Erasmus Management LectureRoland T. Rust


First class service at the first Erasmus Management Lecture

Professor Roland T. Rust and Thomas Eichentopf

The first Erasmus Management Lecture featured distinguished Professor in marketing, Roland T. Rust. On May 31 and June 1, 2011, he gave four lectures and led discussions on “how the provision of service can be made into a profitable part of business.”

“If you want to provide better service, that is going to involve more labour and therefore more cost - how to manage that is an on-going research topic,” said Professor Rust.

Intense discussion and critical analysis

The Professor gave in-depth commentary on a selection of his award-winning papers providing what he described as “a pretty good overview of my research for the last 15 to 20 years.” His comments were directed towards process and content.

Professor Rust encouraged the participants to critically analyse his work and actively question how it may be “improved,” “attacked,” or updated. This led to complex discussion between the Professor and the intimate gathering of doctoral candidates hailing from a range of disciplines including neuroscience, economics and marketing.

Thomas Eichentopf, a candidate in ERIM’s Open PhD Project in marketing, described the atmosphere as “intense.”

“It is kind of an intense atmosphere, so you learn better than in your usual PhD classes,” he said.

Eichentopf particularly valued “… the opportunity to interact with the teacher and to work on topics you don’t usually get to [approach]…”

The four lectures covered:

  • how to get return on investment of service quality improvements,
  • the use of customer equity as a strategic management tool,
  • customer lifetime value and customer relationship management, and
  • the issue of how to find the optimal level of service productivity.

Professor Rust also wove practical career advice and the latest developments and hot forecasts in marketing through the lectures. This included a dedicated session on getting published. Professor Rust offered the benefit of his wealth of experience in submitting, reviewing and editing papers. This, and other solid career guidance was clearly well received.

Lecture on service productivity

Service is the subject of Professor Rust’s on-going work, and in his view, “the most interesting part of the economy and the fastest growing.” The Professor was utterly immersed in the subject as he talked about his earlier research and gave an energetic presentation on his current work.

Customer satisfaction, productivity and profitability

“This paper goes against the grain….always the kind of paper I like to write” Professor Rust said, referring to his award-winning 1997 paper on customer satisfaction, productivity and profitability.

The mainstream view at the time of writing was: “if you improve productivity, everything gets better – there is no trade-off between productivity and customer satisfaction,” said Professor Rust. He explained that he and his co-authors were “reacting to mainstream quality literature…and saying it’s wrong.” Instead, Rust and his co-authors were saying, “[t]his is probably not how it works for service. There is actually likely to be a trade-off between productivity and customer satisfaction for service.”

The Professor found that high productivity and high customer service equalled high profit, for companies that can be characterised as goods companies or mechanised service companies.

“Industries that picked high customer service or high productivity, were pure services,” he said. For the service sector “it looks a lot like you need to pick one,” said Professor Rust. “Whereas in goods, you need to do both.”

Optimising service productivity

The Professor then presented his recent paper, “Optimising Service Productivity.” He reported that the Journal of Marketing recently conditionally accepted this paper.

The presentation included an outline of service productivity’s central role in economic growth. For companies “higher productivity is going to increase profits, and for entire nations, higher productivity is going to increase economic growth,” he said.

“So service productivity is important,” suggested the Professor. The apparent conclusions are that “companies and nations need to increase service productivity.” This is currently reflected in business press.

Professor Rust discussed how to equate service productivity with cost reduction and gave examples of automated services that do have “a social cost”. He said that automated services, such as the telephone menu, can mean “decreased customer satisfaction.” Although he said that if the technology is good enough, “you can get away with it,” giving the internet as an example that seems to work for people.

The central thesis is therefore, “at a particular technical level, an optimal level of service productivity exists.”

Professor Rust highlighted that this paper introduces the ideas of service productivity as a strategic decision variable, while “companies usually thought of service productivity as an output.”

“So, labour versus automation is a key service productivity decision,” said the Professor before discussing the theoretical framework, which may be paraphrased as follows;

When the optimal level of service productivity is the same as the actual level of service productivity, maximum profit results. Where service productivity deviates from the optimal level, profits suffer.

The paper includes analytical and empirical models that show that the number of variables should have a predictable effect on productivity levels.

Future directions

Professor Rust made it clear that this is work in progress and he eagerly led discussion on its future direction, inviting ideas, comments and criticism. When asked about other plans for the future, he hinted to work pertaining to evolutionary theory.

“It sounds crazy for a marketing person…. but I have produced papers that have been completely rejected by the field,” he said, unmoved.

Then after a brief pause he said, “I have some ideas. And they will move forward. And it will take years,” he smiled.

 

Roland T. Rust is a Distinguished University Professor and David Bruce Smith Chair in Marketing at the Robert H. Smith School of Business at the University of Maryland, where he is founder and Executive Director of two research centers: the Center for Excellence in Service and the Center for Complexity in Business. He is also Visiting Chair in Marketing Science at Erasmus University and Fellow of Oxford University’s Center for Corporate Reputation.