An Introduction

Definitions
A Service is a Time-perishable, Intangible Experience Performed for a Customer Acting in the Role of a Co producer.
- James Fitzsimmons

Services are deeds, processes, and performances.

- Valarie Zeithaml & Mary Jo Bitner

Service Organization
Service Enterprises are Organizations that Facilitate the Production and Distribution of Goods, Support Other Firms in Meeting Their Goals, and Add Value to Our Personal Lives.
- James Fitzsimmons

Interactive Role of Services

Percent Service Employment for Selected Industrialized Nations 2005 Country 1965 1975 1985 1995
United States United Kingdom The Netherlands Sweden Canada Australia France Japan Germany Italy 59.5 51.3 52.5 46.5 57.8 54.6 43.9 44.8 41.8 36.5 66.4 58.3 60.9 57.7 65.8 61.5 51.9 52.0 n/a 44.0 70.0 64.1 68.3 66.1 70.6 68.4 61.4 57.0 51.6 55.3 74.1 71.4 73.4 71.5 74.8 73.1 70.0 61.4 60.8 62.2 78.6 77.0 76.5 76.3 76.0 75.8 74.8 68.6 68.5 65.5

Service Economy

OperationsInputs into - DefinitionOutputs Conversion of

Transformation Resources into of Changing Products

Goods and or Labor, capital, material, etc. into services

Plan, Organize, Direct, Control

Resources
in order to meet customer needs and fulfill strategic goals

Operations Management
Marketplace Corporate Strategy Finance Strategy Operations Strategy Marketing Strategy

Operations Management

People Materials & Customers

Plants

Parts

Processes Products or Services

Planning and Control

Input

Output

The Transformation Process (value adding)

Transformations
y Physical--manufacturing y Locational--transportation y Exchange--retailing y Storage--warehousing y Physiological--health care y Informational--telecommunications

Service Operations
y Service Operations represent the set of activities, that

creates value in the form of outputs, services, by transforming tangible and intangible inputs (ideas, information, materials, physical labor).

Customer Presence = Service

y Classification of firms as service or manufacturing can seem arbitrary,

e.g. a pizza is tangible but a restaurant is a service y Key idea = If the customer is present when the operations occur the firm is generally classified as a service business y A restaurant (a service) sells tangible food. The services are the preparation and service of the food (including friendliness, atmosphere, and other intangible components). y Auto repair (a service) sells tangible auto parts. The services are the diagnosis of problems and installation of parts. y Most services involve at least some tangible items - part of the price you pay is for the service portion and part is for the goods portion y Low-skill services service-driven price smaller (you re paying for the cheeseburger and the equipment used to cook it, not for the expertise used to say Would you like fries with that? ) y High-skill services service-driven price larger (paying for medical expertise, not for the plastic splint on your broken arm)

System

Examples of Operation Systems

Inputs Components Primary transformation function Healthcare Desired Output Patients, medicines Customers, Food Doctors, Nurses, Equipment Chef, Servers, Ambience Healthy Individuals Satisfied Customer Sales to Satisfied Customer Fast delivery, availability of SKUs Educated Individuals

Hospital

Restaurant

Prepare food, Serve food, agreeable environment Attract shoppers, promote products, fill orders Storage & redistribution

Department Shoppers, Displays, Store stock of goods salesclerks Distribution Stockeeping centre units (SKUs) University Students, Books Storage racks, clerks Teachers, Classrooms

Imparting Knowledge and Skills

Type of Service Goods rental

Customer value Obtain temporary right to exclusive use Obtain exclusive use of defined portion of a larger space Hire other people to do a job Gain admission to a facility for a period of time Gain access to participate

Examples Vehicles, tools, furniture, equipment Hotel room, seat on airplane, storage unit Car repair, surgery, management consulting Theme park, camp ground, physical fitness gym Electric utility, cell phone, internet

Management Challenge Site selection and maintenance Housekeeping and achieving economies of scale Expertise is a renewable resource, but time is perishable Queuing and crowd control Availability and pricing decisions

Place and space rental Labor and expertise Physical facility usage Network usage

Open Systems View of Services

Consumer arrivals

(input )

Service Process Consumer participant Consumer-provider Interface

Consumer departures

Customer demand Perceived needs Location

Manager Schedule Production function Alter supply demand Monitor and control process Marketing function Interact with customers Control demand Modify as necessary Define standard Service package Supporting facility Communicate by Basis of Facilitating goods advertising selection Explicit services Implicit services

Contro l Service Operations

Outpu t Monito r

Evaluation Criteria Measuremen t

Service personnel Empowermen t Training Attitudes

The Servuction Service Model

Invisible Organization and System Inanimate Environment Customer A Contact Personnel or Service Provider Visible Bundle of Service Benefits Received By Customer A Customer B

Invisible

High Contact vs Low Contact

y High-contact = customer present for much of time during which

service is provided, e.g. restaurant dining area, bank teller window, car dealership showroom, university classroom y Low-contact = customer present for small portion of service or not present at all, e.g. restaurant kitchen, bank headquarters, car dealership maintenance department, university administrative offices y Some businesses are mostly high, some mostly low. Virtually all can be split into two parts, a high-contact and a low-contact portion y The low-contact portion can often be managed like manufacturing, e.g. production schedules that maximize utilization and efficiency, workers following well-defined procedures, inventory built up between workstations, etc. y Danger #1 = thinking the entire firm can be run that way y Danger #2 = viewing the high-contact portion as a headache rather than an opportunity to impress the customer and differentiate your firm from its competitors

The Service Package

y Supporting Facility y The physical resources that must be in place before a service can be sold. y Eg. golf course, hospital, airplane, hotel infrastructure. y Facilitating Goods y The material purchased or consumed by the buyer or items provided by the consumer. y Eg. food items, auto parts, legal documents, golf clubs.

The Service Package

y

Information
y

Examples are patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi.

y Explicit Services y Benefits readily observable by the senses. The essential or intrinsic features. y Eg. quality of meal, attitude of the waiter, on-time departure. y Implicit Services y Psychological benefits or extrinsic features which the consumer may sense only vaguely. y Eg. privacy of loan office, security of a well lighted parking lot

Three types of Service Operations

Quasi-manufacturing (eg: Aircraft maintenance) 2. Customer-as-participants (eg: Retailing, 3. Customer as product (Beauty clinic, Hospital, Tailor)
1.

The Goods-Services Continuum

Pure Goods FMCG Chemicals Book Publishing Goods Core Goods Core Services Appliances Hotels Automobile Airlines s Internet Service Providers Telecom Pure Services Teaching Medical Advice Financial Consulting Services

Unique Characteristics of Services

y Intangibility y No patent protection, y Customer doesn t know what level of service s/he will be getting (only minimum levels may be guaranteed through registration, licencing, regulations) y Management must identify particular needs and use creative advertising to emphasise abstract benefits y Importance of reputation y No patent protection: short life cycles for innovations; quick response

to competitive pressure

y Capture market share as quickly as possible y Clear definition of service package, geographic area covered, standard

facility design, trademarks to define uniqueness y Barriers to entry

Unique Characteristics of Services

y Perishability y You can t produce the intangible portion of a service in advance and store it in inventory y opportunity loss of idle capacity y need to match supply with demand y Thus capacity must be managed carefully because you can t handle demand surges with inventory

Unique Characteristics of Services

y Demand fluctuations more dramatic in the short-run y e.g. a fast-food restaurant y This makes capacity needs even more difficult to predict y It requires very rapid capacity-related reactions the

customers are there and waiting y Having flexible capacity is critical, e.g. multi-skilled employees

y customer demand and arrival patterns difficult to forecast (cyclical,

seasonal) y Perishability of demand: cannot inventory, opportunity loss of idle capacity, need to match supply with demand y Strategies to cope with variability:
y

Automation (affects pricing, service time,market positioning, maintenance, layout, workforce), Overlapping shifts, Price incentives, Reservations and appointments, Customer self-service

Unique Characteristics of Services

y Heterogeneity y customer participation in delivery process results in variability y service expectation differs from customer to customer y method for delivery differs from service delivery person to service delivery person y customer vs. service delivery person delivery personnel may not sense what the customer would like y variability in output y Due to customer presence and intangibility y Difficult to establish and meet standards each time y Training employees (Hamburger University) y Field inspection

Unique Characteristics of Services

y Simultaneity of service creation and consumption y opportunities for personal selling, y interaction creates customer perceptions of quality y Inability to absorb fluctuations in demand
y y y

Manufacturing inventory decouples operations Services decoupling is through customer waiting Inventory control queue control

y Capacity, facility utilisation, idle time balanced against customer waiting time y Capacity surrogate to inventory y Cost of idle capacity inventory holding cost y Lack of capacity stock out y Interaction creates customer perceptions of quality; eliminates opportunites for QC y Limit discretion of employees y Standardised procedures y Limited geographic area y Opportunities for promotional strategies, personal selling

Unique Characteristics of Services

y Customer Participation in the Service Process y uncertainty on service time, workforce needed, quality of service and operating costs. y Attention to facility design and layout y Routing the customer through the service system y Employee job design y Customer job design

Unique Characteristics of Services

y Difficulty in measuring output (number of customers)

and evaluating performance (maximizing profit) y Labor intensiveness

y Customer/worker interface

marketing/production

interface y Direct worker affects perceived value of service

y y

Production as well as marketing skills Worker scheduling, training, incentives

Unique Characteristics of Services

y Site and size dictated by customer y Limited economies of scale y Control of decentralised operations (multi-site management)
y y y

Standardise service package Extra layers of management Automate back room operations

Manufacturing vs. ServiceService Factor Manufacturing

Output Labor content Input uniformity Output uniformity Tangible Fairly Low High High Intangible Fairly high Fairly high Low Low Difficult Difficult Customer interaction Limited

Productivity measure Easy Quality improvement Fairly easy

Manufacturing vs. Service Goods Services Implication

Tangible Intangible
Services cannot be inventoried Cannot be patented, readily displayed or communicated Pricing of services difficult
Service delivery and customer satisfaction depends on employee actions Service quality depends on many uncontrollable factors There is no guarantee that the service delivered is the same as planned

Homogenous / Standardised
Goods have their standards and are mostly alike

Heterogenous
Services frequently produced by human beings, so no two services will be alike

Manufacturing vs. Service Goods Services Implication

Production and distribution are separated from consumption Non perishable
Goods can be sold, returned or resold

Simultaneous production and consumption Perishable

Services cannot be saved, stored or returned

Customers participate in and affect the transaction Employees affect the service outcome Mass production is difficult
Difficult to synchronize supply and demand in services Right quality has to be delivered in the first instance

Manufacturing vs. Service Goods Services

Core value produced in factory Customers do not participate in production Core value produced in buyer-seller interaction Customers participate in production

Transfer of ownership No transfer of ownership

Manufacturing vs. Service

y Manufacturing and service organizations differ chiefly because manufacturing is goods-oriented and service is actoriented. The differences involve the following: 1. Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity 6. Simultaneous production and delivery 7. Quality assurance

Manufacturing vs. Service

1.

Customer contact
y service involves a much higher degree of customer contact than manufacturing. y The performance of a service often occurs at the point of consumption. Eg. surgery y

y y y

requires the presence of the surgeon and the patient. Manufacturing allows a separation between production and consumption, so that manufacturing may occur away from the consumer. This permits a fair degree of latitude in selecting work methods, assigning jobs, scheduling work, and exercising control over operations. Service operations, because of their contact with customers, can be much more limited in their range of options. Customers are part of the system so tight control is impossible. Product oriented operations can build up inventories of finished goods (e.g., cars, refrigerators) enabling them to absorb some of the shocks caused by varying demand. Service operations, cannot build up inventories of time and are much more sensitive to demand variability banks and supermarkets alternate between lines of customers waiting for service and idle tellers or cashiers waiting for customers.

Manufacturing vs. Service

2. Uniformity of Input
y

Service operations are subject to greater variability of inputs than typical manufacturing operations. Each patient, each lawn, and each auto repair presents a specific problem that often must be diagnosed before it can be remedied. Manufacturing operations often have the ability to carefully control the amount of variability of inputs and thus achieve low variability in outputs. Consequently, job requirements for manufacturing are generally more uniform than those for services.

Manufacturing vs. Service

3.Uniformity of Output
y Because high mechanization generates products with

low variability, manufacturing tends to be smooth and efficient; y service activities sometimes appear to be slow and awkward, and output is more variable. Automation services are an exception to this.

4. Simultaneous production and delivery

y

Customers receive the service as it is performed (e.g., haircut, dental care).

Manufacturing vs. Service

5. Labor content of jobs
y Services often require a higher labor content y Require employees with people skills y manufacturing, with exceptions, can be more capital-intensive (i.e.,

mechanized).

6. Need a reasonable degree of empowerment

y Unlike manufacturing, in which it may be possible to predefine

procedures that should be followed for every unit, services can t generally be fully predefined because of the need to interact with customers y It s unreasonable to make customers wait while employees refer to management for advice for every un-predefined decision y Service recovery = result of a problem addressed so successfully that customer loyalty actually becomes higher than it would have been if the problem had never occurred

Manufacturing vs. Service

7.

Quality
y y y y y y y

Quality assurance is more challenging in services when production and consumption occur at the same time. Customer presence in the system can disrupt activities and therefore hurt quality and productivity Higher variability of input creates additional opportunity for the quality of output to suffer unless quality assurance is actively managed. More difficult to develop standardized procedures for employees to follow because each customer is different In manufacturing, errors can be corrected before the customer receives the output. In service quality is delivered at the point of creation Can t fix mistakes later as is often done in manufacturing the customer is there and experiences the mistakes as they occur Customer may be expected to perform some self-service and thus can impact quality himself need extremely transparent and user-friendly processes

Manufacturing vs. Service

8. Measurement of productivity
y y

y y y y

Productivity

More straightforward in manufacturing due to high degree of uniformity of most manufactured items. In service operations, variations in demand intensity and in requirements from job to job make productivity measurement considerably more difficult. For example, compare the productivity of two doctors. One may have a large number of routine cases while the other does not, so their productivity appears to differ unless a very careful analysis is made. Typically labor intensive Frequently individually processed Often an intellectual task performed by professionals Units of service produced Difficult to mechanize

Input (tangible and intangible) used ?

Measurement Problems
y Quality may change while the quantity of inputs and

outputs remains constant y External elements may cause an increase or decrease in productivity y Precise units of measure may be lacking

Competitive Environment of Services

Relatively low overall entry barriers Minimal opportunities for economies of scale Erratic sales fluctuations Small size of many service firms creates disadvantage in dealing with buyers or suppliers y Product substitutions might be made for service y Customer loyalty difficult to build y Customer loyalty of competitors difficult to overcome
y y y y

Schmenner s Service Process Matrix

Degree of Interaction and Customization Low Low Service factory High Service shop

Degree of labor Intensity High Mass Service

Retailing Wholesaling Schools Retail Banks

Airlines Hospitals Trucking Auto repair Hotels Other repair services Resorts and recreation

Professional Service
Doctors Lawyers Accountants Architects

Schmenner s Service Process Matrix

Low interaction & customization Marketing Making service warm Attention to physical surroundings Managing fairly rigid hierarchy and standardizing operating procedures Low Labor Intensity Capital decisions Technological advances Managing demand to avoid peaks and promote off peaks Scheduling service Service factory Service shop delivery Low Labor intensity Low Labor intensity Low Interaction High Interaction and and Customization Customization High interaction/high customization Fighting cost increase Maintaining quality Reacting to customer intervention in process Managing flat hierarchy Gaining employee loyalty

Mass Service

High Labor intensity High Labor intensity Low Interaction High Interaction and and Customization Customization High Labor Intensity Hiring, Training Methods development Employee welfare Scheduling workforces Control of far-flung locations Managing growth

Professional Service

Strategic Service Classification (Nature of the Service Act)

Direct Recipient of the Service People / People s bodies Healthcare Passenger transportation Beauty salons Exercise clinics Things / Physical possessions Freight transportation Equipment repair and maintenance Veterinary care Housekeeping services Laundry & drycleaning Intangible assets Banking Insurance Legal services Accounting

Tangible actions Nature of the Service act

People s Minds Education Intangible Broadcasting & actions Information Theaters Museum

Strategic Service Classification (RelationshipRelationship between Service organization with Customers)

and Customers Membership relationship Insurance Telephone services Continuous Education delivery Banking Clubs / societies Commuter ticket/ Discrete season pass transaction Airline frequent flyer s No formal relationship Radio station Police

Nature of Service Delivery

Restaurant Mail service Movie theater Public transport Car rental

Strategic Service Classification (Customization to which Service Characteristics are and Judgment) Extent
Customized High Doctor / surgeon Extent to Beautician which personne High Consultancy l exercise judgment Hotel services in Retail banking (major meeting customer Low loans) Family restaurant needs Low Education (large classes) Preventive health programs Canteen food Public transportation Movie theater Spectator sports Fast food restaurant

Strategic Service Classification (Nature of Demand and Supply)

Extent of Demand Fluctuation over Time Wide
Peak demand can be usually met without major delay Peak demand regularly exceeds capacity

Narrow Insurance Legal services Banking Laundry and dry cleaning

Extent to which supply is constrain ed

Electricity Natural gas Police and fire Hospital maternity unit Telephone

Accounting and tax Similar to above but with Passenger insufficient capacity for transportation their base level of business Hotels Restaurants

Strategic Service Classification (Method of Service Delivery)

Availability of Service Outlets Single site Nature of interaction between Service organization customer comes to customer and service Customer and service organizati organization interact on at arm s length (mail
or electronic communication) Customer goes to service organization

Multiple site Bus service Fast food chain Mail delivery 108 ambulance

Theater Barber shop Lawn care Housekeeping Pest control

Credit cards Broadcast Local TV / Radio networks station Telephone company