Services industries are important in building economic growth.
Services are economic activities that create value and provide benefits to customers at specific times and places (Christopher Lovelock, 2001). Service industries provide various kinds of services to businesses as well as end consumers such as financial services, computer services, tourism, retailing and distribution, recreation and entertainment etc. Service industries generate more than two third of revenue (GNP) and employment in the developed nations. Even in developing nations, the importance of service industries is growing. India is an excellent example of developing nation for this fact as service industries contribute to 60% GDP (Gross Domestic Product) there. Considering the impact of services on economic growth, organizations tend to find ways to develop their service offerings.
As the service industry is growing, there are more and more players entering in the market. In such scenario, success of any service organization depends on retaining/ acquiring customers. It is possible only with service innovations and new services developments that can provide competitive advantage to the organization. Service development encompasses not only designing new types of services but also designing better value propositions for the customers. The three facets of service development are quality, growth and productivity. Quality of service enhances customer satisfaction and helps in retaining client base. Growth relates to the new market segments or potential customer segments. Productivity is directly affected by business processes and related to costs/ profits. Most of the organizations emphasize on productivity only and adopt standardization to enhance bottom line profits. On the other hand, successful service organizations create their service offerings with a balance of the three factors.
Service organizations require two main systems to function properly, operating system and delivery system. As services comprise of many elements, a design is needed for creating smooth running system and delivering to customer satisfaction. Service mapping or blueprinting is a technique that can facilitate the designing of service. It brings together all the facets of services and helps the organization to identify the moments of truth along with a sense of service operation. (Peter Mudie and Angela Pirrie, 2006)
According to Larry Melillo, organizations must continuously develop innovative services to stay competitive and to meet the customer needs in a shifting market. To develop such services, organizations need to replace less valuable services with high-value, high-growth services that meet customer needs in a better way.
Service industries often segregate their services as front-stage functions and back stage functions. Front-stage functions are the ones that are visible to customers and back-stage functions are the ones that are invisible to customers. Most of the service industries put their focus on front-stage functions because these encompass the encounters between the service provider and service consumer. But to develop the service offerings, organizations need to adopt service system perspective that can lessen the design conflicts and tradeoffs between front and back stages. According to Robert J Glushko, the quality of service is enabled or constrained by the entire service system of back and front stage services that establish the context and satisfy the preconditions for the final service encounter to take place.
Service industries thrive on their services. In the shifting market, it is important to design new and innovative services to acquire new customers and to retain existing customers. Service innovation can happen at many different levels. Company can follow any of the following methods of new service development.
1) Major service innovationsare achieved by developing new service characteristics and adopting radical processes.
2) Major process innovations are adopted by the service organizations to deliver existing services in new more beneficial ways.
3) Product line extensions are developed to attract new customer groups/ segments. It is a market penetration technique.
4) Process line extensions are developed to offer higher level of convenience and enhanced experience to the customers.
5) Supplementary service innovations are achieved by adding new facilitating or enhancing service elements to the existing service.
6) Service improvements.
7) Style changes.
There are various ways in which a service organization can improve its offerings to enhance customer experience and to increase customer satisfaction.First step for designing new service is to gather market information and to measure potential demand for the service. Market research can help the organization in this purpose. For example, eBay started online auction services after careful market research.
Customer feedback is one of the most important parameters that can help a service organization to create/ change its services and/ or service delivery methods. There are various examples that substantiate this fact.
Operational management can be utilized for improvement in existing services. It is age-old method for increasing service quality. There are various techniques availablethat reduce wastage, processing time and increase efficiency. FedEx has revolutionized the distribution service industry with its hub and spoke concept.
Technology can also help an organization to enhance its services. For example, most of the financial services are now rendered online through Internet. This helps customers in saving time and getting quick response. Technology has revolutionized education industry. Now lectures via video conferencing and online assignments are integral part of the service delivery.
As stated earlier, front stage services as well as back stage services need to be aligned in such a way that maximizes the service quality and improves customer satisfaction.
For analyzing the service industries, I have chosen two organizations from different countries but from same industry (financial services). These organizations are Commonwealth Bank of Australia (Australia) and ICICI Bank (India). I have selected these organizations because both are successful in their respective markets and provide similar services to their customers. The difference lies in the fact that one nation (India) is developing while other is a developed nation (Australia).
Commonwealth Bank of Australia is Australia’s largest retail bank and one of the big four Australian banks. It is a vertically integrated business aligning product development and service delivery with market segments. This organization structure was adopted after restructuring in 2001. The four business divisions (Retail Banking Services, Premium Financial Services, Investment and Insurance Services, Institutional and Business Services) are created along with the lines of customer groups.
ICICI is the second largest bank in India. It provides a wide range of banking products and financial services to retail as well as business customers. ICICI have various subsidiaries that provide distinct services to its customers. For example ICICI Home Finance offers lending services to retail customers for financing house purchase while ICICI Prudential provides asset management and insurance services to the customers.
Both the organizations work in the financial services sector. There are various similarities and contrasts between the two organizations in their approach to building their services businesses.
Both the organizations have created their structure based on customer groups. Commonwealth Bank has created separate business divisions while ICICI Bank has created subsidiaries to cater the specific needs of its customers. This structural similarity is not exceptional considering the fact that customer is the focus in both the cases, which is essential for any service organization.
Both the banks have international presence. ICICI bank has created subsidiaries that cater to customers in United Kingdom, Canada and Russia. Besides it has branches and representative offices in various other countries across the globe. Similarly Commonwealth Bank has operations (businesses, branches and representative offices) in New Zealand, China, Indonesia and various other countries.
A contrast can be found between the two banks in the form of controversies. ICICI Bank has been the center for controversies for various reasons such as violating guidelines, harassing customers and engaging recovery agents. All these cases were related to credit recovery operations. Commonwealth Bank has not faced any such complaint. This difference has arisen from the fact that ICICI operates in a developing economy where legal system is not effective/ efficient in helping the financial institutions for recovery operations.
Another contrast can be found by analyzing vision statements of both the banks. Commonwealth Bank has a vision to be Australia’s finest financial services organization through excelling in customer service (March 2006). On the other side ICICI Bank has a vision “to be the leading provider of financial services in India and a major global bank”, which nowhere mentions its commitment towards customers. This difference may also be attributed to the difference in markets in which both the banks operate. India is a developing nation where productivity and growth are still considered above customer satisfaction (quality aspect).
Considering the discussion, one can realize the importance of service industries in today’s world. Services are essential part of our everyday lives. Service organizations need to develop new and innovative service offerings to keep the competitive advantage and to enhance customer base. From the example of ICICI Bank and Commonwealth Bank, it is evident that service industries require similar strategies and processes to achieve customer satisfaction and service quality. All the services generate revenue for their organizations and provide employment to the public, therefore contributing to economy in positive manner. For instance, more than 70% population of working people in USA is employed with service activities and service sector accounts for 80% of US GDP. Hence it is proved that service industries are indeed an essential block for economic growth.
Reference List:
v Glushko Robert J. (2008). Designing Service Systems by Bridging the “Front Stage” and “Back Stage”. Berkeley: University of California.
v Kotler Philip and Keller Kevin. (2008). Marketing Management 13th ed. NJ: Prentice Hall.
v Lovelock Christopher and Wright Lauren. (2001). Principles of Service Marketing and Management 2nd ed. NJ: Prentice Hall.
v Melillo Larry. (n.d.). Develop new service offerings [online]. Microsoft Corporation. Available at: <http://office.microsoft.com/en-us/project-help/develop-new-service-offerings-HA001207232.aspx> [Accessed on 22 May 2012].
v Mudie Peter and Pirrie Angela. (2006). Services Marketing Management 3rd ed. Burlington: Elsevier Ltd.
v University of Cambridge Institute for Manufacturing. (2007). Succeeding through Service Innovation: A Discussion Paper [online]. Available at: <http://www.sis.smu.edu.sg/programme/SSME/pdf/ServiceInnovation.pdf> [Accessed on 22 May 2012].
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