(Re)Consider your Service Value Proposition: How to create more value for the customers, employees and owners of service organisations

By Andrew Manning

Services form the largest parts of most developed economies, and a growing part of emerging economies too. And all organisations contain in-house service teams and departments. So, this book is relevant to you, whatever, or wherever, your organisation.

WHY IS IT IMPORTANT TO (RE)CONSIDER YOUR SERVICE OFFERING?

Because, the market for

• Language: English
• Publisher: Professional Service Management (UK) Ltd
• Release date: Jul 11, 2017
• ISBN: 9781911079934

Book preview

ABOUT THE AUTHOR

Andrew Manning has led or advised a wide range of service organisations throughout his career, including law firms, real estate brokers & consultants, accounting and management consulting firms, building maintenance companies, cleaning companies, energy management businesses, security and catering operations, a tool & equipment brokerage, ICT teams, social health & care organisations, charities and wedding organisers.

The customers of these organisations have ranged from multinational corporations to SMEs, national and local government, health, education and other public service providers, as well as private individuals.

Andrew has been the Chairman, CEO, COO, Non-Executive Director, general manager and consultant of various service organisations. He is an alumnus of Harvard Business School, having completed its Advanced Management Program, and has also attended its Achieving Breakthrough Service executive education course.

He currently runs his own business, providing interim and part-time executive, non-executive and consultancy advice to service organisations, and is an educator on strategy and service at several business schools.

Andrew is also one of a handful of people who can rightfully claim to have managed a law firm, cleaning company and riding stables! These have a lot of things in common…

He is thus a proven leader and advisor to an extremely wide range of market leading service organisations – both large and small – as well as a keen student of service. Like all of us, he is also a significant consumer of services!

AUTHOR’S INTRODUCTION

WHO SHOULD READ THIS BOOK AND WHY

Who should read this book?

You should read this book if you lead, manage, work at, work with, invest in, are advising, or want to start, a service organisation.

It should be of use to general managers, functional specialists, change specialists, investors, lenders, consultants, educators, and students. It should also be of assistance to all those politicians and civil servants who are faced with making decisions about public services.

Is yours a service organisation?

According to the European Central Bank, services in 2014 (including non-marketed services, such as those provided by the Government) comprised 73.9% of the economy in the Euro area, 80.4% in the US, 74.3% in Japan, and 48.2% in China. These areas generate 49.1% of the world’s GDP.

Furthermore, if you think this book isn’t for you because your organisation is either a manufacturer or producer of raw materials, or a technology business, etc, then consider the following:

► How many services that are supplied as part of a package with a car, a computer, a washing machine, or many other types of manufactured goods?

► How many manufacturing, raw material based or agricultural based businesses don’t have internal departments, such as accounts, IT and HR, that provide services within the organisation, and how many don’t have after sales service departments?

And then there are public services such as health, welfare, education, utilities and defence that are provided by the Public Sector, which includes central government, local government and Third Sector organisations. In fact, organisations that provide public services can represent over 40% of GDP in some Western economies.

So, some part of your organisation is almost certainly a service provider, and therefore this book is for you too!

Why should you read this book?

We are in the most competitive economic environment for many years and this, along with technological innovations, has created the most competitive environment for services in decades.

This can be competition for customers, for employees, for other resources, for budgets, for finance and/or competition for profits.

As an in-house team, you may be competing with an outsourcing alternative or an offshoring alternative.

As a public service provider, you may be competing with other public services for a share of government expenditure, and/or against the private sector or Third Sector alternatives.

As an individual or a team, you may be competing with the internet or other technology that can replace people.

As an individual, you may be competing to get promoted or retain your job, or for more attention from your peers and superiors.

If you are a student, your aim is to pass exams. If you are an advisor, it is to provide the best advice.

If you are an investor, then you will want to better understand the service organisations you are investing in and spot opportunities before others do.

If you are a politician and/or a civil servant, you will be seeking ways to provide public services that are affordable, fit for purpose, and of sufficient quality that voters will support you.

Do service organisations have enough in common to permit analysis?

But you may ask, if services do represent such a broad range of activities, do they really have enough in common to identify some common learning points?

My experience of both working with and studying all sorts of service businesses, and as a consumer of all sorts of service, strongly suggests that they do.

Moreover, I will demonstrate that gaining an effective understanding of these common points is fundamental if we are to meet customer, employee, and shareholder/owners expectations, and to achieve a competitive advantage.

How will you benefit from reading this book?

This book will help you, and your colleagues, to ask yourselves the following questions:

► Is our service good enough in an increasingly competitive environment?

► How can we improve our service to become and/or remain good enough?

► How do we avoid costly mistakes when we are looking to make changes to our service and service organisation that will enable it to remain competitive?

The book will help you to think about these three questions in a structured, informative manner. To achieve this, it is designed to provide you with:

► A robust foundation for thinking about service in a holistic manner, and an understanding of the key interrelationships and trade-offs in any service and service organisation.

► A framework through which to consider the potential impact of changes to your organisation’s strategy and business model and the value it delivers to its customers.

By sharing this book with your colleagues, you can create a common level of understanding upon which to build a better service organisation that is more able to survive and thrive. In addition, by providing you with a greater insight into service organisations, it should help you to both protect and advance your own career.

You don’t have to be a genius or a visionary or even a college graduate to be a success. You just need a framework and a dream.

Michael Dell

This book provides a framework to understand and improve service organisations. It doesn’t provide a dream.

Will you think differently or more about service after reading this book?

This book is designed to provoke thinking, as it is a book of questions and a few answers. You may not agree with some or most of it, or the framework on which it is based. That doesn’t matter to me, and shouldn’t to you if it succeeds in sparking additional understanding and thinking that will help you to see your service organisation more clearly.

Without asking the right questions, you won’t find the right answers for your service organisation.

And the right answers for each service organisation are different: you will be serving different types of customers with different services in different localities.

Furthermore, you will be competing with other service providers and if your answers are the same as theirs, you will have no competitive advantage, and so surviving and thriving will be that much harder.

It’s not what you look at that matters, it is what you see.

Henry David Thoreau

This book aims to help you see.

ACKNOWLEDGEMENTS AND THANKS

I would like to thank the following people who have directly or indirectly assisted with the writing of this book.

Ward Johnson, Dr Markus Moeller, Sheridan Broadbent, Ian MacDonald, Supun Weerasinghe, Ilias Assimakopoulos, Shiv Kumar, Neil Daws, General R. Swami, and Pavel Petrov, who were all fellow students on Advanced Management Program 182 at Harvard Business School, and were kind enough to read and comment on various drafts or parts of this book.

Dr. Andrew Green, of the University College of Estate Management, and Dr Ashley Dabson, of Henley Business School at the University of Reading, who both were also kind enough to read and comment on early drafts.

Professor Ananth Raman, of Harvard Business School, who gave me some encouragement to write the book. He also made me realise that theories and models in business literature are just tools that help you to think, not the answers to every business question that arises!

Professor Frances Frei of Harvard Business School, whose lectures, articles and book have made me think a lot about service.

Professor Das Narayandas, also of Harvard Business School, for helping me think more deeply about customer value, markets and marketing, and for generally being inspirational.

The writings of the following have also been instrumental in my learning and how I think about service, and will no doubt shine through: James L. Heskett, W.Earl Sasser Jr, Leonard A Schlesinger, Christopher Lovelock, Christian Gronroos, David Maister, Richard B. Chase, Jane Kingman-Brundage, Valerie A. Zeithaml, A.Parasuraman, Leonard L. Berry, Christine Hope, Alan Muhlemann, Jim Holden, Bradley T. Gale, Frederick F. Reichheld, Don Pepper, Martha Rogers, Abraham H. Maslow and many others. Thank you for your thoughts and ideas, and apologies if I have misunderstood or misinterpreted your views in forming my own.

Colleagues and clients throughout my career who helped, one way or another, to shape my thinking. In particular, Barry Ostle, Chris Geaves, Peter Shearman, Mike Fowler, Laurie Soden, Mike Harvey, and the development department at Edward Erdman. Eugene Bannon, Peter R. Jenkins, Bob Tee, Steve Hockaday, Rob Oldham, Stephen Harrison, Nigel Hamilton, Alan Bloom, Cedric Clapp at EY, and via EY, George Iacobescu, Gerald Rothman and Ralph Williams at Olympia & York. Leo Quinn, Colin Millar, Bob Baker, Andy Brierley, David. L. Baker, Alan Jordan, Vic Olner, Ian Stroud, Dave Gibney, Martyn Hayward, James Monteith, Phil Catlin, and Jon Bourlet at Honeywell. Mark Tincknell, Andy Darkin, David Pike, Mike Roberts, Derek Quinn, Jeff Alden, Paul Brown, Darren Frost, Dominic Holland, Stuart Pearce, Gillian French, and the GasForce team at Connaught plc. The Partners and staff at Bevan Brittan LLP, Red Kite Law and Osborne Clarke. The employees, volunteers and customers at the Avon Riding Centre for the Disabled. All at Silcoa Ltd, and Howard Piper and all at Nationwide Hire Ltd. My fellow judges of the PwC West Country Business of the Year Award. I have learned a lot about service and about business – good and bad – from you!

My great-grandparents, grandparents, parents, brother, great uncles and aunts, uncles and aunts, cousins, in-laws, nephews, nieces and friends. I have learnt a lot about life, values and service, from you.

And thanks to my wife Val (as you will see, serving Val is a theme in my life!), son Ben and daughter Sophie for allowing me the time to write and being (mostly!) supportive. Love you all.

And to the one time England Test cricketer Mike Smith, of Gloucestershire CC and Bevan Brittan LLP. Sports stars often generate books, usually about themselves or their sport. The genesis of this book came from a throwaway remark from Mike, which he has no doubt forgotten, at the end of a customer service program I was running… You should write a book about it.

CHAPTER #1

WHAT IS A SERVICE?

INTRODUCTION

I have found that the most profound understanding of what service customers want and need – how to be good, bad or indifferent at delivering that service, how to differentiate the service from those offered by competitors, and how to make it financially sustainable – comes from going back to first principles and undertaking a close examination of what is actually meant by a service.

Such an analysis has led me to conclude that all services comprise three core common elements.

The first two chapters of this workbook focus on leading the reader to a similar conclusion. The remaining chapters then examine the implications of this for the creation of value for the customers and the service provider. I have termed these core common elements a Service Value Proposition, or SerVAL Proposition.

KEY QUESTIONS

To assist this process, I will explore the following questions in this chapter:

► How does the average person typically define a service?

► How do academic textbooks typically define a service?

► How do dictionaries define a service?

► What can be gleaned from these definitions?

► What is the Service Benefit?

► What is the Service Experience?

► What is the third element?

► What are the three core elements of a service?

► How important is each core element?

► What is a SerVAL Proposition?

► Why are the core elements of a service the principal basis of competitive advantage?

► How can you apply this to your service organisation?

HOW DO PEOPLE TYPICALLY DEFINE A SERVICE?

Whenever I run a workshop about service, I start by asking the delegates to identify as many different types of service that they can think of in two minutes. This list tends to be quite long and the typical services include:

accountancy, law, real estate broking, consultancy, banking, medicine, care, welfare, education, plumbing, landscaping, cleaning, building maintenance, retailing, logistics, hairdressing, catering, car maintenance, gardening, travel agents, advertising, IT services, hotel and spa, fitness training, refuse collection, utilities, construction, retail, airlines and government…

This is a long, broad and eclectic list that usually reflects the services they have recently purchased and their own jobs. But do these services have anything in common that can help define what is meant by a service?

When I ask this further question, delegates frequently observe that services have some common ingredients, such as people, systems and processes, tools and equipment, IT and real estate. Some will mention that there is an output, others an experience. They also frequently come up with a number of common characteristics of services, such as that services are intangible and involve some form of activity.

HOW DO ACADEMIC TEXTBOOKS TYPICALLY DEFINE A SERVICE?

Academic textbooks on service typically adopt a similar approach in seeking to define a service and tend to focus on describing the characteristics of services compared to goods.

However, these descriptive characteristics and ingredients can be so varied and so variable between different services, they are almost meaningless in terms of producing a robust definition of a service that is useful to service providers. So, when searching for such a definition, what other sources can be considered?

HOW DO DICTIONARIES DEFINE A SERVICE?

According to The Oxford English Dictionary, a service is:

The action of helping or doing work for someone.

This doesn’t provide great insight, other than mention that a service is an activity, rather than an object, and it has a customer (someone).

In 2013, a service was defined on Wikipedia (itself a relatively new service!) as follows:

A service is a set of singular and perishable benefits delivered from the service provider, mostly in close co-action with his service suppliers, generated by functions of technical systems and/or by distinct activities of individuals, respectively, commissioned according to the his/her needs by the service customer from the service provider, rendered individually to the service consumer at his/her dedicated trigger, and, finally, consumed and utilised by the triggering service consumer for executing his/her upcoming business or private activity.

This is a bit of mouthful, to say the least, but it gives a few more pointers, which I have highlighted in bold.

These definitions and descriptions suggest that a service is something relatively intangible that creates an output to meet a need and thus provide a benefit. They also suggest that a service involves an activity that we can experience, either by seeing it and/or by participating in it.

WHAT CAN BE GLEANED FROM THESE DEFINITIONS?

Synthesising these various perspectives and definitions, a service might therefore be summarised as follows:

If we consider a number of the services in the list above in these terms, then we might assess them as follows:

WHAT IS THE SERVICE BENEFIT?

This analysis indicates that the output and the benefit are not necessarily the same thing. The output of refuse collection is the rubbish being collected and the benefits are the lack of smell, health hazards etc.

The output of a lawn mowing service, for example, is shorter grass.

The benefit of shorter grass may depend on the customer. The customer may be doing this to feed animals in the winter, to use a field to play sports on, to make the lawn of their house look smarter or to help them sell their house.

If the customer has sheep in his field, then he may receive no benefit, particularly if he has no plans to keep them during the winter or doesn’t feed them with mown grass during the winter.

The simple example above highlights that the service output can produce different benefits in differing circumstances for different customers. Therefore, the output in some cases can produce very little benefit to the customer. This strongly suggests that the service output and the service benefit need to be considered separately.

This changes the relationship described above, as follows:

However, these examples also suggest that the service output itself has no intrinsic value. The fundamental value of the service is the benefit that is received, and the benefit depends on the needs of the customer. The output is something obtained as part of the service experience: you experience the audit meeting and report, you experience the prescription and the medication, you experience your waste bins being collected, or your lawn being mowed etc.

The core elements of a service can thus be reduced to the simple equation of:

This is where the Service Benefit means meeting a customer’s need.

WHAT IS THE SERVICE EXPERIENCE?

The Service Experience element of a service is what the customer experiences whilst being served by the service provider.

The Service Experience is principally derived from how customers interact with the service provider. The factors shaping that experience will include:

► The method of interaction, for example, via the internet, over the telephone or face to face

► Where they have this interaction.

► Which employees of the service providers they interact with, and how that person(s) looks and behaves.

► The frequency, depth, breadth and length of the interaction.

I explore this in more detail when I consider the Service Delivery Mix and the Service Delivery Model in later chapters.

The experience of having your hair cut will depend on how the hairdresser behaves, the condition and design of the hairdressing salon, whether the scissors are sharp and clean, whether there are magazines to read whilst you wait, how long you have to wait, whether you are offered a drink, how easy it is to book an appointment etc.

The experience of shopping in a store will depend on the location of the store, its surroundings, whether it has parking close by, the external appearance of the store, the internal layout of the store, the location of the goods in the store, the number, availability, appearance, knowledge and attitude of staff in the shop, the amount of time they spend with you, the time it takes to pay, the technology used to take payment, etc.

The experience of going for a meal in a restaurant will have similar influences as retailing, including the location, surroundings, parking, appearance, layout, number, availability, behaviour of staff, the ambience, the lighting, the music, the degree of privacy, how long it takes to be served, and of course, the appearance, taste, temperature etc of the food.

The experience of buying legal advice will vary, depending on the nature of the lawyer you engage, how they behave, how much time you spend with them, how often and how they communicate with you, whether you visit their offices or not, and if so, the location, surroundings, appearance, layout, decoration and furniture in their offices. It will depend on the length of the relationship you have with them and how often you use them. For example, is this a one-off transaction or do they carry out a lot of work for you on a regular basis?

The above examples show that the Service Experience for the same service can be quite varied, because it involves a range of ingredients and the nature and behaviour of those ingredients.

WHAT IS THE THIRD ELEMENT?

Is that it then? Is a Service something that provides a Benefit and an Experience of some kind to a customer?

Whilst that might suffice as a high-level definition, I believe that there is one further element that is fundamental to understanding what customers want from a service and how they evaluate it. This other element also impacts the financial viability of delivering the service.

This other element is the cost to the customer who receives that Benefit and Experience, which includes, but is not limited to, its price. I will expand on this in Chapter 2. The importance of the cost to the customer can be considered as follows. For any service, if a customer pays a high price then they are likely to expect a significant Service Benefit and excellent Service Experience, and will be disappointed if they do not receive it. However, they may be prepared to accept a lower (but adequate) Service Benefit and an average (but adequate) Service Experience for a lower price.

Low cost/low price airlines are a great example of this equation at work. The Service Benefit is the same as a standard airline, as you are transported to the same destination (and as someone quipped in a workshop I ran, you don’t want your airline to go the extra mile), but the Service Experience is poor compared to premium airlines and the price low. This is an acceptable trade-off for many people, particularly with short flights.

However, without the price element of the equation, you would think that the service was poor, as the experience is noticeably worse than that provided by standard and premium airlines.

It is important to remember that all services involve a price, whether the service is sold commercially, delivered as an in-house department, or is a public service. The price for an in-house service is their budget, which is allocated as an overhead to other departments. The price for public services is national and/or local taxes.

WHAT ARE THE THREE CORE ELEMENTS OF ANY SERVICE?

For the purpose of this book, and to aid your thinking about service, a service will be defined as:

An activity performed by an individual or an organisation (the service provider) for an individual or an organisation (the service receiver- more commonly called the customer or the client) that provides that customer with some form of benefit and an experience, typically for a price.

A service thus can be considered as containing three core elements that are involved in a trade-off relationship, as follows:

This is a value equation, which I have termed the SerVAL Equation.

Note: A SerVAL Equation with a value of less than one means the customer is paying too high a price relative to the service they are receiving. That isn’t sustainable. A SerVAL Equation with a value of greater than one means the service provider is providing a better service than is necessary for the price they are receiving. That may not be sustainable and is certainly not optimal from the service provider’s perspective.

HOW IMPORTANT IS EACH CORE ELEMENT?

Are any of the three core elements of the Service Value Equation more important than the others? How about the Service Benefit compared to the Service Experience?

At the most basic level, this question is best answered by a quote from Michael Hammer of the Massachusetts Institute of Technology:

A smile on the face of a smartly dressed limousine driver is no substitute for a Car.

No matter how good the service in a restaurant is, if the food is poor you will not go back. No matter how friendly, smart and reliable your cleaner is, if he does not clean the floor well, then you won’t be happy. No matter how prestigious and experienced your lawyer is, if she does not complete your transaction then you may sue her.

So service organisations must deliver the required Service Benefit. The key element of a service for a customer is the benefit that he or she receives from the service.

The value of this Service Benefit must also be reflected in the price paid for it. If the price is too high, then the Service Benefit is not worth having.

The Service Benefit is thus the most important element of the Service Value Equation. It is the core reason for procuring the service, but it cannot be considered in isolation from the Service Price.

Nor can it be considered in isolation from the Service Experience. Given the choice between two service providers that generate the same Service Benefit for the same Price, the customer will choose the good Service Experience over the poor one.

Furthermore, unless the Service Benefit is binary, i.e. the customer either receives the benefit or doesn’t, it is likely there will be a degree of trade-off between the Service Benefit and Service Experience.

I recently went into my bank, whose premises were a bit small and cramped, and it felt that the other customers were too close when I was discussing my business.

The male staff in the branch had silly haircuts and poorly done up ties. Whilst they were friendly and helpful, did I really want to trust my money with the staff who were so poorly dressed?

However, the Service Benefit was good, as they gave me some cash very quickly. So this was a poor Service Experience with a good Service Benefit.

The same day, I went to my local car dealership to get a potential fault checked. The showroom was spotless, modern and gleaming, and I was given a great cappuccino, newspapers to read, a TV to watch, and was attended to by very smart staff.

When they finished looking at the car and decided that there was no fault, they mentioned that one of the light bulbs had failed but they hadn’t replaced it.

Did I want to book in to get it fixed? Great Service Experience, poor Service Benefit, as they could easily have changed the bulb whilst checking the car.

I did get some benefit, however – the peace of mind gained from knowing that the car had nothing fundamentally wrong with it.

This trade-off might be considered thus:

So, whilst the Service Benefit is the most important of the three core elements of a service, it