Summary by Christina Thayer
Master of Accountancy Program
University of South Florida, Fall 2004
Outsourcing Main Page |
Service Industry Main Page
This article is concerned with the outsourcing movement that has affected the service industry over the past several years. The author details how the United States has moved from manufacturing, to mass production, to outsourcing and automation. While the latter may provide for reduced costs and economies of scale, these changes have also contributed to a loss of customer base and jobs for many Americans. Some companies, such as IBM and Intel, have proved their flexibility and adopted new strategies. As a result, these companies have been able to survive the wave of outsourcing and global competition. Other companies, such as Zenith and RCA, were unwilling to change their strategic processes and failed as a result. The author notes that the driving force behind the service revolution is technology. As technology turns information services into industrialized components, certain jobs will become vulnerable to outsourcing and global competition. In order to avoid this vulnerability, service firms must set aside business as usual and become open to change. The purpose of this article is to provide several recommendations related to how service companies can survive the industrialization of the service sector.
Understand Customer Preferences and Behavior
According to Karmarkar, companies should begin by focusing on the neglected links in the information chain, specifically the customer. Several examples related to how to do this are provided, starting with understanding customer behavior. Spending resources to better comprehend customer preferences and developing specific services for them will serve service companies well.
Understand the Demographics and Not Losing Site of the Customer
Another important tactic companies can employ to survive the changes in the service industry is to examine demographics to find ways to serve growing but neglected populations. Karmarkar also states that reassembling the information chain causes many companies to lose touch with their customer base, e.g., outsourced call centers. Companies that make it a priority to deliver responsive customer service will have an edge over their competitors.
End-To-End and Personalized Service
Introducing end-to-end and personalized services to customers will also prove invaluable to firms attempting to survive the revolution. The author states that companies would benefit more from competing for the entire information chain itself, rather than individual links within the chain.
Information Delivery
One last area in which companies need to effectively compete is to provide anywhere, anytime access to information. Companies must understand that it is the design of the technological service and the interface that produce success, not the appliance or technology alone. The main point to remember among all of these strategies is that it is imperative for service companies to spend their efforts on overcoming the depersonalization that technology has created between companies and their customers.
Realign, Redesign, Restructure
In order to meet the challenges previously discussed, managers must put themselves through a “technological boot camp” and reform the organization to move in tandem with the service revolution. This begins with realigning the organization's overall strategy. The main idea behind this is to align the cost structures and competitive platforms with the shortened information chain and with the changing demands of customers. The next step is to redesign the company’s processes. This involves making the processes more synchronized with those of competing companies and with customers. Finally, the organization must be restructured to build around the reformed information and value chain. Under this restructuring, companies must understand the impact of new technologies, distribute IT experts throughout the organization, and learn to deal with new global allies.
An adaptation of Karmarkar's illustration related to choosing an industrialization strategy appears below. The original illustration includes a discussion and examples of service organizations for each of the four cells in the table. The graphic below includes the applicable strategic concepts and some of the service company examples.
Only the companies that understand and accept the opportunities of the restructured information chain will survive the service revolution. This understanding begins with a company examining its own information chain and reforming strategies to meet the challenges ahead.
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