Services Industries Are Important in Building Economic Growth - Coursework Example

Services industries are important in building economic growth Name: ID No: Unit Code and Name: Lecturer Name: Assignment # Due Date: Services industries are important in building economic growth Service industries have grown by leaps and bounds over the past five decades shaping the industry mix within the global economy. This growth has changed the structural nature of the global economy from an industrial oriented economy to a more service oriented economy. McManus (2009:20) point out that in OECD economies, the service industry account for 60% of the GDP while Lee, Ribeiro, Oslon, & Roig (2008:2) shows that the proportion for manufacturing industries have fallen by roughly 15%. Indeed the service industry in Australia is on a boom with the sector accounting for “three quarters of national output” and employing four Australians in every five jobs with a high potential for continuing with the upward growth (McLachlan, Clark & Monday, 2002). The key growth hotspots in the service sector are the knowledge intensive industries such as financial services, biotechnology, information and communication technology (ICT), entertainment and education (Lee, Ribeiro, Oslon, & Roig, 2008). A number of studies have shown that the service industry is a critical sector for economic growth (Nissan, Galindo, & Mendez, 2011; Riedl, 2010; McManus, 2009). The need for economies to focus in the growth of the service therefore has been an issue addressed by both scholars and policy makers. This paper addresses the need for a focus in the growth and development of the service sector and the significance of the service sector’s contribution in building economic growth. Growth in the services sector has exceeded overall economic performance for years with the growth projected to be on an upward trend especially in view of the continued growth in the knowledge based service focused sectors within the economies of the developed world (McManus, 2009:17). Research studies have increasingly shown the need for organizations to continually develop their service offerings in order to enhance their productivity and boost growth. Rust and Huang (2012: 60-61) in their research study posit that firms could increase their growth and productivity to maximize their profitability if they increase the quality and productivity of their service offerings. They note that service productivity can be used as a strategic tool by organization for competitive advantages where when factors such as higher prices or profits motivate better service quality, then automated services should be lower, while where higher wages and high market concentration discourage better service quality, automation in service provision and productivity should be higher. This view on improving business processes through improvement of services is supported by Auguste, Harmon and Pandit (2006:2-3) in work where they note that product companies can gain strong strategic advantages by scaling up their service strategies such as offering services to enhance the value of the products, to defend their services, improve customer satisfaction, and to be able to identify opportunities in the market that would ensure replication of scarce resources as well as foster innovation focused on customer’s needs in the products being offered. The fact that service industries enhance innovation in an economy is beyond debate. Ettlie and Rosenthal (2011: 294-295) show that when it comes to innovation, service industries lead the pack and they are the ones that are actually responsible for stimulating innovation in other sectors of the economy. Services play a very key role in finding unique ways to test customer needs and formalize that innovation process. Service sector has been noted to increase economic growth through its impact on a number of variables for instance social capital that has been increased through the high tech services which has enhanced networking thereby provide higher chances for economic opportunity (Nissan, Galindo, & Mendez, 2011: 62). McManus (2009:17) for instance shows that a company such as General Electric recognized the significance of the growing services sector and went ahead to invest in GE capital a financial services firm in order to leverage its product and services portfolio, where resources were transferred into the high valued service provision sector. In essence, services have grown to be critical in improving consumer offerings. In view of these researches it can be noted that indeed organisations find different ways to design and build their services in manner that is able to attract both new and existing customers to buy their services. Some product businesses have made critical their internal services businesses as a strategic advantage for enhancing customer satisfaction and value (Auguste, Harmon and Pandit, 2006), while others have augmented within their product offerings services that add value to the wealth of the company (McManum, 2009). As businesses design and embed new service offerings, they take into account whether the services should support existing products or should be focused on growing the business. In this sense the services would be designed differently. Those meant to support existing business would include services that protect and add value to existing products including services such as installation, maintenance and updating services for software products that would strengthen customer relationships. In addition, as shown by Rust and Huang (2012) organizations automate their service offerings through the use of advanced technology in the market to enhance the quality of the services, and to make their services competitive in the market as well as attractive to customers. Such improvements in service quality through the use of automated services reduce the time taken to deliver a service, increases service productivity and profitability, and also improve customer satisfaction resulting to higher retention of existing customers as well as attraction of newer customers. Organisations are continually redesigning and building their services offerings to attract new and existing customers. Two key examples of organisations that are improving their service offerings are Cisco and IBM. These two belong to the business services sector and have continually over the years redesigned and leverages their service offerings in order to take advantage of the growth phase within the services industry. For instance Cisco has improved the quality of its product offering by building a strong service business engaged in installation, network design, and maintenance of the various software products it sold in order to ensure higher quality service support for its products and also strengthen relationships with customers. This service business has further been improved through a more integrated service connection between the company and its customers in a manner that the company is able to automatically update software and platforms products used by the customers, and also is able to easily introduce new product offerings to its clients (Auguste, Harmon and Pandit, 2006:2). IBM on the other hand had historically focused on computers but by mid 2000’s changed its strategy to wholly focus on providing ICT business solutions rather than selling computers. It has built a massive consulting and outsourcing hub that is focused on providing strategic solutions to businesses. While it first focused on providing ICT business solutions in areas such as accounting and finance, procurement, customer service, human resource, and supply chain optimization, it has improved the services it provides by developing joint ventures and strategic alliances with clients in a way that leverages its core competencies to redesign, customise and provide solutions to their clients, driving innovation in services within the market (Hamm & Ante, 2003; Auguste, Harmon and Pandit, 2006:4). In addition, the company continually retrains its workforce to align skills to the new business service offerings (Hamm & Ante, 2003). Comparing and contrasting the two organisations’ approach to building their service businesses, it can be noted that while the businesses were similar in the sense that they offered business solutions to organisations, Cisco’s approach was more focused on increasing value for its product offerings and customer satisfaction by improving its business support to its various software products clients. The focus in building services business was also focused on leveraging customer relationships between the company and its clients and leveraging its products in the market place. On the other hand IBM was more focused on remaining competitive in a changing global economy that tended towards service provision than manufacture of products such as computer hardware. IBM build its service business by entirely changing its business strategy in the 21st century to focus more on service business where they provided information technology based business solutions to organisations. In conclusion, this paper sought to address the need for a focus in the growth and development of the service sector and the significance of the service sector’s contribution in building economic growth. It is noted that the need for organizations to continually develop their service offerings in order to enhance their productivity and boost growth is paramount where companies are able to increase growth and productivity if they increase the quality and productivity of their service offerings and enable automation in service provision and productivity. In addition service productivity can be used as a strategic tool by organization for competitive advantages where product companies can gain strong strategic advantages by scaling up their service strategies such as offering services to enhance the value of the products, to defend their services, improve customer satisfaction. Service industries also enhance innovation in an economy and play a very key role in finding unique ways to test customer needs and formalize that innovation process. This is noted by the manner in which IBM and Cisco have scaled up their business services in several of their niche markets to build competitive advantages. In the writer’s opinion, such focus on service sector shows a trend where new business models will continually evolve enabling more efficient service provision. References Auguste, B G, Harmon, E P, & Pandit, V 2006, “The right Service Strategies for Product Companies,” McKinsey Quarterly, 1: 1-7, Business Source Complete. Ettlie, J E, Rosenthal, S R 2011, “Services versus Manufacturing Innovation,” Journal of Production Innovation Management, 28: 285-299. Hamm, S & Ante, S E 2005, “Beyond Blue,” Bloomberg Business week. Retrieved 15 May 2012 from Lee, S M, Ribeiro, D, Olson, D L, & Roig, S 2008, “The importance of The Activities of Service Business in the Economy,” Service Business: an International Journal. Retrieved 15 May 2012 from McLachlan, R, Clark, C, & Monday, I 2002, “Australia’s Service Sector: A Study in Diversity,” Productivity Commission Staff Research Paper, AusInfo, Canberra, Retrieved 15 May 2012, from McManus, J 2009, “The Service Economy,” Management Services. Nissan, E, Galindo, M A, & Mendez M T 2011, “The Future of Services in a Globalised Economy,” The Services Industries Journal, 31, 1, pp. 59-78. Riedl, A 2010, “Location Factors of FDI and the Growing Services Economy,” Economics of Transition, 18, 4, pp.741-761. Rust, R T, & Huang, M H 2012, “Optimising Service Productivity,” Journal of Marketing, 76:47-66. Read More