Complex Service Delivery Processes: Strategy to Operations

By Jean Harvey

Different types of organizations provide services that require multiple, complex services to produce results. Oftentimes, those complex services morph into a maze of system processes that crisscross, impeding the smooth operation of processes and value creation. So how can you manage multiple services efficiently and effectively? This book outlines the strategy and execution needed to meet your goals. Numerous examples, exercises, and tools are included to help explain and clarify. The revised fourth edition includes a new focus on the impact of artificial intelligence in complex services, as well as links to video clips and podcasts. Professionals, semi-professionals, and technical workers in all areas, from law to medicine, accounting to engineering, social work to architecture, will find this book an invaluable tool in achieving success.

• Language: English
• Publisher: ASQ Quality Press
• Release date: Oct 1, 2021
• ISBN: 9781636940069

Jean Harvey

Jean Harvey is the director of the Research Centre for Sport in Canadian Society, University of Ottawa.

Book preview

Introduction

This introduction presents two different contexts as a lead into the content of the book: (1) epidemiology and, more specifically, the COVID-19 pandemic and (2) the insurance industry. This is followed by a bird’s-eye view of the content of the book, covering in turn business models, quality and value propositions, operational excellence, methodologies, and conceptual aspects.

Podcast 1—Complexity

In this podcast, I introduce complex systems, and complex service delivery processes in particular, and the nature of professionals, professional services, and intricate service episodes. Issues related to power, among experts, and between experts and clients, bring out the importance of respect at the moment of truth.

1.0 THE FIGHT AGAINST VIRUSES

Sometime in late 2019 in Wuhan, China, a microscopic lifeform (now known as a COVID-19 virus) crossed from an animal to a human host. The precise way in which that happened is as complex as it is mysterious and consequential. Let us define a complex phenomenon (for now) as one that is fraught with irreducible uncertainty. If you live in North America, sometime in late winter 2020, you were told to put on a mask and wash your hands. Soon after that you were told to work from home and had to learn overnight how to operate several new technologies. Then, maybe, you had to quickly learn how to do without restaurants, hotels, bars, group encounters of any kind, and air flight. As if this were not enough, many of us had to quarantine, find ways to fly back home safely, and deal with a poorly understood sickness and, possibly, the hospital experience.

Hospitals were quickly overwhelmed by an inflow of very sick and highly contagious patients that they did not quite know how to treat. The demand for some medical devices, such as ventilators and protective gears, vastly exceeded supply. Resources had to be reallocated to deal with this crisis, leaving people requiring regular medical treatment with little or no services at all. In many areas, already understaffed centers for the elderlies lost control of the situation, resulting in a massive death toll. Figure 1 presents a high-level system’s view of COVID-19 crisis management. It illustrates the interplay of flows and influences in the governance system, the health system, the social system, the economic system, and the natural environment system. Measurements are taking place continually in each system. The resulting data is processed by AI and decision-aid systems, producing analyses, forecasts, early warnings, simulations, and recommendations for the governance system.

To deal with the situation, behaviors had to change. The governance system and culture of some societies lend themselves better than others to such social control, resulting in massive differences in death toll. Different economic systems also adjusted differently to the shock and aftershocks of the pandemic, further contributing to the acceleration of power shifts in local, national, and international political systems.

The scientific research and development system was pressed into action from the outset. Scientists from various disciplines, working with very different paradigms¹ and abstract representations of variables and their relationships, alternately engaged in collaborating and crossing swords in an unprecedented global effort to understand and counteract our enemy’s playbook. Figure 2 is an illustrative model of some of the variables that make up the complex system² whose behavior they are trying to understand and influence. It is beyond the scope of this book and the competence of this author to debate how the correlation between v and α is mitigated by β. We are merely using this convenient example to introduce the nature or abstract models, their role, and the challenges involved in developing them.

Any path to understanding complex systems involves building evidence-based, statistically sound abstract representations of different aspects of reality. The same reality can be approached from different perspectives, using different paths and tools, but always through the manipulation of abstractions. As practically minded and down-to-earth as you may be, you cannot shy away from abstractions and deny the omnipresent role of your mental models in guiding your actions.

This is particularly the case for any business involved in some aspect of complex service delivery, such as developing a vaccine for COVID-19 or performing an accounting audit when a potential Ponzi scheme is identified. Consider the comparison shown in Figure 3 between a traditional vaccine development process and the reengineered process that emerged under pressure. The bottom part of the diagram shows the major approaches used to shorten the timeline.

The 10- to 15-fold reduction in cycle time is a complete game-changer. It dramatically alters the way events unfold. We could take any step in this process, such as tests in lab culture and animals, and this in turn could be mapped out in detail, specifying potential technologies and service providers for each. For instance, as discussed later in the book (Box 8.2), in one of the trials of the Oxford Astra-Zeneca vaccine, it was discovered that part of the sample had been given a half-dose of the vaccine. This is a random occurrence whose local and global effects must be considered. To assess the former, you first need to look at operational alternatives and then zoom in to a model representing the relationships between virus, bodily systems, and vaccine agents to explore the effects of various alternatives. To understand the latter, you must zoom out to Figures 1 and 2 and explore the potential effects of various solutions on the perceptions generated in the health system and the population at large (social system) and thus in the governance systems. How will competitors react (economic system)? How will the regulatory review be affected by these perceptions, and what could be the ripple effects on attitudes in the population to be vaccinated?

At the time of this writing, some experts commented on the evolution trajectory of the virus. It seems that it is acting as if it wants to become a flu-type coronavirus. Learning the lessons taught by the decades-long and still ongoing fight against the latter and considering the need to respond rapidly to multiple unpredictable variants, it appears that a quick response, agile (see operational excellence below) vaccine development process would be best. The relative ease with which messenger RNA (mRNA) can be reprogrammed and retargeted could enable the development and constant improvement of just such a process. This transforms a one-off project into an ongoing process, requiring process management rather than project management expertise.

It is quite probable that a company interested in providing, say, data gathering, processing, and statistical analysis services for the developers would approach this from a grounded process analysis perspective, with little understanding of the dynamics of the global systems of which this is a part. Process analysis and operational capabilities need to be complemented with the ability to zoom out to a broader perspective. As the adage goes: think globally, act locally. Failing that, you will fade-out into obsolescence while achieving operational mastery in the production of a solution to a problem that no longer exists. Social necessity, scientific breakthroughs, financial means, engineering, operations, logistics advances, and evolving government-business cooperation mechanisms must be considered as one complex dynamic system. Only through such an analysis can you hope to gain some insights into why it took so long for Europe, and even longer for the Americas, to use the time afforded them by advance warning signs, clearly observable in Asia, to prepare adequately for the coming pandemic.

Such quantum advances as the mRNA vaccine development method are not limited to this field, and they are occurring at an increasingly fast clip in many sectors of the economy. Operators, however excellent, who cannot see the overall picture, a feat only possible with abstract models, are destined to fail. If you have always taken a dim view of such abstractions, now may be the time to suspend disbelief and open your mind to experimenting with this kind of thinking.

This is one of the purposes of this book. To get a broader perspective on the topic, let us briefly discuss a different sector that is also going through severe turbulence under the influence of similar generic forces: risk management and insurance.

2.0 RISK MANAGEMENT AND INSURANCE

Risk is an inherent part of life. Companies are risky ventures, undertaken in the hope of making money or achieving some important purpose. We manage risk in our personal lives all the time—in small ways, such as selecting the best commuter route to get to work or deciding whether we are going to eat these leftovers from three days ago; and in large ways, such as buying a new house or getting married. We also manage risk in our professional lives all the time, from taking on a new contract to accepting responsibility for the advice we give a client. Risks exists because the consequences of our actions are uncertain, so undesirable outcomes are possible. Managing risk involves identifying possible unfavorable events, preventing them, detecting them, and mitigating them when they occur. When an outcome that could materially affect the pursuit of our goal remains in our path, we resort to insurance.

Insurance companies make money by assessing risks better than we can, pooling risks to make them manageable, and investing the steady stream of premiums that comes in. If anxiety leads you to overestimate the probability of a bad outcome, you will be willing to pay a higher premium than the insurance is really worth (statistically or actuarially). This is one of the prices that we pay for our anxiety and for not taking a deliberate look at the cold facts. We are not statistical thinkers, even those of us who have been trained for it, have experience in it, can do the calculation correctly, and believe that we do it all the time.³ While we do not always act rationally, we would like to do so. Evidence-based management⁴ involves asking the right questions, acquiring all the facts, appraising them, aggregating them, and applying them to the situation at hand.

AI is ideally suited to tease the key predictors of risks out the of the massive stores of data on past policies and outcomes available to insurance companies. The job of actuaries (i.e., measuring and managing risks) is being radically disrupted. AI is the interloper into a previously stable and lucrative job. Better, cheaper, faster, and widely accessible risk predictions are a game-changer. Social networks allowing for peer-to-peer insurance (P2P), now happening as a marginal player at the outside reach of the industry’s radar, is poised to become another major disruptor. According to the National Association of Insurance Commissioners (NAIC), The core idea of P2P is that a set of like-minded people with mutual interests group their insurance policies together introducing a sense of control, trust, and transparency while at the same time reducing costs.⁵ The internet of things (IoT) is also an important contributor to the buildup of disruption forces. The more you know about what a specific person or a specific thing does or goes through, the more you are able to understand how it differs from the average behavior of the category in which it is lumped. You can then personalize the assessment of associated risks and provide adequate coverage for commensurate premiums.

Insurance is perceived as a necessary evil, and customer relationship is imbued with distrust. In one poll, sex workers were more trusted than insurance companies.⁶ For most customers, it is very difficult to grasp the notion of risk, let alone come with a realistic objective assessment of it. Our objectivity is limited by emotions associated with the irrational fear of imminent disaster or unrealistic optimism about the future. The house fire that is endlessly played back on news cables and that goes viral on the web, or the neighbor whose family jewels were stolen, weigh disproportionality in our minds and introduce important biases in our assessments. Insurance contracts are virtually impossible to decipher by laypersons. The claim process is long and complicated. Customers armed with an inadequate understanding of their coverage and unrealistic expectations about compensations often end up disappointed and feeling cheated. If you are an AI developer, you smell blood.

Fast-forward 10 years. As you are leaving for work, your automated assistant shows you two alternate paths for your drive downtown. One is clearly faster than the other. You are then informed that this path will result in a 1% increase in your pay-as-you-go insurance payments. As you start on the fast path, you see that your account has been debited accordingly. As you park, you back up into another car. Your assistant guides you to take the photos that it requires. As you come back to your car, you are notified of the cost of repairs and of the impact of this claim on your risk class. By this time, an adjuster drone overhead is taking pictures of the site. You are then given directions to the garage where an exchange vehicle is being routed for you to pick up.⁷

The last part of this futuristic episode illustrates the path of change for the claim adjustment process. For the customer: fast and easy. For the provider: much lower cost of processing and losses from fraud. For insurance companies, there is no reaching this destination safely without operational excellence to quickly detect opportunities and engage in fast-paced experimenting-and-learning loops.

There is no survival either for a company that does not understand the forces at play in the broader environment, including the social, political, legal, and technological systems in which such changes take place. Much more on these systems, and particularly on the latter, will be covered in the chapters that follow. An organizational culture in which creativity cannot coexist with rigor and where strategic thinking does not connect with execution capabilities will flounder. Of course, in times of plenty they might appear successful and deceive themselves and others into thinking that they are the best. It’s when the tide goes down that you can see who has been swimming naked, Warren Buffett famously quipped. Learning from experience does not happen simply with the passage of time. It requires method, rigor, and a culture that nurtures innovation and experimentation. The organization that learns the fastest will find itself, sooner rather than later, ahead of the pack, leaving the competition in a permanent losing effort to catch up.

Having broached on two sectors (epidemiology and insurance), I will apply the same approaches to several other sectors in the following chapters, including finance, health, government services, and the judiciary. First, let’s introduce these approaches from a business perspective in more detail.

3.0 MAJOR ASPECTS COVERED

Let’s begin by discussing business models, which will lead us naturally to quality and value. This discussion in turn will set the stage for an exploration of operational excellence. While technology in general and AI in particular are omnipresent in the book, specific sections are devoted to them. The same applies to methodological considerations, including philosophical and technical aspects. Part 1 of the book involves many abstract notions, such as service, value and quality; operations management; technological change management; AI; and environment models, which we will explore to lay solid foundations. Most of these topics will be discussed in Chapter 1. This will allow us to better grasp the underlying forces that sustain and impulse the dynamics of the ongoing technological revolution.

3.1 Business Model

A company’s mission statement defines its raison d’être. Why does it exist? A company’s business model specifies how it exists and grows. Figure 4 is a high-level representation of a business model. The business model must spell out how and for whom the company creates value and how it translates this value into profit. This requires specifying the target markets, the channels through which customers are reached, the nature of the relationship with clients, key players and stakeholders, revenue streams, cost structure, as well as the critical capabilities that need to be nurtured. The business must generate enough profit and cash flow to pay its way and reward shareholders. It also must formulate an operations strategy and identify the required competencies and capabilities, as well as the required processes to execute it.

We shall differentiate the business model concept from that of business strategy, to be construed as the overall game plan to beat competition. The business model further entails the setting up of a sustainable network of partners and suppliers. What trusted partners can make up for what we cannot do on our own? How will we transform the value created into income streams that can sustain growth? The answers we provide to these questions must form a coherent whole and allow us to detect shortfalls, missing pieces, and incoherence. The business model is the conceptual engine that keeps the business alive, adjusting, and growing. It is a vehicle for key players from all parts of the business to operate with a shared mental concept of the business and to discuss and agree on adjustments to the configuration of the business. Finally, the business model includes an effective learning loop or learning engine that will allow the business to learn fast—that is, faster than competitors do. This is the only source of sustainable competitive advantage.

The business model could apply to the company’s actual situation or act as a high-level architecture for a future business entity. Before the term became popular and the rationale behind it became more explicit, business models were not as formal as most companies make them now. A tacit business model may work just as well as an explicit one, until it does not—that is, until something is lost or changes take place that deprive the business model of its traction. That is when a well-understood, explicit business model becomes a powerful tool that can be used to analyze what is happening and to explore possible reconfigurations of the business to adapt to threats and exploit emerging opportunities. This is the objective of Chapter 2. The PESTEL business environment model will be very useful in our discussion of the business model. PESTEL stands for political, economic, social, technological, environmental, and legal environments. Just as understanding the ecosystem in which earth’s inhabitants evolve is literally vital, the better a business decodes the dynamic forces that influence its environment, the more likely it is to make the best of it and avoid fatal mistakes. We pay particular attention to the T (technological) and L (legal and regulatory) environments.

3.2 Service, Quality, and Value Propositions

Service is helping clients in the performance of a job they need done, with minimum pain and maximum gains along the way. Some services are WYSIWYG (what you see is what you get): someone picked you up at the airport and took you home. They got the job done, in a comfortable car (no pain), with agreeable chat along the way (gain). There is a class of service, though, which we shall call complex services, where many critical determinants of outcomes cannot be seen. Such services are therefore difficult to evaluate and manage. In architecture, law, and medicine, for instance, service performance depends on abstract models that experts use to reach a diagnosis and determine a plan of action. It also depends on the uncertain outcome of the interactions between experts from various disciplines (think engineers and architects, notaries and accountants, or physicians and pharmacists, for example). These experts intervene in important situations with high stakes. This class of service presents unique challenges and does not respond to management actions like the others do. In fact, mainstream operations management (OM) approaches are often counterproductive in this environment. We will study service design from conceptual, methodological, and technical points of views.

A quality service is one that delivers on the company’s value propositions to its stakeholders. Thus, anchoring quality on these propositions rightly focuses an organization on explicitly formulating them and making sure that they are compatible with each other. This is part of the positioning exercise. Ensuring quality means taking all of the necessary steps to make this happen, from identifying the need and developing the product, to verifying conformity and fixing defects, to measuring quality and learning from mistakes. To manage quality, you need to take a strategic perspective. Consider the case of a restaurant reopening after a shutdown triggered by the pandemic. The restaurant experience would be very different and prior quality metrics would now be obsolete, as value propositions have changed. Safety would now weigh heavily on the mind of many patrons. The restaurant must now protect them from being infected by inconsiderate patrons. The safety of the work environment is equally top of mind for employees. Society (an important stakeholder) expects the restaurant not to contribute to the triggering of a wave of infections that would affect the community. Some competitors may be less socially conscious and cut corners to offer an experience that appears superior and thus threatens the very survival of others. Large portions of the book are devoted to exploring the proposed strategic approach to quality, starting in Chapter 1.

Figure 5 presents a trilogy of concepts—strategic quality, design quality, operational excellence—built around value propositions as linchpins.

3.3 Technology

Technology is created capability that can substitute for or add to what humans can do, as well as perform feats of which humans can only dream. As technological advances take place, sometimes in leaps and bounds, service organizations must consider the potential consequences, opportunities, and risks for their services and process.

Some of the questions that must be addressed as a result include the following:

What new functionalities are now possible? How risky and costly are those technologies?

What would adoption involve for us (again, costs and risks)?

Can we use technologies defensively?

Can we redefine our business, finding a different way to fulfill our mission?

Can we improve our positioning? Enter new markets? Reduce our costs? Consolidate our actual positioning?

What are the risks involved in a simple wait-and-see attitude?

What company that could not even remotely be considered a potential competitor until now has us in its crosshairs? What new capabilities can they bring to bear on this newly reconfigured battlefield?

If we were to go ahead, what internal resistance can we expect, and what is our plan for dealing with it?

What competitive reaction can we expect and how will we respond?

These questions involve strategic and change management issues.

Among all technological changes taking place in this age of acceleration, those related to the various aspects of AI, in combination with other changes such as the IoT and cloud computing, are the most potent. The literal notion of artificial intelligence is something that humans never thought possible and can only relate to it through the imagination of science fiction writers and movie makers. The word singularity is often used to refer to AI. Just to put the reference in context, the big bang that created the world was a singularity. The apparition of life was another one. I am using this word to bring the reader’s attention to the potentially life-changing impact that AI may have. Lawyers, physicians, and engineers always felt that that technological advances would only support them in their highly demanding jobs, but they never thought that it could one day replace them. While we are not there just yet, the possibility cannot be brushed aside anymore. The most common approach to deal with this—denial—has never been a good basis for addressing coming changes. This book is about tooling up so that you can better think about the unthinkable.

3.4 Operational Excellence

Individuals, groups, and organizations get things done through processes—that is, shared ways of working together, involving a chain of mutual commitments distributed logically among the players. Improving results through continuous learning requires characterizing the process through intense focus, evidence-based management, and employee and team empowerment. The actors in a process are people and technology. The technology may act under close or distant human control, but with generally increasing autonomy. The job of operations management is to ensure that the organization’s processes are always able to operate flawlessly and lie on an agile path to continuous improvement. This involves considerations related to capacity, layout, division of work, quality, productivity, and technology. Operational excellence can provide a sustainable source of competitive advantage.

Operational excellence is the superior ability to execute speedily, nimbly, and flawlessly, without waste of any kind. Originating from Japanese culture, philosophies, and practices in the 1960s, it was at first poorly understood, and adaptation efforts by many Western companies initially failed. Decades and competitive pressures were required for these approaches to take root. One cannot survive long in business today without mastering them. Many organizations still do not. They will be short-lived. In the first part of the book, we will discuss this from a conceptual and strategic point of view. In the second part, we will present methodologies and techniques applied in the context of complex services. Beyond the scientific breakthrough, the shift from the traditional vaccine development process (Figure 3) to the new one illustrates the potential of new process paradigms. Trials now overlap, not waiting for phase 1 to end to use partial results to trigger phase 2, an idea taken directly from the lean playbook. The approval process was triggered in the early trial of the vaccine, rather than waiting until all the trial and data analysis was complete. The same goes for early design and development of the production process to cut time to market, thereby saving more lives and beating slower learning competitors.

3.5 Methodology, Principles, and Techniques

The second part of the book is more technical. Readers intent on acquiring tools that can readily be applied can skip the first part to start the second one. Chapter 5 is an in-depth study of the nature of processes, introducing the first tools in the process toolkit, immediately followed by a discussion of process management (Chapter 6), including statistical thinking. This opens the door to a methodology to map the connections between value and processes (Chapter 7) and to our study of the learning cycle and the dynamics of process change and continuous improvement (Chapter 8). I then present in detail process improvement (Chapter 9) and process design (Chapter 10) methodologies.

Here are some of recurring themes, principles, and paradigms that appear throughout the book:

The zooming metaphor is used regularly to develop the capabilities, and eventually the reflexes, to alternately take a global (zoom out) or local (zoom in) perspective as the situation requires.

Bureaucracy and overcontrol lead to organizational sclerosis. Empowerment, freedom, and responsibility make a company innovative and nimble. Abandoning control, however, without evolving the culture and the structure to the point where such controls are no longer required is a recipe for disaster. When the philosophies, methodologies, and tools become part of the fabric of the organization, they can be activated and used directly by employees. Then employees can deal with new situations, opportunities, and threats that are best identified and addressed by those who are closest to the action and present the best qualifications to solve problems and exploit opportunities.

Fundamental continuous improvement principles include evidence-based management; rigor in measurement; statistical thinking in interpreting data; problem-finding before problem-solving; problem-sharing before problem-solving; and generating quantity before distilling quality. By the time you finish the book, these principles will become second nature to you.

The book is rich with cases and side boxes containing illustrations, contexts, and links with past and current events. Some of the cases are explored in different chapters, allowing for the gradual introduction of models and techniques. This is a good time to view Video I.1 for a high-level overview of this book.

NOTES

1. The words paradigm, archetype, models, and mental patterns are used interchangeably in this book.

2. A system is a set of elements (concepts, variables, or other things such as planets or atoms). A process is a system put into action to transform some inputs into outputs.

3. D. Kahneman, Thinking, Fast and Slow (New York: Macmillan, 2011).

4. For an accessible discussion on this topic, see Jeffrey Pfeffer and Robert I. Sutton, Evidence-Based Management, Harvard Business Review, January 2006, https://hbr.org/2006/01/evidence-based-management.

5. https://content.naic.org/cipr_topics/topic_peertopeer_p2p_insurance.htm.

6. Daniel Faggella, Artificial Intelligence in Insurance: Three Trends That Matter, March 14, 2020, Emerj Artificial Intelligence Research, https://emerj.com/ai-sector-overviews/artificial-intelligence-in-insurance-trends/.

7. This scenario is adapted from Ramnath Balasubramanian, Ari Libarikian, and Doug McElhaney, Insurance 2030—The Impact of AI on the Future of Insurance, March 12, 2021, https://www.mckinsey.com/industries/financial-services/our-insights/insurance-2030-the-impact-of-ai-on-the-future-of-insurance#.

Part I

The first part of the book is about understanding value creation in complex services in the age of AI. This understanding will allow managers and executives to make better decisions regarding the right thing to do. Chapter 1 explores the notions of value and quality in this context. Chapter 2 delves into the various links in the chain connecting strategy to execution. Chapter 3 focuses directly on how the evolution of AI and other related technology is radically disrupting the secular evolution of a traditionally stable sector. Models to manage these changes are proposed. Lastly, Chapter 4, building on the previous chapters, takes a deep dive into the healthcare sector as one example of radical transformation.

1

Understanding Quality and Value

In complex services, you need to go beyond asking customers, What do you need? This applies to employees as well.

To win at the business game, a company must master the art of simultaneously creating value for its customers, its employees, and its shareholders.

In this chapter, we pursue and expand our initial discussion of the essence of quality and value, two closely related concepts that lie at the heart of business. Our understanding of these notions must be anchored in such a way that it can be adapted and constantly reattached to the fast-changing ways through which business can create value. This topic will naturally lead us into the need to better understand service as such. To do so, we categorize services, explore the domain of complex services in general, and discuss professional services in particular, together with a generic six-step professional service process. We then present a customer-centric perspective on services through a discussion of the service episode and the service experience. To make the presentation more concrete, we then use the case of an accounting firm actively engaged in experimenting with artificial intelligence (AI), considering it from the dual perspective of the client and the producer.

The last section of the chapter is about positioning. It presents both conceptual and technical challenges, giving us a first glimpse of the approach used in the second part of this book. We use an example drawn from the real estate industry, introducing some techniques along the way. The chapter has an associated video on how to use this book and a conceptual video on the themes presented (see Figure 1.1) and concludes with exercises suggested to apply the material to your own business context.

1.1 PROMISING VALUE AND CREATING IT—ANCHORING QUALITY TO CHANGING VALUE PROPOSITIONS

Since my first article on service quality more than 20 years ago,¹ services have grown to represent close to 80% of gross domestic product (GDP) in advanced economies, and technological advances have transformed the servicescape beyond recognition. The contrast between then and now is at its most obvious when comparing services that have been left almost untouched by technology, such as getting a haircut or mowing the lawn, and those that have been obliterated and reinvented, some several times over, such as planning your next trip, watching a movie, or managing your investment portfolio.

Consider the latter example, circa 2000 versus now. In earlier times, many small investors would read the paper for financial news, receive their statement by mail, perform some calculations, meet with their financial adviser, make investment decisions, and maybe proceed with phone transactions from time to time. Now, you may instantaneously receive on demand, on your preferred device, an intelligent analysis of your financial situation with sophisticated advice about how to adjust your portfolio, including action links allowing you to simulate and assess different scenarios and then implement your decisions in a few clicks. How do we define service quality in these two wholly different experiences?

Expectations have changed; so has the nature of the experience and with it, time-honored quality cues. In the virtual servicescape, scheduled appointments, a comfortable waiting room, a solid handshake, reassuring words, professional appearance, and frank and reassuring eye contact are out. The application of superior knowledge, popularization, appealing visualization, rigorous risk analysis, smart analysis of your preferences and learning what may be best for you, simple execution, immediate and personalized responses, and proactive outreach and alerts are in.

Anyone whose understanding of service quality is anchored on the specific ways it was assessed in the past is now hard-pressed to find their bearing in this new environment. The digital shift, the advanced analytical learning and adaptation capabilities of technology, the anywhere/anytime instantaneous access, smart and connected objects, network learning, as well as new material technology and 3D printing—all these changes have obliterated many of the old reference points. To what then should we now anchor our understanding of service quality?

An organization should define itself by the need that it is fulfilling and not by its current product and service offerings. Finding the best way to address a need in a fast-changing environment amounts to the competitive pursuit of a moving target. Thus, the need is the proper anchor point, leaving us open to adapt our offerings as opportunities arise. In this environment, service quality takes on dynamic features, which we shall refer to as dynamic quality. The best way to maintain a constant quality focus in this dynamic environment is the organization’s value proposition to its clients and stakeholders. Anchoring quality on the creation of the proposed value helps maintain coherence in action amid constant change; it also instills and reinforces a sense of common purpose. It acts as a guide in setting priorities and as a compass to find our way in the numerous trade-offs that we must make in the pursuit of sustainable competitive advantage.

Therefore, great care must be dedicated to the targeting, content, formulation, and communication of the promises, both explicit and implicit, that we make to our clients and stakeholders. A value proposition spells out our commitment to our customers in terms that are significant for them. Marketing and operations must both be closely involved in its formulation. Marketing’s job is to get the message across to the target market. Operation’s job is to create the promised value and thus meet or exceed the expectations that it helps in shaping. It requires a clear understanding of who the customer is and what job the customer needs done. Such an understanding allows you to identify sources of gains and pains in the execution of the job and to address these significant aspects of performance in the value propositions, thus differentiating it (as well as the company’s brand) from those of the competition.

1.1.1 Of Lies and Broken Promises as Poor Quality

When you promise to do something that you, in fact, do not intend to do, you are lying or cheating. You want to induce someone to behave differently than they would have, had they known the facts of the matter (see Box 1.1). You are using all the credibility and advantage that you can muster to trick the user into acting in a way that advances your interest at the expense of theirs.

Box 1.1 Trust and Complex Services: Disrespect at the Moment of Truth—The Notary

As a young professor, I once purchased a house in a small university town where I would soon be living. The seller was a prominent and well-connected person in that town. The seller already had a notary who already knew the property and proposed that we use the notary’s services to sign a purchase agreement. I naively accepted. In such a contract, the buyer provides a deposit, some $5000, as I recall, not an insignificant sum, and at a specified date in the future the buyer pays the stated price and the seller delivers the titles to the property. Simple … standard procedure … what could go wrong? As all parties were assembled in the notary’s office, the latter proceeded to read all the legal clauses—mostly boring legal jargon for the tired young professor who was impatient to get it over with and hit the pillow. As the notary read the last clause, however, spelling out what happens at the closing date, I caught a word that I did not know. Maybe I also detected something in the voice or some change in facial feature, a twitch of a muscle … I don’t know. Mostly to show that I had been listening, but also out of genuine curiosity, I asked the notary what it meant. The notary stopped and … turned red, looking down on the papers. Embarrassed silence. This is not right, the notary finally said after a while, taking the phone and calling the secretary. As it turned out, the word (which I cannot remember) meant that if the seller did not proceed with the sale, contrary to the standard procedure with such contracts, the deposit would simply be reimbursed, and the accepted offer would be nullified. Typo? Honest mistake? Process defect? I will never be sure. But to me, the notary’s red face, typical of the kid caught with their hand in the cookie jar, tells it all. The seller owned a business and many commercial properties in this small town. I was a young professor the notary would never see again. Pleasing the seller was more important to business than pleasing me. Lesson learned, … and now, lesson shared. The temptation to abuse one’s power, using it to one’s advantage rather than to the client’s advantage, is omnipresent in professional services. So, caveat emptor: purchaser beware. Do use the services of experts, but use them wisely, keep your wits about you at all times, and stay in the driver’s seat: this matters more to you than to anyone else.

When you are promising something that you know you may not be able to do, but still commit to it without the required caveat, the situation is slightly different. Then, you are not dealing in absolutes and you may be able to frame it in your mind into a narrative that is more closely akin to normal exaggeration than to an outright lie, and thus feel better about yourself. Let us take a specific situation (see Case 1.1) to make this discussion more concrete.

Case 1.1 Home Vacuum Robot

You have bought a cleaning robot that can be voice-activated through a popular smart speaker. The robot is equipped with sensors and camera. It is supported by a cloud-based artificial intelligence (AI). The short promise: Cleans as well as you would yourself, except faster and silently. Your perception after using the appliance: I clean better than that, and it is a little less noisy than a manual vacuum. Still, it’s pretty good considering that none of this was even thinkable 10 years ago—and all with a simple voice command. You chalk it up to normal sales pitch exaggeration, and you recommend it to friends—with caveat added for good friends.

What you do not know is that the device captures the detailed layout of your home and makes this information available to vendors who will use it to sell to you and influence your behavior. The company may comfort itself by hiding behind your acceptance of the terms of use agreement, whose legibility and clarity leaves much to be desired. It takes experts long hours to even begin to understand them. Besides, if you do not accept, you will not benefit from most of the advanced functionalities that convinced you to buy the device in the first place. The current promise is not only lying by omission, but it is outright appropriation of private, intimate information for commercial purposes. Some customers simply do not care. Most of them, however, would care if they understood all the implications of this invasion of privacy. See Box 1.2 for a situation that made headlines around the world.

Box 1.2 A Vacuum Machine, Too Smart by Half

A smart vacuum robot roams your house, equipped with cameras and sensors, all the while connected to your other smart appliances and devices. This creates fabulous opportunities and risks. To wit:

High-end models of Roomba, iRobot’s robotic vacuum, collect data as they clean, identifying the locations of your walls and furniture. This helps them avoid crashing into your couch, but it also creates a map of your home that iRobot could share with Amazon, Apple, or Google. That prospect stirred some alarm when Reuters quoted iRobot’s chief executive, Colin Angle, saying that a deal could come in the next two years. But iRobot disputed that account, saying in a statement on Tuesday: We have not formed any plans to sell data. Reuters issued a correction, saying Mr. Angle was hoping to share the maps free with customer consent, not sell them.… Your friendly little Roomba could soon become a creepy little spy that sells maps of your house to advertisers, tweeted OpenMedia, a Canadian nonprofit.²

Wisdom and balance is required in the deployment of these wonders: This a very sensitive thing for consumers, their homes, and we have to realize that we are no longer just selling appliances. We are selling interactive nodes that are loose in your home, and if we don’t approach this carefully, it has the risk to become a very invasive thing.³

Cheating your customers cannot be part of a sustainable business model. Of course, without profit, sufficient cash flow, and growth, a business cannot thrive. The imperative of short-term survival, however, must be balanced against the requirements of sustainability. The latter requires maintaining personal and business integrity while the former often involves pressure to adopt apparently expedient solutions that engage you on a slippery slope from which it may be difficult to extricate yourself (see Box 1.3).

Box 1.3 The Priceless Ingredient

As a just-hired lecturer, I moved into the just-vacated office of a colleague who was taking on an administrative function. As I entered the room and placed my first box on the desk, I looked around the room. It looked like an office recently emptied by a professor: empty shelves, scratched filing cabinets with keys hanging from the locks, and discolored squares on the wall where the diplomas had been. I did not find the personal welcome note that I should not have been expecting but secretly was. The only thing left on the wall was what had once been a colorful ad from E. R. Squibb and Sons, written in Arabic-styled script, but now yellowed and soiled. I read it:

The Priceless Ingredient

In the City of Bagdad lived

Hakeem the Wise One, and many

people went to him for counsel, which he gave freely

to all, asking nothing in return.

There came to him a young man who had spent

much but got little, and said: "Tell me, Wise One, what

shall I do to receive the most for that which I spend?"

Hakeem answered, "A thing that is bought or sold

has no value unless it contains that which cannot be

bought or sold. Look for the ‘Priceless Ingredient.’"

But what is this Priceless Ingredient? asked the

young man.

Spoke then the Wise One: "My son, the Priceless

Ingredient of every product in the market-place is the

honour and integrity of him who makes it.

Consider his name before you buy."⁴

Perhaps it was the particularly receptive state of mind I was in on day one of my academic career, but it struck me as a good maxim by which to live my young professional life. I adopted it. I have lost the artifact since. The message, however, has stuck with me and withstood the test of time, better I think than any hastily scribbled welcome note would have. May the simple words of the Wise One serve you as well as it has served me.

To set ourselves up to press on with this discussion and dig deeper in underlying issues, we need to couch some fundamental notions and develop some basic initial structures that will assist us in our quest for a better understanding of quality in singular times.

1.2 SERVICES

Providing a service is doing a job for someone—for example, delivering results that the customer wants. In the course of a person or an organization’s life, activities of all kinds take place. These activities cover the spectrum from the simple (having lunch) to the complex (diagnosing a rare illness). In the pursuit of these activities, even the simplest ones, we often need help, such as having a meal prepared for us or getting a tissue sample analyzed. Services are about providing this help (see Box 1.4), and 80% of value created in the United States and the United Kingdom falls in this category of economic activity. As increasingly capable machines are taking on a larger part of industrial tasks, this share is increasing.

Box 1.4 On Being Helpful: The Subtleties of Customer Satisfaction

Do it right the first time. If you did not, do it very, very right the second time. After a long flight from South America on American Airlines involving several aggravations, delays, and meal problems, this tired traveler landed in Miami. I rushed to find the ticket counter to vent and find a flight home. I spotted a middle-aged woman standing behind the platinum counter. She noticed me as well, with my rumpled business suit and briefcase, as there was no one else at the counter. I was still a few meters away when she said, I know your type. You’re probably a doctor. What an unexpected and unusual greeting! It completely threw me off my mental process and mindset. A good thing too, for both of us, I’m sure. Her tone was not aggressive, bored, or dismissive in any way. Her facial expression and stance provided me with conclusive clues: this was a teasing and disarming opening gambit to create a better atmosphere for the transactions we needed to conduct, and it worked perfectly. Well, I answered, flattered now, hmm … not the type of doctor you are thinking about. Oh! What kind of doctor are you? she asked. From that point on, things went uphill for me. The mind works in funny ways! And human relationships, including service relationships, involve people interacting in such nonlinear and often surprising ways, often with surprising outcomes as well.

The lady had obviously not been assigned randomly to the platinum desk. She read the situation in the blink of an eye. She read my state of mind. She decided, again in a split second, to use a script that she had probably used to good effect in the past. Whether or not I was a doctor was immaterial. If I was one, jackpot! If I was not, jackpot as well. It is more compliment than insult to have someone tell you that you look like a doctor. Either way, there was a good probability that I would be flattered and respond by stating something about me, which would cause the interaction to start on a personal and positive note. The skilled approach also turned what could have been a difficult encounter for the customer agent into a positive work experience, increasing her feeling of self-competency. We will refer to this as the mirror-image effect.

Classification is the beginning of knowledge. How should we classify services? A first consideration is what is being transformed by the service. It could involve a physical (broadly speaking, including chemical) transformation (e.g., hairdressing or surgery). It could be changing the state of a person or organization, such as from sick to healthy or from ongoing entity to bankrupt entity. It could be a change of ownership (e.g., buying and selling) or simply a change of place (e.g., distribution and transportation). The service could involve a person directly or be performed on a proxy (a person’s property or information) or through a proxy (human or electronic). Of course, many services involve a mixture of all these transformations.

Podcast 2—Aspects of Quality of Service

While the value of a service is a perception of the ratio of benefits to costs of using that service, quality can be viewed as the perception of the net benefit of the service: that is, result + gains – pains. I will approach this notion from a variety of angles, using different situations to illustrate them. I will use personal examples so that the emotions involved can be described in the only possible way that emotions can be described: by the beholder. I will touch on five aspects: transactional versus relational, the effect of various service features, service recovery, global services, and technical quality.

Complex services, as previously mentioned, are a class of service that deserves a separate treatment. When a professional or expert is involved in the provision of service, the outcome depends critically on the work of that expert. Professionals constantly refer to abstract models in their practice. Their diagnosis of the situation drives much of the action. Their models are their own, and they use them