New laws of economics for the service economy

Telephones used to be telephones. Now they’re digital voice-enabled services made possible through a software application. That application isn’t necessarily even something that sits physically installed onto a user’s computer because it’s a ‘web service’ – that is, an online website that functions just like a full-blown application.

This is telephony as a service and the user doesn’t need to physically own the hardware required to make the service happen because the handset and cabling have all been virtualized through cloud-based services.

It’s not just telephony. Air Conditioning (AC) used to be a physical box with a cooling system and some type of fan.

Today we know that AC can be bought as a service where it is supplied by a climate control supplier who provides a Service Level Agreement (SLA) to guarantee a specific temperature range for a given location. Okay so there’s still a physical unit involved, but once again the user or consumer (or customer) doesn’t necessarily need to physically own the hardware.

From services to business outcomes

This is the service economy. We can now break apart our previous notions supply and demand and consider the impact this new economics will have on business operations.

Chief technology officer at business applications company IFS is Dan Matthews. Asserting that the service economy takes us forward into a new level of commerce where firms not only move from selling products to selling services, Matthews states that this will eventually lead us to a point where firms sell business outcomes.

In this near future, pricing (for services, obviously) will be based upon defined and calculable business benefits that lead to quantifiable profits.

Known for its technology that spans Field Service Management (FSM), Enterprise Asset Management (EAM) and Enterprise Resource Planning (ERP) systems, IFS has built what it calls an ERP offering with an integrated service capability. Businesses can use IFS to manage operations and bring new levels of automation to the way the business is run at the back (accounts services) and front (physical field services) end.

The service economy leads us to technologies including DDMRP – Demand Driven Materials Resource Planning. A business operations concept related to Just In Time manufacturing and the Theory of Constraints management paradigms, DDMRP states that we only send the resources needed for a service when they are needed.

According to IFS, “DDMRP is an extension of traditional MRP that helps companies deal with today’s challenges caused by short product lifecycles, long lead times and high demand variability.

By introducing strategic inventory buffers, companies can reduce lead times and become increasingly demand-driven instead of having to rely on uncertain forecasts.” IFS’s embedded solution of DDMRP in IFS Applications version 10]has been validated and approved by the Demand Driven Institute.

VP of engineering for IoT and devices at Canonical Jamie Bennett agrees with the opinions expressed here.

“The idea of ownership is outdated. Within physical and digital spaces alike, businesses are turning to service-centric subscription-based offerings to better suit the demands of their customers – software is sold in installments; renting is the de facto scenario for a young, aspirational generation; and ‘servitisation’ is transforming large-scale industries at pace,” said Bennett.

The autonomous pull-economy

We’ve moved on from the product economy into the service economy. The longer-term future sees us take an additional step upwards into what has been called the autonomous pull economy.

This is a space where human ‘grunt work’ is increasingly replaced in favor of Robotic Process Automation (RPA) and machines that rely on Artificial Intelligence to do everything from simple accounts invoice matching to more complex business processes.

Accenture defines the autonomous pull economy as a place where we removed the work limitations that exist as a result of human involvement. We can start and stop processes at anytime as necessary as we dynamically reconfigure our physical assets and environment into a new digital space.

Business is changing and services are at the heart of so-called digital transformation. A new economic order is surfacing and firms who fail to understand the new laws of demand and supply risk being sidetracked or worse.

If celebrated 18^th Century economist Adam Smith were alive today he’d be writing The Wealth of Service-Centric Nations – and he’d be Tweeting about it too.