Service Economics

In the new economy brought about by the recession, caution and value for money are now key criteria in making decisions, and the most successful business strategies have to deliver a strong service-based brand provided by high-calibre staff at all customer interface points. Companies are developing the necessary skills in their personnel to demonstrate to their customers the focus on delivering high value service across the business. Performance data powerfully demonstrates how successful these companies have been when applying these principles advancing people and brand-driven service strategies:

• Companies originally providing complex technology, with limited service offerings based on break/fix, are now experiencing growth rates of 20% to 40% by offering high value-adding services (identified by building close relationships and gaining much better insight into customer needs)

• Standardising service organisations to produce high quality consistent processes able to deliver 20% or more in customer-shared cost savings the first year, with 10% or more further annual productivity improvements

• Proactive service process management aimed at identifying reasons for failures ultimately offering prediction/prevention rather than just continuing to react to symptoms (potentially promoting 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, as loyalty amongst the customers grows

Successfully delivering service as a Brand-driven strategy, based on the calibre of the customer interface staff requires a significant rethink of the process model. In addition, in the current climate, a shortage of staff with the requisite skills to provide effective customer support (front or back office) has meant that many companies are struggling to deliver to new customer demands.

The shortage has many causes including slashed training budgets, forced head reductions and minimal recruitment. None of these issues will vanish in the short term, so the challenge is how to overcome these limitations and turn adversity into a positive outcome.

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A group of service managers and directors had the opportunity to debate key challenges around staff.

Overall agreement around the table was that developing staff in a constructive way through an effective career structure/internal academy was essential to attract the right staff in the first place to then retain them and to generate value from them. Utilising a development tool was no longer a nice to have but was now considered essential to fulfilling the requirement of capable staff.

A group of service managers and directors had the opportunity to debate key challenges around staff.

Overall agreement around the table was that developing staff in a constructive way through an effective career structure/internal academy was essential to attract the right staff in the first place to then retain them and to generate value from them. Utilising a development tool was no longer a nice to have but was now considered essential to fulfilling the requirement of capable staff.

The importance of structuring the formal contact between customer and supplier cannot be over-stated, as poorly orchestrated contact encourages the perception with the customer that the supplier is inefficient and this can undermine efforts towards building customer confidence and trusting relationships.

The service industry has experienced a shift of emphasis, with efficiency considered as an absolute, and with much more attention paid to the effectiveness of the operation. Support staff are beginning to accept tighter management techniques, and convincing them that such changes improve their effectiveness is instrumental in aiding the business, accompanied with a move from “Time and Materials” to more “Contractual” work, which in turn has introduced the need for Service Level Agreements (SLAs) to provide a structure for performance, and expectation of delivery in the contract.

Performance measurement is generally used to control and increase the performance of employees. Unfortunately, performance measurement does not always work out as planned. Therefore, Noventum Service Management in collaboration with the University of Twente, will investigate how performance measurement leads to better results of service employees. We are specifically focusing our research on the importance of employee involvement in designing the performance indicators for measurement of their performance.

Does your company use individual or group performance indicators to measure the performance of service employees? Would you like to learn how performance measurement can be done more effectively? Then we invite you to participate in this interesting research. We really value your contribution to our research and we will be delighted to send you a copy of the research results in return. These results may give you new insights on how performance measurement of employees can be improved to maximize the output of your employees and enhance service excellence and profits within your organisation.

Intangible benefits are difficult to quantify and then replicate; strategic solutions that enable these to be measured and valued by the customer are therefore powerful differentiators. Successful companies understand how to drive the growth of service businesses in general, and how to launch and promote a successful service business. New calculation models are now required to demonstrate the value of service. ; it is the personal experience that is valuable and must be created by unique combinations...

 Service has struggled for a long time, to justify its role in business; regarded as a necessary evil and not considered as a source of excellent performance and profitability. It is necessary for this perception to change significantly as the economy and companies begin to grow after what has proved to be the most traumatic business climate for a generation. The service aspect of businesses is now proving to be an exciting area of opportunity for revenue and profitability growth.

Research undertaken earlier this year into service operations within businesses, demonstrates the profitability very clearly, with:

• Annual growth rates of 20-40%
• Gross margins of 50% or more
• Net margins of 25% or more
• Annual increases in profitability through productivity improvements of 10% or more
• Sales increases of 20% or more of total company revenue through development of staff as trusted advisors

Businesses with past success built upon the quality and innovation of their products may falter if their concept of service (repair break/fix) is only as a support to the manufacturing operation. However if the quality and innovation of product is supported by a similar level of quality and innovation in service, this can provide an excellent way to build and sustain long-term relationships.  Retaining customers means that a reputation has to be sustained over an extended period, and the service aspect of the relationship can provide a bridge should there be a problem with a faulty product. If the concept of service has evolved simply from one of reducing the cost of manufacturing errors, and does not focus on the optimum value derived by the customer from the application of the product, the relationship may not be sufficiently robust to resist a stress. This is best illustrated in figure 1, which shows the effort required to build satisfaction in a product into long-term loyalty. Unless satisfaction and loyalty are high, the value of a customer as a promoter is minimal, but promotion by a customer will have immense value.