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Second, decide on an
objective or end-state that differentiates the value of what you do, or how you do it, so that customers believe there is no true alternative. The form of value may be monetary, as in higher profits or lower expenses, or social, as in saving lives or collecting taxes. The differentiation can come in the form of barriers to entry, such as your organization’s know-how of your customer’s business or the broadness of your service offerings. Or it may be in the form of raising switching costs, such as lower cost structures generated through specialization or
service sourcing. Either way, it is a means of doing better by being different.
The basic premise of service strategy is that service providers must meet objectives defined in terms of their customers’ business outcomes while subject to a system of constraints. In a world of constrained resources and capabilities, they must hold their positions against competing alternatives. By understanding the trade-offs involved in its strategic choices, such as services to offer or markets to serve, an organization can better serve customers and outperform its competitors. The goal of a service strategy can be summed up very simply: superior performance versus competing alternatives.
Case example 8: Internet service provider
Some time in the mid-1990s, a line manager for a leading internet service provider (ISP) noticed a large amount of increased traffic on the bulletin board folders for two satiric stock analysts.
The ISP had adopted the strategic perspective of, ‘Consumer connectivity first – any time, anywhere’.
Rather than caution the subscribers about the abnormal increase in capacity usage, the manager took an alternative path.
What do you think she did?
(Answer at the end of the chapter)
Successful strategies are based on the ability to take advantage of a set of distinct capabilities in offering superior value to customers through services. Such capabilities are viewed as strategic assets because a service provider can depend on them for success in a market space. Success comes from not only delivering value to customers but also being able to generate returns on investments. Strategic assets are carefully developed bundles of tangibles and intangibles, most notably knowledge, experience, systems, and processes. Service management is a strategic asset because it constitutes the core capabilities for service providers. Service management acts as an operating system for service assets in effectively deploying them to provide services.
A service strategy is sometimes thought of as a future course of action. When senior managers are asked to craft a strategy, the frequent response is a strategicplan detailing how the organization moves from its current state to a desired future state. But there are shortcomings with this definition of service strategy.
The first problem is conditions change. The pace of business change is quickening, no matter how large or small your organization or in what industry you compete. Opportunities arise while others disappear. The world does not hold still waiting for plans to unfold. What was good about a plan today may be rendered a liability tomorrow. A service strategy resolves big issues so that staff can get on with the small details – how best to provide services, for example, rather than debating what services to offer. But focusing on a strategic plan impedes the organization’s ability to respond to changing conditions. Organizations with a high reliance on consistency and formalized procedures, for example, may lose flexibility, the ability to innovate or the ability to quickly adapt to unforeseen conditions. It turns out that a planning approach, while necessary, is insufficient – a service strategy requires more than a plan or direction.
The second problem is the constant focus on improving operational effectiveness. Operational effectiveness is absolutely necessary, but is not enough. A service strategy explains how a service provider will do better – either in what it does or how it does it – not only compared to itself but against competing alternatives. Customers hold government agencies and non-profit organizations to the same standards as service providers in the private sector. Customers must believe there are no reasonable alternatives. The form of value may be monetary, as in higher profits or lower expenses, or social, as in providing healthcare or preventing crime. If a provider’s strategy focuses on operational effectiveness at the expense of distinctiveness, it will not prosper for long. Sooner or later every organization runs into competitors.
The third problem is ‘value capture’. Plans are not well suited to provide the ongoing insight needed to maintain a value capture capability. Value capture is that portion of value creation that a provider gets to keep. While strategy is hard, the underlying logic is simple: there are only two ways one service provider can outperform another – either get customers to pay more for a service or provide the service at a lower cost. To accomplish either requires being different – how else to justify charging more or using fewer resources? So while a service provider may create value through distinctiveness, it may not be able to keep any of it. Moreover, the conditions for capturing value do not last indefinitely. Take the case of a labour arbitrage strategy: service providers decrease labour costs by making use of less expensive off-shore personnel. Early adopters made great gains because, for a while, the services they offered were priced lower than any competing alternative. But as more and more service providers made use of off-shore resources, the cost of services was lowered for everyone. This was great for customers but bad for providers – this distinctiveness dissipated. Value was created for customers but service providers were not able to keep any of it.
Strategic failure is often linked to contradictory issues like these. For an IT executive to be a strategist means not just holding opposing views but having the ability to synthesize them. They include the ability to react and predict, adapt and plan. In fact, high performing service providers are skilled in blending frames of reference when crafting service strategy.
Service providers must meet objectives defined in terms of their customers’ business outcomes while subject to a system of constraints. By understanding the trade-offs involved in its strategic choices, such as services to offer or markets to serve, an organization can better serve customers and outperform its competitors. The goal of a service strategy can be summed up as superior performance versus competing alternatives.
A high-performance service strategy, therefore, is one that enables a service provider to consistently outperform competing alternatives over time, across business cycles, industry disruptions and changes in leadership. It comprises both the ability to succeed today and positioning for the future.
What distinguishes high-performing service providers is the manner in which they construct and maintain superior performance. While many providers compete on the basis of a single point of differentiation, the competitive essence is almost always achieved through the balance, alignment and renewal of three building blocks: market focus and position, distinctive capabilities and performance anatomy (Figure 3.24).
Service providers seeking to improve are most apt to encounter problems when they favour one building block to the exclusion of the others. For example, an external provider (Type III) may overemphasize the importance of scale – an over-reliance on advantage through market focus and position at the expense of distinctive capabilities. In other words, why does scale matter to the customer? Or a shared services (Type II) provider may overemphasize the importance of low cost – an over-reliance on advantage through distinctive capabilities at the expense of performance anatomy. That is, an inability to execute despite the cost advantage.
Service providers are also at risk when they fail to refresh and renew the building blocks – for example, by continuing to rely on capabilities that are no longer distinctive, or by resting on the laurels of a once successful strategy long after it has lost its relevance. For example, an internal provider (Type I) may continue to rely on customer know-how while its customer seeks lower cost structures. High-performance service providers continually balance, align and renew the building blocks.
Figure 3.24 Building blocks of a high performance service strategy (based on Accenture research and analysis)
The three building blocks of high performance service providers:
Market focus and position – The spotlight is on optimal scale within a market space. A market space is defined by a set of outcomes that customers desire, which can be supported through one or more services. This is the ‘where and how to compete’ aspects of a service strategy. High-performance service providers – even Type I and II providers – have remarkable clarity when it comes to setting this strategic direction. They understand the dynamics of their market space, and the customers within, better than their competing alternatives, and manage through appropriate strategies. Such strategies allow the provider to build and manage valuable Service Portfolios, achieve optimal scale, exploit positioning advantages in the value network, and identify and possibly enter alternative market spaces or serve new customers.
Distinctive capabilities – The spotlight is on creating and exploiting a set of distinctive, hard-to-replicate capabilities that deliver a promised customer experience. This is about understanding the critical interplay between resources, capabilities, value creation and value capture. To create value, a service provider develops a formula for doing business that successfully translates a big idea regarding customer needs into a distinctive and cost-effective set of connected capabilities and resources to satisfy those needs.19 This ability is sometimes referred to as ‘differentiation on the outside and simplification on the inside’.
To be a high-performance service provider, be clear about what capabilities really contribute to enhancing customer outcomes. Understand the need to build distinctive capabilities that are demonstrably better and, in the short term, difficult to replicate by competing alternatives. This includes mastering technical capabilities and excelling at innovation, as well as lower cost structures and customer know-how. Take for example, the Type I service provider who, after years of outsourcing, decided to in-source its application-hosting services. By incorporating virtualization and dynamic provisioning technologies, the provider created speed and cost structures no outsourcer could match – precisely the same distinctive capabilities that prompted the provider to outsource in the first place.
Performance anatomy – The spotlight is on creating cultural and organizational characteristics that move service providers toward their goal of out-executing competing alternatives. Performance anatomy comprises a set of organizational world views that are measurable and actionable by organizational leadership. Example views include:
Services are a strategic asset
Workforce productivity is a key execution differentiator
Performance measurement is highly selective in its focus and metrics
Continual improvement and renewal are real and permanent necessities.
3.5.1.1 Government and non-profit organizations
Government and non-profit organizations appear to operate in environments unaffected by the pressures of competition and markets. The ethics of social-sector services are about helping people, not beating them. But strategic competition is not at odds with a social-sector’s sense of mission. Government and non-profit organizations must also operate under limited and constrained resources and capabilities. Stakeholders and customers demand as much social return as possible for money invested. Eventually, these constituents will consider competing alternatives.
A government or non-profit organization’s strategy, much like that of its commercial counterparts, explains how its unique service approach will deliver better results for society. When the need for social-sector services are so demanding, superior performance versus competing alternatives is a compelling imperative. No commercial enterprise can succeed by attempting to be all things to all people. Similarly, governments and non-profit organizations should make choices in what they will and, just as important, will not do.
3.5.2 The Four Ps of strategy
The lifecycle has, at its core, service strategy. The entry points to service strategy are referred to as ‘the Four Ps’ following Mintzberg20 (Figure 3.25). They identify the different forms a service strategy may take.
Figure 3.25 Perspectives, positions, plans and patterns21
Perspective – describes a vision and direction. A strategic perspective articulates the business philosophy of interacting with the customer or the manner in which services are provided. For example, a shared service provider (Type II) for a global law firm may adopt the strategic perspective of, ‘We will be a best-in-class service provider for our law firm’. The CIO determined that his business most values a certain type of service provider. By setting a perspective of competing against other industry-specific providers he not only narrows the field of competing alternatives, but also cements his own distinctiveness in the minds of his customers (Figure 3.26).
Position – describes the decision to adopt a well-defined stance. Should the provider compete on the basis of value or low cost? Specialized or broad sets of services? Should value be biased towards utility or warranty? An internal service provider (Type I) restricted to serving one business unit may adopt a position based on ‘product know-how’ or ‘customer responsiveness’. The law firm CIO may adopt a needs-based position: attorney-centric offerings for knowledge, collaboration and document management services.
Plan – describes the means of transitioning from ‘as is’ to ‘to be’. A plan might detail, ‘How do we offer high-value or low-cost services?’ Or in the case of our law firm CIO, ‘How do we achieve and offer our specialized services?’
Pattern – describes a series of consistent decisions and actions over time. A service provider who continually offers specific services with deep expertise is adopting a ‘high-value’ or ‘high-end’ service strategy. A service provider who continually offers dependable and reliable services is adopting a ‘high-warranty’ strategy. If mid-course corrections are to be made within the framework of an existing perspective and position, this is where those decisions and actions are formulated. The law firm CIO, for example, may decide to offer the same specialized services but with enhanced levels of client privacy (warranty).
Figure 3.26 Strategic approach taken by a Type II provider for an international law firm
Requirements and conditions are dynamic. A service provider may begin with any one form and evolve to another. For example, a service provider might begin with a perspective: a vision and direction for the organization. The service provider might then decide to adopt a position articulated through policies, capabilities and resources. This position may be achieved through the execution of a carefully crafted plan. Once achieved, the service provider may maintain its position through a series of well-understood decisions and action over time: a pattern.
The use of all the Four Ps, rather than one over the other, allows for emergent as well as intended service strategies. Best-practice service strategies mix these in some way: maintain control while fostering learning; see the big picture while deciding on details.
3.5.3 Strategy as a perspective
Strategy as a perspective defines the governing set of beliefs, values, and a sense of purpose shared by the entire organization. It sets the overall direction in which the service provider moves to fulfil its purpose and construct its performance anatomy. Some pithy real-world examples:
‘Focus on the user and all else will follow.’
‘It’s all about growth, innovation and the dependency of technology, led by the greatest people anywhere.’
‘Consumer connectivity first – any time, anywhere.’
‘[Our] purpose is to improve the quality of life of the communities we serve.’
‘We will be a best-in-class service provider in [our] industry.’
Despite its high-level abstraction, do not make the mistake of casually ignoring or trivializing perspective. Unlike plans or patterns, perspectives are not easily changed. Take the perspective of Swiss watchmakers, for example, when confronted with the emergence of quartz technology – a Swiss invention. Dismissing the technology as a novelty incompatible with the perspective of skill-intensive craftsmanship, the Swiss watch industry was nearly decimated by the Japanese. That is, until it adopted the technology for major market niches and reclaimed market share through a perspective centred on fashion rather than workmanship.