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Services Operations Management

SIBM Bangalore

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Theodore Levitt proposed the Production-line approach to Service specifying how service operations can be made more efficient by applying manufacturing logic. Service industries should think of themselves as actually manufacturing a product, to treat customer service as manufacturing in the field. If this approach is taken it is suggested that services will benefit by becoming carefully planned, controlled, and automated where possible, audited for quality control and regularly reviewed for performance improvement. However Production-line approach to Service completely does not serve the purpose all the time. There are limitations to the Production-line approach to Service.

Customization as a Business Strategy

Production line approach makes more sense if ones core mission is to offer high volume at the lowest cost. Firms undertaking a differentiating business strategy or a strategy that involves high degrees of customization and personalization of services should empower their employees. Service organizations must ask themselves what is the value added from spending the additional dollars on employee selection, training, and retention necessary for empowerment.

Loss of Creativity
The Production line approach to service may also stifle creativity, particularly in providing a service in a unique and new way.

Loss of Uniqueness - exclusivity may no longer exist

If a company builds up a customer base that values its unique service, or if the company serves a specialized market, standardizing its processes may mean it loses some of its former customers. For example, if a restaurant builds its reputation on a varied and exotic menu, then changing it to

Services Operations Management

SIBM Bangalore

a standardized menu to provide a more predictable customer experience, its former customers may defect to competitors who provide more variety.

Unpredictable Business environment:

Organisations that operate in a stable environment are fairly failsafe, in that customer expectations are simple and predictable. In such an environment, the service business can use a production line approach. The stability allows, even encourages managers to use policies and procedures, as management can usually predict most events and identifies the best responses. However, in the cases where the businesses operating in unpredictable environments benefit from empowerment/custom models rather than production line approach.

Affects Response Time

Production line approach to service has the potential to get a business into a rut. Standards, once implemented, soon become the status quo and may become entrenched in the corporate culture, making them hard to change when change is needed. However, market conditions often change, and companies that change quickly are best positioned to take advantage of them.

Affects employee satisfaction:

The production line approach, as exemplified in the service industry provides increased efficiency, higher productivity and lower costs but at the expense of flexibility, limiting the employee empowerment, which diminishes the quality of employees work lives and in turn limits the service offering to the customer Employee empowerment not only leads to the ultimate requirement of a happy customer but also gives employee satisfaction. The increased responsibility that results from empowerment can make employees feel that they have a greater role in the organizations well-being which in turn improves their level of job satisfaction and enhances their self-esteem. Letting employees call the shots allows them to feel ownership of their jobs, they feel responsible for it and find the work meaningful. In doing so empowered employees gain much greater job satisfaction and a sense of security and self-esteem.

Services Operations Management

SIBM Bangalore

Loss of Responsiveness
When a company expands into new markets, especially in foreign markets, the production line approach may work against the firm. While it may be cheaper for a restaurant to buy its trademark hamburgers in bulk, if it expands into a new market where people buy chicken more often, its standardization measures may make it slower to respond to market conditions and end up costing money.

Not suitable for some nature of businesses

Production line approach to service may be advantageous in some areas of business by standardizing the service there by achieving increase in efficiency, higher productivity and lower costs, but at the same time it may not be just suitable in some cases where the business should be tailored to the customers' needs. Ex: Hair stylists, these natures of business run exclusively on the custom requirements of the customer.

Tie to Customer/Key Account Management approach

There are services firms which may want to establish relationships with customers to build loyalty and to tie the customer to the business. Custom services/empowerment is the best approach when service delivery involves managing a relationship, as opposed to simply performing a transaction as in the case of a production line approach. A flexible, customized approach can help establish the relationship and get ideas for improving the service delivery system or offering new services.

Word of Mouth communication and retention:

Organizations offering custom services often have the frontline employees empowered which are instrumental in creating positive word of mouth referrals and increasing customer retention. As empowering employees often leads to superior service, superior customer word-of-mouth communication increases. Also the likely hood of customers remaining loyal to the service increases due to the superior service, which is not the case in a production line approach.

Services Operations Management

SIBM Bangalore

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Cost of Quality (COQ) is the sum of the costs incurred by the company in preventing poor
quality, the costs incurred to ensure and evaluate that the quality requirements are being met and any other costs incurred as a result of poor quality being produced. Poor quality is defined as non-value added activities, waste, errors or failure to meet customer needs and requirements. The COQ costs can be broken into the 4 components of Prevention, Appraisal, Internal & External failure costs.

Lets take up an example of Laundry services: Prevention costs: The planned costs incurred by the laundry services to ensure that errors are
not made at any of the various stages during the delivery process of the service to the customer. The delivery process include right from the front line desk, tagging, sorting, cleaning as per the agreed conditions and delivery. Examples of prevention costs include quality education and training of the staff, Study and learning from frequently made mistakes, having systems in place to avoid the errors (color coding systems), continuous improvement efforts on quality, administration of staff on performance, process control system in place, supplier evaluation in case if the cleaning services are outsourced.

Services Operations Management

SIBM Bangalore

Appraisal costs: The costs of verifying, checking or evaluating a service at various stages
during the delivery process of that service to the customer. Examples of appraisal costs include Inspection activities while receiving, cleaning and at the delivery process, regular calibration & testing of cleaning equipment, Thorough checking of the cleaned clothes before delivery, internal service audits etc.

Failure costs: The costs incurred by a company because the service did not meet the
requirements and the service had to be repeated. These failure costs can be further subdivided into two groups internal or external failures.

Internal failures include all the costs resulting from the failures that are found before the
service reaches the customer. Examples include re-work or re-cleaning of the clothes, waiting lines, misplacing of the clothes, wrong queuing/sorting, delays due to internal processes.

External failures are all the costs incurred by the company resulting when the customer finds
the failure. These external failure costs do not include any of the customers personal costs. Examples of these costs include loss of sales due to inefficiency/late/customer complaints, late charges/complimentary goodies due to late delivery, compensation for torn/untidy work/loss of clothes. ===================================================================== recalls due to untidy cleaning,

Services Operations Management

SIBM Bangalore

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Waiting experience in a restaurant:

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People are emotional beings, we measure most things in our live based on how we feel about them instead of how it really happens, hence perception often takes precedence over facts, or over actual measurement. The same case happen when people are put into a customer's role, and having to wait for their food to be served when they're eating out in a restaurant. A very fat chance is, if you feel bored, 10 minutes are probably too much a wait, while if you feel excited,15 minutes passed quite effortlessly.

Hence the key of providing positive waiting experience lies in the restaurant's ability to provide their customers with involving and interesting activities.

Good waiting experience:

Aesthetics of the surroundings

Brightly light restaurant with a soothing ambiance, comfortable seating arrangement with fluffy pillows, are more than enough to make customers feel occupied and excited for the duration of our food to finally arrive even that it passed the 15 minutes mark.

Services Operations Management

SIBM Bangalore

Diversions: The Waiting Experience is made pleasant by providing things that could get customers mind off from the clock and get them involved in some interesting and exciting activities while enduring the wait, e.g.: 1. TV with favorite channel showing (e.g.: Sports for men, reality shows for women, cartoon for kids, music for teens) 2. Live music 3. Interesting reading materials (e.g.: Fashion magazine for women, Men magazine, Newspaper, etc.) 4. Free starters (e.g.: bread sticks, salad, crackers, complimentary juice etc.) 5. Free WiFi (if your customers have mobile devices, or if you want to attract customers from this category) 6. Table games (e.g.: Snake and Ladders, Backgammon, UNO Cards, etc.) People waiting and attitude of servers: The moment the server greets the customers and hands them over a menu card, the psychological feeling for a customer is that the service has already been started. If there was an initial waiting time, then servers apologizing for the waiting time makes it even more comfortable for the customers. If there could be any futher delay in providing the service, the servers can courteously inform the customer so that they are not kept guessing about when the service can be available.

Bad waiting experience:

Aesthetics of the surroundings Poorly light ambiance, untidy table and the sorroundings, crowded and crampy place with too much of noise around creates an uneasiness in the minds of the customer and have an instant impact on the waiting experience.

Diversions: They say An idle an idle mind is the devil's workshop". The waiting experience becomes awful when there is no diversion from the ticking watch. The customers start looking around in anxiety to see when the service will be provided.

Services Operations Management

SIBM Bangalore

People waiting and attitude of servers: To start with, the length of time it requires to greet the customers; welcoming them to the premise, and showing them their seat including handing the menu marks an initial impact on the customer. What more likely to bother customers while they look for empty seats and occupy it, and then waving helplessly at the waiters to have their attention. It is very important to have the servers trained to be attentive and address the customers at the earliest with warm greetings, else they might end up standing in their post unoccupied but doing something not service-related, staring mindlessly or maintaining their attention into areas outside of the dining floor, etc. . The other constantly annoying thing is the amount of time it requires to calculate for the bills; it sometimes might take over half an hour, while on other occasion it even allows us to leave the place without getting noticed and get into our car making the overall experience a bad one.

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Services Operations Management

SIBM Bangalore