The product is dead, make way for the service

2 Jan 2008 | 12:46 GMT

By Wendy M. Grossman

THE HARD PROBLEM Jim Spohrer is trying to solve is this: what is the Moore's Law of service systems?

Spohrer is director of Almaden services research for IBM, and answering that question is part of an ongoing effort to establish services science as an academic discipline, much as IBM, decades ago, helped establish computer science. The idea is gaining some traction among universities.

Last year, 2007, was the first time in human history, he says, when there were more people with service jobs than agricultural jobs. And services are taking over all sorts of industries in unexpected ways. Take, for example, Rolls Royce, the third largest manufacturer of jet engines in the world. Airlines, Spohrer says he was told at a meeting, don't buy the engines. Instead, they buy a service level agreement and a service, so that every time a plane lands Rolls Royce technicians work to improve the engine's performance from a command centre that knows where all the engines are and at what altitude.

"It's pretty amazing," he says. "The provider stays linked through technology so the provider is constantly gathering data about the usage of their technology by the customer and can constantly innovate and improve their offerings."

The idea grew out of Spohrer's three and a half years as CTO of IBM's venture capital group during the bubble. Before that, he spent ten years at Apple helping start the earliest online learning community, worked at Verbex, a speech recognition start-up, and completed a PhD in AI at Yale and a BA in physics at MIT. He'd been at IBM for eight years when he took the venture capital job.

"I got to know something very important about IBM," he says. "That the global services business was an amplifier for innovation. You could take an idea from a start-up or IBM research and amplify it across industries." Because of that, "I gained a good appreciation of the service business."

Come the bust, he needed a new job, and he asked Paul Horn, IBM's research director, what the hardest problem was that IBM was facing. "He said instantly, innovating for our services business. Research knows how to contribute to systems, technology, hardware, and software, but not service innovation – the new green field. I said, 'Sign me up.'"

At the time, out of IBM's 3,000 research scientists only 50 focused on services. That number is now over 500.

"In the good old days," he says, "you could sell technology to a business because it was better, faster, or cheaper than the year before. That was good for a while, but eventually the CIO said you have to have a return on investment and a business model before you can buy technology. You had to wrap it in a business plan." Later still, that same CIO might discover that that ROI was never achieved because the customer company lacked the ability to make the organisational changes required. "So they started asking IBM to help with the organisational change plan." And IBM had to have answers. "That's really at the heart of services science."

Four years ago, he took the idea on the road, talking to universities and governments. "We think it will be the wealth creation engine for the next 50 years."

Spohrer's first move was to research the IBM services business. How? He began reading the mountain of contracts IBM had written in industries all over the world. "You can see evolution not unlike in the product world," he says. The contracts showed how customers' businesses changed and how many professionals of different types were deployed. "There's a mountain of data to re-analyse with the lens of services science."

In the research process, he discovered a trend. Not only was IBM's services business growing, but so was GE's – and so was tractor manufacturer John Deere's. "I started looking at US statistics and the whole economy was shifting. " The big "Aha", he says, came when he realised it was a global trend. "That's when I started talking about services science as opposed to services research." µ

© 2007 Incisive Media Investments Ltd. 2007