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DESIGNING AND MANAGING SERVICES | CHAPTER 13 377

To provide the best support, a manufacturer must identify the services customers value most
and their relative importance. For expensive equipment, manufacturers offer facilitating services
such as installation, staff training, maintenance and repair services, and financing. They may also
add value-augmenting services that extend beyond the functioning and performance of the product
itself. Johnson Controls reached beyond its climate control equipment and components business to
manage integrated facilities by offering products and services that optimize energy use and im-
prove comfort and security.
A manufacturer can offer, and charge for, product-support services in different ways. One spe-
cialty organic-chemical company provides a standard offering plus a basic level of services. If the
customer wants additional services, it can pay extra or increase its annual purchases to a higher
level, in which case additional services are included. Many companies offer service contracts (also
called extended warranties), in which sellers agree to provide free maintenance and repair services
for a specified period of time at a specified contract price.
Product companies must understand their strategic intent and competitive advantage in
developing services. Are service units supposed to support or protect existing product busi-
nesses or to grow as an independent platform? Are the sources of competitive advantage based
82
on economies of scale or economies of skill? See Figure 13.7 strategies of different service
companies.
Postsale Service Strategy

The quality of customer service departments varies greatly. At one extreme are departments that
simply transfer customer calls to the appropriate person or department for action with little fol-
low-up. At the other extreme are departments eager to receive customer requests, suggestions, and
even complaints and handle them expeditiously. Some firms even proactively contact customers to
provide service after the sale is complete. 83

CUSTOMER-SERVICE EVOLUTION Manufacturers usually start by running their own
parts-and-service departments. They want to stay close to the equipment and know its problems.
They also find it expensive and time consuming to train others and discover they can make good
money from parts and service if they are the only supplier and can charge a premium price. In fact,
many equipment manufacturers price their equipment low and compensate by charging high
prices for parts and service.

|Fig. 13.7|
Service Strategies for Product Companies
Strategic Intent
Protect or Enhance Product Expand Independent Service
Economies of scale • • Apple’s iPod music download and transaction • • Cardinal Healthcare’s hospital inventory-management
Source of Competitive Advantage Economies of skill • • • General Motors’ OnStar auto remote diagnostics service • • • IBM’s data-center-outsourcing services
management service (iTunes)
services
Cincinnati Bell’s billing services (now part of Convergys)
Otis Elevator’s remote monitoring and diagnostics services
Johnson Controls’ integrated facilities-management
Symantec’s virus protection and data security
services
services
Cincinnati Bell’s call-center-management services (now
Cisco’s network integration and maintenance
part of Convergys)
services
GE Healthcare’s hospital equipment—support and
services
diagnostics services for hospital equipment
• • EMC’s storage-management and maintenance • • General Electric’s aircraft-engine-maintenance services
SAP Systems’ integration services
• UTC’s utilities field support services • IBM’s systems integration services
Source: Byron G. Auguste, Eric P. Harmon, and Vivek Pandit, “The Right Service Strategies for Product Companies,” The McKinsey Quarterly, no. 1 (2006), pp. 41–51. All rights reserved. Reprinted by per-
mission of McKinsey & Company.