Beyond the Service Economy © Business Futures Network
1996
by Geoff Woodling, Founding Partner of Business Futures Network
The Quaternary Hypothesis
We may have reached the climax of the service economy. Employment
growth rates in 'services' overtook those in manufacturing about
100 years ago. A peak at around 70% of the working population
of mature economies is similar to that reached in manufacturing
or agriculture at their respective peaks. In each case an enormous
expansion in output accompanied a reduction in employment - will
the same happen in the service economy?
Employment in large organisations grew into enormous bureaucracies,
facilitated by key communication technologies, electric railways,
telephones, elevators and typewriters. The significant increase
in physical trade could not have developed without these channels
of information. Now the growing volume of information exchange
has become a key indicator of economic activity.
But the numbers employed in information has been sustained by
the industrial economy - they are no longer a valid measure. Declining
costs in communication is creating access to new sources of wealth,
and now the trade in knowledge has become a greater source of
value than labour or materials. The value of the future organisation
will be in their networks, communities and knowledge resources.
The emerging economy can be described under trade, assets and
institutions that characterised earlier eras, as shown in the
table. These characteristics will become the infrastructure of
a knowledge economy, although they are likely to be intangible
and unrestricted by distance or place. Just as the inherited future
of the city is not a guide to its function, so capital, labour
and material resources may no longer be the principal sources
of wealth. This transition to a Knowledge Economy we call The
Quaternary Hypothesis.
Driving
Forces
Transition to the Quaternary will place greater value on intangible
assets, from material to knowledge resources, from physical labour
to mental effort and, perhaps controversially, from power to influence,
heralding the dissolution of old bureaucracy-based information
systems.
We can see two emerging economic phenomena. Within the physical
economy, a gradual process of dematerialisation is occurring.
New materials and new ways of manufacturing are using decreasing
volumes of raw materials and energy. The total mass of products
consumed within the advanced economies is declining and the value
to weight ratio is rising. The available of cheap energy has encouraged
increased personal and industrial mobility. Manufacturing can
be dispersed and situated close to markets rather than to raw
materials, and finished goods can be distributed in these markets.
Next will be the rapid reduction of energy required through mechanisation
of the means of work.
A second force is being generated by new technologies which are
rapidly reducing the cost of communication. Despite well-rehearsed
arguments about the development of teleworking and potential effects
on mobility, it is not yet clear what patterns will emerge.
It is conceivable that the competitive advantage of physical location
will have little value and the notion of physical movement of
goods between places have even less relevance. The replacement
of trade by investment in localised production is well advanced.
The opportunity to trade knowledge could well encourage new communities
to become established, linked by common access to new channels
of communication.
What kinds of knowledge
will be traded and to what purpose?
It is likely that the value of being able to design and make products
will be overtaken by the value of being able to manage complexity.
Societies will need to create new systems for integrating and
managing the complex activities created by a growing scale of
social interaction. Increasing competition for space and the consequent
impact on the quality of life and freedom of the individual may
be domains of future knowledge trading.
Growing
Tensions
Information technologies have changed the entire basis of design,
production, administration and exchange mechanisms. The consequences
of this are apparent in the decline of employment, yet the wider
impacts will be much more profound.
In the service industries, these technologies provide widely distributed
access to substantial information resources at a low and declining
cost, now available to the professionally qualified workforce
at all levels in organisations. Old corporate hierarchies cannot
process information quickly enough.
Systems to integrate knowledge from diverse fields and activities
have become a critical resource in management and planning. So
now large numbers of staff to maintain information flows are becoming
redundant. We have seen downsizing in services organisations,
especially in finance. Information service workers currently comprise
the largest single group in private and public employment. It
is clear that the cost of supporting large information bureaucracies
can no longer be sustained within government administration. Bureaucracies
will become smaller, more fragmented and with fewer layers of
hierarchy.
The consequences for the organisation of work is less clear. The
falling cost of computing and communications networks is enabling
individuals to apply their knowledge and skills in a far wider
market. The capacity to represent and work with complex information
in real time significantly extends the scope of the professional
or knowledge worker. It increases the intensity of communication
and, perversely, the need for meetings. Diverse work patterns
have reduced the need to travel to central locations and increased
the dispersion of workplaces and work trips.
With the new technologies, demands on public sector services have
increased, at the same time reducing the capacity to finance them.
New demands arise from those displaced by changes in the market
economy, and from those who want continuous improvement in the
quality of services. In the latter category, we can include almost
all the mass services, such as transport, healthcare, security
and public administration. On top of these headaches, governments
and corporates have to respond to increasingly well-informed and
vocal demands and to assume unsustainable commitments to protect
the environment, renew the infrastructure, provide new service,
and so forth.
Such public policy is often based on unreliable information. Trade
statistics, unemployment numbers, corporation taxes and patents
are all examples of information derived from models of past activity.
the difficulty of tracking invisible trade and profits undermines
monetary and fiscal disciplines, and makes any definition of national
sovereignty meaningless.
The crisis of government is simply that it is becoming increasingly
responsible for the costs of the past, without the means to determine
what future value their efforts can create. Governments, just
as much as business, are at a loss to know how to invest in the
intangible qualities that will contribute successfully to a future
knowledge economy.
Future
Sources of Value
Unlike physical assets, which depreciate in value over their economic
life, the value of knowledge will be continually enhanced. The
more knowledge becomes traded, the greater will be the potential
value it creates.
The growing capacity to capture information in real time at large
and small scale is creating value. This value is derived from
our improved understanding of the behaviour of individuals or
perhaps of the workings of the physical environment. For example,
the more we know about the toxic effects of food additives, the
greater is the demand to find environmentally benign substances
which can replace them.
The initial impact of the improved knowledge is to increase costs.
In the case of medical risk, the greater the demand for preventive
medicine, the higher the healthcare costs of the workforce. These
are already out of control in the US, and the cause of considerable
stress on business in Europe. The greater costs, however, should
not blind business to the potential value which greater knowledge
will create, and in the medium improved diagnostics is likely
to lead to a more healthy population.
One of the most valuable assets in the future economy is likely
to be knowledge of what represents a better quality of life, and
how this can be delivered. This knowledge will not respect the
artificial boundaries between government and business, or between
environment and market, or between organisations and individuals.
The quality of life is a more valuable indicator of human need
than one based on unreliable economic indices of consumption.
Understanding how markets will contribute to improving the qualities
of life is a critical challenge.
Availability of details on people and behaviours has led to development
of information resources which offer to users the means to design
solutions to meet individual needs. The boundary between supplier
and user is blurred, and obliges business to assume greater responsibility
for the way in which customers use the services available.
An example is moving around cities. Manufacturers and operators
are finding it difficult to meet new expectations for different
standards of mobility at acceptable cost. Faster, cheaper, better
access to information can provide companies with more timely intelligence
about the need for travel, and the means to profit from that knowledge
in creating a better quality mobility. The case for a mobility
business is based on the current stress suffered by industries
serving mobility needs, by the impact on the environment, and
by the declining marginal utility of sales of mobility products.
These are indicators of the need for change, and potential the
opportunity to create new sources of value.
In the information industry, we see shifting alliances of equipment
manufacturers, operators and content owners, which are creating
new streams of experience business, often through convergence
of existing products, services and technologies. New levels of
design and decision support are creating opportunities to develop
new kinds of experience, and these enable users to employ products
and services in new ways.
Future
Business Organisations
The qualities of intelligence required to create new sources of
marketable value will oblige organisations to invest in intangible
resources. They will need to invest in the systems to capture
information and in the processes to represent and communicate
knowledge. More than conventional investment in technology or
products, such investment will be fundamental for organisations
to adapt to new challenges and opportunities. The systems required
to develop markets in this knowledge will change the boundaries
of organisational competence and operation.
The capability of an organisation to transform information into
valuable knowledge represents the future intangible assets of
the business. The future value of such organisations will be determined
by the return on their investment in these intangibles. The quality
of intelligence fundamentally redefines the organisation as a
design system of relationships that is capable of continuing innovation
and extension into new areas of organisational competence.
The greater knowledge of the cost of externalities will require
business to take responsibility for the environmental impact of
their actions which previously lay beyond the reach of the market.
The distinction between products is eliminated and the knowledge
to design, install and support applications becomes greater than
the cost of the product itself. Businesses will compete through
the value they create over time for those they serve.
The new systems provide the means to integrate diverse knowledge
and resources in a cycle that increases value over time. This
in turn defines what might be called a stream of business, where
resources are combined to sustain specific applications. Ownership
of each component function is less important than integration
of specific competence. Potential suppliers collaborate to contribute
to the business stream.
Organisations will be obliged to compete to the potential intelligence
required to move from their former state to a future. An initial
experience of uncertainty, increasing tension and greater stress
are indicators of forces reshaping the system of which they are
a part. many of the issues are unfamiliar, challenging conventional
models of organisational knowledge. No longer relying on perfecting
past measures of performance, the starting point must be to challenge
those same models which constrain organisations within conventional
boundaries. Markets may no longer be defined by products or services.
They are more likely to be distinguished by systems of relationships
linking individual organisations and the environment in time and
space to serve specific quality of life goals.
See too the Summary of
the International Futures Forum
1998