How to Stop Time

Here’s an interesting link for you. It shows the prices of some domestic appliances in the 1950’s. Sixty years ago you could buy:

Over half a century later I can still buy the same item for the same price, except it isn’t the same item, nothing like the same. Do you fancy staying in and watching a night’s entertainment on a 17 inch Sylvania?

Here is another interesting site for you. It calculates inflation statistics. Since 1951 inflation in the US has been 761%. Or to put it another way the $50 you spent in that restaurant last weekend would have cost you $6.57 in 1951.

Now, this begs a question. Why is it that we are paying 7 times as much for services now than we were 60 years ago, but we can buy a bigger, better, more reliable TV for the same price? You don’t have to be Einstein to see that something strange is going on.

What is it? Is it that labor costs are lower? Is it raw material costs? Is it energy costs? Is it technology? What is so much cheaper in the manufacturing industry than the service industry? None of those reasons really cut it, to a greater or lesser extent they apply to the service industries as much as they do manufacturing.

My guess is that it all comes down to process improvement. Over the past six decades manufacturing industries have had wave after wave of productivity improvements, from Deming and Juran, through TQM, 6 Sigma and Lean there has been a remorseless effort to cut costs and improve quality. Once one company started the others just had to follow suit or they would have been out of business, it is what Charles Darwin called survival of the fittest.

The service industries are just starting to get to grips with process improvement. Once they do it will lead to a similar onslaught of productivity improvements. So, if you work for a bank, or a restaurant or a body shop, maybe now is the time to learn a little more. It has been a while since you could buy a Roll Round cleaner.

James Lawther gets upset by business operations that don’t work and apoplectic about poor customer service. Visit his website “The Squawk Point” to find out more about service improvement.

Jay Godse
August 8, 2011 - 10:10 am
Reply

Any product or service which has a dominant labour component has gone up in price faster than inflation. Anything which can be computerized or digitized has gone down in price, to almost nothing. You never compared the cost of a Boston to LA telephone call in 1950 versus now (almost free). The phone call has been computerized and digitized.

The vacuum cleaner is interesting. In the 1950s, its cost comprised the labour cost of building it and the labour cost of distributing and selling it, and raw materials. Raw material costs have declined, and labour costs of manufacture & distribution have declined because of computerized and automated processes. However, the labour cost of selling it has increased.

Service industries have some scope for improvement by computerizing and automating some of their business processes, but for the most part, labour dominates the cost. That is why health-care and education costs spiral up faster than the economy as a whole.
Greg
August 8, 2011 - 8:00 pm
Reply

Great post. I definitely feel like the service industry can, and should, find ways to be more competitive whilst driving out waste. Hope to see more service focused posts in the future.

James Lawther
August 12, 2011 - 11:03 am

Thanks for the comment Greg, glad you enjoyed it.

I am sure that there is more to it than just process improvement, but you only have to phone your cell phone supplier to see how much waste there is in most service industries
Bob
August 29, 2011 - 2:02 pm

They did. They did the same thing as manufacturing and outsourced overseas. How many call centers in India?

justjack
August 9, 2011 - 4:58 pm
Reply

Are you guys for real? 50 years ago goods were built in the country that manufactured them. They were also built to a high quality that meant that if they broke they could be fixed. Now goods are mainly manufactured in countries with cheap labour costs and they are built so that when they break they are thrown out and replaced with the next model. Sure there have been process and technological improvements but primarily manufacturing flourishes in the countries with alot of cheap labour.

The Sylvania TV was probably wood grained then but they are plastic now. Is quality better? Maybe in the short term but if my TV breaks I dont get it fixed I get a new one!

Services on the other hand are delivered within the country that you live in. Wages increase, the quality of living has increased and therefore the cost of services has increased. Think about the whole economics of the market place rather than restricting your argument to a convenient box.

Ron Pereira

Jay Godse

Greg

James Lawther

Bob

justjack

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