CHAPTER ONE: WHAT IS A SERVICE?
I have found that the most profound understanding of what service customers want and need – how to be good, bad or indifferent at delivering that service, how to differentiate the service from those offered by competitors, and how to make it financially sustainable – comes from going back to first principles and undertaking a close examination of what is actually meant by a service.
Such an analysis has led me to conclude that all services comprise three core common elements.
The first two chapters of this workbook focus on leading the reader to a similar conclusion. The remaining chapters then examine the implications of this for the creation of value for the customers and the service provider.
I have termed these core common elements a Service Value Proposition, or SerVAL Proposition.
KEY QUESTIONS
To assist this process, I explore the following questions:
Such an analysis has led me to conclude that all services comprise three core common elements.
The first two chapters of this workbook focus on leading the reader to a similar conclusion. The remaining chapters then examine the implications of this for the creation of value for the customers and the service provider.
I have termed these core common elements a Service Value Proposition, or SerVAL Proposition.
KEY QUESTIONS
To assist this process, I explore the following questions:
- How does the “average person” typically define a service?
- How do academic textbooks typically define a service?
- How do dictionaries define a service?
- What can be gleaned from these definitions?
- What is the Service Benefit?
- What is the Service Experience?
- What is the third element?
- What are the three core elements of a service?
- How important is each core element?
- What is a SerVAL Proposition?
- Why are the core elements of a service the principal basis of competitive advantage?
- How can you apply this to your service organisation?
CHAPTER TWO: A CORE MODEL OF A SERVICE
A service can usefully be defined as a Value Proposition, containing three core elements, namely a Service Benefit, a Service Experience and a Service Price. These core elements are the principal sources of competitive advantage for any service organisation.
I consider these three core elements in more detail, through addressing the following key questions.
KEY QUESTIONS
I consider these three core elements in more detail, through addressing the following key questions.
KEY QUESTIONS
- Can additional Service Benefits be included in a Service?
- Are all the Service Benefits tangible?
- What are the different elements of the Service Experience?
- Does the Service Price just involve the price paid to the Service Provider by the customer?
- Is there a fourth core element in a Service?
- What does the detailed SerVAL Equation look like?
- What are the benefits that service organisations can gain from applying this model?
- How can you apply this to your service organisation?
CHAPTER THREE: WHAT ARE THE VITAL CHARACTERISTICS OF A SERVICE?
Leading textbooks typically identify five key common characteristics of services. These are:
In this context:
“Intangible” means services do not have “solid substance” and therefore cannot be touched, gripped or handled.
“Perishable” means that things don’t last andor cannot be stored.
“Variability” means that each service received tends to be different from previous ones.
“Simultaneity” means that the service tends to be provided and consumed at the same time.
“Inseparability” means that the service cannot be separated from the person that delivers it, and thus refers to the customer/service provider interaction.
I express these characteristics in a manner that is easier to remember, namely:
V ariable
I nvolvement (inseparability)
T angible
A ttainment period (simultaneity, or otherwise, of service consumption and benefits)
L asting (perishable)
I consider how these characteristics can significantly impact the SerVAL Proposition. I demonstrate how gaining an understanding of these characteristics – and seeking to address them – can help service organisations to create value for their customers and their shareholders and, therefore, gain a competitive advantage.
KEY QUESTIONS
To assist with this, I examine the following key questions:
- Intangibility
- Perishability
- Simultaneity
- Variability
- Inseparability
In this context:
“Intangible” means services do not have “solid substance” and therefore cannot be touched, gripped or handled.
“Perishable” means that things don’t last andor cannot be stored.
“Variability” means that each service received tends to be different from previous ones.
“Simultaneity” means that the service tends to be provided and consumed at the same time.
“Inseparability” means that the service cannot be separated from the person that delivers it, and thus refers to the customer/service provider interaction.
I express these characteristics in a manner that is easier to remember, namely:
V ariable
I nvolvement (inseparability)
T angible
A ttainment period (simultaneity, or otherwise, of service consumption and benefits)
L asting (perishable)
I consider how these characteristics can significantly impact the SerVAL Proposition. I demonstrate how gaining an understanding of these characteristics – and seeking to address them – can help service organisations to create value for their customers and their shareholders and, therefore, gain a competitive advantage.
KEY QUESTIONS
To assist with this, I examine the following key questions:
- What are the implications of services being “intangible”?
- Are services really perishable, and, if so, does it matter?
- Why are services so variable?
- Are services always produced and consumed simultaneously?
- Is the customer / service provider interaction important?
- How can you apply this to your service organisation?
CHAPTER FOUR: THE CORE INGREDIENTS FOR SERVICE SUCCESS
There are a range of common inputs or “ingredients” that are typically combined in a service in order to create the Service Benefit and Service Experience, and which impact the Total Cost to Customer. I consider these ingredients in more detail, as they are integral to service success and competitive advantage. I group them together where they are closely related in characteristic or impact.
In each short chapter, I illustrate how these ingredients have a significant impact on the SerVAL Proposition. In Chapter 15, I show how they impact the cost base of a service organisation.
In Chapter 6, I highlight how the core ingredients of services have changed significantly since the Millennium, and why 21st century services can be considerably different from those that have gone before. These changes are based on the emergence of the internet as a key ingredient of many services, and the ongoing rapid evolution of other ICT systems. In combination, they have brought about the greatest changes to service organisations in decades, arguably since the introduction of electricity, the telephone and the internal combustion engine more than a century ago.
KEY QUESTIONS
The key questions I consider in this overview chapter are:
- Chapter 5 - People and Service Success
- Chapter 6 - Process, ICT Systems, the Internet and Knowledge
- Chapter 7 - Property, Tools & Equipment
- Chapter 8 - Marketing and Brand
In each short chapter, I illustrate how these ingredients have a significant impact on the SerVAL Proposition. In Chapter 15, I show how they impact the cost base of a service organisation.
In Chapter 6, I highlight how the core ingredients of services have changed significantly since the Millennium, and why 21st century services can be considerably different from those that have gone before. These changes are based on the emergence of the internet as a key ingredient of many services, and the ongoing rapid evolution of other ICT systems. In combination, they have brought about the greatest changes to service organisations in decades, arguably since the introduction of electricity, the telephone and the internal combustion engine more than a century ago.
KEY QUESTIONS
The key questions I consider in this overview chapter are:
- What are the basic ingredients of a service?
- What is the Service Delivery Mix?
- How important is the Service Delivery Mix to the SerVAL Proposition?
- How does the Service Delivery Mix provide a source of competitive advantage?
- How to evaluate the impact of the Service Delivery Mix on your SerVAL Proposition?
CHAPTER FIVE: HOW IMPORTANT ARE PEOPLE IN THE SERVICE DELIVERY MIX?
All service organisations, indeed all organisations by definition, have people at their core, and thus they are a critical and common part of the Service Delivery Mix. People design and deliver the service; they find, win, keep and grow customers; they lead and manage the organisation; they “hire and fire”, reward, recognise and develop other people. People also design, procure and operate processes, systems, tools and real estate, and they ensure that the organisation complies with the law and regulations.
The success of any service organisation will, therefore, depend on having capable and motivated employees who perform to the required level and in the required manner to deliver the Service Benefit and Service Experience that the customer expects, in an economically sustainable, legal manner.
In short, service success depends on having the “right people”.
KEY QUESTIONS
The key questions I consider are:
The success of any service organisation will, therefore, depend on having capable and motivated employees who perform to the required level and in the required manner to deliver the Service Benefit and Service Experience that the customer expects, in an economically sustainable, legal manner.
In short, service success depends on having the “right people”.
KEY QUESTIONS
The key questions I consider are:
- What is the Service-Profit Chain?
- How do people affect the Service Benefit?
- How do people affect the Service Experience?
- What about “back office” people?
- How do people affect the Total Cost to Customer?
- How do people affect the Brand?
- How do people affect customer relationships?
- How do people affect the VITAL characteristics of services?
- How do people affect the cost of service delivery?
- What about leadership and management?
- What about other people?
- How can you apply this to your service organisation?
CHAPTER SIX: PROCESS, ICT SYSTEMS, THE INTERNET, AND KNOWLEDGE
Before beginning to consider the impact of processes and systems, etc, on the SerVAL Proposition, it is worth remembering that these processes are created by people, for people. So service organisations must get the people element of their Service Delivery Mix right in order to achieve long-term, sustained success.
In this chapter, I consider how people (the service deliverer and their customers) perform tasks (processes), and how ICT and the internet have radically changed how these processes can be performed with a consequential transformational impact on services. I consider how ICT and the internet have significantly changed the generation, management and deployment of knowledge within service organisations. I explore the impact on the Service Benefit, Service, Experience, Total Cost to Customer, Brand and People for each.
KEY QUESTIONS
I address the following key questions:
In this chapter, I consider how people (the service deliverer and their customers) perform tasks (processes), and how ICT and the internet have radically changed how these processes can be performed with a consequential transformational impact on services. I consider how ICT and the internet have significantly changed the generation, management and deployment of knowledge within service organisations. I explore the impact on the Service Benefit, Service, Experience, Total Cost to Customer, Brand and People for each.
KEY QUESTIONS
I address the following key questions:
- Does process matter in service organisations?
- What about IT?
- Is service tangled in a Web?
- Are service organisations knowledgeable?
CHAPTER SEVEN: REAL ESTATE & FACILITIES, TOOLS & EQUIPMENT
All service organisations, from logistics companies through retailers, cleaning companies and hairdressers to lawyers and accountants, occupy real estate. Even internet-based service businesses have real estate, albeit just someone’s garage, bedroom or a giant “server farm” somewhere else in the world! This can be real estate where the employees are based or customers visit, or both.
Most service organisations, if not all, utilise some form of tools and equipment. This can range from the humble pencil to a high-tech satellite. The real estate is sometimes the “tool”, as is the case with a traditional retailer or distribution depot within a logistics service.
Real Estate & Facilities and Tools & Equipment are the tangible, fixed assets of service organisations. In this chapter, I discuss how they can also have a significant impact on the SerVAL Proposition, as well as the cost base of the organisation.
KEY QUESTIONS
I examine the following key questions:
Most service organisations, if not all, utilise some form of tools and equipment. This can range from the humble pencil to a high-tech satellite. The real estate is sometimes the “tool”, as is the case with a traditional retailer or distribution depot within a logistics service.
Real Estate & Facilities and Tools & Equipment are the tangible, fixed assets of service organisations. In this chapter, I discuss how they can also have a significant impact on the SerVAL Proposition, as well as the cost base of the organisation.
KEY QUESTIONS
I examine the following key questions:
- Are service organisations in a real (e)state?
- re service organisations tooled up?
CHAPTER EIGHT: BRAND, MARKETING & OTHER MATERIALS
The two ingredients covered in this chapter are quite different in nature – marketing materials are very tangible, whilst a brand is intangible – but they are also symbiotically interrelated.
Marketing material, in this context, however, doesn’t only mean brochures, websites etc, used in explicit marketing communications, but also every other tangible ingredient in the Service Delivery Mix, other than the real estate & facilities, tools & equipment, hard ICT systems and people which we have already considered. These other items can all be expected to have an influence on the Service Experience, if not on the Service Benefit.
KEY QUESTIONS
To assess the impact of these factors on the SerVAL Proposition, I look at the following questions:
Marketing material, in this context, however, doesn’t only mean brochures, websites etc, used in explicit marketing communications, but also every other tangible ingredient in the Service Delivery Mix, other than the real estate & facilities, tools & equipment, hard ICT systems and people which we have already considered. These other items can all be expected to have an influence on the Service Experience, if not on the Service Benefit.
KEY QUESTIONS
To assess the impact of these factors on the SerVAL Proposition, I look at the following questions:
- What does the service organisation show and tell people?
- What does the service organisation explicitly tell people?
- Has the service been branded?
- How does the brand impact the Service Benefit?
- How does the brand shape the VITAL characteristics?
- How does the brand affect customer relationships?
- How does the brand influence the Employee Experience?
CHAPTER NINE: DELIVERY MODELS FOR SERVICE SUCCESS
In this chapter, I highlight the different types of service models that enable service organisations to combine and deliver their chosen Service Delivery Mix in order to create their chosen SerVAL Proposition. These are often called Service Delivery Models. I also consider how the Service Delivery Model can influence the VITAL service characteristics. I touch on how the Service Delivery Model also influences the working experience of the employees in the Service Delivery Mix, which can have a major impact on the Service Experience delivered to customers.
I then examine the other side of the value creation equation – how the Service Delivery Model influences the service organisation’s cost base, profit margins and long-term customer relationships. I cover this in more detail in later Chapters.
KEY QUESTIONS
In order to consider the effect of the Service Delivery Model on the SerVAL Proposition, the questions I address are as follows:
In order to consider the effect of the Service Delivery Model on how a service organisation creates value for its owners, I then examine the following questions:
I then examine the other side of the value creation equation – how the Service Delivery Model influences the service organisation’s cost base, profit margins and long-term customer relationships. I cover this in more detail in later Chapters.
KEY QUESTIONS
In order to consider the effect of the Service Delivery Model on the SerVAL Proposition, the questions I address are as follows:
- What Service Delivery Models are available?
- How does the Model impact the VITAL characteristics of a service?
- How does Service Benefit choices impact the Model?
- How does the Service Delivery Model impact the Service Experience?
- How does the Model impact the Total Cost to Customer?
- How does the Model impact the service organisation’s Brand?
- How does the Model impact the Employee Experience?
- How can you apply this to your service organisation?
In order to consider the effect of the Service Delivery Model on how a service organisation creates value for its owners, I then examine the following questions:
- How does the Model impact the organisation’s cost base?
- How does the Model influence the efficiency of service delivery?
- What are the implications of changing the Model to reduce costs?
- How might the Model impact customer relationships?
CHAPTER TEN: WHAT SERVICE DO YOUR CUSTOMERS ACTUALLY WANT?
The preceding chapters have set out a broad basic framework for understanding services and how to create and deliver a SerVAL Proposition. That is a starting point. However, the success, or otherwise, of any service organisation will depend on providing something that a customer needs, wants and can afford. In short, providing a customer with an attractive SerVAL Proposition.
In this chapter, I consider how a service organisation can gain an understanding of the SerVAL Proposition required by its customers.
KEY QUESTIONS
I consider how a service organisation can gain such an understanding through addressing the following questions:
In this chapter, I consider how a service organisation can gain an understanding of the SerVAL Proposition required by its customers.
KEY QUESTIONS
I consider how a service organisation can gain such an understanding through addressing the following questions:
- Who is the customer?
- How many people are involved in procuring, benefiting from, experiencing and paying for the service?
- How can we assess what a customer actually wants?
- Why and when will a customer buy a Service Benefit?
- What price will a customer pay for that service?
- What Service Experience does a customer want?
- Will the customer tell the service provider what they want?
- Does the service provider know enough about the customer to anticipate what they want?
- Will the customer develop the Service Experience they want?
- How else does the customer impact the Service Experience?
- How can you apply this to your service organisation?
CHAPTER ELEVEN: WHAT CAUSES A FAILURE TO DELIVER WHAT CUSTOMERS WANT?
As customers, we all know that having bought a service, many service organisations then fail to deliver the one we were expecting.
This might be because they failed to deliver the expected Service Benefits, or we just did not know what Service Benefits to expect. It may be that the Service Experience wasn’t as good as we expected and/or we didn’t know what Service Experience to expect. It could be because the Direct Price or the Total Cost to Customer was higher than we anticipated. Or it could be due to a combination of all of these reasons.
In this chapter, I consider why this can happen, other than as a result of a deliberate intention to mislead by the service provider, by examining the following questions.
KEY QUESTIONS
This might be because they failed to deliver the expected Service Benefits, or we just did not know what Service Benefits to expect. It may be that the Service Experience wasn’t as good as we expected and/or we didn’t know what Service Experience to expect. It could be because the Direct Price or the Total Cost to Customer was higher than we anticipated. Or it could be due to a combination of all of these reasons.
In this chapter, I consider why this can happen, other than as a result of a deliberate intention to mislead by the service provider, by examining the following questions.
KEY QUESTIONS
- What SerVAL Proposition are the customers expecting?
- What are the five gaps that mean the customers may not get what they expected?
- How can there be a gap between what the customer wants and what the service organisation thinks they want?
- How can there be a gap between what the customer wants and the service organisation sets out to deliver?
- What causes service delivery failure?
- How can there be a gap between what the customer receives and what the customer thinks they have received?
- How can there be a gap between what the customer perceives they have received and what the customer expects to receive?
- What can be done to prevent this happening?
- How can you apply this to your service organisation?
CHAPTER TWELVE: HOW WILL CUSTOMERS ASSESS THE SERVICE THAT THEY RECEIVE?
In this chapter, I examine how customers will assess the SerVAL Proposition they receive.
KEY QUESTIONS
To achieve this, I am going to consider the following key questions:
KEY QUESTIONS
To achieve this, I am going to consider the following key questions:
- How do customers of service organisations evaluate performance?
- How do customers assess the Service Benefit?
- How do customers assess the Service Experience?
- How do the components and characteristics of a service impact these measures?
- How does the Service Delivery Model impact these measures?
- Are these absolute or relative performance measures?
- Are these performance measures of equal importance for different services?
- Are these performance measures of equal importance for different customers?
- Do customers make a trade-off between Benefits and Experience?
- How do customers assess the Price that they paid?
- What are the consequences of failing to deliver what customers expected?
- How can you apply this to your service organisation?
CHAPTER THIRTEEN: WHAT IS A CUSTOMER WORTH?
In the previous section of the book, we discussed how to create value for a customer. As well as how to give them what they want for a price that they can afford and are prepared to pay. But this is only one side of the equation. What value does the service provider receive in return?
This is equally important because, without receiving some form of value in return, the service organisation will ultimately cease to exist or choose not to exist.
In the chapters in this section, I am going to consider how service providers can create value from an individual customer.
And, remember, ultimately the value of any organisation is the sum of the value of its current and potential future customers.
KEY QUESTIONS
I explore what is the value of a customer by addressing the following key questions:
This is equally important because, without receiving some form of value in return, the service organisation will ultimately cease to exist or choose not to exist.
In the chapters in this section, I am going to consider how service providers can create value from an individual customer.
And, remember, ultimately the value of any organisation is the sum of the value of its current and potential future customers.
KEY QUESTIONS
I explore what is the value of a customer by addressing the following key questions:
- What direct financial value does a customer bring to a service organisation?
- What is Customer Lifetime value?
- How can we assess Customer Lifetime Value?
- What use is a CLV calculation?
- How important is individual customer profitability for service businesses?
- What indirect financial value can a customer bring to a service organisation?
- How can you apply this to your service organisation?
CHAPTER FOURTEEN: WHAT FACTORS DRIVE THE COST OF SERVING A CUSTOMER?
We have gained an understanding how service organisations can produce a SerVAL Proposition that its customers will want in preference to those offered by its competitors or alternative delivery solutions available to obtain the same Service Benefit.
The other side of the equation, which I now review, is how to produce this SerVAL Proposition at a reasonable cost, so that the service organisation remains economically viable?
In simple terms, anyone should be able to produce a great SerVAL Proposition if they are able to throw resources at it, with no regard for cost or cash flow. However, such an approach isn’t sustainable.
Therefore, it is critical in the long run for the service provider that the Direct Price it receives from delivering the SerVAL Proposition is at least as great as the cost of producing it. That Direct Price may be received directly from customers in the market, from funds provided by central or local government for public services, or a budget allocated to an internal department.
In this chapter, I explore the factors that influence the cost of production of a service. It will not include a detailed analysis of costing, financial or managerial accounting, or the costs required to win or retain customers, which are beyond the scope of this book.
This overview is designed, like the rest of the book, to provoke thought, and to make it clear that costs should be considered holistically. All proposed changes to a service organisation’s cost base should be assessed in terms of the impact on the SerVAL Proposition, and Customer Lifetime Value, not just the immediate bottom line.
KEY QUESTIONS
To gain a better understanding of the factors influencing the costs to produce a service, I consider the following key questions:
The other side of the equation, which I now review, is how to produce this SerVAL Proposition at a reasonable cost, so that the service organisation remains economically viable?
In simple terms, anyone should be able to produce a great SerVAL Proposition if they are able to throw resources at it, with no regard for cost or cash flow. However, such an approach isn’t sustainable.
Therefore, it is critical in the long run for the service provider that the Direct Price it receives from delivering the SerVAL Proposition is at least as great as the cost of producing it. That Direct Price may be received directly from customers in the market, from funds provided by central or local government for public services, or a budget allocated to an internal department.
In this chapter, I explore the factors that influence the cost of production of a service. It will not include a detailed analysis of costing, financial or managerial accounting, or the costs required to win or retain customers, which are beyond the scope of this book.
This overview is designed, like the rest of the book, to provoke thought, and to make it clear that costs should be considered holistically. All proposed changes to a service organisation’s cost base should be assessed in terms of the impact on the SerVAL Proposition, and Customer Lifetime Value, not just the immediate bottom line.
KEY QUESTIONS
To gain a better understanding of the factors influencing the costs to produce a service, I consider the following key questions:
- Which factors drive the cost to serve a customer?
- How do People costs impact the cost to serve a customer?
- How do Processes impact the cost to serve a customer?
- How do Tool & Equipment costs impact the cost to serve a customer?
- How do ICT & Internet costs impact the cost to serve a customer?
- How do Real Estate costs impact the cost to serve a customer?
- How do Customers impact the cost to serve a customer?
- How does the Service Delivery Model impact the cost to serve a customer?
- What is the Efficiency trap?
- What costs the most to produce – the Service Benefit or the Service Experience?
- What is the impact of Fixed and Variable costs/Costs of Sale & Overheads based analysis on cost management in service organisations?
- What can be the impact of cost savings on the SerVAL Proposition?
- What can be the impact of cost savings on margin?
- What can be the impact of cost savings on customer retention?
CHAPTER FIFTEEN: WHAT FACTORS DRIVE CUSTOMER LOYALTY
In this chapter, I examine the factors that influence the length of relationships with customers, and how this might be predicted. This is commonly termed “customer loyalty”.
KEY QUESTIONS
In order to provide some insight into customer loyalty, I will consider the following key questions:
KEY QUESTIONS
In order to provide some insight into customer loyalty, I will consider the following key questions:
- Does customer satisfaction lead to customer loyalty?
- Is choice important?
- Can loyalty be “agreed”?
- Can loyalty be “bought”?
- Are customers rational?
- Are brands important?
- Are interpersonal relationships important?
- What about habits?
- Are switching costs important?
- Are some forms of loyalty better than others?
- Are monogamous relationships with customers normal?
- How do you tell if customers are becoming more or less loyal?
- Are customers loyal because they are receiving too much value?
CHAPTER SIXTEEN: HOW DO YOU INCREASE THE VALUE OF A CUSTOMER?
In this chapter, I explore what a service organisation can do to protect or increase the value of that customer.
As the value of a customer is based on the profits that are generated from the revenues received from them, and the length of the period these profits are received, plus the positive word of mouth obtained from the customer
KEY QUESTIONS
I address the following questions.
As the value of a customer is based on the profits that are generated from the revenues received from them, and the length of the period these profits are received, plus the positive word of mouth obtained from the customer
KEY QUESTIONS
I address the following questions.
- Is there a customer revenue cycle?
- How can we increase revenue from a customer?
- How can we increase margin from a customer?
- How can the length of a relationship with a customer be extended?
- Is extra margin more valuable than extending the length of a relationship?
- How can we increase positive word of mouth from a customer?
- How do you manage customer value?
CHAPTER SEVENTEEN: A BETTER UNDERSTANDING OF SERVICE SUCCESS
The final chapter provides an overview of the key concepts covered, so far and concludes with a diagrammatic framework showing how they all link inextricably together – which is the core message!
I believe that failure to consider services and planned, or unplanned, changes to services in a holistic manner is likely to cause, and indeed has caused, significant issues for service organisations. I would go as far to say that all these concepts are so closely interlinked that they are, in reality, inseparable.
KEY QUESTIONS
I summarise the framework by considering the following key questions:
I believe that failure to consider services and planned, or unplanned, changes to services in a holistic manner is likely to cause, and indeed has caused, significant issues for service organisations. I would go as far to say that all these concepts are so closely interlinked that they are, in reality, inseparable.
KEY QUESTIONS
I summarise the framework by considering the following key questions:
- What is a service?
- Why do people buy a service (or not)?
- Who is the customer?
- How to create a service?
- How do customers assess a service?
- How much does it cost to produce a service?
- What is a customer worth?
- How to measure customer performance?
- How much more successful can your service organisation be?
