The Four Things a Service Business

Must Get Right

 Customer
Offering Management

4 Basic
Element

The funding Employee

mechanism Management
The Offering
◦ Focus on experience customers want.
◦ Choose your hard-coded trade-offs well
◦ Identify the customer operating segments. E.g. Walmart’s customers
preference for low price and wide selection over ambience and
customer service.
◦ The service must meet the needs and desires of an attractive group
of customers in terms of customer experience and service features.
◦ E.g. Convenience and friendly service vs. price.
◦ E.g. Bank’s extended hours.
◦ Managers must choose areas to excel.
The Funding Mechanism: Service comes at a cost

(1) Charge the customers in a palatable way: rarely a la carte.

Imagine if Starbuck charged its customers per hour for the uses of
its lounge area?
What if Commerce Bank charged customers explicitly for having
longer operating hours?
◦ Avoid charging your customers explicitly for added service
◦ Find creative ways to fund the added service

(2) Create a win-win between operation savings and value-

added services
◦ Progressive Casualty Insurance:
Sends van out to accident
Lowers fraud risk and increases service
◦ How to find win-win solutions?
Look at largest costs
Attempt to remove time
The Funding Mechanism: Continued

(3) Spend now to save later

Offer free customer support - feedback leads to a better product

Automation
Investment in technology

(4) Have the customers do the work

Self service: Turn labor into an activity for customers

E.g., Airlines self check in. Improve customer experience ( access
to useful tools such as seat maps) and lowers costs
Employee Management System
◦ Recruiting and Selection Process
Commerce Bank: “Hire for attitude and train for service.”
Combination of attitude and aptitude expensive – Place
preference.
◦ Training
◦ Job Design
Make sure that employee is not set up for failure but allows an
average employee to thrive.
Should have fault tolerance built in, i,e., able to compensate
for lack of either aptitude or attitude
◦ Performance Management
Consistent with goals of organization and achievable by
employees
Customer Management System

Value
Employees Customer
creation
 Customer Management System

◦ Employees aren’t the only people affecting the cost and

quality of service.
◦ Customers are involved.
◦ Customer involvement in operations alters the traditional
role of business in value creation
◦ The product-based business buys materials and adds value
to them and dedelivers to customers who pay to receive it
◦ In a service business, employees and customers are both
part of the value-creation process.
Customer Management System

◦ Benefits of Service Organizations:

◦ The main benefit is that customer labor can
be far less expensive than employee labor
◦ It can also lead to better service experiences
Example:
When students participate more in a
classroom environment, they learn more.
◦ Challenges:
Designing a system that explicitly manages these
challenges of customer involvement is essential to
service success
Customer Management System

Challenges
1. The issue of customer selection

2. Customers are not as easy to train as employees.

3. Customers have a great deal of discretion in their

operational activities, usually far more than employees.
Example Zipcar, the car-sharing service
Customer Management System
Ways to meet the challenges:
1) Simplify the system
Example: self-service airlines check-in,
supermarket check-outs
◦ An airline employee performs many keystrokes
when checking in a customer
◦ The check-in role was greatly simplified when it was
transferred to the customer
2) Provide limited training
3) Provide additional on-site assistance
 Customer Management System
◦ Key Questions to address when managing customers in your
operations
◦ Which customers are you focusing on?
◦ Which behaviors do you want?
◦ Which techniques will most effectively influence behavior?
◦ Techniques used to modify customer behavior can be divided
into two basic categories
1. Instrumental: the carrot and sticks we commonly
see played out as discounts and late fees
2. Normative: the use of shame, blame, and pride to
motivate us to return shopping carts and pick up
the trash, even when no one is looking
 Integrating the elements.
Two important principles of service design:
•First, there is no such thing as a good idea in isolation;
there is only a good idea in the context
•Second, it is folly to attempt to be all things to all
customers
Becoming a multi-focused firm
•Pursue multiple niches with an optimized service model...
•Secret- Benefit of shared services under one umbrella
THANK YOU