Easy Car Net

SECTION 4
SUPPLEMENTARY MATERIALS FOR CASES

Tell me and Ill listen. Show me and Ill understand. Involve me and Ill learn.
-- Teton Lakota Indians
INTRODUCTION TO CASE METHODOLOGY

Cases are an excellent tool for providing students with an opportunity to analyze actual business situations.
The case study method is very effective in helping students apply and integrate key course concepts. It also
provides them with an opportunity to experiment with creativity in problem-solving. Some of the most
popular reasons faculty give for using cases in a course are: 1) to get students to apply key concepts to
real world situations; 2) to involve students actively in the class; 3) to help students develop written and
oral communication skills; 4) to allow students an opportunity to develop teamwork skills; and 5) to
provide a way for students to learn from past mistakes made by the companies in the case studies [from
Mary L. Nicastro and David C. Jones (1994), Cooperative Learning Guide for Marketing Teaching Tips
for Marketing Instructors, Englewood Cliffs, NJ: Prentice-Hall].
You can use cases in a variety of ways, depending on your learning objectives and course design. For
example, cases provide opportunities for extensive in-class participation through whole class or informal
small group discussions. In order to maximize the benefit of these discussions for the students, you must
be willing to act as a coach or a mentor (and sometimes as a devils advocate) whose primary role is to
get as many students as possible actively involved in the case discussion. Shapiro (1984) and Argyris
(1980) provide the following tips for in-class case discussions:
1. Give students ownership of the case discussion. Involve them in the process so that they are
willing to state their own opinions, listen to and challenge differing opinions of other students or the
instructor, and draw their own conclusions about the case.
2. Respect students comments and ideas.
3. Help students accept the fact that cases do not have right or wrong answers, and that the
information may be ambiguous or incomplete (similar to the data that is actually available in
business environments.)
4. Use humor and role playing to help encourage creativity and to make the learning experience more
fun.
5. Summarize key points at the end of the discussion.
(For more information, see Shapiro, B. P. [1984]. Hints for Case Teaching. Boston, MA: Harvard
Business School Publications, 585-012; and Argyris, C. [1980]. Some Limitations of the Case Method:
Experiences in a Management Development Program. Academy of Management Review. 5, (2): 291-298.)
In addition to the in-class discussion format, cases can be used to develop communication skills by having
students complete individual written case analyses. Teamwork and oral presentation skills can also be
enhanced by having student groups develop case analyses to present in class.
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In this section we present (or refer the instructor to) materials to assist in the preparation and teaching of
each of the eight cases included in the text. Some of these notes are the work of the case authors and (if not
presented here) can be accessed via the Internet, while others have been developed specifically for this
manual.
Each teaching note includes a brief description of the case along with its objectives, a discussion of
pedagogy, student preparation questions, and (for most cases) detailed answers to the questions. Each case
is also introduced by listing topics/issues addressed and the corresponding chapters in the Zeithaml, Bitner,
and Gremler text. The following table summarizes the chapters of the text that are appropriate for each
case.
MATCHING CASES WITH APPROPRIATE CHAPTERS IN THE TEXTBOOK
easyCar.com
Appropriate Chapters in the Textbook1

Chapters 1, 2, 4, 5, 9, 11, 13, 14, 15, 17
People, Service, and Profit at Jyske Bank
Chapters 1, 2, 5, 9, 11, 12, 16
Giordano
Chapters 7, 9, 11, 12, 14
The Quality Improvement Customers Didnt Want
Chapters 3, 4, 6, 9, 10, 12, 13, 14
Custom Research Inc. (A)
Chapters 6, 7, 9, 12, 17, 18
General Electric Medical Systems
Chapters 1, 7, 8, 13, 17
Starbucks: Delivering Customer Service
Chapters 1, 5, 6, 7, 10, 11, 12, 14, 18
Shouldice Hospital Limited (Abridged)
Chapters 3, 4, 5, 9, 11, 12, 13, 15
Case #
1
Case Title
References are made in the discussion of some of the cases to PowerPoint slides. We have provided these
slides for each case on the PowerPoint section of the Instructors CD-ROM (in previous editions Section
5 of the Instructors Manual).
For each case we have listed all of the chapters we think are appropriate. The primary chapters for each case
have been highlighted.
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CASE 1:
EASYCAR.COM
ZEITHAML, BITNER, AND GREMLER TEACHING NOTES
INTRODUCTION
This case focuses on concepts relating to operations strategy and service system design. Secondary issues
examined include the application of production line approaches to service, service quality concepts, and the
value of demand management systems to the firm. Although the case was written for an MBA level
introductory operations management class, it is suitable for use in services marketing, service operations
management, and/or strategic management courses at either the MBA or senior undergraduate level. The
case has been designed to be taught in 75 minutes and is expected to require about two hours of outside
preparation.
SUGGESTED USES OF CASE WITH ZEITHAML, BITNER, AND GREMLER TEXT

Topics Addressed
Characteristics of Services
Customer Expectations and Perceptions
Service Quality
Service Design
Service Standards
Customers Roles in Service Delivery
Yield Management
Pricing and Value
Appropriate Chapters
Chapter 1: Introduction to Services

Chapter 2: Conceptual Framework for the Book: The Gaps Model of Service Quality
Chapter 4: Customer Expectations of Service
Chapter 5: Customer Perceptions of Service
Chapter 9: Service Development and Design
Chapter 11: Physical Evidence and the Servicescape
Chapter 13: Customers Roles in Service Delivery
Chapter 14: Delivering Service Through Intermediaries and Electronic Channels
Chapter 15: Managing Demand and Capacity
Chapter 17: Pricing of Services
PEDAGOGY
There are numerous pedagogical objectives to this case, among them: (1) summarizing the concepts of
services marketing; (2) illustrating product positioning; (3) describing strategy in a very competitive
industry. The pedagogy for the case is explained clearly and comprehensively in the teaching note for the
case, which follows. The teaching note for this case included in the following pages was written by one of
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the case authors, John Lawrence. It provides a suggested teaching plan for the case. The compact disc
provided with this manual also contains PowerPoint slides for teaching.
In teaching this case, we would suggest beginning in a similar manner to that suggested in John Lawrences
teaching note (attached). Instructors can begin by asking Question 1 about the characteristics of the rental
car industry. The discussion can be directed toward characteristics of services (discussed in Chapter 1 of
Zeithaml, Bitner, and Gremler text). The case discussion can then turn to easyCars operations strategy.
We would recommend following the suggestions in the authors teaching note. From there the questions
basically take the class through a discussion of different criteria a rental car company might choose to
compete on (e.g., cost, quality, or flexibility) and looks at easyCars processes, policies, and procedures
with respect to these criteria.
Although written from an operations perspective, this case is well-suited for
marketing/management course. Specifically, it can be used for the following teaching objectives:
services
Illustrate several ways that services can differ from manufactured products
Demonstrate how services differ from each other
Show how the characteristics of a given service influence the design of the service delivery
process
Illustrate why a low cost service does not necessarily imply a low quality service to the
consumer
Discuss how a company might align its operations strategy with its business strategy
Illustrate how the customers participation can be designed into the service delivery process
Show how valuable sophisticated forecasting and demand management systems can be to a
service firm
STUDENT PREPARATION QUESTIONS

The following questions can be provided to students in advance of the discussion of the case in class that
will focus their learning:
1. What are the characteristics of the car rental industry? How do these characteristics influence the
design of service delivery processes in this industry in general?
2. EasyCar obviously competes on the basis of low price. What does it do in operations to support this
strategy?
3. How would you characterize the level of service quality that easyCar provides?
4. Is easyCar a viable competitor to taxis, buses, and trains as Stelios claims? How does the design of
its operations currently support this form of competition? How not?
5. What are the operational implications of the changes made by EasyCar.com in the last year?
6. How significant are the legal challenges that easyCar is facing?
7. What is your assessment of the likelihood that easyCar will be able to realize its goals for 2004?
ACCOMPANYING TEACHING NOTE

The teaching note included on the following pages was prepared by one of the case authors, John
Lawrence, and has been edited for inclusion in this Instructors Manual.
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easyCar.com
Teaching Note
by John J. Lawrence
(University of Idaho)
CASE SYNOPSIS
This case describes the situation faced by easyCar.com at the start of 2003. EasyCar is the low priced
European car rental business founded by easyJet pioneer Stelios Haji-Ioannou. EasyCar had just reached
breakeven in 2002 on sales of 27 million, and had as its goals to reach sales of 100 million and profits of
10 million by the end of fiscal year 2004 in order to position itself for an initial public offering. To do this
would require opening new locations at a rate of two per week and expanding its fleet of rental cars from
7,000 to 24,000. The case describes the companys processes and facilities as well as its pricing and
promotional strategies. It also describes a number of significant changes that the company made in the
previous year, including a move to allow rentals for as little as an hour that was designed to position
easyCar as a competitor to local taxis, buses, trains, and even car ownership. The case also explores
several legal challenges the firm faced, including a ruling that threatened one of the core elements of its
business model. Students are asked to evaluate easyCars operations strategy and assess the likelihood that
easyCar will be able to achieve its ambitious goals.
DETAILED LEARNING OBJECTIVES

The case has been written primarily to illustrate concepts relating to operations strategy and service process
design; however, a variety of services marketing issues are evident in this case. Specific issues
that the case can be used to illustrate include:
1. How services differ from manufactured products (i.e., intangibility, perishability, heterogeneity, and
simultaneous production and consumption), how services differ from each other, and how the
characteristics of a given service influence the design of the service delivery process (i.e., relative
focus given to physical facilities and policies, employee behaviors, and employee judgment).
2. How to apply production line approaches to a service through standardization, the use of
technology, and the reduction of the discretionary actions of employees (Levitt, 1972).
3. Why a low cost service does not necessarily imply a low quality service to the consumer. The case
provides a good illustration of Parasuraman, Zeithaml and Berrys (1985) conceptualization of
service quality and the notion of service quality relating to customer perceptions compared to
customer expectations.
4. How to align a companys operations strategy with its business strategy (i.e., low price market
strategy supported by processes, procedures, and systems totally focused on achieving low cost),
and how to use the concept of order winning criteria to facilitate linking process design decisions to
the firms operations strategy (Hill, 1999).
5. How the customers participation can be designed into the service delivery process (i.e., so that the
customer performs a portion of the service delivery).
6. How valuable sophisticated forecasting and demand management systems can be to a service firm
and how process details can be designed to aid forecasting and capacity planning efforts (e.g., early
bookings, no cancellations).
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DETAILED ANALYSIS OF QUESTIONS

The student preparation questions that follow were written so that the instructor can simply walk the class
through the questions in sequence. The questions basically take the class through a discussion
of different criteria a rental car company might choose to compete on (e.g., cost, quality, or
flexibility) and looks at easyCars processes, policies, and procedures with respect to these
criteria. Questions 5 and 6 are designed to either further reinforce the lessons of questions 1-4
or to test students understanding of the ideas discussed in these earlier questions. Some
instructors may wish to assign only questions 1-4 and 7 and integrate the important discussion
points from questions 5 and 6 into questions 2 and 3. Question 7 is designed to help bring
closure to the discussion and emphasize to students that the success of easyCars strategy will
depend in part on how well it can implement the strategy during a period of rapid growth.
1. What are the characteristics of the car rental industry? How do these characteristics influence the
design of service delivery processes in this industry in general?
This first question is intended to have students think about the nature of the industry that easyCar
competes in and the nature of car rental services in general. This will help students better understand
and distinguish between actions taken by easyCar that are related to the nature of the industry and
service and those related specifically to easyCars strategy. Perhaps the best way to start the discussion
is by looking at the general characteristics of services (discussed in Chapter 1 of the Zeithaml, Bitner,
and Gremler text) and which of these characteristics are most significant in the case of car rentals. In
general, services are characterized by their intangibility, perishability, heterogeneity, and simultaneous
production and consumption. However, as this case illustrates, different services can vary significantly
in the extent to which these characteristics hold.
Intangibility. While strictly speaking the service of car rental is intangible, given the physical nature
of the rented vehicle, it really is not as intangible as many other services in the sense that the consumer
can see and touch the rented vehicle. For the vast majority of the period during which the customer
uses the service of car rental, access to the physical car is the service provided. For many services,
intangibility makes it very difficult for the consumer to judge quality and for the producer to control
quality. This is not nearly as difficult a proposition in the case of car rental. The convenience factor
(e.g., location, speed of pick-up and drop-off) associated with rental is the most significant intangible
associated with rental cars.
Perishability. Car rental is clearly a very perishable service. If a day goes by and a car is not rented,
the opportunity to generate revenues from that unrented time is lost forever. Perishability is a critical
factor in the rental industry given the generally high fixed cost associated with the service (i.e., a fleet
of vehicles). All industry players must cope with this perishability and different companies will have
somewhat different strategies for dealing with it.
Heterogeneity. Car rental is not a particularly heterogeneous service, as compared, for example, to the
services provided by a doctor, an architect, a lawyer, or a hairdresser. While customers may request
different vehicles or different extras (e.g., child seat, ski rack) or different rental terms (return with
empty or full tank, unlimited miles, etc.), the majority of customers will receive exactly the same
service the use of a vehicle for some specified period of time. Further, the basic interaction or
contact that employees of the rental car company have with customers is going to be very similar.
Simultaneous production and consumption. The service being provided by the car rental industry is the
use of a vehicle in a location where the customer both needs one and does not have one (i.e., typically
when the customer is travelling). While there is simultaneous production and consumption in the sense
that the customer and the vehicle are together during the time that the service is consumed, most of the
process of creating the service (e.g., creating the facilities, arranging for the right car to be in the right
place) is done without the customer in the process. The customer only interacts with the service
organization when booking the vehicle and when picking up and returning a vehicle. While these
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interactions are important, they do not limit the ability to achieve economies of scale in the industry the
way simultaneous production and consumption would in some other industries.
The second question focuses on service design. Service design has been characterized as having three
basic components: (a) physical facilities, processes, and procedures, (b) employee behaviors, and (c)
employees professional judgement. Given that car rental service is a relatively tangible, homogenous
service with fairly low levels of interaction with the customer, rental companies tend to focus their
service design on the physical facilities, processes, and procedures. While employees behaviors are
not unimportant, they are of secondary importance to facilities, processes, and procedures in service
design in the car rental industry. This can be seen industry wide.
2. EasyCar obviously competes on the basis of low price. What does it do in operations to support this
strategy?
Once students understand the characteristics of the car rental industry from a service design
perspective, the discussion can move to how easyCars operational design allows it to compete on the
basis of price. Given the extent to which easyCar has designed its process to reduce cost, students
should not have a difficult time identifying the features of its process design that allow it to offer a
lower price. The key point to drive home is the extent to which easyCar has gone to align its operations
strategy and process design with its business strategy. Clearly the order winning criteria in this case
is low price. (See Terry Hills Manufacturing Strategy textbook for more on the concept of the order
winning criteria in operations strategy.)
Perhaps the best way to make this point is to explicitly compare easyCars operations with the
operations of a traditional car rental company. Exhibit TN-1 (on the next page) shows this
comparison. After having gone through this comparison, the instructor can ask students why all rental
car companies do not follow easyCars lead and reduce their costs in this manner. Doing this drives
home the link between the operations design and the business strategy; that is, the traditional car rental
companies have strategies focused more on flexibility and service, and as such have different order
winning criteria and different operational designs to support these criteria. (An alternate way to ask
this is to ask what easyCar gives up to achieve this low cost, although discussion questions 3 and 4 are
really designed in part to get at this issue).
Finally, once the components of the easyCar operations systems have been brought out, they can be
used to make the point that many of the methods that easyCar uses can be thought about as
applications of production line approaches applied to a service context. This point is particularly
worth making if students have been assigned to read Levitts (1972) Production-Line Approach to
Service. The easyCar situation clearly illustrates the ideas of service standardization, reducing the
discretionary action of employees, and using technology to support or substitute for people in the
process.
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EXHIBIT TN-1
Comparison of Traditional Rental Car Companies and easyCar
Traditional Rental Car Providers
Location
Prime locations. At nearly all

major airports, and most within the
airport complex.
easyCar.com
Facilities
and
Equipment
Generally larger, more nicely

decorated, stand alone facilities to
promote image.
Fleet features a wide range of
vehicles.
Customer frequently allowed to
drive unlimited miles.
Process
Scheduling
Capacity
Customer has little involvement

in the process except to refill the gas
tank before returning the vehicle.
Customer has numerous options
to book the vehicle, include

company toll free numbers,
company websites, and traditional
travel agents.
Frequently customer has
options, like one-way rentals and
pick-up or delivery, although usually
for an added fee.
Flexible.
Customers often charged
normal rates for keeping vehicle
beyond originally scheduled return
time.
Customers permitted to change
or cancel reservations without
penalty.
Use price to increase capacity
utilization, but only to a certain
extent (e.g., industry leader Avis
Europe utilization at 68%).
Expect to have excess capacity
at many off-peak times.
Capacity added to satisfy peak
demand periods.
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Secondary locations and nearby prime

locations in some cases.
Frequently near train and bus stations,
where budget travelers are often found and
where rents are typically lower.
Even when near an airport, rarely at the
airport complex given the high cost of these
locations.
Small, simple facilities to help keep costs
down. Often a simple structure inside a parking
garage.
Fleet consists of one type of vehicle per site.
This simplifies the tasks for the maintenance
and customer service staff and makes it much
easier to achieve a high utilization rate as all
vehicles are substitutable for each other.
Customers limited to 100 km per day free
to limit depreciation of fleet value.
Customer designed into the process and
required to do certain tasks traditionally done
by the company (or be charged a higher fee for
the service).
Customer expected to print out the service
contract and bring it with him/her, fill the car
with fuel, and, most significantly, clean the car
prior to returning it so that it is in ready-to-rent
condition when it is returned. All of these
reduce easyCars costs.
Technology used extensively in the booking
process to replace people, again reducing labor
costs.
Process very standardized, with few extras.
Very tightly scheduled (to the hour for pickup and drop-off), and customer expected to
adhere to the schedule or incur significant
penalties.
Once service is scheduled, only limited
changes are permitted. Inflexible schedules
make planning easier and helps easyCar
achieve high utilization and operate at minimal
staffing levels.
Aggressive use of pricing to insure high
capacity utilization.
Expectation that capacity utilization will
approach 100%, and on average exceeds 90%.
Capacity added only when it is clear it will
be utilized most of the time.
3. How would you characterize the level of service quality that easyCar provides?
Asking students about service quality is a logical follow-up to the previous question focused on cost.
Discussing quality is important so students see that low cost does not necessarily imply low quality in
the minds of the customer. The discussion can also be used to illustrate several important service
quality concepts. One way to begin this discussion is to ask, What is quality in this case in the mind
of the consumer? Clearly easyCar is targeting a particular segment of the market that is very price
conscious, but the students should recognize that quality in the consumers minds is more than simply a
low price (or alternatively, the needs of this segment are more than simply wanting low prices). The
idea of value as a concept relating both quality and price can also be introduced here, with value
equating to the benefit of the service provided relative to the price paid.
After students begin to offer ideas about what quality means in this situation, the instructor can use this
input to introduce the ideas that (a) consumers judge the quality of service based on both the outcomes
achieved as well as the process used to achieve them and (b) consumers perceive quality in a multidimensional way. This discussion can then be used to reinforce Parasuraman, Zeithaml and Berrys
conceptualization of the five dimensions of service quality. These dimensions, and how they relate to
the easyCar situation, are as follows:
Reliability is the ability to perform the promised service dependable and accurately, or in a broad
sense, whether the company delivers on its promises. Of the five dimensions, this is the one that is the
most important in this case. Chances are that when students were asked about quality to start this
discussion, someone will suggest that customers want a reliable vehicle one that does not break down,
starts every time, is available when promised, and never causes any problems. What such students
would be describing is the reliability of the outcome. Students should be pressed to think about
reliability in the context of the process and the interaction between the easyCar and the customer.
Customers expect not only the outcome of the service (i.e., the use of the car) to be reliable, but also
expect the process of booking, collecting, and returning the vehicle to be reliable. That is, they do not
want any surprises during these critical service encounters. They want their paperwork processed
predictably and accurately, for example, each time a vehicle is rented, and they do not want to be
surprised by additional fees or unexpected requirements. They expect the processes to conform to the
process descriptions provided on the easyCar website.
Tangibles refers to the appearance of physical facilities, equipment, personnel, and written materials.
At easyCar, tangibles other than the car and the website are not emphasized. EasyCar strives to have
clean, simple facilities that conveyed an image of efficient, practical, no frills service. If it did not
come up in the context of discussing reliability, students should be asked why easyCar started with a
fleet of Mercedes A-class vehicles. This choice seems inconsistent with easyCars positioning as a low
cost provider. The key to understanding the launch of easyCar with the more expensive Mercedes is
that easyCar did not want to be perceived as a low quality service provider (this comes through in the
quote in the case from Stelios about not compromising on the hardware). The importance of the
Mercedes A-class is not just for the current customer. Since a major advertising strategy of easyCar is
to put its name in bold orange lettering on all its cars, the Mercedes A-class vehicles are likely to be
more positively perceived by those who see the vehicle and the easyCar advertising. EasyCar wants to
create an image of reliability that a fleet of new Mercedes might imply (as opposed to being associated
with other very low-price rental car companies that often rent older vehicles).
Assurance is based upon the employees knowledge and courtesy and their ability to inspire the
customers trust in the provider. This service quality dimension is particularly important for services
that the customer perceives to be high risk and/or about which they have a hard time evaluating
outcomes. Neither of these situations exist in the case of rental cars, so this dimension is also not
emphasized. While employees are trained and are expected to be knowledgeable and courteous, they
were not expected to build relationships with customers. Trust and confidence is embodied here more
in the organization itself than its individual employees; easyCar has tried to position itself as a
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trustworthy, reliable, large company alternative to customers seeking a low-priced car rental who are
nervous about going to the smaller, unknown companies operating out of only one or a few locations.
Responsiveness is a willingness to help customer and provide prompt service. EasyCar does not
emphasize responsiveness; its strategy is based on charging extra to those customers who need extra
help (beyond answering simple questions on pickup or return), thereby encouraging customers who
require a lot of customized service to go elsewhere. Its approach to staffing also means customers
sometimes have to wait 15 minutes or more to pick up their vehicles.
Empathy refers to caring, individualized attention given to customers. EasyCar does not emphasize
empathy. It does not try to treat customers as unique; rather, its goal is to treat all customers the same
and pass on as much of the processing work to the customers as possible in order to drive costs out of
the process.
It is worth pointing out to students that while reliability is the service quality dimension that easyCar
focuses most of its attention on, this is the dimension upon which it is the most difficult to exceed
customer expectations. This is not a significant concern for easyCar, because it competes based on a
price leadership strategy; its goal is to exceed customers expectations on price (which so far it has
done) while meeting their needs with respect to particular service quality dimensions. Building on this,
instructors also may want to emphasize to students that while customers sometimes use all of the
dimensions to determine service quality perceptions, other times they do not. Because car rental is not
as intangible or heterogeneous as many services, and the simultaneous production and consumption of
the service is associated primarily with the facilitating good, many customers may evaluate service
quality upon a subset of the above dimensions. This is particularly true in the case of easyCar because
of how easyCar uses its website to manage its customers expectations about the service process.
At this point, instructors can wrap up the discussion of service quality by discussing the research
indicating that consumers evaluate the quality of a service largely by comparing the perception they
have after receiving the service with the expectations they had in advance for the service.
Parasuraman, Zeithaml, and Berrys (1985) service quality model can be introduced at this point to
drive home this idea. EasyCar is good example of an application of this model. EasyCar now goes to
great lengths on their website to communicate exactly what customers will receive and what they will
not receive. The reason that easyCar does this is to manage its customers expectations regarding the
service (gap 4, the communication gap, in the Gaps Model of Service Quality). When easyCar was
launched, it experienced some bad press as a result of customers who did not fully understand the
easyCar approach. EasyCar does not want customers to be surprised by any of the features of its
service that are different than traditional car rental companies, as such surprises would have a negative
impact on customer perceptions of service quality (primarily along the very important reliability
dimension).
4. Is easyCar a viable competitor to taxis, buses, and trains as Stelios claims? How does the design of
EasyCar sees itself as a potential competitor to taxis and buses because it allows customers to rent a
vehicle for as little as one hour. From easyCars perspective, this makes sense in their effort to achieve
maximum utilization of their fleet. If they can rent out a car for even an extra one or two hours when
the vehicle would otherwise sit in a garage unused, then it adds to their bottom line. Further, it is
possible that such very short term rentals seem most likely to come during the work week, a
traditionally slower period for easyCar given its primary appeal is to leisure travelers who demand
vehicles more on weekends than on weekdays. In this way, the very short-term rentals may help
balance out demand on a weekly basis.
EasyCars ability to allow rentals for as little as one hour provides a good opportunity to discuss the
issue of the flexibility of EasyCars processes. The easyCar process is flexible in that it allows
customers to choose exact pick-up and drop-off times and pay for only that time. Traditional rental car
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companies charge by 24-hour periods and for a minimum of one day. Further, easyCar charges
customers for each individual service that they use (e.g., cleaning the car, extra kilometers), allowing
customers to pay only for the services that they require. This flexibility really revolves around prices.
In two cities, easyCar also offers flexibility in terms of location, as half of easyCars rental sites are in
either London or Paris.
The question is whether these forms of flexibility are sufficient to make rentals of a couple of hours
appealing to customers. There are several significant limitations from the customers perspective that
will likely limit easyCars ability to attract these customers.
First are the preparation fees or activities that the customer will have to pay and/or engage
in to rent the car. There is a 4 standard preparation charge and a 5 charge if the customer
uses a standard credit card to pay for the rental. Then the customer may have to wait once
arriving at the easyCar location to collect the car if there is a queue of other customers, which
the case indicates can occur, particularly during peak times, because of the minimum staffing
levels maintained at each location. Once the customer picks up the car, he or she will then
have to put gas in the car before it is ready to go. When the customer returns the car, he or she
needs to wash the car or pay the 16 cleaning fee, and must again potentially wait to return the
car. This all could amount to a significant investment in time or money to rent for a couple of
hours.
The second limitation is that easyCars prices typically increase as the time of the rental
period draws near, particularly during peak periods. While a few customers may know well in
advance that they need a vehicle for only a couple of hours on a given day, it would seem that
this market segment is more likely to buy at the last minute. This makes the price somewhat
less competitive. Obviously easyCar can factor this into their pricing model, so that if a
customer does want a car for a short term period on short notice and the vehicle is available
and would likely go unrented, then the system can quote the customer a reasonable price.
However, this raises a third limitation, which is that frequently easyCar will not have a
vehicle on such short notice, as they currently achieve 90% utilization of their fleet. If a
customer frequently finds no vehicles available, at some point he or she will stop bothering to
check easyCar and simply use the alternatives.
The key point to make in this discussion is that most of easyCars processes are tailored much more to
customers who know their travel plans well in advance and have the extra time to go to a secondary
location and perform some of the traditional service themselves. This does not seem compatible with
the renter who might want to use an easyCar vehicle for an hour or two on short notice instead of
taking one or a couple of taxi rides. For easyCar to successfully compete for such customers may
require changes to its service process. Such changes might include, for example, a relaxation of
cleaning policies (e.g., the exterior is free from mud and grime rather than evidence that the car has
been washed) and some type of automated drop off system to reduce the time factor for customers.
Having many locations in the same city also clearly makes easyCar a more viable competitor to taxis,
buses and car ownership. This has significant implications to easyCars expansion strategy. If it truly
wants to compete against taxis, buses, and car ownership, it will have to focus its expansion on
opening multiple locations in the major European cities. If it sees itself more as competing for tourist
customer, it will need to open more locations in tourist destination locations, either near airports or
train and bus stations.
5. What are the operational implications of the changes made by EasyCar.com in the last year?
A total of five recent changes are identified in the text that easyCar has made in the last year.
Discussing some or all of these is designed to reinforce some of the proceeding lessons as well as
further highlight some of the trade-offs that the company must deal with in its efforts to compete based
on cost. The discussion can also be used to emphasize that all companies, regardless of what their
competitive priorities are, must still seek continuous improvement in their methods.
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(i) Rental by the Hour: This would have been discussed in detail in the preceding question.
(ii) Introduction of Vehicles Other Than the Mercedes A-Class: Perhaps the most interesting
change that easyCar made, other than allowing rentals of only an hour, was to move away
from its one car model and offer a number of different, although generally similar, vehicles at
its different locations. The case indicates that the change was made to keep pressure on
suppliers (i.e., the automobile manufacturers) to keep costs down and to in turn be able to
lower the price of a rental to customers. What is perhaps surprising in the change is that
easyCar went from having one vehicle type to having five vehicle types. Part of the
operational benefits of a single fleet is site specific. Any car can go to any customer and
significant economies of scale would exist in the maintenance of the fleet.
However, having different vehicles at different locations reduces easyCars flexibility to shift
vehicles between locations easily if demand is greater at one location than at another. This is
particularly an issue in shifting vehicles between Mercedes and non-Mercedes locations.
Customers who have paid a few euros extra a day to rent from a location that offered the
Mercedes vehicles would likely be disappointed if they showed up to pick up there vehicle and
were given a Renault Clio or Ford Focus. So operationally, what easyCar has done with this
change is to lower its cost some, but at the expense of some operational flexibility. The long
term question related to this is whether customers will develop preferences for specific vehicles
and how easyCar will deal with this on the market side of things. This situation can also be
used to introduce extending operations strategy issues to the supply function. Clearly the move
by easyCar pushes their vehicle suppliers to offer competitive prices, although it moves
easyCar away from a supplier partnership model intended particularly to improve quality and
flexibility along the supply chain.
(iii) Clean Car Policy: This change is clearly very consistent with easyCars low cost strategy.
Basically it represents a transfer of a task traditionally done by the company to the customer.
Operationally, it has several implications. It reduces the need for staff at the rental site, helping
easyCar reduce one of its costs. More significantly, perhaps, it also speeds the turnaround of a
vehicle. That is, this policy, combined the empty fuel policy, means that most vehicles are
returned in a condition that allows them to be immediately rented to the next customer. This
helps easyCar maintain a very high fleet utilization. But what is also interesting operationally
is that it makes the employees task somewhat less predictable. Whereas with the old policy
employees knew they would have to clean each vehicle, and they knew how many vehicles were
coming back each hour, with the new policy there is an additional element of uncertainty in the
process because an occasional car will need to be cleaned. This may mean that one or more
customers may have to wait at the easyCar site while the employee cleans such a vehicle. This
is particularly an issue at sites which are staffed by a single employee.
It is worth mentioning that the change in policy on the operational side has a real impact on the
market side as well. The policy lowers the price to customers willing to take the time to wash
the car by 7 (i.e., through reduction of the vehicle preparation charge from 11 to 4) while
increasing the price of the vehicle to customers not willing to wash the vehicle by 9 (i.e., such
customers now pay a 4 preparation fee + a 16 cleaning fee instead of the previous 11
preparation fee). EasyCar is likely to pick up some new, price sensitive customers by the 7
reduction in price. However, for customers who do not want the inconvenience of cleaning the
vehicle, the 9 price increase may push some of them toward traditional rental car companies.
(iv) Empty to Empty Policy: This change, like the previous one, is clearly consistent with
easyCars low cost strategy. Operationally, the empty to empty fuel policy would seem to
significantly reduce the chance that an easyCar employee would have to deal with the gas level.
Previously, customers had to worry about taking the time to fill the tank. Customers running
late might skip this step to save time, leaving the task for an easyCar employee. With the new
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policy, the gas can be at any level as long as the low fuel indicator light is not on. Since most
drivers are unlikely to allow the gas level in their vehicles to drop this low anyway, the chance
that an easyCar employee would have to deal with putting gas in the car is small. Combined
with the previous change, this policy basically means the vast majority of customers bring their
car back in a condition that allows it to be immediately re-rented.
(v) Requiring Customers to Purchase Insurance: This policy change probably has greater
implications on the marketing side than on the operations side. Operationally, however, it
greatly reduces the likelihood of conflict between customer and easyCar employee when a
customer returns a damaged car. Previously customers who did not purchase the optional
insurance had some liability, and the employee on duty would have to sort this out with the
customer. This can be a time-consuming process, and present difficulties particularly for a
location staffed by only one person. Such incidents would likely cause delays for other
customers attempting to pick up or return cars at the same time.
6. How significant are the legal challenges that easyCar is facing?
Clearly the Office of Fair Trading (OFT) ruling against easyCar is much more significant than is the
posting of the pictures of renters with overdue vehicles. A discussion of the OFT ruling against
easyCar can be used to reinforce the cost benefits gained from easyCars demand management system
and its high utilization rates it achieves. According to the quote by Stelios, allowing customers 7 days
to change or cancel reservations without penalty would cause utilization to fall from 90% to 65% and
prices to triple. While these estimates are in all likelihood an overly pessimistic assessment of the
impact, the impact nevertheless would be significant given the central role yield management plays in
easyCars approach. Further, it is worth using Stelios estimates to give students a better feel for the
significance of the high utilization rate that easyCar achieves. At a 90% utilization rate, easyCar
would have (0.9)(24,000) = 21,600 vehicles rented out at any given time by the end of 2004 if its
growth goals are realized. To have the same number of vehicles on rent at the end of 2004 with a 65%
utilization rate would require a total fleet of 33,200 (21,600/0.65) or a 38% larger fleet than currently
planned. Further, current easyCar facilities rent as few as 15-20 spaces in a parking garage to operate
a fleet of 150 cars. To service the same number of customers out of a location at a 65% utilization rate
would require a fleet of 208 (0.9*150/0.65) vehicles and an absolute minimum of 72 (208*(1-0.65))
spaces to park un-rented vehicles. Students could be asked what would happen to easyCars hoped for
10 million profit if it had to purchase an additional 9,000 vehicles and quadruple the size of all of its
facilities. Going through this analysis and asking students to think about and calculate the impact on
profits should drive home the cost savings achieved from the high utilization rate.
The other legal challenge easyCar faces deals with its posting of the pictures of customers with overdue
vehicles. This is not as significant, both because its impact is not as great and because no legal action
has yet been taken. The value of including this in the case, and possibly in the discussion, is two-fold.
First, it indicates to students the significant cost of this problem to the rental car industry. Second, it
illustrates that basically a zero mistakes process must exist for implementation of this policy to
minimize the chance of any legal claim against the firm.
7. What is your assessment of the likelihood that easyCar will be able to realize its goals for 2004?
This question is really intended to bring closure to the discussion. The established goals, a quadrupling
of sales from 27 million to 100 million via the opening of 130 new locations in the next two years
while realizing a 10 million profit, are certainly ambitious. It is worth noting that easyCars
operational model certainly makes opening new locations easier than for traditional rental car
companies, given the minimum facilities required and the creation on the part of easyCar of vans with
all the equipment needed to run a location. The bottlenecks for expansion more likely rest with hiring
and training all of the employees to staff these locations, as well as providing sufficient marketing
support to launch 130 new locations on a minimum marketing budget. The greater challenge
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operationally will be to continue to find ways to drive costs down while maintaining customer
satisfaction so that it can realize profits at the same time.
USE OF THE CASE IN A STRATEGIC MANAGEMENT CLASS

The case, as written, could also be used in a strategic management class to discuss or illustrate how
functional strategies need to be aligned with corporate strategies, how a low cost strategy is implemented,
and what constitutes a durable competitive advantage. The following questions are suggested as possible
discussion questions for using the case in a strategic management class. Questions 1-4 and 7 are very
similar to those described above, only broadened somewhat to better fit a strategic management course.
Questions 5 and 6 are unique and are intended to point students toward important strategic management
concepts. In relation to a strategic management class, the idea of strategic groups could be included in the
discussion of Question 1 (with a strategic group map being built along dimensions of price and
service/quality). Discussion of Question 2 can be broadened to include issues relating to finance (e.g.,
customers paying in advance has a big impact on cash management) and marketing (e.g., advertising on the
side of the car, posters in subway, bus, and train stations). Question 5 is intended to highlight that process
innovation can be as or more important than product innovation in creating competitive advantage.
Question 6 allows for a discussion of how a company goes about achieving a sustainable competitive
advantage and whether or not easyCar.coms strategy and actions are consistent with creating such an
advantage. The strategy easyCar.com is pursuing is likely to be at least somewhat sustainable because the
rental car industry is not terribly dynamic, the major competitors are unlikely to try to imitate its strategy
because of prior strategic commitments, and easyCar.coms advantage is built around process innovation is
not always easy for a competitor to copy.
1. What were the characteristics of the car rental industry that made it attractive to Stelios?
2. EasyCar obviously competes on the basis of low price. What does it do across the business to
support this strategy?
3. How would you characterize the level of quality that easyCar provides?
characterize the level of customer responsiveness that easyCar provides?
How would you
4. Is easyCar a viable competitor to taxis, buses and trains as Stelios claims? How does the design of
5. It has been argued that innovation is the single most important building block of competitive
advantage. Does that appear to be the case for easyCar? Why or why not?
6. Is easyCars competitive advantage sustainable? Why or why not?
7.
What is your assessment of the likelihood that easyCar will be able to realize its goals for
2004?
EPILOGUE
In March of 2003, easyCar had announced that it was going to make as many as 12,000 vehicles available
from unmanned pick up points by the end of 2004 through the use of car clubs. EasyCar had started
testing the technology at one of its locations in London in the spring of 2003. Customers would still
reserve a car via the Internet, then call on their mobile phone when they arrived at the vehicle. EasyCar
operators would then unlock the car remotely using mobile technology connected to the vehicles locking
system. Customers would then get the keys from the glove box and be on their way. EasyCar was going to
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allow only customers who proved trustworthy through the hire of cars from ordinary locations to use the
club vehicles, and there would be no preparation fee associated with the club vehicles.1
By June of 2003 easyCar had 53 locations open (up from 46 in January, 2003) and had reached a fleet size
of 8000 vehicles. This was well off its desired pace of opening two new locations a week. In July of 2003,
easyCar admitted that its expansion and profitability goals were not being achieved. It cut its workforce
from 150 to 60 and reduced its operating hours to save costs. It also began closing some unprofitable
locations. It had closed its operations in the Netherlands and was looking for franchisees to take over
operations of facilities in France, Spain, and Switzerland. Plans for an IPO were put off until 2005 or
later.2 Several of the other easyGroup businesses (easyInternetcafe in particular) were also still struggling,
and Stelios had to sell 17 million of his stock in easyJet.com to keep the various easyGroup businesses
going.3 During the fall of 2003, easyCar received bad press because of complaints from customers about
cars not being available as promised and not being able to find easyCar staff at certain locations.4
By February, 2004, easyCar had operations in only 39 locations, 30 of which were in the UK. In June,
2004, easyCar undertook a major shift in strategy and signed a brokerage account with Alamo Rent-a-Car
that added 740 rental locations in 21 European countries to its website. 5 EasyCar still operated its own
UK-based rental operations with the same policies that it had been using, but everywhere else in the world
it served as only a broker. Certain policies were extended to these brokerage rentals (e.g., no refunds for
cancellations, a preparation cost in addition to the daily rental charge), while others (e.g., clean car policy,
fuel policy) were not. Essentially easyCar provided the marketing strength of its brand and its website and
managed the pricing/yield management process, while Alamo managed the actual fleet and facilities. By
October, 2004, this brokerage arrangement had been extended to 300 locations in the U.S. 6, and easyCar
planned to continue this rapid expansion through brokerage agreements.
REFERENCES
Garvin, D.A. (1984) What does Product Quality Really Mean? Sloan Management Review, 26(1), pp.
25-43.
Hill, T. (1999) Manufacturing Strategy: Text & Cases, 3rd Ed. McGraw-Hill/Irwin, New York.
Levitt, T. (1972) Production-Line Approach to Service. Harvard Business Review, September/October,
pp. 41-52.
Parasuraman, A., Zeithaml, V.A. & Berry, L. (1985) A Conceptual Model of Service Quality and its
Implications for Future Research. Journal of Marketing, 49(3), pp. 41-50.
Mackintosh, J., EasyCar plans unmanned rental pick-up, Financial Times, 3 March 2003, p. 4.
EasyCar put brakes on stock listing, 21 July 2003, BBC News.
3
Rogers, D., Not so easy after all, Marketing (UK) 10 July 2003.
4
How easyCar gives angry clients the runaround, The Guardian, 1 November 2003.
5
Digests, Marketing Week (UK), 17 June 2004, p. 9.
6
easyCar hits the states, The Guardian (London), 2 October, 2004.
2
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CASE 2:
PEOPLE, SERVICE, AND PROFIT AT JYSKE BANK
INTRODUCTION
The Jyske Bank case provides an excellent opportunity to focus on strategic change, market positioning,
service quality/excellence initiatives, and the Gaps Model of Service Quality.
The Jyske Bank case describes the change process the bank underwent over an approximately 8 year
period. Beginning as a typical, prudent, conservative, and largely-undifferentiated organization, Jyske
Bank turned itself into the enfant terrible of the Danish banking market, having a strong and distinct
personality/competitive position and delivering exceptional value to its (1) customershighest customer
satisfaction of any major bank in Denmark, (2) employeeshighest employee satisfaction of any major
bank in Denmark, and (3) shareholdersdelivering a 17.9% return to shareholders over a ten-year period
before a dramatic rise in its price earnings ratio at the conclusion of the case (source: attached Teaching
Note by case author, Roger Hallowell).
We have used this case as a concluding case for the course, as a final exam, and as an introductory case. It
works well for all of these purposes.
Our notes are adapted from the original case notes and provide a guide for using the Jyske Bank case in the
context of market positioning, service quality (illustration of implementation of the Gaps Model of Service
Quality), and service excellence. We have also attached a set of notes provided by case author, Roger
Hallowell, that focus more on strategic change, culture, and communication.

Topics Addressed
Strategic change
Corporate culture and values
Market re-positioning around values
Service quality
Employees roles in service delivery
Empowerment of employees
The power of tangibles in communicating service positioning

Chapter 2: Conceptual Framework for the Book: The Gaps Model of Service Quality
Chapter 12: Employees Roles in Service Delivery
Chapter 16: Integrated Services Marketing Communication
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PEDAGOGY
In teaching this case, we begin in a similar manner to that suggested in Roger Hallowells note (attached).
We begin by asking the question Would you invest in Jyske Bank? This generates a good discussion of
strengths and weaknesses and quickly brings out the positive data on customer satisfaction, employee
satisfaction, and shareholder returns. This discussion is brief about five minutes.
The case discussion can then turn to what the bank did (re-positioning around values) and why and how
these results were achieved (tangible and intangible changes, plus communication), using discussion
Questions 1 and 2 (see Student Prepartion questions below). Again, we follow the suggestions in the
original teaching note to bring out these points. This part of the discussion can be done in 15-20 minutes.
At this point we depart from the attached teaching note in order to develop a detailed discussion of the
Gaps Model of Service Quality using Jyske Bank as an illustration. Typically this is done in the first or
second week of class (following reading of Chapters 1 and 2) to get students focused on the elements of the
entire gaps model. An effective format is to divide students into small groups to discuss strategies that
Jyske Bank has used to close each of the gaps. Small groups can address 1 or 2 of the gaps in about 10
minutes and then come back together as a full class to debrief. Groups are called upon to report on how
Jyske has closed each of the gaps. The full class discussion of all of the gaps can take 25-30 minutes.
The case concludes with a discussion of whether Jyske can sustain its growth and success.
If time permits, the DVD of the Battle at Vejle can be shown at an appropriate point in the discussion.
The DVD is available through the European Case Clearing House and lasts 11 minutes. The European
Case Clearing Hourse (ECCH) can be found at www.ecch.cranfield.ac.uk; they may be contacted via
e-mail: [email protected] or telephone: Tel: +44 (0)1234 750903. ECCH is also located at Babson
College (www.ecchatbabson.org); they may be contacted via e-mail: [email protected] or telephone: +1
781 239 5884.
This case is well-suited for a services marketing/management course. Specifically, it can be used for the
following teaching objectives:
Understand how a service firm repositions itself through:

o Tangible changes
o Intangible changes
o Communication
Analyze specific implementation strategies related to each of the gaps in the Service Quality Gaps
Model:
o Gap 1 - The Knowledge Gap
o Gap 2 - The Service Design and Standards Gap
o Gap 3 - The Service Performance Gap
o Gap 4 - The Communication Gap
Examine strategies for sustaining growth and success following a major change initiative.
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1.
What is Jyske Banks new positioning or competitive differentiation strategy?
2.
What changes did the bank make to get to its new position? What effect did these changes have?
3.
Analyze Jyske Banks success using the Service Quality Gaps Model found in Chapter 2. What
are Jyske Banks strategies for closing the 5 gaps in the model?
4.
In your opinion can Jyske Bank sustain its growth and success? Would you invest in Jyske
Bank?

1. What is Jyske Banks new positioning or competitive differentiation strategy?
To be the most customer-oriented bank in Denmark

Focused on Jyske Differences (based on the banks core values) (See Exhibit 4 in the case for
details):
o Have common sense
o Be open and honest
o Be different and unpretentious
o Have genuine interest in and equal respect for people
o Be efficient and persevering
2. What changes did the bank make to get to its new position? What effect did these changes have?
Values drove changes specific practices that distinguish Jyske Bank are based on their values
(see Question 1 above)
They focused everything around the customer
Shifted from a product focus to a customer solution approach
Tangible Changes
Re-design of branches (modern/warm/original art)
Coffee available/caf/juice for kids
Play area for kids
Business cards with photos
Large round tables where 3-4 bankers are seated
Customers sit next to bankers
Intangible Changes
Reorganization around account teams primary point of contact
Training in team building and customer service (caring, asking, listening)
Empowerment of employees (decisions, spending)
Managers who think strategically and lead change through coaching
Select for social abilities, values, and attitudes
Jyske way of life strong culture
IT tools
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3. Analyze Jyske Banks success using the Service Quality Gaps Model found in Chapter 2. What are
Jyske Banks strategies for closing the 5 gaps in the model?
The Service Quality Gaps Model suggests that the Customer Gapthe difference between what
customers expect and what they perceive they are receivingis caused by the presence of one or more
Service Provider Gaps. That is,
Customer Gap = f(Gap 1, Gap 2, Gap 3, Gap 4)
Thus, the customer gap is closed by ensuring that all four of the provider gaps are closed. Strategies to
close (or eliminate) these provider gaps are as follows.
Gap 1 Strategies:
Focused on a specific targeted segment price premium/non-credit risk, families, and midsized businesses
Not for Everyone so they know their market segment well
Research by Dutch consultants revealed customers were interested in and responsive to a
Jyske type bank, and that they were also interested in softer attributes of servicenot just
price and location
Listen to customers via customer satisfaction surveys
Empower account teams to be able to customize solutions to fit needs
Focused on retaining customers and building relationships
Good communication up, down, and horizontal customer information flows easily
Gap 2 Strategies:
New IT systems helped employees take customer through a process to determine their needs
and the right solutions
Services are designed around Jyske values so they are consistent with positioning
Computers are visible to customers so they participate and are aware of process and decisions
New branch design warm, friendly, family-oriented
Shortened and streamlined loan process meets customer expectations
Gap 3 Strategies:
Support systems and technology for employees
Empowerment in decision making
Training in customer service listening, caring, asking
Management coaching and leadership
Measuring employee satisfaction
Internal communication video on Jyske Differences
Jyske Fun reinforces values Battle at Vejle
Managers discuss values with employees
Rewarded for service and modeling values
Gap 4 Strategies:
All communication elements are consistent with positioning (design, people, business cards,
checks)
Little advertising focus on word-of-mouth communication
Internal Communication is strong
4. In your opinion can Jyske Bank sustain its growth and success? Would you invest in Jyske Bank?
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Jyske Bank can sustain growth and success by:

Sticking with positioning and basic service-profit chain strategy
May need to expand to other market segments to continue growth, or work on getting people to
switch
Strategy is hard to imitate
Would you invest in Jyske?
Early in the case discussion, students can be asked whether they would invest in Jyske bank. Most
will say yes, citing the results listed below. Some may disagree citing concerns that the bank can
sustain its position and continue to grow.
Results (supporting a decision to invest in Jyske Bank)
Account profitability measures being put in place to assess profitability at an account level
Customer Satisfaction highest among competitors
Employee Satisfaction highest among competitors
High shareholder equity
People at other banks say they would switch to Jyske Bank, p. 16
Financial Results Exhibit 6
17.8% return, 1992-2002
ACCOMPANYING TEACHING NOTE

The accompanying teaching note by case author, Roger Hallowell, provides additional detail for teaching
the case focused on strategic change, service culture, people, and communication topics.
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People, Service, and Profit at Jyske Bank

Teaching Note
by Roger Hallowell
INTRODUCTION
The Jyske (pronounced somewhat like you-ska) Bank case was written for use with executives; however,
there is no reason it cannot be used with MBA or even undergraduate students of business. It has most
frequently been used as a discussion vehicle for change in service organizations (both for profit and not-forprofit), having the flexibility to focus a group on either the what or the how of change. It is also a useful
vehicle to introduce frameworks such as the Service Profit Chain (Heskett et al., The Service Profit Chain,
Free Press, 1997) and the old McKinsey Seven S framework developed by Tom Peters and his colleagues
(Peters, et. al., Structure is not Organization, Business Horizons
, 1979), which remains a tried and true checklist useful for managers working to create change.
The case encourages participants to explore a national sub-culture within a small nations culturethe
Jutlandish culture of rural Denmark. This culture within a culture is at the heart of Jyske Banks
organizational culture; the bank provides a good example of an organization that links the behaviors of its
employees to the values it espouses. While many firms attempt to use the notion of organizational values to
their benefit, few actually deliver on the promise those values contain as effectively as Jyske Bank has.
Discussion of the case enables participants to debate why this is so, and to relate what has worked for
Jyske Bank to what might work at their organizations (or in organizations with which they would like to be
affiliated).
Finally, the case provides an excellent vehicle to discuss Beer and Nohrias theories E and O of change
(Michael Beer and Nitin Nohria, Cracking the Code of Change, Harvard Business Review, May-June,
2000). Theory E is the classic American, hard driving, incentives-driven, top-down approach to change,
while theory O is the bottom-up, build organizational capabilities and motivate through commitment
approach. Jyske Bank is a good example of what Beer and Nohria refer to as Theories E and O combined,
which they describe as close to an ideal state.
SYNOPSIS
The Jyske Bank case describes the change process the bank underwent over an approximately 8 year
period. Beginning as a typical, prudent, conservative, and largely-undifferentiated organization, Jyske
Bank turned itself into the enfant terrible of the Danish banking market, having a strong and distinct
personality/competitive position and delivering exceptional value to its (1) customershighest customer
satisfaction of any major bank in Denmark, (2) employeeshighest employee satisfaction of any major
bank in Denmark, and (3) shareholdersdelivering a 17.9% return to shareholders over a ten-year period
before a dramatic rise in its price earnings ratio at the conclusion of the case.
VIDEO/DVD
A DVD is available from the European Case Clearing House to accompany the case illustrating The
Battle at Vejle (pronounced Vi-le) described later in this note. [Additional details as to how to acquire the
DVD were provided earlier in the Pedagogy section.]
TEACHING STRATEGY
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I often open the discussion by asking the question, At the time of the case, would you want to buy shares
in the bank or not? The purpose of the question is to illicit a description of where the bank was (largely
undifferentiated) and where it ended up, excelling in the delivery of value to its three major stakeholders:
employees, customers, and shareholders. I do not spend more than a few minutes on this topic as it can
quickly degenerate into a discussion of whether the run up in the stock price has reduced future stock price
increase opportunities, and other issues not germane to the purpose at hand.
To end the previous debate, I ask the question, How did the bank get from point A (largely
undifferentiated) to point B? I prompt the group to identify exactly what point B wasthe answer being
Jyske and leading to a discussion of Jyske Banks values and how they relate to the banks competitive
positioning (they are one and the same).
Once the values are out and on the board, I ask, What specific changes did they make? Answers should
include both tangible changes made to the branches and intangible changes made to the organization and
employees, both of which affect service delivery. I group these into two categories (tangible and intangible)
as suggested below:
Tangible Changes
Business cards (photographer, tinted yellow)
Cafs in the branches
Childrens play areas
Modern, up-scale look
Round tables (and sharing the computer screen with the customer)
Intangible Changes
Change from a product to a solution focus (I ask what this means in terms of behaviors in light of
the current superficial focus many organizations place on this concept)
IT tools
New employee behaviors, including caring, asking, and listening
Empowerment
Employee selection
Training
Managerial Role Modeling
Coaching
Measurement
Reengineering (the loan approval process)
Flattening the organization
Note: During this discussionwhich goes on for some time as the focus is on why the bank made each
change, how each was accomplished, and the effect each had on the organization, customers, and
shareholdersI link the particular change to the Jyske values whenever possible. For example, one can
ask, Did they have to empower employees in the way they did? While one answer is frequently that no
one has to do anything, a participant always interjects, Yes, they didbecause of the Jyske value of
common senseit only makes sense to do things the new way.
Once most of these items have come out and been discussed (depending on the time allotted to the case
discussion), I turn the discussion, briefly, to the topic of sustainability, by asking, Which of these sets of
changestangible or intangibleleads to a greater degree of sustainable competitive advantage?
Inevitably a participant states that the intangible changes contribute more to sustainability because they are
harder to copy.
The next important topic to cover is How did they get this overall change to occur? I often suggest that
perhaps it was the financial incentives offered that helped people to change their behavior. Eventually,
194
someone points out that when you do the conversion from DKK (Danish Kronor) to either U.S. dollars or
euros, you realize that these are tiny incentives. Clearly, no one gets rich as a result of working at Jyske
Bank. How then did the change occur?
To some degree what was done served as a catalyst for change (empowerment, flattening the organization,
streamlining processes). However, communication also played a significant role in driving change at the
bank. As discussed in the last portion of the case, the bank developed extremely creative and unusual
communication vehicles, including the previously mentioned Battle at Vejle. The Battle took place at
the banks every-third-year strategic meeting to which all employees were invited, and 82% of whom chose
to attend. The meeting consisted of a staged takeover attempt in which a large Swedish banks CEO
announces his plans for a friendly merger. The employees quickly learn that while the merger may be
friendly, the integration will be anything but, and finally send the Swedish CEO a clear message that they
prefer to remain independent. (The details of the Battle are discussed in the case, and the DVD is an
edited version of the meeting lasting approximately 11 minutes.)
After someone introduces the idea that communication played an important role in the change process, I
make a distinction between day-to-day communication, which occurs through vehicles such as managerial
coaching, and large-scale corporate communication efforts such as The Battle at Vejle, pointing out that
both have a role to play and each is important. Then I turn the discussion to the Battle by asking, Were
there any risks involved in staging the Battle? Here, participants with corporate communications
backgrounds are often vociferous, as most find the Battle to have been incredibly risky. This risk aversion
may explain why so few organizations communicate as effectively as Jyske Bank. The concerns must be
acknowledged, but they can be muted by asking, Why does the Battle seem to have worked for Jyske
Bank? A participant will begin to explain, and after a comment or two I ask the group if they would like
to see the Battle, and run the DVD.
At the conclusion of the DVD, I often ask, How would you have felt if you had been there? and/or Why
did the bank take the risk of doing this? Experiencing the Battle drives home the point made by an
executive of the bank that communication is best as a waterfall rather than a cascade. This can be
illustrated on the board graphically.
CONCLUSION
I often end the discussion by summing up the key points I want the group to take away based on its
composition, tying the learning to some of the frameworks mentioned at the beginning of this note. The
Service Profit Chain is explicitly mentioned in the case, and the bank is one of the best examples of an
organization managed according to its principles available for study. The Seven S framework can be
developed throughout the discussion, pointing out how the various changes the bank made map to the seven
Ssconveniently there is at least one significant change for every S (Strategy, Structure, Systems, Skills,
Staffing, Stylecultureand Shared Values). Finally, participants can be asked to contrast Jyske Banks
change process with others they are aware of as a way to link the discussion to Theories E and O.
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CASE 3:
GIORDANO
ZEITHAML, BITNER, AND GREMLER TEACHING NOTES1
INTRODUCTION
Giordano is one of Asias most successful retailers, with operations in East Asia, Southeast Asia, and the
Middle East. The success of Giordano was attributed to factors such as providing excellent customer
service, understanding consumers needs and wants, stringent selection and training of staff, short design to
production cycles, and extremely good inventory control and turnover. With a strong emphasis on customer
service and value-for-money, Giordano was able to differentiate itself from its competitors. The question
was: How could Giordano maintain its competitive advantage in the future?
Amidst increasingly stronger competitors and changing industry conditions, Giordano had to critically
evaluate its sources of competitive advantage and key success factors, and perhaps consider repositioning
itself in current and new markets. Furthermore, Giordano needed to examine which key success factors
could be maintained or even strengthened, and which of its key success factors were likely to be eroded
over the coming years. Furthermore, Giordano had to consider if its key success factors could be
transferred to international markets that it planned to enter.
SUGGESTED USES OF CASES WITH ZEITHAML, BITNER, AND GREMLER TEXT

Topics Addressed
Positioning and expansion choices for a company

International retailing
Successful integration of a service strategy
Positioning based both on value-for-money and service
Identification and perpetuation of key success factors
Chapter 7: Building Customer Relationships

Chapter 14: Delivering Service through Intermediaries and Electronic Channels
The Giordano teaching note was prepared by Jochen Wirtz, the case author, and edited for inclusion in
this Instructors Manual.
1
196
PEDAGOGY
This case is well-suited for a retailing or services marketing/management course. It demonstrates the
power of a tight integration of marketing, operations, and human resource management to deliver valuefor-money. Specifically, it can be used for the following teaching objectives:
From a marketing perspective, this case can be used to demonstrate the successful integration of a
strategy based on service-orientation, value-for-money positioning, and aggressive advertising and
promotions.
From a management perspective, the case can be used to highlight how the marketing strategy is
being delivered through a clear focus on service staff (selection, training, and motivation) and
operations (logistics, IT, and communications), combined with an organizational culture that
encourages staff to try new things.
The case is suitable for analyzing current competitive advantages, and carving out potential future
competitive advantages in a services/retailing context. For example, strategic analysis models such
as Porters industry analysis and value-chain models can be applied to examine the sources and
sustainability of Giordanos competitive advantages.
Finally, the case can be used to explore the transferability of key success factors and strategic
advantages to new markets. Strategic and tactical adaptations that may be necessary to
successfully transfer a proven formula to a new geographical market can be examined. Here, it
might be useful to discuss Giordanos strategy in the context of the country of instruction to allow
students to more easily identify with the case.

The following questions can be provided to students in advance of the discussion of the case in class that
will focus their learning:
1. Discuss and evaluate Giordanos product, business, and corporate strategies.
2. Describe and evaluate Giordanos current positioning strategy. Should Giordano reposition itself
against its competitors in its current and new markets, and should it have different positioning
strategies for different markets?
3. What are Giordanos Key Success Factors (KSFs) and sources of competitive advantage? Are its
competitive advantages sustainable, and how would they develop in the future?
4. Can Giordano transfer its key success factors to new markets as it expands both in Asia and the rest
of the world?
5. How do you think Giordano would have to adapt its marketing and operations strategies and tactics
when entering and penetrating your country?
6. What general lessons can be learned from Giordano for major clothing retailers in your country?
197

1. Describe and evaluate Giordanos product, business, and corporate strategies.
Product Strategy. Giordano sees itself as being more than just a retailer of casual apparel. It was able
to successfully incorporate customer service as part of its product. Besides its brand name, logo, style,
and quality, excellent service has become part of the tangible products sold at Giordano stores. For
instance, Giordanos no-questions-asked and no-time-limit exchange policy can be seen as an
augmented product offered by Giordano. Customers have come to associate service excellence as an
integral component of Giordanos merchandise. Giordano is able to provide a high level of customer
service through a concerted effort, which involved every employee of the company. However, it is also
essential to recognize the importance of the management and leaderships commitment to be customeroriented and to provide high quality service.
Besides incorporating service as part of its product, Giordano focuses on the concept of value-formoney. Giordano is constantly aiming to improve the value of the product. Being customer-oriented
allows Giordano to focus on what the companys products mean to the consumer. Customers are often
encouraged to request certain product adaptations if current products fail to meet their expectations.
For instance, Giordano removed its logo from some shirts. Another example is Giordanos invitation to
customers to set the price of its jeans.
Giordanos other product strategy is to sell a small number of core products in its stores. While other
retailers have 200-300 items, Giordano has only 17 core items. Flexibility and speed is essential in the
retailing industry, especially when the fashion trend is evolving constantly. Maintaining a restricted
range of core products has allowed Giordano to respond to market changes faster than its competitors,
and to keep costs down.
Business Strategy. There are three generic strategies advanced as business strategies (Porter): cost
leadership, differentiation, and focus, and combinations of these three pure strategies. Giordano seems
to pursue a combination; that is, a focused differentiation strategy. The primary source of
differentiation comes from Giordanos commitment to quality, in terms of the products it sells and the
service it provides to customers. This can be illustrated by its dedication to training and motivating its
front-line staff as well as its no-questions-asked return policy. Giordanos strategy is focused on
customer responsiveness (understanding what its customers want and putting their interests first), as
well as on a specific niche: value-conscious consumers who want affordable yet trendy casual apparel
with reasonable quality.
Students may argue that Giordano is changing its focus to expand the market niche that it has been
serving to include a more upscale market segment. However, this is done carefully to prevent a loss of
existing customers who may become confused by the value proposition that Giordano provides to them.
For instance, its launch of the Bluestar Exchange line clearly indicates its commitment to the existing
value-for-money segment, but at the same time it is upgrading its core brands position so that
customers may eventually perceive that Giordano stands for more than just low priced apparel. With
the successful launch of the new product line and re-launching of Giordano Ladies and Junior,
Giordano appears to have overcome the main problem that niche strategies facethat is, the inability
to move to new niches. This is elaborated further in the next question.
Corporate Strategy. Giordano initially adopted a tapered vertical integration (backward) strategy, as it
had manufacturing plants in the Philippines and Mainland China, while also sourcing from external
suppliers. This was deemed necessary to allow better cost and quality control, and the strategy worked
until the currency crisis hit Asia. Competition amongst suppliers (manufacturers) of good quality
apparel became so intense that prices came down dramatically, and it became an opportunity cost to
rely on Giordanos own manufacturing division for supplies. There could be other reasons, such as
rising operating costs, putting pressure on the firm to look for alternative sources of supply. In fact, in
1999, the Philippines plant was closed down, and Giordano concentrated on their core business in
198
retailing/distribution. This can also be evident in their allocation of investments to expand its retail
outlets. Students can argue that this strategy is risky but consistent with Giordanos core competency,
that of customer responsiveness, as opposed to operational efficiency.
2. Describe and evaluate Giordanos current positioning strategy. Should Giordano reposition itself
against its competitors in its current and new markets, and should it have different positioning
strategies for different markets?
In evaluating Giordanos positioning strategy, students should comment on whether Giordanos
strategies are distinctive enough to create a clear image in the minds of the consumer. In addition to
that, students should discuss the superiority and visibility of the differentiating advantages utilized by
the company.
Students should not have problems in identifying Giordanos current positioning to be that of valuefor-money or quality merchandise at affordable prices [product differentiation]. Students may also
identify the positioning strategy to be that of the high level of service provided to customers [service
differentiation], or that Giordanos sales staff are dedicated, ever-smiling, well-mannered, and helpful
[personnel differentiation]. Students could also be asked to identify the reasons for the success of this
positioning, such as filling a gap in the market for trendy, yet reasonably-priced unisex apparel,
reinforcing the positioning with the appropriate marketing communications, and the delivery of quality
service.
The possibility of changing current positioning in the light of developments in the industry, particularly
with respect to consumers desire for trendier fashion, as well as the increase in the number and
strength of competitors, should also be discussed. For instance, students could critique the firms
interpretation of these trends and its subsequent decision to upgrade its image and capture the up-scale
segment. Obviously, this move may cause problems with its current core target segments. This was
apparent from the failure of its Giordano Ladies venture, because the positioning strategy failed to
differentiate the up-scale segment from the value-conscious segment. Giordano has fought hard to
establish its brand name for its value-for-money proposition, but it is also because of its established
branding that Giordano cannot easily change its positioning. However, it can be seen that Giordano
took measures to avoid the problems of brand dilution, and to overcome its apparent difficulty in
moving consumers perceptions of Giordano toward a high-end positioning. For instance, it established
a new product line, Bluestar Exchange, to cater to the needs of its existing value-for-money segment,
and revamped the core brand with extensive marketing communications and gave its stores a new
look. Giordano initially tried to acquire Theme International in November 1999 to carry its line of
upscale ladies apparel, but its take-over bid was rejected by Themes management and stockholders.
Instead of giving up entering the upscale market segment, it re-launched Giordano Ladies and Giordano
Junior to carry a trendier line of apparel, with encouraging results. Apart from the product range and
positioning, students probably will conclude that the firm should not lose its focus on customer service
as one of its core differentiating factors.
Students could identify possible problems with having different positioning strategies in different
markets. For instance, the recent slight shift toward a higher end from the current low-end value-formoney positioning in Hong Kong was not fully executed in its other markets. Customers in these
markets may become confused as to what Giordano stands for, and this inconsistency makes effective
service strategy implementation difficult, particularly as consumers are becoming increasingly mobile
and travel more frequently between Giordanos core markets. In addition, economies of scale in
apparel purchase, design, and market communications may be diluted, if different strategies are
followed across markets. If this trend persists, Giordano may dilute its brand name and might possibly
weaken its competitive advantage in other areas as well. Perhaps Giordano would do better to keep a
consistent positioning, keep its management focused on its core strengths, and send a clear message to
all its staff and customers. Students may recommend that Giordano gradually and slowly move its
positioning upwards to meet the rising affluence, and hence the resulting desire for high-end apparel, of
its core target segment (see Exhibit 1).
199
As Giordano enters into new markets and faces strong and similarly positioned competitors in these
markets (e.g., The Gap in the U.S., Japan, and most European markets), the pressure to adopt a slightly
different position that suits the unique market situation of a particular country may increase. In this
case, students could suggest that Giordano acquire another existing brand or start up a new business
entity under a different brand, with its own positioning strategy. In fact, this is illustrated by
Giordanos recent venture, Bluestar Exchange, which caters to a more price-conscious, mass-market
segment. However, this strategy is extremely risky due to the costs involved in building a new
marketing strategy and brand, and students may come to the conclusion that having a consistent
positioning may be the better option even if it means competing head-on with established brands.
In conclusion, a potential strategy for Giordano could be to maintain its positioning in Hong Kong and
over time slowly and gradually shift its position in other slightly more upscale markets to follow its
Hong Kong positioning. This strategy would have the added advantage that it would move upwards
together with its core target segments, which is also developing upwards in terms of education and
increasing disposable income (most of Giordanos Asian markets are developing fast). It may be better
for Giordano to maintain a consistent positioning across all markets, even when Giordano decides to
enter countries with entrenched competitors with similar positioning. Should these competitors be too
strong, perhaps it would be better not to enter this market rather than try to establish a new brand and
strategy. The main reason is that this would be expensive and high risk as less of Giordanos core
strengths could be transferred to this new market, and benefits from economies of scale could not fully
be reaped (e.g., in terms of manufacturing volumes, marketing, training).
200
EXHIBIT 1: Proposed Relative Positioning Map

Up-market
E
TH
KEY
BA Baleno
BS Bossini
E Esprit
G Cur Giordano current
GL Giordano Ladies
G New new, aspired position for all its
country operations
HT Hang Ten
TH Theme
Specific
segment
G New
General
appeal
GL
BA
HT
G
Cur
BS
Value-for-money
Note: Exhibit 1 shows that Giordanos international operations (as shown here for its South-East Asian operations) could
move to position G New to regain a consistent positioning across its various geographical markets, and to converge with
Giordanos current positioning in Hong Kong.
EXHIBIT 2: Porters Five Forces in the Retail Apparel Industry

RISK OF ENTRY BY POTENTIAL
COMPETITORS
= MODERATE Investments in
brand building, and retail outlets
needed
BARGAINING POWER OF
SUPPLIERS
= LOW Suppliers can be
replaced easily
RIVALRY AMONG
ESTABLISHED FIRMS
= HIGH Price and
non-price competition
increasing in intensity,
slower demand growth
THREAT OF SUBSTITUTE
PRODUCTS
= LOW Lack of substitutes for
casual clothes
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BARGAINING POWER OF
BUYERS
= MODERATE Low switching
costs but no collective bargaining
power
3. What are Giordanos Key Success Factors (KSFs) and sources of competitive advantage? Are its
competitive advantages sustainable, and how would they develop in the future?
This question can be approached from a service strategy perspective. First, the apparel retail industry
Giordano is operating in can be analyzed using Porters Five Forces framework. Further insight can be
derived from an industry value-chain analysis to examine how Giordano currently captures value.
Second, Giordanos sources of competitive advantage and KSFs could be identified and their
sustainability evaluated. In addition, recommendations on how its KSFs could be developed or eroded
can be presented.
Using Porters (1979) five forces framework, it can be shown that the retail apparel industry is
currently attractive to incumbents like Giordano, but with competition being the main threat, the
importance of maintaining and developing sustainable advantages becomes apparent. This is
summarized in Exhibit 2.
The impact of the five forces on the retail apparel industry could be discussed as follows:
Suppliers have low bargaining power, as Giordano owns the brand name of the end product as
well as the customer interface. Production can also be easily switched from one manufacturer
to another.
Customers have little to no collective bargaining power. However, customers seeking valuefor-money can easily switch from one retailer to another, compared to customers who seek
specific apparel brands.
Competitive rivalry is high and increasing in intensity in the casual apparel industry. This
seems to be caused by lower growth rates, and the aggressive behavior of incumbents who
currently focus relatively more heavily on non-price competition.
Threat of potential new entrants is moderate as substantial investments in brand building and
a network of outlets would be required. However, large international chains such as The Gap
would have the required resources to enter should the markets appear sufficiently attractive.
Threat of substitutes for casual apparel is low because of the lack of good substitutes;
probably the cheaper imitation brands and unbranded products serve as the nearest substitutes,
but the target market is likely to be different.
Using Porters (1985) value-chain analysis (Exhibit 3) it can be shown that as an apparel retailer,
Giordano captures much of the value in the marketing, sales, and service stages of the industry value
chain. Furthermore, most of the value in this chain can be extracted by the brand owner and the
retailer (Exhibit 4). Both value-generators are owned by Giordano, which gives it a high valueextraction power relative to other market players.
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EXHIBIT 3: Porters Value Chain Analysis

Outputs
Inputs
Design,
Typical Value Research &
Creation in Development
Apparel
<3%
Industry
Production
Logistics
20 %
5%
Branding &
Marketing
30 %
Sales &
Service
45 %
Retail
Price
100%
Source: Adapted from Porters (1985) Value Chain Model; the value creation numbers are based on the case authors
estimates.
EXHIBIT 4: Value Capture in the High-Street Clothing Industry

Ownership of Customer Contact
(Sales and Service)
Ownership of Brand
Yes
No
Yes
Giordano, Baleno, Hang Ten,

Bossini, etc.
Brands not exclusively retailed (e.g.,

Three Rifles, Alain Delon)
No
Retailers with multi-brands

(e.g., Tokyu, Takashimaya, and
most department stores)
Manufacturers of merchandise
Note: Some brands use a combination of retail formats (e.g., distributing via multi-brand department stores as
well as specialty stores that only carry their own brand). Examples of such brands include Crocodile, Lawman,
and Lumberjacks.
203
Giordanos Key Success Factors (KSFs):

Giordanos competitive advantage over players in the same value-capture position as shown in Exhibit
4 (e.g., Baleno, Hang Ten, and Bossini) has been summarized in Exhibit 5. Giordanos KSFs and
sources of competitive advantage could include:
Excellence in design: fast and market-driven new product development, due to flat
organizational structure, excellent organizational communication, and dedication to the needs
of customers (e.g., style, fabrics).
Excellence in management of operations, logistics and information technology systems: this

includes effective supply chain management, inventory control, distribution, and integration of
purchasing and selling functions. Cost savings from efficient operations are transferred to
customers, thus delivering value-for-money.
Excellence in marketing and branding: strong positioning, brand equity for excellent service
and ability to deliver value-for-money, consistent execution of advertising and promotion to
strengthen brand image.
Excellence in service: continual commitment to providing excellent customer service and

response. This is the result of integration of the corporate philosophy and leadership, service
orientation of supporting functions like human resource policies (e.g., selection, training and
remuneration of frontline staff) and information systems, and performance monitoring (e.g.,
regular evaluations of service standards at store level and mystery shopping).
Good site selection: Giordanos location strategy provides a competitive advantage because of
its direct impact on ability to generate high volume customer traffic while keeping low margins.
In other words, it is the superior implementation of core and support activities that brought part of the
success to Giordano. Porter termed this as operational effectiveness (Porter, 1996, pp. 61-78); that
is, performing similar activities better than rivals perform them. From another perspective, Giordano
operates in the Cycle of Success (Schlesinger and Heskett, 1991, pp. 17-28), which is discussed further
in Question 6.
Students should attempt to evaluate the sustainability of these key success factors in existing country
markets, and suggestions on how Giordano could maintain these are provided in columns two and three
of Exhibit 5, respectively. Essentially, the basic criteria of sustainability should be identified; that is, it
must be difficult for competitors to copy and/or it must take time to copy, to allow Giordano to
maintain its advantage at least for some time. With continuous investment in human resources and
organizational commitment to service orientation; constant improvement in design and in the efficiency
of operations; and efforts in increasing marketing muscle by promoting its brand; most of the key
success factors, except site selection, are somewhat sustainable in the medium to long term.
For instance, excellence in design and service comes from the integration of many activities in the value
chain; it involves intangible elements such as organizational culture and it does not reside in any
particular individual. Thus, it is more difficult for competitors to poach this source of advantage and
overtake Giordano, as compared to simply acquiring superior technology or poaching good managers.
Moreover, even if competitors were to obtain this source of advantage, it might be difficult for them to
implement it as successfully, because many factors such as the type of organizational culture and
leadership would vary from company to company. Nevertheless, Giordano should never rest on its
laurels. Rather, it should look into new ways of improving and strengthening its advantage. One
important way of doing so is to continually invest in its human resources; as Fung (Chief Operation
Officer, SEA) rightly said, people are the key.
204
In the long term, sustainability depends on the management of Giordano being able to make Giordano a
customer-, logistics-, and technology-driven learning organization. As the preceding discussion clearly
shows, the main source of Giordanos success is the integration of its primary functions (e.g., logistics
and marketing) and support functions (e.g., HR and IT) in its value chain. This is largely sustainable in
the medium to long term, provided that Giordano continues (1) to invest in its human resources, (2) to
commit to its service philosophy and customer orientation, and (3) to monitor the industry and
competition for threats and opportunities.
205
EXHIBIT 5: Summary of Giordanos Key Success Factors
Giordanos Key Success Factors (KSF)

Design
Fast and market-driven NPD:
Systematically collects ideas from
customers, front line and
experienced designers.
Fast turnaround from market
impulse, design, manufacturing to
distribution to the shops.
Sustainability in Existing Country

Markets
Likely/Potential Future Developments

of KSF
Somewhat sustainable
Relies on effective organizational
communications and other
intangible sources of advantage,
which are difficult for competitors
to copy and implement effectively.
Operations, Logistics, and IT

Excellent management of systems and
integration of activities, e.g., stocks
obsolescence costs are minimized due
to:
Daily sales reports (facilitated
through IT and systems).
Limited stock in shops that are
restocked daily.
Rapid market-driven
manufacturing.
Branding and Marketing

Giordanos Brand:
Positioning - helps instant transfer
of key values Giordano offers
(value-for-money, good quality
casual wear, excellent service).
Excellent brand recognition due to
high advertising budget.
Customer Service
Fantastic customer service:
Service orientation is pervasive in
many of its activities.
Recruitment, selection and training
of staff.
Empowerment and motivation of
staff.
Location
Good, high traffic shopping and
convenience locations:
High contributions allow
aggressive retail location
acquisitions
Competitors could increasingly use

technology to assist in their design
process.
On Giordanos part, effort must
continually be made to obtain and
utilize feedback from target
customers.
Attracting and retaining good staff
in design is important.
Giordanos efficiency in logistics
and operations may be copied or
even exceeded with an acquisition
of superior systems. However,
there are not many competitors
who would be able to copy the
implementation and integration of
the systems on the scale that
Giordano has done.
Brand equity helps to build
customer loyalty.
However, Giordano faces threat of
strong competitors with similar
positioning and also from brand
dilution (e.g., cheap image) as
the market in general shifts upward
along with increasing incomes.
A service culture is one source of
advantage that competitors would
find difficult to copy.
However, Giordano needs to
ensure that this culture can be
maintained as it expands rapidly in
existing and new markets.
Other competitors have not yet

attempted to follow Giordanos
service strategy.
Difficult to sustain
Giordanos sites are an important
source of advantage, but other
competitors could also do the same
Competitors and new entrants will

successfully compete for good
locations
206
Other competitors would be likely

to try to emulate Giordano.
Needs to continually look for new
ways to improve and build its
advantage inside and outside its
industry.
Benchmarking against retailers like
The Gap and Liz Claiborne, which
are well-known for their
integration of IT systems and
efficient operations.
Biggest threat comes from

reputable players like The Gap.
Giordano should continue to invest
in strengthening its brand equity
through heavy advertising and
excellent customer service.
It could acquire another brand to
serve the higher-end segment.
4. Can Giordano transfer its key success factors to new markets as it expands both in Asia and the rest
of the world?
Students could first identify the factors that need to be considered as Giordano tries to expand
internationally. A possible framework is Lovelocks Service Management Trinity (Lovelock, 1996, p.
510), which clearly communicates the interdependence of marketing, operations, and human resources.
Therefore, this framework suggests that many of Giordanos key success factors, which resulted from
the sound integration of many primary and support activities in its value chain, could be transferred to
new country markets in Asia and beyond. A possible evaluation of the KSFs and recommendations of
what Giordano should do to achieve success is summarized in Exhibit 6. The transferability of key
success factors to new markets could be discussed as follows:
Design: The organization infrastructure (e.g., flat structure, good communication, use of IT
and customer orientation) facilitates the transfer of this KSF to new markets.
Operations, logistics, and IT: The complexities of the operations, logistics, and IT systems
would increase as Giordano expands geographically, and achieving efficiency and lean
processes in inventory management and distribution may become more difficult. However,
Giordano currently has the capability to implement systems, and it only needs to fine-tune and
upgrade its systems to deal with the local complexity. To transfer this KSF to new markets, the
existing IT system and integrative processes between the purchasing and selling functions must
be upgraded (e.g., through the use of Web-based Intranet systems, which facilitate real-time
information flow and inventory control across geographical boundaries).
Branding and marketing: While the positioning of Giordanos brand should remain consistent
across markets, the marketing mix could be varied to tailor to the specific market conditions.
This is not difficult considering Giordanos policy of empowering local managers (who have
more experience and knowledge of the local market) to make implementation decisions like
advertising and promotion. Hence, this KSF may be transferable to new markets in Asia.
However, in markets beyond Asia, Giordano faces the situation of saturated markets and
established competitors, some with similar positioning (e.g., The Gap). Thus, it is more
difficult for Giordano to differentiate itself in these markets (e.g., Japan, Europe, and Latin
America). In these markets, Giordano has to consider carefully whether it can achieve the
necessary market share and volume to obtain economies of scale needed (for advertising, etc.).
Nevertheless, there is little evidence to suggest that global presence is needed in its target
markets and for the positioning Giordano operates in. This situation differs for luxury brands
(e.g., Gucci or Chanel), which clearly benefit from a global presence and economics of scale in
building their brand equity on a global level.
Customer service: The key to good customer service lies in its philosophy, which is manifested
in various HR policies (e.g., recruitment and training). Thus, it may be possible for Giordano
to transfer this to new markets to the extent that it can maintain service levels by providing
training to local staff, monitoring performance, etc. More importantly, as the Gaps Model of
Service Quality suggests, it should evaluate service expectations from the customers
perspective rather than its own, and formulate standards accordingly. For instance, Giordano
should develop a greater understanding of the different service needs of its international
customers by gathering feedback from customers and utilizing it to fine-tune its service
standard for those markets. Despite Giordanos efforts in ensuring high quality service in new
markets, it may face some difficulty in positioning itself on service in some countries outside of
Asia. For instance, in Japan and the U.S., expectations on service are higher and it may be
almost impossible for Giordano to differentiate itself from those competitors with high quality
service. This is in contrast to much of Asia, where good service is the exception rather than the
norm.
207
Location: Giordano could continue to obtain prime locations for its retail operations with its
current cash hoard.
In conclusion, Giordano may be able to transfer many sources of competitive advantage to new
markets in Asia. With its emphasis on service, consistent positioning, aggressive advertising and
promotion, and fine-tuning of its support functions (e.g., its IT and HR policies), Giordano may be able
to achieve high volume through brand awareness and thus succeed in new markets.
208
EXHIBIT 6: Transferability of Giordanos Key Success Factors to New International Markets

Giordanos Key Success Factors
(KSFs)
Design
Fast and market-driven NPD.
Transferability to New International

Markets
Actions required to allow a Successful

Transfer of KSF
Likely
Fast turnaround from market impulse,

design, manufacturing to distribution
to the shops.
Flat structure
Good communication
Use of IT
Listening to customers and
observing trends
Operations, Logistics, and IT

Excellent management of systems and
integration of activities.
Likely
Inventory management and logistics

distribution increases in complexity.
However, Giordanos capability in
managing IT systems can be
utilized.
Branding and Marketing

Consistent positioning and customized
marketing mix.
Asia
Likely
Beyond Asia
Difficult
High advertising and promotional

budget.
Customer Service
Fantastic customer service:
Service orientation pervasive in
many of its activities.
Recruitment, selection, and
training (cycle for success) of
staff.
Empowerment and motivation of
staff.
Location
Good, high traffic shopping and
convenience locations.
Underdeveloped
markets offer
large
potential.
The service philosophy, HR policies

and performance evaluation
consistently emphasizes the
importance of providing excellent
customer service.
Likely
-
Aggressive advertising and brand

promotion is necessary to achieve
high volume, which then brings
economies of scale in advertising
and its other activities
Giordano should seek to understand

the expectations of local customers
and adapt its performance standards
accordingly.
Giordano should adapt its HR
programs to the skills and attitudes
of staff in its new markets.
Giordano has the necessary

resources and the contribution-persquare foot needed to acquire good
retail sites.
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Upgrading and adapting systems to

the specific market context e.g.,
using web-based systems for real
time information management and
coordination.
High volume is needed to obtain
sufficient scale economies to justify
high initial investment.
Saturated
markets and
established
players.
Likely
-
Increase knowledge base of

customer preferences, local and
international fashion trends, etc.
Constant upgrading of IT systems to
improve organization coordination
and communication in real time and
across geographical boundaries.
Good design staff is needed for each
distinct market.
Giordano should continue to seek

good locations and take advantage
of opportunities to expand in order
to achieve high volume and become
more accessible to customers.
5. How do you think Giordano would have to adapt its marketing and operations strategies and tactics
when entering and penetrating your country?
Strategy differs from tactics, with greater emphasis on planning, focusing on long-term issues, and
being future oriented. More importantly, an assessment of core competencies and sustainable
competitive advantages, which are primary considerations for strategy formulation, is required. As
alluded to earlier, core elements of Giordanos strategy should be maintained when entering any
country. This is the way to ensure a consistency in service and merchandise quality, which strengthens
brand equity and positioning, and facilitates the achievement of marketing communications objectives.
In this respect, strategy should be seen as something to remain intact in any country. What could be
changed are the tactics of implementationwhich are discussed subsequently.
The two dimensions of marketing and operations need to be addressed separately. It would be
detrimental to ignore potential differences in implementation in various countries, even within Asia.
However, the issue of standardizing or adapting the marketing program to the local context is a matter
of degree rather than the absolute (Kotler and Armstrong, 1994, p. 625). The key determinant is the
consumer, who may have significant differences in preferences toward the product and promotional
mix. For the case discussion it may be useful to ask the class to work on the consumer preferences in
the home country and discuss the degree to which Giordanos marketing mix is/might be perceived as
attractive. For example, younger customers in Singapore may prefer popular Hong Kong celebrities
like Aaron Kwok and Faye Wong to endorse the apparel rather than using local artists, whereas
customers in Thailand and Philippines may prefer their own home-grown artists more.
However, it may be far more useful to concentrate on the similarities between countries, which would
allow Giordano to transfer its competencies more easily and build brand awareness more rapidly. In
addition, as services are highly intangible, a strong global brand may offset this uncertainty by
providing recognition and reassurance. Global branding should be supported by co-coordinated
marketing communications and consistent corporate design. Nevertheless, when it is necessary to tailor
the service to local needs, the Flower of Service concept can be applied (Lovelock, 1996, p. 540). For
instance, it is easier to provide a globally standardized core service augmented by nationally
customized supplementary service elements (Lovelock, 1996, p. 549-550). Giordano can therefore
maintain its excellent service standards and good quality products across markets, while at the same
time appealing to local tastes/preferences and specific market conditions (e.g., offered modes of
payment).
While consistent global branding should be established, different cultures may not associate with the
product/service or brand in the same way. When designing the product/service and communicating its
brand image, it should be sensitized to cultural differences in order to avoid blunders that other
companies have made in the past. For instance, when IKEA entered North America in 1985, it largely
ignored American tastes and preferences. Instead, it stuck to its vision of selling typically Swedish
products wherever it ventured in the world, and as a result, the six stores that it opened in North
America between 1985 and 1990 did not become profitable. In 1990, it started adapting its
merchandise mix to the preferences of Americans, and by 1994 North American sales tripled to $480
million, and IKEA expanded to having 15 stores by 1995 (Hill and Jones, 1998, p. 243-244). Thus,
what Giordano could learn from this is that in order to rapidly gain market share and large volume,
Giordano must be careful to consider national and cultural differences in some aspects of its marketing
mix.
The operations strategy should complement marketing, but its focus would be on internal cost cutting
and efficiency. Globalization presents accessibility to cheaper or better resources, and higher volumes,
leading to economies of scale and the learning curve effect. More importantly, the key idea is to learn
and develop rather than merely transfer or apply known or proven strategies.
6. What general lessons can be learned from Giordano for major clothing retailers in your country?
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The first and foremost lesson ought to be the way Giordano managed to deliver a high level of service.
To begin with, the companys leadership has to recognize the importance of providing high quality
service to its customers. Selecting and recruiting the right kind of people is essential: Even the most
sophisticated training program wont guarantee the best customer service. People are the key. They
make exceptional service possible. To attract the right kind of peoplepeople who are dedicated to
making customers feel satisfiedthe company must be willing to offer attractive remuneration. There
is a saying, When you pay peanuts, you get monkeys. By offering attractive remuneration,
employees are motivated to stay, thus reducing the staff turnover rate, which is important in an industry
where employee turnover tends to be high. As part of a concerted effort, a retailer should be committed
to providing comprehensive training and development. A suitable reading to supplement these lessons
learned is the paper by Leonard A. Schlesinger and James L. Heskett (1991), Breaking the Cycle of
Failure in Service, in Sloan Management Review, 32 (Spring), 17-28. The characteristics of
successful firms operating in the cycle of success are summarized in Exhibit 7.
Clothing retailers can also think of ways to augment their products. For example, Giordano
incorporated its no-questions-asked and no-time-limit exchange policy. Other lessons include those
related to operational efficiency, as well as creating a strong positioning strategy for the company and
its products through aggressive advertising and promotions.
EXHIBIT 7: Common Elements of Firms that Operate in the Cycle of Success
Careful Staff Selection
Realistic Previews of Job and Organization
Focus on Nature and Quality of Job Experiences
Employee Empowerment and Latitude
Employees Awareness of their Roles in Customer Satisfaction and Economic Success
Scorekeeping and Feedback
Integration of Employees into a Winning Team
Focus on Aggregate Labor Cost Instead of Individual Wage Levels
Concentration on Quality at the Service Core
Source: Schlesinger, Leonard A. and James L. Heskett (1991), Breaking the Cycle of Failure in Services, Sloan
Management Review, 32 (Spring), pp.17-28.
211
REFERENCES
Hill, Charles W. L. and Gareth R. Jones (1998), Strategic Management An Integrated Approach, 4th
edition, Houghton Mifflin Co.
Kotler, Philip and Gary Armstrong (1994), Principles of Marketing, 6th edition, Englewood Cliffs, N.J.:
Prentice Hall.
Lovelock, Christopher H. (1996), Services Marketing, 3rd edition, Upper Saddle River, N.J.: Prentice Hall
Porter, Michael E. (1979), How Competitive Forces Shape Strategy, Harvard Business Review, MarchApril, Vol. 57, Iss. 2, p. 137.
Porter, Michael E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New
York: Free Press, London: Collier Macmillan.
Porter, Michael E. (1996), What is Strategy? Harvard Business Review, Nov-Dec, Vol. 74, Iss. 6, pp.
61-78.
Schlesinger, Leonard A. and James L. Heskett (1991), Breaking the Cycle of Failure in Service, Sloan
Management Review, Spring, Vol. 32, Iss. 3, 17-28.
212
213
CASE 4:
THE QUALITY IMPROVEMENT CUSTOMERS DIDNT WANT
INTRODUCTION
The primary focus of the case is on the introduction of technology as a means of delivering services
previously delivered by humans. The Quality Improvement case examines the potential introduction of an
automated patient check-in system being contemplated in a health care clinic.
The case provides a nice look into the role of technology, how it is implemented, and issues to consider.
This case could be used to illustrate and discuss issues related to new service development and
introduction. Some pricing and promotion issues are also raised in the E&Y case.
[Note: In previous editions of the textbook, we suggested teaching this case along with the Ernst & Young
LLP; it was included in the third edition of this text: Zeithaml and Bitner (2003) Services Marketing:
Integrating Customer Focus Across the Firm, New York, NY: McGraw-Hill Companies. The Instructors
Manual for the third edition of the text includes suggestions of how these two cases might be used together.]

Topics Addressed
Innovation in services
Delivering services through technology
New service development and implementation
Customer acceptance of new technologies
Employee acceptance of new technology services
Promotion and customer education for new services
Chapter 3: Consumer Behavior in Services

Chapter 6: Listening to Customers Through Research
Chapter 10: Customer-Defined Service Standards
Chapter 14: Delivering Service Through Intermediaries and Electronic Channels
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PEDAGOGY
Typically we begin discussion of this case with a short lecturette (additional time required for this) on how
technology is changing the nature of services. There are examples of the impact of technology throughout
the text in the Technology Spotlights and Chapter 14 is heavily focused on these types of examples.
Referring back to Chapter 1 and the section on Services and Technology is another way to introduce and
frame the discussion.
At the end of this case note we have included reprints of several expert opinions that were published in
the Harvard Business Review with this case. These can be provided to enhance the discussion. They
provide a nice view of a variety of opinions about the case, allowing students to see that experts do not
always agree on what should be done.
For additional background we would suggest instructors read (or assign to their students):
Mary Jo Bitner, Amy Ostrom, and Matthew Meuter, Implementing Successful Self-Service
Technologies, Academy of Management Executive, November 2002, Vol. 16, No. 4, 96-109.
Charles Fishman, The Toll of a New Machine, Fast Company, May 2004, 90-95.

1. Describe the basic situation in the Quality Improvement case. What decision is Allan Moulter
facing? What are the issues, challenges and tradeoffs?
2. Information technology is a powerful force in shaping service strategies. Used appropriately it can
increase customer satisfaction, improve efficiency, reduce costs, support front line staff, and even
radically change how services are delivered. Which (if any) of these strategic purposes do you
believe would be served by Quality Care introducing the proposed registration system? How would
you compare this proposed SST to other SSTs in the marketplace?
3. What would you do if you were Allan Moulter in the Quality Improvement case?

1. Describe the basic situation in the Quality Improvement case. What decision is Allan Moulter
facing? What are the issues, challenges and tradeoffs?
Allan Moulter, CEO of Quality Care, an HMO, has just received a consultants report recommending
that they install an automated check-in system for their healthcare clients. Health Care One, Quality
Cares primary competitor, is already using this type of system in 14 of its 22 facilities with full
implementation across all facilities expected in the next six months. The recommended computer
system would:
Ask questions about the persons condition and reason for the visit
Route the patient to the right staff person
Collect information that could later be used for insurance reporting purposes, etc.
All of this would be accomplished by the patient inserting his/her card into the computer and
entering information as requested
Allan Moulter is faced with a decision whether to take the consultants recommendation or not. His
CIO, Pat Penstone, is in favor while his VP of Marketing, Ginger Rooney, is opposed to the idea. The
issues revolve around costs v. benefits of implementing the new system. Neither are clearly defined at
this point in the case.
215
Potential benefits include:

Employees like it and want the system
Competitors are either doing it already or contemplating it
Increased customer retention (according to the consultant)
Up-to-date image
Improved efficiency
Better use of employee time
Needed for later insurance and government reporting requirements
Potential costs include:
Large dollar investment in the technology
Employee training
Customer education
Patients may perceive it as impersonal. Do patients really want this kind of automated
service in a healthcare context?
Is it needed? Patients are already happy with Quality Care. Would this new technology
increase or decrease their current level of satisfaction?
2. Information technology is a powerful force in shaping service strategies. Used appropriately it can
increase customer satisfaction, improve efficiency, reduce costs, support front line staff, and even
radically change how services are delivered. Which (if any) of these strategic purposes do you
believe would be served by Quality Care introducing the proposed registration system? How would
you compare this proposed SST to other SSTs in the marketplace?
Before turning to the actual case decision, this is a good point to pause and discuss the ways the
proposed technology is being used in this case. This discussion can be introduced by writing on the
board (or having a PowerPoint slide) with the following overview statements.
General Strategic Purposes/Uses Of Technology in Services:
improving efficiency and reducing costs
innovation providing new, innovative services
improving customer satisfaction and service quality
providing new access and channels for acquiring services
Once these general strategic purposes have been discussed, the issue can be raised of just how Quality
Care intends to use the new SST registration system. It will become obvious Quality Care does not
have a clear idea why it should introduce the technologythe strategic purpose is unclear.
Strategic Purposes/Uses of Technology in Quality Care:
system MAY reduce costs
system MAY increase quality, but unclear
system replaces human interaction
system requires customer involvement
system is highly visible to the customer
system becomes the service and the patient is the producer
3. What would you do if you were Allan Moulter at Quality Care?
It is interesting to take a vote at this point to see how many would implement the system and how many
would not. The pros and cons of the system can then be reiterated. This is a good point at which to
introduce the accompanying expert opinions to read and discuss. It is apparent from the experts that
216
this is not an easy or straightforward decision. The ideas provided in the expert opinions provide good
food for discussion. Reviewing the steps in the New Service Development Process (Figure 9.2) can
also provide a frame for this discussion.
Most students will eventually come to the conclusion that more information is needed, that a prototype
test might be in order, and that further patient research is needed before adopting the system.
Researching the success of the competitors systems might also be a good idea. The costs and benefits
also need to be more carefully assessed prior to implementation. Finally, even if the system is
eventually introduced, it will be necessary to continue to provide choices to patients since not all will be
willing or able to use the computerized system.
ADDENDUM
The Quality Care case is a hypothetical case prepared for the Harvard Busienss Review in 1996.
Technology applications have come a long way since that time, and there are now a few real situations
where such technology kiosks have been introduced within healthcare settings. A notable example is Baylor
Health Care System in Texas. Information about this application and a video of a case application in the
Sammons Breast Cancer Center can be found on the web site of Galvanon, a company that specializes in
these types of applications. See:
http://www.galvanon.com/healthcare/products/medikiosk.htm
or
http://www.galvanon.com/healthcare/clients/
ACCOMPANYING EXPERT OPINIONS

The expert opinions included on the following pages are reprinted with permission of Harvard Business
Review, from The Quality Improvement Customers Didnt Want, by Dawn Iacobucci, January/February
1996, 1996 by the President and Fellows of Harvard College, all rights reserved.
217
SHOULD QUALITY CARE INSTALL THE NEW SYSTEM?

Six experts examine the effect of new technology on customer satisfaction.
THOMAS O. JONES is president of Elm Square Technologies, a company based in Andover,
Massachusetts, that is developing advanced customer-service software.
This is a no-brainer: Quality Care should develop and install the new reception system. It will increase
value to the customer as well as overall customer satisfaction, improve employee morale, and provide a
strong financial return with a relatively small risk.
When customers are asked for feedback on a proposed change that is hard to picture, managers should not
put too much stake in their responses. Listening to customers is critical, but in certain situations a
company must rely on other methods to determine whether customers will value a proposed change. The
input that Quality Care has received from its customers seems to indicate that putting in a computerized
reception system would be a poor use of resources. However, there are several reasons to conclude just the
opposite.
First, customers traditionally find it extremely difficult to envision the benefits of technology, particularly
when it replaces an interaction with a live person. In a survey conducted for a company in an industry
related to health care, 82% of the customers said that they would not like the proposed automated customer
interface. But when managers went ahead with the installation, 71% of the customers immediately chose to
use it. And in subsequent dealings with the company, every customer who tried the system continued to use
it.
Second, when customers are given a choice between speed and accuracy on the one hand, and comfort and
caring on the other, all customers are not the same. In the population at large, most customers will opt first
for speed and accuracy and then for comfort and caring. Interactions with caring, live people can have a
profoundly positive effect on a service experience, but not as a replacement for prompt and proficient basic
service. There will always be those who choose human interaction over convenience, notably customers
experiencing serious illnesses and older patients who have trouble with newer technologies or unfamiliar
environments. Overall, however, a computerized reception system will provide a more streamlined, more
reliable, less stressful, and in many ways more enjoyable experience for the incoming customer.
Third, when it comes to customer satisfaction, Quality Care is not doing as well as it might seem. Allan
Moulter says that 86 % of the companys customers are either a four or a five on the five-point scale. He
seems pleased with that. Yet research has demonstrated that only fives are truly loyal. This means that a
significant percentage of the companys customers are not completely satisfied; their accounts are at risk.
Quite apart from reaching a decision on the new system, Quality Care must direct some attention toward
staying competitive on its base product offering. If it does not, all the additional services it contemplates
will have little effect.
Fourth, the change will provide the employees with the benefits of new infrastructure, an increase in their
own capability, and, without heavy cuts in staff, the ability to focus on other activities more valued by the
customer. Whats more, in terms of service management, the system will provide brutally accurate
information about service delivery levelsincluding actual waiting times. Better measurement of the
customers experience can lead to significant improvements.
Finally, what appears to be a major investment really isntor at least shouldnt be. The reception function
represents the rest of what Quality Care does; commitment to new technology here shows a commitment to
new technology in general. Even if the project eventually were to cost over a million dollars, the capital
expense for such an investment over five years would be roughly $300,000 per year. If the staff were
reduced by only five or six people across the entire organization, the savings would offset that expense.
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How should Quality Care move ahead? Assuming for a moment that there is no opportunity to create a
prototype for testing, the company should at least create a mock-up version for use in focus-group testing.
The user interface should be designed with great careit should be extremely friendly, even to the point of
using a full-motion video attendant to lead the customer through the process. Moulter should make sure
that every element of the design is customer tested.
Then, after carefully designing the processes and training the employees, Quality Care should install the
system in a single location. The company must ensure a comfortable, non-frenetic environment during the
initial test. Customers should be given a choice between unattended use of the system, attended use of the
system, and interaction with a live receptionist. The system should be portrayed as a service enhancement
not as a further dehumanization of the health care system.
If experience in the financial services, food services, and hospitality industries provides any indication, a
very large portion of the customer base will view the system as increased value, and the company can
certainly support those who dont. This case shows the myopic approach that many companies take in
listening to customers. Customers are good at saying how they feel, but not how they would act in a situa tion they have never experienced.
MARY JO BITNER is an associate professor of marketing and research director of the First
Interstate Center for Services Marketing at Arizona State University in Tempe, Arizona. She is the coauthor of Services Marketing (McGraw-Hill, 1996).
Moulters caution is well warranted. An automated reception system represents a major investment (in both
dollar and people costs) with an uncertain payoff. And although the market leaders have decided to make
the move, Moulter should not jump to install the new reception system out of fear that Quality Care will be
left behindespecially in light of the results of Quality Cares customer research and the fact that customer
satisfaction is not a particular problem for his company. That said, neither should he totally dismiss the
idea. Investments aimed at improving quality should reflect customers needs, but customers dont always
know what theyre going to want in the future, especially when technology is involved.
Instead, Moulter should put more time into analyzing the pros and cons of adopting this significant new
service innovation. Research results consistently suggest that companies that spend time up fronttesting
and developing a concept, analyzing the financials, testing the market, and planning an implementation
strategyhave the most success in introducing major new services. But those results are for companies
who do their own research; Quality Care should not assume that HealthCare One has done its homework in
this area. In fact, as part of Quality Cares research, Moulter may want to determine how the customers of
HealthCare One and Medicenters are responding to the new systems.
Why go through all that? Why not just make a decision now? Because once a program of this size has
been started, it is very difficult to reverse, even if levels of customer satisfaction drop and the new system
does nothing to make the company more efficient. The cost of change will be great; the cost of
backpedaling would be even greaterboth in dollars and in further inconvenience for employees and
customers as the company tried to regain lost ground and find a suitable course of action.
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It is well known that for many services, a customers first encounter with an organization can be the most
critical. Moulter needs to think about how an automated reception encounter would affect his customers,
who may be arriving for their appointments sick, unsure of themselves, and emotionally vulnerable. Would
Quality Care retain its aura of intimacy and personal concern in an automated environment? In addition,
Moulter should be aware that a computerized system would place new demands on customers, forcing them
to become, essentially, part-time employees of the company. The customers would be providing part of
their heath care service for themselvesand they may not want to do that.
Moulter must ask himself if it should be employees perceptions of quality service that dictate how the
system is designed and implemented. It would be far better to start with customers perceptions and needs
and then to work back into the system to determine the operating standards. Would the new system really
meet customers needs? The answer isnt clear.
There are two primary reasons to consider this investment: Either it should represent considerable cost
savings (without sacrificing customer-defined quality), or it should significantly improve levels of customer
satisfaction and retention. The big payoff for installing this particular system is stated as increased
customer retention over the long term. But since no one has had this type of system for very long, how
was the potential benefit of long-term retention determined? Has Moulter truly calculated the costs and
expected benefits in terms of retention? Has he pushed the consultant to determine the return on quality?
Have the decision makers in this case factored in the costs of educating their customers, training their
employees, and implementing the system? And have they considered the return on this investment versus
the return on other changes Quality Care might make to enhance its image as a premier HMO? Moulter
seems quite taken by the proposed system, but if there are no problems with the current reception process,
perhaps other improvements should be made first.
Finally, Moulter must reconsider the idea that the new system will enhance Quality Cares image as a
modern health care provider; that without it, the company will appear to be out of date. That may be true.
But Rooneys concerns are equally valid. What about the possibility that customers may perceive Quality
Care as cold, impersonal, and bureaucratic if the system is installed? There is more than one way to create
a modern image; technology isnt always the answer.
ERIC HANSELMAN is a corporate systems engineering manager at Bay Networks, based in
Billerica, Massachusetts.
Quality Care is grappling with a problem faced by many service based businesses: How can a company
adapt technology to help manage the flow of information while still presenting a personal face to the customer? Its never an easy task.
Right now, Moulter, Rooney, and Penstone seem to be focused on the wrong issues. The very idea of the
new system has dazzled them; theyve seen how their competitors are handling the technology; and theyre
proceeding as though this is an all-or-nothing decision. It isnt.
Unfortunately, too many managers in similar situations make the same mistake: They look at a working
system and try to accommodate it rather than objectively assessing their own requirements. Moulter,
Rooney, and Penstone need to examine their own goals and their customers desires and then begin to plan a
system for Quality Care. The company seems to have a unique strength in its rapport with customers. Its
managers need to think about how that strength can be leveraged to help both the company and the
customer.
First, they should consider the benefits and disadvantages of such a system for Quality Cares internal
operations. Its clear that an automated system could take some of the drudgery out of the receptionists
jobs. But does Moulter really know if the current process is problematic? Has that process contributed to
Quality Cares increasing employee turnover? Moulter should apply the same tools he uses to measure
customer satisfaction to internal issues. He should also give careful consideration to a point Rooney made:
220
If the customers enter data, who is going to check the information that is entered? That sort of potential for
error must be addressed early on.
Then they need to reevaluate the image factor. They seem to be concerned that the company will appear
outdated if it doesnt install the new system. The automated reception service would certainly have enough
IT glitz to make any technophiles among the customers or employees drool. But how valid is the concern
about appearances? So far, the customer surveys have not revealed a desire for a high-tech image. And
Penstones attempt to invalidate the survey data has an unfortunate I know best ring to it.
It seems reasonable to assume that Moulter, Rooney, and Penstone will decide to proceed with some type of
automated system. At that point, they must turn to the specifics of implementation. How can Quality Care
take advantage of the value that the technology can add without losing the customer satisfaction levels that
the current system generates? Rooney expressed concern about having two ways to handle customers, but
realistically, a gradual change is the best option. By gradually phasing in the new system, both the
employees and the customers will have time to get used to it, and the company will be in a better position to
work out any problems along the way.
Quality Care might want to begin the transition by issuing customers a member identification card when
they visit the office. (It sounds as though the company does not yet have such a system in place.) At first,
the customers will not even need to know how to use the cards; Quality Care can begin by training the
receptionists on a pilot system, and the patients can observe the receptionists reading the cards and using
them to update patients records.
Quality Cares IT group will be able to test the system, using the reception staff as trained operators in real
time. It takes a good deal of effort to change the way a company deals with information; the more time the
company has to observe and refine the process before rolling it out across the board, the better. In this case,
a final system for customers use would, most likely, be composed of a series of choices for answers to
common questions. Having the reception staff act as intermediariesasking customers the questions that
will later be asked by the systemwill let the company more accurately review the appropriateness of the
questions. This is also an opportunity for Moulter to continue to pursue his passion for surveying opinions.
Both customers and staff need to be polled about the system as it is developed.
Such an approach will also keep the initial costs down. At first, Quality Cares capital outlay will go only
toward inexpensive card readers. The company can buy computer systems that are tough enough for customers to use when the system is more fully defined. The risks will be lowered as well. The reception staff
will be able to revert to the old system in the event of any problems. The staff can also handle any anomalies that might arise.
To make the system work, it is important to offer clear value to the customer. At the outset, all cus tomers
should be presumed not to have a card. But as customers begin to return with cards, the company should
set up priority reception desks at which those who have begun to use the system will be able to proceed
more quickly to see the staff. As more and more of the customers are issued cards, more of the reception
facilities should be dedicated to card processing. As long as members see that they get better service with
the cards, they will be motivated to use them.
As more customers are issued cards, Quality Care can take the next stepinviting patients to check in by
themselves. If surveys show that customers are comfortable using the cards, the company might also want
to allow them to enter the reason for their visit and to check to see that their address and insurance
information is correct. If an address needs to be changed, customers who checked in with their card should
be given priority over customers who have not. Putting the card users back in line with other customers removes the benefit of using the cards and thus jeopardizes perceptions of their value.
Because the customer base is uneasy about technology, Moulter might want to consider a few options that
would make the system less imposing. Pen and tablet computer systems, for example, are used like a
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clipboard. Checking off boxes on a form is much more friendly than punching keys at a computer station.
And wireless technology would allow customers to register while sitting anywhere in the waiting room.
Although it is clear that Quality Care must move toward technology for solid business reasons, pursuing
that path in a way that serves their customers will ensure that both todays and tomorrows bottom line are
healthy. Technological arguments should never override customer input. Technology should always be a
toola means, not an end.
CHRISTOPHER A. SWAN is the manager of British Airways Marketplace Performance Unit, which
is responsible for tracking the quality of the airlines performance from the customers perspective.
This case highlights a common pitfall of the technology race: When one company adopts a new high-tech
system, its competitors are often tempted to follow suit without enough research and reasoning. But a
change that is right for one company may be wrong for anothereven another in the same industry. Before
Moulter invests in an automated reception system, he should figure out why Quality Care really needs it
and what it can truly do for the company and its customers.
Despite the tone of the case, I suspect that HealthCare One and Medicenters have not introduced their new
automated reception systems solely to benefit their customers. It is more likely that their motivation came
from a different source.
For example, perhaps HealthCare Ones back-office operations needed an overhaul. The case doesnt go
into such detail, but billing and client records may be a disaster area for the market leader. The company
may well be turning to high tech out of desperation.
Medicenters, on the other hand, may be using the technology as part of a strategy to protect itself from
losing market share. Its system may have been installed with the primary purpose of monitoring customers
so that the company can better understand and meet their needs. Its managers know that in order to retain
market share, Medicenters must grow as fast as the market grows. They also know that if Quality Cares
market share grows, it will be at the expense of competitors like Medicenters. The new system could be a
defensive measure.
Either way, for HealthCare One and for Medicenters the improved quality, customer benefits positioning
was probably an add-on. And either way, it doesnt matter. What matters is that each company probably
did make sure that its new systems advantages would outweigh any disruption to the customers. Moulter
needs to do the same.
It seems that Quality Cares back-office operations are in decent shape. If that is the case, then the
company has time to experiment with the new technologys capabilities. Quality Care has the benefit of
being able to observe two examples, and an opportunity to use technology to create real value by starting
from its own customers and then working back through the organization.
First, the company will need to conduct more research. Moulters current studies are tainted. Those
customer surveys were completed before the new technology was in use anywhere in the market; once
technology has been introduced, consumers views can change rapidly. Moulter also needs to be sure that
his new surveys probe customers feelings on a whole host of topics; they should not be confined to questions about the existing uses of the new technology. The feedback may not appear to be technology oriented, but technology may prove to be the answer.
Then, based on the feedback, Quality Care can begin to respond. Essentially, Moulter will be using data on
quality to build a business plan and a technology plan. For example, one new survey might ask customers
how long theyre willing to wait on the phone for an answer to a question. If 76% of customers say that
they are willing to wait for 10 minutes but are usually kept waiting for 20, then Moulter knows where there
is an opportunity to improve service.
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Once he does address the problem, he must be sure to close the loop and let customers know how the
company has responded to their feedback. Perhaps Quality Care could include the information in a
newsletter for customers: Our computer systems now allow us to track your care and your satisfaction
with our service more effectively. Heres what youre saying and heres what were doingthrough
technologyto address your concerns. Six months ago, 76% of you let us know that you would be willing
to wait up to ten minutes for an answer to a telephone query. Weve since introduced a telephone
monitoring system. Today 68% of our customers report that our response time has been cut to ten minutes.
If you find that your experience with Quality Cares phone service has improved, were delighted. If it has
not, we want to know. Please call Rosie Smith in our customer service office at 222-1111, extension 123.
Well be sure to update you as we continue to improve.
In considering what technology can do for his customers, Moulter should ask what kinds of benefits they
would perceive as valuable. Thinking again about the possibilities opened up by an automated reception
system, perhaps Moulter could find out if patients would like to receive a monthly statement of their
accounts. Or he could ask if they would value updates from their health records, including information on
recent treatments and future appointments. The customers might say that they would find such information
a reassuring indication that the company knows them personally and keeps track of their particular
situations. If Moulter finds that such updates would be perceived as valuable, Quality Care could
introduce them by saying: Heres what technology can do for you. By using this new membership card,
youll help us generate complete and accurate reports on your health care, which will be sent to you on a
monthly basis.
Putting in technology for its own sakeor solely for the sake of the companymisses the point. In Europe, airport concourses are littered with automatic ticket machines that you rarely see being used. These
machines represent state-of-the-art technology that links into various airlines central reservations systems
and departure-control systems. They offer an extremely cost-effective way to sell tickets and check
passengers in for flights. So why do customers avoid them, preferring instead to see a representative at a
check-in desk? Because the customers see no personal benefit in using the technology. Whats more, if a
customer wants to have a particular seat and is unable to get it, or wants to make sure that a special meal
or some other service requirement has been attended to, he or she has to go to the airlines customer service
desk anyway.
Moulter has long understood that listening to customers and responding directly to their needs is a big part
of what makes a company successful. He shouldnt abandon that practice now. By all means, Quality
Care should avail itself of any back-office efficiencies that it can, but the company should not be pushed
into cutting back on customer careor looking as if it is doing sosimply because competitors are doing
so for reasons of their own. Quality Care should adopt the technological improvements only if research
shows that customers will come along because they want to, not because they have to.
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TERESA A. SWARTZ is a professor of marketing and the marketing area coordinator at California
Polytechnic State University in San Luis Obispo, California.
When Moulter joined Quality Care nine years ago, he brought with him a passion for customer service. In
part, that passion is responsible for the companys current success. Quality Care has a track record of
monitoring customer feedback and responding to it, as exhibited by the recent additions of the newsletter
for pregnant members and the toll-free hotline offering advice and information. Current retention rates are
strong, and customers seem satisfied; they stay with Quality Care by choice, not because they feel trapped.
So why, at this critical juncture, would Moulter even consider disregarding his customers input? Where
has his passion gone? Moulter needs to be careful not to lose sight of his customers. Now is not the time
to stop listening.
To help him decide whether to install the new reception system, Moulter should first consider the real
motivation behind the idea. If quality improvement lies behind the investment, Moulter should determine
the projects potential return on quality. Quality Cares customers dont have a problem with the current
reception process, and past research indicates that they prefer high touch over high tech. There is little
reason to believe that the return will be there for this particular investment.
There is, however, ample indication that improved information technology will become the new standard for
the industry. Quality Care does not want to be left behind. Perhaps that is the true motivation behind this
idea. If that is the case, fine; but then Moulter must approach the project from a different angle. This is
not an all-or-nothing dilemma. Quality Care does not have to follow the competition blindly in determining
what the new standards will entail.
Indeed, because Moulter has input from both internal customers (employees) and external customers
(patients), he is in a wonderful position to forge a win-win solution to his problem. Although apparently at
odds, both sets of customers can be satisfied.
Moulter should then think about what sorts of service the reception area currently offers. Whatever
happens, Quality Care must somehow make sure that the start of the service encounter continues to take
patients emotions into account. Meeting that needreducing patient anxietyis critical if Quality Care is
to maintain its satisfaction levels and retention rates. Armed with that understanding, Moulter can then
more thoughtfully consider what his employees want. The nurse practitioners believe they could provide
more human contact and personalized service if some of their duties, such as blood pressure readings and
weigh-ins, were automated. In addition, the administrative staff members believe that a new system would
make their jobs easier. Quality Care is its employees. Without a doubt, the company must support its staff
if it wants to maintain or improve customer satisfaction and reduce employee turnover.
The solution? Quality Care should institute an advanced computerized system that its frontline employees
can use with the patients. When patients arrive, staff members can greet them and assist them with
processing the registration information. This will allow for the important human touch at the beginning of
the service encounter. The high-tech aspect will still be presentmuch of the processing will be
computerizedbut, at least initially, the process will not be self-service. As a result, the new system will
speed the flow but still allow for personal contact. Some aspects of the processing, such as blood pressure
tests and weigh-ins, can be more fully automated from the initial launch, freeing up nurse practitioners for
more contact with customers at more important stages. And over time, as customers become familiar with
the computerized reception system, the company can encourage them to take advantage of the self-service
options, and staffing can be reduced. The total high-tech reception service can be offered, with high
touch still available for those who prefer to be processed by Quality Care staff and for those who
encounter problems during their self-service.
While this hybrid system would require a significant investment, the returns should be readily evident
through increased customer satisfaction and retention as well as through increased efficiency and
effectiveness. The system will provide all the benefits Moulter hopes forimproved patient records,
immediate access to records, standardized reports, and higher-quality customer contactbut with much
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less risk. Contrary to what Penstone thinks, people do not need to be told what they want. The voice of the
customer needs to be heard.
TERRI CAPATOSTO is an assistant vice president of communications at McDonalds Corporation,
based in Oak Brook, Illinois. She oversees the customer satisfaction and media relations departments.
The top-level managers at Quality Care have spent a good deal of money investigating the merits of a new
automated reception system and the possible reactions of customers, but they need to do more research to
determine if installing such a system would be a good strategic move for their business. Overall, they dont
yet have a solid understanding of the systems potential effect on profitability and efficiency. Therefore, I
would recommend that they invest just a little more money on a trial test before making a choice one way or
another.
First, Moulter should select a test location and resurvey the customers there, making sure that the survey
questions clearly isolate the reception function from the rest of the health care experience. Right now, it
seems that Quality Cares customers have been confronted with the whole range of possibilities (it will
check you in, and it will take your blood pressure, and it will weigh you, and it will schedule your next
appointment). Whats more, the survey questions are probably too broad. The customers are confused,
and that confusion is generating vague survey results.
Next, Moulter should install a model of the system at the test location. A live test will provide him with
new information on several fronts. First, hell find out whether his customers behave as they have said they
would in previous surveys. Second, he can measure whether an automated reception process will affect
usagethat is, whether customers will choose Quality Care over another provider. Third, hell spot
potential problems, such as inaccurate data entry, that can be more easily addressed early on. Has anyone
thought of how such a system would handle illiterate customers? Or language barriers? Or people with
poor vision or dexterity?
Throughout the test, Moulter should keep his customers informed and continue to solicit their input. They
should know why he is surveying them, what their feedback has indicated, and how the company intends to
use the information. The more informed customers are, the more theyll feel that the company wants them
to be involved in issues that affect them, and the happier they will be with whatever decision the company
finally makes. Health care is a sensitive and highly personal service industry. If Moulter decides to go with
the new system, his customers should understand why and exactly how they will benefit from it. If he
decides against automation, that in itself could be a unique, positive point of differentiation for the
company.
At McDonalds, we went through a similar decision-making process when we were looking into offering an
800 number to field customer inquiries, comments, compliments, and complaints. It was a big-ticket item,
and there were a lot of considerations. If you are a customer driven company, you have to listen to your
customers. But you also have to strike a balance between what the customers are asking for and what you
can do from a cost and benefit standpoint. We had to find out not only how our customers felt about an
800 number, but also if it affected their perception of McDonalds, their number of visits, and their level of
satisfaction. So we conducted a test and surveyed our customers throughout the process. We kept track of
their feelings about their experience with the 800 number and tried to determine if the number helped us
recover and retain previously dissatisfied customers.
As for employee reaction to the proposed changes, Moulter needs to reassess some of the internal factors he
thinks he has pinned down. For example, he knows that his employees believe that a new system would
allow them to spend more quality time with patients. But what exactly will be going on during those minutes that he will save by installing a new reception system? Is there something currently lacking in the
delivery of care, something that employees could provide if they had more time with each patient? When
Moulter surveyed employees, did he simply ask them if they would like their jobs better if they didnt have
to take patients blood pressure? People always want their jobs to be easier but unless Moulter asks
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pointed questions that isolate the factors he is trying to assess, he wont get the information he truly needs
to measure. He needs to determine which actions take up the majority of each persons time at work and
what impact the automated system would have on how and when various tasks get done.
Similarly, Moulter should rethink the customer studies he has already conducted. His current research
seems incomplete. Has he looked at his results demographically? Do women tend to like the idea of a new
system more than men? If, for example, women make up 90% of Quality Cares customer base, that
information is going to be important. If senior citizens have an aversion to an automated reception area
and seniors make up 60% of the companys customer base, then their feedback is going to be much more
significant than if they make up only 20% of the customer base.
Moulter should also make more of an effort to understand his competitors actions. His consultant has
mentioned that HealthCare One is already upgrading its system. That fact seems to be putting pressure on
Quality Care to catch up, but instead, it should be ringing an alarm bell. Moulter has considered the
installation and training costs of a new system, but has he considered how quickly that system might
become obsolete? How much reinvestment would be needed to keep it up-to-date and to keep employees
and customers trained?
Finally, theres the issue of standardized reports for the government and for insurance agencies. This is
pure conjecture in the case, but it does raise an interesting point. Would a system that speeds up
interactions with insurers improve customers satisfaction levels and benefit the bottom line? Are there
other benefits or problems for the customer in that area? That, too, is worth studying. Moulter should start
by contacting the relevant insurance agencies and government offices to find out if they have any plans to
require a new reporting system, and if so, when it might go into effect. At this point, Moulter can only
speculate about possible requirements; by the time they are in placeassuming they do materializethe
system Quality Care is looking at could be obsolete.
Currently, McDonalds is testing an initiative that would restructure the drive-through process. Were
considering a face-to-face ordering system that would replace the intercom method of taking orders. Based
on early projections, we suspect that such a change will result in faster, more accurate, and more personal
service, and that customers will be more satisfied. But were testing our assumptions rigorously.
Its tempting to read into preliminary survey results. But a gut feeling isnt enough, especially when
considering a significant capital and developmental investment that would change a fundamental part of
Quality Cares customer experience. Moulter needs to deal with clear, clean facts.
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CASE 5:
CUSTOM RESEARCH INC. (A)
INTRODUCTION
Custom Research offers comprehensive market research, design, data collection, and analysis to clients
primarily in the consumer research area. Their policy had been to accept work from any prospective client
but now they had begun an analysis that questioned whether that was a good strategy and policy.
This is an excellent case to use for customer segmentation, relationship marketing, and customer
profitability. It contains enough exhibits that several key insights can be made using the tables in the back
of the case, but it is not so quantitative that undergraduates will find it difficult.

Topics Addressed
Customer profitability
Relationship marketing
Customer segmentation
Employees roles in service delivery
Marketing research
Service design
Chapter 6: Listen to Customers Through Research

Chapter 18: The Financial and Economic Impact of Service
PEDAGOGY
The Custom Research (A) case is in the textbook and should be assigned to students. There is also a (B)
case available from Harvard that could be used as part of the debriefing at the end of the session, for it
contains information about what Custom Research actually did. The Harvard teaching note contains the
substantive issues raised, pedagogical objectives, opportunities for student analysis, and suggestions for
classroom use.
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The case teaching objectives are as follows:
To expose students to a marketing research organization and its activities.
To examine in a broad way the question of which customers an organization should serve.
To understand the implications of choosing to serve some but not all customers.
ACCESSING HARVARD BUSINESS SCHOOL CASE TEACHING NOTES

The teaching note for this case, which can be obtained from Harvard Business School, is Custom
Research Inc. (A) and (B) Teaching Note by William J. Bruns, Jr., (1999), No. 5-199-035. Also, Custom
Research Inc. (B), by Susan S. Harmeling and William J. Bruns, Jr., (1998), No. 9-199-002 can also be
obtained from Harvard Business School.
(The following paragraphs include instructions for university professors to register for Sample Area
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CASE 6:
GENERAL ELECTRIC MEDICAL SYSTEMS
INTRODUCTION
The GE Medical Systems (GEMS) case provides an excellent opportunity to focus on the topic of
manufacturers offering services for competitive advantage. It is clear from the case (and from additional
recommended readings provided on the next page) that GE and other large manufacturers now consider
themselves service businesses. Issues regarding the purpose of services in manufacturing and IT contexts
can be raised and discussed in addition to the particular topics in the case.
The case is a best practice case and thus provides a vehicle for illustrating and discussing a positive
example as well as addressing issues for the future. Primary issues raised in the case revolve around
service as a means of creating customer relationships in a manufacturing context, bundling vs. unbundling,
service pricing, and customer involvement.

Topics Addressed
Manufacturers offering services for competitive advantage

The role of service in creating customer relationships in a manufacturing context
Bundling vs. unbundling of service and product
Pricing of value-added services
Service guarantees
Challenges in shifting from a manufacturing/sales culture to a service culture
Customers roles in creating their own satisfaction

Chapter 8: Service Recovery (specifically, service guarantees)
PEDAGOGY
A motivating way to begin this case is to discuss GE as a leading global companyone that has been
admired and watched for decades. Jack Welch was one of the most (if not the most) admired and watched
CEOs ever. The company and Jack Welchs actions have been synonymous with change. It is a company
that has been emulated around the globeits strategic business unit organizational structures of the 1970s,
its reengineering efforts in the 1980s, and its service/quality directions in the 1990s have been models,
emulated by many companies.
230
The case itself can be taught in approximately 60-75 minutes using the case questions provided below. A
longer discussion could result if the case is used as an opportunity to explore topics (such as services
pricing, guarantees, customer participation, managing expecations) more generally or in depth.
We always assign the Business Week cover story on Jack Welchs transformation of GE into a service
business to accompany the case: The first several questions provided below focus students on this article
prior to getting into the case specifics:
Jack Welchs Encore: How GEs Welch is Remaking His CompanyAgain, Business Week,
October 28, 1996, cover story, http://www.businessweek.com/1996/44/b34991.htm.
The following article includes references to Jeff Immelts continued focus on services as he takes over from
Jack Welch as CEO of GE:
GEs Immelt Frets Over Economy, Not Icons, by Matt Murray, Wall Street Journal,
September 5, 2001, p. B1.
A longer class session could be productively spent in a discussion around the whole issue of manufacturers
offering services for competitive advantage. Inviting in a guest speaker from a manufacturing or IT
company to discuss the role of service and services could also be very illuminating and productive.
Additional readings such as the following could be assigned to provide a springboard for further discussion:
Jack Welchs Secret Weapon, by John Curran, Fortune, November 10, 1997, 116-134. (In this
article the focus is on GE Capital, a company at the core of GEs success.)
In Search of Elusive Tech Workers, by Thomas Stewart, Fortune, February 16, 1998, 171-172.
(This article focuses on GE Medicals recruiting and retention strategies for employees.)
IBM, From Big Blue Dinosaur to E-Business Animal, by David Kirkpatrick, Fortune, April 26,
1999, pp 116-126. (This focuses on IBMs transformation to a service business and emphasizes
how IBMs current growth in revenues and profits comes from its services.)
What Does No.1 Do For An Encore? by Marcia Stepanek, Business Week, November 2, 1998,
112-113. (This article discusses Dell Computers move to customer service as the new
competitive battleground.)

Questions regarding GE and its service revolution:
1. What are the primary components of Jack Welchs current growth strategy, or the Third Revolution
at GE?
2. Why is GE shifting into services? What types of services is GE focusing on, and where do the growth
opportunities appear to be?
3. What are the challenges GE faces in its Third Revolution?
Now, focusing specifically on GE Medical Systems:
4. What are the services offered by GE Medical Systems? Who are their customers? What trends in the
industry will affect their future growth?
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5. Describe TiP and the philosophy/strategy behind it. What are the goals of TiP? How does it fit
GEMS overall strategy? (See www.gehealthcare.com/usen/education/tip_app/index.html.)
6. Why has TiP TV been so successful? What are the benefits to customers? Does GEMS have a
sustainable competitive advantage in TiP TV?
7. Analyze the effectiveness and benefits of GEMS service guarantee for on-site applications training.
8. Although TiP-TV can be purchased on a stand-alone basis, the majority (80%) of subscriptions sold
include a GEMS service contract that masks the fee for TiP-TV. What must GEMS do to transition
its customers from a free to fee mentality? How can it overcome customer (and sales person)
resistance to accept the need to pay for educational services? What are the arguments for and
against free vs. fee?
9. Should GEMS consider moving the TiP customer education organization from a cost center (with the
primary goal of customer satisfaction) to a P&L center? What are the implications and challenges?

Questions regarding GE and its service revolution:
1. What are the primary components of Jack Welchs current growth strategy, or the Third Revolution
at GE?
The following are the primary components of GEs current growth strategy:
(a) Drive to boost quality
To become nearly flawless in everything it does, whether manufacturing or service
To apply the engineering quality mindset (not necessarily the identical tools) to services
(b) Bolster revenues by pushing even deeper into services
Nearly 60% of profits come from services (up from 16.4% in 1980)
Much of the 60% is generated by GE Capital (see article above for additional reading on
GE Capital)
(c) International expansioninternational revenues grew 34% in 1995
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2. Why is GE shifting into services? What types of services is GE focusing on, and where do the growth
opportunities appear to be?
Why shift to services?
(a)
(b)
(c)
(d)
(e)
See shrinking role of revenue mix away from manufacturing

to expand our pie (Welch quote from article)
Nearly 60% of profits currently from services, so want to expand
the product you sell is only one component of your business (Hammer, from article)
Competitive advantage in products/technology is difficult to sustain; services are demanded by
customers and can serve to position and distinguish the companys offerings
(f) Note that the focus of services has continued under Jeff Immelt as he takes over for Jack Welch
in 2001 (see 2001 Wall Street Journal article referenced earlier)
What types of services?
(a) Services that spring from and support GEs core strengths
(b) See table in article showing GEs Changing Mix
(c) Focus is on the following with the primary growth in the first two categories:
Financial Services (GE Capital)

Aftermarket Services (GE medical, aircraft engines, power plants, transportation)this is
primarily in the form of repair, maintenance of equipment, training
Business Process Management and Consulting
Broadcasting (NBC)
3. What are the challenges GE faces in its Third Revolution?

(a) Competitive challenges
Other companies doing the same thing, some of whom may be more focused in their efforts and
applications (e.g., IBM, Xerox)
Other manufacturers of competing equipment (Pratt & Whitney, medical imaging
manufacturers)
Independent energy companies
Big consulting firms who have more experience in professional services than does GE
(b) Managing diversity of the businessesservices are different
Moving from being a product company to a service company is much more difficult than
some of these folks think (quote from EDS executive)
manufacturing mindset and tools do not always translate directly or well into services
(c) Regulatory challenges
Management of power plants as the industry deregulates
Antitrust issues if GE gets too tied into its customers operations
(d) Greatest challenge may be human
The shift to service is extremely challenging in a company with such a rich engineering and
product heritage, but customers are no longer willing to pay for engineering perfection
Now, focusing specifically on GE Medical Systems:
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4. What are the services offered by GE Medical Systems? Who are their customers? What trends in the
industry will affect their future growth?
What are the services offered?
(a) First, GE Medical Systems designs, manufactures, sells and services a wide range of
diagnostic medical imaging systems, radiation therapy systems and diagnostic information
management systems.
(b) $4 billion in revenue for ALL of GE Medical Systems; $2 billion is from services which is
growing faster than total revenue.
(c) Services are needed because of the slow growth and intense competition within the product
markets GEMS competes in. Services help GEMS deepen the customer relationship and build
loyalty in this highly competitive arena.
(d) Services offered by GEMS:
Maintenance and installation
Asset management and equipment utilization management
Software/network support
Integration of usage data with other information systems and databases
Remote systems diagnostics
Training
Who are their customers?
(a)
(b)
(c)
(d)
Doctors offices
Clinics
Hospitals
Large multi-hospital systems
What trends in the industry will affect their future growth?

If time permits, the implications of any or all of the following trends could be explored in depth.
(This might be particularly useful if students have particular interest in health care.)
(a) Slowdown in sales of equipment and growth in services and software
(b) Pressures to cut costs and be more efficient across healthcare industry (equipment assets need
to be productive immediately for their customers)
(c) Need for networking among linked HMOs, doctors, etc.
(d) The number of customers is shrinking overall with consolidations, mergers, etc.
(e) Providers looking to shrink the number of strategic suppliers they use and to develop long-term
relationships
(f) Services are transitioning from free to fee
(g) Customers are looking for one-stop shopping
(h) Growing need for software and network support as institutions implement large scale
information systems linked into medical records, diagnostic imaging, etc.
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5. Describe TiP and the philosophy/strategy behind it. What are the goals of TiP? How does it fit
GEMS overall strategy? (See www.gehealthcare.com/usen/education/tip_app/index.html.)
Describe TiP and the philosophy/strategy behind it.
In 1990 education and training services were one of the top dissatisfiers at GEMS. Yet,
management recognized the importance of training to build relationships and retain equipment
business. Thus, was born TiP Training in Partnership:
(a) The basic philosophy is that a well-trained customer is a happy customer.
(b) The full range of training is offered to allow operators and others to effectively use GEMS
equipment.
(c) Training offered spans the range from computer skills training to new product training,
upgrades, applications training, user documentation, help desk, multimedia training, onsite training, and training offered via satellite TV (see Figure 2 and Table 1).
(d) A general discussion of customers roles (Chapter 12) can be productive here if desired.
Such a discussion would revolve around the value of involving GEMS customers as
productive resources and contributors to their own satisfaction through the TiP
programs.
What are the goals of TiP?
The goals of TiP and the basic strategy are as follows:
(a) Effective training can:
reduce GEMS overall costs,
increase customer satisfaction,
build long-term customer relationships, and
increase equipment sales long term.
(b) Cost reduction
See inverse relationship between amount of training received and the cost to support
the customer (Figure 1)
Training reduces need for calls/help/servicing of equipment. In fixed rate contracts
this savings goes directly to the bottom line
(c) Customer satisfaction
Satisfaction with GEMS equipment is directly impacted by satisfaction with training
(satisfaction with training impacts satisfaction with equipment impacts repeat
purchase of equipment)
How does it fit GEMS overall strategy?
Because of trends in the industry (identified above), the TiP strategy fits very well with overall
needs of GEMS to build long-term relationships, reduce costs, and distinguish itself from its
competitors on something other than the equipment.
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6. Why has TiP TV been so successful? What are the benefits to customers? Does GEMS have a
sustainable competitive advantage in TiP TV?
What is TiP TV?
(a) Tip TV is a significant component of the TiP service line.
(b) It has grown quickly from zero subscribers in 1991 to 2500 in 1998.
(c) It is a paid hospital subscription satellite training network
Offers live, interactive training on GEMS equipment and applications and more general
health care and management topics
Accredited for continuing education units by all relevant professional organizations
(d) Sold by either a
Flat rate/annual amount for a specified number of live broadcasts OR
As a service contract for training specific to a particular piece of equipment
(e) Currently GEMS has 50% penetration in the original target market
(f) TiP TV accounts for 80% of GEMS total customer education revenue (see Figure 5)
(g) Growth opportunities include
Additional subscribers
Selling access to the satellite network to others who want to reach the same market
Why has TiP TV been so successful?
(a) It meets important customer needs (see below)
(b) It fits with GE and GEMS overall strategy of building strong relationships with customers in
order to build equipment and service revenues long term
What are the benefits to customers?
(a) Cost effective training
much less costly than on-site training or taking employees to GEMS Education Center
Equipment isnt down during training
Fewer service calls since more employees are trained in how to use equipment in a timely
manner
(b) JIT (Just in Time) training
Customers can use the training how and when they need it
(c) Customers can earn continuing education units for the training, an important feature for
individual employees
(d) Equipment can be utilized more fully
No need for down time during training
Can get new employees trained quicker
(e) Higher employee satisfaction
Does GEMS have a sustainable competitive advantage in TiP TV?
It seems the answer is yes as long as:
GEMS equipment quality remains competitive as well as its prices for equipment.
Barriers to entry are very bigGEMS has the satellite network and GE owns NBC. It is
difficult for others to replicate these advantages quickly or in a cost-effective manner.
236
7. Analyze the effectiveness and benefits of GEMS service guarantee for on-site applications training.
This question could be combined with a lecture and more general discussion of service guarantees
using Chapter 8 material and suggested activities/exercises in the Chapter 8 notes presented earlier in
this manual.
The guarantee as stated in the case is:
Should you feel that any fully-participating attendees in a guaranteed TiP on-site
training program are not competent in performing at least 95% of the tasks required for
the basic operation of the system, well return for up to two days to revisit the areas in
which they need additional work. There will be no charge, provided you notify us of
deficiencies within two months of course completion.
The guarantee can be discussed in terms of the criteria presented in Chapter 7 for a good service
guarantee. Is it unconditional, meaningful to participants, easy to understand, easy to invoke?
While there are some conditions (it is only for fully-participating attendees, must be invoked within
2 months, 95% of tasks), these seem reasonable in the situation. A discussion here of how to guarantee
services that require so much customer participation can be productive. The course guarantee
presented and described earlier in the teaching aids for Chapter 8 could also be used here.
The guarantee is meaningful, in the sense that it guarantees what is truly important to the customer
e.g., the training and ability to operate the equipment or system.
The guarantee is relatively easy to understand although some of the conditions are perhaps somewhat
vague and open to interpretation.
Invoking the guarantee may not be difficult, but will involve considerable commitment from the
customer and employee. It is a hassle for the employee to go through training again, and setting up the
on-site training is likely to take time and energy on the part of the customer.
Benefits to GEMS of having the guarantee:
(a) Sends a strong marketing message, aimed at building trust and confidence.
(b) Will generate good feedback if there are problems with the training or even with a particular
trainer.
(c) Helps to illustrate how they really do need customers full participation and thus need to
educate and set expectations of customers up front.
237
8. Although TiP-TV can be purchased on a stand-alone basis, the majority (80%) of subscriptions sold
include a GEMS service contract that masks the fee for TiP-TV. What must GEMS do to transition
its customers from a free to fee mentality? How can it overcome customer (and sales person)
resistance to accept the need to pay for educational services? What are the arguments for and
against free vs. fee?
Moving from a free service to a fee for service arrangement is a very common challenge in IT and
manufacturing firms today. As firms realize the value in services and the potential revenues and profits
to be gained, they come to appreciate the need to charge for services that might have been given away
in the past. Traditionally services in these environments were used to close the deal and thus sales
people are reluctant to charge for them.
A number of ideas for what GEMS could do to overcome customer resistance to service fees can be
found in Chapter 16. This chapter deals with managing expectations and in this case GEMS is trying
to change or adjust its customers expectations regarding prices and the value of services. Several
ideas, described in more detail in Chapter 16, include:
(a) Keeping customers informed of changes and the reasons whyexplain the realities of the
industry
(b) Creating tiered value offerings
(c) Offering choices to customers
(d) Explaining the value to them of training; quantify the savings and benefits
To overcome sales person resistance, GEMS needs to:
(a) Explain the realities of the industry
(b) Document for sales people the revenues and profits that services can bring to the company
(c) Provide incentives for selling services
Charging a fee versus giving services away for free each has its advantages:
Advantages of charging a fee for services:
Avoids lost revenues
Services can be very profitable
For customers, it makes what theyre paying for more explicit
Could destroy the profitability of a particular customer if service is given away
Advantages of giving services away for free:
Makes selling the equipment easier
Customers expect it because of industry traditions
Difficult to price services
May ensure that customers actually get training, etc, thus making them happier in the long
run
238
9. Should GEMS consider moving the TiP customer education organization from a cost center (with the
primary goal of customer satisfaction) to a P&L center? What are the implications and challenges?
If the TiP customer education organization were to become a P&L center it would be in a position of
justifying its existence based on profits. This would shift the organizations focus to maximizing
revenues and keeping costs down, away from its current focus on building and retaining customer
relationships.
Ask the students to express and defend their decision (there is clearly no right answer!).
Questions to explore:
(a) How does a shift to a P&L focus fit with GEMS goal of building long-term relationships with
customers?
(b) How can the long term value of education (for customers) be reflected in the P&L?
(c) How could GEMS avoid having the customer education group fall into potential negative traps
of short-term orientation?
(d) How could the long-term costs and revenues be reflected in the P&L?
CASE CONCLUSION
A brief lecture or summary of key points learned in the readings and cases is a good way to conclude.
The outline provided below (and included in PowerPoint slides for this case) is a good way to end the
discussion.
Learnings from GE Readings and GEMS Case
Strategic shift at GE to go deeper into services (this is true for many large manufacturers).
Implementation of this shift is clearly seen in GE Medical Systems.
Services in this type of context can encompass:
- break and fix services including remote system diagnostics
- value-added services like asset management and equipment utilization
- customer training and education
- consulting on data integration, usage, strategy
Importance of understanding what the customer really wants, and customizing offerings to fit.
Importance of managing customer expectations and defining value from their perspective (e.g.,
free vs. fee).
A well-trained customer is a happy customer.
Customer education is an ongoing process, occurring throughout the life cycle of the product and
the customer.
Customer needs for education to go far beyond technical product application knowledge.
Satisfaction with customer education leads to satisfaction with equipment which leads to repeat
purchase.
Technology enables numerous cost-effective delivery alternatives.
239
CASE 7:
STARBUCKS: DELIVERING CUSTOMER SERVICE
INTRODUCTION
Over the past two decades Starbucks has become an extremely popular phenomenon and is the dominant
specialty-coffee brand in the world with more than 4,500 retail outlets in North America alone. At the time
the case was written, it had an aggressive retail outlet expansion strategy in mind and was pursuing other
avenues of growth. At the same time, however, the company had gathered evidence that (1) customer
satisfaction was on the decline, (2) its brand image was showing signs of strain, and (3) its customer base
had changed in significant ways. To address these problems, Starbucks was considering investing an
additional $40 million in labor in its stores.
This case can be used (a) at the end of the course as a final capstone or even final exam case, (b) early in
the course as a case that can be reflected upon almost weekly since it illustrates many issues covered in the
text, or (c) as a case to illustrate specific service issues, such has customer satisfaction, listening to
customers through research, or the economic value of various customer segments.

Topics Addressed
Customer satisfaction
Customer relationship management
Customer lifetime value
Profitability analysis
Survey research
Servicescape
Atmospherics
Hard standards and softstandards
The role of employees in service delivery
Service intermediaries/non-company operated retail channels

Chapter 6: Listening to Customers Through Research
Chapter 10: Customer-Defined Service Standards
Chapter 14: Delivering Service through Intermediaries and Electronic Channels
Chapter 18: The Financial and Economic Impact of Service
PEDAGOGY
240
This case has a very good teaching note from the publisher, Harvard Business School. The teaching note
contains the substantive issues raised, pedagogical objectives, opportunities for student analysis, and
suggestions for classroom use. The PowerPoint slides provided for this case can also be valuable in
preparing a discussion of the case.
This case is intended to illustrate several points, including:
the importance of having a well-conceptualized target market with an aligned value proposition
the difficulties associated with customer relationship management with a diverse customer base
that different segments of customers may lead to defining the service concept in different,
conflicting ways
the importance of measuring the correct drivers of customer satisfaction

The teaching note for this case, which can be obtained from Harvard Business School, is Starbucks:
Deliverying Customer Service Teaching Note by Youngme Moon and John Quelch (2004), No. 5-504-089.
access in order to obtain case teaching notes for this case.)
questions can be directed to HBS Publishing Customer Service at phone number 800-545-7685
([email protected]) and technical questions can be directed to Tech Support at 800-810-8858
([email protected]).
241
CASE 8:
SHOULDICE HOSPITAL LIMITED (ABRIDGED)
INTRODUCTION
This case is a new, updated version of the original Shouldice Hospital case that has been one of Harvard
Business Schools best selling cases of all time. We were delighted to find the new version had been
published and have included it here as we did in the very first edition of our textbook. As of the writing of
this note, HBS had not published a new teaching note for the case but the teaching note for the original
version of the case is still available.
In the sections that follow, we have included our own notes for the updated case. We provide a set of notes
that allows a focus on marketing and service delivery issues. We include questions and analyses regarding
the bundle of benefits, or value proposition provided by Shouldice, market segmentation issues, service
positioning on the dimensions of quality, and growth alternatives. Shouldice also provides an excellent
opportunity for students to practice blueprinting skills so we provide a question directed at process
blueprinting.
This case can be used (a) at the end of the course as a final capstone or even final exam case, (b) early in
the course as a case that can be reflected upon almost weekly since it illustrates practically every issue
covered in the text, or (c) as a case to illustrate specific service issues. Shouldice is probably one of the
most used service cases ever. In addition to the specific questions provided below, many of the frameworks
and concepts covered in the text can be used and illustrated with this case: Services Triangle, Gaps Model
of Service Quality, Dimensions of Service Quality, 7 Ps, Service-Profit Chain.
There is an excellent video (a bit old, but it still works well) you can use with this case. The video was
originally seen on the Canadian Broadcasting System and depicts the experience at Shouldice with
accuracy and some good humor. The video is available by contacting: CBC Educational Sales, Toronto,
Canada, at 1-416-205-6384 or 1-866-999-3072 and asking for Stitch in Time--Shouldice Hospital Case.
The cost is approximately $150, including shipping.

Topics Addressed
Analysis of a unique value proposition

Roles of people, physical evidence, and process in effective service design and delivery
Importance of a focused service strategy
Service as an experience
Consumers as part of the production process
Roles of employees in service delivery
Value of a focused market segment
Demand and capacity management
Tradeoffs in growth strategies
Low cost/high quality strategies
242
Chapter 3: Consumer Behavior in Services

Chapter 15: Managing Demand and Capacity
PEDAGOGY
While this case can appropriately be used at many different points during the services course, we most
often include it very successfully with Chapter 9. Positioned in this way, the case can then be referred to
again during regular class discussions of Chapters 11, 12, 13, and 15.
A complete discussion of the Shouldice case, including the 12 minute video, takes at least 1 1/2 hours.
When we teach classes of shorter duration, we either extend the case into the following class session or
eliminate some of the questions. The former is preferable if you have the time.

1. What is the bundle of benefits purchased by the consumer? In other words, what is the Shouldice
value proposition? In what ways is Shouldices offering different from other hospitals?
2. What is the target group of customers, and what do they have in common apart from a hernia?
3. How are the benefits delivered to those customershow does the production process work? You
might like to think of this as a factory with people as the work in process. Consider blueprinting a
portion of the process. Does the production or delivery process match the value proposition?
4. Analyze Shouldices performance and processes on the five dimensions of service quality: reliability,
responsiveness, empathy, assurance, and tangibles. How does each dimension contribute to
Shouldices overall image or position in the marketplace?
5. Does Shouldice offer a superior value proposition relative to its competitors? How successful is the
Shouldice Hospital? How do they balance low cost with high quality?
6. What is it like to work there? How does the work environment compare to a typical hospital?
7. What are the growth alternatives available to Shouldice? Which would you recommend?
243
DETAILED ANALYSIS OF QUESTIONS AND TEACHING SUGGESTIONS

Before beginning the discussion of the specific case questions, a useful warm-up is to ask: When you
think of a typical hospital experience--your own, someone you knowwhat do you think of? How does
the process start? How do you feel during the process? How is this different from the Shouldice
experience?
Also at the beginning of the discussion it is good to caution against the temptation to discuss general health
reform issues and differences in U.S. and Canadian health care systems. These temptations should be
avoided to keep the case focused on the relevant management and marketing issues.
1. What is the bundle of benefits purchased by the consumer? In other words, what is the Shouldice
value proposition? In what ways is Shouldices offering different from other hospitals?
The Shouldice method of hernia surgery

Peace of mind/low risk
Reliability (.8% recurrence vs. 10% - see footnote)
Lower Price ($1930-$2230 plus travel vs. $5240)
Faster Recovery - back to work sooner
Better, fuller recovery
Independence/dignity/control
A vacation
Quality care staff and other patients
What is the value proposition? Shouldice provides the above bundle of benefits for a price that is
worth the tradeoff in scheduling, waiting, and travel time for its customers. In other words the value
received is greater than the value given up.
Probing question: Does Shouldice have a unique promise that it offers the marketplace? It seems
to, given its over 50-year history and continued success. How does it compare to what students know
of other hernia or other healthcare promises?
Probing question: This is great, but why do these patients come back for a reunion?
(Companionship, friendships, shared experience, unique experience.) By probing in this way, good
discussion of some of the issues in Chapter 13 can be pursued.
Probing question: These are the benefits the customer receives. What about internal customers?
Why is the turnover of doctors and staff so low? (These questions allow probing into issues illustrated
in Chapter 12.)
lifestyle - can be with families
security of the job
no weekends/nights
less stressed, low risk patients
low risk surgery
excellent reputation of Shouldice
they can become experts
good pay ($144,000 per year for doctors, plus $40,000 in bonuses in recent years; 15% higher
than average surgeon pay in Toronto)
waiting list for nurses to work at Shouldice
cross-training gives sense of value, empowerment, and teamwork
2. What is the target group of customers, and what do they have in common apart from a hernia?
244
First, Shouldice has a highly-focused, very limited market segment. This is one of their primary
strategic advantages.
patients tend to be males over 45 years of age

10% outside Ontario, most from the U.S.
another 60% from outside Toronto, but within Ontario
30% from greater Toronto area
patients are healthy and active (a critical factor in their success)
confident/self-directed (most patients from out of state self-diagnose)
learned about Shouldice through word-of-mouth (no advertising)
Probing question: How are these patients different from a typical hernia patient? Students will have
their own personal insights here.
3. How are the benefits delivered to those customershow does the production process work? You
might like to think of this as a factory with people as the work in process. Consider blueprinting a
portion of the process. Does the production or delivery process match the value proposition?
The best way to discuss this question is by blueprinting (covered in Chapter 9) or listing the detailed
process on the board, or if there is not time to do this (usually there is not), then have student describe
the process verbally. If students have blueprinted the process, they can share their blueprints.
Some unique aspects of the process that should come out in this discussion:
self-diagnosis online or via mail-in questionnaire
patients are screened prior to acceptance
patients carry their bags until they get to their rooms
check in the day before with the doctor who will perform surgery
orientation session with other patients
prep themselves for surgery by shaving
tea the evening prior to surgery with patients who are recovering from surgery that day
limited anesthetic, administered in the operating room
get up off operating table and walk to wheel chair
exercise and walk almost immediately
lots of walking, conversation; not a lot of lying in bed; no TV
annual reunion
Following the description of the process, the following probing questions can be asked to generate
discussion and enhanced recognition of the critical importance of service processes.
Is this a flexible process? No, it is highly standardized.

Is the process efficient? For the most part yes, although there is a bottleneck in terms of
number of operating rooms and beds.
How is the process perceived by customers? As accommodating, flexible, responsive, the
best, a relaxing vacation (see Question 1).
How can the process be so standardized and yet be perceived this way? The customers
themselves customize the service through their own actions and their interactions with each
other and the staff. The process can be low-cost, highly structured, and yet the perception is of
high quality.
THIS IS A GOOD POINT AT WHICH TO SHOW THE VIDEO.
245
4. Analyze Shouldices performance and processes on the five dimensions of service quality: reliability,
responsiveness, empathy, assuring, and tangibles. How does each dimension contribute to
Shouldices overall image or position in the marketplace?
This question can be included to get discussion going on Shouldices positioning relative to the
dimensions of service quality.
Reliability
Shouldice method itself is highly reliable (more than other methods, at least at the time of the
case);
patients receive what was promised to them consistently--successful hernia surgery, short stay
in the hospital, quick recovery.
Responsiveness
because of lack of bureaucracy and many of the typical procedures that preoccupy hospital
staff, the staff (nurses, maintenance, food service, doctors) are accessible and encouraged to
talk to patients and respond to their requests;
waiting list for getting in to Shouldice may be perceived as unresponsive if wait time is longer
than other alternatives the patient may have.
Empathy
for the same reasons noted under responsiveness, the employees at Shouldice are perceived as
very empathetic;
empathy is also conveyed through other patients who serve as partial employees of Shouldice
in their roles as counselors, role models and helpful roommates;
the orientation and clear communication to patients regarding what to expect and what they
will experience conveys empathy for underlying customer needs for knowledge and control in
health care situations.
Assurance
the Shouldice method is renowned and the doctors are true experts in hernia surgeries--its all
they do. Both of these facts convey assurance to patients;
at the hospital, assurance is conveyed through the other patients who have successfully
completed their surgeries and can serve as examples for incoming patients.
Tangibles
tangibles play a major role in communicating Shouldices resort/vacation atmosphere-everything from the beautiful park-like grounds, the more home-like decor in the rooms and
common areas, and the almost majestic looking buildings;
tangibles also play a major role in accomplishing the purpose of early ambulation for patients-no televisions in rooms encourages walking; indoor and outdoor activities encourage
socializing and moving about; common eating area requires patients to walk to meals.
Probing question: Which of the dimensions are most critical for Shouldices success? Which ones
give them competitive advantage if any? If a longer discussion of the dimensions is desired, these two
questions will start students thinking and critically evaluating the nature of the service and sources of
competitive advantage for Shouldice.
5. Does Shouldice offer a superior value proposition relative to its competitors? How successful is the
Shouldice Hospital? How do they balance low cost with high quality?
Value proposition (what is given up versus benefits) is unique:
Dramatically higher perceived quality for a lower price (in terms of $$ price).
246
Shouldice appears to be quite successful based on the case evidence:

Waiting list for patients
Waiting list for nurses
Doctors salaries are above average
Longevity Shouldice has been in business for 50+ years
Transition: We have talked a lot about the benefits and quality aspects of Shouldice that that make it
successful, but how does it balance costs with quality?
Elements of low-cost strategy:
Focused strategy
o Narrow target market
o Only one surgery performed
Low staff/patient ratios

o Healthy patients so need less care they are screened in advance
o No bed pans
o No room cleaning or bed changing
o No meal service in rooms
o Cross trained staff so no idle time
o Low turnover of staff
Low capital costs

o Few TVs (none in the rooms)
o No phones in rooms
o Few crash carts needed few emergencies
o Maximum capacity utilization
o Centrally supplied operations
Patients do the work

o Self diagnosis
o Prep themselves
o Take care of each other
o Walk themselves for speedy recovery
o Spread word of mouth
Probing question: Dont patients resent this amount of work? No, their involvement gives them a
sense of control which is positive.
No marketing costs
o Website
o No brochures or mailing costs
o Referrals are source of business
Probing question: Is this competitive advantage and success sustainable?

6. What is it like to work there? How does the work environment compare to a typical hospital?
247
This question may already have been addressed through probing on Question 1. If not, it can be
discussed at this point, but we find that the flow of the case works better if it is discussed earlier. See
earlier list of benefits (Question 1) of working at Shouldice.
7. What are the growth alternatives available to Shouldice? Which would you recommend?
This discussion can be organized around the two goals suggested at the end of the case:
To increase the hospitals capacity
To maintain control over quality
Several options for growth are suggested by the case:
Open another Shouldice hospital (in the U.S.?)
Add another simple, repeatable procedure?
Work on weekends or extend daily hours?
Add physical capacity to the existing hospital?
Students can be asked to vote on the above growth options or any others they have suggested beyond
these. A general discussion of pros and cons can follow, or if there is time a more detailed discussion
can be organized as follows: A matrix can be drawn on the Board with these two goals across the top
and the various options suggested on the vertical. Each growth option can be assessed as to its ability
to achieve the two objectives as well as other potential benefits or constraints of the particular option.
CONCLUSION AND LESSONS TO BE LEARNED FROM SHOULDICE
Value of a focused strategy

o Limited menu of offerings
o Identifiable, narrow market segment
Patients
Doctors
o Screening (or firing?) customers
A strategy can be both low cost and high perceived quality
o Focus on processes
o Continually strive to improve processes (from the customers point of view)
Importance of employee and customer participation
Tradeoffs in growth strategies particularly in a entrepreneurial context
Many of the services management frameworks can be illustrated by Shouldice (Services Triangle, 7
Ps, Service-Profit Chain, Gaps Model, Service Quality Dimensions), and these can be highlighted
if used in the discussion.
ADDENDUM AND ADDITIONAL BACKGROUND

Additional updates and background on what Shouldice has done are included in the attached addendum
provided by Professor Emeritus, Bernard H. Booms, University of Washington.
248
SHOULDICE HOSPITAL ADDENDUM, 2005

By Bernard H. Booms
Professor Emeritus,
University of Washington
The Shouldice Hospital case is a true classic. The case continues to be relevant and is used in its revised
form in business schools and executive education programs throughout the country. Participants in the
discussion of the case always want to know what has developed since the time of the writing of the case.
The following is a brief update designed to fill you in on how Shouldice has evolved.
Capacity Increases, Additional Sites, or Additional Medical Procedures?

The case suggests that one of the main concerns confronting the management of the hospital is the need to
increase the hospitals capacity while at the same time maintaining the quality. Such capacity increases
could be achieved by expanding the existing hospital or by developing additional hospitals either in Canada
or the U.S.
Interestingly enough, no capacity increases were made. One expressed concern was for a potential loss of
control over quality if additional sites were developed. Is this an insurmountable issue or is it possible to
develop suitable quality control methods? How is quality controlled at Shouldice?
Apparently, large profits also influenced the decision. The factors behind the decision to not increase the
capacity were described by using such phrases as, why take the risk when you are doing well? dont fix
it if it isnt broke, and (we were already) fat cats. Essentially, it appears the management/owners are
happy with the returns and are risk adverse.
It is also true that the focused factory approach has not been applied by Shouldice to other medical
procedures. Some thought was apparently given to such possibilities, but it was determined that the
operation system used for hernias would have to be significantly modified for other procedures and
therefore was too risky to pursue.
The management did attempt to use weekends for operating on childrens hernias. This initiative was
thwarted by an inability to attract pediatric anesthesiologists who would be willing to work on the
weekends. Government regulations essentially cap doctors salaries (this restriction is currently being
debated by the Canadian government) and no anesthesiologists could be induced to work additional hours.
Government regulations also limit the possibility of hiring doctors from other countries.
Shouldice did extended the operation hours. Operations now run until 4:30 - 5:00 p.m. This change has
enabled Shouldice to carry out 30-36 operations per day. Operations range in length of time from 45
minutes to 2 hours and 30 minutes, depending on the doctor performing the operation and the nature of the
case.
Market Demand
Changes in the healthcare system in the United States have impacted the proportion of patients that come
from the U.S. HMOs and other healthcare providers have been unwilling to pay for procedures done by
doctors and hospitals outside their own system. As a result, few U.S. hernia sufferers have been able to
have insurance coverage for an operation at Shouldice. Currently, 10% of patients are from foreign
countries (most from the U.S.), with the remainder coming from Canada.
249
Like the U.S., the healthcare industry in Canada has, and is, undergoing dramatic change. The Hospital
Restructuring Commission has moved to eliminate duplication of effort and excess capacity by closing
hospitals. In the Toronto Metro area over the last few years 10 acute care hospitals have been shutdown
out of a total of 50 hospitals. In addition a number of hospitals were forced to amalgamate to reduce the
redundancy of service offerings. The consequence is that the wait for elective surgery such as a hernia
operation is up to a year in the public hospitals and even when the procedure is scheduled, the patient is
subject to being bumped at the last minute by an emergency case. All of this has been translated into a
2,400 patient backlog, with an addition backlog of patients awaiting medical clearance (overweight
patients) at Shouldice hospital. The typical waiting period at Shouldice is approximately 3-4 months.
A few years ago Shouldice went into cyberspace with a homepage on the Internet (www.shouldice.com). It
is now possible to complete the medical form on the Internet and to schedule a date for an operation.
Currently, over 50 percent of all medical questionnaires are obtained over the Internet. The presence on the
Internet has resulted in patients coming from greater distances even as far away as Japan.
Copy-Cat Competitors and Same-Day Competitors

The case states that management is concerned about competitors using the Shouldice or Canadian Method
Hernia Repair name. When asked about copycat competitors the management said that they know of no
competitors using the Shouldice method of the social experience system created by Shouldice. There are,
however, numerous competitors who have introduced same-day service using laparoscopic surgery
techniques. This less invasive procedure allows patients to go home the day of the operation. This one-day
stay compares to the 3- day stay at Shouldice.
Shouldice management was concerned enough about the same-day competitors to commission a marketing
research study comparing the experiences of Shouldice patients with the experiences of patients from their
same-day competitors. The findings indicated that despite the fact that the same-day procedure uses a less
invasive method, the patients experience more pain, and required a longer time to fully recover from the
operation. This finding was attributed to the fact that same-day patients tended to go home and have family
members or others wait on them and as a result did not move around as much as the Shouldice patients.
250

The teaching note for the original version of this case, which can be obtained from Harvard Business
School, is Shouldice Hospital Limited by James L. Heskett (1986), No. 5-686-120.
access in order to obtain case teaching notes for the original version of this case.)
questions can be directed to HBS Publishing Customer Service at phone number 800-5457685 ([email protected]) and technical questions can be directed to Tech Support at 800-8108858 ([email protected]).
251

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SECTION 4

SUPPLEMENTARY MATERIALS FOR CASES

INTRODUCTION TO CASE METHODOLOGY

MATCHING CASES WITH APPROPRIATE CHAPTERS IN THE TEXTBOOK

Appropriate Chapters in the Textbook1

People, Service, and Profit at Jyske Bank

Chapters 1, 2, 5, 9, 11, 12, 16

Chapters 7, 9, 11, 12, 14

The Quality Improvement Customers Didnt Want

Chapters 3, 4, 6, 9, 10, 12, 13, 14

Custom Research Inc. (A)

Chapters 6, 7, 9, 12, 17, 18

General Electric Medical Systems

Starbucks: Delivering Customer Service

Chapters 1, 5, 6, 7, 10, 11, 12, 14, 18

Shouldice Hospital Limited (Abridged)

Chapters 3, 4, 5, 9, 11, 12, 13, 15

SUGGESTED USES OF CASE WITH ZEITHAML, BITNER, AND GREMLER TEXT

Chapter 1: Introduction to Services

STUDENT PREPARATION QUESTIONS

ACCOMPANYING TEACHING NOTE

DETAILED LEARNING OBJECTIVES

DETAILED ANALYSIS OF QUESTIONS

Prime locations. At nearly all

Generally larger, more nicely

Customer has little involvement

to book the vehicle, include

Secondary locations and nearby prime

USE OF THE CASE IN A STRATEGIC MANAGEMENT CLASS

How would you

SUGGESTED USES OF CASE WITH ZEITHAML, BITNER, AND GREMLER TEXT

Chapter 1: Introduction to Services

Understand how a service firm repositions itself through:

STUDENT PREPARATION QUESTIONS

What is Jyske Banks new positioning or competitive differentiation strategy?

DETAILED ANALYSIS OF QUESTIONS

To be the most customer-oriented bank in Denmark

Jyske Bank can sustain growth and success by:

ACCOMPANYING TEACHING NOTE

People, Service, and Profit at Jyske Bank

SUGGESTED USES OF CASES WITH ZEITHAML, BITNER, AND GREMLER TEXT

Positioning and expansion choices for a company

Chapter 7: Building Customer Relationships

STUDENT PREPARATION QUESTIONS

DETAILED ANALYSIS OF QUESTIONS

EXHIBIT 1: Proposed Relative Positioning Map

EXHIBIT 2: Porters Five Forces in the Retail Apparel Industry

EXHIBIT 3: Porters Value Chain Analysis

EXHIBIT 4: Value Capture in the High-Street Clothing Industry

Giordano, Baleno, Hang Ten,

Brands not exclusively retailed (e.g.,

Retailers with multi-brands

Giordanos Key Success Factors (KSFs):

Excellence in management of operations, logistics and information technology systems: this

Excellence in service: continual commitment to providing excellent customer service and

EXHIBIT 5: Summary of Giordanos Key Success Factors

Giordanos Key Success Factors (KSF)

Sustainability in Existing Country

Likely/Potential Future Developments