Managing a Service Business

8/8/2019 Managing a Service Business

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Pratap Rawal


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Consumption: Simultaneous production andconsumptionofservices Production andconsumption at separate point oftime incaseofmanufactured

goods.Tangibility:

Services are intangible are perceived (felt or experienced) Manufactured goods are tangible (See, touch,feel,smell, taste andhave a size

andshape).

Storage (inventoriesor buffers) Services are perishable.Cannot bestoredfor future. Manufactured goodscan bestoredfor futureconsumption.

Consistency and Delivery:

Considerabledifference indelivery ofservice with time.Manufacturing is aconsistent process.. Customer has to visit the locationfor servicedelivery. Whilemanufactured goods

may bedelivered tocustomers location.Components: Service is bundleofsubstantive portion and the peripheral Manufactured goodscontainonly the substantive portion.


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Simultaneous production and consumption ofservice as against manufactured goods

The fundamental difference between manufacturing and service businesses.


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Integration of Marketing And Operations Marketing activities and theoperational activities inservice areclosely

linked and alsohappensimultaneously asdoes theconsumption.

Those involved in the productionoftheservice also actually market the

service while they aredelivering it.

Being Specific & Specializing it: Identifying andemphasizing on the key/vitalservice aspects/deliverable

Example: Federal Expressemphasizesspeed and reliability.

Managing the delivery location: Theservicedelivery happenson premise i.e. at the locationofproduction

Withdevelopments inelectronics,services that aredifferent from thetraditional ones,can beconsumedout ofpremise. This will addnew

dimensions to theservice business andcreate a wholenew set of

challengesfor themanagersofservice businesses.


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Performance measurement and assessment:While a physical product that comesoffthe production line areobjectively

quantifiable,can becounted and as against the inputs an assessment is possible.Measurementsofthe performanceofa services issubjective. Like assessing how

satisfied thecustomer was.

Quality control & consistency:Quality ofphysical productscan bemeasured.Since test can beconducted and

compared against thedefined parameters.As a consequenceofthe inability to accurately measure what is being accomplished

in thedelivery oftheservice is vague, therefore quality control remains a challenge.

Intangible aspects the services business make it difficult to quantify and measure.


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TheServiceConcept:Identify it

Theservice Levels: Define it

TheService Delivery system: Design it


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Bundleofgoods andservices.Carries both the substantive

and the peripheral portion.

Identify the importancefrom theconsumers point ofview.

The idea is to identify anddevelop a packageofbenefit that is

ofvalue to theconsumer


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"Service Level" refers to the level ofexplicit and implicit benefits provided to theconsumer from thesubstantive and peripheral services.

While thesubstantive benefitscan bespecified,determined andmeasured, thereforeparameters arespecified accordingly for this portionoftheservice.

The peripheral aspect that comprisesofthe atmosphere, the attitudeoftheemployees,their demeanor are all a part oftheservice level that are relative with time andperceptions.

For this portionmanagement has todecides what would beconsidered goodservice andfind anddefinesome quantifiable parameters.

Satisfaction = Perception - Expectations

The challenge lies in attaining a balance between management and consumerperceptions of what the service concept and levels should be.


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Recruiting the right people:Depending on theserviceconcept design, recruiting peoplematching theskills required to

implement theserviceconcept..

Training:Training people todeliver goodservice basedon theserviceconcept. Explaining What is

emphasized by theserviceconcept andhow todeliver it?Reinforcing the right kind of behavior:Incentives and rewards toencourage. People behave andfeel differently fromonehour to

thenext. Given the right kindofincentives and rewards, anorganizationcanencourage

the right kindofemployee behavior.

Monitoring quality of service:Important aspect ofmanaging service level ismonitoring the quality ofservice. Inspiteof

all themeasurement difficulties,efforts aremade tocollect andevaluatecustomerreactions.

Appropriate use of technology :Appropriateuseoftechnology that canspeedup the routine tasksor that canengage thecustomer in the processofdelivery ofservice.


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Product and theservice isdeliveredsimultaneously How and whodelivers theservice

Employee and their profiles, training,education, tenure.

Roles and responsibilities

Decisionmaking that affect thespeed andconsistency. The processflow.

The processofdelivery (SOP,Standards)

Equipment and thefacilities required

Lay out oftheservice area.

The idea is tocost effectively gainefficiencies whilemeeting the requirementsofserviceconcept


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Intangibility of Services

ShortProduct life cycles:Unlikemanufactured items which tend to a have relatively long product life

cycle,servicedelivery systemsoftenchange.Inmany cases thechanges are

driven by technological development.Persistently remain vigilant andInnovations:Imitation iseasy and is widely practiced inservice business.Thiscallsfor

remaining vigilant ofthecompetition,consumer preferences andconstant

innovations.This isoneofthe reasonsfor short lifecycleofsomeservices.

EnhancingBrandImage:

Image and reputation isofhigh importance and iscrucial inservice businessessince, it isdifficult tomeasure the quality ofservice. Choicesofconsumers areinfluenced by the perceived image, top ofmid awareness and references.

The challenge here is information and decision making: that is to remain vigilant oftechnology & competitors, being proactive in responding to theconsumer

preferences and toconstantly innovate.


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Perishability of Services

No buffer to meet the sudden increase in demandServicesdonot have inventories that can beused to buffer the imbalances

between thesupply ofproducts and thedemandfor products.

Complexity in planning and control:

Since there isno inventory ofservice,meeting thespurt indemand and the

customer expectations becomescomplex.

The challenge is to match capacity to demand.Thechallengehere,from both a management and business planning point ofview, is

to try andfit capacity to thedemand as best as possible.

The risk lies both ways,underservicing or underutilizing.


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Heterogeneity of Services

Establishing standards

Due to the psychological aspectsofservice.Measuring individual satisfaction is ach

allen

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tthesatisfaction aremoredifficult than it is with a physical product.Ensuring that standards are being met

For thesame reason, it ismuchmoredifficult tomeasure whether or not setstandards are being met. Moods,moments, andfeeling affect the perceptionof

service receivedor imparted.

Therefore the challenge here lies in the Quality control in recruiting and trainingIdentifying theserviceor deliverable aspect oftheserviceconcept is important,

recruiting the right matchofpeople andenabling them tomeet theset standards.

After all its people whodeliver service.


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Simultaneity of Services

Staff skills both at service delivery and selling skills:

Thestaffmust not only beskillful at delivering theservice; they must alsopossessselling skills. Selling a serviceconcept and theservicedelivery system

are very closely linked because both happen at thesame time. Whiledeliveringto a customer, prospectivefuture business is being marketed.

Accessibility Limits the number of customers:Sincecustomersmust come to the place where theservice is provided,eachservicefacility has a limited geographic area it canserve catchment area

Therefore thechallenge lieshere both inmaintaining consistency and inmaintaining

a trainedservicestaff.


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Level ofcapacity provided at eachstageofthe productionor servicedeliverysystem.

Assess company situation What internal factor triggered thedecision to alter capacity?

- Growth:Is a rapid growth expected ?- Product development:Introductionofnew products?

- New technology:Is there a moreefficient/productive technology available?- Market development: Expansion intonew market segments?

Competitors activities.


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Determine Existing Capacity What is thecapacity ofeachcomponent ofthe productionsystem?

Where are the bottlenecks?

Fundamental capacity planning isunderstanding how muchcapacity is availablefor

productionor servicedelivery system.

What are the appropriatemeasuresofcapacity.

Determine Required Capacity orecast volume :

Expected at different points in time? peaking factors. Seasonal factors.

Assess uncertainty of capacity requirements:Theuncertainty ofcapacity requirements isespecially critical inservice businesses.

orecast timing of capacity requirements :The timing ofcapacity requirementscan be important.

Scenario or "what-if" analysis used to assess the sensitivity of key assumptions in the analysis.Timing: Longer the lead time to put the capacity in place, the more critical the timing of new

capacity.


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Capacity can be provided inmany ways: through labor,or employees; withequipment or technology. There areseveral alternatives tocapacity planning:

Do nothing.Iftheeconomicsdonot favor increasing capacity tomeet that demand.

Contract out.Contracting out isoftenused tomeet the peaksor thesurplusdemand. Instead

ofmeeting the peaks internally, theunusual demandor the peak iscontracted

out.

Increase labor or labor productivity.Monitor employee productivity. Is there a way tohelp theemployees become

more productive? Can training improve it? Can theequipment improve theproductivity? Aresomeof labor practicesdeficient in that they are burning

peopleout or is there badmorale becauseofa poor manager?

Iftheneed is to addmore workers, revisit the business plan what kind? When and

where?


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Introduce a change in technology.Automationofroutine tasks through technology or introducing a new machine

that can increase the productivity.

Alter demand.

Whendemandexceedscapacity,onestrategy is to try andchange thecapacitytomeet thedemand. Theother is to try andshift thedemand to another period

when it isunder-utilized. Pricing initiativescan alter demand patterns.

Eliminate bottlenecks.

Identify andeliminate bottleneck In the processflow. Theremay beunder-utilization in theother stagesofthe process.

These alternatives arenot mutually exclusive.Combinationsofthesemight beadopted.


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Evaluating potential economies of scale.In the quantitativeevaluation, thefocus isoneconomiesofscale. Directly

proportionate to productivity it isspreading fixedcostsover more andmoreunitsvolume.Thereusually are limits.

Evaluating economies of technology.

Ifthe intend is to introducenew technology, perhaps to replace labor, the

technology is going to involve a certaincapital investment over itsexpected

life. Comparing the amortizedcost ofcapital investment with thecost ofthe best

alternative.

Evaluating operating costs.

Evaluate theoperating costsofeach alternative.This along with thecapital costwill give, the total lifecyclecost for each alternative.

Proper economicevaluationofalternatives iscritical to thefinancial viability ofthe

business. All relevant costs throughout the lifecycleofeach alternativemust be

considered including capital andoperating costs, periodicupgrades,disposal costs and

salvage values.


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Short versus long term considerationsEvaluateshort-term pressureson business versus long-termstrategy for the business.

Investment decisions are influenced by the longer rangestrategies.

it with corporate strategyThecorporatestrategy have a bearing onevaluation. Even though theeconomicsmay

favor a particular alternative, it may not fit withcorporatestrategies. Impact on employees

Determine,how eachofthe alternatives is going to affect theemployees. How will it

affect the attitudeoftheemployees? their morale, their productivity?

it with competitive environmentThefit with thecompetitiveenvironment, Perhaps there isnochoice but tomake an

investment just to remaincompetitive. Ability ofinnovation by thecompetitor remains

to be a dominant qualitativefactor leaving nochoice.

The qualitativeor "soft"factors inevaluationofalternatives are as important as the

quantitative/economicfactors. When the qualitativeevaluation reinforces the

quantitativeevaluation, thedecision iseasy.


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Managing Supply and Demand is a way ofmaximizing theutilization

ofassets andconsequently minimizing thecost ofproduction.

Managing supply:Adjustment ofsupply offerings tomeet thedemand.Thefocus isonoptimizing thesupply ofcapacity available.

Managing demand:Adjustment indemand tofit with thecapacity

offerings. Thefocus is to influence thedemand pattern that isinteracting withour business.

Thechallenge in production planning is tomatchsupply anddemand to the greatestextent possible.

It is important to recognize that bothsupply anddemandcan be influenced bybusinessmanagers.


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Chasing the demand StrategyAchasestrategy isoftenemployed when thedemandfluctuatesup anddown

due to thecyclical natureofyour business.Thiscycling could be by the timeofday,day ofthe week,monthofthe year.

Here,capacity is adjustedup anddown tomatch thedemand asclose aspossible. Chasing demand is a dynamic adjustment incapacity tomatch the

demand as quickly as possible.

Level Strategy

In a "level"strategy,capacity ismaintained at a constant level over a periodof

time, irrespectiveoffluctuations indemand.When the ability to adjust capacity to thefluctuationsofdemand isconstraineddue to the required level ofskill and the training, thecost ofhiring and

terminating thisstrategy is adopted.


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Using part-time employees.Having part-timeemployees available whenneeded isone way tochasedemand.

Maximize efficiency through training, work scheduling, cross-training, use oftechnology, etc.Schedu

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multi tasking employeesenabling them todomore thanone job.

Increase involvement of consumer in delivery of service.Increase the involvement oftheconsumer in thedelivery oftheservice (e.g. the

ATM,selfservicestores). Introduce technology,educate andengage them.

Share capacity with other divisions/firms.

Sharing theunderutilized assets andforming strategic alliances. Such alliancescanreduce investment requirements and increase productivity ofassets.

Plan for future expansion in initial construction of facilities.In thestructural designofthe building or in the layout oftheequipment,

contemplatefutureexpansions.Anticipating futureexpansions and building it into

thecurrent plans is an important factor in planning.


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Thank you

Managing a Service Business

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