Business services are non-financial services that companies and consumers require to operate their businesses. Examples include consulting, transportation, warehousing, human resources management and security services. In addition, many small businesses rely on outside service providers to provide bookkeeping and accounting services for them. These services are often referred to as “value added” services, and they allow a company to focus on its core operations. However, a successful business services strategy requires careful planning and excellent customer service to be profitable.
The primary difference between service and product-based businesses is that products are tangible and can be inventoried, whereas services are intangible and cannot be stored or carried for future use. In addition, the delivery of services is inherently more complex because of their highly variable nature. This makes it difficult to standardize and measure the performance of a service. For these reasons, a successful service-based company must excel at four critical aspects of service design.
Unlike manufacturing companies, which can rely on scale and economies of scope to drive down production costs, service businesses must be able to duplicate their services at the local level in order to compete effectively. As a result, they must invest in training and development of the staff that provides their services. In addition, service firms must compete on the basis of their service differentiation, or brand identity, to develop a distinctive reputation that can serve as a barrier to entry and increase the firm’s profit potential.
A common challenge of service-based companies is that it can be difficult to establish the right balance between the autonomy of revenue generating line managers and the collaborative work of shared service units. Without strong, centralized leadership, revenue-generating line managers may overrule shared services managers and undermine the performance of the organization.
Another issue with service business is that it is generally impossible to establish a cost-based price for a service because customers have no way of comparing prices or services. Instead, the pricing for most services is based on the perceived value of the service to the customer. This creates pricing volatility and the need for a company to offer high levels of customer service in order to attract and retain clients.
Lastly, it is also challenging for service businesses to improve productivity and efficiency because the majority of these activities are performed by people. Inconsistency is a natural part of the human experience and can impact a company’s ability to meet its client needs in an efficient manner.
One of the best ways to address these challenges is through business process improvement (BPI). BPI involves automating processes and implementing new technology solutions to streamline the operations that keep your company running smoothly. In addition, BPI can help you uncover inefficient processes and reduce your operating expenses so that you can save money and free up valuable resources for strategic initiatives.