Harvard Business School research examining the role of the Internet in service delivery is yielding significant insights into how the Internet should be viewed in a multichannel distribution strategy. One of the most significant challenges facing firms today is migrating customers to the Internet.

Though a number of financial services companies have been rather successful in migrating customers to an online channel, the results have been disappointing for the industry as a whole.

Why have companies in the financial services industry, an industry that has made a serious and aggressive commitment to the Internet, failed to migrate a significant number of customers to this new channel? A number of reasons can be cited, including slow rates of Internet adoption, misguided marketing campaigns, and the like. But the most fundamental reason is that these firms have succumbed to one of the most seductive tenets of Internet thinking. They have come to believe that the Internet is a self-service channel.

The "self-service" idea is an appealing one, for several reasons. First, it converges nicely with our experience with the technology itself. The Internet is an empowering technology. Its power derives from its ability to let customers make choices, communicate preferences, and customize products and services with minimal intervention from the vendor. The creation of a self-service channel would appear to maximally leverage this technology, by offering customers the most control over their own experience.

Second, self-service channels often succeed in lowering a firm's operational costs. The cost of delivering products and services to customers is reduced, because the firm is essentially off-loading some of the work associated with production to customers. Thus, for efficiency-minded companies, self-service strategies appear to be potential gold mines.

Finally, some of the biggest success stories on the Web are companies that appear to have created self-service channels. Amazon.com and Dell Online come to mind immediately.

Of course, self-service strategies are not new. Automated teller machines, self-service gas pumps, and vending machines all represent pre-Internet variations of the same idea. But the growth of the Internet has resulted in the extension of the self-service idea into every industry imaginable.

Reserve your own airline tickets. Trade securities without the help of a broker. Configure and purchase your own automobile. The list goes on and on. Again, what all these examples have in common is customers are able to use the Internet to "help themselves" to whatever product or service they need. The firm's job? Simply to get out of the way.

The paradox, however, is this: When a firm ends up doing less, the customer ends up doing more. This is, after all, the nature of self-service. The problem is, the belief that there is something inherently appealing about self-service is a misguided belief. Customers do not necessarily want to do more. In fact, for many customers self-service is the last thing they want, particularly if they can get full-service from an alternate channel.

Indeed, an examination of companies that have successfully migrated customers to the Internet provides a demonstration of a rather different approach: Rather than off-loading work to the customer, these firms are actually doing more work for the customer through the intelligent use of technology.

A visit to Dell's Web site, for example, reveals that while the firm appears to be taking a hands-off approach, it is in fact doing tremendous amounts of work on behalf of the customer using back-end technology.

Almost all of this work is transparent to the customer. For example, on the Dell Web site, products are segregated according to customer segments, customer choices are limited by a number of internal feasibility checks, and components are only displayed by availability.

More significantly, Dell has developed hundreds of customer-specific Web pages for its most valuable corporate customers. These Dell Premier Pages eliminate much of the "pre-selection" work for the user by displaying only those computer configurations that have been pre-approved by the customer's firm, and by displaying prices that reflect negotiated discounts. Detailed account purchasing reports and inventory analyses are also customized for these highly valued customers.

As a result, Dell's Premier Pages have become management control tools for its customers, who use the customized Web pages as a means of enforcing product standards and increasing internal efficiencies.

In developing these customized pages, Dell literally started from scratch, analyzing each customer's interaction with Dell before, during, and after the sale. It then began to create Web pages that eliminated as much of the customer's "work" as possible.

The irony, of course, is that while Dell is often regarded as the exemplar of the self-service company, it has, in fact, done the opposite: Rather than off-loading work to the customer, it has shouldered as many of the customer's transaction-related functions as possible. Its operational functions have increased, not decreased, as a result of the new channel. Meanwhile, the new channel has reduced the amount of effort it takes for Dell's customers to transact with Dell.

The distinction is not an obvious one, but it is key to recognizing the difference between firms that succeed in migrating customers to the Internet versus those that fail. Yes, customers want choices, but they do not want to be confronted with an overwhelming number of options. They appreciate firms that reduce the complexity by providing them with pre-screened, intelligent alternatives.

Yes, customers welcome the opportunity to express their preferences, but they do not want those preferences ignored or "forgotten" in subsequent transactions with a company. They appreciate firms that put this "memory" to use by reducing the number of steps associated with future transactions.

And yes, customers want to feel in control of the transaction process, but they do not appreciate having to spend precious time completing tasks that are redundant, tedious, and/or time-consuming.

In short, customers want a reduction in workload, rather than an expansion. Firms that fail to recognize this distinction may understand the meaning of self-service, but at the cost of disregarding the nature of customer service itself. Meanwhile, firms that recognize this distinction understand the nature of customer service and look for ways to use technology to co-produce such service.

Co-production is a process by which a firm uses customer input to expand its reach into the transaction process. The steps to co-production are as follows.

The firm deconstructs the entire transaction process, from need to need fulfillment.

The firm distinguishes between those functions that are performed by the firm, and those functions that are performed by the customer.

The third step is where conventional Internet wisdom is defied. Rather than adopting a self-service strategy in which the firm identifies which functions can be off-loaded to the customer, the firm identifies which customer functions the firm can shoulder. In other words, the firm establishes the upper bounds of its "reach" into this transaction process. The key question for the firm is: How much work should I do for my customer?

The final step involves expanding the boundaries of the transaction process itself. That is, the firm looks for ways to extend its reach beyond a single transaction, to create value for the customer that is not available via other channels.

Charles Schwab was able to take on more of the customer's work by thinking about what customers do after a stock trade is completed. Understanding that most customers monitor the stock after the trade is completed, Schwab has set up an elaborate alert system to take over this monitoring function and to proactively notify customers when any alerts are triggered.

This would not have been economically viable without the Internet. Schwab used the economics of the Internet very intelligently to do more for the customer.

Frances Frei and Youngme Moon are assistant professors at the Harvard Business School.

Note to Readers
"Viewpoints" is a regular feature in American Banker, appearing every Friday. It serves as a forum for discussion and debate on a wide range of issues in the financial services industry, including management approaches and strategies, legislative and regulatory matters, and public policy in general.
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