Making Services a Science: New Study Finds Great Interest -- and Great Confusion

July 21, 2010

As Vice President of Innovation and Strategy Management at Columbus, Ohio-based Cardinal Health, Kim Gravell is charged with helping her company create new and innovative solutions in the realm of customer-focused services.

It doesn't seem like an overly complicated job description.

But even Gravell admits that she's had some difficulty at times explaining to her colleagues just exactly what "services innovation" is, why services are so crucial in today's marketplace -- and why services, well, matter.

"When we first started putting this [services team] together, I got a lot of blank stares from the product people," jokes Gravell. "They didn't get it at all. They asked me, 'How exactly does this make money?' On the product side, it just seems that innovation is fairly straightforward. On the services side, well, it's a little bit more gray."

Are services "gray?" Maybe.

Difficult to understand? By all accounts, yes.

But anything less than crucial? Hardly -- and, finally, there seems to be a growing understanding of exactly that.

Growing understanding

For years now, such services leaders as IBM, PetSmart and Marriott have been proving in practice what services researchers had long been advocating in theory -- that enormous success, and enormous profits, can be found in services. But even despite those firms' successes, there remains a somewhat surprising lack of understanding among business executives of how services actually work -- how they're created, how they're implemented and how they generate profits. The bottom line, it seems, is that services have always been difficult to understand -- even for services professionals -- and that doesn't figure to change anytime soon.

What has changed, according to Gravell, industry experts and researchers from W.P. Carey's Center for Services Leadership (CSL), is the way companies are now looking at services: For the first time, it appears there is growing awareness and acceptance in the business community that great services offerings are requisite for huge business success.

"I would definitely say there's a growing understanding of the importance of services and the role services can play in helping companies compete," says Amy Ostrom, a W.P. Carey professor of marketing. "There are a lot of companies wanting to understand how they make that transition into services, or at least infuse more services into their offerings."

This growing understanding, in turn, is fueling several important trends in the services world -- trends that figure to fundamentally reshape the services landscape and create new opportunities for services leaders moving forward.

To hear CSL experts tell it, more companies than ever are interested in services innovation -- the creation of "transformative" services. More companies than ever are interested in smart services design. More companies than ever are interested in creating service-centric cultures, in leveraging technology to boost services and in creating consistency of service across geographies.

Simply put, services are -- in their own somewhat confusing way -- "hot."

"Clearly, in the United States today, we are a services economy," adds Kevin Burkhard, director of strategic initiatives at the CSL. "And so I think it's become clear to product firms that they need to offer more product-related and standalone services to meet customer expectations. There's been a growth in both services interest and services complexity."

That complexity, Burkhard says, is rooted both in the general "fragmentation" of services research and practice and the fundamental complexity of services themselves.

Gravell agrees.

"Services are just very hard to get your head wrapped around," says Gravell. "Sometimes you can lose the big picture of what you're doing with them. It's more complex than the product side -- not from a technical standpoint, but from a value-creation and customer service standpoint."

Demanding customers

Some companies, of course, have managed to overcome that complexity -- and enjoyed massive profits as a result. IBM is widely lauded as a services trailblazer and is often held up as the gold standard in services practice. PetSmart overcame the inherent challenges of its pets-products business -- even as the dominant player in the marketplace, the company's product-related margins were still very tight -- by implementing a series of innovative services offerings. And Marriott remains a services leader, continually finding new and better ways to interact with and please its customers in the competitive hospitality sector.

What do these companies know what others don't?

Simple, says Mary Jo Bitner: They know what their customers expect -- and they also know that they must give those customers exactly that.

"Customers are demanding better and more service," says Bitner, academic director for the CSL and a W.P. Carey professor of marketing. Customers say "If you don't give me more than just this widget and then tell me how to use it and understand it, I'm going to find a company that will."

Among the companies who recently recognized this new dynamic is aeronautics giant Boeing, which over the course of the past decade has successfully transformed itself into a services powerhouse. And make no mistake, says Boeing Director of Infrastructure and Range Services Joe Shaheen, it was a massive transformation.

Not too long ago, Shaheen says, Boeing's "services" didn't extend far outside of tech manuals or replacement parts. Today, by contrast, the company operates with a comprehensive and global services-centric philosophy -- a philosophy under which it believes that every interaction with every customer provides an opportunity to create a positive, lasting impression.

Yes, Boeing still builds airplanes. But it's also very much in the services business -- and better for it.

"Over time, I believe the company has seen the real value in doing more in the area of services and support," says Shaheen. "We've moved beyond just the selling of spare [parts] and offering tech data. We're migrating into the area of supporting the customer at their sites."

The Boeing of today has its field service reps providing tech expertise not only to new customers rolling out new platforms or new product, but also to old customers managing mature platforms. The company is constantly seeking new ways to keep its clients and make their operations more manageable. The goal, Shaheen says, is to ensure that the Boeing customer experience is positive, consistent and reliable.

"There's a goldmine there if you actually leverage the opportunity to interact with the customer on a daily basis," he says. "If they need you out there for a specific reason, then clearly you go, but one thing we've learned in this customer-centric support system is that every time you have an opportunity to interact with the customer, you are given an opportunity either impress them … or disappoint them."

Finding "the" model for services success

More companies are beginning to accept what Shaheen says as true -- that well-planned, well-executed services offer a true "goldmine" of opportunity.

But while there is now widespread acceptance that services do matter, and that services can fuel profits, the challenge now is to create "the" model for services success -- a roadmap that can help service-inexperienced companies get started or allow services experts get even better at their craft. As Burkhard explains it, the broader goal of the services community is nothing short of "turning services into a science."

"Services have always been difficult to get your arms around -- difficult to understand," Burkhard says. "They seem to be here, there and everywhere. You can walk into a restaurant one day and get great service, and then the next day you'll get horrible service. The difficult thing has been to actually move services in the direction of a science, where you can systemize services without taking the human element out of them. The question companies want answered is: How do you design and deliver high value services more consistently, from experience to experience, across different groups and different locations?"

Earlier this year, the CSL surveyed more than 300 business executives and academics about the state of the services landscape. The survey results, published in the report "Research Priorities for the Science of Service," confirmed what CSL researchers had suspected -- that while there is enormous new interest in services, there remains great confusion and tremendous opportunities around how services should be designed and implemented.

The study also identified ten specific priority areas in which business executives and academics were most interested in finding real answers. Those areas ranged from services innovation and services design to measuring the value of services and figuring out how to leverage technology for services success.

Beyond helping the services community establish its priorities moving forward, the report also offered concrete evidence of the enormous new energy and interest in services. It is no stretch to say that services are bigger today than they've ever been before.

Of course, the trend has its limits.

When it comes to services, Bitner says, there are still confusion, complexity, and organizational hurdles to overcome -- which means we shouldn't expect companies to rush into services at quite the same pace they've been rushing to social networking. "I think we're still a ways away from widespread success with services, simply because it is so challenging and requires so much change and long-term organizational commitment" she says.

"There are some companies out there who are getting very good at it, but I certainly don't think it's widespread yet," Bitner adds. "Many companies are still very much at the start of their journey. And I think that's why we're talking about [services] in terms of the future. Companies like IBM -- companies who have been doing this since the 1980s -- say they still don't know everything they need to know. They're still working on improving and innovating their services. So the big question out there in the marketplace is how you maintain and add value for customers and yet still be efficient in what you do? Even people who have been on this path for a long time realize they don't know everything yet -- there is always more to learn and do."

Bottom Line:

  • Despite the success of services leaders such as Intel, PetSmart and Marriott, there remains a somewhat surprising lack of understanding among business executives of how services actually work -- how they're created, how they're implemented and how they generate profits.
  • More companies than ever are interested in "transformative" services: smart services design, service-centric cultures, leveraging technology to boost services and consistency of service across geographies.
  • Boeing is an example of a products-based company whose "services" didn't extend far outside of tech manuals or replacement parts, yet today the company operates with a comprehensive and global services-centric philosophy.
  • Researchers are seeking to create "the" model for services success -- a roadmap that can help service-inexperienced companies get started or allow services experts get even better at their craft.
  • The Center for Services Leadership surveyed more than 300 business executives and academics earlier this year to identify 10 specific priority areas in which business executives and academics were most interested in finding real answers.