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Akhilesh Gulati

Quality Insider

Service Economy! What’s Next?

Are we outsourcing innovation along with everything else?

Published: Thursday, October 21, 2010 - 15:41

Our country’s focus on cost-cutting led us to move manufacturing overseas and then outsource services. It has distracted us from adopting new technology and investing in innovation. Is this a serious mistake?

For many years, publications such as The Wall Street Journal, Business News, and Forbes have talked about how the United States has become a service economy, with manufacturing moving to underdeveloped and developing countries where labor is “cheap.” The trend has been touted as a natural progression of economies.

 We move manufacturing overseas so that a few of our esteemed and respected citizens can add obscene wealth to their coffers, while leaving Americans without jobs. We explain that rationale by stating that we are bringing them cheaper goods. We say that America has been moving toward a service economy and that it provides higher benefits. Do we really see that around us? Europe is a lot more expensive, yet the quality of service there is awful.

I recently had the opportunity to travel overseas on US Airways, and I could not help but compare the experience to other international flights I’ve taken this past year. The first thought that crossed my mind was, “If this is the service economy we talk about, we must be servicing someone else and not ourselves.” Compared to other airlines I have flown with during the past few years, this service was deplorable. 

Our flight took us from Los Angeles to Philadelphia, more than four hours in the air, and there was basically no service. We were served juice and water, out of carts whose quality was questionable. One could “purchase” food, but who would want to eat it? From Philadelphia, we boarded an international flight, which was no better. We were served food but perhaps plastic would have tasted better. The bread roll was apparently served straight out of the freezer. To top it off, the staff looked tired and disheveled.

Let’s compare that to the service I received with Virgin Atlantic and Singapore Airlines, just a couple of months ago—all in Economy Class. The staff was impeccably dressed. We were greeted with a hot towel and a beverage. The plane had wider seats with more legroom. Everybody received a travel pouch with eyeshades, a pair of socks, toothbrush and paste, and a pen. The food was piping hot, with real silverware and a glass tumbler for water. Wine was complimentary with the food. A flight attendant came by with extra bread rolls. Snacks were served every few hours.

This experience, as you have probably noticed, is not limited to airline travel. How often, in a retail store, are you able to find an assistant to help you? And when you do find someone, how often is he able to provide you with a solution to your problem? Perhaps this is because we are also moving services such as call centers and IT services overseas to less expensive pastures.

We are certainly ahead in space programs, but we are sending our astronauts up in Russian ships. How long before we move this expertise elsewhere for better payback?

We once lead the world with financial models and services; perhaps this is the natural progression. After all, we aren’t teaching innovation in schools and universities. An increasing number of universities offer degrees in financial engineering, while industry continues moving R&D overseas. The off-shoring of knowledge work, although not prevalent yet, will surely lead us down a slippery slope.

This transition from a manufacturing economy to a service economy, along with the associated  deterioration in services I’ve been experiencing recently, makes me wonder whether the service economy is already behind us. If so, what’s next? Given the shortened product and economic life cycles, not to mention the speed at which the rest of the world catches on, how do we either predict or prepare for the next progression? If innovation is the next phase, how can we ensure that it does not bypass us?

As Milanese entrepreneur Giancarlo Migliori says, “Industrialized nations have only two technological avenues ahead to preserve or improve competitiveness: 1) enhancement of their tech contents (high-tech strategy); and 2) acceleration and/or improvement of their existing tech contents (low-tech strategy).”

Although the European Union has realistically kept the second strategy within reach, the United States has traditionally led with the first, through both legislative incentives and private grants. However, our cost-cutting strategies and organizations’ intent to operate without borders might be outsourcing innovation faster than we can develop it.

Manufacturing economy? Service economy? What’s next?


About The Author

Akhilesh Gulati’s picture

Akhilesh Gulati

Akhilesh Gulati has 25 years of experience in operational excellence, process redesign, lean, Six Sigma, strategic planning, and TRIZ (structured innovation) training and consulting in a variety of industries. Gulati is the Principal consultant at PIVOT Management Consultants and the CEO of the analytics firm Pivot Adapt Inc. in S. California. Akhilesh holds an MS from the University of Michigan, Ann Arbor, and MBA from UCLA, is a Six Sigma Master Black Belt and a Balanced Scorecard Professional.


What's Next?

The economy at-large can be related to a family-run business that is now 5 generations beyond its origin,and as you see with many family-run companies, each succeeding generation spends a great deal of effort and resources making their personal mark on the legacy they were given. More often than not, however, the changes could not be termed "improvements".

We have stood on the shoulders of the "giants" of previous generations believing that this would impart the best of their qualities upon us, but in doing so, we have also become less capable in our collective abilities and more entitled in our behavior. The two terms I have heard for what will follow the Service Economy is: 1) the Experience Economy, which would instiutionalize conspicuous consumption; and 2) Natural Capitalism, which would recognize and hold the scarcity of resources as one of the guiding principles of all decisions.

Of these two, one promises a thoughtful and mature society that considers global conditions as everyone's responsibility, the other would see us entertaining ourselves into oblivion, or as I term it: "Epigoing...Epigoing...Epigone." (def. epigone: an inferior descendant of an accomplished person)