John Murtagh Hetac Notes

Service Management Review

The Role of Services in the Economy

Service Definitions

Services are deeds, processes, and performances.

Valarie Zeithaml & Mary Jo Bitner

A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer.

James Fitzsimmons

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

Economic Evolution

Clark-Fisher Hypotheses: “As productivity increases in one sector

the labour force moves into another” This leads to a classification of

economies by noting the activity of the majority of the workforce, this classification is divided across 5 stages of economic activities.

Economic Evolution

1.Primary (Extractive) Agriculture, mining, fishing and forestry

2. Secondary (Goods – Producing) Manufacturing / Processing

3. Tertiary (Domestic service) Hotels, restaurants, maintenance and

repair etc

Economic Evolution

4. Quaternary (Trade & Commerce Services) Retail, Transportation,

Communications, Finance & Insurance, Government, Real Estate

5 Quinary (Refining and Extending Human Capacities) Health, Education, Research,

Recreation, Arts

Economic Evolution

The majority of countries are still in the Primary stage of development. These economies are based on extracting natural resources from the land Their productivity is low, and incomes are

subject to fluctuations based on the prices of the commodities such as copper and sugar etc.

In much of Africa and parts of Asia , more than 70% of the labour force is engaged in extractive activities.

Stages of Economic Development

Daniel Bell, The Coming of Post-Industrial Society (1973) argues that to place the concept of post-industrial society in perspective, we must compare its features with those of pre-industrial and industrial societies


Pre-industrial Society: This is the condition of majority of the worlds

population today Life is characterised as a game against nature Working with muscle power and tradition, the

labour force is engaged in agriculture, mining and fishing.


Life is conditioned by the elements: Weather Soil condition Availability of water

Productivity is low and bears little evidence of the use of technology

Social life revolves around the extended household


This combination of low productivity and large population results in high rates of unemployment

Many seek jobs in the service sector, but of personal or household variety (servants)

Pre-industrial societies are agrarian (farming) and structured around tradition, routine and authority


Industrial Society: The main activity is the production of goods The focus is on making more for less cost Energy and machines multiply the output per

labour hour and structure the nature of work Work is accomplished in the artificial

environment of the factory, and the workers tend the machines.


Society is a world of schedules and an awareness of the value of time

Standard of living is measured by the quantity of goods owned

Characterised by large bureaucratic and hierarchic organisations

Members have specific roles, and their operation tends to be impersonal, with people treated as units of production


The individual worker is the unit of social life in a society that is considered to be the total sum of all the individual decisions being made in he market place

Trade Unions


Post-industrial Society: Is concerned with the quality of life, as

measured by services such as health, education, and recreation

The central figure is the professional person, because instead of physical strength, information is the key resource

Life is now a game played among persons


Social life becomes more difficult because political claims and social rights multiply

Society becomes aware that independent action of individuals can create havoc for everyone (traffic congestion / air pollution)

The community rather than the individual becomes the social unit

The Nature of Services

The Service Package

The service package is defined as a bundle of goods and services with information that is provided in some environment. This bundle consists of the following five features:

1. Supporting Facility: The physical resources that must be in place before a service can be sold. Examples are golf course, ski lift, hospital, airplane.

2. Facilitating Goods: The material consumed by the buyer or items provided by the consumer. Examples are food items, legal documents, golf clubs, medical history.

The Service Package

3. Information: Operations data or information that is provided by the customer to enable efficient and customized service. Examples are

patient medical records seats available on a flight customer preference location of customer to dispatch a

taxi.

The Service Package (cont.)

4. Explicit Services: Benefits readily observable by the senses. The essential or intrinsic features. Examples are quality of meal, attitude of the waiter, on-time departure.

5 Implicit Services: Psychological benefits or extrinsic features which the consumer may sense only vaguely. Examples are privacy of loan office, security of a well lighted parking lot.


Criteria for Evaluating the Service package:

1.Supporting Facility Location Interior decorating Supporting equipment Architectural appropriateness Facility layout


2. Facilitating Goods Consistency of product Quantity – small, large or medium drink Selection – number of menu items, rental skies

available etc

3. Information Accuracy Timely Useful


4. Explicit Service Training of service personnel Comprehensiveness, how does the

service compare it an alternative e.g. discount broker versus full service

Consistency Availability e.g. 24 hour ATM service


5. Implicit Service Attitude of service providers Atmosphere - decor Waiting – being placed on hold Status – college degree Sense of well-being – well lighted car park Privacy and security – advising clients in a

private office Convenience – use of appointments / free

parking

Process Improvement

Quality and Productivity Improvement ProcessQuality and Productivity Improvement Process

Foundations of Continuous Improvement - Customer Satisfaction- Management by Facts- Respect for People

Quality and Productivity Improvement Process

Plan-Do-Check-Act (PDCA) Cycle Planning begins with the selection of

the problem The problem is documented using perhaps

a flow chart Ideas to solve the problem are generated

– brain storming etc. Workable solutions and measures of

success are agreed Implement targets agreed


DO Implement the solution or process

change perhaps on a trial basis Monitor the implementation plan Note progress against milestones


Check Revue and evaluate the results of the

change. Check that the solution is having

intended effect and note any unforeseen consequences


Act Reflect and act on learning from the

experience. If successful, the process changes are

standardised and communicated to all involved workers with training in the new methods as needed.

In some cases this will include Customers and suppliers

Quality Improvement Programmes

G.M.Hostage believes that the success of Marriott Corporation results in part from personal programmes that stress training, standards of performance, career development and rewards.

He argues that service quality is enhances by the attitude of the company towards its employees.

The following eight programmes have been the most effective

Quality Improvement Programmes1. Individual Development: Using programme

instruction manuals, new management trainees acquire the skills and techno ledge that are needed for the entry-level position of assistant manager. For geographically dispersed organisations, these manuals ensure that job skills are taught in a consistent manner.

2. Management Training: Management personnel through the middle levels should attend at least management one development session each year.

3. Human Resource Planning: The kinds of people who will be needed to fill key company positions over the coming rime period are identified, and a list of people with good prospects is created for future posts that may become vacant or available.


4. Standards and Performance: A set of booklets was developed to instruct employees in how to conduct themselves when dealing with guests and, in some cases, even how to speak with a guests and handle a variety of situations. The Housekeeper tells exactly how a room is to be made up, right down to the detail of placing the wrapped soap baron the proper corner of he washbasin with the label upright. In many cases a DVD accompanies the book to demonstrate proper procedure. Adherence to these standards is checked by random visits from a group of inspectors

5. Career Progression: A job-advancement programme with a ladder of positions of increasing skills and responsibility gives each employee the opportunity to grow with the company

6. Opinion Surveys: A rank-and-file survey is conducted each year by trained personnel at each unit. The results are discussed at meetings. The survey has acted as a early warning system to head off any build up of unfavourable attitudes with staff.


7. Fair Treatment: Employees are issued with a handbook of company expectations and obligations to its employees. The formal grievance procedure includes access to an ombudsperson to help resolve difficulties.

8. Profit Sharing: A profit-sharing plan recognises that employees are responsible for much of the company's success and that they deserve more than just a pay check for their efforts.

Six Sigma DMAIC Process Steps

Step Definition

Define Define project objectives, internal and external customers

Measure Measure current level of performance

Analyze Determine causes of current problems

Improve Identify how the process can be improved to eliminate the problems

Control Develop mechanisms for controlling the improved process

Service Strategy

Competitive Service Strategies (Overall Cost Leadership)

A overall cost leadership strategy requires: Efficient-scale facilities Tight costs Overhead control Innovative technology

Having a low cost position provides a defence against competition

A low cost strategy usually requires: a high capital investment in state of the art

equipment Aggressive pricing

Competitive Service Strategies (Overall Cost Leadership)Competitive Service Strategies (Overall Cost Leadership)

Seeking Out Low-cost Customers Some customers cost less to service than others

Standardizing a Custom Service

Reducing the Personal Element in Service Delivery (promote self-service) ATMs

Reducing Network Costs (hub and spoke) Federal Express US network from Memphis. DHL European network from Amsterdam

Taking Service Operations Off-line Collections points where customers leave in goods for

repair and are forwarded to repair centre

Competitive Service Strategies (Differentiation)

The essence of differentiation lies in creating a service that is perceived as unique. Brown Thomas, Grafton St. McDonalds golden arches

Service Quality

Moments of Truth

Each customer contact is called a moment of truth.

You have the ability to either satisfy or dissatisfy them when you contact them.

A service recovery is satisfying a previously dissatisfied customer and making them a loyal customer.

Five Dimensions of Service Quality

Reliability: Perform promised service dependably and accurately. Example: receive mail at same time each day.

Responsiveness: Willingness to help customers promptly. Example: avoid keeping customers waiting for no apparent reason.

5 Dimensions of Service Quality

Assurance: Ability to convey trust and confidence. Example: being polite and showing respect for customer.

Empathy: Ability to be approachable. Example: being a good listener.

Tangibles: Physical facilities and facilitating goods. Example: cleanliness.

Approaches to Service Recovery

Case-by-case addresses each customer’s complaint individually but could lead to perception of unfairness.

Systematic response uses a protocol to handle complaints but needs prior identification of critical failure points and continuous updating.

Early intervention attempts to fix problem before the customer is affected.

Substitute service allows rival firm to provide service but could lead to loss of customer.

Managing Capacity and Demand

Managing Capacity and Demand

Service capacity is a perishable commodity

Unlike products that are stored , a service is intangible personal experience that cannot be transferred from one person to another

A service is produced and consumed simultaneously

Strategies for Matching Capacity and Demand for Services

Customer induced variability The variability in customer arrival rates

is a well known challenge for customer service managers attempting to match demand with capacity.

Frances Frei describes 5 sources of customer induced variability in service operations:

Customer-induced Variability

Arrival: customer arrivals are independent decisions not evenly spaced.

Capability: level of knowledge and skills vary resulting in some hand-holding.

Request: uneven service times result from unique demands.

Effort: level of commitment to coproduction or self-service varies.

Subjective Preference: personal preferences introduce unpredictability.

Strategies for Managing Capacity

Defining Service Capacity: Service capacity is defined in terms of an

achievable level of output per unit time (e.g. transactions per day for a busy bank cashier) For service providers the measure must be based on a bust employee and not on observed total output that must always be less than capacity.

Many services , demand cannot be smoothed very effectively see the example for a call centre on the following slide

Strategies for Managing Capacity

Daily Work shift Scheduling – by scheduling work shifts carefully during the day, the profile of service capacity can be made to approximate demand

Forecast demand Increase Customer Participation

Yield management

Yield management is a comprehensive system that incorporates many of the strategies discussed earlier (e.g. reservation systems etc)

It maximises revenue through price discrimination and capacity allocation in real time

Ideal Characteristics for Yield Management

Relatively Fixed Capacity Once all hotel rooms or airline seats are sold you can take

no extra business – you can however divert to another location or flight

Ability to Segment Markets Different customer classes – must stay 2 nights to qualify

for weekend rate Perishable Inventory Product Sold in Advance

Sell capacity in advance at a discount price or wait until later and possible sale at full price

Fluctuating Demand Using demand forecasting allows managers to increase

utilasation during slow demand and to increase revenue during peak demand

John Murtagh Hetac Notes

Education

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