Industrialization of Services: How is it Possible to Industrialize Services?

By Daniel Delank, CSO & Global Vice President IT D-4Growth, T-Systems

Daniel Delank, CSO & Global Vice President IT D-4Growth, T-Systems

The industrialization of services is a key factor in maintaining the prosperity of large parts of the population. Looking at service companies, however, it is noticeable that very few of them operate standardized and automated processes. In fact, in the age of digitalization, even in a sector with a high degree of customer-facing contact, industrialization is not only possible, but even essential.

• Industrialization is a process of standardization and automation which enables businesses to achieve continuously quality improvement while at the same time cutting production costs.

• Procedures in service companies are both customer-facing and back-office in nature. Back-office functions can be industrialized without any negative impact on customers. Indeed, they experience discernible improvements, as processes are optimized, and so the service is delivered faster and to a higher quality standard.

Industrialization is an integral element of modern-day life. But opinions are divided as to whether it might also be of benefit in the service sector. The argument goes that the methods of production optimization cannot be applied to services without damaging the relationship with the customer.

But what does industrialization actually mean?

Industrialization is a very wide-ranging concept, but it is generally understood to refer to a process whereby companies standardize and automate their working processes and procedures. A key principle underlying industrialization is rationalized and, as far as possible, complete planning of the production process. It creates transparency in calculating production costs, and enables scalability of product quality and quantities. The transparent calculation of production costs has created greater strategic flexibility than ever before, which is opening up new potential for companies to realign their business. Another key factor in industrialization is the breakdown of individual core processes into single activities. They can then be grouped into more complex sequences of actions in order to in turn create processes.

Continuous quality improvement while at the same time cutting production costs has led to huge technical advances in the last 250 years, which have in turn enabled the present-day prosperity of large numbers of people in industrialized nations.

As one example, Amazon recently launched a new shopping concept with "Amazon Go", opening the first store to operate without checkouts, in Seattle. "Amazon Go" enables shoppers to place products in their bags and simply walk out of the store. The amount payable is subsequently debits from their Amazon account. All shoppers have to do is scan their phone to check in and out of the store.

However, process optimization to date has been almost exclusively in the production environment; service sector examples such as "Amazon Go" are very rare. In fact, it is immediately obvious when looking at service companies that many processes are still improvised and carried out manually. Despite this, there are also recurring business processes in the service sector which can be standardized and automated by state-of-the-art technology just as in industrial production.

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Since the benefits of industrialization increase with the size of the organization, it is likely that it will be primarily of interest to big companies in offering their customers tailored solutions at lower cost and in higher quality.

But if industrialization is so advantageous, why has it not been introduced into the service sector long ago? Companies are concerned that standardization and automation are not in keeping with the demands of personalized service delivery, and worry that their relationship with their customers might be damaged as a result. Such assumptions are largely unjustified, however, as a number of companies have already demonstrated. Considering the business model of MyMuesli, for example, it can be observed that – despite the standardization processes which the company has implemented – its product depth appears to be almost unlimited.

The Customer as an 'external Factor'

The customer can be regarded as an 'external factor' who is only partially involved in the service delivery process. The processes running in the background can be industrialized in the same way as manufacturing production processes, without impacting on customer-facing processes. Based on the current state of the art in information and communications technology, rationalizing procedures can cut costs, increase speed, and so create a competitive edge. Those outcomes ultimately benefit not only the business, but also the sales function, and so also the customer.

Applied to the example of a bank, while the main focus is on advisory services to customers, there are numerous processes and procedures running in the background away from the customer. It is often even the case that most staff are engaged in work which the customer never sees. If back-office processes and procedures are standardized and automated, the work will be carried out faster, and advisors will have more time to – ideally – devote to their customers. Standardization also means that a number of potential sources of error due to the human factor can be ruled out. Consequently, customers not only enjoy faster and better service, they also have the benefit of higher-quality advice.

Industrialization of services: Differentiation between customer-facing and back-office functions

It is therefore important to break down activities into customer-facing and back-office functions in order to realize the potential of industrialization. This division enables back-office functions to be comprehensively industrialized. As a result, the customer-facing functions can provide an optimum quality of service. The division also facilitates a further industrialization measure: outsourcing. In-house division of labor makes it easier to assign tasks to external specialists and so also implement cross-company specialism.

Industrialization can also enhance the personalization of services by linking standardization to modularization. If complex services are broken down into single modules and produced on a standardized basis, recompiling them can be much more personalized, and above all made faster and more cost-effective. This modular principle is not a new invention. It is a long-established, successful practice in traditional manufacturing sectors such as the automotive industry. It is only in the service sector that the principle has to date been rarely implemented. One reason for that might be that a successful implementation has to be very well planned strategically and put in place effectively and consistently.

In conclusion, it can be stated that the industrialization of services is possible. However, for it to succeed it is crucial to find a balance between rationalization and customer orientation, and to ensure thoroughly planned organization and implementation. If a company is able to do that, it will be able to offer its customers a personalized yet low-cost service, and so create a competitive edge for itself.