Research

Welcome to the future: Smart services improve quality, lower cost, foster innovation

At the 20th Annual Compete Through Service Symposium, hosted by the Center for Services Leadership at the W. P. CareySchool of Business, business leaders from all industries gathered to discuss (in part) how technology can help companies differentiate themselves in the market. In one panel discussion, four business leaders at the cutting edge of the services evolution demonstrated how technology-enabled or technology-delivered services — often referred to as "smart" services — can help an organization improve its customer service, reduce its cost to service, make more money through new innovations, and even reduce its environmental impact in the process.

2009-12-07

Quality is assumed, delivery and price are the ante to the game, but customer service is what differentiates leaders from followers in the market. — John Beimfohr, Director of Integration at Avnet. For 15 months, the W. P. Carey School's Center for Services Leadership worked with businesses and academics around the world to develop a list of priorities for services research in the coming years.

"One of the ten priorities that emerged is tied to the significant influence that technology has on services. Within that broad area is a special type of technology-delivered service often called smart services," said marketing Professor Mary Jo Bitner, the academic director of the center. "Smart services are the wave of the future for many companies — across industries," Bitner said.

"They allow service to be delivered remotely through technology (e.g., in-home health monitoring equipment) or even machine-to-machine (e.g., remote repair of complex equipment). Creative use of technology-enabled or technology-delivered service can be good for business, good for consumers, good for the overall economy and even good for the environment."

Technology — which puts the "smart" in services — can be so good for consumers, businesses, the economy overall, and the environment because it can make service more efficient (and, by extension, less expensive) and because it can make service better, Bitner said.

"Smart services also offer the opportunity to create entirely new service offerings, never imagined before, which is good for customers and also company revenues. Smart services can substitute for more time-, resource- and people-intensive services — making them more cost-effective and also less polluting than some traditional services," she added.

Using smart services to provide services more efficiently at a lower cost

"Smart services have been around in some form or fashion for decades," said Mark Vigoroso, director of strategic market development at nPhase — a Verizon Wireless and Qualcomm joint venture, which specializes in machine-to-machine (M2M) technologies that enable smart services.

But, "technology has now evolved to the point where M2M technology is accessible to many more companies in many more industries," he said. nPhase works with cellular wireless carriers like Verizon Wireless to enable companies in segments like consumer electronics, healthcare, energy, telematics, and industrial equipment to build new service offerings based on connected devices.

"It has become economically viable to build service models around product connectivity — which is the fundamental capability we're talking about with smart services," said Vigoroso. That economic viability, he added, arises in large part from the evolution of wireless connectivity — which has become more ubiquitous, more affordable, more secure, and more efficient.

"In previous decades, connectivity required physical infrastructure to wire a machine on a local network and then deal with a point-to-point dial-up system," he added. But today, wireless technology removes much of the physical infrastructure component to make connectivity more efficient and less costly. Vigoroso has been intimately involved in his former role at Qualcomm and now current role at nPhase in validating business cases for smart services offerings.

"A customer might have a machine that's highly critical to the business process. The cost of downtime or interruptions in that machine's output is extremely high," Vigoroso said. ABB Power, for example, uses nPhase to remotely monitor high voltage circuit breakers, which are insulated by a gas that's highly toxic if it's released into the atmosphere. With nPhase s offerings and support, ABB Power can efficiently predict and prevent gas leaks.

"The utility industry is facing an aging grid system that will benefit from the ability to monitor assets efficiently and in real-time. With nPhase solutions, companies like ABB can prevent power outages, provide advanced condition-based maintenance, maintain environmental compliance standards, and reduce costs by wirelessly monitoring dispersed assets such as circuit breakers," nPhase said in a recent press release.

But smart services are by no means limited to post-sales services delivered around a capital asset, Vigoroso indicated. In fact, some of the most viable connected-device business models involve delivering digital content of all kinds to consumer products like eBook readers, personal navigation systems, and even consumer durables.

Using smart services to provide innovative, higher-quality services

Glen Hinshaw's start-up company, eSoles LLC, is leveraging smart services to improve an age-old technique of fitting and manufacturing custom insoles for athletes. A professional cycler, Hinshaw several years ago developed a foot problem that doctors said could be corrected by orthotics (insoles).

"But they wanted to mold my foot for the insoles using plaster casting material," Hinshaw said. "I used that in art class as a kid." And when Hinshaw got new shoes — about once every year — he had to repeat the process all over again, despite the fact that his foot hadn't changed much. So Hinshaw set out to find a better way to mold a person's foot and digitize the record.

He created a system to take an image of his foot, digitize the image, and then send the information to a machine that would cut an insole with the specific arch or curve he needed for the specific sports he was doing. He built a wireless kiosk to take 3D and 2D images of the customer's foot and create an imprint — which is then saved on the company's website for the customer to access any time.

In that way, eSoles LLC makes fitting insoles easier — customers can do it at a wide range of locations, from Sam's Club to PGA Tour shops — and less expensive, because the service is automated. Perhaps most importantly, Hinshaw said, eSoles has leveraged technology to make the insole fitting process better.

Using smart services to help the environment

While helping the environment may not be a first-order goal of smart services, it will become a very real benefit for many companies. Seth Kiner, director of customer experience management and marketing at energy company Southern California Edison says that smart services will allow the company to "put the user in control — to allow them to become smart users of energy, to decrease their energy bill and reduce their carbon footprint."

That, Kiner says, starts with providing information. "Our smart meter will be the gateway. It will allow our customers to see their energy usage in real time and then to take action based on that information. Smart services allow us to make that information meaningful and taking action simple." Southern California Edison's smart services system will interconnect all of the appliances in a home. "We're building an ecosystem," Kiner said.

For example, by interconnecting the electric car in the garage to the home's other appliances, the system will be able to choose the best time to charge the car and the best time to run the dishwasher — even using the car's stored electricity to power the home, when that is most efficient.

Or, Kiner said, by connecting the home's smart system with a GPS in the homeowner's phone, the system will be able to automatically start the air conditioner when the homeowner is 10 minutes away — meaning the homeowner could come home to a cool (or warm) house without leaving the A/C (or heater) running all day.

Evolving technology without losing sight of the human element

Traditionally services were all about the "soft" — the human — element. As the interplay between technology and services develops, as smart services become even smarter, how do companies balance that "hard" technology side with the "soft" human side?

Tony Matessa is director of business development, technology innovation and partnerships at Cardinal Health, which distributes medical and pharmaceutical supplies to hospitals. For him the key is to never develop technology for technology's sake. "We have to be careful not to overwhelm the hospitals with bells and whistles when they really just want the products to get to the right place on time."

"We're putting high tech to high touch," Matessa said of his company's efforts to streamline hospitals' supply chains through smart services. "Our answers come from listening to our customers — that's why we have people on site at most of our hospital customer locations." Southern California Edison's Seth Kiner said, "It's really about co-creating technology-enabled services with our customers. The best way to develop smart services is to invite customers into the process."

That's particularly important for a company that's designing a never-been-done-before service tool like a home smart meter. "Focus groups and quantitative research don't work because our customers can't articulate needs they don't know exist." So Southern California Edison designs by trial and error. When the company was first building its smart meter, for example, it measured energy use in kilowatt hours — the traditional measure in the energy industry.

But customers had no way to conceptualize what a kilowatt hour really was — what it meant to them. So the company went back to the drawing board, to recreate its smart meter around the dollar impact of the customer's energy consumption. Southern California Edison faces the additional challenge of replacing human meter readers with its smart readers.

"The fact is that we're moving a piece of the workforce, which impacts jobs and livelihoods. But we're finding that smart services will allow us to transform, rather than replace, our workforce." For example, former meter readers may help customers set up the smart meters in their homes. "Machines don't run things by themselves, they need humans," said eSoles CEO Glen Hinshaw.

He sees a lot of customer interaction, despite the fact that people are getting fitted for their insoles at an unmanned kiosk, not a doctor's office. "We've received lots of customer feedback," he said. For example, the company developed a microchip that is implanted in the insole which relays information to the web or a handheld device to help athletes improve their performance.

After seeing the product, a doctor asked Hinshaw if he could modify the technology to provide heat and pressure information for people with diabetes, who are highly susceptible to blisters. The doctor's suggestion is now a new product in development at eSoles. "It's about the collaboration between humans and technology," said Hinshaw.

For nPhase, marrying the "hard" with the "soft" is about maintaining a downstream mindset. According to Vigoroso, when smart services initiatives fail it's often because they were internally-focused, with "no mind paid to what's at the end of the road as far as value accrued to the customer."

Challenges in evolving smart services

Clearly, developing smart services is not easy. A challenge for Cardinal Health, said Tony Matessa, has been moving from a product distribution mindset to one that focuses on delivering smart services that help hospital customers improve the efficiency of products get from the hospital dock to the patient bedside. It's an evolution that is important for the company, though.

"We're trying to create added value through services so we don't become commoditized." But, Matessa added, "In a very large company, it can sometimes be a challenge to change the way services are delivered overall. As an advocate for technology across the company, my job is to advocate for smart services, because innovation is the oxygen that will lead to our company's and our customers continued growth."

The question Matessa struggles with is "How do we get the organization to increasingly adopt innovation and smart services?" For Seth Kiner at Southern California Edison, the biggest challenge has and will be getting customers engaged.

"We have a very diverse customer base. The early technology adopters can't wait to get smart meters in their homes," Kiner said. "Other customers are very skeptical about having smart meters — which communicate with the electric company — in their homes. Most simply don't want to think about it."

It's a difficulty that the company is still figuring out how to overcome. Mark Vigoroso said the biggest challenge for nPhase has been differing protocols among machines that need to communicate. "It's pretty difficult to run a business when everyone's speaking a different language," he said. nPhase is working on a "decoder ring" which would allow machines to more easily communicate with each other.

"It's the UN approach to managing these machines," Vigoroso said. Despite the challenges, smart services are, as the Center for Services Leadership's Mary Jo Bitner said, the "wave of the future." Technology-enabled and technology-delivered services can raise quality and lower costs.

They can allow us to do things we didn't think were possible. They can help us reduce our environmental impact. From "Bicentennial Man" to "I, Robot" we've long been drawn to technologies that can make our lives easier, and better. And while robots that become human or take over the world aren't likely in our future, the fusion of technology into services is.

Bottom Line:

• Technology-enabled and technology-delivered services — often called "smart" services — are "the wave of the future," according to W. P. Carey Marketing Professor Mary Jo Bitner.
• Smart services can benefit consumers, businesses, the economy overall, and the environment by making service more efficient (and, by extension, less expensive) and higher quality; by opening doors to entirely new service offerings; and by reducing our environmental impact.
• Wireless connectivity — which has become more ubiquitous, more affordable, more secure, and more efficient — has made smart services economically viable for a wide range of companies in a wide range of industries.
• Listening to customers — inviting them into the development process and allowing them to be co-creators of smart services — is key to maintaining the human element in increasingly technology-enabled services.

Marketing