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  • Faculty & Research

    Knowledge creation on China, from proven China experts.

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  • Faculty & Research

    Knowledge creation on China, from proven China experts.

    386
Friday, March 20, 2020

How to reshape the epidemic-hit service sector

By Katherine Xin

The epidemic has dealt a heavy blow to the service industry, exposing and amplifying its weaknesses, which, I believe, will prompt the government to pay more attention to the sector and support its development.

Meanwhile, service firms themselves should re-evaluate their operations, identify their weak links, and improve their internal resilience. Though the epidemic has inflicted losses in the short term, the test it presents companies is expected to help improve the industry over the long term.

Boosting model innovation abilities and adaptability

Business model innovation will help enterprises survive emergencies and unforeseen circumstances. One feature of the service industry is synchronicity, whereby service provision and consumption happen almost simultaneously. The challenge, therefore, is how service providers should respond when customer demand changes suddenly due to external factors.

For example, after the epidemic outbreak, snack retailer Bestore responded swiftly by moving its business functions from offline to online, changing its omni-channel sales process to focus on online retailing, and implementing contactless delivery. Its early investment in online retail was vital to meeting the business challenges the epidemic presented.

Switching between online and offline business models is just one example of model innovation. More importantly, companies should strengthen their internal capacity to gain more thorough insights into customers’ needs and innovate their business model accordingly to be more risk resistant.

Specialization and differentiation

Amid the epidemic, when supply became extremely challenging, service specialization could comprehensively improve supply capacity and the efficiency of the industrial chain, creating more value for enterprises and society as a whole.

In addition, the heterogeneity of services also requires enterprises to pay close attention to their ability to differentiate their service offering. During the epidemic, catering companies are generally suffering huge losses and facing existential risks after completely losing business relationships with their patrons. But what tools or measures would prompt consumers to return quickly once the crisis abates and consumption recovers? Enterprises that already had plans in place to differentiate before the crisis hit would have been in a better position because their differentiated services are hard to substitute.

Ability to strictly control costs

Affected by the epidemic, the catering, tourism, finance and other service sectors virtually stalled. In this type of situation, only comprehensive cost controls could help companies survive and thrive. Service firms need to carefully scrutinize and estimate the impact of the epidemic on their business, and formulate financial plans accordingly.

Service providers face another challenge managing supply and demand, because service products cannot be stocked. Even during normal operations, service companies should implement lean cost management and make it an integral part of their operations, which would help them cope with unexpected business conditions.

The human factor takes centre stage

Human resource factors include not just employees who provide services but also customers. Managers should gain timely and accurate insights into these “human” factors during special circumstances. Leading service providers see employees as their products as they provide all the high-quality and premium services. Even during times of business stress, service firms should still treat their employees as assets, turning them into a driving force for revival, rather than regarding them as a burden.

Katherine Xin is CEIBS Associate Dean (Europe) and Professor of Management. Read more about her research interests on her faculty profile.