THE BIG PICTURE ON SERVICE STRATEGY
1. 80% of the Economy is Services
Most companies ultimately thrive or die by their service strategy.
2. It's All About Customer Value
If you beat competitors at the customer value game, your services will win.
3. The Customer Journey
The output of any service strategy should be a killer customer journey roadmap.
4. Faster, Better, Stronger
At the core of great services is an efficient and effective service operation.
A service is a customer journey that fulfills a need
Given 80% of the U.S. economy and 69% of the world economy is comprised of services, for most companies, service strategy is the core of their value proposition.
There are five main elements of a service (below). Every service starts with a customer's need. A customer journey fulfills the customer's needs, which creates customer value. A customer journey is made up of customer interactions with the stage and agents, which can include physical locations, people, digital applications, and machines. Service operations manage the customer journey. Service operations are a portfolio of processes executed by people, infrastructure, and partners.
A KILLER service CREATES BETTER CUSTOMER VALUE THAN THE COMPETITION
People purchase services to improve their lives or business. The more a service can drive the value equation by improving benefits (both rational and emotional) over price versus the competition, the more the service will retain customers and attract new customers.
Services that dramatically improve the customer value equation are the foundation for growth. If a service company is struggling, always start the turnaround with an improved service strategy.
winning services differentiate their customer journey on certain dimensions
From a customer's perspective, there are six major dimensions to a service. A service always starts with a need. The first dimension is the impact a service has on fulfilling the need. The other dimensions of service are speed & effort, consistency, professionalism, convenience, and aesthetics.
On what dimensions is your service differentiated from the competition? Which dimensions are important to your target customer? Deeply understanding the vital met and unmet customer needs makes it easier to prioritize the service dimensions to maximize customer value and competitive differentiation.
THE VALUE WEDGE IS A SIMPLE WAY TO FOCUS YOUR SERVICE STRATEGY
A simple shortcut to service strategy is to think about growing the customer value wedge. Focus on improving the benefits customers receive from your service, while simultaneously solving for reducing costs in the service delivery, which can either flow to profit or can be used to lower prices to customers.
As we state throughout Stratechi.com, growth comes from retaining customers and attracting new customers from competitors, and the key to this is driving better customer value than the competition, in a financially superior way.
If you want to talk about your service strategy with an experienced strategy coach, set up some time with Joe Newsum, a Mckinsey Alum, and the author of this content and website.
A SERVICE EXAMPLE - FROM POINT A TO POINT B
In a city, business travelers often find themselves needing to get from point A to point B. There are three main transportation options for business travel - taxis, rental cars, or a ridesharing provider such as Uber or Lyft. At a high level, these options fulfill the same basic need of getting from point A to point B, yet they have very different customer journeys, stages, agents, and service operations, which drives differential customer value.
Mapping out the high-level customer journey of a taxi, car rental, and uber unfolds the experiences from a customer's perspective. Uber's mobile GPS app and network of drivers streamline the journey and eliminate many of the pain points of a taxi or car rental. Who hasn't had the excruciatingly long wait in the rental car line, or a dirty and nauseating cab ride? As you map out the effort and time involved in the different customer journeys, you can see the superior speed and effort of ridesharing versus taxis and rental cars. Moreover, in getting from point A to point B, a Deloitte report concluded that Uber was 20% cheaper than taxis with an average wait of 4.5 minutes for an Uber versus 8 minutes for a taxi.
Uber has a superior customer journey
Comparing Uber's customer journey to taxi and rental cars, utilizing the six dimensions of service, there is a strong argument that Uber comes out on top in most of the dimensions across the customer journey.
uber also has a superior cost and capital model
Not only does Uber have a superior customer journey, but also has a superior cost and capital model versus taxi and car rental companies. As you think about the stage, agents, and service operations that comprise a service, taxi companies have extensive costs and capital tied up in dispatch, taxicabs, drivers, maintenance, and management. While car rental companies are even more cost and capital-intensive with some having thousands of car rental locations and employees, hundreds of thousands of cars, car washes, websites, distribution partnerships, and lease and used car sales management. On the other hand, Uber outsources most of its costs and capital to the hundreds of thousands of drivers that already have cars and insurance. Uber's direct costs and capital are tied up in its technology infrastructure, marketing, partner & driver management, and customer service.
UBER IS TRYING TO CREATE SUSTAINABLE COMPETITIVE ADVANTAGE
As a business model matures, strategic companies try to create sources of sustainable competitive advantage. There are eight sources of sustainable competitive advantage, including brand loyalty, proprietary information, innovation, scale, network effect, intellectual property, locked-up supply, and location. Uber is trying to tap into pretty much all eight sources, as described below.
- Brand Loyalty - makes it harder to switch once they have your credit card, common routes, etc. uses its simple app and the data generated to drive proprietary information.
- Proprietary Information - largest database of routes, pricing sensitivity, customer density, demand, etc.
- Scale - largest ride-sharing company attracts more drivers and customers
- Network Effect - more drivers and customers translate into quicker and more efficient pick-up and rides
- Intellectual Property - trying to lock up IP in autonomous driving
- Locked-up Supply - leasing program to lock in drivers
- Location - worldwide expansion to drive market share in the largest 1000 global cities
BY DRIVING BETTER CUSTOMER VALUE, UBER HAS DRIVEN HISTORIC GROWTH
Uber's superior service value proposition has propelled it to unprecedented growth, as Uber is the fastest company in history to hit $20 billion in gross bookings. Beyond taxis and car rental, Uber is competing against the car itself. With such simple and affordable access to an Uber, many millennials are bypassing getting a driver's license and buying a car.
Uber is strategically focused on the current game and the end-game
While Uber's current value proposition and business model are a massive success, the game will be much different in 5-10 years with autonomous self-driving vehicles. John Zimmer, Co-Founder of Lyft details the potential battle in his article "The Third Transportation Revolution". Uber, along with Lyft, Tesla, Google, and every automaker are going to battle out the next transportation adoption curve of autonomous cars. With most cars parked 95% of the time, in a shared economy of self-driving cars, do we really need to own them?
UBER IS COMPRESSING ADOPTION CURVES
From a meta-strategic perspective, Uber's moves are intended to compress the current ride-share and future autonomous ride adoption curves, with a belief there will be a winner takes all situation.
THERE ARE TWO OUTPUTS TO A SERVICE STRATEGY
THERE ARE FOUR STEPS TO CREATING A SERVICE STRATEGY
To create a killer service strategy, you should follow the four steps above. People often get stuck on how much effort needs to go into these four steps. For some teams, a few days of deep problem solving or integrating these four steps into their governance is the right answer. For some teams, with the stakes high and the opportunities a bit nebulous, it may take a multi-month service strategy project to get to the right answer.
WITH A SERVICE PORTFOLIO THERE ARE 3 STRATEGIC OPTIONS
As you develop a service strategy, you need to determine whether to rationalize existing services, improve existing services, or develop new services.
What improvements will…
– differentiate the service(s) from competitors?
– drive better customer value?
– create new use cases, open up new segments?
What new services will…
– change the game?
– help sell more of the current services(s)?
– fill in current holes in the service portfolio?
Which services should be eliminated (rationalized) to…
– free up resources to focus on higher-value services?
– better align the business model (targets, go-to-market, org)?
Step 1: Generate Insights
To create killer service improvement ideas, you need to immerse yourself in insights about the customer journey, market, competition, and customers. As you or your team conduct various analyses, always focus on turning insights into service ideas or opportunities. Customer journey insights often focus on the experience, steps, and emotional highs and lows customers have in their service journey. Market and competitive insights create the context of the future and the necessary differentiation to beat the competition. While customer insights help prioritize the met, and unmet customer needs that a service can address.
CUSTOMER JOURNEY INSIGHTS
What are the strengths and weaknesses of the service(s)? How do customers view the service journey?
Typical analyses include:
- Customer Journey Mapping
- Service Reviews & Metrics
- Ethnography & Surveys
MARKET & COMPETITIVE INSIGHTS
What are the trends and opportunities in the market, with competitors and their products, innovations, etc.?
TARGET CUSTOMER INSIGHTS
What are the trends and opportunities in customer segments, needs, behaviors, use cases, etc.?
Typical customer research tools include:
- Customer Surveys / Polls
- Focus Groups
Step 2: Develop Opportunities
Strong leadership teams have an evergreen list of service improvement ideas they are continuously mulling, developing, and prioritizing. When it is time to develop these opportunities, flesh out the customer use cases, innovations & features, and synthesize the details in a service snapshot.
CUSTOMER USE CASES
Customer use cases identify who is going to use the service, and how and where they may use it. What new or existing use cases & needs is the service is going to address?
Typical analyses include:
- Trend Analysis – Sales, Economics
- Service Performance & Reviews Analysis
INNOVATIONS & FEATURES
Identifying innovations and prioritizing the core features is an important next step in developing a service idea. What are potential innovations and features that will create a step-function improvement in customer value and / or service cost?
Typical analyses include:
- Tech & Innovation Research
- Competitive Customer Journey Mapping
- Analogy Brainstorming
- Patent Analysis
In the latter stages, every service idea needs a snapshot identifying the target customer and their needs, features, economics, differentiation, synergies, high-level development plan, operational implications, and overall ROI or size of opportunity. At this point validating the concept is also critical.
Typical analyses include:
- Customer Surveys, Focus Groups
- Concept Testing, Rapid Prototyping
- ROI & Synergy Analysis
Step 3: Prioritize SERVICE Opportunities
Once you have a collection of potential new service and service improvement opportunities, the next step is to prioritize the opportunities the team will work on, given your limited resources and time. The easiest way to prioritize service opportunities is to create a decision matrix, score all of the opportunities, and then map them on a prioritization matrix. Once you map the service opportunities, get the right people in a room to debate, re-score, and finalize those ideas that make it in the top left corner or close to it on the prioritization matrix.
Step 4: Create the Service Roadmap
A well-designed and robust service roadmap will serve as the guidepost for not only service operations, but also go-to-market strategies (sales, marketing, and distribution). Creating a strong service roadmap takes both art and science in lining up milestones and development blocks in an optimal way to maximize resource productivity, synergies, and downstream dependencies. A service roadmap should always be a living document continuously reviewed and scrutinized within an organization's governance, since the ability to realize the roadmap often dictates the ultimate success or failure of a service company.
PART 2: THE "HOW" SERVICE IS DELIVERED
The second part of a service strategy is the service operations strategy. Service operations ultimately create the service journey that customers experience. Any service operations strategy is a blend of goals and core initiatives necessary to achieve the goals. The goals are often oriented to the service journey, while the initiatives can be around process, people, infrastructure, and partners.
the importance of change management
Most services involve people, who need to change their behavior as a service evolves. Behavioral change is one of the most challenging aspects of any strategy execution. The good news is there are tried and proven methodologies to help drive positive behavioral change. We have success with the change management model, which is a structured and holistic process to change management. We encourage you to utilize the change management model when creating service initiatives. You can learn about it more here.
Last thoughts on service strategy
We just went over the high-level outputs of and process to create a strong service strategy. The real magic to creating a strong service strategy is to immerse yourself and your team into the details of the customer journey & insights, market and competitive dynamics, data & analytics, ideation, use cases, sequencing, resourcing, change management, and all of the other elements it takes to create and execute a killer service strategy.
If you want to talk about your service advantage strategy with an experienced strategy coach, set up some time with Joe Newsum, a Mckinsey Alum, and the author of this content and website.
DOWNLOAD SERVICE STRATEGY WORKSHEETS & TEMPLATES
To get you started on developing a killer service strategy, download the service strategy worksheets & templates. Included in the Powerpoint:
1. Customer journey map
2. Service benchmarking template
3. Service brainstorming template
4. Service prioritization matrix
5. Service journey roadmap
6. One-page service operations strategy