Service economics is an umbrella phrase, coined by the authors, to convert the wide-ranging intangible aspects of service (including but not limited to processes, people, customers, strategy, brand values, competencies) into something tangible (such as 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.
The authors of this text have spent the last 3 years researching the service industry, and received sponsorship from Oracle in 2009 to take the research further, and identify successful strategies to capitalise on the value that the service business represents when dealing effectively with the complexity of demands and expectations of customers and suppliers, to achieve a rewarding and mutually beneficial partnership.
For a long time service has struggled with its role in a business, 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. The service aspect of businesses is now proving to be an exciting area of opportunity, and this text examines why some companies are taking advantage of this shift of perspective and are achieving profitable growth while others are continuing on their usual path, and as a result having to cope with shrinking profit margins; underlining 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):
· 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,
· 5% increase in customer loyalty through improved customer experience could increase profits by 25-85%
Service Economics is designed to be used as a reference guide; the structure allows reader to easily refer to sections most relevant to their own specific situation. Chapter headings are as follows:
- Service Strategy
- Management Practices
- Performance Management
- Organisational Design
- Information Systems
The findings used in the text are based on the authors’ research which has been produced through roundtables held in various countries around the world. Each roundtable consisted of between 15 and 20 participants, representing companies ranging from SME to large corporate concerns and included different sectors of the service industry at all levels (CEOs, CIOs, Operation Directors and Service Directors). The outcome of our qualitative research has been validated statistically through worldwide electronic surveys, supported by interviews.
The topics for these roundtables were based on issues suggested as relevant through client and desk research, and the output from the roundtables reflected actual experience and promoted pragmatic options.
Each case study is based on a combination of experiences from the roundtables or specific instances of an individual client’s success.
Recommendations at the end of each chapter result from insights and examples from the roundtables input, from clients, and interpretation of survey results by the researchers.
The data has shown that service operations are growing rapidly, even as the rest of the business struggles.
The research goes on to show that the service industry is in the process of transitioning from a traditional market – where it was relatively easy to achieve high margins and high growth – to a market where customers are questioning the value of any service. In summary, the major trends highlighted by the research are:
· A shift from products to services
· Increased speed to market of new services
· Move from supplier-driven economy to a customer-driven economy
· Individualism driving personalisation/customisation of service
· Changing demographics of workforce and customer (marked generational differences in expectations following created by the digital economy)
· From basic services to “total customer experience” economy, in which intangibles form the differentiation and the total experience defines the value.
The research demonstrates that pursuing the right service strategy will deliver profitable growth, and identified that the two most successful strategies are based around delivering a strong service-based business brand and a people-driven service provision, with high calibre staff operating at all customer interface points. The research also highlighted that it is important to identify which strategy is currently being pursued and why.
Types of value drivers in service economics:
· Intangible benefits – difficult to understand and copy, but able to create significant differentiation as based on valued personal experience.
· The ability for a company to create a number of unique combinations including:
o Service propositions
o Management practices
o Performance measurement systems
o People competencies
The dynamic technical services industry represents significant financial activity in Western Industrialised Economies; however, very few successful service companies fully understand the reasons for their own success. The research focused on understanding how well-integrated service operations perform and this information has contributed to a better understanding of service industry dynamics, illustrating what drives success and how these companies have developed and implemented service strategies that have produced tangible positive business results.
“Service economics gets to the point with a degree of clarity that makes it an obligatory read. It is particularly useful as it clarifies intangible emotional concepts into practical advice and real data. Recommended.” - Chris Farnath, Director, International Support, Allocate Software Plc
"In today’s rapidly changing services world, where organisations are questioning what value service has to the company, Noventum Consultants have been able to pull together 7 key focus areas that directly impact how you create, deliver & value service into one cohesive framework, called aptly, Service Economics.
If you feel that that more money and budget will go to services; that the services operating model will shift from fixed to variable assets; that the commoditization of traditional services will accelerate or that demand and growth will have to shift to new services with higher margins, then you need to read this book. Backed up by impressive research and case studies, the recommendations for the future will help guide your future success in services. In summary... A MUST read!" - Martin Summerhayes, Head of Strategy & Business Change, Core Division, UK&I, Fujitsu