Important Management Practices in Service Competition

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Table of Contents

Introduction
Aim/Purpose of Research Paper
Background
Main Discussion
Conclusion
Recommendations
Works Cited

Introduction

Today, more than ever before, the global economy is transitioning from a products-oriented economy to one of value creation, employment generation, and economic prosperity dependent on services. As demonstrated by Bardhan et al., globalization, technology advancements, and shifts in the global economic environment has generated a triple convergence of new organizations, operating in a new economic environment, and developing new procedures and processes for horizontal collaboration (17).

This has resulted in a potentially impulsive opportunity for organizations all over the world to participate and compete in global value chains, where the provision of services as opposed to manufacturing of products is becoming increasingly essential.

This new approach of conducting business in the global economy has necessitated researchers and other theorists to give special attention to the managerial practices, techniques, and knowledge that can effectively be used to create an enabling environment for the enterprises to configure service competition and relationships that ingeniously generate extraordinary new value for their own existence and profit motives (Brody 28).

Aim/Purpose of Research Paper

The present paper aims to critically discuss the most important management practices in service competition. The rationale behind this broad objective is derived from the fact that it is important for interested parties to comprehensively understand all facets of managing service organizations and service competition since economies across the world are not only becoming more service-oriented, but technology convergence, globalization, and shifting customer needs are increasing the prospects to come up with fundamentally new services that have ultimately transformed the traditional way of conducting business (Prahalad & Ramaswamy 1).

Currently, competition in the service-oriented organizations has greatly intensified to a point of upending the status-quo that was traditionally held by organizations engaged in manufacturing products.

In the mean-time, profit margins continue to shrink as these organizations strive to outdo each other. As such, managers must not only focus their attention on costs, processes, efficiency, and quality of the services on offer but must endeavour to acquire new knowledge that will enable them become more innovative and creative in the ever-competitive business environment.

This paper purposes to come up with a body of knowledge that will enlighten managers and other interested parties on the most important management practices in service competition.

Background

Most countries have by now experienced shifts in their economic frameworks from goods-oriented to service-oriented economies. The western world, in particular, “…has experienced a post-industry service economy for several decades,” with the services sector contributing over 70% of the Gross Domestic Product (GDP) in some industrialized nations such as the United States of America and the United Kingdom (Gronroos 1).

In developing nations, services represent over 50% of GDP, and as their economies persist to develop, the fundamental importance of service organizations in their respective economies continue to grow. According to an OECD concept paper on service economy, manufacturing currently represents less than 20% of GDP in some of its member countries (3).

In the meantime, service organizations have managed to create more employment opportunities within the last few decades than manufacturing-oriented organizations.

As a matter of fact, “…employment figures had grown to 76% in 2002 in the USA and 75% in 2003 in the UK” (Gronroos 1). The importance of this maturing sector can further be demonstrated by the fact that the current cataloguing of Fortune 500 companies includes more service organizations and fewer manufacturing entities than was previously the case (Bardhan et al. 45).

Concept of Service Organization

It is a well-known fact that all products manufacturing enterprises currently provide a multiplicity of services to their customers (Gronroos 2). For example, Schindler, a major player in the elevator manufacturing business, recently declared that only 8% of their labor force was directly engaged in manufacturing processes, while the rest were involved in the provision of services.

Computer giants IBM and Dell also treat their businesses as service-oriented in spite of the fact that they are to some extent engaged in manufacturing computers. The ‘servitization’ of products, as it is commonly referred to in management literature, has necessitated many researchers to take a deeper analysis of the emerging sector with a view to establish standards and best practices that could be used to drive the sector forward.

Logic of Service Competition

One of the areas that have received extensive attention in various discussions on service organizations is service competition. According to Schneider et al., there exist many models that attempt to explain service competition – from passive models to active ones (19). A distinctive aspect of many services, as reported by Cachon & Harker, is the close participation of customers or clients in the overall service delivery process (1).

Although services are transforming economies on a substantial scale, service organizations must develop and nurture practices that will allow them the opportunity to retain their customers – thus their competitive advantage – since competition in many service areas such as banking, insurance, distribution, tourism, education, and health has reached fever-pitch (Gronroos 2).

The basic assumption among many scholars and management theorists is that organizations can increasingly benefit when they make choices and offer services that stimulate competition and allows creativity and innovation at the marketplace (Poisant 19).

Main Discussion

This section aims to discuss the most important management practices in service competition. Among the topics intended for discussion include: management of customer relationships; nature of service and service consumption; customer loyalty; customer satisfaction; quality management in services; development of processes that offer value; and market-oriented management, among others.

Managing Customer Relationships

Customers are the focal point of any service-oriented organization and, as such, how well they are managed becomes an important benchmark of evaluating success in the service industry. According to Schneider et al., customer relationship management is a widely distinguished approach for managing an organization’s interactions with its core customers (19).

In the 21^st century, technological interventions which allow for the integration and alignment of customer needs with critical business processes are increasingly been used to manage customer relationships in the service sector.

The objectives of establishing customer relationship processes are to source, attract, and win new customers, foster and retain existing customers, persuade those that may have left to come back into the fold, and develop mechanisms that can effectively be used to reduce direct and indirect costs related to customer service (Brody 113).

Many analysts have formed the opinion that service competition is at its highest ever since it was introduced into the market a number of decades ago as a direct outgrowth of the expanding service sector (Gronroos 27). In equal measure, customers will always prioritize their needs, and will always choose a specific organization based on the prices, lead times, and a priori preference for the services on offer (Cachon & Harker 1).

An effective platform geared towards managing customer relationships, therefore, must have the capacity to mitigate the risk of failing to comprehensively satisfy customer demands, increase revenue for the organization, enhance customer satisfaction, and realize substantial savings in operational costs and other financial outlays.

It must also have the capacity to balance competing priorities that are critical to the establishment of an efficient customer-enterprise relationship, such as cost implications, lead time, reliability, quality, and flexibility (Jin & Ryan 1). Realizing that service is a noteworthy differentiator, many enterprises are progressively turning to technology platforms to assist them manage and improve customers’ relationships while aiming to enhance efficiency, competence, and specialization.

The Nature of Service and Service Consumption

Services can simply be defined as a diverse group of economic activities that characteristically involves the “…provision of human value added in the form of labour, advice, management skill, entertainment, training, intermediation and the like” (OECD 7). Bardhan describes services “…as the application of competence and knowledge to create value between providers and receivers…

This value accrues from the interactions of services systems that involve people, technology, organizations, and shared information in addition to language, laws, measures, and models” (21). Services, unlike other economic activities, can neither be inventoried nor consumed outside the point of delivery.

Typical services include visiting the doctor, eating at a restaurant, or frying from London to New York. It should be noted that services are consumed in a scenario whereby the consumer of the service is in direct interaction with the organization or entity that offers the service. However, technological advancements through time are now enabling customers to take part in a rising number of service-related activities without having to maintain a physical presence.

For example, technology has now necessitated online trading of shares, online betting, online banking, telemedicine, real estate, and software applications can now be developed and packaged like other manufactured goods – the fact that they have a high service-oriented content notwithstanding (OECD 7).

The capability of aligning the nature of services on offer with customer needs and expectations determines how much a particular service-oriented organization will gain from economies of scale. According to OECD, “…technology now allows [service] providers to produce a single product, which is not mass-produced, but which is capable of being mass-consumed, either on a standardized or customized basis” (8).

The capacity of an organization to adapt newer technologies, therefore, becomes a defining facet on how well it is able to offer its services to customers and the level to which such services are consumed.

The nature of services ultimately determines not only the strategies to be used to necessitate their consumption, but also the prices that will be tagged on them. Service-oriented organizations must invest in the best strategies to ensure maximum returns and customer satisfaction.

In time-sensitive service industries such as banks, hospitals, and stock exchange markets, for example, respective organizations enjoys the flexibility to select diverse strategies with the aim to optimize their profits per unit time, in full cognizance of the fact that other entities operating in the same field desires to achieve the same objective (Cachon & Harker 5).

For instance, one organization can charge a premium price and adopt a strategy to serve customers quickly depending on the nature of goods on offer, while another might choose a low-pricing methodology but offer their services at a slower rate depending on consumption patterns. Therefore, the capability to choose the correct strategy based on the nature of service and service consumption patterns proportionately determines the organization’s capacity to handle competition in the service sector.

Building and Maintaining Customer Satisfaction & Loyalty

Repetitive malfunctions at the organizational level cost entities millions of dollars in redesign outlays, liabilities, and other related costs. However, by far the most costly of these breakdowns is the lost business that organizations experience when customers are not satisfied with the services or products offered.

For service-oriented organizations, the task of offering error-free services becomes even more exigent based on the fact that their intangible nature and scope provide a framework for customers to give subjective perceptions regarding the quality of products on offer (Vermillion para. 2). Equally bothersome, according to the author, is the uncontrollable component of customer involvement in the service process largely due to the fact that production and consumption of a particular service occur as an instantaneous process.

In service competition, customers will always look for new organizations that have the capacity to deliver services to the desired expectations and, as such, it can be safely argued that service quality and timeliness on the one hand and customer satisfaction on the other are intimately related constructs.

The task for the management and employees of service organizations, therefore, should be to develop and nurture mechanisms that ensure maximum customer satisfaction (Gitomer 24). There exist established tools that could be used to ensure customer satisfaction, hence creating an environment through which the organization can enhance its competitive advantage.

For instance, the management can use the Failure Mode and Effects Analysis (FMEA) to identify and eradicate probable causes of customer dissatisfaction. Vermillion postulates that “…with FMEA, potential failure modes in the process are identified in anticipation of the service encounter…In this way, the potential for errors is reduced or eliminated, allowing for only the smallest probability of customer dissatisfaction” (para. 4).

Still, some organizations conduct attitudinal studies to measure service quality and customer satisfaction, but this has been found to be lacking in objectivity since a customer may not be satisfied with a particular service but still fail to pinpoint where the problem might have arisen from (Sharp et al. 1135). Other strategies that can be used by service organizations to enhance customer satisfaction include:

Involving the customers to present descriptive reactions regarding the actual service received (Sharp et al. 1136).
Training ‘mystery shoppers’ to provide a detailed record of particular services on offer.
Requesting employee to factually and objectively report what they did or did not do.
Employment of internal records to avail information on what customer satisfaction interventions the client was or was not exposed to.
Employment of industry-wide settings such as delivery failures, lead times, and customer-employee relationships, among others.

Service quality is also inexorably linked to customer loyalty. According to Gitomer, satisfied customers are more likely to return for more services, while dejected ones are more likely to find new service providers (54). Customer loyalty is a direct offshoot of customer satisfaction, and one cannot be nurtured in the absence of the other.

As such, it should be the task of the management, assisted by members of staff, to identify the most important basics that relate to subsequent buying behaviours, including identifying and eliminating all rudimentary components within the service organization that is related to customer dissatisfaction (Sharp et al. 1136; Gitomer 63 ).

This way, customer loyalty will certainly be cultivated and the organization will be in course to accomplishing its business goals and objectives. According to Sharp et al., “…a more traditional alternative [of building customer loyalty] is to ask customers directly which service elements are most important to them [while] a better approach is to determine relative importance [of service] from statistical and experimental techniques” (1137).

Quality Management in Services

As already mentioned, the quality of service fundamentally influences an organization’s capacity to maintain a competitive advantage, thus its capability to accomplish business goals and objectives in service competition. The management must endeavour to develop and actualize systems aimed at overseeing that the quality of services on offer meets or surpass customer expectations (Kandampully et al. 51).

Specifically, quality management should be focused on the customer, and mechanisms should be put in place for continuous improvement of the services. In addition, the systems tasked with the responsibility of quality management must always ensure consistency of quality to further enhance customer satisfaction levels and loyalty.

Such a system must have the capacity for process measurement and controls geared towards establishing critical areas that need to be redesigned to enhance continuous improvement of services on offer, not mentioning the fact that it must have the capability to benchmark industry best practices for adoption by the organization (Kandampully et al. 58).

Customers will come back for more if they establish that a particular service-oriented organization is not only dedicated to total service commitment, but the level of service is consistent over time, and with their own expectations.

Developing Processes that Deliver Value

The creation of processes that are aimed at delivering value to customers, members of staff, and shareholders is of fundamental importance in service competition. Organizations, according to Burlton, are only able to survive the harsh business environment of the 21^st century depending on how well they formulate strategies and processes that will deliver value and enhance their critical competencies and work methods (11).

Processes that deliver value should be implemented on a daily basis and must aim to convince the customer that everything is being done to enhance a cordial and fruitful relationship between the organization and its employees on the one hand and customers on the other. Value-based processes are extremely important in service-oriented organizations since they bring the customer closer to the organization (Kandampully et al. 101).

In this perspective, the management must always strive to develop processes that will maximize the entity’s potential towards the attainment of its goals and objectives. Specifically, more emphasis should be placed on enhancing employee competence, technology uptake, devising ways for effective leadership, improving work processes, and enhancing the organization’s intellectual capacity.

Market-Oriented Management

As is the case with manufactured products, services must also be effectively marketed to the target consumers if the organization is to remain productive in service competition. According to Becker & Homburg, “…market orientation as a business organization’s orientation towards its customers and competitors has been emphasized as a central key to company success by academics and managers alike” (17).

There are many approaches that organizations can use to entrench their services in the marketplace, and no single approach can be termed as the panacea of marketing challenges that continue to bedevil organizations worldwide. It should, however, be the responsibility of the management to develop proper frameworks for marketing that can be used to measure performance outcomes and critical determinants of customer needs and preferences (Becker & Homburg 26).

Cost implications, intended audience, and capacity to reach the audience in good time are some of the other factors that must be taken into account in the development of a winning marketing strategy for service-oriented organizations.

Conclusion

This paper has effectively discussed the most important management practices in service competition. It should be noted that although some practices are more important than others, an all-inclusive approach is more likely to bear maximum outcomes for the organization, customers, employees, and stakeholders (Gitomer 27).

Still, some practices depend on the presence of others for them to be effective. For instance, it is practically impossible for a particular service to attain customer loyalty in the absence of customer satisfaction since satisfaction nurtures loyalty.

As such, the uphill task for service managers is to devise ways in which all the above practices can be successfully implemented at an organizational level to guide the enterprise in service competition. More importantly, these practices should be formulated in such a way that they derive the most benefits to the customer while ensuring that the organization continues to meet its objectives and obligations since customer is ‘king’ in the service industry.

Recommendations

For the above management practices to take effect, employees must be provided with the right tools and leverage to solve the issues or problems arising from the customers. This is especially so if the organization is to maintain good relationships with its customers.

Second, organizations must increasingly invest in modern technology solutions such as call centre solutions and intelligent call routing to ensure that customer demands are not only attended to, but they are attended on time. Finally, service organizations need to embrace modern methods of collecting data on customers rather than relying on attitudinal surveys, which do not tend to generate managerially actionable results.

Works Cited

Bardhan, I. R., Demirkan, H., Kannan, P. K., Kauffman, R. J., & Sougstad, R. An Interdisciplinary Perspective on IT Services Management and Service Science. Journal of Management Information systems 26.4 (2010): 13-64. Web.

Becker, J., & Homburg, C. Market-Oriented Management: A systems-Based Perspective. Journal of Market-Focused Management 4.1 (1999): 17-41. Web.

Brody, R. Effectively Managing Human Service Organizations. Thousand Oaks, CA: Sage Publications, Inc. 2005.

Burlton, R. T. Business Process Management: Profiting from Process. Boston, MA: Sams Publishing. 2001.

Cachon, G. P., & Harker, P.T. Service Competition, Outsourcing and Co-Production in a Queuing Game. Web.

Gitomer, J. H. Customer Satisfaction is Worthless; Customer Loyalty is Priceless. London: Bard Press. 1998.

Gronroos, C. Service Management and Marketing: Customer Management in Service Competition. Chichester, West Sussex: John Wiley & Sons, Ltd. 2007.

Jin, Y., & Ryan, J. K. Price and Service Competition in an Outsourced Supply chain: The Impact of Demand allocation Policies. Web.

Kandampully, J., Mok, C., & Sparks, B. Service Quality Management in Hospitality, Tourism and Leisure. Binghamton, NY: The Haworth Hospitality Press. 2001.

Organization for Economic Cooperation and Development (OECD). The Service Economy. 2000. Web.

Poisant, J. Creating and sustaining a Superior Customer Service Organization. Westport, CT: Quorum Books. 2002.

Prahalad, C. K., & Ramaswamy, V. The Future of Competition: Co-Creating Unique Value with Customers. Boston, MA: Harvard Business School Publishing. 2004.

Schneider, B., Gunnarson, S. K., & Niles-Jolly, K. Creating the Climate and Culture of Success. Organizational Dynamics 23.1 (1994): 17-29. Web.

Sharp, B., Page, N., & Dawes, J. A New approach to Customer Satisfaction, Service Quality and Relationship quality Research. Web.

Vermillion, D. Improving Customer Satisfaction in the Service Industry using Failure Mode and Effects Analysis. 2007. Web.

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