Service-oriented businesses, whether they are banks, retail stores, insurance companies, or hairdressers, have long recognized the customer as an integral part of the firm's formula for success. The firm's location, design, and layout, as well as the training of employees, have always had a customer focus. Manufacturers, on the other hand, have been able to isolate themselves from the consumer with barriers of distributors, wholesalers, and retailers. Now, however, even such hard-core manufacturers as auto producers have recognized that service-related issues are as important as—if not more important than—the product they sell.

All businesses received a wake up call when personal computer (PC) manufacturers began to sell customized PCs directly to the public. That business model was immediately copied. Toyota, Ford, and General Motors are rapidly approaching the day when the customer will have the ability to configure a car over the Internet and climb behind the wheel in days, not weeks.¹ Internet speed forces a company to place the customer at the center of everything and design itself for customer satisfaction rather than mass production. Today's definition of customer satisfaction extends beyond product quality to incorporate speed, flexibility, and other service-related issues.

It's true that the Internet has not removed all the stumbling blocks to good customer service. We all still occasionally encounter products of poor quality. We encounter poor quality service, such as slow responses and long delays, much too frequently. Is this Internet speed? No, but it's a great opportunity for a competitor wanting to increase market share.

United Parcel Service (UPS) has experienced the dramatic change in consumer expectations for customer service. In December 1995 it experienced its first month with 100,000 online tracking requests. In December 1996 it experienced its first month with 1 million online tracking requests. In December 1997 it experienced its first week with 1 million online tracking requests. In December 1998 it experienced its first day with 1 million online tracking requests. In December 1999 it experienced its first day with 2.5 million online tracking requests. In December 2000 it experienced its first day with 5 million online tracking requests. In five years the demand for that service grew by a factor of 1,500.²

It used to be easy to distinguish between manufacturers and services. Manufacturers made things you could get your hands around. Services fulfilled needs, but their outputs were intangible. Apple's iPod and music download business has so intertwined the selling of products (MP3 players, accessories, songs, TV shows, and movies) and services (iTunes software and updates, iTunes music store, song reviews, podcasts, and playlists) that it will forever blur the lines between products and services.

Today all successful firms must deliver services. Companies know this. They even provide the mechanisms—customer service hotlines and Web sites with “Contact Us!” buttons. Automakers like Ford, GM, and Toyota thrive on the services they bundle with cars. Computer makers provide on-site repairs. These mechanisms can be effective, but for the business that doesn't take them seriously, they can also be dangerous. Expectations increase because customers think the businesses mean what they say. Unfortunately, many companies don't know how to follow through on their implied promises. They raise the customers' hopes and then dash them.

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Many traditional manufacturing firms, including automobile manufacturers, computer manufacturers, and other consumer product manufacturers, no longer manufacture at all; they'll merely assemble components provided by a deep network of suppliers. Some don't even assemble, but invest their expertise in product development and look outside the company for manufacturing capability. In fact, the notion of vertical integration is beginning to take on a new look. In the past, manufacturers were likely to buy up suppliers in order to have better control over quality and costs. They were disconnected from the consumer by distributors and independent retailers.

The pendulum has now swung the other way. Manufacturers are outsourcing more of their needs and at the same time becoming more directly linked to the customer through services. Even Japanese manufacturers, despite decades of close-knit supplier networks, have begun to outsource manufacturing processes to contract manufacturers.³ These changes are made possible by advancements in technology that enable firms to maintain accurate and almost instantaneous communication between customers and suppliers.

Computers quickly process information over the Internet, but how can the actual physical systems move goods and services so fast? In the current business environment, speed is critical. How can an order for a customized automobile be completed in five days when many of us can't get a response from an e-mail in 48 hours? How are many businesses able to react that quickly and why can't they all? How can machines produce products so swiftly? How can products be moved that rapidly? The answers are that the processes must not only accomplish their objectives quickly but also be designed for almost split-second response to change. Suppliers must provide instantaneous replenishment, and production processes must be totally flexible. Services must meet customer needs immediately. They must know in advance what individual customers want.