Strategies followed by successful service companies demonstrate that there may be a cyclical nature to business focus, emphasised during periods of growth and recession. Service is now firmly recognised as a mechanism that can and will deliver growth, and has proven to be a resilient revenue creator and margin builder. That does not mean product development or technological development will give way to service, quite the contrary; closer alignment means that they become integral. Cloud computing is an example – highly reliant on technology development, but fundamentally demonstrating value to the business through provision of a service offering.
Businesses are realising that good service is not something that can be “bought” as an instant solution. Convincing customers they are getting good value for money is a hard act when customers demand more for less, and unless service is a long-term strategy, the results may be fragile. Successful service companies have usually been persevering for many years, focused around delivering value at the customer interface, and have found that service works best when the business is closely aligned to customer needs. This alignment is only achieved if the board fully supports the role of service and in return they expect significant results from integrating service into the business – a growing trend.
Service usually represents a long-term sale with delivery and payment over a number of years – effectively annuity payments not one-off sales; appreciation of making the right decisions quickly for the longer term denies the manager the luxury of strategies worked out over months and lasting for years. Strategies need to be prepared in weeks to last for quarters and must accommodate continual refinement, and if strategies are fundamentally faulty, then no amount of tweaking or alteration is going to make them work. This underlines the need to have the building blocks in place of strong customer based strategies, such as those driven by brand and customer relationship, which can be personalised quickly by utilising acute customer awareness. This interest in service from the Board has demanded a mechanism that can demonstrate the value of service in financial terms.
Service economics is an umbrella phrase, coined by Noventum, to convert the wide-ranging intangible aspects of service (including but not limited to processes, people, customers, strategy, brand values, competencies) into something tangible (financial information) that can be applied by the broader business community. Service economics provides a translation of intangible aspects into tangible information which will provide insight into the value of the service delivered, in an easy to demonstrate mechanism enabling the highly valuable impact of service to be understood by the whole business.
For a long time service has struggled with its role in a business, has been regarded as a necessary evil and not considered in any way as a source of excellent performance and profitability. This perspective has changed significantly through customers demanding improved service and value for money. Some businesses are ignoring the shift and continuing on their familiar path and as a result have to cope with shrinking profit margins. The service aspect of businesses is now proving to be an exciting area of opportunity, and understanding why some companies are taking advantage of this shift of perspective and are achieving profitable growth underlines the importance of discovering how value is created through service, as demonstrated in these growth figures gained by companies deploying the successful strategies (Brand and People-Driven):
· Companies originally providing complex technology, with limited service based on break/fix, are experiencing growth rates of 20% to 40% by offering high value-adding services identified by building close relationships and gaining much better insight into their customer needs
· Standardised service organisations produce consistent standard processes able to deliver 20% or more in cost savings the first year, with ongoing annual productivity improvements of 10%
· Proactive service process management aimed at identifying reasons for failures, ultimately offering prevention rather than just continuing to react to symptoms, results in greater customer loyalty and increased share of customer wallet in return for the investment
· Broadening the skill of customer interface personnel, through investing in service competency development (such as the trusted advisor) has proven to deliver 20% annual revenue growth rates
The research data has shown that service operations are growing rapidly as illustrated by figure 1, even as the rest of the business struggles.
Steve Downton has established a reputation for providing effective business advice within the Services Sector specialising in guiding senior management teams and supporting service operations both large and small to improve their performance profitability and deliver service excellence. steve.downton@noventum.eu, www.downton.noventum.eu, part of the Noventum Service Management Consultants Group. For more information on our Service Innovation visit the website www.thefutureofservice.com
© Noventum service management consultants 2010
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