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It is time that business schools woke up to the shift to services. Over 70 per cent of employees in developed economies now work in the service sector. What does this mean for business schools and what can they learn from it?

The obvious implication is that business schools have to reconsider their curricula. Often this is seen as a simplistic rebalancing of case studies, with the MBA office exhorting faculty to bring in more service sector examples. However this misses the point. Many of today’s services are enabled by complex IT systems and delivered through networks of organisations, working collaboratively to achieve outcomes for their clients. These three issues are key to the shift to services and each has significant implications for what is taught in business schools and how faculties interact with each other.

The evolution of IT creates opportunities for technology to be applied to services. Sophisticated technologies enable remote monitoring, prognostics and diagnostics and allow manufacturing businesses to retain responsibility for the lifetime care of the assets they produce and allow asset and fleet optimisation decisions to be made. Yet these “engineering” technologies are rarely discussed in MBA classrooms. Often, business schools see new technology as the domain of the engineering and computing faculties, not something to include in the core MBA curriculum.

The reality is these “engineering” technologies lie at the heart of many service business model innovations: for example work on smarter cities – using IT to integrate and co-ordinate the sub-systems so that cities work as integrated systems – or on-line booking systems, video on demand, music and film distribution enabled by the internet. What proportion of today’s MBA programmes fully explore the potential of these technologies by engaging faculty from engineering and computer science to lecture on the latest developments in technology? If business schools fail to educate tomorrow’s business leaders on the opportun-ities and pitfalls afforded by today’s technologies, they run the risk of producing students who are blind to the future.

A similar criticism can be made about network-based organisations. Too many of the approaches taught are grounded in the single firm, or in the context of a supply chain. Too often business schools make the world seem neater and more ordered than it actually is. The latest research suggests a broader perspective is needed when thinking about evolution in service business models. Increasingly, researchers are talking about the eco-system perspective: considering all the actors involved in the network of organisations working to deliver a service. MBA and executive programmes must step up to the challenge of exploring the complexity of eco-systems, rather than the relative simplicity of single organisations and their direct supply chains.

A key question to ask of eco-systems is where does the power lie? Often the answer is with the customer. In the defence industry, for example, government customers are forcing the shift to services, requesting that manufacturers contract for capability, rather than governments purchasing the equipment. Others are taking this further and entering into contracts where payments are made according to the outcomes achieved. Understanding the implications of this shift is essential for future business leaders.

But it is not just in business that there is a need to think about the shift to outcome-based contracts. Business schools need to think about these consequences with themselves in mind. Students have clear expectations in terms of outcomes – they want the skills necessary to prosecute a successful career. Will business schools have to shift to outcome-based contracting? Students could pay a percentage of their life time’s earnings to their school in return for their education. If we want to align the interests of the school with those of students, then a model of outcome-based contracting might be the method.

Prof Andy Neely is director of the Cambridge Service Alliance, deputy director of the Advanced Institue of Managment Research and a fellow of Judge Business School.

Copyright The Financial Times Limited 2019. All rights reserved.

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