Beyond Service Fads — Meaningful Strategies for the Real World

SUPERIOR SERVICE IS FASHIONABLE in the business press these days. From the American Banker to Fortune magazine, service cheer-leaders extol the virtues of investing to improve all types of customer service across industries ranging from financial services to manufacturing. One magazine notes that the rewards of service have never been clearer. Similarly, competitors in every sector are declaring their determination to be first in service. As one division manager said recently, “We worship service. I am considered a heretic if I ever question a service initiative.”

Indeed, traditional elements of competitive differentiation are declining. Markets are overcrowded. Competitors imitate product innovations quickly. Proprietary manufacturing techniques are soon diffused throughout the industry. In contrast, service appears to offer an opportunity for positive lasting differentiation, at least theoretically. But many executives are skeptical. They ask: Can companies truly distinguish themselves from competitors based on greater service? Will customers pay for service? In the final analysis, is the payoff from better service likely to be worth the investment?

Like most fads, the current wave of enthusiasm for service contains elements of truth. However, investments in service are two-edged swords—they can create large benefits, or they can be a massive waste of time, effort, and shareholders’ money. Even ones that are successfully implemented (and many are not) may not change customers’ perceptions or behavior. Regardless of whether they are improving the “product” in a service industry or strengthening customer service in a traditional make-and-sell business, managers must adopt the same rigorous attitude they use to develop product strategies and distribution strategies if they are to develop strategically sound service strategies.

And, to do this, they must understand:

• Why service investments fail.
• How customers view service.
• Principles for when to invest (or not) in service initiatives.

Why Service Investments Fail

Clearly, superior service can be a competitive weapon, as demonstrated by the financial success of acknowledged service leaders like American Express, Merck, and McDonalds. However, the fact that superior service can generate a competitive advantage does not mean that every attempt to provide superior service will create a competitive advantage. In this respect, service is no different than product development or distribution. Everyone accepts that investments in superior products or distribution can produce sustainable competitive advantage. But we also accept that not all investments in products or distribution produce advantage or sustainability. So too with service.

Efforts to improve service often fail to produce such results, for a number of reasons.