The Prime Minister and other MP's were faced with protesters at the recent commemoration of the Centenary of Federation calling for their manufacturing industry jobs to be reinstated. This was just the latest demonstration of what seems to be a wider community concern about Australia's loss of manufacturing jobs through factory closures, corporate takeovers by overseas interests or loss of markets to cheaper imports.

There is the view that manufacturing's decline means a serious loss of real jobs and national capability, which ultimately equates with lower living standards for ordinary Australians. This will not be compensated for by an increase in ephemeral service jobs in call centres, lawn mowing franchises or even by high growth IT or tourism activity.

In the other corner, various economists and analysts dismiss these fears as groundless. The decline of manufacturing and the rise of services is just the natural order of things in a developed economy, where basic needs are satisfied and consumer demand for differentiated services increases.

Manufacturing and secondary industry is no more "real" or valuable than primary industry or service sector jobs. It depends on countries specialising in what they are endowed with or good at, and trading for the rest.

The danger lies in governments interfering, through protection or subsidies, with the free operation of the global market, which will invariably produce the greatest good for the greatest number.

This squaring off between manufacturing and services might be relegated to debates between ideologies, except for its impact on crucial business strategy decisions by Australian firms and on important public policy settings.

A closer examination of the manufacturing versus services debate shows that making clear distinctions between product and service or between buyer and seller is a trap for those hoping to succeed in the fast, connected and informed world of the new economy.

One of the more illuminating presentations of the challenges businesses face in the turbulence of the new economy is found in a 1998 book called Blur – the speed of change in the connected economy by Stan Davis and Christopher Meyer of the Ernst & Young Centre for Business Innovation at Cambridge, Massachusetts.

To Davis & Meyer, the blur represents the whirlwind of transition based on increases in speed, connectivity and the value of intangible assets, like knowledge and relationships.

Business rules and strategies are being fundamentally changed by:

• the shrinking of time;
• the explosion of online connections between everyone, everything, everywhere; and
• the ascendancy of intangible assets where there is more value in what and who you know than what you own.

As a result, mass production, segmented pricing, neat supply chains and standardised jobs are giving way to merged offers of products and services, customers making production decisions, floating prices set by online auction and real time information, employees who are also entrepreneurs and messy economic webs of partners and stakeholders.

So, beware if you are making business or public policy decisions based on an orthodox view of manufacturing in decline and services on the rise. The reality is more complex, chaotic and blurred.

Products and services are coming to resemble one another. Blur gives examples like the anti-theft car lock device that radio-signals its location to police and then disables the stolen car.

Sensors in elevators monitor the need for maintenance, detect failure, and dispatch repairers with precise knowledge about the location and nature of the fault – computer-aided services that add considerable value to elevator manufacture and installation. Or, the often quoted direct sales relationships with customers that allowed Dell Computers to personalise their product to an individual buyer's specifications, gaining ongoing intelligence and cutting transaction costs at the same time.

Davis & Meyer challenge businesses to create a truly new offer by giving their products the adaptability of services, and giving services the economics of products. They say one dimensional seller to buyer exchanges are being replaced by rich multi-dimensional exchanges which involve not just economic returns, but value generated from the information and emotional attributes of the offer.

To better understand the dynamics of the manufacturing and services blur in Australia, Professor Jane Marceau and her team at the Australian Expert Group on Industry Studies are about to release the findings of a two year study, supported by the Australian Business Foundation, on product/services linkages.

Such intelligence is crucial if we are to break out of unproductive binary mindsets and create new capabilities for Australia as the industrial age morphs into the new knowledge economy.