Service Diversity and Service Quality: Differentiation Strategy as a Strategic Boundary Condition
Grounded in contingency theory and analyzed via survey data from 204 UK non-manufacturing business units, this study reveals that while both service diversity and differentiation strategy independently enhance service quality, differentiation strategy acts as a negative boundary condition that diminishes the positive impact of service diversity as its intensity increases.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
In the world of business, companies that sell services—like banks, hospitals, or consulting firms—face a constant challenge: how to keep customers happy when their needs are so different from one another. Two main ideas have long guided managers trying to solve this. The first is variety. The logic is simple: if a company offers a wide menu of different services, it can match the specific needs of more customers, much like a grocery store that stocks every possible brand to ensure everyone finds what they want. The second idea is focus. This strategy is about doing one thing exceptionally well, offering a unique, high-quality experience that stands out from the crowd, rather than trying to be everything to everyone. For decades, researchers have studied these two approaches separately, often assuming that having a wide variety of services and having a strong focus on uniqueness are just two different ways to get better results, and that a company could simply do both at the same time to double its success.
However, a new study suggests that the relationship between offering many services and achieving high quality is not as straightforward as adding two good things together. The research, conducted by Hanadi Alshamlan at Imam Mohammad ibn Saud Islamic University, looked at 204 business units across the United Kingdom that operate outside of manufacturing. These ranged from wholesale and retail traders to professional service providers and transportation companies. The study asked a specific question: does having a wide variety of services always lead to better service quality, or does the answer depend on whether the company is already trying to be unique and different from its competitors? By surveying senior managers about their strategies and the quality of their work, the researchers found that while both variety and a focus on uniqueness generally help, they do not work well together in the way many people expect.
The study confirmed that, on average, companies that offer a broader range of services do tend to be seen as providing higher quality. Similarly, companies that deliberately choose to compete by being unique and offering customised, high-value experiences also tend to have higher service quality. These findings align with what managers have long believed: variety helps you reach more people, and a focus on excellence helps you stand out. But the most important discovery came when the researchers looked at how these two strategies interact. They found that when a company is already heavily focused on being unique and different, adding more variety to its service menu does not make the quality any better. In fact, the benefit of adding variety disappears completely once a company's focus on differentiation becomes too strong.
To understand this, imagine a business that is already pouring all its energy into perfecting a single, highly customised service for a specific group of clients. If that same business suddenly tries to add ten new, different services to its portfolio, it does not gain extra quality points. Instead, the effort required to manage those new services seems to dilute the company's ability to maintain its high standards. The data showed that for companies with low to moderate levels of a uniqueness strategy, expanding their service offerings was a clear path to better quality. But for the minority of companies that were already intensely focused on differentiation, the extra work of managing a wider variety of services provided no measurable improvement in how customers perceived their quality. The researchers identified a specific tipping point: once a company's commitment to being unique crossed a certain threshold, the positive effect of adding more services vanished.
This finding challenges the common assumption that a company can simply stack strategies on top of each other to get better results. It suggests that resources like staff time, training, and management attention are limited. When a business is already using those resources to create a deeply customised, unique experience, it has less capacity left over to manage a wide and varied portfolio effectively. The study did not prove that adding variety hurts a highly focused company, but it did show that it stops helping. For the managers of those highly focused units, the research suggests that their best move is not to broaden their offerings, but to deepen their existing capabilities. For the many other companies that are not yet intensely focused on uniqueness, expanding their service range remains a valid and effective way to improve how customers view their quality.
The study relied on surveys completed by managers in the UK, which means the results describe a snapshot in time rather than a long-term cause-and-effect relationship. The researchers were careful to note that they could not rule out the possibility that other unseen factors influenced both the strategies and the quality ratings. They also acknowledged that because the data came from a single person in each company, there is a chance that the way people answered the questions influenced the results. Despite these limitations, the statistical analysis was robust, using advanced methods to ensure the patterns they found were real and not just random noise. The research adds a crucial layer of nuance to our understanding of business strategy, showing that the best path forward depends entirely on where a company currently stands. It is not a matter of choosing between variety and focus, but of understanding that the value of variety changes depending on how much a company is already committed to being unique.
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