Feature Article

ASU's Center for Services Leadership a Resource for the Innovators: Companies Discover Profit Opportunity in Services

Liz Farquhar, W. P. Carey School of Business

Companies searching for new streams of revenue are seeking out the Center for Services Leadership at Arizona State University's W. P. Carey School of Business for research and executive education in managing and marketing services.

That’s because services – formerly seen as a cost of doing business – have migrated to the revenue side of the ledger. And many companies, notably manufacturers and technology providers, now perceive services – solutions – as products unto themselves. Best of all, service products usually increase not only revenues, but also profits. As a result, some companies are looking into the future and see themselves reconfigured as service companies.

None of this is surprising to Professor Stephen Brown, Director of the Center for Services Leadership, who has spent the past 20 years tracking the growing importance of services as a product. “Customer demand and the competitive challenges posed by the commoditization of many products has pushed many goods-based companies to take another look at services as a source of revenue and profit,” Brown said. “Many are following market leaders to become goods-and-services companies.”

For example, Boeing has broadened its offerings by adding the lucrative market of services to its aircraft manufacturing. The Hewlett Packard and Compaq merger created a new company whose major product is services. IBM’s impressive financials over the past decade – in shining contrast to its competitors – were largely the result of its service businesses.

The edge of change is a familiar place for Brown, who was one of the first scholars in the marketing field to realize that marketing services is different from marketing a product in a box. Companies interested in managing and marketing services to control quality and gain competitive advantage face special challenges, he argued. Not so said his traditional colleagues; marketing services is just like marketing soap in a box.

The opposing ideas were hotly debated in marketing circles, and Brown’s was one of the most articulate voices. When the dust settled, the W. P. Carey School of Business had founded the Center for Services Leadership to focus on the resulting new discipline. Brown is its founding executive director.

The Center remains the only one of its kind in the United States, devoted to research and education in the services field.  Its reputation is grounded in the research excellence of  Brown and colleagues such as Center Academic Director Mary Jo Bitner, another services marketing pioneer.  Their research findings form the foundation of the Center’s executive education program, attended by managers and executives of leading firms.  Member companies include AT&T, Charles Schwab and Co., Ford Motor Company, IBM, Mayo Clinic and others, who sponsor research, fund scholarships, host MBA student teams and participate in executive education. The Center also adds depth to the W. P. Carey MBA services marketing and management specialization.  Students in this nationally-ranked program benefit from research opportunities and access to the Center's education programs.

From Smile Training to Break-Out

Brown has watched the development of the services industry from its origins in customer service, to the newest concepts of services as the product.

Customer service is the beginning of the story.  Smart businesses realized that no matter how great their product was, customer loyalty depended heavily on the quality and outcomes of their contacts with the company.  An approach that is customer-focused and responsive is still the bedrock of most successful companies.

Next came value-added services, which augmented the physical products a company sold.  “These have traditionally been free,” Brown said, “but in a business-to-business environment, services like training, help-lines and software enhancements are now becoming part of the revenue stream.”

The latest development, which is driving the transformation of some of the largest companies, involves the growth of new service businesses within the organization.  “These are separate from the product line, but related to the firm’s core competencies,” Brown said.  An example is a medical supplies company, which expanded the service it offers to hospital customers to include management of its complete supply chain.

Through the Center for Services Leadership, W. P. Carey faculty develop research that investigates the implications of this trend.  Companies like Ford Motor Company, IBM, Hewlett Packard, Yellow Corporation, RR Donnelley and LensCrafters seek out the center for insights into the services landscape that lies ahead.

Many of these companies sponsor research that is published in academic journals, and shared at the Center’s executive education forums. Bitner, for example, has been studying the effects of self service technologies (SST), working with Ford and a major pharmaceutical benefits management company.

“Technology allows us to interact with customers in different ways; it can be quicker and easier – often at a savings compared to providing the same service on an inter-personal basis,” she said.  “Many companies pursue SST because of this cost savings, but if they don’t think through the impact on customers they might wind up spending more on correcting the problems it causes.”

Bitner’s work uncovers customer attitudes about SST, catalogues positive and negative experiences, and suggests ways companies can tailor their service options to keep customers happy.

Another stream of research led by Brown focuses on service failure and recovery.  A major project underway is examining the financial consequences of failures and recoveries for a major retailer.  Brown points out that customer failures are inevitable in service businesses.  The Center's research is addressing the costs of losing a customer and the long term value of retaining a once-disappointed customer through effective service recovery.

Sharing knowledge

Each year the Center facilitates the flow of expertise throughout the corporate arena through its executive programs.

The Center's annual "Compete through Service" Symposium brings together executive speakers from companies that excel in the strategic use of services as well as key faculty from the W. P, Carey School of Business at ASU.  Attendees, including senior  executives from leading companies, will learn from a line-up of dynamic presenters how these firms have used services to provide innovative solutions for their customers and highly profitable revenue streams for their firms.  The talent and experience at the podium and in the audience of this symposium led nationally syndicated columnist Dale Dauten to describe it as “a gathering of lions – the place where the best come to learn from one another.” 

Each spring the Center's faculty and other distinguished academics from across the country join forces with knowledgeable business speakers for the Annual Services Leadership Institute at the W.P. CareySchool.  This event is like an exclusive mini-MBA program for both product and service companies in increasing the competitiveness of their firm's service offerings.

The Center also offers its member companies specific educational programs.  For example, for over seven years the Center for Services Leadership has been Yellow Roadway Corporation's primary education partner.  During this time, the transportation services company has transformed itself from being one of America's least admired companies to being number one in its class in Fortune magazine's annual assessment.  The center has educated Yellow's executive, operations and sales leadership on how to become a customer-centric enterprise.  Recently the center has worked with RR Donnelley, the giant printing company, in helping guide a similar transformation. 

It’s that kind of applicable knowledge that is building interest in the Center for Services Leadership.