2006/10/06 11:40 Roland Rust, "SSME -- Let's Not Forget About Customers and Revenue"

2006/10/06 11:40 Roland Rust, "SSME -- Let's Not Forget About Customers and Revenue", SSME - Education for the 21st Century Conference, IBM Palisades, New York

Services Science, Engineering and Management Conference, at IBM Palisades, October 6-7

This digest was created in real-timeduring the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

Roland Rust, who usually runs the services conferences

  • University of Maryland
  • Also started Journal of Services Research

[Roland Rust]

Call for papers for Frontiers of Services Conference

Cost reduction vs. revenue expansion

  • Profit = revenues - costs
  • Cost reduction = productivity = efficiency = inwards focus (engineering, systems, operations view)
  • Revenue expansion = customer attraction and retention = customer choice = outward focus (marketing, psychology, economics, sociology, anthropology)

SSME is under-estimating the revenue side, which is a problem

Liebler and Sterman, Journal of Management Research:  too much attention to internal can lead to a downward spiral

Another issue:  Tradeoffs different from product manufacturing

  • Manufacturing:  productivity is usually correlated with satisfaction
  • Because service is more labour intensive, there's more of a trade-off between productivity and customer satisfaction

Strong emphasis on cost and revenues is less profitable

  • Need to think more about driving revenues
  • This is a people thing
  • How do we attract them, retain them

How do we get ROI from revenue expansion?

  • Companies mostly think about ROI from cost savings
  • ROI through revenue increases is a more complicated chain of effects:  need to model changes in attitude, etc.
  • Have to think about customer lifetime value
  • Sum that up, and it becomes the customer equity (Rust, Lemon and Zeithaml 2004)
  • Soft measures matter as much as hard measures

What should this imply in terms of grants and research funding?

  • NSF are really going through hard sciences and engineering, maintaining status quo
  • If have revenue-side funding, that's support for marketing and social sciences


  • SSME funding is too focused on the cost side
  • Need to increase attention to revenue expansion
  • Can only reduce cost to zero, but can increase revenues to infinity

SSME should be a big tent


Cake and eat it too?

  • Have to do both sides: improving efficiency is good, but need both sides

Political reality in Washington, where definition of science is limited

Big tent?

Supply chain problem: over-investing in the wrong part of the supply chain, get a problem

Relative emphasis?

  • Companies with revenue emphasis are most successful
  • Companies with a dual emphasis usually can't pull it off
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