Over the last three decades, the principles of service management have become widely accepted. These call for an integrated approach to marketing, operations, and human resource management (HRM). The scholarly and business press routinely point to the importance of customer loyalty and customer relationship management for corporate profitability. Advances in marketing concepts and information systems make it possible to capture more precisely the demand characteristics of customers and to tailor solutions to meet their needs. Why is it, then, that measures of customer satisfaction have declined steadily in the last decade, websites for consumer complaints have proliferated, and media accounts of bad service appear with regularity?
In this chapter, I explore this paradox. I focus particularly on the private sector and on interactive service activities, defined as those that are produced through the interaction of employees and customers (Leidner 1993). Service management is important because the expansion of service activities and contraction of manufacturing in advanced economies means that management in services covers an ever increasing number and range of operations and employment. In addition, competing on the basis of customer service has become central to competitiveness in manufacturing as well as service industries. This is particularly true in supply chain management, where quality and productivity depends importantly on how vendor contracts with major customers are managed. However, it also applies to consumer markets, where after-sales service and service warranties and agreements have become a major source of revenues in goods production, particularly durable goods. Finally, there is growing empirical evidence that companies that compete on the basis of customer quality and customization do generate higher revenues and profits. Customer satisfaction does, in fact, matter; and the evidence is consistent with the widespread rhetoric of the importance of long-term customer relationships.