operation and service management

1. Chapter 1

2. Why Study Service Operations?
• Service firms are a large percentage of the
economies of industrialized nations and it’s
growing
– 80% of the US economy (employment and GDP)
• There is little focus on services in the
academic world. Gain a competitive edge.
• Not all management tools that are
appropriate for manufacturing are
transferable into a service environment
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3. The Importance of Service Sector
Historically service is defined by what it is not:
Services are not
 Goods Producing  Manufacturing & Construction
 Extraction  Agriculture, forestry, fishing & mining
Services  Retailing, Wholesaling, Transportation,
Financial services, etc.
Nowadays service is ubiquitous.

4. Role of Services in an Economy

5. Service 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

6. Definition of Service Firms
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

7. Bell’s Stages of Economic
Development
Preindustrial
Industrial
Postindustrial
Features
Society Game Pre- Use of Unit of Standard of Structure Technology
dominant Human Social Life Living
Activity Labor Measure
Pre- Against Agriculture, Raw Muscle Extended Subsistence Routine, Simple hand
Industrial Nature Mining Power Household Traditional, tools
Authoritative
Industrial Against Goods, Machine Individual Quantity of Bureaucratic, Machines
fabricated Production tending Goods Hierarchical
nature
Post- Among Services Artistic, Community Quality of Interdepend Information
Industrial Persons Creative, life in terms ent, Global
Intellectual of health,
education,
recreation

8. Historical US Employment by Economic
Sector
90%
80%
Percent of Workforce
70%
60%
Extraction
50%
Goods Producing
40%
Service Producing
30%
20%
10%
0%
1800 1850 1900 1950 2001
Year
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9. Growth of Services

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

11. Product Services
A B
Physical 6% 31% 37%
Information
10% 53% 63%
C D
16% 84%

12. a. Preindustrial
In U.S , during year 1800
Employment in extraction field
Agriculture is the most prominent. More than 80%
workforce in Agriculture sector
Service occupations mostly were domestic servants
and sailors
Family relationships and tradition important but
education and innovation are not
Quality of life dependent on nature

13. b. Industrial
Year 1900 to 1950
Important activity  Goods production
Quality of Life  Measured by accumulation of
goods. “He who dies with the most toys, wins”
Focus was on maximizing the productivity of labor
and machines
Extreme division of labor
Dehumanizing jobs hence labor unions were formed
“Manual workers” outnumbered “white collar
workers”

14. c. Postindustrial
Year 1950 onwards
Service producing industries increased from 50% to 80%
in US
Health, Education, & recreation predominates and it
determines Quality of Life
A small subset of the service economy called “experiences”
will be a dominant economic force
Information rather than muscle was the focus; workers
value based on judgment, creativity & theoretical
reasoning
New paradigms are required to manage service industries.

15. New Experience Economy
Service undergoing transformation from the
traditional concept of a service transaction to one of
an experience.
Eg: Disney World, Starbucks, etc.
Economy Agrarian Industrial Service Experience
Function Extract Make Deliver Stage
Nature Exchangeable Tangible Intangible Memorable
Attribute Natural Standardized Customized Personal
Method of Stored in Bulk Inventoried Delivered on Revealed over
Supply demand time
Seller Trader Manufacturer Provider Stager
Buyer Market User Client Guest

16. The four realms of experience
Customer Participation
Passive Active
Absorption Entertainment Education
Environmental (Movie) (Language)
Relationship
Estheticism Escapism (Scuba
Immersion (Tourist) diving)

17. Reasons for transformation from
industrial to post industrial era
Natural development of services such as
transportation & Utilities to support industrial
development
Population growth & mass consumption of goods
increase wholesale & retail trade along with banking,
real estate, & insurance
Higher income means higher demand for durables &
services, proportion spent on food & home decreases.
(Similar to Maslow’s Hierarchy)

18. Importance of studying “operations” in
services
What is Operations?
The transformation process that turns inputs
into outputs, that is, the act of combining
people, raw materials, technology, etc. into
useable services and products
Who is in the operations function?
The people who actually make a product or perform
a service
Typically operations has the largest number of
employees of any functional area
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19. But I’m going into marketing, finance,
strategy…
Regardless of your functional area, you will be
involved in “transformational processes”, in
other words, “getting things done”
Service operations can help you get things
done more effectively and more efficiently.
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20. Opportunities in Service Sector
Vast & untapped opportunities to improve service
businesses.
Only manufacturing is being considered for a time
being.
Imbalance exists which creates a huge opportunity

21. Characteristics of services …
Rules: Exceptions:
Services are intangible Facilitating goods: playbills, groceries
Simultaneous Computer system upgrades;
production and janitorial services; live music
consumption
Proximity to the Internet-based services; catalogs
customer
Services cannot be
Retailers hold inventory; hotel
inventoried rooms, airline seats are inventory
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22. Modern Products

23. Operations in the Service Sector
Many products: Combination of Goods and Services
Services
 Repair and Maintenance
 Government
 Food and Lodging
 Transportation
 Insurance
 Trade
 Financial
 Real Estate
 Education
 Legal
 Medical
 Entertainment and Other professional Occupations

24. Classification frameworks
Classification helps in finding commonalities
Similarities helps in finding insights
Well known classifications
Customer Contact Model
Service Process Matrix (Proposed by Schmenner)

25. Customer Contact Model
Services are classified according to the amount
of customer contact
Pure Services Mixed Services Quasi-Mfg. Manufacturing
Medical Branch offices Home offices
Restaurants Distribution centers
Transportation
High Contact Low Contact
•Guiding Principle:
 Customer _ Contact _ Time 
Potential _ Efficiency = f 1 −
 
 Service _ Creation _ time 

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26. Service Process Matrix
Degree of Interaction and Customization
Low High
Service Factory Service Shop
•Airlines •Hospitals
Low
•Trucking •Auto Repair
Degree •Hotels •Other Repair Services
of Labor Mass Service Professional Service
Intensity
•Retailing •Doctors
•Wholesaling •Lawyers
High
•Schools •Accountants
•Retail Aspects of •Architects
Commercial Banking
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27. Low Labor Intensity Low Interaction/Customization
 Challenges for managers  Challenges for managers
 Capital decisions  Marketing
 Technological advances  Making service “warm”
 Managing peak/non-peak demand  Attention to physical surroundings
 Scheduling service delivery  Managing fairly rigid hierarchy with
need for standard operating
procedures
High Labor Intensity High Interaction/Customization
 Challenges for managers  Challenges for managers
 Hiring, training  Fighting cost increases
 Methods development  Maintaining quality
 Employee welfare  Reacting to consumer intervention in
 Scheduling workforces process
 Control of far-flung locations  Managing flat hierarchy with loose
 Managing growth subordinate-superior relationships
 Gaining employee loyalty
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