The Four Things a Service Business

Must Get Right

Four main service elements

The Offering

The Funding Mechanism

Employee Management System

Customer Management System

The Offering

The service must meet the needs and desires of an

attractive group of customers in terms of customer
experience and service features.

Identify customer operating segments in terms of

attribute preference .

E.g. Convenience and friendly service vs. price.

E.g. Banks extended hours.

E.g. Walmarts customers preference for low price and

wide selection over ambience and customer service.

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 valueadded 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 (see above)

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

Employees arent the only people affecting the cost and quality
of service.

The customers themselves can be involved in operational

processes, and their input influences their experiences (and
often other customers too).
E.g., a customer who is slow at a fast food counter makes the service
less fast for everyone behind him.

Customer involvement in operations alters the traditional role

of business in value creation

Product based business buys materials and adds value to them

and deliver 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:

A 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
Service designs may call for customers to perform
important
tasks, but for the most part customers have
no interview, no
background check, and no personality
profile.
2. Customers are not as easy to train as employees
There are usually many times more customers than employees
Creating effective training for a large, dispersed, unpaid, and
irrelevantly skilled workforce is difficult

Customer Management System

Challenges (continued)
3. Customers have a great deal of discretion in their operational
activities, usually far more than employees
Example: Zipcar, the car sharing service
To keep costs low, its service model depends on customers
to clean, refuel, and return cars in time for the next user
Motivating employees to perform these tasks would be
routine
Motivating customers requires a complex mix of rewards
and penalties

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