IBM’s Turnaround: Taking Service Seriously

January 28, 2010

I recently discussed Google’s response to the service demands on its new Android phone.  Google has prided itself on excellence, but has come up short with the Android offering, where hands-on service is a critical part of getting it right.  As I wrote in that post, the phone needs a different kind of customer interaction than Google is used to delivering.  If Google continues to rely on its standard service model, it will continue to struggle.

There was an interesting parallel in the NYT’s recent description of IBM’s turnaround, which has been fueled by its pivot to high-end services.  Why has IBM succeeded where others have stumbled?  In part, it’s because IBM didn’t underestimate the challenge.  IBM managers realized how much change was required to play and win the services game.  That may sound simple, but the emotional barriers to service excellence can be enormous.  Said differently, acknowledging that you can’t deliver great service without some serious soul-searching can be as important as whatever happens next.

What did IBM do differently?  The short answer is everything.  The longer answer is that it took service seriously.  And then changed its products, pricing, processes, human resources, and customer interaction.  For example, instead of designing a product that it then sold into organizations, it learned how to uncover a client’s problem and develop solutions to that problem.  Fortunately for IBM, many of its clients had similar problems, which has permitted standardization across solutions.

IBM gets 80% of its revenues from services. Just a few years ago it was 50%, and not too long before that, services were essentially a hobby for the company.  IBM has demonstrated that it’s possible for a product company to play the service game, but pulling it off requires new attitudes about customer needs — and a deep humility about the road ahead.   When that kind of humility meets those kinds of attitudes, the outcome is happy customers. And when you throw standardization into the mix, now you have a service business.

Competing on Customer Pain Points

May 13, 2009

In a recent Business Week article, Virgin Mobile and ING Direct were singled out as companies that are winning by defying industry trends. In particular, these companies are designing services that honor their customers’ preferences and aversions. The article quoted Peter Lurie of Virgin Mobil on its policy of abandoning the much-loathed customer lock-in:

It’s not about inventing a new technology; it’s about providing better service in an industry where [service] is done poorly.

Similarly, ING Direct has responded to its customers’ hatred of legalese and small print by creating a two-page home loan agreement. It’s similar to Commerce Bank’s decision to reject “bankers’ hours” and serve its customers on nights and weekends, when they actually have time to go to the bank.

We celebrate these examples because they are the exceptions. The norm was also captured in the article, personified by Duncan MacDonald’s experience as a Citibank executive when he warned against “penalty pricing,” or the use of fees for almost every imaginable infraction as a way to boost profit. “I was asked to resign three days later,” Duncan recalled.

I am often asked where to begin the service innovation process. One place to start is the well-understood customer pain points in your industry, the cracks in the sidewalk that everyone’s walking around, resigned to their existence and convinced that they’re not fixable. A brief history of service competition should convince you that these cracks are opportunities. Virtually every service industry I know is inflicting pain on their customers, which makes these industries ripe for disruption by a service model that champions the customer. In my experience the customer gratitude you’ll generate can translate reliably into profits.