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Service Oriented Strategy Planning

May 14, 2008

The figure below illustrates a favorable process which may occur if a service strategy is followed. The figure can be compared with the trap figure, which demonstrated the strategic management trap. To give an example, if financial problems or problems with increased competition make it necessary to change the strategies of, say, an airline company, cost considerations and internal efficiency should not govern the strategic thinking in the firm. Instead, management should focus upon the interactions with customers and customer relationships. Effects on external efficiency and customer relationships should primarily guide the decisions to be made. Of course, cost considerations and the implications for internal efficiency must not be overlooked. Concern for internal efficiency should be given priority in the part of the organization invisible to customers. Moreover, a distinction between revenue-enhancing costs and other costs should always be made.

External efficiency and service quality concerns should be given top priority in the interactive functions. In an airline, for example, improving buyer–seller interactions in the service encounters, for instance, by increasing seat size in planes, upgrading meals and other in-flight services, and offering the employees appropriate customer contact training, to mention a few possibilities, would probably lead to improved perceived quality from the customers’ point of view.

Such decisions may or may not necessitate more personnel, or more advanced technology, but if the effects on revenues make up for the additional costs, such revenue-creating cost increases should obviously be allowed. Here, difficulties in calculating the effects on revenue are no excuse for ignoring the external efficiency effects. It should be noted that improved service quality often does not require additional costs. The only thing that is needed, in many cases, is a better understanding of customer relationships, how quality is perceived, and finally, the importance of the process-related functional quality dimension. Once these points are made clear, internal arrangements for using existing resources in a more systematic and market-oriented way can usually be made.

To return to the Figure , improved quality usually means greater customer satisfaction, which in turn has a twofold effect. Internally, the work atmosphere will probably improve. Increased customer satisfaction is noticed by the employees. The positive effects are often very obvious. This favorable trend is supported by the service-oriented strategic direction that is chosen by management. Decisions directed towards improving the service encounters and service quality imply that management is prepared to accept the revenue-generating power of the employees and to support it. Such a strategic attitude has a considerable positive effect on the internal environment of the firm and on employee motivation. Again, this results in increased internal efficiency. In some situations the service process can of course be improved by introducing technology-based solutions, in which cases fewer personnel may be needed and/or the role of employees may change. Customers of insurance companies are often requested to ask routine questions over the phone instead of visiting an office in person, whereas service employees are supposed to provide customers with more knowledge-intensive services, such as financial advice. In such situations a critical challenge for management is to maintain and even improve the work atmosphere for personnel.

Improved customer satisfaction also has other external effects. Favorable word of mouth is created. Existing customers may increase their business with the service provider and new customers will be attracted to the organization. The corporate image and/or local image are enhanced by positive customer experience and by favorable word of mouth.

Finally, sales volume will probably increase. If internal efficiency, external efficiency and service quality are controlled simultaneously, a larger volume of sales can be expected to have a sound financial effect and to improve the firm’s competitive position. Such a positive trend may well continue. The improved atmosphere in the company makes the buyer–seller interactions even better, and the firm will generate more financial resources to be used to back up this trend.

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