Lecture 40 – Striving for Service Leadership & Creating the Seamless Service Firms – Part 2

Welcome to the last module that is module 40 of this course on Services Marketing and we will continue the discussion on striving for service leadership and creating the seamless service firm which we started in module 39 Now, let us look at what are the things that we will talk about in this module The first is to know the characteristics of world class service organisations and be familiar with the 4 levels of service performance that is continued from the earlier module that is, module 39 Understand what is required for moving a service firm from service loser to the service leader Know the long-term impact of customer centricity on profitability and share holder value Both of them they are linked, profitability and shareholder value Now, let us start with level 1 that is, Service Losers These firms are at the bottom of the barrel from customers, employees and managerial perspectives and get failing grades in marketing, operations and human resource management Customers patronize them for reasons other than performance, typically because there is no viable alternative that is available, which is one reason why service losers continue to survive losers continue to survive Managers of such organisations may even see service delivery as a necessary evil It means that the mangers do not want to deliver the service but because they are earning the money, they are earning their salaries so therefore they have to deliver this service and that is why they think that it is a necessary evil Level 2 that is Service Nonentities Although their performance still leaves much to be desired, service non-entities have eliminated the worst feature of losers So, they are somewhat better than the losers Nonentities are dominated by a traditional operational mindset typically based on achieving cost saving through standardisation, so that is the basic problem with them Then the traditional mindset Their marketing strategies are unsophisticated and the roles of human resources and operations might be summed up respectively by the philosophies adequate is good enough and if it is not broken, do not fix it Mangers may talk about improving quality and other gaols but are unable to set clear priorities to have clear direction, nor gain the respect and commitment of their employees That will come up in the figure later on Several such firms are often found competing in a lacklustre fashion within a given market place and you might have difficulty distinguishing one from the other Periodic price discounts tend to be the primary means of attracting new customers to them Now, the third level that is called as Service Professionals Service professionals are in a different league from nonentities and have a clear market positioning strategy So, now this is their characteristic that they have a clear positioning strategy which was not there with the level 1 and the level 2 firms Customers within the target market segments seek out these firms based on their sustained reputation for consistently meeting expectations Marketing is sophisticated, using targeted communication and pricing based on value to the customer Research is used to measure customer satisfaction and obtain ideas for service enhancement So, they keep on measuring customer satisfaction, so that improvement in service can be brought about Operations and marketing work together to introduce new delivery system and recognise the trade-off between productivity and customer defined quality There are explicit links between backstage and front-stage activities and the firm has a much more proactive investment oriented approach to HRM than is found among nonentities The fourth level is that of service leaders These organisations are breakthrough service organisations, world class service leaders and are the crème de la crème, the (best of the best) of their respective industries where service professionals are good, service leaders are outstanding

When we think of service leader, we think of Amazon, McKinsey, Ritz Carlton, Southwest Airlines, Starbucks and Zappos Their company names are synonyms with service excellence and their ability to delight the customers Service leaders are recognised for their innovation in each functional area of management as well as their superior internal communications and co-ordination among these 3 functions Often the result of a relatively flat organisational structure and the extensive use of teams As a result of this, service delivery become a seamless process organised around the customer So, service delivery is then organised around the customer Now, these are the 4 level of service performance assessment tools Now, we will talk about each in detail later on So, in all these, so this is marketing, this is operations and this is human resource These are the 4 levels of service performance assessment tools Now, let us look at the first of this that is marketing Now, what is the role of marketing so far as these four types of service organisations are concerned, the first is loser; nonentity; professional and leader So, the role of marketing for a loser is as tactical role only, advertising and promotion lack focus, no involvement in product or pricing decisions In nonentity, they use mix of selling and mass communication using simple segmentation They make selective use of price discounts and promotions conduct and tabulate basic satisfaction service In a professional service firm, it has a clear positioning strategy against competition, uses focused communication with distinctive appeals to clarify promises and educate customers Pricing is based on value It monitors customer usage and operates loyalty programs, uses a variety of research techniques to measure customer satisfaction and obtain idea for service enhancement Works with operation to introduce new delivery system For a service leader, the role of marketing is that they become they want to become innovative leaders in chosen segment, known for marketing skills, brands at product process levels, conduct sophisticated analysis of relational data basis as inputs to one to one marketing and proactive account management Uses state of the art research techniques, use concept testing observation and lead customers as input to new product development and they are close to operations and human resources The second is the competitive appeal Now, for losers, this means that customers patronise a firm for reasons other than their performance For nonentity, customers neither seek nor avoid the firm In professional, the customer seeks out the firm based on its sustained reputation for meeting customer expectations and at the fourth level, the company’s name is synonymous with service excellence Its ability to delight customers raises expectations to the level that competitors cannot meet The third is the customer profile For the first it is unspecified, a mass market is to be served at a minimum cost For second, one or more segments whose basic needs are understood For the third type of companies, groups of individuals whose variation in needs and value to the firm are clearly understood and for the fourth type of firm, individuals are selected and retained based on their future value to the firm including their potential for new service opportunities and their ability to stimulate innovation And the fourth is service quality This is highly variable, usually unsatisfactory, subservient to operational priorities in the first level At the second it’s for nonentity In that case the service quality meets some customer expectation, consistent on one or two dimensions of service quality but not all the dimensions In the third category, this is to consistently meet or exceed customer expectations across multiple dimensions and in the last category, it raises customer expectations to new levels, improve continuously Now, let us look at the operation function

On the left hand side are the various issues, so the first is the role of operations and we will talk about that for the 4 different categories of service companies So, we will start with loser So, what does role of operations means? It means reactive and cost oriented For the second, the principal line management function creates and delivers product, focuses on standardisation as key to productivity and define quality from internal perspectives For the third, it means plays a strategic role in competitive strategy, recognises a trade-off between productivity and customer defined quality, willing to outsource and monitors competing operations for ideas and threats For the fourth level, that is the leaders, they are recognised for innovation, focus and excellence an equal partner with marketing and HR management has inhouse research capability and academic contacts and they continuously do experimenting The second is service delivery that is the front stage For the first type of company, it is thought to be as a necessary evil, location and schedules are unrelated to preferences of customers who are routinely ignored For the second, it means sticklers for tradition, if it is not broken, don’t fix it, tight rules for customers, each step in delivery runs independently For the third level it means driven by customer satisfaction, not tradition, willing to customise, embrace new approaches, emphasis on speed, convenience and comfort And for the leaders, the service delivery means delivery is a seamless process organised around the customer, employees know whom they are serving, focuses on continuous improvement The backstage operations for a loser means that they are diverse from front stage operations cogs in a machine For the second level, contributes to individual front stage delivery steps but organised separately, unfamiliar with the customer For the third level, the process is explicitly linked to the front stage activities, sees role as serving internal customers who in turn then serve external customers So you may recall the service profit chain here Then for a leader it means closely integrated with front stage delivery even when geographically far apart, understands how own role relates to the overall process of serving external customers and continuing the dialog with the customer The fourth is productivity For loser, it is undefined, managers are punished for failing to stick within the budget For nonentities, it is based on standardisation, rewarded for keeping cost below the budget For a professional firm, it focuses on reengineering backstage processes, avoids productivity improvements that will degrade customer service experience, continually define processes for efficiency And for leaders, they understand the concern of return on quality, actively seeking customer involvement and productivity improvement, ongoing test of new processes and technologies Then let us talk about the introduction of new technology So, what does that means for losers, nonentity, professionals and leaders? So, for losers it means they are late adopters, they are under duress and they adopt the new technology under duress not on their own freewill and when necessary for their survival For entity is follow the crowds when justified by the cost saving For professional, an early adopter when IT promises to enhance services for customers and provide a competitive advantage So, now they are using this IT as a competitive edge and for leaders, they work with technology leaders to develop new applications that create first mover advantage, seeks to perform at levels competitor cannot match So now, they are being reactive, so they will adopt new technologies while they want to create new technology, so they are proactive Now, let us look at the human resource function

So, how does this human resource function, it unfolds in for losers, nonentity, professionals and the leaders So, we will start with the first one, the role of human resource What is the role of human resource in losers? It supplies low cost employees who meet minimum skills requirement for the job For non-entity, they recruit and train employees who can perform competently and for a professional, invests in selectively recruiting, ongoing training, keeps close to the employees, promote upward mobility and strive to enhance the quality of working life Let us see what happens in the case of a leader They sees the quality of employees as a strategic advantage The firm is recognised as outstanding place to work HR helps top management to nurture the talent What happens to the workforce? For a loser, negative constraints, poor performance, do not care and they are disloyal In case of non-entity, so far as workforce is concerned, they allocate adequate resources, follow the procedures but they are not inspired and the turnover of the employees often high In a professional firm, professional service firm, the employees, the workforce is highly motivated, hardworking and allowed some discretion in choice of procedures and offer the suggestions for further improvement In case of the last one, innovative and empowered workforce, very loyal, committed to firm’s values and goals and they create procedures so that customers becomes more satisfied Now what about the frontline management? In losers, these front-line mangers, they control the workers In nonentity, they control the processes In professionals, they listen to the customers, coaches and facilitate the workers and in the fourth category of firms, they are source of new idea for top management, mentors, workers to enhance carrier growth and the value to the firm Now out of these, all these things, these 12 dimension, now let us go back and see, out of all these 12 dimensions that we have talked in detail, there is, this is the assessment sheet and then marks are given from 1 to 10 on all these and then there are the total scores So, now it will tell the companies that where they are scoring what, which are the areas where they have to improve and which are the areas that do not need anything to be done Score each area from 1 to 4 depending on the performance levels of the organisation that is being assessed, so that chart that 12 dimensions that we have seen in the chart, you have to score from 1 to 4 or the mangers of the organisation, they have to score from 1 to 4 Average the scores for each function and then average the functions to obtain the total assessment score So, that we have seen at the end we are totalling them So, when the score is 3.5 and above, it means excellent, from 2.5 to 3.4, it means good, from 1.5 to 2.4, it means poor and from 1.4 and lower, it is very poor So, these are the 4 types of organisation also So, leaders and professionals and so maybe leaders lie here, professionals, nonentities and losers So, here we give these scores on the role of marketing, so maybe 1 and 2 and 3 and 1, so we can total here and similarly we get the total score Now, moving how to go about moving to a higher level of performance Now, we have seen about the 12 dimensions, now how to better our performance? Service companies, they strive to move up the performance ladder through conscious efforts to improve and co-ordinate their marketing operations and HR functions in a bit to establish more favourable competitive positions and satisfy their customers better It requires human leaders at all levels of an organisations to take a service firm in

the right direction So, we are talking of leaders at all levels not only at the top Set the right strategic priorities Now that tool can be one tool that can give a company the strategic priorities they are looking for And ensure the relevant strategies are implemented throughout the organisation So, these are the 3 things that need to be done First is the human leaders at all the levels Second is to look for the strategic priorities and then relevant strategies are implemented So these are the 3 things that a company can look for in order to improve their performance Now, transformation of an organisation and moving it up the performance ladder can take place in 2 different phase The first is evolution In the business context, it involves continual mutations design to ensure the survival of the fittest And second is the top management must proactively evolve the focus and strategy of the firm to take advantage of changing conditions and advent of new technologies So, now what?, Top management should be proactively looking to focus and strategy of the firm What is the strategy and the focus of the firm? Because the market conditions, they keep on changing and the new technologies keep on coming, old technologies keep on outdating, so the top management, they have to actively look at what is the strategy and the focus of the firm in order to take it to the next higher level of performance The second, the first is evolution and the second is turn around It involves situations in which leaders usually new ones seek to bring distressed organisations back from the brink of failure and set them on a healthier course So, this is what turn around is Now these leaders they try to bring this distressed organisation back from the brink of failure and to set them on a course of action so that they are able to survive and succeed Turning around an organisation that has limited resources requires concentrating those resources where the need and likely payoff are the highest So, obviously when an organization is not doing well, so it will be running short on resources In any case, no organization has unlimited resources, so but then when we are talking of these kind of organisation, they are further constrained by resources So, now there is a need to concentrate those available resources, where the need, one, and the likely payoff is the most It is advantageous to bring in a new CEO from outside the organisation as such individuals are better able to disentangle system dynamics because they were not previously caught up in them and to voice problems and change habits So, now this new CEO, he may not be aware of the internal dynamics, internal politics of the organisation and he will not get involved in that and then he is able to voice the problem to understand what is the problem and how people have to change their habits New CEOs may also have more credibility in representing and respecting the customer So, now the customer will also have more trust on the new CEO Obviously if the old CEO continues, then the customer will see him or her in bad light So in these kind of situation new CEO, coming in of new CEO, is important for the company as well as the customer Now let us look at what are the hurdles in reorienting and formulating the strategy So, we are talking of reorienting, one, and then formulating the strategy According to Chan Kim and Renee Mauborgne, leaders face four hurdles reorienting and formulating strategy Now according to these two specialists, the leaders face 4 hurdles in reorienting themselves and formulating strategy So, now we are talking of reorienting the leaders, how they can go about reorienting

and formulating strategies So these are the 4 types of hurdles, the first is cognitive hurdles, resource hurdles, motivational hurdles and political hurdles Now, let us look at each of these hurdles The first one, that is cognitive hurdle, are present when people cannot agree on the cause of current problems and the need for change So, now the dynamics – internal dynamics is so that the people are not on a common platform regarding what are the current problems and whether there is a need to change at all The second hurdle is the resource hurdle It exists when organisation is constrained by limited funds So, the organisation may also be limited by other resources like time, so they don’t have too much time to reorient themselves, to reinvent them self The third is motivational hurdles Prevent a strategy’s rapid execution when employees are reluctant to make needed changes So, now this organisation was running short on resources, maybe money and time and this motivational hurdle is that the employees are reluctant to make the needed changes So, obviously when the employees are not changing within the time frame, then obviously the chances of failure will increase So, that change in employee’s behaviour within a predefined time frame is important And the fourth hurdle is political hurdle They take the form of organised resistance from powerful vested interest seeking to protect their positions Now there are people in the organisation and they are not ready to change but they have to stick to their positions So, then they create hurdles which are then called as political hurdles Now according to John Kotter, in most successful change management processes, those in leadership roles must navigate through 8 complicated and time consuming strategies So, now John Kotter, he has outlined these 8 time consuming and complicated strategies for those people in leadership roles The first is to create a sense of urgency to develop the impetus for change So, this sense of urgency is important because changing with times or changing within time The second is putting together a team strong enough to direct the process So, now again the team should be strong enough that they are able to direct the process of change The third is creating an appropriate vision of where the organisation need to go So, we are here and we need to go there So, that is another important thing that the company needs to do Without a vison, there will be no change and then communicate that new vision broadly that look this is what we are trying to do, this is where we are trying to go and for that you will have to change Empowering employees to act on that vision So, how this is where we want to go but then employees have to be empowered to act on that vision Produce sufficient short term results to create credibility and counter cynicism So, here these achievement of these short term results are also important because only then the CEO and the leader will be able to show that they are on the right kind of path otherwise if that not being so, the leader will lose the credibility and the counter cynicism will increase Building momentum and using that to tackle the tougher change problems So, again this momentum is important because that is to be used to tackle the tougher change problems that will come and anchoring the new behaviour in the organisation culture, anchoring this new behaviour in the organisation culture So, it becomes part of this culture, it is not that the new behaviour is only for some time but then it becomes a part of this organisation culture and everybody who comes in will obviously get to know what kind of behaviour is expected from him or her So, let us look at the customer satisfaction and corporate performance

There is convincing evidence of strategic links between the level of customer satisfaction with a firm’s service offering and overall service performance So, customers satisfied with a firm service performance, that will make firm more profitable and all those indicators related to firm performance will show better results Researchers from university of Michigan found that, on average every 1% increase in customer satisfaction is associated with a 2.4% increase in a firm’s return on investment So, you see company is doing less to increase customer satisfaction and the customer, they are giving more in return to the company Every 1% increase leads to 2.4% increase in the firm return on investments So, company moves one step towards the customer and the customer moves 2.4% steps towards the company, so this is what it is in the nutshell Analysis of companies scores on the American customer satisfaction index shows on average among publicly traded firms a 5% change in American customer satisfaction index scores is associated with a 19% change in market value of common equity So, it not only affects the company’s profitability but also the share holder value 5% change in this score, it leads to 19% change in market value of the common equity In other words, by creating more value for the customer as measured by increase in their satisfaction, the firm creates more value for its owners So, company is moving lesser towards customer and customer in return is moving and giving much more to the company Not only in for the short term profits but also for the long term value for the owners and the stake holders Now, in order to conclude this module, we started our discussion with characteristics of world class service organizations and their categorisation into 4 levels of service performance Now, these 4 levels including losers, nonentity, professionals and leaders were discussed in detail in the context of 3 functional area of any organisation and those 3 functional area was marketing, operations and human resources Then we went on to understand important aspects like what is required for moving a service firm from service losers to service leaders and finally we have discussed the long term impact of customer centricity on the profitability and the shareholder value and as we have seen that as the customer satisfaction increases, the profitability and the share holder value increases much more These are the 3 books form which the materials for this course and this module was taken Thank you