The service sector of the economy is growing in size but shrinking in quality. So say a lot of people. Purveyors of service, for their part, think that they and their problems are fundamentally different from other businesses and their problems. They feel that service is people-intensive, while the rest of the economy is capital-intensive. But these distinctions are largely spurious. There are no such things as service industries. There are only industries whose service components are greater or less than those of other industries. Everybody is in service. Often the less there seems, the more there is. The more technologically sophisticated the generic product (e.g., cars and computers), the more dependent are its sales on the quality and availability of its accompanying customer services (e.g., display rooms, delivery, repairs and maintenance, application aids, operator training, installation advice, warranty fulfillment). In this sense, General Motors is probably more service-intensive than manufacturing-intensive. Without its services its sales would shrivel. Thus the service sector of the economy is not merely comprised of the so-called service industries, such as banking, airlines, and maintenance. It includes the entire abundance of product-related services supplied by manufacturers and the sales-related services supplied by retailers. Yet we confuse things to our detriment by an outdated taxonomy. For example:
Something is wrong, and not just in the Bureau of the Census. The industrial world has changed more rapidly than our taxonomies. If only taxonomy were involved, the consequences of our contradictory classifications would be trivial. After all, man lives perfectly well with his contradictions: his simultaneous faith, for instance, in both God and science; his attachment to facts and logic when making important business decisions, but reliance on feelings and emotion when making far more important life decisions, like marriage. I hope to show in this article that our contradictory notions about service may have malignant consequences. Not until we clarify the contradictions will companies begin to solve problems that now seem so intractible. In order to do so, they must think of themselves as performing manufacturing functions when it comes to their so-called “service” activities. Only then will they begin to make some significant progress in improving the quality and efficiency of service in the modern economy. Field Versus FactoryPeople think of service as quite different from manufacturing. Service is presumed to be performed by individuals for other individuals, generally on a one-to-one basis. Manufacturing is presumed to be performed by machines, generally tended by large clusters of individuals whose sizes and configurations are themselves dictated by the machines’ requirements. Service (whether customer service or the services of service industries) is performed “out there in the field” by distant and loosely supervised people working under highly variable, and often volatile, conditions. Manufacturing occurs “here in the factory” under highly centralized, carefully organized, tightly controlled, and elaborately engineered conditions. People assume, and rightly so, that these differences largely explain why products produced in the factory are generally more uniform in features and quality than the services produced (e.g., life insurance policies, machine repairs) or delivered (e.g., spare parts, milk) in the field. One cannot as easily control one’s agents or their performance out there in the field. Besides, different customers want different things. The result is that service and service industries, in comparison with manufacturing industries, are widely and correctly viewed as being primitive, sluggish, and inefficient. Yet it is doubtful that things need be all that bad. Once conditions in the field get the same kind of attention that conditions inside the factory generally get, a lot of new opportunities become possible. But first management will have to revise its thinking about what service is and what it implies. Limits of servitudeThe trouble with thinking of oneself as providing services—either in the service industries or in the customer-service sectors of manufacturing and retailing companies—is that one almost inescapably embraces ancient, pre-industrial modes of thinking. Worse still, one gets caught up in rigid attitudes that can have a profoundly paralyzing effect on even the most resolute of rationalists. The concept of “service” evokes, from the opaque recesses of the mind, time-worn images of personal ministration and attendance. It refers generally to deeds one individual performs personally for another. It carries historical connotations of charity, gallantry, and selflessness, or of obedience, subordination, and subjugation. In these contexts, people serve because they want to (as in the priestly and political professions) or they serve because they are compelled to (as in slavery and such occupations of attendance as waiter, maid, bellboy, cleaning lady). In the higher-status service occupations, such as in the church and the army, one customarily behaves ritualistically, not rationally. In the lower-status service occupations, one simply obeys. In neither is independent thinking presumed to be a requisite of holding a job. The most that can therefore be expected from service improvements is that, like Avis, a person will try harder. He will just exert more animal effort to do better what he is already doing. So it was in ancient times, and so it is today. The only difference is that where ancient masters invoked the will of God or the whip of the foreman to spur performance, modern industry uses training programs and motivation sessions. We have not in all these years come very far in either our methods or our results. In short, service thinks humanistically, and that explains its failures. Promise of manufacturingNow consider manufacturing. Here the orientation is toward the efficient production of results, not toward attendance on others. Relationships are strictly businesslike, devoid of invidious connotations of rank or self. When we think about how to improve manufacturing, we seldom focus on ways to improve our personal performance of present tasks; rather, it is axiomatic that we try to find entirely new ways of performing present tasks and, better yet, of actually changing the tasks themselves. We do not think of greater exertion of our animal energies (working physically harder, as the slave), of greater expansion of our commitment (being more devout or loyal, as the priest), or of greater assertion of our dependence (being more obsequious, as the butler). Instead, we apply the greater exertion of our minds to learn how to look at a problem differently. More particularly, we ask what kinds of tools, old or new, and what kinds of skills, processes, organizational rearrangements, incentives, controls, and audits might be enlisted to greatly improve the intended outcomes. In short, manufacturing thinks technocratically, and that explains its successes. Manufacturing looks for solutions inside the very tasks to be done. The solution to building a low-priced automobile, for example, derives largely from the nature and composition of the automobile itself. (If the automobile were not an assembly of parts, it could not be manufactured on an assembly line.) By contrast, service looks for solutions in the performer of the task. This is the paralyzing legacy of our inherited attitudes: the solution to improved service is viewed as being dependent on improvements in the skills and attitudes of the performers of that service. While it may pain and offend us to say so, thinking in humanistic rather than technocratic terms ensures that the service sector of the modern economy will be forever inefficient and that our satisfactions will be forever marginal. We see service as invariably and undeviatingly personal, as something performed by individuals directly for other individuals. This humanistic conception of service diverts us from seeking alternatives to the use of people, especially to large, organized groups of people. It does not allow us to reach out for new solutions and new definitions. It obstructs us from redesigning the tasks themselves; from creating new tools, processes, and organizations; and, perhaps, even from eliminating the conditions that created the problems. In sum, to improve the quality and efficiency of service, companies must apply the kind of technocratic thinking which in other fields has replaced the high-cost and erratic elegance of the artisan with the low-cost, predictable munificence of the manufacturer. The Technocratic HamburgerNowhere in the entire service sector are the possibilities of the manufacturing mode of thinking better illustrated than in fast-food franchising. Nowhere have manufacturing methods been employed more effectively to control the operation of distant and independent agents. Nowhere is “service” better. Few of today’s successful new commercial ventures have antecedents that are more humble and less glamorous than the hamburger. Yet the thriving nationwide chain of hamburger stands called “McDonald’s” is a supreme example of the application of manufacturing and technological brilliance to problems that must ultimately be viewed as marketing problems. From 1961 to 1970, McDonald’s sales rose from approximately $54 million to $587 million. During this remarkable ascent, the White Tower chain, whose name had theretofore been practically synonymous throughout the land with low-priced, quick-service hamburgers, practically vanished. The explanation of McDonald’s thundering success is not a purely fiscal one—i.e., the argument that it is financed by independent local entrepreneurs who bring to their operations a quality of commitment and energy not commonly found among hired workers. Nor is it a purely geographical one—i.e., the argument that each outlet draws its patronage from a relatively small geographic ring of customers, thus enabling the number of outlets easily and quickly to multiply. The relevant explanation must deal with the central question of why each separate McDonald’s outlet is so predictably successful, why each is so certain to attract many repeat customers. Entrepreneurial financing and careful site selection do help. But most important is the carefully controlled execution of each outlet’s central function—the rapid delivery of a uniform, high-quality mix of prepared foods in an environment of obvious cleanliness, order, and cheerful courtesy. The systematic substitution of equipment for people, combined with the carefully planned use and positioning of technology, enables McDonald’s to attract and hold patronage in proportions no predecessor or imitator has managed to duplicate. Consider the remarkable ingenuity of the system, which is worth examining in some detail: To start with the obvious, raw hamburger patties are carefully prepacked and premeasured, which leaves neither the franchisee nor his employees any discretion as to size, quality, or raw-material consistency. This kind of attention is given to all McDonald’s products. Storage and preparation space and related facilities are expressly designed for, and limited to, the predetermined mix of products There is no space for any foods, beverages, or services that were not designed into the system at the outset. There is not even a sandwich knife or, in fact, a decent place to keep one. Thus the owner has no discretion regarding what he can sell—not because of any contractual limitations, but because of facilities limitations. And the employees have virtually no discretion regarding how to prepare and serve things. Discretion is the enemy of order, standardization, and quality. On an automobile assembly line, for example, a worker who has discretion and latitude might possibly produce a more personalized car, but one that is highly unpredictable. The elaborate care with which an automobile is designed and an assembly line is structured and controlled is what produces quality cars at low prices, and with surprising reliability considering the sheer volume of the output. The same is true at McDonald’s, which produces food under highly automated and controlled conditions. French-fried automationWhile in Detroit the significance of the technological process lies in production, at McDonald’s it lies in marketing. A carefully planned design is built into the elaborate technology of the food-service system in such a fashion as to make it a significant marketing device. This fact is impressively illustrated by McDonald’s handling of that uniquely plebeian American delicacy, french-fried potatoes. French fries become quickly soggy and unappetizing; to be good, they must be freshly made just before serving. Like other fast-food establishments, McDonald’s provides its outlets with precut, partially cooked frozen potatoes that can be quickly finished in an on-premises, deep-fry facility. The McDonald’s fryer is neither so large that it produces too many french fries at one time (thus allowing them to become soggy) nor so small that it requires frequent and costly frying. The fryer is emptied onto a wide, flat tray adjacent to the service counter. This location is crucial. Since the McDonald’s practice is to create an impression of abundance and generosity by slightly overfilling each bag of french fries, the tray’s location next to the service counter prevents the spillage from an overfilled bag from reaching the floor. Spillage creates not only danger underfoot but also an unattractive appearance that causes the employees to become accustomed to an unclean environment. Once a store is unclean in one particular, standards fall very rapidly and the store becomes unclean and the food unappetizing in general. While McDonald’s aims for an impression of abundance, excessive overfilling can be very costly for a company that annually buys potatoes almost by the trainload. A systematic bias that puts into each bag of french fries a half ounce more than is intended can have visible effects on the company’s annual earnings. Further, excessive time spent at the tray by each employee can create a cumulative service bottleneck at the counter. McDonald’s has therefore developed a special wide-mouthed scoop with a narrow funnel in its handle. The counter employee picks up the scoop and inserts the handle end into a wall clip containing the bags. One bag adheres to the handle. In a continuous movement the scoop descends into the potatoes, fills the bag to the exact proportions its designers intended, and is lifted, scoop facing the ceiling, so that the potatoes funnel through the handle into the attached bag, which is automatically disengaged from the handle by the weight of the contents. The bag comes to a steady, nonwobbling rest on its flat bottom. Nothing can go wrong—the employee never soils his hands, the floor remains clean, dry, and safe, and the quantity is controlled. Best of all, the customer gets a visibly generous portion with great speed, the employee remains efficient and cheerful, and the general impression is one of extravagantly good service. Mechanized marketingConsider the other aspects of McDonald’s technological approach to marketing. The tissue paper used to wrap each hamburger is color-coded to denote the mix of condiments. Heated reservoirs hold pre-prepared hamburgers for rush demand. Frying surfaces have spatter guards to prevent soiling of the cooks’ uniforms. Nothing is left to chance or the employees’ discretion. The entire system is engineered and executed according to a tight technological discipline that ensures fast, clean, reliable service in an atmosphere that gives the modestly paid employees a sense of pride and dignity. In spite of the crunch of eager customers, no employee looks or acts harassed, and therefore no harassment is communicated to the customers. But McDonald’s goes even further. Customers may be discouraged from entering if the building looks unappealing from the outside; hence considerable care goes into the design and appearance of the structure itself. Some things, however, the architect cannot control, especially at an establishment where people generally eat in their parked cars and are likely to drop hamburger wrappings and empty beverage cartons on the ground. McDonald’s has anticipated the requirement: its blacktop parking facilities are dotted like a checkerboard with numerous large, highly visible trash cans. It is impossible to ignore their purpose. Even the most indifferent customer would be struck with guilt if he simply dropped his refuse on the ground. But, just in case he drops it anyway, the larger McDonald’s outlets have motorized sweepers for quick and easy cleanup. What is important to understand about this remarkably successful organization is not only that it has created a highly sophisticated piece of technology, but also that it has done this by applying a manufacturing style of thinking to a people-intensive service situation. If machinery is to be viewed as a piece of equipment with the capability of producing a predictably standardized, customer-satisfying output while minimizing the operating discretion of its attendant, that is what a McDonald’s retail outlet is. It is a machine that produces, with the help of totally unskilled machine tenders, a highly polished product. Through painstaking attention to total design and facilities planning, everything is built integrally into the machine itself, into the technology of the system. The only choice available to the attendant is to operate it exactly as the designers intended. Tooling Up for ServiceAlthough most people are not aware of it, there are many illustrations of manufacturing solutions to people-intensive service problems. For example:
In each of these examples a technological device or a manufacturing type of process has replaced what had been resolutely thought of as an irrevocably people-requiring service. Similar devices or processes can be used to modify and alleviate the customer-repelling abrasions of other people-intensive service conditions. Consider the airlines. This industry is highly unusual. It is exceedingly capital-intensive in the creation of the facilitating product (the airplane), but it is extremely people-intensive in the delivery of the product (travel arrangements and the customer’s flight experience). The possibilities for revenue production that a $20-million airplane represents are quickly vitiated by a surly or uncooperative reservations clerk. The potentials of repeat business that the chef so carefully builds into his meals can be destroyed by a dour or sloppy stewardess. In fact, stewardesses have a particularly difficult job. A hundred passengers, having paid for reasonable service, understandably expect to be treated with some care. While three young ladies are there to serve them, a number of these passengers must inevitably get their drinks and meals later than others. Most experienced travelers are understanding and tolerant of the rushed stewardesses’ problems, but a few usually harass them. The pressure and abuse can easily show in the stewardesses’ personal appearance and behavior, and are likely to result in nearly all passengers being reciprocally mistreated. This is human. Besides, the ladies may have been on their feet all day, or may have slept only a few hours the night before. “More and better training” is not likely to help things very much. When the pressure is on, service deteriorates. And so does a stewardess’s cheerful manner and appearance, no matter how well schooled she is in personal care and keeping her cool or how attractively her clothes are designed. But it might help to put mirrors in the airplane galley, so that each time a stewardess goes in she sees herself. There is some reason to expect that she’ll look into the mirror each time she passes it, and that she’ll straighten her hair, eliminate that lipstick smudge, put on a more cheerful face. Improvement will be instantaneous. No training needed. Here is another possibility: the stewardess makes a quick trip down the aisle, passing out rum-flavored bonbons and explaining, “For those who can’t wait till we get the ice out.” This breaks the tension, produces an air of cheerfulness, acknowledges the passengers’ eagerness for quick service, and says that the ladies are trying their hurried best. Further, it brings the stewardess into friendly personal contact with the passenger and reduces the likelihood of her being pressured and abused. She, in turn, is less likely to irritate other passengers. From the manufacturing point of view, these two modest proposals represent the substitution of tools (or, as I prefer, technology) for motivation. Mirrors are a tool for getting self-motivated, automatic results in the stewardesses’ appearance and personal behavior. Bonbons are a tool for creating a benign interpersonal ambience that reduces both the likelihood of customer irritation and the reciprocal and contagious stewardess irritation of others. They are small measures, but so is a company president’s plant tour. In each case there is considerable presumption of solid benefits. Yet to get these benefits one must think, as the factory engineer thinks, about what the problems are and what the desired output is; about how to redesign the process and how to install new tools that do the job more automatically; and, whenever people are involved, about how to “control” their personal behavior and channel their choices. Hard & soft technologiesThere are numerous examples of strictly “hard” technologies (i.e., pieces of equipment) which are used as substitutes for people—coffee vending machines for waitresses, automatic check cashing machines for bank tellers, self-operated travel-insurance-policy machines for clerks. Although these devices represent a manufacturing approach to service, and while their principles can be extended to other fields, even greater promise lies in the application of “soft” technologies (i.e., technological systems). McDonald’s is an example of a soft technology. So are mutual funds. Other examples are all around us, if we just think of them in the right way. Take the life insurance industry: A life insurance salesman is said to be in a service industry. Yet what does he really do? He researches the prospect’s needs by talking with him, designs several policy models for him, and “consumer-use tests” these models by seeking his reactions. Then he redesigns the final model and delivers it for sale to the customer. This is the ultimate example of manufacturing in the field. The factory is in the customer’s living room, and the producer is the insurance agent, whom we incorrectly think of as being largely a salesman. Once we think of him as a manufacturer, however, we begin to think of how best to design and manufacture the product rather than how best to sell it. The agent, for example, could be provided with a booklet of overlay sheets showing the insurance plans of people who are similar to the customer. This gives the customer a more credible and informed basis for making a choice. In time, the agent could be further supported by similar information stored in telephone-access computers. In short, we begin to think of building a system that will allow the agent to produce his product efficiently and effectively by serving the customer’s needs instead of performing a manipulative selling job. Manufacturers outside the factoryThe type of thinking just described applies not only to service industries but also to manufacturing industries. When the computer hardware manufacturer provides installation and maintenance services, debugging dry-runs, software programs, and operator training as part of his hardware sales program, he acknowledges that his “product” consists of considerably more than what he made in the factory. What is done in the field is just as important to the customer as the manufactured equipment itself. Indeed, without these services there would generally be no sale. The problem in so many cases is that customer service is not viewed by manufacturers as an integral part of what the customer buys, but as something peripheral to landing the sale. However, when it is explicitly accepted as integral to the product itself and, as a consequence, gets the same kind of dedicated attention as the manufacture of the hardware gets, the results can be spectacular. For example:
The old process was called customer service and selling. The new process has no name, and probably has never been viewed as constituting a technological substitute for people. But it is. An efficient, automatic, capital-intensive system, supplemented occasionally by people, has replaced an inefficient and unreliable people-intensive system.
Instead of depending solely on the effective training of distributors, who are spread widely in isolated places, A.O. Smith has developed a series of sophisticated, colorful, and interchangeable design-module planning books. These can be easily employed by a distributor to help a farmer decide what he may need, its cost, and its financing requirements. Easy-to-read tables, broken down by the size of farm, numbers and types of animals, and purpose of animals (cattle for meat or cows for milk), show recommended combinations of silo sizes and equipment for maximum effectiveness. The system is so thorough, so easy to use and understand, and so effective in its selling capability that distributors use it with great eagerness. As a consequence, A.O. Smith, while sitting in Milwaukee, in effect controls every sales presentation made by every one of its far-flung distributors. Instead of constantly sending costly company representatives out to retrain, cajole, wine-and-dine, and possibly antagonize distributors, the supplier sends out a tool that distributors want to utilize in their own self-interest. Product-line pragmaticsThinking of service as an integral part of what is sold can also result in alteration of the product itself—and with dramatic results. In 1961, the Building Controls and Components Group of Honeywell, Inc., the nation’s largest producer of heating and air conditioning thermostats and control devices, did a major part of its business in replacement controls (the aftermarket). These were sold through heating and air conditioning distributors, who then supplied plumbers and other installation and repair specialists. At that time, Honeywell’s product line consisted of nearly 18,000 separate catalog parts and pieces. The company had nearly 5,000 distributor accounts, none of which could carry a full line of these items economically, and therefore it maintained nearly 100 fully stocked field warehouses that offered immediate delivery to distributors. The result was that, in a large proportion of cases, distributors sold parts to plumbers that they did not themselves have in stock. They either sent plumbers to nearby Honeywell warehouses for pickup or picked up parts themselves and delivered them directly to the plumbers. The costs to Honeywell of carrying these inventories were enormous, but were considered a normal expense of doing business. Then Honeywell made a daring move—it announced its new Tradeline Policy. It would close all warehouses. All parts would have to be stocked by the distributors. The original equipment, however, had been redesigned into 300 standard, interchangeable parts. These were interchangeable not only for most Honeywell controls, but also for those of its major competitors. Moreover, each package was clearly imprinted to show exactly what Honeywell and competing products were repairable with the contents. By closing its own warehouses, Honeywell obviously shifted the inventory-carrying costs to its distributors. But instead of imposing new burdens on them, the new product lines, with their interchangeability features, enabled the distributors to carry substantially lower inventories, particularly by cutting down the need for competitive product lines which the distributors could nonetheless continue to service. Thus they were able to offer faster service at lower costs to their customers than before. But not all distributors were easily persuaded of this possibility, and some dropped the line. Those who were persuaded ultimately proved their wisdom by the enormous expansion of their sales. Honeywell’s replacement market share almost doubled, and its original equipment share rose by nearly 50%. Whereas previously nearly 90% of Honeywell’s replacement sales were scattered among 4,000 distributors, within ten years after Tradeline’s introduction the same proportion (of a doubled volume) was concentrated among only about 900 distributors. Honeywell’s cost of servicing these fewer customers was substantially less, its trade inventory carrying costs were cut to zero, and the quality of its distributor services was so substantially improved that only 900 of its distributors captured a larger national market share than did the nearly 4,000 less efficient and more costly distributors. Again, we see a people-intensive marketing problem being solved by the careful and scrupulous application of manufacturing attitudes. Motivation, hard work, personalization, training, and merchandising incentives were replaced with systematic programming, comprehensive planning, attention to detail, and particularly with imaginative concern for the problems and needs of customers (in this case, the company’s distributors). Stopgaps: Complexity…Exaggeration is not without its merits, especially in love and war. But in business one guards against it with zeal, especially when one tries to persuade oneself. The judicious application of the manufacturing mentality may help the service industries and the customer-service activities of others. Yet this does not necessarily mean the more technology, the better. Entrepreneurial roadsides are littered with the wrecks of efforts to install Cadillac technologies for people who cannot yet handle the Model T. This point is illustrated by the failure of two exceedingly well-financed joint ventures of highly successful technology companies. These joint ventures attempted to provide computerized medical diagnostic services for doctors and hospitals. The companies developed console hookups to central diagnostic computers, so that everybody could stop sending off samples to pathology laboratories and agonizingly poring through medical texts to diagnose the patients’ symptoms. The ventures failed because of hospital and doctor resistance, not for want of superior or reliable products. The customer was compelled suddenly to make an enormous change in his accustomed way of doing things, and to employ a strange and somewhat formidable piece of equipment that required special training in its use and in the interpretation of its output. Interactive teaching machines are meeting a similar fate. The learning results they achieve are uniformly spectacular. The need for improved learning is a visible reality. The demand for greater individualization of teaching is widespread. But the equipment has not sold because technologists have created systems employing equipment that is at the cutting edge of technological progress. The teachers and school systems that must use them are far behind, and already feel badly bruised by their failure to comprehend even simple new technologies. For them, the new Cadillac technologies do not solve problems. They create problems. …& compromiseOn the other hand, failure to exploit technological possibilities can be equally destructive. When a major petroleum company with nearly 30,000 retail outlets in the United States was persuaded to pioneer a revolutionary automobile repair and servicing system, compromises of the original plan ensured the system’s failure. The theory was to build a gigantic service and repair system that could handle heavy volumes of continuous activity by using specialized diagnostic and repair equipment. With this equipment (rather than a harried and overworked man at a gas station) pinpointing the exact problems, cars could be shuttled off to specific stations in the repair center. Experts would work only on one kind of problem and section of a car, with newly designed, fast-action tools. Oil changes would be made in assembly-line fashion by low-paid workers, electrical work would be performed by high-paid technicians doing only that, and a post-diagnostic checkup would be made to guarantee success. Since profitability would require high volume, the center would have to draw on a vast population area. To facilitate this, the original proposal called for a specially constructed building at a center-city, old warehouse location—the land would be cheaper, the building would be equally accessible throughout the entire metropolitan area, the service center’s technological elegance and see-through windows for customers would offset any run-down neighborhood disadvantages, and volume business would come from planned customer decisions rather than random off-street traffic. The original concept also called for overnight pickup and delivery service; thus a car could be repaired at night while its owner slept, rather than during the day when he would need it. And because the required promotion of this service would tend to alienate the company’s franchised service station dealers, perhaps driving them into the hands of competitors, it was recommended that the first center be installed in a major city where the company had no stations. This sounds like an excellent manufacturing approach to a service situation; but the company made three fatal compromises: 1. It decided to place the center in a costly, high-traffic suburban location, on the grounds that “if the experiment fails, at least the building will be in a location that has an alternative use.” The results were an awkward location, a land-acquisition cost five times higher than the original center-city location, and, therefore, a vastly inflated break-even point for the service center. 2. It decided not to offer overnight service, on the grounds that “we’d better crawl before we walk. And besides, we don’t think people will leave their cars overnight in a strange and distant garage.” The fact that the results would be guaranteed by a reputable, nationally known petroleum company operating an obviously sophisticated new type of consumer service facility was not persuasive to the corporate decision makers. 3. It decided to put the first center in a city occupied by its own franchised dealers, on the grounds that “we know it better.” To offset the problem of not being able to advertise aggressively for business, the company offered its dealers a commission to send their repair jobs to the center. The dealers did this, but only with jobs they could not, or did not want to, do themselves. As a result, the traffic at the big, expensive center was miserably low. Companies that take a manufacturing approach to service problems are likely to fail if (a) they compromise technological possibilities at the conception and design stage, or (b) they allow technological complexity to contaminate the operating stage. The substitution of technology and systems for people and serendipity is complex in its conception and design; only in its operation, as at McDonald’s, is it simple. It is the simplicity of mutual funds that, after all, accounts for their success. But the concept is in fact much more complex than that of selling individual stocks through a single customer-man sitting at a desk. Mutual funds are the financial community’s equivalent of McDonald’s. They are a piece of technology that not only simplifies life for both the seller and the buyer but also creates many more buyers and makes production more profitable. Mass merchandising is similar. It substitutes a wide selection and fast, efficient self-service for a narrow selection and slow, incompetent salesclerk service. The mass merchandising retail store (e.g., general merchandise supermarket) is a new technology, incorporating into retailing precisely the thinking that goes into the assembly line, except that the customer does his own assembling. Why Things Go WrongThe significance of all this is that a “product” is quite different from what it is generally assumed to be. When asked once what he did, Charles Revson, head of Revlon, Inc., made the now well-known reply, “In the factory we make cosmetics, in the store we sell hope.” He defined the product in terms of what the consumer wanted, not in terms of what the manufacturer made. McDonald’s obviously does the same—not just hamburgers but also speed, cleanliness, reassurance, cheerfulness, and predictable consistency. Honeywell defined it not in terms of replacement parts but, rather, in terms of those needs of its distributors which, if met, would result in substantially larger proportions of patronage for Honeywell. Thus a product is not something people buy, but a tool they use—a tool to solve their problems or to achieve their intentions. So many things go wrong because companies fail to adequately define what they sell. Companies in so-called service industries generally think of themselves as offering services rather than manufacturing products; hence they fail to think and act as comprehensively as do manufacturing companies concerned with the efficient, low-cost production of customer-satisfying products. Moreover, manufacturing companies themselves do not generally think of customer service as an integral part of their products. It is an afterthought to be handled by the marketing department. The marketing department, in turn, thinks of itself as providing customer services. There is a hidden and unintentional implication of giving something away for free. One is doing something extra as a favor. When this is the underlying communication to one’s own organization, the result is about what one would expect—casual, discretionary attitudes and little attention to detail, and certainly no attention to the possibilities of substituting systems and preplanning for people and pure effort. Hence products are designed that cannot be easily installed, repaired, or modified. (Motorola’s “works in a box” television set, which has been promoted so successfully on the basis of its easy replacement and repairability, is an outstanding example of the sales-getting potential of proper care in design and manufacturing.) Chill winds from ice creamAn excellent example of the confusion between what a company “makes” and what a customer “buys” is provided by a producer of private-label ice cream products for supermarket chains. Since supermarkets need to create low-price impressions in order to attract and hold customers, selling successfully to them means getting down to rock-bottom prices. The company (call it the Edwards Company) became extraordinarily good at producing a wide line of ice cream products at rock-bottom costs. It grew rapidly while others went bankrupt. It covered ten states with direct deliveries to stores out of its factory and factory warehouse, but continued growth eventually required establishing plant, distribution, and marketing centers elsewhere. The result was disaster, even though the company manufactured just as efficiently in the new locations as it did in the old. Under the direct and constant supervision of the president in the original Edwards location, an exceedingly efficient telephone ordering and delivery system had been working to meet the supermarkets’ rather stringent requirements. Because of limited storage and display space, they required several-times-a-week delivery at specified, uncrowded store hours. To make up for low volume in slow periods, they needed regular specials as well as holiday and summer specials. Over time, these needs had become so automatically but efficiently supplied from the original Edwards factory location that this delivery service became routinized and therefore taken for granted. In building the new plant, the president and his compact management team focused on getting manufacturing costs down to rock bottom. After all, that is what made the sale—low prices. Not being very conscious of the fact that they had created in the original location an enormously customer-satisfying, efficient, automatic ordering and delivery system, they did not know exactly what to look for in evaluating how well they were working out these “service” details at the new plant, distribution, and marketing centers. In short, they did not know what their product really was (why Edwards had become so successful) and they failed to expand Edwards’ success. Service was not considered an integral part of the company’s product. It was viewed merely as “something else” you do in the business. Accordingly, service received inadequate attention, and that became the cause of the Edwards Company’s failure. ConclusionRarely is customer service discretionary. It is a requisite of getting and holding business, just like the generic product itself. Moreover, if customer service is consciously treated as “manufacturing in the field,” it will get the same kind of detailed attention that manufacturing gets. It will be carefully planned, controlled, automated where possible, audited for quality control, and regularly reviewed for performance improvement and customer reaction. More important, the same kinds of technological, labor-saving, and systems approaches that now thrive in manufacturing operations will begin to get a chance to thrive in customer service and service industries. Once service-industry executives and the creators of customer-service programs begin seriously to think of themselves as actually manufacturing a product, they will begin to think like product manufacturers. They will ask: What technologies and systems are employable here? How can things be designed so we can use machines instead of people, systems instead of serendipity? Instead of thinking about better and more training of their customer-service representatives, insurance agents, branch bank managers, or salesmen “out there,” they will think about how to eliminate or supplement them. If we continue to approach service as something done by individuals rather than by machines or systems, we will continue to suffer from two distortions in thinking: 1. Service will be viewed as something residual to the ultimate reality—to a tangible product, to a specific competence (like evaluating loans, writing insurance policies, giving medical aid, preparing on-premises foods). Hence it will have residual respectability, receive residual attention, and be left, somehow, for residual performers. 2. Service will be treated as purely a human task that must inevitably be diagnosed and performed by a single individual working alone with no help or, at best, with the rudimentary help of training and a variety of human-engineering motivators. It will never get the kind of manufacturing-type thinking that goes into tangible products. Until we think of service in more positive and encompassing terms, until it is enthusiastically viewed as manufacturing in the field, receptive to the same kinds of technological approaches that are used in the factory, the results are likely to be just as costly and idiosyncratic as the results of the lonely journeyman carving things laboriously by hand at home. A version of this article appeared in the September 1972 issue of Harvard Business Review. What are companies that have low customer contact and are capital intensive yet provide a service called?These businesses have low customer contact and are capital intensive. They are most like manufacturing organizations yet they provide a service. We call these companies quasi-manufacturing organizations.
What are long term decisions that set the direction for the entire organization called?The first are strategic decisions. These decisions are broad in scope and long-term in nature. As a result they set the direction for the entire company.
Which business function is responsible for sales generating customer demand and understanding customer wants and needs?Marketing is responsible for sales, generating customer demand, and understanding customer wants and needs.
Is to maximize efficiency while producing goods and services that effectively fulfill customer needs?The goal of operations management is to maximize efficiency while producing goods and services that effectively fulfill customer needs. Operations is one of the three strategic functions of any organization.
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Which term is used to describe the companies that have low customer contact and are capital intensive yet they provide a service?
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