what goods and services are most important to you?
Reprint: R0804D Many of the management tools and techniques used in service businesses were designed to tackle the challenges of product companies. Although they are valuable to service managers, they aren't sufficient for success. In this article, Harvard Business School'southward Frei explains why and urges companies to add together some new ones to the mix. After years of extensive research and analysis, she offers an approach for crafting a profitable service business based on four disquisitional elements: the blueprint of the offering, employee management, customer management, and the funding mechanism. Merely like a product that'south going to market place, a service needs to exist compellingly designed, and management must field a workforce capable of producing it at an attractive cost. Additionally, notwithstanding, service firms must manage their customers, who do not only use the service but also can be integral to its production: Considering customers' involvement every bit producers tin can wreak havoc on costs, companies must also develop creative ways to fund their distinctive offerings, by providing a self-service alternative, for example, or by offsetting expenses with operational savings. A close expect at successful service businesses—Wal-Mart, Commerce Bank, the Cleveland Clinic, and others—reveals that constructive integration of the four elements is central. In that location is no "correct" way to combine them; the appropriate design of ane depends upon the other three. If managers don't get all four pulling together, they adventure pulling the enterprise apart. Incumbents can fend off attacks from highly focused upstarts by condign multifocused—that is, by pursuing multiple niches through optimized service models rather than trying to cover the entire waterfront with i model. Shared services within a firm (functions such as HR and finance) tin aid, since they will enable it to generate economies of scale and experience beyond models.
The Idea in Cursory
All successful firms must design a compelling offering and manage the workforce to deliver it at an attractive price. Simply service firms must do fifty-fifty more: deal with the frustrating fact that their customers can wreak havoc on service quality and costs.
For example, a customer dithering at a fast-food counter slows things downward for everyone else waiting in line. An architect'southward customer struggling to clarify how a new facility volition be used drags out the design process.
To tackle this claiming, Frei advises aligning four key elements of your business:
- What your service offering consists of
- How you fund the excellence you want to provide
- How yous manage employees to deliver quality service
- What you do to help customers enhance—not erode—service
Get these elements pulling together, and none of them tin pull your business apart—as service stars like Wal-Mart, Commerce Bank, and Cleveland Dispensary have discovered firsthand.
The Idea in Practice
To consistently deliver service excellence, ensure that each of these four elements reinforces the others:
Service Offering
Determine how customers define "excellence" when information technology comes to your offering: Convenience? Friendliness? Flexible choices? Price? Identify what you'll do to deliver that excellence—and what yous won't do. Case:
Commerce Banking company decided to serve customers who prized pleasant, face-to-face service and convenience. It offers evening and weekend hours, buildings with high ceilings and natural light, and a fun contraption for redeeming loose change. Despite its relatively unattractive interest rates and narrow production range, its retail customer base of operations has expanded dramatically.
Funding Mechanism
Retrieve about how y'all'll pay for the increased price of the excellence you're seeking to provide through your service offering. Possibilities include:
- Charging the customer. For example, Starbucks customers value lingering in the company's java-firm setting. To fund this inviting atmosphere, Starbucks charges a premium for its coffee.
- Spending now to save subsequently. For example, Intuit offers client support service free of charge. It uses callers' input to improve time to come versions of its software, so customers will ultimately need less back up.
- Having customers practise the work. For instance, airlines' cocky-check-in kiosks not only reduce costs; they also enhance the service offer by liberating travelers from long lines at staffed counters and by providing user-friendly tools such as seat maps.
Employee Management
Ensure that your workforce management activities (recruiting, selection, grooming, task design) empower employees to deliver the excellence embodied in your service offerings. Example:
Commerce Banking concern competes on extended hours and friendly service, not on low toll or production diverseness. It knows it doesn't demand directly-A students to main its limited product set, so it hires for mental attitude and trains for service. For instance, it uses elementary recruiting criteria, such equally "Does this person smile in a resting state?" And it encourages employees to recruit people they see providing great customer service in other industries.
Client Direction
Clear which behaviors customers must demonstrate to get the virtually value from your service. Then design your service specifically to foster those behaviors. Example:
To go customers using the new self-check-in kiosks, airlines ensured that travelers could complete the transactions with far fewer keystrokes than check-in personnel used to need. Past contrast, retail stores that offer cocky-service checkout machines haven't fabricated using those machines easy for shoppers. Moreover, the stores expect shoppers to shoulder responsibility for fraud prevention by weighing bags during checkout. Outcome? Anxious customers avoid the machines.
As the world'south major economies take matured, they have become dominated past service-focused businesses. Merely many of the management tools and techniques that service managers use were designed to tackle the challenges of product companies. Are these sufficient, or practise we demand new ones?
Let me submit that some new tools are necessary. When a business takes a product to market, whether information technology's a basic article like corn or a highly engineered offering like a digital camera, the company must make the product itself compelling and also field a workforce capable of producing it at an attractive toll. To exist sure, neither job is easy to do well; enormous amounts of management attention and bookish enquiry have been devoted to these challenges. But delivering a service entails something else as well: the management of customers, who are not just consumers of the service simply tin can too exist integral to its production. And because customers' involvement as producers tin wreak havoc on costs, service companies must as well develop creative means to fund their distinctive advantages.
Any of these four elements—the offering or its funding mechanism, the employee management system or the customer management system—can be the undoing of a service business. This is amply demonstrated by my assay of service companies that take struggled over the past decade. What is just as clear, however, is that there is no "right" style to combine the elements. The appropriate design of any one of them depends upon the other three. When we wait at service businesses that accept grown and prospered—companies like Wal-Mart in retail, Commerce Bank in cyberbanking, and the Cleveland Clinic in wellness care—it is their effective integration of the elements that stands out more than the cleverness of any element in isolation.
This article outlines an arroyo for crafting a profitable service business based on these four critical elements (collectively called the "service model"). Adult as a core teaching module at Harvard Business School, this approach recognizes the differences between service businesses and product businesses. Students in my course learn to recall about those differences and their implications for management practice. In a higher place all, they learn that to build a smashing service business, managers must get the core elements of service design pulling together or else risk pulling the concern apart.
1. The Offer
The challenge of service-business organisation management begins with design. Every bit with production companies, a service business tin can't last long if the offering itself is fatally flawed. It must effectively run across the needs and desires of an bonny group of customers. In thinking virtually the blueprint of a service, all the same, managers must undergo an of import shift in perspective: Whereas product designers focus on the characteristics buyers will value, service designers exercise meliorate to focus on the experiences customers want to have. For case, customers may attribute convenience or friendly interaction to your service brand. They may compare your offering favorably with competitors' because of extended hours, closer proximity, greater scope, or lower prices. Your management team must be admittedly clear about which attributes of service the business will compete on.
Strategy is frequently defined as what a business chooses not to do. Similarly, service excellence can be defined as what a business organization chooses non to do well. If this sounds odd, it should. Rarely practice we propose that the path to excellence is through inferior performance. Simply since service businesses usually don't have the luxury of simply failing to deliver some aspects of their service—every concrete store must have employees on-site, for example, even if they're not especially skilled or plentiful—most successful companies cull to deliver a subset of that bundle poorly. They don't brand this pick casually. Instead, my research has shown, they perform badly at some things in social club to excel at others. This tin exist considered a hard-coded trade-off. Retrieve nigh the company that can afford to stay open for longer hours considering it charges more than the competition. This business is excelling on convenience and has relatively junior operation on toll. The price dimension fuels the service dimension.
Service excellence can be defined every bit what a business chooses non to do well.
To create a successful service offer, managers need to decide which attributes to target for excellence and which to target for inferior performance. These choices should be heavily informed by the needs of customers. Managers should observe the relative importance customers identify on attributes then match the investment in excellence with those priorities. At Wal-Mart, for case, ambience and sales assist are to the lowest degree valued by its customers, low prices and wide selection are most valued, and several other attributes rank at points in between. (See the showroom "Wal-Mart'south Value Suggestion" in David J. Collis and Michael G. Rukstad'due south article "Tin can You Say What Your Strategy Is?") The trade-offs Wal-Mart makes are deliberately informed past these preferences. The visitor optimizes specific aspects of its service offer to cater to its customers' priorities, and information technology refuses to overinvest in underappreciated attributes. The fact that it takes a drubbing from competitors on things its customers care less nearly drives its overall performance.
The phenomenon, of course, has a round aspect. Shoppers whose preferences match Wal-Mart's strengths self-select into its customer base. Meanwhile, those who don't prefer Wal-Mart's attributes buy elsewhere. It is important therefore to identify customer segments in terms of aspect preferences—or as some marketers prefer, in terms of customer needs. Identifying what might be called customer operating segments is not the aforementioned practice as traditional psychographic sectionalisation. Rather than stressing differences that enable increasingly targeted and potent messaging, this type of sectionalization aims to discover populations of customers who share a notion of what constitutes excellent service.
In one case an bonny customer operating segment is found, the mission is clear: Management should design a new offering or tweak an existing one to line up with that segment's preferences. Look, for example, at the fit achieved by Commerce Bank, which has been able to grow its retail client base dramatically even though its rates are among the worst in its markets and it has made express acquisitions. Commerce Bank focuses on the set of customers who care most the feel of visiting a concrete branch. These customers come in all shapes and sizes—from immature, first-fourth dimension banking clients to time-strapped urban professionals to elderly retirees. Every bit an operating segment, notwithstanding, they all believe that convenience is a bank'south most important attribute and choose Commerce Bank considering of its evening and weekend hours. Second most important to them is the friendliness of interactions with employees, then the promise of a cheerful, familiar teller has become office of the bank's core offering. Commerce has added to its co-operative ambient with interior elements both lovely (high ceilings and natural calorie-free) and fun (an amusing contraption for redeeming loose change). When it comes to attributes less important to the bank's customers—toll and product range—management is willing to cede the battle to competitors.
It is tempting to remember, "If I'grand a actually good managing director, and then I don't have to cede anything to the contest." This well-intentioned logic can lead, ironically, to non excelling at anything. The only organizations I accept seen that are superior at near service attributes need a price premium of fifty% over their competitors. About industries don't back up this type of premium, and and so trade-offs are necessary. I similar to tell managers that they are choosing betwixt excellence paired with inferior operation on one hand and mediocrity across all dimensions on the other. When managers understand that inferior operation in 1 dimension fuels superior functioning in another, the blueprint of first-class service is not far behind.
2. The Funding Mechanism
All managers, and even near customers, agree that there is no such thing as a gratis lunch. Excellence comes at a cost, and the cost must ultimately be covered. With a tangible product, a company'due south machinery for funding superior performance is usually relatively unproblematic: the cost tag. Just the customers who forfeit the extra cash tin avail themselves of the premium offer. In a service business, developing a way to fund excellence can be more than complicated. Many times, pricing is non transaction based only involves the bundling of various elements of value or entails some kind of subscription, such as a monthly fee. In these cases, buyers can excerpt uneven amounts of value for their money. Indeed, even nonbuyers may derive value in certain service environments. For case, a shopper might spend time learning from a knowledgeable salesperson, only to leave the shop empty-handed.
In a service business organisation, therefore, direction must give careful idea to how excellence will exist paid for. There must exist a funding mechanism in place to allow the visitor to outshine competitors in the attributes it has chosen. In my report of successful service businesses, I've seen the funding mechanism take four bones forms. Two are ways of having the client pay, and 2 cover the cost of excellence with operational savings.
Charge the customer in a palatable manner.
The classic approach to funding something of value is simply to have the customer pay for it, but often information technology is possible to make the form that payment takes less objectionable to customers. Rarely is that done with à la carte pricing for the niceties. A large role of Starbucks'south entreatment is that a customer tin linger almost indefinitely in a coffeehouse setting. It's unthinkable that Starbucks would place meters next to its overstuffed chairs; a better way to fund the atmosphere is to charge more for the coffee. Commerce Depository financial institution is open up late and on weekends—earning it high marks on extended hours—and it pays for that service past giving a half percentage point less in involvement on deposits. Could it fund the extra labor hours by charging for evening and weekend visits? Maybe, but a slightly lower interest rate is more than palatable. Management in whatever setting would do well to creatively consider what feels fair to its customers. Oft, the least artistic solution is to charge more for the item service feature you are funding.
Create a win-win between operational savings and value-added services.
Very clever management teams discover ways to raise the customer experience fifty-fifty while spending less (finding, in other words, that there can be such a matter as a free lunch). Many of these innovations provide only a temporary competitive advantage, as they are speedily recognized and copied. Some are surprisingly durable, all the same. An example is the immediate-response service provided by Progressive Casualty Insurance. When someone insured past Progressive is involved in an auto accident, the visitor immediately sends out a van to help that person and to assess the harm on the spot—frequently arriving on the scene before the law or tow trucks. Customers love this level of responsiveness and give the visitor high marks for service. Simply in anticipation of such a demand someday, would they pay more in insurance premiums? Unfortunately, no. People are pathologically price sensitive about car insurance and almost never select anything just the rock-lesser quote. The fundamental to Progressive'due south ability to fund this service is the cost savings it ultimately yields. Normally insurance providers are discipline to fraud, with criminals making claims for accidents that were staged or never happened. Because of these and other types of disputed claims, firms too incur high legal fees—which, combined with the other costs of fraud, add together upward to some $xv out of every $100 in insurance premiums across the industry. Since deploying its vans, Progressive has seen costs in both categories plummet. Sending a company representative to the scene pays for itself.
Progressive offers another customer convenience that many competitors have then far shied away from: giving quotes from other providers alongside its own when a potential buyer inquires about the toll of insurance. It's not that Progressive is adamant to go one amend than rivals to win the business organisation. In fact, Progressive'south is the everyman quote just about half the time. What Progressive does believe is that its quote is the right 1 given the probability of that person's getting into an accident—a probability that the insurer is all-time in grade at determining. If indeed its quote is spot-on, so allowing a competitor to insure the customer at a lower charge per unit is doubly constructive: It frees Progressive from a money-losing proffer while burdening its competitor with the unprofitable account. Thus a level of service that looks downright donating to the client really benefits the company. This is an example of leveraging operations into a value-added service.
How can your management squad find win-win solutions of its own? When I pose this question to managers, their impulse is to imagine what new value could be created for customers and then to ponder how that could be funded through toll savings. I suggest showtime instead by request, "Where are our biggest cost buckets?" With these in mind, managers can then simultaneously make up one's mind how to reduce costs and create a value-added service. A proficient first place to await? Anywhere that time is a large component of cost. Removing time is oft fruitful, since it can directly improve service even as it cuts costs.
Spend at present to save later.
Often it is possible, if somewhat painful, to make operational investments that will pay off somewhen by reducing customers' needs for auxiliary service in the time to come. A classic example is Intuit's decision to provide free client support, in defiance of the software manufacture norm. Call centers are expensive to staff because of the combination of technical knowledge and sociability required to field inquiries effectively. Customers meanwhile are extremely uneven in their neediness vis-à-vis it. For most software makers this adds up to the obvious conclusion that customers should be charged for support.
Intuit founder Scott Melt sees the thing differently. Those needy calls, he believes, are a useful form of input to continued product development—the engine of future revenues—and that justifies an even greater expense outlay. Intuit has its higher salaried product-development people, not solely customer service people, fielding calls so that subsequent versions of its offerings will be informed past direct knowledge of what users are trying to accomplish and how they are being frustrated. This is part of a broader delivery to feedback-driven improvement that Cook refers to as "DIRST"—for "do it right the 2d time." The investment has paid off in better software, which means a lower phone call book. "Our competition thinks we're crazy," Melt says, and he understands why. "If nosotros got as many calls every bit they do, we'd exist out of business."
Have the client exercise the piece of work.
One other type of funding machinery for enhanced service puts the cost back in the customer'due south court, just in the form of labor. Offering self-service, from pump-your-own gas to self-managed brokerage accounts, is a well-established way to go on costs low. If the goal is service excellence, though, you must create a situation in which the customer will prefer the do-it-yourself capability over a readily available full-service alternative. Airlines have achieved this, at last, with flight check-in kiosks, although the value proposition they initially presented was dubious. At starting time, passengers felt compelled to use the relatively unappealing kiosks only because carriers had immune the lines in front of manned desks to become intolerable. Today, however, frequent fliers prefer the kiosks because they provide readier access to useful tools like seat maps. Businesses looking to achieve service excellence in other settings should not have such an indirect route. They should set themselves the challenge of creating self-service capabilities that customers will welcome. Indeed, if a self-service option is truly preferable, customers should exist willing to take on the work for nothing or even pay for the privilege. When managers designing self-service solutions are not permitted to add together the inducement of cost discounts, they are forced to focus on improving the customer experience.
If a self-service option is truly preferable, customers should exist willing to take on the work for nothing or even pay for the privilege.
Any funding mechanism is used to encompass the costs of excellence, it is all-time idea out as thoroughly as possible prior to the launch of a new service, rather than amended in light of experience later on. When a service that's been perceived every bit free of a sudden has fees associated with it, customers tend to react with asymmetric displeasure. And since companies cannot thrive past offering service gratis, information technology is vital that they not ready expectations that tin't exist sustained. With careful analysis and blueprint, a company can offer and fund a better service experience than its customers would enjoy elsewhere.
3. The Employee Direction System
Companies often live or die on the quality of their workforces, but because service businesses are typically people intensive, a relative advantage in employee direction has all the more than impact in that location. Top management must requite careful attending to recruiting and selection processes, grooming, job design, performance management, and other components that make up the employee management organization. More to the indicate, the decisions made in these areas should reflect the service attributes the company aims to be known for.
To design a well-integrated employee management system, first with two simple diagnostic questions. First: What makes our employees reasonably able to achieve excellence? And and so: What makes our employees reasonably motivated to achieve excellence? Thoughtfully considered, the answers will translate into company-specific policies and programs. Companies that neglect to connect the dots between their employee management approaches and customers' service preferences will find it very difficult to honor their service promises.
At 1 large international retail bank I studied, a senior director had come to a depressing realization. "Our service stinks," she told me. Under her guidance the bank took various measures, mainly centering on incentives and preparation, but the trouble persisted. Customer experience in the branch did non improve. Perplexed simply adamant, the executive decided to become a frontline employee herself for a month. She thought it would take that much fourth dimension to experience a typical range of service interactions and see the roots of the problem. In fact, it took ane day. "From the fourth dimension the doors opened, customers were yelling at me," she reported. "By the end of the solar day, I was yelling back." What became articulate was that employees were set up upward to fail. Recent cross-selling initiatives had created a set of customers with more complex needs and higher expectations for their relationship with the bank, but employees had not been equipped to respond. Every bit a outcome of decisions made by the management team (all individually sensible), the typical employee did not have a reasonable chance of succeeding. The banking company's employee management organisation was broken.
If your concern requires heroism of your employees to go along customers happy, and then y'all have bad service by blueprint. Employee self-cede is rarely a sustainable resources. Instead, design a system that allows the boilerplate employee to thrive. This is part of Commerce Bank's competitive formula. Remember that the banking company chooses to compete on extended hours and friendly interactions and not on low price and product breadth. Now think how that strategy could inform employee management; the implications are non hard to imagine. For instance, Commerce concluded that it didn't crave direct-A students to master its limited production set; it could hire for mental attitude and train for service. In job interviews, its managers could use simple weed-out criteria—like "Does this person grin in a resting land?"—rather than trying to maximize across a wide range of positive characteristics. The bank'southward current employees could be deployed equally talent scouts, on the principle that information technology takes i to know i. (When people from Commerce see someone providing great service in another setting, whether at a eating place or at a gas station, they mitt out a carte du jour printed with a compliment and a proffer to consider working for Commerce.)
It'due south a simple reality that employees who are higher up average in both attitude and aptitude are expensive to apply. They are not merely attractive to you just too attractive to your competitors, which drives up wages. A concern that wants to maintain a competitive cost construction will probably need to compromise on ane quality or the other (or, if it insists on having both, observe a style to fund that luxury). If, equally Commerce Bank does, you choose to rent for attitude, and then you must engineer things then that even lower-aptitude employees will reliably deliver smashing service. Like managers who don't desire to admit that their service is designed to be junior on some attributes, many people are reluctant to admit a trade-off between bent and mental attitude. But failure to adapt this economic reality in the design of the employee direction organisation is a common culprit in flawed service.
4. The Customer Management System
In a service surround, employees aren't the only people affecting the toll and quality of service delivered. The customers themselves tin can be involved in operational processes, sometimes to a very large extent, and their input influences their experiences (and often other customers' too). For example, an architectural firm's customer may explain the purpose of a new facility well or poorly, and that will affect the efficiency of the design procedure and the quality of the terminate product. A customer who dithers at a fast-nutrient counter makes the service less fast for everyone backside him.
Client involvement in operations has profound implications for management considering it alters the traditional role of the concern in value cosmos. The archetype product-based business buys materials and adds value to them in some mode. The enhanced-value product is then delivered to customers, who pay to receive it. In a service business, even so, employees and customers are both part of the value-cosmos process. A main do good is that customer labor can be far less expensive than employee labor. It can also lead to better service experiences. When students participate more in a classroom environment, for example, they learn more. Simply there are challenges, besides. Designing a system that explicitly manages these challenges is essential to service success.
Consider the issue of client selection. Service designs may telephone call for customers to perform important tasks, merely for the most part customers have no interview, no background check, and no personality profile. As a onetime senior executive from Nestlé now working in financial services put it, "I could control who was in my manufacturing plant at Nestlé; I have no such control over the customers in my bank'south branches."
In addition, despite many organizations' best efforts, customers are not as easy to train as employees. There are normally many times more than customers than employees, and creating effective training materials for such a large, dispersed, unpaid, and often irrelevantly skilled workforce is difficult. When this holds true, firms must accommodate the express training in the blueprint of the service experience. If tasks are shifted from employees to customers—from college-skilled to lower-skilled people—and then they must be adapted accordingly. Airlines seem to get this right. Call up (if y'all tin) the final time y'all checked in with an agent at the full-service counter. Chances are you witnessed the agent complete a dizzying sequence of keystrokes. It would not seem reasonable to expect customers to perform these aforementioned steps, and so when the check-in office was transferred to customers, it was dramatically simplified. By contrast, recall of the self-service supermarket checkout. Here customers are asked non simply to do what trained employees have washed previously but also to shoulder the boosted responsibleness of fraud prevention through a complicated process of weighing bags. Asking customers to perform more than-complicated tasks than college-skilled employees contributes to the disarray and feet that surrounds these checkout lines.
Customers besides have a neat deal of discretion in their operational activities, normally far more than employees. When a visitor introduces a new process that it wants employees to use, it tin simply effect a mandate. When customers are involved, transitions similar this can be significantly more complicated. Expect at Zipcar, the popular car-sharing service. To continue costs low, its service model depends on customers to clean, refuel, and render cars in fourth dimension for the next user. Motivating employees to perform these tasks would be routine; motivating customer-operators has required a complex, evolving mix of rewards and penalties.
In managing customers in your operations, then, you'll need to address a few key questions: Which customers are you focusing on? Which behaviors do yous want? And which techniques will most effectively influence behavior? For example, a company whose business model depends on customers' timeliness—whether it'southward a dental office packing its appointment calendar or a video shop circulating hit films—may use more- or less-heavy-handed tactics to ensure compliance. In a previous article for Harvard Business organization Review ("Breaking the Trade-Off Betwixt Efficiency and Service," November 2006), I related lessons from several companies that have used a range of techniques to modify customer behavior. These techniques can be divided into two basic categories: instrumental (the carrots and sticks we commonly see play out as discounts and late fees) and normative (the use of shame, blame, and pride to motivate us to return shopping carts and choice up trash even when no 1 is looking). The important thing is to manage customers in a style that is consistent with the service attributes y'all've chosen to emphasize overall.
Integrating the Elements
Successful service companies have a working plan that incorporates all four elements of service blueprint. Inside each of those areas, however, information technology is hard to spot any best do. This is because the whole concern depends more on the interconnection of the four than on whatever i element.
A standout example of effective overall integration is the Cleveland Clinic, which is consistently ranked among America's well-nigh eminent hospitals and has been a leader in pioneering cardiac intendance for decades. Information technology'due south difficult to put a finger on the source of that advantage. The fact that the clinic has specialty centers focusing on diabetes, for example, or cardiac care is not infrequent in itself. Its refusal to attach financial rewards to doctors' productivity is unusual but might not be constructive elsewhere. Pace back from the details, however, and the bigger moving-picture show emerges. Alluring the highest-severity patients means that doctors will always face a challenging environment in demand of innovative solutions. Organizing into disease centers rather than narrower, more traditional lines of specialization (such equally kidneys or blood) sets the phase for cantankerous-disciplinary collaboration—and thus for novel perspectives—inside those centers. Removing productivity incentives gives doctors license to spend fourth dimension on innovation, which is enhanced by their shut work with specialists from other fields. The detail choices made on methods, processes, and personnel are the right ones for the Cleveland Clinic considering they complement one some other and come up together in a smoothly operating system.
Any service company, no matter how long established, tin benefit from a review of its operations using the framework laid out in this article. Bringing the four elements of service blueprint into tighter alignment can exist an ongoing process of pocket-sized tweaks and experiments in change, inspired by the kinds of questions included in the sidebar "Diagnosing Service Blueprint." A management team planning to launch a new service will find the framework particularly helpful. It flags the decisions that should be made early and in tandem so that they don't clash down the road. And at the highest level, it underscores two very important principles of service design. Outset, there is no such thing every bit a practiced idea in isolation; there is only a good idea in the context of a specific service model. 2d, it is folly to attempt to exist all things to all customers.
The first point notes the importance of fit, mentioned before equally a key strength of the Cleveland Clinic. At the clinic, management knows that extensions to its cadre business must be examined closely for their fit with its existing service model. The arrangement recently abased the concept of a high-end wellness and spa offering because it didn't build on the hospital's core operational strengths. In some means this seems like an obvious point, but managers often stray into areas of relative weakness, specially when they see a business firm they consider to be a direct competitor succeeding with a service they don't all the same offer. Progressive made this error when it decided to venture into the habitation insurance market. No question, at that place is money to be fabricated in home insurance, as innumerable firms have shown. Only Progressive failed in its attempt considering the challenges of that business did not friction match upwardly with the company's competitive strengths. Call up that Progressive is justifiably proud of its analytics advantage, which enables it to finer size up the risk that a given policyholder will file a claim. Unfortunately, that kind of actuarial prowess is non as primal to making a turn a profit on insuring homes. Habitation insurers rising or fall on the management of their investment portfolios—and that is a relative weakness of Progressive. (Firms typically lose money on the insurance simply make money investing prepaid premiums.) The fit, in retrospect, was a bad one. It should have been seen that mode early on.
Just as common a declining is the misguided desire to be all things to all people. In today's service economy, information technology is nearly incommunicable to design a service model to encompass a huge range of customers and remain competitive across them. Instead, firms should design their service models for more targeted excellence past beingness specific things to specific people.
Great service companies are, almost without exception, very clever about selecting their customers. Nosotros saw this in Progressive's highly informed choice of whom to do business with. Commerce Bank, from its beginnings in 1973, knew it should stake out its own claim on the market. "The earth," its founder Vernon Hill said, "did not need some other 'me-too' bank. I had no capital, no make name, and I had to search for a way to differentiate from the other players." Shouldice Hospital, a Canadian specialist in hernia operations, is highly selective about its customer base of operations. Non only does it serve just patients experiencing a certain type of disquiet, it has the luxury of operating on otherwise healthy people. It has skimmed the cream of the marketplace.
Condign a Multifocused Firm
Inevitably, companies that effort to be all things to all people begin to struggle when upstart competitors similar Shouldice start picking off profitable niches. Oft, the refuse is not taken seriously until it's too belatedly. (See the sidebar "Coming to Terms with the Threat.")
Nevertheless, some incumbents take managed to compete effectively with their more-focused rivals, and there is much to learn from their feel. The common thread in their competitive responses to upstarts is the capacity to become "multifocused." In other words, they stopped trying to cover the entire waterfront with a single service model. Instead they pursued multiple niches with optimized service models—each designed to reach excellence on some dimensions at the expense of inferior functioning on others. The secret to success in a multifocused firm is the power to benefit from having various service models nether one house umbrella. This benefit often comes in the form of shared services (that is, internal service providers), which enable a firm to generate economies of scale and economies of experience across its service models. Effectiveness at utilizing shared services to the advantage of the individual service models tin decide the success of a multifocused firm. (See the exhibit "Are Focused Competitors Nipping at Your Flanks?")
The shared services architecture tin exist seen in multifocused corporations across industries—from Yum Brands, a collection of five fast-nutrient companies, to Omnicom, which consists of hundreds of companies in the interactive-marketing space, to GE, which seems to have no limit on the markets it can enter. Each corporation has created singled-out service models for distinct customer operating segments and gauges the overall benefit of the models past assessing how much they gain from one another. What determines whether a company has assembled the correct portfolio of service models? Information technology comes down to a critical examination: Is each of the firm'south distinct service models meliorate off as a issue of the others? If the answer is no, it signals that performance is about to reject or that the visitor may desire to spin off some service models. If the answer is yes, it's almost always thank you to superior management of shared services, and the incumbent thrives.
The services shared in multifocused companies typically include business functions like finance, purchasing, data applied science, human resources, and executive training. The scale advantages they provide are straightforward and include pooled purchasing, preferred access to credit, and other price-related benefits. Economies of experience are more difficult to realize but tin can too be more valuable. Here, the challenge is to use knowledge gained in one service model to strengthen the functioning of the others. To a limited extent, this kind of noesis transfer occurs informally; this has always been the hope and promise of diversified companies. The important departure in successful multifocused firms is that they formalize the process, designing very explicit ways of leveraging experience across service models. Noesis transfer is facilitated past deliberate investments in such programs as formal best-exercise sharing; centralized, dynamic employee grooming; and the rotation of managers amid models.
My enquiry convinces me that the best ways of sustaining growth in a service business is to employ the multifocused model, yet information technology is also evident that this model requires concentrated effort to defend. Leaders of individual service models constantly assert that defended, rather than shared, resource would do more to strengthen their own businesses. Operations managers, meanwhile, raise a chorus of complaint that shared services require more-vigilant control "below the line" if they are to deliver the necessary economies of scope and feel. Given the perpetual assail on the model, it may not exist surprising that some other common characteristic of successful multifocused firms is directive (even autocratic) leadership. This leadership style accommodates different personalities, but it always relies on senior managers who are able and willing to exert strong influence on subordinates. They must exist, in order to balance the competitive autonomy of private service models with the collective value of shared services. Without strong, centralized leadership, acquirement-generating line managers typically overrule shared-services managers, specially in moments of strategic distress. Indeed, companies often stack the deck past placing stronger leaders in the service models than in the shared services, finer undermining the performance of the organization.
The Direction-Practice Frontier
Management scholars, and not a few practitioners, have taken upwards an interesting argue in contempo years: Is the bailiwick of management fundamentally different in service businesses than in product businesses? The mode in which management is studied and taught in graduate business schools was forged in the context of the industrial economic system. Are the approaches that worked for manufacturing companies as applicative to services?
As service businesses continue to innovate, succeed, and exist studied, the answers are becoming clearer. The framework presented hither suggests why the traditional techniques have proved as durable as they have and why they withal leave sophisticated managers wanting more. Much of what determines the health of a product business—the soundness of its offer and the direction of its people—is only as indispensable in a service business concern and tin be addressed with a similar tool kit. But whole new areas involving the roles of customers have opened up, and their tool kits are only at present being assembled.
A version of this article appeared in the April 2008 result of Harvard Concern Review.
Source: https://hbr.org/2008/04/the-four-things-a-service-business-must-get-right
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