Service Economy Brings New Technology Demands

Information technology has a well-hyped reputation for exponential rates of improvement, but productivity growth in delivering IT-enabled services has fallen short of whats been achieved in less glamorous sectors of the economy. As services come to dominate global markets, its critical for U.S. systems scientists and professionals to find ways to apply capital and technology as effectively in the workshops of Web services as in the factories and fields.

Jim Spohrer, director of services research at IBMs Almaden Research Center, last month convened a gathering of 270 industry and academic practitioners in search of a science of service improvement. "Well over 70 percent of our labor force is in services," Spohrer told the assembled group at the Almaden campus. "If were going to grow the GDP per capita, services productivity is what its all about."

For purposes of comparison, U.S. farm productivity grew at 2.3 percent per year in the post-World War II period, as estimated by Wellesley College professor Robert Paarlberg. This is characteristic of what happens when capital and technology are effectively applied to labor.

Productivity growth in crafting service-enabling software has not kept pace. Randall Jensen, president of Software Engineering Inc., in Brigham City, Utah, found linear rather than compound growth rates in measured software development efforts between 1960 and 1990; his data indicates initial improvement at 1.8 percent per year, tapering off to 1.1 percent per year by the end of that period.

Click here to read about an industry effort to standardize the measurement of productivity.

This ignores, moreover, the diversion of coding effort since the 1990s to increased security, to more elaborate user interface technology and to more diverse connectivity schemes. In addition, coding efforts have increasingly been devoted to enabling core business functions in real time and under intense regulatory scrutiny.

No business—regardless of industry sector—can sit out the services revolution, said Michael Radnor, professor of management and organizations at Northwestern Universitys Kellogg School of Management, in Evanston, Ill. Speaking as conference co-convener, on behalf of the Kellogg Schools Center for Technology Innovation Management and the Management of Accelerated Technology Innovation consortium, Radnor warned that no amount of engineering or manufacturing prowess can elevate a company above the services fray.

"It doesnt matter what you make," Radnor said. "How long does it take to develop, perhaps, a wonderful high-tech controller? And how long does it take for that design to be commoditized, once it comes to market, by some other country?"

The only way to maintain the profitability that funds continued product development, Radnor said, is by offering "a total on-demand solution"—using the "on-demand" label that IBM has made a centerpiece of its current marketing efforts.

Next Page: Competitive edge is hard to hold.