Managing Innovation Cases from the Services Industries (1988) / Chapter Skim
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Services Technology and Manufacturing: Cornerstones of the U.S. Economy
Services Technology and Manufacturing: Cornerstones of the U.S. Economy
Pages 9-35
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From page 9... ...
S Economy JAMES BRIAN QUINN Now, more than ever, the United States needs a vital services sector.
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From page 10... ...
NEW TERMS OF COMPETITION IN SERVICES Although the effects of deregulation complicate the picture, it is new technologies that have most extensively altered and expanded the services industries in recent years. Unfortunately, such technologies have also made these industries vulnerable to the same modes of attack that earlier so rapidly undermined segments of the nation's manufacturing economy.
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From page 11... ...
But within each services industry smaller companies also identified local niches- or specialized services needs-and concentrated successfully on these, with investment returns following the classic V- or U-shaped distributions noted by Porter (1985) and others (Booz Allen & Hamilton, undated)
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From page 12... ...
Once debugged, communications and informationhandling technologies permit the distribution of a much wider set of services to a more diverse and dispersed customer base. In the process they often further decrease costs on old product lines as equipment, development, and software investments are allocated over the broader base of applications.
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From page 13... ...
services companies such as Citicorp or the deregulated AT&T system (see the Glaser and Davis chapters in this volume) should enjoy powerful international advantages.
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Companies that can.deliver better and more varied services without increasing their marginal costs can achieve competitive advantages through a higher degree of segmentation in their marketing activities, increasing value added for their customers, while lowering their own average operating costs. The Fellowes and Frey chapter provides an excellent example.
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From page 15... ...
Just as international banks already often find that their compatriots may be simultaneously competitors, customers, joint venture partners, and suppliers, other manufacturing and services concerns are entering a new competitive era where substantially increased cross-industry competition is a fact of life. The various cases in this volume offer specific and detailed examples of major innovations that have helped restructure services companies and industries in the ways described above.
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Total employment in manufacturing has decreased only marginally from long-term trends (see Figure 11. Real value added attributable- to manufactur~ng grew steadily until the mid-1980s (see Figure 2~; and U.S.
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Far from being a negative development, today's services industries actually create major markets for consumer goods, lower virtually all manufacturers' costs, provide strong stable markets for capital goods producers, and enhance overall U.S. competitiveness in world markets.
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Consequently the relative utility of services grew apace. Simultaneously, new technologies also vastly improved performance and opened further markets in virtually all services industries.
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services industries are very dependent on manufacturing; many services companies exist primarily to provide transportation, finance, advertising, repair, distribution, or communications in support of goods manufactured here. A large number of these services would still be provided in the United States regardless of where the product was manufactured, for example, selling a Toyota in this country requires many of the same U.S.-based services activities as selling a Ford.
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From page 21... ...
Ge van Schaik of Heineken's sometimes note, "We are just a marketing company with a production facility." Other specific examples will suggest how new technologies help manufacturers effect better marketing-production integration: ~ Clearly, American Hospital Supply built its preeminent position by placing computer terminals right in its customers' premises and providing updated software to help users control inventories, access catalogs, and order American Hospital Supply products directly from the terminals. Similarly, by affixing uniform product code (UPC)
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merchandise trade deficit by exporting American-built Accords to Europe and Japan (Business Week, 1988b)
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Services Lower Costs and Increase Product Value Many aspects of a manufacturer's cost competitiveness depend intimately on services. Greater efficiencies in communications, transportation, financing, distribution, health care, or waste handling (services industries)
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Given Japan's emphasis on the information industries and its proved capability to apply new technologies, one would expect the trend to grow even stronger in the future. Within manufacturing some 75 percent of all costs-and a much higher percentage of value added is generally due to services activities (Office of the United States Trade Representative, 1983; Vollman, 1986, p.
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From page 25... ...
, faced by both U.S. inflation and strong cost competition from overseas manufacturers, decided it had to radically redesign its products for greater value added and lower cost.
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From page 26... ...
Services Support International Manufacturing Operations One of the areas where services technologies affect manufacturing most markedly is in international operations. Telecommunications, air transport, and improved surface cargo handling technologies have forced virtually all manufacturers to consider their supply sources, markets, and competition on a worldwide scale or to lose their competitive position.
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From page 27... ...
Manufacturers Benefit from External Services Innovations As technology creates new capabilities, economies of scale, or economies of scope for services, manufacturers will constantly have to reassess when to produce their own services or buy them "out of house." Many have found that specialized services companies can handle their accounting, legal, payroll, benefits, maintenance, repair, or even research and design functions much more effectively than they can "in house." This is one of the factors contributing to the rapid growth of the business services industry in recent years-in 1982 business services accounted for $90.7 million of GNP and employed 3.4 million people; by 1986 it provided $162.8 million of GNP and 4.9 million jobs (Kutscher, 1988; Tschetter, 19871. More than this, services companies have become major innovators on their
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From page 28... ...
Although these services companies often cannot translate such product improvements into higher margins, manufacturers and other customers benefit directly. Unless manufacturers systematically and continuously cultivate the innovations services suppliers can provide, they will miss out on important sources of competitive advantage.
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From page 29... ...
Exchange Rates Determine Manufacturing Costs As a result, exchange rates have fluctuated approximately +50 percent among major trading partners within a few years, principally because of fiscal or monetary not trade or management decisions. Comparative costs for an international competitor are often more a function of exchange rates than of productivity or competitive managerial decisions.
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From page 30... ...
~ Even when buyers have not consolidated into large individual units, services technologies allow them to achieve similar bargaining power. For example, a team of airline and manufacturer-supplier experts, coordinated by the Air Transport Association, has created an automated parts procurement system (Spec 2000)
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From page 31... ...
Recognizing this, manufacturers can greatly extend the scope of their operations, lower costs, and expand their margins by eliminating or taking over adjacent services functions sometimes opening up entire new support industries. For example: · In the early days of computers, a high priesthood controlled access to huge machines that ran only in their own special, environmentally controlled temples.
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From page 32... ...
· "Pennanent press" and crease resistant fabrics, textile and fibers manufacturing innovations, have significantly restructured the white goods, apparel, and personal services industries. In the past, those who could afford it sent their tablecloths, bed linens, and dress clothing (especially men's trousers and shirts)
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From page 33... ...
Unfortunately, we daily encounter the same inattention to quality, emphasis on scale economies rather than customers' concerns, and short-term financial orientation that earlier injured manufacturing. Too many services companies have been slow to invest in the new market opportunities and flexible technologies available to them.
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REFERENCES Air Transport World. January 1987.
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From page 35... ...
1987. Producer services industries: Why are they growing so rapidly.
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