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From Dr. Scott Sampson's Understanding Services Businesses Book (click for table of contents)
—[in Unit 5: Identifying Strategic Opportunities]— Next⇒SBP 5b: Identifying Key Production Elements

SBP 5a: Likening a Service

With services, significant strategic insights come from defining the process and identifying services with similar processes.

Why it occurs

This principle occurs because the Unified Services Theory and its symptoms reveal commonalities between what otherwise might seem like disparate businesses. In other words, as we come to understand the Unified Services Theory, we will see that strategic innovations in one service industry can be applicable in different but related industries.


The way we “liken” a service process is to explore what other service processes it is like. To do this, we begin by identifying key process features. Christopher Lovelock discussed a good way to do this in his article “Classifying Services to Gain Strategic Marketing Insights” [Journal of Marketing, Vol. 47, Summer 1983, p. 12]. (Our purpose in classifying services is to gain more than just marketing insights–we will also seek to gain strategic operational insights, strategic human resource management insights, etc.)

An examples of Lovelock's analysis looks at services on a 2×2 matrix. On one dimension he identifies whether the service is directed at “people” (i.e. customers) or “things” (customer's belongings). On the other dimension he identifies if the nature of the service act is “tangible actions” (i.e. physically manipulate the customer or their belongings) or “intangible actions” (not manipulating things physically, but perhaps manipulating information). Lovelock then places various service industries in each of the four boxes of the resulting 2×2 matrix. For example, in the box for the direct recipient of the service being people and the nature of the service act being “tangible actions,” Lovelock places: health care, passenger transportation, beauty salons, exercise clinics, restaurants, and hair cutting. The implication is that these six industries share process elements in common. Is that true??? For example, is health care in fact similar to passenger transportation??? Let's explore this further… airplane Both health care and passenger transportation manipulate customers' selves: health care changes the customer to promote improved health and passenger transportation changes the customers to a new (and improved) location. We might observe that in both cases the process of being changed is less than enjoyable to the customer–something customers feel that they have to do–but the final result (or “output”) is often much more desirable than the process. So, imagine that you are a health care provider with the problem that customers perceive the health care service delivery as generally cold and not very personable (which is a fair assessment of much of health care). Well, in fact, we may observe that passenger transportation is also generally cold and not too personable. So, how can we as a health care provider possibly gain strategic insights by studying passenger transportation. Well, we might observe that some passenger transportation companies, such as Southwest Airlines, are able to provide service that is known to be extremely personable–passengers are amazed that flight employees will break into conversation about the passengers' jobs, their families, etc., and that the employees are known to “break through the ice” by having fun with the passengers. (like trivia contests or sing-alongs during the flight) Granted, some air travelers do not care for “fun” or personable service, which fact probably does not cause Southwest too much distress–in some recent years Southwest has had enough passengers to make them the only profitable major U.S. air carrier.

So, perhaps if we are a health care provider, such as a hospital, in a competitive environment, one way we might gain a strategics opportunity is to use Southwest Airline's procedures to provide “fun” and personable health care. We might instruct our employees to get to know patients on a more personable level (“tell me about your job or your family”). Or what about that idea of having a trivia contest in multi-patient rooms? If employees are not busy at the time (which, we have learned, often happens in service situations due to the challenge of matching capacity with demand), why not employ them in improving the personableness of service?

Even if there are reasons why that particular strategic insight might not work, there are surely dozes of other strategic insights we might discover by comparing health care with passenger transportation.

Thus we see one technique for gaining strategic insights by process element comparison: Borrow strategic insights from related industries. (It goes without saying that we can borrow strategic insights from excellent companies in the same industry.)

A second way to gain strategic insights by likening a service is to identify companies that have shifted from one process category to another to gain competitive advantage. Then we can explore how they did it and investigate whether we could gain a strategic advantage by making a similar shift. For example, one disadvantage of health care being a tangible action on customers' selves is that the customer needs to be present at the health care location to receive the service. Customers at remote locations may have to travel a great distance to the health care provider. The same is true for exercise clinics in non-urban settings. One way that exercise clinics have been able to reach people at remote locations is to broadcast exercise programs over public television systems. (Many cities have public access channels that can be used for this service. Also, some cable-TV broadcasters such as ESPN provide this service.) farm1.static.flickr.com_65_181196330_091389234a.jpg

How could a health care organization provide a service that could be broadcast to remote locations? Health care is much more heterogeneous than exercise programs. What if a health care provider sold remote patients a kit that would allow them to take their own temperature, blood pressure, heart rate, etc. Then, if the patient felt an ailment coming on, they could call in and speak with a nurse who could evaluate the measurements and other symptoms and determine if the patient needs to come in or if they can begin treatment on their own (for example, with over-the-counter drugs). Probably a lot of things people go in for could be handled in that manner. Some health care providers may already be employing such strategic initiatives, but that would just serve to confirm the value of the insight.

Thus, the second method for gaining strategic insights by classifying service processes is to identify advantages and means for shifting some of the production process from one classification to another.

Another way to view this service principle is as a means of effectively “benchmarking,” which is identifying standards of performance excellence and gaining strategic insights as to how our company might achieve such superior performance. In particular, the principle helps us identify companies in different industries that we might use as benchmarks.

Here are a few other comments about Lovelock's matrices. First, he chooses to compare services on two dimensions at a time. Certainly we could compare service on one dimension at a time (identifying more services sharing less commonality) or more than two dimensions at a time (identifying fewer service but with more commonality). Second, Lovelock describes some very useful dimensions for comparing service processes, but many other useful dimensions are sure to exist. One way to identify useful dimensions for classification is to ask: “What is it about this service process that is interesting or is presenting a challenge? How does that categorize this service? What other services fit in this category?”

Third, Lovelock describes mostly two-category dimensions, although some dimensions will have more than two categories. One that Lovelock lists is “Nature of the Interaction between Customer and Service Organization,” which includes as categories: (1) customer goes to the service organization, (2) service organization comes to customer, and (3) customer and service organization transact at arm's length (mail or electronic communication).

How it effects decisions

Very often the problem in service companies is not so much deciding between alternatives for process improvement, but coming up with the alternative to begin with. Likening a Service can be a powerful technique for discovering strategic alternatives.

For example

farm1.static.flickr.com_18_24128162_d7c58dfd14.jpg One major problem in the restaurant industry is that demand tends to be high as a restaurant first opens up–customers are interested in trying it out–but it is increasingly difficult to maintain that customer interest over time. A related classification dimension is whether the company has a formal “membership” relationship with the customer or not. Most restaurants have individual transactions with the customers, with no tie from one visit to the next. Airlines used to be like that, until they introduced frequent flier programs. Discount retailers generally have that same problem, except for companies like Sam's Club, which charges an annual membership fee. Egghead software has a membership that does not require an annual fee, but provides discounts to members who carry a “Cue” card. Might restaurants employ frequent visit clubs? Might they charge a nominal fee for a “membership,” providing discounts for future business? These ideas would shift the restaurant from the “no formal relationship” category to the “membership relationship” category, thus addressing the “shop around” problem inherent in having no formal relationship. (Again, some restaurants are probably already doing some of these things, which would only verify the value of the insight.)

Along that line, it always amazes me how little effort auto service companies put into developing an ongoing relationship with customers and their cars. We would be quite put off if our physician treated every medical visit as though it was the first. We do not expect physicians to remember everything about patients, but we do expect them to keep good records. Could we not expect that of our auto repair service providers as well? Would it not be helpful if they were able to follow-up on prior repairs? The auto service industry could learn a lot from the best practices of health care, who also “repairs” things.

My airline example

We previously gave an example of health care learning from an airline. Are there strategic insights that an airline can gain from other industries with process similarities? The following is an example.

One problem that airlines have is that demand fluctuates dramatically over time. What are other industries that are plagued with dramatic demand fluctuations over time? One is certainly tax preparation, with extremely high demand during “tax season” and very little demand during the other times of the year. How do tax accounting firms deal with that problem? They might put their accountants to work during the slow times of the year doing other accounting type of work. (Would it be possible to put airline employees to work during the slow season doing this such as conducting market research or improving communication with corporate customers?) Tax accounting firms also require their employees to work extra time during tax season, but have extended vacations during the slow time. (Could an airline require non-pilot employees to work extra time during the busy times, to earn extra time off during slow times.) Again, some airlines may be employing these strategic insights already, which simply verifies the value of the insight. And how many more insights might we gain through such analysis?

How manufacturing differs

With manufacturing, commonalities also exist, but manufacturing processes are much more homogeneous, making them easier to compare with one another. Manufacturing process innovations, such as just-in-time production techniques, are often handily applied across a wide variety of manufacturing industries.

Analysis questions

  1. For some service process classification methods such as the following, ask “How does this apply to my service business?”: Serving people vs. serving things, tangible actions vs. intangible actions; membership relationship vs. no formal relationship, continuous delivery of service vs. discrete transactions, etc.
  2. For each categorization, what other industries share that process characteristic?
  3. What companies in those industries are effective at addressing that issue, and what do they do?
  4. Would that apply to your industry?
  5. Have related companies moved to a more desirable process positioning? How?

Application exercise

Choose two significant dimensions of process classification, such as the ones Lovelock provided or others. Create a 2×2 matrix with one dimension on the horizontal and one on the vertical. Split each dimension into two or three general categories. Identify where your service business process occurs on this matrix. Identify three or four other service industries for each box, possibly using the ideas from Lovelock. Show an example of borrowing strategic insights from a different industry that is in the same box. Show an example of learning from a company that shifted to a different box to gain strategic advantage.

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