Service Economy

October 13, 2010More Economicsby EconomyWatch


The Service Economy is a relatively new coinage arising out of the popularity of the service sector. The service sector has gained a lot of importance in the world economy. Most of the developed countries are earning millions from the service sector alone. In US the service sector accounts for a greater percentage of GDP than it used to a couple of years back.The term Service Economy also known as Functional Economy is used to refer to the relative significance of service attached to a product offered by a company.

In today’s economy every product has a service value attached to it. The old dichotomy between product and services has been reduced and a service-product continuum has been established. In management this phenomenon is referred to as the Servitization of Products. When a company proceeds from maximizing its sales towards customer satisfaction it puts emphasis on the aspect of service. It helps the company to enhance its goodwill in the market.

Advantages of the Service Economy

The concept of service economy will eventually give rise to a decentralized means of producing skilled jobs.

  • The individual enterprises will receive the competitive advantage in entering open markets while the big shots remain engrossed in selling products.
  • Product-life extension is a scheme that will reduce the material and energy consumption required to satisfy the needs of the consumers. It will enhance the productivity per unit.
  • The enhancement in resource productivity is eventually transformed into competency and profitability.

    IBM is an unique example. In spite of being a manufacturing company it tends to call itself a services company. This has been the scenario since it realized that the price elasticity of demand for business solutions is less elastic than for hardware. The company now benefits from the revenue of the elongated contracts rather than receiving payment in a single mode.

    Studies reveal that service economy jobs can enjoy double productivity through the better application of information technology. Intranets can also produce double employee productivity. Usability is the key to enhancing the productivity of service economy. By analyzing which job is more useful than the other we humans might be able to create more jobs and save billions as well.

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