In the beholder's eye

Roy Goni, Contributor, Jakarta

A number of managers from U.S. service industries appearing on a CNN newscast in April 2000 voiced their concern over today's business realities.

One of their statements raised the issue of good service amid the general lack of attention to customers' needs, while others complained about the fact that only relatively unqualified personnel could be recruited.

The grievances in fact constitute a description of how the market is currently undergoing a major upheaval, leading toward what some experts call 'the new economy', a new reality that reforms the norms of productivity, growth and profitability, and at the same time demands a change in business management.

Many managers may not realize that the revolution of information spreading over the business world since the 1960s with the emergence of information technology, such as computerization, has brought about a structural change leading to a shift from the manufacturing to the service sector.

This phenomenon requires a service-focused approach in business management. The problem is that the rates of productivity in manufacturing are not the same as those in services.

According to Prof. Roland T. Rust, director of the Center for Service Marketing, Vanderbilt University, there are two reasons for the difference. First, the productivity of services is very hard to measure, indeed, no standard can be applied yet. Second, computerization in the service sector was less efficient during its early implementation phase due to slower computer operations.

A big change started in the 1990s when the information revolution struck across the globe, bringing with it a great impact on the world economy. In the past decade, the contribution of service industries to gross domestic product (GDP) growth in the US reached 75 percent. Likewise, in Asian countries such as Hong Kong services shared 80 percent, and in Singapore, Japan and Taiwan 60 percent, of GDP.

In Rust's view, in facing the new economy companies must pay attention to three aspects. First, they should be outwardly- focused in order to earn revenue; second, long-term orientation is needed because relations with consumers are long term in nature; and third, service excellence for the satisfaction of consumers is the key to future success.

In response to this wave of change, management needs to revise the paradigm of quality so far followed. Quality guru Philip Crosby says that quality is free. His principle is that enhancing quality through products with minimum defects can be achieved by improved efficiency, which reduces costs and finally enables the supply of goods that satisfy consumers' demands and encourage repeat purchases.

The ultimate goal of this approach is a business model capable of maximizing its quality promotion and therefore ensuring consumer satisfaction, while optimizing productivity as well. However, research conducted in Sweden through the Swedish Customer Satisfaction Barometer has proved that the 'quality is free' concept does not have any concrete impact on service industries. Service companies attempting to replicate this concept by maximizing quality/consumer satisfaction and productivity at the same time tend to reduce their profits.

What is quality? In manufacturing, quality is always characterized by standardization, or adjustment to specifications, but in services it has the general aim of accommodating the specific needs of consumers. So, in service industries quality is characterized by customization, or meeting customers' expectations.

The problem companies frequently face is how to make a tradeoff between quality/satisfaction and productivity. In reality they can adopt two strategies. First: the high-service strategy, emphasizing revenue increases with prime service quality and efficiently guaranteeing customer satisfaction. Citibank is an example. Second: the lowcost strategy, stressing minimum cost with minimum services at low prices, such as Makro retail networks and Garuda Citilink.

Both strategies can perform well but in this new economy era, also often dubbed the era of 'customer sovereignty' with great emphasis on long-term customer loyalty, the high-service strategy is more suited to companies planning to build strong ties with their customers. The understanding of quality in this period should be put in the context of customization, by translating the specific needs of buyers into customer satisfaction.

From this perspective, corporate marketing strategies should be reformed and placed within the paradigm of service-oriented organizations.