Every Business is a Service Business

After the hype, a return to basics: the virtues of conventional business virtues, among them customer service, are being rediscovered. Firms are realizing that, in order to compete successfully, they must transform themselves from being product-focused organizations to service driven ones. Excellent customer service can now be a key competitive advantage. However, the change from a product business to a service business will not be easy.
 

So, it does not appear to be an anachronism that the ‘s’ in s-business stands for service, that most conventional of business virtues. The term s-business was originally coined by AFSMI1 in recognition of the growing tendency of customers to demand service deliverables that provided “more complete, integrated business solutions ,” which denoted the possibility of treating service as a business in its own right. The term is also an indication of the increasing emphasis that customers are now placing on service.

From Products to Service

In many economies around the world, we have seen a shift from manufacturing to services; services now constitute a large share of the GDPs of many counties. So it seems with businesses too, many of which seem to be shifting their emphasis from products to services. Indeed, at least for some firms, their tangible products seem to have become virtual loss leaders, helping them sell services where they make a good part of their profits.

The transformation of the product businesses of yesteryears, into the service businesses of today is taking place due to a number of factors: In today’s competitive markets, developments in technology have made it difficult for many companies to differentiate their products solely on the basis of quality or additional product features. For most products, high quality is now the norm, so much so that it is no longer a sufficient condition for competitive success, but merely a necessary condition. Adding new bells and whistles to existing, mature products seems to be an exercise which yields steadily diminishing returns on investments.

In such a scenario, firms must differentiate their products and woo customers based on the quality and attractiveness of the service they provide. Today’s products are much more complicated and sophisticated from a technological point of view, than the products of a few decades ago. This increasing technological sophistication has not resulted in a commensurate level of user-friendliness. To take an old and oft-quoted example of technological complexity combined with a distinct lack of user-friendliness - consider VCRs. Or consider personal computers. According to some writers, computers, as they are supplied to customers today, are assemblies, not finished products. The fact is that the average customer is finding it increasingly difficult to cope with the complexity of installing and trouble shooting many of today’s technologically challenging gadgets. This is yet another reason for the growing importance of service, both to customers and to the companies that manufacture and market sophisticated products.

The service business could be lucrative as well. Competition has had an impact on margins in the products business. Services constitute an increasingly significant part of many companies’ revenues and profits. Service revenues also have the added advantage of providing fairly predictable and even cash flows, when customers are locked into multi-year maintenance agreements. Add to all this the usual suspects in current business writing: the Internet, more discerning and demanding customers, greater access to product information, and so on. Little wonder then, that service is assuming a level of importance which would have been inconceivable even twenty years back.

© Icfai Press. Global CEO • December 2003, All Rights Reserved.