State of Service sector in Indianv/65ThirdServiceRevolutionIEEE071020… · Ushering The Third...

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Ushering The Third Service Revolution in IndiaSetting A Strategic Agenda

N. ViswanadhamIndian School of Business

Hyderabad 500032, IndiaIEEE Day Lecture October 7, 2010

[email protected]

State of Service sector in India

July16,2010 2N.Viswanadham

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Shares of Agriculture, Industry and Services in India

Agriculture (17.5%) Industry (20%) Services (62.5%) (2009 )


Three Sectors of the Economy are Mutually Dependent


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Size of Service Activities in Three Groups ( % of GDP)

Retail and wholesale trade, transport and storage, public administration and defense

Education, health, hotels and restaurants

Financial , computer, business, legal telecom, and technical services


Unique characteristics of India’s Service sector Growth

• The service sector picked up the decline in the share of agriculturein GDP, i.e., from 32 % in 1990 to 17.5 % in 2009, whilemanufacturing sector’s share has remained the same.

• The rising share of services in GDP and trade, has not createdcorresponding rise in the share of employment.– Jobless growth of service sector and no increase in manufacturing raises

doubts about its long run sustainability.

– Some services have grown fast in terms of their share in GDP (e.g., softwareand telecom). Some are only provided by MNCs (Accounting, Managementconsulting) and Some are provided to companies in the developing countries.

– Service content in Manufacturing has increased due to modularization andglobalization.Some argue that Growth of the service sector is simply disguisedmanufacturing activity or book keeping puzzle (Research is manufacturingwhen in-house and a service when outsourced)

• This sector is plagued with Inefficiencies in the Design, Planning and Execution and Project delays, High levels of Corruption and Counterfeit. Radical Change needed since 60% of the GDP is accounted by services


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Ranking by Global Agencies

• World bank 2004: Investment climate measures the strength of physical infrastructure, government regulation, macroeconomic-cum-trade policy regime, and financial and business services. Best climates are in Maharashtra, Gujarat, Good climates in Andhra Pradesh, Karnataka, Tamil Nadu

• The Global Competitiveness Report by The World Economic Forum: Competitiveness is defined by the set of institutions, policies, and factors that determine the level of productivity of a country. India has 49th rank.

• The Global Information Technology Report 2009-2010 : India is ranked 43 out of 133.

• Travel & Tourism Competitiveness Report 2009: India is ranked 62 out of 133.

• The Global Enabling Trade Report 2010: Assesses the obstacles to trade. India is ranked 84 out of 125.

• Index on Corruption: India is ranked of 83 out of 179 countries. New Zealand (9.4/10) is least corrupt Afghanistan most corrupt (1.3/10)

• The 2010 A.T. Kearney FDI Confidence Index: India is in top 5

• Global Retail Development Index: India is on the top in terms of Market Attractiveness , Country Risk , Market Saturation

• India ranks very low in Service Availability and Quality


Percent of Global GDP vs Percent of Top 500 Univ.

October7,2010 N.Viswanadham 8

US has 30.3 % of top-500 Universities and has 23.3 % of global GDP and 4.5% of world’s population . India has 17% of the population, 2% of the global GDP and 0.4% of the global 500 Universities

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What should be agenda to correct this Situation?

Is there a scientific approach?


Innovations that are creating Block Buster Industries in Recent Times

• Blockbuster products: Nano, Video Games, Cell phones, Search engines, IPod, Wikipedia– New technology solutions to redesign of services (water, power,

gas, construction, banks, education) to be intelligent and smart, e-mail, e-retail, Face book(social networking)

– New Business models: Containerization, Outsourcing, BPOs, FDI, Sell direct, e-retail, ATMs, Clouds, Orchestration, e-bay, Face book, PPP, Financial aggregation

• Creating New industrial Clusters, Special economic zones (China), New Universities, Power

• New Logistics and IT Infrastructure: Linking Ports and airports into the global transportation network (Singapore, Hong Kong)

• Government regulations: Process patent, Deregulation of Telecom & Airlines, VAT, Green, Free trade agreements, SEZs, WTO, New labor laws, etc

October 7,2010 N.Viswanadham 10

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The Five STERM forces• Science research generates new and or improved products• New Technologies (Internet) emerge at a rapid pace• New Engineering materials and designs come out every day• Globalization brings with it new markets, new customers, non-

traditional competitors, and new challenges of followingRegulations and policies of several countries the intermediateproducts visits

• New Management techniques and business models such asoutsourcing, sell direct are invented to face competition and enablegrowth.

• Companies find that their strategies need almost constantredefinition to take advantage of the unanticipated opportunities.Given the government regulations, the investment climate and thevertical space, the company has to tread carefully with rightproducts, services, planning strategies such as location andpartnership decisions and business models to succeed.


Wider Innovation Policy Needed

• Traditional science policy is rooted in a ‘linear model’ : scientific discovery & invention followed by commercialization in the form of new products and processes.

• A Wider innovation Framework should include both the new to the market as well as new to the world innovations

• Innovations in Management (like Outsourcing) and Institutions (Social, Policy ,Regulation and Governance)need to be incorporated

• Innovations due to convergence (Finance with Mobile)as well as co-evolution (Globalization of supply chains) need to be explainable using the frame work

• Science, Technology, Engineering, Regulations & Policy, Management (STERM) contribute to innovations in services and determine the sector’s competitiveness


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Service Chains

Deliv

ery

Serv

ices

Infra

stru

ctu

re

Reso

urc

es

Institutions

The Basic Ecosystem

Investment ClimateCoEvolution, Conflict

The STERM Framework


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Reserve BankRegulators & Policy Makers

e-Banking

Storage Systems

IT and Communication Networks

BankEcosystem

De

livery In

frastructu

re

Re

sou

rces

Mobile Banking

Institutions

e-Commerce

Financial Resources

Business Development

Infrastructure (buildings, Equipment

Human Resources

Legal & Advertising

Real Estate & Credit Rating

Education & Research

Central /State Governments

Business Organizations

Call Centers

Value Chains

Social Networking

Lending(Personal and corporate)

InvestmentsCredit, Debit

CardsRetail ATM Customer

Care

Implementing Government

Schemes

Recruiting Companies

Governing Board & Executive Board

Programs

Communication department

IT Support

Govt. Regulations & Policies

UNIVERSITYECOSYSTEM

Undergraduate Programs

Graduate Programs

Correspondence Programs

Research and Development

Inte

grating

Tech

no

logie

s

RESO

UR

CES

Face-face Classrooms, Seminars, Workshops

Centers of excellence

Supporting Departments

Library, Campus facilities

Staff

Post Graduation Programs

Security

FacultyResident/Visiting

e-Classrooms, Webinars

Alums

Banks


Executive Programs

Institutions

Donors

Transportation

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Ecosystem Risks

• Planning and product related risks– Location risk , Outsourcing risk: Partner Risk, Delays, Breach of trust ,IP

theft , Design, manufacturing defects, Counterfeit , Inventory deficit

• Resource related risks– Infrastructure deficit, Industry Clusters quality, Talent shortage, Labor

Unions, Credit squeeze, Energy & Water shortage, Social unrest, War, Raw material : Price increase, Logistics costs, Disease, Contamination

• Institutional Risks– Regulatory risk: FE, IP, Customs delays, Antidumping, Taxes, Trade

agreements, VAT, Political: Govt. changes, Center state relations, Environmental issues, Labor Unions

• Risks due to Delivery Infrastructure– Delays due to carrier failure or weather, SC visibility, IT Virus, Failure,

Logistics & ITes Deficit, No proper execution or governance mechanism, Use by counterfeit and terrorists


Applying STERM Framework to build a Smart Village


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Smart Village Design Using STERM Framework

• A Smart Village is a bundle of dozens of services delivered effectively to the residents and businesses in an efficient manner. These services could be location specific depending on the demography of the village and occupations of the residents.

• This requires strategy, integrated planning and above all monitoringand execution of the activities using appropriate governancemodels.– Streamlining and redesigning, modularizing and standardizing the

entire value delivery process chains such as electricity, heath care,water

– Enhancing growth of farming and small scale industries– Execute the Schemes such as NREGAS that provide employment for

rural folks using IT and other smart technologies

• Developing and nurturing the smart villages is the best way India can reap the “demographic dividend” i.e. the large and expanding workforce.


Smart VillageEcosystem

Food Courts

Bus, Truck Transportation

IT and Mobile Networks

Service

De

livery Te

chn

olo

gies

& M

ech

anism

s

e-kiosks, Spoken Web

Post office based services(Online ticket booking,

retail, etc)

Procurement, Warehousing & Marketing for of

Agricultural and SMEs

Village PanchayatCitizen Groups,

NGOs

Institutions

State Government(Collector, Revenue Officer)

Regulations

Service Chains

Water Purification, Distribution

Affordable Housing

Vocational training

Primary Education

Rural Employment

Schemes(NREGS)Retail Farming

SMEs (microfinance)

Re

sou

rces

Healthcare & e-health records at district level

Human ResourcesUID

Financial Resources,Post Office

Agri Resources(Seeds, Fertilizers,

Equipment)

Water, Energy & Power Resources

Land ResourcesLand records

High school & other Educational Institutions

at district level


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Gandhiji's Views on Village Development

• The best, quickest and most efficient way is to build up from the bottom . . . Every village has to become a self-sufficient republic. This does not require brave resolutions. It requires brave, corporate, intelligent work. . . (Harijan, 18-1-1922)

• If we interpret brave as entrepreneurial and risk taking attitude, corporate to mean meeting strategic goals and objectives, intelligent with IT enabled governance models, called smart nowadays, we implement Mahatma’s vision.



Manager Utilities

Manager Local

Services

Manager Employment Developmen

t

Government

Industry CEOs

Village Panchayat

Funding Agencies

Water Power

Affordable Housing

Health care

RetailWaste

DisposalTransportatio

n

Education

Rural Schemes

SMEs

Vocational

Training

Post Office

Advisory Board

Executive Director

Governance Model

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India needs to Usher in the Third Service Revolution

• The first service revolution was led by growth in the standard of living and the retail sector.

• The second one was driven by globalization and outsourcing, where the talents are diverted to improve the service and manufacturing sectors in the western countries.

• We need the third service revolution which concentrates on Indian services, manufacturing and agriculture with the following agenda. – Streamline and upgrade the service chains using modern technologies– Strategically deregulate the service sector while encouraging the firms

to co-evolve.– Initiate education, research and entrepreneurial programs in service

sector innovation– Re-innovate manufacturing and agriculture using recent advances in

services– Improve the investment climate for Foreign trade– Plan and Build integrated service systems or systems of systems such

as smart Cities, SEZs, Villages


SUPPLYCHAIN

ECOSYSTEM

CO

NN

ECTIN

G TEC

HN

OLO

GIES

Logistics Parks, SEZs, Freight Corridors

Logistics & IT companies

TransportRail, Air, Ship, Road

RESO

UR

CES

Industry Clusters

Human, Financial & Natural Resources & labor Unions

Infrastructure, FIIPorts, Airports, Roads

Customs , Export & Other Govt. Regulators

TRADE & ECONOMIC INTEGRATION

Quality Control & Environmental Issues

Social, Financial & Trade issues

INDUSTRY VALUE CHAINS

Retail Chains Distribution Manufacturing Suppliers


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Regulations

Service Chain

Logistics and IT

Infrastructure

Technology

Policy Makers

Smart HealthcareEcosystem

Multi-specialty

Healthcare

Mobile and Rural Health

campsD

elive

ry Infrastru

cture

Re

sou

rces

Communication networks

Training and Skill Development Workshops

Financial Resources

Human Resources

Medical Associations

Infrastructure, Medical Equipment

Institutions

Public and Private

Hospitals

Medical Colleges and Research Institutions

Primary , Community,

Public Healthcare

Medical Insurance Schemes

Facilities for companions of patients

Diagnostic Centers

Insurance Companies

Pharmaceutical Companies

Emergency Healthcare

Vaccination and

Immunization

Laboratories, Diagnostic Centers

Tele Medicine, Medical tourism

Traditional Innovation Policy • Traditional science policy is rooted in a ‘linear model’ of

scientific discovery & invention followed by commercialization in the form of new processes and products. – The ‘new-to-the-world’ inventions are characterized as innovations.

• This policy cannot capture several innovations that created bock buster industries

– Containerization, Search engines, Process patent, Deregulation of Telecom & Airlines

– Blockbuster products: Nano, Video Games, Cell phones, Ipads,..

– New Business models: Outsourcing, BPOs, FDI, Sell direct, e-retail, ATMs, Clouds, Orchestration, e-bay, Face book

– New technology solutions to redesign of services (water, power, gas, construction, banks, education) to be intelligent and smart.


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Applying STERM Framework to build a Smart City


The Largest Urban Migration in History

• Each week, nearly one-and-a-half-million people move to cities, almost all in developing markets

• More than 70 million people are crossing the threshold to the middle class each year, all in emerging economies.

• By the end of the decade (2020), roughly 40 % of the world’s population will be middle-class (20% today).

• To tap these new markets, organizations must reinvent business models, innovate new products and services and Build smart cities


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Municipal Corporations

Regulators & Policy Makers

Service Chains

Food Courts

Transportation


Smart CityEcosystem

Service

De

livery Te

chn

olo

gies

& M

ech

anism

s

Re

sou

rces

e-kiosks, e-Retail

Infrastructureroads, airports, rail

Human ResourcesUID

Financial Resources

Business Development Industrial Clusters

Water, Power, Energy Resources

Citizen Groups,Social Activists,

NGOs

Land Resources,Land Records

Institutions

Call CentersUniversities & Research

Institutions


Business Organizations

Distribution Centers

Water Network

Power Network

Public Transportation

Sewage, garbage

treatment

Healthcare, Emergency

Services

Public Distribution,

Retail

Education,Entrepreneurship

Housing SecurityJuly16,2010 29N.Viswanadham

Industrialization of IndiaOnly Way forward to Growth


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SEZ Regulatory Body

Value Chains

Warehouses, Container Freight Stations

Logistics and Transportation


Multi-Product SEZ Ecosystem

Product 1 Product n

Service

De

livery Te

chn

olo

gies

& M

ech

anism

s

Re

sou

rces

Cross Docking Stations

Infrastructure ports, roads, airports, rail

Human Resources

Financial Resources

Clusters and Equipment

Water & Power Resources

Citizen Groups,Social Activists,

NGOs

Land Resources

Institutions

Smart and Green Technologies innovation


Trade RegulatorsBusiness

Organizations

Electronic and Private Exchanges

Maintenance, Repair Operations(MRO)…


Service Chain Ecosystem & The STERM Agenda

• Develop Services systems theory with predictive and governance models for better operations and execution.

• Several services currently studied in silos : Public procurement, construction, Judiciary, Accounting, health care , .. can be streamlined into standardized modules and can be semi-automated or fully automated

• Design and development of better investment climate, Equipping the companies with knowledge of regulatory and social environment and effective governance models for execution would enhance the service quality as well as trade (Currently only IT is the only exported service).

Service chain

Ecosystem

Re

sou

rces

Institutions

Service

De

livery

Tech

no

logie

s

Service Chain

• Organizations such as Smart Villages, Smart Cities, SEZs should be planed in an integrated manner as bundles of services as Grand Challenge Problems• Performance, Risk, Innovation and Governance (Innovating appropriate Governance model is fundamental for project success)need be studied for each service sector.• Develop tools using STERM framework to help nurture emergent service models and define future generations of services.


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Recommendation-1• Services cover a wide range of verticals from highly knowledge intensive

R&D and education to highly customer oriented travel. Developing acomplex service systems theory and design drawing from the disciplines ofScience , Technology, Engineering, Institutional Economics & Management,would be a breakthrough contribution. The strong interest in developingthis area is shared among major Service providers and industry leadersthereby giving it an applied focus.

• Most Services suffer from shortages and low quality. Some of the utilitynetworks were built several decades ago. The new designs, technologiesregulations such as climate change and management models available nowshould be used to upgrade existing ones and in building the new ones. Thisapplied focus requires process orientation , modularization, standardization,use of IT and sensor networks. R & D in this area would be highlyremunerative.

• Quality of the services that are being rendered is low and there is almost noperformance measurement. Benchmarking and Governance of the servicesis the most critical aspect of service delivery.

• Several organizations such as DST,CSIR, MIT, Ministry of Finance, Health,Transport, Industry are involved. DST should have a working group in the areaof services and fund research in cooperation with other stake holders


Recommendation -2• Services require hardware instruments in medical, trucks in logistics,

packaging in retail, etc ; infrastructure (Ports, Roads, Hospitals Buildings) tohouse the services; and networks to cater to the needs of the entire country.These are asset intensive manufacturing and network planning activities needattention.

• Services like tourism, airlines, city and state transport (both for passenger andfreight), shipping are not studied by any research organizations in spite of theirimmense importance to citizens as well as businesses.

• Service Network Planning & Execution: Requirement analysis, planninglocation of the facilities, state regulations, execution using wireless and IT isan applied research area and would be a grand challenge problem.Acquiring the equipment, Building the facilities, manpower training,maintaining records are other challenges. Synchronization of activitiesshould follow assembly line operations. Attracting FIIs under PPP schemewould be a business development challenge.

• Execution and fund allocation rests with the ministries but the initialplanning is a research and development issue where R&D organizations andeducational institutes can participate. ISRO, DRDO are good examples


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Recommendation -3

• Two kinds of education is needed in this Service Sector.

• Higher Education (Bachelors, Masters, Management, PhD etc.): These education programs in Service Science started in institutes like IITs, NITs, Medical colleges, law schools and other reputed Universities.

• Vocational Training: Existing training institutes hardly cater to 2% of the requirement and employment exchanges in India is dysfunctional. There is a tremendous need for revamping the system immediately.

• NCHER will be a good model for organizing the services education and research.


Recommendation -4

• Building facilities for communities

• Services are useful only they are used by the communitiesalong with other services. Coordination of various services isneeded while planning for huge facilities, townships, gatedcommunities, airports etc.

• Support R & D and Entrepreneurial efforts in building smartsystems out of services such as smart villages, Cities, SEZs,etc


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Recommendation -5

• A Working group under SACPM with members fromAcademia, R& D and Industry should prepare a report on therecommendations on the service sector.

• National Commission for Service Sector must be formed alongthe lines of manufacturing and agricultural sectors to planeducation and research in the services sector drawingmembers from various ministries like finance, humanresources, science and technology, communication,agriculture, industries, retail, tourism etc


Strategic Growth Plans for Indian Service sector

• Perception of the quality of the services by the users is poor.– This sector is plagued with Inefficiencies in the Design, Planning and

Execution and Project delays, High levels of Corruption and Counterfeit.

– Radical Change needed since 60% of the GDP is accounted by services.

• India needs to usher the Third Service Revolution• A strategic vision for the service sector,

• Streamline and upgrade the service chains using modern technologies,

• Initiate education, research and entrepreneurial programs in service sector innovation

• Plan and Build integrated service systems such as smart Cities, SEZs, Villages

• A National Commission for Services should be set up along the lines of similar organizations in Manufacturing & Agriculture to oversee the above activities.


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Strategic objectives of Services Sector

1. Employment generation particularly for the 600 M 7th grade or less 2. Wealth generation for the Country: Attract FDI by creating world class

investment climate3. Support the manufacturing and agriculture to make them highly

competitive4. Provide quality services for local consumption at affordable rates in

both urban and rural areas & serving the expectations of younger populations by redesigning and rebuilding the current service networks such as water, power, gas etc using smart technologies

5. Support inclusive growth with strategic, technology & management intensive skill development, PDS and rural employment schemes

6. Be at the forefront of global technology, business model innovations catering to the needs of all sections (rich and poor, literate or illiterate, rural or urban)

7. Support R & D and Entrepreneurial efforts in building smart systems out of services such as smart villages, Cities, etc

8. Robust against corruption and counterfeit


Innovations In Food Supply Chain• Product and Value Chain Innovation

– Seed-Feed agriculture, Food Processing, wellness and convenience embedded Protein rich food, Convenient packaging, Standardization

– Low cost high quality food, Certified food like Halal , Organic etc. Store formats, Home delivery, e-retail, International markets through JVs

– Market Channel Innovation : Joint Inventory management, RFID, Operational Innovation; Outsourcing, Vertical Integration into land ownership & Farming

• Regulatory Innovation– Green, VAT, Customs for perishable goods, Trade, Hygiene, Regulations on

packaging, Pricing, Procurement like APMC act, Essential commodities act, Minimum support price for PDS, FDI in agriculture

• Connecting Services & Technologies: Logistics and IT– Cold chain, Packaging, Manual handling, Sensor networks for visibility,

Delivery with poor infrastructure, Distribution backbone, Product recalls, Local sourcing due to logistics costs

• Resources and Resource Management– Water, Power, Post harvest research, Food clusters, Food courts, Product

development and Testing laboratories, TalentJuly16,2010 40N.Viswanadham

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