Service Operations Management

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 5

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) 1. Result of a process 2. Tangible 3. Perishable 4. Uniformity 5. Product is (Inventoriable) to be delivered to the customer 6. Long lead-time 7. Capital intensive 8. Product can be tested for quality 9. Market is extensive

A service A process itself Intangible Non perishable Heterogeneity Simultaneous production & consumption (Non inventoriable) No distribution lead-time Skill intensive Service quality is difficult to determine 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 8

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. 9

Importance of Service Sector

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Country

CHINA

GDP per capita by PPP

GDP by PPP (2017)

$21.27 trillion, 1st $15,400/(GDP real growth th 104 rate: 6.6%)

EUROPEAN UNION

$19.18 trillion, 2nd(GDP real growth rate: 1.9%)

UNITED STATES

$18.56 trillion, 3 rd (GDP real growth rate: 1.6%)

INDIA

$9.447 trillion, 4

GDP composition by sector

agriculture

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8.6%

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th

(GDP real growth rate: 7.6%)

$7,200/157th

(Growth rate 6.1%)

50.7%

25.5% 1.6%

(Growth rate 1.5%)

73.6%

19.4%

$57,300/th

services

40.7%

$37,800/th

(2016 est.) industry

1.1%

16.5% (Labour force 49%)

(Growth rate 2.1%)

79.5%

45.4% 29.8% (Labour (Growth rate 7.4%) (Labour force 31%) force 20%)

Source: CIA Facts book. (https://www.cia.gov/library/publications/the-world-factbook/geos/ee.html) 11

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 12

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 13

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

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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

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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 18

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

Air line Trucking Hotels

Challenges for Managers (Capital intensive) • Sourcing funds • Choice of technology • Managing peaks and troughs of demand with limited expensive capacity •Scheduling service delivery – maximum utilization of capacity

Challenges for Managers (labour intensive- HRD) •Hiring and training, Employee welfare •Methods development-SOPs (human errors) •Scheduling work forces at Far flung locations (transfers)

Doctor Lawyer Accountant

Labour Intensity

Challenges for Managers (highly customized) •Cost control-no scale •Maintaining quality-large variety •Customer intervention •Gaining employee loyaltyhighly skilled

Challenges for Managers (Standardized services) •Making services warm •Making surroundings warm •Strong SOPs to manage Hierarchy (scripting? Discretion?)

Retail malls Wholesaling Schools

Hospitals Repair services

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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 32

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 33

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 36

Multi-Site Service Firm Lifecycle 37

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 38

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 39

 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? 42