Sweden has changed its primary industry twice in the past 100 years. From originally supporting ourselves primarily through farming, we then became an industrialized nation, and today mainly work with services. The service sector is quite fragmented and diffuse, including everything from trade and transport to real estate and consulting services. However, an increasing number of service professions are knowledge-intensive, such as research, healthcare, finance, IT and telecommunications.
The majority of Swedes today work in the service sector, which generates two thirds of the country’s GDP.1 Eight out of nine start-up companies are service companies. As a result of this structural shift, Sweden’s economy is becoming “weightless.” In her book The Weightless World, Diane Coyle explains that when economies grow stronger they become less heavy. The value added that is generated isn’t necessarily possible to measure and weigh.
Another way to illustrate this development is to look at how Sweden’s exports are changing. One third of Sweden’s exports don’t weigh anything – because they are comprised of services.2 The value of Sweden’s goods exports has stood still for the past ten years, while the value of its service exports has quadrupled.
As a result, it has become increasingly popular to package offers for services and provide different types of subscriptions and service contracts. This servicification means that instead of making unpredictable one-time purchases, customers make longer commitments. In the IT industry, cloud services have taken over to a large degree, where everything from accounting to sales-support systems are currently offered as cloud-based services.
An example of an area where servicification is taking hold is printers. Should an organization really purchase and maintain hundreds of printers that may be spread out geographically? This requires installing drivers, changing ink cartridges, refilling paper, resolving printer errors, repairs, and a whole lot of other things. One can create a bunch of undesired new work that can easily steal employee time. Or one can purchase printing as a service. In practice one is only interested in – and pays for – the actual printed copy. Which printers one has, what may be wrong with them or when they need to be replaced are things that one no longer needs to worry about. The only thing of interest is whether it costs 0.18 or 0.23 Swedish crowns per printed copy. One would rather pay for printing services than for physical printers.
Lighting is another area that servicification is beginning to permeate. It may sound strange, but why should one buy lightbulbs when what one wants is light? That’s what they thought at Schiphol airport in Amsterdam. They now buy light instead of lightbulbs. They are spared the headache of purchasing gadgets, installing lighting fixtures, and replacing broken bulbs. They are only interested in the inside of the airport being well lit.
When modern economies grow, production and consumption shift toward economic value that exists in bits and bytes, and away from atoms and molecules. | Danny Quah, Li Ka Shing Professor in Economics, National University of Singapore
Thinking in terms of services instead of goods is becoming an increasingly-attractive approach. Purchasing physical products involves two big hassles. One of them is that one must come up with all of the cash at the time of purchase. Organizations are becoming increasingly averse to making large upfront investments in a climate where future conditions can change rapidly. Particularly in technology and IT, companies want to avoid investing in expensive IT platforms, which may be the largest contributing factor to the success of cloud services. Paying a fixed monthly fee is more appetizing than a high upfront cost. Continuous but comparatively low operational costs are preferable to large initial capital investments. In an equivalent way, subscriptions are also a more predictable revenue-generating model for suppliers.
The other problem with physical goods is that they require maintenance and servicing. Add to that purchase negotiations, insurance, retiring and disposing, it isn’t so strange that many organizations want a lighter backpack to carry. Physical goods become a responsibility in and of themselves, which often creates undesirable maintenance burdens.
Yet another driver behind this development is that technology is in many ways making physical products unnecessary. Cell phones have to a large extent become the center of servicification, where smart apps constantly reduce the need for traditional hardware such as DVDs and CDs, watches, flashlights, GPS-navigation systems, compasses, cameras, radios, TVs, gaming consoles, tickets, etc. Many physical items are living on borrowed time, for example books, keys and cash.
On the whole, we are standing at the edge of a future where goods are replaced by services and where it will become increasingly difficult to clearly define an industry. One approach to this can be to constantly think, “which products can we provide as a service instead?” That reduces the risk that the competition will think this through before you do.
1 Ekonomifakta (2018, 13 September). Tjänsteproduktionens sammansättning. [blog post] Downloaded 2018-10-22 from: https://www.ekonomifakta.se/Fakta/Ekonomi/Produktion-och-Investeringar/Produktivitetsutvecklingen-i-naringslivet/
2 Business Sweden (2017). Svensk internationell handel 2016 – Långsammare exporttillväxt 2016. [presentation]. Downloaded 2018-10-22 from: https://www.business-sweden.com/contentassets/58072ae403a146419a30