Developing a Tool for Digital
Transformations: How to Improve Service
Quality in the Relocation Industry
ADAM IVARSSON
DAG LINDSTRAND
Master of Science Thesis
Stockholm, Sweden 2014
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Measuring Service Quality: An Approach Using Equations and Industry-Specific Scales, Lecture notes of Innovation
The concept of service quality and its measurement using service quality scales. It discusses the importance of measuring perceived and expected quality, industry-specific scales, and the calculation of overall service quality. The document also touches upon the distinction between objective and perceived quality and provides examples of industry-specific scales for physical and electronic services.
What you will learn
- How is the overall service quality calculated using equations?
- What are the benefits of measuring service quality using these methods?
- What is the difference between perceived and expected quality in the context of service quality?
- How can industry-specific scales be used to measure service quality?
- What are some examples of industry-specific scales for physical and electronic services?
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Developing a Tool for Digital
Transformations: How to Improve Service
Quality in the Relocation Industry
ADAM IVARSSON
DAG LINDSTRAND
Master of Science Thesis Stockholm, Sweden 201 4
Developing a Tool for Digital
Transformations:
How to Improve Service Quality in the Relocation
Industry
Adam Ivarsson
Dag Lindstrand
Master of Science Thesis INDEK 2014: KTH Industrial Engineering and Management Industrial Management SE-100 44 STOCKHOLM
Acknowledgements First of all, we would like to thank our supervisor at the Royal Institute of Technology, Matti Kaulio, for the continuous guidance and insight he provided. Additionally, we would like to thank our peer students and examiner (Mats Engwall) for their feedback and support during the seminars. Further, we want to express our gratitude towards the employees at the studied company for the valuable information they have shared and insights they have provided us with throughout the process. A special thanks to our company supervisor for his devoted time and guidance, to the management team for their feedback and all interviewees for their positive participation and honesty. Thank you Stockholm, June 2014 Adam Ivarsson Dag Lindstrand
Wordlist Word/Term Definition E-service An electronic service Expected quality level The idea of what quality should be offered Digital disruption The process of being disrupted by digitization Digital transformation The integration of digital technologies into businesses Digitization The conversion of information and media into code readable by computers Importance weight The relative importance of a quality factor expressed in percentages P-service A physical service Perceived quality level The quality actually experienced Quality curve The plotted line in the SQC showing the quality levels of each quality factor Quality factor A component of quality that together with the rest of the components make up the service’s total quality Quality level The difference between perceived and expected quality Relo Inc. The relocation company under study Relocation The process of moving employees between offices within the same company Service Improvement Roadmap The strategic tool summarizing the quality factors of the SQC with high and low potential for service improvement Service Quality Canvas (SQC) The analytical tool developed by this study to provide companies with a strategic direction of service development in the face of digitization
List of Figures Figure 1: The service development process (Assink , 2006) ............................................ 13 Figure 2: Illustration of the disruptive innovation concept (Christensen, 2003) .............. 17 Figure 3: Blue ocean strategy canvas comparing Southwest Airlines to competitors (Kim & Mauborgne, 2005a) ............................................................................................... 19 Figure 4: The three characteristics of effective strategy according to blue ocean strategy ................................................................................................................................... 20 Figure 5: The four actions framework of blue ocean strategy .......................................... 21 Figure 6: The Service Quality Canvas .............................................................................. 28 Figure 7: Illustration of the area of conceptualization - where the tool will be developed ................................................................................................................................... 29 Figure 8: Service Quality Canvas, an example of two hypothetical hotel booking services ................................................................................................................................... 30 Figure 9: Service Quality Canvas including new factors for hotel booking example ...... 32 Figure 10: Characteristics of effective strategy in the context of the Service Quality Canvas ....................................................................................................................... 33 Figure 11: SQC of the hotel booking including the expected quality and the perceived quality of both the existing and the new service ....................................................... 37 Figure 12: Five-step guide to maximizing service quality through digitization ............... 39 Figure 13: Main steps of the method for Study 1 and 2 .................................................... 42 Figure 14: Process of identifying relevant quality factors ................................................ 47 Figure 15: Typical set-up for a relocation company ......................................................... 55 Figure 16: Overview of Relo Inc.'s services ..................................................................... 56 Figure 17: Practical guide of how to use the SQC, including section reference............... 58 Figure 18: The Service Quality Canvas of Relo Inc. ........................................................ 59 Figure 19: Factors in descending order of importance weight.......................................... 62 Figure 20: The Service Quality Canvas of Relo Inc. ........................................................ 64 Figure 21: Weighted quality levels of the factors ............................................................. 66 Figure 22: Service Quality Canvas for Relo Inc. .............................................................. 67 Figure 23: Importance weight for Relo Inc.’s new quality factors. .................................. 69 Figure 24: Service Quality Canvas for Relo. Inc.’s new quality factors .......................... 69 Figure 25: The Service Improvement Roadmap for Relo Inc. .......................................... 71 Figure 26: Service Quality Canvas for Relo Inc.’s potential future service ..................... 72
List of Equations Equation 1: Calculation of service quality level ............................................................... 24 Equation 2: Calculation of overall service quality. ........................................................... 31 Equation 3: Calculation of overall service quality as the difference of perceived and expected quality ........................................................................................................ 31 Equation 4: Calculation of weighted quality level ............................................................ 65
1 Introduction On September 23rd^ in 2010 the video rental company Blockbuster filed for bankruptcy. The company went from a revenue of $5 billion in 2008 to going bankrupt just one and a half years later. The main reason to Blockbuster’s collapse was the emergence of a competing company, Netflix. Today, Netflix is an on-demand video company with over 40 million subscribers and a market capitalization of $20 billion. In 2005, prior to Netflix’s success, Blockbuster was offered to acquire the company for $50 million, but the offer was declined. Instead, Blockbuster chose the path of traditional video rentals, ultimately leading to its demise. So how could Blockbuster go from market leader to bankruptcy in just a few years? Could this have been prevented? This study considers the thought that it could. The reason why Blockbuster failed to see the potential that Netflix realized was that they lacked a strategy to identify the opportunities of the digital disruption that was sweeping over the video rental business. The goal of this study is to help companies develop such a strategy. The introduction chapter is divided into four parts. The first part, the background, describes the general problem this study aims to solve. The second part describes the research setting of this study: the relocation industry. In the third part the specific purpose of this study is presented. The fourth part describes the delimitations of the study. Finally, the disposition of the report will be presented.
1.1. Background
The background is divided into three sections. The first will describe the widespread problem this study addresses, the second will describe the underlying force that is causing this tension and the third will shortly describe the specific research setting within which the issue will be studied in depth. 1.1.1. Problem Introduction In the coming years, research indicates that the global economy will be subject to some very significant changes. In their recent book, “ The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies ”, Brynjolfsson and McAfee (2014) argue that today’s society is on the brink of a second machine age. In the second machine age, computerization^1 will unlock mankind’s ability to increase productivity through mental power in the same way the steam engine did for physical power during the industrial revolution in the 18th century (the first machine age). The major force driving the second machine age is digitization. Defined as the conversion of information and media into code readable by computers, digitization will be a major source of disruptive change in the global economy going forward. In the words of Brynjolfsson & McAfee: ”...the second machine age unfolding right now—an inflection point in the history of our economies and societies because of digitization. It’s an inflection point in the right direction — bounty instead of scarcity, freedom instead of constraint—but one that will bring with it some difficult challenges and choices.” (Brynjolfsson & McAfee, 2014, s. 25) (^1) The act of causing certain operations to be performed by a computer, especially as a replacement for human labour (Sinclair, 2007).
different forms and in different pace across the economy, but very commonly leads to disruptive changes. Second, an example of a digital transformation that successfully tackled digitization is the case of online banking. Online banking moved focus from the traditional delivery channels of financial services, such as local branch offices or telephone operators, and started delivering these services over the Internet instead, using a range of software applications. This lowered operating costs through less staff and fewer local branch offices, and increased customer satisfaction through speed and round-the-clock availability of financial services (Yaghoubi & Bahmani, 2010). As a result the banking industry was transformed. 1.1.3. Digitization in the Relocation Industry Navigating through the era of digitization is an industry-wide problem. As described above, certain industries have dealt with it for some time, while others are encountering it first today. The companies with the most urgent need for a strategy are the ones that are currently on the brink of digital disruption. One example is the education industry as previously mentioned. A second example is the relocation industry , which is the chosen research setting of this study. Relocation is the process of moving employees between different offices within an organization. A company’s relocation program can be either managed internally or outsourced to an external relocation service provider. These providers make up the relocation industry. Companies in the relocation industry offer bundles of services covering the entire, or parts, of the relocation process. Examples of these services are home search, household goods moving, and language and cultural training. There is compelling evidence that the relocation industry is on the brink of digital disruption. One example is a study by Frey & Osborne (2013) that examined how susceptible jobs are to digitization. They examined 702 jobs in total and gave them a score between zero and one depending on how probable they were to be computerized (one being certain and zero being not probable) in the next decade or two. Cross- referencing this list with the type of jobs that employees of relocation companies perform show a strong correlation with the jobs that have high risk of disappearing because of digitization. Examples of these jobs are telephone operator (.97), real estate broker (.97), insurance sales agent (.92), and cargo and freight agent (.99). Another indication of that a digital disruption is arriving in the relocation industry is the disruptions of other closely related industries that has happened in recent years. One such industry is the travel industry (Wilson, 2013). Travel arrangements are made in both the travel and the relocation industry, validating a correlation. An example of a company that recently experienced disruption in the travel industry is American Express Travel (Wall Street Journal, 2012). In 2013 the company laid off 5 400 employees that had become redundant and stated that the business had been “fundamentally reinvented as a result of the digital revolution” (BBC, 2013). Their primary business of serving corporate
travelers through call-centers and agencies became obsolete in the face of digital disruption. Instead of using traditional channels, customers started making purchases online or via mobile (BBC, 2013; Forbes, 2013). The trends outlined above indicate that the relocation industry is next in line of being disrupted by digitization. In order to stay competitive in the eyes of the customer, companies in this industry need to find a way to digitally transform their service packages.
1.2. Research Relevance and Purpose
This study was produced in response to the complex challenges of the relocation industry described above. According to top executives in the industry, companies are lacking a structured method of how to digitally transform their services (Relocation Managers, 2014). Companies are currently developing strategies for digital transformation through unstructured methods such as customer advisory boards (groups of customer managers who provide requests on future service development) or focus groups. These methods are largely based on management’s subjective experience from the past rather than predictions of what customers will urge in the future. The absence of these strategies in the broader economy is highlighted in management literature. In a recent article on new service development (NSD), Edvardsson et al. (2011) found that the factor with the highest effect on NSD performance was the adoption of a service development strategy_._ They claim that a service development strategy is “the missing link in improving NSD performance” (Edvardsson, Meiren , Schäfer , & Witell , 2011, s. 25). Therefore, the need for knowledge on how to navigate in the coming digitization is widespread and urgent. The purpose of this study is to develop a tool that shows relocation companies how they should digitally transform their services.
1.3. Research Questions
This report is divided into two studies. Study 1 will develop a tool that shows relocation companies how they should digitally transform their services. Study 2 will assess if the tool functions in the desired way by testing it on a company in the relocation industry. The research questions of these two studies are presented below. Study 1: RQ1: What would a tool that shows relocation companies how to digitally transform their services look like? Study 2: RQ2: Does the tool function in the desired way?
- RQ2i: What results does it generate for a company in the relocation industry?
- RQ2ii: Do the results of the tool indicate that it is valid? The research questions of study 1 will be answered in chapter 2 , Theoretical Analysis, while the questions of study 2 will be answered in chapter 5 , Empirical Analysis. The methods for both studies will be described in chapter 3 , Method.
1.5. Disposition of Report
Before moving on to the next chapter, this section will provide an overview of how the report is laid out. The report contains seven chapters within which two studies are conducted. Study 1 develops a tool that shows relocation companies how to digitally transform their services and thereby answers research question one. The results of study 1 are presented in chapter 2, Theoretical Analysis. Study 2 validates the developed tool and answers research question two. The results of study 2 are presented in chapter 5, Empirical Analysis. After the results are presented they are considered in a broader context in chapter 6 , Discussion. The report is then finished by a summary of the findings in chapter 7 , Conclusion. Table 1 : Disposition of report Chapter Contents RQs Answered 1 Introduction (^) • Descriptions of problem setting, purpose, research questions, research relevance and report disposition
2 Theoretical Analysis (^) • Study 1: Development of a tool that shows relocation companies how to digitally transform their services
3 Method • The methods of study 1 & 2 are described
4 Empirical Setting (^) • The empirical setting in which study 2 was conducted is presented
5 Empirical Analysis (^) • Study 2: The tool from study 1 is tested on a relocation company and the results are analyzed in order to asses if the tool functions in the desired way
6 Discussion (^) • Managerial implications, generalizability, methodological limitations, theoretical limits, and future research are discussed
7 Conclusion (^) • The research is summarized -
2. Theoretical Analysis This chapter will answer the research question of study 1: “What would a tool that shows relocation companies how to digitally transform their services look like?” In answering this question, the first step was to conduct a review of previous literature in the relevant fields with the aim of finding a theoretical foundation for the tool. The main findings from this review were the two theories blue ocean strategy and service quality. These theories along with the research fields holding them are presented in section 2.1. Second, the relevant theories identified in the literature review were used to develop the new tool. This process is described in section 2.2.
2.1. A Review of the Existing Literature
This chapter presents the literature review, which aimed to create a theoretical foundation from which the tool of research question one could be developed. In order produce the theoretical foundation two distinct areas of investigation were identified. The first area (section 2.1.1) provides an understanding of the disruptive changes that digitization causes and how companies should transform their service in response to these changes. The second area (section 2.1.2) theorizes how companies can enhance and measure the value of a service. These two areas were chosen since they were both closely related to the knowledge needed for the first research question of this study, i.e. how to digitally transform services. The first area, concerning disruptive changes, is relevant since it provides strategies of how to achieve major transformations to a service. The second area, concerning the enhancement of service value, is relevant since it provides concrete methods of how to measure improvements of service offerings. Without such methods, there is no way to assure that digital transformations actually increase the value of a service. After the presentation of the abovementioned areas of investigation, the research gap this study addresses is highlighted in section 2 .1.3. 2.1.1. Disruptive Changes of Digitization In order to understand the disruptive changes digitization leads to, several research fields were examined (please refer to the method chapter for details on these). However, the focus of the literature review was around the concept of innovation of services. Innovation could be described as “ a means of changing an organization, either as a response to changes in the external environment, or as a pre-emptive action to influence the environment ” (Damanpour, 1996, s. 694). Following this definition, innovation must be a key concept when adapting to digitization, which in this case is the change in the external environment referenced in the citation above. Within the concept of innovation, the fields most closely related to the disruptive changes of digitization is disruptive innovation. The next section will describe this field of research.
Figure 2 : Illustration of the disruptive innovation concept (Christensen, 2003) In the framework, two value networks 2 are pictured. The two networks are plotted on an axis (going in the direction towards the reader) labeled “Non-consumers or Non- consuming occasions”. Companies in the new value network (along the horizontal axis closest to the reader) do not compete over the old customers or the old occasions of consumption but taps into a completely new market, with no competition. Meanwhile, companies in the old value network are stuck in the old market, with fierce competition. Here, companies compete against each other on the same dimensions, but since different customers value different dimensions the companies create different market segments within the same value network (MacMillan & McGrath, 2000). The horizontal axis indicates time and the vertical axis indicates the level of performance companies in the industry offer on the industry’s dimensions of competition (MacMillan & McGrath, 2000). As previously mentioned, disruption can happen in the old value network (low- end disruption) as well as in a new one (new-market disruption). A new-market disruption initially competes against non-competition (new market space and new customers) in the new value network, but as the performance of the disruptor improves it starts to pull customers from the existing value network as well. Blue ocean strategy The previous section outlined the theory of disruptive innovation. The knowledge uncovered by studying disruptive innovation clarified the type theories needed to develop the tool of research question one. It clearly shows that a tool that shows relocation companies how to digitally transform their services needs to guide companies both in (^2) A value network is the context within which a firm identifies and responds to customers' needs, solves problems, procures input, reacts to competitors and strives for profit (Christensen, The Innovator's Dilemma, 1997)
how to change the performance of the existing dimensions of competition as well as identify new dimensions that would open up new markets (or value networks) with new customers. Tools with the attributes described above were not found in the literature review on disruptive innovation. However, most of the companies exemplified in the disruptive innovation literature as having successfully disrupted their industry; low-price point-to- point airlines, online travel agents and online education (Christensen, 2003), are also brought up in a separate set of literature: the literature on blue ocean strategy. blue ocean strategy is developed by Kim and Mauborgne (2005a) and is not part of Christensen’s original research field of disruptive innovation. Blue ocean strategy essentially shares Christensen’s view on disruptive innovation, but complements it with a set of concrete framework and models. The main framework is called the blue ocean strategy canvas, a framework providing large parts of the theoretical foundation needed to develop the tool of this study. The following section will provide a description of blue ocean strategy and the blue ocean strategy canvas. An introduction to blue ocean strategy The name blue ocean strategy refers to a new market space (without competition) as a blue ocean , and an existing marketplace (fierce competition) is referred to as a red ocean^3. The theory suggests that companies should search after the blue oceans and move away from red oceans (Kim & Mauborgne, 2005b; Raith, Staak, & Wilker, 2008). In the case of digital disruption companies have the opportunity to find many new blue oceans with the help of new technologies, and they should avoid just transferring the same service to a digital service; which would indicate that they are staying in the same red ocean as before. Blue ocean strategy should be adopted when a company face a crisis or major problem and need to search for innovative ideas (Koo, Koo, & Luk, 2008). The blue ocean strategy provides a set of tools and frameworks that can assist companies in finding new uncontested market space and thereby help with a major transition of a service, which in this case is the adaption to digital disruption. The most used concept in the blue ocean strategy concept is the blue ocean strategy canvas. The strategy canvas can be used to illustrate a company’s relative performance across its industry’s factors of competition (see Figure 3 ). On the horizontal axis the range of the factors the industry competes and invests in are displayed, and the vertical axis captures the offering level that customers receive across these factors. To get an understanding of a company’s strategic profile the current offering can be illustrated by plotting the offering level across all factors, this is called a value curve (Kim & Mauborgne, 2005a; Kim & Mauborgne, 1997). (^3) These oceans represent what Christensen refers to as new- and old value networks in his framework of disruptive innovation. A link illustrating how blue ocean strategy is grounded in disruptive innovation theory.