Services perform several important functions to promote the development in all countries especially in a developing economy. This sector provides infrastructure, education, health, banking, finances, highly rated technical services, software programming and many other aspects. Thus, it creates meaningful linkages of services with almost all sectors of the economy.
Serviceâ€™s contribution in a countryâ€™s GDP and employment generation is only a part of the role of services, in a countryâ€™s development. Services also impart a meaningful role in all aspects of cultural life of a country and thus, it adds to development process.
The inputs to a service productive system are the consumers themselves. The productive process which transforms the inputs into outputs consist of labor, technology, information and the likes. The output of such a system is the altered sate of the consumer, for example, a cured patient, a transported traveler, or an informed client. The operations manager can control the design and mix of the productive process to meet customer requirements. The key distinction between service and manufacturing systems is that services are intangible outputs that are consumed in the process of their production. The technology and process for supplying the service can differ significantly from one industry in the service sector to another. Further, within the same industry, for example, the restaurant industry – there can be vast differences in both the supply technology and the desired outputs.
In the production of tangible goods, such as automobiles, soap, or beer, customer contact is limited to the retail end, after actual manufacturing has been completed. In the design, planning, and control of the associated manufacturing process, the preferences of consumers are important, but the customerâ€™s actual presence is not. This anonymity in the productive process allows the attainment of significant manufacturing efficiencies and productivity growth, as has been witnessed in the past 100 years. For example, the number of watches produced per worker has increased a hundred fold since the advent of the watches produced per worker has increased a hundred fold since the advent of the watch industry. This has undoubtedly decreased the cost of watches, making them affordable to virtually anyone with moderate means. In the same time span, however, productivity in education may not have even doubled, despite the significant advances in information transmission technology. Therefore, without public subsidy, quality education would be affordably only to those with extensive means. The key distinction is not the watchmaker now works faster than the teacher but rather that the direct customer contact required in education limits sustained growth in productivity without compromising the quality of the service delivered. Gradual increases in the cost of education are not the result of administrative inefficiencies but are intrinsic to the nature of the services provided. An operations manager or policymaker who views progress in terms of cost reduction would likely be frustrated in the field of education. Instead, the emphasis should be on the quality and accessibility of education ad on educationâ€™s contribution to productivity growth in other sectors through well trained engineers, managers, or physicists.
However, not all services require such a high degree of customer contact. At the other extreme is the telephone industry, which requires little direct customer contact except for operator assisted telephone calls and directory assistance. In this industry, the cost of the services has steadily decreased while quality improvements have been consistently achieved over time. The productivity growths documented in the telephone industry are large in comparison to those attained by virtually any manufacturing institution. Since considerable insights into the workings of various industries within the service sector of our economy can be provided by using direct customer contact as a variable, we will use it as a primary feature for classifying service systems.