Stars of service and innovation
Article Date: Mar 03 2006If I were to go to my finance director and ask for a budget for R&D into a new product, it would be perceived as normal. But a budget for R&D into new services? I bet I’d get quite a different response.
How many companies make service innovation a key strategic objective? Not many. I always remember going to buy a company for Sage near San Diego in California and playing tennis after the deal was done. The tennis pro charged $100 for a one-and-a-half-hour lesson (yes, in those days I could play for that long). I then went to the pro shop and bought the very latest, most upmarket new Head racquet, not yet released in the UK, for $150.
What hit me was that products were cheap in the US but services were relatively expensive.
High margins can be established
The benefits of high margin service businesses are there for all to see, but you have to earn the ability to get these margins – this is where the innovation comes in.
Here are some outstanding examples of genuine innovation giving a service provider a key lead over the competition:
• In the old days, Marks & Spencer was ahead of the pack when it allowed customers to take clothes back within 48 hours of purchase. Indeed, for many years this was a key sales benefit of shopping at M&S. When it introduced this system into France it was a disaster, so the idea that local markets are different would seem to be correct. Alternatively, perhaps the French are our natural enemy and not to be trusted! I will let you draw your own conclusions.
• You might think that once you have secured a software maintenance contract, your work is done. Not so at Sage – we thought up a whole new set of ‘goodies’, called it the ‘Sage-plus contract’ and now it’s selling like hot cakes.
We have started end-user conferences, having previously only offered those to our channel partners. Customers are now able to meet our technical support staff face-to-face at these events. It’s good for our support people and also a great hit with those attending, as they can ask all those questions they felt they couldn’t on the phone. A type of Antiques Road Show for techies!
• Easyjet are innovators. No fixed price for tickets, instead it’s supply and demand-led. No set seating, no tickets and no travel agent commissions, but genuinely cheap flights.
• Virgin Airways are innovators. Upper class passengers get a free limo service to the airport and passengers are booked in from the car as they’re dropped off. You get a really great service, as well as the bar on board the plane itself and the pretty masseuse if you’re so inclined! So you see, in both cases no product innovation, but service innovation by the plenty.
Empowerment is needed
An integral part of really good service is being ‘customer intimate’ but to do this one has to empower people at the front end to make decisions. Empowerment is difficult; after all, it can cost you a lot of money if not properly controlled, but – wow – it can be effective.
For example, how many of us have been to a hotel or restaurant and had some sort of a problem? Most, I guess.
Now, if the person can offer an on-the-spot remedy such as, ‘Of course Mr Jackson, straightaway, and I’m sending up a bottle of Chateau Petrus ‘62 with Ulrika Jonsson and our compliments, sir’ – that’s service!
Allowing front-of-house staff to do this with, say, credit notes, customer returns and general complaints in any company is not easy. But God, what a difference it could make to customer relations.
More sales can be generated
Service innovation can also help you sell more of your existing products.
About ten years ago, the UK branch of the Ford Motor Company asked McKinsey to prepare a strategy on how they could differentiate themselves from their competitors. The response was that Ford should buy NCP Car Parks. Somewhat bizarre you may say, but the logic went as follows:
If you bought a Ford car you would be entitled to park your car for free at any NCP site.
People not driving a Ford couldn’t park there, full-stop.
Naturally, Ford’s management took the view that nearly all consultants are completely useless and that this exercise was merely academic. Instead, Ford bought Tom Farmer’s Kwik-Fit for about £1 billion, selling it as a non-core asset five years later and losing about £400 million in the process.
Actually, the NCP deal would have been great. They almost certainly would never have lost money if they’d sold, as it was 100 per cent asset-backed – and what a great concept! Lexus are actually offering this service to people in Japan today. Maybe management consultants are not such a waste of time after all.
