Strategic Segmentation in Frontline Services: Matching Customers, Employees, and Human Resource Systems

Abstract

This paper examines variation in the use of high involvement work practices in service and sales operations. I argue that the relationship between the customer and frontline service provider is a central feature that distinguishes production-level service activities from manufacturing. In particular, through strategic segmentation, firms are able to segment customers by their demand characteristics and to match the complexity and potential revenue stream of the customer to the skills of employees and the human resource system that shapes the customer-employee interface. Unlike manufacturing, where high involvement systems have emerged in a wide variety of product markets, therefore, service organizations are likely to use high involvement systems only to serve higher value-added customers because of the high costs of these systems and the labor-intensive nature of services. Data from a nationally random sample of 354 call centers in U.S. telecommunications documents this pattern: from classic mass production approaches for back office workers and increasingly for front office residential service agents, to greater involvement for small business service providers, and high involvement practices for middle market service agents.