The Shift From Customer to Client.


Service businesses make up approximately 65% of the Australian economy, up to 75% of the European and 85% of the US economies.

Shiftingyour mindset from shifting product to collaboratively creating valuewith the customer through providing a service can yield far greaterresults.

In the 1960’s Peter Drucker coined the phrase of‘knowledge worker’, which is essentially what a service business is.That is teaching, and transferring of knowledge or a skill, where aphysical item is not transacted.

The problem is that mostbusinesses don’t know that they are a service business. For example(e.g. construction businesses don’t identify themselves this way).Additionally, the employees are not trained ‘how to work’ in aknowledge and service environment. Over all there is precious little‘science’ about managing a service business when compared tomanufacturing businesses.

The gap in knowledge is so profound,that IBM has initiated a Service Science academic research program,which looks at the challenges of service businesses, with the goal ofimproving productivity, quality, learning, and innovation across theservice sector.

This change in thinking is result of IBMmoving from primarily being a manufacturer of computers to making mostof its revenue from IT service.  

It is amazing to think thatservice businesses are 70% of GDP but most managers don’t know the keydrivers. For example scalability in service business presents anenormous challenge, how do CEO’s design strategies that tackle servicedesign, development, marketing and delivery systems to enable growth.

Servicebased business traverse many disciplines, creating complexity andchallenge. The disciplines that need to be addressed are computerscience, operations research, engineering, management sciences,business strategy, social and cognitive sciences, and legal sciences.All of this needs to be understood and integrated into a single cogentfashion to be an effective service business.

Co-creation of Value
Therole of a service businesses is to help ‘unlock’ value for thecustomer. Service work is collaborative, it is not something you ‘do’to a customer, rather it is about the ‘co-creation of value’ betweenthe producer and customer. Where the customer is In boundary oforganisation.

To unlock the value in service businesses there essentially two variables which need to be considered.

Thefirst is the technical service quality. That is being able toconsistently and reliably deliver your service time after time. This isfundamental to service.

The banking sector in the last 5 yearshas taken on ‘six sigma’ initiatives, which has significantly improvedservice quality. Inspired by GE, Australian Banks have implemented thisapproach to service to reduce the time taken to approve their mortgagebroker applications. Rapid response being a key to providing value tothe customer. once analysed and improved customer were given approvalsin 3 days, down from 10.

Through a systematic approach toproblem solving and breaking the service down into a process, it wasreduced to three days for approval. The variation all but eliminated,and customer complaints almost nil.

This demonstrates thepower of ‘process design’ as a core science of service businesses.Creating predictable repeatable systems, which are managed up and downthe value chain.

Managing the ‘value-chain’ is an importantpoint, as a person making a change in another position down the linecan cause significant problems.

A great example is that of apotato crisp company in the UK, which required potatoes they bought inbe no more than a certain size. The purchase office found that if hebought bigger potatoes he would be able to reduce costs. Which hedutifully did. Causing the delivered potatoes unable to fed into themachines, no crisps made and missed the Christmas order at Tesco’s.However the purchase officer got his bonus for coming in under budget.

Thisdemonstrates the importance of the value chain. Had the buyer consultedthe manufacturing team and explained the buying situation andunderstood each others requirements, perhaps they may have come to anarrangement unlocking the value of cheaper potatoes. This demonstrateswhat happens every day in the service world where a process that flowsup and down the value chain hasn’t been mapped out.

Customer service
Thesecond aspect of innovation in the service economy is the actualdelivery of the service. The cognitive sciences of human behaviour mustbe examined. As we don’t simply hand over a product and walk away,instead we deliver a knowledge and help them utilise it. How do wedemonstrate and measure value?

This the point at which the true value can be unlocked for the customer.

RollsRoyce manufacture aircraft engines, yet more than 50 per cent of theirrevenues come from service. That is the service contracts they have tokeep the engines operating and in the air.

Other examplesinclude home delivery by supermarkets, a growing area of service. Andthe London Port Authority selling their dredging knowledge to New YorkCity.

At the heart of this is partnering with your clients and understanding how you can add value to them given your skills.

Professionalservices are notorious for having problems scaling hampered by scarceresources with scarce knowledge. However they are extremely well placedto package their ‘knowledge’ and perhaps sell as books and manuals, andvarious other learning materials.

Other options are found inpricing, or bundling. For example adding insurance. Such as a drycleaner adding an insurance service in case their garment is damaged. This gives the customer peace of mind, solves a problem, and providesthis at the point of contact.

Other alternatives to un-lockvalue for customers could be to perhaps rent your product and notbuying, transforming the product into a service. After all, do peoplebuy a drill or a hole in the wall?

Ultimately service businessesare all about relationships. There is no transfer of product. You mustget you customers very involved. Listening more and tailoring solutionsto their specific needs to achieve the goals they have and unlockingvalue for them.

You start by really understanding what it is youdo well. All of the knowledge to transfer into a service businessalready exists in your business. The data is already there. You need tomine it in a different manner and understand truly where you excel andexploit those areas.

You generally can't do service innovationon your own. You need an objective third party to come in help you seethe acres of diamonds in your own back yard.

A great exampleis phone companies. They add endless features to the phones which areimpossible to use. However, by segmenting the market they find thatonly a small percentage of people use, say, email. By over complicatingevery phone they sell they destroy value for those who just want astraight phone.

The message is customise and co-create with your customer, thereby making them a client.

(C) Daniel Lock. All rights reserved.