Tapping into the Transformative Power of Service 4.0

Tapping into the Transformative Power of Service 4.0

          
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Tapping into the Transformative Power of Service 4.0

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    Digital technology is revolutionizing the provision of services. Consider the following scenario: A Berlin resident we’ll call Paul has recently moved to a new apartment in the city. To initiate phone and internet service, he plugs his router into a wall outlet. Five minutes later, he receives a call from his service provider. An agent we’ll call Anna asks Paul to confirm that he has moved. She reads aloud the new address and Paul confirms that the information is correct. Anna tells Paul that she has updated his account information and arranged for the same-day delivery of a new, preconfigured router that will allow Paul to benefit from the higher-speed service available at his new address. Anna also offers, for a small extra charge, to update Paul’s address in the account records of his bank. Paul accepts the offer to avoid the hassle of updating the information himself. Anna then takes the opportunity to recommend that Paul upgrade to a data plan that better fits his usage patterns. Sensing that Paul is reluctant, she offers a free trial, which he accepts. Throughout the brief conversation, Anna speaks to Paul in English, because she knows it is his preferred language.

    Anna, however, is not a person but a computer program that acts as a virtual call center agent. The program understands natural language and the meaning that a customer wants to convey, and it can sense and react to the customer’s emotions. It is able to respond fluently in more than 30 languages. Like a human worker, Anna learns to solve problems and applies the insights it gains to define the best course of action.

    Much of the technology necessary to turn that vision of providing services into reality already exists. However, few companies in service industries have reached such an advanced level, which we call Service 4.0. (See “The Evolution of Service Provision.”) Service 4.0 holds great promise for enabling service providers to respond to the challenges of increasing cost pressure, evolving customer behaviors, and an unstable competitive environment. It represents a significant change in performance, affecting how companies both offer and deliver services. Advances in technology allow companies to offer proactive and truly customized services and to deliver them through multiple channels and shared, open infrastructures.

    THE EVOLUTION OF SERVICE PROVISION

    BCG has classified the evolution of service provision into four stages:

    • Service 1.0. Arising in the 19th century, this basic level of service provision entails manual, nonstandardized service. Traditional bookkeeping, performed by a clerk who manually records a business’s day-to-day financial transactions, exemplifies this initial stage of service provision.
    • Service 2.0. During the first half of the 20th century, the widespread use of the postal service and the telephone, as well as the adoption of scientific management, enabled service provision to become standardized, industrialized, remote, and labor intensive. The deployment of call centers in the 1950s shows how these developments transformed service provision.
    • Service 3.0. In the late 20th century, the adoption of computers and the internet, supported by open standards, allowed companies to automate service provision to some extent, to integrate their value chains, and to provide the first generation of channel-specific, self-service options. The self-service terminals that are now ubiquitous in banks and transportation stations exemplify how technology reduced the labor intensity of service while improving the customer experience.
    • Service 4.0. Today, advances in software and hardware allow for proactive and customized service through multiple channels. By analyzing troves of data on customer preferences or by gathering insights from sensors deployed throughout their networks, for example, service providers can anticipate customer needs and respond proactively.

    Service companies lag far behind industrial companies in applying technology to improve their operational efficiency and to enhance customer satisfaction. Telecommunications is a case in point. BCG analysis shows that telecommunications is still one of the most inefficient service industries, with as much as 50% of its cost basis eaten up by waste. Waste can be produced in many ways, such as when companies provide service levels that exceed what customers require, maintain unnecessarily high levels of network resources and call center staffing, or rely too heavily on manual work in provisioning and fault repair. Waste also arises from rework to address incomplete provisioning, from errors caused by quality issues in the network or incorrect data entries, and from idled employees awaiting work items. We have observed similar levels and patterns of waste in other service industries, including energy, banking, and insurance. (See Exhibit 1.)

    exhibit

    This report describes the technology trends that enable Service 4.0 and presents examples of how companies are taking the first steps to use new technologies. We also explore how Service 4.0 will affect the workforce across industries. Finally, we discuss how service companies should approach transformation to capture the benefits of this revolution in service provision.

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