Frances X. Frei

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">The Idea in Brief</h4>
 <div class="ideainbrief-contents">
  <p>All successful firms must design a compelling offering and manage the workforce to deliver it at an attractive price. But service firms must do even more: deal with the frustrating fact that their customers can wreak havoc on service quality and costs.</p>
  <p>For example, a customer dithering at a fast-food counter slows things down for everyone else waiting in line. An architect’s client struggling to clarify how a new facility will be used drags out the design process.</p>
  <p>To tackle this challenge, Frei advises aligning four key elements of your business:</p>
  <ul>
   <li>What your service offering consists of</li>
  </ul>
  <ul>
   <li>How you fund the excellence you want to provide</li>
  </ul>
  <ul>
   <li>How you manage employees to deliver quality service</li>
  </ul>
  <ul>
   <li>What you do to help customers enhance—not erode—service</li>
  </ul>
  <p>Get these elements pulling together, and none of them can pull your business apart—as service stars like Wal-Mart, Commerce Bank, and Cleveland Clinic have discovered firsthand.</p>
  <p>The Idea in Practice</p>
  <p>To consistently deliver service excellence, ensure that each of these four elements reinforces the others:</p>
  <h2>Service Offering</h2>
  <p>Determine how customers define “excellence” when it comes to your offering: Convenience? Friendliness? Flexible choices? Price? Identify what you’ll do to deliver that excellence—and what you won’t do. <span style="idea-in-practice-example"><span style="idea-in-practice-example-header">Example:&nbsp;</span> </span></p>
  <p>Commerce Bank decided to serve customers who prized pleasant, face-to-face service and convenience. It offers evening and weekend hours, buildings with high ceilings and natural light, and a fun contraption for redeeming loose change. Despite its relatively unattractive interest rates and narrow product range, its retail customer base has expanded dramatically. </p>
  <h2>Funding Mechanism</h2>
  <p>Think about how you’ll pay for the increased cost of the excellence you’re seeking to provide through your service offering. Possibilities include:</p>
  <ul>
   <li><strong>Charging the customer.</strong> For example, Starbucks customers value lingering in the company’s coffee-house setting. To fund this inviting atmosphere, Starbucks charges a premium for its coffee.</li>
  </ul>
  <ul>
   <li><strong>Spending now to save later.</strong> For instance, Intuit offers customer support service free of charge. It uses callers’ input to improve future versions of its software, so customers will ultimately need less support.</li>
  </ul>
  <ul>
   <li><strong>Having customers do the work.</strong> For example, airlines’ self-check-in kiosks not only reduce costs; they also enhance the service offering by liberating travelers from long lines at staffed counters and by providing convenient tools such as seat maps.</li>
  </ul>
  <h2>Employee Management</h2>
  <p>Ensure that your workforce management activities (recruiting, selection, training, job design) empower employees to deliver the excellence embodied in your service offerings. <span style="idea-in-practice-example"><span style="idea-in-practice-example-header">Example:&nbsp;</span> </span></p>
  <p>Commerce Bank competes on extended hours and friendly service, not on low price or product variety. It knows it doesn’t need straight-A students to master its limited product set, so it hires for attitude and trains for service. For instance, it uses simple recruiting criteria, such as “Does this person smile in a resting state?” And it encourages employees to recruit people they see providing great customer service in other industries. </p>
  <h2>Customer Management</h2>
  <p>Articulate which behaviors customers must demonstrate to get the most value from your service. Then design your service specifically to foster those behaviors. <span style="idea-in-practice-example"><span style="idea-in-practice-example-header">Example:&nbsp;</span> </span></p>
  <p>To get customers using the new self-check-in kiosks, airlines ensured that travelers could complete the transactions with far fewer keystrokes than check-in personnel used to need. By contrast, retail stores that offer self-service checkout machines haven’t made using those machines easy for shoppers. Moreover, the stores expect shoppers to shoulder responsibility for fraud prevention by weighing bags during checkout. Result? Anxious customers avoid the machines.</p>
 </div>
</article-ideainbrief><p>As the world’s major economies have matured, they have become dominated by service-focused businesses. But many of the management tools and techniques that service managers use were designed to tackle the challenges of product companies. Are these sufficient, or do we need new ones?</p>

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<p>Many of the management tools and techniques used in service businesses were designed to tackle the challenges of product companies. Although they are valuable to service managers, they aren&#8217;t sufficient for success. In this article, Harvard Business School&#8217;s Frei explains why and urges companies to add some new ones to the mix. After years of extensive research and analysis, she offers an approach for crafting a profitable service business based on four critical elements: the design of the offering, the funding mechanism, employee management, and customer management.</p>
<p>Just like a product that&#8217;s going to market, a service needs to be compellingly designed, and management must field a workforce capable of producing it at an attractive price. In addition, however, service firms must manage their customers, who do not simply use the service but who can also be integral to its production: Because customers&#8217; involvement as producers can wreak havoc on costs, companies must also develop creative ways to fund their distinctive offerings, by providing a self-service alternative, for example, or by offsetting expenses with operational savings.</p>
<p>A close look at successful service businesses&#8212;Walmart, Commerce Bank, the Cleveland Clinic, and others&#8212;reveals that effective integration of the four elements is key. There is no &#8220;right&#8221; way to combine them; the appropriate design of one depends upon the other three. If managers don&#8217;t get all four pulling together, they risk pulling the enterprise apart.</p>
<p>Incumbents can fend off attacks from highly focused upstarts by becoming multifocused&#8212;that is, by pursuing multiple niches through optimized service models rather than trying to cover the entire waterfront with one model. Shared services within a firm (functions such as HR and finance) can help, since they will enable it to generate economies of scale and experience across models.</p>

The Four Things a Service Business Must Get Right

Many of the management tools and techniques used in service businesses were designed to tackle the challenges of product companies. Although they are valuable to service managers, they aren’t sufficient for success. In this article, Harvard Business School’s Frei explains why and urges companies to add some new ones to the mix. After years of extensive research and analysis, she offers an approach for crafting a profitable service business based on four critical elements: the design of the offering, the funding mechanism, employee management, and customer management. Just like a product that’s going to market, a service needs to be compellingly designed, and management must field a workforce capable of producing it at an attractive price. In addition, however, service firms must manage their customers, who do not simply use the service but who can also be integral to its production: Because customers’ involvement as producers can wreak havoc on costs, companies must also develop creative ways to fund their distinctive offerings, by providing a self-service alternative, for example, or by offsetting expenses with operational savings. A close look at successful service businesses—Walmart, Commerce Bank, the Cleveland Clinic, and others—reveals that effective integration of the four elements is key. There is no “right” way to combine them; the appropriate design of one depends upon the other three. If managers don’t get all four pulling together, they risk pulling the enterprise apart. Incumbents can fend off attacks from highly focused upstarts by becoming multifocused—that is, by pursuing multiple niches through optimized service models rather than trying to cover the entire waterfront with one model. Shared services within a firm (functions such as HR and finance) can help, since they will enable it to generate economies of scale and experience across models.

The Four Things a Service Business Must Get Right

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