SBP 12c: Capricious Labor

This principle occurs because with many services, customers provide themselves as labor inputs into the production process.

In the prior Service Business Principle (The Unreliable Supplier Dilemma) we discussed training customers to provide better-quality customer inputs. In this Service Business Principle, we focus specifically on customer-labor inputs–those portions of the service process which are executed by the customer.

One would think that customers would be happy to adopt technologies and process improvements that improve quality and productivity. Far-sighted customers should realize that ultimately, the improvements are in their best interest. Of course, this is a dramatic oversimplification of a very complex problem, for customers (and employees) usually find that change is difficult. Customers will be particularly resistant to technologies which depersonalize the service (see SBP: Technological Depersonalization). Further, it may not be obvious how the change will benefit customers–who might assume that the changes are simply for the convenience of the service provider. The bottom line is that there are many factors which influence customer adoption of improvements and technologies. Whether a particular improvement will be adopted is often anybody's guess, which is why customer-labor is described as capricious.

Here is one example (other examples will be given below): In 1980, two major process improvements were introduced in the banking industry: home banking and Automatic Teller Machines (ATMs). (They were actually introduced prior to that time, but widespread introduction occurred around 1980.) The purpose of each was to improve the quality and productivity of banking transactions and information exchange. Regardless of the virtues of the technologies, it was still very uncertain whether either would gain widespread acceptance by customers. As discussed in the Technological Depersonalization Service Business Principle, it turned out that ATMs were adopted and home banking was rejected by the marketplace. With 20/20 hindsight it is easy to see why that occurred, but at the time of introduction, it was hard to predict.

Even today, banks are attempting to promote home banking and other forms of electronic banking to realize process cost savings–but it has not been as well-received as bankers would have liked. As stated by Jim Jordan in a recent newspaper article¹⁾: “Checks are expensive to print, to write, to mail and to process, bankers say over and over, but customers aren't listening.” In his article he quotes banking professor Donald J. Mullineaux who said “People are very comfortable with using checks, and to switch to some other form of banking makes them uncomfortable.” Even though most customers could understand how electronic banking improves the overall transaction process, they will need a little more convincing that it is worth changing what they do. Customer-labor can be quite capricious.

Service providers need to evaluate process improvements not only by the potential contribution to quality and productivity, but on the potential for buy-in from the customer. Companies need to decide on ways to improve the likelihood of customer buy-in.

An important aspect of total quality management (TQM) is employee involvement. With service businesses, this should be expanded to “customer involvement.” Customers should be involved in the exploration of new technologies, such as in focus groups. Early-adopting customers might be involved in promoting the change to other customers. (Such as through advertising campaigns with actual customers describing the virtues of the process advancements.) And generally, customers should be involved in reaping the benefits of the process changes. Passing some of the cost savings on to customers can go a long way towards increasing customer buy-in.

Further, service providers can take action to smooth the transition to the new processes. One way is to have improvement technologies somewhat mimic the old way of doing things. The familiarity will help customers be more comfortable with the technologies. Another way is to provide parallel operating systems–allowing customers the option of choosing the method they are most comfortable with at the time. For example, CompUSA computer stores have implemented technologies to improve the process for purchasing computer equipment. Customers could use the “old-fashioned” method of walking into the CompUSA computer store. Or, they can use a telephone ordering system. Or, they can use the CompUSA on-line ordering system located on the World Wide Web. Each customer can use what they are most comfortable with at the time. The on-line ordering system is much more cost-effective (and automated) than the other two methods, and allows CompUSA to compete in the price-sensitive market segment that requires low personal interaction.

(See also Lovelock's banking example described in SBP: Technological Depersonalization.)

Previously we discussed a “club card” that was offered by a number of grocery store chains. The customer had the card scanned each time he or she went through the checkout line, which provided the store with valuable purchase pattern data and provided the customer with special “club” discounts. For some reason, there does not appear to be as many grocery stores using those club cards as there used to be. It seemed like a great idea, but some customers “reject” this improvement by failing to bring their card each time they visit the store. (The cards that are part of a key-chain seem to be more popular.)

Also, in grocery retail, there seemed to have been a time when grocers encouraged customers to bag their own groceries to help save costs. There even were some grocers who would pay customers to bring bags from home (some may still do this). Again, it seems like this cost-saving innovation does not occur as much any more, and maybe grocers discovered that bagging is better left to the professionals.

Ever since the deregulation of long-distance telephone in about 1981, scores of companies have emerged to compete for customers' attention. In order to realize cost savings, some companies require the customer to enter a long-distance access code prior to dialing the number. Yet many customers forego the savings because they are unwilling to dial extra numbers, or are just forgetful.

Often, health care services require the customer to follow specific procedures in order to improve the quality of health. For example, dentists request that patients floss their teeth regularly, and physicians request that patients take their prescribed medications until they are gone. What percent of dental patients actually floss as instructed? It is likely that many patients neglect this activity, despite the reported benefits for dental hygiene. (Teeth flossing might not be considered an “innovation” since it has been around–and neglected–for decades.)

The U.S. Postal Service introduced a method for purchasing postage stamps through the local mail carrier by accompanying a form with payment in the mail box. Some customers take advantage of this cost-saving innovation, but it has certainly not eliminated the lines of people waiting to buy stamps at the post office. Some customers may not be aware of the service, and others are probably just in the habit of going to the post office for stamps.

Airline ticket kiosks are a great example of a productivity enhancing innovation that does not appear to have caught on with customers. The kiosks allow customers to purchase tickets without the need to talk to an agent, thus reducing labor requirements. Perhaps the kiosks will be popular with customers at some point in the future, but currently customers who desire to use them need not worry about waiting in line.

With manufacturing, all labor is employed by the organization in most cases (or hired through staffing agencies). Notwithstanding union restrictions, labor is generally required to conform to improvement initiatives.

1. What technologies might customers use to improve quality and productivity?
2. What are the customers' incentives for adopting such process technologies and improvements?
3. How might the company further motivate customers to adopt such process technologies and improvements?

What is a part of your service business process that could be made more productive or producing higher quality by requiring the customer to do something different? If you decided to implement that change, how would you increase the likelihood that customers would accept it and do their part? Describe a plan for communicating the change to customers. In what ways could the new system be made similar to the old system, to increase customers' comfort with the new system. Would it be appropriate to allow customers the opportunity to choose between the old or the new system?