The Four Things a Service Business Must Get Right - Ahrens ...

www.hbr.orgExtensive study of the world’sbest service companies revealsthe principles on which they’rebuilt.The Four Things aService Business MustGet Rightby Frances X. FreiIncluded with this full-text Harvard Business Review article:1 Article SummaryThe Idea in Brief—the core ideaThe Idea in Practice—putting the idea to work2 The Four Things a Service Business Must Get Right13 Further ReadingA list of related materials, with annotations to guide furtherexploration of the article’s ideas and applicationsReprint R0804DThis article is made available to you with compliments of Frances X. Frei. Further posting, copyingor distributing is copyright infringement. To order more copies go to www.hbr.org.

The Four Things a Service Business Must GetRightCOPYRIGHT © 2008 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.The Idea in BriefAll successful firms must design a compellingoffering and manage the workforce todeliver it at an attractive price. But servicefirms must do even more: deal with thefrustrating fact that their customers canwreak havoc on service quality and costs.For example, a customer dithering at a fastfoodcounter slows things down for everyoneelse waiting in line. An architect’s clientstruggling to clarify how a new facility willbe used drags out the design process.To tackle this challenge, Frei advises aligningfour key elements of your business:• What your service offering consists of• How you fund the excellence you wantto provide• How you manage employees to deliverquality service• What you do to help customers enhance—not erode—serviceGet these elements pulling together, andnone of them can pull your businessapart—as service stars like Wal-Mart, CommerceBank, and Cleveland Clinic havediscovered firsthand.The Idea in PracticeTo consistently deliver service excellence, ensure that each of these four elements reinforcesthe others:SERVICE OFFERINGDetermine how customers define “excellence”when it comes to your offering:Convenience? Friendliness? Flexible choices?Price? Identify what you’ll do to deliver thatexcellence—and what you won’t do.Example:Commerce Bank decided to serve customerswho prized pleasant, face-to-face serviceand convenience. It offers evening andweekend hours, buildings with high ceilingsand natural light, and a fun contraptionfor redeeming loose change. Despiteits relatively unattractive interest rates andnarrow product range, its retail customerbase has expanded dramatically.FUNDING MECHANISMThink about how you’ll pay for the increasedcost of the excellence you’re seekingto provide through your service offering.Possibilities include:• Charging the customer. For example, Starbuckscustomers value lingering in thecompany’s coffee-house setting. To fundthis inviting atmosphere, Starbucks chargesa premium for its coffee.• Spending now to save later. For instance,Intuit offers customer support service freeof charge. It uses callers’ input to improvefuture versions of its software, so customerswill ultimately need less support.• Having customers do the work. For example,airlines’ self-check-in kiosks not onlyreduce costs; they also enhance the serviceoffering by liberating travelers from longlines at staffed counters and by providingconvenient tools such as seat maps.EMPLOYEE MANAGEMENTEnsure that your workforce managementactivities (recruiting, selection, training, jobdesign) empower employees to deliver theexcellence embodied in your service offerings.Example:Commerce Bank competes on extendedhours and friendly service, not on lowprice or product variety. It knows it doesn’tneed straight-A students to master its limitedproduct set, so it hires for attitude andtrains for service. For instance, it uses simplerecruiting criteria, such as “Does thisperson smile in a resting state?” And itencourages employees to recruit peoplethey see providing great customer servicein other industries.CUSTOMER MANAGEMENTArticulate which behaviors customers mustdemonstrate to get the most value from yourservice. Then design your service specificallyto foster those behaviors.Example:To get customers using the new selfcheck-inkiosks, airlines ensured thattravelers could complete the transactionswith far fewer keystrokes than check-inpersonnel used to need. By contrast, retailstores that offer self-service checkout machineshaven’t made using those machineseasy for shoppers. Moreover, the stores expectshoppers to shoulder responsibilityfor fraud prevention by weighing bags duringcheckout. Result? Anxious customersavoid the machines.page 1This article is made available to you with compliments of Frances X. Frei. Further posting, copyingor distributing is copyright infringement. To order more copies go to www.hbr.org.

Extensive study of the world’s best service companies reveals theprinciples on which they’re built.The Four Things aService Business MustGet Rightby Frances X. FreiCOPYRIGHT © 2008 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.As the world’s major economies have matured,they have become dominated byservice-focused businesses. But many of themanagement tools and techniques that servicemanagers use were designed to tackle thechallenges of product companies. Are thesesufficient, or do we need new ones?Let me submit that some new tools arenecessary. When a business takes a product tomarket, whether it’s a basic commodity likecorn or a highly engineered offering like adigital camera, the company must make theproduct itself compelling and also field aworkforce capable of producing it at an attractiveprice. To be sure, neither job is easy todo well; enormous amounts of managementattention and academic research have beendevoted to these challenges. But deliveringa service entails something else as well: themanagement of customers, who are notsimply consumers of the service but can alsobe integral to its production. And becausecustomers’ involvement as producers canwreak havoc on costs, service companies mustalso develop creative ways to fund theirdistinctive advantages.Any of these four elements—the offeringor its funding mechanism, the employeemanagement system or the customer managementsystem—can be the undoing of aservice business. This is amply demonstratedby my analysis of service companies that havestruggled over the past decade. What is just asclear, however, is that there is no “right” wayto combine the elements. The appropriatedesign of any one of them depends upon theother three. When we look at service businessesthat have grown and prospered—companies like Wal-Mart in retail, CommerceBank in banking, and the Cleveland Clinic inhealth care—it is their effective integration ofthe elements that stands out more than thecleverness of any element in isolation.This article outlines an approach for craftinga profitable service business based on thesefour critical elements (collectively called the“service model”). Developed as a core teachingmodule at Harvard Business School, thisharvard business review • april 2008 page 2This article is made available to you with compliments of Frances X. Frei. Further posting, copyingor distributing is copyright infringement. To order more copies go to www.hbr.org.

The Four Things a Service Business Must Get RightIf a self-service option istruly preferable,customers should bewilling to take on thework for nothing or evenpay for the privilege.the lines in front of manned desks to becomeintolerable. Today, however, frequent fliersprefer the kiosks because they provide readieraccess to useful tools like seat maps. Businesseslooking to achieve service excellence in othersettings should not take such an indirect route.They should set themselves the challenge ofcreating self-service capabilities that customerswill welcome. Indeed, if a self-service optionis truly preferable, customers should be willingto take on the work for nothing or even pay forthe privilege. When managers designing selfservicesolutions are not permitted to add theinducement of price discounts, they are forcedto focus on improving the customer experience.Whatever funding mechanism is used tocover the costs of excellence, it is best thoughtout as thoroughly as possible prior to thelaunch of a new service, rather than amendedin light of experience afterward. When a servicethat’s been perceived as free suddenlyhas fees associated with it, customers tend toreact with disproportionate displeasure. Andsince companies cannot thrive by offeringservice gratis, it is vital that they not setexpectations that can’t be sustained. Withcareful analysis and design, a company canoffer and fund a better service experiencethan its customers would enjoy elsewhere.3. The Employee ManagementSystemCompanies often live or die on the qualityof their workforces, but because service businessesare typically people intensive, a relativeadvantage in employee management has allthe more impact there. Top managementmust give careful attention to recruitingand selection processes, training, job design,performance management, and other componentsthat make up the employee managementsystem. More to the point, the decisions madein these areas should reflect the service attributesthe company aims to be known for.To design a well-integrated employeemanagement system, start with two simplediagnostic questions. First: What makesour employees reasonably able to achieve excellence?And then: What makes our employeesreasonably motivated to achieve excellence?Thoughtfully considered, the answers willtranslate into company-specific policies andprograms. Companies that neglect to connectthe dots between their employee managementapproaches and customers’ service preferenceswill find it very hard to honor theirservice promises.At one large international retail bank Istudied, a senior manager had come to adepressing realization. “Our service stinks,”she told me. Under her guidance the banktook various measures, mainly centering onincentives and training, but the problempersisted. Customer experience in the branchdid not improve. Perplexed but determined,the executive decided to become a frontlineemployee herself for a month. She thought itwould take that much time to experience atypical range of service interactions and seethe roots of the problem. In fact, it took oneday. “From the time the doors opened, customerswere yelling at me,” she reported.“By the end of the day, I was yelling back.”What became clear was that employees wereset up to fail. Recent cross-selling initiativeshad created a set of customers with morecomplex needs and higher expectations fortheir relationship with the bank, but employeeshad not been equipped to respond. As aresult of decisions made by the managementteam (all individually sensible), the typicalemployee did not have a reasonable chance ofsucceeding. The bank’s employee managementsystem was broken.If your business requires heroism of youremployees to keep customers happy, thenyou have bad service by design. Employeeself-sacrifice is rarely a sustainable resource.Instead, design a system that allows theaverage employee to thrive. This is part ofCommerce Bank’s competitive formula. Recallthat the bank chooses to compete on extendedhours and friendly interactions and not onlow price and product breadth. Now thinkhow that strategy could inform employeemanagement; the implications are not hardto imagine. For instance, Commerce concludedthat it didn’t require straight-A students tomaster its limited product set; it could hirefor attitude and train for service. In job interviews,its managers could use simple weed-outcriteria—like “Does this person smile in aresting state?”—rather than trying to maximizeacross a wide range of positive characteristics.The bank’s current employees could be deployedas talent scouts, on the principle thatit takes one to know one. (When people fromCommerce see someone providing greatharvard business review • april 2008 page 6This article is made available to you with compliments of Frances X. Frei. Further posting, copyingor distributing is copyright infringement. To order more copies go to www.hbr.org.

The Four Things a Service Business Must Get Rightservice in another setting, whether at a restaurantor at a gas station, they hand out a cardprinted with a compliment and a suggestionto consider working for Commerce.)It’s a simple reality that employees who areabove average in both attitude and aptitudeare expensive to employ. They are not onlyattractive to you but also attractive to yourcompetitors, which drives up wages. A businessthat wants to maintain a competitive coststructure will probably need to compromiseon one quality or the other (or, if it insists onhaving both, find a way to fund that luxury).If, as Commerce Bank does, you choose tohire for attitude, then you must engineerthings so that even lower-aptitude employeeswill reliably deliver great service. Like managerswho don’t want to admit that their serviceis designed to be inferior on some attributes,many people are reluctant to acknowledge atrade-off between aptitude and attitude. Butfailure to accommodate this economic realityin the design of the employee managementsystem is a common culprit in flawed service.4. The Customer ManagementSystemIn a service environment, employees aren’tthe only people affecting the cost and qualityof service delivered. The customers themselvescan be involved in operational processes,sometimes to a very large extent,and their input influences their experiences(and often other customers’ too). For example,an architectural firm’s client may explain thepurpose of a new facility well or poorly, andthat will affect the efficiency of the designprocess and the quality of the end product.A customer who dithers at a fast-food countermakes the service less fast for everyonebehind him.Customer involvement in operations hasprofound implications for management becauseit alters the traditional role of thebusiness in value creation. The classic productbasedbusiness buys materials and adds valueto them in some way. The enhanced-valueproduct is then delivered to customers, whopay to receive it. In a service business, however,employees and customers are both part of thevalue-creation process. A main benefit is thatcustomer labor can be far less expensive thanemployee labor. It can also lead to better serviceexperiences. When students participate morein a classroom environment, for example,they learn more. But there are challenges,as well. Designing a system that explicitlymanages these challenges is essential toservice success.Consider the issue of customer selection.Service designs may call for customers toperform important tasks, but for the mostpart customers have no interview, no backgroundcheck, and no personality profile. Asa former senior executive from Nestlé nowworking in financial services put it, “I couldcontrol who was in my factory at Nestlé; Ihave no such control over the customers inmy bank’s branches.”In addition, despite many organizations’best efforts, customers are not as easy totrain as employees. There are usually manytimes more customers than employees, andcreating effective training materials forsuch a large, dispersed, unpaid, and often irrelevantlyskilled workforce is difficult. Whenthis holds true, firms must accommodate thelimited training in the design of the serviceexperience. If tasks are shifted from employeesto customers—from higher-skilled to lowerskilledpeople—then they must be adjustedaccordingly. Airlines seem to get this right.Recall (if you can) the last time you checkedin with an agent at the full-service counter.Chances are you witnessed the agent completea dizzying sequence of keystrokes. It wouldnot seem reasonable to expect customersto perform these same steps, and so whenthe check-in role was transferred to customers,it was dramatically simplified. By contrast,think of the self-service supermarket checkout.Here customers are asked not only todo what trained employees have done previouslybut also to shoulder the additionalresponsibility of fraud prevention through acomplicated process of weighing bags. Askingcustomers to perform more-complicatedtasks than higher-skilled employees contributesto the disarray and anxiety that surroundsthese checkout lines.Customers also have a great deal of discretionin their operational activities, usually farmore than employees. When a company introducesa new process that it wants employeesto use, it can simply issue a mandate. Whencustomers are involved, transitions like thiscan be significantly more complicated. Lookat Zipcar, the popular car-sharing service. Toharvard business review • april 2008 page 7This article is made available to you with compliments of Frances X. Frei. Further posting, copyingor distributing is copyright infringement. To order more copies go to www.hbr.org.

The Four Things a Service Business Must Get RightDiagnosing Service DesignThe success or failure of a service businesscomes down to whether it gets fourthings right or wrong—and whether itbalances them effectively. Here aresome questions that will sharpen managers’thinking along each dimensionand help companies gauge how welltheir service models are integrated.1. The OfferingWhich service attributes (convenience?friendliness?) does the firm target forexcellence?Which ones does it compromise inorder to achieve excellence in other areas?How do its service attributes match upwith targeted customers’ priorities?2. The Funding MechanismAre customers paying as palatably aspossible?Can operational benefits be reapedfrom service features?Are there longer-term benefits tocurrent service features?Are customers happily choosing toperform work (without the lure of adiscount) or just trying to avoid moremiserablealternatives?3. The Employee ManagementSystemWhat makes employees reasonablykeep costs low, its service model depends oncustomers to clean, refuel, and return cars intime for the next user. Motivating employeesto perform these tasks would be routine; motivatingcustomer-operators has required a complex,evolving mix of rewards and penalties.In managing customers in your operations,then, you’ll need to address a few keyquestions: Which customers are you focusingon? Which behaviors do you want? And whichtechniques will most effectively influencebehavior? For example, a company whosebusiness model depends on customers’timeliness—whether it’s a dental office packingits appointment calendar or a video store circulatinghit films—may use more- or lessheavy-handedtactics to ensure compliance. Inable to produce excellence?What makes them reasonably motivatedto produce excellence?Have jobs been designed realistically,given employee selection, training, andmotivation challenges?4. The Customer ManagementSystemWhich customers are you incorporatinginto your operations?What is their job design?What have you done to ensure theyhave the skills to do the job?What have you done to ensure theywant to do the job?How will you manage any gaps in theirperformance?The Whole Service ModelAre the decisions you make in one dimensionsupported by those you’vemade in the others?Does the service model create longtermvalue for customers, employees,and shareholders?How well do extensions to your corebusiness fit with your existing servicemodel?Are you trying to be all things to allpeople—or specific things to specificpeople?a previous article for Harvard Business Review(“Breaking the Trade-Off Between Efficiencyand Service,” November 2006), I relatedlessons from several companies that haveused a range of techniques to modify customerbehavior. These techniques can be dividedinto two basic categories: instrumental (thecarrots and sticks we commonly see play outas discounts and late fees) and normative (theuse of shame, blame, and pride to motivate usto return shopping carts and pick up trasheven when no one is looking). The importantthing is to manage customers in a way that isconsistent with the service attributes you’vechosen to emphasize overall.Integrating the ElementsSuccessful service companies have a workingplan that incorporates all four elements ofservice design. Within each of those areas,however, it is hard to spot any best practice.This is because the whole business dependsmore on the interconnection of the four thanon any one element.A standout example of effective overall integrationis the Cleveland Clinic, which isconsistently ranked among America’s mosteminent hospitals and has been a leader inpioneering cardiac care for decades. It’s hardto put a finger on the source of that advantage.The fact that the clinic has specialty centersfocusing on diabetes, for example, or cardiaccare is not exceptional in itself. Its refusal toattach financial rewards to doctors’ productivityis unusual but might not be effectiveelsewhere. Step back from the details,however, and the bigger picture emerges.Attracting the highest-severity patients meansthat doctors will always face a challengingenvironment in need of innovative solutions.Organizing into disease centers rather thannarrower, more traditional lines of specialization(such as kidneys or blood) sets the stagefor cross-disciplinary collaboration—and thusfor novel perspectives—within those centers.Removing productivity incentives gives doctorslicense to spend time on innovation,which is enhanced by their close work withspecialists from other fields. The particularchoices made on methods, processes, andpersonnel are the right ones for the ClevelandClinic because they complement oneanother and come together in a smoothlyoperating system.harvard business review • april 2008 page 8This article is made available to you with compliments of Frances X. Frei. Further posting, copyingor distributing is copyright infringement. To order more copies go to www.hbr.org.

The Four Things a Service Business Must Get RightComing to Terms with the ThreatHow do incumbents react when a focusedentrant appears on the scene? Theusual response seems to follow four distinctstages of “strategic grief.”Dismissal. The incumbent perceivesthe entrant as a nonthreat. It is a deceptivelyeasy assessment to make, giventhat the focused firm has optimizedits service model to be deliberatelygood—and bad—at certain aspects ofthe incumbent’s business.Sadness. Next comes a sense of lossas profitable customers start to defect.They are willing, if not eager, to makethe trade-offs inherent in the entrant’sservice model.Relief. Sadness is replaced by relief asthe realization dawns that only one ofthe incumbent’s customer segments isbeing targeted by the focused entrant.The new competitor may win on a fewdimensions of value and take certain customersaway, but there are still manyother segments to serve!Dread. Finally, the larger threat revealsitself. The problem is not thissingle entrant; it’s the inevitable attackAny service company, no matter how longestablished, can benefit from a review of itsoperations using the framework laid out inthis article. Bringing the four elements ofservice design into tighter alignment can bean ongoing process of small tweaks and experimentsin change, inspired by the kinds ofquestions included in the sidebar “DiagnosingService Design.” A management team planningto launch a new service will find theframework particularly helpful. It flags thedecisions that should be made early andin tandem so that they don’t clash down theroad. And at the highest level, it underscorestwo very important principles of service design.First, there is no such thing as a good idea inisolation; there is only a good idea in the contextof a specific service model. Second, it isfolly to attempt to be all things to all customers.The first point notes the importance of fit,mentioned earlier as a key strength of theCleveland Clinic. At the clinic, managementknows that extensions to its core businessof focused firms on other fronts.Spotted in time, the threat of focusedcompetitors can be met effectively. Isthere a troubling area of competitive activityon your radar screen? If so, don’tbe lulled by its small scale and isolation.Move quickly to understand what’sgoing on there. In particular, focus onthe entrant’s rate of improvement alongcritical measures like market share,share of wallet, and service quality.Benchmarks of absolute difference canfool managers into believing that thethreat is not imminent. But when a newcompetitor improves faster than you do,the gap soon closes.Once you learn the threat is real, exploreyour potential advantages. Can youcompete effectively as a “multifocused”firm (one that targets multiple nichesrather than trying to tackle everything)?The threat needs to be addressed withhumility. The temptation will be great tobelieve that “our way” remains the betterway. If anything, overstate the fact that itis not, and proceed from that assumptionto craft a competitive response.must be examined closely for their fit withits existing service model. The organizationrecently abandoned the concept of a high-endwellness and spa offering because it didn’tbuild on the hospital’s core operationalstrengths. In some ways this seems like anobvious point, but managers often stray intoareas of relative weakness, particularly whenthey see a firm they consider to be a directcompetitor succeeding with a service theydon’t yet offer. Progressive made this mistakewhen it decided to venture into the homeinsurance market. No question, there ismoney to be made in home insurance, asinnumerable firms have shown. But Progressivefailed in its attempt because the challengesof that business did not match up with thecompany’s competitive strengths. Recall thatProgressive is justifiably proud of its analyticsadvantage, which enables it to effectivelysize up the risk that a given policyholderwill file a claim. Unfortunately, that kind ofactuarial prowess is not as central to makinga profit on insuring homes. Home insurersrise or fall on the management of their investmentportfolios—and that is a relativeweakness of Progressive. (Firms typically losemoney on the insurance but make moneyinvesting prepaid premiums.) The fit, in retrospect,was a bad one. It should have been seenthat way early on.Just as common a failing is the misguideddesire to be all things to all people. In today’sservice economy, it is nearly impossible todesign a service model to cover a huge rangeof customers and remain competitive acrossthem. Instead, firms should design their servicemodels for more targeted excellence bybeing specific things to specific people.Great service companies are, almost withoutexception, very clever about selecting theircustomers. We saw this in Progressive’s highlyinformed choice of whom to do business with.Commerce Bank, from its beginnings in 1973,knew it should stake out its own claim on themarket. “The world,” its founder Vernon Hillsaid, “did not need another ‘me-too’ bank. Ihad no capital, no brand name, and I had tosearch for a way to differentiate from theother players.” Shouldice Hospital, a Canadianspecialist in hernia operations, is highlyselective about its customer base. Not onlydoes it serve just patients experiencing acertain type of ailment, it has the luxury ofharvard business review • april 2008 page 9This article is made available to you with compliments of Frances X. Frei. Further posting, copyingor distributing is copyright infringement. To order more copies go to www.hbr.org.

The Four Things a Service Business Must Get RightAre Focused Competitors Nipping at Your Flanks?Highly focused firms are the bane of big, established companies. Because they laser-target certain customer segments, they areable to optimize their service models. The service quality they provide, using specialized employees and a customized productset, is potent. By contrast, incumbent firms typically attract a mix of customers, hire and develop a variety of employees, and—as a result of excellent, well-intentioned suggestions from both groups—are rampant product proliferators.ACovering the waterfront like this can dilute your excellencein every area. Companies that try to do it all…B…are vulnerable to attacks by highly focused entrants,who pick off niche businesses.Focused firmsCYour best defense is to concentrate on multiple niches,shoring them up with the economies gained throughinternal shared services.CustomerfacingBackofficeModel-specificservicesShared servicesFinancePurchasingITHRExecutive trainingharvard business review • april 2008 page 10This article is made available to you with compliments of Frances X. Frei. Further posting, copyingor distributing is copyright infringement. To order more copies go to www.hbr.org.

The Four Things a Service Business Must Get Rightoperating on otherwise healthy people. It hasskimmed the cream of the market.Becoming a Multifocused FirmInevitably, companies that attempt to be allthings to all people begin to struggle whenupstart competitors like Shouldice start pickingoff profitable niches. Often, the decline isnot taken seriously until it’s too late. (See thesidebar “Coming to Terms with the Threat.”)However, some incumbents have managedto compete effectively with their morefocusedrivals, and there is much to learnfrom their experience. The common thread intheir competitive responses to upstarts is thecapacity to become “multifocused.” In otherwords, they stopped trying to cover the entirewaterfront with a single service model. Insteadthey pursued multiple niches with optimizedservice models—each designed to achieveexcellence on some dimensions at the expenseof inferior performance on others. The secretto success in a multifocused firm is the abilityto benefit from having various service modelsunder one house umbrella. This benefit oftencomes in the form of shared services (thatis, internal service providers), which enablea firm to generate economies of scale andeconomies of experience across its servicemodels. Effectiveness at utilizing shared servicesto the advantage of the individualservice models can determine the success ofa multifocused firm. (See the exhibit “Are FocusedCompetitors Nipping at Your Flanks?”)The shared services architecture can beseen in multifocused corporations acrossindustries—from Yum Brands, a collectionof five fast-food companies, to Omnicom,which consists of hundreds of companies inthe interactive-marketing space, to GE, whichseems to have no limit on the markets it canenter. Each corporation has created distinctservice models for distinct customer operatingsegments and gauges the overall benefitof the models by assessing how much theygain from one another. What determineswhether a company has assembled the rightportfolio of service models? It comes down toa critical test: Is each of the firm’s distinctservice models better off as a result of theothers? If the answer is no, it signals thatperformance is about to decline or that thecompany may want to spin off some servicemodels. If the answer is yes, it’s almost alwaysthanks to superior management of sharedservices, and the incumbent thrives.The services shared in multifocused companiestypically include business functions likefinance, purchasing, information technology,human resources, and executive training.The scale advantages they provide arestraightforward and include pooled purchasing,preferred access to credit, and other costrelatedbenefits. Economies of experienceare more difficult to realize but can also bemore valuable. Here, the challenge is to useknowledge gained in one service model tostrengthen the performance of the others.To a limited extent, this kind of knowledgetransfer occurs informally; this has alwaysbeen the hope and promise of diversifiedcompanies. The important difference insuccessful multifocused firms is that theyformalize the process, designing very explicitways of leveraging experience across servicemodels. Knowledge transfer is facilitated bydeliberate investments in such programs asformal best-practice sharing; centralized,dynamic employee training; and the rotationof managers among models.My research convinces me that the bestmeans of sustaining growth in a servicebusiness is to employ the multifocusedmodel, yet it is also evident that this modelrequires concentrated effort to defend. Leadersof individual service models constantlyassert that dedicated, rather than shared,resources would do more to strengthen theirown businesses. Operations managers, meanwhile,raise a chorus of complaint that sharedservices require more-vigilant control “belowthe line” if they are to deliver the necessaryeconomies of scope and experience. Given theperpetual assault on the model, it may not besurprising that another common characteristicof successful multifocused firms is directive(even autocratic) leadership. This leadershipstyle accommodates different personalities,but it always relies on senior managers whoare able and willing to exert strong influenceon subordinates. They must be, in order tobalance the competitive autonomy of individualservice models with the collective value ofshared services. Without strong, centralizedleadership, revenue-generating line managerstypically overrule shared-services managers,particularly in moments of strategic distress.Indeed, companies often stack the deck byharvard business review • april 2008 page 11This article is made available to you with compliments of Frances X. Frei. Further posting, copyingor distributing is copyright infringement. To order more copies go to www.hbr.org.

The Four Things a Service Business Must Get Rightplacing stronger leaders in the service modelsthan in the shared services, effectively underminingthe performance of the system.The Management-Practice FrontierManagement scholars, and not a few practitioners,have taken up an interesting debate inrecent years: Is the discipline of managementfundamentally different in service businessesthan in product businesses? The way in whichmanagement is studied and taught in graduatebusiness schools was forged in the contextof the industrial economy. Are the approachesthat worked for manufacturing companiesequally applicable to services?As service businesses continue to innovate,succeed, and be studied, the answers arebecoming clearer. The framework presentedhere suggests why the traditional techniqueshave proved as durable as they have and whythey still leave sophisticated managers wantingmore. Much of what determines thehealth of a product business—the soundnessof its offering and the management of itspeople—is just as indispensable in a servicebusiness and can be addressed with a similartool kit. But whole new areas involving theroles of customers have opened up, and theirtool kits are only now being assembled.Reprint R0804DTo order, see the next pageor call 800-988-0886 or 617-783-7500or go to www.hbr.orgharvard business review • april 2008 page 12This article is made available to you with compliments of Frances X. Frei. Further posting, copyingor distributing is copyright infringement. To order more copies go to www.hbr.org.

The Four Things a Service Business Must GetRightFurther ReadingA R T I C L E SBreaking the Trade-Off BetweenEfficiency and Serviceby Frances X. FreiHarvard Business ReviewNovember 2006Product no. R0611EThis article offers additional strategies formanaging customers in ways that preventthem from negatively affecting your serviceoffering. First, understand how customerscan disrupt your service, including requestingservice at inconvenient times, askingfor a bewildering array of features, ignoringor botching the tasks required to use yourservice, and having different opinions aboutwhat constitutes excellent service. Thenapply strategies for managing these problems.For example, Zipcar, a car-sharing service,charges penalties to customers who returncars to their parking spaces late. The penaltiesreduce behavior that raises Zipcar’s costsand that spoils other customers’ experienceof its service.Exploding the Self-Service Mythby Youngme Moon and Frances X. FreiHarvard Business ReviewMay-June 2000Product no. F00304Getting customers to do the work (such asshopping for and buying your service online)is one way to pay for the cost of providingexcellent service. But many companies’ onlineself-service presents too many choicesand asks customers to shoulder too manytasks. Result? Overwhelmed or annoyedcustomers avoid the self-service. To persuadecustomers to use your online self-service,simplify it. For instance, Dell Computer groupsits products by customer segments anddisplays only in-stock items on its Web site.Customers can help themselves, but they’renot overwhelmed with choices. Dell alsohas custom Web pages for its most valuablecorporate customers that display only computerconfigurations preapproved by theclient company and only prices reflectingnegotiated discounts.Silo Busting: How to Execute on thePromise of Customer Focusby Ranjay GulatiHarvard Business ReviewMay 2007Product no. R0705FWhen a market becomes commoditized,many companies shift from a product to asolutions orientation—offering packagesof products and services. But this strategypresents new challenges. In addition tohaving to manage customers in new ways,companies must reorganize internally tosupport their new service-focused business.That’s because knowledge and expertise residein silos, and companies find it difficult toharness their resources across those boundariesin ways that customers value and wantto pay for. This article presents suggestionsfor internal reorganization—including replacingtraditional silos with customer-focusedones, developing new customer-satisfactionmetrics and incentives, and giving peoplewho are closest to customers authority toact on their behalf.To OrderFor Harvard Business Review reprints andsubscriptions, call 800-988-0886 or617-783-7500. Go to www.hbr.orgFor customized and quantity orders ofHarvard Business Review article reprints,call 617-783-7626, or e-mailcustomizations@hbsp.harvard.edupage 13This article is made available to you with compliments of Frances X. Frei. Further posting, copyingor distributing is copyright infringement. To order more copies go to www.hbr.org.