Friday, May 25, 2012

First, Manufacturing; Now, Service?!

Recently a book came out with the challenge: "If this is the service economy, why am I still on hold?" Frei and Morriss write that we can't be good at everything. In one company, we used to say, "You can have a lower price if you're willing to put up with a longer lead-time. Or you can have higher quality if you give on the technology because that push puts the product on the margin of manufacturability." The authors posit a framework that includes these three necessities:

  • a funding mechanism
  • an employment management system that ensures employees are in a position to provide excellent service
  • a customer management system that trains the customers how to engage your service and what to expect.
You do not have the time, money or skills to excel at everything. Therefore, you have to decide which service facets will be done more poorly (still good, but not excellent). For example, they suggest thinking about what customers expect in retail banking. A bank would have to be open 24/7. However, no one can afford that. Instead, technology has helped with the self-service growth in this market: ATM's and online banking. Yet, interest on deposits is much, much lower than it used to be--for various reasons. One reason is that the technology has costs. The lower interest rates are "the bad in service to the good."

Here's their recipe for improving service to a premium level:
  1. Get customers to pay extra for the service.
  2. Reduce costs in a way that improves service.
  3. Improve service in ways that also reduce costs.
  4. Create a mechanism that customers enjoy serving themselves.
The US has lost an edge on manufacturing. It seems we haven't quite gotten an edge on service. Do Frei and Morriss have the solution? How could a brick-and-mortar book store apply their recipe? The competitive edge is product knowledge, being able to make recommendations to customers who happen to wander in. Because prices are not low, if they buy, customers are paying extra. However, this is the challenge for the Best Buy's and Barnes and Nobles' of the world. People find what they want and then shop online for lower prices. Can you put in kiosks to simulate an employee's knowledge? It costs something to do that. It would encourage self-service. Still, would they have to wait to use the kiosks and how would it be different than any online sources? It's a challenge. Unfortunately, I'm not sure this book provides the solution.

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