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Balancing IT with the Human Touch: Optimal Investment in IT-Based Customer Service

Author

Listed:
  • Sulin Ba

    (School of Business, University of Connecticut, Storrs, Connecticut 06269)

  • Jan Stallaert

    (School of Business, University of Connecticut, Storrs, Connecticut 06269)

  • Zhongju Zhang

    (School of Business, University of Connecticut, Storrs, Connecticut 06269)

Abstract

To cut costs, companies have chosen to deliver a variety of service offerings online. However, the digital systems providing such services (e-service) have always been complemented with or supported by human-based service (h-service). Whereas h-service has total costs that increase with the demand for services, e-service mainly requires a fixed investment upfront, which can be amortized over the totality of customers served. Considering the different nature of the costs of h-service and e-service and the heterogeneity of customer preferences for services, we derive the optimal mix of h-service and e-service for a service-providing company vis-à-vis its competitor. Our theoretical analysis finds the subgame-perfect Nash equilibria that determines the optimal positions in a duopoly setting. We further study the competitive dynamics of the system to examine how firms stay on the equilibrium paths. Using simulation, we investigate the effects of starting positions, small adjustments in h-service and/or e-service, and monotonic expansions of e-service on the final positioning and profits of the firms. Our results demonstrate that when firms follow a local best-reply strategy, they may end up in a position of low profitability, and when only monotonic expansions of e-service are allowed, both firms may end up overinvesting in e-service.

Suggested Citation

  • Sulin Ba & Jan Stallaert & Zhongju Zhang, 2010. "Balancing IT with the Human Touch: Optimal Investment in IT-Based Customer Service," Information Systems Research, INFORMS, vol. 21(3), pages 423-442, September.
    • Handle: RePEc:inm:orisre:v:21:y:2010:i:3:p:423-442
    DOI: 10.1287/isre.1100.0282
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    References listed on IDEAS

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    Cited by:

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    3. Xian Xu & Peter Zweifel, 2020. "A framework for the evaluation of InsurTech," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 23(4), pages 305-329, December.
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    5. Chun Liu & Kam Hung, 2020. "A comparative study of self-service technology with service employees: a qualitative analysis of hotels in China," Information Technology & Tourism, Springer, vol. 22(1), pages 33-52, March.
    6. Kurata, Hisashi, 2019. "Is the information of customer types and preferences to personal selling worth the investment in innovative technology? A modeling approach," Journal of Retailing and Consumer Services, Elsevier, vol. 49(C), pages 371-379.
    7. Emanuel Stoeckli & Christian Dremel & Falk Uebernickel, 2018. "Exploring characteristics and transformational capabilities of InsurTech innovations to understand insurance value creation in a digital world," Electronic Markets, Springer;IIM University of St. Gallen, vol. 28(3), pages 287-305, August.
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    10. Jingjun (David) Xu & Izak Benbasat & Ronald T. Cenfetelli, 2014. "Research Note ---The Influences of Online Service Technologies and Task Complexity on Efficiency and Personalization," Information Systems Research, INFORMS, vol. 25(2), pages 420-436, June.

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