Division of Labor between Firms: Business Services, Non-Ownership-Value and the Rise of the Service Economy

Abstract

Why have services grown into the dominant sector of developed economies? Our analysis of macroeconomic data shows that business services make the strongest contribution to the rise of the service sector. We integrate three related economic theories of the firm to explain business services in shaping firms, industries and economies. Business service providers relieve their clients from the costs of asset ownership (Property Rights Theory), unlock management capacity (Resource-Based View) and support their clients in navigating their firm's boundaries towards their most valuable business opportunities (Entrepreneurial Theory of the Firm). We show how these theories build on the non-ownership value provided by business services that result from sound division of labor between organizations. We highlight three areas that call for research and provide opportunities for service science: (1) Systematic design of business-models for fostering service performance, (2) the transformation of high-tech-products into service-hubs, and (3) service-driven innovation and the transformation of R&D into a service industry. [Service Science, ISSN 2164-3962 (print), ISSN 2164-3970 (online), was published by Services Science Global (SSG) from 2009 to 2011 as issues under ISBN 978-1-4276-2090-3.]