Services 2020. Competences in the International Service Society. Final Report

Services 2020 Competences in the International Service Society Final Report

Services 2020 Competences in the International Service Society Final Report

Contents Preface 3 1. General Forces for Change in the Service Industry Operational Environment 4 1.1. Globalization 4 1.2. Technological Development and Digitalization 6 1.3. Networking 7 1.4. Ageing 8 2. Key Skills Requirements in Various Positions 10 3. Hot Issues and Challenges 11 4. Development of Educational Policies 12 2 Services 2020 EK 2007

Preface Services 2020 is a long-term anticipatory project completed by the Confederation of Finnish Industries EK and initially launched by the Employers Confederation of Service Industries PT in 2005. The objective of the project is to anticipate the changes that will take place in the private service industry and the operational environment of the individual sectors, and to examine how these changes will be reflected in the competence requirements in the sectors being evaluated. The project focuses on seven sectors: IT services, commerce, real estate services, accommodation and catering, financing and insurance, social services, and health care. The time span extends up to 2020. Aside from the Confederation of Finnish Industries, funding for the project has been provided by the Ministry of Education and the European Social Fund (ESR). Anticipation of skills requirements is a way of influencing national education policies. A forwardlooking approach is necessary to ensure the availability of human resources with skills and competences that satisfy the needs of the labour market. Services 2020 is being implemented side by side with another anticipatory project of the Confederation of Finnish Industries EK called Education Intelligence which examines the competence and educational needs of six industrial and construction-based clusters up to the year 2015. The shared objective of both projects is to make a contribution towards ensuring that the Finnish enterprises will, in the future, have access to competent and qualified labour. An interim and final report has been prepared on the Services 2020 project in Finnish. This is an English summary of the final report that examines the general forces for change affecting the service industry as well as the future competence needs and challenges facing the education system. The final report was prepared by Project Researcher Henni Timonen, Senior Adviser Tarja Tuominen, and Project Coordinator Kirsi Juva. Experts from the individual industry federations have also been actively involved in the completion of the report, and they made a valuable contribution to the project. Helsinki, 18 October 2006 Markku Koponen Steering Group Chairman Services 2020 EK 2007 3

1. General Forces for Change in the Service Industry Operational Environment This chapter will discuss experts views of the conditions in which the service industry will operate in 2020. The data was gathered by means of the Delphi I survey that sought to chart the forthcoming changes in the operational environment. Over one hundred experts shared their views by responding to the questionnaire. The changes in the operational environment will be examined in terms of globalization, technological development, digitalization, networking, ageing, and inter-sector interfaces. 1.1. Globalization Globalization is a phenomenon that involves economic, cultural, political and social dimensions. More specifically, when talking about the globalization of the economy, it is defined as the multinational organisation of companies, financing, services, trade, investments, and markets. Technological development and the removal of barriers to trade and the free movement of capital are the two central forces driving this process. Operational Environment Becoming Increasingly International In 2020, services will move across national borders just like people, companies, and goods. At the same time, procedures, products, supplier relations and purchasing channels will be internationalized. Competition will intensify and long-term strategic planning will be more important than ever before for companies, while international benchmarking will bring pressures to cut costs and improve efficiency. Globalization will affect service providers, customers and the way the services are produced, and innovative service solutions will be created in the marketplace. Companies will be required to master not only domestic operations but also international business. The international service market will give birth to strong multinational companies. An increasing number of foreign and international chains will establish a presence in Finland, particularly in the growth centres. The response to intensifying competition will be networking and specialization. Minor players will find business opportunities through specialization or by offering diverse high-standard services, for example by focusing on sparsely populated areas. Having a local presence is important at the customer interface. Finnish service companies will become more internationally oriented as well, offering services and service concept to both the Finnish and the global market. Firms operating in the export market will focus on Russia, Far East and, to some extent, South America and Africa. By 2020 major efforts will have been made to secure growth through acquisitions or by establishing subsidiaries, particularly in the neighbouring countries. EU is very much a home market for Finland. The Universal Service Directive is expected to serve as a powerful driver for this trend. 4 Services 2020 EK 2007

What is the Universal Service Directive? The Universal Service Directive seeks to facilitate the movement of services within the EU single market. This is to be accomplished by streamlining the administrative procedures regulating the establishment of service providers and temporary provision of services to another Member State. The original proposal was given in January 2004. The EU Council reached a common position on the amended service directive in the summer of 2006 and the Parliament passed it in November the same year. A three-year transition period is allowed for implementation. The Directive will not be applied to health care services and certain social services. Nor will it apply to financing and insurance because they are regulated by other EU legislation. Of the sectors evaluated in the Services 2020 project, the directive will apply to wholesale and retail trade, real estate services, accommodation and catering, and IT services. The advisers heard in the project assume that the directive will affect the Finnish service sector and service providers. In particular, it is expected to serve as an incentive for establishing a presence in other EU Member States. Impact of Information Technology on Globalization Information technology, the internet and wireless technology will all further globalization, while the business operations of companies are very much determined by the pace of technological advancement. With the fast and low-cost movement of information, products and services via electronic networks, access to global markets will be facilitated. As a result of easier information transfer, companies will relocate to areas that are the most favourable in terms of securing competitiveness. The currently expanding outsourcing trend started with back office and IT functions. This trend will hold, and in the future all the processes capable of being digitalized will be digitalized and moved to countries offering a more affordable cost level. A range of service centres have been set up in countries like India, and many office routines are being managed in Finland s neighbouring countries. By 2020, outsourcing will have become routine for companies. Multicultural Workforce and Clientele Globalization will increase the mobility of labour. By 2020 Finland and Finns will have become truly international. Many organisations will use English as the official working language. Immigration and recruitment of experts from other countries will transform workplaces into multicultural communities. Everything may not necessarily go smoothly considering Finland s high price level, climate, culture and language. Steps should be taken to ensure that Finland is attractive to immigrants. Immigration is accompanied by emigration as Finnish workers and service provides move across borders. The threshold for leaving Finland has been lowered. Companies are dispatching employees in increasing numbers to their overseas units as part of job rotation policies. In the future, Finnish service companies will have a substantial number of international customers, which will have an impact on the structure of consumption. The increase in the number of foreign clients and immigrants will create new needs for services and affect customer service. Service providers have to gain greater insight into various cultural factors, which poses a major competence challenge. Development of Services and Service Concepts International interaction will change services and the range of products available. Customers of the future will demand the best. Ethical choices will play Services 2020 EK 2007 5

an increasingly important role in acquisitions and use of services. The service providers need to respond to these developments by examining the entire life cycle of the products in great detail; for example, customers may require that they are informed of the conditions in which the products are manufactured. The purchasing decision is based on a variety of considerations price, origin, security, design, or quality. Services must be modified to respond to the challenges presented by internationalisation. By the year 2020, Finnish service providers will have commercialized and conceptualized their services that will be marketed and exported worldwide, along with a high-standard of service competence. International business requires not only an intimate knowledge of the target market but also proficiency in languages and in-depth familiarity with the local culture. Successful concepts will be customized to fit the market of the target country. One factor contributing to success is that the companies will first have tested their concepts in Finland. Finns will specialise in, and companies will succeed with, products tailored for the niche markets. In the future, Finnish service providers will generate a lot of innovations that will subsequently be commercialised and exported. Quality and brand will become increasingly important success factors. By 2020 there will be a Finnish service process brand that will be in demand in the global marketplace. 1.2. Technological Development and Digitalization Technological advancement is a necessary prerequisite for continued globalization. Technology improves profitability, reduces the cost of movement of capital, products and production factors, and permits the manufacture of a completely new type of products and introduction of new production technology. Technology will be used in services, customization and customer service processes. The respondents to the Delphi I survey exploring the forthcoming changes in the operational environment underline, however, that interaction between the staff and customer will be the single most important success factor in the provision of services and related processes. Utilization of Technology One way of improving competitiveness is to make use of technology. Technological development makes it easier as well as necessary to work out new operations models. Technology facilitates the operative management of the service process and improves its efficiency. The service industry is, above all, a user and applier of new technology. The general view is that, in the future, the automation of administrative and other routines will allow service providers to focus on their core competence customer service. Figure 1. Service is Interaction Service Customer Person Performing Service Task Technology in the Background 6 Services 2020 EK 2007

Customer-oriented Service Processes Develop Technology offers tools for more diversified and customer-responsive services of superior quality. Customer orientation is becoming an increasingly important competitive factor. At the same time, customer management systems will become diversified and more efficient. Use will be made of customer registers, for example in the health care sector, making it possible to access them irrespective of time and place. At the same time, electronic data will be used for targeting marketing and sales efforts. With the increasing popularity of wireless data processing and digitalization, companies will be able to monitor the markets and purchasing behaviour online, which will also affect the creation of new solutions. Multi-channel services will expand. They are utilized to reach customer flows and develop customer orientation. Electronic transactions will increase substantially in services. One thing that will contribute to this development is that palmtops, mobile phones and other devices offer continuous internet access. Services Less Restricted by Time and Place The formerly absolute time and place-dependency of services is becoming less so. Services may be produced in new ways in the worldwide networks. Wireless technology and the digitalization of numerous services will increase the customers expectations that services are available round the clock. The volume of distance services is predicted to increase at a brisk pace up to the year 2020. This is why efforts are being made to simplify the use IT solutions and electronic services in the interest of greater user-friendliness. For instance, applications based on voice-recognition technology will become more common. In particular, services, products and aids that make the everyday life easier for old people will be developed. Work and Competence in Transition Technology makes it possible to automate routine tasks. It may also be used for replacing a number of services, improve productivity and reduce physical stress. With the decrease in routines, tasks requiring expensive expertise and competence will increase in number. Technological development and its utilization will help respond to the problem of shortage of labour. At the same time, new technology is expected to make the service sector more attractive to employees. While information technology simplifies work, its use calls for extensive skills. Utilization of information technology throughout the service chain and in all tasks will become routine. 1.3. Networking Networking means the creation of an alliance of companies that is capable of serving the customer better than any of the individual parties to the alliance on its own. From a corporate point of view, networking is a process where the knowledge, competences and values of the partners are pooled to establish an operation that is capable of adding value. Close-knit Networks, Total Solutions The respondents in the Delphi I survey predicted that Finnish service providers will be operating in closeknit networks by 2020. Aside from national and sectorbased networks, there will be international networks that will be of growing importance. Networks will substantially promote the innovation capacity of organisations. Networking is a way of responding to changing customer and market needs. By 2020, the main emphasis in orientation will have shifted from service providers to customers. As a result, service packages will be tailored for demanding customers through collaboration between several service providers. Usually, there will be one player that is responsible for the entire service supply chain. To the customer, it will appear as if all the services were provided from a single source. Convergence of Sectors Increasing networking is expected to transform the service sectors. Often, service providers work at the intersection of several sectors, and in the future, the parallel development of the sectors will be even more highlighted, with the result that boundaries between individual fields will be blurred. Nearly all service sectors will converge in one way or another by 2020. In some sectors this trend will be stronger than in others. Cooperation between sectors will be carried out because there will be great demand for diversified and comprehensive services. The interfaces are also perceived useful in terms of innovations as the new ideas generated at such Services 2020 EK 2007 7

interfaces can be conceptualized and commercialized to create export potential. The sectors included in the Services 2020 project will converge. For example, in the social and health care services, operations transcending the boundaries can be roughly divided into two: nursing services and well-being services. Major potential for cooperation is offered by a range of well-being, leisure and experience services. At the same time, the role of welfare technology will be significant. IT services are clearly closely related to all other service sectors because the industry develops solutions that all the others make use of. In the real estate sector, IT applications support office management, security, transportation, accommodation, and catering operations. In the financing and insurance business as well as in retailing, the various distribution channels are based on information technology with a direct link to logistics. In particular, its role is important in wholesale and retail trade: new solutions and innovations are generated at this interface. Accommodation and catering will converge with tourism, entertainment, trade, and social and health care services. Network Competence Called for By 2020, network competence will have become a major success factor. The changing boundaries between sectors will affect competence needs. The creation of networks calls for a broad-minded, unbiased, creative and change-embracing approach. Operating in a networked environment requires interpersonal skills, extensive knowledge, the ability to see the big picture, as well as diverse business skills. A new type of customer relationship competence will be of critical importance. 1.4. Ageing According to the estimate of the labour administration, about one million people will exit the labour market in Finland during 2004 2015, equivalent to nearly half of the employed workforce in 2000. From now on up until to the end of the 2020s, the number of those entering the labour market will be 10,000 to 15,000 lower than that of those leaving, the exact figure depending on the level of immigration. Figure 2. Individual Sectors Converge Financing and Insurance Accommodation and Catering Social and Health Care Services Real Estate Service Wholesale and Retail Trade IT Services 8 Services 2020 EK 2007

Demand for Services Grows The ageing of the population is one of the most important developments affecting the service industry. Senior citizens will require a wide range of services, which will be reflected in the increased demand for health and social services, etc., although demand will rise for other reasons as well. By the year 2020, old people will be wealthier and willing and accustomed to making use of services. This propensity to purchase services will generate business. The service providers of the future will develop offerings targeting senior citizens, such as well-being and experience services. Senior citizens will impose stringent requirements on the quality of the services. The general view is that individuality will be highlighted: the service must be personal. Additionally, it is supposed to provide an opportunity for social interaction. By 2020, all these factors will lead not only to the expansion of the range of services but also to the growing importance of the service-mindedness of the staff. Segmentation Increasingly Important Customer orientation will increase the need to segment services within the advanced-age population: individual old people need individual services. As more and more people will want to live at home for longer than today, companies will make a wide range of delivery, nursing and therapy services available at home. Support and transportation services will be increasingly important to old people who have problems moving about. Electronic services will also be developed because old people are expected to be accustomed and willing to make use of information technology. experience and the skills to serve people of different ages. At the same time, they play an important part in passing silent knowledge and know-how on to younger colleagues. Efforts will be made to respond to the shortage of labour by improving efficiency. There will be a growing need to recruit and train immigrants. By 2020, Finland is expected to have a significant number of experts of foreign extraction. Making the Service Industry Attractive Service-sector companies will seek to make the field of activity attractive to young people and more experienced professionals. In many service sectors, part of the workforce consists of people who work while studying but will move on to some other field upon graduation. Attractiveness will be increased by developing internal and external factors. A typical example of an internal factor is leadership that is perceived as being of increasingly critical importance in the workplace communities of the future and in their further development. An external factor, in contrast, could mean cooperation with educational institutions aimed at increasing knowledge of the fields and improving its image. Shortage of Qualified Staff The retirement of baby boomers will pose a risk of shortage of labour in 2020. Competition over employees will be intense. According to Delphi I respondents, the lack of qualified staff will be one of the biggest challenges. The shortage of competent workers will have an impact on human resources policies. People are expected to work for as long as possible. To achieve this, measures will be taken to promote working ability, increase job satisfaction and reassess duties. Training will also be developed. Employees of advanced age will enjoy greater respect than today. They have life Services 2020 EK 2007 9

2. Key Skills Requirements in Various Positions Qualified employees are required to develop their customer service skills and the ability to identify and anticipate customer needs. A networked operational environment calls for a capacity for internal networking. At the same time, internationalization requires cultural awareness, inter-personal skills, and team-working capabilities. Qualified professionals are also expected to be able to manage themselves because their duties will be increasingly extensive and independent. The change in the operational environment calls for willingness to change as well as for problemsolving capabilities. In exper ert t and managerial position ositions, business and management expertise and innovation management will play an important part. What is additionally required is strategic expertise, familiarity with the market conditions, understanding of the earnings logic and business process in the field of activity involved, and expertise in conceptualizing and commercializing services. The aspects highlighted in the context of service expertise include perception of the big picture, identification and anticipation of customer needs, and overall management of the service chain. The main points of focus in network business expertise are the exploitation and management of networks and partnerships and expertise in forming networks. With regard to internationalization, knowledge of cultures will be highlighted in importance. Experts and managers will need to be responsive to change and possess problem-solving capabilities. In executive position ositions, the most important skills, as far as business expertise is concerned, are strategic expertise, understanding of the earnings logic and business process in the field of activity involved, and familiarity with the market conditions. People and expertise management will become increasingly important. With regard to service expertise, the main things are identification and anticipation of customer needs, and overall management of the service chain. A networked operational environment calls for a capacity for networking across sectoral boundaries. With regard to internationalization, knowledge of cultures will be highlighted in importance. As far as language skills requirements are concerned, the same languages will be important in 2020 as today. Aside from Finnish, knowledge of Swedish, English, and Russian will be a significant asset. Knowledge of Chinese will become increasingly important in IT services. 10 Services 2020 EK 2007

3. Hot Issues and Challenges In the service industry, the restructuring of the operational environment is one of the major challenges in future. Cooperation between private and public players will increase considerably in the production of public services. The growing wealth of retired people and the ways in which the money is spent will affect the development of service sectors. The general view is that demand for services will expand. However, the consumption patterns of old people remains open question, although the patterns learnt in one s youth will survive into 2020, at least partly. The question is whether senior citizens know how to use the services in the ways firms expect them to, and whether they are willing to do so. Accumulated savings may not necessarily be spent on services; instead, people may use the money to support family members or keep it in the bank for a rainy day. Service providers will face the challenge of operating in a global market. Although all companies will not be active in the international market, globalization will affect domestic operators as well. To succeed in the face of competition, it is important to be able to anticipate the changes taking place in the operational environment. Companies are required to possess greater ability to change than before. Service production will be relocated to countries with a lower cost level. These changes will affect the developments on the domestic market. While some of the services will always be provided in the home country, others will be produced abroad. Technological advancement and digitalization offer new opportunities for the service industry. Some of the services will no longer be restricted to a specific location while production can be standardized to a certain degree. In the future, service providers will need more qualified staff than in the past, and making full use of the opportunities offered by digitalization will be a major challenge in terms of competence. More stringent requirements will be imposed on executive management as well. Executives are required to have the ability to anticipate future developments, lead people and manage competences. The availability of labour will become a central issue in the service industry. The increase in workmotivated immigration will affect corporate operations in many ways. The induction of foreign workers is a major task in terms of learning the duties and becoming adjusted to the Finnish work culture. Employee competence and its further development will be of key importance. Efforts are required to make the service industry an attractive employer to workers. Figure 3. Competences in the International Service Society Target for 2020 Globalisation for Internationalization and Multiculturalism Technological Advancement and Digitalization enable New Services Social Skills and International Operations Skills Objectives: - anticipation skills - service skills - multidisciplinary business expertise - networking expertise - management expertise Ageing - threatens the availability of skilled labour - requires prompt response to customer needs Networking generates Business Opportunities Utilization of Technology Services 2020 EK 2007 11

4. Development of Educational Policies With technological advancement and digitalization of services, digital literacy will be required: the ability to search for relevant data in the vast volume of information available on the web and to work in a virtual environment by making use of a range of networks. Education in technology and information technology should be improved at all levels starting with basic education where the focus should be on learning by doing, insights, making selections and problem-solving skills. The ageing of the population and the related growth in the demand for services should be taken into account when determining the number of students admitted to programmes in youth, vocational secondary and tertiarylevel education. At the same time, demand for adult education will increase. The ageing population will create a need to develop examinations for the service sector. The increasing age of the clientele will affect service expertise in all fields of activity. Customer orientation, individual service and standard of quality are the aspects that will grow in importance. Increasing internationalization will underline the role of extensive language skills. The importance of Russian will be greater than today. At all levels of the educational system, more attention will have to be paid to teaching a wide range of languages. In basic education, language instruction can be linked to international studies. In an increasingly multicultural operational environment, education to promote mutual understanding will be of growing importance. Multicultural skills will be highlighted. It means the ability to work in a multicultural environment, to interact with colleagues representing a wide variety of backgrounds and to respect people with different cultural and ethnic roots. In tertiary education, business expertise should be included as a field of study in all degrees. Education in business expertise should be developed jointly by universities and polytechnics. In the future, anticipation of skills and educational needs will be of growing importance. Every effort should be made to determine the number of students admitted to each level and field as accurately as possible in view of future needs. In order to minimize the number of people excluded from the labour market, it is important that all the members in each age group receive vocational or tertiary level education. The need for continual development underlines the importance of flexible adult education that is responsive to the requirements of the labour market. In order to alleviate the shortage of labour, far more immigrant workers will be needed while efforts must be made to provide adequate training for these people. 12 Services 2020 EK 2007

The qualifications of skilled labour will be based on vocational training aiming at a specific examination. The networking of service sectors and lowering of boundaries between individual fields of activity make it necessary to develop secondary education on a modular basis. Core expertise in one field should be capable of being expanded by vocational training that responds to the needs of the networked sector. Aside from solid professional skills, many service professions require other capabilities, such as networking expertise, business expertise, and entrepreneurship skills. This underlines the importance of cooperation between vocational and polytechnic education. At the same time, more people with vocational secondary level education should be admitted to polytechnics. The networked structure of the industry makes it necessary for polytechnics to develop the degrees so as to transcend sectoral boundaries. Upper polytechnic degrees should include practical work-based training that contributes to professional qualifications and entrepreneurship. In research and development, the practical application of innovations transcending sectoral boundaries will gain in importance. challenge universities to develop sufficiently extensive inter-disciplinary degree programmes. Advanced research of high international standard must support the generation of innovations that combine new technology, digitalization and services. The role of entrepreneurship training and education and service skills will be highlighted at all the levels of the educational system. Immigrant education to teach the local language and culture and vocational training will challenge the educational system at all levels, adult education included. The identification and recognition of degrees and qualifications acquired abroad as part of the individual s skills profile will be increasingly important. In the future, the qualifications earned in the educational systems of other EU countries will be recognized in all member states. The utilization of international business opportunities, lowering of boundaries between individual fields of activity and the networked nature of the industry will Services 2020 EK 2007 13

Confederation of Finnish Industries P.O. Box 30, (Eteläranta 10), FI-00131 Helsinki Tel.+358 9 420 20 Fax +358 9 4202 2299 www.ek.fi Report on the Internet: www.ek.fi/julkaisut More information: Adviser Tarja Tuominen Tel. +358 9 4202 3296 tarja.tuominen@ek.fi