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September 11, 2020 | 3 Mins Read

Was Our Shift to a Service Economy a Mistake?

September 11, 2020 | 3 Mins Read

Was Our Shift to a Service Economy a Mistake?


By Tom Paquin

150 years ago, New Bedford, Massachusetts was the richest town per capita in the world. New Bedford was a port city, a particularly well-positioned one for the burgeoning whaling industry. Whale oil was a hot commodity as a fuel for lamps, among other commercial uses, and that helped drive the economic prosperity of this small city in southern Massachusetts.

I’d like to say that an ethical enlightenment towards the treatment of whales led to the death of whaling, but in reality, whale oil smelled terrible when burned, and by the late 19th century, the wide availability of the much cheaper and less gruesome kerosene rendered the industry—and in many ways New Bedford—obsolete.

Money and innovation drove another sharp product shift, and it’s one that we’ve seen dozens of times since. More recently, manufacturing remains roiled by automation upgrades and shorter product lifecycle windows, which has created its own cycle of boom and bust among product-oriented businesses. This has led to a reshuffling of the economies of the developed world away from product-oriented businesses towards service-oriented businesses, and it’s why 2/3 of the GDP of countries like the United States are in services.

For most of this time, the move to services seemed like both good business and solid economic theory: As manufacturing work eroded due in large part to automation, the services sector offered a burgeoning opportunity for high-margin work that kept skilled jobs plentiful. As services themselves evolved, buffeted by technology advancements, outcomes-based offerings helped solidify service as the way forward for many companies.

This of course was all before 2020, when a once-in-a-century pandemic rips across the globe and shatters social interactions for the better half of a year (So far).

In its wake, service-oriented work is negatively impacted across the board—from food services shuttering to home repairs being postponed. In the wake of Covid, then, are we on the brink of a shift away from service-oriented work, back towards product-oriented business? Will the pendulum swing back the other way?

The obvious answer is no, but there’s a few layers that need to be unpacked, of course. For starters, the cascading effects of global shutdowns had a strong impact on a variety of industries simultaneously. Because of this, there’s no straight line between service specifically and covid. Service providers have made similar adjustments and concessions to straight product manufacturers, retail, hospitality, and so on. Those mandates will persevere for months or years and reshape the regulatory environment and types of interactions in these industries, but that does not make service any less viable or lucrative.

Moreover, businesses have, in many ways, taken the crisis as an opportunity to servitize themselves. Take, for instance, restaurant suppliers sitting on increased stock, who have shifted their model to offer subscription delivery services directly to consumers, or supermarkets’ increased capacity for at-home delivery. I’ve spoken at length, as well, about how retailers at Best Buy are now shuttering physical locations to the public, reimagining them as ecommerce hubs. These changes all speak to the exact inverse of the collapse of service under the weight of Covid-19. These speak to the flourishing of new service opportunities.

You will likely have noticed that these advancements generally have a few things in common: They are reliant on technology and connectivity, and they represent broad, disruptive changes to the go-to-market infrastructure. Imagine the logistical challenge for a restaurant supplier as they transition from delivering to 100 locations in a region to 1,000. Because of that, as always, a thoughtful logistics a plan remains the key to success.

It’s safe to say that traditional service businesses will not emerge from this crisis looking the same. It’s up to individual businesses, given where we are, if they emerge from this crisis stronger than before.