The manual services squeeze

Jon Sundbo

p. 33-45


Texte intégral

1Manual services, for example cleaning, transport, retail and carpenters, are services that handle physical objects in contrast to knowledge services which handle abstract knowledge. Manual services have singular production and management problems. They are caught in a squeeze that makes it very difficult to develop the services and the companies. They cannot increase profit and therefore not invest much in innovation and development. They have difficulties in attracting and keeping competent labour force. This chapter presents a discussion of this squeeze and suggestions for solutions thus manual service firms can escape it. The idea of a manual services squeeze is based on empirical case studies. First will the empirical basis be briefly presented, next will the squeeze be discussed and finally will suggestions for solutions be presented in a model.

Empirical basis

2The empirical basis are case studies in manual service firms, specifically cleaning firms, with interviews. The Danish ISS has been the main case, but interviews have been carried out in ISS companies in other countries (Sweden, Finland and the UK) and in companies which provides other types of manual services. Within ISS other services than cleaning have also been emphasized. Table 1 below gives an overview over the interviewed persons. A total number of 62 interviews were carried out. Each interview lasted between one and two hours. Mostly managers have been interviewed, but in ISS all categories of employed persons have been interviewed. Some of the persons have been interviewed several times. Further, a large amount of documentary material from ISS and the other firms have been collected. Observation information from seminars and meetings has also been included.

Table 1. Firms and number of persons interviewed

CompanyManagersMiddle managersEmployees
ISS
General functions (strategy, development, etc.)62
Cleaning1147
Catering124
Food hygiene service2
Hospital service21
ISS Sweden4
ISS Finland1
ISS UK2
Other companies
United Cleaning1
Rentokil1
Falck1
AMI11
James Home Service1
Larsen Home Service1
Merry Maids1
Representatives of business organisations3

The squeeze phenomenon

3Manual services are generally of little importance to the customers, but the activities are necessary. They are normally of low social prestige. It is difficult for manual service firms to get employees, even in periods and places with large scale unemployment, and the labour turnover is often high. These services are low-technological and there is no, or only slow technological development, and even social or organisational innovations are rare. The squeeze also catches the manual service firms between a tendency of industrialisation, which could increase productivity, and emphasizing the customer relationship and providing the customer with an individual service, designed just for him. This could increase customer loyalty, but may also create high production costs (Gadrey, 1996).

4The traditional and current business conditions concern the organisation towards production and delivery, quality, pricing, simple sales effort and recruitment of personnel (Philippe, 1996), while technology and more sophisticated market strategies are not core factors in this business. This will continue to be the situation unless services are developed into more sophisticated ones, for example by developing more advanced technology such as robots. The problems and the squeeze are the more marked the lower the type of manual service. Lower is referring to a scale of service work going from intellectual symbol analytical work with most advanced informatics (Zuboff, 1989; Reich, 1991), to the most routinized manual work where not even IT may be used and other technologies are primitive. Cleaning, garden work, hair-cutting and messengers are examples of services at the lower end of the scale and are the types of service that this chapter deals with.

The position of manual services in the society as explanation of the squeeze

5The problems of manual service production may be understood from a theory of the development stage of the manual service sector. The development stage is related to its function and place in society. The latter has produced the manual services squeeze and a contemporary development stage which is non-dynamic. The sector thus has difficulties in developing and getting away from its fixed non-developing stage. It can be done and is done by some firms.

Knowledge society and manual services

6Theoretical understanding must start with a fundamental discussion of which type society we are living in. Contemporary society has, for a long time, been characterised as a post-industrial society (Bell, 1973; Nora and Minc, 1978), which means that most people are employed in sectors other than the manufacturing sector, other sectors play a major role in the economy, e.g. expressed by the fact that about two thirds of GNP comes from the service sector (Illeris, 1996), and, perhaps, the economic dynamics which creates growth and employment have moved to another sector. What this post-industrial society should be called, and what the core dynamic factor is, has been widely discussed without one interpretation being accepted by all researchers. Suggestions have included a service society, an information society, and a knowledge society.

7To explain the development problems of manual services, the best way is to interpret contemporary society as a knowledge society. This will also explain the categories of knowledge and manual services. The knowledge society is characterised by the fact that the most important feature is the production and distribution of knowledge and information (Monnoyer and Philippe, 1987; Monnoyer, 2002). It is the solving of problems where the intellectual aspect of the solutions, not the physical implementation, is the crucial element. Most importantly, knowledge is not a passive archive of data, but an active intellectual effort. Advising, science, strategy formulation, and policy are crucial activities.

8Manual services may be characterised as a residual category, not only in the statistical meaning that this is what is left over after we have identified knowledge services, but as a characteristic of the function of the manual services sector in society. The physical movement of things and people (as physical beings) is not a core activity in the knowledge society, but a residual. It is a necessary activity and without it, the other economic and business activities would stop, but these activities are not the focus of the knowledge society. Manual services are the remains of activities from a pre-industrial world where work activities were simple, and it is new physical activities that has not been integrated in the complex development pattern of manufacturing or been object to complex intellectual problematisation such as characterises the knowledge service sector.

9The position of manual services in society has sociological as well as economic aspects. Manual service jobs are low prestige ones because of manual services’ residual and peripheral character. Because manual services are so simple, there can be many players on the market and the profit therefore low. The analysis above is not a fair picture of all manual services and all manual service firms of which many provides complex services and earn great profit. However, it is a useful description of the basic conditions of manual service business which can help to diagnose the development problems. Next, one can look for, and examine, those cases where somebody has overcome the problems of the basic conditions, and this can be the basis for proposals for other firms.

Product life cycle

10The general theoretical approach stated above should be translated to a more operational approach for understanding the situation of the manual service firms and thus taking a step further in analysing the squeeze of manual service businesses. This can be done by using the theory of the product life cycle. This theory is based on the macro economic theory that the economy is developing in cycles (Freeman, 1984). This theory is applied on a certain economic sector or industry (Schumpeter, 1939/2017; Vernon, 1966; Kotler, 1983), and puts forward a theory which says that the market economy develops in cycles, and each industry or sector has a life-time cycle with different phases. The idea, and notion, of cycles have been used in different ways. It has been used to characterise that the economy in general develops in cycles and has thus been termed business cycles.

11Schumpeter (1939/2017) put forward the theory that the cycles are produced by fluctuations in the general innovation pattern in the society. It has also been used as a characteristic of the life of one product, in which case it often is termed the product life cycle (Vernon, 1966; Kotler, 1983). Industries also move in cycles. The movement of industries is a phenomenon between a general economic cycle and a specific product life cycle; it is not the whole economy, but it is more than a single product. It is a product area that could be for example all cleaning service products, but it may also be a broader product area such as cleaning, environmental services and building maintenance if these services normally are offered by the same firms. In this case we could speak of one industry. The term product life cycle has been used to characterise that situation as well. The manual services are in a mature phase of the product life cycle. The product life cycle may, in a simple form be illustrated in figure 1.

Fig. 1 - The product life cycle of manual service industries

Image

12In the beginning of the lifetime of an industry, the market is n° satisfied and it presents possibilities for fast growth. The first phase, however, develops very slowly because the potential purchasers on the market have got used to the fact that they cannot have their needs fulfilled. Further, there are not many types of goods or service products on the market, so innovations should be developed first. After the innovative phase, an explosive raise in growth rate starts when the market becomes aware of the innovation. After some time, the strong growth rate decreases because the market begins to become satisfied and, therefore, fewer innovations are developed. Finally, the market reaches the mature phase where there is n° more growth. Often the turnover will fall because of the purchasers do not need so many products anymore, substitution possibilities appear and other factors.

13The profit in the first phase is very high because there is a large demand and only few suppliers. As the industry or product field becomes mature, the profit will fall because the demand becomes fulfilled and more suppliers appear, which increases the competition. The competition becomes less a competition of innovation (who launches the newest products) and more one of price competition where rationalisation of the production process is the most important means. The profit starts to fall before the market reaches its mature phase, and it continues to fall. At the time of the mature phase, the profit tends to go towards zero. If the industry or product field can be substituted by other product fields, or in the single country by products from other parts of the world, the profit will fall to under zero, and the industry will disappear, at least in that country. That has happened to for example the shipyard industry and textile industry in many countries. If the products cannot be substituted by other industries or cannot be moved abroad, the industry is stabilised at a very low profit level. This is the case for most manual service fields such as cleaning.

14Many manual services have existed in more or less the same form on the market for a long time and there has been very little development of products. The markets are mature, and it is difficult to find fields of expansion for these services. The organisation has been developed, but mostly by using rationalisation to improve productivity. The common problems in manual services are produced by the fact that these services are activities that are very difficult to mechanize, thus technology development has been much slower than in manufacturing. Further, these activities are so simple by nature that they are very difficult to make intellectually sophisticated so they cannot be developed the same way as knowledge services. There have been organisational and marketing developments such as introduction of TQM, customer relation focusing, etc., but they have not changed the general situation of being in a mature phase of the product life cycle.

15In some ways they have underlined that situation. This has led to a state of affairs where mostly standard services are being provided. It is difficult for the single firm to differentiate their products from competitors. They differentiate themselves on parameters such as quality assurance systems, delivery and customer relation systems, corporate culture, peripheral services (which are added to the core service that the customer really needs), etc. These are important factors for the single firm’s development, and therefore for this analysis. However, in general terms and in the long run for the general manual service sector, they are historical details.

16What has happened to manufacturing industries that have reached the mature phase? They have completely disappeared such as the cooper industry, or they have moved the production to low-wage countries such as the textile industry. They have tended towards a monopoly or oligopoly situation such as the aircraft industry or a new existence in a much smaller, but more sophisticated high-price upper-class market such as the craftwork industry. Only a few of these possibilities are ways out for the manual service industries. We cannot stop cleaning or the distribution of goods, because we would die from bacterial diseases or starve to death and we cannot let low-waged labours in other countries do the job, because it must be done in our own homes, shops or factories.

17This is a squeeze if one looks at the industry level. These industries cannot live, and they cannot die. Every time the price and business conditions raise to a certain level, strong competition will lower the prices and conditions, and every time process and conditions are reaching the bottom where n° business is possible at all, the customers accept a raise of the price, but only a small one, because they badly need the services. The raise could also be created by state intervention. This squeeze is a sectorial squeeze. The single firms may die and be born in great number – and they are (particularly within the restaurant and retailing industries). However, in most cases it is impossible to see the difference in any way between the firm that died and the new-born as when one clothing shop replaces the other. The new one does not have a better chance to survive than the old one.

The simplicity of manual services as a core part of the squeeze

18The manual services squeeze is produced by the market situation. However, it is not only the behaviour of other firms and the demand of the market that produces the squeeze. There is competition from outside the market and the manual service firms must relate their own development to other spheres to avoid the squeeze and develop the business. This fact is valid to all business sectors, but specifically to manual services because this is such a simple activity that everybody in most cases can do it. In particular cleaning, as long as it is simple such as cleaning of a dining room or an office, can be done by every human being over 10 years old - maybe not in a good quality, but sufficient. This fact has produced competition from several outside-market actors. Manual service activities could be, and are often, done by the users, whether firms or households, themselves. This takes the form of internalization where the users hire employees to do the service activities.

19The fact that a customer does not make all the goods and services himself is due to two factors: (1) The goods or services provided on the market are so sophisticated and of such high quality that the customer could not produce them at the same quality; and (2) The customer does not have the time to produce the goods and services, and it has become a social norm not to produce them oneself. Neither of these characteristics are valid of manual services. They are easy to produce oneself in the same quality as commercial providers do. The challenge to manual service firms is to make the potential customer firms externalize the services so they buy them from the service firms.

20Next, there is the informal economy, or do-it-yourself sector. Private customers can do the service activities themselves, which is a widespread phenomenon. The challenge to manual service firms is to make the households buy the services. This is not an easy task because the impediments to a commercialisation of these activities are not only economic, that the customers have to pay a price, they are also sociological. One example of this is the existence of an intimate sphere barrier (Sundbo, 1997): customers are unwilling to let strangers into their homes because they consider it as a private social room. The do-it-yourself sector is a larger competition factor for manual service business than internalisation since the firms that internalize the service still have to pay somebody to do it. Private households could save all the money by doing it themselves. Manual services must also compete with another economic system, the black economy. Some people are illegally engaged by households or firms to carry out manual service activities. The illegality can be that these people do not declare their income to the taxation authorities, or they get unemployment relief at the same time. In Denmark, with 2.5 million people at the labour market, surveys have demonstrated that the black work is equal to 100,000 full-time jobs (about 5 % of the work in the formal economic sector) (Mogensen, 1995).

21Many manual services are provided by the public sector as a free good. Physical and personal service to sick and elderly people, and to children are, in many societies, free public welfare services. This limits the possibilities of private service firms to enter this market. Furthermore, the squeeze on the political system is also that there is an increasing need for these services, for example as a consequence of the ageing of the population, but the population is not willing to pay more taxes to pay for them. The solution could be outsourcing: That the public sector outsources the service production to private service firms. This does not necessarily mean that it leaves the political decision of whom should receive the services to the firms, nor does it necessarily lead to the citizens having to pay for the services (outside the tax bill). However, many citizens, and employees and unions within the public sector are against privatization. This makes another squeeze to the service firms, and to the politicians too. These are further examples of different squeezes for manual service firms. To avoid business from being eroded from outside the market, manual service firms must develop the services.

Concrete business problems related to the residual character of manual services

22The maturity of the market leads to increased competition where the price is the most important parameter. This is underlined by the fact that the service products are mostly standard products that could be provided by all firms in the industry. Since the services often are of little interest, but necessary, to the customers, they are unwilling to pay for sophistications or variations of the services and they rarely present new needs. This is extremely true in cleaning. The clients just do not want their office to be dirty, they do not have any specific idea of the cleanliness, in terms of character or degree. For special customers such as the food industry, cleaning has a vital interest. If it is not perfect, the meat and food products may become tainted and the food manufacturing company’s customers sick, which may easily create the destruction of the company due as their customers will not buy the products anymore. The strong interest is also the case for environmental services, for example, which are services that either has the purpose of hindering pollution from factories or clean if an accident has happened, are also of vital interest to the customers. Food hygiene and environmental services (such as ISS provides) can be priced much higher than general cleaning.

23Other physical, and particularly personal, services may be of greater importance to the private customers. To some, although not to all, hair-cutting means more than just not having long hair. Thus, the service must be more sophisticated emphasizing the hair style. For elderly people the domestic help often means more than just being cleaned and maybe changing a bandage, it also means social contact with other people. Still, these services are so simple that almost everybody can provide them as long as we do not discuss the details of quality. Therefore, the price will remain low and very difficult to raise. However, in comparison with to the manufacturing sector there is a lower limit for the decrease of prices because manual services are more labour intensive and cannot be mechanised as much as manufacturing. Since the customers still need to have the manual service work done, they need to pay the lower limit price. Thus, price has a tendency to establish itself as the lowest market price.

24As a consequence of the hard price competition, the profits in manual services are generally low. This means that the manual service firms have a very low rate of profit, they are very vulnerable to even small changes in the market, and they have difficulties in accumulating capital for development investments. This catches them in a squeeze of conservatism, for that reason alone that they cannot afford to innovate. One of the mysteries in this analysis is how a large company such as ISS can make profit at all. Cleaning could be provided by small firms. The largest home service firm – called AMI – that has been included in this study, has 1,000 employees and is owned by one person. He is satisfied with a profit that makes him living and nothing more. His standard of living is higher than that of a cleaning assistant, but he is not very rich. The office of his firm is established in his private villa. He attempts to develop his firm, but mostly via organisational development, and the development activities imply little capital investment. Thus, the work of 1,000 employees, even though they are part-timers, only generates profit comparing to one family’s subsistence. Even that seems to be difficult since the firm has been closed down after this study was completed.

ISS characteristics

25ISS is a global cleaning company employing about 600,000 people. In Denmark they have 11,000 employees. If they generate profit comparing to the subsistence of 11 middle-class families, how could this company have become world-wide by means of acquisition? The answers to the riddle are the following: (1) ISS sells practically all their services to firms, which are willingly to pay more profit than the private households that are AMI’s customers. It has been calculated that where the small home service firms can sell their services for 130 DKK per hour, ISS takes about 160 DKK (Sundbo, 1997). At the same productivity rate, this means that ISS has a profit rate that is 23 % higher (if costs for administration per hour are supposed to be equal). The firms are willing to pay that higher price because it is a norm for businessmen to pay a fair price, even it is low, where private households are “stingy”. This is a social norm as well, but it also due to the fact that the private households, to a much greater degree, are caught in a tax squeeze where they must pay tax on their income before paying for the services; (2) ISS has a higher productivity. They have developed their production organisation so that is one of the most efficient within the industry; and (3) The profit in ISS does not have to maintain many families. The number of people employed outside production (in administration) is very low in ISS. In the headquarter of the international corporation are employed not more than 100 persons, all types of staff functions included. This creates a surplus for acquisitions and investment in development.

Customer loyalty

26Another part of the manual services squeeze is that customer loyalty in manual services is generally low, but within some segments it is higher. The more standardised the service, the lower the customer loyalty. Office cleaning is a standard service, and here there is a low customer loyalty. The customers just want cheaper prices and the standard and quality of the cleaning is not very different from one cleaning firm to the other. Special services which imply more complex activities and more care of the customers values have a higher degree of customer loyalty because they are more important to the customer and the trust relation to the service provider is more important. In these services, pure price competition is not as dominant as in the standard service areas. As examples of such special services with higher customer loyalty we could mention security services, express letter transport and ambulance services. Within security service, which ISS has formerly provided, the customer loyalty is high. The reason, besides the ones mentioned above, is that more technology is involved. This includes electronic surveillance equipment which is related to the manual security service so the customer will lose his investment in equipment if he changes to another provider because this uses another type of equipment. So, technology is a factor that can increase customer loyalty – not as a “positive” sociological customer encounter factor, but as an economic constraint factor.

Low entrance barriers

27Since most manual services are simple and do not demand any specific investments, it is very easy for everyone to establish a manual service firm. The entrance barrier to most manual service industries is extremely low. This increases the profitability problems in these industries and may produce price dumping. The low entrance barriers also have positive effects on the existence of manual service industries. They prevent the formation of monopolies, which would otherwise be an obvious economic mechanism that would come into force in mature industries. There are monopoly tendencies within manual service industries, for example in retailing and wholesale, and cleaning and building maintenance services. Mergers by acquisition is the most widespread phenomenon that lead towards monopoly situations. However, the monopolies will only be a tendency and never completely dominate as long as the entrance barriers are so low.

28Monopoly would not be good in contemporary western societies, not even to the monopoly firms because they are undesired by the public opinion, which fears higher prices and lower quality. There will be a great deal of public attention on the internal structures and activities of the monopoly firm and the state may intervene. A near monopoly with some new small firms entering the industry, but never getting more than a small part of the market, is a much better situation. Even though it is difficult to establish. In Denmark ISS has only 30 % of the cleaning market, the two largest competitors have about 10 and 3 % each. Only in special niche markets can monopolies or oligopolies by established. For example, ISS Food Hygiene Service has a monopoly in Denmark within cleaning and building maintenance of slaughterhouses.

Too many black sheep

29Since entrance barriers are low, there are many small firms in most manual service industries. These are not all professional in their attitude. The fact that some of them are not may easily create a bad reputation for the industry in general. Some firms operate illegally by employing people under illegal conditions. This has been demonstrated in Denmark where the press and TV has discovered what they call a cleaning mafia: firms, often owned by immigrants, employ people under illegal conditions, they do not declare the income of the employees to taxation authorities, etc. It is not a hidden market with some grey area; some of the large hotels in Copenhagen have used such firms. The public opinion and the press emphasise one mistake much more than a hundred successful quality deliveries. It is of n° use that many small firms, among those most or all the bad ones, disappear again after a short period. It creates a bad reputation for the whole industry, and this makes the customers more disposed to internalising the service activities and at least it makes them unwilling to accept a high price. Thus, the low professionalism of many new firms creates impediments to a growth in the manual service industries. This impediment is strengthened when an illegal firm appears. The effect of the illegal firms may vary from country to country since it depends on a political culture factor, but the effect of the unprofessional newcomers is universal.

Limits of work rationalisation

30For decades ISS has rationalised the production organisation of general cleaning and developed it towards a more industrial organisation. Rationalisation is a cost-reducing activity. Since manual services are so labour intensive, this has been the far most important economic development factor. ISS has led the world in this sphere, and it is a part of its international success. The rationalisation principles have been transformed to other service activities by the company. The rationalisation and industrialisation of cleaning and other service work is one of the main explanations of why ISS could have become market leaders in Denmark, and it is still important for any manual service firm to emphasise rationalisation, because it reduces costs.

31Rationalisation of work has probably been the most important factor in developing manual service industries. However, it has also created one of the major squeezes for manual service business, because it has made price competition the core competition and development factor. This has impeded focus on innovation as a development factor and, more importantly, it has pointed out further rationalisations as the only competing factor that many manual service firms can think of. The latter now becomes a problem because attempts at rationalisation have been driven so far that it is impossible to develop that factor any further. According to ISS the work can only marginally be rationalised further. The market is focused on decreasing the prices so the problem is what to do in industries where wage costs are between 80 and 90 % of total costs if you cannot reduce the wage costs any further and you cannot raise the price?

Goodwill

32To a very large extent the capital of manual service firms consists of the firm’s goodwill. Normally there is not much production machinery and even buildings are fewer than in a manufacturing firm with a similar turnover because the service personnel works in the customers’ buildings. This is not true to all manual services, in particular not in transport, which demands heavy investments in technology, or to retailing and hotels, which requires large building investments, but it is for many manual services. What then is the capital of a manual service firm where large building or technology investment is not needed? How can the shareholders assess the value of the stocks that are the evidence of their investment in the service firm and thus of their fortune? The answer is that most of it is goodwill, which means the value of the connection and the customers’ loyalty and of the firms’ ability to manage and develop the business. This is not a steady factor such as machinery or buildings.

33How can one assess this if the customers are not loyal as has been demonstrated in cleaning for example and if the managers, who owns the abilities to manage and develop the business, can walk out of the firm from one day to the next? The answer is that it is difficult or impossible. Stocks are traded more on the basis of a psychological mechanism within stock traders than from objective assessment of the ability of the service firm and its customers’ loyalty. Goodwill can easily be the Emperor’s New Clothes. The goodwill problem is important to the growth of manual service firms because it may make it difficult to get investment capital and it can suddenly create much turbulence in the daily management and customer relations, and perhaps loss of customers if, for example, one financial analyst questions the value of the firm’s goodwill.

Work flexibility favours small firms

34Manual service work is very often part-time, season work or is placed at inconvenient times such as evenings or nights. These unusual working times are very characteristic for manual service industries in comparison to other industries. This makes it difficult to plan the work and to find and hire labour force that is interested in these working hours. It also makes it difficult to keep the labour force because the work is not attractive.

35Flexibility promotes small firms. They can survey the production activities and they can establish a firm which fits the needs. Many Danish home service firms just have one employee who works two or four hours a week, or the owner herself works two or four hours per week, for one client. If the firm gets another client, the employee or the owner must work double as much – until maybe one of clients ends the contract. The employees’ and the owners’ service work are flexible because they can get unemployment relief from the state up to a certain income level regardless of the number of hours they can sell on the market. This is extreme and is due to the Danish subvention system that awards creation of small firms to reduce the black market, and many of these firms are earlier moonlight workers that have established their own firm. However, in other countries social conditions have favoured the flexibility of small manual service firms because owners and employees can always find a flexible way of organising their working lives. Much can be negotiated and changed in interaction with the clients that are either private households or small firms.

36Large manual service firms can also manage the required flexibility, but it is really a challenge since it demands advanced planning, which then becomes a competition parameter. There are more demands on large service firms. Social conditions and agreements with unions must be taken care of. This demand may also vary between countries with different political culture and different service firms may choose a different strategy towards these demands, but the flexibility demand generally promotes small firms in relation to large ones in all those countries. Large firms have an advantage in the amount of work they have. They can offer their employees, perhaps not full-time work, but at least a fixed number of working hours per week. This, however, demands detailed logistics planning, because they often deliver services to many small clients. The service personnel need to transport themselves between the clients, which produces wage costs, but n° income to the service firm. The large service firms can win the competition with small firms if they are good at logistics planning or if they offer services that the small firms cannot.

37It is not so that large service firms are “better” than small ones, either at solving the sectorial development problem of a mature sector nor society’s employment problem. Flexible small firms have important functions for these purposes and are often as professional as large firms. They are an important complementary factor, but the they cannot lead the sector out of the crisis, mainly because they are not innovative enough and do not have the resources for a massive investment in new activities. The large firms are needed for that purpose, but the formation of large innovative and offensive firms is impeded by the fact that the working hour flexibility situation favours the small firms. This is a barrier to the development of the whole sector.

Conclusion

38The squeeze might be completely or partly eliminated. This chapter will be finalised by proposing some solutions. However, this cannot be done easily via one single solution. It demands a set of different solutions, which some service firms have introduced. The firms must operate on several levels and it will not be an easy task. The analyses of these cases have led to suggestion of a model of service development. The manual service firm can choose some of the following elements to include in its development strategy. A firm does not need to choose all the elements, but it is necessary to select several elements to develop the firm. Development here is quantitative and qualitative. Quantitative development means selling more of the same product while a qualitative development means selling new products or old products in a new way (Schumpeter, 1939/2017).

39Most important in the model is a series of elements that develops the service concept as well as the production system. The elements in combination could be called a SMIP model. These elements are not greatly emphasised in the service literature, particularly not in this combination. The model is put in box 1. Other elements treated in the analysis are also important. These are:

  • Change of business field. The firm can change the business field to less residual areas. In the analysis personal service and environmental, or climate-oriented, services have been stressed as areas with growth and development potential. They have higher prestige in society than traditional physical manual services such as cleaning, catering, transport, etc. They also represent unsatisfied markets that will grow in the future. Other areas might also be possible.
  • Flexible organisation and employee orientation. The flexible production organisation including increased employee orientation: more autonomy and delegation of responsibility to the employees – has been a core means in ISS and other manual service firms. Although the analysis has shown that this is insufficient itself, it is a means that must be a part of a development strategy because it is essential to all service delivery (Eiglier and Langeard, 1987; Normann, 1991). The organisation may not be made flexible without employee orientation.
  • Internationalisation. Internationalisation can develop the single service firm because the firm needs to adapt to new market situations in different countries and thereby learn and get ideas for innovations. For the society, internationalisation is also a phenomenon that can develop national industries and create employment. When foreign service firms come to a country, they bring with them experience that is new to that country and which the domestic firms can learn from, and they often bring innovations.

Box 1. The SMIP model
The SMIP model emphasises four elements: Specialisation, Modulisation, Innovation and Professionalisation. (1) Specialisation and higher degree of knowledge content are the introduction of more specialised services that might be provided to a limited market segment such as food hygiene services in ISS. The specialisation demands greater competence from the firm and the employees. It is an advantage if the specialisation is combined with a high degree of knowledge in the service concept thus it is more scientific based such as in Rentokil. (2) Modulisation is the combination of the industrial mass production system including standard products and standardised production system with the customer-oriented individualisation of the service products and delivery systems that the service management and marketing theory has emphasised (Sundbo, 1994). (3) Innovation and technology development are the introduction of new service concepts. It can be new service products, new forms of organisation, new production and delivery processes or new market attempts. Technology has played an inferior role in most manual services and will continue to do so in many. However, as far as new technology can be introduced as process or product technology, it can give an advantage in form of better products and greater insurance towards imitation of the innovation. (4) Professionalisation is the increase of the employees’ competencies. This will also improve the firm’s competence and increase the prestige of the service work thus it will be easier to recruit personnel. Professionalisation is connected to specialisation.


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