Service Operations Management

1. Successful Service Operations Management

Metters, King-Metters, Pullman and Walton
2. Service Management 2ed.,
Fitzsimmons & Fitzsimmons (1998). Irwin/McGraw-Hill.

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 What is a product?
What is production?
Dynamics of Business management!
Service?
Operation?
What is Management?
What is Service Operations Management?

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 What is Service?
Service is classified as an intangible product to
satisfy the customer
 Often service is facilitated by a tangible product
 Transportation service–Aircraft/Motor car
Telephone service – Handset
Resting, sitting down – Chair
Viewing – TV set
Every tangible product is a service for the end user

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Every tangible product is accompanied by a
service to facilitate effectiveness of service
Packaging – consumer packaging gives
instruction for effective use of service
 Instructions on consumer packaging
 Cautions and warnings
 Universal symbols of poison, radio activity,
inflammable material etc.
 User manuals – cell phones

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Distinctive Characteristics of Service Operations
1. Customer participation in service process
 Without active participation of the customer
(recipient of service) service doesn’t get
created. Service cannot be produced and then
delivered
2. Simultaneity
 Consumption and creation of service are
simultaneous. There is no inventory
3. Perishability
 As service doesn’t remain in stock there is no
deterioration, hence no perishability
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 4. Intangibility
 Service is an intangible product
5. Heterogeneity
 Service changes from customer to customer
6. Non-ownership
There is no transfer of ownership of product when
a service is purchased. The customer gains
access or rental of resources – passenger and
aircraft

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 A product (core service) A service
1. Result of a process A process itself
2. Tangible Intangible
3. Perishable Non perishable
4. Uniformity Heterogeneity
5. Product is (Inventoriable) Simultaneous production &
to be delivered to the consumption (Non
customer inventoriable)
6. Long lead-time No distribution lead-time
7. Capital intensive Skill intensive
8. Product can be tested for Service quality is difficult to
quality determine
9. Market is extensive Market is local 7
 What are service operations?
Activities which create service (add value)
Set of value adding activities performed in a
service organization
What is Service Operations Management?
Management of Service Operations is making a
service organization: -
• Efficient and effective – by putting the focus on
productivity
• Directing efforts of the organization towards
customer satisfaction
• Resource allocation to maximize profits
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 What is service sector?
A sector of economy which consists of service
organizations engaged in delivering a variety of
services
Services belong to a type of industry called
tertiary Industry
Types of industry
• primary, secondary, tertiary and quaternary.

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Importance of Service Sector

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 GDP per GDP composition by sector
GDP by PPP
Country capita by (2016 est.)
(2017)
PPP agriculture industry services

$21.27 trillion, 1st $15,400/- 40.7%

CHINA (GDP real growth th 8.6% (Growth rate 50.7%
rate: 6.6%) 104
6.1%)
$19.18 trillion, 2nd(GDP 25.5%
EUROPEAN $37,800/-
real growth rate: 1.6% (Growth rate 73.6%
UNION 47 th
1.9%) 1.5%)
$18.56 trillion, 3 rd 19.4%
UNITED $57,300/-
(GDP real growth 1.1% (Growth rate 79.5%
STATES 18 th
rate: 1.6%) 2.1%)
16.5%
th 29.8% 45.4%
$9.447 trillion, 4 (Labour
INDIA $7,200/- (Growth rate (Labour
(GDP real growth force
157th 49%) 7.4%) (Labour force 31%)
rate: 7.6%) force 20%)

Source: CIA Facts book. (https://www.cia.gov/library/publications/the-world-factbook/geos/ee.html)

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 Service sector generates the largest chunk of
GDP in a developed economy.
Indian service sector generates 45% of the
national GDP
Service sector needs educated and skilled man
power. Hence it offers employment opportunities
for most of the B school graduates
Service operations management has remained
unexplored by management researchers- large
number of opportunities for performance
improvement
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 Knowledge of service operations gives a
competitive edge to job aspirants

Service sector has grown rapidly over the past

decades in India and also in the world

India ranks fifteenth in the services output

employing around 31% of the total workforce in
the country

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Modern Production/Operations Management- Elwood S. Buffa, Rakesh K. Sarin (John Wiley and Sons)

During and immediately after war expenditure on essentials like food, clothing, fuel etc
used to consume a major part of the income. As the time progressed, consumption of
services increased. By 1980 it became 60% of income from 33% in 1945 14
 Different forms of service

Physical form – core service

Location form – transportation

Exchange form – retail malls

Physiological form – hospitals, nursing homes,

dispensaries

Psychological form – entertainment business

Information form – BPO, call centers 15

The various operations under the Services Sector
in India
 construction, trade, hotels, transport, restaurant
 social (education, food, health care, job training
and adoption), and personal services
(personalized services - law, medicine, finance,
accounting and even performing arts)
 Infrastructural Service (transportation,
communication, utilities)

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  business services: Insurance, financing, IT
(Information technology is an important
business service that supports many other
business services such as procurement, shipping
and finance
 Governmental service: police, military, PDS
 community services (health care, child care,
literacy training, education, housing and
recreation)

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 Role of services in an Economy
Services facilitate economic activities
 Infrastructural services support
 manufacturing activities
 consumer’s access to various goods and
services to improve quality of life
 Government services provide a stable
environment for economic activities to flourish
 Role of services is Central to economic activities
in a society

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Classification of Service Operations

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Managers tend to think their business is unique
Classification stimulates benchmarking
The classification helps service managers to
identify similar businesses to bench mark best
practices

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Customer Contact Model of Services
(Richard Chase-1978)

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Service Operations Management, Metters, King Metters, Pullman, Walton (CENGAGE)

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 Services are classified based on amount of
customer contact while creating service
 Pure services (High contact-face to face contact
with customers)
• Medical services
•Transportation
• Eating places

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 Mixed Services (Low contact)
• Bank branches (loans- customer and supplier is
not close)
• Insurance
 Quasi-manufacturing (almost no contact)
• Bank head office
• Distribution centers
 Manufacturing (no customer contact)

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Service Process Matrix
(Schmenner,1986)

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 The differentiating factors

1. Degree of interaction and customization

2. Degree of labour intensity (capital intensity)

•The model helps managers to strategize challenges

facing their business

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Service Operations Management, Metters, King Metters, Pullman, Walton (CENGAGE)
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 Customization
Challenges for Managers
(Capital intensive)
• Sourcing funds Hospitals
• Choice of technology Repair
Air line • Managing peaks and troughs of demand with services
Trucking limited expensive capacity
•Scheduling service delivery – maximum utilization
Hotels of capacity

Challenges for Managers

(highly customized)

Labour Intensity
Challenges for Managers •Cost control-no scale
(Standardized services) •Maintaining quality-large
•Making services warm variety
•Making surroundings warm •Customer intervention
•Strong SOPs to manage •Gaining employee loyalty-
Hierarchy (scripting? Discretion?) highly skilled

Challenges for Managers

(labour intensive- HRD)
Retail malls •Hiring and training, Employee welfare
•Methods development-SOPs (human errors) Doctor
Wholesaling •Scheduling work forces at Far flung locations Lawyer
Schools (transfers)
Accountant 28
Service design, study of features of various types
of services and market opportunities

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 Classification of service systems
Distinctive features
Modern Production/Operations Management- Elwood S. Buffa, Rakesh K. Sarin (John
Wiley and Sons) Ch 3

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 Stagnant personal
1. High customer contact – doctor, hair dresser,
teaching (techer-pupils)
2. Customization is generally high to meet customers’
needs
3. Quality of the service is related to service time (a
resource), hence reduction in service time
compromises quality – doctor’s service, classroom
 Productivity improvement is possible only in
support services
1. Due to business dynamics stagnant personal
services are also being standardized as
specializations and placed strategically on offer
 Medical practice, teaching institutions, restaurants 31
 Substitutable – personal
1. Technological alternatives can substitute these
services
Servants – washing machine, ovens
Security guards – electronic gadgets
Banks – ATMs, internet banking
Teaching – on line courses, distance learning
Mail delivery system – electronic mail
2. Productivity improvement is possible by
technological innovations
3. Quality of substittuted service remains
debatable
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 Progressive
There are two components in this type of
service, one needs no labour and the other is
labour intensive
Computation work – hardware, software and skill
Broadcasting – transmission and program (skill)
R & D – equipment and human skills
Productivity improvement brings cost of one
component down while the other keeps going up
due to its stagnant nature
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 Explosive
 No customer contact while producing service
 Telephone communication
 On line banking
 Airlines reservations on line

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Service strategy of a firm

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 Strategically Planning for Growth
In competitive environment, growth is important for
survival
Growth strategies should address growth stages
Growth strategies for service are different from those
for products (why?)
 PLC for products and the Multi-Site Service Firm
Lifecycle
1. Entrepreneurial stage
•Difficult time, low income
•Local marketing, PR
•Role of entrepreneur to motivate underpaid
employees
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Multi-Site Service Firm Lifecycle

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 2. Multisite rationalization
•Why Multisite expansion?
•A new paradigm (?) for all functions
•Company shifts to system focus from
entrepreneurial focus (?)
3. Growth
•Selling service concept to a wider consumer base
•Wider-scale marketing
•Finding investors and franchisees to fund the
growth
•Two important strategies during growth are
industry roll-ups and franchising
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 Industry roll-ups and franchising
 A Rollup is acquiring or merging small single
unit service firms for expansion
•Easier than building up capacity by internal
expansion
•Easy access to market
•Reduction in competition
•Economies of scale
•Indian airlines and Air India?
•IDBI and United Western? Many in Banking
Sector
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  Franchising
•Selling right to use the name for royalty and a
portion of sales
•The principal company helps the franchisee to set
up the business and trains him/her in operations
•Franchisor and Franchisee have stake in business
•Cable TV operators
•Mc Donald’s Chain

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 4. Maturity
•Maintaining position in the market
•Control over operations, motivating employees at
multiple locations who are less than inspired
(complacent?)
Examples
Banking service? Government services?

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 5. Decline/Regeneration
•The service concept becomes stale and business
starts declining
•Revising service concept and implementing
•Service network is used to and comfortable with
old service concept
•Requires great entrepreneurial skills
Examples
•Radio broadcast, service concept is revised and
being delivered as FM radio?
•Idlis and dosas as fast food items?
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