Services as Theatre

theatreTo fully understand what is happening in cloud computing today, it is helpful to consider how customer expectations evolve.

When we decide to buy a product we make a list of our requirements, evaluate the options and then pick. If several competing products meet our core needs (including price) we find other reasons to decide. Design can be a differentiator. We also look for ‘value add’, which is a rather ill-defined term.

The choices we make as consumers and business buyers can re-define whole markets. Take cloud. The shift to rental, lease and service models pre-existed cloud-leader Amazon Web Services and dominated many IT outsourcing contracts. It was changing customer expectations, not virtualization software and web-scale datacenters, which prepared the way for a shift from CapEx procurement of IT products to OpEx cloud service contracts. ‘Cloud’ may have been sold to the CFO for financial advantages but that’s not the reason cloud is winning.

An example from a different industry would be Rolls-Royce selling “power by the hour” instead of aero engines. The aircraft owner contracts on the basis of service, and the engine manufacturer, provides a holistic Product-Service system: an integrated offering that only delivers value in use, not value by acquisition. Take maintenance. A “power by the hour” contract places the onus on the supplier to improve engine reliability. This stands in stark contrast to being paid time & materials to maintain unreliable equipment.

Product-Service systems more clearly align customer and provider interests and this is why many industries are undergoing what academics call ‘servitization’ – a shift of customer attention away from the goods, products and raw materials of an industry, towards the services an industry can create to enable customer value.

The pharmaceutical industry is similarly re-orienting itself to the reality that patients have never been interested in drug products. They prefer outcomes and lifestyle choices that help to prevent them from becoming ill in the first place. That’s the services opportunity which innovators at companies such as Johnson & Johnson, Pfizer, GSK, Novartis, Merck, Eli Lilly and Bristol-Myers Squibb are now pondering.

And it does not stop there.

Services are not the end game in the evolution of the corporation. In the healthcare industry there is now a real understanding that healthcare is as much about education and lifestyle transformation as it is about treatment and intervention.  Think about that word “health”. By analogy it applies equally in any market.

Pine and Gilmore, in their seminal book The Experience Economy, catalogued examples such as Apple Stores, Cirque du Soleil, ING, Direct Cafe and the Geek Squad and asked “Do these offerings conjure up images of mere goods and services, or do they invoke something more – something visceral?” Over 400 pages they attempt to prove that a shift in the basis of competition is playing out in many industries. What Pine and Gilmore argue is that the most profitable, valuable and savvy companies excel by extending their Product-Service systems into the realm of “theatre”.

By their very nature, all services provide a customer experience. After all, customers have to engage and interact with a service in order to derive value from it. But not all providers sit down to design their services to optimise the experience from the customer’s point of view. Services are delivered. Experiences are staged. To quote Pine and Gilmore: all work (for customers) is theatrical in nature and the “show must go on”.

We are surrounded by services options. Services must now entertain, educate and even transform those who subscribe, participate and take part.

It is no coincidence that Apple offers genius bars and a continuous flow of educational sessions at its in-store theatres. A computer is a computer is a computer. Apple’s experience design teams understand that experience is the new basis of competition: from device through applications, to cloud services to store.

This is not just a consumer phenomenon. Enterprise IT lags consumer markets, but only by a few years.

It’s no surprise that IBM has now built a formidable internal experience-design competence, learning from design leaders such as IDEO who also taught Apple. Amazon Dot Com may sell tech products online the old way, but Amazon Web Services understands that they are not just in the business of renting the same equipment at web scale. The AWS ecosystem enables, educates and transforms the ambitions of progressive startups and entrepreneurial CIOs alike, anyone looking to grow their business from first customer to IPO and beyond. Everyone is chasing the “digital” experience economy. AWS is leading the pack with transformative services. It’s the “genius bar” concept on steroids, all part of the AWS experience!

What lies beyond experience? As “theatre” in all its forms becomes a new currency of competition in many markets, we are seeing the first signs of the next step in customer expectations. I call it amenity. Over a series of future posts I will try to sketch out that new landscape.

 

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