The service industry is booming, but is customer service improving?

Market factors such as liberalization and increased competition, coupled with growing populations around the region, mean that services and the concept of customer service are coming under increased scrutiny.

In its deliberation around services, the Middle East can look to European market analysis for some compelling trends.

In the UK alone, the services industry as a whole accounts for approximately 70 per cent of overall economic output, (CIPS/Reuters purchasing managers’ report, 1 June 2004). Worldwide, the services industry is undoubtedly a growth market.

In June 2004, Gartner, a leading provider of IT research and analysis, announced that the global IT services market expanded by 6.2 per cent in 2003. But is it really offering an optimum service to its clients?

A recent survey “The Effectiveness of S-Business,” conducted by the Association for Services Management International (AFSMI), in conjunction with Oracle Corporation, has found that the European services industry is unable to effectively calculate the value its customers add to their business. This is due to a lack of real-time customer intelligence and companywide IT integration.

The independent survey by AFSMI, a not-for-profit, educational association for professionals in the technology driven services industry, represents the first in-depth study of the European technical and technology services industry or S-Business.

The term ‘S-Business’ refers to organisations that are services-focused, services measured, and indeed services-driven, regardless of whether they also manufacture and sell products.

The survey is based on detailed interviews with influential service executives across Europe, of which 70 percent either have decision authority over total service business strategy or provide significant input to strategic issues and decisions. Four areas critical to service success were investigated: strategy, financial, customer-centricity and efficiency/effectiveness.

The research found that more than 70 percent of European companies surveyed are unable to determine customer revenue and profitability in real-time. As a result, there is little appreciation within these companies of the value each customer represents to their business and therefore how service and commercial responses should best be directed.

Most companies still respond to the customer that shouts loudest, regardless of their value. The inability to identify the truly valuable customer can be seriously detrimental to any business. Businesses could be losing some quiet but highly profitable customers who are walking away in silence and disgust.

In order to rectify this problem, companies need to achieve real-time business intelligence through better integration. However, AFSMI researchers found that two thirds of companies are struggling with this 'because most company systems were not designed for integration and certainly were rarely designed to accommodate the information-intense nature of a service business system'.

Almost half the companies surveyed (45 per cent) still consider the utilisation of information about customer or product performance as poor, suggesting inadequacy of systems or processes or both. Yet the information architecture to provide that business intelligence is already here.

More often than not, organisations already have the necessary information on their customers, but do not have the appropriate systems and processes in place to utilise the available data.

Business intelligence tools cover data quality, data analysis and information access. Deployed correctly, business intelligence enables companies to gain timely and accurate insight into internal business operations, as well as customers and suppliers. Ultimately, this should lead to greater business profitability and return on investment (ROI).

Worryingly, half the companies questioned still defined their culture as product-led, despite professing the significance of their service business.

Researchers found that only 30 percent of the companies analysed are customer-centric and even fewer, 18 percent, are service-led. Yet according to AFSMI, service now presents the primary opportunity for many businesses to develop and maintain closer relationships with their customers.

It is clear that a customer-led approach is more of an aspirational desire than a business reality. The lack of a true customer-led approach to business may be due in part to the fact that service executives seem to have a poorer understanding of the value of CRM than their colleagues in sales.

The study found that only 24 percent of service organizations view CRM as a significant driver of business development, whereas sales executives are the main driver (50 percent) of CRM activities. As a result, we find that CRM projects are often not implemented across the entire business.

According to AFSMI’s research, while companies increasingly recognise the importance of the service department and its relationship with the customer, many businesses lack a true service culture and their staff do not have the necessary management skills.

Top management struggles to recognise and understand the full value of service and how to transform strategic policy into operational reality.

The evidence shows that when implemented correctly, CRM can be hugely beneficial. Take Toshiba Medical Systems Europe. Before the Oracle CRM implementation, Toshiba Medical had no detailed information about how the organisation performed in terms of customer support.

Company surveys showed that customers were satisfied with the quality of the product but that didn't provide maximum insight. Furthermore, when a customer called Toshiba Medical for service, the company would have to find an available field engineer, who would most likely go to the job site without knowing the source of the problem and lacking information about the customer's history, the unit's history, and its configuration.

The Oracle CRM implementation immediately provides that information to the closest available engineer, whether he's serviced that machine before or not, allowing him to view that machine's configuration, diagnose the problem, and bring the right parts to the work site the first time he visits, saving time and money.

As the Toshiba Medical examples shows, all is not doom and gloom. The research suggests that management is beginning to act upon its belief that a successful business depends partly on a strong service department and a customer-centric approach.

In 2004, the majority of executives (79 percent) plan to hire new recruits to the service department – up from 63 percent in 2003.

A number of organizations in the Middle East, from banks to telecoms service providers to automotive service centers are either considering or have implemented CRM strategies, which reflects the new regional focus on service.

The outlook for the service revenue growth rate this year is also positive – 11.6 percent. Whilst the sales department remains at the forefront of CRM activity, service departments are making progress in that 21 percent are currently spearheading CRM efforts.

The survey found that customer-centricity in many leading organisations came when service-centricity was supported by enterprisewide CRM systems and processes.

As this research demonstrates, with the right information at its disposal, the Middle East’s emerging service industry can treat its customers in a more thoughtful, less haphazard way. In doing so, it can maintain its customer relationships, keep them loyal to the brand and see a healthy rise in revenue.