Technology in Services: Creating Organizational Revolutions

SERVICE TECHNOLOGIES have radically reordered the power relationships, competitive environments, and leverageable opportunities in most industries — whether in services or manufacturing. In the process, they are obliterating long-held precepts about management itself and creating entirely new strategic, organizational, and control system options for achieving competitive advantage. What are some of the more important management insights from our research?

  • Contrary to much popular dogma, well-managed service technologies can simultaneously deliver both lowest cost outputs and maximum personalization and customization for customers.
  • In accomplishing this, enterprises generally obtain strategic advantage not through traditional economies of scale, but through focusing on the smallest activity or cost units that can be efficiently measured and replicated — and then cloning and mixing these units across as wide a geographical and applications range as possible.
  • Instead of the dehumanization often experienced in other realms, well-implemented service automation actually increases the independence and value of lower level jobs. At the same time, such automation empowers contact people to be much more responsive to customer needs.
  • Such systems, when well implemented, frequently drive organizations toward entirely new conceptual configurations. These may assume “inverted pyramid,” “infinitely flat,” or “spider’s web” characteristics in order to deliver outputs most effectively and flexibly to a widely distributed customer base.
  • In the process, they often disintermediate costly organizational bureaucracies, dramatically lower overhead costs, support rapid execution of strategies, and substantially increase the system’s customer responsiveness.

Creative use of technology in leading-edge companies has converted these concepts from theoreticians’ fantasies into realistic strategic options for virtually any company.

Obtaining Both Customization and Lowest Cost

Strategic dogmas exist that postulate an inherent conflict between obtaining lowest cost from a system and offering highest flexibility and customization.1 To achieve maximum value from service technologies, one must set these aside. By designing their systems properly, many well-run service companies both obtain optimal flexibility at the customer contact point and achieve maximum “production” efficiencies from constant repetition, experience curve effects, and cost-quality control. They accomplish this by first seeking the smallest possible core unit at which production can be replicated or repeated, then developing micro-measures to manage processes and functions at this level, and finally mixing these micro-units in a variety of combinations to match localized or individual customers’ needs. What do these smallest replicable units look like? The nature of the unit, of course, varies by industry and by strategy.<

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References

1. M. Porter, “Generic Competitive Strategies,” in Competitive Advantage (New York: The Free Press, 1985).

2. T. Levitt, “Industrialization of Service,” Harvard Business Review, September–October 1976, pp. 63–74.

3. For example, McKesson’s ECONOMOST system was planned from the beginning to collect such detailed information concerning item description, price, price changes, shelf location, sales rates, facings information, etc., that the system could later be easily adapted for follow-on services like optimizing floor layouts, stock locations, reordering patterns, bill payments, accounting, credit, and insurance arrangements, market testing, and so on. American Airlines’ SABRE system was set up to capture passenger and flight information in such detail that it could later offer price discounting, frequent flyer, route planning, special food, handicapped person, direct mail retailing, hotel and car reservation, and other services more quickly and in a more targeted fashion than any of its competitors.

4. J. Carlzon, Moments of Truth (New York: Ballinger, 1987).

5. R. Eccles and D. Crane, “Managing through Networks in Investment Banking,” California Management Review, Fall 1987, pp. 176–195.

6. J.B. Quinn, “Managing Strategies Incrementally,” Omega 10 (Fall 1982): 613–627.

7. M. Barrier, “Walton’s Mountain,” Nation’s Business, April 1988, pp. 18–26.

8. B. Posner and B. Burlingham, “The Hottest Entrepreneur in America,” Inc., January 1988, pp. 44–58.

Acknowledgments

We are most grateful for our respondents’ cooperation and for the generous support of the Bell and Howell, Bell Atlanticom, Bankers Trust, Royal Bank of Canada, Braxton Associates, and American Express companies, which helped finance this project.