The New Software Industry: Paul Maglio

Paul Maglio, a senior manager of service systems research at IBM’s Almaden Research Center, spoke to us on the science of service systems, looking at the services sector of the economy, including everything from high-end professional services to McJobs in the hospitality industry. The focus of much of his research is on high-value services that simply can’t be automated.

Harkening back to Cusumano’s talk, he showed where services generates 53% of IBM’s gross revenue, but only 35% of their pretax net income; because of that, they’re focussing on service innovation in order to be able to squeeze a bigger margin out of that services portion.

He showed a model of services as a system of relationships between a service provider, a service client and a service target (the reality to be transformed or operated on by the service provider for the sake of the service client). Service systems depend on value co-creation between the provider and the client. if the client wins to the detriment of the provider, it’s a loss leader; in the reverse situation, it’s coercion. If they both win, it’s co-creation.

Although there’s no equivalent to Moore’s Law for services, telling us where the efficiencies will be created in the future, there are some known factors that can be applied to make services more effective, both related to people (location, education) and technology.

In mapping profits against revenues, the steepest curve (biggest return) is information, then technology, then SaaS, then labour. However, most services are a combination of all of these things, so it’s considerably more complex to model.

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