The Four Crucial Elements of a Successful Service Business

As the world’s major economies have matured, service-oriented businesses have come to dominate. However, many of the management tools and techniques used by service managers were designed to address the challenges faced by product companies. Are these adequate, or do we require new ones?

Let me argue that some new tools are required. When a company brings a product to market, whether it’s a basic commodity like corn or a highly engineered offering like a digital camera, the company must make the product appealing while also fielding a workforce capable of producing it at a reasonable price. To be sure, neither job is easy to do well; enormous amounts of managerial and academic attention have been devoted to these challenges

Any of these four elements—the offering or its funding mechanism, the employee management system, or the customer management system—can be a service company’s undoing. My analysis of service companies that have struggled over the last decade demonstrates this amply. What is equally clear is that there is no “correct” way to combine the elements. The appropriate design of any of them is determined by the other three. When we look at successful service businesses, such as Wal-Mart in retail, Commerce Bank in banking, and the Cleveland Clinic in health care, it is their effective integration of the elements that stands out more than the cleverness of any individual element.

Any of these four elements—the offering or its funding mechanism, the employee management system, or the customer management system—can be a service company’s undoing. My analysis of service companies that have struggled over the last decade demonstrates this amply. What is equally clear is that there is no “correct” way to combine the elements. The appropriate design of any of them is determined by the other three. When we look at successful service businesses, such as Wal-Mart in retail, Commerce Bank in banking, and the Cleveland Clinic in health care, it is their effective integration of the elements that stands out more than the cleverness of any individual element.