Smart Services: Customer Focus Turns Technology into Solutions

August 13, 2008

To many participants at the recent Digital Smart Services Leadership Summit hosted by Qualcomm in San Diego, the phrase "smart services" is digital by definition. This new and slightly broader catch phrase covers the field also know as M2M, which means machine-to-machine communications to some or machine-to-man communications to others.

But "smart services" refers to more than just the technology that links systems and devices together. It also refers to the customer focus and strategy that transforms technology into a solution. It turns out that the traditional definition of intelligent, customer-centered services and the digital world's "smart services" overlap.

Technology for the customer's sake

M2M and smart services come from a world of sensors and networks -- increasingly wireless -- linking information about physical objects to powerful computing systems or to less expensive processors such as cell phones.

Michigan company Crayon Interface, for example, is developing a system that allows people to monitor or adjust home thermostats and remotely lock or unlock their homes using their cell phones.

And San Diego firm Cardio Net has developed technology connecting heart monitors to a wearable wireless device that links to cellular data systems and a medical monitoring network. The system allows patients to leave the hospital while providing physicians with extended monitoring that the company says is more effective in detecting heart arrhythmias.

Amid all the talk of broadband data rates and RFID (radio frequency identification), marketing Professor Mary Jo Bitner, the academic director of the Center for Services Leadership at the W. P. Carey School of Business, reminded the engineers of what might be called an analog or pre-Internet era definition of smart services: focusing on the customer. But forgetting the customer is hardly smart, because services are profitable only when they fulfill the needs and desires of customers.

Today many companies are competing through services, Bitner said. As profit margins on products have shrunk, margins on services have grown. Those services are increasingly delivered through technology, she said, and of the technology services, network-based smart services are at the cutting edge. But the best service providers understand customers aren't interested in technology for technology's sake.

"Customers demand solutions, not just products," Bitner said. "Technology is not going to do anything by itself."

Southwest Airlines rose to prominence using a system of plastic boarding cards, yet despite that low-tech beginning Southwest is on Bitner's list of "icons" of customer service. "Southwest has a vice president of customers and a vice president of people," she said.

"Focus on your customer." Bitner said. "Design your services and sales processes from the customer's point of view. Excel at execution."

Southwest exemplifies the strategy of "out of the box" customer service, one of five successful strategies Bitner highlights for competing through services.

Pet product retailer Petsmart is another company that excels at the strategy of innovating with new services. Once known as a place to buy dog food, Petsmart found the profits declining on those big sacks of kibble and kitty litter. The company, the largest retailer of pet products, turned its eye toward services its customers, or "pet parents," might want.

Petsmart stores began adding pet hotels, grooming and training. Result? "Services have represented PetSmart’s largest growth and profitability areas over the last eight years or so," Bitner said.

IBM has survived dramatic shifts in the marketplace by reinventing itself. The company exemplifies the competitive strategy of developing revenue producing solutions, Bitner said.

In 1991, when IBM reported $10.1 billion in service revenue, services were regarded as support for the company's real products, which were packaged in boxes. By 2007, IBM had transitioned to thinking about services as its core business, recording over $50 billion in revenue from services, she said.

Farm equipment company John Deere exemplifies another approach, what Bitner calls the strategy of technology-enabled services. John Deere is incorporating technology into farm equipment that combines GPS location information with a database of land contours, allowing the system to lay out the best course of plowing or planting, Bitner said.

In the fifth competition strategy, Bitner cited hotel chain Marriott, for its "service culture that differentiates." The company has focused on customers at a level that sets it apart from many competitors, she said. And, Marriott has learned that truly impressive customer service is possible only when the company shows that same high respect for its employees.

"Bill Marriott says that if you take good care of your people, they take good care of the customer and the customer comes back," Bitner said.

The Internet of things …

The Kindle, the electronic book reader recently released by Amazon.com, is an example of something that meets old and new definitions of smart services. This piece of hardware certainly looks like a product, but Amazon CEO Jeff Bezos has been prominently quoted saying it is a service, not a product.

The Kindle comes with built-in wireless connectivity to download new books and magazines from Amazon. Owners don't have to sign up for wireless service. They simply browse, press a button to buy, and the book is downloaded to the device.

The cost of the wireless service is covered by a small fee built into the price of the book.

The Kindle was the darling of the Smart Services Summit. In his keynote address called "The Internet of Things," Qualcomm CEO Paul Jacobs cited the Amazon gadget as an example of what happens when things get connected to the Internet.

Sony came out with a similar electronic book, the Reader, but it made much less splash than the Kindle, Jacobs said. No surprise, Jacobs said that the Kindle, which runs on Qualcomm technology, "is just easier to use. … my Sony Reader sits in a drawer now."

Wireless technology continues to fall in price, Jacobs said, with entry-level cell phones now wholesaling for $20. And the size of electronics continues to shrink, but not their applicability. In one fairly simple smart service application, third world farmers are using camera phones to snap photos of crop disease and send them to researchers who diagnose the problem, Jacobs said. The system saves the farmers money and reduces the amount of chemicals that might be applied through trial and error.

Today it is feasible to put a cell phone data connection in an e-book reader. Jacobs envisions a tomorrow where far more devices are networked.

"Today there are 6 billion people and 50 billion machines," he said. "There are billions of devices to be connected."

Taking smart services out of the lab

While smart services are often associated with science-fiction sounding functions such as remote health care or monitoring home security from afar, they are turning up in old-school industries such as farming and construction.

But these industries will not welcome gadgetry just because it's interesting. They look for utility and simplicity. Construction, mining and farming industry analyst Frank Manfredi, president of Manfredi & Associates, said his clients in the heavy equipment industries are wary of technology for technology's sake. Smart services face resistance if they add too much complexity. If a business owns equipment from several manufacturers, they can end up dealing with several redundant monitoring systems.

"There's a lot of confusion" Manfredi said.

Still, smart services are making inroads in the industries he follows, he said, particularly among companies that rent equipment to others.

"In mining in particular, these are very expensive pieces of equipment," Manfredi said. "Companies want to know where their assets are. It used to be that a guy could say, 'Yeah, I had a piece of equipment for four days, but we didn't work on Saturday or Sunday.' Now they know where it's being operated, when it's being operated and how it's being operated."

Fellow analyst Brian Fan, a senior director of the Cleantech Group, said creative smart services are inevitable as the world becomes saturated with sensors and wireless technology.

In an early smart service, transportation operators installed systems to read transponders in commuters' cars, eliminating the need to stop and pay tolls.

"No one thought when they put in RFID toll transponders that you could use them to track traffic," Fan said. Then someone figured out you could see how long it took someone to travel from bridge X to downtown, and now you have real-time traffic monitoring systems."

Qualcomm Vice President of Smart Services Steve Pazol said the geeky name M2M didn't work well outside of the engineering labs, so the industry is embracing the phrase smart services. Whatever you call it, Pazol said, the market segment is poised to take off.

"We called it smart services because M2M wasn't resonating with the business community," Pazol said. "It's an area of new businesses having connected products and it's a market on the cusp of moving into the mainstream."