Technology in the service sector

26/01/2012 Comments Off on Technology in the service sector

Over the last few decades, the service sector hasn’t extracted large productivity gains from new technology. Manufacturing and the primary sector have done better. Services are becoming larger parts of advanced economies, so the lower productivity is a worry for total economic growth. Baumol (1967) provided the basic model. Although the Brookings Institution along with others proclaimed the disease cured in the 2000s, other research suggests this isn’t true.

I’ve eaten in many, many¬†restaurants, bistros, and cafes over the last few weeks. The wide range of technology has been fascinating.

In midtown New York, we had breakfast in a diner. From our booth, we ordered pancakes, eggs, bacon, and toast. The waiter wrote our order in an order pad, the same kind I used 20-odd years ago in my restaurant jobs. Then, he gave the order slip to the cook who made our food. When we asked for the bill, he wrote the prices from memory and added it up.

In Aix-en-Provence, we went to a steak house that was part of a national chain (I had a salad — *sigh*). The waitress had a handheld electronic device for taking our order. The device sent the order to the kitchen. When it came time to pay, the order was in the electronic till, which added up the prices. The waitress also brought a wireless device to the table for EFTPOS payment.

The food and beverage sector has had very low productivity growth. Looking around, though, you see lots of different technologies being used. This is a heterogeneous sector, so there’s no surprise that you see heterogeneous technology.

At a guess, the most efficient technology depends on several aspects of these businesses. If the staff and the menu don’t change much, then paper tickets are probably more efficient. Staff know the details of the dishes, they know the prices, and inventory management is fairly routine. Higher staff turnover or more frequent menu changes mean that new information has to be provided to staff more often. Those restaurants can use IT to do that efficiently.

Also, more impersonal workplaces — ones with lower levels of trust — need more monitoring. If ordering, preparing, and billing are all tied together, it is harder for an employee to pocket the money from a bill paid in cash.

There is a story here of a sector trying to figure out what works and what doesn’t. It would be great to have enterprise-level data to analyse the productivity impacts of different technology choices.

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