Business services are work that provides support for other businesses, but does not create a tangible commodity. These activities include information technology (IT), facility management, human resources, marketing, and legal services.
A service-oriented business is an organization that produces and delivers a non-commodity good, such as a software program or a computer hardware device, to customers for a fee. The product may have a physical form that is sold to the customer by a person who owns the business, or it may not.
The main difference between a product-oriented business and a service-oriented business is that in a product-oriented business, the physical reality of the good provides a simple but powerful base on which to describe the business. On the other hand, in a service-oriented business, the abstract nature of the good makes it difficult to develop a simple and effective description.
Barriers to Entry
The primary barriers to entry in service-oriented businesses are location and product differentiation, both of which can be quite severe. The former is a direct result of the fact that a service is an intangible good that is not produced or delivered by a single company.
For this reason, the service-oriented business often must compete at a local level with its competition and can be more limited in its ability to develop economies of scale. Because of this, service businesses must develop a strong reputation for the type and quality of service they produce. This is often a major challenge for smaller companies.