How IBM is Applying Science

Even in the area of high-end consulting and professional services, little has really changed. Sure, your smart, Harvard-educated management consultant may jet around the world, but at each stop he or she still mainly observes and interviews people, jotting down notes for use later when the findings are pulled into what will most likely be a  printed report or maybe a PowerPoint presentation.  In substance, this is little changed from 50 years  ago, even 100 years ago.

IBM, however, plans to bring to the services industry the kind of change that science and technology brought to the manufacturing area. By applying science to services businesses, IBM believes that it can revolutionize what has generally remained a low-margin, labor-intensive activity and turn it into a high-value approach that increases business value, ultimately delivering new, high-margin services as standardized offerings, according  to Robert Morris, vice president of assets innovation,  IBM Global Services.

The Services Economy

"A small but growing cadre of academics at universities across the country thinks that IBM is onto something and is ramping up the new discipline of services science. "The economy now consists of 70 percent services. It makes sense that we should concentrate on that," says Chesbrough.

In a 2003 study on the impact of academic research on industrial performance, according to Chesbrough, three product-based sectors had experienced tremendous impact while two services-based sectors — financial services and transportation — saw little impact. With the biggest growth in the economy coming from services, not products, he concludes that "we can and should apply scientific and academic research to services."

IBM itself has experienced the dramatic transition  to a services-based revenue stream. "In the early1980s, services amounted to less than 10 percent  of our revenue. Now, services account for over half  our revenues," says Morris.

In the general U.S. economy, the services sector employs  75 percent of the labor workforce, Morris notes, referencing  various published sources. And don't think that this is just a U.S. phenomenon: In Brazil,  Russia, Japan, and Germany, services employ over 50  percent of the workforce. As the workforce shifts  to services, "the world is experiencing the  largest labor force migration in human history, driven  by global communications, low-cost labor, technology innovation, and more," Morris points out. In  sheer magnitude, the shift to a services economy rivals the shift from agriculture to manufacturing at the  dawn of the Industrial Age.

Services Defined

Although IBM itself is a premier provider of IT professional services, Morris takes a much broader view of services. To him, a service is an instance of a provider-client interaction that creates and captures value. Services enhance the capabilities of people and the interactions between people. In terms of providing services, what IBM Global Services delivers to its clients is essentially no different from what a doctor offers a patient.

Whether between individuals or companies, the provider and client coordinate their work (co-production) and in the process both create and capture value (transformation), according to Morris. Services typically require assessment, during which provider and client come to understand one another's capabilities, needs, and goals. In the case of IT and business services, such assessments can be far more complex, but the essential processes and measurements are no different than those of a doctor and patient.

However, unlike a product, which is judged successful on its own merits, service delivery requires both parties in the interaction to perform their designated roles well if the outcome of the service is to be judged successful. In effect, service success requires both parties to do the right things.

New Services Vision

"If you keep services as a pure labor business the way it has been, then you end up with an OK business, but others can do it, too. That's not a very interesting business," says Morris. Yet, this is exactly what is happening in professional services, where offshoring is turning IT services into a low-cost, low-value commodity.

Services get exciting when you start applying science to the service process, Morris continues. You can start by automating parts of the process. This would allow you to lower costs and boost efficiency. However, this is not where he sees the big payoff.

"The big thing is to codify services and turn them into an offering. This lets you deliver a fundamentally new business," says Morris. For example, Morris envisions developing new algorithms and models to identify likely credit card fraud or to analyze customer behavior in the retail environment. These would form the core components of completely new sets of service offerings around fraud prevention or customer development.

These service offerings would involve conventional technology products and infrastructure laced with new algorithms and models focused on specific issues and then configured for the particular needs of each customer. Service providers such as IBM would offer what amounts to a complete solution combining standardized products, technology, intellectual property, and customization.

Unlike the services of the past, in theory these new services will deliver much higher value and fundamental business improvement. "We will have service offerings, for instance, that help banks introduce new products or combat money laundering," says Morris. He envisions applying such science-based service solutions in healthcare, insurance, the food industry, and more — "anywhere we can not just apply science but also innovate." In healthcare, a science-based service might enable your doctor to quickly analyze your genome and tailor a treatment to your exact genetic makeup, sort of the ultimate in mass customization for services.

Academics are starting to jump on this new services approach and its application of science to what has traditionally been considered human-to-human interaction. "The science comes in through modeling. You model kernels of a work practice to gain insight and for the purposes of automation," says Richard Newton, dean of the College of Engineering at the University of California, Berkeley. Modeling, simulation, abstraction, measurement and metrics, and process design and analysis will emerge as core disciplines of science-based services.

Competitive Edge

Morris's plan is to productize science-enabled services into solutions that can be rolled out efficiently by avoiding the need to custom-build the entire service from scratch for each client. "Basically, we will provide a tool or technology or processing to take what has been done and augment it and differentiate it," says Morris.

These service products will be based on industry-embraced standard hardware and software and a standard interface. Then, using a component-based development approach, the service provider will assemble the service offering from multiple components.

"Productizing the service is the direction of the industry. The packaged approach to business process is another big element," Newton points out. IBM is not the only company moving in this direction. "All the big professional services companies have similar efforts," he adds.

What's different about IBM's approach is its drawing upon the academic world to support the effort. Just as IBM seeded the new field of computer science in academia 30 years ago, the company is now starting to seed services science as a new field. "IBM is approaching this as an entirely new field, not just an internal initiative," says Newton.

Morris believes that science-based service solutions will provide a unique differentiator. "IBM is a global company. How do we get a competitive advantage? We already have onshore and offshore. Once everybody gets to India or China, we're all the same. We need science to differentiate our services," he insists. Low-cost offshore capabilities alone won't differentiate anyone for long.

"In the past, we sold customized services. In the future, the majority of our offerings will be based on standardized, replicated business solutions and infrastructure solutions," Morris explains. Once IBM has built its standardized service solutions, it will configure them to the customer's specific needs. "The result will be not purely standardized and not purely customized," he adds.

 Ramifications

 Services science has the potential to dramatically change the service industry for both the providers and consumers of services. To begin with, there will be less need for those armies of programmers professional services firms have been scrambling to assemble in places like India, China, and elsewhere to code the solution.

 "You won't need as many of the traditional programmers. Most of the jobs will involve the design and deployment of services," says Newton. Equipped with the right tools, nonprogrammers will be able to design, model, and simulate the business processes.

The services science approach also will speed the dismantling of vertical silos. "Right now, most companies deliver services based on particular vertical markets. The problem is that there is very little learning going on between the silos," says Chesbrough. What service providers will want to create are horizontal service platforms "where you can learn from this silo here and apply it to that one over there," he adds.

Services science will also change the metrics with which the professional services industry and its customers measure service performance. Traditional metrics like lines of code will have little meaning when service products are assembled from reusable components. Similarly, customers will no longer measure the value of a service engagement in term of improvements in efficiency. Morris says that "efficiency will be a part of it, but the overall goal is to create growth" — which will require different metrics.

Finally, services science will strengthen the focus on business process. "There will be a primary focus on business processes. You will need to decompose the various processes, look at a particular activity or set of activities, and make them into components that you can mix and match to create new processes," says Chesbrough. This will entail extensive modeling.

IBM hopes that in applying science to services it can replicate the advances that it achieved in the manufacturing arena. At this point, however, services science is still more a vision than a practical reality, and its success not assured. Services differ from manufactured products in a number of ways, the key one being the central role of human interaction between the service provider and service consumer.

"Services is still a relationship business. We recognize the need for relationships. Science won't replace relationships," Morris insists. To the contrary, by applying science in the form of analytics, Morris hopes that IBM can help its clients better understand interactions and processes of all sorts.

Although customers have not yet publicly weighed in on services science as envisioned by IBM, in theory it looks good. Says Newton: "If this works out as expected, not only will services science make things cheaper, but also we will have better, more interesting, service products."

It worked for manufacturing, so why not for services? Just don't plan to take advantage of these services anytime soon. At this point, services science is an early-stage work in progress.