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5-1-2000
Strategic Segmentation in Frontline Services:
Matching Customers, Employees, and Human
Resource Systems
Rosemary Bat
Cornell University, rb41@cornell.edu
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Strategic Segmentation in Frontline Services: Matching Customers,
Employees, and Human Resource Systems
Abstract
his paper examines variation in the use of high involvement work practices in service and sales operations. I
argue that the relationship between the customer and frontline service provider is a central feature that
distinguishes production-level service activities from manufacturing. In particular, through strategic
segmentation, irms are able to segment customers by their demand characteristics and to match the
complexity and potential revenue stream of the customer to the skills of employees and the human resource
system that shapes the customer-employee interface. Unlike manufacturing, where high involvement systems
have emerged in a wide variety of product markets, therefore, service organizations are likely to use high
involvement systems only to serve higher value-added customers because of the high costs of these systems
and the labor-intensive nature of services. Data from a nationally random sample of 354 call centers in U.S.
telecommunications documents this patern: from classic mass production approaches for back oice workers
and increasingly for front oice residential service agents, to greater involvement for small business service
providers, and high involvement practices for middle market service agents.
Keywords
practice, work, service, sales, operations, customer, employee, irms, business, provider, market
Disciplines
Human Resources Management
Comments
Suggested Citation
Bat, R. (2000). Strategic segmentation in rontline services: matching customers, employees, and human resource
systems (CAHRS Working Paper #00-06). Ithaca, NY: Cornell University, School of Industrial and Labor
Relations, Center for Advanced Human Resource Studies.
htp://digitalcommons.ilr.cornell.edu/cahrswp/85
his article is available at DigitalCommons@ILR: htp://digitalcommons.ilr.cornell.edu/cahrswp/85
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W
ORK I NG
PA P ER S ER I
ES
Strategic Segmentation in Frontline
Services: Matching Customers,
Employees, and Human Resource
Systems
Rosemary Batt
Working Paper 00 - 06
Advancing the World of Work
Advancing the World of Work
Strategic Segmentation in Frontline Services
WP 00-06
Strategic Segmentation in Frontline Services:
Matching Customers, Employees, and Human
Resource Systems
ROSEMARY BATT
Assistant Professor
Department of Human Resource Studies
New York State School of Industrial Labor Relations
Cornell University
Ithaca, NY 14863-3901
Tel: (607) 254-4437
E-mail: rb41@cornell.edu
http://www.ilr.cornell.edu/cahrs
This paper has not undergone formal review or approval of the faculty of the ILR School. It is
intended to make results of Center research available to others interested in preliminary form to
encourage discussion and suggestions.
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Strategic Segmentation in Frontline Services
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Acknowledgements
This paper is based on a multi-year research project on the Telecommunications
Services Industry, funded by the Alfred P. Sloan Foundation and carried out in conjunction with
Harry C. Katz and Jeffrey Keefe. This paper was initially presented at the workshop “The
Service Workplace,” Wharton School of Business, University of Pennsylvania, Philadelphia, PA,
October 16-17, 1998. The author thanks Steve Frenkel, Chip Hunter, Harry Katz, Jeffrey Keefe,
and Gil Preuss for reading the manuscript and providing very helpful suggestions.
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Abstract
This paper examines variation in the use of high involvement work practices in service
and sales operations. I argue that the relationship between the customer and frontline service
provider is a central feature that distinguishes production-level service activities from
manufacturing. In particular, through strategic segmentation, firms are able to segment
customers by their demand characteristics and to match the complexity and potential revenue
stream of the customer to the skills of employees and the human resource system that shapes
the customer-employee interface. Unlike manufacturing, where high involvement systems have
emerged in a wide variety of product markets, therefore, service organizations are likely to use
high involvement systems only to serve higher value-added customers because of the high
costs of these systems and the labor-intensive nature of services. Data from a nationally
random sample of 354 call centers in U.S. telecommunications documents this pattern: from
classic mass production approaches for back office workers and increasingly for front office
residential service agents, to greater involvement for small business service providers, and high
involvement practices for middle market service agents.
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Strategic Segmentation in Frontline Services
WP 00-06
Strategic Segmentation in Frontline Services:
Matching Customers, Employees, and Human Resource Systems
Introduction
Cumulative research over three decades has documented the use of “high performance”
or “high involvement” work systems (HIWS) in a variety of national settings (e.g., Womack, et.
al., 1990; Appelbaum and Batt, 1994), industries (e.g., Ichniowski et. al., 1996), and
organizations (Becker and Gerhart, 1996). High involvement systems have been defined in
various ways, but generally include three dimensions: high relative skill requirements, jobs
designed to provide the opportunity to use those skills in teams or in collaboration with other
workers, and an incentive structure to induce discretionary effort (Appelbaum et. al., 2000).
Classic mass production approaches to work organization, by contrast, emphasize low skill
requirements, narrow jobs with low discretion, and few incentives for discretionary effort.
An important debate in this literature is whether high involvement systems are
universally beneficial (e.g., Pfeffer, 1998). Do high involvement systems constitute "best
practices" that are likely to be adopted across a wide range of industries and occupations? In
this paper I address the debate by examining variation in the use of high involvement systems in
service and sales operations. Under what conditions and why do firms use high involvement
work practices for service and sales delivery? What types of sales operations are more likely to
adopt them?
Because most empirical research on this question has been conducted among blue
collar workers, we now have a reasonable understanding of the relationship between these
work systems and performance outcomes in manufacturing. First, there is growing evidence
that high involvement systems do produce better performance in a wide range of manufacturing
settings (e.g., Ichniowski et. al., 1996). Second, researchers have found that the logic or
rationale behind performance gains varies widely across different organizations and industry
settings. For example, in the apparel industry, the key performance gain is "through-put time": it
is the multi-skilling in self-managed teams that allows firms to improve throughput time and to
compete on the basis of quick response to changes in market demand (Appelbaum et. al., 2000;
Dunlop and Weil, 1999). In the steel industry, by contrast, the huge capital outlays in plant and
equipment mean that "machine uptime" determines competitive advantage (Ichniowski et. al.,
1997); it is particularly the communication and coordination of workers across miles of steel
mills that leads to better machine utilization (Appelbaum et. al., 2000).
By contrast, our understanding of the costs and benefits of high involvement systems in
service activities is relatively undeveloped, both because less research has been undertaken
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and because the range of variation in service organizations and occupations is much greater
than in manufacturing. For example, the "service sector" covers 80 percent of the U.S.
workforce (Monthly Labor Review, 1998), from janitors and home health care workers to
lawyers, doctors, and investment bankers. To understand the use of high involvement systems
in services, therefore, it is particularly important to disaggregate the data into different
industries, occupations, and sub-occupations. While aggregate survey data show that a
substantial minority of U.S. service workplaces have adopted some innovative work practices -such as total quality, problem-solving groups, or self-managed teams (e.g., Osterman, 1994,
2000; Lawler, et. al., 1995) -- we do not know the distribution of these practices.
For example, while Osterman (1994) found that 55 percent of service establishments
reported using self-managed teams, Hunter (1999a) found much lower levels in his survey of
low-skilled bank tellers. Perhaps high involvement practices are concentrated among higher
skilled service occupations. Recent cross-national research, for example, has documented
wide variation in work systems across distinct occupational groups in the service sector, from
highly regimented systems for low-skilled customer service workers to "empowered" systems for
knowledge workers such as systems developers (e.g., Frenkel, et. al., 1999). Similarly,
Herzenberg, et. al. (1998) developed a taxonomy of service work from tightly rationalized
systems for low skilled workers, to semi-autonomous systems for moderately skilled, and
autonomous systems for technical and professional workers. Thus, our aggregate surveys may
be capturing the "high involvement" practices of technical and professional employees, rather
than production-level service workers. Researchers and practitioners, however, have been
interested in high involvement work systems precisely because of their potential to enhance, or
"quasi-professionalize" the work behavior and attitudes of production-level workers.
This paper contributes to the literature on high involvement work systems by examining
the rationale for their use and the extent of variation in adoption in service operations -specifically, frontline customer service and sales activities. This type of service work, best
described as "interactive service work" (Leidner, 1993), may be conducted in face-to-face
transactions, in telephone-mediated transactions, or through other electronic media.
Increasingly, these operations are carried out in call centers, where employees interact with
customers via telephones and computers to handle service, sales, and billing inquiries. Call
centers are a useful setting to examine high involvement practices because these offices have
come to be viewed as proto-typical "white collar factories" of the 21st century. Recent research
suggests that there is wide variation in work organization and human resource practices (e.g.,
Batt and Keefe, 1999;), from highly routinized mass production enterprises (e.g., Greenbaum,
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1995; Taylor and Bain, 1999; Fernie and Metcalf, 2000) to skilled and entrepreneurial
environments (Herzenberg, et. al., 1998; Frenkel et. al., 1999). Also, the use of call centers has
increased dramatically in most industries and advanced economies because companies find
them an efficient vehicle for managing the customer interface. They are also of strategic
importance where companies seek to compete by building a loyal customer base.
To examine this question, I draw on a multiyear study of service and sales channels in
the U.S. telecommunications services industry. This setting is instructive because it represents
a more advanced case of service sector restructuring and one that has already influenced the
approaches taken in other advanced economies. That is, in contrast to the auto and other
manufacturing industries where producers worldwide sought to emulate Japanese lean
production (Womack et. al., 1990; Liker et. al., 1999), many countries have looked to the U.S.
as a model for restructuring telecommunications because historically it led the world in new
technologies and in the early 1980s it led the deregulation movement (Katz, 1997). Increased
competition from deregulation has affected this industry in ways that are parallel to the impact of
globalization in manufacturing. In response to deregulation, former U.S. telecommunications
monopolists undertook massive restructuring and introduced new work practices to compete on
quality, price, and service (Keefe and Batt, 1997). Since the 1980s, most countries around the
globe have deregulated and privatized their publicly-regulated telephone monopolies and are
searching for ways to reduce costs and enhance service.
In addition, compared to other service industries, telecommunications is a likely
candidate for adopting high involvement practices for several reasons. As a "high tech"
industry, it has always employed a high skilled workforce and invested heavily in training and
technological innovation. It continues at the forefront of engineering advanced information
systems. The prior existence of a relatively high-skilled workforce coupled with the use of
advanced information systems makes the use of high involvement systems more feasible.
Moreover, it is a critical industry for information-based economies, and typically employs 1-2
percent of the workforce (Katz, 1997). All countries are looking to this industry to provide high
quality, low cost information services as inputs into all other sectors of the economy.
In the next section, I review the relevant literature on competing approaches to
organizing service work: mass production versus high involvement systems. I discuss the
competing "production logics" of these two approaches, and highlight how they are similar or
different in manufacturing and service settings. Then, I review the evidence on variation in use
of high involvement practices in services by drawing on a unique nationally representative
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sample of 354 call centers in U.S. telecommunications firms. This is followed by a discussion of
the implications of the U.S. case for other countries, industries, and service activities.
As a preview, my argument may be summarized as follows. The relationship between
the customer and frontline service provider is a central feature that distinguishes productionlevel service activities from manufacturing. As a result, unlike manufacturing, the customerworker interface is a significant factor in defining the organization of work and human resource
practices in services. As marketing has become more sophisticated over the last two decades,
companies have become adept at segmenting customers by their characteristics and potential
revenue stream. This technique, known as "strategic segmentation" (Keltner, 1998) is enabled
by advanced information systems and process redesign, and has diffused widely over the
1990s. It allows companies to match the demand characteristics and potential value of the
customer to the characteristics of the workforce and to the human resource systems that shape
the customer-worker interface. Unlike manufacturing where high involvement systems have
emerged in a wide variety of product markets, therefore, I argue that services organizations are
likely to invest in high involvement practices only to serve higher value-added customers
because of the high costs of these systems and the labor-intensive nature of services. The data
from service delivery systems in U.S. telecommunications documents this pattern: from classic
mass production approaches for back office workers (e.g., telephone operators), and
increasingly for front office residential service agents, to greater involvement for small business
service providers and high involvement practices for those serving larger or middle market
business customers.
Mass Production versus High Involvement in Services
Management theorists have developed two competing models of service management
that are the functional equivalent of mass production and high involvement models found in the
manufacturing literature. The use of these approaches differs between manufacturing and
services, however, because of fundamental differences in the nature of goods and service
productioni. For purposes of this discussion, the central difference hinges on the role of the
customer in production, which introduces greater uncertainty and variability into the process.
The application of mass production concepts to services grew as an attempt by
operations researchers to solve the problem of historic low productivity growth in services. A
leading exponent, Levitt (1972, 1976), advocated simplification of tasks, clear division of labor,
the use of labor-substituting technology, and low levels of employee discretion. Firms hire
workers with low skills and low discretion at low pay. Information technology is used to
automate processes and electronically monitor workers performance. This model of
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rationalization was successfully applied to "back office" operations such as data processing and
operator services, but found limited application to the "front office" (or customer service
operations) because of the uncertainty introduced by the customer. While engineering systems
can rationalize the behavior of workers, the customer is outside of the production process, and
therefore, introduces much greater uncertainty into the system. Researchers in management
science have attempted to reduce this uncertainty by treating customers as "partial employees"
or using marketing and product standardization to reduce customer variation (e.g., Czepiel,
Solomon, and Surprenant, 1986; Mills, 1986; Bowen, 1986; Zeithaml, Parasuraman, and Berry,
1990). Significantly, then, organizing service work as a production line means not only that
work routines of employees are standardized, but the options for customers are also
standardized. The work system, therefore, requires the adoption of a standardized approach to
customers as well. Firms who wish to compete on high volume, low cost standardized service
offerings are likely to adopt this approach organizing service work.
An alternative view, based on building loyal customers through quality service, emerged
in the 1980s on the heals of the total quality movement (e.g., Zimmerman and Enell, 1988). A
slew of management books prescribed solutions for improving quality and “focusing on the
customer” (e.g. Albrecht and Bradford, 1989; Davidow and Uttal, 1989; Zemke and Schaff,
1989; Heskett, Sasser, and Hart, 1990; Schneider and Bowen, 1995). Articles on service
management also began appearing regularly in the Harvard Business Review and the Sloan
Management Reviewii.
A number of researchers then developed models for competing on quality and
customization through high involvement practices (e.g., Bowen and Schneider, 1988;
Schlesinger and Heskett, 1991; Bowen and Lawler, 1992; Heskett et. al., 1997). Schlesinger
and Heskett (1991), for example, distinguish between a "cycle of failure" (the mass production
model) and a "cycle of success" (high involvement services). They argue that the mass
production model leads to a cycle of failure because narrow, functional jobs lead workers to
experience boredom, low morale, and indifference to customers, resulting in poor service.
Customers’ dissatisfaction “fuels further decreases in employee satisfaction,” which leads to
higher employee turnover, deterioration of service, and customer turnover. Customer defection
creates a cycle of failure in which firms increasingly focus on “hard selling” to replenish their lost
customer base.
Under the “cycle of success,” (Schlesinger and Heskett, 1991) or "capability" (Heskett,
et. al., 1997), firms hire skilled employees at higher pay and create jobs with greater breadth
and discretion. Workers use information technology as a resource rather than a monitoring
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device. Satisfied workers provide better service, and satisfied customers, in turn, improve
employee motivation. Other versions of this approach include Ulrich et. al. (1991), and Bowen
and Lawler (1992, 1995), who distinguish between the control and empowerment models, as
exemplified by UPS and Federal Express respectively.
A similar set of arguments is found in the literature on “relationship management” (e.g.,
Gutek, 1995; Keltner, 1995; Keltner and Finegold, 1996), or the “case management approach”
(Davenport and Nohria, 1994), but with less explicit attention to employee satisfaction as a
causal factor. Relationship management allows employees to provide “one-stop-shopping,” with
good service “bridging to sales”. The bridge to sales occurs because the long-term relationship
with a customer allows the frontline employee to know what that customers needs. Employees
build a data base of customer information and are able to both serve the customer better and
know what sales opportunities exist, maximizing service and sales together. Highly trained
individuals use their skills and analytical capacity to fit services to meet customer demand.
They use their unique understanding of the service offerings and capabilities of the firm and the
potential needs of customers to generate new demand. Evidence in support of this model
comes from Keltner (1995), who argued that German banks’ outperformed U.S. banks in the
1980s by adopting a strategy of relationship banking coupled with highly skilled and trained
employees.
In sum, the literature on alternative work systems in services has debated the relative
merits of rationalizing service delivery through standardized work routines and automation or
customizing service provision through high involvement human resource practices. Both
approaches appear quite viable. On the one hand, in contrast to manufacturing where mass
production systems were widely adopted by mid-century, their use in services was relatively
undeveloped until the 1970s. Moreover, because of on-going low productivity growth in
services, mass production approaches continue to be appealing and continue to expand. For
example, a 1990 management text noted, “Led by franchisers, more and more service firms are
standardizing their operating procedures. Costs are reduced as a result of economies of scale,
and bottlenecks become easier to identify and eliminate. Quality control is aided by increased
conformance to clear specifications. And standardization of job tasks allows the organization to
recruit relatively unskilled, inexpensive workers who require only limited training to perform
highly routinized tasks” (Lovelock, 1990:352).
In addition, in the 1990s, the combined use of process reengineering coupled with
advanced information systems has made it possible to expand automation from the back office
(typists, data processors, operators) to the front office (customer service and sales employees).
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One-800 telephone numbers, automatic call distribution and routing systems, voice recognition
systems, etc., have made it possible to achieve dramatic improvements in scale economies
through centralized distribution channels serving wider geographic areas. Local customer
service agents who used to provide personal service to repeat customers now work in large “call
centers” providing remote service through 1-800-numbers. Examples include call centers in
telemarketing operations, banking (Hunter, 1998a), telecommunications (Batt and Keefe, 1999),
and insurance (Keltner and Jenson, 1998). While research on information technology in the
1980s found no increase in productivity associated with investments in IT (e.g., NRC, 1994),
more recent studies are beginning change that view (e.g., Brynjolfson and Yang, 1996). Clearly
then, there are enormous productivity gains to be made through process reengineering coupled
with the use of advanced information systems and the routinization of service work.
On the other hand, companies worry about the loss of loyal customers. A good example
comes from the marketing battle between MCI and AT&T in which customers regularly switched
from one long distance carrier to another to take advantage of the latest deals for "Friends and
Families" or "True Rewards". There is growing evidence that the high involvement model
reduces the costs of employee turnover, customer turnover, and low quality and low productivity
associated with new employees. Satisfied, loyal customers buy more, buy more value-added
services, and are willing to pay a premium for reliability and quality (Reichheld, 1993, 1996;
Jones and Sasser, 1995).
Who Adopts High Involvement Practices: The Role of Strategic Segmentation
These models provide two opposing approaches to business strategy and work
organization in services: one that focuses on high volume, low cost, standardized transactions
and rationalized production, and one that builds sales revenues through customization, good
service, long-term relations with customers, and high involvement work practices. They do not
explain, however, who is likely to adopt alternative approaches, nor who is likely to adopt a
combination of approaches between these two extremes.
This is where the characteristics and potential revenue stream of the customer currently
play a significant role in shaping managerial choice of business strategy and human resource
practices. Whereas in the past, service providers used fairly undifferentiated approaches to
customers -- treating all customers more or less equally -- advances in marketing have shown
how service and sales channels can be managed more strategically. Until the 1970s, for
example, most service marketing strategies were conceptualized in terms of specific industry or
product characteristics (Lovelock, 1983). Since then, research in marketing has adopted
alternative frameworks for targeting customers, and segmentation by customer characteristics
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has emerged as a critical organizing principle (e.g., Ames and Hlavacek, 1989; Day, 1990;
Whitely, 1991; Kotler, 1994). A succinct statement of the principle comes from Pine (1993:223):
“The basics of market-driven management are to segment, target, position, and create.
Segment your customers and potential customers into meaningful groups that have
homogeneous needs within each group. Target those market segments that (1) match the
capabilities of the firm and (2) have the highest business potential (generally done in terms
of revenue, profit, or return on assets). Position your firm and its existing and potential
products and services in each of the target segments; positioning provides the reason for
being, the unique differentiating characteristics that would cause targeted customers to
purchase from you. Finally, create the products and services that meet the requirements of
your target market segments.”
Using the logic of strategic segmentation, the most profitable approach to service
delivery is to segment service activities according to the potential revenue stream of the
customer. In his studies of commercial banking and insurance, for example, Keltner (1998)
identified four approaches that vary according to customer characteristics and ability to pay:
automated service delivery, mass customization, bundling of service products, and
customization of specialized services. Similar categories are found in telecommunications
services. At the low end, where there is little or no interaction between customers and
providers, firms are likely to focus on cost minimization and take full advantage of the scale
economies inherent in automated systems. The classic example of mass production in the
telecommunications industry is operator services, which underwent successive generations of
automation from the 1920s on. Since the 1980s, advances in information technologies and
voice recognition systems have further automated and rationalized operator work (Kohl, 1993).
As a result of this automation, operators represented 60% of the U.S. telecommunications
workforce in the 1930s, 45 percent in the 1950s, 14 percent in the 1980s, and less than 10
percent in the 1990s (Keefe and Batt, 1997).
Beyond the back office, telecommunications firms have differentiated customers into
residential, small business, middle market business, and large businesses, the latter of which
usually cover national and international accounts (Batt and Keefe, 1999). In one long distance
company, for example, separate service centers focus on residential customers and four
successive tiers of business clients: accounts up to $500 per month; those between $500 and
$3,000; those between $3,000 and $5,000; and those larger than $5,000. Notably, the unit
costs of establishing service for these customers are similar: telecommunications firms must
build and maintain a network infrastructure that serves all customers; and the last mile to the
customer's premise is the most costly portion of the network. Once the line is established,
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profitability depends on how many additional features or more complex service offerings can be
billed.
Here, each of these segments varies in their potential revenue stream and demand
characteristics. That is, potential revenue and level of service complexity are highly correlated.
Residential customers demand basic phone service; companies have sought to increase the
revenue stream through enhancements such as call waiting, call forwarding, and more recently,
data and internet offerings, and second lines to the home. Small businesses, on average,
demand more lines and a greater number of service offerings, such as internal call transfer
capability and data transmission; the products themselves, however, are not significantly more
complex than those offered to the home. Moreover, the line between a high-end retail where
residential customers have home offices, and small mom and pop businesses, is often blurred.
By contrast, the differences between these two segments and the demands of middle market
businesses are quite substantial. The larger the business operations, the greater the demand
for product bundling, more complex products, and more customization -- for example, private
branch exchange (PBX) systems and local area networks (LANs) to handle internal video,
voice, and data transactions.
While this discussion highlights variation in complexity across segments, it is not meant
to suggest that serving residential customers is "low skilled" work. Even at this level, employees
must be skilled in several software packages and have negotiating skills to deal with tough
customers. In the mass market, for example, employees are much more likely to have to deal
with irate customers or investigate cases of fraud, in which customers attempt to get telephone
service when they have been cut off for failure to pay their bills. Residential service reps must
be quite sophisticated in their knowledge of information systems and manipulation of databases
to retrieve the necessary information in cases such as these.
Once customers have been segmented by their potential revenue and demand
characteristics, firms are able to select a workforce with the level of skills and education
appropriate to the complexity of the services being offered and the extent to which the business
seeks to build a relationship approach to the customer segment. It is not only the matching of
customers to employees that matters, however. It also matters that the employees have the
opportunity and incentives to manage the customer interface in a way that "fits" the business
strategy. In the language of strategic human resource management (e.g., Dyer, 1986; Jackson
and Schuler, 1987; Wright and McMahan, 1992 Truss and Gratton, 1994), there should be a fit
between business and human resource strategy as well as an "internal coherence" among the
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components that make up the human resource system. Together, these are likely to produce
better performance.
In service delivery, this matching of customer value to investment in human resource
systems makes economic sense because of the labor-intensive nature of services and the high
up-front and on-going costs associated with high involvement work systems. In manufacturing,
where labor costs are often only ten percent of total costs, it is economically rational for firms to
invest more in human resources in order to take full advantage of investments in new
technology. In service operations, by contrast, labor still comprises 60 percent of costs, and
labor productivity continues to grow at less than one percent annually. Despite the vision of
high involvement and quality service, therefore, reducing labor costs continues to be a major
priority in services, particularly in price-conscious mass markets. Put simply, for low margin
customers, the costs of high involvement work systems are likely to be prohibitive; but for high
value-added customers, relationship management via high involvement work systems has a
high payoff.
The logic of customer segmentation in services, therefore, suggests a fairly
straightforward relationship between the choice of work system and the potential revenue
stream of the customer, as depicted in Figure 1.
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Figure 1: Strategic Segmentation & High Involvement Services
Customer
segment
High
value
Middle market
Small business
Residential
Operators
Low
margin
Mass
production
High
Involvement
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One way of viewing this continuum in the use of high involvement work systems is that
they are a means of "quasi-professionalizing" the workforce. As employees move from simple
to more complex transactions and serve more sophisticated and value-added customers, they
gain more skills and opportunity to assume independent judgement and responsibility for
customers. At the very high end, for national corporate accounts, for example, firms employee
college-educated, dedicated account executives that may be described as independent
professionals. This conceptualization is consistent with that Herzenberg et. al. (1998) and
Frenkel et al. (1999), who provide taxonomies of work systems from highly rationalized to
empowered or autonomous across occupational groups in services. The difference in this case
is that I identify patterns of variation within an industry and occupation, and link these patterns to
business strategies based on customer segmentation.
Strategic Segmentation in Telecommunications: Survey Results
In order to examine whether customer segmentation is a useful lens for understanding
choice of work systems in service and sales, I conducted a survey of a nationally representative
sample of customer service establishments in 1998. The survey had a response rate of 53
percent, with a useable sample of 354 establishments. The telephone survey asked general
managers a series of questions about the their customer base, and the attributes of their human
resource systems. To link this research to that of high involvement work systems, I measured
three dimensions of work systems: skill requirements, discretion and team collaboration at work,
and incentive structures (pay, training, promotion, and employment security). However, unlike
manufacturing, the role of the customer in work organization is critical, so I also measured
various dimensions of the customer-provider interface -- both direct interaction and the extent of
technology-mediated interaction. This definition is similar to that of Heskett et. al. (1997), who
include: a) how the provider interacts with the customer; b) how technology is used; c) skill level;
d) discretion; and e) incentives, especially pay level.
The “core workforce” was defined as the group serving the establishment’s largest
segment of customers. Establishments were categorized into five groups: operator services
(N=17), residential customers (N=106), small business customers (N=86), middle market
customers (N=68); and those that had no strategy of targeting (they served anyone in their
market) (N=77). Over three-quarters of the sample was pursuing a targeted customer strategy.
The high value-added customers in the sample are primarily in the middle or regional market,
with only a handful of centers serving national accounts. This is due to the fact that national
account executives frequently work on their own, or are based in small offices inside larger
office complexes. As a result, they usually do not work in the kind of stand-alone
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establishments that are listed in the Dun and Bradstreet listing that was used to randomly select
the sample.
Linking Customers to Workers: Strategic Segmentation and Technology
Tables 1, 2, and 3 present the mean characteristics of work systems by the customer
segment targeted. Table 1 covers the customer-employee interface; Table 2, skill levels,
discretion, and team participation; and Table 3, incentives. Rather than describe all of the
patterns in the data, I highlight the more salient ones in the discussion below. In general, the
data show a consistent pattern of variation across customer segments in customer-provider
interactions, in the use of technology to mediate that interaction, and in other dimensions of
work organization. Beginning with Table 1, operator services is a useful anchor from which to
examine the other work systems. In this classic mass production model, a typical operator
serves 465 customers per day, the typical transaction (or cycle time of the job) lasts less than 1
minute, and only in rare instances do operators have face-to-face interactions with customers.
Ninety-three percent of transactions are completed on-line, and over 50 percent of the
establishments surveyed used scripted texts most or all of the time. With respect to technology,
operators are electronically monitored two-thirds of the workday on average and spend 83
percent of their time simultaneously handling calls and manipulating computer databases. They
typically use only one software package and receive about 3 emails a day from management
regarding changes in products or procedures, suggesting high levels of standardization and little
change or variation.
Compared to operator services, residential service agents must handle a wider range of
customer inquiries that include setting-up new orders, adding enhanced features, arranging
transfers, and handling billing issues. Because of added complexity and some opportunity to
sell customized features, centers serving residential customers are unlikely to use scripted
texts; and less than 10 percent of the residential centers in this study made use of scripts.
Customer-provider relationships, however, are still highly transactional in this segment, with the
typical agent serving 100 customers per day, averaging 6 minutes per call, and having face-toface interactions less than 20 percent of the time.
The use of technology to mediate the service relationship is substantial, with reps
spending three-quarters of their work-time simultaneously answering calls and manipulating online databases. They are electronically monitored about 50 percent of their time and complete
nearly three-quarters of all transactions on-line. This means that in most cases, the service rep
satisfies the customer's request by simultaneously interacting on the telephone and entering the
appropriate information into existing databases. When the call is completed, the employee is
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ready to move immediately to the next caller in the queue. The systems are sufficiently
automated that any service, sale, or billing inquiry can be input into the system at the front-end,
and either handled automatically by the system software or forwarded to the appropriate
department for execution. On average, residential reps manipulate 3.6 different types of
software and receive 10 emails a day with product and procedural updates.
Table 1:
The Organization of Service Work:
The Customer-Employee Interface
Small
Operator Residential
Services Consumers Business
Direct Customer-Employee Interaction
Customers per employee per day
465
100
64
% face-to-face interactions
5.4
19.1
31.0
Ave. minutes per customer call
0.9
6.0
7.0
% use of "scripted texts"*
52.9
8.7
10.6
Technology-Mediated Interaction
% completed transactions on-line
92.8
73.6
63.4
% time on computer & phone
82.6
76.5
62.1
% time electronically monitored
66.2
48.7
34.2
No. software programs used
1.2
3.6
3.9
No. emails per employee per day
2.9
10.1
7.1
Discretion in Handling Customers
Types of customers served*
11.8
5.8
14.0
How many customers to serve*
0.0
18.2
25.0
Organizational Characteristics
Customer base
352,343
818,977
157,772
Size of workforce
144
503
192
# of customers per employee
1,744
11,539
4,112
% whose market is international
17.6
3.8
5.8
Employee Characteristics
% female
81.6
72.2
59.5
% unionized
35.3
21.9
12.8
Sample Size
17
107
86
* The percent answering 4 or 5 ("a lot" or "complete") on a scale of 1-5.
a = residential and middle market are significantly different at p <.05.
b = residential and small business are significantly different at p <.05.
c = small and middle market are significantly different at p <.05.
d = operators significantly different than residential, small business, & middle market at p <.05.
Page 17
Middle
Market
Sig:
p<.05
32
44.8
11.3
6.2
a,d
a,b,c,d
a, c, d
a,b,c,d
40.1
52.1
20.7
6.7
19.8
a,b,c,d
a,b,c,d
a,b,c,d
a,d
a,b,c,d
16.2
56.4
d
a,d
124,134
190
2,139
22.4
c,d
45.8
4.4
68
a,b,c,d
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This level of automation is the result of reengineering and advances in software systems
in the 1990s. Prior to this, telephone companies were organized into functional silos and
geographically based local customer service offices. Most of these offices were small -- 25, 50
or 75 employees located in geographically dispersed areas to serve local residences and
businesses. Service occurred by phone or through walk-in customers, and differentiation by
customer segment was undeveloped. Through organizational consolidation and process
reengineering, firms were able to move to highly automated systems so that telephone service
could be turned on remotely without the help of field technicians on the ground. Customer
service was reorganized and consolidated into large "mega-centers," each focused on one
particular clientele, and offering remote service through 1-800 numbers. Overhead and direct
labor costs fell while customer response time improved. After reengineering at GTE in the mid1990s, for example, the percent of residential phone orders that were automatically established
doubled, from 33% in the past to 61%. GTE consolidated 258 local work sites into 58 regionally
based service centers. Similarly, AT&T consolidated hundreds of customer service bureaus into
six national mega-centers (Batt and Keefe, 1999). With re-engineering, the scale economies
and benefits of automated systems could best be realized by consolidating offices into large
mega-centers; but with large scale operations, came less personalized, "remote servicing". An
example comes from a service agent who experienced the consolidation of her local office into a
reengineered call center of 600 workers:
“In the old office there were 70 or 80 of us...We knew the crews in the area, and could call
them to find out where an installation stood. We knew where the cables were down
because of weather problems.... everyone knew each other... we used to talk to each other
about problems... there were more informal arrangements for getting things done. Now,
there's reams of paper, too much to read, and new product information that comes online. If
there’s a service problem we can’t handle, we’re supposed to send a note to special reps,
but we can't go and talk to them ourselves. Now we don't have to leave our desk for
anything.... Now with 600 [workers], standardization is the rule.... We’re supposed to adhere
to our schedule [be on-line taking calls] 86 percent of the day."
She went on to explain that in the old system, employees often knew their customers, and
developed personal relationships because service was local. Employees shared their tacit
knowledge of products, customers, changing legal requirements, and complex legacy systems
[computer systems used in the old Bell system] in their day-to-day interactions with each other.
Service was slow, however, because the technology did not allow for automated order
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processing, which reduces through-put time [from the time of order to installation] from days to
hours.
Thus process reengineering and consolidation has led to contradictory changes in
customer service and the organization of work and human resource systems in residential
services. Customers receive faster response time, but more standardized, less personalized
service. For employees, there is greater information available through computerized databases,
and the complexity of service offerings and new product information has increased. However,
reengineering also has led to greater standardization of work rules and rationalization of
processes that leave workers with less input and discretion in the handling of customers.
Reengineering and process standardization, however, have had limited applicability in
higher value-added segments serving business customers in large part because the complexity
of service offerings and interactions is less amenable to automation. To date, agents serving
middle market customers retain a highly personalized system of interaction. For example,
middle market service agents are much more likely to engage in relationship management.
About half of the middle market centers in the sample use dedicated account managers -- that
is, managers who are personally responsible for the accounts of particular customers. This
approach is rarely or never used in residential or small business centers. In addition, middle
market agents are about three times more likely than residential agents to have discretion over
the types of customers and the number of customers they serve. This flexibility provides them
with the opportunity to match their own strengths and abilities with customers of their choosing,
and to target higher sales-generating customers.
On average, reps serving the middle market handle about 30 customers per day and
almost half of their interactions are face-to-face on customer premises. They spend about half
of their time simultaneously on the phone and on-line, and when they do so, the are able to
complete only 40 percent of the transactions. They are electronically monitored only 20 percent
of the time. The fact that they are unable to complete a large percentage of transactions on the
phone indicates that there is more customization and complexity involved in meeting the
customer's service requirements. Similarly, information technology is much more likely to be
used as a resource in higher value-added segments. Middle market reps have access to about
7 software programs and data bases, and receive about 20 emails each day regarding new
product features, changing rates and legal regulations, and new marketing campaigns.
Serving small business customers represents an intermediate case, one best
characterized as "pseudo" relationship management in the words of Barbara Gutek (1995).
Small business agents attempt to develop relationships with their customers by maintaining rich
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databases of information and using that information to provide bundled service offerings.
However, they are usually not dedicated account executives, and the relationship exists more
between the customer and organization (or brand) than with the individual service provider.
Small business reps conduct roughly two-thirds their service transactions by phone, and onethird in face-to-face encounters with customers. They are electronically monitored about onethird of each day. When on-line, they are able to complete roughly two-thirds of their
transactions while the customer waits. These characteristics suggest a mixed system, in which
the "mom and pop" type businesses are handled in ways that are quite similar to residential
customers; higher-end businesses require more on-site visits.
In addition, the workforce and organizational characteristics vary systematically across
these distinct segments. For example, whereas in operator services, eighty-two percent of the
workforce is female, this figure is 60 percent among small business reps and 46 percent among
middle market reps. Organizationally, the residential centers in this study reflect the megacenter approach, with an average of 503 employees per center; by contrast, centers serving
small business and middle market customers average 190 employees. Similarly, the average
customer base for residential centers is four times that of centers serving middle market
businesses. Finally, thirty-five 35 percent of the offices in operator services and 22 percent of
those serving residential customers are unionized, but less than 5 percent of establishments in
the middle market are covered by collective bargaining.iii
High Involvement Service Work: Skills, Discretion, Teams, and Pay
Turning to the issue of skills, discretion, and the use of teams, these dimensions of work
systems also vary significantly by customer segment, as reported in Table 2. Several indicators
show systematic variation in the skill requirements of jobs. Formal education averages little
more than a high school degree for operators, at least one year of post-secondary training for
residential and small business reps, and 3 years of college for middle market reps. That is, in
two thirds of the middle market establishments, the typical agent had a 4-year college degree.
That figure was 15 percent in residential centers and 42 percent in small business centers.
Also, the time it takes for the typical new hire to become qualified on the job varies significantly
across the segments, from 13 weeks for operators and 17 weeks for residential reps, to 22
weeks for small business reps and almost 28 weeks for middle market reps.
In higher value-added customer segments, employers are also more likely to designate
these jobs as "exempt" from U.S. wage and hour laws. Exempt status usually is associated with
professional or managerial status and means that employees are not eligible for overtime pay.
In this study, the survey excluded managerial employees, so the exempt status is associated
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with hiring a college-educated "professional". Some organizations also designate jobs as
exempt when they are trying to quasi-professionalize the job and/or discourage unionization.
Even in residential centers, for example, 13 percent of managers have adopted this strategy,
although it is difficult to imagine why a professional workforce would be needed for the mass
market. In middle market business centers, the percentage jumps to over 75 percent.
In daily work methods and schedules, the range of discretion again varies by segment
served. In general, those serving the larger business market are at least twice as likely to have
control over their daily tasks, work methods, pace of work, schedules, and use of technology.
For example, for basic work routines (such as control over tasks, tools, procedures, and pace of
work), between one quarter and one third of residential managers said that their employees had
a lot or complete control; about twice as many managers of middle market centers reported their
employees had discretion over these areas of work. It is noteworthy, however, that there are
some areas in which even middle market agents have very little control. These areas include
setting work objectives, revising work methods, and influencing the design or use of technology.
Table 2
The Organization of Service Work:
Skills, Discretion, and Team Participation
Operator
Services
Residential
Consumers
Small
Business
Middle
Market
Sig:
p<.05
Skill Level
Education level (years)
Weeks to become qualified
% who are exempt from U.S. wage and
hour laws
Discretion Over Work Methods:
12.4
13.0
0.0
13.0
17.0
12.9
13.7
22.1
26.2
15.2
27.5
75.8
a,b,c,d
a,d
a,c,d
Daily tasks & assignments*
Tools & procedures*
Pace & speed at work*
Setting work objectives*
Revising work methods*
Setting lunch & rest breaks*
Setting vacation schedules*
Design & use of technology*
Participation in Teams
23.5
23.5
23.5
0.0
17.7
11.8
64.7
0.0
34.3
23.8
23.8
14.3
23.8
21.0
47.6
4.8
46.5
30.2
43.0
15.1
22.1
46.5
62.8
7.0
63.2
49.3
61.2
16.2
30.9
82.4
72.1
17.7
a,d
a,d
a,b,c,d
a,d
a
a,b,c,d
% who use "offline" problem-solving
% penetration in offline teams
% who use self-managed teams
% penetration of self-managed teams
Sample Size
94.1
47.3
17.6
46.3
94.2
48.2
30.5
51.4
87.2
55.1
23.8
57.5
89.7
64.6
38.2
69.2
b,c
d
86
68
17
107
* The percent answering 4 or 5 ("a lot" or "complete") on a scale of 1-5.
a = residential and middle market are significantly different at p <.05.
b = residential and small business are significantly different at p <.05.
c = small and middle market are significantly different at p <.05.
d = operators significantly different than residential, small business, & middle market at p <.05.
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d
Strategic Segmentation in Frontline Services
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Reflecting this variation in the job skill content and discretion of employees, median pay
levels and the use of variable pay also vary significantly by customer segment, as reported in
Table 3. Middle market reps earn 3.5 times more than operators and 2.5 times more than
residential reps. Similarly, middle market reps have 3.3 times more pay at risk than operators,
and 2.3 times more than residential agents. Median total compensation in 1998 (base pay,
overtime, and benefits) was $35,708 for residential reps and $78, 390 for middle market reps.
Table 3:
Incentives: Pay, Training, Promotion, and Employment Security
Operator
Services
Compensation
Median annual base pay
Median annual overtime pay
Median annual benefits costs
Total compensation
% pay that is variable
Residential
Small
Consumers Business
Middle
Market
Sig:
p<.05
19,382
1,346
17.2
24,061
10.59
27,271
1,764
24.5
35,708
13.69
34,786
1,674
26.0
45,504
26.83
61,603
339
26.7
78,390
34.76
2.0
1.1
4.7
2.0
3.9
1.8
4.9
2.3
Promotion
% promoted from within
% with < 1 year of tenure
% with > 10 years of tenure
25.5
35.2
66.0
37.6
31.2
32.6
33.7
31.4
22.9
44.3
26.9
29.8
a,b,c
Employment Security
% workforce: temporary
% workforce: part-time
% workforce: perm. fulltime
% laid off in prior 2 years
0.4
17.6
82.1
28.4
5.4
9.8
86.1
26.2
3.1
9.5
87.8
11.0
0.6
3.8
95.4
24.3
c
c,d
a,c,d
c
17
107
86
68
Training
Weeks of initial training
Weeks of on-going training/year
Sample Size
a = residential and middle market are significantly different at p <.05.
b = residential and small business are significantly different at p <.05.
c = small and middle market are significantly different at p <.05.
d = operators significantly different than residential, small business, & middle market at p <.05.
Page 22
a,b,c,d
c
a,b,c,d
a,b,c,d
a,
a
Strategic Segmentation in Frontline Services
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Coherence and the Logic of High Involvement Systems
The literature on high involvement systems argues that employers do best when they
adopt a coherent set of practices. In this study, there are some areas where the use of high
involvement practices do not vary systematically by customer segment served. These include
the use of teams, and patterns of training, promotion, and employment security. For example,
there is little variation with respect to the use of problem-solving groups -- meetings between
employees and their superordinates on a regular basis as in total quality improvement teams.
These forms of participation are typically associated with high involvement work systems in
manufacturing. On average, ninety percent of all respondents reported using offline problemsolving groups. Our field research suggests, however, that while these are sometimes used to
solve specific problems in call centers, they are often used as a motivational device to give
employees who are tied to phone lines and computers a chance to get a break and go "offline."
Thus, it is not clear whether these types of group meetings actually add value in terms of
quality, productivity, or continuous improvement.
The use of self-managed teams does vary by segment, with high use in higher valueadded business segments; but the differences are not statistically significant, indicating that
there is great variation in their use within each segment. It is likely that customers with more
complex service needs should require greater use of teams composed of different specialists,
and this is what Keltner and Jenson (1998) found to be true in their study of middle market
business customers in commercial banking and insurance.
Training, promotion, and employment security also show less variation across customer
segments, although even here, operator services stands out as distinctive. Leaving aside
operator services, customer service reps in all other segments typically receive between 3 and 4
weeks of initial training and 2 weeks per year of on-going training. A substantial minority of
employees (about 39% on average) are promoted from within and a quarter or more have at
least 10 years of company tenure. This pattern suggests that firms do not need to invest more in
training at higher segment levels because they promote or hire employees with prior experience
and training, a pattern also found by Keltner and Jenson in insurance and commercial banking
(1998). They also found that the most significant on-going training occurred on the job, not
formally.
With respect to employment security, operator, residential, and small business centers
are significantly more likely than middle market centers to use part-time and temporary workers,
reflecting greater cost pressures at lower value-added segments. Thus, while only 82 percent
of operators are permanent, full-time workers, and 86 percent of residential reps, fully 95
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Strategic Segmentation in Frontline Services
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percent of middle market reps are full-time and permanent. However, lay-off rates are generally
high, and particularly so in three of the four segments. In operator, residential, and middle
market centers, the number laid-off in the prior 5 years (1994-98) as a percent of the current
workforce was between 24-28 percent, or roughly 5 percent annually. This provides a crude
estimate of the amount of organizational change and downsizing that has occurred throughout
the industry. It is surprisingly high given that the industry has been growing dramatically in this
period. Growth has been accompanied, however, by instability and churn, as competitive
conditions have heightened and new entrants have entered the industry.
Implications for International Human Resource Management
In summary, the data in this study suggest that the majority of telecommunications
establishments in the U.S. are pursuing a business strategy of strategic segmentation in their
service and sales channels. Implementation of high involvement work practices varies
systematically according the demand characteristics of the customer segment served, with the
use of these systems more likely in higher value-added markets. Work practices correlated with
customer segment include a) the type of interaction with the customer; b) the extent to which
technology is used as a control device versus a resource-input; c) the skill requirements of jobs,
d) discretion to influence work methods and procedures; and e) types and levels of
compensation. Similarly, workforce characteristics vary along these dimensions. There is less
systematic variation with respect to training, promotion, and employment security. These areas
are probably more influenced by institutional factors, such as the presence or absence or
unions, and by the extensive churn and restructuring that is occurring as the result of on-going
deregulation.
These findings are not meant to suggest that firms in lower value-added segments are
not able to adopt high involvement practices. In fact, there is some evidence that high
involvement practices lead to better performance even in lower value-added segments (e.g.,
Batt, 1999), or in organizations such as health care that do not segment their customers (e.g.,
Preuss, 1997). However, the evidence does suggest that the likelihood of adoption is greater in
higher value-added markets where cost constraints are not as great and where efficiencies
based on rationalization are difficult to realize.
What are the implications of this study for other industries or other countries with distinct
national institutions and business climates? First, the findings in this study are consistent with
other recent studies on service sector industries. For example, Keltner and Jenson (1998)
reported differentiation in human resource practices in relation to strategic segmentation in
insurance and commercial banking. Hunter (1999b) found that the quality of jobs in nursing
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Strategic Segmentation in Frontline Services
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homes varied by the ability of those homes to target differentiated customer niches. The ability
to effectively match customer segments to human resource systems, however, is likely to vary
by industry conditions. In retail banking, for example, Hunter (1999a) found no clear systems
emerging because of the inability of banks to effectively segment their customer base.
Second, the use of strategic segmentation is likely to vary internationally based on the
existence of distinct national preferences and institutions. As noted earlier, the U.S.
telecommunications industry represents an advanced case for several reasons; but
telecommunications services is a global industry in which mergers and strategic alliances
across nationally-based corporations is proceeding rapidly. These partnerships provide an
important vehicle for organizational learning and the transfer of practices across national
institutional boundaries. Given that other countries have followed the U.S. lead with respect to
deregulation and organizational restructuring, it is likely that strategic segmentation will emerge
in those situations where U.S.-based multinationals have influence overseas.
Third, the findings are consistent with other research that has documented variation in
work systems within industries in a number of countries. For example, in a comparative
international study of the telecommunications and auto industries, Katz and Darbishire (1999)
found the co-existence of multiple approaches to work and human resource practices within
each industry in each country. Similarly, Cappelli's edited volume (1999) documents wide
variation in work and employment systems within a number of U.S. industries and occupations.
Fourth, thinking of choices in management strategies and practices along a continuum is
useful for several reasons. Managers in all service markets face opportunities to cut costs
through greater rationalization and automated delivery, or to enhance customer loyalty through
customization and relationship management. It may be that a "hybrid" model of mass
customization is emerging, as suggested by Frenkel et. al. (1998) -- one in which the
advantages of standardized mass production are combined with knowledge-intensive
customization. Viewing work systems along a continuum allows researchers and practitioners
to identify which factor dominates in each market. In the case of U.S. telecommunications,
however, it appears that a true system of mass customization has yet to emerge. On the one
hand, advances in automation have dominated operator services and residential markets, but
few firms have been able to provide customized services at the low end. This may change as
deregulation proceeds and firms develop the capabilities of offering multi-media packages to the
home, but the current system does not yet resemble one of mass customization. On the other
hand, for small business and middle market customers, relationship management has
proceeded, but without the efficiencies of automated systems. At least for now, the complexity
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of services at the higher end have constrained the application of reengineering and automation.
This could change with the use of E-Commerce, but firms that proceed in this direction risk
losing control over their relationship with their customer.
Conceptualizing work systems along a continuum is also useful because market and
organizational boundaries are fluid and constantly changing. Organizations, for example, are
routinely seeking new ways of segmenting their customer base. A good example is in the retail
market, where telecommunications companies are attempting to segment out "high end" users - those with second lines or home offices. Similarly, the small business market has ranged from
"mom and pop" shops to stores with revenues of $ 1 million. As marketing techniques become
more advanced, firms are developing finer-graded approaches to segmentation. Finer market
gradation will allow firms to more carefully match the characteristics of customers with those of
the workforce.
In sum, how work systems in services evolve is likely to depend on managerial
responses to two central forces of change -- technology and markets. On the one hand,
advances in information systems will continue to evolve, and provide the opportunity to
automate and rationalize increasingly complex, higher value-added services. Automation of the
back office occurred in the 1960s and 1970s; automation of the front office occurred in the
1980s and 1990s. The question for the future is the extent to which process engineering can
reduce costs and automate more complex services, and thereby migrate more rationalized
forms of work organization into differentiated customer segments. On the other hand,
customized provision of services to segmented markets suggests the need for relationship
management as a competitive strategy. If competitiveness in mass markets depends
increasingly on the provision of more complex bundled services -- for example, as the demand
for internet services at home continues to grow -- then the current production-oriented approach
may give way to greater relationship management, and with it, the need to adopt more high
involvement work practices.
Finally, viewing work systems along a continuum suggests opportunities for rebuilding
career ladders for service and sales workers. In telecommunications services, workers in the
historic Bell system had relatively undifferentiated jobs as "service order clerks." They provided
universal service to the public, as indicated above, in local offices where work was largely
unrationalized. In the deregulated era, those workers have moved into production-oriented
service centers where stress is extremely high. Consolidation of offices has often occurred in
ways that relocate residential centers to one city and business centers to another -- making it
difficult to pursue a career as a "customer service professional." In addition, unlike the past, a
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college education is increasingly the price of entry into jobs serving business clients. In an
ideal world, however, customer segmentation strategies do not have to lead to segmented labor
markets, with lower-skilled workers in dead-end jobs. Firms have the opportunity to reduce
voluntary turnover at the low end by constructing new job ladders for customer service providers
which allow them to build a career across customer segments. Firms that invest in the longterm careers of their service employees are likely to gain not only the advantages associated
with strategic segmentation, but the returns on investment in high involvement work systems as
well.
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References
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ENDNOTES
i
First because services are produced and consumed at once, there are no opportunities for post-production quality
control, heightening the importance of first time quality. Moreover, because services often involve multiple contacts
or transactions, there are multiple opportunities for bad service; one mistake has a longer lasting effect than one
positive interaction (Zimmerman and Enell, 1988). Second, because customers participate in production, they have
been conceptualized as “partial employees” (Mills, Chase, and Margulies, 1983); management has the opportunity
(or requirement) to manage customer expectations and behavior and to gain flexibility and externalize some
production costs to customers (as in self-service operations). Third, the intangible and perishable nature of services
makes it more difficult to develop accurate performance measurement systems. Measurement usually relies on the
byproduct of a service (paper or data trail, survey feedback), rather than observation (Zimmerman and Enell, 1988).
A related argument is that it is more difficult to separate or “buffer” one function from another in services: by
definition, customer contact employees represent the strategy of the firm, and perform production and marketing at
once, even when management does not formally organize work in ways to take advantage of this fact (Riddle, 1990).
iiArticles
in the Harvard Business Review included: Heskett, 1987; Roach, 1991; Reichheld and Sasser, 1990; Jones
and Sasser, 1995; Weiser, 1995; Pine, Peppers, and Rogers, 1996; Pine, Victor, and Boyton 1996. Those in the
Sloan Management Review included Ulrich, 1989; Quinn and Paquette, 1990; Schlesinger and Heskett, 1991; Bowen
and Lawler, 1992, 1995; Chase and Stewart, 1994; Davenport and Nohria, 1994; Keltner and Finegold, 1996.
iiiNote
that the percent of the workforce that is unionized is much larger in each case because larger establishments
are more likely to be unionized. Thus, in this sample, 39 percent of employees in residential services are unionized
and 46 percent of operators belong to unions, but only 8 percent of middle market representatives.
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