Increasingly companies that have originally been focused solely on products are shifting their focus towards services and the combination of their products with services in order to countervail the commoditization of their products. In this process of “servitization of products” businesses see themselves confronted with the challenge of scaling their service operations to maintain growth and profitability.

IBM is a great example of a corporation that has successfully shifted from a hardware business that was faced with price erosion and increased competition towards a service business. In 2007 revenues from service business represented more than 55% of IBMs revenues compared to 32% in 1997, in the same time-span hardware revenue declined from 47% to 21% (see Annual Report 1997 and Annual Report 2007).

This shift was not without problems as the Financial Times article “Big blueprint for IBM services” shows.

At the same time, Big Blue was facing a problem experienced by many services businesses that rely on a heavy element of direct interaction with customers. The more that sales increased, the more people it had to recruit, in a linear progression that would ultimately have been unsustainable.

In order to overcome these challenges, IBM approached this from three perspectives:

Standardization

In effect, IBM set out to standardize the way it “manufactures” services, so that exactly the same processes determined how an as­signment was carried out in Egypt as in the Philippines. “The real scale comes out of doing the work in a codified way,” says Mr Daniels. “The key breakthrough was to ask ‘How do you do the work at the lowest-level components?’”

Technology

The technology IBM has applied to services comes in two parts. One involves raising productivity by automating some repetitious work. Turning repeatable processes into software that can be used widely in similar assignments has played to an IBM strength, since it is the world’s second biggest software company, after Microsoft.

The second technology development holds the greatest promise for the future, says Mr Daniels. It involves inventing new ways to solve customers’ problems, by applying the sort of deep computing skills that have long lain at the heart of IBM’s business.

Anthropology

[…] the services research arm employs anthropologists and other social scientists to investigate how to make services engagements more effective.

Overall, in spite of the increasing use of technology, Mr Morris says of services: “It is fundamentally a human enterprise.”

How does this impact your customer experience?

Designing a service that provides a remarkable experience is one thing, consistently delivering this service with the expected quality is even more important. Businesses that ignore the service delivery aspect will see themselves confronted with the problem that their services – as remarkable as they might have been on a small scale – simply don’t hold up when they need to be rolled out on a larger scale.

And if you cannot consistently deliver a service, all your efforts to create interactions that lead to remarkable experience will have been to no avail.

Read the full Financial Times article “Big blueprint for IBM services”.

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Companies are increasingly shifting to self-service technology as a way to substitute expensive “human services” with cheaper solutions that empower customers to use an organization’s products or services.

Examples can be found at airports (check in counters), train stations (ticket counters), banks (ATMs and Internet banking) and even in selected McDonalds restaurants where you are able to order your BigMac with a self-service terminal in a restaurant.

Many customers prefer self-service over traditional service interfaces because when working properly they help to save time. When you look at it holistically, a service designer should try to reduce the number of human interactions to increase the efficiency of a service system. But while focusing on continuously increasing efficiency, service designers should not forget about effectiveness.

When “human services” fail, there is usually somebody around who could at least help you. If a self-service system fails, there is nobody around who might help (that’s the point of self-service) and customers are usually lost. Obviously you should design for self-service failures but not everyone is doing it. But how do “smart” companies solve that problem? By assigning employees that help customers with the self-service system.

Three of my personal experiences with such “workarounds” were at the Swiss Air check-in counters in Zurich, Deutsche Bahn (German railways) ticket counter in Cologne and United Airlines check-in counters in San Francisco. Why would you put a “half-baked” self-service terminal there, when you know that you probably need employees that can help customer’s to use them?

If you want to make a difference, first you have to ensure that you do everything possible to prevent self-service failures (a.k.a. user testing, user testing, user testing). Additionally you have to plan for self-service failures and design for self-service recovery through the self-service terminal.Designing a self-service terminal with “human backup” is only the last solution. If designer ignore this and something goes wrong, your customers will be lost and without any recovery efforts they will become ambassadors of negative word of mouth.

Image courtesy of [HippiHippo]

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It is easy to focus on creating always better and more differentiated products and services when designing for remarkable customer experiences. Maybe it is simply human, that we tend to not look at situations when a product or service fails (think positive!) your customer’s loyalty will be negatively impacted.

I see a huge opportunity for improvement and a chance to create remarkable experiences that create word-of-mouth marketing in situations when products and services fails - if sophisticated service recovery programs are in place.

Can you imagine one of your customers telling a friend:

"You know, the product (or service) of company XYZ broke down the other day. But when I contacted the company, they did everything possible to solve the problem in a fast and friendly manner and now it is fixed. I understand problems can happen, but I feel that this company is taking care of me."

Every service (human or technology driven) as well as product will eventually fail one day and put your customer in a uncomfortable situation. Smart organizations will understand this and develop a service recovery program which ensures that their customers are satisfied even after things have gone wrong.

When organizations plan to implement recovery programs it is helpful to differentiate between (1) the strategic initiatives that should be in place before the actual problem occurs and (2) the tactical activities that should happen after a problem has occurred and the customer contacted the company.

Let’s start with the strategic initiatives that will ensure that the right environment for remarkable service recovery is in place.

Anticipate the needs for recovery

Whenever you roll out a product or service, the people related with it are probably well aware of potential problems or obstacles that might occur. It is probably not so much arrogance than probably more wishful thinking that limits the ability of companies to foresee potential problems with a product. Accepting that even the best designed product or service will fail one day in specific situations is the first step. Anticipating potential problems will help organizations to be prepared when the first customer contacts the company with a problem.

Build an organization that is fast in decision making, and fast to response.

One of the key success factors to win back customers and restore their satisfaction is to act fast. While your front-line employees might be working hard (and fast) already, the whole organization that deals with service recovery has to be “designed for agility”. This includes clear escalation and decision-making processes. One key principle should be that the fastest decision-making happens when the front-line employee can make the decision. So the real goal is not to define better escalation processes, but to define processes that empower employees so that escalation processes are not necessary anymore.

Empower front-line employees

In most companies, the employees that are actually interacting with customers are the ones that receive the lowest salary in an organization. While increasing the salaries (compared to other competitors) is one way to attract and retain talent that is able to deliver exceptional service, empowering employees and giving them the freedom to do whatever is necessary to ensure that customers are satisfied is probably even more economically meaningful.

Train employees

Ensure that your training program includes not just lessons on delivering service when everything works out as planned but also to include lessons that teach employees to improvise or to set recovery programs into action if something goes wrong.

While these strategic initiatives are important to define the long-term direction of your service recovery programs, the "moment of truth" happens when a customer contacts a company and interacts with an employee to discuss the problem and possible solutions.

In these moments the following seven rules should be applied by employees that are actually interacting with your customers:

1. Acknowledgement

Acknowledge that there is a problem. It doesn’t matter whether the customer didn’t understand certain aspects that are obvious from an organization’s perspective. He is the one that has a problem and if you want to keep this customer he needs to be taken serious. If one tries to convince customers that there is no problem, you are actually telling them they are stupid. This applies also to situations when the customer is following the wrong steps to perform a task – never blame the customer.

2. Empathy

Understand the problem from a customer’s point of view and also understand that he might be upset after a problem has occurred. While it is not necessary to listen to a customer when he starts cursing at employees, front-line employees should try to create an atmosphere that supports and enables a positive solution of a problem. Confronting the customer with his anger and frustration will not lead to an escalation of the problem, communicating that one can understand his situation will.

3. Apology

Saying sorry in the name of the company occurred is essential. Whether the employee should apologize in his name or in the name of his company depends on the context of the service recovery. If the employee (or a direct colleague) was involved when the problem occurred, he should apologize for himself. If the employee is in a call-center and a problem happened at a completely different location in the organization, he should apologize in the name of the organization - everything else is not authentic.

4. Own the problem

Taking ownership of the problem by the employee that is confronted with the problem (no matter in what position he is in) ensures that customers feel that they are taken care of. And even if your job is not to resolve the problem ultimately, telling customers to go somewhere else (and not "bringing" them there) sends the message that they don’t care.

5. Fix The Problem

Obviously fixing or at leasing trying to fix the problem for the customer should be the top priority. This might be easy in some situations (maybe just replacing the defect product) it becomes a challenge when the problem is not a real problem. Let’s say the customer was simply using the product in a wrong way, fixing the problem in such a situation means re-educating the customer so that he uses the product or service in the supposed way.

6. Provide assurance

When Customers get in touch with you to report a problem and to demand a fix their most important need is to be taken serious. Giving them a feeling of assurance that the problem will be sorted out and should (hopefully) not occur again will leave a professional impression and help rebuild the customer’s confidence a company’s products and services.

7. Provide compensation

If you want to make angry customers happy, give them money. Providing a refund, token or other compensation depending on the severity of the problem remains to be a powerful method for service recovery. Increasing the amount of money that a company pays to company to fix problems requires a rigorous control but it can indeed ensure that your customers are satisfied. It is important to note that just "handing out money" is not enough - if money is handed out unfriendly or even worse, in a tedious discussion with the customers, satisfaction will not be restored.

References:

Hart, C.W.L.; Heskett, J.L.; Sasser, W.E.: The profitable act of service recovery. Harvard Business Review 68 (4), 1990, pp, 148–156

Johnston, R.; Michel, S.: Three outcomes of service recovery: Customer recovery, process recovery and employee recovery, International Journal of Operations & Production Management 28 (4), 2008, pp. 79 - 99

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Delivering differentiated services that lead to remarkable experiences requires a thorough understanding of your customers. While this is a highly complex task that requires an analysis from different perspectives some patterns can help to identify these potential areas. The following is such a pattern that can be used to better understand the roles of your customers.

The initial question is: Who is your customer?. This is not always obvious since there are many actors involved in the purchase and use of a certain product or service. Yet five main roles can be identified that exist in many purchasing situations. Often several, sometimes all of these roles might be conducted by the same individual but recognizing the needs and requirements of each separately leads to potential areas for service design.

The following figure shows the most common roles that customers represent.

Here is a short description of the single roles:

• Initiator: The individual who initiates the search for a solution to the customer’s problem.
• Influencer: Individuals who have some influence on the purchase decision.
• Decider: Taking into consideration the views of the initiator and influencer some individual will make the decision as to which product or service should be purchased.
• Purchaser: The individual who is actually paying for the product or service
• User: The individual who finally consumes the product or service

It is important to understand that in any buying situation various actors can and will influence the buying decision and they will also be – either active or passive – experiencing a product and service and should therefore be considered when designing the overall “brand experience”. If different individuals undertake these roles, it is necessary to develop individual and differentiated services to satisfy the different needs and requirements.

The standard example for this is a visit to a theme park with children. The initiator might be the child that saw an advertising on TV, while the decider and purchaser are the parents. While it is important to design a great experience for children at a theme park, it might be even more important to focus on the experience of parents because ultimately they will decide and pay for the next trip to Disneyland.

The different roles become even more apparent in a business-to-business context. One classic example is the Hilti Fleet Management. Hilti offers differentiated services for the purchaser of the drilling machines and does not focus solely on the user of the drilling machines.

We’ll manage your tools so you can manage your business.
For a fixed monthly fee, Hilti provides you with a new fleet of tools.
During the usage time, there is only one monthly invoice for all your tools that covers absolutely all costs (including repair). Plus — at the end of the usage period — your fleet will be renewed with the latest generation of Hilti tools. Based on your needs, you select the type and quantity of tools.

Your benefits from Hilti Tool Fleet Management:
Full transparency & reliability

• Instant access to your complete tool inventory
• Easy accounting and cost allocation
• All tools labeled with your company logo plus inventory code / job reference possible.
• Exclusive Internet portal to track your tool fleet, order tools and consumables and arrange tool repair pick-ups

Applying this simple pattern can help identify areas for innovative products and services which in the end contribute to a remarkable customer experience.

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The sources for remarkable customer experiences are not only great products as we are often made to believe but also great services that engage customers and create additional value.

Customer experiences are enabled by thoughtfully designing the complete lifecycle of your customers and understanding their needs from the “prenatal stage” when they are not even aware of your offerings until they drift away and don’t repurchase anymore (which should obviously prevented before).

Different models exists that aid in understanding this process with various names. Most commonly these models are called the marketing cycle, sales cycle or consumer buying cycle. The following picture shows an example of such a consumer buying cycle.

Understanding the needs of customers in the single stages is just as important as understanding the needs for the product or service that a company is offering for the “Application” stage of the cycle.

One high-potential area for service innovation is the “after-sales” stage in the buying cycle, when a formal relationship with customers is already established. But then again, it depends on your customers needs to identify the area where to find the biggest potential for innovative services.

This is not just relevant for business-to-consumer markets but also for business-to-business markets where innovative services can lead to significant increases in performance or overall cost-reductions.

Some examples how manufacturing companies use after-sales services to generate revenue can be found in the report “The Service Revolution” from Deloitte, the overview table is shown below.

Why do I blog this? While everyone likes to talk about service innovation in consumer markets maybe the real potential for service innovation is in the business markets? Maybe service design has much more potential in the B2B area than in the field for creating the “next Starbucks experience”?

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