One example is General Motors' (GM) new OnStar technology. Founded in 1995 as a collaboration between GM, EDS and Hughes Electronic Corporation, OnStar is an in-vehicle safety and information service. Using Global Positioning System (GPS) satellite and cellular technology, GM-equipped cars are linked to the OnStar Center where advisors offer real-time personalized help 24/7. However, the popularity of the OnStar product posed a strategic challenge for GM. The company had to decide whether to view it as just another feature of its vehicles or as a service with profit potential. After much research, the company determined that OnStar would be a wholly owned service subsidiary of GM. That decision paid off and in 2001, OnStar had more than 2 million subscribers and was valued at between 4 billion and 10 billion dollars.
"OnStar has been a very exciting initiative for an otherwise troubled GM," says Rai. "Their success with OnStar demonstrates how service innovation can morph a business model and change the course of a company."
Service innovation can put companies at a competitive disadvantage, as exemplified by the relationship between upstart companies such as Skype.com and traditional phone companies. Skype.com is one of several new companies to introduce VoIP (voice over Internet protocol) into the mainstream market. VoIP enables voice phone calls to be carried over the Internet. This new technology enables companies like Skype to offer phone service for substantially less than the traditional phone companies.
"Unfortunately," says Welke, "some traditional phone companies haven't been as innovative when it comes to VoIP and the competition from the other companies is forcing them into a position where they have to cannibalize their business model or suffer the consequences."
Some companies look at service innovation as a way to grow their businesses and increase profits by tapping into the consumer's demand for a more superior total customer experience; many other companies still view customer service as a cost they need to control. Their desire to cut costs wherever possible has fueled another trend in outsourcing, off-shoring the customer service function.
According to Gartner Research, the worldwide market for customer service outsourcing is set to grow from $8.4 billion in 2004 to $12.2 billion in 2007. And while the same study says that companies who outsource successfully can achieve a cost savings of 25 to 30 percent, Ed Rigdon, chair and professor of marketing at Robinson, warns that companies take a risk when they outsource their customer service.
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