Frances X. Frei

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 <h4 class="ideainbrief-title">The Idea in Brief</h4>
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  <p>If you run a service business, your customers aren’t just open wallets at the end of your supply chain. They disrupt every step of your core operations with their unpredictable behavior—requesting service at inconvenient times, asking for a bewildering array of things, changing their minds.</p>
  <p>This <strong>customer variability</strong> spawns costly inefficiency. How to manage it? Frei suggests diagnosing the <em>type</em> of variability you’re dealing with—such as “arrival variability” (demanding service at inconvenient times) and “request variability” (asking for many different things).</p>
  <p>Then decide: will you <em>accommodate</em> or <em>reduce</em> the variability? Typical methods for managing variability work well but carry trade-offs. For instance, a restaurant that <em>accommodates</em> “off the menu” orders (“request variability”) enhances patrons’ fine-dining experience—but must charge premium prices to cover resulting cost increases. If the restaurant <em>reduces</em> request variability by accepting only menu-listed orders, it improves efficiency—but compromises diners’ experience.</p>
  <p>Yet some strategies avoid trade-offs—by ensuring a positive customer experience <em>and</em> maintaining efficiency. Consider Starbucks’ <em>uncompromising reduction:</em> the company reduces “capability variability” (ability to state orders clearly and quickly) by training customers to order complicated drinks in a prescribed way—without detracting from their experience.</p>
  <p>Augment typical accommodation or reduction strategies with more creative ones, and you seize competitive advantage.</p>
  <p>The Idea in Practice</p>
  <h2>Diagnosing Customer Variability</h2>
  <p>Customer variability takes five forms:</p>
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   <p><span class="exhibit-title">Types of Customer Variability</span></p>
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  <h2>Looking Beyond Classic Accommodation or Reduction</h2>
  <p>Consider these strategies to accommodate or reduce customer variability—without trading off efficiency or the quality of customers’ experience.</p>
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   <p><span class="exhibit-title">Creative Strategies for Managing Variability</span></p>
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</article-ideainbrief><p>What if a manufacturer had to deal with customers waltzing around its shop floor? What if they showed up, intermittently and unannounced, and proceeded to muck up the manufacturer’s carefully designed processes left and right? For most service businesses, that’s business as usual. In a restaurant or a rental car agency or most of the other service companies that make up the bulk of mature economies today, customers aren’t simply the open wallets at the end of an efficient supply chain. They’re directly involved in ongoing operations. The fact that they introduce tremendous variability—but complain about any lack of consistency—is an everyday reality.</p>

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<p><span class="reprint">Reprint: R0611E</span></p>
<p>For manufacturers, customers are the open wallets at the end of the supply chain. But for most service businesses, they are key inputs to the production process. Customers introduce tremendous variability to that process, but they also complain about any lack of consistency and don&#8217;t care about the company&#8217;s profit agenda.</p>
<p>Managing customer-introduced variability, the author argues, is a central challenge for service companies. The first step is to diagnose which type of variability is causing mischief: Customers may arrive at different times, request different kinds of service, possess different capabilities, make varying degrees of effort, and have different personal preferences.</p>
<p>Should companies accommodate variability or reduce it? Accommodation often involves asking employees to compensate for the variations among customers&#8212;a potentially costly solution. Reduction often means offering a limited menu of options, which may drive customers away. Some companies have learned to deal with customer-introduced variability without damaging either their operating environments or customers&#8217; service experiences. Starbucks, for example, handles capability variability among its customers by teaching them the correct ordering protocol. Dell deals with arrival and request variability in its high-end server business by outsourcing customer service while staying in close touch with customers to discuss their needs and assess their experiences with third-party providers.</p>
<p>The effective management of variability often requires a company to influence customers&#8217; behavior. Managers attempting that kind of intervention can follow a three-step process: diagnosing the behavioral problem, designing an operating role for customers that creates new value for both parties, and testing and refining approaches for influencing behavior.</p>

Breaking the Trade-Off Between Efficiency and Service

Reprint: R0611E For manufacturers, customers are the open wallets at the end of the supply chain. But for most service businesses, they are key inputs to the production process. Customers introduce tremendous variability to that process, but they also complain about any lack of consistency and don’t care about the company’s profit agenda. Managing customer-introduced variability, the author argues, is a central challenge for service companies. The first step is to diagnose which type of variability is causing mischief: Customers may arrive at different times, request different kinds of service, possess different capabilities, make varying degrees of effort, and have different personal preferences. Should companies accommodate variability or reduce it? Accommodation often involves asking employees to compensate for the variations among customers—a potentially costly solution. Reduction often means offering a limited menu of options, which may drive customers away. Some companies have learned to deal with customer-introduced variability without damaging either their operating environments or customers’ service experiences. Starbucks, for example, handles capability variability among its customers by teaching them the correct ordering protocol. Dell deals with arrival and request variability in its high-end server business by outsourcing customer service while staying in close touch with customers to discuss their needs and assess their experiences with third-party providers. The effective management of variability often requires a company to influence customers’ behavior. Managers attempting that kind of intervention can follow a three-step process: diagnosing the behavioral problem, designing an operating role for customers that creates new value for both parties, and testing and refining approaches for influencing behavior.

Breaking the Trade-Off Between Efficiency and Service

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