Z

ea

lan

d

Be

lgiu

m (

19

92

-20

01

)

No

rwa

y (

19

91

-20

01

)

Po

lan

d (

19

94

-20

01

)

Sw

itze

rla

nd

(1

99

6-2

00

0)

Un

ite

d K

ing

do

m

Cze

ch

Re

pu

blic

(1

99

2-2

00

1)

Slo

va

k R

ep

ub

lic (

19

92

-20

01

)%

Services Manufacturing

108108

Even though R&D is less closely linked to service-sector innovation

Norway

Iceland

SwedenFinlandPortugal

AustriaNetherlands

Italy

France

Spain

Greece

Germany

Denmark

Belgium

20

30

40

50

60

70

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Average BERD intensity, 1995-2000as a % of GDP (OECD data)

Inno

vatio

n de

nsity

, 199

8-20

00 a

s a

% to

tal f

irms

(Eur

osta

t CIS

3 su

rvey

)

Norway

Iceland

Sweden

Finland

Portugal

Austria

Netherlands

Italy

France

Spain

Greece

Germany

Denmark

Belgium

20

30

40

50

60

70

0.0 0.2 0.4 0.6 0.8

Average BERD intensity, 1995-2000 as a % of GDP (OECD data)

Inno

vatio

n de

nsity

, 199

8-20

00as

a %

tota

l firm

s (E

uros

tat C

IS3

surv

ey)

Source: OECD Science, Technology and Industry Outlook 2004Jerry Sheehan

Manufacturing Services

109109

OECD Science, Technology and Industry Outlook

Jerry Sheehan, OECD, 8 February 2005 Science, technology and innovation are receiving greater policy

attention as their links to economic growth are more widely appreciated.

Innovation policy has been slow to adapt to the needs of the service sector, which accounts for growing share of output and employment in OECD economies.

Science, technology and industry are increasingly globalized, requiring further adaptation of policy to ensure benefits accrue to national economies.

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Trend 1: Rise of the Service Economy Top Ten Labor Forces by Size(WW 50% Agriculture., 10% Goods, 40% Services)

% US Labor Force by Sector

(A) Agriculture:Value from harvesting nature

(S) Services:Value from enhancing, protecting, distributing, understanding, and customizing things(G) Goods:

Value from making products

Service sector has rapidly grown in US (70% of labor force)

Other nations are following the same pattern (urbanization, infrastructure, and business growth drive the shift)

Service sector buys 80% of the $2.1T IT annual spend (worldwide)

Four service industries are large and growing their IT spend rapidly to transform processes: financial and information, professional and business, retail and wholesale, and government

IT spend contributes to rapid growth of productivity (GDP/Jobs) as well

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Trend 2: Rise and Shift in Service ResearchAcademic centers have slowly increased over the past 20 years to advance the practical and theoretical knowledge of services businesses

Initially, the emphasis in service research and teaching was on B2C capacity and demand models – because underutilized capacity hurts productivity. Also demand that is simply waiting in queues may be lost or damage client satisfaction. Service places like banks, airports, hotels, etc.

Part 3: Managing Service OperationsChapter 10. Forecasting Demand for ServicesChapter 11. Managing Waiting LinesChapter 12. Queuing Models and Capacity PlanningChapter 13. Managing Capacity and Demand(Excerpt from Fitzsimmons & Fitzsimmons)

Increasingly over the past ten years, the new frontier of service research and teaching has shifted more and more towards B2B business process transformation models. Process re-engineering, IT productivity paradox, and other case studies highlight the need to constantly redesign work to improve productivity through multiple types of innovation (demand, business value, process, and organization)

“The biggest costs were in changing the organization. One way to think about these changes is to treat the Organizational costs as an investment in a new asset. Firms make investments over time in developing a newprocess, rebuilding their staff or designing a neworganizational structure, and the benefits from theseInvestments are realized over a long period of time.”Eric Brynjolfsson, “Beyond the Productivity Paradox”

Service research and practice agree that effective communication in service engagements depends on an appreciation of multiple factors: technology and process, business value and strategy, and organizational culture and people. With proper coordination between these per- spectives BPTS engagements succeed. A top adaptive work force requires people with a level of capability and familiarity in many relevant areas. BPTS = Business Process Transformation Services

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Spohrer and Maglio Yorktown 20061020 v2

Education

Transcript of Spohrer and Maglio Yorktown 20061020 v2