Once a year, I have the privilege to teach an MBA class titled “Building Service Organizations.” My goal is to introduce budding managers to the nuances of building and optimizing human capital intensive service organizations. In the first day of class, I flash this diagram:The point is simple: we are living in a services economy. This means, as young managers, you need to learn how to build service businesses.
- It is my opinion that the current curriculum of business schools is severely failing on the topic of building service businesses. Students can obtain graduate degrees from the leading business schools in the world and never be introduced to critical concepts such as:
- Pricing intangible services
- Tactics for scaling human capital intensive businesses
- Financial business models for various types of service businesses
- Product-Service business models
This is simply not right. At least the Fisher College at Ohio State University has been kind enough to indulge me in my outrage and allow me to teach this course once a year. The course culminates in a final exam which is short answer and essays. One of the essay questions I asked this year was as follows:
After studying the complexities of building service capabilities, what do you believe are the top three (3) challenges a company faces when they decide to create a service organization? Describe, in detail, each of these. Explain why these three challenges are the most significant.
Now, keep in mind that these are second year MBA students. This is the first exposure they have had to any content related to building a service business and the nuances of building a service business to complement a product business. Read some of the excerpts from their answers:
“The first major challenge is getting the charter for the services organization correct. This drives the structure and the decisions of the organization from the top down. If the charter is not understood, the financial results for the services organization may be off target with management expectations.”
“Generally speaking, Wall Street does not view services as a great offering compared to products. The threat of the stock dropping in value is enough to keep product companies from looking into services.”
“Companies can get into a thrashing cycle when trying to develop a service business because they lack the required patience. A company may feel they need services, but lack the patience to fully develop them, which causes them to constantly try, and fail, at building service capabilities.”
“When a product company decides to create a services organization, they can estimate the costs of delivering services. However, they won’t really have an idea of the financial model for the services business until they start delivering the services. Pricing, demand, and availability of human capital fluctuate from the original plan.”
“I believe that companies have trouble getting buy-in across the business for a shift in the mix of products and services. Top leadership will want to please shareholders, who are short-sighted about the business.”
“I think the top challenge is that product companies blend their support services revenues into total service revenues. This creates a misleading image of the true profitability of all service lines which can create the wrong expectations on service profitability.”
“Many companies are successful because they focus on their core competencies. They are strongly biased towards existing products. New service offerings may be seen as diverting focus on resource from a core function.”
These are insights and understandings based on taking one quarter of service related content. Can you imagine how prepared they would be for a services economy if they could major in this topic?