In business, services are activities that assist a company but do not provide a tangible commodity. Business services can include information technology, human resources, consulting and other support functions. These activities are often outsourced to companies that specialize in them. For example, a company that specializes in providing professional services might outsource its human resources operations to another company. This allows a business to focus on core competencies while minimizing costs by leaving noncore activities to experts.
A service business differs from a product business in that it focuses on delivering value to customers through the building of service systems. This value is delivered through the four elements of service design: the underlying infrastructure, the knowledge base, the customer experience and the people who act as the service provider or consumer. The success of a service business depends on the interconnection between all four of these elements.
The underlying infrastructure of a business service is the physical, technological or organizational system that enables a business to deliver its service. For example, a server that stores and retrieves data for a website is an IT service. The underlying technology that supports this IT service might be a network or database. The underlying infrastructure might also be the software that runs a particular application or the devices used to access a service, such as an ATM or teller machine.
Another aspect of a service business is that its value derives from intangibles. In contrast, a product is a tangible good that can be weighed and measured. Because services are not tangible, they cannot be stored like inventory for future use or sold as a commodity. They are provided in response to a customer’s need and must be delivered as the need changes. Therefore, a service business must have an agile operational process that can adapt quickly to changing needs.
As a result of these characteristics, it is difficult to ensure consistent performance and delivery. Inconsistency is a natural trait of services that are provided by humans, and inconsistency can be exacerbated by the rapid rate at which a customer’s need changes. In addition, the customer can participate in operational processes to a significant extent, which requires that he or she explain requirements, convey expectations and set service-level agreements.
A successful service business has a strong leadership that balances the competitive autonomy of revenue-generating managers with the shared values and goals of the company. This leadership style is called service-based management, and it is becoming increasingly popular in a number of sectors. It requires a shift in the mindset of managers from product-focused thinking to understanding and developing the capabilities of their employees. It also emphasizes the importance of designing an attractive and appealing value proposition to customers that can be differentiated from competitors in terms of quality, convenience, friendliness and other factors that matter to them. This approach is often referred to as the Four Pillars of Service Excellence. It is a key element in the success of service businesses and has contributed to their growth in recent years.