TECHNOLOGY IN SERVICE ENVIRONMENTS - Principles of service marketing management

Reflecting success stories like eBay, the Internet has attracted tremendous coverage in recent years. The rapid growth of the Internet demonstrates how the introduction and commercialization of new technologies can result in dramatic product innovations and leads to significant changes in how businesses operate and how people live and work. History is full of such examples.

In the 19th century, the Industrial Revolution helped to usher in widespread use of such key technologies as water and steam power, railroads and electricity. People living in the 20th century found their lifestyles and opportunities shaped by innovations such as personal automobiles, universal telephone service, global air travel, radio, television, computers, and satellites that would have been unimaginable to earlier generations. As inhabitants of the 21st century, we can look forward to continuing new applications of technology in almost every area of our lives, giving us new options in fields such as financial services, education, medicine, entertainment, and transportation.

Each generation tends to use the word technology to describe, rather loosely, the practical application of cutting-edge tools and procedures. While many different types of technologies affect our lives, our focus in this chapter is on those that impact the way services are produced, delivered, and marketed. We begin with a brief look at different kinds of technology applications in services.

Then we examine strategic issues related to the use of information technology in service delivery, with particular emphasis on the Internet and the World Wide Web. In the course of the chapter we explore whether companies should view technology as a strategic thrust in their business or just another operations tool, look at how new technologies impact productivity and service quality, and consider the potential for getting customers to use technology-based self-service options.

Different Types of Technology

At least six types of technology have implications for the service sector power and energy, physical design, materials, methods, genetic biology, and information. The application of one type of technology in any service industry often requires assistance from some of the others.

Power and Energy Technology The search is on for improved sources of power. One important development is more sophisticated approaches to renewable energy, such as solar and wind power. The equipment is often owned by entrepreneurs who act as small generating services, selling power to utility companies. There has also been huge progress in miniaturization of batteries; their bulk and weight have been reduced while battery life and strength have increased.

Such batteries power small portable IT equipment like laptop computers, pagers, and cellular phones that are widely used by many service businesses. By facilitating mobile communications and service delivery in cyberspace, they enhance employee responsiveness and provide greater flexibility for customers.

Physical Design Technology Creating smaller, lighter, faster, or more efficient equipment often requires new approaches to design. Laptops and cell phones look very different from desktop computers and conventional telephones. High-speed catamaran ferries are another example of innovative physical design. These ships, with their new hull designs and water jet propulsion systems (an alternative form of power technology), are revolutionizing marine transportation.

Materials Technology New manufacturing techniques and materials have produced advanced plastics and metal alloys that make possible not only high-speed airfoils or miniaturized high-tech hardware, but also such mundane objects as energy-saving lighting to provide better security in shopping mall parking lots. Modern railroad cars make widespread use of materials technology, including metal composites for lightweight bodies, vandal-resistant plastics, artificial fibers for easy cleaning, and shatterproof insulating glass for good views without compromising climate control and safety.

Methods Technology Here, attention is focused on developing new ways of working, including self-service by customers. It can be as simple as furnishing hotel bedrooms with box beds to simplify the cleaning task for housekeepers or installing beverage dispensers with automatic metering in a restaurant so that workers can perform other tasks while cups are filling.

Or it can be as complex as designing procedures for a hospital emergency room, an all-telephone bank, or an automated warehouse. Methods technology emphasizes that human involvement and success may depend on getting employees and customers to perform unfamiliar new tasks. To ensure that new methods are "user friendly," operations managers need to seek early and full participation of HR and marketing specialists in both design and implementation.

Biotechnology "Biotech" includes research into the development and application of such procedures as gene splicing and gene therapy. Relevant service applications center on advances in medical treatments or development of genetically altered foods that might be served in restaurants. However, the long-term impact of these practices remains uncertain and their use especially for broader public consumption requires rigorous advance testing and thoughtful consideration of ethical criteria.

Information Technology IT encompasses several key elements, beginning with the capture of data and its storage in memory systems. These systems may range in scope from a credit card's magnetic strip containing 200 bytes (equivalent to roughly three lines of typescript) to the terabytes of a super computer or data warehouse. IT is often identified with sophisticated hardware. But software is actually the key element in turning data into useful information or the intelligence found in expert systems that tell users or even machines what decisions to make. IT not only makes possible new service concepts such as Internet auctions, but potentially impacts almost every aspect of service.

Creating New Ways of Working

Before implementing new strategies to take advantage of emerging or improved technologies, managers have to ask how existing work patterns will need to change if an innovation is to fulfill its promise. There's an important link between IT and methods technology. Hammer and Campy make the point that companies often use IT simply to speed up existing processes.

They claim that "the real power of technology is not that it can make the old processes work better, but that it enables organizations to break old rules and create new ways of working'3 (emphasis added). In the case of IT, they argue that instead of "embedding outdated processes in silicon and software, we should be using the power of technology to radically redesign business procedures and dramatically improve their performance." (This assumes that firms are fully aware of what their existing processes are and emphasizes the value of blueprinting as a visual tool for process design or redesign.)

Service leaders employ technology as an active component of strategy. They seek to create and nurture a corporate culture that welcomes change and new methods of working. Many firms have their own technology units whose work is devoted to exploring how innovations might best be used to create value for customers and stockholders, higher quality, greater productivity, and a competitive advantage for the firm. The most desirable innovations are those that fulfill several or even all of these objectives simultaneously. Companies that want to be on the cutting edge of new technology applications often work closely with university researchers and innovative manufacturers to shape the development of emerging technologies.

Technology and Innovation

we described some dramatic instances of how technology has stimulated and facilitated innovation in the service sector. But service managers need to be realistic about technology's potential to create profitable results for their firms. In his book, Mega mistakes: Forecasting and the Myth of Technological Change, Steven Schnaars writes of what he calls a bias toward optimism.

"Optimism," he says, "results from being enamored of technological wonder. It follows from focusing too intently on the under lying technology. Much has been made of the Internet's potential for facilitating new business concepts and improving business productivity through savings in activities such as purchasing and delivery costs.

But rushing to adopt new technologies without thinking through the implications for employees, customers, and the overall operating system can be a recipe for disaster, as evidenced by the failure of many dot-com companies (see the box,” What Caused the Dot-Com Meltdown?"). Michael Porter, respected for his work on competitive strategy, argues persuasively that:

We need to move away from the rhetoric about "Internet industries, "e-business strategies," and a "new economy" and see the Internet for what it is: an enabling technologya powerful set of tools that can be used, wisely or unwisely, in almost any industry and as part of almost any strategy.

What Caused the Dot-Com Meltdown?

Few business phenomena have caused quite such a stir in the past half-century as the rapid rise and fall of the companies popularly known as the "dot-com." During the late 1990s, numerous businesses were created to take advantage of the possibilities offered by the Internet. Enthusiasm was contagious. Speakers on the lecture circuit proclaimed that "the Internet changes everything" and predicted dismal prospects for established firms without an Internet presence.

Venture capitalists and investors poured money into dot-com many of which launched initial public offerings and for a while saw their stock prices rise at a dizzying rate, making their founders multimillionaires and even billionaires at least on paper. Yet by mid-2000, most dot-com were struggling and their once lofty stock prices had shriveled. A much-reported succession of failures began and continued into 2001. What went wrong?

A key problem was flawed business models, in particular how the company was expected to make money. In trying to attract customers through low prices, many Internet-based retailers found that their margins were too slim if, indeed, there was any margin at all to cover higher than anticipated costs. Heavy expenditures were required for construction and operation of automated warehouses, while delivery costs were sometimes higher than the shipping charges imposed on orders. Operating an effective Web site proved more complex than predicted. Additional funds were needed to improve customer service, handle complaints, and accept merchandise returns.

Content provider companies, whose product consisted of information about specialized topics, found that many people didn't like to pay for information especially if most of it could be found free elsewhere. Generating original material proved costly, since most dot-com lacked the economies of scale and media affiliations enjoyed by portals such as Yahoo or AOL. Meantime, revenues received from advertising on their sites failed to match expectations.

Among other key problems faced by dot-com were the high marketing costs of attracting visitors to their sites and intense competition from both traditional businesses and other online companies in the same field. Many "e-taller" learned the hard way that running an Internet site isn't cheap, that when you don't carry your own inventory you lose control over pricing, that customers get angry when orders aren't filled promptly, and that what were anticipated as fixed administrative and infrastructure costs often turned out to be semi-variable, increasing stepwise with growth.

After studying 109 failed dot-com, the Boston Consulting Group identified the following main reasons for failure (in some cases, there was more than one reason per company):

Poor revenue, cost, and profit model 59
No competitive advantage 55
Lack of benefit to consumers 34
Problems in organization and execution 15
Ineffective warehouse management and fulfillment 8
Firm's Web site conflicted with existing business partners 6

Marketing expenditures designed to build brand recognition and attract customers to company Web sites were often misdirected. No fewer than 17 dot-com, representing a wide array of business activities, each spent $2.2 million for a 30-second TV spot during the 2000 Super Bowl. Observers concluded that many dot-com had failed to understand that branding is not a strategy and that brand recognition alone doesn't necessarily lead to usage and brand loyalty.

Leading service firms treat technology as a critical component of their overall business strategy. These companies continuously explore ways to use technological innovations to create value for customers and stockholders, enhance quality and productivity, and provide a competitive advantage for the firm. Such innovations often present opportunities for or even require a change of strategy among existing firms.

As we saw in Chapter, Kinko's has integrated the Internet into the firm's business model, using cyberspace to supplement existing, place-based delivery systems. Strategies of this nature are often referred to as clicks and mortar(also known as "clicks and bricks").

Other firms, like the software retailer Egghead (now Egghead.com), have abandoned physical space entirely in favor of the cyberspace alternative. Amazon.com, eBay, Webvan, and other "pure play" Internet firms have never had traditional retail outlets. From the customer's perspective, the goods they sell may be tangible but the companies themselves exist only in cyberspace.


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