Summary of the case

Many of the management tools and techniques that service managers use were designed to tackle the challenges of
product companies. Businesses must make the product itself compelling and also field a workforce capable of producing
it at an attractive price. Delivering a service entails the management of customers, who can wreak havoc with costs.
Service companies must also develop creative ways to fund their distinctive advantages. The offering, funding
mechanism, employee management system, customer management system are critical elements of a service business.
There is no "right" way to combine the elements, and the appropriate design of any one depends upon the other three.
Wal-Mart, the Cleveland Clinic and Commerce Bank are examples of successful service businesses.

1. The offering

The service industry cannot survive long if the offer is fatally defective, David Frum reports. Research has found that
some of the most profitable businesses perform poorly to succeed. Managers need to assess the qualities to success and
lower results. These decisions should be strongly influenced by consumer needs, says Frum. For eg, at Wal-Mart,
shoppers value less for ambient and sales assistance, cheap costs and a full range of services are the highest.

2. The Funding Mechanism

In a service company, it can be more complex to create a method of funding excellence. Wheeler says that even though
you pay less, you will sometimes increase your customer service. An example of optimising operations in an added-value
service is Intuit's move to provide free customer care. Providing self-service from petrol pumps to self-managed
investment accounts is a well known way to keep costs down. He says the least innovative approach is to charge extra for
the same service function which you support. Progressive provides alongside one another premium quotes while a
customer asks questions about the insurance costs.

3. The Employee Management System

Service businesses often live or die on the quality of their workforces. Top management must give careful attention to
recruiting, selection processes, training, job design, performance management. If your business requires heroism of your
employees to keep customers happy, you have bad service by design. Instead, design a system that allows the average
employee to thrive, as part of Commerce Bank's competitive formula.  The bank's current employees could be deployed
as talent scouts, on the principle that it takes one to know one. It's a simple reality that employees who are above average
in both attitude and aptitude are expensive to employ. Businesses that want to maintain a competitive cost structure will
probably need to compromise on one quality or the other.

4. The Customer Management System

Customer involvement in operations alters the traditional role of the business in value creation. Customers are not as easy
to train as employees. Customers have no interview, no background check, and no personality profile. Designing a system
that explicitly manages these challenges is essential to service success, he says. "Customer labor can be far less expensive
than employee labor," he says, but it's hard to train for such a large, dispersed, unpaid, often irrelevantly skilled
workforce. "A customer who dithers at a fast-food counter makes the service less fast for everyone behind him," he
writes. Customers have a great deal of discretion in their operational activities, usually far more than employees. When a
company introduces a new process, it can simply issue a mandate. Motivating customer-operators has required a complex
mix of rewards and penalties. Zip car’s service model depends on customers to clean, refuel, and return cars in time for
the next user.

Integrating the Elements

Successful service companies have a working plan that incorporates all four elements of service design. A standout
example of effective overall integration is the Cleveland Clinic. Any service company can benefit from a review of its
operations using the framework laid out in this article. A management team planning to launch a new service will find the
framework particularly helpful. It flags the decisions that should be made early and in tandem so that they don't clash
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down the road.  Cleveland Clinic abandoned the concept of a high-end wellness and spa offering because it didn't build on
the hospital's core operational strengths. Progressive made this mistake when it decided to venture into the home
insurance market. Home insurers rise or fall on the management of their investment portfolios, which is a relative
weakness of Progressive. In today's service economy, it is nearly impossible to design a service model to cover a huge
range of customers. Great service companies are, almost without exception, very clever about selecting their customers.
We saw this in Progressive's highly informed choice of whom to do business with.

Becoming a Multifocused Firm

Companies trying to be all to everyone fight as rivals start up. The success in a multifocused company is the opportunity
to take advantage of the different models under a single umbrella. Multi-focused organisations usually share services such
as insurance, procurement, IT, and human resources.

The Management-Practice Frontier

Is the discipline of management fundamentally different in service businesses than in product businesses? Much of what
determines the health of a product business is just as indispensable in a service business. New areas involving the roles of
customers have opened up, and their tool kits are only now being assembled.

Assimilation

All successful firms must design a compelling offering and manage the workforce to deliver it at an attractive price.
Service firms must do even more: deal with the frustrating fact that their customers can wreak havoc on service quality
and costs. This article summarizes an approach to design a profitable service business based on 4 elements: service
offering, funding mechanism, employee management and customer management. This approach was a core teaching
module in Harvard Business School and recognizes the difference between service and product businesses.

1. The Offering
The management team of service companies must be specific about the characteristics of service the company is
competitive. Managers should rely more than value on what experiences consumers desire. Clients whose choice
corresponds to the strengths of a business choose themselves into their client base. Those that don't like those qualities, he
suggests, tend to go elsewhere. When managers realize that lower success in one dimension leads to higher performance
in another, excellence architecture is not far away, Passerines notes.

2. The Funding Mechanism

In service management, the excellence of services is funded must be carefully thought out. Managers need to know
whether their customers might feel fair to pay. A business can deliver and finance a better experience than its customers
elsewhere with careful research and design. Intuit has paid off in improved software, which means less call volume,
through its decision to offer free customer service in violation of software industry norms. The author advises to consider
where this period is a major cost component to begin looking for ways of reducing expenses and creating value-added
service. 

3. The Employee Management System

Top-management must be attentive to recruitment and selection procedures, preparation, work design and other elements
of the management structure of employees. These areas should represent the service attributes for which the organisation
wishes to be recognized. Companies that fail to connect workforce management approaches and customer service
expectations will struggle to deliver on their service promises.

4. The Customer Management System

Employees are not the only people in the service system who impact the cost and quality of the service they provide.
Customers should participate in organizational processes themselves. Employees and clients of a service company are
part of the value-added phase.

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You have to answer a few main questions in handling customers in your businesses: Which customers you concentrate
on? What are your behaviors? And what strategies can affect actions most effectively? However, the most important thing
is to treat customers in a way compatible with the service characteristics which you have chosen to emphasise.

Integrating the Elements

A working plan includes all four elements of service design is available to successful service companies. However, it is
difficult to detect best practices in any of these regions. This is because all of the company is more dependent than any
aspect on the interconnection of the four. The framework is especially useful when starting a new service, and it is very
important for businesses to choose their customers well.

Becoming a Multifocused Firm

Companies which try to do all for all starting competitors start to fight. However, some incumbents have continued to
compete successfully against their more focused competitors and a lot of their experience has to be learned. The ability to
become "multifocused," meaning stopping to cover the entire river with one single service model and following different
niches with optimised service models, is essential here.

The Management-Practice Frontier

Is management in service companies inherently different than in product companies? The responses become clearer as
service companies continue to innovate, prosper and research. The presented structure shows why conventional strategies
prove to be as resilient as they have and why sophisticated managers continue to want more of what defines a commodity
business' health. In the multifocused enterprise, the key to success is the opportunity to profit from different service
models within one home. This advantage is often shared services which enable economies of scale to be generated.