STRATEGIC APPROACHES FOR ACHIEVING

COST-EFFECTIVE SERVICE EXCELLENCE

Jochen WIRTZ1 & Valarie ZEITHAML2

ABSTRACT

This study explores strategies through which service firms can potentially

achieve high quality at low unit costs, or cost-effective service excellence (CESE) as

we term it. We reviewed the operations management (OM) literature on efficiency and

linked it with more recent research on service quality, service excellence, and

business modeling to explore how firms can potentially pursue a strategy of CESE.

We developed an integrated framework to organize potential strategies for pursing

CESE and supplemented it with a few initial case studies to illustrate these strategies.

We hope that the emerging framework can help academics and managers alike to

better understand the basic strategies and tradeoffs involved in pursuing the dual

strategy of cost-effective service excellence.

January 31, 2016

1Jochen Wirtz is Professor of Marketing, National University of Singapore, Singapore; Email:

jochen@nus.edu.sg; Tel.: +65-6516-3656.

2Valarie Zeithaml is the David S. Van Pelt Family Distinguished Professor of Marketing; The University

of North Carolina at Chapel Hill, U.S.A.; Email: valariez@unc.edu; Tel.: +1-919-962-8214.

INTRODUCTION

Strategy research widely holds that it is extremely difficult to combine the

purportedly incompatible strategies of differentiation (through service excellence and

continuous innovation) and cost leadership (Heracleous & Wirtz, 2010). Strategy

experts such as Michael Porter argue that it is not possible to do so for a sustained

period because dual strategies entail contradictory investments and organizational

processes.

In the service operations and marketing literature, the trade-off between

customer satisfaction and service productivity has been widely acknowledged and

remains a key challenge for many organizations that strive towards operational and

service excellence (Anderson et al., 1997; Rust & Huang, 2012). However, evidence

suggests that there are firms that are both highly productive (i.e., have low unit costs)

and at the same time achieve highest levels of customer satisfaction. For example,

Shouldice Hospital has 50 to 75% lower costs compared to general hospitals, a

failure rate (i.e., reoccurrence rate) that is 1/12th of the industry, and exceptionally

high customer satisfaction. Another example is Jet Blue Airlines which has the lowest

cost per seat mile in the US and at the same time has the highest American Customer

Satisfaction Index (ACSI) score in its industry. These examples suggest that firms

with a highly focused business model (e.g., only hernia treatment in the case of

Shouldice Hospital, or Jet Blue Airlines’ focus on point-to-point budget travel) targeted

at an equally highly homogenous customer base can excel in both productivity and

customer satisfaction. This ‘focused service factory’ model that reduces

customer-induced uncertainty (i.e., customers tend to receive a single, highly

standardized service offering) seems to offer one avenue towards achieving

cost-effective service excellence.

Other business models have been shown to achieve both high productivity

and service excellence. For example, Singapore Airlines has earned a stellar

reputation in the fiercely competitive commercial aviation business by providing

customers with exceptional quality service, winning Condé Nast Traveler’s World’s

Best Airline award 24 out of the past 25 years. What is intriguing, however, is that

Singapore Airlines is simultaneously one of the world’s most cost-effective full-service

airlines. From 2001 to 2009, its costs per available seat kilometer (ASK) were just 4.6

cents (see Singapore Airlines’ annual reports), compared to 8–16 cents for

full-service European airlines, 7–8 cents for U.S. airlines, and 5–7 cents for Asian

airlines (IATA, 2007). In fact, Singapore Airlines had lower costs than most European

and American budget carriers, which ranged from 4 to 8 cents and 5 to 6 cents,

respectively. Like the focused service factory-based business models of Shouldice

Hospital and Jet Blue Airlines, Singapore Airlines, too, manages to combine the

purportedly incompatible strategies of service excellence and cost leadership

(Heracleous & Wirtz, 2010).

The purpose of this article is to explore strategies through which service firms

can potentially achieve high quality at low unit costs, or as we termed it, cost-effective

service excellence (CESE). In the following, we will develop a conceptual framework

on CESE. Before exploring these strategies in more detail, we first discuss the

relationships between productivity, service quality, and profitability which are at the

heart of the operations–service excellence trade-off, followed by a discussion of the

root causes of both inefficiencies in service operations and failure to provide service

quality.

LINKING PRODUCTIVITY, SERVICE QUALITY AND PROFITABILITY

The individual relationships between service productivity, customer

satisfaction (i.e., excellence) and profitability are shown in Figure 1. When examining

the individual links, one can see that, everything being equal, higher customer

satisfaction should improve the bottom line through higher repeat purchase,

share-of-wallet, and referrals. Likewise, everything being equal, higher productivity

should lead to higher profitability as costs are reduced.

[Insert Figure 1 about here]

The relationship between productivity and customer satisfaction is more

complex. There is the general notion of a service productivity–customer satisfaction

trade-off. However, although the relationships between productivity, service quality,

and profitability can conflict, there are examples where productivity gains and

customer satisfaction are aligned. For example, if a service firm redesigns customer

service processes to be leaner, faster, and more convenient by eliminating

non-value-adding work steps, then both productivity and customer satisfaction

improve, and both have a direct and indirect positive effect on profitability. An

example would be serve-it-yourself yogurt stores, which substitute relatively

inexpensive and easy-to-use self-serve machines for multiple human contact people.

In this case, there is a positive impact on profitability through increased productivity

and through increased customer satisfaction and resulting loyalty.

In contrast, if productivity improvements result in changes in the service

experience customers do not like (e.g., replacing a human agent in a customer

contact center with an interactive voice response system to reduce headcount,

doubling class sizes to increase the productivity of university professors, or reducing

the frequency of trains to increase load factors), then there is a trade-off to be

expected. In the short term, productivity enhancements have an immediate and direct

positive effect on profitability. However, these productivity enhancements lead to

lower customer satisfaction, which over the medium to long term are likely to lead to

lower customer loyalty and referrals. This means that these productivity

improvements have a positive direct effect on profitability, but also a negative indirect

effect (via customer satisfaction). Likewise, improvements in service quality and

customer satisfaction that have negative effects on productivity (e.g., replacing an

interactive voice response system with human agents in a customer contact center,

reducing class sizes to improve the learning experience of students, or increasing the

frequency of trains to increase passenger convenience) will have medium to

long-term positive direct effects on profitability via customer loyalty, but have an

immediate negative indirect effect on profitability via reduced productivity. The net

result on profitability in both cases depends on the relative impact of the direct and

indirect effects.

Finally, some quality improvements may not have any implications on

productivity (e.g., improving a process in the front office that does not change the cost

of providing it) and vice versa (e.g., improving efficiency of back office operations that

do not have implications for customer touch points). That is, there is only a single

positive effect of productivity improvements on profitability or of customer satisfaction

improvements on profitability.

In sum, one can see that the relationship between productivity and customer

satisfaction can be positive, neutral, and negative. All strategies towards CESE have

to be viewed in the context of these potentially reinforcing, neutral, and conflicting

relationships as discussed next.

The purpose of this research is to explore the potential alignment and

conflicts shown in Figure 1 and review strategies through which service firms can

potentially achieve CESE. We reviewed the operations management literature on

efficiency, and linked it with more recent research on service quality, service

excellence, and business modeling to explore how firms can potentially pursue a

strategy of CESE. An integrated framework emerged that helps academics and

managers to organize and understand the basic strategies and trade-offs involved in

pursuing the dual strategy of cost-effective service excellence, and we hope it will

guide further research. We will discuss the core strategies for achieving CESE next.

ROOT CAUSES OF CONFLICTS BETWEEN SERVICE EXCELLENCE AND

PRODUCTIVITY IN SERVICE OPERATIONS

The rich literature in service quality and excellence discusses reasons for

challenges in delivering superior service performance (e.g., Zeithaml and

Parasuraman 2004). The most prevalent model to identify the challenges is the Gaps

Model of Service Quality, which classifies the underlying causes preventing service

excellence as four gaps: Gap 1: Not knowing what customers expect; Gap 2: Not

selecting the right service designs and standards; Gap 3: Not delivering to service

standards; and Gap 4: Not matching performance to promises (Zeithaml and

Parasuraman 2004). Based on anecdotal evidence, important underlying reasons for

these quality gaps include cost and productivity requirements. For example,

productivity requirements often do not allow higher headcounts in customer contact

centers or a higher density in retail branch networks.

An equally abundant literature in operations identifies difficulties in delivering

service productivity As the topic of our paper is the joint provision of service

excellence and productivity, we focus here on the three root causes of providing both

at the same time.

There are three root causes of the challenges service firms face in achieving

CESE. These root causes make it notoriously hard to achieve productivity gains and

assure quality through industrialization of processes (including deployment of

systems and technology, deskilling, and economies of scale). These root causes are:

(1) distributed operations and real-time production and consumption of many

services, (2) the required integration of operations, human resources and marketing

functions in the delivery of service, and (3) customer-induced input, process and

output uncertainty.

First, achieving CESE seems particularly difficult for service firms because

aspects of service provision (among them distributed operations, simultaneous

production and consumption, and customization in real time at the point of the

customer interface) make industrialization, deskilling, economies of scale, and

productivity difficult to achieve. To illustrate, services tend to be produced through

distributed operations (e.g., every fast food outlet, beach resort, and bank branch can

be viewed as a mini-factory). Unlike in goods manufacturing with its efficient global

supply chains that can be both highly cost-effective and deliver top notch quality (e.g.,

Apple’s contract manufacturing in China produces top quality products at low cost),

service productivity and service quality remain a challenge.

Second, in service-based value propositions, the customer’s experience and

satisfaction are often heavily dependent on the additional 3 Ps of services marketing

(i.e., people, process, and physical environment) (Wirtz & Lovelock, 2016). This

means that the three functions of operations, marketing, and human resources

management have to be tightly integrated to deliver customer satisfaction. This

integration frequently leads to trade-offs between functional objectives, especially

between marketing and operations. This trade-off is well documented, with marketing

typically focused on customer satisfaction, loyalty, sales, cross-selling, upselling, and

market share, whereas operations worries about unit costs, productivity, and capacity

utilization (Zeithaml et al., 2013). Striving for CESE, therefore, first has to overcome

functional silos and lead to an integration and agreement on a common set of key

performance indicators (KPIs) for all key functions that together determine the

customers’ experience.

Third, a key root cause of challenges for achieving CESE is

customer-introduced uncertainty. That is, operations cannot be organized and

scheduled at optimum efficiency as customer arrival times and customer service

requests, needs, and wants (i.e., what customers want to consume when and how)

are uncertain. If a firm strives to satisfy its customers, it has to have capacity ready at

the time of customer demand, and it has to provide (expensive) flexibility at the

customer interface offering the right type of process capacity, employee skills, and

supplies to deliver against customer needs and expectations. Offering all these ‘on

demand’ is challenging and expensive.

A DUAL FOCUS CULTURE STRATEGY

The operations management literature distinguishes between actual

efficiency and potential efficiency at a given level of uncertainty. It identifies

uncertainty in terms of input (e.g., customer arrival patterns), process (customer

process preferences), and output (customer requests) as the key variables that

determine the potential level of efficiency. Firms that want to improve efficiency can

first move their actual efficiency towards their potential efficiency at their current level

of uncertainty. These are ‘generic productivity strategies’. Here, typical approaches

include cost control, reduction of wastage, training of employees, better capacity

utilization, and redesign of customer service processes (e.g., through the use of lean

six sigma). Many of these strategies and activities that drive cost-effectiveness are

not in conflict with service excellence. In fact, productivity improvements frequently

bring with them quality improvements at the same time. These are the ‘no brainers’

and ‘low-hanging fruits’ every process redesign or (lean) six sigma initiative pursues.

Those strategies keep the current business model unchanged and adopt best

practices to achieve the same output with less input. However, these generic

productivity strategies in themselves do not necessarily lead to service excellence.

For this, an organization needs to combine this intensive intense focus on costs, incl

using all the standard cost-reductions strategies”, combined with an equally intense

customer centricity and focus on service excellence, a strategy we term the “dual

culture strategy”.

The dual culture strategy governs employees’ thinking and decision making

regarding when to emphasize cost-effectiveness and when service excellence. Often,

both objectives are aligned and can be pursued at the same time, but sometimes

trade-offs have to be made. Here, employees need to know how to make such

decisions, and an internalized dual culture has to provide this governance

mechanism. This is a difficult strategy to execute as it imposes two often conflicting

objectives on all employees, and it needs to be driven by powerful reward and

incentive systems (i.e., KPIs that integrate both productivity and service excellence

objectives), selection (Bateson et al., 2014), training, and role-modeling by top

management (Wirtz et al., 2008). For example, Singapore Airlines’ bonus scheme

gives employees the opportunity to earn bonuses of up to 50% of their annual salary

depending on the profitability of the airline. Internal communications and training

continuously emphasize that profit is a function of service excellence (which drives

revenues through the loyalty of demanding business travelers who are SIA’s most

valuable customers and core target segment) and costs (which is the other side of the

profit equation). As a result, Singapore Airlines’ people have internalized that

anything that touches the customer must be consistent with Singapore Airlines’

premium positioning, whereas everything behind the scenes is subject to extreme

cost control (Wirtz et al., 2008). This strategy ensures a great service experience for

customers, while at the same time everything is done internally to drive productivity.

Generic strategies to cut costs and boost productivity, infused with a dual culture

approach that emphasizes both service excellence and cost-effectiveness to

everyone in the organization, can lead to highly competitive service firms.

In conclusion, to achieve CESE without changing the level of potential

efficiency, the customer experience, the customer value proposition or the business

model, the entire organization needs to be aligned and focused on cost-effectiveness

and service excellence at the same time, and understand how to make trade-offs

should both foci be in conflict.

CHANGING THE CUSTOMER INTERFACE AND BUSINESS MODEL

Firms can also increase the level of potential efficiency by reducing

customer-induced uncertainty. These strategies require changes in customer

behavior at a minimum and often reduce customer choice (e.g., modular options

rather than full customization) and process flexibility (customers have a tighter script

to follow and tend to be more integrated into the service process). Here, typical steps

include (1) isolating the technical core through buffering and shifting activities from

the front to the back office, (2) reducing customer contact and choice, and (3)

production lining and industrializing the service (Levitt, 1972, 1976). These strategies

take uncertainty out of the service process and thereby reduce potential conflicts

between productivity and service excellence.

First, isolating the technical core through buffering from the front office and

shifting activities from the front to the back office enables firms to operate the back

office much more cost-effectively through deployment of technology and systems,

which leads to a reduction of fluctuations in workload and capacity utilization.

Second, reducing customer choice, interaction flexibility, and contact in the

front office through modularization of service allows the deployment of systems and

technology even in the front office (Chase, 1978). Once processes and products are

simple enough, the deployment of self-service technologies (SSTs) becomes

feasible. However, deploying such technologies and systems can have a significant

impact on the nature of the customer experience. For example, deploying biometrics

can change the customer experience (e.g., increase convenience but also raise

privacy concerns; Heracleous & Wirtz 2006; Wirtz & Lwin, 2009). A master of SST

and co-creation is Google, which is happy to spend millions to get its SSTs right, but

has an aversion towards increasing headcount. Google focuses on scalable solutions

that deliver excellence in self-service. Its AdWords service generated almost $ 60

billion in revenues, but was supported by an advertiser customer service team of only

some 3.000 people!

Third, the focused service factory typically delivers a single service product,

ideally to a homogeneous segment (Skinner, 1974). In general, it is more costly to

satisfy heterogeneous than homogenous customer preferences (Fornell, 1992). This

is particularly true for services where individual (i.e., more heterogeneous)

preferences tend to be fulfilled by customized solutions provided by (costly)

employees in distributed operations. One way to drastically increase productivity and

customer satisfaction at the same time is to tailor a single solution that is highly

industrialized to the exact needs of a specific segment. This was illustrated in the

introduction using the examples of Shouldice Hospital and Jet Blue Airlines. The

principle is simple: who will be faster and better, the generalist who has to cater to a

wide range of customer needs and has to have the flexibility, capacity and skills to

deal with a wide range of products (e.g., a general lawyer dealing with a wide range of

cases), or a specialist who only delivers a single product to a single segment (e.g., a

lawyer focusing on trusts and wills)?

[Insert Figure 2 about here]

BRINGING IT ALL TOGETHER INTO AN INTEGRATED FRAMEWORK

The dual culture strategy does not change the underlying cause of service

inefficiency (i.e., customer-induced uncertainty and distributed operations), but brings

the actual level of productivity closer to the potential level at a given level of

uncertainty, while at the same time, has an intense focus on the customer and service

excellence. The next three strategies require lower levels of uncertainty and higher

volume, and therefore require addressing the underlying causes of inefficiencies. As

a consequence, they typically also require changes in the customer interface. That is,

they require strategic service product and process design decisions.

Figure 2 regarding the journey from the unchanged customer interface

towards a focused service factory model, and how the four strategies to improve

productivity relate to each stage. One can look at Figure 2 like a funnel where one

can move a service from being unstructured, completely flexible but typically

expensive and inefficient to run, to a highly effective focused service factory. The four

strategies for increasing productivity can be aligned along this funnel.

The focus of this article is on striving for service excellence while driving

productivity at the same time. Figure 3 integrates the four strategies with the

uncertainty reduction and industrialization framework of Figure 2 and presents typical

tactics that can be employed at each stage. Furthermore, as discussed at the

beginning of this article, a dual culture that focuses on both service excellence and

cost-effectiveness is needed, but is difficult to achieve. As shown in Figure 3, this

need for a dual service culture decreases as an organization moves towards a

focused service factory model as cost-effectiveness is increasingly hardwired into the

system and does not require constant attention and focus by service employees.

[Insert Figure 3 about here]

METHODOLOGY

Following the development of the conceptual framework, we researched

companies that fit into the different strategies. We first outlined criteria for service

excellence, profitability, and productivity. These criteria tended to be similar for

profitability, as common measures existed across industries and companies. These

measures include return on sales compared to industry, return on assets compared to

industry, and growth in sales and profits compared to industry. However, criteria for

the other two performance measures in most cases were more variable across

companies. For service excellence, when companies were measured by the

American Customer Satisfaction Index or J.D. Power, we were able to use their

computations but we also used sources such as service excellence awards (e.g.,

from J.D. Power), customer satisfaction scores compared to industry, rankings of

companies, customer ratings and reviews (e.g., Trip Advisor ratings, social media

sentiment analysis), industry awards and other third-party data points, and customer

churn rates.

For productivity, some common measures existed such as labor productivity

compared to industry (revenue/number of full-time equivalent employee) and asset

productivity compared to industry (revenue per dollar of assets). We also used

industry-specific productivity measures (e.g., cost/seat mile or cost/passenger mile in

an airline context).

CASE EXAMPLES

We aim to analyze 30 organizations that achieved CESE and explore how

they were able to become simultaneously a quality and a cost-leader in their

respective industries. This research is work in progress. A few organizations were

analyzed and we briefly describe them in this section.

Singapore Airlines is an example of an organization that focuses intensely on

standard cost reduction strategies and cost-effectiveness while at the same time

being exceedingly customer centric with the aim of providing industry-leading service

quality and products.

The National Library Board in Singapore has a limited budget but was tasked

to scale up its membership and reach to drive life-long learning in Singapore. This led

to dramatic innovations and deployment of technology in both the back-office and

front-office, with globally leading SST deployment (e.g., it was the first library globally

to use RFID, and developed library branches that operate entirely without

customer-facing employees – all processes are entirely enabled through SSTs).

Google is well known for its positive treatment of employees, offering meals,

sports, massages and 20% of their time to work on ideas of their own. In fact, it has

been #1 or #2 in Fortune’s Top 100 firms to work for in the past two years. While this

suggests that it expends resources that are not cost-efficient, the company is an

excellent example of a company that delivers CESE. It does this by using modular

and scalable self-service technology to substitute for interpersonal contact between

customers and employees. The company has an extreme focus on “scalable

solutions” that do not require headcount. It standardizes these offerings—such as

AdWords—so well that customers can use them as self-service technologies without

requiring direct interaction with employees. For this reason, the company is extremely

cost-effective on a “per customer” or “per transaction” basis. This also means that

Google can be extremely generous to the “few” employees they do have, most of who

are involved in the development of new services rather than in serving customers

directly. Google has very few customer service/frontline employees relative to the

number of paying customers (i.e., advertisers), content providers (e.g., publishers),

and users (e.g., search engine end-users).

Amazon.com is a different example of a mix of dual culture: the firm is highly

customer-centric while at the same time being extremely cost-conscious in a way that

differs from Google. The company does not appear anywhere on the list of best

companies to work for. Amazon puts the needs of its customers first. Jeff Bezos,

founder and CEO of Amazon, himself is infamous for becoming enraged when

individual customers complain, requiring that anxious workers chase down solutions

immediately. Amazon is so customer-centric that in the early days of the company,

Bezos ignored pleas from Wall Street to improve profitability; instead, he invested

potential profits back into the business to improve its quality and service to

customers. Ultimately, the company achieved both high profitability and high service

quality evaluations. In its most recent two quarters, Amazon has shown highly

profitable results. The Amazon cloud business’s operating income in the third quarter

of 2015 ($521 million) was almost as much as Amazon’s North America e-commerce

business ($528 million). Its operating margins were 3 percent and 25 percent for its

North America business, and revenue grew 78 percent year over year. Amazon ranks

#1 in the ACSI for its industry. Bezos achieves incredible productivity in an unusual

way: squeezing it out of employees. One source reported that workers “were pushed

harder and harder to work faster and faster until they were terminated, they quit or

they got injured.” (Nocera 2015).

Ex-employees report that the company has a “gladiator culture” (Stone 2013).

Amazon is known for cost reduction approaches such as minimizing employee

compensation and designing bonuses so that they are back loaded to assure that

employees remain. The company gives out low-cost ORCA cards to avoid subsidizing

parking costs, using cheap blond-wood door-desks shoved together for conference

room tables, not subsidizing food but instead making only vending machines

available, and providing new workers with only minimal materials (that they must

return in they leave). He is known for frugality, for not spending money on anything

that doesn’t matter to customers (Stone 2013).

Jet Blue Airlines is an illustration of the focused service factory. The firm

offers low-cost, high-quality service to a limited number of non-stop point-to-point

destinations typically from New York City. At inception, JetBlue was a “new kind of

low fare airline,” offering the types of amenities reserved for pricier carriers, including

wider seats, more legroom and storage space, and 24 channels of inflight television.

The company’s press release promised innovations like touch-screen check-in and

“fares 65 percent less than other airlines on identical routes.” The traveling public

responds favorably to the excellent customer service as reflected in its top position on

J.D. Power and the ACSI in the airline industry. Thanks to its younger fleet and newer

staff, the firm enjoyed lower maintenance and labor costs than its old-school

competitors. It was also well-capitalized; the combination of lower costs and a strong

balance sheet helped JetBlue become profitable. Its revenues quadrupled during the

2000s—and the company made a profit every year. It had climbed to 11th place in

revenue passenger miles generated, and had done so with fewer planes than many

of its bigger competitors.

Narayana Health and Shouldice Hospital both focus on a single surgery each,

cardiac surgeries for the former, and hernia for the latter. Both operate focused

service factories and pursue highly focused business models targeted at a highly

homogenous customer base. A key difference between both organizations is that

Narayana aims to also deliver healthcare to the poorest in India and therefore has an

intense cost-focus to keep prices low (wealthier patients cross-subsidize poor

patients, and low overall costs allow a wider coverage), whereas no particular

cost-focus can be recognized at Shouldice Hospital.

Figure 4 shows the extent to which these organization pursue the various

CESE strategies and tools. It seems that these strategies and tools are used in an

almost modular manner that allows a mixing and matching of tools and putting

different degrees of emphasis on them depending on the industry context and

organizational objectives.

[Insert Figure 4 about here]

IMPLICATIONS FOR SERVICE STRATEGY AND MANAGEMENT

A dual culture approach can be pursued by any organization, but it is difficult

to execute and senior management must walk the talk. Senior management must

build a culture for cost-consciousness, intense customer focus and service

excellence at the same time. In our experience this is a difficult strategy to pursue and

it seems to be easier to ‘sell’ to employees when the firm is under intense competitive

pressure. We have worked with service organizations across industries and

continents, and have seen how intensifying competition and cost pressures push

organizations to seek ways to increase efficiency while maintaining high levels of

quality. There is a palpable shift across many industries towards a more rigorous

application of generic strategies and a dual culture focus.

On the other extreme is the focused service factory. The requirement of a

dual culture approach declines as the business model moves towards a ‘focused

service factory’ in which both efficiency and excellence are increasingly inbuilt into the

business model. We feel that focused service factories offer many interesting

business opportunities in both the online world (e.g., there are many services that are

delivered through apps one can download onto a smartphone) and the real world.

Such focused service factories typically combine smart processes and new

technologies that provide tailored solutions for well-defined problems and narrowly

defined customer segments. For example, TranscribeMe (www.transcribeme.com)

uses highly automated processes, speech recognition algorithms, and crowd workers

to deliver speech-to-text transformation at better quality and lower cost than any ‘old

world’ transcription business. In healthcare, Narayana Health

(www.narayanahealth.org) decided to industrialize open-heart surgery and now

delivers high quality at rock bottom costs. It decided not to build a ‘general hospital’

that intertwines many service processes and segments and therefore is incredibly

complex and expensive, and does not have the same quality output.

The level of uncertainty in customer service processes and resulting business

models is a strategic decision. Does a firm want to be a specialist or a generalist?

This decision leads to very different value propositions, pricing strategies, customer

segments, and business models. On their own turf, a specialist will always beat the

generalist in terms of efficiency and effectiveness, and this is especially so in services

with distributed operations. However, the focused service factory is often only suited

for tightly defined customer segments (e.g., healthy patients who have a particular

hernia problem in the case of Shouldice Hospital, or Internet and financially savvy

people in the case of ING Direct).

Even within a given business model, service firms need to be intensely aware

of the cost implications of providing options, flexibility, customization, added products,

and features offered to their customers. Complexity and uncertainty grow

exponentially and reduce the level of potential/theoretical efficiency while making it

more and more difficult to deliver service excellence. Therefore, it is an important and

strategic decision where, along the continuum from a full service provider to a

focused service factory, a firm decides to position itself while aiming to delight its

customers.

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Figure 1: The Relationship Between Productivity, Service Excellence and Productivity

Figure 2: Potential Avenues to Cost-effective Service Excellence

Figure 3: A Conceptual Framework of Cost-effective Service Excellence

Figure 4: Selected Organization and Their Use of CESE Strategies & Tools