Service Economy, The

Economic activity has traditionally been divided into extractive, constructive, manufacturing, and service sectors. With the decline of heavy engineering and the rise of the knowledge-based economy, the service industries make up an ever-increasing proportion of the national income in nearly all developed countries. Essentially, services can be classified into three categories:

• Services to trade include banking, insurance, transport, etc.

• Professional services encompass the advice and skill of accountants, lawyers, doctors, architects, business consultants, etc.

• Consumer services include those given by caterers, cleaners, mechanics, plumbers, etc. Service providers need to define exactly what service they are providing, who they are competing with, and where their markets are. For example, does the Channel Tunnel provide a fast link to Paris for business people in competition with the airlines, or a holiday route to France in competition with the ferries?Crucially, they also need to be aware of those characteristics of services that make their management different from the production of goods. These can be summarized as:

• Intangibility - the exact nature of a service is often difficult to define, the product cannot be handled, and ownership of an object is not transferred. The service is experiential rather than concrete and thus quality is difficult to define and measure.

• Customer participation - normally the customer is directly involved in the delivery of the service; e. g. hospital treatment cannot be given if the patient is absent.

• Simultaneity - production and consumption of a service are usually simultaneous and therefore not storable.

• Perishability - because a service is perishable, stocks cannot be built up; e. g. a seat on the 9 a. m. London to Glasgow train is gone forever as soon as the train departs.

• Heterogeneity - because the interaction between the customer and the provider is a unique experience, the same service can be perceived differently by different customers and by the same customer on different occasions. Other customers can affect the experience of a service, e. g. a quiet weekend at a small hotel can be ruined if two rival football teams are also staying in the hotel.

• Indivisibility of operations and marketing - frequently the same people do the selling and the delivery of the service. This has implications for training and the efficiency of the operation. Process design needs to ensure a smooth flow from one stage to the next.

• Geographical dispersion - most services need to be reasonably near to the customer. However, use of telecommunications and information technology is increasingly allowing major service organizations to centralize large parts of their process, while retaining an interface with the customer; e. g. the use of national (or international) call centres and the provision by banks of automated teller machines and home banking facilities.