Milestone Group Quarterly: January 2005
Articles
By Invitation:
Jeffrey Rayport, Best Face Forward
The world of services is undergoing a revolution. All around us, companies are radically reconfiguring the ways they interact with customers. That, in turn, is changing irrevocably how people employed in all manner of service positions – which is most of the work force – relate to customers and their jobs. In airports, computerized kiosks dispense boarding passes and automated scanners read them at the gate. In concourses, fully automated store-in-a-box vending machines bearing retail brands sell books for WHSmith and office supplies for Staples. In drugstores, Kodak-branded kiosks with brightly colored touch-screens download digital images from cameras and mobile phones and print them on demand. In large- format retailers such as The Home Depot, self-checkout stations tally up shoppers’ purchases in nearly a thousand of the chain’s U.S. stores. In movie theaters, Fandango kiosks dispense prepaid movie tickets and sell new ones. Call these machines the offspring of the automated teller machine (ATM), but they bear little resemblance to their cash-dispensing forebears that originated several decades ago. You might argue that what’s happened in the interim – along with the underlying evolution in enabling technologies – is the Web, a mass-market training ground for consumers in dealing with the symbolic logic of point-and-click icons, pull-down menus, hyperlinked content, and electronic contexts for accessing services and transactions. Mass-market consumers of all ages and walks of life have embraced these machines – and adaptation of these consumers to new ways of interacting with the world has taken place with remarkable velocity.
The result is a revolution in the service sector that’s hard to understate: The front office has succumbed to automation in much the way manufacturing did over a century ago. The shift from human to machine labor in mass-market services resembles earlier industrial revolutions, when stream-driven turbines replaced living muscle in the early nineteenth century; when automation and dynamos transformed factories, mills and all manner of transportation in the late nineteenth century; and when data processors transformed the back offices of large corporations beginning in the 1950s. In each era, businesses found ways to substitute capital machinery for human labor – and capital expenditures proved, in economic terms, more attractive than labor. In some cases, work environments once populated by hundreds or thousands of people became work places populated by a few people managing large numbers of machines. In other cases, new roles for people emerged in the work place, especially in those businesses where the uniquely human attributes of people – such as creativity, problem-solving abilities, and interpersonal skills – translated into economic value.
For decades of modern business history, companies have interacted with their customers and markets predominantly through people in frontline service or managerial positions. The rise of the Internet and ubiquitous networks as platforms for commerce in the 1900s created the first glimpse of a different reality – one that put machines to work in frontline positions to manage transactions, interactions, and, ultimately, customer relationships. That revolution was limited in its impact, because it unfolded online. Even with e-commerce revenues set to achieve a significant proportion of retail volume around the world – in the United States, it’s projected to pass 5 percent in the next few years – online sales are still a relatively minor event in the greater scheme of commerce. We consumers are analog creatures; we live most of our lives offline, in a world composed of atoms, not bits. Online commerce is a phenomenon that’s happened on the periphery of our reality, not at its center.
Now, however, we are entering an age when many of the implications of the networked world are permeating the physical one. Ubiquitous and intelligent networks are reaching into offline realms. Smart and proliferating devices, which allow us to access those networks, are becoming part of our everyday world. The result is that Web screens anchored to bulky personal computers are not the only way in which the intelligence of machines is impinging on our experience of life. Now, a vast array of anchored and mobile devices, in mind-expanding and ever-mutating variety, is positioned to connect us continuously to global networks. That same array of devices and networks makes it possible for companies to relate to customers and interact with markets in radically new ways.
If you stop to think in these terms, there is much around us that is strangely different and even discontinuous from recent commercial reality. Ever time an airport kiosk issues a boarding pass, it’s playing a role in a dramatic substitution of frontline machine labor for what was, until recently, the exclusive province of human effort. Every time a pharmacy refills a prescription using an automated voice-response system, it’s using a machine to assume a critical front-office task once performed by the pharmacist in the store. When you leave a parking garage and use a talking vending machine to accept payment and validate your ticket, the transaction is one that, until recently, required clerks sitting at service counters to execute.
Each one of these examples reflects a facet of the front-office revolution unfolding today – the substitution of machine for human labor in the physical world of business. Automation has come to services. Devices such as kiosks, interactive voice-response units, Web sites, ATMs, and sophisticated vending machines are driving down the costs of customer interactions even as they enable more satisfying customer experiences. While automation of transactional services is not new, machines deployed on the front lines today have reached a threshold of intelligence, interactivity, and emotional appeal that is unprecedented; these attributes, when combined with networking, qualify such machines to manage human relationships with more sophistication than ever before. And the cost compression opportunities of such automation are as dramatic as any in the annals of reengineering associated with the back-office automation of two decades ago – or in the industrial automation movement that began over a hundred and fifty years ago.
At the same time, it’s become commonplace to pick up the phone seeking to contact a company and discover you’ve reached a call center in a far-flung location. Decades ago, telecommunications and financial services firms first sought to lower their costs of handling service calls by shifting their call centers from locations proximal to headquarters to ones in remote Midwestern states like South Dakota, then to offshore locations like Ireland, where labor rates were lower. With plummeting costs of long-distance communications, this kind of labor-rate arbitrage made sense. Often, those workers in remote locations were friendlier and spoke clearer English than their counterparts closer to home. Today, the fact of ubiquitous communications networks has created more dramatic outcomes, with professional as well as clerical service positions increasingly displaced to remote locations such as China, India, and the Philippines. In each case, corporate employers have concluded that they can hire better talent at a lower cost, improving the economics of their business while providing a better quality of interaction for customers.
Phenomena such as outsourcing and off-shoring, like automation in services, are part of the same story that’s driven by the confluence of these two trends – ubiquitous networks and smart devices. These trends are the underlying themes of this book. We argue that the forces associated with such evolving technologies are fomenting a radical reconfiguration in how the world’s leading businesses go to market. Networks create the flexibility in frontline service positions to deploy human talent that is physically proximal as well as geographically remote. Smart devices create the flexibility to interact with customers using machines as well as people. In short, networks enable displacement of service roles and functions; and devices enable their automation. The possibilities represented by displacement and automation, in turn, throw into question how just about every company competes today. Why? The opportunities for radical gains in efficiency and effectiveness related to how companies manage interactions and relationships with customers can enhance both enterprise economics and the differentiation of a company’s offerings and brands.
Of course, just as people who are remote can serve customers by connecting across great distances, machines can do the same. That was one lesson from the Internet revolution. The “death of Distance” means that remote Web servers could process transactions, for example, for e-commerce customers around the world, potentially transforming local businesses in to franchises with national or global reach. As these dynamics fold over into the physical world, they enable both people and machines to serve customers either in direct proximity or from remote locations. And the fact of connectivity itself means that people and machines can collaborate in new ways, too. Hence the power of a skilled call center representative, who can deliver over a phone line human warmth and empathy with database-driven precision in tailored services.
To apply these ideas about networks and devices, and the displacement and automation they enable, to a wholesale rethinking of how companies relate to customers and markets is what we call front-office reengineering. It is, we believe, how smart enterprises and their managers will compete for advantage now and in the future.
The reengineered front office is composed of three varieties of service interfaces. We define a service interface as a front-office element that mediates interactions and relationships between a company and its customers. Such service interfaces take shape according to three basic archetypes – people-dominant, machine-dominant, and hybrids of people and machines. We think of an interaction with a waiter as a people-dominant service interface (even if it is supported by computerized ordering systems). We think of a vending machine or a Web site as a machine-dominant service interface (even if it is supported by staffs for maintenance and development). And we think of a call center representative, who cannot perform his or her job without access to phone lines and database systems, as a hybrid service interface.
As companies aim to improve the efficiency and effectiveness of their interaction and relationship management operations, senior executives and managers must ask several critical questions of themselves and their companies:
- Does each service interface perform its functions optimally, or could our company do better by deploying people in place of machines or machines in place of people?
- Does each service interface perform its functions optimally, or could we do better by deploying people in collaboration with machines or machines in collaboration with people?
- Does each service interface perform its role optimally, or could we do better by deploying interfaces remotely if they are proximal, or proximally if they are remote?
In answering these questions, managers will inevitably recognize that some previously deployed interfaces have become superfluous in the reengineered operation. They may conclude that other interfaces are missing. These realizations stem from a fundamental insight that lies at the heart of what we argue in this book. While the vast majority of companies have sunk enormous investments into deploying broad arrays of service interfaces with customers, most do not, in fact, manage their interfaces – regardless of how well each interface is configured – in the context of what we call interface systems. When such systems function properly, they represent not a portfolio or uncoordinated touch-points or connections between companies and customers, but rather a unified and unique interface capability that manages relationships in integrated and seamless ways. When realized successfully, such interface capability drives down the cost of managing each customer interaction while driving up the quality of interaction. How? By gaining new operating leverage (in both costs and revenues) that ubiquitous networks and smart devices make possible.
We are talking about a radical reconfiguration of work and a radical rethinking of corporate strategy. It’s a fact that the vast majority of human beings in industrialized countries are consumed every day by jobs pertaining in some fashion to interaction or relationship management with customers. Leave aside the fact that the service sector itself accounts for nearly nine out of every ten jobs. To change how service work is organized and performed is tantamount to an industrial revolution.
Jeffrey F. Rayport and Bernard J. Jaworski, Best Face Forward: Why Companies Must Improve Their Service Interfaces with Customers (Boston: Harvard Business School Press, 2005). Copyright © 2005 by Harvard Business School Publishing, used with permission.
Jeffrey F. Rayport is founder and chairman of Marketspace LLC. Marketspace offers strategic advisory, customized executive development, and software development services and is a unit of Monitor Group, the Cambridge-based strategic advisory services and merchant banking firm. A faculty member at Harvard Business School for nearly a decade, Jeffrey Rayport focuses his research on new information technologies and their impacts on companies' service and marketing strategies, particularly in information-intensive industries. As a consultant, Rayport has worked with executives and corporations around the world, specializing in the development of breakthrough service strategies for network-based businesses, particularly in high-tech, media, entertainment, and data. With co-author Bernard J. Jaworski, Rayport has published three leading MBA-level textbooks on strategy in the networked economy (e-Commerce, Cases in e-Commerce, and Introduction to e-Commerce) with McGraw-Hill/Irwin.
At Harvard Business School, Rayport developed and taught the first e-commerce course in the United States. Established in 1994-95, his course, "Managing Marketspace Businesses," is a second-year MBA elective focused on technology-mediated services; the course has enrolled more than a thousand MBA students to date. In developing it, Rayport authored over a hundred HBS case studies. Business plans produced by students resulted in dozens of high-tech start-ups, including Yahoo! Rayport's teaching at HBS also included "Service Management" and "First Year Marketing" in the School's MBA program, and "Achieving Breakthrough Service" and "Strategic Marketing Management" in the School's Executive Education programs. Prior to his leave from HBS, Rayport was voted Outstanding Professor in 1997, 1998, and 1999 by the HBS Students Association. Rayport continues to teach executives at the School.
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